“Iron Empires: Robber Barons, Railroads and the Making of Modern America,” by Michael Hiltzik, Houghton Mifflin Harcourt, Boston, 2020. This 424-page hardback tells about US railroads during the latter half of the nineteenth century when railroading became extremely competitive. The book focuses on the eventual competition between JP Morgan and Ned Harriman. Along the way we read of Jay Gould, Commodore Vanderbilt and others. This is mostly the story of high finance and methods used to take over railroads through stock transactions or out of bankruptcy.
Railroading is a capital intensive business. The House of Morgan was an agent for Europeans who wanted to invest. Europeans helped finance US railroads.
In this era, railroads became the largest US corporations. Wall Street initially considered them toys to be played for easy profits. Often railroad stock was watered. Shorts and corners were not uncommon. Commodore Vanderbilt decided railroads could be dividend paying businesses. He set the example with his New York Central and others followed.
Vanderbilt began his railroad investments with the New York & Harlem in Manhattan. Shorts heard his franchise would be cancelled and piled on. Vanderbilt cornered the stock punished the shorts and forced city hall to restore his Broadway franchise. He soon gained control of the Hudson River Railroad and the New York Central.
A chapter describes the Erie adventure. Erie had a shorter route across New York to Buffalo, than the New York Central which ran north to Albany and then west to Buffalo. Vanderbilt decided to buy the Erie, but Jay Gould and Jim Fisk printed stock certificates as fast as Vanderbilt bought them.
The Credit Mobile scandal gets a chapter. The Transcontinental Railroad was built from Omaha to San Francisco financed by land grants. The route from Omaha to Promontory Point was Union Pacific. The construction company that built the railroad was Credit Mobile. Its stock was owned by insiders including Congressmen. While Union Pacific struggled, Credit Mobile was always profitable. It became a scandal during the Grant administration. It put more than $20MM in the hands of insiders.
The Northern Pacific Railroad caused the Panic of 1873. Union Pacific was built through barren land. Northern Pacific’s route served more fertile country. It ran from Minneapolis through North Dakota to Portland with an extension to Tacoma. After other financing failed, Jay Cooke’s bank in Philadelphia took over. After Lincoln’s assassination, Cooke had supported the market for US bonds preventing a panic. The railroad was financed by bonds–many sold in Europe. Construction began in 1870. The end came in 1873 when an economic slow down in Europe spread quickly to American railroad bonds. Cooke’s firm failed.
Hiltzik presents Jay Gould as a robber baron whose Wabash (Red Ball Express from Kansas City to Toledo) was a feeder to his Missouri Pacific. In newspapers it was known as Gould’s Wabash System or the Southwestern System. By 1879, Gould had three important western railroads. He controlled 10,000 miles, about one-ninth of US rail. At his peak in 1884, Wabash had 3549 miles of track.
After the Erie venture, efforts to corner the gold market, and other adventures Gould bought up railroad shares for pennies after the Panic of 1873. He became a silent partner in Union Pacific and gained control of the Kansas Pacific. In typical Gould style, he saw Kansas Pacific as a parallel line to Union Pacific, which could cut fares. Because of Credit Mobile, UP had fragile finances and loans to repay to the federal government. He forced UP to buy Kansas Pacific shares at par. His other railroads included Hannibal & St. Joseph, International & Great Northern, Katy, Iron Mountain, Texas & Pacific, Frisco (he owned half), Terminal Railroad Association in St. Louis (which built Union Station), and the Cotton Belt. In the end he was over extended and his empire crumbled. Hannibal & St. Joseph, Wabash, and Missouri Pacific sank into bankruptcy due to endless fare cutting by competitors. Leases that held his empire together were cancelled in reorganization. After Gould’s death in 1892, his son George took over but he was unable to continue the empire.
In 1885, the Knights of Labor struck Wabash and Missouri Pacific shops in Sedalia. Wages had been cut by 20% following Wabash receivership. Gould restored wages and negotiated a “no strike without consultation” agreement. Other promises like overtime pay were not enacted resulting in another strike in 1886. Few trains ran on Missouri Pacific resulting in layoffs of railroad crews and factories closing for lack of materials or fuel. Public pressure broke the strike. Knights of Labor faded after the Haymarket incident in Chicago in 1886. A rally that included dynamite bombing resulted in the death of seven police officers and four civilians.
Ned Harriman was born in New York and began his career on Wall Street. He joined the Illinois Central in 1883 as a director. He completed the Ohio River bridge at Cairo and out did JP Morgan in a fight for the Dubuque & Sioux City. Railroads tried to limit competition with pools. Competing railroads shared revenue on a specified route. Pooling was unsuccessful. Some railroad always broke ranks for more business. Several states outlawed pools but were overruled by the Supreme Court. Congress then formed the Interstate Commerce Commission to regulate rates in 1887.
After the death of his father, Billy Vanderbilt decided to sell New York Central with the assistance of JP Morgan in 1879. Gould’s Wabash syndicate became the largest shareholder with 60,000 shares. Gould, George Pullman and Henry Villard financed the construction of a parallel line, the New York West Shore & Buffalo, that tormented New York Central. It sank into bankruptcy and was quickly acquired by Pennsylvania RR. Morgan resolved the issue by buying the West Shore and leasing it to the New York Central. Soon the Sherman Antitrust act limited railroads ability to consolidate to limit competition. A Morgan led consolidation failed. Failure of the Erie in the Panic of 1893 brought Morgan and Harriman into conflict.
In 1890, Gould regained control of UP and was rumored to sack CEO Adams. But UPs financial difficulties persisted. After Gould’s death in 1892, it came down to Morgan vs Harriman. UP fell into receivership. Reorganization was complex. Harriman participated using Illinois Central’s credit to secure financing. He became chairman of UP and invested in much needed improvements. By 1900, US railroads had consolidated into six major trusts. The largest was Morgan’s. Others were Vanderbilt’s New York Central, Gould Rockefeller, Pennsylvania, Rock Island, and Harriman’s including Union Pacific and Southern Pacific.
A chapter describes the Pullman strike. Pullman manufactured its rail cars in Chicago. Employees lived in Pullman provided housing. After the Panic of 1893, Pullman cut wages by 30% but refused to reduce rents. Eugene V. Debs formed the American Railway Union in June to represent workers. Members boycotted trains with Pullman cars. The strike spread. Debs was prosecuted for conspiracy but after a mistrial the case was dropped. The strike ended with his arrest. As a result Labor Day became a national holiday in 1896.
After the death of Collis Huntington in 1900, Harriman bought controlling interest in Southern Pacific and Central Pacific from his family. The purchase was funded by bonds issued on the Union Pacific. Central Pacific trackage was improved including a shortened route from Ogden, UT to Reno across the Great Salt Lake.
Henry Villard took over Northern Pacific in a blind trust in 1881. He was of German origin and came to the midwest working for German language newspapers. He was asked to look into western railroads for a group of German investors and expanded from there. NP construction to the west coast was completed in 1883 vs demanding completion dates for loans from JP Morgan. NP sank into receivership in 1893 and Villard was displaced.
James J. Hill came to railroading by buying a failing railroad with land grants and extending it to become the Great Northern. He was skilled in selecting profitable routes and keeping costs low. He kept fares low to encourage development along his lines. Northern Pacific (JP Morgan), Union Pacific (Harriman) and Burlington (Charles E. Perkins) were his competitors. In 1895, Morgan arranged the merger of Great Northern and Northern Pacific with the lines to be run by Hill. Both systems wanted access to Chicago and set about acquiring either St. Paul or Burlington. After extended maneuvers Burlington was sold to the Hill combine.
Harriman decided to acquire Northern Pacific for control of Burlington–displacing Hill. A stock frenzy followed on Wall Street. Things came to a head in May, 1901, as NP share price shot up past $100 par. Rumors spread. Some sold and took profits; some sold short. The market was cornered and shorts were squeezed for a reported $150 to $250/share. Harriman got control but then trust busters ruled the Northern Securities company must be broken up. Hill and Morgan got control of Northern Pacific and Great Northern. But Harriman sold his shares at a profit. Battles with trust busters continued. In 1912, Union Pacific was ordered to divest Southern Pacific, it had acquired in 1901.
An end result was US railroads were weakened. They deferred maintenance and under invested giving us a railroad system unable to meet the demands of World War I. Coal shortages shut down some industries. Railroads were nationalized, but there was no time to rebuild.
Hiltzak gives us a thorough telling of the big railroad stories in this era. Of course many smaller railroads were part of the adventure. Their story is not reported here. References, index, photos.