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Stuart Daggett

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CHAPTER IV

PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES

Commencement of Construction

The construction of the Central Pacific Railroad of California was begun at Sacramento on the 8th of January, 1863. The day the work started was rainy and calculated to damp the most cheerful of spirits. There was, however, a brass band, banners, flags, speeches, and a crowd standing on bundles of hay near the levee to keep its feet dry. Two wagon-loads of earth were driven up before the platform on which were gathered the dignitaries present, and Stanford, then governor of California, seized a shovel and deposited the first earth for the embankment. The enthusiastic Charles Crocker promptly called for nine cheers. The sun smiled brightly, and everybody, for the moment at least, felt happy that after so many years of dreaming, they now saw with their own eyes the actual commencement of a Pacific railroad.[94]

It was fortunate that Mr. Crocker was enthusiastic, for the difficulties which the Central Pacific had to overcome were serious. The chief difficulties were as follows:

Gradients. Some reference has been made in the previous chapter to the elevations which the Central Pacific had to surmount. The highest point which the company had to reach was Summit Station, 105 miles from Sacramento, at an altitude of 7,042 feet. Since Sacramento lay only 56 feet above sea level, to reach this point required an ascent of 6,986 feet in a distance of 105 miles, more or less, according as the route chosen was longer or shorter. The company’s engineer said in 1864 that if it had been possible to maintain a continuous ascending grade, the maximum grade, from the foothills to the summit of the Sierras could have been reduced to 80 feet per mile.

In the attempt to approach this ideal condition the Central Pacific surveyed and resurveyed continuously until its rails were actually on the ground. Barometrical reconnaissances were made in 1862 and 1863 on lines via Downieville and Yuba Gap, and via Oroville and Beckwourth’s Pass, in addition to the surveys via Georgetown, Dutch Flat, and Henness Pass, to which earlier reference has been made (page 20).[95] Location surveys reached Alta in 1863, the state line in 1866, and Ogden in 1868.[96] After Mr. Judah’s death almost an entire relocation of the line from the 31st to the 48th section was made in 1864 in order to avoid tunneling, and to reduce cost,[97] and still later it was found desirable to shift the whole route between Dutch Flat and Emigrant Gap from the Bear River side of the ridge, up which the Central Pacific was proceeding, to the American River side. This change avoided some 20 miles of 116-foot grade, together with a great deal of curvature.[98]

The final result of these various surveys was a line with maximum grades of 116 feet to the mile. This does not compare unfavorably with most of the transcontinental routes subsequently built. It is interesting to observe, however, that the Central Pacific summit is some 2,000 feet higher than the altitude of Beckwourth’s Pass, and that the maximum grade of the Western Pacific Railway, built years afterwards through that pass, is only 52.8 feet to the mile, or one per cent. Neither Judah nor his immediate successors, therefore, discovered the best route across the Central Sierras.

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Temperature. A second physical difficulty incident to mountain construction was found in the mountain climate. The summer climate of the Sierras is delightful, at least at altitudes of about 6,000 to 7,000 feet. At lower elevations the temperature is often uncomfortably warm. But the winter climate is quite different. As early as August the nights begin to get cold, the first snows come in November, while in January the trails become impassable, and the high levels are unvisited by man until the following year. The official record shows that the greater part of the mountain construction on the Central Pacific occurred between July, 1866, and July, 1868.

Mr. Stanford has testified that both the winter of 1866-67 and that of 1867-68 were unusually severe, and his engineers have dwelt in great detail upon the consequent impediments to their work. Not only did the frozen earth resist pick and shovel, but there were snow banks from 30 to 100 feet deep. It was necessary to remove this snow to permit excavation, and to keep clear the space to be occupied by embankments in order to prevent settling. When the summit was approached tunnels had to be driven through the snow to the rock face. As the whole working force could not be employed in the tunnels, the surplus labor, with all its supplies, was hauled beyond the summit and put to work, at great expense, in the cañons of the Truckee River. The first snow sheds were built in the summer of 1867, and in the following years it was decided to cover all the cuts and points where the road crossed the paths of the great avalanches beyond the summit. The total length of sheds and galleries built by the fall of 1869 was 37 miles, and the cost was $2,000,000.[99]

In addition to the difficulties caused by snow, it must be remembered that the frozen earth, though uncovered, was difficult to work. Not only was it necessary to blast out material which could have been cheaply moved at a more favorable time, but, when piled into embankments, the ground settled in the spring as the frost was leaving, and required constant attention.[100]

All the various obstacles raised by climate would have been minimized if construction had proceeded more slowly. Indeed, Mr. Hood and Mr. Strobridge, engineers in charge of construction, agreed that if the Central Pacific had been built at less speed, and as such railways are usually constructed, the expense would have been from 70 to 75 per cent less than the actual cost. The saving would not have been due altogether to the abandonment of winter construction, but this would have been an important factor. The Central Pacific, however, preferred speed to economy, in the hope of outstripping the Union Pacific in the race for the business of Nevada, and for the subsidies and land grants offered by Congress.

Supplies. A further obstacle in the way of successful construction of the Central Pacific lay in the difficulty of getting supplies. Wood and stone could be procured in the mountains, but iron, coal, and manufactured articles of all sorts, including rails, locomotives, and cars, were brought from Sacramento or from the East. Prices in general were high, in part because of the war. The first ten locomotives purchased by the Central Pacific Railway cost upwards of $191,000; the second ten upwards of $215,000. Iron rails cost $91.70 per ton at the mills. The price of powder increased from $2.25 to $6 during the period of construction. The cost of food was exorbitant. Hay was worth $100 a ton out upon the line, and oats about 14 or 15 cents a pound. Stanford says he sold one potato for $2.50.[101]

In the cases cited, high cost of transportation often played an important part in determining the final prices, and in general, indeed, the expense of moving supplies was comparable with the initial cost. Among many possible illustrations one may mention the fact that shipments of rails via the Isthmus of Panama as late as 1868 cost, for transportation alone, $51.97 per ton, making the total cost of the rail delivered at Sacramento, $143.67, not including charges for transfer from ships at San Francisco, nor for transportation up the Sacramento River. Nor was this freight rate high when compared with the cost of wagon hauls in the mountains, when material had to be transported away from the finished track. Mr. Huntington tells of meeting some teams with ties in the Wahsatch Mountains. He continues:

They had seven ties on that wagon. I asked where they were hauled from, and they said from a certain canon. They said it took three days to get a load up to the top of the Wahsatch Mountains and to get back to their work. I asked them what they had a day for their teams, and they said $10. This would make the cost of each tie more than $6. I passed back that way in the night in January, and I saw a large fire burning near the Wahsatch summit, and I stopped to look at it. They had, I think, some twenty to twenty-five ties burning. They said it was so fearfully cold they could not stand it without having a fire to warm themselves.

Fortunately for the company, the cost of labor on the Central Pacific and transcontinental lines does not seem to have been excessive. The total number of men employed ranged from 1,200 in 1864, to 14,000 or 14,500 in 1867, when construction was at its height. White men, of whom there were some 2,500 or 3,000 in 1867, received $35 a month and board as common laborers, and from $3 to $5 a day as skilled mechanics. Most of the track laborers, however, were Chinamen, who were paid $35 a month, and boarded themselves.[102] These Chinamen proved reliable and willing workers, and, because of his experience with them, it was with distinct reluctance that Mr. Stanford in later years allied himself with the friends of Chinese exclusion.[103]

Letting of Construction Contracts

Such obstacles as these made the task upon which the Huntington-Stanford group had entered a formidable one indeed. Just how the difficulties should be met, Mr. Huntington himself did not know. Arrangements were first made with small contractors for the building of stretches of road from Sacramento towards Newcastle. Charles Crocker resigned his directorship in 1862 and took the first contract for 18 miles. Then Cyrus Collins and Brothers got a contract which they did not complete, and other contracts were let to Turton, Knox and Ryan, C. D. Bates, and S. D. Smith. Mr. Crocker says the people raised a hue and cry saying that he was a favored contractor, so that the directors told him that he could not have more than two miles of the road between the 18th and 30th sections.[104] He adds that the independent contractors got to bidding against each other for laborers, and thus put up the price. Huntington was told that the smaller contractors quarreled with each other, and tried to “scoop” labor from each other;[105] while Mr. Stanford says that the small contractors did not finish their sections in consecutive order, that they did not hurry, and could not be sufficiently controlled.[106]

At any rate, after the completion of section 29, no more contracts were let to anyone except Charles Crocker and Company. According to the associates, it was not so much a question of price as one of organization and control. This may be true, or it may be that the associates finally decided that it would be easier to make a satisfactory profit out of government subsidies by doing the building themselves, than by beating down subcontractors to the lowest possible contract price. It should be noticed that the change in policy referred to did not take place until 1864, when the federal Act of 1862 had been passed and that of 1864 was imminent, and that the Central Pacific did not select any single contractor, but gave all its work to Charles Crocker, one of the original associates.

Contracts with Crocker

The first contract with Charles Crocker, covering sections 1 to 18, provided for a lump sum payment of $400,000, of which $250,000 was to be in cash, $100,000 in bonds of the company, and $50,000 in capital stock. This was also the type of contract made with other contractors up to section 30, although the amounts paid varied. At least one bill for extras was allowed Mr. Crocker. Sections 30 and 31 were built by Crocker, and after these were completed he was permitted to continue without a written contract.

In June, 1865, Mr. Hopkins made a report to the president and directors of the Central Pacific upon the general subject of contracts. In this report Hopkins dwelt upon the necessity of rapid construction for the purpose of capturing the passenger traffic between Sacramento and Virginia City; and also in order to comply with the acts of Congress and the state legislature, which required rapid construction of the road. Persons of large capital, he said, seemed unwilling to bind themselves to construct the road as rapidly as necessary. Charles Crocker and Company, on the other hand, had pushed and were pushing the work with extraordinary vigor and success, and had in all cases complied with the orders and directions of the officers of the company. He recommended, therefore, that arrangements be continued with that firm, at rates specified in an accompanying resolution.[107] The directors thereupon adopted this report, and resolved as follows:

Resolved and ordered that Charles Crocker and Company be allowed and paid for all work done and material furnished, or which may hereafter be done and furnished, until the further order of the Board of Directors, in the construction of the railroad of the Company, from section 43 eastward, subject to and in accordance with the terms, conditions and stipulations set forth in the contract with said Charles Crocker and Company, dated September 19, 1863, except so far as the same are modified or changed by this order, at the following rates and prices, and in accordance with the following classification, to-wit:

[Here are inserted the rates for clearing and grubbing, and excavation in various kinds of rock, etc.]

The payments to be made monthly, according to the monthly estimates, five-eighths thereof in gold coin, and the remaining three-eighths in the capital stock of the Company, at the rate of two dollars of capital stock for each one dollar of said three-eighths of said estimate, with the privilege of paying said three-eighths in gold coin in lieu of said stock, at the election of said Company, to be made at the time of such payment.

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Summit Valley. Altitude 6,960 feet. Emigrant Mountain and Railroad Pass in the distance

Payments in Cash and Stock

The essence of this arrangement was that Mr. Crocker was to go ahead indefinitely and that he was to be paid not a given sum per mile, but at a given rate of so much per unit for each class of work which he might find it necessary to do. Payments were to be made in cash, and also up to a certain per cent in stock, taken at a valuation of 50 cents on the dollar. Under date of April 16, 1866, Mr. Crocker requested that stock be given him at a valuation of 30 cents on the dollar, instead of 50 cents, and this was agreed to.[108]

The change from a 50-cent to a 30-cent valuation was made ostensibly because Crocker and Company could not realize more than 30 cents on the stock which they were receiving. As a matter of fact, Crocker could not sell Central Pacific stock at any price, so that the alteration of the contract merely increased his chance for a speculative gain, to be realized after construction should have been completed. Mr. Stanford has said that the directors did not care very much what the prices were, so long as the work was done. Under the contract, the Central Pacific Railroad itself, through Mr. Huntington, purchased locomotives and cars for Crocker and Company, and charged for them at cost.[109] Bonds were also sent from San Francisco to Huntington, but it was Huntington’s impression that they were sold for the company, not for the contractors. In any case, Huntington rendered an account every month of what he had done, and Hopkins settled with the company or with the contractors, as the case might be.[110] Describing the situation at a later date, Crocker said, “It was decided that I should go on immediately and see what I could do. I did go on until we got tied up in suits and I had to stop. I could not get any money. They had all the money I had, and all I could borrow. That was the time that I would have been very glad to take a clean shirt, lose all I had, and quit.”

The total payments made to Charles Crocker or to Charles Crocker and Company, under the various arrangements just described, were as follows:[111]

Total Amount Paid Charles Crocker and Company on His Contract and for Extra Work

Cash, or its equivalent, including material furnished him

$8,853,117.93

Bonds, taken at par

100,000.00

Stock, taken at 50 cents on the dollar

2,696,200.00

Stock, taken at 30 cents on the dollar

11,947,530.00

Stock, taken at par value

57,980.22

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Total

$23,654,828.15

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If we take the cash payments at par and the bonds at 75, this would make the tidy sum of $69,210 per mile on 129 miles. When we bear in mind that Crocker accepted the contract for the first 18 miles out of Sacramento at a price including a cash payment of only $13,800 per mile, and that the arrangements with the small contractors who followed him were distinctly less favorable, it is possible to say with some confidence that the profits on the Crocker contracts were considerable. Whatever they were, Mr. Crocker shared them with his associates by depositing at a later date $14,000,000 in Central Pacific stock in the treasury of the Contract and Finance Company, (discussed in the next section) for the benefit of the stockholders of that organization. Inasmuch as Stanford was one of the principal stockholders in the Contract and Finance Company, his later categorical denial before the United States Pacific Railway Commission that he had participated in the profits of the Crocker contracts makes interesting reading.[112]

“Contract and Finance Company”

When the Central Pacific approached the state line of California in the latter part of 1867, the associates told Mr. Crocker that they did not think it best for him to go any further. They said they wanted more capital—they wanted to engage heavy men in the enterprise.[113] Crocker had not been successful in persuading capitalists to go in with him, while it was believed that investors were deterred from taking stock in the Central Pacific by reason of the liability which would be thereby incurred under California law. Either Huntington or Stanford—both claim the credit—conceived the idea that there would be an advantage in organizing a corporation to undertake the construction work. The subject was mentioned on the occasion of one of Huntington’s visits to California, although the company was formed while Huntington was in the East.[114] The name finally decided upon for the new corporation was that of “Contract and Finance Company.” Articles of association were filed in October, 1867. W. E. Brown, Theodore J. Milliken, and B. R. Crocker attended to the details. Milliken was a merchant in Sacramento, and the other two were connected with the Central Pacific.

According to its articles of incorporation, the Contract and Finance Company was formed for the purpose of engaging in and carrying on the business of constructing, purchasing, leasing, selling, holding, maintaining, operating, and repairing railroads, wagon and transit roads, steamboats, vessels, telegraph lines, and rolling stock of railroads; the purchasing, holding, hypothecating, and selling of bonds and stocks issued by railroad and other companies or corporations; the purchasing and using of iron and other materials for railroad and telegraph lines; the borrowing and loaning of money; the conducting of an express and stage business, and any and all other kinds of business connected with or pertaining to railroads and telegraph lines; the transportation of persons and property, on land and water; and the purchasing, holding, leasing, and selling of real estate of all kinds. The capital stock was set at $5,000,000.

Failure to Attract Outside Capital

It is the unanimous testimony of the associates that the real and only reason for forming the Contract and Finance Company was that outside capital might be induced to come in. Huntington says that when the company was organized, he went with new energy to capitalists in the East to induce them to take a share in the risks and profits of construction. Yet from the point of view of attracting outside capital, the Contract and Finance Company was a complete failure. William and Commodore Garrison, of New York, A. A. Selover, Moses Taylor, and William E. Dodge, among others, considered the matter, but all concluded that the risk was too great. In California, Stanford applied to D. O. Mills, W. C. Ralston, Haggin and Tevis, Michael Reese—in short, to everybody whom he thought he might possibly induce to take an interest—but in vain.[115] The result of the failure to secure outside subscriptions to the Contract and Finance Company was that the associates had to take up the stock of that company themselves. Crocker was made president at an early date, and apparently took the bulk of the stock in the first instance. Then, when it was evident that no outside investors would come in, he put the stock back, and Stanford, Hopkins, Huntington, and E. B. Crocker took equal shares with him—each subscribing for 10,000 shares out of the 50,000 outstanding.[116] Later a little stock was disposed of to outsiders, but when the Contract and Finance Company got into the courts the associates bought this back.

Throughout the whole life of the Contract and Finance Company the stockholders were the same men who held the bulk of the stock of the Central Pacific Railroad. Contracts between the finance company and the railroad company were therefore made by the associates in one capacity, with themselves in another capacity, a situation unfortunately not unique in the history of American railroad building. An unusual feature of the arrangement, however, which was common to arrangements with other construction companies formed by the associates, was that the funds of the Contract and Finance Company, over and above the sums received from the Central Pacific, were derived from loans to the company by its stockholders and not from payments on the stock subscribed. There is no evidence that Hopkins, Stanford, Huntington, or either of the Crockers paid a cent in cash on their subscriptions. Instead, they gave their notes. To provide the Contract and Finance Company with funds, they deposited money, sometimes more and sometimes less, paying interest on their notes, and receiving credit for interest on their balances, each partner as a rule putting in all the funds which he could spare, and having an individual account kept of his transactions. The Contract and Finance Company was, therefore, always heavily in debt, although the debt was owed to its own stockholders. The advantages of this arrangement would seem to be two: first, that it concealed effectively the profits which the company was making; and second, that it did not limit any stockholder to a proportionate share in the burdens and gains of the undertaking. If any of the associates desired to participate more heavily than his friends, or less heavily, he could do so. Such a privilege was probably not important before 1869, but it became so later.

Contracts with Construction Company

A word may now be said about the contracts which the Contract and Finance Company secured. Under date of December 3, 1867, Mr. Stanford, as president of the Central Pacific, reported to his directors that he had made a contract for the construction and equipment of the railway and telegraph line of the company lying east of the eastern boundary of the line of California, and presented a draft of the contract, which the directors approved.[117] Leland Stanford, E. B. Crocker, Mark Hopkins, and E. H. Miller, Jr., were present and voted. Mr. Miller explains that he did not understand at the time who the owners of the Contract and Finance Company were, and that nothing was said about it at the meeting. The contract provided that the Contract and Finance Company should build the road of the Central Pacific from the state line, eastward, 552 miles. It was to grade the road, build the bridges, lay the track, build and complete a telegraph line, furnish telegraph offices and instruments, furnish rails, ties, buildings, roundhouses, turntables, and a specified number of engines and cars and running material per mile. On its part, the Central Pacific agreed to pay $86,000 per mile, half in cash and half in Central Pacific stock, and in practice the Central Pacific provided the equipment and the iron, charging them to the Contract and Finance Company at cost. This statement relative to the terms of the contract with the construction company is made on the strength of the recollections of parties interested,[118] for the actual contract is one of the missing documents characteristic of Central Pacific history. Stanford describes the contract as an exhaustive one. That is to say, the Central Pacific turned over all it had and the Contract and Finance Company built the road and got the profits, if there were any.

The apparent advantages of an arrangement with a construction company as compared with those of construction by the Central Pacific itself, were those connected with specialization of the work. A company which does nothing but construction and which does that all the time, may be expected to have a force more highly trained in this particular grade of work, and a more abundant supply of tools and material than an organization which builds railroads only occasionally. The unfortunate necessity of hiring men for each new job and discharging them at the completion of the job is avoided. In the case of the Central Pacific this advantage was somewhat illusory, it is true, for the reason that the Contract and Finance Company on its first contract, whatever might have been the fact later, could scarcely have had an advantage over the railroad; and as for tools, the Contract and Finance Company had no machine tools at all at the beginning, and had to rely on the railroad not only for cars and engines to transport its men, but for equipment for large construction of any sort. The real reason for using a construction company in this case was a financial and not an operating one.

Profits of Construction

Much has been said about the profits of the Contract and Finance Company. Here, again, books are missing, having been packed into boxes by the industrious Mark Hopkins in 1873, and never again produced.[119] A man named John Miller, one-time secretary of the Contract and Finance Company, and defaulter to the alleged extent of $900,000 at a subsequent period, was in possession of transcripts from these books, if we may believe his statement; but even these transcripts disappeared, if indeed they ever existed.[120] We do not know, therefore, how much construction cost the Contract and Finance Company, and we cannot calculate with any accuracy the profit obtained.

It does appear that the work done by the Contract and Finance Company cost the Central Pacific, in all $23,736,000 in cash and the same amount in capital stock.[121] If we add to this $100,000 in cash and $2,900,000 in bonds paid to the Union Pacific for the stretch of land from Promontory Point to a point five miles west of Ogden, and $1,072,874.79 for snowsheds and other extra work performed in 1870, we have a total of $51,544,874.79, of which $24,908,874.79 was in cash. Taken in connection with the Crocker contracts, this makes an aggregate of $33,761,992.72 in cash, $3,000,000 in bonds, and $38,437,710.22 in stock. It was the judgment of the United States Pacific Railway Commission that the total cost of building the 690 miles from Sacramento to Promontory Point, and of purchasing from the Union Pacific 47½ miles of road from Promontory Point to the end of the Central Pacific line, 5 miles west of Ogden, did not exceed $36,000,000, and this included 9 miles built by small contractors, the payment for which is not included in the figures just given.[122]

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Summit tunnel (altitude 7,042 feet) before completion—Sierra Nevada Mountains

In a word, if the conclusions of the United States Pacific Railway Commission are to be relied upon, and they were made by engineers relatively soon after the completion of the road, the builders of the Central Pacific were able to accomplish their contracts with the cash and the proceeds of the company’s bonds that were turned over to them, and to retain their Central Pacific stock as a clear profit. If we compare this stock surplus with the probable cash investment in the road, taking the shares at any reasonable valuation, say at $15 or $20 per share, the profit does not seem excessive. If we compare it with the contributions of the associates, however, and this is the more reasonable because the associates received the full benefit of the difference between cost and receipts, it represents, on the most conservative calculation, 500 or 600 per cent for an investment which probably did not exceed $1,000,000, over a period of six years. To this should be added the proceeds of the land grant and of the local subsidies.

The federal government seems in these matters to have assumed the major portion of the risk, and the associates seem to have derived the profits. Nor is this point of view vitiated by the fact that the federal government was ultimately repaid its loan in full, for the reason that the repayment was not at the expense of the associates, but was made possible by a credit arising out of the earnings of the road, and represented merely a shifting of the burden of the debt due the federal authorities to the communities along the line.

Besides the completion of the main line of the Central Pacific, the Contract and Finance Company built a portion of the California and Oregon Railroad, part of the Western Pacific, and the entire San Joaquin Valley branch of the Central Pacific from Lathrop to Goshen. The arrangements between the Contract and Finance Company and Central Pacific for this work varied, but substantial additional profits were secured. In 1874, the Contract and Finance Company was dissolved. There is some dispute as to whether its assets were divided into four or five parts, but both Stanford and Crocker have testified that their dividend consisted of approximately $13,000,000 in Central Pacific stock, at par.[123] At the same time the stockholders of the construction company assumed its debts, amounting to perhaps $1,600,000.[124]

CHAPTER IV

PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES

Commencement of Construction

The construction of the Central Pacific Railroad of California was begun at Sacramento on the 8th of January, 1863. The day the work started was rainy and calculated to damp the most cheerful of spirits. There was, however, a brass band, banners, flags, speeches, and a crowd standing on bundles of hay near the levee to keep its feet dry. Two wagon-loads of earth were driven up before the platform on which were gathered the dignitaries present, and Stanford, then governor of California, seized a shovel and deposited the first earth for the embankment. The enthusiastic Charles Crocker promptly called for nine cheers. The sun smiled brightly, and everybody, for the moment at least, felt happy that after so many years of dreaming, they now saw with their own eyes the actual commencement of a Pacific railroad.[94]

It was fortunate that Mr. Crocker was enthusiastic, for the difficulties which the Central Pacific had to overcome were serious. The chief difficulties were as follows:

Gradients. Some reference has been made in the previous chapter to the elevations which the Central Pacific had to surmount. The highest point which the company had to reach was Summit Station, 105 miles from Sacramento, at an altitude of 7,042 feet. Since Sacramento lay only 56 feet above sea level, to reach this point required an ascent of 6,986 feet in a distance of 105 miles, more or less, according as the route chosen was longer or shorter. The company’s engineer said in 1864 that if it had been possible to maintain a continuous ascending grade, the maximum grade, from the foothills to the summit of the Sierras could have been reduced to 80 feet per mile.

In the attempt to approach this ideal condition the Central Pacific surveyed and resurveyed continuously until its rails were actually on the ground. Barometrical reconnaissances were made in 1862 and 1863 on lines via Downieville and Yuba Gap, and via Oroville and Beckwourth’s Pass, in addition to the surveys via Georgetown, Dutch Flat, and Henness Pass, to which earlier reference has been made (page 20).[95] Location surveys reached Alta in 1863, the state line in 1866, and Ogden in 1868.[96] After Mr. Judah’s death almost an entire relocation of the line from the 31st to the 48th section was made in 1864 in order to avoid tunneling, and to reduce cost,[97] and still later it was found desirable to shift the whole route between Dutch Flat and Emigrant Gap from the Bear River side of the ridge, up which the Central Pacific was proceeding, to the American River side. This change avoided some 20 miles of 116-foot grade, together with a great deal of curvature.[98]

The final result of these various surveys was a line with maximum grades of 116 feet to the mile. This does not compare unfavorably with most of the transcontinental routes subsequently built. It is interesting to observe, however, that the Central Pacific summit is some 2,000 feet higher than the altitude of Beckwourth’s Pass, and that the maximum grade of the Western Pacific Railway, built years afterwards through that pass, is only 52.8 feet to the mile, or one per cent. Neither Judah nor his immediate successors, therefore, discovered the best route across the Central Sierras.

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Temperature. A second physical difficulty incident to mountain construction was found in the mountain climate. The summer climate of the Sierras is delightful, at least at altitudes of about 6,000 to 7,000 feet. At lower elevations the temperature is often uncomfortably warm. But the winter climate is quite different. As early as August the nights begin to get cold, the first snows come in November, while in January the trails become impassable, and the high levels are unvisited by man until the following year. The official record shows that the greater part of the mountain construction on the Central Pacific occurred between July, 1866, and July, 1868.

Mr. Stanford has testified that both the winter of 1866-67 and that of 1867-68 were unusually severe, and his engineers have dwelt in great detail upon the consequent impediments to their work. Not only did the frozen earth resist pick and shovel, but there were snow banks from 30 to 100 feet deep. It was necessary to remove this snow to permit excavation, and to keep clear the space to be occupied by embankments in order to prevent settling. When the summit was approached tunnels had to be driven through the snow to the rock face. As the whole working force could not be employed in the tunnels, the surplus labor, with all its supplies, was hauled beyond the summit and put to work, at great expense, in the cañons of the Truckee River. The first snow sheds were built in the summer of 1867, and in the following years it was decided to cover all the cuts and points where the road crossed the paths of the great avalanches beyond the summit. The total length of sheds and galleries built by the fall of 1869 was 37 miles, and the cost was $2,000,000.[99]

In addition to the difficulties caused by snow, it must be remembered that the frozen earth, though uncovered, was difficult to work. Not only was it necessary to blast out material which could have been cheaply moved at a more favorable time, but, when piled into embankments, the ground settled in the spring as the frost was leaving, and required constant attention.[100]

All the various obstacles raised by climate would have been minimized if construction had proceeded more slowly. Indeed, Mr. Hood and Mr. Strobridge, engineers in charge of construction, agreed that if the Central Pacific had been built at less speed, and as such railways are usually constructed, the expense would have been from 70 to 75 per cent less than the actual cost. The saving would not have been due altogether to the abandonment of winter construction, but this would have been an important factor. The Central Pacific, however, preferred speed to economy, in the hope of outstripping the Union Pacific in the race for the business of Nevada, and for the subsidies and land grants offered by Congress.

Supplies. A further obstacle in the way of successful construction of the Central Pacific lay in the difficulty of getting supplies. Wood and stone could be procured in the mountains, but iron, coal, and manufactured articles of all sorts, including rails, locomotives, and cars, were brought from Sacramento or from the East. Prices in general were high, in part because of the war. The first ten locomotives purchased by the Central Pacific Railway cost upwards of $191,000; the second ten upwards of $215,000. Iron rails cost $91.70 per ton at the mills. The price of powder increased from $2.25 to $6 during the period of construction. The cost of food was exorbitant. Hay was worth $100 a ton out upon the line, and oats about 14 or 15 cents a pound. Stanford says he sold one potato for $2.50.[101]

In the cases cited, high cost of transportation often played an important part in determining the final prices, and in general, indeed, the expense of moving supplies was comparable with the initial cost. Among many possible illustrations one may mention the fact that shipments of rails via the Isthmus of Panama as late as 1868 cost, for transportation alone, $51.97 per ton, making the total cost of the rail delivered at Sacramento, $143.67, not including charges for transfer from ships at San Francisco, nor for transportation up the Sacramento River. Nor was this freight rate high when compared with the cost of wagon hauls in the mountains, when material had to be transported away from the finished track. Mr. Huntington tells of meeting some teams with ties in the Wahsatch Mountains. He continues:

They had seven ties on that wagon. I asked where they were hauled from, and they said from a certain canon. They said it took three days to get a load up to the top of the Wahsatch Mountains and to get back to their work. I asked them what they had a day for their teams, and they said $10. This would make the cost of each tie more than $6. I passed back that way in the night in January, and I saw a large fire burning near the Wahsatch summit, and I stopped to look at it. They had, I think, some twenty to twenty-five ties burning. They said it was so fearfully cold they could not stand it without having a fire to warm themselves.

Fortunately for the company, the cost of labor on the Central Pacific and transcontinental lines does not seem to have been excessive. The total number of men employed ranged from 1,200 in 1864, to 14,000 or 14,500 in 1867, when construction was at its height. White men, of whom there were some 2,500 or 3,000 in 1867, received $35 a month and board as common laborers, and from $3 to $5 a day as skilled mechanics. Most of the track laborers, however, were Chinamen, who were paid $35 a month, and boarded themselves.[102] These Chinamen proved reliable and willing workers, and, because of his experience with them, it was with distinct reluctance that Mr. Stanford in later years allied himself with the friends of Chinese exclusion.[103]

Letting of Construction Contracts

Such obstacles as these made the task upon which the Huntington-Stanford group had entered a formidable one indeed. Just how the difficulties should be met, Mr. Huntington himself did not know. Arrangements were first made with small contractors for the building of stretches of road from Sacramento towards Newcastle. Charles Crocker resigned his directorship in 1862 and took the first contract for 18 miles. Then Cyrus Collins and Brothers got a contract which they did not complete, and other contracts were let to Turton, Knox and Ryan, C. D. Bates, and S. D. Smith. Mr. Crocker says the people raised a hue and cry saying that he was a favored contractor, so that the directors told him that he could not have more than two miles of the road between the 18th and 30th sections.[104] He adds that the independent contractors got to bidding against each other for laborers, and thus put up the price. Huntington was told that the smaller contractors quarreled with each other, and tried to “scoop” labor from each other;[105] while Mr. Stanford says that the small contractors did not finish their sections in consecutive order, that they did not hurry, and could not be sufficiently controlled.[106]

At any rate, after the completion of section 29, no more contracts were let to anyone except Charles Crocker and Company. According to the associates, it was not so much a question of price as one of organization and control. This may be true, or it may be that the associates finally decided that it would be easier to make a satisfactory profit out of government subsidies by doing the building themselves, than by beating down subcontractors to the lowest possible contract price. It should be noticed that the change in policy referred to did not take place until 1864, when the federal Act of 1862 had been passed and that of 1864 was imminent, and that the Central Pacific did not select any single contractor, but gave all its work to Charles Crocker, one of the original associates.

Contracts with Crocker

The first contract with Charles Crocker, covering sections 1 to 18, provided for a lump sum payment of $400,000, of which $250,000 was to be in cash, $100,000 in bonds of the company, and $50,000 in capital stock. This was also the type of contract made with other contractors up to section 30, although the amounts paid varied. At least one bill for extras was allowed Mr. Crocker. Sections 30 and 31 were built by Crocker, and after these were completed he was permitted to continue without a written contract.

In June, 1865, Mr. Hopkins made a report to the president and directors of the Central Pacific upon the general subject of contracts. In this report Hopkins dwelt upon the necessity of rapid construction for the purpose of capturing the passenger traffic between Sacramento and Virginia City; and also in order to comply with the acts of Congress and the state legislature, which required rapid construction of the road. Persons of large capital, he said, seemed unwilling to bind themselves to construct the road as rapidly as necessary. Charles Crocker and Company, on the other hand, had pushed and were pushing the work with extraordinary vigor and success, and had in all cases complied with the orders and directions of the officers of the company. He recommended, therefore, that arrangements be continued with that firm, at rates specified in an accompanying resolution.[107] The directors thereupon adopted this report, and resolved as follows:

Resolved and ordered that Charles Crocker and Company be allowed and paid for all work done and material furnished, or which may hereafter be done and furnished, until the further order of the Board of Directors, in the construction of the railroad of the Company, from section 43 eastward, subject to and in accordance with the terms, conditions and stipulations set forth in the contract with said Charles Crocker and Company, dated September 19, 1863, except so far as the same are modified or changed by this order, at the following rates and prices, and in accordance with the following classification, to-wit:

[Here are inserted the rates for clearing and grubbing, and excavation in various kinds of rock, etc.]

The payments to be made monthly, according to the monthly estimates, five-eighths thereof in gold coin, and the remaining three-eighths in the capital stock of the Company, at the rate of two dollars of capital stock for each one dollar of said three-eighths of said estimate, with the privilege of paying said three-eighths in gold coin in lieu of said stock, at the election of said Company, to be made at the time of such payment.

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Summit Valley. Altitude 6,960 feet. Emigrant Mountain and Railroad Pass in the distance

Payments in Cash and Stock

The essence of this arrangement was that Mr. Crocker was to go ahead indefinitely and that he was to be paid not a given sum per mile, but at a given rate of so much per unit for each class of work which he might find it necessary to do. Payments were to be made in cash, and also up to a certain per cent in stock, taken at a valuation of 50 cents on the dollar. Under date of April 16, 1866, Mr. Crocker requested that stock be given him at a valuation of 30 cents on the dollar, instead of 50 cents, and this was agreed to.[108]

The change from a 50-cent to a 30-cent valuation was made ostensibly because Crocker and Company could not realize more than 30 cents on the stock which they were receiving. As a matter of fact, Crocker could not sell Central Pacific stock at any price, so that the alteration of the contract merely increased his chance for a speculative gain, to be realized after construction should have been completed. Mr. Stanford has said that the directors did not care very much what the prices were, so long as the work was done. Under the contract, the Central Pacific Railroad itself, through Mr. Huntington, purchased locomotives and cars for Crocker and Company, and charged for them at cost.[109] Bonds were also sent from San Francisco to Huntington, but it was Huntington’s impression that they were sold for the company, not for the contractors. In any case, Huntington rendered an account every month of what he had done, and Hopkins settled with the company or with the contractors, as the case might be.[110] Describing the situation at a later date, Crocker said, “It was decided that I should go on immediately and see what I could do. I did go on until we got tied up in suits and I had to stop. I could not get any money. They had all the money I had, and all I could borrow. That was the time that I would have been very glad to take a clean shirt, lose all I had, and quit.”

The total payments made to Charles Crocker or to Charles Crocker and Company, under the various arrangements just described, were as follows:[111]

Total Amount Paid Charles Crocker and Company on His Contract and for Extra Work

Cash, or its equivalent, including material furnished him

$8,853,117.93

Bonds, taken at par

100,000.00

Stock, taken at 50 cents on the dollar

2,696,200.00

Stock, taken at 30 cents on the dollar

11,947,530.00

Stock, taken at par value

57,980.22

——————

Total

$23,654,828.15

═════════

If we take the cash payments at par and the bonds at 75, this would make the tidy sum of $69,210 per mile on 129 miles. When we bear in mind that Crocker accepted the contract for the first 18 miles out of Sacramento at a price including a cash payment of only $13,800 per mile, and that the arrangements with the small contractors who followed him were distinctly less favorable, it is possible to say with some confidence that the profits on the Crocker contracts were considerable. Whatever they were, Mr. Crocker shared them with his associates by depositing at a later date $14,000,000 in Central Pacific stock in the treasury of the Contract and Finance Company, (discussed in the next section) for the benefit of the stockholders of that organization. Inasmuch as Stanford was one of the principal stockholders in the Contract and Finance Company, his later categorical denial before the United States Pacific Railway Commission that he had participated in the profits of the Crocker contracts makes interesting reading.[112]

“Contract and Finance Company”

When the Central Pacific approached the state line of California in the latter part of 1867, the associates told Mr. Crocker that they did not think it best for him to go any further. They said they wanted more capital—they wanted to engage heavy men in the enterprise.[113] Crocker had not been successful in persuading capitalists to go in with him, while it was believed that investors were deterred from taking stock in the Central Pacific by reason of the liability which would be thereby incurred under California law. Either Huntington or Stanford—both claim the credit—conceived the idea that there would be an advantage in organizing a corporation to undertake the construction work. The subject was mentioned on the occasion of one of Huntington’s visits to California, although the company was formed while Huntington was in the East.[114] The name finally decided upon for the new corporation was that of “Contract and Finance Company.” Articles of association were filed in October, 1867. W. E. Brown, Theodore J. Milliken, and B. R. Crocker attended to the details. Milliken was a merchant in Sacramento, and the other two were connected with the Central Pacific.

According to its articles of incorporation, the Contract and Finance Company was formed for the purpose of engaging in and carrying on the business of constructing, purchasing, leasing, selling, holding, maintaining, operating, and repairing railroads, wagon and transit roads, steamboats, vessels, telegraph lines, and rolling stock of railroads; the purchasing, holding, hypothecating, and selling of bonds and stocks issued by railroad and other companies or corporations; the purchasing and using of iron and other materials for railroad and telegraph lines; the borrowing and loaning of money; the conducting of an express and stage business, and any and all other kinds of business connected with or pertaining to railroads and telegraph lines; the transportation of persons and property, on land and water; and the purchasing, holding, leasing, and selling of real estate of all kinds. The capital stock was set at $5,000,000.

Failure to Attract Outside Capital

It is the unanimous testimony of the associates that the real and only reason for forming the Contract and Finance Company was that outside capital might be induced to come in. Huntington says that when the company was organized, he went with new energy to capitalists in the East to induce them to take a share in the risks and profits of construction. Yet from the point of view of attracting outside capital, the Contract and Finance Company was a complete failure. William and Commodore Garrison, of New York, A. A. Selover, Moses Taylor, and William E. Dodge, among others, considered the matter, but all concluded that the risk was too great. In California, Stanford applied to D. O. Mills, W. C. Ralston, Haggin and Tevis, Michael Reese—in short, to everybody whom he thought he might possibly induce to take an interest—but in vain.[115] The result of the failure to secure outside subscriptions to the Contract and Finance Company was that the associates had to take up the stock of that company themselves. Crocker was made president at an early date, and apparently took the bulk of the stock in the first instance. Then, when it was evident that no outside investors would come in, he put the stock back, and Stanford, Hopkins, Huntington, and E. B. Crocker took equal shares with him—each subscribing for 10,000 shares out of the 50,000 outstanding.[116] Later a little stock was disposed of to outsiders, but when the Contract and Finance Company got into the courts the associates bought this back.

Throughout the whole life of the Contract and Finance Company the stockholders were the same men who held the bulk of the stock of the Central Pacific Railroad. Contracts between the finance company and the railroad company were therefore made by the associates in one capacity, with themselves in another capacity, a situation unfortunately not unique in the history of American railroad building. An unusual feature of the arrangement, however, which was common to arrangements with other construction companies formed by the associates, was that the funds of the Contract and Finance Company, over and above the sums received from the Central Pacific, were derived from loans to the company by its stockholders and not from payments on the stock subscribed. There is no evidence that Hopkins, Stanford, Huntington, or either of the Crockers paid a cent in cash on their subscriptions. Instead, they gave their notes. To provide the Contract and Finance Company with funds, they deposited money, sometimes more and sometimes less, paying interest on their notes, and receiving credit for interest on their balances, each partner as a rule putting in all the funds which he could spare, and having an individual account kept of his transactions. The Contract and Finance Company was, therefore, always heavily in debt, although the debt was owed to its own stockholders. The advantages of this arrangement would seem to be two: first, that it concealed effectively the profits which the company was making; and second, that it did not limit any stockholder to a proportionate share in the burdens and gains of the undertaking. If any of the associates desired to participate more heavily than his friends, or less heavily, he could do so. Such a privilege was probably not important before 1869, but it became so later.

Contracts with Construction Company

A word may now be said about the contracts which the Contract and Finance Company secured. Under date of December 3, 1867, Mr. Stanford, as president of the Central Pacific, reported to his directors that he had made a contract for the construction and equipment of the railway and telegraph line of the company lying east of the eastern boundary of the line of California, and presented a draft of the contract, which the directors approved.[117] Leland Stanford, E. B. Crocker, Mark Hopkins, and E. H. Miller, Jr., were present and voted. Mr. Miller explains that he did not understand at the time who the owners of the Contract and Finance Company were, and that nothing was said about it at the meeting. The contract provided that the Contract and Finance Company should build the road of the Central Pacific from the state line, eastward, 552 miles. It was to grade the road, build the bridges, lay the track, build and complete a telegraph line, furnish telegraph offices and instruments, furnish rails, ties, buildings, roundhouses, turntables, and a specified number of engines and cars and running material per mile. On its part, the Central Pacific agreed to pay $86,000 per mile, half in cash and half in Central Pacific stock, and in practice the Central Pacific provided the equipment and the iron, charging them to the Contract and Finance Company at cost. This statement relative to the terms of the contract with the construction company is made on the strength of the recollections of parties interested,[118] for the actual contract is one of the missing documents characteristic of Central Pacific history. Stanford describes the contract as an exhaustive one. That is to say, the Central Pacific turned over all it had and the Contract and Finance Company built the road and got the profits, if there were any.

The apparent advantages of an arrangement with a construction company as compared with those of construction by the Central Pacific itself, were those connected with specialization of the work. A company which does nothing but construction and which does that all the time, may be expected to have a force more highly trained in this particular grade of work, and a more abundant supply of tools and material than an organization which builds railroads only occasionally. The unfortunate necessity of hiring men for each new job and discharging them at the completion of the job is avoided. In the case of the Central Pacific this advantage was somewhat illusory, it is true, for the reason that the Contract and Finance Company on its first contract, whatever might have been the fact later, could scarcely have had an advantage over the railroad; and as for tools, the Contract and Finance Company had no machine tools at all at the beginning, and had to rely on the railroad not only for cars and engines to transport its men, but for equipment for large construction of any sort. The real reason for using a construction company in this case was a financial and not an operating one.

Profits of Construction

Much has been said about the profits of the Contract and Finance Company. Here, again, books are missing, having been packed into boxes by the industrious Mark Hopkins in 1873, and never again produced.[119] A man named John Miller, one-time secretary of the Contract and Finance Company, and defaulter to the alleged extent of $900,000 at a subsequent period, was in possession of transcripts from these books, if we may believe his statement; but even these transcripts disappeared, if indeed they ever existed.[120] We do not know, therefore, how much construction cost the Contract and Finance Company, and we cannot calculate with any accuracy the profit obtained.

It does appear that the work done by the Contract and Finance Company cost the Central Pacific, in all $23,736,000 in cash and the same amount in capital stock.[121] If we add to this $100,000 in cash and $2,900,000 in bonds paid to the Union Pacific for the stretch of land from Promontory Point to a point five miles west of Ogden, and $1,072,874.79 for snowsheds and other extra work performed in 1870, we have a total of $51,544,874.79, of which $24,908,874.79 was in cash. Taken in connection with the Crocker contracts, this makes an aggregate of $33,761,992.72 in cash, $3,000,000 in bonds, and $38,437,710.22 in stock. It was the judgment of the United States Pacific Railway Commission that the total cost of building the 690 miles from Sacramento to Promontory Point, and of purchasing from the Union Pacific 47½ miles of road from Promontory Point to the end of the Central Pacific line, 5 miles west of Ogden, did not exceed $36,000,000, and this included 9 miles built by small contractors, the payment for which is not included in the figures just given.[122]

i100

Summit tunnel (altitude 7,042 feet) before completion—Sierra Nevada Mountains

In a word, if the conclusions of the United States Pacific Railway Commission are to be relied upon, and they were made by engineers relatively soon after the completion of the road, the builders of the Central Pacific were able to accomplish their contracts with the cash and the proceeds of the company’s bonds that were turned over to them, and to retain their Central Pacific stock as a clear profit. If we compare this stock surplus with the probable cash investment in the road, taking the shares at any reasonable valuation, say at $15 or $20 per share, the profit does not seem excessive. If we compare it with the contributions of the associates, however, and this is the more reasonable because the associates received the full benefit of the difference between cost and receipts, it represents, on the most conservative calculation, 500 or 600 per cent for an investment which probably did not exceed $1,000,000, over a period of six years. To this should be added the proceeds of the land grant and of the local subsidies.

The federal government seems in these matters to have assumed the major portion of the risk, and the associates seem to have derived the profits. Nor is this point of view vitiated by the fact that the federal government was ultimately repaid its loan in full, for the reason that the repayment was not at the expense of the associates, but was made possible by a credit arising out of the earnings of the road, and represented merely a shifting of the burden of the debt due the federal authorities to the communities along the line.

Besides the completion of the main line of the Central Pacific, the Contract and Finance Company built a portion of the California and Oregon Railroad, part of the Western Pacific, and the entire San Joaquin Valley branch of the Central Pacific from Lathrop to Goshen. The arrangements between the Contract and Finance Company and Central Pacific for this work varied, but substantial additional profits were secured. In 1874, the Contract and Finance Company was dissolved. There is some dispute as to whether its assets were divided into four or five parts, but both Stanford and Crocker have testified that their dividend consisted of approximately $13,000,000 in Central Pacific stock, at par.[123] At the same time the stockholders of the construction company assumed its debts, amounting to perhaps $1,600,000.[124]

CHAPTER IV

PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES

Commencement of Construction

The construction of the Central Pacific Railroad of California was begun at Sacramento on the 8th of January, 1863. The day the work started was rainy and calculated to damp the most cheerful of spirits. There was, however, a brass band, banners, flags, speeches, and a crowd standing on bundles of hay near the levee to keep its feet dry. Two wagon-loads of earth were driven up before the platform on which were gathered the dignitaries present, and Stanford, then governor of California, seized a shovel and deposited the first earth for the embankment. The enthusiastic Charles Crocker promptly called for nine cheers. The sun smiled brightly, and everybody, for the moment at least, felt happy that after so many years of dreaming, they now saw with their own eyes the actual commencement of a Pacific railroad.[94]

It was fortunate that Mr. Crocker was enthusiastic, for the difficulties which the Central Pacific had to overcome were serious. The chief difficulties were as follows:

Gradients. Some reference has been made in the previous chapter to the elevations which the Central Pacific had to surmount. The highest point which the company had to reach was Summit Station, 105 miles from Sacramento, at an altitude of 7,042 feet. Since Sacramento lay only 56 feet above sea level, to reach this point required an ascent of 6,986 feet in a distance of 105 miles, more or less, according as the route chosen was longer or shorter. The company’s engineer said in 1864 that if it had been possible to maintain a continuous ascending grade, the maximum grade, from the foothills to the summit of the Sierras could have been reduced to 80 feet per mile.

In the attempt to approach this ideal condition the Central Pacific surveyed and resurveyed continuously until its rails were actually on the ground. Barometrical reconnaissances were made in 1862 and 1863 on lines via Downieville and Yuba Gap, and via Oroville and Beckwourth’s Pass, in addition to the surveys via Georgetown, Dutch Flat, and Henness Pass, to which earlier reference has been made (page 20).[95] Location surveys reached Alta in 1863, the state line in 1866, and Ogden in 1868.[96] After Mr. Judah’s death almost an entire relocation of the line from the 31st to the 48th section was made in 1864 in order to avoid tunneling, and to reduce cost,[97] and still later it was found desirable to shift the whole route between Dutch Flat and Emigrant Gap from the Bear River side of the ridge, up which the Central Pacific was proceeding, to the American River side. This change avoided some 20 miles of 116-foot grade, together with a great deal of curvature.[98]

The final result of these various surveys was a line with maximum grades of 116 feet to the mile. This does not compare unfavorably with most of the transcontinental routes subsequently built. It is interesting to observe, however, that the Central Pacific summit is some 2,000 feet higher than the altitude of Beckwourth’s Pass, and that the maximum grade of the Western Pacific Railway, built years afterwards through that pass, is only 52.8 feet to the mile, or one per cent. Neither Judah nor his immediate successors, therefore, discovered the best route across the Central Sierras.

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Temperature. A second physical difficulty incident to mountain construction was found in the mountain climate. The summer climate of the Sierras is delightful, at least at altitudes of about 6,000 to 7,000 feet. At lower elevations the temperature is often uncomfortably warm. But the winter climate is quite different. As early as August the nights begin to get cold, the first snows come in November, while in January the trails become impassable, and the high levels are unvisited by man until the following year. The official record shows that the greater part of the mountain construction on the Central Pacific occurred between July, 1866, and July, 1868.

Mr. Stanford has testified that both the winter of 1866-67 and that of 1867-68 were unusually severe, and his engineers have dwelt in great detail upon the consequent impediments to their work. Not only did the frozen earth resist pick and shovel, but there were snow banks from 30 to 100 feet deep. It was necessary to remove this snow to permit excavation, and to keep clear the space to be occupied by embankments in order to prevent settling. When the summit was approached tunnels had to be driven through the snow to the rock face. As the whole working force could not be employed in the tunnels, the surplus labor, with all its supplies, was hauled beyond the summit and put to work, at great expense, in the cañons of the Truckee River. The first snow sheds were built in the summer of 1867, and in the following years it was decided to cover all the cuts and points where the road crossed the paths of the great avalanches beyond the summit. The total length of sheds and galleries built by the fall of 1869 was 37 miles, and the cost was $2,000,000.[99]

In addition to the difficulties caused by snow, it must be remembered that the frozen earth, though uncovered, was difficult to work. Not only was it necessary to blast out material which could have been cheaply moved at a more favorable time, but, when piled into embankments, the ground settled in the spring as the frost was leaving, and required constant attention.[100]

All the various obstacles raised by climate would have been minimized if construction had proceeded more slowly. Indeed, Mr. Hood and Mr. Strobridge, engineers in charge of construction, agreed that if the Central Pacific had been built at less speed, and as such railways are usually constructed, the expense would have been from 70 to 75 per cent less than the actual cost. The saving would not have been due altogether to the abandonment of winter construction, but this would have been an important factor. The Central Pacific, however, preferred speed to economy, in the hope of outstripping the Union Pacific in the race for the business of Nevada, and for the subsidies and land grants offered by Congress.

Supplies. A further obstacle in the way of successful construction of the Central Pacific lay in the difficulty of getting supplies. Wood and stone could be procured in the mountains, but iron, coal, and manufactured articles of all sorts, including rails, locomotives, and cars, were brought from Sacramento or from the East. Prices in general were high, in part because of the war. The first ten locomotives purchased by the Central Pacific Railway cost upwards of $191,000; the second ten upwards of $215,000. Iron rails cost $91.70 per ton at the mills. The price of powder increased from $2.25 to $6 during the period of construction. The cost of food was exorbitant. Hay was worth $100 a ton out upon the line, and oats about 14 or 15 cents a pound. Stanford says he sold one potato for $2.50.[101]

In the cases cited, high cost of transportation often played an important part in determining the final prices, and in general, indeed, the expense of moving supplies was comparable with the initial cost. Among many possible illustrations one may mention the fact that shipments of rails via the Isthmus of Panama as late as 1868 cost, for transportation alone, $51.97 per ton, making the total cost of the rail delivered at Sacramento, $143.67, not including charges for transfer from ships at San Francisco, nor for transportation up the Sacramento River. Nor was this freight rate high when compared with the cost of wagon hauls in the mountains, when material had to be transported away from the finished track. Mr. Huntington tells of meeting some teams with ties in the Wahsatch Mountains. He continues:

They had seven ties on that wagon. I asked where they were hauled from, and they said from a certain canon. They said it took three days to get a load up to the top of the Wahsatch Mountains and to get back to their work. I asked them what they had a day for their teams, and they said $10. This would make the cost of each tie more than $6. I passed back that way in the night in January, and I saw a large fire burning near the Wahsatch summit, and I stopped to look at it. They had, I think, some twenty to twenty-five ties burning. They said it was so fearfully cold they could not stand it without having a fire to warm themselves.

Fortunately for the company, the cost of labor on the Central Pacific and transcontinental lines does not seem to have been excessive. The total number of men employed ranged from 1,200 in 1864, to 14,000 or 14,500 in 1867, when construction was at its height. White men, of whom there were some 2,500 or 3,000 in 1867, received $35 a month and board as common laborers, and from $3 to $5 a day as skilled mechanics. Most of the track laborers, however, were Chinamen, who were paid $35 a month, and boarded themselves.[102] These Chinamen proved reliable and willing workers, and, because of his experience with them, it was with distinct reluctance that Mr. Stanford in later years allied himself with the friends of Chinese exclusion.[103]

Letting of Construction Contracts

Such obstacles as these made the task upon which the Huntington-Stanford group had entered a formidable one indeed. Just how the difficulties should be met, Mr. Huntington himself did not know. Arrangements were first made with small contractors for the building of stretches of road from Sacramento towards Newcastle. Charles Crocker resigned his directorship in 1862 and took the first contract for 18 miles. Then Cyrus Collins and Brothers got a contract which they did not complete, and other contracts were let to Turton, Knox and Ryan, C. D. Bates, and S. D. Smith. Mr. Crocker says the people raised a hue and cry saying that he was a favored contractor, so that the directors told him that he could not have more than two miles of the road between the 18th and 30th sections.[104] He adds that the independent contractors got to bidding against each other for laborers, and thus put up the price. Huntington was told that the smaller contractors quarreled with each other, and tried to “scoop” labor from each other;[105] while Mr. Stanford says that the small contractors did not finish their sections in consecutive order, that they did not hurry, and could not be sufficiently controlled.[106]

At any rate, after the completion of section 29, no more contracts were let to anyone except Charles Crocker and Company. According to the associates, it was not so much a question of price as one of organization and control. This may be true, or it may be that the associates finally decided that it would be easier to make a satisfactory profit out of government subsidies by doing the building themselves, than by beating down subcontractors to the lowest possible contract price. It should be noticed that the change in policy referred to did not take place until 1864, when the federal Act of 1862 had been passed and that of 1864 was imminent, and that the Central Pacific did not select any single contractor, but gave all its work to Charles Crocker, one of the original associates.

Contracts with Crocker

The first contract with Charles Crocker, covering sections 1 to 18, provided for a lump sum payment of $400,000, of which $250,000 was to be in cash, $100,000 in bonds of the company, and $50,000 in capital stock. This was also the type of contract made with other contractors up to section 30, although the amounts paid varied. At least one bill for extras was allowed Mr. Crocker. Sections 30 and 31 were built by Crocker, and after these were completed he was permitted to continue without a written contract.

In June, 1865, Mr. Hopkins made a report to the president and directors of the Central Pacific upon the general subject of contracts. In this report Hopkins dwelt upon the necessity of rapid construction for the purpose of capturing the passenger traffic between Sacramento and Virginia City; and also in order to comply with the acts of Congress and the state legislature, which required rapid construction of the road. Persons of large capital, he said, seemed unwilling to bind themselves to construct the road as rapidly as necessary. Charles Crocker and Company, on the other hand, had pushed and were pushing the work with extraordinary vigor and success, and had in all cases complied with the orders and directions of the officers of the company. He recommended, therefore, that arrangements be continued with that firm, at rates specified in an accompanying resolution.[107] The directors thereupon adopted this report, and resolved as follows:

Resolved and ordered that Charles Crocker and Company be allowed and paid for all work done and material furnished, or which may hereafter be done and furnished, until the further order of the Board of Directors, in the construction of the railroad of the Company, from section 43 eastward, subject to and in accordance with the terms, conditions and stipulations set forth in the contract with said Charles Crocker and Company, dated September 19, 1863, except so far as the same are modified or changed by this order, at the following rates and prices, and in accordance with the following classification, to-wit:

[Here are inserted the rates for clearing and grubbing, and excavation in various kinds of rock, etc.]

The payments to be made monthly, according to the monthly estimates, five-eighths thereof in gold coin, and the remaining three-eighths in the capital stock of the Company, at the rate of two dollars of capital stock for each one dollar of said three-eighths of said estimate, with the privilege of paying said three-eighths in gold coin in lieu of said stock, at the election of said Company, to be made at the time of such payment.

i090

Summit Valley. Altitude 6,960 feet. Emigrant Mountain and Railroad Pass in the distance

Payments in Cash and Stock

The essence of this arrangement was that Mr. Crocker was to go ahead indefinitely and that he was to be paid not a given sum per mile, but at a given rate of so much per unit for each class of work which he might find it necessary to do. Payments were to be made in cash, and also up to a certain per cent in stock, taken at a valuation of 50 cents on the dollar. Under date of April 16, 1866, Mr. Crocker requested that stock be given him at a valuation of 30 cents on the dollar, instead of 50 cents, and this was agreed to.[108]

The change from a 50-cent to a 30-cent valuation was made ostensibly because Crocker and Company could not realize more than 30 cents on the stock which they were receiving. As a matter of fact, Crocker could not sell Central Pacific stock at any price, so that the alteration of the contract merely increased his chance for a speculative gain, to be realized after construction should have been completed. Mr. Stanford has said that the directors did not care very much what the prices were, so long as the work was done. Under the contract, the Central Pacific Railroad itself, through Mr. Huntington, purchased locomotives and cars for Crocker and Company, and charged for them at cost.[109] Bonds were also sent from San Francisco to Huntington, but it was Huntington’s impression that they were sold for the company, not for the contractors. In any case, Huntington rendered an account every month of what he had done, and Hopkins settled with the company or with the contractors, as the case might be.[110] Describing the situation at a later date, Crocker said, “It was decided that I should go on immediately and see what I could do. I did go on until we got tied up in suits and I had to stop. I could not get any money. They had all the money I had, and all I could borrow. That was the time that I would have been very glad to take a clean shirt, lose all I had, and quit.”

The total payments made to Charles Crocker or to Charles Crocker and Company, under the various arrangements just described, were as follows:[111]

Total Amount Paid Charles Crocker and Company on His Contract and for Extra Work

Cash, or its equivalent, including material furnished him

$8,853,117.93

Bonds, taken at par

100,000.00

Stock, taken at 50 cents on the dollar

2,696,200.00

Stock, taken at 30 cents on the dollar

11,947,530.00

Stock, taken at par value

57,980.22

——————

Total

$23,654,828.15

═════════

If we take the cash payments at par and the bonds at 75, this would make the tidy sum of $69,210 per mile on 129 miles. When we bear in mind that Crocker accepted the contract for the first 18 miles out of Sacramento at a price including a cash payment of only $13,800 per mile, and that the arrangements with the small contractors who followed him were distinctly less favorable, it is possible to say with some confidence that the profits on the Crocker contracts were considerable. Whatever they were, Mr. Crocker shared them with his associates by depositing at a later date $14,000,000 in Central Pacific stock in the treasury of the Contract and Finance Company, (discussed in the next section) for the benefit of the stockholders of that organization. Inasmuch as Stanford was one of the principal stockholders in the Contract and Finance Company, his later categorical denial before the United States Pacific Railway Commission that he had participated in the profits of the Crocker contracts makes interesting reading.[112]

“Contract and Finance Company”

When the Central Pacific approached the state line of California in the latter part of 1867, the associates told Mr. Crocker that they did not think it best for him to go any further. They said they wanted more capital—they wanted to engage heavy men in the enterprise.[113] Crocker had not been successful in persuading capitalists to go in with him, while it was believed that investors were deterred from taking stock in the Central Pacific by reason of the liability which would be thereby incurred under California law. Either Huntington or Stanford—both claim the credit—conceived the idea that there would be an advantage in organizing a corporation to undertake the construction work. The subject was mentioned on the occasion of one of Huntington’s visits to California, although the company was formed while Huntington was in the East.[114] The name finally decided upon for the new corporation was that of “Contract and Finance Company.” Articles of association were filed in October, 1867. W. E. Brown, Theodore J. Milliken, and B. R. Crocker attended to the details. Milliken was a merchant in Sacramento, and the other two were connected with the Central Pacific.

According to its articles of incorporation, the Contract and Finance Company was formed for the purpose of engaging in and carrying on the business of constructing, purchasing, leasing, selling, holding, maintaining, operating, and repairing railroads, wagon and transit roads, steamboats, vessels, telegraph lines, and rolling stock of railroads; the purchasing, holding, hypothecating, and selling of bonds and stocks issued by railroad and other companies or corporations; the purchasing and using of iron and other materials for railroad and telegraph lines; the borrowing and loaning of money; the conducting of an express and stage business, and any and all other kinds of business connected with or pertaining to railroads and telegraph lines; the transportation of persons and property, on land and water; and the purchasing, holding, leasing, and selling of real estate of all kinds. The capital stock was set at $5,000,000.

Failure to Attract Outside Capital

It is the unanimous testimony of the associates that the real and only reason for forming the Contract and Finance Company was that outside capital might be induced to come in. Huntington says that when the company was organized, he went with new energy to capitalists in the East to induce them to take a share in the risks and profits of construction. Yet from the point of view of attracting outside capital, the Contract and Finance Company was a complete failure. William and Commodore Garrison, of New York, A. A. Selover, Moses Taylor, and William E. Dodge, among others, considered the matter, but all concluded that the risk was too great. In California, Stanford applied to D. O. Mills, W. C. Ralston, Haggin and Tevis, Michael Reese—in short, to everybody whom he thought he might possibly induce to take an interest—but in vain.[115] The result of the failure to secure outside subscriptions to the Contract and Finance Company was that the associates had to take up the stock of that company themselves. Crocker was made president at an early date, and apparently took the bulk of the stock in the first instance. Then, when it was evident that no outside investors would come in, he put the stock back, and Stanford, Hopkins, Huntington, and E. B. Crocker took equal shares with him—each subscribing for 10,000 shares out of the 50,000 outstanding.[116] Later a little stock was disposed of to outsiders, but when the Contract and Finance Company got into the courts the associates bought this back.

Throughout the whole life of the Contract and Finance Company the stockholders were the same men who held the bulk of the stock of the Central Pacific Railroad. Contracts between the finance company and the railroad company were therefore made by the associates in one capacity, with themselves in another capacity, a situation unfortunately not unique in the history of American railroad building. An unusual feature of the arrangement, however, which was common to arrangements with other construction companies formed by the associates, was that the funds of the Contract and Finance Company, over and above the sums received from the Central Pacific, were derived from loans to the company by its stockholders and not from payments on the stock subscribed. There is no evidence that Hopkins, Stanford, Huntington, or either of the Crockers paid a cent in cash on their subscriptions. Instead, they gave their notes. To provide the Contract and Finance Company with funds, they deposited money, sometimes more and sometimes less, paying interest on their notes, and receiving credit for interest on their balances, each partner as a rule putting in all the funds which he could spare, and having an individual account kept of his transactions. The Contract and Finance Company was, therefore, always heavily in debt, although the debt was owed to its own stockholders. The advantages of this arrangement would seem to be two: first, that it concealed effectively the profits which the company was making; and second, that it did not limit any stockholder to a proportionate share in the burdens and gains of the undertaking. If any of the associates desired to participate more heavily than his friends, or less heavily, he could do so. Such a privilege was probably not important before 1869, but it became so later.

Contracts with Construction Company

A word may now be said about the contracts which the Contract and Finance Company secured. Under date of December 3, 1867, Mr. Stanford, as president of the Central Pacific, reported to his directors that he had made a contract for the construction and equipment of the railway and telegraph line of the company lying east of the eastern boundary of the line of California, and presented a draft of the contract, which the directors approved.[117] Leland Stanford, E. B. Crocker, Mark Hopkins, and E. H. Miller, Jr., were present and voted. Mr. Miller explains that he did not understand at the time who the owners of the Contract and Finance Company were, and that nothing was said about it at the meeting. The contract provided that the Contract and Finance Company should build the road of the Central Pacific from the state line, eastward, 552 miles. It was to grade the road, build the bridges, lay the track, build and complete a telegraph line, furnish telegraph offices and instruments, furnish rails, ties, buildings, roundhouses, turntables, and a specified number of engines and cars and running material per mile. On its part, the Central Pacific agreed to pay $86,000 per mile, half in cash and half in Central Pacific stock, and in practice the Central Pacific provided the equipment and the iron, charging them to the Contract and Finance Company at cost. This statement relative to the terms of the contract with the construction company is made on the strength of the recollections of parties interested,[118] for the actual contract is one of the missing documents characteristic of Central Pacific history. Stanford describes the contract as an exhaustive one. That is to say, the Central Pacific turned over all it had and the Contract and Finance Company built the road and got the profits, if there were any.

The apparent advantages of an arrangement with a construction company as compared with those of construction by the Central Pacific itself, were those connected with specialization of the work. A company which does nothing but construction and which does that all the time, may be expected to have a force more highly trained in this particular grade of work, and a more abundant supply of tools and material than an organization which builds railroads only occasionally. The unfortunate necessity of hiring men for each new job and discharging them at the completion of the job is avoided. In the case of the Central Pacific this advantage was somewhat illusory, it is true, for the reason that the Contract and Finance Company on its first contract, whatever might have been the fact later, could scarcely have had an advantage over the railroad; and as for tools, the Contract and Finance Company had no machine tools at all at the beginning, and had to rely on the railroad not only for cars and engines to transport its men, but for equipment for large construction of any sort. The real reason for using a construction company in this case was a financial and not an operating one.

Profits of Construction

Much has been said about the profits of the Contract and Finance Company. Here, again, books are missing, having been packed into boxes by the industrious Mark Hopkins in 1873, and never again produced.[119] A man named John Miller, one-time secretary of the Contract and Finance Company, and defaulter to the alleged extent of $900,000 at a subsequent period, was in possession of transcripts from these books, if we may believe his statement; but even these transcripts disappeared, if indeed they ever existed.[120] We do not know, therefore, how much construction cost the Contract and Finance Company, and we cannot calculate with any accuracy the profit obtained.

It does appear that the work done by the Contract and Finance Company cost the Central Pacific, in all $23,736,000 in cash and the same amount in capital stock.[121] If we add to this $100,000 in cash and $2,900,000 in bonds paid to the Union Pacific for the stretch of land from Promontory Point to a point five miles west of Ogden, and $1,072,874.79 for snowsheds and other extra work performed in 1870, we have a total of $51,544,874.79, of which $24,908,874.79 was in cash. Taken in connection with the Crocker contracts, this makes an aggregate of $33,761,992.72 in cash, $3,000,000 in bonds, and $38,437,710.22 in stock. It was the judgment of the United States Pacific Railway Commission that the total cost of building the 690 miles from Sacramento to Promontory Point, and of purchasing from the Union Pacific 47½ miles of road from Promontory Point to the end of the Central Pacific line, 5 miles west of Ogden, did not exceed $36,000,000, and this included 9 miles built by small contractors, the payment for which is not included in the figures just given.[122]

i100

Summit tunnel (altitude 7,042 feet) before completion—Sierra Nevada Mountains

In a word, if the conclusions of the United States Pacific Railway Commission are to be relied upon, and they were made by engineers relatively soon after the completion of the road, the builders of the Central Pacific were able to accomplish their contracts with the cash and the proceeds of the company’s bonds that were turned over to them, and to retain their Central Pacific stock as a clear profit. If we compare this stock surplus with the probable cash investment in the road, taking the shares at any reasonable valuation, say at $15 or $20 per share, the profit does not seem excessive. If we compare it with the contributions of the associates, however, and this is the more reasonable because the associates received the full benefit of the difference between cost and receipts, it represents, on the most conservative calculation, 500 or 600 per cent for an investment which probably did not exceed $1,000,000, over a period of six years. To this should be added the proceeds of the land grant and of the local subsidies.

The federal government seems in these matters to have assumed the major portion of the risk, and the associates seem to have derived the profits. Nor is this point of view vitiated by the fact that the federal government was ultimately repaid its loan in full, for the reason that the repayment was not at the expense of the associates, but was made possible by a credit arising out of the earnings of the road, and represented merely a shifting of the burden of the debt due the federal authorities to the communities along the line.

Besides the completion of the main line of the Central Pacific, the Contract and Finance Company built a portion of the California and Oregon Railroad, part of the Western Pacific, and the entire San Joaquin Valley branch of the Central Pacific from Lathrop to Goshen. The arrangements between the Contract and Finance Company and Central Pacific for this work varied, but substantial additional profits were secured. In 1874, the Contract and Finance Company was dissolved. There is some dispute as to whether its assets were divided into four or five parts, but both Stanford and Crocker have testified that their dividend consisted of approximately $13,000,000 in Central Pacific stock, at par.[123] At the same time the stockholders of the construction company assumed its debts, amounting to perhaps $1,600,000.[124]

CHAPTER V

THE SEARCH FOR A TERMINAL

Progress of Construction

Under its various construction contracts, the Central Pacific steadily progressed, between 1863 and 1869, from Sacramento to a junction with the Union Pacific near Ogden. The official statement of the progress of construction is as follows:[125]

Broke ground at Sacramento

January 8, 1863

Laid first rail

October 27, 1863

Sacramento to Roseville (18 miles)

Constructed in 1863

Road opened as follows:

To

Newcastle

31

miles

January, 1865

”

Auburn

36

”

May 15, 1865

”

Clipper Gap

42

”

June 10, 1865

”

Colfax

54

”

September 4, 1865

”

Secret Town

66

”

May 8, 1866

”

Alta

78

”

July 10, 1866

”

Cisco

94

”

November 9, 1866

”

Summit

105

”

July, 1867

”

State Line

278

”

January, 1868

”

Reno

294

”

May, 1868

”

Wadsworth

329

”

July, 1868

(362 miles constructed in 1868)

”

Monument Point

667

”

April 15, 1869

”

Ogden

743

”

May 10, 1869

Driving last spike, and opened for business from Sacramento; distance San Francisco to Ogden, per time card

883

”

May 10, 1869

Relations with Western Pacific

It has already been noted that the line from Sacramento via Stockton to San José was not part of the original plan, and that the rights, grants, and franchises of the Central Pacific in it were assigned to other parties in the course of the Congressional fight. The original assignment of December 4, 1862, was to a group of men which included Timothy Dane, the original projector, and president of the San Francisco and San José Railroad, Charles McLoughlin, and A. H. Houston. In 1864, the first assignees having waived their rights, the Central Pacific Railroad made the same assignment to the Western Pacific Railroad of California.[126] The Western Pacific Railroad in turn let contracts for construction to Houston and McLoughlin, but by 1867, McLoughlin had become involved in litigation regarding his contracts and asked that all arrangements between himself and the Western Pacific be canceled.[127]

This led the Western Pacific to enter into a contract with the Contract and Finance Company, with the result that substantially all the stock of the first-named corporation came into the hands of the Huntington group. McLoughlin retained the federal land grant; the federal subsidy, however, of $16,000 per mile, reverted to the Western Pacific as did the local subsidies, and through it passed to the Contract and Finance Company. The railroad from Sacramento to San José was opened September 15, 1869; on June 22, 1870, the Central Pacific and the Western Pacific filed articles of consolidation.

Lack of Terminal Facilities

In September, 1869, the transcontinental railroad from Omaha to San José was in working order. It would be an exaggeration to say that the line was in good shape. There was little or no ballast, and a good rain was said to make miles of the road-bed run like wet soap. Little had been done to eliminate grades and curves, sleeping-car accommodation at first was insufficient, the journey speed from Sacramento to Ogden was only 19 miles an hour, while schedules were not always adhered to. Cars were heated by stoves, and passengers disembarked for their meals. But in a measure these were conditions to be expected at the start, and interfered only in a minor degree with the interest and excitement of a transcontinental trip. The great fact was that a railroad existed which could be used, and over which relatively direct, rapid, and cheap communication with the East could be secured.

The greatest weakness of the Central Pacific Railroad in 1869 lay in its lack of terminal facilities on San Francisco Bay. When the company decided to begin work at Sacramento, its reasonable expectation had been that a railroad under one management would be built from that city around the southern end of San Francisco Bay to the city of San Francisco. The Central Pacific was willing to forego the advantage of this construction itself in order to gain friends, and did it the more willingly because this stretch of line was likely to be unprofitable by reason of steamship competition on the bay and on the Sacramento River. These conditions changed, however, when the Contract and Finance Company took over the construction of the railroad from Sacramento to San José. The Central Pacific interest then obtained a connection of its own with Niles near Oakland, and it was thus led to consider the question of terminals on the eastern side of San Francisco Bay.

The easiest part of San Francisco Bay for the Western Pacific Railroad to reach was undoubtedly the shore south of Oakland or Alameda. It would probably have been possible to build from Stockton to Richmond, as the Santa Fé did later, or to develop Benicia or Port Costa, or even to build a terminus on an island in the bay. Yet as compared with these alternatives, the Oakland terminus had many advantages. It was near to the Western Pacific main line; it was served by two railroads which possessed valuable franchises that could be bought at not too great expense; and, most important of all, the conditions under which the water-front at Oakland was held were favorable to the acquisition of the necessary terminal facilities.

Oakland Water-Front

The situation at Oakland was briefly as follows: The first army of settlers in the city had been squatters on a portion of the Peralta grant. Among these had been Horace W. Carpentier, Edson Adams, and A. J. Moon. In 1852 the state legislature had incorporated the town of Oakland, had fixed its boundary, and had granted to it the land lying between high tide and ship channel along the whole of its water-front, with a view to facilitating the construction of walls and other improvements.[128] There were 75 to 100 inhabitants in Oakland at this time, with half a dozen residences, two hotels, a wharf, and two warehouses. There were no streets—only cattle trails.[129]

As soon as incorporated, the town held an election, and chose Adams, Moon, Carpentier, and two others as trustees. Mr. Carpentier did not qualify or serve. On May 17 and 18, 1852, the board of trustees made two important grants: In the first place, it gave to Horace Carpentier for the period of thirty-seven years, the exclusive right to construct wharves, piers, and docks at any point within the corporate limits of Oakland, with the right of collecting wharfage and dockage; and in the second place, it sold, granted, and released to the said Carpentier all the town title in the land lying within the limits of the town of Oakland between high tide and ship channel.

In return for this grant Carpentier agreed to build three wharves and a schoolhouse, and to pay to the town 2 per cent of his wharfage receipts—certainly a modest recompense. Mr. Marier, president of the board of trustees, later testified that Carpentier told him when the deed was signed that he would be willing at any time to reconvey the property to the town on being reimbursed for the moneys he had expended; and this was also the recollection of others.[130] But the understanding, if any existed, never could be enforced,[131] so that Carpentier was firmly established in his control of the tide-lands of the city of Oakland, and in spite of petitions, riots, and litigation, sat unshaken in 1867 when the Central Pacific became interested in the matter.[132]

Oakland Water Front Company

Sometime prior to 1867 Carpentier had several talks with Leland Stanford, and endeavored to persuade him to build north from Niles across the Ravenswood cut-off. In the fall of 1867, Carpentier and Stanford talked again, and Stanford came to entertain the idea as a matter of reasonable negotiation. John P. Felton was engaged by the city of Oakland to look into its rights. Carpentier says that he offered the railroad one-half of his water-front if it would make his property its terminus. He says that this mode of adjustment was acquiesced in by Mayor Merritt and Mr. Felton, and that about the end of the year (1867), it came to be understood between them and Governor Stanford and himself that something should be done on approximately this basis.[133] Judge E. B. Crocker, however, attorney for the Central Pacific, asked that outstanding disputes regarding the water-front be first settled. The legislature was soon to be in session, and it was urged that all should act together in trying to get an authorization for the settlement of difficulties.

This was done.[134] On the 27th of March, 1868, as a part of a series of compromise arrangements, the Oakland Water Front Company was incorporated. The subscribers and original directors were H. W. Carpentier, president; Samuel Merritt, vice-president; Lloyd Tevis, secretary; Leland Stanford, treasurer; E. R. Carpentier and J. B. Felton. Mr. Tevis and H. W. Carpentier were in the same year directors of the Southern Pacific Railroad Company. The Oakland Water Front Company was capitalized for $5,000,000, and the stock was divided into 50,000 shares. Of these shares H. W. Carpentier subscribed for 23,000, or 46 per cent; Stanford for 17,500, or 35 per cent; and Felton for 4,999, or 10 per cent. Lloyd Tevis took 2,500 shares, E. R. Carpentier 2,000 shares, and Samuel Merritt 1 share.

On March 31, Mr. Carpentier deeded to the new corporation all the water-front of the city of Oakland, that is to say, all the lands, and the lands covered with water lying between high tide and ship channel, being the water-front lands described in and granted in the act of incorporation of May 4, 1852. He excepted from this deed only that water-front lying between the middle of Washington Street and the middle of Franklin Street and extending southerly to a line parallel with First Street. By Section 2 of an agreement made the following day, the Oakland Water Front Company agreed to deed this last-named area to the city of Oakland.[135]

Cession of Land by Water Front Company

On April 1, 1868, two further agreements were signed. One, styled an indenture, was between the Oakland Water Front Company, the Western Pacific Railroad Company, Carpentier, Felton, and Stanford. Under this indenture, and in consideration of the deed of March 31, the Oakland Water Front Company declared that it held the property conveyed to it subject to covenants which were particularly set forth as follows:

The Western Pacific Railroad agreed to select within three months 500 acres from the property conveyed by the deed of March 31, including not more than one-half mile of frontage on ship channel, together with not to exceed two strips of land over the remainder of the premises from high-water mark to the parcels selected. The strips running from high-water mark were each to be not more than 100 feet wide at grade.

The Oakland Water Front Company agreed to convey to the Western Pacific Railroad the 500 acres selected, and to grant an exclusive right-of-way over the hundred-foot strips. It undertook, moreover, to sell no land west of the 500 acres, provided that these were located out to a westerly water-front of 24 feet depth of water at low tide, and to place no obstructions in front of them, or to do anything to obstruct the free approach of vessels to the parcels.

The Water Front Company further agreed to convey to the city of Oakland on demand “so much of the premises as [lay] between the middle of Franklin Street and the easterly line of Webster Street, and extending out to a line parallel with First Street, and two hundred feet southerly of the present wharf at the foot of Broadway,” with the right of wharfage, dockage, and tolls thereon, and to designate and dedicate as a navigable water course for public use, the channel of San Antonio Creek, from ship channel to the town of San Antonio, to a width of not less than 200 feet over the shallow water at the bar, and 300 feet wide above that place.

The Water Front Company, in the third place, undertook to convey 25,000 shares of its stock to Carpentier, 5,000 shares to Felton, and 20,000 shares to Stanford.

Finally, the Water Front Company authorized the city of Oakland, or other parties, to construct a dam above the Oakland bridge, across the estuary, so as to keep the land above submerged to high-tide mark, for the use of the owners of the adjoining lands, and of the public.

The second paper, also signed on April 1, was an agreement between the Western Pacific Railroad Company, Leland Stanford, and the Water Front Company. By it the railroad agreed to construct or to purchase within eighteen months and to complete a railroad from its main line, then at Niles, to and connecting with the parcels of land described in the indenture of the same date, together with the necessary buildings and structures for a freight and passenger depot on the premises. The railroad agreed to expend in new work within three years $500,000. The railroad company agreed that in construction across the estuary between Oakland proper and Brooklyn it would leave a space for forty feet free for the passage of vessels.[136]

Attitude of City

Up to this point the city had not entered into any contracts. On April 1, however, the city council passed an ordinance ratifying and confirming the grants made under the early ordinances of 1852 and 1853, and the conveyance by Mr. Marier as president of the board of trustees, and granted, sold, and conveyed to the said Carpentier in fee simple forever, the city water-front, that is to say, the lands lying between high tide and ship channel. This ordinance further provided that Carpentier should convey to the Oakland Water Front Company the property and franchises conveyed at that time by the city to him, to be used in accordance with the terms and stipulations of the contract between the Oakland Water Front Company, the Western Pacific Railroad Company, and other parties. On the following day the council passed still another ordinance reciting that inasmuch as the terms and stipulations previously provided had been complied with by Carpentier, the grant was finally settled upon him.[137]

The result of these somewhat complicated negotiations was that the Central Pacific acquired 500 acres of water-front property in Oakland, with a frontage of one-half mile on ship channel, merely as a reward for coming to the city. In addition, Mr. Stanford, acting presumably on behalf of his associates, received 40 per cent of the capital stock of the Oakland Water Front Company, which on its part owned substantially all of the water-front remaining. The city attorney, who was supposed to represent the interests of the city, was rewarded with 10 per cent of the stock of the Oakland Water Front Company, and the position of director. The mayor of the city, Mr. Merritt, was made vice-president of the same corporation, although the extent of his personal interest in it is not known. He seems to have held only qualifying shares.[138]

In subsequent years the relations between the city of Oakland and the Oakland Water Front Company were repeatedly subjects of most bitter controversy. Extravagant as had been the consideration of the grant to the Central Pacific for coming to Oakland, this matter was less serious than the circumstance that the control of the remaining water-front by the Central Pacific through the Oakland Water Front Company appeared to make it impossible for any rival transportation company to gain a footing in the city. The city long endeavored to free itself from this monopoly. It contended at one time that Carpentier had secured the election of his own agents to the board of trustees which had made his grant, and that in any case Carpentier had agreed to reconvey the property to the city. Neither statement could be proved. On the contrary, in 1897 the Supreme Court of California definitely pronounced the compromise of 1868 binding upon the municipality, although it interpreted the words “ship channel” to mean the low-tide line and not a depth of three fathoms at low tide as had at first been supposed.[139]

Water-Front Monopoly Broken

Ten years later the title of the Oakland Water Front Company was again questioned in a case brought by the Western Pacific Railroad Company. By this time two jetties had been built by the United States government extending the lines of San Antonio Creek westward to deep water. As a result of the deposit of material taken out of the channel of the estuary and placed north of the northern training wall, and of additional deposits from dredging operations conducted by the Central Pacific and by private parties, the line of low tide had been moved appreciably out into the bay. Under the general rule that accretions belong to the proprietors of riparian lands, the Southern Pacific, as successor to the Oakland Water Front Company, asserted title up to the limit of the new line of low tide. This claim the federal court denied. The limit of the railroad company’s property was declared to be the low-tide line of 1852, extending first northwesterly and then northeasterly from the mouth of the San Antonio estuary at Sand Point as indicated in the map on page 93.[140]

i114

Map of Oakland and Brooklyn, showing location of Central Pacific terminals, 1871

This at one stroke transformed the Southern Pacific’s holding from a water-front to an interior location, by making it clear that the title to the substantial area between the bulkhead line of the city of Oakland and the low-water mark of 1852 lay in the city and not in private hands. The city had indeed given away its water-front as it existed in 1852, but the creation of a new water-front during the following years relieved it of the effects of its negligence. It thus appears that the alienation of the water-front of Oakland in 1868 did not permanently vest in the Central Pacific interest control of the tide-lands to which the compromise of that year referred. For the time being, however, the company secured a well-nigh complete monopoly. Not only had it convenient access to tide-water for its own trains, but it was able for many years to keep other railroads from obtaining a similar advantage. Up to this point, however, no arrangement had been completed for a terminus on the San Francisco side of San Francisco Bay.

Proposed Grant of San Francisco Water-Front

In order to establish the Central Pacific with complete adequacy, the associates accordingly now turned to the western side of San Francisco Bay and took steps to provide terminal facilities in the city of San Francisco itself. Possibly this was because they had acquired or were about to acquire a controlling interest in the San Francisco and San José Railroad; possibly it was due to Carpentier’s influence, or perhaps it was merely a recognition of the advantages of a terminal location in San Francisco.

Unlike Oakland, the city of San Francisco had never received title to all its tide-lands from the state, and application had to be made to the legislature at Sacramento, direct. Early in 1868 the Senate Committee on Commerce and Navigation, of the state legislature, reported a bill granting to the Western Pacific Railroad Company and to the Southern Pacific Railroad Company, submerged and tide-lands in the Bay of San Francisco, from the foot of Channel Street to Point San Bruno, with the right to extend the railroads of said companies or construct branches thereof, and to purchase other railroads, and use the same for the purpose of reaching the place or places on said premises selected as termini for said railroads, and to maintain and operate the same by steam or other power from the present lines of said railroads to the said termini on said premises, and with all necessary and proper depots, side-tracks, etc.

The boundaries of this extraordinary grant are indicated on the map on page 96.[141]

The total length from the foot of Channel Street to Point San Bruno was a little over 8 miles. The maximum breadth was approximately 2½ miles, and the area was estimated by opponents of the scheme to be not less than 6,620 acres. The value of such a water-front on the principal city of the Pacific Coast was to be measured in millions of dollars, and its importance to the Huntington interests was not limited to a money value alone. The possession of the San Francisco water-front south of Channel Street meant the occupation of the only part of the city at which a first-class railroad could reach tide-water. The reason for this is that all railroads must come into the city of San Francisco from the south or the southwest on account of the shape of the peninsula, and no railroad can conceivably be allowed to cross the main thoroughfare. Market Street, or to penetrate the thinly settled residential districts in the north.

i117

Boundaries of Railroad Tide-Land Grant, as proposed in 1868.

The bill provided that the Central Pacific, Western Pacific, Southern Pacific, and the San Francisco and San José railroads, which were the proposed grantees, should pay the fair market cash value of the submerged lands at the time of the passage of the act, being not less than $100 per acre for the lands lying north of Point Avisadero. But it was also provided that the surplus over $100 due for the land north of Point Avisadero might be spent in reclamation and improvement of the premises, and the companies were to receive patents if within five years not less than $1,000,000, in addition to such surplus, had been spent in this way. In plain English, the tide-lands were to be sold for $100 an acre, but in the case of some of them the beneficiaries might be required to spend additional amounts in improvements. The Senate committee defended its recommendation by saying that it was desirable to have the water-front improved, and that this was the way to have the thing done. It expected that the railroads would build a sea-wall; and observed that this wall, water-front, and docks would be subject to the control of the state harbor commissioners. How a rival railroad in the future would get access to the docks, it did not say.[142]

Scheme Opposed

Generally speaking, arrangements for the alienation of city water-front property into private hands are to be looked upon with suspicion unless extensive powers of control are reserved by state or city, and unless there is provision for the reversion of the property, including improvements, to the public at the end of a stipulated time not too far removed, on conditions and in a manner clearly stated. In the particular case in hand there were no such safe-guards to the public interest, except a general reservation of jurisdiction and control over the water-front by the State Board of Harbor Commissioners, and a provision that the grantees should charge no tolls or wharfage on the water-front sold to them. This was not enough. It was therefore fortunate under the circumstances that the improvident nature of the proposed contract was understood and its defects given full publicity by the San Francisco press. The San Francisco Bulletin commented as follows:

The scheme is an outrageous one. A proposition to sell to the Railroad Companies at a reasonable price, so much of the southern water-front as would be actually necessary for depots, warehouses, workshops, etc., might be considered favorably, but a proposal to give to what is or will be virtually a single corporation two-thirds of the frontage of a city destined to be the second in America, is utterly indefensible ... this immense property will be worth eventually as much as the Pacific Railroad itself.[143]

The Alta said:

If the parties who have so modestly presented their humble petition for this concession had gone one step farther, and asked for a grant of the whole State of California—all its tide and marsh lands—the control of all its rivers, bays and inlets, we do not know that the public amazement would have been any greater.[144]

Even the conservative San Francisco Times suggested that it would be well for the railroad companies to submit detailed estimates of the land needed for terminals and the uses to which this land was to be put,[145] while it refrained from commenting on the Bulletin’s assertions that it was the intent of the railroads to locate their terminus well south of the city of San Francisco to the great profit of parties from Sacramento who were buying lands around Hunter’s Point.

Another Plan Substituted

Whether or not this last accusation was well founded, the opposition of the city grew so intense that the legislature did not dare to carry out its original plan.[146] Instead, the Southern Pacific and Western Pacific were offered each 150 acres, to be located by the companies within specified limits south of Channel Street, and still later the amount was reduced to 30 acres apiece, and a donation was substituted for a sale. So amended, the act became law on March 30, 1868. It granted and donated to the Southern Pacific Railroad Company and to the Western Pacific Railroad Company for a terminus in the city of San Francisco, to each of said companies, 30 acres, exclusive of streets, basements, public squares, and docks. The land was to be selected by the railroad companies within ninety days, but it was to lie south of Channel Street, and outside of the Red-Line water-front of Mission Bay, and was not to extend beyond 24 feet of water at low tide, nor to within 300 feet of the line which should be selected by the tide-land commissioners as the permanent water line of the front of the city. A 200-foot right-of-way was given to the companies to provide access to their tide-lands. The lands were to be located and $100,000 spent upon them by each of the grantees within thirty months, or the grant would revert to the state.[147]

Compared with their original projects, the Act of 1868 represented a considerable check to the plans of Mr. Stanford and his friends. Yet the grant in San Francisco was important, and, added to what had been secured in Oakland, provided satisfactorily for the Central Pacific’s transportation needs.

In 1871 the San Francisco supervisors granted to the Southern Pacific and Central Pacific railroads rights on various streets in the city in order that they might reach and enjoy their lands and depot grounds in Mission Bay. Late in the same year Stanford indicated his willingness to make Mission Bay the main terminus of both the Central Pacific and Southern Pacific, in consideration of a subsidy of $3,000,000 and of alterations in the terms of the Mission Bay grant so as to make it more acceptable. Nothing came of these last negotiations, nor of somewhat similar proposals made in 1872 by a citizens’ committee engaged in fighting the Goat Island scheme (see below) and submitted to popular vote. In 1873-74, however, the city granted Stanford additional though minor franchises, enabling him to run trains on certain city streets.

Proposed Occupation of Goat Island

It will be readily understood that feeling ran high both in Oakland and San Francisco while the railroad negotiations for terminal facilities were going on. Nor was the public excitement allayed by the attempt of the Huntington group to occupy Goat Island, which occurred at the same time. Goat Island, formerly known as “Yerba Buena” Island, is a small body of land lying about midway between San Francisco and Oakland. Reference to the inset accompanying the map of Oakland will show its exact location. It is obvious enough why the Central Pacific wanted the use of this island and of the mud flats lying directly north. It is just as obvious why, in the absence of regulation, the public should have objected to its exclusive occupation by any single railroad company. Yet, in March, 1868, one day after the action granting to the Central Pacific and to the Southern Pacific 60 acres of tide-lands in San Francisco, the state legislature granted to the Terminal Central Pacific Railroad Company—a corporation controlled by the associates—a defined area not to exceed 150 acres of the submerged shoal lands north of the island, with the right to reclaim these lands for railroad depot and commercial purposes, and to connect them by a bridge with the Oakland, Alameda, and Contra Costa shores. The company agreed to pay the fair appraised value of the lands into the state treasury, and to put into operation within four years a first-class rail and ferry communication between the city of San Francisco, the premises conveyed to it, Oakland and Vallejo.[148]

Two years later the time for the completion of the promised road was extended, and a railway to the Straits of Carquinez, opposite Vallejo, was accepted as sufficient to fulfil the requirement of a line to the town of Vallejo itself,[149] and in 1871 a still further extension of time was given. The road which the Southern Pacific proposed to build was probably that indicated in the notice of new construction filed at Sacramento in March, 1867—that is to say, it was a line running from Sacramento east of the Sacramento River past Freeport, crossing the mouth of the San Joaquin River, and continuing west through Antioch and over the hills to San Francisco Bay. Such a road could easily have been brought to Carquinez Straits, but it could not have reached Vallejo. The associates did not at this time intend to enter the territory west of the Sacramento River.

Project Lapses

Following the vote of the California legislature, a bill was introduced in Congress, providing for the grant to the Central Pacific Company of the right to use Goat Island itself. This logical sequence to the state legislation was opposed by the United States military authorities and by the city of San Francisco. It appeared that residents of San Francisco anticipated the permanent loss of a large part of the transcontinental business if the Central Pacific should occupy Goat Island. The San Francisco Bulletin insisted that there was room enough on the island and on the adjacent flat to accommodate all the warehouses and large shipping, mercantile, and financial establishments of a seaport of 500,000 inhabitants. It was stated that the advantages of the location would draw the warehouses, that other firms would follow, and that men who had business on the island would not live in San Francisco, but would make their homes on the eastern side of the Bay where land was cheaper, more level, and more fertile. These statements were generally believed.

Nothing was done in 1869, 1870, or 1871 beyond the steps just mentioned. In March, 1872, however, the San Francisco chamber of commerce passed resolutions and prepared a memorial addressed to the President and to Congress opposing the proposed grant, and a mass meeting was held in San Francisco to make public protest. Following this, conferences were held between a committee of citizens and the president of the Central Pacific in the hope of arriving at some general understanding relative to terminal facilities, and eventually the whole Goat Island project lapsed.[150]

Purchase of Other Roads

By the middle of 1868 the Central Pacific had thus secured satisfactory water-front facilities in both Oakland and San Francisco, amounting in the case of the former city, through the Oakland Water Front Company, to monopoly control. Needless to say, it had also abundant accommodations at Sacramento. Through the Southern Pacific Railroad it had also franchises in San Francisco, including the right to maintain tracks in the vicinity of Third and Townsend Streets. Up to August, 1868, however, it does not seem to have made the connections between its main line and Oakland that were necessary to enable its trains to reach San Francisco Bay at all. In that month Stanford, Huntington, Hopkins, and Crocker bought a majority of the stock of the San Francisco and Oakland Railroad, and the following year they purchased likewise the San Francisco and Alameda Railroad. The first-named company had 2 or 3 miles of track eastward from Oakland’s point. The Alameda company had about 16 to 18 miles. Both had valuable franchises, and both owned ferry-boats and piers extending some distance into the bay. In 1870 both of the companies were joined in the San Francisco, Oakland and Alameda Railroad, and in the same year this company was consolidated with the Central Pacific. By 1869 the gap between the end of the San Francisco and Alameda Railroad and Niles had been filled, and this in a real sense completed the transcontinental line.

CHAPTER V

THE SEARCH FOR A TERMINAL

Progress of Construction

Under its various construction contracts, the Central Pacific steadily progressed, between 1863 and 1869, from Sacramento to a junction with the Union Pacific near Ogden. The official statement of the progress of construction is as follows:[125]

Broke ground at Sacramento

January 8, 1863

Laid first rail

October 27, 1863

Sacramento to Roseville (18 miles)

Constructed in 1863

Road opened as follows:

To

Newcastle

31

miles

January, 1865

”

Auburn

36

”

May 15, 1865

”

Clipper Gap

42

”

June 10, 1865

”

Colfax

54

”

September 4, 1865

”

Secret Town

66

”

May 8, 1866

”

Alta

78

”

July 10, 1866

”

Cisco

94

”

November 9, 1866

”

Summit

105

”

July, 1867

”

State Line

278

”

January, 1868

”

Reno

294

”

May, 1868

”

Wadsworth

329

”

July, 1868

(362 miles constructed in 1868)

”

Monument Point

667

”

April 15, 1869

”

Ogden

743

”

May 10, 1869

Driving last spike, and opened for business from Sacramento; distance San Francisco to Ogden, per time card

883

”

May 10, 1869

Relations with Western Pacific

It has already been noted that the line from Sacramento via Stockton to San José was not part of the original plan, and that the rights, grants, and franchises of the Central Pacific in it were assigned to other parties in the course of the Congressional fight. The original assignment of December 4, 1862, was to a group of men which included Timothy Dane, the original projector, and president of the San Francisco and San José Railroad, Charles McLoughlin, and A. H. Houston. In 1864, the first assignees having waived their rights, the Central Pacific Railroad made the same assignment to the Western Pacific Railroad of California.[126] The Western Pacific Railroad in turn let contracts for construction to Houston and McLoughlin, but by 1867, McLoughlin had become involved in litigation regarding his contracts and asked that all arrangements between himself and the Western Pacific be canceled.[127]

This led the Western Pacific to enter into a contract with the Contract and Finance Company, with the result that substantially all the stock of the first-named corporation came into the hands of the Huntington group. McLoughlin retained the federal land grant; the federal subsidy, however, of $16,000 per mile, reverted to the Western Pacific as did the local subsidies, and through it passed to the Contract and Finance Company. The railroad from Sacramento to San José was opened September 15, 1869; on June 22, 1870, the Central Pacific and the Western Pacific filed articles of consolidation.

Lack of Terminal Facilities

In September, 1869, the transcontinental railroad from Omaha to San José was in working order. It would be an exaggeration to say that the line was in good shape. There was little or no ballast, and a good rain was said to make miles of the road-bed run like wet soap. Little had been done to eliminate grades and curves, sleeping-car accommodation at first was insufficient, the journey speed from Sacramento to Ogden was only 19 miles an hour, while schedules were not always adhered to. Cars were heated by stoves, and passengers disembarked for their meals. But in a measure these were conditions to be expected at the start, and interfered only in a minor degree with the interest and excitement of a transcontinental trip. The great fact was that a railroad existed which could be used, and over which relatively direct, rapid, and cheap communication with the East could be secured.

The greatest weakness of the Central Pacific Railroad in 1869 lay in its lack of terminal facilities on San Francisco Bay. When the company decided to begin work at Sacramento, its reasonable expectation had been that a railroad under one management would be built from that city around the southern end of San Francisco Bay to the city of San Francisco. The Central Pacific was willing to forego the advantage of this construction itself in order to gain friends, and did it the more willingly because this stretch of line was likely to be unprofitable by reason of steamship competition on the bay and on the Sacramento River. These conditions changed, however, when the Contract and Finance Company took over the construction of the railroad from Sacramento to San José. The Central Pacific interest then obtained a connection of its own with Niles near Oakland, and it was thus led to consider the question of terminals on the eastern side of San Francisco Bay.

The easiest part of San Francisco Bay for the Western Pacific Railroad to reach was undoubtedly the shore south of Oakland or Alameda. It would probably have been possible to build from Stockton to Richmond, as the Santa Fé did later, or to develop Benicia or Port Costa, or even to build a terminus on an island in the bay. Yet as compared with these alternatives, the Oakland terminus had many advantages. It was near to the Western Pacific main line; it was served by two railroads which possessed valuable franchises that could be bought at not too great expense; and, most important of all, the conditions under which the water-front at Oakland was held were favorable to the acquisition of the necessary terminal facilities.

Oakland Water-Front

The situation at Oakland was briefly as follows: The first army of settlers in the city had been squatters on a portion of the Peralta grant. Among these had been Horace W. Carpentier, Edson Adams, and A. J. Moon. In 1852 the state legislature had incorporated the town of Oakland, had fixed its boundary, and had granted to it the land lying between high tide and ship channel along the whole of its water-front, with a view to facilitating the construction of walls and other improvements.[128] There were 75 to 100 inhabitants in Oakland at this time, with half a dozen residences, two hotels, a wharf, and two warehouses. There were no streets—only cattle trails.[129]

As soon as incorporated, the town held an election, and chose Adams, Moon, Carpentier, and two others as trustees. Mr. Carpentier did not qualify or serve. On May 17 and 18, 1852, the board of trustees made two important grants: In the first place, it gave to Horace Carpentier for the period of thirty-seven years, the exclusive right to construct wharves, piers, and docks at any point within the corporate limits of Oakland, with the right of collecting wharfage and dockage; and in the second place, it sold, granted, and released to the said Carpentier all the town title in the land lying within the limits of the town of Oakland between high tide and ship channel.

In return for this grant Carpentier agreed to build three wharves and a schoolhouse, and to pay to the town 2 per cent of his wharfage receipts—certainly a modest recompense. Mr. Marier, president of the board of trustees, later testified that Carpentier told him when the deed was signed that he would be willing at any time to reconvey the property to the town on being reimbursed for the moneys he had expended; and this was also the recollection of others.[130] But the understanding, if any existed, never could be enforced,[131] so that Carpentier was firmly established in his control of the tide-lands of the city of Oakland, and in spite of petitions, riots, and litigation, sat unshaken in 1867 when the Central Pacific became interested in the matter.[132]

Oakland Water Front Company

Sometime prior to 1867 Carpentier had several talks with Leland Stanford, and endeavored to persuade him to build north from Niles across the Ravenswood cut-off. In the fall of 1867, Carpentier and Stanford talked again, and Stanford came to entertain the idea as a matter of reasonable negotiation. John P. Felton was engaged by the city of Oakland to look into its rights. Carpentier says that he offered the railroad one-half of his water-front if it would make his property its terminus. He says that this mode of adjustment was acquiesced in by Mayor Merritt and Mr. Felton, and that about the end of the year (1867), it came to be understood between them and Governor Stanford and himself that something should be done on approximately this basis.[133] Judge E. B. Crocker, however, attorney for the Central Pacific, asked that outstanding disputes regarding the water-front be first settled. The legislature was soon to be in session, and it was urged that all should act together in trying to get an authorization for the settlement of difficulties.

This was done.[134] On the 27th of March, 1868, as a part of a series of compromise arrangements, the Oakland Water Front Company was incorporated. The subscribers and original directors were H. W. Carpentier, president; Samuel Merritt, vice-president; Lloyd Tevis, secretary; Leland Stanford, treasurer; E. R. Carpentier and J. B. Felton. Mr. Tevis and H. W. Carpentier were in the same year directors of the Southern Pacific Railroad Company. The Oakland Water Front Company was capitalized for $5,000,000, and the stock was divided into 50,000 shares. Of these shares H. W. Carpentier subscribed for 23,000, or 46 per cent; Stanford for 17,500, or 35 per cent; and Felton for 4,999, or 10 per cent. Lloyd Tevis took 2,500 shares, E. R. Carpentier 2,000 shares, and Samuel Merritt 1 share.

On March 31, Mr. Carpentier deeded to the new corporation all the water-front of the city of Oakland, that is to say, all the lands, and the lands covered with water lying between high tide and ship channel, being the water-front lands described in and granted in the act of incorporation of May 4, 1852. He excepted from this deed only that water-front lying between the middle of Washington Street and the middle of Franklin Street and extending southerly to a line parallel with First Street. By Section 2 of an agreement made the following day, the Oakland Water Front Company agreed to deed this last-named area to the city of Oakland.[135]

Cession of Land by Water Front Company

On April 1, 1868, two further agreements were signed. One, styled an indenture, was between the Oakland Water Front Company, the Western Pacific Railroad Company, Carpentier, Felton, and Stanford. Under this indenture, and in consideration of the deed of March 31, the Oakland Water Front Company declared that it held the property conveyed to it subject to covenants which were particularly set forth as follows:

The Western Pacific Railroad agreed to select within three months 500 acres from the property conveyed by the deed of March 31, including not more than one-half mile of frontage on ship channel, together with not to exceed two strips of land over the remainder of the premises from high-water mark to the parcels selected. The strips running from high-water mark were each to be not more than 100 feet wide at grade.

The Oakland Water Front Company agreed to convey to the Western Pacific Railroad the 500 acres selected, and to grant an exclusive right-of-way over the hundred-foot strips. It undertook, moreover, to sell no land west of the 500 acres, provided that these were located out to a westerly water-front of 24 feet depth of water at low tide, and to place no obstructions in front of them, or to do anything to obstruct the free approach of vessels to the parcels.

The Water Front Company further agreed to convey to the city of Oakland on demand “so much of the premises as [lay] between the middle of Franklin Street and the easterly line of Webster Street, and extending out to a line parallel with First Street, and two hundred feet southerly of the present wharf at the foot of Broadway,” with the right of wharfage, dockage, and tolls thereon, and to designate and dedicate as a navigable water course for public use, the channel of San Antonio Creek, from ship channel to the town of San Antonio, to a width of not less than 200 feet over the shallow water at the bar, and 300 feet wide above that place.

The Water Front Company, in the third place, undertook to convey 25,000 shares of its stock to Carpentier, 5,000 shares to Felton, and 20,000 shares to Stanford.

Finally, the Water Front Company authorized the city of Oakland, or other parties, to construct a dam above the Oakland bridge, across the estuary, so as to keep the land above submerged to high-tide mark, for the use of the owners of the adjoining lands, and of the public.

The second paper, also signed on April 1, was an agreement between the Western Pacific Railroad Company, Leland Stanford, and the Water Front Company. By it the railroad agreed to construct or to purchase within eighteen months and to complete a railroad from its main line, then at Niles, to and connecting with the parcels of land described in the indenture of the same date, together with the necessary buildings and structures for a freight and passenger depot on the premises. The railroad agreed to expend in new work within three years $500,000. The railroad company agreed that in construction across the estuary between Oakland proper and Brooklyn it would leave a space for forty feet free for the passage of vessels.[136]

Attitude of City

Up to this point the city had not entered into any contracts. On April 1, however, the city council passed an ordinance ratifying and confirming the grants made under the early ordinances of 1852 and 1853, and the conveyance by Mr. Marier as president of the board of trustees, and granted, sold, and conveyed to the said Carpentier in fee simple forever, the city water-front, that is to say, the lands lying between high tide and ship channel. This ordinance further provided that Carpentier should convey to the Oakland Water Front Company the property and franchises conveyed at that time by the city to him, to be used in accordance with the terms and stipulations of the contract between the Oakland Water Front Company, the Western Pacific Railroad Company, and other parties. On the following day the council passed still another ordinance reciting that inasmuch as the terms and stipulations previously provided had been complied with by Carpentier, the grant was finally settled upon him.[137]

The result of these somewhat complicated negotiations was that the Central Pacific acquired 500 acres of water-front property in Oakland, with a frontage of one-half mile on ship channel, merely as a reward for coming to the city. In addition, Mr. Stanford, acting presumably on behalf of his associates, received 40 per cent of the capital stock of the Oakland Water Front Company, which on its part owned substantially all of the water-front remaining. The city attorney, who was supposed to represent the interests of the city, was rewarded with 10 per cent of the stock of the Oakland Water Front Company, and the position of director. The mayor of the city, Mr. Merritt, was made vice-president of the same corporation, although the extent of his personal interest in it is not known. He seems to have held only qualifying shares.[138]

In subsequent years the relations between the city of Oakland and the Oakland Water Front Company were repeatedly subjects of most bitter controversy. Extravagant as had been the consideration of the grant to the Central Pacific for coming to Oakland, this matter was less serious than the circumstance that the control of the remaining water-front by the Central Pacific through the Oakland Water Front Company appeared to make it impossible for any rival transportation company to gain a footing in the city. The city long endeavored to free itself from this monopoly. It contended at one time that Carpentier had secured the election of his own agents to the board of trustees which had made his grant, and that in any case Carpentier had agreed to reconvey the property to the city. Neither statement could be proved. On the contrary, in 1897 the Supreme Court of California definitely pronounced the compromise of 1868 binding upon the municipality, although it interpreted the words “ship channel” to mean the low-tide line and not a depth of three fathoms at low tide as had at first been supposed.[139]

Water-Front Monopoly Broken

Ten years later the title of the Oakland Water Front Company was again questioned in a case brought by the Western Pacific Railroad Company. By this time two jetties had been built by the United States government extending the lines of San Antonio Creek westward to deep water. As a result of the deposit of material taken out of the channel of the estuary and placed north of the northern training wall, and of additional deposits from dredging operations conducted by the Central Pacific and by private parties, the line of low tide had been moved appreciably out into the bay. Under the general rule that accretions belong to the proprietors of riparian lands, the Southern Pacific, as successor to the Oakland Water Front Company, asserted title up to the limit of the new line of low tide. This claim the federal court denied. The limit of the railroad company’s property was declared to be the low-tide line of 1852, extending first northwesterly and then northeasterly from the mouth of the San Antonio estuary at Sand Point as indicated in the map on page 93.[140]

i114

Map of Oakland and Brooklyn, showing location of Central Pacific terminals, 1871

This at one stroke transformed the Southern Pacific’s holding from a water-front to an interior location, by making it clear that the title to the substantial area between the bulkhead line of the city of Oakland and the low-water mark of 1852 lay in the city and not in private hands. The city had indeed given away its water-front as it existed in 1852, but the creation of a new water-front during the following years relieved it of the effects of its negligence. It thus appears that the alienation of the water-front of Oakland in 1868 did not permanently vest in the Central Pacific interest control of the tide-lands to which the compromise of that year referred. For the time being, however, the company secured a well-nigh complete monopoly. Not only had it convenient access to tide-water for its own trains, but it was able for many years to keep other railroads from obtaining a similar advantage. Up to this point, however, no arrangement had been completed for a terminus on the San Francisco side of San Francisco Bay.

Proposed Grant of San Francisco Water-Front

In order to establish the Central Pacific with complete adequacy, the associates accordingly now turned to the western side of San Francisco Bay and took steps to provide terminal facilities in the city of San Francisco itself. Possibly this was because they had acquired or were about to acquire a controlling interest in the San Francisco and San José Railroad; possibly it was due to Carpentier’s influence, or perhaps it was merely a recognition of the advantages of a terminal location in San Francisco.

Unlike Oakland, the city of San Francisco had never received title to all its tide-lands from the state, and application had to be made to the legislature at Sacramento, direct. Early in 1868 the Senate Committee on Commerce and Navigation, of the state legislature, reported a bill granting to the Western Pacific Railroad Company and to the Southern Pacific Railroad Company, submerged and tide-lands in the Bay of San Francisco, from the foot of Channel Street to Point San Bruno, with the right to extend the railroads of said companies or construct branches thereof, and to purchase other railroads, and use the same for the purpose of reaching the place or places on said premises selected as termini for said railroads, and to maintain and operate the same by steam or other power from the present lines of said railroads to the said termini on said premises, and with all necessary and proper depots, side-tracks, etc.

The boundaries of this extraordinary grant are indicated on the map on page 96.[141]

The total length from the foot of Channel Street to Point San Bruno was a little over 8 miles. The maximum breadth was approximately 2½ miles, and the area was estimated by opponents of the scheme to be not less than 6,620 acres. The value of such a water-front on the principal city of the Pacific Coast was to be measured in millions of dollars, and its importance to the Huntington interests was not limited to a money value alone. The possession of the San Francisco water-front south of Channel Street meant the occupation of the only part of the city at which a first-class railroad could reach tide-water. The reason for this is that all railroads must come into the city of San Francisco from the south or the southwest on account of the shape of the peninsula, and no railroad can conceivably be allowed to cross the main thoroughfare. Market Street, or to penetrate the thinly settled residential districts in the north.

i117

Boundaries of Railroad Tide-Land Grant, as proposed in 1868.

The bill provided that the Central Pacific, Western Pacific, Southern Pacific, and the San Francisco and San José railroads, which were the proposed grantees, should pay the fair market cash value of the submerged lands at the time of the passage of the act, being not less than $100 per acre for the lands lying north of Point Avisadero. But it was also provided that the surplus over $100 due for the land north of Point Avisadero might be spent in reclamation and improvement of the premises, and the companies were to receive patents if within five years not less than $1,000,000, in addition to such surplus, had been spent in this way. In plain English, the tide-lands were to be sold for $100 an acre, but in the case of some of them the beneficiaries might be required to spend additional amounts in improvements. The Senate committee defended its recommendation by saying that it was desirable to have the water-front improved, and that this was the way to have the thing done. It expected that the railroads would build a sea-wall; and observed that this wall, water-front, and docks would be subject to the control of the state harbor commissioners. How a rival railroad in the future would get access to the docks, it did not say.[142]

Scheme Opposed

Generally speaking, arrangements for the alienation of city water-front property into private hands are to be looked upon with suspicion unless extensive powers of control are reserved by state or city, and unless there is provision for the reversion of the property, including improvements, to the public at the end of a stipulated time not too far removed, on conditions and in a manner clearly stated. In the particular case in hand there were no such safe-guards to the public interest, except a general reservation of jurisdiction and control over the water-front by the State Board of Harbor Commissioners, and a provision that the grantees should charge no tolls or wharfage on the water-front sold to them. This was not enough. It was therefore fortunate under the circumstances that the improvident nature of the proposed contract was understood and its defects given full publicity by the San Francisco press. The San Francisco Bulletin commented as follows:

The scheme is an outrageous one. A proposition to sell to the Railroad Companies at a reasonable price, so much of the southern water-front as would be actually necessary for depots, warehouses, workshops, etc., might be considered favorably, but a proposal to give to what is or will be virtually a single corporation two-thirds of the frontage of a city destined to be the second in America, is utterly indefensible ... this immense property will be worth eventually as much as the Pacific Railroad itself.[143]

The Alta said:

If the parties who have so modestly presented their humble petition for this concession had gone one step farther, and asked for a grant of the whole State of California—all its tide and marsh lands—the control of all its rivers, bays and inlets, we do not know that the public amazement would have been any greater.[144]

Even the conservative San Francisco Times suggested that it would be well for the railroad companies to submit detailed estimates of the land needed for terminals and the uses to which this land was to be put,[145] while it refrained from commenting on the Bulletin’s assertions that it was the intent of the railroads to locate their terminus well south of the city of San Francisco to the great profit of parties from Sacramento who were buying lands around Hunter’s Point.

Another Plan Substituted

Whether or not this last accusation was well founded, the opposition of the city grew so intense that the legislature did not dare to carry out its original plan.[146] Instead, the Southern Pacific and Western Pacific were offered each 150 acres, to be located by the companies within specified limits south of Channel Street, and still later the amount was reduced to 30 acres apiece, and a donation was substituted for a sale. So amended, the act became law on March 30, 1868. It granted and donated to the Southern Pacific Railroad Company and to the Western Pacific Railroad Company for a terminus in the city of San Francisco, to each of said companies, 30 acres, exclusive of streets, basements, public squares, and docks. The land was to be selected by the railroad companies within ninety days, but it was to lie south of Channel Street, and outside of the Red-Line water-front of Mission Bay, and was not to extend beyond 24 feet of water at low tide, nor to within 300 feet of the line which should be selected by the tide-land commissioners as the permanent water line of the front of the city. A 200-foot right-of-way was given to the companies to provide access to their tide-lands. The lands were to be located and $100,000 spent upon them by each of the grantees within thirty months, or the grant would revert to the state.[147]

Compared with their original projects, the Act of 1868 represented a considerable check to the plans of Mr. Stanford and his friends. Yet the grant in San Francisco was important, and, added to what had been secured in Oakland, provided satisfactorily for the Central Pacific’s transportation needs.

In 1871 the San Francisco supervisors granted to the Southern Pacific and Central Pacific railroads rights on various streets in the city in order that they might reach and enjoy their lands and depot grounds in Mission Bay. Late in the same year Stanford indicated his willingness to make Mission Bay the main terminus of both the Central Pacific and Southern Pacific, in consideration of a subsidy of $3,000,000 and of alterations in the terms of the Mission Bay grant so as to make it more acceptable. Nothing came of these last negotiations, nor of somewhat similar proposals made in 1872 by a citizens’ committee engaged in fighting the Goat Island scheme (see below) and submitted to popular vote. In 1873-74, however, the city granted Stanford additional though minor franchises, enabling him to run trains on certain city streets.

Proposed Occupation of Goat Island

It will be readily understood that feeling ran high both in Oakland and San Francisco while the railroad negotiations for terminal facilities were going on. Nor was the public excitement allayed by the attempt of the Huntington group to occupy Goat Island, which occurred at the same time. Goat Island, formerly known as “Yerba Buena” Island, is a small body of land lying about midway between San Francisco and Oakland. Reference to the inset accompanying the map of Oakland will show its exact location. It is obvious enough why the Central Pacific wanted the use of this island and of the mud flats lying directly north. It is just as obvious why, in the absence of regulation, the public should have objected to its exclusive occupation by any single railroad company. Yet, in March, 1868, one day after the action granting to the Central Pacific and to the Southern Pacific 60 acres of tide-lands in San Francisco, the state legislature granted to the Terminal Central Pacific Railroad Company—a corporation controlled by the associates—a defined area not to exceed 150 acres of the submerged shoal lands north of the island, with the right to reclaim these lands for railroad depot and commercial purposes, and to connect them by a bridge with the Oakland, Alameda, and Contra Costa shores. The company agreed to pay the fair appraised value of the lands into the state treasury, and to put into operation within four years a first-class rail and ferry communication between the city of San Francisco, the premises conveyed to it, Oakland and Vallejo.[148]

Two years later the time for the completion of the promised road was extended, and a railway to the Straits of Carquinez, opposite Vallejo, was accepted as sufficient to fulfil the requirement of a line to the town of Vallejo itself,[149] and in 1871 a still further extension of time was given. The road which the Southern Pacific proposed to build was probably that indicated in the notice of new construction filed at Sacramento in March, 1867—that is to say, it was a line running from Sacramento east of the Sacramento River past Freeport, crossing the mouth of the San Joaquin River, and continuing west through Antioch and over the hills to San Francisco Bay. Such a road could easily have been brought to Carquinez Straits, but it could not have reached Vallejo. The associates did not at this time intend to enter the territory west of the Sacramento River.

Project Lapses

Following the vote of the California legislature, a bill was introduced in Congress, providing for the grant to the Central Pacific Company of the right to use Goat Island itself. This logical sequence to the state legislation was opposed by the United States military authorities and by the city of San Francisco. It appeared that residents of San Francisco anticipated the permanent loss of a large part of the transcontinental business if the Central Pacific should occupy Goat Island. The San Francisco Bulletin insisted that there was room enough on the island and on the adjacent flat to accommodate all the warehouses and large shipping, mercantile, and financial establishments of a seaport of 500,000 inhabitants. It was stated that the advantages of the location would draw the warehouses, that other firms would follow, and that men who had business on the island would not live in San Francisco, but would make their homes on the eastern side of the Bay where land was cheaper, more level, and more fertile. These statements were generally believed.

Nothing was done in 1869, 1870, or 1871 beyond the steps just mentioned. In March, 1872, however, the San Francisco chamber of commerce passed resolutions and prepared a memorial addressed to the President and to Congress opposing the proposed grant, and a mass meeting was held in San Francisco to make public protest. Following this, conferences were held between a committee of citizens and the president of the Central Pacific in the hope of arriving at some general understanding relative to terminal facilities, and eventually the whole Goat Island project lapsed.[150]

Purchase of Other Roads

By the middle of 1868 the Central Pacific had thus secured satisfactory water-front facilities in both Oakland and San Francisco, amounting in the case of the former city, through the Oakland Water Front Company, to monopoly control. Needless to say, it had also abundant accommodations at Sacramento. Through the Southern Pacific Railroad it had also franchises in San Francisco, including the right to maintain tracks in the vicinity of Third and Townsend Streets. Up to August, 1868, however, it does not seem to have made the connections between its main line and Oakland that were necessary to enable its trains to reach San Francisco Bay at all. In that month Stanford, Huntington, Hopkins, and Crocker bought a majority of the stock of the San Francisco and Oakland Railroad, and the following year they purchased likewise the San Francisco and Alameda Railroad. The first-named company had 2 or 3 miles of track eastward from Oakland’s point. The Alameda company had about 16 to 18 miles. Both had valuable franchises, and both owned ferry-boats and piers extending some distance into the bay. In 1870 both of the companies were joined in the San Francisco, Oakland and Alameda Railroad, and in the same year this company was consolidated with the Central Pacific. By 1869 the gap between the end of the San Francisco and Alameda Railroad and Niles had been filled, and this in a real sense completed the transcontinental line.

CHAPTER VI

ACQUISITION OF THE CALIFORNIA PACIFIC

Tendency to Monopoly Control

The first intimation that the Central Pacific Railroad was on its way to something like a monopoly control in the state of California is to be found in the negotiations for terminals on San Francisco Bay. But it was not long before more evidence came to light. Looking back with the advantage of knowledge of the company’s later history, it seems probable that the possibilities of monopoly control of the railway business of California were present to the owners of the Central Pacific as early as 1868. The task of securing such control was not, after all, so very great. California had few railroads in the sixties, and those which were in operation were small and unprosperous, and could be cheaply acquired.

Besides this, the topography of the state lent itself to schemes of conquest by a sharp separation of the interior valleys from each other and from the coast. It was not necessary to occupy the whole country, for an effective control over one valley could be maintained in spite of the fact that an adjacent valley was in hostile hands. Nor was there any public opinion in California at the time thoughtfully critical of monopoly, as such. The country was new. Theories covering the relations of large corporations to the consuming public had not been developed. People hated monopolies because monopolies meant high prices; but the very persons who were most likely to object to monopoly were also likely to seek positions of advantage for themselves when possible.

Under conditions like these, Stanford, Huntington, Hopkins, and Crocker were almost sure to attempt to dominate the railway system of the state as soon as they determined to make their connection with it more than temporary. This decision was made as the Central Pacific approached Ogden in 1868 and 1869. Had the associates been able to sell out before this time, it is likely that they would have done so. Indeed, it is credibly reported that 80 per cent of the stock of the Central Pacific was offered to D. O. Mills as late as 1873, for a price of $20,000,000,[151] and this was probably the last of several offers made to different parties.

The evidence seems to show, however, that by 1870 the Huntington group were inclined to remain in the railroad business. Strategically, the associates then occupied a very strong position. They possessed the only railroad line from California to the East. They dominated the Oakland water-front, and held important concessions in San Francisco. Branch lines, like long tentacles, stretched from Roseville north to Chico, on the way to the Oregon state line,[152] and from Lathrop south to Modesto, to be extended to Goshen by August 1, 1872.[153] By 1869 the Sacramento Valley Railroad, with its extension to Placerville, had been bought, and the California Central Railroad from Folsom to Marysville was under Central Pacific control. Even the budding project for a Southern Pacific Railroad had received the attention of Stanford and his associates. Indeed, the only really weak spots in the associates’ position were their failure fully to occupy the San Joaquin Valley, and the fact that they did not control the short line between Sacramento and San Francisco. We will, accordingly, consider the situation and the policy of the Huntington group in these respects.

i127

Map of California Railroad, about 1870.

Competition of California Pacific

The most direct railroad route from Sacramento to San Francisco is by way of Vallejo or Benicia, across the Straits of Carquinez, and along the eastern shore of San Francisco Bay. In 1865, after the Central Pacific had begun work in earnest, the California Pacific Railroad Company was incorporated to occupy this route from Sacramento as far as Vallejo. Contracts were let, though no material progress was made for two years. In 1867 the work was taken up with fresh energy, and in 1869 the road was finished between Vallejo and Sacramento, with a branch from Davisville to Marysville. The newly built Napa Valley Railroad from Adalanta, California, to Calistoga, was acquired at the same time. In 1870 the system reported 163 miles of road, of which 22 miles consisted of a ferry connection from Vallejo to the city of San Francisco.

It seems more probable that the California Pacific was originally intended as a connection for the Central Pacific than that it was built as a competitor with the larger road. This was satisfactory enough to the Central Pacific so long as this company terminated at Sacramento. But there is no manner of doubt that the California Pacific became a formidable competitor to the Central Pacific when the latter acquired its circuitous line to Oakland via Stockton. This was especially true with respect to the passenger business. The distance from Sacramento to San Francisco via Vallejo was 87 miles, via Stockton 137½ miles; the time via Vallejo was 3½ hours, via Stockton 5 hours. It appears that transcontinental passengers on Central Pacific trains often changed cars at Sacramento, sacrificing the balance of their through ticket and paying extra fare in order to save time.[154] Of the local passenger business between Sacramento and San Francisco, the California Pacific claimed three-fourths. How large a share of the freight went by the shorter line does not appear, but it must have been considerable, for Mr. Stubbs later estimated that the cost of operating the Benicia route could not have been more than 50 per cent of the cost of operating the Western Pacific,[155] and it is in evidence that the Central Pacific sent most of its freight via Benicia as soon as it obtained control of both lines.

It should be remembered also that in addition to its competition for local business, the California Pacific had ambitious plans in other directions. We know, for example, that it proposed an extension eastward via Beckwourth’s Pass to a connection with the Union Pacific, at or near Ogden. This line was to be built by the California Pacific Railroad Eastern Extension Company, incorporated at Sacramento in March, 1871, with a capital stock of $50,000,000.[156] Other reports credited it with an intention to enter the San Joaquin Valley;[157] while its influence in Sonoma, Marin and Napa counties was recognized. In short, by 1870 the California Pacific was not only important in respect to what it had actually accomplished, but it had in it the germ of a railroad system in no way inferior to that of the Central Pacific itself.

Rival’s Weakness

Unfortunately for the California Pacific, the company’s physical and financial position in 1871 did not measure up to the magnitude of its ambitions. Counsel for the Central Pacific in later years drew a vivid picture of the condition of the railroad in 1867 which probably contained more than a grain of truth. According to this account, the right-of-way of the California Pacific was unfenced, its sidings were few, and its stations were insufficient. The road-bed was almost wholly unballasted, and inadequately supplied with ties. Embankments were so narrow that the ends of the ties projected on both sides. The slope of the cuts was insufficient and upon the Napa branch the rails were fastened to the ties with wrought nails without heads which were bent back over the flanges of the rails after being partly driven, in order to hold the rails in position.[158]

On the other hand, in spite of the imperfect character of its construction, the California Pacific had paid large prices to contractors in its bonds and stock. In December, 1870, the company was compelled to borrow money to meet the January interest of 1871. By the following spring it was indebted to the extent of $8,450,000, of which $1,200,000 was floating debt, and had to prepare to meet an annual interest charge of $667,500. This was more than the company’s earnings could stand.

In 1871 the Central Pacific, taking advantage of the weakness of its rival, proceeded to the attack by arranging to construct a branch from Sacramento, by way of Davisville, to Vallejo. In pursuance of this arrangement it accumulated iron and ties, made surveys, and succeeded in effecting a contract with an organization known as the Bridge Company of the City of Sacramento, for the exclusive use of its bridge for their new enterprise.[159] The California Pacific was already suffering from the competition of river boats, and the construction of the new road would have ruined it. The pressing nature of the danger was appreciated by the managers of the road, and Milton S. Latham, director and treasurer of the California Pacific, and agent for the holders of three-fourths of the capital stock of that company, promptly opened negotiations with the Central Pacific, through Collis P. Huntington, for an adjustment of difficulties. This was precisely the situation which the Central Pacific desired to bring about.

Control of California Pacific Acquired

The agreement that resulted from the conditions described may probably be explained as an elaboration of the Central Pacific’s statement to Mr. Latham that the company was willing to buy the California Pacific but did not have the money. It took the form of the following consecutive transactions:

By agreement dated July 13, 1871, between Latham, Leland Stanford, and Mark Hopkins, Mr. Latham agreed to deliver 76,101 shares of the California Pacific Railroad Company, to assign three-fourths of the capital stock of the California Pacific Eastern Railroad Extension Company to the other parties to the contract, and to stipulate that the total indebtedness of the two companies named should not exceed $8,421,000. In consideration of this delivery, Stanford and Hopkins agreed to pay to Latham $1,579,000 in bonds of the California Pacific Railroad Company.

On August 9, 1871, Mr. Latham presented, and the directors of the California Pacific at a formal meeting approved, resolutions to the effect that the sum of $1,600,000 was necessary for the purpose of constructing and completing an additional track, and for strengthening the California Pacific embankments across the tule lands. The directors further voted that the money be borrowed, and the necessary bonds be issued. President Jackson then stated to the board that a contract had been made, and the execution of this contract was approved.

Under date of August 9, 1871, the California Pacific covenanted with Stanford, Hopkins, and Huntington for the construction referred to in the previous paragraph. The associates agreed

... to enlarge the embankment of the railroad of the said party of the second part, where embankment is required, and erect and widen the trestle work, where trestle work is required, from the bridge across the Sacramento River to Davisville, in the county of Yolo, in the State of California, and place thereon a good and sufficient superstructure, consisting of timber and ties and iron railroad thereon, so as to make an additional railroad track from said bridge to said Davisville, fully equal to the present railroad on the present embankment and to connect the same with proper switches with both the main track to Vallejo, and the track to Marysville of the railroads of the party of the second part. Said parties of the first part to furnish all the material for the said additional railroad track, and embankment, and trestle work, and to have the same completed and ready for use on or before the first day of January, in the year one thousand eight hundred and seventy-three.

In consideration of this construction, the California Pacific was to pay the associates 1,600 second mortgage California Pacific bonds.

On August 19, 1871, the Huntington group, now controlling a majority of the board of directors of the California Pacific, entered into an agreement with the California Pacific under which the Central Pacific undertook to pay the California Pacific $5,000 per month, to furnish the equipment for passenger business, and to guarantee the interest on 1,600 second mortgage bonds, while the California Pacific in return agreed to transport to or from San Francisco, passengers beginning or ending their trips on the Central Pacific or connecting roads, and to maintain its fare for other passengers at $4 between San Francisco and Sacramento. On September 1, 1871, the Central Pacific took full control of the California Pacific, and moved its offices from San Francisco to Sacramento.[160]

Motives Behind Transactions

Two explanations of these transactions are possible. Counsel for the Central Pacific, in 1886, maintained that the contracts fell into two distinct classes or groups. The California Pacific, according to this point of view, arranged for an additional track between Sacramento Bridge and Davisville, and for still more important enlargement in embankments and widening and erection of trestle work, by the transfer to defendants of second mortgage bonds. These bonds, it was alleged, though considerable in amount, had little value because of the desperate financial condition of the California Pacific. In the second place, the Central Pacific gave value to bonds which it held by a guaranty, and used them to buy a controlling interest in California Pacific stock. Of this, the minority stockholders of the corporation had no right to complain.

Counsel on the other side maintained that the essential feature of the whole transaction was the purchase of California Pacific stock, and that the various contracts merely supplied a method of buying this stock without paying for it. Starting, therefore, with the contract of July 13, they pointed out that the defendants agreed to purchase California Pacific stock from Latham with California Pacific bonds which were not yet in existence, stipulating for full control of the California Pacific before payment should be made, in order that they might obtain the purchase price from that company. When Latham announced that he was ready to deliver the stock, it became necessary for the defendants to secure about $1,600,000 in California Pacific bonds. These bonds could be legally issued only for new construction, hence the contract for a second track from Sacramento to Davisville. When issued, and in the hands of the defendants, it was necessary to have the Central Pacific’s guaranty. For this the Central Pacific required the California Pacific to enter into the traffic agreement of August 19, obtaining thus a full quid pro quo. The result was that the California Pacific furnished first the bonds and then a consideration for the Central Pacific’s guaranty, which together served to purchase the California Pacific stock.

Plausible Explanation

There were several circumstances which made this second version plausible. It seems extraordinary, for one thing, that a company in the straits to which the California Pacific was reduced should have issued bonds for double-tracking 13 miles of road.[161] If it be answered that the strengthening of the road against the immediate danger of flood was the real reason for the issue, then it was still extraordinary that the time limit for construction of the work should be set as it was, eighteen months away, on January 1, 1873. As a matter of fact, the section of the California Pacific across the tule lands was washed away before the associates got around to strengthening it. This made it impossible for Stanford, Huntington, and Hopkins, or the Contract and Finance Company, to which they had assigned their contract, to carry out the original agreement. Instead, Mr. Montague, chief engineer of the California Pacific, reported to his board that the cost of restoring the washed-out line would be equal to the cost of carrying out the original contract, and the board, on November 15, 1872, authorized the substitution of this work for that agreed on in the contract of August 9, 1871.

Owing to the subsequent destruction of the books of the Contract and Finance Company, there is no way of telling accurately what the cost of restoration actually was. The Contract and Finance Company finished the job, however, in six weeks after the work was actually commenced, and what information is available leads one to doubt if the expense was very great. Another circumstance which raises a question as to the good faith of the consideration offered for the 1,600 California Pacific bonds, is the coincidence that the par value of the bonds issued for construction was practically identical with the amount needed to pay for the 76,101 shares of stock sold by Latham to Stanford, Huntington, and Hopkins. Still another peculiar incident was that of the execution, contemporaneously with the main contract, of a supplementary agreement, under which the Stanford group agreed to pay Latham $250,000 in a six months’ note, besides the other consideration for California Pacific stock, if he would visit New York at once, obtain the consent of the stockholders whom he represented, and personally assume all the obligations of the California Pacific above the sum of $8,421,000 specified in the bond.

Whatever the true motives for the transaction described, the coincidence of the stock sale with the other transactions relieved the representatives of the California Pacific of any intense interest in the matter, and must inevitably have made them pliable as to terms. The directors present at the meeting of August 9, when the contract for the construction of the second track was approved, were Jackson, Hammond, Latham, Sullivan, and Atherton. Of these gentlemen, Hammond, Sullivan, and Atherton each held five shares only, transferred to their names to qualify them as directors; while the shares of Latham and Jackson were ready for transfer to Stanford, Huntington, and Hopkins. Hammond, vice-president of the company, as well as a director, subsequently said, referring to the contract for a second track: “I don’t recollect that I ever saw or knew what that contract was, until it was brought into the board.... This contract was made with a party who was purchasing the majority of the stock of that company, and whose interest would be to do that work in a workmanlike manner.” Certainly this was not a desirable point of view for a representative of the California Pacific to take.

Undisputed Control

The inevitable result of the various contracts and agreements which have been described was to place the Huntington group in undisputed control of the California Pacific. On August 10, 1871, Mr. Stanford was elected president vice Jackson, and on August 2, Mark Hopkins was elected treasurer vice Latham. The following year Hammond and Moses Hopkins took the positions of president and treasurer, respectively, while Stanford and Mark Hopkins and Collis P. Huntington were appointed general agents of the company, with large powers.

Once in control, Stanford and his associates proceeded to make the best use they could of the California Pacific in connection with other roads in their system. It does not appear that they felt any particular tenderness toward the enterprise. Most of the operating arrangements between the Central Pacific and the California Pacific were subsequently arranged by Mr. Towne for both parties, on terms favorable to the Central Pacific. It is on record that the California Pacific was allowed but $1 out of $16.75, the fare from Reno to San Francisco, for its haul from Sacramento to San Francisco, although the total distance was 240 miles, and the Sacramento-San Francisco haul amounted to 92 miles. Likewise, contracts were made with the Contract and Finance Company which were later complained of as extravagant. Special mention is made of lumber which was bought of the Contract and Finance Company at $30 a thousand when the market price was $18. Mr. Towne was asked in 1886:

Q. You say that you have done all that you could to increase the earnings of the California Pacific, do you?

A. Having a due regard for the other company; yes, sir.

Q. Did you make that qualification?

A. I do now.

Perhaps a policy of this sort was to be expected as the result of the conquest of a dangerous rival. Yet certain other arrangements between the Central Pacific and the California Pacific went beyond what one might have expected. It appears, for instance, that soon after the Stanford group obtained control of the last-named company, that portion of the contract of August 8, 1871, which provided for the payment of $5,000 monthly by the Central Pacific to the California Pacific, was eliminated. This elimination was said to have taken place by “mutual consent,” a meaningless phrase when the same men had charge of the negotiations for both sides.

Independent Security Holders

It has been charged, also, that Stanford and Huntington deliberately endeavored at this time to depress the value of California Pacific mortgage securities in order to induce independent holders to reduce their claims. In support of this contention there is evidence that very strong pressure was brought to bear upon independent security holders in 1874, and that as a result of this pressure the fixed charges of the California Pacific were reduced from $763,500 in 1875, to $303,500 in 1886. No part of this burden was borne by the second mortgage bonds held by Stanford, Huntington, Hopkins, and Crocker, nor was any assessment levied upon the company’s stock.

As a part of the campaign, during the period mentioned, wide publicity was given by the management of the California Pacific to financial difficulties, real or alleged, with which the company was confronted. Thus in June 1875, the board of directors confessed a judgment of $1,309,041.84 to one J. P. Haggin, assignee of certain claims of the Central Pacific, the Contract and Finance Company, and the associates, for advances previously made. Mr. Haggin had no interest in the matter, merely allowing the use of his name.[162] The following month, Vice-President Gray, of the California Pacific, made an extremely pessimistic report to his directors, declaring that the company’s deficit to date was $1,370,061.71, and that a large part of the outstanding bond issues of the company were represented by no construction that he was able to discover. On July 25, 1874, finally, a local capitalist named Michael Reese, acting in all probability on behalf of the associates, filed sensational charges against Mr. Latham, formerly general manager of the California Pacific, which called forth as sensational a reply.[163] These various activities roused holders of California Pacific Railroad Extension bonds to petition to have the California Pacific declared bankrupt, and drew forth a statement from the company, on the other hand, that it did not regard these bonds as constituting a valid legal claim upon it. The result was a compromise. The extension bondholders surrendered their 7 per cent bonds for a reduced amount in new 6 per cent securities, and the outstanding income bonds likewise exchanged their holdings for 3 per cent bonds. Both classes of bonds were guaranteed by the Central Pacific, and in consideration of the guaranty the California Pacific was leased to the Central Pacific on July 1, 1876, for 29 years, at a rental of $550,000 per year, plus three-fourths of the net earnings of the company above that amount. At a subsequent period in December, 1879, when the Central Pacific was about to turn a considerable volume of business over the short line by way of Benicia, the California Pacific gave up its right to payments over the $550,000 minimum in consideration of a fixed additional payment of $50,000 a year.[164]

By and large, the California Pacific proved a good investment for the larger company, especially after the Northern Railway had been built and a new route established between Oakland and Sacramento. The reason for its original acquisition was, nevertheless, in all probability, not the chance of a direct profit, but the advantage expected from a monopolistic control of the territory north of San Francisco Bay.

CHAPTER VII

BUILDING OF THE SOUTHERN PACIFIC

San Francisco and San José Railroad

The Huntington interests had secured control of the California Pacific. The next logical step was to strengthen the position of the Central Pacific south of San Francisco Bay. A start in this direction had already been made through the construction of a branch from Lathrop on the Central Pacific to Goshen in the San Joaquin Valley, finished in August, 1872. But this was not enough. Not only did the Central Pacific fail to reach the city of San Francisco, but the company was threatened in 1869 with the possibility that an independent Southern Railroad system might be created, no less ambitious than the California Pacific, and penetrating a richer if less developed territory. This projected system was that of the Southern Pacific Railroad, and in respect to it Mr. Stanford frankly said some years afterwards:

Well, the necessity of obtaining control of the Southern Pacific Railroad was based really upon the act of Congress providing for its construction. It became apparent that if that last was constructed entirely independent to those who were interested in the Central Pacific, it would become a dangerous rival not only for the through business from the Atlantic Ocean, but it would enter into active competition for the local business of California. It was of paramount importance that the road should be controlled by the friends of the Central Pacific; and all our anticipations consequent upon the control of that road have been realized.[165]

The small beginning of what later came to be known as the Southern Pacific Railroad system is to be found in the San Francisco and San José Railroad, which ran from San Francisco down the peninsula in a southerly direction to the city of San José. Originally this company was a local project only, and for some years an unsuccessful one. Several parties tried their hands at building it, but failed because they could not raise the necessary funds. In 1860 the project was taken up by a group of local capitalists of more than ordinary energy and resources, contracts were let, and four years later a line to San José was actually in running order. It was to these capitalists that the Central Pacific transferred its rights in the Western Pacific, and it seems to have been expected that the San Francisco and San José and the Western Pacific together would form the western end of the transcontinental line.

This expectation was disappointed, as was the hope that the San Francisco and San José would participate in the federal subsidies and land grants provided in the Pacific Railway Acts of 1862 and 1864. The city of San Francisco did, however, subscribe $300,000 in city bonds to San Francisco and San José Railroad stock, and the counties of Santa Clara and San Mateo, $200,000 and $100,000, respectively. At this time the Huntington group had no interests south of Sacramento. In 1869 the San Francisco and San José was extended to Gilroy by a company known as the Santa Clara and Pajaro Valley Railroad Company.

Southern Pacific Railroad Company

Shortly after the completion of the San Francisco and San José, another company, the Southern Pacific Railroad Company, was incorporated[166] by local parties in San Francisco to build a line of railroad in as direct a route as feasible from San Francisco to the town of San Diego, through the counties of Santa Clara, Monterey, San Luis Obispo, Tulare, Los Angeles, and San Diego; thence eastward through the county of San Diego to the eastern boundary of the state of California. It is quite possible that this new company was organized in anticipation of further legislation at Washington. At any rate in July, 1866, Congress granted to the Southern Pacific Railroad, besides a right-of-way, ten alternate sections of unreserved and unappropriated public lands on either side of the road, in the state of California, on condition that it construct a line, presumably from San Francisco, to a connection with a projected railroad known as the Atlantic and Pacific Railroad, which was authorized to extend from the state of Missouri to the Pacific Ocean. In case any portion of the twenty sections indicated should be found to be occupied or reserved, the Southern Pacific was to be given the privilege of selecting other lands within 20 miles of its road. The company was to begin work within two years, and to complete not less than 50 miles annually after the second year. No money or bond subsidy was given.[167] By Act of July 25, 1868, Congress extended the time for the construction of the Southern Pacific line, requiring the completion of the first 30 miles by July 1, 1870, and subsequent construction of 20 miles annually.[168] This was plainly an enterprise of first-class magnitude.

i142

Map showing northern end of the San Francisco and San José Railroad in 1862.

The evidence suggests that the San Francisco and San José and the Southern Pacific Railroad companies fell under the control of Stanford, Huntington, Hopkins, and Crocker some time in 1868. Mr. Stanford published a statement on March 6, 1868, to the effect that any rumor that the Central Pacific or Western Pacific Railroad Company or any person connected with either of them had purchased the Southern Pacific or the San Francisco and San José or any property or franchises connected therewith, or that any negotiations had been made tending to that result, was utterly without foundation.[169] On the other hand, it was Collis P. Huntington who signed a letter dated September 25, 1868, addressed to the Secretary of the Interior, at Washington, transmitting the annual report of the Southern Pacific Railroad required by the act of Congress. If Stanford told the truth in March, these two circumstances would indicate with sufficient precision the time when the associates took charge. In any case their influence was presently to appear.[170]

Consolidation

On October 12, 1870, the San Francisco and San José Railroad, the Southern Pacific, the Santa Clara and Pajaro Valley Railroad, and a new company, the California Southern, organized on paper only, were consolidated into a corporation known as the Southern Pacific Railroad of California. The directors for the first year were Lloyd Tevis, Leland Stanford, Charles Crocker, C. P. Huntington, Mark Hopkins, Charles Mayne, and Peter Donahue. Plainly, Central Pacific interests were in control. The purpose of the new company was stated to be to construct and operate a railroad from San Francisco to the Colorado River, through the counties of San Mateo, Santa Clara, Monterey, Fresno, Tulare, Kern, San Bernardino, and San Diego, together with a line from Gilroy through the counties of Santa Clara, Santa Cruz, and Monterey, to a point at or near Salinas City. This was not the line proposed in the articles of incorporation, as an examination of the accompanying map will show. It was, however, in the main the route designated by the Southern Pacific in 1867, upon which land had been withdrawn from entry by the government at Washington, and it had the advantage of reaching the eastern boundary of California with less mileage and fewer grades than the line originally laid out.[171]

i145

Proposed route of the Southern Pacific Railroad, according to map filed with the Commissioner of the General Land Office on January 3, 1867.

In 1871, an additional route from Los Angeles to Yuma was designated under the authority of the twenty-third section of the act to incorporate the Texas Pacific Railroad, which authorized the Southern Pacific Railroad Company to construct a line of railroad from a point at or near Techachapi Pass, by way of Los Angeles, to the Texas Pacific Railroad at or near the Colorado River, with the same rights and privileges, and subject to the same limitations and restrictions as were provided in the Atlantic and Pacific Act of 1866.[172]

Ambitious Construction Program

Because of the terms of the federal Act of 1866, it was necessary for the Southern Pacific to proceed steadily in its construction to the south. The first piece of road offered in satisfaction of the requirement for a minimum annual construction, was that from San José to Gilroy. Then came an extension to Tres Pinos, which ended, for the time being, building on the Northern Division. What happened was that the associates found the southern end of the San Benito Valley, in which Tres Pinos is located, relatively poor in traffic, and difficult to build in. Stanford visited the country personally, and found no business there, nor, in his opinion, any prospect of business. He accordingly shifted construction from the Tres Pinos line to the territory south of Goshen, and caused the Southern Pacific to build its next 20 miles in that section, expecting to connect with the San Joaquin Valley branch of the Central Pacific which ultimately came to Goshen in August, 1872. The Southern Pacific track reached Delano on July 14, 1873, Caliente on April 26, 1875, and Mojave on August 9, 1876. The stretch of 240 miles from Mojave to The Needles was not finished until June 22, 1883, but that to Fort Yuma was completed in 1877.

In later years there was discussion concerning the right of the Southern Pacific to refuse to build the stretch of road lying between Tres Pinos and Alcalde, connecting the San Benito and the San Joaquin valleys. It was insisted that the contract implied in the Congressional land grant of 1866 was an entire one, and that the amount of land given had been fixed in consideration of the difficulties of mountain construction between the valleys named. This contention is not, however, borne out by the terms of the Act of 1866, and there seems to be no good reason why Congress should have stipulated for the building of this particular bit of road, when satisfactory connection between the San Joaquin Valley and San Francisco could be secured in another way. On their part, the associates never intended to build across the Coast Range, at least not out of the San Benito Valley. In 1872 the articles of association of the Southern Pacific Branch Railroad Company contained provision for a line from a point at or near Salinas City in the county of Monterey southeasterly to a point in Kern County south of Tulare Lake, intersecting the San Joaquin Division of the Southern Pacific. Even this road never was built.[173]

At the time when the Southern Pacific Railroad entered upon its ambitious project for southern construction, the territory south and east of Goshen was very slightly developed. Los Angeles was a city of 5,728 persons in 1870, with an assessed valuation of $2,108,061, and an average of one saloon to every fifty-five inhabitants.[174] San Diego had a population of 2,300, and Santa Ana 1,445. These were the largest concentrations of people to be found, and they amounted to nothing more than little country towns.[175] Nor were the statistics of industry much more striking. Los Angeles and Kern counties produced respectable amounts of wool, and in the matter of wine the output from the former amounted to nearly one-third of that for the entire state and one-sixth of that reported for the United States as a whole. The number of cattle was also considerable. But in grain only a beginning had been made, the yield of the orchards was still small, and the volume of general agriculture, to say nothing of manufactures, was insignificant.

The railroad construction in the territory consisted of two local railroads connecting Los Angeles with the harbors of San Pedro and Santa Monica, to which should be added mention of the Texas Pacific project of Mr. Scott. The Los Angeles and San Pedro Railroad was organized in 1868 and was finished on October 26, 1869. The city of Los Angeles subscribed $75,000 in city bonds, and the county took an additional amount of $150,000, also paying in bonds. City and county bonds both bore 10 per cent. The construction of this railroad marked the fruition of efforts begun as early as 1861, but the credit for final accomplishment of the work was due to Phineas Banning, the principal business man of Wilmington.[176] General Banning is said to have entered the California legislature in order to advance his project and to have successfully overcome a great deal of opposition in his own district in order to put it through. The company was consolidated with the Southern Pacific in 1874.[177]

In addition to the Los Angeles and San Pedro, reference should be made to the Los Angeles and Independence, a railroad built in 1875 by Senator John P. Jones, of Nevada, partly to afford an outlet to certain mines in Inyo County from which the senator expected large results, and partly to develop property on Santa Monica Bay. This road was also acquired by the Southern Pacific interests, but at a later date, and at the instance of Mr. Huntington against the judgment of at least one of his associates.

Grant by Los Angeles

By the acquisition of the Los Angeles and San Pedro Railroad, the Southern Pacific provided itself with a southern terminal, in advance even of the completion of its main line. At the same time it used the advantage which the location of its mileage in the San Joaquin Valley gave to it in order to persuade the people of Los Angeles to grant it aid in the measure they could afford. Speaking after the event, it is sufficiently obvious that sooner or later the Southern Pacific, or some other transcontinental road, was bound to seek an outlet on the Pacific Ocean either at San Diego or at San Pedro, and of these two San Pedro was the most likely to be chosen. But this fact, clear at the present time, was not obvious to the inhabitants of Los Angeles; on the contrary, the possibility that Los Angeles might be passed by caused them the liveliest concern. This feeling was known to the officials of the Southern Pacific. In May, 1872, two citizens of Los Angeles wrote Mr. Stanford stating that they expected to call a meeting of tax-paying citizens of the county in a few days, for the purpose of selecting from among them an executive committee which should have full power to meet the representatives of any railroad company who might visit Los Angeles, in order to agree upon some plan whereby a railroad to Los Angeles might be constructed.[178]

i150

View south from over the San Fernando tunnel—Southern Pacific Railroad

The meeting was called, and the committee appointed. Harris Newmark, a prominent business man of Los Angeles, says that before the meeting he and ex-Governor Downey went to San Francisco and canvassed the whole situation with Mr. Huntington. A delegation from the citizens’ committee made a second visit and returned with a man named Hyde, who represented the railroad company. Between Mr. Hyde and the new committee terms were presently agreed upon. The Southern Pacific demanded a donation of 5 per cent of the assessed valuation of the county, which was the maximum authorized by state law. Since the county valuation in 1872 was set by the State Board of Equalization at $10,554,592, this meant a gift of $527,730. To cover this the county proposed to issue $377,000 in new 7 per cent bonds, and to turn over besides $150,000 in stock of the Los Angeles and San Pedro Railroad, which it held by virtue of its subscription to that company in 1868. The city added $75,000 in Los Angeles and San Pedro Railroad stocks, and 60 acres of depot ground. This made a clear gift in the aggregate of $602,000, besides whatever the depot ground might be worth, or $100 per capita for a population of 6,000 souls. On its side the Southern Pacific agreed to build 50 miles of its main trunk line in the county of Los Angeles, 25 miles to be built northward and 25 miles eastward from Los Angeles city. Later the company promised to add a branch to Anaheim. The whole arrangement was submitted to popular vote on November 5, 1872, and was then approved.

Inconveniences of Travel

Construction in accordance with the terms of the agreement of 1872 was promptly begun. San Fernando and San Pedro were reached in 1874, Anaheim in 1875, and the Southern Pacific main line in September, 1876. A vivid picture of the inconvenience of travel between Los Angeles and the East while the work was in progress, is given in the reminiscences of Harris Newmark, who has just been mentioned in connection with the negotiations between the railroad and the county of Los Angeles:

Before the completion of the San Fernando tunnel, a journey east from Los Angeles by way of Sacramento was beset with inconveniences. The traveler was lucky if he obtained passage to San Fernando on other than a construction train, and twenty to twenty-four hours, often at night, was required for a trip of the Telegraph Stage Lines’ creaking, swaying coach over the rough roads leading to Caliente—the northern terminal—where the longer stretch of the railroad north was reached. The stage lines and the Southern Pacific Railroad were operated quite independently, and it was therefore not possible to buy a through ticket. For a time previously, passengers took the stage at San Fernando and bounced over the mountains to Bakersfield, the point farthest south on the railroad line. When the Southern Pacific was subsequently built to Land’s Station, the stages stopped there; and for quite a while a stage started from each side of the mountain, the two conveyances meeting at the top and exchanging passengers. Once I made the journey north by stage to Tipton in Tulare County, and from Tipton by rail to San Francisco. The Coast line and the Telegraph line stage companies carried passengers part of the way. The Coast Line Stage Company coaches left Los Angeles every morning at five o’clock and proceeded via Pleasant Valley, San Buenaventura, Santa Barbara, Guadalupe, San Luis Obispo, and Paso de Robles Hot Springs, and connected at Soledad with the Southern Pacific Railroad bound for San Francisco by way of Salinas City, Gilroy, and San José, and his line made a specialty of daylight travel, thus offering unusual inducements to tourists. There was no limit as to time; and passengers were enabled to stop over at any point and to reserve seats in the stage coaches by giving some little notice in advance.

In 1876, I visited New York City for medical attention and for the purpose of meeting my son Maurice, upon his return from Paris. I left Los Angeles on the twenty-ninth of April by the Telegraph Stage Line, traveling to San Francisco and thence east by the Central Pacific railroad; and I arrived in New York on the eighth of May.[179]

The San Fernando tunnel to which Mr. Newmark refers is located 27 miles north of Los Angeles in the valley of the same name. It lies along the most direct and convenient route from Los Angeles into the San Joaquin Valley. Because of its length, nearly one and a quarter miles, and the unfamiliarity of the people of the coast with projects of this kind, there was much interest in the work and many doubts as to whether it could succeed. Governor Stevenson was credited with the statement that a tunnel could not be constructed. Other critics maintained that people could never be induced to travel through so long a tunnel, and that in any case the winter rains would cause it to cave in, to which Stanford replied that it was “too damned dry in Southern California for any such catastrophe.” So far as the records now show, however, there was no unusual obstacle encountered in the work, although the slowness with which the bore advanced and the large expense connected with construction caused considerable anxiety to the management of the Southern Pacific.

Western Development Company

In carrying out their plans for the occupation of Southern California, the Huntington group naturally followed the same general policy that had proved profitable to them in the case of the Central Pacific. That is to say, they organized construction companies, controlled by themselves, caused these companies to contract with the Southern Pacific for the construction of specified sections of line, and in their capacity as stockholders of the Southern Pacific required that company to issue and turn over large quantities of stocks and bonds in payment for work done. No further comment upon this method of procedure is necessary.

The first construction company which did work for the Southern Pacific, under the plan outlined in the preceding paragraph, was the Contract and Finance Company. This was the same organization that had completed the Central Pacific. It appears that the Contract and Finance Company simply shifted men, teams and equipment from the Central Pacific to the Southern Pacific line between San José and Tres Pinos. Later it built the road from Goshen to Sumner, and that from San Fernando via Los Angeles to Spadra. In all, it built for the Southern Pacific 143.65 miles, including the stretch from Gilroy to Tres Pinos. In 1874 the Contract and Finance Company was dissolved and the Western Development Company took its place.

The Western Development Company was incorporated December 15, 1874, for the announced purpose, among other things, of carrying on construction, manufacturing, mining, mercantile, mechanical, banking, and commercial business in all their branches, and also for the purpose of constructing, leasing, and operating all kinds of public and private improvements. That is to say, its powers were made as extensive as could well be imagined. Stanford, Hopkins, Huntington, and Crocker each held one-fourth of the stock.[180]

Under date of February 2, 1875, the Western Development Company agreed to construct a railroad and a telegraph line on the routes selected by the Southern Pacific, between certain specified termini. The mileage actually built was that from Sumner to San Fernando, from Spadra to Fort Yuma, and from Goshen to Huron. Bills were rendered for this work on the basis of $72,000 per mile, or $29,153,520 for 404.91 miles, half in Southern Pacific first mortgage bonds and half in stock.[181]

In addition to its contract with the Southern Pacific, the Western Development Company undertook certain miscellaneous construction, including work on the Northern Railway, and the San Pablo and Tulare Railroad, the building of steamers for the Central Pacific, bridges and buildings for the Central Pacific and Southern Pacific, general repairs for the various companies controlled by the associates, and even finally private residences for Hopkins, Stanford, and Crocker. In short, during its existence the Western Development Company, besides completing the major part of the Southern Pacific, did incidental building of any sort which the associates desired to have done.

Pacific Improvement Company

The death of Mr. Hopkins in 1878, and the temporary unwillingness of Mrs. Hopkins to participate in the financing of new construction, together with the death of Mr. Colton in the same year, led Stanford, Huntington, and Crocker to close up the affairs of the Western Development Company, and to continue their more or less speculative building enterprises under a new organization. This new company, incorporated November 4, 1878, was known as the “Pacific Improvement Company.” Its relations to the Southern Pacific and to the associates were the same as those of the Western Development Company, except that Mr. Colton, who had taken one-ninth of the Western Development Company stock in 1875, was not a stockholder, and that Mrs. Hopkins at the beginning took no part. Even the capital stock was placed at the same amount, $5,000,000.

The main accomplishment of the Pacific Improvement Company was the construction of the Southern Pacific between Mojave and The Needles. Besides this, however, it extended the Southern Pacific from Soledad to San Miguel, built the Southern Pacific in Arizona and the Southern Pacific in New Mexico, completed the California and Oregon, and Oregon and California railroads, and continued the Northern Railroad from Willows to Tehama. The contracts made were similar to those executed by the Western Development Company, although the consideration varied.[182]

The Pacific Improvement Company is still in existence. After the construction work for which it was incorporated was completed, Mr. Huntington sold his stock to the Hopkins estate. This gave to the Hopkins interest, then represented by Mr. Searles, possession of 50 per cent of the stock of the Pacific Improvement Company. The other 50 per cent remained in the hands of the Stanford and Crocker interests. At a later date the Searles stock passed to the University of California. The Pacific Improvement Company is now in process of liquidation. It owns some thirty town sites, a considerable amount of real estate, including much unimproved property in the Potrero district of San Francisco, land in the Monterey peninsula, and other property in Buffalo, New York. It has, besides, the stock and bonds of certain railroad companies, stock of the Carbondale Coal Company of Washington, and of the Oakland Water Front Company of Oakland, California, and what is still more important, it holds a large number of bills receivable covering property of all sorts which it has sold in recent years but which has not been entirely paid for. The Pacific Improvement Company’s construction outfit was sold to the Central Pacific in 1883.

The last of the construction companies, the Southern Development Company, became responsible for construction east of the Arizona state line when the Pacific Improvement Company left the field. It was of minor importance and may be dismissed with a word. In respect to ownership and operation it resembled the Contract and Finance Company, the Western Development Company, and the Pacific Improvement Company.

Identical Control of Companies

There is a great deal of history about the operation of the various construction companies mentioned, that has not been, and perhaps never will be, written. The men out on the road seem to have known little about any of them. The contact of these men was with Stanford, Huntingdon, Hopkins, and Crocker. They neither knew nor cared whether they received orders from the associates in their capacities as directors of the Central Pacific or of the Southern Pacific, or as stockholders in one of the construction companies. Nor was it easy for them to keep informed. The same construction force moved from place to place. The same man in the same pay-car paid off employees of the Central Pacific, the Southern Pacific, and the construction companies indiscriminately.[183] The same general shops furnished track materials.[184] The same equipment was found on all the different lines, except perhaps on the northern division. There was small wonder that even the higher engineering officials were unable to locate accurately the stretches built for each of the principal companies which they served, nor that men under them should have been altogether confused.

As a matter of fact, the various corporations interested in the building of the Southern Pacific were, after 1870, only different manifestations of the activities of one group of men. It does not appear that any attempt was ever made to interest outside investors. On the contrary, Hopkins, Huntington, Colton, and perhaps the other partners as well, agreed that if anything happened to one of them, their stock in the Western Development Company should not go to outside parties until the existing stockholders had had a chance to take it.[185]

This was a distinct contrast to the attitude of the same men when the Contract and Finance Company was formed, and indicates that they anticipated no such difficulty in raising funds as they had experienced when they built the Central Pacific. Had this not been true, it is probable that they would have let the Southern Pacific alone, competition or no competition.

Construction Financing

Under the terms of their contracts with the Southern Pacific, the construction companies received substantially all of the stock and bonds which that company put out. The same parties were, therefore, directly or indirectly in control both of the railroad and of the companies which did work for the railroad. These securities had, however, no market for many years, at any price. County donations, of which there were a few, also yielded but little, and the federal land grant was not easily or early sold. The real source of financial supplies for the Contract and Finance Company and its successors, the Western Development and the Pacific Improvement companies, in their work upon the Southern Pacific, were the Central Pacific, as a corporation, and the associates as individuals.

As in the case of the Contract and Finance Company, the associates paid no money on their stock subscriptions, but deposited funds in varying amounts which were credited to them as loans. Interest was paid on these advances at rates varying from 6 to 10 per cent. It appears that the contributions by the associates to the Western Development Company began to be considerable in May, 1876. By January, 1877, they had reached the sum of $3,421,458.35. By March, 1878, the total advance was in the neighborhood of $11,000,000. It remained at this figure through 1878, and the major part of 1879. The largest contributions were made by the estate of Mark Hopkins and by Collis P. Huntington, though both Crocker and Stanford kept substantial balances. There is no record of the size of advances made to the Pacific Improvement Company, but we know that the same general practice was continued.

In addition to the advances made by the Huntington group, the construction companies benefited substantially by the assistance rendered them by the Central Pacific. This was a sort of help which the Central Pacific itself and the persons who built it had never known. It took a variety of forms. A very obvious service which the Central Pacific could and did offer was the operation of sections of the Southern Pacific as fast as completed in connection with the Central Pacific main line. Besides this, the Central Pacific acted as banker when the construction companies had spare funds. More important still, the Central Pacific on occasion lent considerable sums to the Western Development Company. This was later denied by representatives of the Central Pacific, but the evidence seems conclusive that the loans were made.[186]

Similar advances were probably made by the Central Pacific to the Pacific Improvement Company,[187] and to the Contract and Finance Company, sometimes without interest. Money in the Central Pacific sinking fund was invested in this way, at interest.[188] Like use was made of surplus funds belonging to the Occidental and Oriental Steamship Company, which the Central Pacific was holding, until the Union Pacific discovered the matter, and, being interested in the money, demanded that its share be handed over.[189] There is even evidence that the associates borrowed money from the Central Pacific between 1874 and 1878, and that the treasurer of the company entered the sums taken on so-called “cash-tags,” carrying them as cash in his accounts.[190] How much all these transactions amounted to, it is very difficult to say, but it is probable that the aggregate was large.

Profits of Associates

There is no way of estimating the profits which Stanford, Huntington, Hopkins, and Crocker drew out of the Western Development, Pacific Improvement, and Southern Development companies. We know they were great, because the associates died very rich men. Mark Hopkins engaged in no important enterprise outside of his hardware business, except in railroad construction and operation, and yet in 1878 he left an estate appraised at over $19,000,000. Eleven years later, Charles Crocker’s estate was appraised at $24,142,475.84.[191] Stanford’s estate was not appraised in 1893, or at least no figures of value were made public, and Huntington did not die until long afterwards. Inasmuch as the associates up to 1878 were all interested in the same business together, and since the most important of their investments were in railroad construction work, it is fair to assume that the profits of the construction companies were considerable. Whatever they were it must, however, be remembered that they consisted in the main of Southern Pacific securities and of California real estate, neither of which were immediately salable. As a construction enterprise, the whole Southern Pacific affair was speculative. It was from the point of view of the owners of the Central Pacific alone that the construction of the Southern Pacific presented itself as a necessary policy, both for the protection of an existing investment, and for the full exploitation of the possibilities of monopoly in California.[192]

CHAPTER VII

BUILDING OF THE SOUTHERN PACIFIC

San Francisco and San José Railroad

The Huntington interests had secured control of the California Pacific. The next logical step was to strengthen the position of the Central Pacific south of San Francisco Bay. A start in this direction had already been made through the construction of a branch from Lathrop on the Central Pacific to Goshen in the San Joaquin Valley, finished in August, 1872. But this was not enough. Not only did the Central Pacific fail to reach the city of San Francisco, but the company was threatened in 1869 with the possibility that an independent Southern Railroad system might be created, no less ambitious than the California Pacific, and penetrating a richer if less developed territory. This projected system was that of the Southern Pacific Railroad, and in respect to it Mr. Stanford frankly said some years afterwards:

Well, the necessity of obtaining control of the Southern Pacific Railroad was based really upon the act of Congress providing for its construction. It became apparent that if that last was constructed entirely independent to those who were interested in the Central Pacific, it would become a dangerous rival not only for the through business from the Atlantic Ocean, but it would enter into active competition for the local business of California. It was of paramount importance that the road should be controlled by the friends of the Central Pacific; and all our anticipations consequent upon the control of that road have been realized.[165]

The small beginning of what later came to be known as the Southern Pacific Railroad system is to be found in the San Francisco and San José Railroad, which ran from San Francisco down the peninsula in a southerly direction to the city of San José. Originally this company was a local project only, and for some years an unsuccessful one. Several parties tried their hands at building it, but failed because they could not raise the necessary funds. In 1860 the project was taken up by a group of local capitalists of more than ordinary energy and resources, contracts were let, and four years later a line to San José was actually in running order. It was to these capitalists that the Central Pacific transferred its rights in the Western Pacific, and it seems to have been expected that the San Francisco and San José and the Western Pacific together would form the western end of the transcontinental line.

This expectation was disappointed, as was the hope that the San Francisco and San José would participate in the federal subsidies and land grants provided in the Pacific Railway Acts of 1862 and 1864. The city of San Francisco did, however, subscribe $300,000 in city bonds to San Francisco and San José Railroad stock, and the counties of Santa Clara and San Mateo, $200,000 and $100,000, respectively. At this time the Huntington group had no interests south of Sacramento. In 1869 the San Francisco and San José was extended to Gilroy by a company known as the Santa Clara and Pajaro Valley Railroad Company.

Southern Pacific Railroad Company

Shortly after the completion of the San Francisco and San José, another company, the Southern Pacific Railroad Company, was incorporated[166] by local parties in San Francisco to build a line of railroad in as direct a route as feasible from San Francisco to the town of San Diego, through the counties of Santa Clara, Monterey, San Luis Obispo, Tulare, Los Angeles, and San Diego; thence eastward through the county of San Diego to the eastern boundary of the state of California. It is quite possible that this new company was organized in anticipation of further legislation at Washington. At any rate in July, 1866, Congress granted to the Southern Pacific Railroad, besides a right-of-way, ten alternate sections of unreserved and unappropriated public lands on either side of the road, in the state of California, on condition that it construct a line, presumably from San Francisco, to a connection with a projected railroad known as the Atlantic and Pacific Railroad, which was authorized to extend from the state of Missouri to the Pacific Ocean. In case any portion of the twenty sections indicated should be found to be occupied or reserved, the Southern Pacific was to be given the privilege of selecting other lands within 20 miles of its road. The company was to begin work within two years, and to complete not less than 50 miles annually after the second year. No money or bond subsidy was given.[167] By Act of July 25, 1868, Congress extended the time for the construction of the Southern Pacific line, requiring the completion of the first 30 miles by July 1, 1870, and subsequent construction of 20 miles annually.[168] This was plainly an enterprise of first-class magnitude.

i142

Map showing northern end of the San Francisco and San José Railroad in 1862.

The evidence suggests that the San Francisco and San José and the Southern Pacific Railroad companies fell under the control of Stanford, Huntington, Hopkins, and Crocker some time in 1868. Mr. Stanford published a statement on March 6, 1868, to the effect that any rumor that the Central Pacific or Western Pacific Railroad Company or any person connected with either of them had purchased the Southern Pacific or the San Francisco and San José or any property or franchises connected therewith, or that any negotiations had been made tending to that result, was utterly without foundation.[169] On the other hand, it was Collis P. Huntington who signed a letter dated September 25, 1868, addressed to the Secretary of the Interior, at Washington, transmitting the annual report of the Southern Pacific Railroad required by the act of Congress. If Stanford told the truth in March, these two circumstances would indicate with sufficient precision the time when the associates took charge. In any case their influence was presently to appear.[170]

Consolidation

On October 12, 1870, the San Francisco and San José Railroad, the Southern Pacific, the Santa Clara and Pajaro Valley Railroad, and a new company, the California Southern, organized on paper only, were consolidated into a corporation known as the Southern Pacific Railroad of California. The directors for the first year were Lloyd Tevis, Leland Stanford, Charles Crocker, C. P. Huntington, Mark Hopkins, Charles Mayne, and Peter Donahue. Plainly, Central Pacific interests were in control. The purpose of the new company was stated to be to construct and operate a railroad from San Francisco to the Colorado River, through the counties of San Mateo, Santa Clara, Monterey, Fresno, Tulare, Kern, San Bernardino, and San Diego, together with a line from Gilroy through the counties of Santa Clara, Santa Cruz, and Monterey, to a point at or near Salinas City. This was not the line proposed in the articles of incorporation, as an examination of the accompanying map will show. It was, however, in the main the route designated by the Southern Pacific in 1867, upon which land had been withdrawn from entry by the government at Washington, and it had the advantage of reaching the eastern boundary of California with less mileage and fewer grades than the line originally laid out.[171]

i145

Proposed route of the Southern Pacific Railroad, according to map filed with the Commissioner of the General Land Office on January 3, 1867.

In 1871, an additional route from Los Angeles to Yuma was designated under the authority of the twenty-third section of the act to incorporate the Texas Pacific Railroad, which authorized the Southern Pacific Railroad Company to construct a line of railroad from a point at or near Techachapi Pass, by way of Los Angeles, to the Texas Pacific Railroad at or near the Colorado River, with the same rights and privileges, and subject to the same limitations and restrictions as were provided in the Atlantic and Pacific Act of 1866.[172]

Ambitious Construction Program

Because of the terms of the federal Act of 1866, it was necessary for the Southern Pacific to proceed steadily in its construction to the south. The first piece of road offered in satisfaction of the requirement for a minimum annual construction, was that from San José to Gilroy. Then came an extension to Tres Pinos, which ended, for the time being, building on the Northern Division. What happened was that the associates found the southern end of the San Benito Valley, in which Tres Pinos is located, relatively poor in traffic, and difficult to build in. Stanford visited the country personally, and found no business there, nor, in his opinion, any prospect of business. He accordingly shifted construction from the Tres Pinos line to the territory south of Goshen, and caused the Southern Pacific to build its next 20 miles in that section, expecting to connect with the San Joaquin Valley branch of the Central Pacific which ultimately came to Goshen in August, 1872. The Southern Pacific track reached Delano on July 14, 1873, Caliente on April 26, 1875, and Mojave on August 9, 1876. The stretch of 240 miles from Mojave to The Needles was not finished until June 22, 1883, but that to Fort Yuma was completed in 1877.

In later years there was discussion concerning the right of the Southern Pacific to refuse to build the stretch of road lying between Tres Pinos and Alcalde, connecting the San Benito and the San Joaquin valleys. It was insisted that the contract implied in the Congressional land grant of 1866 was an entire one, and that the amount of land given had been fixed in consideration of the difficulties of mountain construction between the valleys named. This contention is not, however, borne out by the terms of the Act of 1866, and there seems to be no good reason why Congress should have stipulated for the building of this particular bit of road, when satisfactory connection between the San Joaquin Valley and San Francisco could be secured in another way. On their part, the associates never intended to build across the Coast Range, at least not out of the San Benito Valley. In 1872 the articles of association of the Southern Pacific Branch Railroad Company contained provision for a line from a point at or near Salinas City in the county of Monterey southeasterly to a point in Kern County south of Tulare Lake, intersecting the San Joaquin Division of the Southern Pacific. Even this road never was built.[173]

At the time when the Southern Pacific Railroad entered upon its ambitious project for southern construction, the territory south and east of Goshen was very slightly developed. Los Angeles was a city of 5,728 persons in 1870, with an assessed valuation of $2,108,061, and an average of one saloon to every fifty-five inhabitants.[174] San Diego had a population of 2,300, and Santa Ana 1,445. These were the largest concentrations of people to be found, and they amounted to nothing more than little country towns.[175] Nor were the statistics of industry much more striking. Los Angeles and Kern counties produced respectable amounts of wool, and in the matter of wine the output from the former amounted to nearly one-third of that for the entire state and one-sixth of that reported for the United States as a whole. The number of cattle was also considerable. But in grain only a beginning had been made, the yield of the orchards was still small, and the volume of general agriculture, to say nothing of manufactures, was insignificant.

The railroad construction in the territory consisted of two local railroads connecting Los Angeles with the harbors of San Pedro and Santa Monica, to which should be added mention of the Texas Pacific project of Mr. Scott. The Los Angeles and San Pedro Railroad was organized in 1868 and was finished on October 26, 1869. The city of Los Angeles subscribed $75,000 in city bonds, and the county took an additional amount of $150,000, also paying in bonds. City and county bonds both bore 10 per cent. The construction of this railroad marked the fruition of efforts begun as early as 1861, but the credit for final accomplishment of the work was due to Phineas Banning, the principal business man of Wilmington.[176] General Banning is said to have entered the California legislature in order to advance his project and to have successfully overcome a great deal of opposition in his own district in order to put it through. The company was consolidated with the Southern Pacific in 1874.[177]

In addition to the Los Angeles and San Pedro, reference should be made to the Los Angeles and Independence, a railroad built in 1875 by Senator John P. Jones, of Nevada, partly to afford an outlet to certain mines in Inyo County from which the senator expected large results, and partly to develop property on Santa Monica Bay. This road was also acquired by the Southern Pacific interests, but at a later date, and at the instance of Mr. Huntington against the judgment of at least one of his associates.

Grant by Los Angeles

By the acquisition of the Los Angeles and San Pedro Railroad, the Southern Pacific provided itself with a southern terminal, in advance even of the completion of its main line. At the same time it used the advantage which the location of its mileage in the San Joaquin Valley gave to it in order to persuade the people of Los Angeles to grant it aid in the measure they could afford. Speaking after the event, it is sufficiently obvious that sooner or later the Southern Pacific, or some other transcontinental road, was bound to seek an outlet on the Pacific Ocean either at San Diego or at San Pedro, and of these two San Pedro was the most likely to be chosen. But this fact, clear at the present time, was not obvious to the inhabitants of Los Angeles; on the contrary, the possibility that Los Angeles might be passed by caused them the liveliest concern. This feeling was known to the officials of the Southern Pacific. In May, 1872, two citizens of Los Angeles wrote Mr. Stanford stating that they expected to call a meeting of tax-paying citizens of the county in a few days, for the purpose of selecting from among them an executive committee which should have full power to meet the representatives of any railroad company who might visit Los Angeles, in order to agree upon some plan whereby a railroad to Los Angeles might be constructed.[178]

i150

View south from over the San Fernando tunnel—Southern Pacific Railroad

The meeting was called, and the committee appointed. Harris Newmark, a prominent business man of Los Angeles, says that before the meeting he and ex-Governor Downey went to San Francisco and canvassed the whole situation with Mr. Huntington. A delegation from the citizens’ committee made a second visit and returned with a man named Hyde, who represented the railroad company. Between Mr. Hyde and the new committee terms were presently agreed upon. The Southern Pacific demanded a donation of 5 per cent of the assessed valuation of the county, which was the maximum authorized by state law. Since the county valuation in 1872 was set by the State Board of Equalization at $10,554,592, this meant a gift of $527,730. To cover this the county proposed to issue $377,000 in new 7 per cent bonds, and to turn over besides $150,000 in stock of the Los Angeles and San Pedro Railroad, which it held by virtue of its subscription to that company in 1868. The city added $75,000 in Los Angeles and San Pedro Railroad stocks, and 60 acres of depot ground. This made a clear gift in the aggregate of $602,000, besides whatever the depot ground might be worth, or $100 per capita for a population of 6,000 souls. On its side the Southern Pacific agreed to build 50 miles of its main trunk line in the county of Los Angeles, 25 miles to be built northward and 25 miles eastward from Los Angeles city. Later the company promised to add a branch to Anaheim. The whole arrangement was submitted to popular vote on November 5, 1872, and was then approved.

Inconveniences of Travel

Construction in accordance with the terms of the agreement of 1872 was promptly begun. San Fernando and San Pedro were reached in 1874, Anaheim in 1875, and the Southern Pacific main line in September, 1876. A vivid picture of the inconvenience of travel between Los Angeles and the East while the work was in progress, is given in the reminiscences of Harris Newmark, who has just been mentioned in connection with the negotiations between the railroad and the county of Los Angeles:

Before the completion of the San Fernando tunnel, a journey east from Los Angeles by way of Sacramento was beset with inconveniences. The traveler was lucky if he obtained passage to San Fernando on other than a construction train, and twenty to twenty-four hours, often at night, was required for a trip of the Telegraph Stage Lines’ creaking, swaying coach over the rough roads leading to Caliente—the northern terminal—where the longer stretch of the railroad north was reached. The stage lines and the Southern Pacific Railroad were operated quite independently, and it was therefore not possible to buy a through ticket. For a time previously, passengers took the stage at San Fernando and bounced over the mountains to Bakersfield, the point farthest south on the railroad line. When the Southern Pacific was subsequently built to Land’s Station, the stages stopped there; and for quite a while a stage started from each side of the mountain, the two conveyances meeting at the top and exchanging passengers. Once I made the journey north by stage to Tipton in Tulare County, and from Tipton by rail to San Francisco. The Coast line and the Telegraph line stage companies carried passengers part of the way. The Coast Line Stage Company coaches left Los Angeles every morning at five o’clock and proceeded via Pleasant Valley, San Buenaventura, Santa Barbara, Guadalupe, San Luis Obispo, and Paso de Robles Hot Springs, and connected at Soledad with the Southern Pacific Railroad bound for San Francisco by way of Salinas City, Gilroy, and San José, and his line made a specialty of daylight travel, thus offering unusual inducements to tourists. There was no limit as to time; and passengers were enabled to stop over at any point and to reserve seats in the stage coaches by giving some little notice in advance.

In 1876, I visited New York City for medical attention and for the purpose of meeting my son Maurice, upon his return from Paris. I left Los Angeles on the twenty-ninth of April by the Telegraph Stage Line, traveling to San Francisco and thence east by the Central Pacific railroad; and I arrived in New York on the eighth of May.[179]

The San Fernando tunnel to which Mr. Newmark refers is located 27 miles north of Los Angeles in the valley of the same name. It lies along the most direct and convenient route from Los Angeles into the San Joaquin Valley. Because of its length, nearly one and a quarter miles, and the unfamiliarity of the people of the coast with projects of this kind, there was much interest in the work and many doubts as to whether it could succeed. Governor Stevenson was credited with the statement that a tunnel could not be constructed. Other critics maintained that people could never be induced to travel through so long a tunnel, and that in any case the winter rains would cause it to cave in, to which Stanford replied that it was “too damned dry in Southern California for any such catastrophe.” So far as the records now show, however, there was no unusual obstacle encountered in the work, although the slowness with which the bore advanced and the large expense connected with construction caused considerable anxiety to the management of the Southern Pacific.

Western Development Company

In carrying out their plans for the occupation of Southern California, the Huntington group naturally followed the same general policy that had proved profitable to them in the case of the Central Pacific. That is to say, they organized construction companies, controlled by themselves, caused these companies to contract with the Southern Pacific for the construction of specified sections of line, and in their capacity as stockholders of the Southern Pacific required that company to issue and turn over large quantities of stocks and bonds in payment for work done. No further comment upon this method of procedure is necessary.

The first construction company which did work for the Southern Pacific, under the plan outlined in the preceding paragraph, was the Contract and Finance Company. This was the same organization that had completed the Central Pacific. It appears that the Contract and Finance Company simply shifted men, teams and equipment from the Central Pacific to the Southern Pacific line between San José and Tres Pinos. Later it built the road from Goshen to Sumner, and that from San Fernando via Los Angeles to Spadra. In all, it built for the Southern Pacific 143.65 miles, including the stretch from Gilroy to Tres Pinos. In 1874 the Contract and Finance Company was dissolved and the Western Development Company took its place.

The Western Development Company was incorporated December 15, 1874, for the announced purpose, among other things, of carrying on construction, manufacturing, mining, mercantile, mechanical, banking, and commercial business in all their branches, and also for the purpose of constructing, leasing, and operating all kinds of public and private improvements. That is to say, its powers were made as extensive as could well be imagined. Stanford, Hopkins, Huntington, and Crocker each held one-fourth of the stock.[180]

Under date of February 2, 1875, the Western Development Company agreed to construct a railroad and a telegraph line on the routes selected by the Southern Pacific, between certain specified termini. The mileage actually built was that from Sumner to San Fernando, from Spadra to Fort Yuma, and from Goshen to Huron. Bills were rendered for this work on the basis of $72,000 per mile, or $29,153,520 for 404.91 miles, half in Southern Pacific first mortgage bonds and half in stock.[181]

In addition to its contract with the Southern Pacific, the Western Development Company undertook certain miscellaneous construction, including work on the Northern Railway, and the San Pablo and Tulare Railroad, the building of steamers for the Central Pacific, bridges and buildings for the Central Pacific and Southern Pacific, general repairs for the various companies controlled by the associates, and even finally private residences for Hopkins, Stanford, and Crocker. In short, during its existence the Western Development Company, besides completing the major part of the Southern Pacific, did incidental building of any sort which the associates desired to have done.

Pacific Improvement Company

The death of Mr. Hopkins in 1878, and the temporary unwillingness of Mrs. Hopkins to participate in the financing of new construction, together with the death of Mr. Colton in the same year, led Stanford, Huntington, and Crocker to close up the affairs of the Western Development Company, and to continue their more or less speculative building enterprises under a new organization. This new company, incorporated November 4, 1878, was known as the “Pacific Improvement Company.” Its relations to the Southern Pacific and to the associates were the same as those of the Western Development Company, except that Mr. Colton, who had taken one-ninth of the Western Development Company stock in 1875, was not a stockholder, and that Mrs. Hopkins at the beginning took no part. Even the capital stock was placed at the same amount, $5,000,000.

The main accomplishment of the Pacific Improvement Company was the construction of the Southern Pacific between Mojave and The Needles. Besides this, however, it extended the Southern Pacific from Soledad to San Miguel, built the Southern Pacific in Arizona and the Southern Pacific in New Mexico, completed the California and Oregon, and Oregon and California railroads, and continued the Northern Railroad from Willows to Tehama. The contracts made were similar to those executed by the Western Development Company, although the consideration varied.[182]

The Pacific Improvement Company is still in existence. After the construction work for which it was incorporated was completed, Mr. Huntington sold his stock to the Hopkins estate. This gave to the Hopkins interest, then represented by Mr. Searles, possession of 50 per cent of the stock of the Pacific Improvement Company. The other 50 per cent remained in the hands of the Stanford and Crocker interests. At a later date the Searles stock passed to the University of California. The Pacific Improvement Company is now in process of liquidation. It owns some thirty town sites, a considerable amount of real estate, including much unimproved property in the Potrero district of San Francisco, land in the Monterey peninsula, and other property in Buffalo, New York. It has, besides, the stock and bonds of certain railroad companies, stock of the Carbondale Coal Company of Washington, and of the Oakland Water Front Company of Oakland, California, and what is still more important, it holds a large number of bills receivable covering property of all sorts which it has sold in recent years but which has not been entirely paid for. The Pacific Improvement Company’s construction outfit was sold to the Central Pacific in 1883.

The last of the construction companies, the Southern Development Company, became responsible for construction east of the Arizona state line when the Pacific Improvement Company left the field. It was of minor importance and may be dismissed with a word. In respect to ownership and operation it resembled the Contract and Finance Company, the Western Development Company, and the Pacific Improvement Company.

Identical Control of Companies

There is a great deal of history about the operation of the various construction companies mentioned, that has not been, and perhaps never will be, written. The men out on the road seem to have known little about any of them. The contact of these men was with Stanford, Huntingdon, Hopkins, and Crocker. They neither knew nor cared whether they received orders from the associates in their capacities as directors of the Central Pacific or of the Southern Pacific, or as stockholders in one of the construction companies. Nor was it easy for them to keep informed. The same construction force moved from place to place. The same man in the same pay-car paid off employees of the Central Pacific, the Southern Pacific, and the construction companies indiscriminately.[183] The same general shops furnished track materials.[184] The same equipment was found on all the different lines, except perhaps on the northern division. There was small wonder that even the higher engineering officials were unable to locate accurately the stretches built for each of the principal companies which they served, nor that men under them should have been altogether confused.

As a matter of fact, the various corporations interested in the building of the Southern Pacific were, after 1870, only different manifestations of the activities of one group of men. It does not appear that any attempt was ever made to interest outside investors. On the contrary, Hopkins, Huntington, Colton, and perhaps the other partners as well, agreed that if anything happened to one of them, their stock in the Western Development Company should not go to outside parties until the existing stockholders had had a chance to take it.[185]

This was a distinct contrast to the attitude of the same men when the Contract and Finance Company was formed, and indicates that they anticipated no such difficulty in raising funds as they had experienced when they built the Central Pacific. Had this not been true, it is probable that they would have let the Southern Pacific alone, competition or no competition.

Construction Financing

Under the terms of their contracts with the Southern Pacific, the construction companies received substantially all of the stock and bonds which that company put out. The same parties were, therefore, directly or indirectly in control both of the railroad and of the companies which did work for the railroad. These securities had, however, no market for many years, at any price. County donations, of which there were a few, also yielded but little, and the federal land grant was not easily or early sold. The real source of financial supplies for the Contract and Finance Company and its successors, the Western Development and the Pacific Improvement companies, in their work upon the Southern Pacific, were the Central Pacific, as a corporation, and the associates as individuals.

As in the case of the Contract and Finance Company, the associates paid no money on their stock subscriptions, but deposited funds in varying amounts which were credited to them as loans. Interest was paid on these advances at rates varying from 6 to 10 per cent. It appears that the contributions by the associates to the Western Development Company began to be considerable in May, 1876. By January, 1877, they had reached the sum of $3,421,458.35. By March, 1878, the total advance was in the neighborhood of $11,000,000. It remained at this figure through 1878, and the major part of 1879. The largest contributions were made by the estate of Mark Hopkins and by Collis P. Huntington, though both Crocker and Stanford kept substantial balances. There is no record of the size of advances made to the Pacific Improvement Company, but we know that the same general practice was continued.

In addition to the advances made by the Huntington group, the construction companies benefited substantially by the assistance rendered them by the Central Pacific. This was a sort of help which the Central Pacific itself and the persons who built it had never known. It took a variety of forms. A very obvious service which the Central Pacific could and did offer was the operation of sections of the Southern Pacific as fast as completed in connection with the Central Pacific main line. Besides this, the Central Pacific acted as banker when the construction companies had spare funds. More important still, the Central Pacific on occasion lent considerable sums to the Western Development Company. This was later denied by representatives of the Central Pacific, but the evidence seems conclusive that the loans were made.[186]

Similar advances were probably made by the Central Pacific to the Pacific Improvement Company,[187] and to the Contract and Finance Company, sometimes without interest. Money in the Central Pacific sinking fund was invested in this way, at interest.[188] Like use was made of surplus funds belonging to the Occidental and Oriental Steamship Company, which the Central Pacific was holding, until the Union Pacific discovered the matter, and, being interested in the money, demanded that its share be handed over.[189] There is even evidence that the associates borrowed money from the Central Pacific between 1874 and 1878, and that the treasurer of the company entered the sums taken on so-called “cash-tags,” carrying them as cash in his accounts.[190] How much all these transactions amounted to, it is very difficult to say, but it is probable that the aggregate was large.

Profits of Associates

There is no way of estimating the profits which Stanford, Huntington, Hopkins, and Crocker drew out of the Western Development, Pacific Improvement, and Southern Development companies. We know they were great, because the associates died very rich men. Mark Hopkins engaged in no important enterprise outside of his hardware business, except in railroad construction and operation, and yet in 1878 he left an estate appraised at over $19,000,000. Eleven years later, Charles Crocker’s estate was appraised at $24,142,475.84.[191] Stanford’s estate was not appraised in 1893, or at least no figures of value were made public, and Huntington did not die until long afterwards. Inasmuch as the associates up to 1878 were all interested in the same business together, and since the most important of their investments were in railroad construction work, it is fair to assume that the profits of the construction companies were considerable. Whatever they were it must, however, be remembered that they consisted in the main of Southern Pacific securities and of California real estate, neither of which were immediately salable. As a construction enterprise, the whole Southern Pacific affair was speculative. It was from the point of view of the owners of the Central Pacific alone that the construction of the Southern Pacific presented itself as a necessary policy, both for the protection of an existing investment, and for the full exploitation of the possibilities of monopoly in California.[192]

CHAPTER VII

BUILDING OF THE SOUTHERN PACIFIC

San Francisco and San José Railroad

The Huntington interests had secured control of the California Pacific. The next logical step was to strengthen the position of the Central Pacific south of San Francisco Bay. A start in this direction had already been made through the construction of a branch from Lathrop on the Central Pacific to Goshen in the San Joaquin Valley, finished in August, 1872. But this was not enough. Not only did the Central Pacific fail to reach the city of San Francisco, but the company was threatened in 1869 with the possibility that an independent Southern Railroad system might be created, no less ambitious than the California Pacific, and penetrating a richer if less developed territory. This projected system was that of the Southern Pacific Railroad, and in respect to it Mr. Stanford frankly said some years afterwards:

Well, the necessity of obtaining control of the Southern Pacific Railroad was based really upon the act of Congress providing for its construction. It became apparent that if that last was constructed entirely independent to those who were interested in the Central Pacific, it would become a dangerous rival not only for the through business from the Atlantic Ocean, but it would enter into active competition for the local business of California. It was of paramount importance that the road should be controlled by the friends of the Central Pacific; and all our anticipations consequent upon the control of that road have been realized.[165]

The small beginning of what later came to be known as the Southern Pacific Railroad system is to be found in the San Francisco and San José Railroad, which ran from San Francisco down the peninsula in a southerly direction to the city of San José. Originally this company was a local project only, and for some years an unsuccessful one. Several parties tried their hands at building it, but failed because they could not raise the necessary funds. In 1860 the project was taken up by a group of local capitalists of more than ordinary energy and resources, contracts were let, and four years later a line to San José was actually in running order. It was to these capitalists that the Central Pacific transferred its rights in the Western Pacific, and it seems to have been expected that the San Francisco and San José and the Western Pacific together would form the western end of the transcontinental line.

This expectation was disappointed, as was the hope that the San Francisco and San José would participate in the federal subsidies and land grants provided in the Pacific Railway Acts of 1862 and 1864. The city of San Francisco did, however, subscribe $300,000 in city bonds to San Francisco and San José Railroad stock, and the counties of Santa Clara and San Mateo, $200,000 and $100,000, respectively. At this time the Huntington group had no interests south of Sacramento. In 1869 the San Francisco and San José was extended to Gilroy by a company known as the Santa Clara and Pajaro Valley Railroad Company.

Southern Pacific Railroad Company

Shortly after the completion of the San Francisco and San José, another company, the Southern Pacific Railroad Company, was incorporated[166] by local parties in San Francisco to build a line of railroad in as direct a route as feasible from San Francisco to the town of San Diego, through the counties of Santa Clara, Monterey, San Luis Obispo, Tulare, Los Angeles, and San Diego; thence eastward through the county of San Diego to the eastern boundary of the state of California. It is quite possible that this new company was organized in anticipation of further legislation at Washington. At any rate in July, 1866, Congress granted to the Southern Pacific Railroad, besides a right-of-way, ten alternate sections of unreserved and unappropriated public lands on either side of the road, in the state of California, on condition that it construct a line, presumably from San Francisco, to a connection with a projected railroad known as the Atlantic and Pacific Railroad, which was authorized to extend from the state of Missouri to the Pacific Ocean. In case any portion of the twenty sections indicated should be found to be occupied or reserved, the Southern Pacific was to be given the privilege of selecting other lands within 20 miles of its road. The company was to begin work within two years, and to complete not less than 50 miles annually after the second year. No money or bond subsidy was given.[167] By Act of July 25, 1868, Congress extended the time for the construction of the Southern Pacific line, requiring the completion of the first 30 miles by July 1, 1870, and subsequent construction of 20 miles annually.[168] This was plainly an enterprise of first-class magnitude.

i142

Map showing northern end of the San Francisco and San José Railroad in 1862.

The evidence suggests that the San Francisco and San José and the Southern Pacific Railroad companies fell under the control of Stanford, Huntington, Hopkins, and Crocker some time in 1868. Mr. Stanford published a statement on March 6, 1868, to the effect that any rumor that the Central Pacific or Western Pacific Railroad Company or any person connected with either of them had purchased the Southern Pacific or the San Francisco and San José or any property or franchises connected therewith, or that any negotiations had been made tending to that result, was utterly without foundation.[169] On the other hand, it was Collis P. Huntington who signed a letter dated September 25, 1868, addressed to the Secretary of the Interior, at Washington, transmitting the annual report of the Southern Pacific Railroad required by the act of Congress. If Stanford told the truth in March, these two circumstances would indicate with sufficient precision the time when the associates took charge. In any case their influence was presently to appear.[170]

Consolidation

On October 12, 1870, the San Francisco and San José Railroad, the Southern Pacific, the Santa Clara and Pajaro Valley Railroad, and a new company, the California Southern, organized on paper only, were consolidated into a corporation known as the Southern Pacific Railroad of California. The directors for the first year were Lloyd Tevis, Leland Stanford, Charles Crocker, C. P. Huntington, Mark Hopkins, Charles Mayne, and Peter Donahue. Plainly, Central Pacific interests were in control. The purpose of the new company was stated to be to construct and operate a railroad from San Francisco to the Colorado River, through the counties of San Mateo, Santa Clara, Monterey, Fresno, Tulare, Kern, San Bernardino, and San Diego, together with a line from Gilroy through the counties of Santa Clara, Santa Cruz, and Monterey, to a point at or near Salinas City. This was not the line proposed in the articles of incorporation, as an examination of the accompanying map will show. It was, however, in the main the route designated by the Southern Pacific in 1867, upon which land had been withdrawn from entry by the government at Washington, and it had the advantage of reaching the eastern boundary of California with less mileage and fewer grades than the line originally laid out.[171]

i145

Proposed route of the Southern Pacific Railroad, according to map filed with the Commissioner of the General Land Office on January 3, 1867.

In 1871, an additional route from Los Angeles to Yuma was designated under the authority of the twenty-third section of the act to incorporate the Texas Pacific Railroad, which authorized the Southern Pacific Railroad Company to construct a line of railroad from a point at or near Techachapi Pass, by way of Los Angeles, to the Texas Pacific Railroad at or near the Colorado River, with the same rights and privileges, and subject to the same limitations and restrictions as were provided in the Atlantic and Pacific Act of 1866.[172]

Ambitious Construction Program

Because of the terms of the federal Act of 1866, it was necessary for the Southern Pacific to proceed steadily in its construction to the south. The first piece of road offered in satisfaction of the requirement for a minimum annual construction, was that from San José to Gilroy. Then came an extension to Tres Pinos, which ended, for the time being, building on the Northern Division. What happened was that the associates found the southern end of the San Benito Valley, in which Tres Pinos is located, relatively poor in traffic, and difficult to build in. Stanford visited the country personally, and found no business there, nor, in his opinion, any prospect of business. He accordingly shifted construction from the Tres Pinos line to the territory south of Goshen, and caused the Southern Pacific to build its next 20 miles in that section, expecting to connect with the San Joaquin Valley branch of the Central Pacific which ultimately came to Goshen in August, 1872. The Southern Pacific track reached Delano on July 14, 1873, Caliente on April 26, 1875, and Mojave on August 9, 1876. The stretch of 240 miles from Mojave to The Needles was not finished until June 22, 1883, but that to Fort Yuma was completed in 1877.

In later years there was discussion concerning the right of the Southern Pacific to refuse to build the stretch of road lying between Tres Pinos and Alcalde, connecting the San Benito and the San Joaquin valleys. It was insisted that the contract implied in the Congressional land grant of 1866 was an entire one, and that the amount of land given had been fixed in consideration of the difficulties of mountain construction between the valleys named. This contention is not, however, borne out by the terms of the Act of 1866, and there seems to be no good reason why Congress should have stipulated for the building of this particular bit of road, when satisfactory connection between the San Joaquin Valley and San Francisco could be secured in another way. On their part, the associates never intended to build across the Coast Range, at least not out of the San Benito Valley. In 1872 the articles of association of the Southern Pacific Branch Railroad Company contained provision for a line from a point at or near Salinas City in the county of Monterey southeasterly to a point in Kern County south of Tulare Lake, intersecting the San Joaquin Division of the Southern Pacific. Even this road never was built.[173]

At the time when the Southern Pacific Railroad entered upon its ambitious project for southern construction, the territory south and east of Goshen was very slightly developed. Los Angeles was a city of 5,728 persons in 1870, with an assessed valuation of $2,108,061, and an average of one saloon to every fifty-five inhabitants.[174] San Diego had a population of 2,300, and Santa Ana 1,445. These were the largest concentrations of people to be found, and they amounted to nothing more than little country towns.[175] Nor were the statistics of industry much more striking. Los Angeles and Kern counties produced respectable amounts of wool, and in the matter of wine the output from the former amounted to nearly one-third of that for the entire state and one-sixth of that reported for the United States as a whole. The number of cattle was also considerable. But in grain only a beginning had been made, the yield of the orchards was still small, and the volume of general agriculture, to say nothing of manufactures, was insignificant.

The railroad construction in the territory consisted of two local railroads connecting Los Angeles with the harbors of San Pedro and Santa Monica, to which should be added mention of the Texas Pacific project of Mr. Scott. The Los Angeles and San Pedro Railroad was organized in 1868 and was finished on October 26, 1869. The city of Los Angeles subscribed $75,000 in city bonds, and the county took an additional amount of $150,000, also paying in bonds. City and county bonds both bore 10 per cent. The construction of this railroad marked the fruition of efforts begun as early as 1861, but the credit for final accomplishment of the work was due to Phineas Banning, the principal business man of Wilmington.[176] General Banning is said to have entered the California legislature in order to advance his project and to have successfully overcome a great deal of opposition in his own district in order to put it through. The company was consolidated with the Southern Pacific in 1874.[177]

In addition to the Los Angeles and San Pedro, reference should be made to the Los Angeles and Independence, a railroad built in 1875 by Senator John P. Jones, of Nevada, partly to afford an outlet to certain mines in Inyo County from which the senator expected large results, and partly to develop property on Santa Monica Bay. This road was also acquired by the Southern Pacific interests, but at a later date, and at the instance of Mr. Huntington against the judgment of at least one of his associates.

Grant by Los Angeles

By the acquisition of the Los Angeles and San Pedro Railroad, the Southern Pacific provided itself with a southern terminal, in advance even of the completion of its main line. At the same time it used the advantage which the location of its mileage in the San Joaquin Valley gave to it in order to persuade the people of Los Angeles to grant it aid in the measure they could afford. Speaking after the event, it is sufficiently obvious that sooner or later the Southern Pacific, or some other transcontinental road, was bound to seek an outlet on the Pacific Ocean either at San Diego or at San Pedro, and of these two San Pedro was the most likely to be chosen. But this fact, clear at the present time, was not obvious to the inhabitants of Los Angeles; on the contrary, the possibility that Los Angeles might be passed by caused them the liveliest concern. This feeling was known to the officials of the Southern Pacific. In May, 1872, two citizens of Los Angeles wrote Mr. Stanford stating that they expected to call a meeting of tax-paying citizens of the county in a few days, for the purpose of selecting from among them an executive committee which should have full power to meet the representatives of any railroad company who might visit Los Angeles, in order to agree upon some plan whereby a railroad to Los Angeles might be constructed.[178]

i150

View south from over the San Fernando tunnel—Southern Pacific Railroad

The meeting was called, and the committee appointed. Harris Newmark, a prominent business man of Los Angeles, says that before the meeting he and ex-Governor Downey went to San Francisco and canvassed the whole situation with Mr. Huntington. A delegation from the citizens’ committee made a second visit and returned with a man named Hyde, who represented the railroad company. Between Mr. Hyde and the new committee terms were presently agreed upon. The Southern Pacific demanded a donation of 5 per cent of the assessed valuation of the county, which was the maximum authorized by state law. Since the county valuation in 1872 was set by the State Board of Equalization at $10,554,592, this meant a gift of $527,730. To cover this the county proposed to issue $377,000 in new 7 per cent bonds, and to turn over besides $150,000 in stock of the Los Angeles and San Pedro Railroad, which it held by virtue of its subscription to that company in 1868. The city added $75,000 in Los Angeles and San Pedro Railroad stocks, and 60 acres of depot ground. This made a clear gift in the aggregate of $602,000, besides whatever the depot ground might be worth, or $100 per capita for a population of 6,000 souls. On its side the Southern Pacific agreed to build 50 miles of its main trunk line in the county of Los Angeles, 25 miles to be built northward and 25 miles eastward from Los Angeles city. Later the company promised to add a branch to Anaheim. The whole arrangement was submitted to popular vote on November 5, 1872, and was then approved.

Inconveniences of Travel

Construction in accordance with the terms of the agreement of 1872 was promptly begun. San Fernando and San Pedro were reached in 1874, Anaheim in 1875, and the Southern Pacific main line in September, 1876. A vivid picture of the inconvenience of travel between Los Angeles and the East while the work was in progress, is given in the reminiscences of Harris Newmark, who has just been mentioned in connection with the negotiations between the railroad and the county of Los Angeles:

Before the completion of the San Fernando tunnel, a journey east from Los Angeles by way of Sacramento was beset with inconveniences. The traveler was lucky if he obtained passage to San Fernando on other than a construction train, and twenty to twenty-four hours, often at night, was required for a trip of the Telegraph Stage Lines’ creaking, swaying coach over the rough roads leading to Caliente—the northern terminal—where the longer stretch of the railroad north was reached. The stage lines and the Southern Pacific Railroad were operated quite independently, and it was therefore not possible to buy a through ticket. For a time previously, passengers took the stage at San Fernando and bounced over the mountains to Bakersfield, the point farthest south on the railroad line. When the Southern Pacific was subsequently built to Land’s Station, the stages stopped there; and for quite a while a stage started from each side of the mountain, the two conveyances meeting at the top and exchanging passengers. Once I made the journey north by stage to Tipton in Tulare County, and from Tipton by rail to San Francisco. The Coast line and the Telegraph line stage companies carried passengers part of the way. The Coast Line Stage Company coaches left Los Angeles every morning at five o’clock and proceeded via Pleasant Valley, San Buenaventura, Santa Barbara, Guadalupe, San Luis Obispo, and Paso de Robles Hot Springs, and connected at Soledad with the Southern Pacific Railroad bound for San Francisco by way of Salinas City, Gilroy, and San José, and his line made a specialty of daylight travel, thus offering unusual inducements to tourists. There was no limit as to time; and passengers were enabled to stop over at any point and to reserve seats in the stage coaches by giving some little notice in advance.

In 1876, I visited New York City for medical attention and for the purpose of meeting my son Maurice, upon his return from Paris. I left Los Angeles on the twenty-ninth of April by the Telegraph Stage Line, traveling to San Francisco and thence east by the Central Pacific railroad; and I arrived in New York on the eighth of May.[179]

The San Fernando tunnel to which Mr. Newmark refers is located 27 miles north of Los Angeles in the valley of the same name. It lies along the most direct and convenient route from Los Angeles into the San Joaquin Valley. Because of its length, nearly one and a quarter miles, and the unfamiliarity of the people of the coast with projects of this kind, there was much interest in the work and many doubts as to whether it could succeed. Governor Stevenson was credited with the statement that a tunnel could not be constructed. Other critics maintained that people could never be induced to travel through so long a tunnel, and that in any case the winter rains would cause it to cave in, to which Stanford replied that it was “too damned dry in Southern California for any such catastrophe.” So far as the records now show, however, there was no unusual obstacle encountered in the work, although the slowness with which the bore advanced and the large expense connected with construction caused considerable anxiety to the management of the Southern Pacific.

Western Development Company

In carrying out their plans for the occupation of Southern California, the Huntington group naturally followed the same general policy that had proved profitable to them in the case of the Central Pacific. That is to say, they organized construction companies, controlled by themselves, caused these companies to contract with the Southern Pacific for the construction of specified sections of line, and in their capacity as stockholders of the Southern Pacific required that company to issue and turn over large quantities of stocks and bonds in payment for work done. No further comment upon this method of procedure is necessary.

The first construction company which did work for the Southern Pacific, under the plan outlined in the preceding paragraph, was the Contract and Finance Company. This was the same organization that had completed the Central Pacific. It appears that the Contract and Finance Company simply shifted men, teams and equipment from the Central Pacific to the Southern Pacific line between San José and Tres Pinos. Later it built the road from Goshen to Sumner, and that from San Fernando via Los Angeles to Spadra. In all, it built for the Southern Pacific 143.65 miles, including the stretch from Gilroy to Tres Pinos. In 1874 the Contract and Finance Company was dissolved and the Western Development Company took its place.

The Western Development Company was incorporated December 15, 1874, for the announced purpose, among other things, of carrying on construction, manufacturing, mining, mercantile, mechanical, banking, and commercial business in all their branches, and also for the purpose of constructing, leasing, and operating all kinds of public and private improvements. That is to say, its powers were made as extensive as could well be imagined. Stanford, Hopkins, Huntington, and Crocker each held one-fourth of the stock.[180]

Under date of February 2, 1875, the Western Development Company agreed to construct a railroad and a telegraph line on the routes selected by the Southern Pacific, between certain specified termini. The mileage actually built was that from Sumner to San Fernando, from Spadra to Fort Yuma, and from Goshen to Huron. Bills were rendered for this work on the basis of $72,000 per mile, or $29,153,520 for 404.91 miles, half in Southern Pacific first mortgage bonds and half in stock.[181]

In addition to its contract with the Southern Pacific, the Western Development Company undertook certain miscellaneous construction, including work on the Northern Railway, and the San Pablo and Tulare Railroad, the building of steamers for the Central Pacific, bridges and buildings for the Central Pacific and Southern Pacific, general repairs for the various companies controlled by the associates, and even finally private residences for Hopkins, Stanford, and Crocker. In short, during its existence the Western Development Company, besides completing the major part of the Southern Pacific, did incidental building of any sort which the associates desired to have done.

Pacific Improvement Company

The death of Mr. Hopkins in 1878, and the temporary unwillingness of Mrs. Hopkins to participate in the financing of new construction, together with the death of Mr. Colton in the same year, led Stanford, Huntington, and Crocker to close up the affairs of the Western Development Company, and to continue their more or less speculative building enterprises under a new organization. This new company, incorporated November 4, 1878, was known as the “Pacific Improvement Company.” Its relations to the Southern Pacific and to the associates were the same as those of the Western Development Company, except that Mr. Colton, who had taken one-ninth of the Western Development Company stock in 1875, was not a stockholder, and that Mrs. Hopkins at the beginning took no part. Even the capital stock was placed at the same amount, $5,000,000.

The main accomplishment of the Pacific Improvement Company was the construction of the Southern Pacific between Mojave and The Needles. Besides this, however, it extended the Southern Pacific from Soledad to San Miguel, built the Southern Pacific in Arizona and the Southern Pacific in New Mexico, completed the California and Oregon, and Oregon and California railroads, and continued the Northern Railroad from Willows to Tehama. The contracts made were similar to those executed by the Western Development Company, although the consideration varied.[182]

The Pacific Improvement Company is still in existence. After the construction work for which it was incorporated was completed, Mr. Huntington sold his stock to the Hopkins estate. This gave to the Hopkins interest, then represented by Mr. Searles, possession of 50 per cent of the stock of the Pacific Improvement Company. The other 50 per cent remained in the hands of the Stanford and Crocker interests. At a later date the Searles stock passed to the University of California. The Pacific Improvement Company is now in process of liquidation. It owns some thirty town sites, a considerable amount of real estate, including much unimproved property in the Potrero district of San Francisco, land in the Monterey peninsula, and other property in Buffalo, New York. It has, besides, the stock and bonds of certain railroad companies, stock of the Carbondale Coal Company of Washington, and of the Oakland Water Front Company of Oakland, California, and what is still more important, it holds a large number of bills receivable covering property of all sorts which it has sold in recent years but which has not been entirely paid for. The Pacific Improvement Company’s construction outfit was sold to the Central Pacific in 1883.

The last of the construction companies, the Southern Development Company, became responsible for construction east of the Arizona state line when the Pacific Improvement Company left the field. It was of minor importance and may be dismissed with a word. In respect to ownership and operation it resembled the Contract and Finance Company, the Western Development Company, and the Pacific Improvement Company.

Identical Control of Companies

There is a great deal of history about the operation of the various construction companies mentioned, that has not been, and perhaps never will be, written. The men out on the road seem to have known little about any of them. The contact of these men was with Stanford, Huntingdon, Hopkins, and Crocker. They neither knew nor cared whether they received orders from the associates in their capacities as directors of the Central Pacific or of the Southern Pacific, or as stockholders in one of the construction companies. Nor was it easy for them to keep informed. The same construction force moved from place to place. The same man in the same pay-car paid off employees of the Central Pacific, the Southern Pacific, and the construction companies indiscriminately.[183] The same general shops furnished track materials.[184] The same equipment was found on all the different lines, except perhaps on the northern division. There was small wonder that even the higher engineering officials were unable to locate accurately the stretches built for each of the principal companies which they served, nor that men under them should have been altogether confused.

As a matter of fact, the various corporations interested in the building of the Southern Pacific were, after 1870, only different manifestations of the activities of one group of men. It does not appear that any attempt was ever made to interest outside investors. On the contrary, Hopkins, Huntington, Colton, and perhaps the other partners as well, agreed that if anything happened to one of them, their stock in the Western Development Company should not go to outside parties until the existing stockholders had had a chance to take it.[185]

This was a distinct contrast to the attitude of the same men when the Contract and Finance Company was formed, and indicates that they anticipated no such difficulty in raising funds as they had experienced when they built the Central Pacific. Had this not been true, it is probable that they would have let the Southern Pacific alone, competition or no competition.

Construction Financing

Under the terms of their contracts with the Southern Pacific, the construction companies received substantially all of the stock and bonds which that company put out. The same parties were, therefore, directly or indirectly in control both of the railroad and of the companies which did work for the railroad. These securities had, however, no market for many years, at any price. County donations, of which there were a few, also yielded but little, and the federal land grant was not easily or early sold. The real source of financial supplies for the Contract and Finance Company and its successors, the Western Development and the Pacific Improvement companies, in their work upon the Southern Pacific, were the Central Pacific, as a corporation, and the associates as individuals.

As in the case of the Contract and Finance Company, the associates paid no money on their stock subscriptions, but deposited funds in varying amounts which were credited to them as loans. Interest was paid on these advances at rates varying from 6 to 10 per cent. It appears that the contributions by the associates to the Western Development Company began to be considerable in May, 1876. By January, 1877, they had reached the sum of $3,421,458.35. By March, 1878, the total advance was in the neighborhood of $11,000,000. It remained at this figure through 1878, and the major part of 1879. The largest contributions were made by the estate of Mark Hopkins and by Collis P. Huntington, though both Crocker and Stanford kept substantial balances. There is no record of the size of advances made to the Pacific Improvement Company, but we know that the same general practice was continued.

In addition to the advances made by the Huntington group, the construction companies benefited substantially by the assistance rendered them by the Central Pacific. This was a sort of help which the Central Pacific itself and the persons who built it had never known. It took a variety of forms. A very obvious service which the Central Pacific could and did offer was the operation of sections of the Southern Pacific as fast as completed in connection with the Central Pacific main line. Besides this, the Central Pacific acted as banker when the construction companies had spare funds. More important still, the Central Pacific on occasion lent considerable sums to the Western Development Company. This was later denied by representatives of the Central Pacific, but the evidence seems conclusive that the loans were made.[186]

Similar advances were probably made by the Central Pacific to the Pacific Improvement Company,[187] and to the Contract and Finance Company, sometimes without interest. Money in the Central Pacific sinking fund was invested in this way, at interest.[188] Like use was made of surplus funds belonging to the Occidental and Oriental Steamship Company, which the Central Pacific was holding, until the Union Pacific discovered the matter, and, being interested in the money, demanded that its share be handed over.[189] There is even evidence that the associates borrowed money from the Central Pacific between 1874 and 1878, and that the treasurer of the company entered the sums taken on so-called “cash-tags,” carrying them as cash in his accounts.[190] How much all these transactions amounted to, it is very difficult to say, but it is probable that the aggregate was large.

Profits of Associates

There is no way of estimating the profits which Stanford, Huntington, Hopkins, and Crocker drew out of the Western Development, Pacific Improvement, and Southern Development companies. We know they were great, because the associates died very rich men. Mark Hopkins engaged in no important enterprise outside of his hardware business, except in railroad construction and operation, and yet in 1878 he left an estate appraised at over $19,000,000. Eleven years later, Charles Crocker’s estate was appraised at $24,142,475.84.[191] Stanford’s estate was not appraised in 1893, or at least no figures of value were made public, and Huntington did not die until long afterwards. Inasmuch as the associates up to 1878 were all interested in the same business together, and since the most important of their investments were in railroad construction work, it is fair to assume that the profits of the construction companies were considerable. Whatever they were it must, however, be remembered that they consisted in the main of Southern Pacific securities and of California real estate, neither of which were immediately salable. As a construction enterprise, the whole Southern Pacific affair was speculative. It was from the point of view of the owners of the Central Pacific alone that the construction of the Southern Pacific presented itself as a necessary policy, both for the protection of an existing investment, and for the full exploitation of the possibilities of monopoly in California.[192]

CHAPTER IX

THE CASE OF DAVID D. COLTON

Meeting the Associates

During the seventies the associates took a new partner. This was David D. Colton, one-time sheriff of Siskiyou County, brigadier-general of militia, second to Broderick in the famous Terry-Broderick duel, and still later colonel of United States Volunteers. In spite of these various military titles, Colton seems never to have seen service. But he had been active in California politics as a delegate of the Union Democratic party in 1861, and as chairman of the state central committee of that organization, and was widely known throughout the state. He was a man of fine physique, and endowed with a quick if not a profound intelligence.

Colton first made the acquaintance of Charles Crocker in 1867, when the latter was on his way to inspect the work of construction of the Central Pacific beyond Elko. Three years later Crocker invited Colton to accompany him to Evanston, California, where he intended to look over, and perhaps to purchase, certain coal mining properties. According to Crocker, Colton said that he also would like to have an interest in the mines in question. Crocker, who had in the meantime completed negotiations for the purchase, replied with an offer to make Colton president and manager of the coal company if he would buy a thousand shares of its stock, which Colton immediately did.[217]

The relations thus begun rapidly became more intimate. As early as 1868, Mr. and Mrs. Colton had invitations from Mr. Crocker and passes to travel on the Central Pacific. In 1869 or 1870 the two families visited the Yosemite together, and in 1871-72, when the Crockers went to Europe and the two Crocker boys were left behind at a military academy in Oakland, the Coltons looked after the children generally, and had them at the Colton house for week-ends.[218]

It was through his acquaintance with the Crockers that Mr. Colton met the other members of the Stanford group. Mr. Huntington was favorably impressed with him; Stanford and Hopkins less so. Huntington was becoming dissatisfied about this time with the amount of work done by his associates, and the suggestion soon made that Colton join the other members of the group and share the burden of managing the Central Pacific enterprise with them, met his approval. “I was worked,” he said later, “up to my full capacity, whatever that might be. Mr. Crocker was in the habit of going to Europe and having a good time and the Governor owned ranches, and his horses took a great deal of his time; in fact, the Governor never could confine himself right to the office; that is, I don’t consider that he could, to close, hard work, and we wanted somebody there to do that work; and Mr. Colton convinced me that he, of all men, was just the man that we wanted.” And again, speaking of his partners and of Colton, Huntington said: “He knew I was not satisfied with some things that my associate co-directors were doing there. The way they used to go to Europe and go away from business, while I was working every day in the year almost, and about fourteen hours a day; he knew I was not quite satisfied with the hours they put in.”[219] The fact that Mr. Hopkins’ health was not strong was an additional reason for taking in a new partner.

Agreement Signed

The result of these preliminary discussions was the conclusion of an agreement, dated October 5, 1874, whereby Colton received 20,000 shares of Central Pacific Railroad stock and 20,000 shares of Southern Pacific stock in return for his promissory note for $1,000,000, maturing in five years.[220] At the same time it was mutually understood that Colton should share in all the responsibilities and liabilities of the associates for five years in proportion to his stockholdings, and should stand in their shoes, as it were, holding the same positions and relations which they had to the Central Pacific Railroad, and to the Contract and Finance Company. The contract called for no cash payment, for obvious reasons.

Mr. Huntington says he felt in 1874 that Colton was receiving something very handsome, and the opinion was not without some justification. Certainly, in the long run the opportunity to share in the profits of the associates was valuable. Colton was not a man of large means to begin with, yet after two years and three months with the Central Pacific, he inventoried his assets at $961,506.18,[221] and at the time of his death his rent roll alone amounted to $2,500 to $3,000 a month.[222]

This was a very substantial compensation, even for very valuable service. But on the other hand, it is evident that Mr. Colton put himself entirely in the hands of the associates when he signed the agreement and the promissory note which have been described. He not only pledged his services for five years, but he assumed an unconditional liability to pay $1,000,000 at the end of this period, in return for which he obtained only 40,000 shares of unsalable securities and a right to participate in the management of the associates’ property which was revocable at the pleasure of Huntington and his friends at any time within two years. This was a dangerously exposed position. It was not a wise thing even for the Huntington-Stanford group to put Colton in such a predicament, and much subsequent difficulty resulted therefrom.

In 1876 the associates served notice on Mr. Colton, dissevering his connection with them. Mr. Crocker relates that Colton was very much affected. He said, according to Crocker, “It is generally known that I am here with you, and there is no one knows these relations are only temporary, and it will be next to ruin to me to have them dissevered now.” In fact, he wept. Crocker later testified that he liked the general very much, and was touched by his distress. Colton wished him to go and see the others, and Crocker did so. The result was that the notice was reconsidered and a second contract made.[223] After this, Colton bought one-ninth of the capital stock of the Western Development Company, and commenced to deposit money with that organization in the same manner as did the other members of the group.

“Financial Director”

During substantially the whole period from 1874 to 1878, Colton took active charge of the financial affairs of the Huntington group at the San Francisco end. His office and title beginning August 31, 1875, was that of “financial director.” Formally he acted under the direction of the treasurer of the company, Mr. Hopkins. Practically he reported to Mr. Huntington and perhaps to Mr. Crocker, more than to Mr. Hopkins, but exercised a good deal of independent initiative.[224] With the operation of neither the Central Pacific nor the Southern Pacific had he anything to do. On the other hand, it was either Colton in San Francisco, or Huntington in New York, as we shall presently see, who attended to the negotiation of short-time loans, often necessary to take care of interest on the railroad properties. It was also Colton who had particular charge of the many affairs of the Western Development Company;[225] it was Colton who was responsible head of the Rocky Mountain Coal and Iron Company’s mine at Ione; and it was Colton who took particular interest in finding a market for the output of this corporation.[226]

From the tone of Mr. Huntington’s letters to Colton, it seems as though the former was reasonably well satisfied with the way the business in the West was conducted after 1874. On his part, Colton cultivated the idea that the interests of the five associates, himself included, were inextricably bound together. “I have learned one thing,” he wrote in 1878, “we have got no true friends outside of us five.... People will profess friendship to one of us, just to either try to find out something, or when the time comes, lie about the rest of us. We cannot depend on a human soul outside of ourselves, and hence we must all be good-natured, stick together, and keep our own counsels.”[227]

Yet, in spite of his assumption of the permanency of his relations with the Huntington group, Mr. Colton certainly understood that his position had no legal security whatever. Of this the episode of 1876 must have been a disagreeable reminder. In particular, as has been observed, there was a reasonable likelihood that he would be called upon to pay his note for $1,000,000 in 1879, before the Central Pacific and Southern Pacific shares, which secured it, had become salable. It is evident that these matters were in Mr. Colton’s mind constantly, and gave him great concern. No other reason can be offered for his efforts to secure title to property with such feverish rapidity. How should he protect himself against the automatic presentation of a note which might require the sacrifice of all his accumulations to pay? How should he put himself in a position where his income was not wholly dependent on the forbearance of four men, with only one of whom he had ties of personal friendship? If Mr. Colton’s moral fiber weakened somewhat under the strain of the situation, the fact need occasion no great surprise.

Western Development Dividend

Some time after 1874 Colton suggested to Crocker that the salaries of the associates be raised. They were all drawing $10,000 a year, and were giving all their time for that salary. Colton said it was an insignificant sum. Men such as the associates ought to have $25,000 a year, at least. But Crocker replied prudently that a salary of $10,000 could always be justified, while one of $25,000 might not be. He preferred to let the matter stay as it was.[228]

Three years later, when the period of his contract was drawing to a close, Colton took more drastic action by causing the Western Development Company to distribute a substantial part of its assets in the form of a dividend. This provided him with property, upon which as security he might have borrowed considerable sums of money. A dividend was declared on September 4, 1877, which consisted of $13,500,000 in Central Pacific stock, $6,300,000 in Southern Pacific Railroad bonds, and $1,562,500 in other securities, amounting to between one-half and one-third of the holdings of the Western Development Company. Colton’s personal share was one-ninth.[229]

Ostensibly the Western Development Company’s dividend was a distribution of surplus profits. In reality it was a division of capital. Nobody knew, in 1877, how great the profits of the Western Development Company had been, nor even whether the assets of the company equaled its liabilities, for the reason that the value of these assets was speculative and uncertain, and if realized on all at once, would have amounted to scarcely anything at all. It was known, of course, that the creditors of the company were also its stockholders, so that the distribution was not quite so reckless as it otherwise might have appeared; but yet the various stockholders were not holders of stock in the same proportions as they were creditors, and the heavier creditors, such as Huntington, might well have felt that their interests were not being sufficiently protected.

i184

Nothing was said about the Western Development dividend to any of the associates at the time it was declared. Charles Crocker was in San Francisco, but knew nothing of it.[230] The fact came out, however, in August of the following year, when Huntington was in the West. Stanford, Huntington, and Crocker were all together in one of the Southern Pacific offices when Colton came in, accompanied by a couple of subordinates with their hands full of bonds, and said, “Gentlemen, here are your dividends.” Both Huntington and Crocker became at once very angry, and hot words seem to have passed. Huntington said that there was no sense in the dividend—it was wrong, the company ought to pay its debts before it paid a dividend—the stocks and bonds were of no particular value, but their distribution would leave the Western Development Company shorn of its resources, and they must be returned. Crocker agreed with Huntington. Colton begged the others not to injure him in the eyes of the employees of the company by compelling a return of the securities, and pledged his honor that he would not part with his shares, and would return them if needed. Stanford thought the matter might be passed with this understanding, and it was so agreed, not, however, without a good deal of resentment on the part of Huntington and Crocker.[231]

Misappropriation of Funds

The Western Development dividend and Colton’s request for a higher salary were, in a measure at least, open and above board. The same cannot be said of a number of other operations—in general, it is true, of minor importance—which took place between 1874 and 1878, and which became known only after Colton’s death. How far Colton was guilty of positive dishonesty during these years has been a matter of bitter dispute. There is no question, however, that he drew or credited himself with considerable amounts of money without the knowledge of the other partners, and that no vouchers were ever made out which sufficiently explained these transactions. Charges of embezzlement were even later made and not disproved. Three of four illustrations of such incidents may be given.

1. Salary drawn from the Rocky Mountain Coal and Iron Company. Mr. Colton was made president of this company in 1871 at a salary of $100 a month. In 1874 the associates agreed that Colton should receive a salary of $10,000 a year, as partner. No separate mention was made of the Rocky Mountain Coal and Iron Company in 1874, but it is reasonable to suppose that the new salary of $10,000 covered Colton’s work in supervising the coal property, as well as his share in the general administration of the railroad, especially as the coal business took comparatively little of his time. As a matter of fact, however, Colton restricted himself to $100 a month only during 1871. In 1872 he drew $400 a month, except during the month of March, when he took $366.50. In 1873 he took $23,500, of which a considerable amount was for back salary. In 1874 Colton drew $12,000, and in 1875, 1876, and 1877, $6,000 annually. According to the testimony of expert accountants who later went over the company’s books, Colton took $54,966.50 in salary during the years 1871-77 in excess of what he should have taken according to his agreement with Mr. Crocker, and beyond the amounts which the other associates intended he should have.[232]

2. Interest on Rocky Mountain Company balances. It is admitted that Mr. Colton deposited the balances of the Rocky Mountain Coal and Iron Company, running all the way from $30,000 to $90,000, in his own private bank account, and used them in his own private transactions.

3. Receipts from sale of coal. It appears that the Rocky Mountain Coal and Iron Company sold coal to the Central Pacific. For some time this coal was paid for at the rate of $2 and $2.65 per ton. In July, 1874, the Central Pacific made an extra payment of $11,622 to Mr. Colton for the purpose of increasing the price paid during the months from January to May, 1874, to $2.85 per ton, and arranged to pay this increased amount thereafter. In his instructions to the superintendent of the mine, Mr. Colton made no mention of the retroactive payment, and apparently pocketed the $11,622.

4. Appropriation of interest coupons. In 1876 Mr. Tevis wished to exchange some Southern Pacific bonds which he held, for certain lands owned by the Railroad Company. Colton agreed to facilitate the transaction by taking the bonds and giving his individual check for $140,700. Tevis delivered the check and $10.13 in cash to the Southern Pacific land agent, and got his deed. Colton eventually redeemed his check by delivery of the bonds to the treasurer of the Southern Pacific, but when the bonds came in, two interest coupons were missing. A similar transaction between the same parties, but for a lesser amount, took place later the same year, and again interest coupons were clipped from the bonds before Colton turned them in.[233] In each case Mr. Smith, the treasurer of the Southern Pacific, was compelled to hold Colton’s check for a considerable period before it was redeemed, and during this time Colton had, of course, the use of the money.

In addition to matters such as those here partially enumerated, there were a multitude of instances in which Colton charged relatively small sums to various accounts without supplying any evidence that the charges were legitimate. Doubtless the other associates did the same, but Colton’s position in the group was peculiar, and he could not afford to allow himself equal freedom with Huntington and Stanford. It would serve no useful purpose to discuss these instances in detail.

The aggregate of all the sums which Colton thus gathered into his control was considerable. The Western Development dividend alone supplied him with 700 Southern Pacific bonds that might have been used as collateral security for a loan, as well as with other securities, mostly of still uncertain value. Items of excess salary, interest on balances, and miscellaneous unaccounted-for expenses totaled $130,831.13. Had Colton succeeded in increasing his salary as financial director to $25,000, he would have added from $75,000 to $100,000 to his resources. Substantial progress was evidently being made toward meeting the million dollar note.

Colton’s Death and Mrs. Colton

Upon all the activities which have been described, Colton’s death in October, 1878, in the prime of life, fell with crushing force. In the first place, Colton’s manipulations were such as to be unforgivable by his business friends. Devious as Huntington’s ethical code was at times, he had no hesitation in pronouncing Mr. Colton guilty of robbery; that he himself was partly responsible was not likely to occur to him. In the second place, Colton’s assets at the time of his death were such as to render immediate liquidation impossible, and yet this was precisely the thing most likely to be demanded. Mrs. Colton, the sole heir, was a woman of unusual ability, clear-headed, definite in speech, and, although inexperienced in business, apparently quickly able to understand business problems. She had, moreover, a good adviser in the person of a San Francisco lawyer named S. M. Wilson. Her position was, nevertheless, one of disadvantage, which was intensified by her wish to shield her husband’s reputation.

It does not appear that the associates were aware of the true state of affairs during the weeks immediately following Mr. Colton’s death. Mr. Huntington wrote cordial though not altogether sincere letters to Mrs. Colton, expressing willingness to serve her in those matters in which General Colton was interested with the associates,[234] and Crocker called at Mrs. Colton’s house and wept there while speaking of the death of Mr. Colton. This attitude soon changed, however, and Mr. Crocker became less friendly in his intercourse with Mrs. Colton, and at last ceased to visit her altogether.[235] In fact, all pretense of sympathy with Mrs. Colton was presently abandoned, and negotiations between her and the associates were continued upon a cold business basis.

The attitude of the Stanford-Huntington crowd was officially that they were willing to have Mrs. Colton pay her obligations and continue with them. This meant a settlement of claims arising out of the improper withdrawal of moneys by Mr. Colton, but also more particularly the payment of the $1,000,000 note. It involved, also, for the future continued investment of funds in the Western Development Company, and the payment of assessments which might be levied upon Southern Pacific stock. It was insisted, however, that the matter be settled quickly, partly because Mr. Huntington was about to leave the city, and partly because the period for filing claims against the Colton estate would soon expire.[236]

In the event that Mrs. Colton should not desire to continue with them, the associates demanded an accounting in which the liabilities of Mr. Colton on account of the $1,000,000 note, his share of the net indebtedness of the Western Development Company, and the sum of the alleged embezzlements, should be set against the estimated value of the stock and bonds of which Colton died possessed. In estimating the value of Mr. Colton’s securities, moreover, the associates declared that the question was not as to the amount which could be realized eventually and after the underlying property had had a chance to prove itself, but the market value at the time of negotiations.

Mr. Crocker’s testimony on this point expresses very fully the attitude of the associates. He said:

Mr. Wilson and I had frequent conversations, and he sometimes asserted we could do so and so with these bonds, that we could realize 80 or 90 cents on them. I said in reply, “Possibly we can; I don’t know; it is a matter of speculation; it depends on the future of the roads.” Sometimes he would claim they would bring 80 or 85 cents; and then I would say, “Very likely they may,” but it would require time to do it, and a great deal of management necessarily to bring that out, and if Mrs. Colton desired to realize the full value of these securities after this lengthy handling of them, all she had to do was to pay the amount of the note and continue in the company and we would manage them for her, as well as we would for ourselves, of course, and she should receive the full benefit of our knowledge and experience in handling these securities, and we would get every dollar out of them we could, and she should have her share to the last cent. Then he would reply: “Well, that can’t be. We are determined to go out of this.” “Well,” I says, “then it is a matter of speculation.”[237]

Unquestionably these were hard terms, for it was out of the question for Mrs. Colton to continue with the associates in 1879, a fact of which these gentlemen must have been well aware. She did not have the necessary money, she could not afford in any case to risk her livelihood in so speculative an undertaking as building railroads in southern California, and the relations between her and the Huntington group did not savor of trust and confidence. The expressions of willingness to continue to treat Mrs. Colton as one of themselves cost the associates nothing, and were worth as much. Nor was the standard of valuation of the Colton assets offered by the associates, easily to be defended on ethical grounds. Mr. Colton had not played fair, it is true, but on his part he had been led into an improvement agreement and caused to sign a $1,000,000 note, in at least partial reliance upon the value of the stock of railroads under the associates’ control, which was given him in exchange. It was hardly appropriate for the Huntington group now to insist that the collateral security had no value.

Settlement with Mrs. Colton

Hard as the terms were, Mrs. Colton finally acceded to them. By agreement dated August 27, 1879, she turned over 408 shares of the capital stock of the Rocky Mountain Coal and Iron Company, all of the shares which she held of the Occidental and Oriental Steamship Company, all claims to the 40,000 shares of Central Pacific Railroad and Southern Pacific Railroad stock, pledged as collateral for the $1,000,000 note, all of the capital stock of the Western Development Company standing to Colton’s credit, and some $587,500 in par value of bonds of the Central Pacific-Southern Pacific system, of which $500,000 was in first mortgage bonds of the Southern Pacific Railroad itself. In return for all this, the associates agreed to cancel Colton’s note for $1,000,000, and to release Mrs. Colton from any claims on the part of themselves, the Western Development Company, the Central Pacific, and its allied companies.[238]

This settlement left Mrs. Colton with property reasonably valued at half a million dollars, and with an income of perhaps $28,000 a year. That she withdrew with so much to her credit was due to the interposition of Mr. Tevis on her behalf at the last moment, in consideration of a contingent fee,[239] and to the fact that the associates were on the point of floating large amounts of Central and Southern Pacific securities in New York. Mrs. Colton felt, however, that she had been robbed, and in May, 1882, commenced suit to reopen the whole transaction, and to annul the compromise agreement. It has been estimated that this famous suit cost the parties $100,000 apiece. Mrs. Colton alleged fraud and the withholding of essential facts which the associates should have disclosed by reason of the trust relations which had existed between Colton and his partners. In particular she insisted that the statements given her in 1879 with reference to the affairs of the Western Development Company had been misleading and untrue. She now offered to pay Colton’s $1,000,000 note, and other liabilities, and asked for the return of the securities which she had previously surrendered.

The more important facts developed in this litigation have been dwelt upon in the preceding discussion, and need not be repeated here. The case went to the Supreme Court of the state, where Mrs. Colton was finally defeated. A careful reading of the evidence leads to the conviction that the court was right. Mrs. Colton had done the best she could under the circumstances and was properly held to an agreement she had made with her eyes open, some three years before. Yet the fault of the whole unsavory affair was not hers, nor altogether Mr. Colton’s, and the reputation of the associates thereby properly suffered in the public mind.

CHAPTER X

FINANCIAL DIFFICULTIES FROM 1870 TO 1879

Excessive Construction

We may now return to the more general considerations affecting Central Pacific finance which characterized the years from 1870 to 1879. There is a good deal of evidence that the years during which Mr. Colton was connected with the Central Pacific enterprise were years of financial difficulty for the associates, due in part to general depression, in part to a disproportionate amount of new construction, and in part to the continued inability of the Huntington-Stanford group for many years to interest eastern capital in western railroads.

During the years from 1869, when the Central Pacific was first opened to Ogden, to 1874, the earnings of the Central Pacific main line, both gross and net, steadily increased. The following table sets forth the facts relating to this progress, as well as figures for the succeeding years from 1875 to 1881.

Earnings and Expenses of the Central Pacific Railroad, 1874-81(*)

January 8, 1863

Gross Earnings

Operating Expenses

Net Earnings

(Calendar years)

November 6 to

December 31,

1869

$

1,024,680

$

777,348

$

247,332

1870

7,519,983

6,009,426

1,510,557

1871

8,862,054

5,937,890

2,924,164

1872

11,963,641

8,645,276

3,318,265

1873

12,867,600

7,822,638

5,044,962

1874

13,726,561

6,468,145

7,258,416

1875

15,665,082

9,937,465

5,727,617

1876

16,994,216

10,970,599

6,023,617

1877

16,471,144

12,761,639

3,709,505

1878

17,530,859

12,005,535

5,525,324

1879

17,153,163

11,126,298

6,026,865

1880

20,508,113

12,814,121

7,693,992

1881

24,094,001

14,546,899

9,547,102

—————

—————

—————

$184,381,097

$119,823,379

$64,557,718

════════

════════

═══════

(*)Report compiled by the Commissioner of Railroads, 47th Congress, 1st Session House, Executive Documents No. 123, 1882, Serial No. 2030.

The greatest continuous drain upon Mr. Huntington and his friends during the decade from 1870 to 1880 came from the necessity of raising funds to provide for construction in southern California as described in earlier chapters. Had business considerations alone controlled, there is little doubt that this construction would have ceased. It did not pay for itself, and could not be expected to be profitable until the country served had been developed. Indeed, Charles Crocker once declared that when the Southern Pacific was built through the southern San Joaquin Valley, the company could have started with a railroad train at Sumner at the south of the valley and come to Stockton, and with one engine and one train of cars, hauled every living soul that lived in the valley out at one haul. The settlers between Yuma and San Bernardino could have been carried in one carload. This was as late as 1876.[240]

Inability to Get Eastern Capital

It was largely owing to this construction, as well as to the general hard times, that the gross earnings per mile of the Central Pacific and leased lines fell from $12,068.63 in 1875, to $7,677.84 in 1879. The Central Pacific did not dare stop work for fear that the federal government might be persuaded to subsidize another transcontinental road, and so deprive it of the monopoly which it was so anxious to retain; but it built as slowly as it could, and endeavored to make up by retrenching in other directions. Had the associates been able to sell securities in New York, the slowness with which the earning power of their system developed would not have been so serious a handicap. The territory was after all a rich one, and given time was sure to yield substantial profits. But a market for their stock and bonds was impossible to secure for many years. We have seen the opinion expressed by the associates in the Colton settlement, with respect to the salability of Southern Pacific-Central Pacific securities. There is no reason to doubt that this judgment was correct. Before 1880 it does not appear that there was a market for any of the Huntington-Stanford issues except the Central Pacific first mortgage bonds, and the sale of these was very slow.[241]

There is evidence that the associates not only recognized this situation, but that they took what steps they could to meet it. Central Pacific stock was listed on the New York Stock Exchange in 1874, and on the San Francisco Stock Exchange in 1878, not so much with the idea of selling any large number of shares, as in order to make a beginning which might ultimately lead to an established market. Arrangements were made to have the stock called at San Francisco every day, and the associates stood always ready to buy it back at a slight decline. The payment of dividends was begun in 1873 and continued until by the end of 1877 the sum of $18,453,670 had been distributed. Yet all this had little result for many reasons, among which doubtless should be again mentioned the personal liability attaching under California law to holders of stock in California corporations.

Naturally Southern Pacific securities of any type were still more difficult to sell than Central Pacific stock. Mr. Huntington found that the Southern Pacific Railroad was not known in the East, even by parties who had spent some considerable time in California.[242] To overcome this he advertised Southern Pacific stock and bonds in a great variety of ways, sometimes by personal conference with eastern bankers, sometimes by the issue of pamphlets or by the insertion of items in the newspapers, sometimes by the manipulation of bond sales upon the Stock Exchange. Occasionally he bought a few outstanding Southern Pacific bonds in order to support the credit of the company.[243] But here again, in spite of his efforts practically no bonds were sold, and Southern Pacific stock could not be disposed of at any price.

Market for Securities

A good deal of specific testimony by New York brokers is available to show the estimation in which Central Pacific and Southern Pacific securities were held late as 1879. It is all cumulative, and to the effect that no market existed at that time for any of these issues except Central Pacific first mortgage bonds. Thus S. H. Thayer said of Central Pacific stock: “I don’t think it would have found any market; I do not think it would have been possible to have sold it at any price; the stock had no friends, nobody knew of it, nobody traded in it; that is, in a general market; I do not know what might have been done by private negotiation; but in the public market nothing could have been done with 20,000 shares towards selling it.”[244] Similar testimony was given by D. O. Mills, of San Francisco. Mr. Mills was asked what price could have been obtained in the San Francisco market in 1879 for $13,000,000 in Southern Pacific bonds, and replied that he did not think these bonds were salable then, that it would have been a matter of bargain and sale, and would not have depended upon any market value.[245] Mr. Thayer also testified that the Southern Pacific bonds were on the stock exchange list in New York, but were bonds no one dealt in, and about which few were informed.[246]

It would probably be a mistake, in spite of this testimony, to attribute the reluctance of eastern investors to buy Southern Pacific bonds solely to unfamiliarity with the security. Not only was the economic development of southern California slight and the probable earnings of the Southern Pacific for some years small, but the state as a whole was not in the seventies an attractive field for investment. During the decade from 1860 to 1870, California had grown rapidly in wealth and prosperity. Population had increased and manufactures had begun to develop. In agriculture, fruits, berries, and grapes had been added to the important quantities of grain and vegetables already produced. But the immediate effects of the completion of the transcontinental railroad had been harmful to California, rather than beneficial.

For this there were several reasons: (1) speculation in real estate around San Francisco Bay had so discounted the completion of the line that the actual opening of communication caused a reaction rather than an advance; (2) the combination of a stimulated immigration due to greater facilities for travel, with the sudden release of a considerable part of the labor used in railroad construction, had forced down wages, while, on their part, California merchants had become exposed to competition from eastern distributing houses; (3) droughts in the South, the decline in the production of the mines, and the collapse of speculation in Nevada silver properties, all had given rise to acute suffering and discontent. These things in turn had reacted on political conditions, and had produced, first, the so-called sand-lot excitement, and then the agitation that led in 1879 to a revision of the state constitution. Meanwhile the passage of the Thurman Act, and the various disputes between the Pacific railroads and the federal government had provided special reasons for distrusting the securities of the Southern Pacific and Central Pacific companies, quite apart from conditions peculiar to the section in which their mileage lay.

Short-Term Borrowing

To repeat, it was this failure to dispose of the railroad stock and bonds which they had to sell that threw the associates back upon the necessity of raising money by short-time loans at extravagant rates of interest, and which, in the late seventies, peculiarly exposed them to the dangers of stringency in the New York money market. The partners at times paid as high as 12 per cent for loans.[247] Every element affecting their credit had to be closely watched, lest lenders refuse to discount their paper, and interest on the company’s bonds go by default; for it was a customary practice for the associates to take care of interest, at least over short periods, by loans.

In December, 1876, Huntington wrote that the January interest would this time have to come out of earnings, as he had been away from New York so much that he had not been able to secure loans there.[248] The same month Huntington complained of certain pamphlets which one A. A. Cohen had been sending East. “If the parties that inaugurate such fights as we now have with Cohen,” he wrote, “and have with the Sacramento Union and Senator Booth ... had to raise money outside of California, where our property cannot be seen, I am disposed to think such fights would be few.”[249] In May, 1877, Huntington let his partners know that reports from California to the effect that the railroad magnates there were spending their money for personal expenses with unexampled recklessness had hurt the Central Pacific credit.[250] At another time he reported that the rumor was abroad that the Central Pacific had no power under its charter to give notes for money, and that this had been denied.[251]

All through 1877 the letters exchanged between Huntington and his partners in the West show the strain which the Central Pacific was under. Huntington was continually wiring for money in lots of $50,000 to $100,000. Colton was sending it, sometimes by telegraphic transfer, sometimes in coin. As early as in May, 1877, Colton was talking of dull business and of reducing expenses. On August 23 he said that he did not exactly like the present financial outlook. The following day he spoke of the need of keeping credit good. “We cannot afford to ever be called on for money,” he wrote, “and not be able instantly to respond. Our affairs are too extended and extensive for us to take any chances of suspicion. It would hurt us in many ways, and take a long time to restore confidence.... I will now commence to renew our loans for six or twelve months, and take in sail everywhere.”[252] In September he repeated, “I am going to send you, for the next three months, every dollar I can, and, for God’s sake, keep all you can for the January interest. That must be paid. We will not pay out a dollar here, I am not obliged to. I read every department a lecture on economy about once a week.”[253] Earlier in the year the accounts of the Huntington group with the London and San Francisco Bank and with the Bank of California had been overdrawn from $150,000 to $350,000 each, and Colton was picking up every dollar outside which he could secure without showing his hand.[254]

Indorsement of Notes

As a general practice the associates seem to have refused to put their personal indorsement on the notes which they discounted. Huntington was very insistent that no indorsements be given; yet in January, 1878, conditions had grown so bad that Huntington asked the associates to indorse 100 blank notes and send them to him, to be used as a last resort, and this was done in spite of the violent protest of Mark Hopkins. Colton wrote Huntington:

I told him [Hopkins] I felt the wise thing for us all to do, was to stand in and protect all interests against the debts now owing, but to all agree not to incur any more, not to build any more road, or to buy any steamship, or property, either jointly or individually, until we got out of debt, and had the money in bank to pay for what we bought. That proposition just met his views, and he said that if I would agree that we would all live up to that, he would sign 20 of the blank notes, which he did, 10 of each.[255]

i202

Conditions in California grew worse rather than better after the notes were sent, but those in the East improved, and the indorsed notes do not seem to have been used. Yet, of course, the large accumulation of floating indebtedness of the Central Pacific could not be hidden altogether, and the credit of the company was correspondingly impaired.[256]

Sale of Securities

The first successful negotiations for the sale of Central Pacific and Southern Pacific securities were initiated in 1878 with the firm of Speyer and Company, of New York, and resulted in two agreements, dated the 27th and 28th of January, 1880, respectively. On the former date Huntington agreed to deliver, on or before January 31, 1880, as might be demanded, 50,000 shares of the capital stock of the Central Pacific Railroad at 72, ex-dividend, to Roswell P. Flower, John D. Prince, and Daniel Probst, representing a syndicate formed for the purpose. In case the parties took the stock just referred to, Huntington agreed further to deliver 50,000 more shares within six months from the date of the agreement, at 77. In any event, and provided that the syndicate took the first 50,000 shares mentioned in the agreement, Huntington undertook that no other Central Pacific stock beyond a stipulated amount of 40,000 shares should be sold to any other parties for a period of seven months from the date of the agreement.[257]

The syndicate which took Central Pacific stock at this time seems to have considered the enterprise a speculation justified by the resumption of dividends by the company, and by the improving stock market conditions of the time. Mr. Probst said that the general market had become so strong in the latter part of 1879 that it was a good time to sell anything.[258] On conclusion of the agreement a regular stock market campaign was opened with the usual accompaniment of matched sales to give an appearance of activity.[259] The stock nevertheless steadily declined, and the option held by the syndicate to take a second block of shares was not exercised.

The day after the arrangement for the purchase of the Central Pacific stock was concluded, and partly because of its conclusion, Speyer and Company entered into a written contract with the Western Development Company, containing a variety of provisions which together show the factors upon which the value of Southern Pacific securities then depended in the eyes of eastern bankers. Under an agreement dated January 28, the Western Development Company agreed to sell to Speyer and Company $1,000,000 in Southern Pacific bonds, within ten days, at 86. Within the year it undertook, in addition, to sell, if Speyer and Company should wish to buy, an additional $4,000,000 in bonds, at 87.51, and a still further amount of $5,000,000 at 90. On their part, the Western Development and Southern Pacific companies agreed not to sell any of the said bonds within a year to others than Speyer and Company, and the Central Pacific agreed not to issue bonds under the mortgage in question, to exceed $40,000 per mile.

Terms of Contract with Bankers

The more important features of the agreement with Speyer and Company in 1878 were, however, the following, relating to the lease arrangements between the Central Pacific and the Southern Pacific. Under these provisions the Southern Pacific agreed to secure a new lease from the Central Pacific within three months, containing (1) a provision that the lease should continue five years from the 1st of May, 1879; (2) a provision that the lease should be extended if the Southern Pacific was not connected with the eastern system of railroads, on the 32d parallel, within five years, until such connection should be made, provided that the extension of time should not exceed five years; and (3) a provision that the Central Pacific should pay a rental under the lease, sufficient to cover interest.

The Southern Pacific also agreed with Speyer and Company that if at any time before the expiration of nine years from the date of the lease contemplated, a railroad should be extended so as to connect the railroad of the party of the first part with the eastern system of roads, and the Central Pacific Railroad Company should refuse to prorate with the party of the first part, then the party of the first part would, before the expiration of one year from the date of such refusal, fill up or cause to be filled up one of the two gaps then unfinished between Tres Pinos and Huron, and between Soledad and near Lerdo, whichever it might choose to build.

The Southern Pacific finally undertook to furnish to the parties of the third part, within ninety days from the execution of the agreement, the written opinion and certificate of the chief engineer of the Southern Pacific, that the line of road either between Tres Pinos and Huron or between Soledad and near Lerdo could be completed and put in running order within twelve months of the commencement of work thereon, and could be constructed for the bonds reserved per mile.

The stipulation in the agreements relating to the lease of the Southern Pacific to the Central Pacific, and those anticipating further construction along the coast route, are of special interest. It is evident that the credit of the Central Pacific and not that of the Southern Pacific was the basis of the whole transaction. At the time the contract was signed, the option to take Southern Pacific bonds at 86 and 90, respectively, was considered valuable, but in fact this option was not exercised.

Later Improvement

After 1880 financial conditions generally improved. The earnings of the Central Pacific-Southern Pacific roads were still subject to fluctuations, but for several years substantial dividends were declared, and the sale of large quantities of Central Pacific stock in Europe enabled the associates to reduce their commitments. Moreover, by 1883 the long delayed extension to The Needles was completed and the necessary outlay for new construction was greatly lessened. The year 1883 may be taken as the close of the construction period of the Huntington system. Henceforth, in the absence of special disaster, and subject to successful settlement of its indebtedness to the government, the solvency of the Central Pacific and Southern Pacific railroads may be said to have been assured. We may therefore at this point turn away from the more personal and financial aspects of the enterprise, to the consideration of certain important political matters with which the associates were long concerned.

CHAPTER XI

THE RAILROAD COMMISSION OF 1880 TO 1883

Early Agitation Against Company

It is more difficult to describe the relations of the Central Pacific to the legislative bodies of California than it is to trace the history of the system in most other respects, because the details are less matters of public record. Some connection between the railroad and politics undoubtedly existed at an early date. Indeed, Stanford and Colton were politicians before they became railroad men, and the state and local aid which the railroad secured at the very beginning of its construction but confirmed an attitude favorable to continued relations between the corporation and the body politic which these gentlemen might have been expected to approve.

Before 1876, the only regulation which the associates had to encounter was that resulting from the general railroad law, which required a minimum subscription before a railroad corporation could commence business, established proportionate liability of stockholders, and reserved to the legislature the right to reduce rates when the net income of any company exceeded 20 per cent. These and other provisions of like tenor were little calculated to interfere with the profitable operations of a railroad business except perhaps that the proportionate liability established by the law to some extent discouraged participation in railroad enterprise. In 1874 and in 1876, maximum rates and fare enactments were discussed in the legislature but failed of passage. In 1876, nevertheless, the accumulated resentment of the California public over what it considered the grasping and monopolistic policy of a selfish corporation led to important additions to the law. This resentment had been growing for several years. The Sacramento reporter for the San Francisco Bulletin wrote, in March, 1868:

There is a strong prejudice existing here and daily growing stronger, against the Central Pacific Railroad Company. The members from Placer, Nevada, and El Dorado counties are all of them, I suppose, pledged to endeavor to obtain a reduction of the rates of freight and fare on the line. Petitions, apparently signed by nearly all the residents of the districts which use the road for the transportation of freight and travel, have poured in upon the legislature, asking a reduction of prices. It is said that traders who complain of the rates are discriminated against. A general feeling exists that, considering how liberally it has been dealt with by Congress and the State, the management of the business and affairs of the company is extremely illiberal....

In like vein the Stockton Independent said of the owners of the Central Pacific in 1871:

No set of men on the face of the globe were ever placed in a more enviable position, or in one where by the exercise of a reasonable foresight, they could have retained their popularity and the friendship of the people. It is now hardly two years since this work was completed, and how remarkable has been the change in public sentiment. Along the whole line of their main trunk road from San Francisco to Ogden, as well as along the various branch roads of this company, nothing is heard but one continuous murmur of complaint, and it is safe to assert that this shortsighted, illiberal, and suicidal policy of the company has so completely changed the sentiment of the people that there is not in a single town on any of their lines of road, either in this state or Nevada, one individual who approves of this course, nor one who will speak well of the company, unless it be one of their subsidized agents or strikers.

Beginnings of State Regulation

It is not necessary to dwell at this point on the reasons for the opinions voiced in these extracts from the press. The feeling of the general public, of which these extracts are the reflection, was doubtless due in part to anger at the methods employed by the Central Pacific in promoting subsidy legislation, in part to disappointment over the results of railroad construction, and in part to reaction against policies of the Central Pacific such as have been outlined in previous chapters. However this may be, the result was the passage of the so-called O’Connor bill in 1876, which erected a State Board of Transportation Commissioners, and defined and prohibited extortion and unjust discrimination. The commissioners were not only to enforce these prohibitions, but they were given extensive authority to secure information from the steam railroads of the state, and were charged with the duty of supervising all such railroads with reference to the security and accommodation of the public.[260]

It appears from the report of the commissioners appointed under the O’Connor Act that the railroads in California, and in particular the Central Pacific, refused to render the reports required by the legislature, and that the commission was unable to compel them to do so.[261] Two years later the commissioners were legislated out of office, and a single commissioner was appointed in their place, acting under a statute similar in most important respects to that administered by his predecessors.[262] Mr. Tuttle, the new commissioner, accumulated certain statistics during his two-year term of office, but otherwise did little to which the railroads could object.

The development of railroad regulation was thus temporarily arrested. Yet for several reasons the check to the progress of public control was not lasting. Feeling in the state was running high. The times were hard, both for reasons affecting the whole country, and because of circumstances peculiar to the Pacific Coast. The rainfall of the winter of 1876-77 was slight and, as happens in such cases, great loss of cattle on the ranges occurred, and the grain crop was seriously deficient. At the same time the yield of the Nevada silver mines declined—in fact the dividends of the important Consolidated Virginia mine stopped altogether in January, 1877, to the great disturbance of the stock market at San Francisco. Under these conditions unemployment and suffering were the experience of the working classes, while riots and later, political agitation also resulted. Even the radical labor leader, Dennis Kearney, in spite of his lack of character and self-restraint, or even of unusual mental ability, served as the temporary expression at this time of a real distress, and had some influence on the course of legislation.

Railroad Question in Constitutional Convention

So far as the railroads were concerned, the effect of the unrest throughout California and the activity of the Workingman’s party is seen in the railroad clauses of the Constitution of 1879, and of the Act of 1880, which carried them into effect. The call for a convention was issued by the same legislature which passed the railroad control bill of 1878.[263] Mr. Colton thought the call most unfortunate,[264] but there is no reason to suppose that the legislature had anything particularly radical in mind.

When the convention began its sessions, however, its membership was found to include a majority of persons determined to force thoroughgoing regulation upon the railroad system of the state, as well as a minority opposed to government control of any kind. Just how regulation should be made effective, it is true, few members of the first-named group knew. Some were opposed to corporations as a class, and thought that at least unlimited liability should be imposed on holders of corporate stock. Others were in favor of declaring railroads public highways, upon which all persons should be allowed to run cars and locomotives under such regulations as might be prescribed by law. Still others desired to set a maximum limit of 10 per cent to the return on investment in railroad property. The extreme position on the other side was taken by men like McFarland, of Sacramento, who maintained that the clamor about railroads and corporations was a mania evolved from the inner consciousness of members of the convention, as spiders spin their webs.

The discussion of railroad regulation by the Constitutional Convention of 1879 began on November 18 and ended on December 7. It was systematically conducted, participated in by men with a wide variety of views, and resulted in constructive conclusions of importance. More could scarcely be asked of a deliberative assembly. The main decisions reached were as given below.

New Regulative Commission

The first conclusion of the Constitutional Convention was that the regulation of railroads in California should be entrusted to an elective commission, holding office for four years, and vested with the power to establish and publish rates, to examine the books and records of transportation companies, and to prescribe a uniform system of accounts. Heavy penalties, including fine and imprisonment, were provided for failure to obey the orders the commissioners might make.

The principal objection made to the establishment of a commission was that its power would be excessive. It was pointed out that the commission would combine legislative, judicial, and executive functions, and that its members could lower rates and increase railroad expenses at will. Mr. Wilson, of San Francisco, declared:

Here, then, will stand in our government a constitutional triumvirate as great in many respects as that of Rome in the olden time. They may raise and lower the rates of freight and fare to suit their powers, and thus they can play with the value of the stock in the market, and determine the value of the bonds and mortgages on the road.... They will be sole judges of what are abuses.... They will determine complaints on their own notions of right and wrong, and however erroneous or malicious their acts, there will be no remedy or appeal.

Reference was made to the English Railway Commission of 1873 and to the Massachusetts Commission of 1869, and the Wisconsin experiment of 1874 was held up as something to avoid. The reply to this kind of objection was that the power to control rates must be lodged somewhere, and that the legislature was inexpert, slow to act, and subject to corrupt influences.

Other Constitutional Provisions

The second decision of the convention was that a general prohibition of discrimination should be placed in the fundamental law. The clauses finally adopted provided that no discrimination in charges or facilities for transportation should be made by any railroad or other transportation company between places or persons, or in the facilities for the transportation of the same classes of freight or passengers within the state, or coming from or going to any other state. In addition to this general prohibition, it was enacted that persons and property transported over any railroad, or by any other transportation company or individual, should be delivered at any station at charges not exceeding the charges for the transportation of persons and property of the same class, in the same direction, to any more distant station. This amounted to a stringent prohibition of greater charges for shorter than for longer hauls. Speakers opposed to the discriminative clauses insisted that only unjust discrimination, not all discrimination, should be prohibited, and pointed out that the proposed law was unconstitutional in that it applied to commerce between the states. Neither objection was sufficient to persuade the convention that the proposals should not be approved.

Besides the fundamental clauses relating to a commission and those prohibiting and defining discrimination, the Constitutional Convention of 1879 forbade railroads to grant passes to persons holding any office of honor, trust, or profit in the state; forbade them also to agree to divide earnings with owners of vessels entering or leaving the state, or, under certain conditions, with other common carriers; granted to all railroads the right to connect with, intersect, or cross other railroads; and provided that no officer or employee of any railroad or canal company should be interested in the furnishing of material or supplies to such company. One apparently important clause declared that a railroad which should lower its rates of fare or freight for the purpose of competing with any other common carrier, should not again raise these rates without the consent of the governmental authority in which should be vested the power to regulate fares and freights.

Act of 1880

Special emphasis should be placed upon the constitutional provisions adopted in 1879 because they created the framework upon which railroad regulation in California was to hang for thirty years. For a full understanding of the system the act of the legislature approved April 15, 1880, should also be consulted. This act defined certain terms used in the law. It also fixed the salary of the commissioners at $4,000 each, provided a mechanism for enforcement of the commissioners’ orders through the courts, placed the office of the board in the city of San Francisco, and required rates established by the commission to be posted in all offices, station houses, warehouses, and landing offices to or from which the rates applied. Finally, it granted to the commission, in general terms, all the necessary means and the authority to adopt any suitable procedure to make effective the powers conferred by the Constitution.[265]

Harvey S. Brown, attorney for the Stanford interests, once said that the Constitution of the state of California was conceived in communistic malice, was framed by unpardonable ignorance, adopted in frenzied madness, and was valuable only as a beacon to other states and peoples to avoid its principles and results.[266]

The document certainly compelled the associates to consider the best method of defence against a political attack which threatened to sterilize the monopoly control which they were slowly establishing over the railroad system of the state. From their point of view the danger was like any other—one to be met by skilful strategy, displayed in a new field, but resembling in impelling motive and essential character their action in adjusting rates and in dominating the terminal situation on San Francisco Bay.

Personnel of First Commission

According to the Constitution, one railroad commissioner was to be elected from each of three districts into which the state was to be divided. Elections were held in 1880, and J. S. Cone, C. J. Beerstecher, and George B. Stoneman were returned. Cone was a ranch owner, business man, and capitalist at Red Bluff, with an income of $50,000 a year, and property worth perhaps $200,000. He had been on friendly terms with Stanford before he became commissioner, and had known most of the prominent railroad officials of the state for twenty-five years. By association and point of view he represented the interests of large business in the state. Stoneman was a politician of the better type, later governor of the state, a Democrat, and believed to be a defender of the public interest.[267]

The third member of the commission was C. J. Beerstecher, a San Francisco lawyer with a miscellaneous practice amounting to perhaps $50 a month. Judge Lawler, of the Superior Court of San Francisco, who knew Beerstecher well, says that he came to San Francisco, with nothing but a gripsack, and built up a small practice, mainly divorce suits, among the poorer classes in the city. For some time Beerstecher used Lawler’s office, living in rooms in the same building, for which he paid $15 a month; Lawler befriended him, and a man named Steinman advanced him money for electioneering expenses. In return for this, apparently, Steinman was later made bailiff to the railroad commission. That is to say, Beerstecher was poor, with no reputation to lose, and in circumstances in which his good-will had value.

One would scarcely expect effective regulation of a commission composed of a wealthy farmer, a cheap lawyer, and a man who looked to a career in the public service. Nor was such regulation in fact secured. Stoneman once told Judge Reagan, of Texas, that when the California commissioners were elected, he, Stoneman, was elected because it was understood that he represented the popular interests; another gentleman (J. S. Cone) was elected because it was understood that he represented the feeling of the corporations, and a third (Beerstecher) was a sand-lot man. He added that, having the sand-lot man with him to take care of the interests of the people, he thought he was all right, but in a short time the sand-lot man sold out and did not amount to anything.[268] Cone also considered Beerstecher a reliable pro-railroad man. There is no direct evidence that Beerstecher accepted railroad money, but the probabilities are strong. Before discussing this point, however, the activities of the new commission may be briefly described.

Indifference of Commissioners

The evidence shows that from the very first the three members of the California commission devoted but a small portion of their time to the work of regulation. Mr. Beerstecher was accustomed to visit his office twice a day, spending perhaps an hour there each time. This was while Beerstecher was a resident of San Francisco. In the latter part of his term he lived in the Napa Valley and probably spent even less time on his official duties. Nor did Beerstecher compare unfavorably with his fellow appointees in application to his work. Governor Stoneman devoted five or six days a month to affairs of the commission; Mr. Cone about the same. Of 127 meetings held by the board between May 3, 1880, and January 8, 1883, Cone was present at 99, Stoneham at 80, and Beerstecher at 109.[269]

It seems beyond belief that a new commission, established to initiate public control of a great industry, should have approached the problem in this indifferent way. The undertaking called for the fullest exercise of the powers of all the commission’s members; but it was approached as a casual task to be accomplished in the spare hours of busy men.

As a natural result of their attitude with respect to the importance and urgency of railroad regulation, the commissioners failed to make effective the most primary requirements of the law. Instead of preparing new rates except as hereinafter stated, the commission established the existing rates of the companies operating in the state. Instead of prescribing a system of keeping accounts, the existing system was adopted. Mr. Stoneman once tried to investigate the railroad books, but said they were all Greek to him, and he had no authority to employ an expert. Beerstecher testified that the commission asked certain questions, but that he did not, as an individual commissioner, consider that it was his business to go prying around into the business of the railroad companies.[270]

Some slight attention was paid to the posting of rates, but the only inspection seems to have been by the bailiff of the commission. Doubtless the original cause for the failure of the commission in the respects mentioned was lack of money; but it was for the members to formulate boldly their ideas of what should be done, and to educate public opinion as to its necessity, making use meanwhile of all the authority which they could wield. It was gross negligence and indifference to rest content while the law stood unenforced.

Adoption of First Rate Schedule

The largest task eventually undertaken by the commission was the formulation of rate schedules for passengers and freight. During the spring and summer of 1880, the commissioners traveled through the state taking testimony and hearing complaints. In the winter and spring of 1880-81, they attempted to formulate results. It appears that in May, 1880, Stoneman introduced a resolution to the effect that maximum rates in California should not exceed five cents per ton per mile for distances 100 miles and over, and six cents per ton per mile for distances under 100 miles, and that maximum fares should not exceed four cents and five cents per mile within the same limitations. This was defeated by a vote of two to one. Nothing was done between this time and February, 1881, when the board unanimously adopted a schedule of passenger fares with maxima varying from five cents to three cents per mile.[271]

At the same time that the passenger schedule was introduced Mr. Cone submitted a freight tariff, which was also adopted. This schedule cut rates mainly on agricultural products originating in the northern part of the state. Stoneman objected to it—but later said that he did not prepare an alternative schedule because he knew it would not be adopted. He did, however, call the attention of the board to the fact that southern California was being discriminated against.[272] Beerstecher had no part in the preparation of the new rates, but made no opposition to them.

Delay in Enforcement

Armed with the new passenger and freight schedules, Mr. Cone went over to the Southern Pacific offices and left the figures with Mr. Towne, general manager, for comment. The railroad people at once objected. They said they were building the Southern Pacific and selling bonds to raise the money. The proposed reductions would injure their credit and could not be accepted. Cone was anxious to avoid litigation and to get quick action.[273] Moreover, Stanford wished to get away and go to Europe, and Cone did not like to keep him. As Cone said in another connection, Stanford was pretty winning in his ways. The result was that the railroad agreed not to contest the new freight rates and Cone consented not to press the reduction in passenger rates, at least not until October, 1881. There is no evidence that Cone possessed authority from the commission to negotiate with the Central Pacific, but he seems to have acted in confidence that Beerstecher would support him in action favorable to the railroad and Stoneman in action of contrary tenor.

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George Stoneman

As a matter of fact the board did not take further action in regulation of passenger fares until August, 1882, a year and a half after the question had first been raised. By this time Cone had become convinced, so he says, that Stanford would concede no further reduction in railroad charges. On the 15th of August, Stoneman accordingly reintroduced his original passenger schedule, but slightly changed. The matter was laid over for a month, and in September, at a meeting at which only Cone and Stoneman were present, a substitute resolution was adopted, setting a maximum fare of four cents per mile. Stoneman thought the maximum should be three cents, but Cone would not consent. The new maxima were suspended in October “until further order of the board” in order to give the railroad companies an opportunity to be heard. Before the commission came together again, however, Stoneman had resigned. This left Beerstecher and Cone—with two as a quorum. It is eloquent of Beerstecher’s attitude that he attended no meeting of the board after November 22, 1882, and that on that day his action in respect to passenger rates was to move to postpone consideration.

In two years and seven months the only reductions in rates and fares secured by the Railroad Commission were certain cuts in the rates on products of agriculture conceded to the farmer member of the commission by his railroad friends. The commission formulated no principles and worked out no effective procedure. Even its reports to the legislature had little value. The first two were prepared by Mr. Beerstecher, the third by Mr. Tuttle, former railroad commissioner but no longer in any official way connected with regulation work. When the commission was not unanimous in its decisions, the division usually was that of Cone and Beerstecher against Stoneman—a fact which leads us back to the question of the nature of the influence which the Stanford group was able to exert.

Bribery Committed

The charge is made that the Central Pacific bought and paid for Beerstecher’s services while a member of the Railroad Commission, and that Cone was so influenced by his personal and business relations with the managers of the Central Pacific as to be unable to view their activities in the critical and impartial way which his position demanded. The evidence in the case is purely circumstantial, but seems to be convincing. So far as the former is concerned we have the admitted fact that Beerstecher was richer at the end of his term of office than at the beginning by at least $12,000 and probably by a good deal more. As he put it, he thought he saved his entire salary of $4,000 a year as commissioner, during these years. Beerstecher asserted incidentally that his legal practice while a member of the Railroad Board amounted to from $1,200 to $1,500 a year—although the records of the Superior Court of San Francisco, before which Beerstecher practiced, show that this was highly unlikely,[274] and the testimony of the bailiff to the commission is directly to the contrary. $12,000 may be regarded as adequate compensation for a man of Beerstecher’s type.[275]

Gerke Transaction

Cone’s case is not quite so simple. It seems unlikely that a man of his standing should have consciously accepted a bribe. There is, however, direct evidence of a reliable character that Cone was given unusual consideration by the railroad in connection with the purchase of certain lands in the northern part of the state, and Cone himself admitted that while he was commissioner he had bought some lands from a man named Gerke and had resold them within two or three months to the treasurer of the Southern Pacific at a profit of $100,000.[276]

What happened in the first of these two instances was this: It seems that there was a tract of about 34,000 acres of the Oregon grant of the Central Pacific lying east of Cone’s ranch—rough, chapparal land, graded at from 50 cents to $2.50 an acre. Cone was running about 20,000 sheep at the time, and was using the land without paying for it, as certain other individuals were also doing. Among these other persons was a man named Wilson, who was not only a small sheep owner, but an actual settler as well. Wilson originally applied to purchase from 5,000 to 7,000 acres of the tract, and was quoted the first graded price, $1.25 to $2.50 an acre. At this quotation he took some land that had water on it, but in general could not afford to buy. Later the land was regraded, and Redding, the Central Pacific land agent, told Wilson that the regrade price was 50 cents. A few months after, in June, 1881, Wilson applied to purchase, although he believed that the application was unimportant, since as a settler he was entitled to second grade. He had the land fenced by this time.

Meanwhile, on the 21st of April, 1880, Cone had negotiated with the Central Pacific for a tract of 34,097.45 acres, including the land in which Wilson was interested. He did not offer to purchase, but asked to have the lands that were free reserved for him, that he might ascertain the bounds of his range. In fact, when the statement of the cost of the lands was made out for him he refused to take them at the graded price, and abruptly left the Central Pacific land office, exhibiting considerable ill feeling. This was the situation when Wilson applied. Properly considered, Wilson seems to have been entitled to purchase at the new price. His application was subsequent to Cone’s conference with the Central Pacific land commissioner, but Cone had then refused to pay the price asked, which left the lands open. The Central Pacific, however, through Mr. Redding, its agent, refused to sell. Mr. Redding later said:

When Mr. Wilson demanded a right to purchase a portion of these lands because Mr. Cone had bargained for them and then refused to take them, I told Mr. Wilson the circumstances and said to him that Mr. Cone had refused under so great an exhibition of temper that it was my duty to wait until Mr. Cone became more calm. I also added that the new Constitution and the people had given Mr. Cone and his associates powers that were more extensive than those of the Czar of Russia; that he and his associates could virtually confiscate the property of the stockholders of the railroad company, and that I could not afford to add to a quarrel which by any possibility might be construed into an excuse for unjust action.

The result was that Wilson hunted up Cone and tried to get a relinquishment. Cone offered to let Wilson have the land at the graded price—the first graded price, as Wilson understood it. This offer was naturally refused, and Cone subsequently bought the whole tract for $29,199.67. Although the facts are somewhat complicated, it seems clear that Mr. Cone received special treatment, due to his position as railroad commissioner.

Of the Gerke transaction, Cone testified:

I would say that the ranch was held under a deed of trust, and parties were foreclosing it, and at the time I bought it it would have been sold under a deed of trust in fourteen days, and the party came to me and asked what I would pay for it and I didn’t dream they intended to sell it because I didn’t know the condition the land was in, and they insisted on my making an offer that day for it. I made an offer and it was accepted.

Mr. Storke: What was your profit on that transaction?

A. I think in the neighborhood of one hundred thousand dollars, and the worst trade I ever made when I sold it.

Finding of Legislative Committee

Dealings of this kind were improper, to say the least, and calculated to interfere with the impartial discharge of a commissioner’s duties. On the whole subject a committee of the California legislature reported as follows:

As to the second subject of inquiry, whether the Commissioners, or either of them, during their term of office, may have made any extraordinary acquisition of property ... your committee report that in their opinion Commissioner Stoneman did not make any extraordinary acquisition of property; that Commissioner Cone made a large acquisition to his wealth, which was already great when he was elected Railroad Commissioner, and your committee believe that such acquisition of wealth was largely due to extraordinary and unusual facilities afforded by the railroad officers; and that Commissioner Cone, in the purchase of thirty-four thousand acres of land for twenty-nine thousand dollars, was made a privileged purchaser, and received from the railroad company facilities in this regard denied to other applicants for portions of the tract; and further, that the transaction by which the Gerke farm was purchased by Commissioner Cone in April, 1881, and sold in September of the same year to Nicholas Smith, the Treasurer of the Southern Pacific Railroad Company, at a profit of one hundred thousand dollars, gives rise to the suspicion that more was contemplated in the purchase and sale than appears on the face of the transaction. As to Commissioner Beerstecher, your committee find that by general report, and in the opinion of his associates, he was without means at the time of his election, and his sudden acquisition of wealth while Commissioner was without adequate explanation....

As to the fourth subject of inquiry, your committee report that Commissioners Cone and Beerstecher knew of and permitted both systematic and casual discrimination in charges and facilities for transportation between persons and places by railroad corporations in this State, and that through their conduct in permitting and upholding the same, Commissioner Stoneman was unable to accomplish a redress of such discriminations while Commissioner. Further, under this fourth subject of inquiry, your committee find that Commissioner Cone sacrificed the best interests of the State through personal friendship for Governor Stanford, and in return therefor received favors from him; and that Commissioner Beerstecher’s conduct admits of no other explanation than that he was bribed, and that in the opinion of this committee Commissioners Cone and Beerstecher acted in the interests of the railroad corporations rather than of the people.

This finding of the legislative committee is justified by the facts elicited in their investigation.

CHAPTER XII

THE SOUTHERN PACIFIC AND POLITICS

Appeals to Public

We may now consider in a more general fashion the political methods of the Southern Pacific group during the first thirty years of their railroad history. We have seen that they not only relied upon the talents of their legal staff in taking advantage of defects in the law, but that in two cases—the case of the railroad commission of 1880, and that of the subsidy in San Francisco in 1863—they probably resorted to the direct use of money to accomplish their ends. Yet a whole state cannot be bought, though individuals may be, and it would do injustice to the breadth of view of the associates to suppose that they limited themselves to any such crude device. Indeed, the frequency with which money bribes were offered probably diminished as time went on.

Consideration of the general policies of Mr. Stanford and of Mr. Huntington seems to show that they met the public demand for regulation of rates and fares in no less than five distinct ways.

The first method consisted of appeals to the general public through testimony before legislative committees, communications to the newspapers, letters to private organizations which interested themselves in the government control of corporations, and other similar devices. By these various means Stanford, at least, spread his philosophy of industry widely abroad. He took the general position that agitation upon the subject of railroads was due to misapprehension of the facts. Most alleged abuses were imaginary, but the Central Pacific stood ready to correct any that were shown to exist.[277] Railroad fares and freights were cheaper in California than anywhere else in the world, all things considered.[278] In case further reduction were desired, the true policy was to place as few burdens upon the railroads as possible, to encourage in this way new construction, and to rely on competition for the desired result. The interests of the railroad and of the public were the same.[279] Monopolies in the United States were possible only to the extent that they were beneficent. There was properly no right of control in the state. The Granger decisions of the Supreme Court of the United States were a flagrant violation of the principles of free government. If the people wanted to exercise control over a railroad they must do as the state does when it exercises the right of eminent domain; that is to say, they must pay to the individual owners the full value of whatever was taken for public use. Anything else was confiscation. Moreover, at best, regulation could not be complete, because it could not ever compel the shipper to ship equally over all lines, and because, while commerce was world-wide, American governments could regulate but one link in the chain. In California, regulation was peculiarly inexpedient so long as the railway system of the state was incomplete.[280]

Huntington’s Views

Mr. Huntington shared Mr. Stanford’s views, or at least approved the conclusion to which they led, but does not seem to have courted the same publicity in respect to the matter. Interviews he distrusted. “I notice,” he wrote in 1875, “that some correspondent of a San Diego paper has been interviewing Mr. Crocker. It is very difficult for any one to be interviewed by an infernal newspaper without getting hurt; and Mr. Crocker is not the most unlikely to get hurt of all the men I know.”

Yet in spite of this attitude towards the newspaper reporter, Huntington had a keen appreciation of the importance of shaping public opinion, and was familiar with the ordinary devices used for the purpose, including the manipulation of the press. He was concerned over the attitude of the Sacramento Record Union. “If I owned the paper,” he said, “I would control it or burn it.”[281] “I wish you would have it sent over the wires as often as you can that the Southern Pacific is being rapidly built,” he wrote Colton from New York in 1877.[282] Again, “Yours of November 28 with Northern Pacific clips is received. Many of the articles are very good. It is much better that all such articles with petitions be sent direct to members of the Senate and House, we keeping in the background as much as possible.”[283]

In November, 1875, Huntington wrote Colton that:

Gwynn left for the South yesterday. I think he can do us considerable good if he sticks for his hard money and anti-subsidy schemes; but if it was understood by the public that he was here in our interest, it would no doubt hurt us. When he left I told him he must not write to me, but when he wanted I should know his whereabouts, etc., to write to R. T. Colburn of Elizabeth, New Jersey.[284]

Influential Individuals Favored

A second method employed by the associates in their efforts to oppose public regulation of corporate affairs was that of paying personal attention to men who possessed or were believed to possess influence. In its simplest form this involved the employment at liberal salaries of the ablest legal talent which could be found. The policy was, however, pushed much further than the statement made would indicate. Huntington’s letters to his associates in the West were full of suggestions as to what should be done and of commendations for, or criticism of, what had been accomplished.

In April, 1875, Huntington wrote Colton that he had given Dr. Linderman, director of the United States Mint, a letter of introduction to him, Colton, at San Francisco. This was because the location of a new building for the Mint might be of importance to the Central Pacific.[285] In October of the same year Huntington gave a pass to a certain congressman and ex-governor, but warned Colton that the man was a slippery fellow and should not be trusted too much.[286] Crocker wrote to Colton in February, 1875:

I fully appreciate your position there and need of ... a Senator of the United States. We tried to get him off sooner the best we knew. I think he did not want to go, and I fear when he gets there he will not be earnest in our interest as formerly. Stanford thinks I am mistaken and I hope I am.[287]

A letter dated July 26, 1876, shows that Huntington was trying to get up a party of twenty-five southern members of Congress to visit California over the Southern Pacific. He wanted none but the best men—that is, men who would “go for the right as they understand it, and not as Tom Scott[288] or somebody else understands it,” but he was willing to pay the expenses of the trip for such men.[289] In order to help persuade representative men to make this trip, Huntington telegraphed Colton to have some of the prominent men in San Francisco wire Senator Gordon, of Georgia, urging that the visit should be made.[290] “I noticed you are looking after the State Railroad Commission,” Huntington adds in another letter to the same address, “I think it is time.”[291] Again:

I am sorry to learn that the receipts are so very poor south of San Francisco, but it is a good time to take the State Railroad Commissioners over the roads. I am glad to notice that you are looking after the Commissioners. I think it very important.[292]

Still again, in May, 1877, Huntington wrote:

I am glad you are paying some attention to General Taylor and Mr. Kasson. Taylor can do us much good in the South. I think, by the way, he would like to get some position with us in California. Mr. Kasson has always been our friend in Congress, and as he is a very able man, has been able to do us much good, and he has never lost us one dollar. I think I have written you before about Senator.... He may want to borrow some money, but we are so short this summer, I do not see how we can let him have any in California.[293]

Letters like these cover only one period and refer to the activity of only three out of the five associates, but there is sufficient outside evidence of a general nature to indicate that this policy was systematically followed by the Stanford group.

Lobbying in Washington and Sacramento

In addition to the attempt in a general way to gain the good-will of the public or of influential members of it, the Central Pacific was regularly represented at Washington and Sacramento when legislation was pending. Huntington, as has been said, took care of the company’s affairs in Washington. He had offices in New York and Boston also, and divided his time between the three places while Congress was in session—four days in Washington, two in New York, and one in Boston.[294] Stanford attended to matters in Sacramento, either in person or through representatives such as William Carr or Stephen T. Gage. The latter was also for many years the company’s agent in Nevada. Both Huntington and Stanford, of course, were assisted by a corps of lawyers and political aides-de-camp, some of whom were very highly paid. General Franchot, for instance, Huntington’s chief assistant, received at one time a salary of $20,000 a year, besides a liberal expense account. Much criticism has been directed at the activity of Central Pacific agents in the lobbies at Washington and Sacramento, but a large portion of it was probably legitimate.

Correspondence from Washington

Certainly the watch which the associates kept on legislation was very close. Huntington’s own activities in 1875, 1876, 1877, and 1878 are vividly described in the letters which he wrote Colton during these years, and some few of these deserve to be reproduced if only for the picture they suggest of the man who wrote them. In March, 1875, Huntington wrote:

I notice a bill passed the House some few days since, called up by Williams of Michigan. I forget its title, but it called for reports, etc., etc., from the Pacific roads. Of course it was something ugly or it would not have passed.[295]

This was mere routine. By June, 1876, however, the legislative work had increased. Mr. Huntington told Colton:

There is a terrible fight kept up on us in Washington. But while they may bite us, they will not eat us up. Sherrell telegraphed me to come to Washington in great haste, as Lawrence was to pass his bill at once; so I went over and got the committee to recall it from the House back to the committee, so the demagogue from Ohio cannot trouble us before the 6th of July. In the meantime we will be working on our land proposition in the Senate. Just what we can do I cannot say, but I shall surely keep trying.[296]

The following month he added:

I returned from Washington last night. Our matters look better there, but we are not out of danger. It has been so very hot here for the last few weeks that it has come near using me up. You know I do not spare myself when I have anything to do.[297]

In August, 1876, Huntington wrote Colton:

I have thought I could stand anything, but I am fearful this damnation Congress will kill me. Senator Edmunds told another Senator yesterday that he would pass his Pacific Railroad Sinking Fund Bill before Congress adjourned, but I think he will not, and I have some hope Congress will adjourn by the time this reaches you.[298]

And in March, 1877, he was able to say:

Congress has adjourned, and we have not been hurt, except by the paying out in Washington of some money for hotel bills, etc.

I am quite sure that we stand better in Washington at this time than we ever did before.

The Pacific Mail Steamship Co. got no aid. I will tell you some things about that some time. The Sinking Fund Bill did not pass, but is in a much better shape to pass than it has ever been before. I stayed in Washington two days to fix up the Railroad Committee in the Senate. Scott was there, working for the same thing, but I beat him for once certain, as the committee is just what we want it, which is a very important thing for us. You will no doubt notice before you get this that we were not able to pass the Texas-Pacific bill.[299]

The committee with which Huntington was so content was changed somewhat later, much to his disgust.[300]

It was not until the first part of 1878, however, that his letters show him again hard at work. In January, 1878, Huntington wrote to Colton:

I notice what you write of the communists in the California Legislature, and am very sorry to know it, but the feeling in Congress is not much better, and yet, somehow, I do not think we shall be much hurt, although Scott is working hard and developing more strength than I supposed he had. He had the Railroad Committee of the House. I think we have it now.[301]

The following month he said:

I returned from Washington last night, and I am as near used up as I ever was in my life before. I am spending my last winter at Washington. As I feel today, I would not agree to spend another there for all the property we all have. Our matters are looking fair in Washington, Scott is very bitter in the discussion. He used some business compliments and all such stuff, and I am compelled to play him; but it is very distasteful to me.[302]

This letter is followed in the record by a series of others of the same tenor, which will be presented without comment.

... I have done all I can to prevent certain bills from being reached, and do not think any bills can be that will hurt us, but if there are, they will pass, as this Congress is, I think, the worst set of men that have ever been collected together since man was created.[303]

I returned from Washington last night. I am almost happy to think I shall not be called there again this session, as Congress has adjourned its first session, and may the likes of it never meet again. I think in all the world’s history never before was such a wild set of demagogues honored by the name of Congress. We have been hurt some, but some of the worst bills have been defeated, but we cannot stand many such congresses.[304]

Friend Colton: I returned from Washington this morning and found on my desk yours of the 10th inst., No. 74. Thurman’s funding bill has not passed the House yet, but it will, I think, although I am endeavoring to get it to the Judiciary Committee. If I can I think we can get it amended, but even that is doubtful. There were some mistakes made by us when the bill was in the Senate; the greatest was in Gould going to Washington; but it is too long a story to write now. I will tell you when we meet, if we have nothing better to talk of. This Congress is nothing but an agrarian camp, the worst body of men that ever before got together in this country. Scott is making a hard fight on his Texas and Pacific bill. He has made a combination with the Northern Pacific, which will give him some strength, how much I cannot tell. The Northern Pacific are to ask for guarantee of their bonds by the United States. I shall come to California soon after Congress adjourns. Find some one to buy me out of everything there. I am tired and want to quit.[305]

... I notice what you say of Thurman’s Sinking Fund Bill—of course it is bad, but if we could have amended it so as to make it a finality, and give us 6 per cent on the fund, it would not have been so bad. It may not pass, but I think it will for this is the worst Congress we have ever had; if it should, we must beat it in the courts, if we can.

I go to Washington tonight; I should have gone last night, but for the reason that Clara has been quite sick for some days.

Mr. Sherrell telegraphed me yesterday that I must not fail of being there this morning. I cannot attend to this Washington business much longer.[306]

I returned from Washington last night. I hope to get through there without being hurt any more; but it seems as though every committee in both Houses had something before them that we had an interest in.[307]

Skilled Wire-Pulling

There is no need to comment in any detail upon these letters. Their occasional indication of discouragement doubtless meant nothing more than that Huntington sometimes grew tired and hot and angry with the opposition which he encountered. A characteristic of the man was that he never really gave up. The Thurman bill referred to will be described in another connection.

Scott was a railroad man, at one time president of the Pennsylvania Railroad, who was seeking to persuade Congress to subsidize a transcontinental railway by the southern route. The land proposition was a scheme of the associates to induce the federal legislature to buy back a portion of the Central Pacific land grant at the government price. As a whole, the letters so far quoted show that Huntington was a persistent and energetic lobbyist, although the record of Congressional legislation shows that he was far from uniformly successful.

i238

On the whole, the railroad managers pulled wires with a skill which rapidly increased with experience. Sometimes the company was made to appear prominently, and sometimes it was kept in the background when legislation was desired. Huntington found that some members of Congress were disinclined to talk to him concerning Southern Pacific matters. In such cases he had recourse to third parties—perhaps a constituent of the member in question, perhaps a friend. The same methods were employed in dealing with state legislation. In 1875 the Southern Pacific desired a franchise permitting it to build through Arizona. Huntington wrote Colton that he thought this would cost less if other interests than the associates stood at the front while the franchises were being obtained, but that after the charters were obtained it should be known that they were controlled by the Southern Pacific.[308] He said:

I am inclined to believe that if you could get the right man on that line in Arizona to work with the few papers they have there, to agitate the question in the territory, asking that some arrangement be made with the S. P., at the same time offer the S. P. a charter in the territory that would free the road from taxation, and one that would not allow for any interference with rates until ten per cent interest was declared on the common stock, I believe the Legislature could be called together by the people for $5,000 and such a charter granted. Then we would take the chances of having such a charter made good by Congress or the State when it became one.[309]

At one time Huntington even suggested that the Southern Pacific might bear the expense of an extra session of the Arizona legislature in order to hasten consideration of legislation favorable to the company.[310] The desired legislation was eventually obtained, but not until February, 1887.

Unethical Dealings

Did or did not the Huntington group, including Stanford at Sacramento and Reno, and Huntington at Washington, employ improper means in their endeavor to influence votes? This is another question upon the answer to which much depends. That passes were issued to members of the legislature, members of Congress, and judges of courts, and that gentlemen of these types were entertained at dinner in Sacramento was generally known. We have Mr. Gage’s statement, at least, that no more than this took place in Nevada. He told the United States Pacific Railway Commission of 1887, that his expenditures in that state over a period of eight years had amounted to $2,000, and added:

... and I would like to produce to you the files of the newspapers in order to show the existence of the misapprehensions that existed among the good people of Nevada, as indicated by their press, concerning my relations with the legislature of Nevada, session after session for the sixteen years. I remarked yesterday that it was one of the greatest sources of regret that I had, the imputations which were cast on my character, and which I feel I have not deserved, and which I feel I may not live long enough to outgrow. One of these is that I have spent money in the Nevada legislature for the Central Pacific like water; and those things were constantly asserted, and I believe frequently believed by a good many good people in the State, but they were not true. As I asserted to you yesterday, I have kept an accurate account of the expenses for the first eight years that I was attending the sessions of the Nevada legislature, which included my personal expenses during that time, and they figure up $2,000, or a fraction under it, as it was. Now, if any one thinks that $2,000, or less, could corrupt a legislature for eight years, including the personal expenses of myself, he must invoice members of the Nevada legislature at a very low price, and “buy them by the string.”[311]

Mr. Gage would not say, however, when asked pointblank, whether or not he had paid any money or made any provisions of advantage or reward to any member of the legislature of California or Nevada.[312] Nor would Mr. Stanford say more in reply to the inquiries of the United States Pacific Railway Commission than that the company would not include in any settlement with the United States, vouchers to which objections were made.[313]

On the whole, there is a good deal of evidence that the owners of the Central Pacific went further in influencing legislation than any strict system of ethics would allow. Huntington once stated his own position as follows:

If you have to pay money to have the right thing done, it is only just and fair to do it.... If a man has the power to do great evil and won’t do right unless he is bribed to do it, I think the time spent will be gained when it is a man’s duty to go up and bribe the judge. A man that will cry out against them himself will also do these things himself. If there was none for it, I would not hesitate.[314]

Further Evidence

More important than the record of such general expressions of opinion are the affidavits filed in the San Francisco subsidy litigation described in an earlier chapter. Nor is anyone likely to read the letters of Mr. Huntington to Mr. Colton in the late seventies without becoming convinced that the possibility of purchasing votes was constantly before Huntington’s mind. Huntington wrote Colton at one time that the (Southern Pacific) company could not get legislation unless it paid more than it was worth.[315] In another communication he said: “If we pass the Sinking Fund Bill and beat Scott and the Union Pacific, it will hurt us not less than half flora”;[316] and in still another we find the cheery comment: “Matters do not look well in Washington, but I think we shall not be much hurt, although the boys are very hungry and it will cost considerably to be saved.”[317]

In November, 1877, Huntington wrote Colton:

You have no idea how I am annoyed by this Washington business, and I must and will give it up after this session. If we are not hurt this session it will be because we pay much money to prevent it, and you know how hard it is to get it to pay for such purposes; and I do not see my way clear to get through here and pay the January interest with other bills payable to January 1st, with less than $2,000,000, and possibly not for that.... I think Congress will try very hard to pass some kind of a bill to make us commence paying on what we owe the Government. I am striving very hard to get a bill in such a shape that we can accept it, as this Washington business will kill me yet if I have to continue the fight from year to year, and then every year the fight grows more and more expensive; and rather than let it continue as it is from year to year, as it is, I would rather they take the road and be done with it.[318]

In one case where the salary to be paid a certain individual was under consideration, Huntington wrote Colton frankly that it was important that the man’s friends in Washington should be on the railroad’s side, and that if this could be brought about a salary of $10,000 to $20,000 a year would be worth while. Huntington wanted the man to make a proposition in writing, however, that he would control his friends for a fixed sum.[319] When asked about the meaning of his correspondence, Huntington denied that these expressions had any vicious significance. He said he kept on high ground,[320] and even objected to the free use of liquor and cigars.[321] Specifically, he gave instructions to his people never to use money in any immoral or illegal sense. “Buying votes in a legislature was bad policy,” said he, and his position in these matters received the formal support of Stanford. But such assertions are entitled to less weight than Huntington’s less guarded phrases.

Heavy General and Legal Expenses

There is no question that the control exercised by the Central Pacific management over the legal and miscellaneous expenses of the company was informal to the last degree. Huntington had a great deal of money to spend and he turned it over to trusted agents without too many questions. He would pay $5,000 or $10,000 at a time to General Franchot, for instance, without inquiring where it went or how it was paid.[322] Checks were made out in all cases to I. E. Gates, Mr. Huntington’s assistant in New York, and were indorsed by him either to payee or in blank.[323] Vouchers covering such items were made out simply to “Expense,” or to “Legal expense.”[324] In many cases expenditures authorized by Stanford, Crocker, or Huntington were represented by no vouchers at all,[325] the filing of vouchers being subsequently waived at stockholders’ meetings.

All in all, the general and legal expenses of the Central Pacific between the years 1875 and 1885 averaged over $500,000 annually. The only reply to the government inquiry as to what this money had been paid out for was Stanford’s statement already quoted that vouchers to which there were objections would not be included in any settlement with the United States, but that the moneys would be treated as still in the treasury.[326] This was plainly an evasion of the point at issue.

Company in Politics

Still another question is how far the headquarters of the Central Pacific in the various capitals were used as agencies for the election of legislators and other persons who owed their position to railroad influence. It is the unhesitating popular judgment that the railroad at an early date “entered politics.” In a long letter dated August 26, 1873, Eugene Casserly asserted that the Central Pacific aimed to be and was a third party in the politics of the state, holding the balance of power between the Democratic and the Republican parties, and controlling or seeking to control at will each or both of them. “This third party,” continued Mr. Casserly, “has the usual attributes of a political party, the same apparatus and appliances. It has its leaders, its managers, its editors, its orators, its adherents. It selects these from both parties, but mostly from the party in the majority. Whether they call themselves Republicans or Democrats, and however they divide or contend on party issues, they move as one man in the cause of the railroad against the people. To that cause they give their first allegiance.”

Bassett Polemic

This statement of Mr. Casserly calls to mind another charge or series of charges made by a man named J. M. Bassett in the years following 1892. Mr. Bassett was one of the early pioneers. He came to California in 1851, and was at various times miner, printer, newspaper man, railroad employee, and member of the Oakland city council. At one time he was Leland Stanford’s secretary. After Mr. Stanford had been forced out of the presidency of the Southern Pacific, Bassett began to publish a series of open letters to Collis P. Huntington, and continued them weekly, with occasional intervals, for several years. The sustained vivacity and pungency of this polemic, and the systematic virulence with which Bassett reviewed and criticized the Huntington policies make the series a noteworthy journalistic achievement. Mr. Bassett denounced Mr. Huntington for the overcapitalization of the Southern Pacific system, for its failure to pay taxes, for its carelessness of the lives of its employees and of the public, for its attempt to evade repayment of the debt which it owed to the United States government, and for the general mismanagement which, he asserted, had taken place under Huntington’s control. With respect to the interference of the Southern Pacific in politics, Bassett wrote to Huntington in 1895:

What chief executive of the State, before the present incumbent, has there been who did not owe his nomination and election to the Southern Pacific Company and in acknowledgment of his debt hasten to obey its slightest command? Has there ever been a Board of Railroad Commissioners before last November in which you did not own at least two members? Have you not named every Harbor Commissioner appointed during the past twelve years?

Have you not hitherto chosen San Francisco’s Police Commissions and do you not now exercise a dictatorial power over the city’s police, especially the Harbor Police? Were not the Judges of the two United States Courts in San Francisco appointed at the instance of Leland Stanford? How many Superior Courts are there in the State in which a citizen may bring an action against you in full confidence that he will be fairly and impartially dealt with? Doubtless there are such but the difficulty is to find them. Before the recent elections how long did you control the government of San Francisco? Have you not dictated the government of Oakland for the past twenty-five years? Until last election had you not continuous control of Alameda County’s government?...[327]

When one desires to test the accuracy of accusations like those of Casserly and of Bassett, one has first to remember that they are in accord with the substantially uncontradicted declarations of men of all degrees of prominence in California over a period of fifty years. Political campaigns have been waged on the question of the railroad versus the people. Not only newspapers like the Sacramento Union and the San Francisco Examiner, but men like John T. Doyle, at one time state railroad commissioner, General Howard, a leading member of the Constitutional Convention of 1879, and H. H. Haight, at one time governor of the state of California, have asserted that railroad influence was a real and important factor in the politics of California. While neither a corporation nor an individual can properly be convicted on the strength of current report, the presence of so much smoke, over so long a period, is fair evidence of some fire.

Documentary Evidence

Direct testimony relating to the political activity of the Huntington group comes from Mr. Huntington himself in two ways. In the first place there have been published certain letters which passed between Huntington and his associate, Mr. Colton, in the years 1875 to 1878. These documents have been referred to in other connections. They came out in the course of court proceedings, and have the weight of confidential communications, not intended for publication. Extracts from these letters will presently be given. Besides this, certain statements were given by Huntington to the press in 1890 which bear directly upon the point at issue. These statements were intended to discredit Stanford, but in the course of the heated controversy to which they gave rise they were not denied by Stanford nor withdrawn by their author.

On May 1, 1875, Huntington wrote Colton:

I noticed what you say of Piper; he is a wild hog; don’t let him come back to Washington, but as the house is to be largely Democratic, and if he was to be defeated, likely it would be charged to us, hence, I should think it would be well to beat him with a Democrat; but I would defeat him anyway, and if he got the nomination put up another Democrat and run against him, and in that way elect a Republican. Beat him.[328]

Asked to whom the letter referred, Huntington later said that if he remembered the person, and he thought he did, he was a man whose views ran contrary to all human interests.[329]

A letter in June, 1876, reads as follows:

I hope ... will be sent back to Congress. I think it would be a misfortune if he was not.... has not always been right, but he is a good fellow and is growing every day.... is always right, and it would be a misfortune to Cal. not to have him in Congress. Piper is a damned hog, and should not come back. It is shame enough for a great commercial city like San Francisco to send a scavenger like him to Congress once....[330]

Again, in November, 1876, Huntington wrote Colton:

I hope ... is elected and ... defeated, as it was generally understood here that our hand was over one and under the other....[331]

A still later letter relates to the pending election of a senator from California. Huntington said:

We should be very careful to get a U. S. Senator from Cal. that will be disposed to use us fairly, and then have the power to help us ..., I think, will be friendly, and there is no man in the Senate that can push a measure further than he can.[332]

Controversy between Associates

The correspondence which has just been cited is not offered in order to discredit Mr. Huntington, or for any reason except to show that it was Huntington’s belief in the years 1875, 1876, and 1877 that the influence of the Central Pacific should be used to advance the political interests of persons favorably inclined toward his railroad system and to discourage those in opposition. The personal controversy which took place between Stanford and Huntington in 1890 brought out some additional evidence of the same sort. This dispute arose ostensibly because of the election of Stanford in 1883-84 as senator from California in place of A. A. Sargent, one of Huntington’s friends. In reality it was probably only the final outcome of a growing tension between the two men, due to dissatisfaction on Huntington’s part with the small amount of time which Stanford devoted to railroad affairs, and perhaps to jealousy of the prominence which Stanford enjoyed in public estimation.[333]

However this may be, Stanford resigned the presidency of the Southern Pacific Company at the annual meeting of the stockholders on April 9, 1890, and Huntington was elected in his place. In his address to the board of directors of the company, Huntington used the following words:

Gentlemen, for the honor that you have done me in electing me President of the Southern Pacific Company ... I promise you that I will be as true to the interest of the company in the future as I have been in the past. I can promise you nothing more, for at all times my personal interest has been second to that of the company. It shall be so in the future, and in no case will I use this great corporation to advance my personal ambition at the expense of its owners, or put my hands into the treasury to defeat the people’s choice, and thereby put myself into positions that should be filled by others; but to the best of my ability will I work for the interest of the shareholders of the company and the people, whom it should serve.[334]

This statement attracted attention, and Huntingdon was asked to explain. In an interview with a reporter of the San Francisco Examiner he said further:

From this time on we are going to follow one business. We are railroad men and intend to conduct a legitimate railroad business. To do that successfully politics must be let alone.... If a man wants to make a business of politics, all well and good; if he wants to manage a railroad, all well and good; but he can’t do both at the same time.

I have seen the ante-rooms down here in this building full of men trying to learn or get something out of politics. Why should they come here? This is no place for them. But then they were not to blame. The tip went forth that political work was being done at Fourth and Townsend streets, and they merely followed the tip. Well, there won’t be any more tips sent out of these railroad offices. Politics have worked enough demoralization in our company already, and they have gone out of the door never to return....

Things have got to such a state, that if a man wants to be a constable he thinks he has first got to come down to Fourth and Townsend streets to get permission. Hereafter people who come to Fourth and Townsend streets must have railroad business to transact. The Southern Pacific Company is out of politics, and will attend to its business like any other private company or individual should do.[335]

Such statements naturally led to an open breach between Huntingdon and Stanford.[336]

The point at issue was not, however, whether it was proper for the Southern Pacific to defend itself against political attack. On this there is every reason to suppose that all parties were agreed. It was rather whether the company should be used as an instrument to advance the personal interests of individuals. In the same connection the question arose whether railroad men should act together in political matters not connected with railroad affairs. Huntington, who had little interest in general politics, thought they should not. It is probable enough that Stanford or some of his subordinates had, on the other hand, used their influence as railroad men for personal and party ends.

Unscrupulousness of Associates

One rises from the study of the political activities of the owners of the Central Pacific with a feeling of indignation at the selfishness of these men, their indifference to all save considerations of private gain, and their readiness to use any and all methods which would advance their financial interests. The associates met the proposal of government regulation as a threat to rob them of their property and resisted it as they would have opposed any other attack. They never conceded that any question of public interest was involved which it was necessary for them to respect. They frankly defended the use of money as a method of persuading men to do what was right—which inevitably meant, of course, what in their judgment was right. They fell out among themselves, not because any one of them questioned the philosophy which inspired their opposition to public control, but because one of them was suspected of using power, developed in the course of the defense of railroad interests, to advance personal ambitions which ran counter to the views of his associates. These things should be plainly stated and their force clearly understood.

It is the writer’s opinion, however, that the amount of money spent by the Central Pacific in the purchase of legislative or other votes has probably been overestimated in the public mind. Direct bribery is a clumsy weapon and one difficult to conceal if practiced on any considerable scale. It was probably also unnecessary to a corporation such as the Central Pacific with other favors to bestow. Members of Congress might, indeed, be employed by the railroad when legislation was pending. Huntington maintained that this was legitimate,[337] and Gage once admitted that the company had to employ everybody who could pull a pound. The practice was more easily defensible than bribery, and could be applied to a better class of men. Other men might be reached through patronage, still others through discrimination in rates or through preferences. The suggestion that unfavorable legislation would hinder construction was potent with legislators from districts which still lacked rail connection. Yet Huntington once said of a man who was opposing him and whom he thought he could bribe, that his better judgment told him the associates could not afford to take the scamp into camp,[338] and this probably represented the situation at most times. Whether this worked for the eventual salvation of the Huntington group, is for the moralist to say.

CHAPTER XV

LOCAL RATES IN CALIFORNIA

Charging What the Traffic Will Bear

The general policy of the associates in dealing with problems of rate-making in which rival towns were interested, was the same as that which they adopted to meet differences in competitive power between different individuals. The tests applied were simple. What was the market to be reached? Had the community concerned an alternative route? Was there an alternative source of supply which limited the willingness of the community to pay freight? If so, was this second source of supply one served by the Central Pacific, or one which had the benefit of water communication, or possibly one which possessed a rival rail connection? To what extent should concession be made from the highest rate which could be charged, in order to promote the growth of business?[383]

The standard of rate-making just described, which may be summed up as a policy of charging what the traffic would bear, was not peculiar to the Southern Pacific at the time it was adopted, nor was it particularly repugnant to public opinion in California, taken as a whole. The error must not be made of ascribing to the western communities of the seventies and eighties a clear conception of the reasons of public policy which are properly urged today against the unlimited recognition in railway rate schedules of the competitive forces which still have free play in private business. Such ideas have slowly developed only during the last forty years.

Limited Encouragement of Business

Nor was the policy of adapting rates to the ability of shippers to pay inconsistent with the rendering of important service to business men in California and elsewhere who were seeking to expand their sales. Only a few illustrations need be given of the promotion of business by rate adjustments, but they will serve as examples of many more about which information is on record.

One case of this sort, which shows the willingness of the Southern Pacific management to respond to what they considered a reasonable request, had to do with the shipment of beer from a place known as Boca, in the state of Nevada, to San Francisco. It appears that a gentleman named Hess once conceived the idea of establishing a brewery at Boca. This town was 220 miles from San Francisco, and yet all of Mr. Hess’s beer had to find a market in the latter place, in competition with beer from Milwaukee and St. Louis. Mr. Stubbs, general traffic manager of the Central Pacific, welcomed the proposal to build a brewery in the West, and put in special rates to help shut out the eastern product. Every pound of brewery supplies, he reasoned, would have to go over the Central Pacific. It was all clear gain, like so much money picked up out of the ditch. In another case the Southern Pacific quoted special rates on sugar from San Francisco to the Missouri River, to enable the California Sugar Refining Company and the American Sugar Refining Company to sell their sugar at the Missouri River in competition with sugar reaching New York by water and thence moving westward.[384]

Still again, in 1884 an attempt was made to persuade the St. Louis-Kansas City lines to participate in a rate of 75 cents per hundred pounds on cast iron pipe from St. Louis to the Pacific Coast in order to encourage production in the Middle West in competition with that on the Atlantic seaboard. The matter of the 75-cent rate was taken up with J. W. Midgley, Trunk Line commissioner, who declined temporarily on December 24, 1884, on the ground that the rate would be a special one, and that there was an understanding that no special rates should be made prior to January 31 next ensuing, pending an anticipated agreement between the Transcontinental Association and its eastern connections.[385]

In the instances which have been given, the impelling motive of the Southern Pacific was frankly to increase its profit by increasing the movement of freight over its line. Yet the shipper was also benefited because his interests were substantially identical with those of the railroad company, and he warmly welcomed the powerful support of the railroad lines. These cases are not unimportant. The enumeration of such isolated instances, however interesting as they may be, affords no very clear picture of the aggregate of local rate adjustments with which the Southern Pacific interests were concerned. For this purpose a more systematic survey of the rate system administered by the Southern Pacific is necessary, and to this attention is now directed.

Distance the Governing Factor

The foundation of any system of railroad rates is the distance which commodities are carried. Generally speaking, the Southern and Central Pacific railroads, like other companies in the United States and Europe, varied their local charges with the distance between point of origin and point of destination. To illustrate this point briefly, two charts are here presented.

i291

Chart showing rates on second-class freight and on grain in the Sacramento Valley, 1876.

The first chart depicts the rates on second-class freight and those on grain in January, 1876, between Sacramento and points in the Sacramento Valley north of that city. Second-class freight at this time on the Southern Pacific included articles such as coal oil, agricultural implements, machinery, furniture, crated glassware, and wines and liquors. Freight of the description mentioned ordinarily moved north from the city of Sacramento. Grain, on the contrary, moved south. It will be observed that rates on the lines of the Southern Pacific increased with considerable regularity as point of origin or destination proceeded north into the non-competitive territory around Tehama and Redding.

i292

Chart showing rates on miscellaneous commodities in the San Joaquin Valley, 1892.

The second chart displays rates between San Francisco and stations in the San Joaquin Valley as far south as Fowler, 205 miles distant from point of origin. These rates are for the year 1892.

Non-competitive rates in the San Joaquin Valley in 1892 increased as distance grew greater, much as they had increased in the northern territory sixteen years before. The rates given are for a few commodities only, namely, agricultural implements, barbed wire, boots and shoes, coal, and grain; but these are typical of the construction of schedules on a much larger number of articles. The extent of the increase was relatively greater to points beyond Lathrop because of the effect of water competition on San Francisco Bay.

Grades and Traffic Density

These two schedules illustrate a fact which could be readily proved by repeated examples, namely, that local rates in California were and are first based on the element of distance. Possibly such a fact might be assumed; yet in California, as elsewhere, the statement that railroad rates have varied with the distance traversed needs promptly to be qualified in order to be true. For, first of all, it was evident at the beginning that costs of transportation were not solely determined by distance, and that other considerations had to enter in. One of these other considerations was the matter of grades. Because of the conditions under which the Central Pacific was constructed, to say nothing of the extremely mountainous character of certain portions of the Central Pacific lines, differences in the rates per ton per mile between the valley and the mountain sections were introduced by the company at the commencement of its history.

A second characteristic of railway traffic which had a profound effect upon early railroad tariffs was the relative density of business. Mr. Stanford advanced the theory that the railroad should strive to secure a certain average earning per car; and in sections where business was light, as well as upon commodities which were bulky in proportion to their weight, a high average rate per hundred pounds was accordingly charged.

Relative grades and relative density of traffic were not the only conditions relating to cost which influenced the varying level of transportation rates in California, but, apart from distance, they were perhaps the most important, and in any case they may be taken as illustrative of the group of circumstances to which they belong. In addition to the whole class of facts relating to cost, however, the Southern Pacific gave heed to matters of value of service in the fixing of its rates. Nothing will be said here of the principles of classification of freight, principles which have to do in part with the value of the service rendered; nor of individual differences between shippers, which have been alluded to in the preceding chapter in the discussion of personal discrimination. The effect of competition in distorting distance schedules in California will, however, be dealt with at some length.

Water Competition

It has already been pointed out that the presence or absence of water competition has always been a most important factor in determining the relative adjustment of local rates in the state of California. This competition has been extremely pervasive. Although the scarcity of good harbors and the location of the Coast Range of mountains hinders access from the sea into the interior of California, yet, on the other hand, the ports of San Diego, San Pedro, and San Francisco, and the long stretches of navigable water on the Sacramento and San Joaquin rivers have opened the possibilities of water shipment to a multitude of inland towns. Indeed, in 1883 General Manager Towne, of the Central Pacific, submitted to the State Railroad Commission a list of fifty-two points in California at which the Central Pacific and its leased lines met direct water competition. The water routes included San Francisco Bay and the Sacramento River and sloughs, Suisun Bay, Napa River, San Joaquin River, Feather River, the Pacific Ocean, Wilmington Bay, and the Colorado River. In addition, Mr. Towne enumerated eighty-two points where rates were affected by proximity to the competitive points previously mentioned.[386] On the face of things, the extent of the water competition thus indicated was sufficient to warp almost beyond recognition the simple distance scale of tariffs which a railroad completely protected from competition would naturally apply.

Low Rates to Competitive Points

An illustration of the effect of the water routes on local rates is found in the fact that the round trip fare from San Francisco to Sacramento by rail in 1878 was $3, while that to Woodland was $4.25.[387] The San Francisco Chronicle declared in 1879 that, according to a recently published schedule, the movement charge for grain, potatoes, vegetables, and wool from Lathrop to Mojave was exactly the same as to Ravenna, Newhall, or Los Angeles. The first-named distance was 288 miles, making the movement mileage rate 7.2 cents; the second-named distance was 337 miles and the rate per mile was 6.2 cents; the third distance was 356 miles, the rate being only 5.8 cents; and the distance to Los Angeles was 388 miles, or a mileage rate of 5.4 cents. The truth of the statement of the Chronicle is established by data published by the State Commissioners of Transportation in 1877, which show the striking contrast that existed in 1877 between non-competitive rates in the interior valleys and rates to points which enjoyed the advantage of nearness to the water routes.

Low water-compelled rates to Sacramento and to Los Angeles were in force as early as 1877. Yet this was only a beginning, and as time went on and the number of towns in California increased, the practice of recognizing the force of water competition was extended. Moreover, the Southern Pacific began to quote lower instead of merely equal rates to more distant points which enjoyed the advantage of nearness to a water location. Since the ability to make use of a competing railway afforded opportunities similar to those afforded by ability to use a water route, low rates were also extended to towns served by more than one railroad line. All this greatly complicated the rate situation in the state, gave rise to numerous complaints, and renders difficult the task of concise description.

Rates to Intermediate Points

Official confirmation of the general correctness of the complaint of discrimination which reached the public press from time to time is found in a comprehensive investigation of railroad rates in California which the Railroad Commission of that state undertook as late as the year 1916. This inquiry was provoked by an application by the Southern Pacific, Santa Fé, and other railroads in California for relief from the clauses of the amended state constitution and of the California Public Utilities Act prohibiting greater charges to intermediate points than were collected on shipments to more distant points over the same line. Although the legal aspects of the case were therefore the result of modern legislation, the facts brought out were typical of conditions of long standing.[388]

i297

Diagram showing adjustment of freight rates between San Francisco and Stockton, 1916.

Exhibit No. 1 in the case in question referred to class rates in the San Joaquin Valley. It appeared that class rates between San Francisco, San José, Port Costa, Stockton, Sacramento, Marysville, and intermediate points to Los Angeles, were 60 cents per hundred pounds first-class, and corresponding sums less for the lower classes. These rates were shown to be controlled by the class rate of the Pacific Coast Steamship Company, which quoted a through first-class rate of 52 cents, including wharfage and handling, between San Francisco and Los Angeles via San Pedro. On all-rail shipments down the valley, as well as on shipments over the coast rail route, however, water competition was not effective. The rate from San Francisco to Simi, 429 miles from San Francisco, was therefore 80 cents, and that to Acton, 415 miles from San Francisco, was 83 cents, although shipments from San Francisco to Los Angeles passed through Simi and Acton on their way to Los Angeles over the coast and San Joaquin Valley routes, respectively.

A condition similar to that at Los Angeles and at points in the San Joaquin Valley was developed in connection with shipments from San Francisco to Stockton. The diagram on page 266 will show the relative position of these two towns as well as that of an intermediate place named Banta.

The distance between San Francisco and Stockton was 91 miles, and the first-class rate was 10 cents per hundred pounds. This rate was identical with the rate charged by boat lines operating on San Francisco Bay, and on the Sacramento and San Joaquin rivers. But although these boats touched at some intermediate points, their competition was not everywhere effective; so that the first-class rate from San Francisco to Banta, 74 miles, could be and was 17 cents, although freight from San Francisco passed through Banta on its way to Stockton.

Other Instances

Still another illustration of the influence of water competition upon local rates in California may be drawn from the territory immediately north of San Francisco Bay. The towns involved in this adjustment were San Francisco, Sebastopol, and Santa Rosa, as shown in the diagram on page 268. The first-class rate from San Francisco to Sebastopol on the Northwestern Pacific was 23 cents. This rate was shown to be limited by the competition of a rail and water line, including a steamship haul from San Francisco to Petaluma and a haul over an electric railway from Petaluma to Sebastopol. The distance from San Francisco to Sebastopol over the Northwestern Pacific was 58.5 miles. The distances from San Francisco to the towns of Kenilworth and Santa Rosa, on the same railroad, were 45.7 and 52.5 miles, respectively. Shipments to Sebastopol passed through these places, but because neither enjoyed the advantage of an alternative route, the first-class rate to Santa Rosa was 25 cents and that to Kenilworth 28 cents—materially more than was charged for the longer haul to Sebastopol.

i299

Diagram showing adjustment of freight rates between San Francisco, Santa Rosa, and Sebastopol, 1916.

While instances of the extreme discrimination of a greater charge for a shorter than for a longer haul were shown in 1916 to be usually the result of water competition, it has already been suggested that not all cases of discrimination were of this sort. A particularly striking case of unequal rates due to rail competition alone was brought out in the same proceedings from which the preceding illustrations have been drawn, by the application of the Atchison, Topeka and Santa Fé Railway to continue lower rates from Los Angeles to Mojave, California, a distance of 212 miles, and to Lindsay, a distance of 411 miles, than were charged to Kramer, an intermediate point 174 miles from Los Angeles. The relative position of the points is shown in the diagram given above.

i300

Diagram showing adjustment of freight rates between Los Angeles and points north and east of Los Angeles, 1916.

In this case the rate to Mojave at the time application was filed was 52 cents first-class, and that to Lindsay 70 cents, while the rate to Kramer was 78 cents. But at both Mojave and Lindsay, the Santa Fé had to meet the competition of the short Southern Pacific line, while at Kramer this competition was not effective.

Development of State Retarded

The data which have been presented show that, while the system of local rates in California was based originally upon distance, it soon became profoundly modified by conditions of cost, and still more by the presence of competition at strategic points, and by the occasional necessity of reducing rates in order to stimulate the movement of freight. The charges for short hauls in the interior valleys where the Southern or Central Pacific possessed a monopoly were made high, because traffic was scant and because the railroad was able to exact a monopoly return. Rates were also regularly progressive under these conditions. In sharp contrast to the practice which obtained where the Southern Pacific was the only carrier, rates to points located upon the coast, on navigable rivers, or on competing railroad lines were relatively low and were often extremely irregular.

It is generally difficult to criticize a system of rate-making upon a priori grounds because the test of such a system is to be found only in the form which it gives to the industrial life of the community to which it is applied. There is reason to believe, nevertheless, that the local rate structure created by the Southern Pacific gave an advantage to a few shippers and to a few towns which affected unfavorably the development of the state. This is the fundamental objection to any system of rates in which competitive influences are recognized to an unlimited extent.

Without going further into the matter at this point, we will content ourselves with adding to our description of local rates in California some observations upon the attitude of California shippers with respect to railroad charges.

Conflicting Claims of Cities

The rates of the Southern Pacific and of the Central Pacific railroads were unpopular in California because they were believed to be too high. Beyond this, and when it came to questions of relative adjustments, each community looked at the relations of rates which interested it from the narrow viewpoint of its individual advantage. Indeed, when one reviews the course of the controversy between railroad and shipper in the state, it seems very clear that, apart from questions of excessive profit, the objections which California cities entertained toward the irregular and unequal rates charged by the Southern Pacific Company were only slightly based on considerations of general policy, but were, on the contrary, due to the feeling of various towns that their distributing areas were unfairly circumscribed by the manner in which railroad rates were arranged.

One small piece of evidence to show that competition between rival towns or producing districts was the reason for some of the most bitter attacks upon the railroad, may be found in the complaint of the anti-monopolists of Tulare County in 1885 that their fruits, which ought to have found a market in the southern parts of the state and in Arizona, were subjected to higher freight rates than were the fruits of Sacramento and of San José, points more than 200 miles to the north.[389]

A few years earlier the merchants of Stockton insisted that the rates out of Stockton were extortionate as compared with the rates out of San Francisco. The distance from Lathrop to Stockton was said to be 10 miles, and the railroad rate per ton on wheat was $1.20, or 12 cents per mile. The distance from Lathrop to San Francisco was 82 miles, or more than eight times the distance to Stockton, but the price per ton for wheat was only $2.50, or about one quarter the price per ton per mile in the first instance. The price per ton from Lodi to Stockton was $1.40, and to San Francisco $2.50; but whereas the last-named sum was less than twice the former, the distance from Lodi to San Francisco was eight times as great as the distance to Stockton.[390]

In addition to their contention that mileage rates on shipments into Stockton compared unfavorably with rates on shipments into San Francisco, Stockton residents made the general charge that rates up the San Joaquin Valley were generally less than the rates down the valley. The rate from Stockton to Merced was said to be $6.80 per ton, but the rate from Merced to Stockton was $3.40. Stockton objected to forcing of the San Joaquin Valley to make San Francisco its market.[391]

Interstate Commerce Decision

Complaints similar to those voiced by Stockton were registered by the people of Los Angeles. In the eyes of inhabitants of that city, the rates on northbound freight from Los Angeles consigned to the San Joaquin Valley were relatively higher than the rates from San Francisco south into that same valley. Yet, dissatisfied as Los Angeles was with the relation which her rates bore to those out of San Francisco, it seemed to other cities in the south that her position was on the whole more favorable than was that of her neighbors. In 1889 a dealer in the city of San Bernardino protested against being forced to pay a higher rate from eastern points than was charged the city of Los Angeles. He showed that the rate on agricultural implements from the Missouri River to San Bernardino was $1.27 per hundred pounds while to Los Angeles it was $1.07. On stoves the rates were $1.19 and 99 cents, respectively, and on school furniture $1.55 and $1.35. This preference was alleged to be discriminative and illegal.[392]

In a decision approving the discrimination against San Bernardino, the Interstate Commerce Commission in 1890 remarked that originally southern California had been served from San Francisco direct; and that San Francisco jobbers had covered its territory. When the railroads reached Los Angeles they found it to their advantage to grant it low rates, not so much because it lay near the Pacific Ocean as because the interests of the Southern Pacific and especially of the Santa Fé demanded that some point in southern California should be given such a rate that merchandise from the East could be brought there all-rail and from that point be distributed. The fact that water competition was not the only influence which determined the Los Angeles rate from the eastern states was indeed shown later by the fact that the port of Los Angeles, San Pedro, did not receive a terminal rate until 1910, although Los Angeles itself had been given terminal privileges at least twenty years before.[393]

Stockton, Los Angeles, and San Bernardino thus illustrate in their conflicting claims the constant effort of cities in California to extend the area over which they might distribute goods. Among other instances of dispute between California cities may be mentioned the demand of Santa Barbara in 1907 to be made a Pacific Coast terminal,[394] and the angry contentions of Santa Clara, San José, Marysville, Santa Rosa, and Fresno in 1914 over the question of relative railroad rates from eastern points.[395] The characteristics of the system of transcontinental rates which were involved in these complaints will be discussed in the following chapter.

CHAPTER XV

LOCAL RATES IN CALIFORNIA

Charging What the Traffic Will Bear

The general policy of the associates in dealing with problems of rate-making in which rival towns were interested, was the same as that which they adopted to meet differences in competitive power between different individuals. The tests applied were simple. What was the market to be reached? Had the community concerned an alternative route? Was there an alternative source of supply which limited the willingness of the community to pay freight? If so, was this second source of supply one served by the Central Pacific, or one which had the benefit of water communication, or possibly one which possessed a rival rail connection? To what extent should concession be made from the highest rate which could be charged, in order to promote the growth of business?[383]

The standard of rate-making just described, which may be summed up as a policy of charging what the traffic would bear, was not peculiar to the Southern Pacific at the time it was adopted, nor was it particularly repugnant to public opinion in California, taken as a whole. The error must not be made of ascribing to the western communities of the seventies and eighties a clear conception of the reasons of public policy which are properly urged today against the unlimited recognition in railway rate schedules of the competitive forces which still have free play in private business. Such ideas have slowly developed only during the last forty years.

Limited Encouragement of Business

Nor was the policy of adapting rates to the ability of shippers to pay inconsistent with the rendering of important service to business men in California and elsewhere who were seeking to expand their sales. Only a few illustrations need be given of the promotion of business by rate adjustments, but they will serve as examples of many more about which information is on record.

One case of this sort, which shows the willingness of the Southern Pacific management to respond to what they considered a reasonable request, had to do with the shipment of beer from a place known as Boca, in the state of Nevada, to San Francisco. It appears that a gentleman named Hess once conceived the idea of establishing a brewery at Boca. This town was 220 miles from San Francisco, and yet all of Mr. Hess’s beer had to find a market in the latter place, in competition with beer from Milwaukee and St. Louis. Mr. Stubbs, general traffic manager of the Central Pacific, welcomed the proposal to build a brewery in the West, and put in special rates to help shut out the eastern product. Every pound of brewery supplies, he reasoned, would have to go over the Central Pacific. It was all clear gain, like so much money picked up out of the ditch. In another case the Southern Pacific quoted special rates on sugar from San Francisco to the Missouri River, to enable the California Sugar Refining Company and the American Sugar Refining Company to sell their sugar at the Missouri River in competition with sugar reaching New York by water and thence moving westward.[384]

Still again, in 1884 an attempt was made to persuade the St. Louis-Kansas City lines to participate in a rate of 75 cents per hundred pounds on cast iron pipe from St. Louis to the Pacific Coast in order to encourage production in the Middle West in competition with that on the Atlantic seaboard. The matter of the 75-cent rate was taken up with J. W. Midgley, Trunk Line commissioner, who declined temporarily on December 24, 1884, on the ground that the rate would be a special one, and that there was an understanding that no special rates should be made prior to January 31 next ensuing, pending an anticipated agreement between the Transcontinental Association and its eastern connections.[385]

In the instances which have been given, the impelling motive of the Southern Pacific was frankly to increase its profit by increasing the movement of freight over its line. Yet the shipper was also benefited because his interests were substantially identical with those of the railroad company, and he warmly welcomed the powerful support of the railroad lines. These cases are not unimportant. The enumeration of such isolated instances, however interesting as they may be, affords no very clear picture of the aggregate of local rate adjustments with which the Southern Pacific interests were concerned. For this purpose a more systematic survey of the rate system administered by the Southern Pacific is necessary, and to this attention is now directed.

Distance the Governing Factor

The foundation of any system of railroad rates is the distance which commodities are carried. Generally speaking, the Southern and Central Pacific railroads, like other companies in the United States and Europe, varied their local charges with the distance between point of origin and point of destination. To illustrate this point briefly, two charts are here presented.

i291

Chart showing rates on second-class freight and on grain in the Sacramento Valley, 1876.

The first chart depicts the rates on second-class freight and those on grain in January, 1876, between Sacramento and points in the Sacramento Valley north of that city. Second-class freight at this time on the Southern Pacific included articles such as coal oil, agricultural implements, machinery, furniture, crated glassware, and wines and liquors. Freight of the description mentioned ordinarily moved north from the city of Sacramento. Grain, on the contrary, moved south. It will be observed that rates on the lines of the Southern Pacific increased with considerable regularity as point of origin or destination proceeded north into the non-competitive territory around Tehama and Redding.

i292

Chart showing rates on miscellaneous commodities in the San Joaquin Valley, 1892.

The second chart displays rates between San Francisco and stations in the San Joaquin Valley as far south as Fowler, 205 miles distant from point of origin. These rates are for the year 1892.

Non-competitive rates in the San Joaquin Valley in 1892 increased as distance grew greater, much as they had increased in the northern territory sixteen years before. The rates given are for a few commodities only, namely, agricultural implements, barbed wire, boots and shoes, coal, and grain; but these are typical of the construction of schedules on a much larger number of articles. The extent of the increase was relatively greater to points beyond Lathrop because of the effect of water competition on San Francisco Bay.

Grades and Traffic Density

These two schedules illustrate a fact which could be readily proved by repeated examples, namely, that local rates in California were and are first based on the element of distance. Possibly such a fact might be assumed; yet in California, as elsewhere, the statement that railroad rates have varied with the distance traversed needs promptly to be qualified in order to be true. For, first of all, it was evident at the beginning that costs of transportation were not solely determined by distance, and that other considerations had to enter in. One of these other considerations was the matter of grades. Because of the conditions under which the Central Pacific was constructed, to say nothing of the extremely mountainous character of certain portions of the Central Pacific lines, differences in the rates per ton per mile between the valley and the mountain sections were introduced by the company at the commencement of its history.

A second characteristic of railway traffic which had a profound effect upon early railroad tariffs was the relative density of business. Mr. Stanford advanced the theory that the railroad should strive to secure a certain average earning per car; and in sections where business was light, as well as upon commodities which were bulky in proportion to their weight, a high average rate per hundred pounds was accordingly charged.

Relative grades and relative density of traffic were not the only conditions relating to cost which influenced the varying level of transportation rates in California, but, apart from distance, they were perhaps the most important, and in any case they may be taken as illustrative of the group of circumstances to which they belong. In addition to the whole class of facts relating to cost, however, the Southern Pacific gave heed to matters of value of service in the fixing of its rates. Nothing will be said here of the principles of classification of freight, principles which have to do in part with the value of the service rendered; nor of individual differences between shippers, which have been alluded to in the preceding chapter in the discussion of personal discrimination. The effect of competition in distorting distance schedules in California will, however, be dealt with at some length.

Water Competition

It has already been pointed out that the presence or absence of water competition has always been a most important factor in determining the relative adjustment of local rates in the state of California. This competition has been extremely pervasive. Although the scarcity of good harbors and the location of the Coast Range of mountains hinders access from the sea into the interior of California, yet, on the other hand, the ports of San Diego, San Pedro, and San Francisco, and the long stretches of navigable water on the Sacramento and San Joaquin rivers have opened the possibilities of water shipment to a multitude of inland towns. Indeed, in 1883 General Manager Towne, of the Central Pacific, submitted to the State Railroad Commission a list of fifty-two points in California at which the Central Pacific and its leased lines met direct water competition. The water routes included San Francisco Bay and the Sacramento River and sloughs, Suisun Bay, Napa River, San Joaquin River, Feather River, the Pacific Ocean, Wilmington Bay, and the Colorado River. In addition, Mr. Towne enumerated eighty-two points where rates were affected by proximity to the competitive points previously mentioned.[386] On the face of things, the extent of the water competition thus indicated was sufficient to warp almost beyond recognition the simple distance scale of tariffs which a railroad completely protected from competition would naturally apply.

Low Rates to Competitive Points

An illustration of the effect of the water routes on local rates is found in the fact that the round trip fare from San Francisco to Sacramento by rail in 1878 was $3, while that to Woodland was $4.25.[387] The San Francisco Chronicle declared in 1879 that, according to a recently published schedule, the movement charge for grain, potatoes, vegetables, and wool from Lathrop to Mojave was exactly the same as to Ravenna, Newhall, or Los Angeles. The first-named distance was 288 miles, making the movement mileage rate 7.2 cents; the second-named distance was 337 miles and the rate per mile was 6.2 cents; the third distance was 356 miles, the rate being only 5.8 cents; and the distance to Los Angeles was 388 miles, or a mileage rate of 5.4 cents. The truth of the statement of the Chronicle is established by data published by the State Commissioners of Transportation in 1877, which show the striking contrast that existed in 1877 between non-competitive rates in the interior valleys and rates to points which enjoyed the advantage of nearness to the water routes.

Low water-compelled rates to Sacramento and to Los Angeles were in force as early as 1877. Yet this was only a beginning, and as time went on and the number of towns in California increased, the practice of recognizing the force of water competition was extended. Moreover, the Southern Pacific began to quote lower instead of merely equal rates to more distant points which enjoyed the advantage of nearness to a water location. Since the ability to make use of a competing railway afforded opportunities similar to those afforded by ability to use a water route, low rates were also extended to towns served by more than one railroad line. All this greatly complicated the rate situation in the state, gave rise to numerous complaints, and renders difficult the task of concise description.

Rates to Intermediate Points

Official confirmation of the general correctness of the complaint of discrimination which reached the public press from time to time is found in a comprehensive investigation of railroad rates in California which the Railroad Commission of that state undertook as late as the year 1916. This inquiry was provoked by an application by the Southern Pacific, Santa Fé, and other railroads in California for relief from the clauses of the amended state constitution and of the California Public Utilities Act prohibiting greater charges to intermediate points than were collected on shipments to more distant points over the same line. Although the legal aspects of the case were therefore the result of modern legislation, the facts brought out were typical of conditions of long standing.[388]

i297

Diagram showing adjustment of freight rates between San Francisco and Stockton, 1916.

Exhibit No. 1 in the case in question referred to class rates in the San Joaquin Valley. It appeared that class rates between San Francisco, San José, Port Costa, Stockton, Sacramento, Marysville, and intermediate points to Los Angeles, were 60 cents per hundred pounds first-class, and corresponding sums less for the lower classes. These rates were shown to be controlled by the class rate of the Pacific Coast Steamship Company, which quoted a through first-class rate of 52 cents, including wharfage and handling, between San Francisco and Los Angeles via San Pedro. On all-rail shipments down the valley, as well as on shipments over the coast rail route, however, water competition was not effective. The rate from San Francisco to Simi, 429 miles from San Francisco, was therefore 80 cents, and that to Acton, 415 miles from San Francisco, was 83 cents, although shipments from San Francisco to Los Angeles passed through Simi and Acton on their way to Los Angeles over the coast and San Joaquin Valley routes, respectively.

A condition similar to that at Los Angeles and at points in the San Joaquin Valley was developed in connection with shipments from San Francisco to Stockton. The diagram on page 266 will show the relative position of these two towns as well as that of an intermediate place named Banta.

The distance between San Francisco and Stockton was 91 miles, and the first-class rate was 10 cents per hundred pounds. This rate was identical with the rate charged by boat lines operating on San Francisco Bay, and on the Sacramento and San Joaquin rivers. But although these boats touched at some intermediate points, their competition was not everywhere effective; so that the first-class rate from San Francisco to Banta, 74 miles, could be and was 17 cents, although freight from San Francisco passed through Banta on its way to Stockton.

Other Instances

Still another illustration of the influence of water competition upon local rates in California may be drawn from the territory immediately north of San Francisco Bay. The towns involved in this adjustment were San Francisco, Sebastopol, and Santa Rosa, as shown in the diagram on page 268. The first-class rate from San Francisco to Sebastopol on the Northwestern Pacific was 23 cents. This rate was shown to be limited by the competition of a rail and water line, including a steamship haul from San Francisco to Petaluma and a haul over an electric railway from Petaluma to Sebastopol. The distance from San Francisco to Sebastopol over the Northwestern Pacific was 58.5 miles. The distances from San Francisco to the towns of Kenilworth and Santa Rosa, on the same railroad, were 45.7 and 52.5 miles, respectively. Shipments to Sebastopol passed through these places, but because neither enjoyed the advantage of an alternative route, the first-class rate to Santa Rosa was 25 cents and that to Kenilworth 28 cents—materially more than was charged for the longer haul to Sebastopol.

i299

Diagram showing adjustment of freight rates between San Francisco, Santa Rosa, and Sebastopol, 1916.

While instances of the extreme discrimination of a greater charge for a shorter than for a longer haul were shown in 1916 to be usually the result of water competition, it has already been suggested that not all cases of discrimination were of this sort. A particularly striking case of unequal rates due to rail competition alone was brought out in the same proceedings from which the preceding illustrations have been drawn, by the application of the Atchison, Topeka and Santa Fé Railway to continue lower rates from Los Angeles to Mojave, California, a distance of 212 miles, and to Lindsay, a distance of 411 miles, than were charged to Kramer, an intermediate point 174 miles from Los Angeles. The relative position of the points is shown in the diagram given above.

i300

Diagram showing adjustment of freight rates between Los Angeles and points north and east of Los Angeles, 1916.

In this case the rate to Mojave at the time application was filed was 52 cents first-class, and that to Lindsay 70 cents, while the rate to Kramer was 78 cents. But at both Mojave and Lindsay, the Santa Fé had to meet the competition of the short Southern Pacific line, while at Kramer this competition was not effective.

Development of State Retarded

The data which have been presented show that, while the system of local rates in California was based originally upon distance, it soon became profoundly modified by conditions of cost, and still more by the presence of competition at strategic points, and by the occasional necessity of reducing rates in order to stimulate the movement of freight. The charges for short hauls in the interior valleys where the Southern or Central Pacific possessed a monopoly were made high, because traffic was scant and because the railroad was able to exact a monopoly return. Rates were also regularly progressive under these conditions. In sharp contrast to the practice which obtained where the Southern Pacific was the only carrier, rates to points located upon the coast, on navigable rivers, or on competing railroad lines were relatively low and were often extremely irregular.

It is generally difficult to criticize a system of rate-making upon a priori grounds because the test of such a system is to be found only in the form which it gives to the industrial life of the community to which it is applied. There is reason to believe, nevertheless, that the local rate structure created by the Southern Pacific gave an advantage to a few shippers and to a few towns which affected unfavorably the development of the state. This is the fundamental objection to any system of rates in which competitive influences are recognized to an unlimited extent.

Without going further into the matter at this point, we will content ourselves with adding to our description of local rates in California some observations upon the attitude of California shippers with respect to railroad charges.

Conflicting Claims of Cities

The rates of the Southern Pacific and of the Central Pacific railroads were unpopular in California because they were believed to be too high. Beyond this, and when it came to questions of relative adjustments, each community looked at the relations of rates which interested it from the narrow viewpoint of its individual advantage. Indeed, when one reviews the course of the controversy between railroad and shipper in the state, it seems very clear that, apart from questions of excessive profit, the objections which California cities entertained toward the irregular and unequal rates charged by the Southern Pacific Company were only slightly based on considerations of general policy, but were, on the contrary, due to the feeling of various towns that their distributing areas were unfairly circumscribed by the manner in which railroad rates were arranged.

One small piece of evidence to show that competition between rival towns or producing districts was the reason for some of the most bitter attacks upon the railroad, may be found in the complaint of the anti-monopolists of Tulare County in 1885 that their fruits, which ought to have found a market in the southern parts of the state and in Arizona, were subjected to higher freight rates than were the fruits of Sacramento and of San José, points more than 200 miles to the north.[389]

A few years earlier the merchants of Stockton insisted that the rates out of Stockton were extortionate as compared with the rates out of San Francisco. The distance from Lathrop to Stockton was said to be 10 miles, and the railroad rate per ton on wheat was $1.20, or 12 cents per mile. The distance from Lathrop to San Francisco was 82 miles, or more than eight times the distance to Stockton, but the price per ton for wheat was only $2.50, or about one quarter the price per ton per mile in the first instance. The price per ton from Lodi to Stockton was $1.40, and to San Francisco $2.50; but whereas the last-named sum was less than twice the former, the distance from Lodi to San Francisco was eight times as great as the distance to Stockton.[390]

In addition to their contention that mileage rates on shipments into Stockton compared unfavorably with rates on shipments into San Francisco, Stockton residents made the general charge that rates up the San Joaquin Valley were generally less than the rates down the valley. The rate from Stockton to Merced was said to be $6.80 per ton, but the rate from Merced to Stockton was $3.40. Stockton objected to forcing of the San Joaquin Valley to make San Francisco its market.[391]

Interstate Commerce Decision

Complaints similar to those voiced by Stockton were registered by the people of Los Angeles. In the eyes of inhabitants of that city, the rates on northbound freight from Los Angeles consigned to the San Joaquin Valley were relatively higher than the rates from San Francisco south into that same valley. Yet, dissatisfied as Los Angeles was with the relation which her rates bore to those out of San Francisco, it seemed to other cities in the south that her position was on the whole more favorable than was that of her neighbors. In 1889 a dealer in the city of San Bernardino protested against being forced to pay a higher rate from eastern points than was charged the city of Los Angeles. He showed that the rate on agricultural implements from the Missouri River to San Bernardino was $1.27 per hundred pounds while to Los Angeles it was $1.07. On stoves the rates were $1.19 and 99 cents, respectively, and on school furniture $1.55 and $1.35. This preference was alleged to be discriminative and illegal.[392]

In a decision approving the discrimination against San Bernardino, the Interstate Commerce Commission in 1890 remarked that originally southern California had been served from San Francisco direct; and that San Francisco jobbers had covered its territory. When the railroads reached Los Angeles they found it to their advantage to grant it low rates, not so much because it lay near the Pacific Ocean as because the interests of the Southern Pacific and especially of the Santa Fé demanded that some point in southern California should be given such a rate that merchandise from the East could be brought there all-rail and from that point be distributed. The fact that water competition was not the only influence which determined the Los Angeles rate from the eastern states was indeed shown later by the fact that the port of Los Angeles, San Pedro, did not receive a terminal rate until 1910, although Los Angeles itself had been given terminal privileges at least twenty years before.[393]

Stockton, Los Angeles, and San Bernardino thus illustrate in their conflicting claims the constant effort of cities in California to extend the area over which they might distribute goods. Among other instances of dispute between California cities may be mentioned the demand of Santa Barbara in 1907 to be made a Pacific Coast terminal,[394] and the angry contentions of Santa Clara, San José, Marysville, Santa Rosa, and Fresno in 1914 over the question of relative railroad rates from eastern points.[395] The characteristics of the system of transcontinental rates which were involved in these complaints will be discussed in the following chapter.

CHAPTER XV

LOCAL RATES IN CALIFORNIA

Charging What the Traffic Will Bear

The general policy of the associates in dealing with problems of rate-making in which rival towns were interested, was the same as that which they adopted to meet differences in competitive power between different individuals. The tests applied were simple. What was the market to be reached? Had the community concerned an alternative route? Was there an alternative source of supply which limited the willingness of the community to pay freight? If so, was this second source of supply one served by the Central Pacific, or one which had the benefit of water communication, or possibly one which possessed a rival rail connection? To what extent should concession be made from the highest rate which could be charged, in order to promote the growth of business?[383]

The standard of rate-making just described, which may be summed up as a policy of charging what the traffic would bear, was not peculiar to the Southern Pacific at the time it was adopted, nor was it particularly repugnant to public opinion in California, taken as a whole. The error must not be made of ascribing to the western communities of the seventies and eighties a clear conception of the reasons of public policy which are properly urged today against the unlimited recognition in railway rate schedules of the competitive forces which still have free play in private business. Such ideas have slowly developed only during the last forty years.

Limited Encouragement of Business

Nor was the policy of adapting rates to the ability of shippers to pay inconsistent with the rendering of important service to business men in California and elsewhere who were seeking to expand their sales. Only a few illustrations need be given of the promotion of business by rate adjustments, but they will serve as examples of many more about which information is on record.

One case of this sort, which shows the willingness of the Southern Pacific management to respond to what they considered a reasonable request, had to do with the shipment of beer from a place known as Boca, in the state of Nevada, to San Francisco. It appears that a gentleman named Hess once conceived the idea of establishing a brewery at Boca. This town was 220 miles from San Francisco, and yet all of Mr. Hess’s beer had to find a market in the latter place, in competition with beer from Milwaukee and St. Louis. Mr. Stubbs, general traffic manager of the Central Pacific, welcomed the proposal to build a brewery in the West, and put in special rates to help shut out the eastern product. Every pound of brewery supplies, he reasoned, would have to go over the Central Pacific. It was all clear gain, like so much money picked up out of the ditch. In another case the Southern Pacific quoted special rates on sugar from San Francisco to the Missouri River, to enable the California Sugar Refining Company and the American Sugar Refining Company to sell their sugar at the Missouri River in competition with sugar reaching New York by water and thence moving westward.[384]

Still again, in 1884 an attempt was made to persuade the St. Louis-Kansas City lines to participate in a rate of 75 cents per hundred pounds on cast iron pipe from St. Louis to the Pacific Coast in order to encourage production in the Middle West in competition with that on the Atlantic seaboard. The matter of the 75-cent rate was taken up with J. W. Midgley, Trunk Line commissioner, who declined temporarily on December 24, 1884, on the ground that the rate would be a special one, and that there was an understanding that no special rates should be made prior to January 31 next ensuing, pending an anticipated agreement between the Transcontinental Association and its eastern connections.[385]

In the instances which have been given, the impelling motive of the Southern Pacific was frankly to increase its profit by increasing the movement of freight over its line. Yet the shipper was also benefited because his interests were substantially identical with those of the railroad company, and he warmly welcomed the powerful support of the railroad lines. These cases are not unimportant. The enumeration of such isolated instances, however interesting as they may be, affords no very clear picture of the aggregate of local rate adjustments with which the Southern Pacific interests were concerned. For this purpose a more systematic survey of the rate system administered by the Southern Pacific is necessary, and to this attention is now directed.

Distance the Governing Factor

The foundation of any system of railroad rates is the distance which commodities are carried. Generally speaking, the Southern and Central Pacific railroads, like other companies in the United States and Europe, varied their local charges with the distance between point of origin and point of destination. To illustrate this point briefly, two charts are here presented.

i291

Chart showing rates on second-class freight and on grain in the Sacramento Valley, 1876.

The first chart depicts the rates on second-class freight and those on grain in January, 1876, between Sacramento and points in the Sacramento Valley north of that city. Second-class freight at this time on the Southern Pacific included articles such as coal oil, agricultural implements, machinery, furniture, crated glassware, and wines and liquors. Freight of the description mentioned ordinarily moved north from the city of Sacramento. Grain, on the contrary, moved south. It will be observed that rates on the lines of the Southern Pacific increased with considerable regularity as point of origin or destination proceeded north into the non-competitive territory around Tehama and Redding.

i292

Chart showing rates on miscellaneous commodities in the San Joaquin Valley, 1892.

The second chart displays rates between San Francisco and stations in the San Joaquin Valley as far south as Fowler, 205 miles distant from point of origin. These rates are for the year 1892.

Non-competitive rates in the San Joaquin Valley in 1892 increased as distance grew greater, much as they had increased in the northern territory sixteen years before. The rates given are for a few commodities only, namely, agricultural implements, barbed wire, boots and shoes, coal, and grain; but these are typical of the construction of schedules on a much larger number of articles. The extent of the increase was relatively greater to points beyond Lathrop because of the effect of water competition on San Francisco Bay.

Grades and Traffic Density

These two schedules illustrate a fact which could be readily proved by repeated examples, namely, that local rates in California were and are first based on the element of distance. Possibly such a fact might be assumed; yet in California, as elsewhere, the statement that railroad rates have varied with the distance traversed needs promptly to be qualified in order to be true. For, first of all, it was evident at the beginning that costs of transportation were not solely determined by distance, and that other considerations had to enter in. One of these other considerations was the matter of grades. Because of the conditions under which the Central Pacific was constructed, to say nothing of the extremely mountainous character of certain portions of the Central Pacific lines, differences in the rates per ton per mile between the valley and the mountain sections were introduced by the company at the commencement of its history.

A second characteristic of railway traffic which had a profound effect upon early railroad tariffs was the relative density of business. Mr. Stanford advanced the theory that the railroad should strive to secure a certain average earning per car; and in sections where business was light, as well as upon commodities which were bulky in proportion to their weight, a high average rate per hundred pounds was accordingly charged.

Relative grades and relative density of traffic were not the only conditions relating to cost which influenced the varying level of transportation rates in California, but, apart from distance, they were perhaps the most important, and in any case they may be taken as illustrative of the group of circumstances to which they belong. In addition to the whole class of facts relating to cost, however, the Southern Pacific gave heed to matters of value of service in the fixing of its rates. Nothing will be said here of the principles of classification of freight, principles which have to do in part with the value of the service rendered; nor of individual differences between shippers, which have been alluded to in the preceding chapter in the discussion of personal discrimination. The effect of competition in distorting distance schedules in California will, however, be dealt with at some length.

Water Competition

It has already been pointed out that the presence or absence of water competition has always been a most important factor in determining the relative adjustment of local rates in the state of California. This competition has been extremely pervasive. Although the scarcity of good harbors and the location of the Coast Range of mountains hinders access from the sea into the interior of California, yet, on the other hand, the ports of San Diego, San Pedro, and San Francisco, and the long stretches of navigable water on the Sacramento and San Joaquin rivers have opened the possibilities of water shipment to a multitude of inland towns. Indeed, in 1883 General Manager Towne, of the Central Pacific, submitted to the State Railroad Commission a list of fifty-two points in California at which the Central Pacific and its leased lines met direct water competition. The water routes included San Francisco Bay and the Sacramento River and sloughs, Suisun Bay, Napa River, San Joaquin River, Feather River, the Pacific Ocean, Wilmington Bay, and the Colorado River. In addition, Mr. Towne enumerated eighty-two points where rates were affected by proximity to the competitive points previously mentioned.[386] On the face of things, the extent of the water competition thus indicated was sufficient to warp almost beyond recognition the simple distance scale of tariffs which a railroad completely protected from competition would naturally apply.

Low Rates to Competitive Points

An illustration of the effect of the water routes on local rates is found in the fact that the round trip fare from San Francisco to Sacramento by rail in 1878 was $3, while that to Woodland was $4.25.[387] The San Francisco Chronicle declared in 1879 that, according to a recently published schedule, the movement charge for grain, potatoes, vegetables, and wool from Lathrop to Mojave was exactly the same as to Ravenna, Newhall, or Los Angeles. The first-named distance was 288 miles, making the movement mileage rate 7.2 cents; the second-named distance was 337 miles and the rate per mile was 6.2 cents; the third distance was 356 miles, the rate being only 5.8 cents; and the distance to Los Angeles was 388 miles, or a mileage rate of 5.4 cents. The truth of the statement of the Chronicle is established by data published by the State Commissioners of Transportation in 1877, which show the striking contrast that existed in 1877 between non-competitive rates in the interior valleys and rates to points which enjoyed the advantage of nearness to the water routes.

Low water-compelled rates to Sacramento and to Los Angeles were in force as early as 1877. Yet this was only a beginning, and as time went on and the number of towns in California increased, the practice of recognizing the force of water competition was extended. Moreover, the Southern Pacific began to quote lower instead of merely equal rates to more distant points which enjoyed the advantage of nearness to a water location. Since the ability to make use of a competing railway afforded opportunities similar to those afforded by ability to use a water route, low rates were also extended to towns served by more than one railroad line. All this greatly complicated the rate situation in the state, gave rise to numerous complaints, and renders difficult the task of concise description.

Rates to Intermediate Points

Official confirmation of the general correctness of the complaint of discrimination which reached the public press from time to time is found in a comprehensive investigation of railroad rates in California which the Railroad Commission of that state undertook as late as the year 1916. This inquiry was provoked by an application by the Southern Pacific, Santa Fé, and other railroads in California for relief from the clauses of the amended state constitution and of the California Public Utilities Act prohibiting greater charges to intermediate points than were collected on shipments to more distant points over the same line. Although the legal aspects of the case were therefore the result of modern legislation, the facts brought out were typical of conditions of long standing.[388]

i297

Diagram showing adjustment of freight rates between San Francisco and Stockton, 1916.

Exhibit No. 1 in the case in question referred to class rates in the San Joaquin Valley. It appeared that class rates between San Francisco, San José, Port Costa, Stockton, Sacramento, Marysville, and intermediate points to Los Angeles, were 60 cents per hundred pounds first-class, and corresponding sums less for the lower classes. These rates were shown to be controlled by the class rate of the Pacific Coast Steamship Company, which quoted a through first-class rate of 52 cents, including wharfage and handling, between San Francisco and Los Angeles via San Pedro. On all-rail shipments down the valley, as well as on shipments over the coast rail route, however, water competition was not effective. The rate from San Francisco to Simi, 429 miles from San Francisco, was therefore 80 cents, and that to Acton, 415 miles from San Francisco, was 83 cents, although shipments from San Francisco to Los Angeles passed through Simi and Acton on their way to Los Angeles over the coast and San Joaquin Valley routes, respectively.

A condition similar to that at Los Angeles and at points in the San Joaquin Valley was developed in connection with shipments from San Francisco to Stockton. The diagram on page 266 will show the relative position of these two towns as well as that of an intermediate place named Banta.

The distance between San Francisco and Stockton was 91 miles, and the first-class rate was 10 cents per hundred pounds. This rate was identical with the rate charged by boat lines operating on San Francisco Bay, and on the Sacramento and San Joaquin rivers. But although these boats touched at some intermediate points, their competition was not everywhere effective; so that the first-class rate from San Francisco to Banta, 74 miles, could be and was 17 cents, although freight from San Francisco passed through Banta on its way to Stockton.

Other Instances

Still another illustration of the influence of water competition upon local rates in California may be drawn from the territory immediately north of San Francisco Bay. The towns involved in this adjustment were San Francisco, Sebastopol, and Santa Rosa, as shown in the diagram on page 268. The first-class rate from San Francisco to Sebastopol on the Northwestern Pacific was 23 cents. This rate was shown to be limited by the competition of a rail and water line, including a steamship haul from San Francisco to Petaluma and a haul over an electric railway from Petaluma to Sebastopol. The distance from San Francisco to Sebastopol over the Northwestern Pacific was 58.5 miles. The distances from San Francisco to the towns of Kenilworth and Santa Rosa, on the same railroad, were 45.7 and 52.5 miles, respectively. Shipments to Sebastopol passed through these places, but because neither enjoyed the advantage of an alternative route, the first-class rate to Santa Rosa was 25 cents and that to Kenilworth 28 cents—materially more than was charged for the longer haul to Sebastopol.

i299

Diagram showing adjustment of freight rates between San Francisco, Santa Rosa, and Sebastopol, 1916.

While instances of the extreme discrimination of a greater charge for a shorter than for a longer haul were shown in 1916 to be usually the result of water competition, it has already been suggested that not all cases of discrimination were of this sort. A particularly striking case of unequal rates due to rail competition alone was brought out in the same proceedings from which the preceding illustrations have been drawn, by the application of the Atchison, Topeka and Santa Fé Railway to continue lower rates from Los Angeles to Mojave, California, a distance of 212 miles, and to Lindsay, a distance of 411 miles, than were charged to Kramer, an intermediate point 174 miles from Los Angeles. The relative position of the points is shown in the diagram given above.

i300

Diagram showing adjustment of freight rates between Los Angeles and points north and east of Los Angeles, 1916.

In this case the rate to Mojave at the time application was filed was 52 cents first-class, and that to Lindsay 70 cents, while the rate to Kramer was 78 cents. But at both Mojave and Lindsay, the Santa Fé had to meet the competition of the short Southern Pacific line, while at Kramer this competition was not effective.

Development of State Retarded

The data which have been presented show that, while the system of local rates in California was based originally upon distance, it soon became profoundly modified by conditions of cost, and still more by the presence of competition at strategic points, and by the occasional necessity of reducing rates in order to stimulate the movement of freight. The charges for short hauls in the interior valleys where the Southern or Central Pacific possessed a monopoly were made high, because traffic was scant and because the railroad was able to exact a monopoly return. Rates were also regularly progressive under these conditions. In sharp contrast to the practice which obtained where the Southern Pacific was the only carrier, rates to points located upon the coast, on navigable rivers, or on competing railroad lines were relatively low and were often extremely irregular.

It is generally difficult to criticize a system of rate-making upon a priori grounds because the test of such a system is to be found only in the form which it gives to the industrial life of the community to which it is applied. There is reason to believe, nevertheless, that the local rate structure created by the Southern Pacific gave an advantage to a few shippers and to a few towns which affected unfavorably the development of the state. This is the fundamental objection to any system of rates in which competitive influences are recognized to an unlimited extent.

Without going further into the matter at this point, we will content ourselves with adding to our description of local rates in California some observations upon the attitude of California shippers with respect to railroad charges.

Conflicting Claims of Cities

The rates of the Southern Pacific and of the Central Pacific railroads were unpopular in California because they were believed to be too high. Beyond this, and when it came to questions of relative adjustments, each community looked at the relations of rates which interested it from the narrow viewpoint of its individual advantage. Indeed, when one reviews the course of the controversy between railroad and shipper in the state, it seems very clear that, apart from questions of excessive profit, the objections which California cities entertained toward the irregular and unequal rates charged by the Southern Pacific Company were only slightly based on considerations of general policy, but were, on the contrary, due to the feeling of various towns that their distributing areas were unfairly circumscribed by the manner in which railroad rates were arranged.

One small piece of evidence to show that competition between rival towns or producing districts was the reason for some of the most bitter attacks upon the railroad, may be found in the complaint of the anti-monopolists of Tulare County in 1885 that their fruits, which ought to have found a market in the southern parts of the state and in Arizona, were subjected to higher freight rates than were the fruits of Sacramento and of San José, points more than 200 miles to the north.[389]

A few years earlier the merchants of Stockton insisted that the rates out of Stockton were extortionate as compared with the rates out of San Francisco. The distance from Lathrop to Stockton was said to be 10 miles, and the railroad rate per ton on wheat was $1.20, or 12 cents per mile. The distance from Lathrop to San Francisco was 82 miles, or more than eight times the distance to Stockton, but the price per ton for wheat was only $2.50, or about one quarter the price per ton per mile in the first instance. The price per ton from Lodi to Stockton was $1.40, and to San Francisco $2.50; but whereas the last-named sum was less than twice the former, the distance from Lodi to San Francisco was eight times as great as the distance to Stockton.[390]

In addition to their contention that mileage rates on shipments into Stockton compared unfavorably with rates on shipments into San Francisco, Stockton residents made the general charge that rates up the San Joaquin Valley were generally less than the rates down the valley. The rate from Stockton to Merced was said to be $6.80 per ton, but the rate from Merced to Stockton was $3.40. Stockton objected to forcing of the San Joaquin Valley to make San Francisco its market.[391]

Interstate Commerce Decision

Complaints similar to those voiced by Stockton were registered by the people of Los Angeles. In the eyes of inhabitants of that city, the rates on northbound freight from Los Angeles consigned to the San Joaquin Valley were relatively higher than the rates from San Francisco south into that same valley. Yet, dissatisfied as Los Angeles was with the relation which her rates bore to those out of San Francisco, it seemed to other cities in the south that her position was on the whole more favorable than was that of her neighbors. In 1889 a dealer in the city of San Bernardino protested against being forced to pay a higher rate from eastern points than was charged the city of Los Angeles. He showed that the rate on agricultural implements from the Missouri River to San Bernardino was $1.27 per hundred pounds while to Los Angeles it was $1.07. On stoves the rates were $1.19 and 99 cents, respectively, and on school furniture $1.55 and $1.35. This preference was alleged to be discriminative and illegal.[392]

In a decision approving the discrimination against San Bernardino, the Interstate Commerce Commission in 1890 remarked that originally southern California had been served from San Francisco direct; and that San Francisco jobbers had covered its territory. When the railroads reached Los Angeles they found it to their advantage to grant it low rates, not so much because it lay near the Pacific Ocean as because the interests of the Southern Pacific and especially of the Santa Fé demanded that some point in southern California should be given such a rate that merchandise from the East could be brought there all-rail and from that point be distributed. The fact that water competition was not the only influence which determined the Los Angeles rate from the eastern states was indeed shown later by the fact that the port of Los Angeles, San Pedro, did not receive a terminal rate until 1910, although Los Angeles itself had been given terminal privileges at least twenty years before.[393]

Stockton, Los Angeles, and San Bernardino thus illustrate in their conflicting claims the constant effort of cities in California to extend the area over which they might distribute goods. Among other instances of dispute between California cities may be mentioned the demand of Santa Barbara in 1907 to be made a Pacific Coast terminal,[394] and the angry contentions of Santa Clara, San José, Marysville, Santa Rosa, and Fresno in 1914 over the question of relative railroad rates from eastern points.[395] The characteristics of the system of transcontinental rates which were involved in these complaints will be discussed in the following chapter.

CHAPTER XV

LOCAL RATES IN CALIFORNIA

Charging What the Traffic Will Bear

The general policy of the associates in dealing with problems of rate-making in which rival towns were interested, was the same as that which they adopted to meet differences in competitive power between different individuals. The tests applied were simple. What was the market to be reached? Had the community concerned an alternative route? Was there an alternative source of supply which limited the willingness of the community to pay freight? If so, was this second source of supply one served by the Central Pacific, or one which had the benefit of water communication, or possibly one which possessed a rival rail connection? To what extent should concession be made from the highest rate which could be charged, in order to promote the growth of business?[383]

The standard of rate-making just described, which may be summed up as a policy of charging what the traffic would bear, was not peculiar to the Southern Pacific at the time it was adopted, nor was it particularly repugnant to public opinion in California, taken as a whole. The error must not be made of ascribing to the western communities of the seventies and eighties a clear conception of the reasons of public policy which are properly urged today against the unlimited recognition in railway rate schedules of the competitive forces which still have free play in private business. Such ideas have slowly developed only during the last forty years.

Limited Encouragement of Business

Nor was the policy of adapting rates to the ability of shippers to pay inconsistent with the rendering of important service to business men in California and elsewhere who were seeking to expand their sales. Only a few illustrations need be given of the promotion of business by rate adjustments, but they will serve as examples of many more about which information is on record.

One case of this sort, which shows the willingness of the Southern Pacific management to respond to what they considered a reasonable request, had to do with the shipment of beer from a place known as Boca, in the state of Nevada, to San Francisco. It appears that a gentleman named Hess once conceived the idea of establishing a brewery at Boca. This town was 220 miles from San Francisco, and yet all of Mr. Hess’s beer had to find a market in the latter place, in competition with beer from Milwaukee and St. Louis. Mr. Stubbs, general traffic manager of the Central Pacific, welcomed the proposal to build a brewery in the West, and put in special rates to help shut out the eastern product. Every pound of brewery supplies, he reasoned, would have to go over the Central Pacific. It was all clear gain, like so much money picked up out of the ditch. In another case the Southern Pacific quoted special rates on sugar from San Francisco to the Missouri River, to enable the California Sugar Refining Company and the American Sugar Refining Company to sell their sugar at the Missouri River in competition with sugar reaching New York by water and thence moving westward.[384]

Still again, in 1884 an attempt was made to persuade the St. Louis-Kansas City lines to participate in a rate of 75 cents per hundred pounds on cast iron pipe from St. Louis to the Pacific Coast in order to encourage production in the Middle West in competition with that on the Atlantic seaboard. The matter of the 75-cent rate was taken up with J. W. Midgley, Trunk Line commissioner, who declined temporarily on December 24, 1884, on the ground that the rate would be a special one, and that there was an understanding that no special rates should be made prior to January 31 next ensuing, pending an anticipated agreement between the Transcontinental Association and its eastern connections.[385]

In the instances which have been given, the impelling motive of the Southern Pacific was frankly to increase its profit by increasing the movement of freight over its line. Yet the shipper was also benefited because his interests were substantially identical with those of the railroad company, and he warmly welcomed the powerful support of the railroad lines. These cases are not unimportant. The enumeration of such isolated instances, however interesting as they may be, affords no very clear picture of the aggregate of local rate adjustments with which the Southern Pacific interests were concerned. For this purpose a more systematic survey of the rate system administered by the Southern Pacific is necessary, and to this attention is now directed.

Distance the Governing Factor

The foundation of any system of railroad rates is the distance which commodities are carried. Generally speaking, the Southern and Central Pacific railroads, like other companies in the United States and Europe, varied their local charges with the distance between point of origin and point of destination. To illustrate this point briefly, two charts are here presented.

i291

Chart showing rates on second-class freight and on grain in the Sacramento Valley, 1876.

The first chart depicts the rates on second-class freight and those on grain in January, 1876, between Sacramento and points in the Sacramento Valley north of that city. Second-class freight at this time on the Southern Pacific included articles such as coal oil, agricultural implements, machinery, furniture, crated glassware, and wines and liquors. Freight of the description mentioned ordinarily moved north from the city of Sacramento. Grain, on the contrary, moved south. It will be observed that rates on the lines of the Southern Pacific increased with considerable regularity as point of origin or destination proceeded north into the non-competitive territory around Tehama and Redding.

i292

Chart showing rates on miscellaneous commodities in the San Joaquin Valley, 1892.

The second chart displays rates between San Francisco and stations in the San Joaquin Valley as far south as Fowler, 205 miles distant from point of origin. These rates are for the year 1892.

Non-competitive rates in the San Joaquin Valley in 1892 increased as distance grew greater, much as they had increased in the northern territory sixteen years before. The rates given are for a few commodities only, namely, agricultural implements, barbed wire, boots and shoes, coal, and grain; but these are typical of the construction of schedules on a much larger number of articles. The extent of the increase was relatively greater to points beyond Lathrop because of the effect of water competition on San Francisco Bay.

Grades and Traffic Density

These two schedules illustrate a fact which could be readily proved by repeated examples, namely, that local rates in California were and are first based on the element of distance. Possibly such a fact might be assumed; yet in California, as elsewhere, the statement that railroad rates have varied with the distance traversed needs promptly to be qualified in order to be true. For, first of all, it was evident at the beginning that costs of transportation were not solely determined by distance, and that other considerations had to enter in. One of these other considerations was the matter of grades. Because of the conditions under which the Central Pacific was constructed, to say nothing of the extremely mountainous character of certain portions of the Central Pacific lines, differences in the rates per ton per mile between the valley and the mountain sections were introduced by the company at the commencement of its history.

A second characteristic of railway traffic which had a profound effect upon early railroad tariffs was the relative density of business. Mr. Stanford advanced the theory that the railroad should strive to secure a certain average earning per car; and in sections where business was light, as well as upon commodities which were bulky in proportion to their weight, a high average rate per hundred pounds was accordingly charged.

Relative grades and relative density of traffic were not the only conditions relating to cost which influenced the varying level of transportation rates in California, but, apart from distance, they were perhaps the most important, and in any case they may be taken as illustrative of the group of circumstances to which they belong. In addition to the whole class of facts relating to cost, however, the Southern Pacific gave heed to matters of value of service in the fixing of its rates. Nothing will be said here of the principles of classification of freight, principles which have to do in part with the value of the service rendered; nor of individual differences between shippers, which have been alluded to in the preceding chapter in the discussion of personal discrimination. The effect of competition in distorting distance schedules in California will, however, be dealt with at some length.

Water Competition

It has already been pointed out that the presence or absence of water competition has always been a most important factor in determining the relative adjustment of local rates in the state of California. This competition has been extremely pervasive. Although the scarcity of good harbors and the location of the Coast Range of mountains hinders access from the sea into the interior of California, yet, on the other hand, the ports of San Diego, San Pedro, and San Francisco, and the long stretches of navigable water on the Sacramento and San Joaquin rivers have opened the possibilities of water shipment to a multitude of inland towns. Indeed, in 1883 General Manager Towne, of the Central Pacific, submitted to the State Railroad Commission a list of fifty-two points in California at which the Central Pacific and its leased lines met direct water competition. The water routes included San Francisco Bay and the Sacramento River and sloughs, Suisun Bay, Napa River, San Joaquin River, Feather River, the Pacific Ocean, Wilmington Bay, and the Colorado River. In addition, Mr. Towne enumerated eighty-two points where rates were affected by proximity to the competitive points previously mentioned.[386] On the face of things, the extent of the water competition thus indicated was sufficient to warp almost beyond recognition the simple distance scale of tariffs which a railroad completely protected from competition would naturally apply.

Low Rates to Competitive Points

An illustration of the effect of the water routes on local rates is found in the fact that the round trip fare from San Francisco to Sacramento by rail in 1878 was $3, while that to Woodland was $4.25.[387] The San Francisco Chronicle declared in 1879 that, according to a recently published schedule, the movement charge for grain, potatoes, vegetables, and wool from Lathrop to Mojave was exactly the same as to Ravenna, Newhall, or Los Angeles. The first-named distance was 288 miles, making the movement mileage rate 7.2 cents; the second-named distance was 337 miles and the rate per mile was 6.2 cents; the third distance was 356 miles, the rate being only 5.8 cents; and the distance to Los Angeles was 388 miles, or a mileage rate of 5.4 cents. The truth of the statement of the Chronicle is established by data published by the State Commissioners of Transportation in 1877, which show the striking contrast that existed in 1877 between non-competitive rates in the interior valleys and rates to points which enjoyed the advantage of nearness to the water routes.

Low water-compelled rates to Sacramento and to Los Angeles were in force as early as 1877. Yet this was only a beginning, and as time went on and the number of towns in California increased, the practice of recognizing the force of water competition was extended. Moreover, the Southern Pacific began to quote lower instead of merely equal rates to more distant points which enjoyed the advantage of nearness to a water location. Since the ability to make use of a competing railway afforded opportunities similar to those afforded by ability to use a water route, low rates were also extended to towns served by more than one railroad line. All this greatly complicated the rate situation in the state, gave rise to numerous complaints, and renders difficult the task of concise description.

Rates to Intermediate Points

Official confirmation of the general correctness of the complaint of discrimination which reached the public press from time to time is found in a comprehensive investigation of railroad rates in California which the Railroad Commission of that state undertook as late as the year 1916. This inquiry was provoked by an application by the Southern Pacific, Santa Fé, and other railroads in California for relief from the clauses of the amended state constitution and of the California Public Utilities Act prohibiting greater charges to intermediate points than were collected on shipments to more distant points over the same line. Although the legal aspects of the case were therefore the result of modern legislation, the facts brought out were typical of conditions of long standing.[388]

i297

Diagram showing adjustment of freight rates between San Francisco and Stockton, 1916.

Exhibit No. 1 in the case in question referred to class rates in the San Joaquin Valley. It appeared that class rates between San Francisco, San José, Port Costa, Stockton, Sacramento, Marysville, and intermediate points to Los Angeles, were 60 cents per hundred pounds first-class, and corresponding sums less for the lower classes. These rates were shown to be controlled by the class rate of the Pacific Coast Steamship Company, which quoted a through first-class rate of 52 cents, including wharfage and handling, between San Francisco and Los Angeles via San Pedro. On all-rail shipments down the valley, as well as on shipments over the coast rail route, however, water competition was not effective. The rate from San Francisco to Simi, 429 miles from San Francisco, was therefore 80 cents, and that to Acton, 415 miles from San Francisco, was 83 cents, although shipments from San Francisco to Los Angeles passed through Simi and Acton on their way to Los Angeles over the coast and San Joaquin Valley routes, respectively.

A condition similar to that at Los Angeles and at points in the San Joaquin Valley was developed in connection with shipments from San Francisco to Stockton. The diagram on page 266 will show the relative position of these two towns as well as that of an intermediate place named Banta.

The distance between San Francisco and Stockton was 91 miles, and the first-class rate was 10 cents per hundred pounds. This rate was identical with the rate charged by boat lines operating on San Francisco Bay, and on the Sacramento and San Joaquin rivers. But although these boats touched at some intermediate points, their competition was not everywhere effective; so that the first-class rate from San Francisco to Banta, 74 miles, could be and was 17 cents, although freight from San Francisco passed through Banta on its way to Stockton.

Other Instances

Still another illustration of the influence of water competition upon local rates in California may be drawn from the territory immediately north of San Francisco Bay. The towns involved in this adjustment were San Francisco, Sebastopol, and Santa Rosa, as shown in the diagram on page 268. The first-class rate from San Francisco to Sebastopol on the Northwestern Pacific was 23 cents. This rate was shown to be limited by the competition of a rail and water line, including a steamship haul from San Francisco to Petaluma and a haul over an electric railway from Petaluma to Sebastopol. The distance from San Francisco to Sebastopol over the Northwestern Pacific was 58.5 miles. The distances from San Francisco to the towns of Kenilworth and Santa Rosa, on the same railroad, were 45.7 and 52.5 miles, respectively. Shipments to Sebastopol passed through these places, but because neither enjoyed the advantage of an alternative route, the first-class rate to Santa Rosa was 25 cents and that to Kenilworth 28 cents—materially more than was charged for the longer haul to Sebastopol.

i299

Diagram showing adjustment of freight rates between San Francisco, Santa Rosa, and Sebastopol, 1916.

While instances of the extreme discrimination of a greater charge for a shorter than for a longer haul were shown in 1916 to be usually the result of water competition, it has already been suggested that not all cases of discrimination were of this sort. A particularly striking case of unequal rates due to rail competition alone was brought out in the same proceedings from which the preceding illustrations have been drawn, by the application of the Atchison, Topeka and Santa Fé Railway to continue lower rates from Los Angeles to Mojave, California, a distance of 212 miles, and to Lindsay, a distance of 411 miles, than were charged to Kramer, an intermediate point 174 miles from Los Angeles. The relative position of the points is shown in the diagram given above.

i300

Diagram showing adjustment of freight rates between Los Angeles and points north and east of Los Angeles, 1916.

In this case the rate to Mojave at the time application was filed was 52 cents first-class, and that to Lindsay 70 cents, while the rate to Kramer was 78 cents. But at both Mojave and Lindsay, the Santa Fé had to meet the competition of the short Southern Pacific line, while at Kramer this competition was not effective.

Development of State Retarded

The data which have been presented show that, while the system of local rates in California was based originally upon distance, it soon became profoundly modified by conditions of cost, and still more by the presence of competition at strategic points, and by the occasional necessity of reducing rates in order to stimulate the movement of freight. The charges for short hauls in the interior valleys where the Southern or Central Pacific possessed a monopoly were made high, because traffic was scant and because the railroad was able to exact a monopoly return. Rates were also regularly progressive under these conditions. In sharp contrast to the practice which obtained where the Southern Pacific was the only carrier, rates to points located upon the coast, on navigable rivers, or on competing railroad lines were relatively low and were often extremely irregular.

It is generally difficult to criticize a system of rate-making upon a priori grounds because the test of such a system is to be found only in the form which it gives to the industrial life of the community to which it is applied. There is reason to believe, nevertheless, that the local rate structure created by the Southern Pacific gave an advantage to a few shippers and to a few towns which affected unfavorably the development of the state. This is the fundamental objection to any system of rates in which competitive influences are recognized to an unlimited extent.

Without going further into the matter at this point, we will content ourselves with adding to our description of local rates in California some observations upon the attitude of California shippers with respect to railroad charges.

Conflicting Claims of Cities

The rates of the Southern Pacific and of the Central Pacific railroads were unpopular in California because they were believed to be too high. Beyond this, and when it came to questions of relative adjustments, each community looked at the relations of rates which interested it from the narrow viewpoint of its individual advantage. Indeed, when one reviews the course of the controversy between railroad and shipper in the state, it seems very clear that, apart from questions of excessive profit, the objections which California cities entertained toward the irregular and unequal rates charged by the Southern Pacific Company were only slightly based on considerations of general policy, but were, on the contrary, due to the feeling of various towns that their distributing areas were unfairly circumscribed by the manner in which railroad rates were arranged.

One small piece of evidence to show that competition between rival towns or producing districts was the reason for some of the most bitter attacks upon the railroad, may be found in the complaint of the anti-monopolists of Tulare County in 1885 that their fruits, which ought to have found a market in the southern parts of the state and in Arizona, were subjected to higher freight rates than were the fruits of Sacramento and of San José, points more than 200 miles to the north.[389]

A few years earlier the merchants of Stockton insisted that the rates out of Stockton were extortionate as compared with the rates out of San Francisco. The distance from Lathrop to Stockton was said to be 10 miles, and the railroad rate per ton on wheat was $1.20, or 12 cents per mile. The distance from Lathrop to San Francisco was 82 miles, or more than eight times the distance to Stockton, but the price per ton for wheat was only $2.50, or about one quarter the price per ton per mile in the first instance. The price per ton from Lodi to Stockton was $1.40, and to San Francisco $2.50; but whereas the last-named sum was less than twice the former, the distance from Lodi to San Francisco was eight times as great as the distance to Stockton.[390]

In addition to their contention that mileage rates on shipments into Stockton compared unfavorably with rates on shipments into San Francisco, Stockton residents made the general charge that rates up the San Joaquin Valley were generally less than the rates down the valley. The rate from Stockton to Merced was said to be $6.80 per ton, but the rate from Merced to Stockton was $3.40. Stockton objected to forcing of the San Joaquin Valley to make San Francisco its market.[391]

Interstate Commerce Decision

Complaints similar to those voiced by Stockton were registered by the people of Los Angeles. In the eyes of inhabitants of that city, the rates on northbound freight from Los Angeles consigned to the San Joaquin Valley were relatively higher than the rates from San Francisco south into that same valley. Yet, dissatisfied as Los Angeles was with the relation which her rates bore to those out of San Francisco, it seemed to other cities in the south that her position was on the whole more favorable than was that of her neighbors. In 1889 a dealer in the city of San Bernardino protested against being forced to pay a higher rate from eastern points than was charged the city of Los Angeles. He showed that the rate on agricultural implements from the Missouri River to San Bernardino was $1.27 per hundred pounds while to Los Angeles it was $1.07. On stoves the rates were $1.19 and 99 cents, respectively, and on school furniture $1.55 and $1.35. This preference was alleged to be discriminative and illegal.[392]

In a decision approving the discrimination against San Bernardino, the Interstate Commerce Commission in 1890 remarked that originally southern California had been served from San Francisco direct; and that San Francisco jobbers had covered its territory. When the railroads reached Los Angeles they found it to their advantage to grant it low rates, not so much because it lay near the Pacific Ocean as because the interests of the Southern Pacific and especially of the Santa Fé demanded that some point in southern California should be given such a rate that merchandise from the East could be brought there all-rail and from that point be distributed. The fact that water competition was not the only influence which determined the Los Angeles rate from the eastern states was indeed shown later by the fact that the port of Los Angeles, San Pedro, did not receive a terminal rate until 1910, although Los Angeles itself had been given terminal privileges at least twenty years before.[393]

Stockton, Los Angeles, and San Bernardino thus illustrate in their conflicting claims the constant effort of cities in California to extend the area over which they might distribute goods. Among other instances of dispute between California cities may be mentioned the demand of Santa Barbara in 1907 to be made a Pacific Coast terminal,[394] and the angry contentions of Santa Clara, San José, Marysville, Santa Rosa, and Fresno in 1914 over the question of relative railroad rates from eastern points.[395] The characteristics of the system of transcontinental rates which were involved in these complaints will be discussed in the following chapter.

CHAPTER XV

LOCAL RATES IN CALIFORNIA

Charging What the Traffic Will Bear

The general policy of the associates in dealing with problems of rate-making in which rival towns were interested, was the same as that which they adopted to meet differences in competitive power between different individuals. The tests applied were simple. What was the market to be reached? Had the community concerned an alternative route? Was there an alternative source of supply which limited the willingness of the community to pay freight? If so, was this second source of supply one served by the Central Pacific, or one which had the benefit of water communication, or possibly one which possessed a rival rail connection? To what extent should concession be made from the highest rate which could be charged, in order to promote the growth of business?[383]

The standard of rate-making just described, which may be summed up as a policy of charging what the traffic would bear, was not peculiar to the Southern Pacific at the time it was adopted, nor was it particularly repugnant to public opinion in California, taken as a whole. The error must not be made of ascribing to the western communities of the seventies and eighties a clear conception of the reasons of public policy which are properly urged today against the unlimited recognition in railway rate schedules of the competitive forces which still have free play in private business. Such ideas have slowly developed only during the last forty years.

Limited Encouragement of Business

Nor was the policy of adapting rates to the ability of shippers to pay inconsistent with the rendering of important service to business men in California and elsewhere who were seeking to expand their sales. Only a few illustrations need be given of the promotion of business by rate adjustments, but they will serve as examples of many more about which information is on record.

One case of this sort, which shows the willingness of the Southern Pacific management to respond to what they considered a reasonable request, had to do with the shipment of beer from a place known as Boca, in the state of Nevada, to San Francisco. It appears that a gentleman named Hess once conceived the idea of establishing a brewery at Boca. This town was 220 miles from San Francisco, and yet all of Mr. Hess’s beer had to find a market in the latter place, in competition with beer from Milwaukee and St. Louis. Mr. Stubbs, general traffic manager of the Central Pacific, welcomed the proposal to build a brewery in the West, and put in special rates to help shut out the eastern product. Every pound of brewery supplies, he reasoned, would have to go over the Central Pacific. It was all clear gain, like so much money picked up out of the ditch. In another case the Southern Pacific quoted special rates on sugar from San Francisco to the Missouri River, to enable the California Sugar Refining Company and the American Sugar Refining Company to sell their sugar at the Missouri River in competition with sugar reaching New York by water and thence moving westward.[384]

Still again, in 1884 an attempt was made to persuade the St. Louis-Kansas City lines to participate in a rate of 75 cents per hundred pounds on cast iron pipe from St. Louis to the Pacific Coast in order to encourage production in the Middle West in competition with that on the Atlantic seaboard. The matter of the 75-cent rate was taken up with J. W. Midgley, Trunk Line commissioner, who declined temporarily on December 24, 1884, on the ground that the rate would be a special one, and that there was an understanding that no special rates should be made prior to January 31 next ensuing, pending an anticipated agreement between the Transcontinental Association and its eastern connections.[385]

In the instances which have been given, the impelling motive of the Southern Pacific was frankly to increase its profit by increasing the movement of freight over its line. Yet the shipper was also benefited because his interests were substantially identical with those of the railroad company, and he warmly welcomed the powerful support of the railroad lines. These cases are not unimportant. The enumeration of such isolated instances, however interesting as they may be, affords no very clear picture of the aggregate of local rate adjustments with which the Southern Pacific interests were concerned. For this purpose a more systematic survey of the rate system administered by the Southern Pacific is necessary, and to this attention is now directed.

Distance the Governing Factor

The foundation of any system of railroad rates is the distance which commodities are carried. Generally speaking, the Southern and Central Pacific railroads, like other companies in the United States and Europe, varied their local charges with the distance between point of origin and point of destination. To illustrate this point briefly, two charts are here presented.

i291

Chart showing rates on second-class freight and on grain in the Sacramento Valley, 1876.

The first chart depicts the rates on second-class freight and those on grain in January, 1876, between Sacramento and points in the Sacramento Valley north of that city. Second-class freight at this time on the Southern Pacific included articles such as coal oil, agricultural implements, machinery, furniture, crated glassware, and wines and liquors. Freight of the description mentioned ordinarily moved north from the city of Sacramento. Grain, on the contrary, moved south. It will be observed that rates on the lines of the Southern Pacific increased with considerable regularity as point of origin or destination proceeded north into the non-competitive territory around Tehama and Redding.

i292

Chart showing rates on miscellaneous commodities in the San Joaquin Valley, 1892.

The second chart displays rates between San Francisco and stations in the San Joaquin Valley as far south as Fowler, 205 miles distant from point of origin. These rates are for the year 1892.

Non-competitive rates in the San Joaquin Valley in 1892 increased as distance grew greater, much as they had increased in the northern territory sixteen years before. The rates given are for a few commodities only, namely, agricultural implements, barbed wire, boots and shoes, coal, and grain; but these are typical of the construction of schedules on a much larger number of articles. The extent of the increase was relatively greater to points beyond Lathrop because of the effect of water competition on San Francisco Bay.

Grades and Traffic Density

These two schedules illustrate a fact which could be readily proved by repeated examples, namely, that local rates in California were and are first based on the element of distance. Possibly such a fact might be assumed; yet in California, as elsewhere, the statement that railroad rates have varied with the distance traversed needs promptly to be qualified in order to be true. For, first of all, it was evident at the beginning that costs of transportation were not solely determined by distance, and that other considerations had to enter in. One of these other considerations was the matter of grades. Because of the conditions under which the Central Pacific was constructed, to say nothing of the extremely mountainous character of certain portions of the Central Pacific lines, differences in the rates per ton per mile between the valley and the mountain sections were introduced by the company at the commencement of its history.

A second characteristic of railway traffic which had a profound effect upon early railroad tariffs was the relative density of business. Mr. Stanford advanced the theory that the railroad should strive to secure a certain average earning per car; and in sections where business was light, as well as upon commodities which were bulky in proportion to their weight, a high average rate per hundred pounds was accordingly charged.

Relative grades and relative density of traffic were not the only conditions relating to cost which influenced the varying level of transportation rates in California, but, apart from distance, they were perhaps the most important, and in any case they may be taken as illustrative of the group of circumstances to which they belong. In addition to the whole class of facts relating to cost, however, the Southern Pacific gave heed to matters of value of service in the fixing of its rates. Nothing will be said here of the principles of classification of freight, principles which have to do in part with the value of the service rendered; nor of individual differences between shippers, which have been alluded to in the preceding chapter in the discussion of personal discrimination. The effect of competition in distorting distance schedules in California will, however, be dealt with at some length.

Water Competition

It has already been pointed out that the presence or absence of water competition has always been a most important factor in determining the relative adjustment of local rates in the state of California. This competition has been extremely pervasive. Although the scarcity of good harbors and the location of the Coast Range of mountains hinders access from the sea into the interior of California, yet, on the other hand, the ports of San Diego, San Pedro, and San Francisco, and the long stretches of navigable water on the Sacramento and San Joaquin rivers have opened the possibilities of water shipment to a multitude of inland towns. Indeed, in 1883 General Manager Towne, of the Central Pacific, submitted to the State Railroad Commission a list of fifty-two points in California at which the Central Pacific and its leased lines met direct water competition. The water routes included San Francisco Bay and the Sacramento River and sloughs, Suisun Bay, Napa River, San Joaquin River, Feather River, the Pacific Ocean, Wilmington Bay, and the Colorado River. In addition, Mr. Towne enumerated eighty-two points where rates were affected by proximity to the competitive points previously mentioned.[386] On the face of things, the extent of the water competition thus indicated was sufficient to warp almost beyond recognition the simple distance scale of tariffs which a railroad completely protected from competition would naturally apply.

Low Rates to Competitive Points

An illustration of the effect of the water routes on local rates is found in the fact that the round trip fare from San Francisco to Sacramento by rail in 1878 was $3, while that to Woodland was $4.25.[387] The San Francisco Chronicle declared in 1879 that, according to a recently published schedule, the movement charge for grain, potatoes, vegetables, and wool from Lathrop to Mojave was exactly the same as to Ravenna, Newhall, or Los Angeles. The first-named distance was 288 miles, making the movement mileage rate 7.2 cents; the second-named distance was 337 miles and the rate per mile was 6.2 cents; the third distance was 356 miles, the rate being only 5.8 cents; and the distance to Los Angeles was 388 miles, or a mileage rate of 5.4 cents. The truth of the statement of the Chronicle is established by data published by the State Commissioners of Transportation in 1877, which show the striking contrast that existed in 1877 between non-competitive rates in the interior valleys and rates to points which enjoyed the advantage of nearness to the water routes.

Low water-compelled rates to Sacramento and to Los Angeles were in force as early as 1877. Yet this was only a beginning, and as time went on and the number of towns in California increased, the practice of recognizing the force of water competition was extended. Moreover, the Southern Pacific began to quote lower instead of merely equal rates to more distant points which enjoyed the advantage of nearness to a water location. Since the ability to make use of a competing railway afforded opportunities similar to those afforded by ability to use a water route, low rates were also extended to towns served by more than one railroad line. All this greatly complicated the rate situation in the state, gave rise to numerous complaints, and renders difficult the task of concise description.

Rates to Intermediate Points

Official confirmation of the general correctness of the complaint of discrimination which reached the public press from time to time is found in a comprehensive investigation of railroad rates in California which the Railroad Commission of that state undertook as late as the year 1916. This inquiry was provoked by an application by the Southern Pacific, Santa Fé, and other railroads in California for relief from the clauses of the amended state constitution and of the California Public Utilities Act prohibiting greater charges to intermediate points than were collected on shipments to more distant points over the same line. Although the legal aspects of the case were therefore the result of modern legislation, the facts brought out were typical of conditions of long standing.[388]

i297

Diagram showing adjustment of freight rates between San Francisco and Stockton, 1916.

Exhibit No. 1 in the case in question referred to class rates in the San Joaquin Valley. It appeared that class rates between San Francisco, San José, Port Costa, Stockton, Sacramento, Marysville, and intermediate points to Los Angeles, were 60 cents per hundred pounds first-class, and corresponding sums less for the lower classes. These rates were shown to be controlled by the class rate of the Pacific Coast Steamship Company, which quoted a through first-class rate of 52 cents, including wharfage and handling, between San Francisco and Los Angeles via San Pedro. On all-rail shipments down the valley, as well as on shipments over the coast rail route, however, water competition was not effective. The rate from San Francisco to Simi, 429 miles from San Francisco, was therefore 80 cents, and that to Acton, 415 miles from San Francisco, was 83 cents, although shipments from San Francisco to Los Angeles passed through Simi and Acton on their way to Los Angeles over the coast and San Joaquin Valley routes, respectively.

A condition similar to that at Los Angeles and at points in the San Joaquin Valley was developed in connection with shipments from San Francisco to Stockton. The diagram on page 266 will show the relative position of these two towns as well as that of an intermediate place named Banta.

The distance between San Francisco and Stockton was 91 miles, and the first-class rate was 10 cents per hundred pounds. This rate was identical with the rate charged by boat lines operating on San Francisco Bay, and on the Sacramento and San Joaquin rivers. But although these boats touched at some intermediate points, their competition was not everywhere effective; so that the first-class rate from San Francisco to Banta, 74 miles, could be and was 17 cents, although freight from San Francisco passed through Banta on its way to Stockton.

Other Instances

Still another illustration of the influence of water competition upon local rates in California may be drawn from the territory immediately north of San Francisco Bay. The towns involved in this adjustment were San Francisco, Sebastopol, and Santa Rosa, as shown in the diagram on page 268. The first-class rate from San Francisco to Sebastopol on the Northwestern Pacific was 23 cents. This rate was shown to be limited by the competition of a rail and water line, including a steamship haul from San Francisco to Petaluma and a haul over an electric railway from Petaluma to Sebastopol. The distance from San Francisco to Sebastopol over the Northwestern Pacific was 58.5 miles. The distances from San Francisco to the towns of Kenilworth and Santa Rosa, on the same railroad, were 45.7 and 52.5 miles, respectively. Shipments to Sebastopol passed through these places, but because neither enjoyed the advantage of an alternative route, the first-class rate to Santa Rosa was 25 cents and that to Kenilworth 28 cents—materially more than was charged for the longer haul to Sebastopol.

i299

Diagram showing adjustment of freight rates between San Francisco, Santa Rosa, and Sebastopol, 1916.

While instances of the extreme discrimination of a greater charge for a shorter than for a longer haul were shown in 1916 to be usually the result of water competition, it has already been suggested that not all cases of discrimination were of this sort. A particularly striking case of unequal rates due to rail competition alone was brought out in the same proceedings from which the preceding illustrations have been drawn, by the application of the Atchison, Topeka and Santa Fé Railway to continue lower rates from Los Angeles to Mojave, California, a distance of 212 miles, and to Lindsay, a distance of 411 miles, than were charged to Kramer, an intermediate point 174 miles from Los Angeles. The relative position of the points is shown in the diagram given above.

i300

Diagram showing adjustment of freight rates between Los Angeles and points north and east of Los Angeles, 1916.

In this case the rate to Mojave at the time application was filed was 52 cents first-class, and that to Lindsay 70 cents, while the rate to Kramer was 78 cents. But at both Mojave and Lindsay, the Santa Fé had to meet the competition of the short Southern Pacific line, while at Kramer this competition was not effective.

Development of State Retarded

The data which have been presented show that, while the system of local rates in California was based originally upon distance, it soon became profoundly modified by conditions of cost, and still more by the presence of competition at strategic points, and by the occasional necessity of reducing rates in order to stimulate the movement of freight. The charges for short hauls in the interior valleys where the Southern or Central Pacific possessed a monopoly were made high, because traffic was scant and because the railroad was able to exact a monopoly return. Rates were also regularly progressive under these conditions. In sharp contrast to the practice which obtained where the Southern Pacific was the only carrier, rates to points located upon the coast, on navigable rivers, or on competing railroad lines were relatively low and were often extremely irregular.

It is generally difficult to criticize a system of rate-making upon a priori grounds because the test of such a system is to be found only in the form which it gives to the industrial life of the community to which it is applied. There is reason to believe, nevertheless, that the local rate structure created by the Southern Pacific gave an advantage to a few shippers and to a few towns which affected unfavorably the development of the state. This is the fundamental objection to any system of rates in which competitive influences are recognized to an unlimited extent.

Without going further into the matter at this point, we will content ourselves with adding to our description of local rates in California some observations upon the attitude of California shippers with respect to railroad charges.

Conflicting Claims of Cities

The rates of the Southern Pacific and of the Central Pacific railroads were unpopular in California because they were believed to be too high. Beyond this, and when it came to questions of relative adjustments, each community looked at the relations of rates which interested it from the narrow viewpoint of its individual advantage. Indeed, when one reviews the course of the controversy between railroad and shipper in the state, it seems very clear that, apart from questions of excessive profit, the objections which California cities entertained toward the irregular and unequal rates charged by the Southern Pacific Company were only slightly based on considerations of general policy, but were, on the contrary, due to the feeling of various towns that their distributing areas were unfairly circumscribed by the manner in which railroad rates were arranged.

One small piece of evidence to show that competition between rival towns or producing districts was the reason for some of the most bitter attacks upon the railroad, may be found in the complaint of the anti-monopolists of Tulare County in 1885 that their fruits, which ought to have found a market in the southern parts of the state and in Arizona, were subjected to higher freight rates than were the fruits of Sacramento and of San José, points more than 200 miles to the north.[389]

A few years earlier the merchants of Stockton insisted that the rates out of Stockton were extortionate as compared with the rates out of San Francisco. The distance from Lathrop to Stockton was said to be 10 miles, and the railroad rate per ton on wheat was $1.20, or 12 cents per mile. The distance from Lathrop to San Francisco was 82 miles, or more than eight times the distance to Stockton, but the price per ton for wheat was only $2.50, or about one quarter the price per ton per mile in the first instance. The price per ton from Lodi to Stockton was $1.40, and to San Francisco $2.50; but whereas the last-named sum was less than twice the former, the distance from Lodi to San Francisco was eight times as great as the distance to Stockton.[390]

In addition to their contention that mileage rates on shipments into Stockton compared unfavorably with rates on shipments into San Francisco, Stockton residents made the general charge that rates up the San Joaquin Valley were generally less than the rates down the valley. The rate from Stockton to Merced was said to be $6.80 per ton, but the rate from Merced to Stockton was $3.40. Stockton objected to forcing of the San Joaquin Valley to make San Francisco its market.[391]

Interstate Commerce Decision

Complaints similar to those voiced by Stockton were registered by the people of Los Angeles. In the eyes of inhabitants of that city, the rates on northbound freight from Los Angeles consigned to the San Joaquin Valley were relatively higher than the rates from San Francisco south into that same valley. Yet, dissatisfied as Los Angeles was with the relation which her rates bore to those out of San Francisco, it seemed to other cities in the south that her position was on the whole more favorable than was that of her neighbors. In 1889 a dealer in the city of San Bernardino protested against being forced to pay a higher rate from eastern points than was charged the city of Los Angeles. He showed that the rate on agricultural implements from the Missouri River to San Bernardino was $1.27 per hundred pounds while to Los Angeles it was $1.07. On stoves the rates were $1.19 and 99 cents, respectively, and on school furniture $1.55 and $1.35. This preference was alleged to be discriminative and illegal.[392]

In a decision approving the discrimination against San Bernardino, the Interstate Commerce Commission in 1890 remarked that originally southern California had been served from San Francisco direct; and that San Francisco jobbers had covered its territory. When the railroads reached Los Angeles they found it to their advantage to grant it low rates, not so much because it lay near the Pacific Ocean as because the interests of the Southern Pacific and especially of the Santa Fé demanded that some point in southern California should be given such a rate that merchandise from the East could be brought there all-rail and from that point be distributed. The fact that water competition was not the only influence which determined the Los Angeles rate from the eastern states was indeed shown later by the fact that the port of Los Angeles, San Pedro, did not receive a terminal rate until 1910, although Los Angeles itself had been given terminal privileges at least twenty years before.[393]

Stockton, Los Angeles, and San Bernardino thus illustrate in their conflicting claims the constant effort of cities in California to extend the area over which they might distribute goods. Among other instances of dispute between California cities may be mentioned the demand of Santa Barbara in 1907 to be made a Pacific Coast terminal,[394] and the angry contentions of Santa Clara, San José, Marysville, Santa Rosa, and Fresno in 1914 over the question of relative railroad rates from eastern points.[395] The characteristics of the system of transcontinental rates which were involved in these complaints will be discussed in the following chapter.

i356

CHAPTER XXII

THE SOUTHERN PACIFIC MERGER CASES

New Era

There is no question that the final separation of the finances of the Central Pacific from those of the United States government was a matter of very great importance to both parties. The direct result was to place the federal government outside the Central Pacific instead of inside it. Instead of holding the dual relation of creditor and regulating body, Congress now stood as regards the Central Pacific in the same position as with respect to every other railroad in the United States—without interest in the company’s internal finance, but free to act in the interests of the consuming, shipping, and investing public. This was an immense advantage, both from the point of view of the government and from that of the railroad itself.

The Central Pacific reorganization of 1899, moreover, not only accomplished a desirable change in the external relations of the Huntington lines, but it also brought about a change in the relations between the Central Pacific Railroad and the Southern Pacific Company which was of considerable significance. It will be recalled that from 1885 to the time of the reorganization of the Central Pacific in 1899, these relations had rested upon a leasehold interest only. The insecurity of such a connection had been brought forcibly to the attention of the Southern Pacific management during the course of the reorganization proceedings. But as a result of the participation of the Southern Pacific in the reorganization which made possible the repayment of the government debt, that company became possessed of the ownership of the entire outstanding Central Pacific common and preferred stock. While such ownership still lacked the completeness which would have followed the assumption of direct title to the Central Pacific road-bed and rolling stock, it was considered satisfactory, and certainly was an improvement from the Southern Pacific’s point of view over anything which had gone before.

Separated from all financial connection with the government and with its parts joined together by the double tie of leasehold and stock control, the Central Pacific-Southern Pacific system, on the conclusion of the Central Pacific reorganization of 1899, entered upon a new era which contained possibilities of new policies, and of a sounder and more profitable development than it had yet known. There was, too, one additional circumstance which made it easy for the stockholders of the Southern Pacific in 1900 to embark upon new policies—namely, the death of Mr. Huntington. Of the original associates, Huntington was the last survivor. Mark Hopkins had died in 1878, Charles Crocker in 1888, and Stanford in 1893. For ten years, at least, Huntington had been the active manager of the Southern Pacific properties. Personally, he never owned so much as 50 per cent of the Southern Pacific stock outstanding,[591] but by virtue of the support of the Crocker and the Hopkins interests, he exercised almost undisputed control. Huntington had reached the ripe age of seventy-nine years in 1900, and his death was not unexpected. The effect was none the less great, however, for the passing of Mr. Huntington meant the removal of the last of the men to whom the integrity and independence of the Central and Southern Pacific companies were matters of personal pride.

Purchase of Control by Union Pacific

It was the death of Mr. Huntington, to repeat, which now made possible a very important change in the relations which the Central Pacific and the Union Pacific railroads bore to each other. While the Union and the Central Pacific roads both owed their existence to the same federal legislation, and while they had been close business associates for over thirty years by virtue of geographical necessity, both had uncompromisingly maintained their independence. Neither Jay Gould, who was long influential in Union Pacific affairs, nor Huntington himself, were men who cared to form part of organizations which they could not control. Moreover, Huntington distrusted Gould. He once wrote Colton that Gould had scared the Kansas Pacific people so that they had let him, Gould, get into bed with them. For his part, he did not intend to follow the Kansas Pacific example. Gould might frighten him so that he would leave the bed, but never so that he would share it. After Gould’s death in 1890, the same disinclination to combine persisted. The Huntington group was now powerful, and still unwilling to enter a combination which it could not control. The record shows that proposals were made. The Union Pacific, dependent upon the Central Pacific for direct connection with San Francisco, and fearful lest at Mr. Huntington’s death his Southern Pacific stock should fall into unfriendly hands, offered to purchase his shares, or, failing in this, to conclude a permanent alliance. To this offer Mr. Huntington remained indifferent.

Huntington died, however, in August, 1900, leaving his Southern Pacific stock to his widow and nephew in the proportion of two-thirds and one-third, respectively; and both, as had been anticipated, proved willing to dispose of their holdings. Negotiations were carried to completion in February, 1901. Four hundred and seventy-five thousand shares were purchased from the Huntingtons and from Edwin Hawley, the late financier’s most intimate business associate, while enough was secured from other parties through Kuhn, Loeb and Company to make an aggregate of 677,700 shares, at an average price of 50.6146. Market quotations were then in the neighborhood of 45. On February 4, Kuhn, Loeb and Company engaged to deliver to the Union Pacific one month later 72,300 additional shares at the same price, plus 4 per cent interest from February 11, bringing the company’s holdings up to 750,000 shares.

This, in Mr. Harriman’s opinion, was sufficient for control. A year or two later an attempt to force the Southern Pacific to pay in dividends earnings which its managers thought should be expended in improvements led the Union Pacific to acquire 150,000 additional shares. In January, 1910, purchases were renewed for the last time, in view of pending legislation in Congress which promised to make the possession of an absolute majority of Southern Pacific stock desirable; but these purchases ceased after 74,000 shares had been obtained, and 50,000 of these shares were subsequently sold. This concluded the episode. On June 30, 1911, the Union Pacific through the Oregon Short Line owned 1,266,500 shares of Southern Pacific common, or 46 per cent of all outstanding stock—sufficient to give undisputed control.

Harriman System

This purchase by the Union Pacific of a controlling interest in the stock of the Southern Pacific, made the latter a partner in a railroad system of about 18,500 miles, stretching from Omaha, Kansas City, and New Orleans on the east, to Los Angeles, San Francisco, and Portland on the west, and, by means of the Morgan Steamship Line, reaching New York. In addition, the Union Pacific owned a majority of stock in the Pacific Mail Steamship Company, which carried freight and passengers from the Pacific Coast to the Orient and to Panama. Of the total mileage west of the Mississippi-Missouri River and south of the Northern Pacific Railroad, the Harriman management controlled 19 per cent. Finally, through stock ownership in the Illinois Central, the Chicago and Alton, and other lines, and by contract with the San Pedro, Los Angeles, and Salt Lake, it possessed in varying degree influence over connecting and competing roads.

Undoubtedly its association with the Union Pacific increased the prestige of the Southern Pacific Company at the time when the merger took place. The association involved, however, serious dangers, for it placed the credit and the earning power of the Southern Pacific at the disposal of Mr. Harriman for speculative projects in eastern fields, and also it ran counter to a national policy opposed to great accumulations of capital under single control which was presently to become clearly defined. It is true that public hostility toward big business seemed unimportant in 1901 when the Union Pacific and the Southern Pacific first combined, yet the attitude of the courts toward monopoly became a matter for serious consideration by the latter in 1911, ten years after the original merger had taken place, when the federal government attacked the Union Pacific-Southern Pacific consolidation as a combination in restraint of trade under the terms of the Sherman Anti-Trust Act of 1890. A brief discussion of the issues of this extremely important lawsuit is therefore necessary.

There was perhaps some ground for conflicting views with respect to the motive which had induced the Harriman interests to seek control of the Southern Pacific. The obvious explanation of the operation was that the Union Pacific desired to increase its power in the South West. It was stoutly maintained by Mr. Kahn, of Kuhn, Loeb and Company, however, that the desire to control the Southern Pacific line from San Francisco to El Paso was not a motive in the transaction. The necessity of buying the Sunset route, he said, was considered an obstacle and a deterring feature. If a way could have been found to secure the Central Pacific alone, it would have been preferred at the time. The possible reduction of competition was not even considered at any of the meetings of the executive committee at which the subject was brought up. Speaking of the Southern Pacific, Mr. Kahn declared:

We knew it would require a great deal of money to be spent on it, we knew it added thousands of miles to the burden of administration and management. We were very anxious that the Union Pacific should receive as much of the administrative ability and of the railroad genius of Mr. Harriman as it was possible for him to give it, and we were rather disinclined to put upon him any more burden than was necessary to the best development of the Union Pacific; and therefore we, individually, felt that if the Southern Pacific could be separated, keeping only the Central Pacific and the north and south lines in California, and getting rid of the southern part of the Southern Pacific, we would be getting rid of a nuisance.[592]

Arguments of Railroad Counsel

The contention of the Union Pacific Railroad in 1911 was that the consolidation of the Union Pacific and Southern Pacific properties was legal under the Sherman law irrespective of motive, because the two systems were not competing, and that the government was unable to interfere in any case because the consolidation took place through the means of a purchase of stock instead of by contract or agreement between the railroad corporations concerned. On this last point the railroad also argued that, as a matter of law, ownership by one railroad of another’s stock did not constitute control unless a clear majority was held. Control, said counsel, is a matter of power. A minority may direct the operation of a railroad because the majority has confidence in it, but this is lawful. The argument applied to the Southern Pacific case because it was known that the Union Pacific possessed only a minority interest in the first-named company.

Apart from this, counsel contended that a purchase of stock was a thing which the federal government could not control, for the reason that the acquisition or disposition of property was not commercial intercourse. “If any citizen should step into a broker’s office on Broadway, New York, buy some stock in the Pennsylvania Railroad, pay for it, put the certificates in his pocket, and walk out, would he, or the broker, or the broker’s principal, be engaged in commercial intercourse between nations and parts of nations?... Would a state corporation buying those certificates be in any different situation from an individual purchaser, if the State of its domicile had endowed it with corporate power to buy stock?”

Moreover, to continue the argument, though purchases of stock were subject to federal law, they would violate no provisions of the Sherman Act. A purchase or sale is not a contract in restraint of trade, for a contract is executory, implying something yet to be done; while a sale is executed, completed when made and because it is made. Nor is a contract in restraint of trade necessarily unlawful. It must be undue, that is, not entered into with the legitimate purpose of reasonably forwarding personal interest and developing trade. The same may be said of an attempt to monopolize. Every act of competition tends to drive competitors out of business, but competition is legal, in the absence of fraud or duress. It follows that an individual may buy out a competitor, and then another competitor, and so on, and a corporation may do the same thing. “It is evident,” said Mr. Dunne’s brief, “fraudulent, intimidating, coercive, and other like wrongful and unlawful methods apart—that here we touch a fundamental principle of the freedom to buy and sell, of the legal right of the individual in respect to his own property.”

Government’s Contention of Previous Competition

The arguments of railroad counsel in defense of the Union Pacific-Southern Pacific merger rested predominantly, although not wholly, upon points of law such as have been mentioned. Fundamental as some of these were, the main interest in the case for the ordinary student will be found in the elaborate analysis of the competitive relations between the Southern Pacific and the Union Pacific which the government developed in the course of its argument. So far as the writer is aware, no record has ever been presented to any court in which the nature and extent of the competition between two great railroad systems has been so thoroughly discussed.

In establishing the fact that competition had been active between the Southern Pacific and the Union Pacific before the merger of the two companies in 1901, the government insisted upon the fact that the Central and Southern Pacific managers had continuously diverted all the traffic which they could control to the Sunset route so long as they remained independent of Union Pacific dictation.[593] The government examined no less than seventy witnesses—shippers, Southern Pacific employees and ex-employees, and representatives of independent railroad lines. Among those who testified were Mr. Hawley, for nineteen years eastern agent of the Southern Pacific and afterwards a financier of prominence; Messrs. Stubbs, Spence, and Munroe, of the traffic department of the Southern Pacific; Paul Morton, one-time vice-president of the Equitable Life Assurance Company; Mr. Jeffery, president of the Denver and Rio Grande; and Mr. Hannaford, in charge of traffic on the Northern Pacific.

Substantially all these witnesses testified that traffic from the Atlantic seaboard could move to the Pacific Coast either via the Morgan Steamship Line to New Orleans and thence over the Sunset route of the Southern Pacific to San Francisco, or via the trunk lines and their connections to Omaha, thence over the Union Pacific to Ogden and over the Central Pacific to the coast. Although the Southern Pacific was interested in both of these routes, it secured all the revenues from freight moving via the Sunset route, and only 30.1 per cent of the total revenue from freight delivered to it by the Union Pacific at Ogden. In consequence, it used its best efforts to influence freight to travel by the southern line.

i464

Map showing mileage owned in 1913 by the Central Pacific Railway and the Southern Pacific Railroad.

The government showed by the evidence of shippers that freight was actually solicited in competition between the two Pacific companies. The Southern Pacific, it appeared, took traffic at New York rates from as far west as Buffalo and Pittsburgh, not including those cities, and from as far south as Norfolk. Not only this, but the Union Pacific was not altogether restricted to the route via Ogden. By diverting freight at Granger and sending it north to Portland over the Oregon Short Line and the Oregon Railroad and Navigation Company, it could affect the transcontinental rate in two ways. In the first place, it was physically possible for traffic to move from Portland to San Francisco by boat; and in the second place, a slight reduction in the rate to Portland compelled a cut to every Pacific terminal point in order to maintain these different cities in the same relative position for the distribution of eastern goods. As Mr. Stubbs expressed it, “Let the rate be cut on the Great Northern, and it goes down to the Gulf of California.”

Mention may also be made of the route via the Isthmus of Panama, in which the Southern Pacific had an interest by virtue of its control of a steamship line from San Francisco to Panama. The business was not large, but in so far as any moved this way it was in competition with the rail lines via Ogden.

Competition between Other Points

In addition to competition between the Southern Pacific and the Union Pacific on business between the Pacific Coast and points east of the Missouri River, the government succeeded in showing the existence of competition between the Atlantic seaboard and Colorado and Utah common points. A good many sheep wintered in the desert west of Salt Lake, and in the spring moved to the summer ranges in Idaho where they were sheared. The railroad near which the shearing took place secured the outbound wool, and for this reason the Union Pacific, Southern Pacific, and Rio Grande Western offered every attraction possible in order to influence the movement of the flocks. The Union Pacific for instance, at one time paid a head tax which Wyoming levied on all sheep brought into that state. The Oregon Short Line purchased salt on behalf of the sheep owners, carried it to Idaho, and collected the purchase price only when the salt was delivered. In the same way there was competition in respect to cattle and horses which wintered in southern Idaho and northern Nevada and moved east in the spring.

In return for the wool, cattle, hides, etc., shipped east, there were brought in shipments of miscellaneous merchandise, dry goods, machinery, and the like. When the Union Pacific handled the business, the freight moved from New York to Norfolk or Newport News, thence by rail to Omaha and over the Union Pacific lines to destination. When the Southern Pacific took it, the freight went by Southern Pacific steamers to New Orleans or Galveston, and thence over railroads controlled by the company to Fort Worth, Texas, where it was given to connecting lines for delivery at destination. The rate was the same either way, but the rivalry between soliciting agencies was intense.

Still again, there was competition between Portland and Utah and Colorado common points, including certain points in Nevada. Portland enjoys a fairly direct route over the Oregon Railroad and Navigation Company’s tracks to Huntington, and from there over the Oregon Short Line to Granger, a few miles east of Ogden. The Southern Pacific runs south from Portland to Roseville, near Sacramento, and thence east through California, Nevada, and Utah to Ogden. The distance over the one route is 945.3 miles, and over the other 1,487.3 miles. The Roseville route has nearly twice the rise and fall of the route via Huntington, while the curvature also is greater. In a calculation made by Mr. Kruttschnitt, he estimated that the direct line haul was equivalent to 3,498 miles of straight level track, but that the haul via Roseville was equivalent to 6,164 such miles. The evidence nevertheless showed that some business, especially lumber, had moved the long way round before 1901. Traffic had also moved via the Oregon Short Line and Central Pacific to points as far west of Ogden as Wells, Nevada. How much all this amounted to was not clearly shown—at best it was probably not a great deal. After the consolidation of the Union Pacific and Southern Pacific in 1902, through rates with the Oregon Railroad and Navigation Company via the Shasta route were discontinued and competition ceased.

Other kinds of competition included competition for traffic between San Francisco and Portland, between San Francisco and points in Montana and Idaho, and competition for Oriental traffic destined to points in the United States east of the Missouri River. In short, the voluminous evidence thus summarized showed that active competition had existed of almost every conceivable kind. There had been competition of parallel routes between the same termini, of parallel or roundabout routes between different termini, of roundabout routes entirely controlled by the competing lines, of the routes in which the Union Pacific and Southern Pacific were links only in chains of connecting and independent roads, and finally there had been competition in cases where one competitor had to rely upon the other for a greater or less proportion of the haul.

Dissolution of Merger

This demonstration that the Union Pacific and the Southern Pacific had competed with each other before the merger of 1901, followed by easily secured evidence that the competition had ceased after the merger, was sufficient to persuade the Supreme Court to grant the government a decree, in spite of the protests of the defendant railroads.[594] The effect upon the Southern Pacific was of course important. A drastic reorganization of the affairs of the company was called for in order to take the Southern Pacific out of the control of the Union Pacific and to re-establish the conditions of the Huntington régime. Such a reorganization presently occurred. While the details of this transaction are not of present significance, it may be said, in brief, that after several abortive attempts the Union Pacific disposed of all its Southern Pacific stock under a reorganization plan dated May, 1913, delivering some of this stock to the Pennsylvania Railroad in exchange for stocks of the Baltimore and Ohio Railroad, and selling the rest to the general public.[595] Henceforth the rail lines of the Southern Pacific were not to reach east of New Orleans and of Ogden.

Attack on Control of Central Pacific

When the United States Supreme Court declared that the Union and Southern Pacific systems must be separated, it merely restored the latter to a condition of independence. The United States Department of Justice was of opinion, however, that the logic of the decision went further than this, and, encouraged by its preliminary success, it took the dramatic step of attempting to separate the Southern Pacific and the Central Pacific companies by the application of the same principles which had torn the Southern Pacific and the Union Pacific apart. The new suit was known as the United States v. Southern Pacific Company, and, like the old, was brought under the Sherman law.[596]

The principal points in the case of the United States v. the Southern Pacific Company were as follows. A glance at the accompanying map will show that the Central Pacific Railroad, from Ogden to Sacramento, and the Western Pacific, from Sacramento to Oakland, were in practical effect but the western end of a route of which the Union Pacific formed the eastern part. So far as competition was concerned, all parts of the route were on a parity. If the Union Pacific competed with the Southern Pacific when it hauled eastern freight from Omaha to Ogden, the Central Pacific did likewise when it hauled the same freight from Ogden to Sacramento. If it would promote competition to place the Southern Pacific and the Union Pacific in separate hands, the same could be said of the Central Pacific and its southern neighbor. So much is reasonably clear even from a cursory examination of the facts.

In at least two important respects, however, the relations between the Southern Pacific and the Central Pacific differed from those between the Southern Pacific and the Union Pacific. These points were emphasized in the briefs of counsel, and formed the basis of the companies’ defense. Unlike the Union Pacific, the Southern Pacific had obtained control of the stock of the Central Pacific at a time when and under circumstances in which the federal government was an interested party. If the details of the reorganization of 1898 are recalled, it will be remembered that the government then accepted notes in satisfaction of its claims against the Central Pacific which were secured by mortgage bonds carrying a Southern Pacific guaranty. This guaranty, in turn, was offered by the guaranteeing company as one element in a series of transactions which included the acquisition of Central Pacific stock by the Southern Pacific in exchange for the latter’s own stock certificates. The implications of this episode were mentioned when the transaction was described. While it certainly gave no permission to the Southern Pacific to violate the Sherman or any other law as a consideration for assisting the Central Pacific to pay its debts, the government did lay itself open to the charge of having at one time approved and enjoyed the fruits of a transaction of which it later complained.

The more important distinction between the later and the earlier merger cases in which the Southern Pacific was involved, lay in the circumstances that the combination of the Union Pacific and the Southern Pacific had been a recent matter, while the relations between the Central Pacific and the Southern Pacific had begun almost as soon as the latter corporation had been organized. In discussing the construction of the Southern Pacific, the remark has been made that the two enterprises were originally but different manifestations of the activities of a single group of men. The first statement in the brief of Mr. Herrin, chief counsel for the defense in the Central Pacific case, was similarly that: “This case does not involve any combination of competitive units, or any combination at all, for the Southern Pacific and Central Pacific lines were projected and built and have been operated since their organization as one property.”[597] These two characterizations indicate a difference of considerable significance between the Union Pacific and the Central Pacific cases.

Final Decision Doubtful

It must be pointed out, nevertheless, that in spite of the long and close association between the Central and the Southern Pacific railroads, there were certain features in this controversy which made it difficult to forecast the final decision of the Supreme Court of the United States. Counsel for the railroad company in the Union Pacific case dwelt much upon legal technicalities. But in the Southern Pacific case the forms were all opposed to the company’s contentions. For one reason or another, doubtless largely for political effect, the associates had always scrupulously insisted upon the separate identity of the two companies concerned. The corporations had been made to appear to deal with each other at arm’s length, and there had even been much discussion of the relative profitableness to each of the contracts concluded between them.

Nor was the matter one of form alone, as we have seen in earlier chapters of this study. While the construction of both roads was financed by the same parties, after 1880 the associates disposed of the greater part of their Central Pacific holdings. The Southern Pacific and the Central Pacific were still held together by lease relations, it is true, but they then became separate, not merely in organization but also in ownership. The separate ownership continued until 1899, when the new arrangements were made to undo which the government brought suit. It followed that counsel for the defendant railroads were in the position of defending a combination of legally distinct corporations, owned by different parties, with no connection between them save through the minority holdings of individual stockholders and through the very arrangements of which complaint was made. As an answer to this indictment, the circumstance that the same parties had found their profit in building each of the defendant lines could hardly be given weight, nor was the fact that the original consolidation antedated the Sherman law important.

The suit of the United States v. Southern Pacific Company was argued before the circuit judges of the Eighth Circuit sitting at St. Louis in December, 1915. The decision of a majority of this court was rendered in March, 1917, and was unfavorable to the government’s contention.[598] The grounds of this opinion were not brought out with complete distinctness, but two judges held that there had never been a “natural and existing competition” in interstate commerce between the Southern Pacific and the Central Pacific. Nearly half of the text of the decision, moreover, was devoted to a description of the financial settlement of 1899, in which Congress appeared to have treated the control of the Central Pacific by the Southern Pacific as consistent with the statutes of the United States. Judge Carland dissented from the conclusions of his colleagues in a carefully prepared opinion. The case was appealed, and after full oral argument, was submitted to the Supreme Court on April 19, 1921. An early decision is expected. Meanwhile, the continued close relations between the Central Pacific and the Southern Pacific are approved by public sentiment upon the Pacific Coast, while the continuance for the present of common control of the two companies certainly avoids many practical difficulties.

[1] The statement in the text is sufficiently accurate as a preliminary generalization. As will appear later, the road between Sacramento and Oakland was not built by the Central Pacific, but by certain other companies of which the Western Pacific and the California Pacific were the most important. It may also be important for some purposes to observe that the Southern Pacific system enters Ogden over Union Pacific tracks, and New Orleans over the tracks of the Illinois Central Railroad Company.

[2] On the early history of the Central Pacific, see a document printed by order of the Nevada Senate, entitled “Evidence concerning projected railways across the Sierra Nevada Mountains from Pacific tide-water in California, etc., procured by the Committee on Railroads of the First Nevada Legislature” (Carson City, 1865). This document contains several valuable reports and some interesting testimony.

[3] Judah’s report of his mission to Washington as a delegate of the Pacific Railroad Convention is printed in full in the Sacramento Union for July 25, 1860.

[4] Testimony taken by the United States Pacific Railway Commission, appointed under an Act of Congress approved March 3, 1887, entitled, “An act authorizing an investigation of the books, accounts, and methods of railroads which have received aid from the United States, and other purposes.” (50th Congress, 1st Session, Senate Executive Document No. 51, pp. 2838-39, testimony D. W. Strong.) Hereafter referred to as United States Pacific Railway Commission.

[5] The expenses of this preliminary investigation were provided by small subscribers around Dutch Flat. A paper dated at Dutch Flat, June 26, 1860, contains 47 names, including that of D. W. Strong. No subscription was for over $15, and only nine were for as much as $10 apiece. (United States Pacific Railway Commission, p. 2959.)

[6] Judah manuscript, letter of Mrs. Anne Judah.

[7] Evidence concerning projected railways across the Sierra Nevada Mountains, sup cit., testimony L. L. Robinson.

[8] United States Pacific Railway Commission, pp. 2960-61, testimony D. W. Strong.

[9] Sacramento Union, January 9 and 10, 1861.

[10] Sacramento Union, January 4, 1861.

[11] Stanford’s election to the United States Senate was resented by Huntington, and led eventually to an open breach between the two men. It is not improbable, however, that Stanford’s friends, and not Stanford himself, were responsible for the latter’s candidacy. It would not have been difficult to persuade a man of Stanford’s temperament that he was performing a public service in allowing his name to be used.

[12] Crocker said of his own personal appearance during the sixties: “While I was building the road, I weighed nearly all the time 264-5 pounds; at one time, in China, I weighed about 274 pounds; the Chinaman who weighed me called me a 4-picul man—a ‘picul’ being 66⅔ pounds.... While I was building the road, I weighed the first year, 244, which increased to 265, and when I finished the work, was weighing that. I am 5 feet 10¾ inches tall.” (Crocker manuscript, p. 63.)

[13] Huntington manuscript, p. 36. The Bancroft Library of the University of California possesses notes of interviews with a number of men prominent in California history collected by H. H. Bancroft or his representatives. In some cases these notes are very full and informing. They will be referred to in the present volume as “Huntington manuscript,” “Crocker manuscript,” etc. See also Redding, “Sketch of the Life of Mark Hopkins” (San Francisco, 1881).

[14] Huntington manuscript, pp. 9-10.

[15] Crocker manuscript, pp. 28-29. See also Hittell, “History of California,” Vol. 4.

[16] Report of a committee of the board of directors, Sacramento Valley Railroad Company, August 7, 1855.

[17] Articles of association and by-laws of the Sacramento Valley Railroad Company, together with an estimate of the gross receipts of the road when in operation, New York, 1853.

[18] Engineer’s report of a preliminary survey of the Stockton and Copperopolis Railroad with estimates of cost and traffic, October, 1862.

[19] Report of the chief engineer on the survey, cost of construction, and estimated revenue of the Placerville and Sacramento Valley Railroad of California, San Francisco, 1863.

[20] Report of President Moore to stockholders, 1873.

[21] Report of the chief engineer on the preliminary survey, cost of construction, and estimated revenue of the Central Pacific Railroad of California, etc., October 22, 1862; report of Acting Chief Engineer Montague, October 8, 1864. Reprinted in “Evidence concerning projected railways across the Sierra Nevada Mountains,” sup. cit.

[22] Report of the chief engineer on the preliminary survey, cost of construction, etc., October 22, 1862 (October 1, 1861), sup. cit.

[23] United States Pacific Railway Commission, p. 3774, testimony C. P. Huntington.

[24] Complaint of Samuel Brannan, June 21, 1870. Filed in the case of Brannan v. Central Pacific Railroad, in the District Court of the Fifteenth Judicial District of the State of California.

[25] Bancroft, “History of California,” Vol. 7. p. 545, note. The assessed value of the associates’ property in Sacramento County in 1861 was $118,035.

[26] United States Pacific Railway Commission Report, p. 87.

[27] United States Pacific Railway Commission, p. 3421, testimony M. D. Boruck.

[28] Crocker manuscript, p. 32.

[29] United States Pacific Railway Commission, pp. 2630-31, testimony Leland Stanford.

[30] Ibid., p. 2652. testimony Leland Stanford. Stanford and his associates bought stock in 1871 for which they paid $400 or $500 a share, but Stanford says that this was to quiet litigation which he described as blackmail.

[31] Ellen M. Colton v. Leland Stanford et al., in the Superior Court of the State of California in and for the County of Sonoma, 1883. Hereafter referred to as “Colton case.” The record in this proceeding contains much valuable information relative to the history of the Southern Pacific and the activities of the Huntington-Stanford group.

[32] United States Pacific Railway Commission, p. 3493, testimony D. O. Mills.

[33] Crocker manuscript, pp. 29-30.

[34] United States Pacific Railway Commission, p. 2731, testimony Leland Stanford.

[35] Ibid., p. 2399, testimony A. Cohen; p. 2767, testimony Leland Stanford.

[36] Colton case, pp. 948-49, Huntington to Colton, October 8, 1874.

[37] Tinkham, “History of Stockton,” p. 356; San Francisco Chronicle, June 13, 1874.

[38] Laws of California, 1852, Ch. 77.

[39] Ibid., 1857, Ch. 243.

[40] Ibid., 1858, Ch. 300.

[41] Ibid., 1859, Ch. 241.

[42] Ibid., 1859, Ch. 263, 264.

[43] Ibid., 1859, Ch. 262.

[44] Laws of California, 1863, Ch. 77

[45] Ibid., 1863, Ch. 125.

[46] Ibid., 1863, Ch. 207.

[47] Ibid., 1863, Ch. 310.

[48] Ibid., 1863, Ch. 209. The value of these privileges has been estimated at $200,000.

[49] Ibid., 1863, Ch. 291.

[50] Ibid., 1863, Ch. 314.

[51] Ibid., 1864, Ch. 320. Twenty years later the quarries were still undelivered.

[52] Constitution of the State of California, Arts. VIII, XI, Sec. 10.

[53] People v. Pacheco, 27 Cal., 176 (1865).

[54] Angel. “History of Placer County,” 1882, p. 280.

[55] “The Great Dutch Flat Swindle!—An address to the Board of Supervisors, Officers and People of San Francisco,” 1864.

[56] French v. Teschemaker, 24 Cal. 518 (1864).

[57] Laws of California, 1864, Ch. 344.

[58] California Supreme Court Records, Vol. 38, case of People v. Coon.

[59] California Supreme Court Records, Vol. 38, p. 98, sup. cit.

[60] People v. Coon, 25 Cal. 635 (1864).

[61] People v. Supervisors, 27 Cal. 655 (1865).

[62] United States Pacific Railway Commission, pp. 3610-11, testimony Leland Stanford.

[63] Ibid., p. 3464, testimony E. H. Miller.

[64] Angel, “History of Placer County,” pp. 158-65.

[65] Fankhauser, “Financial History of California,” p. 299 ff.

[66] Report of the chief engineer upon recent surveys, progress of construction, and an approximate estimate of cost of first division of 50 miles of the Central Pacific Railroad of California, July 1, 1863.

[67] Letter of L. L. Robinson, chief engineer, to Chas. A. Sumner and Henry Epstein, Chairmen Committees on Railroads, Legislature of Nevada, Sacramento, February 3, 1865. Printed in a pamphlet entitled “Evidence concerning projected railways across the Sierra Nevada Mountains,” sup. cit.

[68] Stanislaus, Merced, Fresno, Tulare, and Kern counties. In Kern County the bond issue was limited to $480,000 and in Stanislaus to $180,000.

[69] Letters of Governor Haight, on the constitutional power of the legislature to authorize cities and counties to donate bonds to railroad corporations, Sacramento, 1870.

[70] Persons who desire details of the controversies in Congress prior to the outbreak of the Civil War may consult Haney, “Congressional History of Railways,” or Davis “History of the Union Pacific.”

[71] Laws of California, 1852, p. 276. See also resolutions passed May 17, 1853 (Laws of 1853, p. 315); May 13, 1854 (Laws of 1854, p. 224); February 25, 1854 (Laws of 1854, p. 227); March 19, 1857 (Laws of 1854, p. 370); April 1, 1859 (Laws of 1859, p. 390); April 15, 1859 (Laws of 1859, p. 394). In 1859 the legislature adopted a memorial to the same general effect (Laws of 1859, p. 395).

[72] The proceedings of the Pacific Railroad Convention of 1859 were published in the San Francisco Alta, September 21-26, 1859, and in a special supplement of the same paper. See also The Pacific, October 6, 1859, and other California papers. The convention was attended by delegates from Oregon and Washington. It thought that the Pacific Railroad should run from the city of San Francisco through the counties of San Mateo, Santa Clara, and Alameda, to the city of Stockton, thence over the Sierras by a central route. It favored also a branch to Puget Sound. Resolutions were adopted contemplating an issue of $15,000,000 in bonds by the state of California to cover the cost of railroads within that state, and an issue of an unspecified amount, presumably $5,000,000 by the state of Oregon. In February, 1860, an adjourned meeting of the same convention was held at Sacramento. Considerable opposition developed at this meeting to the proposal to bond the state for The vote taken at San Francisco was reconsidered, and a new resolution passed, recommending state aid to a transcontinental railroad to the extent of not more than $15,000,000, but proposing that security be taken for the advances made so that the sum should not become a state charge. In other words, this idea of a loan was substituted for that of a donation. (Sacramento Union, February 7-11, 1860.)

[73] Report of the chief engineer of the Central Pacific Railroad Company of California, on his operations in the Atlantic states, Sacramento, 1862. It should be added that Huntington himself was in Washington while the Act of 1864 was being debated. Cornelius Cole, one time senator from California, says of Huntington’s activity at this time: “During the pendency of this legislation [Act of 1864], C. P. Huntington spent much of his time in Washington. Many of the amendments were suggested by him, and it gave me much satisfaction to forward his views. In former years in Sacramento we had been in close political fellowship, besides ... I had been associated with him and others in the organization of the Central Pacific Railroad Company....” (Cornelius Cole, Memoirs, pp. 179-80.)

[74] 12 United States Statutes 489 (1862).

[75] United States v. Southern Pacific Co., Record, pp. 1654-57.

[76] Report of chief engineer, Central Pacific Railroad of California, on his operations in the Atlantic states, 1862.

[77] 13 United States Statutes 356 (1864).

[78] For a full digest of the Acts of 1862 and 1864, and for an account of the Congressional history involved, the reader is referred to Haney, “A Congressional History of Railways.” Senator A. A. Sargent asserted in 1878 that he, Sargent, wrote the acts himself. (45th Congress, 2d Session, Congressional Record, Vol. 7. p. 2024.)

[79] Huntington manuscript, pp. 78-79. The act referred to appears in 14 United States Statutes 78-79.

[80] Report of the chief engineer on the preliminary survey of the Central Pacific Railroad, etc., October 22, 1862.

[81] United States v. Union Pacific, 91 U. S. 72 (1875).

[82] 12 United States Statutes 489 (1862), Sec. 6.

[83] United States Pacific Railway Commission, p. 2562, testimony W. H. Mills.

[84] The Western Pacific had received in addition two patents conveying 27,505.93 acres, but these lands were assigned by the Central Pacific to outside parties.

[85] United States Pacific Railway Commission, pp. 3569-70.

[86] United States v. Southern Pacific Railroad Co., 146 U. S. 570, 593 (1892).

[87] Newhall v. Sanger, 92 U. S. 761 (1875).

[88] Kansas Pacific v. Dunmeyer, 113 U. S. 629 (1885).

[89] Hastings and D. R. Co. v. Whitney, 132 U. S. 357 (1889); Whitney v. Taylor, 158 U. S. 85, 92 (1895); Bardon v. Northern Pacific, 145 U. S. 535 (1892).

[90] Menotti v. Dillon. 167 U. S. 703 (1897).

[91] Central Pacific Railroad case, 3 L. D. 264.

[92] 9 United States Statutes 631 (1851).

[93] United States Pacific Railway Commission, p. 2412, testimony W. H. Mills.

[94] 1863 to 1913 “An Account of the Ceremonies Attending the Inauguration of the Work of Construction of the Central Pacific.” Interesting details of the course of construction of the Central and Union Pacific railroads are given in Carter, “When Railroads Were New,” and in Sabin, “Building the Pacific Railway.”

[95] Report of the chief engineer upon recent surveys of the Central Pacific Railroad of California, July, 1863.

[96] Ibid., December, 1865, and July, 1869.

[97] Ibid., October 8, 1864.

[98] Ibid., December, 1863.

[99] United States Pacific Railway Commission, pp. 2581-82, testimony Arthur Brown, superintendent of bridges and buildings.

[100] United States Pacific Railway Commission, p. 2579, statement William Hood; pp. 2580-81, 3150, statement J. H. Strobridge; pp. 2576-77, statement L. M. Clement; p. 3055, testimony E. H. Miller; pp. 2581-82, statement Arthur Brown.

[101] United States Pacific Railway Commission, p. 2523, testimony Leland Stanford. On the other hand, there were abundant supplies of timber along the line, and the price of machinery declined after the war.

[102] United States Pacific Railway Commission, pp. 3139-41, testimony J. H. Strobridge. The following table is prepared from Mr. Strobridge’s testimony:

[103] Huntington was always openly in favor of unrestricted Chinese immigration. He said that exclusion deprived the United States of tractable and cheap labor, which was needed to build up the desert places of the country. He believed the fanatical hostility to the Chinese was limited to California, where, he asserted, the Irish Catholics swung the balance of power. (San Francisco Examiner, January 4, 1889.)

[104] United States Pacific Railway Commission, p. 3642, testimony Charles Crocker. A letter from Mr. Judah to Dr. Strong, dated July 10, 1863, suggests that it was Judah’s influence which prevented Crocker from building sections 19 to 30. Judah wrote: “I have had a big row and fight on the contract question, and although I had to fight alone, carried my point and prevented a certain gentleman from becoming a further contractor on the Central Pacific Railroad at present.” (Ibid., p. 2966, testimony Strong.) This was probably only one of a number of differences of opinion between the Stanford-Huntington group and the original promoters of the Central Pacific, led by Judah. It was only after Judah’s death that the first-named interests were able to dominate the situation completely.

[105] United States Pacific Railway Commission, p. 3769, testimony Collis P. Huntington.

[106] Ibid., pp. 2621-26, testimony Leland Stanford.

[107] United States Pacific Railway Commission, p. 3048, testimony E. H. Miller. For a general discussion of the relative advisability of construction by contract as opposed to construction by the Central Pacific itself, see an earlier report by Stanford, Hopkins, and Miller. (Ibid., pp. 3045-46.) This report made the point that the letting of contracts to a responsible contractor would raise the credit of the railroad.

[108] United States Pacific Railway Commission, p. 3436.

[109] Ibid., p. 3157, testimony J. H. Strobridge.

[110] The actual cost of the whole work to the Central Pacific depended upon Mr. Crocker’s reports upon the work which he did. There is no evidence that the company exercised any supervision over these reports, although it was to the advantage of the construction company to describe as much of the work as possible as heavy; but on the other hand, Mr. Crocker’s engineers testified that Crocker never attempted to influence them in their estimates. (United States Pacific Railway Commission, p. 3207, testimony L. Clement.)

[111] United States Pacific Railway Commission, p. 3511, testimony Richard F. Stevens.

[112] United States Pacific Railway Commission, p. 2636, testimony Leland Stanford.

[113] Ibid., p. 3661, testimony Charles Crocker.

[114] Colton case, pp. 266-68, deposition of Collis P. Huntington.

[115] United States Pacific Railway Commission, p. 2640, testimony Leland Stanford.

[116] Ibid., p. 3661, testimony Charles Crocker; p. 2637, testimony Leland Stanford.

[117] United States Pacific Railway Commission, pp. 3436-37.

[118] United States Pacific Railway Commission, p. 2897, testimony W. E. Brown; p. 3062, testimony E. H. Miller; pp. 3511-20, testimony R. F. Stevens.

[119] United States Railway Commission, pp. 2712-17, testimony D. Z. Yost.

[120] Ibid., pp. 2875-92, testimony John Miller; pp. 3028-33, testimony N. Greene Curtis.

[121] There is some evidence that $6,000,000 of this cash was not strictly cash, but took the form of notes of the Central Pacific Railroad which were ultimately settled in land-grant bonds at $86.50. (United States Pacific Railway Commission Report, p. 75.) Mr. Crocker says that the interest on a portion of these bonds paid his expenses on a trip to Europe. (Ibid., p. 3668, testimony Charles Crocker.)

[122] United States Pacific Railway Commission Report, pp. 74-75.

[123] United States Pacific Railway Commission, pp. 2655-56, testimony Leland Stanford; p. 3668, testimony Charles Crocker. Mr. Huntington said in 1873 that he thought his dividend amounted to about $1,000,000, but in 1887 he admitted that he had earlier mistaken the facts. (Ibid., pp. 4026-28, testimony C. P. Huntington.)

[124] United States Pacific Railway Commission, pp. 2977-88, testimony W. E. Brown.

[125] An Account of the Ceremonies Attending the Inauguration of the Work of Constructing the Central Pacific. Scribner’s Magazine for August, 1892, contains an article describing the completion of the Central Pacific and also a reproduction of the well-known painting, “The Joining of the Central and Union Pacific” (“The Last Spike”).

[126] The indenture making this assignment, dated October 31, 1864, is printed in full in the appendix to the journals of the Senate and Assembly of the 20th Session of the Legislature of the State of California, Vol. 6 (1874), No. 2. pp. 27-29. It covers not only the right to build and operate a railroad between Sacramento and San José, but also “all the rights, grants, donations, rights-of-way, loan of the credit of the Government of the United States, or the bonds thereof.”

[127] United States Pacific Railway Commission, p. 2785, testimony Leland Stanford.

[128] Laws of California, 1852, Ch. 107.

[129] City of Oakland v. Oakland Water Front Company, transcript of testimony, p. 649, deposition Horace W. Carpentier; p. 1755, testimony A. J. Moon.

[130] City of Oakland v. Oakland Water Front Company, transcript of testimony, pp. 704-5, deposition Horace W. Carpentier; Wood, “History of Alameda County”; San Francisco Examiner, June 26, 1892, July 3, 1892.

[131] Moon, one of the trustees who approved the grant, was afterwards taken into Carpentier’s employ. Adams, another trustee, secured the property now known as the “Adams Wharf” to the east of the narrow-gauge bridge.

[132] City of Oakland v. Carpentier, 13 Cal. 540 (1859); 21 Cal. 642 (1863). The Oakland ordinances were ratified and confirmed by act of the California legislature passed May 15, 1861. (Laws of California, 1861, Ch. 377.)

[133] City of Oakland v. Oakland Water Front Company, transcript on appeal, pp. 652-54, deposition Horace W. Carpentier.

[134] Laws of California, 1868, Ch. 230.

[135] City of Oakland v. Oakland Water Front Company, transcript of testimony, sup. cit. pp. 976-80.

[136] City of Oakland v. Oakland Water Front Company, transcript of testimony, pp. 657-64, deposition Horace W. Carpentier.

[137] See the Ordinance of the City of Oakland, No. 302 (April 2, 1868). An excellent account of these transactions is given in an unpublished manuscript in the University of California Library, prepared by Stephen S. Barrows, one-time student in the University of California. It is of some interest to observe that among the direct beneficiaries of the agreements cited were Messrs. Carpentier, Felton, and Merritt, all three at one time or other mayors of Oakland. Mr. Merritt was mayor at the time ordinances Nos. 300, 301, and 302 were passed. The compromise described was effected under authority of an act of the California legislature dated March 21, 1868.

[138] By ordinance passed August 31, 1867, the Oakland City Council voted to pay Mr. Felton a fee equal to 15 per cent of all the property recovered by the city in the water-front litigation. (Transcript of testimony, sup. cit. p. 759.) Mr. Merritt was subsequently accused of having promoted the settlement between the city of Oakland and the Oakland Water Front Company in order to derive a pecuniary profit for himself. In 1869 the city council of Oakland authorized the appointment of a committee of three to ascertain by what title Mr. Merritt held certain water-front property near the foot of Broadway in Oakland. On report of the committee the council exonerated Mr. Merritt. (Ibid., pp. 1406-7, 1410-21.)

[139] City of Oakland v. Oakland Water Front Company, 118 Cal. 160 (1897).

[140] Western Pacific Railway Company v. Southern Pacific Company, 151 Fed. 376 (1907). The court also pointed out in the decision that although the low-tide line was projected across the mouth of the estuary for the purpose of determining the boundary of Oakland, this should not be done in ascertaining the limit of the railroad grant.

[141] The boundaries are set forth in the San Francisco Times of March 7, 1868. As later amended and confined to the area north of Point Avisadero, they are described in the Daily Alta of March 14, 1868.

[142] Appendix to journals of Senate and Assembly of the California Legislature, 17th Session, Vol. 3, 1868.

[143] San Francisco Bulletin, March 7, 1868.

[144] Daily Alta California, March 10, 1868.

[145] San Francisco Times, March 13, 1868.

[146] See resolutions of a meeting of San Francisco business men in March, 1868, recommending that the legislature grant 150 acres each to the Central Pacific and Southern Pacific; and the admission of the Southern Pacific that it could get along with 250 acres.

[147] Laws of California, 1867-68, Ch. 543.

[148] Laws of California, 1867-68, Ch. 386. A lively account of the circumstances attending the passage of the Goat Island bill through the legislature was published by an old newspaper man, Sam Leake by name, in the San Francisco Bulletin, March 17 and 19, 1917. There is, however, no way of verifying this story, and it cannot be accepted on Mr. Leake’s authority alone.

[149] Laws of California, 1869-70, Ch. 381.

[150] Mr. Stanford has asserted that the whole trouble was caused by six gentlemen, three of whom had interests near Ravenswood, where it was thought that the Central Pacific might cross, and three of whom had interests in Sausalito. He says he was informed by a member of Congress that he could have had necessary legislation in Congress for $10,000. This refers to the campaign of 1875-76. (United States Pacific Railway Commission, pp. 3170-71, testimony Leland Stanford.)

[151] United States Pacific Railway Commission, pp. 3496-3500, testimony D. O. Mills.

[152] The California and Oregon Railroad Company was subsidized by Congress by Act of July 25, 1866, to build from a point on the Central Pacific Railroad to the Oregon boundary, where it was to meet a railroad coming south from Portland. Tracks reached Chico, July 2, 1870. In 1870, the California and Oregon was consolidated with the Central Pacific. In 1872 it reached Redding, and on October 5, 1887, the state line. The federal legislation relating to the California and Oregon Railroad is notable for the liberality of the land grant made.

[153] This branch was known as the San Joaquin Valley Railroad. The company bearing this name was incorporated in 1868. Stanford, Huntington, Hopkins, Charles, and E. B. Crocker were directors. In 1870 it was consolidated with the Central Pacific. Stanford declared in 1887 that the trunk lines up the San Joaquin and Sacramento valleys were the most important factors in the Central Pacific’s local business.

[154] United States Pacific Railway Commission, pp. 3628-29, testimony J. P. Jackson; p. 3613, testimony Leland Stanford.

[155] United States Pacific Railway Commission, pp. 3366-67, testimony J. C. Stubbs.

[156] Ibid., pp. 3628-29, testimony J. C. Jackson.

[157] San Francisco Bulletin, November 29, 1869.

[158] Main v. Central Pacific, argument of Harvey S. Brown, of counsel for the defendants, 1886.

[159] San Francisco Chronicle, August 16, 1874, statement Milton S. Latham. This was the bridge over which the California Pacific was entering Sacramento.

[160] Main v. Central Pacific. Statement of facts. The closing argument of L. E. Chittenden, of counsel for plaintiffs, 1886. See also San Francisco Chronicle, August 16, 1874, statement of Milton S. Latham.

[161] Opponents of the Central Pacific described the transaction in 1886 as follows: “Huntington, the incarnation of this hostility, whose name was an inspiration of personal aversion, entered the state on the 24th of June; and the suggestion is, that the Court shall believe that under these circumstances, the directors of the California Pacific loaded their staggering trust with a new debt of $1,600,000, on which interest should commence at once, to pay for a second track, not to be finished until about two years, at the small end of their railroad where there was no need of it, at a point where it was doubtful if one track would stand—and contracted with their hereditary enemies to do it—all without the remotest reference to any purchase of, or intended future control of the corporation!”

[162] Colton case, pp. 3214-15.

[163] San Francisco Chronicle, August 16, 1874. According to A. A. Cohen, a San Francisco lawyer one time in the employ of the Central Pacific and intimately acquainted with its policies, Stanford told Latham that he, Stanford, was extremely sorry that the Reese suit had been commenced, and that it would not have been if he had known anything at all about it. Cohen, however, made public the following letter, written by Stanford the day before the suit was brought, which puts an altogether different face upon the matter. Stanford wrote as follows:

[164] United States Pacific Railway Commission, pp. 3936-42, testimony L. E. Chittenden.

[165] United States Pacific Railway Commission, p. 3614, testimony Leland Stanford.

[166] On December 2, 1865. United States v. Southern Pacific, transcript of testimony, p. 1284. Hereafter referred to as “United States v. Southern Pacific.” This company was organized under the general California statute relating to incorporations approved May 20, 1861.

[167] 14 United States Statutes 292 (1866). An act granting lands to aid in the construction of railroad and telegraph line from the states of Missouri and Arkansas to the Pacific Ocean. The provisions of this act were promptly accepted by the Southern Pacific. See United States v. Southern Pacific, pp. 1672-73.

[168] 15 United States Statutes 187 (1868).

[169] San Francisco Bulletin, March 14, 1868.

[170] United States v. Southern Pacific, Defendant’s Exhibit No. 23. Neither Huntington nor Stanford signed the articles of association of 1870 as holders of stock of the consolidating companies. This may merely mean, however, that the stock of these companies was placed under other names for purposes of convenience.

[171] The change of route was authorized by Congressional resolution, dated June 28, 1870 (16 United States Statutes 382 [1870].) It should be observed that the so-called Mussel Slough “massacre” resulted from a dispute over the ownership of land south of Hanford, Tulare County, which lay along the line of railroad as designated in 1867, but not along that proposed in 1865. It appears that a number of persons settled upon and improved tracts near Hanford before the railroad applied for patent to land in this vicinity, but after the Southern Pacific had filed the map showing its intended route with the Commissioner of the General Land Office in 1867, and after lands along this route had been withdrawn.

[172] 16 United States Statutes 573 (1871).

[173] See on this matter Colton case, p. 1621, Crocker to Colton, February 12, 1875.

[174] Guinn, “A History of California,” pp. 254, 276.

[175] Ninth Census of the United States, 1870.

[176] Newmark, “Sixty Years in Southern California.” The Los Angeles and San Pedro was built to Wilmington only in 1869. It was not extended to San Pedro until 1881.

[177] Ranchers near Los Angeles feared lest the construction of the railroad would do away with horses and the demand for barley.

[178] “Illustrated History of Los Angeles County” (Chicago, 1889), p. 136.

[179] Newmark, “Sixty Years in Southern California,” pp. 496-97.

[180] Articles of incorporation are printed in Colton case, pp. 5475-77, testimony F. S. Douty. See also ibid., pp. 2993-95, testimony Reynolds. The material and accounts for repairs possessed by the Contract and Finance Company were turned over to the Western Development Company at this time at a valuation of $431,530.53.

[181] Colton case, pp. 362-65, 7806-22, testimony F. S. Douty. The actual payments were, as the result of certain adjustments, slightly less.

[182] United Slates Railway Commission, p. 2701, testimony F. S. Douty.

[183] United States v. Southern Pacific, pp. 553-55, testimony Redington.

[184] Ibid., pp. 533-35, testimony Luckett.

[185] Colton case, p. 7637, Colton to Huntington.

[186] Colton case, pp. 231-32, testimony F. S. Douty; United States Pacific Railway Commission, pp. 3626—27, testimony F. S. Douty.

[187] United States Pacific Railway Commission, p. 2832, testimony Leland Stanford.

[188] United States Pacific Railway Commission, p. 2994, testimony C. F. Crocker.

[189] Colton case, pp. 7646-54, 1586.

[190] Ibid., pp. 9669-73, testimony Charles Crocker.

[191] San Francisco Examiner, October 8, 1889.

[192] Jay Gould once testified that Huntington had offered an interest in the Southern Pacific to himself and his Union Pacific associates, and that they had offered to take an interest, provided that Huntington would cut the Southern Pacific bonds outstanding from $40,000 to $25,000 per mile, and throw the stock in. Gould thought that $25,000 per mile was all that the road had cost. (Colton case, deposition Jay Gould, pp. 8, 23-24.)

[193] Colton case, pp. 1522-24, 1529.

[194] United States Pacific Railway Commission, pp. 2791-92, testimony Leland Stanford.

[195] Colton case, pp. 1524-29.

[196] Ibid., pp. 1510-13.

[197] United States Pacific Railway Commission, p. 3445, testimony E. H. Miller, Jr.

[198] For terms of leases see especially United States Pacific Railway Commission, pp. 3443-53, testimony of E. H. Miller. Jr.

[199] United States v. Southern Pacific, p. 708, testimony Julius Kruttschnitt. This was a case brought in 1915 before the District Court of the United States for the District of Utah in order to compel the separation of the Central Pacific from the Southern Pacific railroad. The suit was brought under the Anti-Trust Law of 1890, and in the course of the testimony the history of the Southern Pacific was very fully brought out.

[200] Colton case, pp. 814-26.

[201] Colton case, pp. 1643-44, Huntington to Colton, May 28, 1875.

[202] Ibid., pp. 1615-16, Huntington to Colton, December 10, 1874.

[203] United States v. Southern Pacific, p. 655, testimony Timothy Hopkins.

[204] United States v. Southern Pacific, pp. 1191-96, testimony James Speyer.

[205] Ibid., pp. 613-18, testimony George T. Klink.

[206] Ibid., p. 645, testimony George R. Jackson.

[207] Ibid., p. 1695, Defendant’s Exhibit No. 21.

[208] Ibid., p. 871, inventory of Charles Crocker estate, filed July 12, 1889.

[209] United States Pacific Railway Commission, p. 2657, testimony Leland Stanford.

[210] United States v. Southern Pacific, pp. 615, 645, testimony George T. Klink.

[211] United States v. Southern Pacific, p. 666, testimony Timothy Hopkins.

[212] United States v. Southern Pacific, pp. 1688-1702, Defendant’s Exhibit No. 21.

[213] United States v. Southern Pacific, pp. 621-22, testimony George T. Klink. It has been suggested that Huntington had the charter of the Southern Pacific Company taken out in Kentucky, in order to enable the company to conduct its suits in California in the federal and not in the state courts.

[214] J. M. Bassett said of the action of Kentucky in granting a charter to the Southern Pacific Company, that it amounted to granting a letter of marque to that company on the condition that it make no reprisals in Kentucky. He argued that the lease of the Central Pacific was defective because its duration was to be greater than the life of the Central Pacific under its articles of incorporation, because the liability of Southern Pacific stockholders was not unlimited as in the case of California corporations, and because the rule of comity under which foreign corporations operated in California could not be expected to apply to a corporation which was forbidden to do business in the state of its nativity. None of these objections, however, proved to have any practical importance.

[215] United States Pacific Railway Commission, pp. 2812-13, testimony Leland Stanford.

[216] The following table shows the result of operation under the lease for each year from 1885 to 1893:

[217] Colton case, pp. 8839-42, testimony Charles Crocker. A discussion of the relations between Colton and the Huntington group which differs from that given in the text is presented in Russell, “Stories of the Great Railroads,” 1914.

[218] Colton case, pp. 2446-50, testimony Mrs. Colton.

[219] Ibid., pp. 172-73, deposition C. P. Huntington.

[220] Colton case, pp. 5872-74. See also Colton manuscript, pp. 36-40. It was stipulated that either party might cancel the agreement at any time within two years, upon which stock and promissory note were to be mutually returned, and the parties placed in the same position relative to each other as before the agreement was made.

[221] Colton case, pp. 7018-19.

[222] Ibid., p. 6529, testimony H. K. White.

[223] Colton case, p. 8869, testimony Charles Crocker.

[224] Ibid., pp. 1058, 1064-66, testimony E. H. Miller, Jr.; p. 8957, testimony Charles Crocker.

[225] Colton case, pp. 2711-12, 478-81, testimony F. S. Douty.

[226] Newell Beeman, superintendent of the Rocky Mountain Coal and Iron Company, says that Colton knew nothing about the practical working of the mine. (Colton case, pp. 3849-50, testimony Newell Beeman.)

[227] Colton case, pp. 7612-13, Colton to Huntington, January 31, 1878.

[228] Colton case, p. 8915, testimony Charles Crocker.

[229] United States Pacific Railway Commission, p. 3255, testimony F. S. Douty; Colton case, pp. 423-24, testimony F. S. Douty.

[230] Colton case, pp. 8883, 8887, testimony Charles Crocker.

[231] Colton case, pp. 8881-82, testimony Charles Crocker; pp. 36-37, deposition C. P. Huntington.

[232] Colton case, pp. 2335-46, testimony Gunn; pp. 3127-29, 3227, testimony W. G. Fullerton.

[233] Colton case, pp. 7187-92, testimony Madden; pp. 7217-24, testimony N. T. Smith.

[234] Colton case, pp. 2436-39, Huntington to Mrs. Colton, November 15, 1878, and November 21, 1878.

[235] Ibid., pp. 2485-92, testimony Mrs. Colton; pp. 8892-99; testimony Charles Crocker.

[236] Colton case, pp. 16-32, deposition S. N. Wilson.

[237] Colton case, pp. 8931-32, testimony Charles Crocker.

[238] In the case of the Central Pacific claims, the qualification “so far as known at the time” was introduced.

[239] Colton case, pp. 2815-16, testimony Mrs. Colton; pp. 8943-44, testimony Charles Crocker.

[240] Crocker manuscript, pp. 40-41.

[241] Colton case, p. 248, testimony Douty; United States Pacific Railway Commission, p. 3494, testimony D. O. Mills.

[242] Colton case, p. 1662, Huntington to Colton, May 1, 1875.

[243] Ibid., pp. 1720-31, Huntington to Colton, June 24, 1875; pp. 1743-45, Huntington to Colton, December 4, 1875.

[244] Ibid., miscellaneous depositions, p. 41, depositions S. H. Thayer.

[245] Colton case, p. 33, deposition D. O. Mills.

[246] Ibid., p. 45, deposition S. H. Thayer.

[247] Colton case, pp. 1684-85, Huntington to Colton, November 13, 1875.

[248] Ibid., pp. 1747-48, Huntington to Colton, December 20, 1876.

[249] Colton case, pp. 1746-47, Huntington to Colton, December 8, 1870.

[250] Ibid., pp. 1768-70, Huntington to Colton, May 6, 1877.

[251] Ibid., pp. 1772-73, Huntington to Colton, May 9, 1877.

[252] Ibid., pp. 7517-18, Colton to Huntington, August 24, 1877.

[253] Ibid., p. 7523, Colton to Huntington, September 28, 1877.

[254] Colton case, pp. 7625-26, Colton to Huntington, March 13, 1878.

[255] Colton case, pp. 7608-14, Colton to Huntington, January 31, 1878.

[256] In 1885 the Central Pacific directors authorized the issue of $10,000,000 in bonds to pay off the floating debt. (United States Pacific Railway Commission, p. 3019, testimony C. F. Crocker.) There is some reason to suspect that Stanford was individually embarrassed in 1878, as a result of the financial stringency in California. Huntington telegraphed Colton in September of that year to let him know Stanford’s financial condition as near as he could ascertain it, and proposed to have the Western Development Company assume Stanford’s indebtedness, taking Southern Pacific bonds from Stanford in exchange, at 65. Colton replied that the Western Development Company would have to take about $3,000,000 in Southern Pacific bonds under such an arrangement to cover Stanford’s obligations. The French bank in San Francisco had just closed its doors, and he, Colton, was anxious about Stanford’s collaterals. He thought that Stanford had $800,000 of United States bonds in that institution. Michael Reese’s executors were calling for money. It does not appear what conclusion was finally reached.

[257] Colton case, pp. 704-705.

[258] Colton case, p. 112, deposition J. D. Probst.

[259] Ibid., pp. 146-47, deposition A. L. Thompson.

[260] Laws of California, 1875-76, Ch. 515. For a readable account of the history of the California Railroad Commission up to 1895, see Moffet, “The Railroad Commission of California—A Study in Irresponsible Government,” (Annals of the American Academy of Political and Social Science, March, 1895).

[261] Report of the Board of Commissioners of Transportation to the Legislature of the State of California, December, 1877.

[262] Laws of California, 1877-78, Ch. 641.

[263] Laws of California, 1877-78, Ch. 490.

[264] Colton case, p. 7646, Colton to Huntington, May 23, 1878.

[265] Laws of California, 1880, Ch. 59. Under the view that a clause in the Constitution merely amounted to a mandate to the legislature, an enactment such as that of 1880 was obviously necessary. It should be said, however, that in later years this conception has somewhat changed, and constitutional provisions have been held to be self-executing. This was not the case in 1870. (McMurray, “Some Tendencies in Constitution Making,” in California Law Review, March, 1914.)

[266] City and County of San Francisco v. L. Stanford, Charles Crocker, et al, argument in the Circuit Court of the United States, 9th Circuit, District of California.

[267] The Visalia Delta said of Stoneman, with unconscious humor: “France has her Napoleon; Italy her Garibaldi; America her Washington; Ireland her O’Connell; and the state of California her Stoneman.”

[268] Arguments and statements before the Committee on Commerce, House of Representatives, 47th Congress, 1st Session, 1882, House Misc. Doc. 55, p. 262, Serial No. 2047.

[269] Report of the Committee on Corporations, 1883, testimony W. R. Andros, secretary to the commission (in appendix to journals of the Senate and Assembly of the Legislature of California, 25th Session, 1883).

[270] Report of the Committee on Corporations, 1883, p. 48, testimony C. J. Beerstecher.

[271] This schedule was prepared under the direction of Stoneman and was approved by Beerstecher on the understanding that the railroad companies were to be asked to show cause why it should not be adopted. (Report of the Committee on Corporations, 1883, testimony C. J. Beerstecher.)

[272] Ibid., p. 11, testimony G. B. Stoneman. Mr. Cone says that the freight schedule was not fully prepared till March, 1881.

[273] Ibid., testimony J. S. Cone.

[274] Report of the Committee on Corporations, 1883, testimony C. J. Beerstecher.

[275] When Beerstecher came up for re-election in 1882, the opposition press asserted that a railroad official handed every employee of the railroad in Beerstecher’s district a Republican ticket with Beerstecher’s name printed on it, with orders to vote it. (Mussel Slough Delta, May 12, 1882.)

[276] Report of the Committee on Corporations, 1883, testimony J. S. Cone.

[277] Letter to Senate Committee on Corporations, California Legislature, January 22, 1874; San Francisco Chronicle, January 23, 1874.

[278] Testimony before Senate Committee on Corporations, February 16, 1874 (in appendix to journals of Senate and Assembly, 20th Session California Legislature, Vol. 4); San Francisco Chronicle, February 17, 1874.

[279] Letter to Committee of the New York Chamber of Commerce, January 20, 1881.

[280] The following interview with Charles Crocker, reported in the Placerville Democrat for March 3, 1883, suggests how the doctrine described in the text was concretely applied:

[281] Colton case, pp. 1717-19, Huntington to Colton, April 27, 1876.

[282] Ibid., p. 1754, Huntington to Colton, January 22, 1877.

[283] Ibid., p. 1814, Huntington to Colton, December 7, 1875.

[284] Ibid., pp. 1684-85, Huntington to Colton, November 13, 1875.

[285] Cotton case, pp. 1642-43, Huntington to Colton, April 26, 1875.

[286] Ibid., pp. 1676-77, Huntington to Colton, October 19, 1875.

[287] Ibid., pp. 1624-25, Crocker to Colton, February 8, 1875.

[288] Tom Scott was president of the Pennsylvania Railroad at one time and an active opponent of Huntington before Congress.

[289] Cotton case, p. 1735, Huntington to Colton, July 26, 1876.

[290] Ibid., pp. 1736-37, Huntington to Colton, August 7, 1876.

[291] Ibid., pp. 1756-58, Huntington to Colton, March 7, 1877.

[292] Ibid., pp. 1763-65, Huntington to Colton, March 31, 1877.

[293] Ibid., pp. 1776-77, Huntington to Colton, May 15, 1877.

[294] Huntington manuscript, p. 17.

[295] Colton case, pp. 1622-23, Huntington to Colton, March 3, 1875.

[296] Colton case, p. 1728, Huntington to Colton, June 21, 1876.

[297] Ibid., pp. 1731-32, Huntington to Colton, July 16, 1876.

[298] Ibid., p. 7669, Huntington to Colton, August 1, 1876.

[299] Colton case, p. 1756, Huntington to Colton, March 7, 1877.

[300] Ibid., p. 1758, Huntington to Colton, March 14, 1877; pp. 1812-13, Huntington to Colton, December 5, 1877.

[301] Ibid., pp. 7776-77, Huntington to Colton, January 11, 1878.

[302] Ibid., pp. 1847-48, Huntington to Colton, February 9, 1878.

[303] Ibid., p. 1833, Huntington to Colton, New York, June 15, 1878.

[304] Colton case, pp. 833-34, Huntington to Colton, New York, June 20, 1878.

[305] Ibid., p. 1822, Huntington to Colton, New York, April 19, 1878.

[306] Ibid., pp., 1823-24, Huntington to Colton, New York, April 23, 1878.

[307] Colton case, pp. 1828-29, Huntington to Colton, New York, May 24, 1878.

[308] Colton case, pp. 1673-74, Huntington to Colton, October 9, 1875.

[309] Ibid., pp. 1679-81, Huntington to Colton, October 29, 1875.

[310] Ibid., pp. 1669-70, Huntington to Colton, September 27, 1875.

[311] United States Pacific Railway Commission, p. 3276, testimony S. T. Gage.

[312] Ibid., pp. 3287-88, testimony S. T. Gage.

[313] Ibid., pp. 4174-75, testimony Leland Stanford.

[314] Huntington manuscript, p. 80.

[315] Colton Case, pp. 1802-3, Huntington to Colton, November 9, 1877.

[316] Ibid., pp. 1843-45, Huntington to Colton, January 28, 1878. J. M. Bassett declared that Huntington paid out $1,700,000 to prevent Scott from securing a subsidy for the Atlantic and Pacific Railroad.

[317] Ibid., p. 1840, Huntington to Colton, January 12, 1878.

[318] Colton case, p. 1803, Huntington to Colton, November 15, 1877.

[319] Ibid., pp. 1700-1, Huntington to Colton, January 14, 1876.

[320] Ibid., pp. 1712-13, Huntington to Colton, March 23, 1876.

[321] United States Pacific Railway Commission, p. 3738, testimony C. P. Huntington.

[322] United States Pacific Railway Commission, pp. 35-36, testimony C. P. Huntington.

[323] Ibid., p. 3869, testimony I. E. Gates.

[324] Ibid., p. 3697, testimony C. P. Huntington.

[325] Ibid., pp. 2995-99, testimony C. F. Crocker; p. 3200, testimony Leland Stanford.

[326] Ibid., pp. 4174-75, testimony Leland Stanford.

[327] Most of the so-called “Dear Pard letters” from which the above is taken, appeared in the San Francisco Daily Report after November, 1892. In the majority of cases the letters were printed in the Saturday edition. The correspondence continued with varying frequency until Bassett’s death in 1903. It was credited with a considerable share in preventing the refunding of the Central Pacific indebtedness to the United States government on terms favorable to the corporation, and Bassett himself believed that his “exposures” had seriously injured Southern Pacific credit in the financial markets.

[328] Colton case, p. 1661, Huntington to Colton, May 1, 1875.

[329] United States Pacific Railway Commission, p. 3721, testimony C. P. Huntington.

[330] Colton case, pp. 1726-27, Huntington to Colton, June 7, 1876.

[331] Ibid., pp. 1740-41, Huntington to Colton, November 11, 1876.

[332] Ibid., pp. 1765-66, Huntington to Colton, April 3, 1877.

[333] It has also been asserted that the failure of Mr. and Mrs. Stanford to attend one of the Huntington weddings was sharply resented by Mr. Huntington. J. M. Bassett, at one time secretary to Mr. Stanford, says that the latter came to regard Huntington as an individual of shady characteristics, and was not inclined to trust him further than he could throw Trinity Church up the side of Mt. Shasta. For his part, Huntington spoke of Stanford as a “blanked old fool.” (San Francisco Daily Report, July 21, 1894.)

[334] San Francisco Examiner, April 10, 1890.

[335] San Francisco Examiner, April 10, 1890.

[336] Ibid., April 13, 1890; April 18, 1890.

[337] United States Pacific Railway Commission, pp. 3697-98, testimony C. P. Huntington.

[338] Colton case, p. 1729, Huntington to Colton, June 24, 1876.

[339] Report of the chief engineer upon the preliminary survey, revenue, and cost of construction of the San Francisco and Sacramento Railroad, 1856.

[340] Biennial Report of the Commissioner of Transportation of the State of California for the years ending December 31, 1877 and 1878.

[341] Hittell, “The Commerce and Industries of the Pacific Coast of North America,” 1882, Ch. XI; Sheppard. “F. F. Low, Ninth Governor of California” (in University of California Chronicle, April, 1917); San Francisco Argonaut, June 22, 1878.

[342] Sacramento Union, December 19, 1860.

[343] In 1869 a committee of the California legislature estimated the volume of California products annually arriving at and exported from the port of San Francisco as follows (in appendix to journal of Senate and Assembly, 18th session, California Legislature, Vol 2):

[344] Hittell, “Commerce and Industries on the Pacific Coast,” Ch. 11.

[345] Hittell, “Commerce and Industries on the Pacific Coast,” Ch. 11.

[346] United States Pacific Railway Commission, p. 2924, testimony Leland Stanford.

[347] Colton case, pp. 981-83.

[348] Colton case, pp. 981-83, Huntington to Colton, November 9, 1874.

[349] Ibid., pp. 466, 495-96, testimony F. S. Douty.

[350] Hittell, “Commerce and Industries of the Pacific Coast,” Ch. 11.

[351] United States Pacific Railway Commission, p. 2924, testimony Leland Stanford.

[352] United States v. Union Pacific Railroad, pp. 3316-20.

[353] Message from the President of the United States to the House of Representatives transmitting copies of contracts and leases entered into by the Southern Pacific Company, etc., February 4, 1886. 49th Congress, 1st Session, House Exec. Doc. No. 60, Serial No. 2398.

[354] United States v. Union Pacific, pp. 3321-25.

[355] United States Pacific Railway Commission, pp. 4276-77.

[356] Report on the internal commerce of the United States, by Joseph Nimmo, Jr., Chief of the Bureau of Statistics, Treasury Department, 1884, Serial No. 2295.

[357] Exception should be made of the period between December 16, 1900, and June 11, 1902, when there was no agreement between the Pacific Mail and the Panama Railroad. (United States v. Union Pacific, p. 2911, testimony Conner.)

[358] Bancroft, “Chronicles of the Builders,” Vol. 5. Ch. 6; San Francisco Chronicle, November 10, 1878.

[359] California Mail Bag, August, 1874.

[360] San Francisco Examiner, May 1, 1894. Discrimination was easy because rates were not published. Freight schedules were considered to be for the information of employees and not for general publication.

[361] Report of California Commissioners of Transportation, 1877, table 1, pp. 34-38.

[362] Report of the Senate Committee on Constitutional Amendments, relative to constitutional amendment No. 8, abrogating provisions of constitution as to railroad commission (in appendix to journals of the Senate and Assembly of the Legislature of the State of California, 30th Session, Vol. 8, 1893.)

[363] San Francisco Examiner, October 27, 1893. Even in the case of through rates more than one classification was used. It appeared in a case brought before the Interstate Commerce Commission in 1887 that while the Western classification governed shipments from San Francisco to Denver, another classification, known as the Pacific Coast eastbound classification, was used in connection with freight moving from San Francisco to the Missouri River. (Martin v. Southern Pacific Company, 2 I. C. R. 1 [1888].)

[364] United States Pacific Railway Commission, pp. 2536-37, testimony Leland Stanford.

[365] Report of California Commissioners of Transportation, 1877.

[366] Statement of J. S. Leeds, submitted to the State Railroad Commission (San Francisco Bulletin, April 4, 1892).

[367] United States Pacific Railway Commission, p. 3344, testimony J. C. Stubbs.

[368] Letter of Stanford to Committee of San Francisco Chamber of Commerce, December 1, 1873.

[369] United States Pacific Railway Commission, pp. 3292-93, testimony J. C. Stubbs.

[370] San Francisco Examiner, December 30, 1892, October 29, 1894; San Francisco Bulletin, January 31, 1893.

[371] San Francisco Examiner, October 30, 1894.

[372] United States Pacific Railway Commission, pp. 3299, 3300, testimony J. C. Stubbs.

[373] Railroad Commission of Nevada v. Southern Pacific Company, 21, I. C. C. R. 329, 349 (1911).

[374] A copy of this contract is printed in the San Francisco Chronicle of May 7, 1879.

[375] San Francisco Call, August 1, 1878.

[376] Report of the Committee on Corporations of the Assembly of California, 1883, sup. cit. See also testimony taken before the Senate Judiciary Committee of the legislature of California in considering Assembly Bill No. 10 concerning the Regulation of Railroads, 1884 (in Appendix to the journals of the Senate and Assembly of the Legislature of the State of California, 25th Session, Extra).

[377] Railroad Commission of Nevada v. Southern Pacific Company, 21 I. C. C. R. 329, 346 (1911).

[378] Letter written by John T. Doyle and printed in the Nation, December 8, 1881.

[379] United States Pacific Railway Commission, pp. 3333-34, 3358-59, testimony J. C. Stubbs.

[380] The special contract system had the bad effect of repressing complaints from shippers. Mr. Overheiser, member of the State Grange, farmer, and resident of California since 1849, testified in 1884 before a committee of the California Senate as follows:

[381] Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé Railroad, 9 I. C. C. R. 318 (1902). The number of vessels with their tonnage which entered the port of San Francisco in the trade with the Atlantic ports of the United States by way of Cape Horn from 1867 to 1884 was as follows:

[382] Proceedings of the Transcontinental Association, 1885. The special contract system was strikingly similar to the system of “deferred rebates,” until recently in good repute among ocean steamship companies. The argument in defense of this last-named system shows how slowly an understanding of the advantages of equality in matters of transportation rates spreads in a community. It is the view of the writer that both the special contract and the deferred rebate systems were and are contrary, to sound public policy, whether applied on land or sea.

[383] A miner in Shasta County wrote to the San Francisco Examiner in 1893:

[384] United States Pacific Railway Commission, pp. 3319-20, testimony J. C. Stubbs.

[385] Proceedings of the Transcontinental Railway Association, 1885, pp. 17-18.

[386] Letter to the State Railroad Commission, February 20, 1883.

[387] San Francisco Chronicle, August 25, 1879. It appears that the fare from San Francisco to Sacramento by steamer had been $5 in pre-railroad days. When the California Pacific commenced operations in 1869, the fare fell to $4, and when the Western Pacific was opened, a $3 rate was put in. As far back as the fifties, rates were still higher. (A. A. Cohen, Letter to the State Railroad Commission, 1883.)

[388] Opinions and Orders of the Railroad Commission of California, 1916, Vol. 10, p. 354 ff.

[389] Declaration of Principles of the Anti-Monopoly Party of Tulare County (Mussell Slough Delta, February 24, 1882).

[390] San Francisco Chronicle, August 27, 1879.

[391] Stockton Independent, March 10, 1876.

[392] San Bernardino Board of Trade v. Atchison, Topeka and Santa Fé Railroad Company, 3 I. C. C. R. 138 (1890). The Circuit Court for the Southern District of California refused to enforce the decree of the Interstate Commerce Commission in this case. (Interstate Commerce Commission v. Atchison, Topeka, and Santa Fé Railroad Company, 50 Fed. 295 [1892].)

[393] Harbor City Wholesale Company of San Pedro, California, v. Southern Pacific Company, 19 I. C. C. R. 323 (1910).

[394] Commercial Club of Santa Barbara, California, v. Southern Pacific Company, 12 I. C. C. R. 495 (1907).

[395] Santa Rosa Traffic Association v. Southern Pacific Company, 24 I. C. C. R. 46 (1912); 29 I. C. C. R. 65 (1914); Transcontinental Commodity Rate to San José, Santa Clara and Marysville, California, 32 I. C. C. R. 449 (1914).

[396] In 1887 a steamer of the Pacific Coast Steamship Company left San Francisco weekly for Vancouver, where its freight was loaded upon cars of the Canadian Pacific Company and taken east across the mountains. The Canadian Pacific demanded, and in 1888 was conceded, the privilege of accepting freight from San Francisco to Chicago and points east at rates less than those charged by the other transcontinental lines. (Martin v. Southern Pacific Company, I. C. C. R. 1 [1888].)

[397] Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé Railway Company, 9 I. C. C. R. 318 (1902).

[398] Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé Railway Company, 9 I. C. C. R. 318 (1902). See also Rates on Asphaltum, etc., 33 I. C. C. R. 480 (1915).

[399] In so far as there is rail competition between transcontinental carriers, this rivalry also is keenest upon the Pacific Coast, and weakest in the intermediate territory.

[400] Report of Senate Judiciary Committee on Assembly Bill No. 10, 1884, testimony C. S. Stevens.

[401] Letter of Stanford to a committee of the San Francisco Chamber of Commerce, 1873.

[402] Railroad Commission of Nevada v. Southern Pacific Company, 19 I.C.C.R. 238 (1910).

[403] San Francisco Bulletin, March 26, 1892.

[404] Ibid., October 12, 1892.

[405] Huntington manuscript, pp. 27-28.

[406] Hearings before the Committee on Interstate and Foreign Commerce of the House of Representatives on H. R. 9928 (55th Congress, 2d Session, March 26 to April 2, 1918, pp. 84-85, testimony W. S. McCarthy).

[407] Hearings before House Committee on Interstate and Foreign Commerce, sup. cit., pp. 170-71, testimony, L. J. Spence.

[408] Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé, sup. cit.

[409] Kindel v. Atchison, Topeka and Santa Fé Railway. 8 I. C. C. R. 608 (1900). In its first exercise of authority under the amended long-and short-haul clause, the Interstate Commerce Commission of 1911 prescribed the extent to which rates from eastern points of origin at and west of the Atlantic seaboard to Reno and other points upon the main line of the Central Pacific might exceed the rates to Pacific Coast terminals. (Railroad Commission of Nevada v. Southern Pacific. 21 I. C. C. R. 329 [1911].) Cf. Commodity Rates to Pacific Coast Terminals, 32 I. C. C. R. 611 (1915).

[410] Railroad Commission of Nevada v. Southern Pacific Company, 19 I.C.C.R. 238 (1910).

[411] Commodity Rates to Pacific Coast Terminals, 32 I. C. C. R. 611; 34 I. C. C. R. 13 (1915).

[412] Daggett, “The Panama Canal and Transcontinental Rates,” (in Journal of Political Economy, December, 1915); Rates on Asphaltum, etc., sup. cit.

[413] Reopening Fourth Section Applications, 40 I. C. C. R. 35 (1916); Transcontinental Rates, 46 I. C. C. R. 236 (1917). See also Skinner and Eddy Corporation v. United States, 39 Supreme Court Report 375 (1919).