BOUGHT WITH THE INCOME FROM THE SAGE ENDOWMENT FUJSfD THE GIFT OF .;i.3.5. US.. &z\tl... Digitized by Microsoft® Cornell University Library HE2751 .C63 Rai road promotion and capitalization in olin 3 1924 032 483 731 Digitized by Microsoft® This book was digitized by Microsoft Corporation in cooperation witli Cornell University Libraries, 2007. You may use and print this copy in limited quantity for your personal purposes, but may not distribute or provide access to it (or modified or partial versions of it) for revenue-generating or other commercial purposes. Digitized by Microsoft® The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924032483731 Digitized by Microsoft® Digitized by Microsoft® RAILROAD PROMOTION AND CAPITALIZATION IN THE UNITED STATES Digitized by Microsoft® $p t^e S)ame StttI)or THE BANK AND THE TREASURY. Crown Svo. CHAPTERS ON MUNICIPAL ADMINISTRATION AND ACCOUNTING. Crown Svo. Digitized by Microsoft® RAILROAD PROMOTION AND CAPITALIZATION IN THE UNITED STATES By FREDERICK A. CLEVELAND, Ph.D. AND FRED WILBUR POWELL, A.M. LONGMANS, GREEN, AND CO. 91 AND 93 FIFTH AVENUE, NEW YORK LONDON, BOMBAY, AND CALCUTTA 1909 Digitized by Microsoft® Copyright, 1909 LONGMANS, GREEN, AND CO. The Plimpton Press Norwood Mass. USA. Digitized by Microsoft® PREFACE This work was begun by me eight years ago, and formu- lated as a first draft while connected with the University of Peimsylvania. In 1905, Mr. Fred. Wilbur Powell under- took to assist in the collection of scattered materials from the many libraries where early periodicals and documents might be foimd, since which time he has been almost con- tinuously in collaboration. The cost of this part of the work and of preparing an exhaustive bibliography has been largely borne by Carnegie Institution. Subjects pertaining to the financing of construction and equipment, financial manage- ment, bankruptcy, receivership, reorganization, and con- solidation win be presented at a later date. F. A. C. New York, November, 1908. Digitized by Microsoft® Digitized by Microsoft® CONTENTS CHAP. PAGE I. The First Era of Transportation Devel- opment IN THE United States .... i Industrial situation at the end of the eighteenth cen- tury — In England — In Continental Europe — In America — Methods of Travel and Transport — Trans- portation equipment of the Revolutionary period — Con- dition of the roads — The Wyoming massacre as a related incident — Absence of roads in the interior — The roads of New England — The Revolutionary war and localism — Internal improvements after the Revolutionary war — Early educational efforts — Influence of the war upon internal development — Interest in inland commerce and the opening of the West — First era of road building, 1783-1793 — Activity in Pennsylvania — Appropriations in 1791 — Political necessity for better transportation — Political advantage of canals not an inducement to private investment — Beginnings of the turnpike — European wars and the conflict between the seacoast and the interior — The Amercan trade advantage — Changes viTought in New England — Changes in the South — Changes in the grain belt — Significance of the Aaron Burr conspiracy — The conflict of economic interests in the United States — Elements of opposition — Political supremacy of the interior. II. The Embargo, the Second War with Great Britain, and their Effect upon Trans- portation Development 25 Trade paralysis in the seacoast towns — Economic sig- nificance of the Hartford convention — The new political alignment — Appeals to the national government after the success of the party of the interior — Early attempts to ob- tain federal aid — The Cumberland road — Gallatin's report — Development of river transportation by private capital — Introduction of the steamboat — DifiSculties of Digitized by Microsoft® CONTENTS ^p PAGE inland navigation — Jonathan Hulls — Early steamboat experiments in the United States — Success of the steam- boat on the seaboard — The steamboat on the inland waters — Development of wagon roads to the interior — Increasing demand for American products — Migration to the Mississippi valley — Development of coastwise wagon roads as a result of the blockade — Development of coastwise commerce — Revival in turnpike and bridge construction — The capitalization of turnpikes — Bridge and ferry companies — Revival of attempts to obtain capital for canals — The canal as a local improvement — Canals in New England — Scarcity of capital for canals — Renewal of appeals for federal aid — The constitu- tional difficulty — Capitalization through state funding. III. The Beginning of the Railroad ... 46 Earliest account of a railway — Improvements in the rail — Timber rails faced vrith iron — Iron rails — The wagon or car — A wagon train suggested — An early view as to practicability — The first railway corporation — Motive power — The steam pump and the locomotive — Oliver Evans — John Stevens' contribution — Hedley and Hackworth — Early railroad literature — Influence of Gray's book — The first standard work — Current comment — The Stockton and Darlington railway — The Rocket — Stephenson's service — The importance of the track — The railroad in America — Early charters — Tramways in America — The first railroad project — Railroads auxiliary to canals — First use of the locomotive in America — Structural difficulties — Experiments in mo- tive power — Strickland's mission and report. IV. The Effect of Early Experiments on Popu- lar AND Investment Opinion .... 67 Vague ideas of the nature of the railroad — Estimate * of cost too low — Waste of capital in experiments — Changes in form of track — Differences in gauge — The question of signals and double track — Private ownership of cars — Elements of opposition — Rival transportation companies — Canals in Pennsylvania — Turnpike and bridge companies — Farmers and tavern keepers Digitized by Microsoft® CONTENTS ix ;hap. page Capitalists and the conservative press — Elements of popular doubt — The results of practical demonstration — Speculative activity in the thirties — Eagerness to obtain railroad stock — Rapid construction — Lines con- structed within the first decade — Construction during the depression after 1837 — Construction during the forties. — *^. The Economic Basis of Transportation Development 83 j^ Capital devoted to transportation enterprise — The economic advantage to be capitalized, — The inducement to investment — Saving made possible by better roads — Advantage of turnpike construction — How profits were divided — Investment basis of the canal — Capitaliza- tion of its advantage over the turnpike in the long haul — A view from the interior — Economic advantages of the railroad over the canal — The railroad's supremacy over the canal — Its advantage as a long-distance carrier. VI. State Funding of Transportation Enter- prise 96 The state as a funding institution — The establishing of state credit — Effect of delay on the part of the national government — Conflicts between state and national juris- diction — Change in the attitude of the South and New England — Abandonment of the national policy — Be- ginning of the era of state funding — The way opened by New York — Success of New York's canal system — Ef- fect on Massachusetts and Pennsylvania — Becision in favor of the private corporation in Massachusetts — State enterprise in Pennsylvania — Activity in the West — Railroad projects in Illinois — Indiana's experiment — • Michigan's state works — State railroads in the South — The Western and Atlantic of Georgia — The Blue Ridge, and the Covington and Ohio — The speculative accom- paniment of state funding — Forces which culminated in speculative excesses — The abandonment of conserva- tive judgment — Premises on which excesses were based — The crisis of 1837 — State bankruptcy and popular despondency — Second appeal to the federal government — The passing over of state works to private corporations. Digitized by Microsoft® 1< X CONTENTS CHAP. PAGE VII. Rivalry between Trade Centres in its Relation to Promotion and Capitalization 117 Early attempts to monopolize the ocean trade — Phila- delphia and Baltimore — Rivalry for the Susquehanna trade — The fight for the Ohio trade — Baltimore and the Potomac towns — Rivalry on the southern Atlantic and Gulf coast — Philadelphia and New York — Ad- vantage of the Mohawk route — Struggle of Philadelphia to retain supremacy — New York and Boston — Other centres of rivalry — Troy and Albany — Galena and Chicago — Cincinnati and Louisville — Contests con- ducted at the expense of merchants. X. Legislative Provisions as an Element m Promotion and Capitalization What is a charter ? — Source of charter powers — How charters are obtained — Evolution of charter acts In- ^33 VIII. Promotion of Private Companies The promoter — The investor's interest in the pro- moter — Speculation and gambling as factors in capitali- zation — Speculation differentiated from investment — The vicious aspects of speculation — Justification of the lottery — The lottery and the corporation — Public justi- fication of stock speculation — Public danger in stock spec- ulation — Types of promotion — Promotion for purposes of exploitation — The projector as prospective manager — The economic basis for the morality of promotion — Moral principles the result of social demands — Corporate practices developed in harmony with community needs — Methods the product of inducement — A part of the general plan of territorial spoliation — The grafter a part of the system of morality — The new moral code a result of new conditions. IX. Reconnaissance and Surveys 140 First steps taken in promotion — Surveys — The prob- lem of location — Elements to be considered — The old method — Recent practice — Operative advantage of this practice. iSS Digitized by Microsoft® CONTENTS PAGE fluence of laws of one state on another — Corruption in seeking special privileges — General laws — Elements which are common — Charter and general laws — Pro- visions of special interest to capital — Right to operate — Maximum rates for operation — Limit of profits to per- centage of capitalization — Right to amend charter — Eminent domain in England — Practice in the United States — Monopoly privileges — Protection against com- petition — Exclusive guarantees — The lottery as an aid to capitalization — Banking privileges granted to rail- roads — In New England — In Michigan and Ohio — Texas, Louisiana, and Mississippi — Georgia's railroad banks — The Carolinas and Tennessee — Purpose of banking privileges — Tax exemptions for a definite period — Exemptions conditioned on dividends — Tax exemp- tions as a form of subsidy — Local subsidy enabling acts — Attitude of corporate interests in seeking subsidy laws. -^ XI. Methods of Appeal for Financial Support 182 The prospectus — Description of the advantage to be capitalized — The promoter's appeal to the imagination — Circulation of the report of the survey — Agencies of appeal — Canvassing for subscribers — The press as a. medium of appeal — Memorials of public bodies — Pub- lic meetings and conventions — Meetings convened by the promoter himself -r- The appointment of delegates — Committees of correspondence — Meetings and conven- tions to petition for state and municipal aid — Sub- scriptions taken at the meetings — The pulpit as an agency of appeal — The financial agent. XII. Individual and Local Subsidies to Private Companies . 197 Individual subsidies — Subsidies of labor and ma- terials — Private lands — Right of way — Station sites, yards, and town sites — Farm mortgages — Stock sub- scriptions given as private subsidies — Pressure to obtain local subsidies — Local subsidies to private companies — The amount of local subsidies granted — Reasons assigned for local aid — Subsidies in the form of town and county subscriptions — Forms of local aid — Stock subscription Digitized by Microsoft® J. f CHAP. f CONTENTS PAGE — Guarantee and endorsement — Exchange of municipal bonds for company securities — Donations — Money — Land — Securities. XIII. State Aid to Private Companies . . . 212 Subscriptions to capital stock — Maryland — Virginia — Georgia — Louisiana — North Carolina — South Caro- lina — Tennessee and Kentucky — Alabama — Missis- sippi and Arkansas — Massachusetts — Ohio — Loans of state credit in aid of private corporations — Massachu- setts — New York — Michigan — Indiana — Minnesota — Maryland and Delaware — Virginia — Tennessee — Missouri — Arkansas — Louisiana — Alabama — Georgia — Florida — South Carolina — North Carolina — State endorsements of city bonds — Loans from special funds — Texas — Other Southern states — Subsidies in the form of expenses of survey — Other forms of state aid — State land grants. r^XIV. The Reaction against State and Local Subsidies No way to measure the benefits from state and local subsidies — Impossible to determine amount of losses resulting from the system — Indefiniteness of reports — Conclusions which may be accepted — Subsidies produc- tive of extravagance and fraud — Subsidies attracted financial adventurers — Subsidies encouraged irresponsi- bility for the use of funds — Practices which served to alienate support — Money obtained by misrepresentation — Mileage obtained by lease instead of construction — Evasions of the law — Deception in obtaining votes — Subsidies used to influence legislation — Restrictive legis- lation — Reaction against subsidies — Constitutional and statutory provisions. +- -^ XV. National Aid to Private Companies -f Direct aid — Tariff remission on rails — Land grants Early land policy of the government — Change from revenue to developmental basis — Influence of the crisis of 183 7 — Land grant the means for further aid — First grants to railroads — First grants availed of — Acts subsequent Digitized by Microsoft® 230 240 CONTENTS CHAP. XVI. --^XVII. PAGE to 1850 — A new departure — The policy becomes gen- eral — Efforts to reach the Pacific — The indemnity theory — Subsequent grants to other Pacific roads — The extent of land grants — Proportion of state areas — Attitude of public officials in construction of the law — Abuses of official discretion — Some results not con- templated — Railroad policy in disposition of lands — The evils of rapid development — Direct financial aid — Loan of credit — Amoimt of bonds issued — Settlement of the debt. Transcontinental Railroads 259 The germ of the idea, 1819 — Proposition of Robert Mills, 1820 — Subsequent contributions — Proposal of Ann Arbor Emigrant, 1832 — Dr. Samuel Bancroft Bar- low, 1834 — John Plumbe, 1836 — Dr. Hartwell Carver, 1837 — Rev. Samuel Parker, 1838 — The Oregonian — Suggestions as to methods of funding — Land grants proposed — Asa Whitney — Josiah Perham — Private proposals from 1844 to 1850 — Propositions for gov- ernment construction — The views of Thomas H. Benton — The question of route — Sectional strife an ob- stacle to progress — The central route adopted — The de- velopment of the southern route — The Northern Pacific — The Oregon Short Line — The Great Northern — Other Pacific roads. Financial Institutions and Syndicates as Agencies of Capitalization .... The charter commission as a funding agency — Sales by stock and bond agents — Financial institutions as funding agents — The bank of the Manhattan company — The second bank of the United States — The railroad bank — The state bank — The bank's function as an agent of sale — Banks as purchasers of securities — Banks as agencies of capitalization on floating debt — Underwriting and holding syndicates — The financial banker — Con- ditions precedent to accepting risk — The profits of financing — What is underwriting ? — The underwriting syndicate — The holding syndicate — Individual with- drawals — Sales of underwritten securities — Possibilities 279 Digitized by Microsoft® xiv CONTENTS CHAP. PAGE of loss — Influence of the great houses — Conspicuous in- dependent operations. XVIII. Bibliography 295 Literature on charters — Methods of appeal — Indi- vidual support — Local subsidies — State aid — Federal aid — Land grants — Pacific railroad debt — Railroads and financial institutions — Underwriting syndicates — Alphabetical list of sources and materials. Index 343 Digitized by Microsoft® RAILROAD PROMOTION AND CAPITAL- IZATION IN THE UNITED STATES CHAPTER I The First Era of Transportation Development in THE United States As we know it, inland transportation is the product of the last century. It had its beginning in the industrial revolution. In England at the close of the eighteenth cen- tury the manor as a productive agency had been supplanted by a system of domestic production, and this in turn was giving place to the factory. The combined influences of increasing capital and invention had operated to centralize ladustriai situ- *^^ industrial population in the towns. Ocean ation at the end Commerce was comparatively well developed, of the i8th ceu- and manufacture was fast being established ^ upon a modern basis; but inland transporta- tion was still encumbered by such primitive methods as to make difficult the utilization of the resources of the interior. A century and a half before, Lord Bacon had called atten- tion to the three elements necessary to make a nation great and prosperous, — "a fertile soil, busy workshops, and easy conveyance of men and things from one place to another," but the significance of this reflection was not appreciated until after the middle of the eighteenth cen- tury. The controlling force of custom — social inertia — had stood in the way of progress. Overcoming manorial ideas was a slow process. The spirit of local independence which was dominant in the self-centred community had served to thwart despotic rulers, and to transform England into an elective, consti- Digitized by Microsoft® 2 FIRST ERA OF DEVELOPMENT tutional government, but it had also retarded material progress. In the interior there was comparatively little interest in domestic commerce except as it viras carried on at the numerous fairs, — a form of market which had grown up under the manorial regime. Little was done even to make the highways safe for travellers. Brig- andage was an established pursuit; the high- wayman was considered almost a part of the highway. Not only was inland transportation expensive and travel hazardous, but towns raised up artificial barriers ta trade in the form of tolls, tariffs, and local fees. These also were survivals of a feudal past, which were based upon the same social and economic conditions. Until about the opening of the nineteenth century the principal manufacturing towns of Great Britain were situated on or near the coast; for in the inland country goods were still carried on the backs of men, or hauled in carts over heavy roads.* Said Lardner: "The internal transport of goods in England was performed by waggon, and was not only intolerably slow, but so ex- pensive as to exclude every object except manufactured articles, and such as, being of Ught weight and small bulk in proportion to their value, would allow of a high rate of transport. Thus the charge for carriage by waggon from London to Leeds was at the rate oi £i^ a ton, being i^^d. per ton per mile. Between Liverpool and Manchester it was 40 s. a ton, or is^^. per ton per mile. Heavy articles, such as coal and other materials, could only be available for commerce where their position favored transport by sea, and, consequently, many of the richest districts of the kingdom remained unproductive, awaiting the tardy advance- ment of the art of transport." ^ Continental Europe presented similar conditions. The 'Traill, Social England, V, passim; Warner, Landmarks of English indus. hist., 277-8. 2 Lardner, Railway economy, 35. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 3 wide extent of its inland areas, the multiplicity of its political systems separated by numerous tolls and tariffs, effectually obstructed progress toward cooperative activity ,^"and rendered In Continental effective industry almost impossible except at Europe a few points which were within the range of ocean trade. " Germany was not only cut off from the outer world by tariff barriers," says Doctor Clive Day, "but cut up inside by the tolls of cities and territories. Every city on the trade route wanted to make itself a 'staple,' i.e., have all goods passing the vicinity brought there for taxation and for sale. Frankfort on the Oder, for instance, de- manded that all boats passing down the river Warthe should come up to Frankfort before they could continue their jour- ney down the Oder to Stettin. The cities of Stettin, Frank- fort, and Breslau, all situated on the Oder, instead of using the river for peaceful exchange, made bitter commercial war on each other with tolls and prohibitions." ' Nor were these ancient ideals without force in the New World. Before the Revolution the American colonists hved in almost complete isolation. Travel by land was limited, for water communication presented fewer obstacles to progress. Population was arranged along the seaboard, or in isolated groups a short distance inland. Living nar- row, self-centred lives, each community developed a dis- tinct dialect and characteristic customs and dress. Social activities were Umited to going to mill, market, and church, or exchanging friendly calls; travelling on foot or on horseback along wooded trails. Even between seacoast towns there was little interchange of products or population; and a citizen of one colony going to another was at once struck with the many local peculiarities.^ It was less than twenty years before the 1 Day, Hist, of commerce, 255-6. "Doyle, Eng. colonies in Amer., V, 52-3; Earle, Colonial days in old New York; Customs and fashions in old New England, 184-203. Digitized by Microsoft® 4 FIRST ERA OF DEVELOPMENT Revolutionary war when the first stage line was opened between New York and Philadelphia, and three days were then required for a single trip. It was ten years later when the first stage line was established between Philadelphia and Baltimore.' METHODS OF TRAVEL AND TRANSPORT Between towns of considerable size there were country roads over which vehicles could pass when the weather would permit. The stage-coach, which was the only public land conveyance, plied along the coast and between a few inland centres, but the coaches of that day were rude boxes swung on wheels by leathern straps instead of springs, with seats for a dozen or more and accommodations for a limited Transportation amount of baggage. The rate of travel was equipment of from two to six miles an hour, according to the Revolution- the condition of the roads and the importance ary perio ^£ ^^^ route. On the farm the mud-boat or stone sledge was in common use, and at times it was even employed to carry produce to local markets. In more progressive communities two-wheeled carts and wagons were to be found. The best of roads, however, were nothing but "mud roads"; and the wagons, commonly of the linch- pin type, were clumsy and awkward. Some of the more primitive wagons had wheels made of cross sections of trees, trimmed and centred to roll on axles of wood. Those who travelled had little thought of time; companionship found expression in story-teUing, gossip, and tippling; and an emergency which required all to get out and "take a wheel" only added spice to the trip.^ We have the following description of the roads about Philadelphia, the metropolis and commercial centre of the New World: "On the best lines of communication the ruts ' Bolles, Pennsylvania, II, 284-5. 2 Weeden, Econ. and soc. hist. o£ New England, II, 857. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 5 were deep, the descents precipitous. . . . Near the great Condition of cities the state of the roads was so bad as to the roads render all approach difficult and dangerous. Out of Philadelphia a quagmire of black mud covered a long stretch of road near the village of Rising Sun. There horses were often seen floundering in the mud up to their bellies. On the York road, long lines of wagons were every day to be met with, drawn up near Logan's hill, while the wagoners unhitched their teams, to assist each other in pulling through the mire. At some places, stakes were set up to warn teams of the quicksand pits; at others, the fences were pulled down, and a new road made through the fields." ' Transportation facilities were either entirely lacking or such as to make travel both expensive and hazardous.^ It is difficult to realize that as late as 1780 the roads over a large part of Pennsylvania were narrow paths which had been made through the woods by Indians and traders.' The isolation of interior settlements finds apt illustration in the Wyoming valley. This rich region along the Sus- quehanna had been until 1786 almost completely cut off _. „, . from the outer world. A small colony had The Wyoming , . r , r^ , 1 ■ 1 <■ massacre as a moved m from the East, and takmg color of related inci- title from Connecticut, disclaimed the sover- '*™* eignty of the Quaker proprietary. War con- sequently broke out between this isolated settlement and the Pennsylvania government. Several mihtary expeditions were sent out to reduce the "Yankees" to submission; but Absence of the absence of roads and the necessity of roads in the carrying provisions on horseback left the de- interior termined pioneers masters of the situation when the larger issue, the Revolutionary war, suspended 1 McMaster, United States, I, 52, citing Watson, Annals of Phila. and Pa., I, 257. 2 Weld, Travels through North Amer., I, 46-8, 97-8. » Bolles, II, 276, et seq. Digitized by Microsoft® 6 FIRST ERA OF DEVELOPMENT local strife. The spring after Burgoyne's surrender at Saratoga the settlers of the Wyoming valley learned that a detachment of Johnson's "Royal Greens" and Butler's "Rangers," with a company of Tories, had allied themselves with the Seneca Indians, and were preparing to descend upon the valley. A courier was despatched to congress, and appeals for aid were made to the neighboring states, but the isolation which had before served for defence now brought disaster. With the June freshet the British allies came down from Tioga, and nothing but ruins was left to mark the scene.' One of the reasons urged for the removal of the state capitol from Philadelphia to Harrisburg in 1799 was the cost of travel, which bore heavily upon legislators from the interior.^ The significance of the transportation problem is further illustrated by the methods which the inland settlers employed to get their produce to market before the inauguration of a system of water communication. One of these was to trans- form their grain into whiskey and thereby embody great value in a small bulk. This is shown by Gallatin's petition of 1792 in behalf of the western counties of Pennsylvania against the federal excise tax: "Distant from a permanent market, and separate from the eastern coast by mountains which render communication difficult and almost im- practicable, we have no means of bringing the produce of our lands to sale either in grain or in meal. We are, there- fore, distillers through necessity, not choice, that we may comprehend the greatest value in the smallest size and weight. The inhabitants of the eastern side of the mountains can dispose of their grain without the additional labor of dis- tillation at a higher price than we can, after we have bestowed that labor upon it. Yet with this additional labor we must also pay a high duty from which they are exempted, because > Bolles, II, 2-26. 2 Sharpless, Pennsylvania, 246. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 7 we have no means of selling our surplus produce but in a distilled state." ' Of still greater significance is the fact that those inhabi- tants east of the mountains to whom Gallatin referred also found it a decided advantage if not a necessity to transform their rye into whiskey. Doctor G. D. Leutscher shows that in 1782 there were about six hundred and fifty dis- tilleries in the counties of York and Lancaster. The in- habitants of the former had to travel on an average only fifty miles to the Baltimore market, and those of the latter, sixty miles to Philadelphia. The same conditions prevailed in other counties similarly situated. Between 1820 and 1840, the period during which the transportation problem in these locaHties was being solved, the number of these distilleries decreased.^ The early settlers of Springfield, Massachusetts, were obliged to send their household goods from Roxbury around by way of Long Island Sound and the Connecticut river, but they themselves were able to proceed on e roa s o £ ^ along an Indian trail. In time this trail Hew England ° was widened, and as the "Bay path" and the "Boston road" occupied an important place among the transportation routes of the colonies. It was, however, httle more than a narrow wagon path until after the Revo- lution, and so indistinct was it that travellers frequently wandered off the route. A curious stone post marks the place near the national armory at Springfield, where in 1763 a western Massachusetts merchant lost his way, and set up a guide for other travellers. Even as late as 1795 there were but two stages between Boston and New York, and a week was required for the journey. John Bernard, the English actor, thus described a typical New England road of 1797: "Though far better than in any other quarter of 1 Adams, Writings of Gallatin, I, 3-4. ' Leutscher, Industries of Pa., German Amer. Annals, V, 200-5. Digitized by Microsoft® 8 FIRST ERA OF DEVELOPMENT the Union, the frequent jolts and plunges of the vehicle brought it into sad comparison with the bowling-greens of England. Very often we surprised a family of pigs taking a bath in a gully of sufl&cient compass to admit the coach. As often, such chasms were filled by piles of stones that, at a distance, looked like Indian tumuli. The driver's skill in steering between these dangers was eminent. I found there were two evils to be dreaded in New England travelling — a clayey soil in wet weather, which, unqualified with gravel, made the road a canal; and a sandy one in sum- mer, which might emphatically be called an enormous insect preserve." ' Such testimony makes real the difficulties which attended travel over the important routes, and enables one to understand how it could have required Washington nearly two weeks to make the trip from Philadelphia to Cambridge at the outbreak of the Revolution.^ In making preparations to resist the military power of Great Britain, this same spirit of localism which had stood in the way of transportation development was the greatest obstacle the Revolutionary leaders had to overcome. Through committees of correspondence and international confer- ences, they were compelled to labor for years to induce the people to take united action.' Necessity for political co- operation finally opened the way to broader industrial and The Revoiu- social activities. With the gradual disappear- tionary war ance of ideals of individualism and local in- and localism dependence, and with the rise of a national democracy and the supremacy of a cooperative, self-directing commercial and industrial class, the awakening came. In ' Bernard, Retrospections of Amer., 36. ' It required thirteen and a half days to make a trip of four hundred miles through Alabama in 1803. — Martin, Internal Improvements in Alabama, 14. 'Hunt, Provincial committees of safety (1904); Doyle, V, 48-52; Frank- lin, Works (Sparks ed.), Ill, 26-55, IV, 41-2. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 9 Europe and America alike, toward the end of the eighteenth century, social obstructions to internal improvements grad- ually disappeared. In England the industrial revolution preceded the poUtical; in France and America the order was reversed. Each was but the different expression of the same movement, marked by a change from the old regime to the new, and the supremacy of ideals of common welfare as opposed to social and political privilege. With the estab- lishing of these ideals the advantage of inland communica- tion and traffic dawned upon the people, and attention was directed toward the best means to that end. INTEKNAL IMPROVEMENTS AFTER THE REVOLUTIONARY WAR Before the Revolution the subject of road improvement was seldom considered in public assembUes, and the early laws contain few provisions even for common roads. Those who proposed measures for general improvement met with little encouragement. As early as 1690 WiUiam Penn sug- gested the practicability of a waterway from the Schuylkill to the Susquehanna.' In 1762 David Rittenhouse of Phila- delphia, and Provost Smith of the University of Pennsyl- vania, proposed a similar project, and made surveys of the route by the Swatara and the Tulpehocken; in 1769 the American Philosophical society interested it- ttmi^orts ^^^ ™ ^ ^^^^ survey between Chesapeake bay and the Delaware, recommending the enterprise to the public.^ In 1768 Governor Moore of New York projected a canal aroimd the Canajoharie falls of the Mohawk.^ But to none of these suggestions was there any ac- tive response, for the time was not ripe for such undertakings. ' Bishop, State works of Pa., Conn. Acad, of Arts and Sd., Transactions, XIII, 153-4; Union canal company, a, brief history, 1-4. (1853.) 2 Amer. Phil. Soc, Transactions, I, 293-300; Watson II, 467; Worthing- ton, Hist, of the finances of Pa., 15-6. ' Doc. relative to the colonial hist, of N. Y., VIII, 93. Digitized by Microsoft® 10 FIRST ERA OF DEVELOPMENT The commingling of citizen soldiers from Georgia and the Carolinas with those from New York and New England, and the broader interests and sympathies which were in- spired by the shifting scenes of war, enlarged the American social horizon. With peace came the realization that the destinies of the New World were in the keeping of the Ameri- can people. Not only were they among the first to catch the spirit of the times, but with eyes open to their new possi- r .,. bilities, those who had been comrades in arms Influence of the ' r i • ■ war upon in- now turned to the conquest of the mterior. ternai develop- This westward movement was stimulated by ™*°* the military land bounties, which were granted to the veterans of the war, and to the heirs of those who had lost their hves in the service. To provide for these grants a large tract was set apart in Ohio, and the cost was borne by the federal government as one of the expenses of the war. Contributing to the road-making impulse immediately after the war of independence was a newly awakened com- munity interest. At the time of the adoption of the con- stitution there were two distinct classes in the United States: a highly localized class of the seaboard and of the inland trade routes, and a widely distributed agricultural class. American commerce was largely confined to American products. Eng- land, France, and Holland monopolized the trade of their colonies, and in other ways favored their own merchantmen in foreign trade. Such being the condition, our commercial advantage lay in the development of our own resources. The settlement of the Middle Atlantic states and of the valleys of Interest in in- ^^^ interior only served to strengthen the inter- land commerce dependence of the people, who foimd a com- and the opening mon interest in internal improvements. To the of the West ■ ij. ■ ^ t agricultunst, cheap conveyance to market was a prerequisite to profitable industry. To the commercial class on the seaboard and on the leading trade routes inland improvement was at that time no less important. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT ll The influence of a strong commercial interest in the de- velopment of roads to the remote interior is illustrated by an incident of the French and Indian war. The Ohio company was organized in 1748 to trade with the Indians and to develop the Ohio valley. Putting their boats into the Potomac above the Great Falls near Georgetown, a party sent out by this company was able to proceed as far as Will's Creek, now Cumberland. There, a storehouse was built in 1750, and a trading post estabhshed; but beyond that point only Indian trails led to the West. Governor Dinwiddie and other leading men of Virginia and Pennsyl- vania were interested in this company. When there arose the question as to the choice of route for the military expe- dition against Fort Duquesne, it is said that purely from commercial motives the Potomac route was selected. At all events, instead of going through Pennsylvania, where settlements reached out fully half the distance and the obstacles to quick military movements were comparatively few, the troops were put to work building a military road along the route of special interest to this company. The time spent in its construction gave the French opportunity to acquaint themselves with Braddock's movements, and to lay the ambush which put the American and English forces to flight.* The fact that the commercial spirit was per- mitted to prevail at a time when the destinies of the Eng- lish colonies seemed to depend upon the use of the greatest military discretion indicates the strength of the business motive to transportation enterprise, and shows the neces- sity of giving due consideration to economic motives in the study of our history. There was a notable change in the popular attitude to- ward road making after the war, and all public-spirited men now saw in better means of communication an instru- > Ward, Chesapeake and Ohio canal project, Johns Hopkins Univ., Studies, XVII, 10-2. Digitized by Microsoft® 12 FIRST ERA OF DEVELOPMENT ment for the establishing of American supremacy over the First era of westem Continent. Legislatures made gener- road buUding, ous appropriations for highways. An active 1783-1793 migration set in from New York and northern Pennsylvania to the West. In 1783 the first regular mail service was estabhshed between Albany and Schenectady. In 1793 the horse path from Albany to the Coimecticut valley was widened to a wagon road.* Like activity in road making was shown throughout southern and westem New York, middle Pennsylvania, Maryland, and Virginia. Evidence of the awakening of a broader commercial and industrial spirit is clearly set forth in the preamble of a Pennsylvania act "for the opening and estabhshing of cer- tain roads in the Counties of Northampton and Luzerne," which declared that: "the opening of roads through the unsettled part of this State will greatly promote its settle- ment and population, and increase its domestic and foreign commerce, its manufacture and agriculture; and divers persons, citizens of the State, have already subscribed con- siderable sums of money, and divers other persons are dis- posed to subscribe further sums for the purpose of opening the roads from Pocono Point in the Coimty of Northampton to a place known by the name of Moimt Ararat, and thence to the New York line at the intended carry- Pe^X^a ™S P^^^^ between the rivers Susquehanna and Delaware, and ... the said road will con- duce to the immediate settlement of extensive tracts of coimtry and will render Pennsylvania the most ehgible route for the emigrants from the Northern and Eastern parts of the United States. . . ." ^ In 1785 Pennsylvania appropriated $io,cx50 to lay out a road from a point near the mouth of the Juanita to Pitts- burgh.' In 1786 an act was passed appropriating Si 500 ' Earle, Stage-coach and tavern days, 237. » Smith, Laws of Pa., II, 442. (1788.) > Ibid., II, 349. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 13 " to view and open a road from Lehigh Water Gap to Wyo- ming," which was the first road into that valley from the Delaware.' In 1787 another road was authorized between the Susquehanna and the Delaware.^ Activity in opening communication with the interior increased until by 1791 the movement had assumed proportions to in'^iTor" '°°^ ^^ styled a "mania." By a single act over $150,000 was appropriated for the improve- ment of eleven rivers and over a score of roads in different parts of the State.' Other acts were passed at the same ses- sion, granting charters and appropriations for various trans- portation enterprises. New York in 1797 authorized the raising by lotteries of $45,000 for the improvement of vari- ous roads throughout the State.* As if by common impulse, all the states now became interested in road improvement, and congress was asked to aid by this means the opening up of the resources of the interior. The low cost of water transportation had early directed popular attention to canals as a means of overcoming ob- structions in natural watercourses, thereby serving the needs of the inland population, and also providing the means for diverting trade from one seaport to another. The Revolu- tionary war was hardly over when Charles Carroll organized a company to open a canal about the obstructions in the lower Susquehanna. And Washington almost immediately after his return to private life made a tour of the Western coimtry and submitted his impressions to Benjamin Harri- son, governor of Virginia, in a letter in which he set forth the necessity for closer communication between the Ohio valley and the Atlantic seaboard: "I need not remark to you. Sir," said he, "that the flank and rear of the United States are possessed by other powers, and formidable ones too; nor how necessary it is to apply 1 Ibid., II, 372. ' Ibid., Ill, 24. 2 Ibid., II, 411. < L. 1797, u. 60. Digitized by Microsoft® 14 FIRST ERA OF DEVELOPMENT the cement of interest to bind all parts of the Union together by indissoluble bonds, especially that part of it which lies immediately west of us, with the middle States. For what ties, let me ask, should we have upon these people? How entirely unconnected with them shall we be, and what troubles may we not apprehend, if the Spaniards on their right, and Great Britain on their left, instead of throwing stumbling-blocks in their way, as they do now, should hold out lures for their trade and aUiance? What, when they gain strength, which will be sooner than most people con- Poiiticai neces- ceive, . . . will be the consequence of having sity for better formed close Connexions with both or either transportation ^j ^j^^g^ powers, in a commercial way? It needs not, in my opinion, the gift of prophecy to foretell. The western settlers (I speak now from my own observa- tion) hang upon a pivot. The touch of a feather would turn them any way. They have looked down the Mississippi, until the Spaniards, very impoliticly, I think, for them- selves, threw difficulties in their way; and they looked that way for no other reason than because they could glide gently down the stream; without considering, perhaps, the difficulties of the voyage back again, and the time necessary to perform it in; and because they have no other means of getting to us but by land transportation and unimproved roads. These causes have hitherto checked the industry of the present settlers. . . . Smooth the road, and make easy the way for them, and then see what an influx of articles will be poured upon us; how amazingly our exports wiU be increased by them, and how amply we shall be compensated for any trouble and expense we may encounter to effect it." ' It was his plan to pass around the Great Falls above Georgetown and the rapids at Harper's Ferry by means of a system of locks and canals; and to this end the Potomac company was organized in 1785 with Washington at its ' Washington, Writings (Ford ed.), X, 407-9; (Sparks ed.) IX, 62-3. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 15 head.' The Dismal Swamp canal company was chartered first in 1787 and again in 1790.^ In Pennsylvania the Schuyl- kill and Susquehanna canal company was incorporated in 1 791, and the Delaware and Schuylkill canal company, the following year.^ In 1792 New York chartered the Western Inland Lock Navigation company to connect the Mohawk with Lake Ontario, and the Northern Inland Lock Navi- gation company to Hnk the Hudson with Lake Cham- plain.^ Those who took the most active interest in canal con- struction at this time were men who, like Washington, viewed Political ad- the future with patriotic interest. This in- vantage of terest, however, was one which did not appeal can s not an ^^ ^j^^ private investor. An enterprise based inducement to ^^ ^ private invest- upon such public Consideration required gov- ment emment support. Washington, appreciating this fact, made it a basis of appeal for pubhc aid to the Potomac company. This period also marked the beginning of turnpike con- struction. The first turnpike road in this country of which we have a record was built between Alexandria and the Lower Shenandoah.^ It was begun in 1785-6, and its completion was the cause of great satisfaction to Jefferson and other pubhc-spirited men of Virginia who had labored in the cause of a "broader national Hfe." Alexandria was at that time an important competitor of the other seaboard cities." Across the Maryland peninsula on the Chesapeake iPickell, New chapter in the life of Washington, 47-116; Ward, ut supra, 12-16; 19 cong. i sess., H. rep. no. 228. 2 Wheeler, North Carolina, 135. ' Carey and Bioren, Laws of Pa., IV, 88, 189. ' L. 1792, c. 40. 'Earle, Stage-coach and tavern days, 232. » "Alexandria has grown from nothing to its present size within these forty years. It is not so considerable as Baltimore which it ought to sur- pass." — Brissot de Warville, New travels in the U. S., I, 367. (1788.) Digitized by Microsoft® 16 FIRST ERA OF DEVELOPMENT lay Baltimore, a commercial rival of both Alexandria and Philadelphia. In 1787 the grand jury sitting at Baltimore called attention to the deplorable condition of the roads leading to that city, and urged the authorities to take immedi- ate action. As a result, the county govern- Beginnings of ^^^^ ordered the old Frederick, Reistertown, the turnpike , ^ , , ., , , ,. ' and York roads turnpiked at pubhc expense.* To the west of Philadelphia lay the Susquehanna valley. The natural outlet of this growing region was down the Chesapeake to Baltimore. To attract traffic to the Quaker city a company was organized in Philadelphia in 1792 to build the Lancaster Pike, which was the first turnpike in this country built by volimtary subscription.^ EUROPEAN WARS AND THE CONFLICT BETWEEN THE SEA- COAST AND THE INTERIOR The outbreak of the European wars in 1793 was followed by a marked change in the American industrial situation. Up to that time England, France, Holland, and Spain had held monopolies over the trade of their colonies, which, together with tariff discriminations against American trade abroad, had forced the commercial classes in America to look to the interior for profitable trade.' Prices were at a comparatively low level, and the resources of the interior could not be utilized to advantage except by improving the roads and other means of inland transportation. But the foreign colonial monopolies were now suddenly impaired. The American and the commerce of the world was thrown trade advan- into American bottoms. Our export trade in *^^* 1791 amounted to only $19,012,041. By 1794 it had risen to $33>o36,233, while in 1807 it reached $108,- 343,150- The change in character of vessels engaged in - Earle, Stage-coach and tavern days, 232. = Weld, I, no. a See Note 2 on opposite page. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 17 this trade was even more striking. In 1789 nearly half of the American carrying trade was in the hands of for- eigners; by 1796 the number of foreign carriers was re- duced to six per cent, and at no time during the next twenty years did it exceed seventeen per cent.^ The United States not only carried the commerce of the world, but it also in large measure came to be a "free-trade" centre. Prior to the renewal of hostilities after the peace of Amiens, we have no official record of the foreign products passing through our ports, but after 1803 more than half of the goods ' Seybert, Statistical annals of the U. S., 93. 'Statement Showing the Amount of American and Foeeign Ton- nage IN THE Foreign Trade of the U. S., 1789 to 1807: Year American Vessels (less 000) Foreign Vessels (less 000) Total Cess 000) Percentage of Foreign to Total 1789. 1790. 1791. 1792. 1793 1794 I79S 1796 1797 1798 1799 1800 1801 1802 1803 1804 180S 1806 1807 127 355 363 414 447 525 580 67s 605 522 626 682 849 787 787 821 922 1,044 I.0S9 106 250 240 244 163 82 S6 46 72 87 107 123 158 143 163 122 87 90 86 233 585 604 658 611 608 637 721 677 610 734 806 1,007 93° 951 944 1,010 1,134 1,146 45-6 41.4 39-8 37-0 26.7 iS-8 8.9 6.2 10.7 14.4 14.6 lS-4 iS-7 15-4 17.2 12.9 8.7 6.8 7-3 -Pitkin, Statistical view of the U. S. (1835 ed.), 363- Digitized by Microsoft® 18 FIRST ERA OF DEVELOPMENT which came to our shores were destined to other parts of the world.* Not only did the colonial trade of England and France fall into our hands at this time, but the neutral American flag supplanted those of other nations abroad. Because of the arbitrary and repressive decrees of these powers, the risk to shipping was great, but the profits were in proportion, sometimes amounting to one hundred or two hundred per cent. A complete change was wrought in the North Atlantic seaboard. American tonnage increased as never before, and the shipyards of Maine and New Hampshire Changes bristled with spars and stays. In 1791 our total wrought in New shipping (registered, enrolled, and licensed) England amounted to 478,377 tons; by 1794 it had in- creased to 628,816 tons, and in 1807, before the embargo, it had risen to 1,268,548 tons.^ The result was that manu- facturing and internal improvements were neglected; and capital in the North turned toward foreign trade, shipbuilding, and commercial banking,^ — the equipment essential to the utilization of our pecuhar trade advantage. ' Table of American Exports Showing Tonnage Imported and Re- shipped TO Foreign Ports. Domestic Origin Foreign Origin Total (less 000) (less 000) Gessooo) 1803 42,20s 13,594 5S,8oo 1804 41,467 36,231 77,699 I80S 42,387 53,179 95,566 1806 41,253 60,283 101,536 1807 48,699 59,643 108,343 nbid..3i7. -Seybert,93. 2 In 1790 there were four banks in the United States. In 1804 the num- ber was fifty-nine. In 1 790 the capitalization of state banks was nine mil- lions of dollars; in 1804 it was about forty millions. — Crawford's Report on the condition of banks, January 3, 1836: 216. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 19 In the South another advantage presented itself which gave rise to a distinct hne of development. Before 1780 cotton was grown for ornament in gardens. In 1784 a consignment of eight bags was seized at Liverpool by the customs officers, who were unwilling to believe that so much could come from America.* The increasing demand in Europe placed a premium on the fibre. Whitney's inven- tion of the cotton-gin cheapened its preparation for market to about a fifth of its former cost, and much land in the South was converted into cotton fields. Migration So^^*^ "^ * ^^^ ^^ toward the unoccupied portions of the cotton belt, and there was soon a marked in- crease in exports. The plantations generally did not pro- duce foodstuffs in commercial quantities; many did not produce enough for home consumption, preferring to buy from the West and North. Cotton and tobacco were the staples of production as well as of trade; for by river barge and wagon they could bear the expense of shipment for a considerable distance and still return a profit. The develop- ment in cotton culture can best be understood when con- sidered in the Hght of trade statistics. In 1792 only 138,328 pounds of American cotton found its way to foreign markets. In 1807 there were exported 63,944,459 pounds, and the income to the South from this source alone was estimated at $14,232,000.^ Exports of tobacco decreased during this period, as tobacco was grown only where it could be pro- duced with greater profit than cotton. After 1793, however, the average annual income from this source amounted to over $6,000,000. Rice was grown only along the coast, where the transportation problem presented few difficulties. For the clearing of new lands and the cultivation of cotton, tobacco, and rice, slave labor could be employed to advan- tage. It was in the plantation and its slave equipment, 1 McMaster, I, 62. a See Note 4 on page 20. Digitized by Microsoft® 20 FIRST ERA OF DEVELOPMENT therefore, that the rapidly increasing wealth of the South found opportunity for profitable investment, for to a majority of the people neither manufacture nor shipping proved attractive. The immediate effect of the European wars upon the grain-growing regions of the West was to increase the de- mand for wheat. Before these wars the drift of the popula- tion in England had been toward the towns; and the use of agricultural lands for wool-growing created a strong demand for foodstuffs from abroad; but the crop failures of Europe, the French Revolution, and the twenty-four Changes in the ^.^ ^^ almost continuous warfare which fol- grain belt •' . , , . , . . lowed, transferred this demand to America. Prices of cereals rose to twice their former height.' The average price of flour during the seven years from 1785 to 1793 had been about $5.40 a barrel; the average price from 1793 to 1806 (the two years of peace, 1802 and 1803, ex- cluded) was $9.12.^ Such was the inducement to grain growing during this period.^ •Sheffield, Remarks on the deficiency of grain, 114 (London, 1800). 2 Parliamentary accounts and papers, misc. v. I (1821), XVII. 5 See Note 2 on opposite page. ' Table Showing Inckease in Exports of Cotton from the U. S., 1792 TO 1807 Year Pounds Exported Year Pounds Exported I7Q2 .... 138,328 487,600 1,601,760 6,276,300 6,106,729 3,788,429 9.360,005 9.532,263 1800 17,789,803 20,911,201 27.Soi.°7S 41,105,623 38,118,041 38,390,087 37.657.465 63.944.459 170-2 1801 1802 I7QC 180^ 1796 1707 1801; 1708 1806 1807 — Pitkin, HI. Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 21 Back from the north Atlantic coast radiated rich valleys, — large tracts of agricultural lands which were well adapted to grain growing. A rush set in for the unclaimed resources of New York, Pennsylvania, and Maryland; and for a time the tide of migration moved to the westward along the Ohio and the border of the Great Lakes.^ Those who cultivated lands near the coast shared in the increased prosperity due to the European disturbance, but unless they could obtain better means of transportation, those who had located inland soon found that they could profit little. Grain as compared with cotton and tobacco was a low priced product. At best the cost of transportation was ten dollars a ton for each hundred-mile haul; in many places it was much higher. 1 Winsor, Westward movement, S04~i 2. 2 Table Showing Exports of Food Products from the U. S., i 791-1807 Year Wheat bu. (less 000) Flour bbls. (less 000) Com bu. (less 000) Meal bbls. Beef bbls. Pork bbls. 1791 1792 1793 1794 1795 1796 1797 1798 1799 1800 1801 1802 1803 1804 180S 1806 1807 1,018 853 1,450 698 141 31 15 IS 10 26 239 280 686 127 18 86 776 619 824 1,074 846 687 725 SIS S67 SI9 653 1,102 1,156 1,311 810 777 782 1,249 1,713 1,964 1,233 1,505 i>93S 1,173 804 1,218 1,200 1,694 1,768 1,633 2,079 1,944 861 1,064 1,018 351 263 189 241 512 S40 254 211 231 338 919 266 133 III 117 108 136 62 74 75 100 96 92 SI 89 91 75 7S 61 77 134 115 116 84 27 38 38 49 88 73 40 33 52 55 70 78 96 III 57 36 39 -Pitkin, 96, 102, 105. Digitized by Microsoft® 22 FIRST ERA OF DEVELOPMENT This left much of the land in New York, Pennsylvania, and Maryland outside the range of profitable use, even at the new price level; and western Virginia, Tennessee, Kentucky, and Ohio were almost entirely cut off from a market except by way of the Mississippi. It is this situation which caused Washington, Jefferson, and other public leaders so much concern for the political integrity of the nation. A whole empire of rich territory, with no outlet except by way of New Orleans or the St. Lawrence; a territory fast filling up from the Atlantic seaboard, and for the relief of which no effective Significance of measures were being taken; this was a con- the Aaron Burr dition to cause alarm to those with mental conspiracy horizon broad enough to see it. The possi- bihty of the Aaron Burr plot lay in the spirit of imrest which prevailed in that region. The discontent of the loyal pioneers who had crossed the Alleghanies, and the indifference to American ideals of those who had come to the Mississippi valley from France and Spain, afforded an opportunity which the dethroned democratic leader sought to utilize in the furtherance of his scheme. The narrow vision of the people whose interests lay on the seaboard, and the failure of men in public life to comprehend the importance of trans- portation in shaping public opinion and political destiny, nearly lost to the United States a territory which gives us a national economy superior to that of any other people. The effect, therefore, of the Napoleonic wars on the Mississippi valley, and also on the interior districts of Pennsylvania and New York, and for that matter of New England itself, was to build up a distinct agricultural interest, which demanded that its economic needs be given prompt attention and effective relief. THE CONFLICT OF ECONOMIC ESfTEEESTS IN THE UNITED STATES Before 1807 the country had come to be divided into three sections: the commercial, shipbuilding East, the cotton Digitized by Microsoft® FIRST ERA OF DEVELOPMENT 23 and tobacco exporting South, and the isolated grain-growing interior, linked with which was a languishing manufacturing interest on or near the seaboard. Beyond a limited range the producing portion of our population could Elements of . ^- • I • ^i <-^ e ^i t- opposition ^°^ participate m the profits of the European trade. The grain growers demanded a mar- ket, and the manufacturers saw their profits swept away by an influx of foreign goods. These were the interests which suffered from the diversion of capital to shipbuilding and foreign trade. Both looked to internal improvements as a solution of their troubles; their only hope was in a home market, — in better roads, and in the development of the resources about them. It was at this time also that a new school of political economy was developed, — one opposed to the English Ricardian philosophy. Represented by Hamilton and other able writers, including the German List (whose native land suffered from industrial and commercial disability similar to that of the United States), the "National school" of political economy had its beginning. This soon found many converts on both continents. The popular revolutionary doctrine of laissez /aire was in a measure lost sight of; in the United States agriculturist and manufacturer turned to the national government for relief.^ But so long as the administration remained in the hands of the foreign trade party, the way was blocked to internal improvement. During the first three administra- tions after the adoption of the constitution, the individualistic republicans had been imable to gain control of the govem- Poiiticai su- ment; but with the admission of Kentucky, premacy of the Tennessee, and Ohio, and the settlement of interior j.j^g parts of the seacoast states remote from transportation facilities, the anti-commercial constituency gained the balance of power. It was to the voters of these • Hill, Tariff policy of the U. S., 75-107. Digitized by Microsoft® 24 FIRST ERA OF DEVELOPMENT new regions that Jefferson owed his success; * and it was to satisfy the demands of the West for an outlet to the Gulf that Louisiana was purchased. To satisfy the insistent demand for internal improvements the national government also built the Cumberland road, and contributed to many other transportation projects. It was the open hostihty of the West and the South toward the commercial East which forced the embargo, and broke down the domination of the seaboard interests in national affairs. 1 Hill, 107-32. Digitized by Microsoft® CHAPTER II The Embargo, the Second War with Great Britain AND their Effect tjpon Transportation Develop- ment The extent to which shipping interests were crippled by the embargo and non-intercourse acts is shown by Lambert, Trade paralysis who thus describes New York in 1808: "The in the sea- port, indeed, was full of shipping, but they coast towns -^qt-q dismantled and laid up; their decks were cleared, their hatches fastened down, and scarcely a sailor was to be found on board. Not a box, bale, cask, barrel, or package was to be seen upon the wharves. Many of the coimting-houses were shut up, or advertised to be let; and the few solitary merchants, clerks, porters, and laborers, that were to be seen were walking about with their hands in their pockets. . . . The coffee-house was almost empty. . . . The streets near the water-side were almost deserted, the grass had begun to grow upon the wharves." ^ The second war with Great Britain w^as forced upon the seaboard interests; first came the embargo and non-inter- course acts, then two years of open hostilities which drove American commerce from the seas. During the seven years from 1808 to 1815 commercial capital suffered, and Economic sig- ^^^ people of New England were on the verge nificance of the of Secession.^ After the war of 181 2 a solid Hartford con- representation from the interior fastened upon '*°"°° the country the tariff of 1816, and this effect- > Lambert, Travels through Canada and the U. S., 1806-1808: II, 64-5. » Adams, United States, II, IV, VII, VIII, passim. 2S Digitized by Microsoft® 26 EFFECT OF EMBARGO AND WAR ually shut the doors of foreign trade, except that which was based upon domestic production and consumption.' No longer could the world's trade clear to tetter advantage through American ports. The manufacturer was given protection in his home' market, and measures were adopted for works of internal improvement. Profitable investment of the increasing capital of the seacoast was, therefore, limited to manufacture and the development of the interior. This period was marked by a growth of sentiment in favor of home industry and home markets in the South as well as in the North; for restrictive legislation u^* ^'InTenV ^^^ ^^^° ^^^ °^ ^^^ foreign demand for cot- ton, tobacco, and rice.^ Societies were now formed for the promotion of manufactures. Leading citi- zens of Baltimore met in 1807 and, after discussing a plan for the organization of a company for spinning cotton and wool and making textile machinery, prepared an address to the people of Maryland urging cooperation in the upbuilding of home industry.' Like movements were set on foot in Virginia and the Carolinas. Companies were organized in •Adams, IX, 113. 2 Table Showing Decrease in Income of the South from Cotton AND Tobacco ' Cotton Exports Tobacco Exports (less 000) (less 000) 1807 . . $14,232 tl8l2.. $ 3,080 1807 . . $5,476 tl8l2 .. $ 1,514 *i8o8 . . 2,221 ti8i3 . . 2,324 *i8o8 . . 838 ti8i3 . . 319 *i8o9 . . 8,515 ti8i4.. 2,683 *i8o9 . . 3,774 ti8i4 . . 232 1810 .. 15,108 1815 . . 17,529 1810 . . S,°48 181S .. 8,23s 1811 .. 9,652 1816 . . 24,106 1811 .. 2,150 1816 . . 12,809 * Embargo and non-intercourse. tWar. — Seybert, Statistical annals of the U. S., I, 147. ' McMaster, United States, III, 500, Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 27 the leading cities, and Calhoun and others became active in the movement for protection.* APPEALS TO THE NATIONAL GOVERNMENT AFTER THE SUC- CESS OF THE PARTY OF THE INTERIOR Many attempts had been made to obtain federal aid to internal improvements before 1812. After the election of Jefferson, congress took its first step to aid in the construc- tion of roads leading to the West. The enabhng act for the state of Ohio (1803) stipulated that one-twentieth of the Early attempts net proceeds of the sales of public lands lying to obtain fed- within its borders should be set apart to pro- erai aid ^j^j^ j^^. j.Qa,ds from the navigable waters of the East to the interior. It was further provided that three per cent of the net receipts from this source should be used within the state, leaving two per cent for general improve- ments.^ In 1806 an initial appropriation of $30,000 was made out of this fimd for the Cumberland road.^ The inadequacy of private capital and state credit for works of a magnitude essential to the develop- land road "' ^^^^ of the interior brought the supporters of the administration to the general govern- ment for aid. In 1805 the Chesapeake and Delaware canal company laid a memorial before the senate,^ and the general assembly of Kentucky submitted an appeal for assistance in the opening of a canal around the falls of the Ohio below Louisville.' These overtures met with encouragement, though not with substantial aid at that time. So much was the administration impressed with the needs of the interior that, in 1806, Jefferson thought the subject worthy of special consideration in his message to congress. To satisfy the qualms of his strict construction supporters, he recommended > Calhoun, Works, II, 163-73. » Ibid., II, 357. 2 Stat, at large, II, 225. " Amer. state papers, misc. I, 454-6. s Ibid., 419, 453, 479. Digitized by Microsoft® 28 EFFECT OF EMBARGO AND WAR an amendment to the constitution which would expressly provide for federal support to internal improve- GaUatin's re- mgnts.' Petitions continued to come in. In 1807 congress instructed the secretary of the treasury to investigate, and it was in response to this request that Gallatin submitted his famous report, in which he recommended a comprehensive scheme of canals and roads, involving an expenditure of twenty miUions of dollars.^ But notwithstanding the urgent need, the disturbances leading to the outbreak of hostilities with Great Britain were sufficient to defer action. DEVELOPMENT OF RIVER TRANSPORTATION BY PRIVATE CAPITAL The inland routes which required the least capital to utilize in a primitive way were the rivers. Here the chief obstacle was the current. In the early nineteenth century, long lines of rafts, flatboats, and "arks" might be seen floating down the Connecticut, the Hudson, the Susque- hanna, and the Potomac' There were 2800 miles of rivers tributary to the Atlantic seaboard which were navigable, ■ Richardson, Messages, I, 409-10. '' Amer. state papers, misc. I, 724-921. 3 It was claimed that in 1790 one hundred and fifty thousand bushels of wheat came down the Susquehanna as far as Middleton, Pennsylvania. In 1814 a resident of Harrisburg saw eighty rafts, sixteen arks, and twenty boats pass in one day, and estimated that this procession continued for almost a month. From Milton on the West Branch, 70,000 bushels of wheat descended the Susquehanna during one season (1821), and "Judging from those who live near the River not less than 500,000 bushels of wheat besides flour, whiskey, etc., have been sent out of the branches during the same season." In 1825 a citizen of Baltimore estimated the trade of that city with the Susquehanna as follows: 44S>ooo barrels of flour, 200,000 bushels of grain, 10,000,000 feet of lumber, and other miscellaneous articles valued at $100,000, the total valuation being estimated at about $650,000. By 1830 this Baltimore trade exceeded $1,000,000. — Leutscher, Canals east of the Alleghany mountains, Ch. II. Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 29 or which needed only to be cleared of snags and rocks to render them available for use by small craft. It was esti- mated that on the Eastern slope there were Introduction of i . ., r . , . , . , . the steamboat ^.bout 25,000 miles of Streams which might be utiHzed by the construction of locks and canals. In the Mississippi valley there were 14,000 miles of navigable rivers, and about 75,000 miles more which were considered possibilities. But with a three- or four-mile cur- rent it was impracticable to row, pole, or warp a boat and cargo up-stream for a longdistance. The resultwas that along those streams which nature had provided as highways, the producer first built his boat out of the timbers of the forest, then loaded it with the produce of his farm or mill, and floated down-stream to market. Upon reaching his desti- nation, he abandoned his craft, and returned by stage or on foot. This was indeed an expensive process, — expen- sive in time, expensive in funds, and expensive in human effort. It was an expense of production, however, and one which did not require capitalization. There were several different kinds of river boats. The pirogue was the first improvement made by the white man upon the Indian canoe. It was hewn out of a log, but split lengthwise and widened by inserting a middle section of board. The barge was a large, flat-bottomed boat with wide beam. The flatboat was a later variety, with box- like bottom and sides, covered over throughout its length.^ A type of flatboat used on the Delaware and the Schuylkill is thus described : " They were sixty feet long, eight feet wide, two feet deep, and when laden with fifteen tons drew twenty inches of water. The stem and bow were sharp and decked; a running board extended the whole length on either side. The boat carried a mast with two sails and was manned by a crew of five men. One remained at the stern with a long oar for steering and two on each side with setting poles ' Hall, Statistics of the West, 218-22. Digitized by Microsoft® 30 EFFECT OF EMBARGO AND WAR for pushing them forward." * When rigged out with a small house or cabin, these boats were called "arks." It was in such a craft that Aaron Burr embarked at Pittsburgh for his trip to New Orleans.^ We have this description of the toilsome process of poling up the Mohawk river in the early nineteenth centiu-y: "These [poles] are generally from eighteen to twenty-two feet in length, having a sharp pointed iron, with a socket weighing ten or twelve pounds aflSxed to the lower end; the upper has a large knob, called a button, mounted upon it, so that the poleman may press upon it with his whole weight without endangering his per- son. This manner of impelling the boat forward is extremely Difficulties of laborious, and none but those who have been inland naviga- for some time accustomcd to it can manage *'°° these poles with any kind of advantage. With- in the boat on each side is fixed a plank running fore and aft, with a number of cross elects nailed upon it, for the purpose of giving the poleman a sure footing in hard poling. The men after setting their poles against a rock, bank or bottom of the river, dechning their heads very low, place the upper end or button against the back part of their right or left shoulders (according to the side on which they may be poling), then falling down on their hands and toes, creep the whole length of the gang-boards and send the boat for- ward with considerable speed." ' With such a picture, it is easy to understand that the dominant need in river navigation was the application of some more efficient and less expensive means of propulsion. Jonathan Hulls ^^^ '^^^ °^ applying steam for this purpose was as old as the knowledge that it could be utilized as a mechanical force. In 1736 Jonathan Hulls, an English clockmaker, obtained a patent for a device for pro- • Bolles, Pennsylvania, II, 286. ' McCaleb, Aaron Burr conspiracy, 24-5. ^ Schultz, Travels on an inland voyage, I, 5-6. (1810.) Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 31 pelling a boat by steam, and in 1737 he published a descrip- tion of his invention. His idea was to have a steam engine work a paddle-wheel attached to the stern of a sailing vessel, to be used in a calm, and to enable the vessel to get in and out of port unassisted. He also proposed to have a smaller boat equipped as a tug to he in the harbor and serve other vessels. "How often," said he, "does a mer- chant wish that his ship were on the ocean, when if she were there the wind would serve tolerably well to carry him on his intended voyage, but does not serve at the same time to carry him out of the river, etc., he happens to be in, which a few hours' work of this boat would do." * He even went so far as to consider the comparative cost of running by steam and sail. But at this time httle interest was felt in inland commerce, and the sail satisfied the coasting trade. Hulls made no practical demonstration of his ideas, and they were not taken seriously.^ During the industrial revolution, canals were built from the coast to the cities of the interior of the British Isles, and, as they were without current, boats could readily be moved by animals. The steamboat for practical applica- tion to transportation, therefore, awaited development in the New World. When attention was turned to inland com- merce after the Revolutionary war, several Americans ap- phed themselves to the task. James Rumsey, of Berkeley > Quoted by Preble, Hist, of steam navigation, 9. 2 The ridicule to which he was subjected is evident from this bit of dog- gerel, which was sung by the boys in his native town a century after his death. "Jonathan Hulls, With his patent skulls, Invented a machine To run against wind and stream, But he, being an ass. Couldn't bring it to pass, And so was ashamed to be seen.'' — Notes and Qtteries, III, 23, 69. Digitized by Microsoft® 32 EFFECT OF EMBARGO AND WAR county, Virginia, constructed a rude model, which he ex- hibited in 1784 on the Potomac. Washington was one of those invited to witness the trial of this device, and with the other spectators he subscribed to the following testimonial: "I have seen the model of Mr. Rumsey's Boats constructed to work against stream; have examined the power upon which it acts; — have been an eye witness to an actual experiment in running water of some rapidity; & do give it as my opinion (although I had little faith before) that he has discovered Early steam- ^^^ ^^^ °^ propelling Boats, by mechanism boat experi- & small manual assistance against rapid cur- ments in the rents; — that the discovery is of vast impor- tance — may be of the greatest usefulness in our inland navigation." * It is to be noted that in this statement there is no reference to the nature of the motive power, as Rumsey feared that publicity would enable others to utilize the principle before he had fully developed his mechanism. There was little knowledge in the United States of the steam engine at the time, and Rumsey, like Hulls in England, failed to make his work effective.^ About the same time, John Fitch was at work upon a model in Philadelphia. At first he attempted to finance his invention by selling maps of the new West. Later he succeeded in interesting local capital, organized a stock company, and in 1787 propelled a boat on the Delaware in the presence of the members of the constitutional con- vention. The following year he constructed a small stern-wheeler, which made several trips from Philadelphia to Burlington. At the time, this was the greatest distance ever travelled by a steamboat. As the second boat was not con- sidered fast enough, a third was built, and the machinery so altered that it attained a speed of eight miles an hour. ' Washington, Writings (Ford ed.), X, 402. ' Wier, James Rumsey, Engin. Mag., IX, 878-82; Purdy, Steam navi- gation, Tenth census, IV, 659-62. Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 33 This boat was put on a regular route in 1790, but the choice of the Delaware was unfortunate ; for there was little traf&c. The boat therefore failed to pay expenses, and the company went out of business. Fitch in 1790 sought from congress " an exclusive right to the use of steam to navigation," * but he seems to have lost faith in the utility of his invention, for two years later he wrote to David Rittenhouse: "I conceive that steam navigation will be the second mode of Navigation, but can never take the prefference of a fair wind, as air is much cheaper than steam." ^ It is to be observed that these experiments were tried at a seacoast town which had no means of communication by water with the interior. The men who interested themselves in Fitch's invention saw little encouragement to develop it.' It was not until 1807 that the steamboat became a com- mercial success. At this time New York was becoming well settled; and as the Hudson was a natural highway, a boat which could drive against wind and stream had every promise of success. Robert Fulton, who had been inter- ested in the problem of steam navigation since 1802, returned from Europe after several years of investigation, and brought back one of Watt's engines. He obtained the financial cooperation of Chancellor Livingston, and together they Success of the obtained a monopoly of steam navigation in steamijoat on New York waters. A boat was fitted with the the seaboard Watt engine, and a successful trip was made from New York to Albany and return.* The route yielded large profits from the start, and other boats were built. By 1813 six boats were doing a profitable business on the Hudson. The success of Fulton and Livingston proved • Amer. state papers, misc. I, 1 2. 2 Westcott, Life of Fitch, 334. 3 Bullock, Development of steam navigation, Conn. Mag., IX, 440-55; Amer. Pioneer, I, 31-7. (1842.) «Purdy, Robert Fulton, Engin. Mag., IX, 868-77; Bullock, ut supra, 765-71; Amer. Pioneer, I, 151-6. 4 Digitized by Microsoft® 34 EFFECT OF EMBARGO AND WAR attractive to others. Crowded out of New York's waters by the monopoly, John Stevens in 1809 took a steamboat around from Hoboken into the Delaware. The Phoenix now found business so good in those waters where Fitch had failed that it was soon followed by two other boats. Soon the whole Atlantic seaboard, including the St. Law- rence, was supplied with steam craft. But enterprise in steamboat navigation was not confined to the coast. Business opportunities in the Mississippi valley attracted the attention of one Nicholas Roosevelt, who proposed to Fulton and Livingston that he would make a trip to New Orleans to survey the prospects for an inland water route, with the understanding that they should finance a steamboat hne if his report were favorable. So favorable was it that he was placed in charge of the con- The steamboat struction of a river boat at Pittsburgh, and in on the inland 1811 the New Orleans made her maiden trip waters down the Mississippi. Thereafter, Roosevelt's boat took a regular route between New Orleans and Natchez. Other boats were added, but it was not until 1815 that a voyage was made up-stream from New Orleans to Louisville and Cincinnati. After assisting Jackson in the campaign about New Orleans, the Enterprise, taking ad- vantage of high water, steamed to Louisville in twenty-five days. In 1817 the Washington accomphshed the same feat while the river was within her banks, and the pubhc became convinced of the practicability of up-stream navigation. The same year the Shelby reduced the time to twenty days, and by 1823 fifteen days sufficed. With the success of the steamboat, the middle West was opened to rapid communi- cation with the gulf.' 'Hall, 125-7; Preble, 66-72. Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 35 DEVELOPMENT OF WAGON ROADS TO THE INTERIOR From 1807 to 1815 two changes had a marked effect upon the national attitude toward internal improvements. Be- fore the outbreak of the European wars, manufactures had made some progress in New England and in Pennsylvania. During the first struggle, and before the peace of Amiens, the only serious obstacle to American industry was the tendency to divert capital to wheat raising, shipbuilding, and foreign trade. Prices were high, and the makers of goods foimd encouragement in large profits. With the ces- sation of hostilities, American manufacturers looked to Increasing de- congress for protection, for foreign goods mand for Amer- poured into the country in such quantities ican products ^^^ ^^^ g^^j^ prices as to threaten the destruc- tion of domestic production. The renewal of the Na- poleonic struggle, with the Milan and Berlin decrees, the orders in council, and the long embargo, again shifted the trade advantage to America. The movement for the pro- tection and encouragement of home industry was now re- newed. Prizes and bonuses were offered, trade parades were held, and other measures were adopted to encourage home industries. Following the peace of 1815 these infant industries were again threatened by the arrival of whole shiploads of foreign manufactured goods, which were sold at auction to the destruction of prices for articles of Ameri- can manufacture.' At the most, however, the manufacturing population was relatively small, but the disturbances to industry from 181 5 to 18 1 8 were such as to throw many others out of employ- Migration to ment, and to bring to the verge of bankruptcy the Mississippi and Starvation those who had been engaged in vaUey shipbuilding and foreign trade. A great exodus to the interior was the result. In wagons, on horseback, or ' Stanwood, Amer. tariff controversies, I, 168-70. Digitized by Microsoft® 36 EFFECT OF EMBAKGO AND WAR on foot — sometimes using hand-carts, sleds, and wheelbar- rows to carry their provisions and light luggage — emigrants crowded the wooded paths that led to the West, where they might find conditions more favorable to independent liveli- hood.* All these conditions conspired to increase the depression in the East, and drive her people into agriculture and the development of the interior; while the opening of the Mis- sissippi by the steamboat added to the attractions of the rich valleys in the middle West. But upon his arrival in the West the newcomer found himself beyond the range of any market except New Orleans. To reach this market he "would produce or get together a quantity of corn, flour, bacon, and such articles. He would build a flat-bottomed boat on the shore of some river or large creek, load his wares into it, and, awaiting the rise, with a few of his negroes to assist him, would float down to New Orleans. The voyage was long, tedious, and expensive. When he arrived there he foimd himself in a strange city, filled with sharpers ready to take advantage of his necessities. Everybody combined against him to profit by his ignorance of business, want of friends or commercial connections; and nine times out of ten he returned a broken merchant. His journey home was performed on foot, through three or four nations of Indians inhabiting the western parts of Mississippi, Tennessee, and Kentucky. He returned to a desolate farm, which had been neglected whilst he had been gone. One crop was lost by absence, and another by taking it to market. This kind of business was persevered in astonishingly for several years, to the great injury and utter ruin of a great many people."^ It was the demand for safe transportation arising out of this situation which made Roosevelt's steamboat enterprise a success. 1 Turner, Rise of the new West, 79-83. *Ford, Illinois, 98-9. (1854.) Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 37 DEVELOPMENT OF THE COASTWISE WAGON ROADS AS A RESULT OF THE BLOCKADE The British blockade of our coast during the war of 1812 had a marked effect upon the development of inland routes of transportation, as may be seen from the following: "The interruption of the coasting trade was indeed a very serious affair. For years past that trade had given occupation to Development of thousands of coasters and tens of thousands coastwise com- of sailors. The shoes made at Lynn, the ™*'^'^® Yankee notions of Connecticut, the cotton cards, the domestic cottons, the playing cards produced in New England, the flour of the Middle States, the East India goods brought in from abroad, had found a ready market at Charleston, Savannah, and Augusta, whence great quan- tities of rice and cotton were brought North. On the arrival of the British fleet this trade, no longer to be carried on in safety by water, began of necessity to be carried on by land. At first some merchants at Boston, having chartered a few wagons, despatched them with loads to Philadelphia, and even to Baltimore. This was enough. The hint was taken. A new industry sprang up, and by early summer the roads leading southward exhibited one continuous stream of huge canvas-covered wagons tugged along by double or triple teams of horses or of oxen. No distance was then too great, and hundreds of them wound their way from Salem and Boston to Augusta and Savannah. An estimate made towards the close of the year [1814] places the number of wagons thus employed at four thousand, and the number of cattle, horses, and oxen at twenty thou- sand; nor does this seem excessive, for a traveler who drove from New York to Richmond declares that he passed two hundred and sixty wagons on the way." ' ■ McMaster, IV, 218. Digitized by Microsoft® 38 EFFECT OF EMBAEGO AND WAR REVIVAL IN TURNPIKE AND BRIDGE CONSTRUCTION Both overland trade and westward migration drew atten- tion to the importance of good roads; both swelled the re- ceipts of turnpike companies, and gave encouragement to investment of local capital in transportation improvement. The capitaiiza- By 1804 the Lancaster road had been extended tion of turn- to Pittsburgh, and a regular stage line estab- P»''** lished which made a trip each way once a week.* State governments lent every encouragement to the building of turnpike roads, even to the extent of subscribing to their stock. From contemporary writings and charter grants, it is estimated that nearly eight hundred turnpike companies were organized before the end of the war of 1812. Pennsylvania was pre-eminent in granting liberal charters, and toll rights, thereby encouraging the people of the more thickly settled districts to make such improvements for themselves. The corporations thus formed had little diffi- culty in obtaining capital subscriptions, whether for the construction of turnpikes, or bridges, or for the operation of ferries.^ To the stock of these corporations, several of the states subscribed in varying amounts. Although a few toll roads were constructed before that time, the turnpike move- ment may be said to date from the opening of the nineteenth century. Turnpikes (so called from the revolving, or turn- ing bar, or pike which when set across a toll road prevented passage until charges were paid) were macadamized or otherwise improved at a cost varying from $500 to $10,000 per mile.' Almost without exception they followed in a general way the old lines which had been worked out when travel on foot or on horseback was the chief method of com- • Sharpless, Pennsylvania, 255. ' Gordon, Gazetteer, of Pa., 35-8, 53-4. (1832.) 'Warden, Statistical, political, and historical account of the U. S., Ill, 365- (18190 Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 39 munication; but wherever possible they were made straight, going over and not around hills and other obstacles. When the Boston and Salem turnpike was bulk, a small but deep pond was encoimtered, but instead of going around, the road crossed on a floating bridge.* The construction of bridges and the operation of ferries were parts of this larger turnpike movement, and like the turnpikes themselves, they were usually disappointing to those who had invested with the hope of large dividends. Bridge and At best this movement did but little to supply ferry com- the great need for improved transportation, panies -p^ passenger service it was a great boon, in that it added much to personal comfort, though the time and cost of travel were httle reduced. It required five dol- lars and fifty cents to pay tolls from Philadelphia to New York, besides the hotel bills and other expenses of the road. It took a week to go from Philadelphia to Pittsburgh.^ What the country most needed — a cheap method of hand- ling the bulky products of the interior — was not supplied. Freight was carried upon the turnpike with great difificulty and expense, and heavy goods were compelled to remain untouched on account of the high toUs.^ EEVIVAL OF ATTEMPTS TO OBTAIN CAPITAL FOR CANALS To meet this situation, canals had been proposed long before the period of turnpike building, and some surveys had been made, but because of lack of capital, construction was deferred. The earhest projects were for short cuts aroxmd rapids or falls, or between neighboring waters, but » Melish, Travels through the U. S., 78-9. (1818.) ' Sharpless, 255. sThe cost of transporting one ton for one mile upon a wagon over a turnpike road averaged thirteen cents, whereas the cost of water transporta- tion was less than one twenty-fifth of this charge. — Maryland state con- vention on internal improvements. (1825.) Digitized by Microsoft® 40 EFFECT OF EMBARGO AND WAR bolder plans followed. The first canal of any importance The canal as a actually begun in the United States was the local improve- two-mile cut through the rocks about the South '**°* Hadley falls of the Connecticut.' The Mas- sachusetts legislature passed an act in 1792, incorporating the "Proprietors of the Locks and Canals on Connecticut River." ^ Work was begun at once with Dutch capital, and in two years the canal was completed. This canal was equipped with a curious inchned plane, the use of which seems to have been suggested by the Dutch. Of the ma- chinery used, and its operation, we have this description: " At the point where boats were to be lowered and elevated, was a long, inclined plane, traversed by an immense car of the width of the canal and of sufl&cient length to take in a boat, or a section of a raft. At the top of this inclined plane were two large water wheels, one on either side of the canal, which furnished by the aid of the water of the canal, the power for elevating the car, and for balancing and controUing it in its descent. At the foot of the inclined plane the car descended into the waters of the canal, becoming entirely submerged. A boat ascending the river, and passing into the canal, would be floated directly over and into the car, the brim of the latter, of course, being gauged to a water level by its elevation aft in proportion to the angle of inclina- tion of the traverse way. The boat being secure in the car, the water wheels, which by their common shaft were at- tached to the car through two immense cables, the car was drawn up to a proper point, when the boat passed out into the canal above." ^ The Santee canal in South Carolina was the first large work of this kind constructed in the United States. It con- ' Accompaniment to Mitchell's map of the U. S., 216. (1836.) 'L,. 1788-99: 113. 'Holland, Western Mass., I, 306; see also Dwight, Travels in New England and New York, I, 321-4. Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 41 nected the Santee river with the Cooper river at Charleston, and it was opened in 1800. Its length was twenty-two miles, and its cost, $600,000.' A much more important project was the Middlesex canal in Massachusetts, a charter for which was obtained in 1793.^ This canal extended from the Charles river to Ei^iand" ^^ ^^^ Merrimac, twenty-seven miles, and was designed to attract to Boston the trade normally tributary to Portsmouth. Work was begim in 1794, and ten years later the canal was opened for traffic, though it was not entirely completed until 1808.' The successful completion of the Erie canal, which be- came an assured fact long before its actual accomplishment in 1825, stimulated similar projects all over the country. The local strife between trade centres, combined with the local demand for outlet, set a number of private projects in motion. Boston, Philadelphia, Baltimore, and George- town were successfully appealed to for support for trans- portation routes which would enable them to compete with New York for the trade of the West. The Blackstone canal company, chartered by Rhode Island and Massachusetts in 1823, began the construction of a canal along the Black- stone river to connect Providence and Worcester, and this route was opened for traffic in 1828. Another New Eng- land project started at about the same time was for a canal to extend from New Haven northwards to Northampton, and on up the Connecticut valley into Vermont.* Two companies were chartered for this purpose, the Farmington canal in Connecticut in 1822, and the Hampshire and Hamp- 1 Holmes, Annals of Amer., II, 416. (1826.) 2L. 1793, c. 21. "Dame, Middlesex canal, Medford Hist. Register, I, 33-51; Mann, An eighteenth century enterprise, Ibid., VII, 1-19; Hopkins, Old Middlesex canal, New England Mag. (n. s.), XVII, 519-32; Amory, Life of James Sullivan, II, 361-73. * Miller, Book of the U. S., 380. (1836.) Digitized by Microsoft® 42 EFFECT OF EMBARGO AND WAR den canal in Massachusetts in 1823.* The Farmington canal was completed in 1830; but work on the Hampshire and Hampden project was for a time abandoned for want of fimds, and the canal was not cut through to Northampton until 1835. While carrying a large traffic, this canal hke the Blackstone canal was more beneficial to the general business of the section traversed than to those who held its stock. Other private works of this period upon which large sums were expended, were: the Delaware and Raritan canal, connecting Philadelphia with New York; the James River and Kanawha, — an imfinished canal project in Vir- ginia; and the Chesapeake and Ohio canal, which was not extended further west than Cumberland. Almost a year before the Erie canal was completed, Massa- chusetts determined to profit from the new thoroughfare of Western trade by opening a coimecting waterway from the Hudson to Boston.^ This was not a new project, for in 1792 ^ General Henry Knox had formed a corporation to unite the waters of the Connecticut river with Boston har- bor, but the plan failed for want of financial support. A commission was appointed in 1825 to ascertain the prac- ticability of the proposed canal, and in the report * trans- mitted to the legislature in 1826, the commission declared that the work was practicable. Had it not been for the rapid advance of the railroad idea about this time, it would undoubtedly have been undertaken.^ On account of local needs, few canal or navigation com- panies had difficulty in obtaining their first subscriptions, but most of them experienced trouble in collecting assess- » Love, Navigation of the Connecticut river, Amer. Antiq. Soc, Fro- ceedings, 1902-3: 420. ' Address of William Eustis, January, 1825. 8L. 1788-99: 131. < Report on the routes of canals, 152. ^Ibid., 174. Digitized by Microsoft® EFFECT OP EMBARGO AND WAR 43 ments and in obtaining additional subscriptions. This Scarcity of timidity of investors, it now appears, was not capital for without ground; for few of the private canal canals companies were able to bring their construction work to completion, and fewer still paid any dividends to their stockholders. The Middlesex canal was profitable imtil the building of a parallel line of railroad; the Montague canal, also in Massachusetts, yielded a fair return during the first twenty years following its completion in 1800.' The Delaware and Schuylkill canal may be cited as a third exception.^ But it early became evident that pubhc works of the number and magnitude required could be constructed only at national expense. As the constitution contains no direct provision for internal improvements, the subject be- came a party question. From the first, congress had appropriated money for light- houses, pubhc piers, buoys, and other aids to navigation, and about such action there had been no dispute; for it was agreed that these matters lay strictly within federal jurisdiction.' From the first, also, congress had been peti- tioned for appropriations for internal improvements. Most Renewal of of these demands were local in character, and so appeals for were easily disposed of; but when the directors federal aid q£ ^j^g Chesapeake and Delaware canal asked congress to supply the funds which they had been unable to obtain from sales of shares, the question was forced to an issue. Two facts were incontestible, the general importance of the work, and the ability of the national government to carry it on in view of the revenue surplus in the treasury. In another way congress had already committed itself to the support of public works. So long as the country was made up of states bordering on the Atlantic seaboard, ' Love, ut supra, 412. ^ Second of that name, L. Pa. 1827; 23 cong. i sess., H. rep. no. 414. ^ Johnston, Internal improvements, Lalor, II, 568. Digitized by Microsoft® 44 EFFECT OF EMBARGO AND WAR improvements were matters of interest to all alike; but with the admission of new states in the interior, and the prospect of future accessions to the westward as the coimtry expanded, an element of injustice seemed to enter these appropriations, which benefited the seaboard states at the expense of all. The feeling of discontent was intensified by the fact that the favored states were more thickly settled, and therefore better able to incur the expense. With the admission of Ohio, however, this was remedied by the establishment of the five per cent land fund, and the self-interest of the seaboard was appealed to by the argument that the building of roads into the West would so stimulate sales of the public lands as to increase the national revenues.' The matter of national aid to internal improvements was again brought before congress in 1816 by Calhovm, who presented a bill providing for the direct con- tionai°difficuit7 struction of roads and canals and the improve- ment of waterways out of a fund to be created by setting apart the bonus and dividends received by the government from the United States bank. This bill, which was drawn up by Clay, passed through congress in 1817, but it was vetoed by Madison who, though favorably dis- posed toward public works, had inherited from Jefferson a doubt as to the rights of congress to participate in their con- struction without a constitutional amendment specifically granting the authority.^ And Monroe, holding the same opinion,' vetoed a bill for the repair of the Cumberland road, and submitted to congress a long statement of the principles involved in his decision.* In the meantime, weary of waiting. New York had succeeded in building the Erie canal. Its success shifted the whole plan of promotion. With ' Johnston, ut supra, 568-9. 2 Adams, IX., 148-53; Richardson, I, 584-5. 'Richardson, II, 17-8. ' Ibid., II, 142-83. Digitized by Microsoft® EFFECT OF EMBARGO AND WAR 45 credit established abroad, internal improvements were taken Capitalization up by the States, and for the next two dec- through state ades transportation interest centres in state *"°"*'°8 funding. It was during this period of struggle for means of trans- portation facilities adequate to meet the demands of those whose fortimes had been cast in the remote interior that the railroad became a subject of serious economic interest. Digitized by Microsoft® CHAPTER III The Beginning of the Railroad Nothing could be farther from the truth than the popular belief that Stephenson's "Rocket" was the world's first steam locomotive, and that before the epoch-making con- test-locomotives in 1829, at Rainhill, on the Liverpool and Manchester, the advantage of the railway had not been recognized. Before the "Rocket" became famous many locomotives had been built and operated; and railways had been in active use for over a century, both on the continent of Europe and in England. For the earliest account of a railway in' England we are indebted to Roger North, who in 1676 visited the coal mines at Newcastle-on-Tyne in com- Eariiest ac- pany with his brother, Lord Keeper Guilford, count of a rail- In the course of a description of these mines, ^^y North said: "Another thing, that is remark- able, is their way-leaves; for, when men have pieces of ground between the colliery and the river, they sell leave to lead coals over their ground; and so dear that the owner of the rood of ground will expect 20 1. per annum for this leave. The manner of the carriage is by laying rails of timber, from the colliery, down to the river, exactly straight and parallel; and bulky carts are made with four rowlets fitting these rails; whereby the carriage is so easy that one horse will draw down four or five chaldron of coals, and is an immense benefit to the coal merchants." ^ According to 1 North, Lives of the Norths (new ed., 1826), I, 281-2. For date, see I, 293. A Newcastle "chaldron" is 5300 pounds. Digitized by Microsoft® BEGINNING OF THE RAILROAD 47 Robert Stevenson, these "way-leaves" or railways were in use before 1671.* IMPROVEMENTS IN THE RAIL For many years the railway was to be seen only at mines, coUieries, and iron works, where it was used to connect with a waterway, but it was generally regarded as a poor sub- stitute for a canal. Yet, by degrees, changes in material and structure were effected which to the minds of a few far- seeing men promised eventually to bring it into general use. The first notable improvement was effected by securing the rail timbers to cross ties by means of pegs, and placing upon their bearing surface strips of hard wood, . '™j*l-t!! -^ „ which when worn could be removed without faced with iron disturbing the track. Then, to lessen friction and prevent abrasion, flat rods of wrought iron were sub- stituted for the hard wood strips.^ But the scarcity of lumber in England led to the introduction in 1767 of solid rails of cast iron, which were supported at the joints by blocks, first of timber and afterwards of stone. At first these rails were flat, but after a few years a flange or ridge was cast along the outer edge of each rail to keep cars from leaving the track. Subsequently the flange was transferred to the inner edge of the rail. "Edge-rails" were introduced in 1789, with a resulting gain in strength and decrease in friction. Because of the brittle nature of the material, these rails were but three or four feet long, and a great advance was therefore made in 1811, when by the use of wrought iron it became possible greatly to increase their length and so diminish wear at the joints. A few years later, 1815, further economy was effected by • Stevenson, Life of Robert Stevenson, 115. 2 Anderson, On cast-iron rail-ways, Recreation in Agriculture, IV, 198; Johnson, Rural economy, 232; Smith, Facts and arguments in favor of adopting railways in preference to canals, 15. Digitized by Microsoft® 48 BEGINNING OF THE RAILROAD removing the flange from the rail and placing it on the wheels of the car.* THE WAGON OR CAR The first railways were built upon a grade for the purpose of transporting heavy traffic down hill. The older practice was to put the whole load upon one large wagon or car. Later it was found that a saving in construc- A wagon tram ^j ^Quld be made by dividing the load among suggested i j i_ ?• i , • several cars, connected by hnks or chams, which distributed the weight over a larger surface, decreas- ing wear, and increasing the tractive efficiency of the motive power.^ This gradual development led to the wider appli- cation of the railway to transportation. In 1801 Doctor James Anderson of Edinburgh put forth a suggestion in the form of "Hints calculated to promote the internal prosperity of this country, to augment its produce, and to alleviate the pressure of the present times with regard to the high price of provisions." He not only proposed the general use of the railway to supplement artificial waterways, but he ventured to predict that "under proper management it may, perhaps, be made in some cases to supersede the use of canals where these are actually practicable."' He planned that each car should rest upon a truck designed to rim only upon the rail- way, and be removable so that it could be transferred by means of a crane to a similar truck adapted to common roads.* By this method a train load could be distributed at points along the line without a break in bulk. Farmers could have cars of their own in which they miglit ship their grain, safely locked, to any part of the country." Accom- • Jackson, Lecture on railroads, lo; Watkins, Development of the Amer- ican rail and track, in Report of the national museum, 1889: 657; Smith, 18. ^ Anderson, ut supra, 201; Smith, 15. ' Anderson, ut supra, 198. « Ibid., 203. « Ibid., 205. Digitized by Microsoft® BEGINNING OF THE RAILROAD 49 panying this suggestion he made a plea that the railway should never be made the subject of control by the "avari- cious money-lender," or the "source of gambling traffic, similar to that which has taken place to such a vast extent in this country with regard to navigable canals."' "To guard against these evils," he declared, " all that is necessary is to prevent these railways from ever becoming private property on any account."^ In March 1802 Richard L. Edgeworth contributed an An early view article to Nicholson's Journal "on the prac- as to practica- ticability and advantages of a general system of ^^^ railroads, and the means of carrying the same into effect." Its importance justifies liberal quotation: "Many years ago I formed the project of laying iron rail- ways for baggage waggons on the great roads of England; but having consulted several of my friends, who were eminent mechanics, so many objections were started, that I for some time despaired of success. One great objection arose from the vast expence of massive rail-ways, and the con- tinual cost of repairs. To obviate this difficulty, it occurred to me to divide the weight that is usually carried upon a single waggon into four or five portions, and to place them upon four or five small carriages: these carriages linked to- gether would be as easily drawn as the frame load upon one waggon. In pursuance of this idea, about the year 1768, I presented models of three such carriages to the Society for the Encouragement of Arts and Manufactures, who, for this and other inventions in mechanics, honoured me with their gold medal; the date of which, and the journal of the Society may ascertain the early claim to this invention ... I pro- pose that by way of experiment iron rail-ways should be laid on one of the great roads, to the distance of ten or twelve miles from the metropolis, upon something like the follow- ing plan : four rail-ways should be laid on the land, raised on 1 Anderson, ut supra, 210. 2 Ibid., 212. S Digitized by Microsoft® 50 BEGINNING OF THE RAILROAD sleepers of stone, so that their upper surface should stand about four inches above the road ... On these should run light waggons, each containing not more than one tun and a half weight. "I have mentioned four rail- ways. The two inside roads should be appropriated for waggons, and the two external rail-ways for coaches and chaises, &c. The left hand rail- way invariably to be followed by each species of carriage on its own road; so as to prevent the possibiUty of any car- riages meeting on the frame rail-way. By appropriating the exterior tracks to light carriages, those which wished to pass others might turn off upon the waggon road, and re- sume their proper place after they wished to pass. Now to accommodate coaches and chaises, &c. to these rail-ways, I would have them carried, wheels and all, in cradles or plat- forms, which should have wheels adapted to the rail-ways. By these means no alterations would be necessary in any of the carriages commonly used; but the horses of any coach or chaise might, as soon as they had got out of town, walk up an inclined plane into the cradle or platform, and draw their respective carriages after them: the horses should then walk out of the farthest end of the platform, upon the road belong- ing to the rail-ways. They would then draw the chaise not upon its own wheels, but upon the wheels of the platform or cradle in which the chaise should be detained. "For stage-coaches, similar platforms should be provided, and in these six inside and six outside passengers might travel at the rate of six miles an hour with one horse. Hackney, or gentlemen's chaises might go at the rate of eight miles an hour with one horse, without interruption or delay. . . "The chief convenience of this project arises from the mode of receiving and transporting on rail-ways every carriage now in use without any change in their structure, so that a traveler may quit and resume the common road at pleasure. . . Digitized by Microsoft® BEGINNING OF THE RAILROAD 51 "It is not impossible by slight circulating chains, like those of a jack running upon rollers, to communicate motion between small steam-engines, placed at a considerable dis- tance from each other; to these chains carriages might be connected at will, and when necessary they might instan- taneously be detached. . ."* That other minds had been busied with the subject about the same time is shown by the fact that the year 1801 saw the incorporation of the Surrey Iron Railway company to transport coal and lime between the Thames near Wands- worth in Surrey, and Croyden and Reigate. This was the The first raU- ^st pubUc railway for which an act of Parlia- way corpora- ment was obtained. It was worked by horse- *'°° power only, and its short length and the consequent necessity for transshipment of traffic caused its failure.^ From this period until about 1820, only a few individuals appear to have regarded railways with any favor. In 1806, Samuel W. Johnson, an American, put out a book on "Rural Economy," in which he incidentally considered the subject. "Railways," he said, "nearly answer the purpose of canals, and are frequently called dry canals."' He seems to have been indebted to Doctor Anderson, but he went further and suggested a vertical hoist by means of a crane as a substitute for the inclined planes which were in common use in Eng- land. For heavy traf&c he recommended the adoption of railways in the United States, where they might be built along the side of highways and between neighboring ports.^ In 1807 Franz Anton von Gerstner proposed the construc- tion of a railway instead of a canal to connect the Moldau with the Danube, — a work which was carried out under ' Journal of Natural Philosophy, Chemistry, and the Arts (2 ser.), I, 221-3. 2 Farrer, in Traill, Social England, VI, 273. ' Johnson, Rural economy, 232. * Ibid., 234-5. Digitized by Microsoft® 52 BEGINNING OF THE RAILROAD his direction twenty years later.' In 1813 he published at Prague an essay which was one of the earliest treatises to discuss railways, canals, and roads, scientifically.^ THE LOCOMOTIVE The steam engine was called into existence not by the need for improved means of transportation, but by the failure of horse power to pump water out of mines of great depth.' As soon, however, as its efiiciency had been finally The steam cstabHshed by the experiments of Watt, pump and the patents were taken out for a variety of experi- locomotive mental locomotives even before the end of the eighteenth century, but nothing of a promising nature was produced. Oliver Evans of Philadelphia was at work upon the steam engine contemporaneously with Watt, but his efforts, while interesting in themselves, were without direct result in the furtherance of steam locomotion. He constructed a dredging machine in 1801, which was mounted upon wheels and con- ducted under its own steam through the streets of the city to the Delaware, a mile distant.^ Evans' one contribution to science was the non-condensing, high pressure, steam engine which impelled this strange device.^ He had, how- ever, a clear conception of the possibilities of steam when it should be properly applied to navigation and locomotion. He urged the construction of a steam railroad between New York and Philadelphia, and in 1809 attempted to form a company for this purpose. Writing in 1812 he said: "When we reflect upon the obstinate oppo- ' Smith, in Wood, Practical treatise on railroads (Amer. ed.), viii. 2 Ibid., viii-ix. ' Sinclair, Amer. and foreign locomotives, New England Railroad Club, Proceedings, January, 1902 : 6. * New York Review, III, 95-6. Evans presented his claims in 181 2, in Niles, "Addenda to Volume III." 'Thurston, Hist, of the steam engine, 153-4. Digitized by Microsoft® BEGINNING OF THE RAILROAD 53 sition that has been made by a great majority to every step toward improvement; from bad roads to turnpikes, from turnpikes to canals, and from canals to rail-ways for horse carriages, it is too much to expect the monstrous leap from bad roads to rail-ways for steam carriages, at once. One step in a generation is all we can hope for. If the present should adopt canals, the next may try rail-ways with horses, and the third generation use the steam carriages ... I do verily believe that the time will come when carriages pro- pelled by steam will be in general use, as well for the trans- portation of passengers as goods, travelling at the rate of fifteen miles an hour, or 300 miles per day." ' In 1803 Richard Trevethick, a Cornish mine engineer, designed a steam carriage which was successfully operated upon common roads. His work, while not immediately productive of positive results, exerted great influence upon others who were busied with the devising of a successful locomotive.^ John Stevens of Hoboken, who had early interested him- self in the subject of steam navigation, came forward in 1812 with a petition recommending to the state of New York the construction of a steam railroad in preference to the pro- posed canal from Albany to Lake Erie. In a pamphlet published that year, he outlined his plan for a railway entirely of wooden string pieces, supported on pillars raised several feet above the ground. But while Stevens has John Stevens' -^ hailed as a man in advance of his time, contribution , . ^ , . . . , ... an analysis of his proposition shows why his views did not deserve to receive serious attention. While dealing in general terms with the assured results which must follow the successful introduction of steam locomotion, his nearest approach to a statement as to how this was to be brought about was: "It would be altogether imnecessary / ' NiUs, III, Addenda, s- V Sinclair, ut supra, 8, Digitized by Microsoft® 54 BEGINNING OF THE RAILROAD to go into a detailed description of the mode of adapting and applying the machinery of a steam engine to the purpose of propeUing carriages placed on railways. It is sufficient to say, that I feel the fullest confidence in being able to con- vince an experienced engineer of the entire practicability of the plan."* Benjamin Dearborn of Massachusetts^ in 1819 presented a petition to congress stating that he had invented a "mode of propeUing carriages by steam, well calculated for the conveyance of the mail and any number of passengers," and praying that an experiment might be made to test its utility.' In 1813 William Hedley and Timothy Hackworth suc- ceeded in constructing the first locomotive which was run upon rails. George Stephenson, who was employed at a neighboring colhery, built a locomotive closely following that of Hedley, and within the next decade Hackworth Stephenson and others were busy with this problem; but results were unsatisfactory, as nothing was produced which would work as cheaply as horses, and interest was confined to a few investigators.* EARLY RAILROAD LITERATURE Popular attention was first attracted to the subject of rail- ways by Thomas Gray of Nottingham, whose "Observa- tions on a General Iron Rail-way" was first published in 1820. Gray deplored the perversity which had led investors to put so much capital into canals, and declared that there could be no comparison between horse and mechanical power. 1 Stevens, Documents tending to show the superior advantages of rail- ways and steam carriages over canal navigation (2 ed.), 15. ""Whose long life has been devoted to mathematical and mechanical studies and inventions; and no one has been more successful in this line of usefulness." — Sullivan, Suggestions on the canal policy of Pa., 25. (1824.) '15 cong. 2 sess., House Journal, 258. * Sinclair, ut supra, 10. Digitized by Microsoft® BEGINNING OF THE RAILROAD 55 He developed the idea of Doctor Anderson that through the general introduction of the railway the value of farm produce would be enhanced. By his plan " Each farmer would only require carts or caravans for running on the rail-way, and by having a branch rail-way laid down to his own estate, one horse would draw several carts or caravans to the hne of rail-way communicating with the town to which they are destined. Every market day steam-engines might ply along these lines and collect the farmers' Influence of j • ji • i • ji Grav's book caravans or carts m the mornmg, and m the evening the same engine might return and leave them at their respective branches . . . On arriving at the end of the rail-way branch, horses might then be employed to draw the caravans or carts off the rail-way carriage, and proceed with them into the market.* . . It would be found still more simple and less expensive to have two sets of wheels for each cart or caravan, one set for our present roads, and one set for the rail-way^: all pubHc vehicles may be provided with two sets of wheels, in order to take advantage of rail-ways wherever they may be adopted.'" In 1824 the Highland Society of Scotland published a compilation of essays upon railways, edited by Robert Stevenson, whose summary essay was an important contri- bution to the world's knowledge of the subject.^ The same year George W. Smith of Philadelphia published anony- mously several noteworthy pamphlets upon the comparative value of railways, roads, and canals. The first standard work upon railroads was Nicholas Wood's Practical Treatise on Rail-Roads, published in 1825. > This was Edgeworth's idea. 2 The substitution of the extra wheels for the extra truck was a contribu- tion of Gray. " Pp. 38-9 of sth ed., 1825. * Highland Society, Prize-Essays and Transactions, VI, 1-146; Smith, in Wood, ix. Digitized by Microsoft® .56 BEGINNING OF THE RAILROAD Wood, while a sponsor for railroads, reflected the popular doubt as to their immediate economic value in statements like the following: " After the observations I have previously made, respecting the use of locomotive engines, and the principles of their construction, it will be scarcely necessary for me to say, that I deem them worthy of attention; and that I think they will ultimately be made generally useful, and be extended, on suitable hnes of road, in preference to horses, in the con- veyance of goods along rail-roads. I must, however, beg leave to state, that I am far from beheving standard work ^^^^ ^^^ ^^ present arrived at any way near to a state of perfection; on the contrary, I think them far from perfect: the most ridiculous ideas have been formed, and circulated, of their powers; and though I am of opinion, when made the subject of attention amongst engi- neers, they will advance in improvement Hke other machines, they must as yet be considered only in their infancy, and as not having reached beyond the trammels of prejudice. It is far from my wish to promulgate to the world that the ridiculous expectations, or rather professions, of the enthu- siastic specuhst will be reached, and that we shall see them traveling at the rate of 12, 16, 18, or 20 miles an hour; nothing could do more harm towards their adoption, or general improvement, than the promulgation of such nonsense. "I recommend the use of them in proper situations, be- cause, after a daily opportunity of witnessing their perform- ance for nearly eleven years, I think the principle of their action is founded on good grounds: and that they will, ulti- mately, reach such a state of perfection, that, by facilitating the conveyance of goods at a rate of motion far beyond the power of horses or canals, they will be of infinite advantage to commerce."' In a second edition, which appeared in 1832, these remarks 1 Pp. 290-1. Digitized by Microsoft® BEGINNING OF THE RAILROAD 57 were omitted; but coming from one of the strongest advo- cates of the steam-operated railway, they serve to indicate the general skepticism of the time. An extreme illustration of this is found in the often quoted comments jm-en om- ^^^^ ^j^^ "absurd and ridiculous" claims made for the steam locomotive, which appeared in the London Quarterly Review in 1825: "It is certainly some consolation to those who are to be whirled at the rate of eighteen or twenty miles an hour, by means of a high pressure engine, to be told that they are in no danger of being seasick while on shore; that they are not to be scalded to death nor drowned by the bursting of the boiler; and that they need not mind being shot by the scat- tered fragments, or dashed in pieces by the flying off, or the breaking of a wheel. But with all these assurances, we should expect the people of Woolwich to suffer themselves to be fired off upon one of the Congreve's richochet rockets, as trust themselves to the mercy of such a machine, going at such a rate.'" It is not surprising, therefore, to find that an act passed by parliament in 1821, providing for the construction of the Stockton and Darlington railway, contemplated the exclu- The Stockton sive use of horses for motive power. But and Darlington George Stephcnsou was appointed engineer, raUway g^j^^ through his efforts an amendment to the act of incorporation was obtained which authorized the carrying of passengers and the operation of the road by steam engines.^ This line, twenty-five miles long, was opened in 1825, but so unsatisfactory were Stephenson's locomotives that the directors seriously thought of sub- stituting horses because of the lower cost of operation.' As a result of this failure, even scientific opinion was turned I XXXI, 362. ' Farrer, ut supra, VI, 275. 'Sinclair, ut supra, 12. Digitized by Microsoft® 58 BEGINNING OF THE RAILROAD against the locomotive. When in 1829 two of the most eminent engineers in England were engaged to decide upon the best motive power for the Liverpool and Manchester railway, then nearly completed, they reported that the advantages of stationary and locomotive engines were nearly balanced, but that on the whole, considering expense, station- ary power with rope traction was preferable. But Stephenson, who was also engineer of this road, again vigorously opposed the adoption of the plan. His protestations finally led the directors to offer a prize of £500 for the most successful locomotive. The competition for the prize at Rainhill, in 1829, brought but five new engines, three of which demonstrated that steam locomotion was practicable. The successful locomotive was the "Rocket," upon which the fame of George Stephenson rests.* With his victory at the Rainhill prize st^ enson s contest, and the successful opening of the service i- o Liverpool and Manchester, popular doubt was dispelled, and a reaction set in which soon developed into railway mania. To Stephenson is imdoubtedly due the credit for having been foremost in that little group of inventors in the North of England who made steam traction possible, and the far greater credit of having had the foresight to appreciate the future value of the locomotive engine when combined with the railway as an organic unit of transportation. Without doubt there has been a tendency to overlook the importance of the development of the railway. It is reasonable to be- lieve that had Trevethick's locomotive been tried upon a suitable track, results might have been more promising. The impor- Even after the success of the locomotive had tance of the been demonstrated, much time and effort was *^*'^'^ spent in the vain attempt to devise a steam carriage which could be operated upon common roads. • Sinclair, ut supra, 10-4. Digitized by Microsoft® BEGINNING OF THE RAILROAD 59 The irregularities in the surface of the best roads, however, and their constant change in grade, required engines of greater power. With greater power, weight was increased, and it was finally demonstrated that until an engine of com- paratively light weight could be devised the only hope for steam traction lay in the improvement of the roads.* Such improvement then being impossible upon the highways, the substitution of the railway was the only solution of the problem. THE RAILROAD DST AMERICA Although Evans and Stevens, in this country, had busied themselves with the subject of locomotive traction upon railways, their efforts were without direct result. Stevens in 1811 applied for a charter in New Jersey, and again in 1815. The second appUcation was successful, and to Stevens was granted the first raihoad charter in the United ^ , , ^ States.^ This act authorized the construction Early charters r ., i , of a raihoad between Trenton and New Brimswick, but capital in support of the venture was not forthcoming. Turning to Philadelphia, Stevens submitted an address to the council of that city, but there was no response.' In 1822 he applied for a charter for a railroad from Harrisburg to Pittsburgh, but the legislature of Penn- sylvania granted him, instead, a charter for a line to connect Philadelphia with Columbia on the Susquehanna.^ No further action was taken, and the charter was repealed in 1826 to allow the state to undertake the work which had proved so unattractive to private capital.^ In America as in England the tramway came as the fore- > Quarterly Review, XLIII, 381-3. (1828.) 2 L. 1815, 2 sess., no. 68. 'Ringwalt, Development of transportation systems, 67; McMaster, United States, V, 139. * L. 1823, no. 148. 5 Wilson, Internal improvements of Pa., 9. Digitized by Microsoft® 60 BEGINNING OF THE RAILROAD runner of the steam railroad. The earhest work of the kind in this country appears to have been constructed by Silas Whitney of Boston on Beacon Hill in 1807. Two years later Thomas Leiper built a tramway to connect his quarries on Crum creek, Delaware county, Pennsylvania, with tide-water on Ridley creek, a distance of about three- quarters of a mile. This was in constant use ^^ua^^'" until 1828. Other similar structures were laid down at Falling's Creek, Chesterfield county, Virginia, soon after 1810; at Bear Creek Furnace, Armstrong county, Pennsylvania, in 1818; and at Nashua, New Hampshire, in 1825.' A Boston editor early in 1822 recommended to the capi- taUsts of his city the construction of an iron railway between Boston and Worcester. "It is well k;jown," said he, "that Railways are in successful operation even in that coimtry of canals, Great Britain, and in other European states; and their practicability, and the faciUty they afford to the trans- portation of heavy articles, have been tested by experiments in this city."^ In 1823 a proposition was advanced for the construction of a railway near Charleston.^ The Quincy granite railway, three miles long, was built in 1826 to carry granite for the construction of the Bimker Hill monument from the quarries at Quincy to a landing on the Neponset river. Horses furnished the motive power, except at an incline where stationary engines were used. A part of this route is still used by the Old Colony railroad. A similar road was constructed at Mauch Chimk, Pennsylvania, in 1827 for the transportation of coal. This was a gravity road, with stationary power at the top of the grades. The Delaware and Hudson canal company, also in 1827, opened » McMaster, III, 494; Ringwalt, 68-9; Engineers' Club of Phila., Pro- ceedings, V, 418-20. 2 Columbian Sentinel, April 27, 1822. 2 Report of the supt. of educ. of S. C, 1823 : 8-9. Digitized by Microsoft® BEGINNING OF THE RAILROAD 61 a line sixteen miles long between Carbondale and Honesdale to connect its canal with its coal mines. Work was begun at Baltimore in 1828 upon the Baltimore and Ohio raihoad, which was the first important railroad project imdertaken in the United States. The following year a commission which had been appointed road^^Mrt" ^y *^ Massachusetts legislature in 1827 sub- mitted an elaborate report recommending the construction of a railroad from Boston to a connection with the Erie canal and the Hudson river.' The possibihty of building a railroad westward from Boston had been first officially considered in the message of the governor in 1825, as a substitute for the proposed canal to the Hudson,^ but the message of the following year contained a recommenda- tion in favor of the canal.' The legislature, however, was not willing to commit itself to the undertaking, and the report of the commission dispelled whatever doubt there may have been as to the feasibility of a railroad. This report recommended the construction of a road with rails of granite faced with iron, which should rest upon parallel walls of masonry set below the frost line. The space between was to be graded so as to form a path for horses. A sugges- tion was advanced that the labor of the horses might be relieved by providing platforms on the cars on which the horses, after hauhng the cars to the top of a grade, might ride and eat their provender while descending to a point where their work should be resumed.^ Reference was made to the success of locomotive engines in England, but horse- power was recommended on the ground that it would be cheaper under the conditions existing in Massachusetts.^ ■ Report on the practicability and expediency of a rail-road from Boston to the Hudson river, and from Boston to Providence. (1829.) ^ Speech of Levi Lincoln, June 2, 1825 : 10. 3 Ibid., June 6, 1826 : 16-8. < P. 7. » Pp. 24-6. Digitized by Microsoft® 62 BEGINNING OF THE RAILROAD After considering the matter with great deliberation, the legislature of that year refused to act. The next legislature reviewed the whole subject, and came to no decision. But while the state was imwilling to imdertake an enterprise in- volving so much risk, it offered every inducement to those who would test the new mode of transportation under local conditions. Consequently, in 1829 a charter was granted for the construction of a railroad from Boston to Worcester,' and in 1830, at the same session at which the legislature had refused a second time to undertake the work, charters were granted for three railroads to run out of Boston, one to Frank- lin coimty and Vermont, one to the New York state Hne, and a third to Providence.^ None of the corporations thus provided for were organized. At the second legislative ses- sion of 1830, a charter was granted for the Boston and Lowell.' The Boston and Providence and the Boston and Worcester received their charters the following year,* and in 1833 the Western railroad was chartered to build a line from Worcester to a connection with Albany.^ With the exception of the Baltimore and Ohio and the Boston and Worcester, the lines begun at this early period were designed for local needs, and most of them were projected to supplement navigable waterways. Thus the Mohawk and Hudson served to connect Albany with the Erie canal at Schenectady, over a route which it was im- iiiaryTo ^c^^s Possible for a canal to follow ; the South Carolina raihoad made Charleston the outlet of the trade originating on the Savannah river; the New Castle and Frenchtown. united the waters of Chesapeake and Delaware bays; and the Camden and Amboy brought the Delaware • Speech of Levi Lincoln, 1829, c. 26. 2L. 1830, t. 93-s; Senate bill and report respecting the Boston and Lowell, 8. (1837.) 3L. 1830, L. 4. i L. 1831, c. s6, 72. 'L. 1833, c. 116; Bliss, Hist, memoir of the Western railroad, 19. Digitized by Microsoft® BEGINNING OF THE RAILROAD 63 river in touch with New York harbor. Pennsylvania built raihoads as part of the state works between Philadelphia and Columbia, and Holidaysburg and Johnstown, where the construction of a canal was impossible. The first railroad in Western New York, the Ithaca and Owego, was built to connect the New York system of canals with the waterways tributary to the Susquehanna. All of these lines were con- structed before 1835. Only in exceptional cases was the raihoad designed to compete on equal terms with a canal, and it was not until the success of the Boston and Lowell in diverting traffic from the Middlesex canal, that the im- portance of the new mode of transportation became fully understood. That Americans were thoroughly alive to the importance of developments abroad appears from frequent mention of English experience, as well as from the fact that commis- sioners were deputized to study English improvements. Among the witnesses of the great contest of locomotives on the Liverpool and Manchester were two American engineers. One represented the South Carolina railroad, and the other soon afterwards entered the service of the Dela- ware and Hudson canal company. Orders were placed almost immediately by this company for three English loco- motives for use upon the Carbondale and Honesdale rail- way. On August 8, 1829, the first locomotive in America was run on this line, but the track was too hght to support First use of the the Weight, and the trial was a failure for that locomotive in reason only.' The second road to use a loco- Amenca motive was the South Carolina, or Charleston and Hamburgh, which in November, 1830, began running an engine made at West Point, New York. Not only was this company the first to use an American made locomotive, but it was also the first definitely to replace horses with locomotives.^ ' Brown, Hist, of the first locomotives in Amer., 75-6, 83-92. 2 Ibid., 147. Digitized by Microsoft® 64 BEGINNING OF THE RAILROAD This decision involved no small risk, for it was long before the locomotive became an assured success. There were few of the early lines in this country which did not have an in- clined plane. The South Carolina road had one for some years after locomotives were adopted. On the Mohawk and Hudson there was an inclined plane at Albany and another at Schenectady. At Parr's Ridge, between the valleys of the Potomac and the Patapsco, the Baltimore and Ohio was equipped with a series of four such planes. Those on the Portage road in Pennsylvania were difficulties regarded as among the engineering wonders of the age.' Moreover, it is necessary to remember that in locating a railroad in that period, the engineer was forced to adjust his plans to financial necessity, until the growth of through trafl&c made economy of opera- tion a more important factor than low first cost of construc- tion. Sharp curves, steep grades, and winding courses were characteristic of all early American railroads. To meet topographical difficulties, American mechanics early adapted their locomotives, and rolling stock as well, to con- ditions which were unknown in England. Equalizing beams for locomotives enabled American trains to keep upon un- even tracks where an English train would have been ditched, and four-wheeled swivel or bogie trucks have overcome the menace of sharp turns. At best, the early locomotives were feeble affairs. Upon the Mohawk and Hudson, according to a news letter written in 1 83 1, it was foimd necessary during the winter to with- draw the locomotive engines and return to horses.^ When in 1834 a steam locomotive was placed in service upon the Philadelphia and Columbia railroad, the managers had so little confidence in its power that they sent a horse car with it, and had relays in readiness to go to its relief in case of a ' Stevenson, Sketch of the civil engineering of North Amer., 185-6. ' Silliman's Journal, XXI, 385. Digitized by Microsoft® BEGINNING OF THE RAILROAD 63 breakdown. That their precautions were warranted is indicated by the fact that the passengers were at times called upon to get out and start the train with a push/ An early advertisement of this road reads: "The locomotive engine built by M. W. Baldwin of this city, will depart daily when the weather is fair, with a train of passengers' cars. On rainy days horses will be attached." It is not surprising, then, that upon all of the early American railways, horses were retained for some time after the steam locomotive had been introduced, and that before the final Experiments inj,. j., iij* r motive power adoption of Steam, other forms of power were tested. Both the Charleston and Hamburgh and the Baltimore and Ohio experimented with cars pro- pelled by sails, and with horse-power locomotives equipped with tread-mills, by means of which the motion of the horses in the car was communicated to the wheels.^ Upon the Baltimore and Susquehanna railroad, two cars were joined by shafts of timber, and the horses, hitched between, were kept from falling by a broad belt of leather, which was passed under their bodies and attached to the shafts.' But the horses gradually gave way, and with their displace- ment by steam engines came an end to the long dispute over the relative merits of canals and railways. In 1825 the "Pennsylvania Society for the Promotion of Internal Im- provements in the Commonwealth," organized in 1824, took Strickland's up the cause of railroads under the active leader- mission and ship of Mathew Carey. In 1825 this society "P°^ sent William Strickland to England, to investi- gate in detail every phase of the question. From his reports, which were of great service in shaping the popular mind in favor of railroads, a significant sentence, under date of January 16, 1825, may be quoted: "In fact the introduction of the 1 McClure, Old time notes of Pa., I, 123. 2 Brown, 123-5; State Rights and Free Trade Almanac. (1832.) 3 McMaster, VI, 90. 6 Digitized by Microsoft® 66 BEGINNING OF THE RAILROAD locomotive has greatly changed the relative value of rail- ways and canals: and, where a communication is to.be made between places of commercial or manufacturing character, which maintain a constant intercourse, and where rapidity of transit becomes important, it cannot be doubted that railways will receive a preference in consequent of this very powerful auxiliary."' This was the form in which the state- ment was finally approved by the society. It became known some years later that Strickland, after witnessing the per- formance of some of Stephenson's locomotives, became so enthusiastic that in his original report he made the prophecy that railways were destined to supersede canals. But the committee, fearful that Strickland's opinion might be given an official interpretation and thus embarrass the society, re- wrote the prophetic paragraphs, and prevented Strickland from declaring what was soon to become an established f act.^ • Reports on canals, railways, roads and other subjects, 31. ' Kane, Amer. Phil. Soc, Proceedings, 1854: VI, 28-32, Digitized by Microsoft® CHAPTER IV The Effect of Early Experiments on Popular and Investment Opinion We have abundant testimony to show how slow was the popular mind to come to an intelligent appreciation of the nature and possibilities of the railroad. To the early legis- lator the railroad was an improved common road, to be ranked with the macadamized turnpike. The first railroad Vague ideas charters were patterned directly after turn- of the nature pike charters, and in some instances this fact of the raUroad jg evidenced by the charter name of the cor- porations. Kentucky in 1828 passed an act incorporating the "Lexington and Frankfort Turnpike or Railroad com- pany";^ and the following year chartered the "Lexington Railroad or Turnpike company " ; ^ and Maryland ' and Delaware, * about the same time, authorized the New Castle and Frenchtown Turnpike company to build a railroad, and to change its corporate name accordingly. Massachusetts in 1832 chartered the Hoosac Rail or Macadamized Road company .° That this idea was shared by at least a portion of the press is evident from a suggestion of a Boston news- paper that the proposed railroad to the Hudson might be constructed in sections upon the basis of small annual ap- propriations, with the idea of its ultimate extension to Troy if it should prove a success. "And so," the article con- cludes, "in a few years we might have Railways on all our » L. 1827-8, c. 80. * L. 1829, .-. is8. 2L. 1828-9, c. 159. ^L. 1832, c. 49. " L. 1827-8, c. 207. 67 Digitized by Microsoft® 68 EFFECT OF EARLY EXPERIMENTS great roads." ' As late as 1840 the idea was still present; John Sherman wrote of the Sandusky and Mansfield: "No one then thought of the movement by railroad over vast distances, of grain, stock, and merchandise, but regarded the innovation as a substitute for the old wagon trains to the lakes." ^ It is not surprising, therefore, that in almost every instance railroad construction costs were in excess of estimates, and that maintenance also was more expensive. In this con- nection it is to be remembered that the railroads were re- quired to handle business in a different way from what was originally intended; that they were able to stimate o accommodate a much larger volume of trafiSc cost too low ° than had been originally thought possible; and that they created a large amount of new business wherever they were built. Without any question, it was this last named fact which made it possible for the early railroads to survive the wastes of the experimental period. From the soUd granite rails of the Quincy railway, a dis- tant line of descent can be traced to the standard track of to-day. In the construction of the Baltimore and Ohio railroad from Baltimore to the Point of Rocks, every known mode of track construction was tested. "Thus," says Bowen, "the granite and iron rail; the wood and iron on stone blocks; the wood and iron on stone sleepers, supported by broken stones; the same supported by longitudinal Waste of cap- ground-siUs, in place of broken stones; the log itai in experi- rails, formed of trunks of trees worked to a ments ^Qyel surface on one side to receive the iron, and supported by wooden sleepers; and the wrought iron rails of the English make — all had been tried, and as early as 1832 constituted different sections of the road." ^ Other • New England Palladium, February 3, 1826. 2 Sherman, Recollections, I, 81. = Bowen, Rambles in the path of the steam horse, 64. Digitized by Microsoft® EFFECT OF EARLY EXPERIMENTS 69 companies profited by these experiments on the Baltimore and Ohio, but no one railroad was the prototype of any other. UnUke English engineers, who slavishly followed the models of Stephenson, those in charge of the construction of Ameri- can railroads strove for originahty, with the result that im- provement was so rapid as to attract to this country European engineers desirous of obtaining suggestions to aid them in their work.' The fiat iron bar resting upon longitudinal timbers was at first generally preferred, as its elasticity prevented the excessive jarring which inevitably accompanied the use of iron-faced granite construction, and its original cost was about half that of any other form. The Boston and Lowell railroad constructed its track so solidly that it was believed to be practically indestructible. Granite cross ties were used throughout as supports for iron edge-rails, and this structure was so unyielding that locomotives and rolling stock were continually breaking down. Within a few years, almost the whole of this "indestructible" road had been replaced by a track of more elastic construc- of ^ac*k '° °"" tion.^ A similar experience was met with upon those sections of the Baltimore and Ohio which had been laid with iron rails upon sills of granite. Engineers whose experience had been limited to work upon the Cumberland road were employed to locate the Balti- more and Ohio, and they appear to have overlooked the fact that they no longer had the resources of the national treasury to draw upon. Not only did they build elaborate stone structures over streams where temporary trestles of piling would have sufficed, but they compiled estimates for granite construction upon the basis of experience in a sand stone country.' In the attempt to reduce first costs ' Latrobe, Baltimore and Ohio railroad, 14. 2 Chandler, Hist, note on early Amer. railways, Wis. Acad, of Sci., Arts, and Letters, Transactions, XII, 317-24. ' Latrobe, 6-7, 10. Digitized by Microsoft® 70 EFFECT OF EARLY EXPERIMENTS of construction, engineers of many of the early railroads wasted millions of dollars upon experimental forms of road- way. Thus the original plans of the New York and Erie railroad provided for two hundred miles of track upon piles, with the idea of obviating the necessity of grading. Upon this scheme a miUion dollars was lost.* The South Carolina railroad was laid for miles upon a temporary structure of piles, and a large part of the Syracuse and Utica railroad was also originally constructed in this manner.^ Another source of loss to early railroads was the absence of a standard gauge. The wheel base of the early English road carts was five feet in width by outside Differences in jjieasuj-gment, and the first tramways were built to conform to these carts. As the com- bined width of the first rails used happened to measure three and a half inches, the space between the rails, or the gauge, was four feet eight and a haK inches. This gauge was adopted by Stephenson as the most economical in construc- tion both of locomotive and track; and notwithstanding the plea of other able engineers for a broader gauge, the one favored by Stephenson ultimately became the standard in England. So long as English locomotives were exclusively used in the United States, the gauge of American tracks was the English standard, but American engineers began to experiment with gauges as soon as they built their own engines. The English standard was originally adopted throughout New England and the Middle West, and a five-foot gauge generally prevailed in the South. In the Middle States there was a confusion of gauges; Pennsyl- vania and Ohio had seven different widths of track, six of which ranged with fractional variations between standard gauge and four feet ten inches. Many of our most promi- ' Mott, Between the ocean and the lakes, 48-9, 323-5. 2 Ibid., 323; Annual report of the Louisville, Cincinnati, and Charleston railroad, 1838. Digitized by Microsoft® EFFECT OF EARLY EXPERIMENTS 71 nent lines were originally constructed with other than a standard track. The Erie and the Albany and Susquehanna had a gauge of six feet, as did the Delaware, Lackawanna, and Western. The Chicago and North Western also adopted the six-foot gauge, but after the road had been constructed as far as Elgin, the track was relaid at standard width. The Missouri Pacific had a gauge of five feet six inches; the Chesapeake and Ohio, five feet; the Cincinnati, Hamilton, and Dayton, four feet ten inches; the Lake Shore and Michi- gan Southern, four feet nine and one-half inches; and the Pennsylvania, four feet nine inches.' The growth of through traffic ultimately compelled a standardization of gauge throughout the country at a great cost. In the controversy about the relative costs and merits of canals and raihoads, the opponents of the railroad made much of the argument that to compete with a canal a rail- road required a double track so as to accommodate without interruption cars proceeding in opposite directions. When The question the first American railroads were built, it was of signals and found possiblc to Operate with a single track double track supplemented by sidings at convenient dis- tances. But in the absence of any system of signals, when- ever a train failed to appear upon time, there was no means of finding out its whereabouts. Upon the Boston and Wor- cester railroad, trains left the terminals at the same time and met at South Framingham; and to insure against accidents or excessive delay in case of a breakdown, a relay of horses was maintained at intervals of five miles along the route.^ The Philadelphia and Columbia raihoad was also originally constructed with a single track. As this was a pubhc high- way on which any one might place a car, no schedule of operation was practicable. To prevent disputes between teamsters the ofiicials set up posts half-way between termi- • Vernon, American railroad manual, 1873, passim. 2 Currier, Reminiscences, 17. Digitized by Microsoft® 72 EFFECT OF EARLY EXPERIMENTS nals, and made a rule that when two cars met, the one that had passed the centre post should have the right of way. The route was very crooked, and in many places it was impossible to see far ahead. So when a driver left a turn- out he would first proceed at a slow pace because of the possibility of being compelled to return, but as he approached the centre post he could drive at top speed in order to be able to force back any cars which might be approaching from the opposite direction. Accidents were frequent, and disputes between drivers were of such constant occurrence that it was found necessary to lay a second track.^ It was not until the construction of this additional track that locomotives could be introduced upon the road. But the state at first furnished power only upon the inchned planes. The shipper packed his goods into his own cars, and then engaged an engineer to haul them. The delays thus caused resulted in the diversion of a large amount of traffic to rival routes, and the loss of much perishable freight.^ In 1835 the state began to furnish the whole of the motive power, but the cars were still owned by individuals or com- panies.^ It was not the intention of early legislators that railroad companies should have any preferential or exclusive use of the means of transportation upon their tracks. With the exception of the Baltimore and Ohio, few railroad com- panies of this period were granted charters which did not expressly provide that the road might be used Bhip^of c^s "^" ^y ^^y person who would comply with neces- sary rules as to form of wheels, style of cars, and weight of loads. The idea was distinctly in mind that the railroad was to be operated precisely like a turnpike, with gates at intervals along the route for the collection of tolls. But before many of these roads were constructed, • Roberts, First railroad over the Alleghany mountain, 72. 2 Amer. Railroad Jour., V, 68. a Ibid., V, 96. Digitized by Microsoft® EFFECT OF EARLY EXPERIMENTS 73 the necessity for operation by the railroad company itself had become apparent, and few instances are recorded where trouble was experienced with individual owners of cars. Upon the Ithaca and Owego railroad owners of private cars were compelled to give up their rights under the charter ^ by the refusal of the company to haul any but its own cars over the inclined planes.^ ELEMENTS OF OPPOSITION From its first suggestion, the construction of practically every railroad was vigorously opposed. Existing trans- portation agencies were arrayed against threatening com- petition in its new form, and promoters of rival railroad projects blocked each others' movements at every oppor- timity. Even in cases where two hnes were not prospective competitors for trafiic, they met in the struggle for financial Rival transpor- Support. The Boston and Lowell project was tation com- frowued upon by the promoters of the through pames ^^^ from Boston to the Hudson, who opposed all local lines as tending to divert the Hmited supply of avail- able investment capital. Again, when the fact became evi- dent that railroads might compete with canals for heavy traffic, it aroused mingled feehngs of surprise and resent- ment. New York had incurred a heavy debt in the con- struction of the Erie canal, and mass meetings throughout the state demanded that railroad competition should not be allowed to affect the receipts from the canal. The Mo- hawk and Hudson had already been authorized to haul freight at rates not to exceed the combined tolls and trans- portation charges upon the canal.' In granting the charter of the Utica and Schenectady in 1833, the legislature in response to popular clamor made a complete change of front, > L. 1828, c. 21. ' Gerstner, Die innernCommunicationen derVereinigten Staaten, I, 194-7. ' L. 1826, c. 253. Digitized by Microsoft® 74 EFFECT OF EARLY EXPERIMENTS and prohibited the carrying of any property except the baggage of passengers.^ The charter of the Attica and Buf- falo, which was granted in 1836, authorized the handhng of freight traffic,^ and the powers of this company were con- ferred upon the Lewiston, the Syracuse and Utica, the Auburn and Rochester, and the Schenectady and Troy, the same year. During that part of the year, however, in which the canal was in operation, the Syracuse and Utica was required to pay into the canal fund the amount which the state would have received in tolls if the freight had passed through the canal.' It was not until 1844 that the Utica and Schenectady was permitted to carry freight, and then only during the suspension of navigation and upon the pay- ment of canal tolls. By the act which conferred this privi- lege, moreover, the requirement of canal tolls was imposed upon all through trafi&c upon the Syracuse and Utica, the Auburn and Syracuse, the Auburn and Rochester, the Tona- wanda, and the Attica and Buffalo throughout the year.^ In 1847 the Utica and Schenectady was authorized to carry freight at all seasons of the year, but the provisions of the act were also extended so as to require canal tolls from the Schenectady and Troy, and the Albany and Schenectady (Mohawk and Hudson), upon aU through freight.' The general raihoad incorporation act of 1848 required canal tolls from railroads parallel to canals and within thirty miles, and this was renewed in the act of 1850; but in 1851 with the change in the popular attitude toward railroads, all restrictions of this character were removed." In Pennsylvania, too, where there were many state canals, the people were at first strongly prejudiced against aU rail- road corporations. It was due partly to this sentiment and partly to the activities of agents of the Baltimore and Ohio ' L. 1833, c. 294. i L. 1844, c. 335. ' L. 1836, c. 242. 6 L. 1847^ c. 270. s L. 1836, c. 292. 6 L. 1851, c. 497. Digitized by Microsoft® EFFECT OF EARLY EXPERIMENTS 75 that a clause was inserted in the charter of the Pennsylvania raihoad company which required the payment of a tonnage tax of five mills per mile between March lo and December of each year.' While this tax was reduced to three Pennsylvania mills, and subsequently removed upon coal and lumber traffic, competition with the Baltimore and Ohio for through business was seriously handicapped imtil 1861, when a special act was obtained for its removal.^ Turnpikes and bridge companies and the proprietors of stage lines were everywhere found among the most active opponents of railroads.* When the Utica and Schenectady was chartered in 1833, the company was required to tender $22.50 for each share of the stock of the Mohawk turnpike company, which existed imder a charter granted in 1800.^ Turnpike and AH over the country stage fines went out of bridge com- business most reluctantly with the coming panics q£ railroad competition, for they represented a large investment of capital and employed many men. The promoters of the Boston and Worcester railroad found among their chief opponents the owners of stage fines and the people dependent upon them. At the beginning of the first winter after the opening of the road, they decided to suspend opera- tions rather than remove the snow, but this gave the stage owners so effective an argument that train service was soon restored.^ The farmers, also, were hostile. They feared that with the introduction of railroads the market for horses and hay and grain would be ruined, and that the locomotives would cause a rise in the rates of insurance upon their buildings.' Tavern keepers deriving their trade from stage and wagon travel presented every possible obstacle to the construction ' L. 1846, no. 262. ^McClure, Old time notes of Pa., I, 136-42; L. 1861, no. 100. ' McCIure, I, 123-4. ^ Currier, 15-6. * L. 1833, c. 294. • Hill, ut supra, S43- Digitized by Microsoft® 76 EFFECT OF EARLY EXPERIMENTS of the railroads; and in Pennsylvania, where the Conestoga wagon trade was heavy, this opposition was for a time effect- tive.^ In Connecticut, we are told, an eloquent divine went about lecturing in opposition to railroads, declaring that their introduction would necessitate the building of Farmere^^^^^ ^ great many insane asylums, as people would be driven mad with terror at the sight of loco- motives rushing across the coimtry with nothing to draw them.^ And the townspeople of Newington in the same state, having learned that a line of railroad was projected through their neighborhood, are said to have presented to the directors a remonstrance which represented that they were a peaceable, orderly people, and begged that their quiet might not be in- terrupted by steam cars and the influx of strangers.' CapitaHsts were as a rule averse to putting money into early railroad ventures, and they met the plans of promoters not only with ridicule, but with outright opposition. Such an attitude naturally served to deter small investors, and as it was reflected in the conservative press of the day, its influ- Capitaiists and ence was widespread. Many editors were the conserva- accustomed to single out railroad matters for tive press ^.j^^ subjects of their most scornful attention. The Boston Courier on June 27, 1827, greeted in these words the announcement of the commissioners that a railroad might be built from Boston to the Hudson: "Alcibiades, or some other great man of antiquity, it is said, cut off his dog's tail that quidnuncs might not become extinct for want of excitement. Some such notion, we doubt not, moved one or two of our natural and experimental philosophers to get up the project of a railroad from Boston to Albany — a project which everyone knows who knows " McClure, I, 133-4. ' Lamb, Glimpses of the railroad in history, Mag. of Amer. Hist., XXV, 442. 2 Kennedy, American railroad, Mag. of West. Hist., IX, 45-6. Digitized by Microsoft® EFFECT OF EARLY EXPERIMENTS 77 the simplest rule of arithmetic to be impracticable, but at an expense little less than the market value of the whole territory of Massachusetts; and which, if practicable, every person of common sense knows would be as useless as a railroad from Boston to the moon." ' In general there was a popular feeling of opposition arising from doubt both as to the mechanical and financial prospects of railroads. Those who were most active in their promo- tion were looked upon as victims of a new form of dementia. Edward Everett Hale tells us that the friends of his father, Nathan Hale, left his house with expressions ^ements^o^^^ ^^ pj^^ because he had declared his belief in the practicability of a railroad from Boston to Worcester; and he points out that enthusiastic as were the promoters of this road over the success of their project, they did not venture to mention the possibility of using locomotive power until their second annual report.^ THE RESULTS OF PRACTICAL DEMONSTRATION But repeated practical demonstrations firmly persuaded the popular mind that the railroad presented a solution of the transportation problem for those whose interest lay far removed from the coast and from canal and river improve- ments. As soon as this conclusion became general, the de- mand for railroads overcame all opposition that was brought to bear upon charter-making and appropriating bodies. The regularity of large dividends declared on shares of the New England roads, the increasing of traffic beyond all estimates, the liberality of inducements offered by committees desiring an outlet for products and an inlet for manufactured goods, and the encouragements and security offered in charter grants, gave to capital the inducement and assurance needed to focus investment upon this form of imdertaking. > Quoted by Hill, ut supra, 542. 2 Hale, Memories of a hundred years, I, 309-10. Digitized by Microsoft® 78 EFFECT OF EARLY EXPERIMENTS No one influence was responsible, however, for the mania for investment in raihoads which soon arose. There had been a long period of uninterrupted peace, and a great ad- vancement in mechanical invention. Between 1830 and 1837 the nominal banking capital of the United States in- creased from $110,000,000 to $225,000,000. An incident contributing to speculation was the removal of the national deposits from the United States bank, and the distribution of some $29,000,000 among the several state institutions, making this fund available for local uses.* The immediate result of the expansion of bank capital and the increased liberaUty of bank charters was a multipHcation of paper notes, with the inevitable increase in prices and apparent profits. But the more potent force in distributing the finan- Specuiative cial equilibrium was the speculative profits activity in the derived from land sales, townsite promotions, thirties g^jj^j margins on shares. This brought about a state of affairs in which "men acted as if a short and secure road to wealth had been discovered on which all might travel, and he who went the fastest would be the first to reach the desired end." ^ Some idea of the popular point of view regarding profits may be learned from Gerstner, who, writing in 1839, ^^^ter the panic had brought about a more conservative attitude, observed that in Louisiana a person, "speculating with prudence" might obtain a return of fifteen or twenty per cent.' In this period state and local debts greatly increased, and the funds obtained by public borrowing were added to the stream which led to the maelstrom of ruin reached in the panic of 1837. Basing their hopes upon the unquestioned natural wealth of the country, European investors gladly contributed ' Curtis, Debts of the states, North. Amer. Rev., LVIII, 113. (1844.) 2 Ibid., 114. = Gerstner, Internal improvements in the U. S., Jour, of the Franklin Institute, XXVI, 365. Digitized by Microsoft® EFFECT OF EARLY EXPERIMENTS 79 to enterprises, the returns from which were doubtful, or at best remotely prospective. This movement had only begun when the United States reversed its policy toward the con- struction of public improvements, and thus threw the burden upon the individual states. Under stimulus of this legacy of duty several states entered upon the direct construction of railroads-, and most of the others subsidized the private corporations which were formed to undertake the work. With the distribution of the surplus revenue from the na- tional treasury in 1837 added to the internal improvement funds derived from a percentage upon the sales of public lands, the states were adequately equipped to supply their actual needs, but not those which they were led by popular enthusiasm to assume. Fanciful as were the schemes of some of these states, they could not compare with the glowing visions of railroad stockholders, whose optimism can only be characterized as frenzied. Stock which a short time before could not be Eagerness to sold at any price was now eagerly sought, obtain railroad When Subscription books were opened, it was ^*'"^'' no xmcommon thing to have the stock over- subscribed several times. The experience of the Baltimore and Ohio was typical. "Everybody wanted stock," we are told. "The number of shares subscribed were to be appor- tioned if the limit of the capital should be exceeded; and every one set about obtaining proxies. Parents subscribed in the names of their children, and paid the dollar on each share that the rules prescribed. Before a survey had been made — before common sense had been consulted, even, the possession of stock in any quantity was regarded as a pro- vision for old age; and great was the scramble to obtain it. . . . The directors, availing themselves of the public feel- ing, gratified their subscribers by permitting them to double their stock." ' ' Latrobe, 6-7. Digitized by Microsoft® 80 EFFECT OF EARLY EXPERIMENTS The reports of foreign visitors give additional evidence as to the excitement of the popular mind in this period. "It seldom happens," wrote an English traveller, "that a com- pany cannot be formed for want of subscribers. I found that in most cases, shares were taken in a shorter period than we in Europe take to consider or to sign our names. This does not exclusively apply to raihoads, but also to banks, canals, and all possible undertakings. Money is generally so abundant, that most proposals are Hstened to with a view to make a profit." ^ And ChevaUer, writing in 1835, said: "Everybody is speculating, and everything has become an object of speculation. The most daring enterprises find encouragement; all projects find subscribers. . . . The principal objects of speculation are those subjects which chiefly occupy the calculating minds of the Ameri- cans, that is to say, cotton, land, city and town lots, banks, railroads. . . . Speculations in railroads have hardly been less wild than those in land. The American has a perfect passion for railroads." ^ Under stimulus of popular enthusiasm, railroad con- struction proceeded at a rapid rate. Beginning with a few lines radiating from shipping cities, and short local connections between interior points, a vast net of railroads rapidly spread over the country. The lines nmning from Boston to Lowell, Worcester, and Providence were all opened within the year 1835. The Nashua and Lowell was com- pleted in 1838; the Western was opened to Albany in 1842; and the New York, Providence, and Boston struction"" ^^*^ extended as far west as Stonington by 1837. In 1839 New Haven was connected with Hartford. Following the completion of the Mohawk and Hudson between Albany and Schenectady in 1831 came the Schenectady and Saratoga a year later, and the Rens- ' Arfwedson, The U. S. and Canada in 1832, 3, and 4: II, 262. ^ Chevalier, Society, manners and politics in the U. S., 305-7. Digitized by Microsoft® EFFECT OF EARLY EXPERIMENTS 81 selaer and Saratoga in 1835. In Delaware, the New Castle Lines con- 3-iid French town was in operation in 1832. structed within By 1834 when Pennsylvania's state works the first decade ^^^^ opened to Pittsburgh, the Baltimore and Ohio had reached Harper's Ferry. The Washington Branch of the Baltimore and Ohio was completed in 1835, and three years later, the Philadelphia, Wilmington, and Baltimore was opened. With the completion of the Camden and Amboy in 1839, a through line was established between New York and Washington. In the South the Charleston and Hamburgh was in operation as early as 1833; and at that date its one hundred and thirty-six miles made it the longest railroad in the world. Georgia was late in starting, but the line from Tuscumbia to Decatur about the Muscle Shoals of the Tennessee river in Alabama was completed in 1833. Louisiana had one short hne from New Orleans to Lake Ponchartrain as early as 1831, and the Lexington and Frankfort, the first railroad in Kentucky, was finished in 1835. Railroad construction was not checked by the depression following the panic of 1837. According to one authority, the crisis was really of advantage to railroads because it Construction effectually put an end to the building of canals.* during the de- Figures of construction supplied by Poor and pressionofi837 the Tenth Census reports generally agree in few particulars, but they alike record a steady increase in railroad mileage until 1842. By 1835 over one thousand miles of road were completed. During the next five years, nearly two thousand miles of road were added. The year 1 84 1 was one in which construction exceeded that of any year prior to 1849, ^'^^^ seven hundred miles being built ready for use. Construction during the period from 1840 to 1850 was 1 Hadley, Railroad transportation, 33. But see Burton, Financial crises, 286. Digitized by Microsoft® 82 EFFECT OF EARLY EXPERIMENTS heaviest in New England, but everywhere growth continued with only temporary and local interruptions. Local lines Construction rapidly multipUed, and connecting, began to during the form through routes. By 1850 a second forties period of railroad construction was ushered in, and hnes reaching far into the interior were boldly under- taken. Before that date, rail communication with the Lake country was possible only over the route from Albany to Buffalo; and a single line existed between the Ohio and the Lakes. In 1849 the Michigan Central reached Lake Michi- gan, and opened a lake and rail route to Chicago. In 185 1 Boston obtained an independent entrance to the West through Ogdensburg, and the same year saw the opening of the New York and Erie to Dunkirk. With the building of the Cleveland and Toledo in 1853, through rail communi- cation was first opened to Chicago. The Baltimore and Ohio reached Wheeling in 1853, and Parkersburg three years later. In 1854 the Pennsylvania railroad was com- pleted to Pittsburgh, and the Chicago and Rock Island reached the Mississippi. The next year the Galena and Chicago Union railroad was opened to the Mississippi; and the Memphis and Charleston was completed through to that stream in 1857. By 1858 the Hannibal and St. Joseph had reached the Missouri river, and a year later the Mobile and Ohio and the Louisville and Nashville were opened. At the outbreak of the Civil war construction necessarily fell off, but within a single decade mileage had increased from nine thousand to thirty thousand; and the greatest gains were not in the thickly settled portions of the Atlantic coast, but in the South and West, where a wealth of undeveloped resources lured settler and promoter alike. Digitized by Microsoft® CHAPTER V The Economic Basis of Transportation Development A HUNDRED years ago the only railroad known was the tramway. Twenty-five years later the steam locomotive existed as an object of speculative interest, but it had no place in the world's industrial system. The second quarter of the century was given over to experiments, and to the development of practical ideas of construction and management; yet during this brief experimental period about eighteen thousand miles Capital de- °^ railroad were built, and over $1,500,000,000 voted to trans- of capital expended. More than nine thousand portation en- miles of this development took place within erpnse ^-^^ United States, — a new country, with little capital available. It is at first a matter of surprise that such large capital should have been devoted to a new undertak- ing, and more especially that a large proportion of the ex- penditure should have been in a country slightly developed and little known. Some writers have regarded it as a period given over to reckless adventure, which is said to have brought with it wholesale destruction of capital and national disaster. But we must not forget that this was also a time of great material progress, and that few of these early railroads were unsuccessful from the point of view of national wealth. In England such enterprises as the Liverpool and Manchester, the London and Southampton were got under way. In America the Western, the Boston and Providence, the Old Colony, and the Boston and Lowell of Massachusetts; the Hartford and New Haven of Connecticut; the Philadelphia and Columbia and the Philadelphia and Trenton of Penn- 83 Digitized by Microsoft® 84 ECONOMIC BASIS OF TRANSPORTATION sylvania; the Camden and Amboy of New Jersey; the Balti- more and Ohio and the Baltimore and Susquehanna of Maryland were a few among the many successful projects launched before 1850. Taking the entire list of roads built during this early period, it would be difficult to find even a local tramhne which has not become a permanent part of some splendid system of transportation. In England, Ger- many, France, Belgium, and in the United States these early railroads were, and are to-day, amoiig the most valuable and productive properties in the whole economic system. Further- more, not a few of these early roads were regarded as conservative investments, and subsequent experience has approved the judgment of the men of that day who had sufficient capital fully to equip the enterprises. Within a century it is probable that the people of the United States had invested no less than twelve billion dollars in the im- provement of country roads and turnpikes, one billion dollars in river and harbor and canal improvements, state and national, and twelve billion dollars in the construction and equipment of tramlines and railroads, — not less than twenty-five billion dollars of capital found employment in inland transportation enterprise. The principle underlying investment is a judgment of certainty of return. To attract the investor to old and well established enterprise, there must be assurance of income on The economic capital expenditure. To attract the investor to basis of the new and untried fields, there must be an assur- railroad ^^^^ ^y {-yicygg^sed profits, — something above the current rate. Something in the nature of a "bonus" must be held out to cause thoughtful men to turn away from old and well-known lines of investment. What was there to give this assurance? What was the situation which offered profits in transportation development? A vast wilderness with only a fringe of civilization, a con- tinent almost unexplored, was the America of 1790. The Digitized by Microsoft® ECONOMIC BASIS OF TRANSPORTATION 85 frontiersman was still to be found in the small clearings of Maine, New Hampshire, and Vermont. Fully two-thirds of New York and Pennsylvania was yet unclaimed, — a com- mon hunting ground. In this situation was found the extraordinary inducement, the "bonus" held out to investors in any schemes of transportation which would make the inland resources available. Here were whole empires of The induce- valuable timber and agricultural lands, rich ment to invest- deposits of iron, coal, and other minerals — ™*'^* all materials of national wealth — waiting, a prize to him who might claim them as a reward for enter- prise. The cost of transportation equipment has been enormous, yet the inducement has been at all times sufhcient to attract the investor. The financial inducement to transportation improvement y was of two kinds : the saving which it would make within the territory already developed; and the interior resources which might be reclaimed beyond the reach of the system supplanted.^ By way of illustration of the relative advan- tages of the various kinds of road equipment, let us take a town as a centre. Assuming all the land round about equally adapted to yielding a crop of oats, which might be marketed at ten dollars an acre on delivery at this trade centre: Over an ordinary horse path or trail a horse may carry about two hundred pounds; on a cart, over a good dirt road, the same horse may draw one thousand pounds; on a Saving made turnpike of macadam bed, about two thousand possible by pounds. From this statement of the case, the better roads relative advantage to the producer of the better road is apparent. If a pack horse could move the product of two acres a mile a day, at a cost of two dollars, then the net return would be nine dollars from each acre one mile from the trade centre, eight dollars from each acre two 'See "Are we building too many railroads?" Amer. Railroad Jour., XXV, 305-6, 39S-7, 4I0-II- (1852-) Digitized by Microsoft® 86 ECONOMIC BASIS OF TRANSPORTATION miles distant, etc., until the ten-mile limit had been reached, when the cost of transportation would consume the entire selling price of the product, and render production an eco- nomic impossibiUty. In fact, cultivation would stop before this point was reached, owing to the cost of making the crop. Under exactly the same conditions of production, above assumed, it would cost only one-fifth as much to get to market in a cart over a dirt road. The result would be that over one million dollars annually would be saved to this small community in decreased cost of transportation within a radius of ten miles. The capital cost of the necessary equipment would not be more than six hundred thousand dollars. Assuming that the land were all improved and awaiting better roads, about one hundred and seventy per cent would be the annual return to the community on the investment. Besides this saving the area of production would be carried from twenty to forty miles farther into the interior. From twenty to forty miles of tributary territory with all its productive resources would be reclaimed, and the income over cost of production within the marginal circle would be an additional gain. But under our assumption, oats being the only crop, when the fifty mile limit had been reached by the dirt road, then aU the territory outside this limit would be without a market. With each kind of crop, the same prin- ciple would apply, limits of practical activity being determined by cost of production and market price. The advantage to be gained through better transportation facihties not only ex- plains the early appropriations, but the early acts also show that the inducement was clearly perceived; this fact being set forth in the preambles of many of the laws appropriating money for local improvements. Convert the common wagon road into a macadamized road and the cost of transportation would again be reduced about one-half. On the assumption above, over sixteen million dollars per annum would be saved to the community Digitized by Microsoft® ECONOMIC BASIS OF TRANSPORTATION 87 within a radius of fifty miles, at an added capital cost of about sixty-four million dollars; that is, some twenty -five per cent could be reahzed by the community on the investment within the area previously equipped with wagon roads, while the radius of profitable production would again be extended. Advantage of AH lands within from sixty to eighty miles turnpike con- would be brought within the range of the struction central market. True, no such uniformly fertile and uniformly developed community exists, and as a result turnpikes were built only as trimk lines through the best producing land and on the most travelled routes. But the principle is the same, and the argument quite as potent. With this computation in mind, it is easy to understand why the stock in some instances was subscribed four times over by those interested in obtaining better roads. Around Philadelphia were ordinary mud roads, which were impassable during a large portion of the year. The western terminus of the Lancaster pike was to be in the Susquehanna valley, and a large and fertile territory would thus be opened to trade in this city. The business of mer- chants would be increased, the resources of the country would be more fully developed, and industry would become more active. It mattered not whether the profits of the enterprise were to be shared by the subscribers as dividends to stockholders, or were to come in the form of increased business prosperity; the inducement for capitalization was present, and the plan of profit sharing was important only in determining the class of interests to which appeal was to be made for the capital necessary for the improvement. Certain it was that the enterprise would be a fruitful invest- ment to the community at large. If the subscriber were an investor (a capitaUst), he would look to dividends; he would base his judgment upon a rate of toll which would bring to the corporation the largest income. If he were a merchant, a manufacturer, a farmer, or a legislator representing the Digitized by Microsoft® 88 ECONOMIC BASIS OF TRANSPORTATION various interests of the state, his prime motive might be that of lowering rates of toll as a means of extending trade or industry and increasing the net profits of business. An effort was usually made to draft the plan and limit the tolls in such manner as to appeal to both classes. That this mental calculation was ever present in the minds of the people, as well as a guiding principle in legislative action, How profits appears not only from the contemporary press, "* "' but also from the assembly records themselves. The ever present question was, what is the lowest maximum rate of toll which will leave a margin sufi&cient to attract capital to the enterprise? In some instances, the toll was fixed at a definite maximum per mile; in others, greater lati- tude was left to the company for the exercise of discretion by the introduction of a clause hmiting profits to a maximum rated to capitahzation. Still other charters contained both regulatory provisions. Thus the charter of the Eastern and Wilkesbarre turnpike road company in 1803 prescribed the tolls, and Umited the dividends to six per cent on the stock.^ The Uniontown and Cumberland charter in 1804 prescribed the tolls, and hmited the dividends to nine per cent on the stock.^ The apportionment of profits was a compromise in which a very large percentage of the gain was distributed to the general community in the form of lower rates, a certain maximum rate of toll being given to the company as a source of dividend. A hundred miles of good road on the seacoast was but a narrow fringe when compared with the network of traffic lines necessary to serve a great stretch of inland territory which could not be economically reached by a road wagon. Under ordinary conditions, wheat at a dollar a bushel can- not be hauled with profit more than one hundred and fifty miles; while lumber, charcoal, mineral coal, iron ore, hay, and grain will permit of transportation a much less distance. » Smith, Laws of Pa., IV, 7. 2 Ibid., IV., 141. Digitized by Microsoft® ECONOMIC BASIS OF TRANSPORTATION 89 The only solution for the transportation problem for a large portion of the interior was therefore to be found in further improvement, better equipment, and lower cost. In Eng- land the canal had already proved a success to the producer in lowered rates; and to the investor in handsome returns in Investment the form of dividends. By means of a canal basis of the a single horse could draw from ninety thousand canal ^^ ^^^ hundred and twenty thousand pounds as easily as two thousand pounds could be hauled by wagon on a turnpike. With this equipment one horse and one drayman could haul as much as fifty horses with fifty carts and fifty draymen. In the most favorable locaHties the capital cost of a canal was from three to five times greater than the capital cost of a turnpike. Where the lay of the land was less favorable to canal construction, the capital cost increased in proportion to the difficulties of excavation and the expense of locks to obtain water level. This large capital cost confined the advantages of canal transportation to a long haul. Within a narrow radius the saving would be small; in the well settled and well improved districts, the average gross return from an acre of agricul- tural land did not exceed ten dollars. Assuming that on a turnpike it would cost one dollar to market the produce of an acre of land ten miles distant, the saving within this small radius would not pay the interest on the increased capital cost of a canal. At twenty miles, however, under exactly similar conditions, it would cost three dollars per acre; at fifty miles the cost of carriage over a turnpike would be five dollars per acre. The advantage to the producer from a cheaper means of transportation would in- the'iong^haui urease directly with the distance, and at fifty miles the inducement to canal construction would be five times as great as at ten miles. From fifty to one hundred miles back from the coast, or from navi- gable waters, every interest would favor canal construction Digitized by Microsoft® 90 ECONOMIC BASIS OF TRANSPORTATION wherever there were sufficient resources to warrant the ex- penditure. Immediately after the Revolution several canals were pro- jected, and as already shown, Washington was active in the promotion of the Potomac company. But the country was not sufficiently developed to furnish a base for long haul operations. With the beneficial results following the con- struction of the first canals there arose a demand for a means of reaching interior points which were beyond the range of water transportation. For a large portion of the country some improved form of land transportation was imperative, and the great question before the people was by what means this could be obtained. The success of the railroad in Eng- land furnished the answer to this question. We may not say, therefore, that investment in the early railroads in this country was a venture in the dark. The results of experiments in England were carefully considered, and much attention was given to the study and exposition of the economic advantages to result from the introduction of the railroad in particular locahties. That this is true may be shown by this sentence from a message of Governor Lincoln of Massachusetts, in which he considered the pro- posed Boston and Providence railroad: "From satisfactory estimates, and calculations upon the present travel and occasion of transportation, the net receipts from use of the road, after deducting all charges for keeping it in repair, carriages, &c. and upon a saving of one-half in the present cost of transportation, will amoirnt to a sum exceeding sixty thousand dollars per annum." The natural conclusion, therefore, was "that the construction of the road would be of great public advantage, and a profitable investment of capital." 1 This estimate was made for a region well settled, and one in which there was already a good turnpike road which travel- • See Note i on opposite page. Digitized by Microsoft® ECONOMIC BASIS OF TRANSPORTATION 91 lers reported the best in America. The entire length of the proposed road was to be only about thirty miles, and yet the investment value was considered to be such as to earn about forty per cent on the cost each year. A portion of this was to go to the general community in the form of lower rates; the remainder was to go to those furnishing the capital as return for investment. Estimates of similar nature might be multiplied. Effort to secure a fair division of the profit which might accrue from improved methods of transportation between the producing public and those who might contribute the fimds necessary to the undertaking found expression in nearly all of the early charters. In this the legislatures followed the practice estabhshed with respect to turnpikes. Com- mercial rivalry between important trade centres was directly appealed to; and not only was local pride and community interest urged as a reason for support, but the investor was also interested through promises of dividends to be realized on the capital necessary to construct a more convenient means of transporting goods and passengers from the distant interior. The manner in which the interior interests regarded 1 Niks, XXXIV, 9. (1828.) The estimate upon which this statement was based follows : Income Passenger traffic equal to 50,000 for entire trip @ $1.00 each $50,000 Freight traffic equivalent of 8,450 tons entire trip: 4.625 tons @ $4.75 per ton I 34,000 ;} 3.825 tons @ $3.15 per ton Total $84,000 Expenses Annual expense of horses, carriages, drivers $6,750 " " for heavy transportation 3.505 " 10 % additional for covering errors 1,025 Expense of superintendence making repairs 4,000 15,280 Net income $68,720 Digitized by Microsoft® 92 ECONOMIC BASIS OF TRANSPORTATION improvement of this kind is illustrated by a letter from a member of congress to Niles' Register: "I have just received letters from two of ten or fifteen merchants at Wheeling, who state that they alone have forwarded by A view from ^agQ^g to Baltimore, on the Cumberland the interior , , . , , n r road, dunng the last year, 3,000,500 lbs. of country prodijr.e, tobacco, &c. equal to about 1,750 tons; loading perhaps' 900 or 1,000 wagons; and one of the gentle- men expresses the confident opinion that if the cost of trans- portation were reduced ^ or ^, there would be forwarded from that place alone and the neighborhood, (independent of all produce of the rich and productive intermediate coun- try) at least 200,000,000 lbs. or 100,000 tons of produce annually. Such has been the effect of the Cumberland road, and such would be the effect of a rail road from Baltimore '0 the Ohio, at Wheeling or Pittsburg."^ The introduction of the steam locomotive gave to the railroad its advantage over the canal. Time in transporta- ' Niles, XXXIII, 18. (1828.) The following statement, compiled in England, showing the advantage of the railroad over the common road, was much used by promoters in this country: Miles on each Side Tons Expense Railway Expense By Common Road Difference in Favor of Railway Twenty-Year Purclase of Difference Thirty-Year Purchase of Difference £ I. d. £ s. d. £ 0. d. £ £ I 2,082 242 12 6 856 17 6 614 S 12,285 18,427 10 2 4,164 48s S ° 1713 IS 1228 10 24,570 36,855 u 3 5.246 727 17 2570 12 6 1842 15 36,855 55,855 10 4 8,328 970 9 6 3427 10 2457 49,140 73.710 S 10,410 1213 2 4284 7 6 3071 S 61,425 92,137 10 6 12,492 I4SS 14 6 S141 5 ° 3685 10 73,71° 110,565 7 i4,S7S 1698 7 5998 2 6 4299 IS 85.99s 128,992 10 8 16,656 1940 19 6 6855 4914 93,280 147,420 9 18,738 2183 12 7711 18 4 SS28 s 110,565 165,847 10 10 20,820 2426 4 6 8568 15 6142 10 122,850 184,275 Digitized by Microsoft® ECONOMIC BASIS OF TRANSPORTATION 93 tion is one of the chief elements of cost. A saving of time is a saving of expense. The railroad allows of the trans- portation of many products which otherwise might not be Advantage of marketed at all, — products which deteriorate the railroad rapidly with age. By the introduction of the over the canal ^^j^^j ^^^ ^^^ raihoad the margin of profitable industry was extended a thousand or fifteen hundred miles inland. The saving of time made by the adoption of steam locomotion brought the resources of the continent in touch with the common market place. As late as 1817 it was stated in a report to the New York legislature that the cost of transporting a ton of freight from Buffalo to New York was one hundred dollars, or twice the value of wheat at Buffalo and four times the value of corn.' The advantage to be capitalized in providing some cheaper mode of transportation from the Great Lakes to the Hudson was therefore apparent. With the building of canals, trans- portation costs were greatly reduced, but their construction absorbed so much capital that they could be employed to advantage only upon long distance business. Within any short radius, productive possibihties were so limited that ., the saving from the introduction of artificial advantage over waterways was too small to warrant their con- the canal in the struction. The introduction of canals, there- '°°^ ^ fore, necessarily resulted in greatly enlarging the territory tributary to the marketing centres which they were built to serve, but they could not effectively serve that great interior from which the products of American industry were to come. This was to be reached by some mechanical means which could serve each of the small areas of the con- tinent. The character of appeal made to the community for the support of raihoad projects, and the economic basis for its capitalization, is illustrated by the following:^ 1 Hunt, LX, 161. 2 Ibid., XXIX, 377; Amer. Railroad Jour., XXV, 705-6, 928-9. Digitized by Microsoft® 94 ECONOMIC BASIS OF TRANSPORTATION Table Showing the Value per Ton of Wheat and Corn at Dif- ferent Distances from Market — Upon a Railroad; and Upon a Common Road. Railroad Oedinary Road Miles Wheat Corn Wheat Corn o (At Market) 49-5° 24-75 49-50 24-75 10 49-25 24.60 48.00 23-25 20 49.20 24-45 45-50 21-75 30 49-05 24-30 45.00 20-25 40 49.00 24.15 43-50 18-75 S° 48.75 24.00 42.00 17-25 100 48.00 23-25 34-50 9-75 150 47-25 22.50 27.00 2-25 160 47-10 22.3s 25-50 •75 170 46.95 22.20 24.00 200 46.50 21-75 19.50 250 45-75 21.00 12.00 300 45.00 20.25 4-50 320 44-70 19-95 ^-50 330 44-55 19.80 Thus a ton of com one hundred and seventy miles from market was not worth hauling over a common road, but its value when rail carriage was possible' was $22.20. And a ton of wheat while not worth the cost of a wagon haul of three hundred and thirty miles, by the very fact of the exist- ence of a connecting line of railroad was worth $44-55. Admitting that it must have been based upon a rough approxi- mation, such a showing as this contributes toward a better understanding of the spirit which animated those who sup- ported the early railroad ventures. Although many prob- lems remained to be worked out, and the future could not be clearly seen, the one fact that the railroad presented itself as so tremendously effective an instrument of trade com- pelled its adoption. "It is not merely because his supreme Digitized by Microsoft® ECONOMIC BASIS OF TRANSPORTATION 95 happiness consists in that speed which annihilates time and space," wrote Chevalier in 1835, "it is also because he per- ceives, for the American always reasons, that this mode, of commimication is admirably adapted to the vast extent of his country, to its great maritime plain, and to the level surface of the Mississippi valley, and because he sees all around him in the native forest, abundance of materials for executing these works at a cheap rate. This is the reason why railroads are multiplied in such profusion, competing not only with each other, but entering into a rivalry with rivers and canals." ^ ' Chevalier, Society, manners and politics in the U. S., 337. Digitized by Microsoft® CHAPTER VI State Funding of Transportation Enterprise As a funding institution, a state has two methods of obtaining capital, by taxation and by sales. The first is by compulsory contribution; the second by voluntary con- sent of the contributor. Sales may be of two kinds: sale of services and goods, and sale of credit obligations, the value of which in turn depends upon the judgment of purchasers as to the amount of revenue which will be available for meet- ing these obligations when due. A state is as far-reaching The state as a in its funding powers as the resources of the funding insti- community which is to be served. Its suc- *"*'°° cess in converting these resources to its use is conditioned upon the nature of the governing body, the consent of the governed, and the capital available for levy or voluntary contribution. Taxation is an appropriation of private funds; while the state may when necessary go to the point of confiscation of private capital, as a current fund- ing measure, its effective revenue powers are limited to the income surplus of the people. In a new country without sufficient capital for local production, .tax levies are neces- sarily burdensome. In many instances efforts to obtain any considerable amount of revenue are entirely futile. THE establishing OF STATE CREDIT America's first hope for support to transportation enter- prise had been in the national government; later it was directed to the states. With the establishment ,of state credit abroad, appeals to the national government for aid 96 Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 97 became less strenuous, and state capital came to be the sub- ject of popular interest. Both John Quincy Adams and Clay advocated the nationalization of internal improvements, but their influence waned until they had little following. In 1818 the house of representatives declared its power to appropriate money for the construction of roads and canals and the improvement of watercourses,^ but a bill providing for the erection of toU gates on the national road was vetoed by Monroe in 1823, on the ground that it impHed the power deia °^ congress to execute and enforce a general on the part of Scheme of internal improvements.^ An act the national appropriating money for the survey of routes government ^^^ ^^^^ roads and canals as the president might think of national importance was passed in 1824,^ and another in 1825 subscribing to the stock of the Chesa- peake and Delaware canal.* In 1825 a direct appropriation was made for the extension of the Cumberland road to Zanesville, and a survey of the route through to Jefferson City.' During the administration of Adams, the champion of nationalization, many federal appropriations were made for internal improvements. Stock was taken in canal com- panies, and public lands were granted in aid of turnpikes and canals." But the support given was small compared with the capital required for the opening up of the com- merce and industry of the interior. The panic and succeed- ing years of financial depression coincident with Adams' administration were circumstances favoring denationalization. Adams as the apostle of the national idea was made to bear the odium of commercial disorder and industrial unrest, and Jackson, in search of a policy which would bring political success in 1828, organized the anti-national sentiment. ' Wheeler, Hist, of congress, II, 168. 2 Richardson, Messages, II, 142-83. a Stat, at large, IV, 22. < Ibid., IV, 124. ' Ibid., IV, 128. * McDonald, Jacksonian democracy, 134-7. S Digitized by Microsoft® 98 STATE FUNDING OF TRANSPORTATION Hope of national aid was further weakened by conflicts over state and national jurisdiction. This is illustrated in the history of the Chesapeake and Ohio canal. The states of Virginia and Maryland attempted to unite to carry out this enterprise, but the undertaking took on such proportions that appeal was again made to the central government. Popular meetings were held in Pennsylvania, Virginia, Mary- land, and Ohio in 1823, and delegates were chosen to meet ^ „. , . in convention at Washington. At each turn Conflicts be- '. i tween state and a serious obstacle was met; for the concurrence national juris- of five different political bodies was required. "^ '°° State authority could not be overlooked, and the aid of the federal government was regarded as a neces- sity. Charters were in conflict; and amendment followed amendment. A bill conditioned upon the cooperation of the states interested was finally carried through congress in 1825, and signed by President Monroe. But each state stood in the way of the others, and all were jealous of the general government. Soon after the return of peace in 1815, the South found that Europe afforded a better market for cotton and a better place to purchase manufactured articles than existed at Change in the ^ome. More than this,, the large agricultural attitude of the profits in the South stood in the way of in- South and Hew dustrial development. The alignment on the "^ ^ tariff of 1824 is significant. The seacoast in- terests of Massachusetts, Maine, and New Hampshire still wished to be free to engage in foreign trade; they were there- fore opposed to protection. The South for quite different reasons was a imit against increased duties; and New York, New Jersey, Delaware, Pennsylvania, Ohio, and Kentucky were in favor of the tariff, home markets, and internal im- provements.* With the breaking down of the shipping and 1 Turner, Rise of the new West, 236-44; Stanwood, Amer. tariff contro- versies, I, 243-83- Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 99 foreign trade interests and the upbuilding of manufactures, New England was finally joined to industrial Pennsylvania, agricultural New York, and the grain-growing West. From this time the fine of economic and political cleavage was along the zone of the cotton belt. The South came to stand for slavery and free trade; the North, following the line of its greatest economic interest, clung to protection, home markets, and free labor. Territorial expansion was fostered by each section as an instrument of political advantage, and for the purpose of maintaining the balance of power in the national government. With the development of transpor- tation routes, the grain-growing districts joined in a com- promise looking toward free trade with Europe; but as between North and South the antagonism grew until under mihtary compulsion the South was forced to adjust its interests to the industrial system of the North. It was this situation which in 1828 caused the South to stand solidly against the programme of nationalization. The first success in state funding brought together all the forces interested in state contracts, state improvements, and state banking; and these forces were sufficient to carry the North and the West as well as the South. A local and state basis for capitalization of enterprise having been found, the aid of the national government was considered of less import- Abandonment 3,nce in the North and the West, while in the of the na- South, where the United States bank was op- tional policy posed as a tyrannical monopolist and as a tool for poHticians, the national government was regarded almost as an instrument of oppression. Jackson's success at the polls, and his veto of the biU authorizing subscription to the stock of the Maysville and Lexington turnpike, was followed by Clay's abandonment of the poHcy of national patronage to internal improvements; and even Adams admitted that the results of the system of national aid had been disap- pointing. Thereafter, congressional appropriations for inter- Digitized by Microsoft® 100 STATE FUNDING OP TRANSPORTATION nal improvements appeared only in the form of "riders" to general appropriation bills, and the matter of financing transportation projects was definitely passed over to the state governments.' BEGINNING OF THE ERA OF STATE FUNDING New York, as has been already said, was the first to attempt a general scheme of funding^internal improvements. This state was thoroughly alive to its advantage of location, and to the importance of cheaper transportation in the development of its resources. Heretofore the commercial position of New York City had been inferior to that of Phila- delphia, but some progressive citizens had the imagination to see that by the construction of a canal to the West this situation would be reversed. In the early part of the cen- The way tury, attempts had been made to obtain fimds opened by for this purpose, but without success. After New York ^.j^g ^g^j.^ prospects brightened. A public meeting was called in New York in the autumn of 1815; addresses were made by leading citizens, and a committee was appointed to prepare and circulate a memorial in favor of the project. This memorial was presented for signatures at public meetings along the line of the proposed route, and governor and legislature were besieged with petitions. A bill "for improving the internal navigation of this state" was passed in 1816, authorizing the sum of $250,000 to be borrowed each year (not exceeding $2,000,000 in all), and appropriating $20,000 for surveys.^ The surveyors reported that the estimated cost of the Erie canal was $4,881,738, and that of the Champlain canal, $871,000. In 1817 a bill was passed pledging the credit of the state to the amount required for these imdertakings.^ Heretofore, the causes of failure to obtain financial sup- ' Johnston, Internal improvements, Lalor, II, 572. ' L. 1816, c. 237. 3 L. 1817, c. 262. Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 101 port for works of this nature had been the inability of pri- vate parties to assemble funds for large projects, and the neglect to organize a public funding system which would attract foreign capital. The success of the New York scheme lay in the fact that a separate fund was created out of exist- ing income from taxes, licenses, etc., to meet the interest on the bonds without relying upon the returns from the pro- posed canals. This gave confidence to the foreign investor. Moreover, New York had several strong financial institutions which aided materially in the placing of loans. When in Success of 1818 a milHon dollar loan was authorized, the Hew York's whole amoimt was taken by the Manhattan canal system company, — a two million dollar concern which had been organized for the purpose of fxmding the water sys- tem of the city of New York, and carrying on a banking business at the same time. This bank was made the office of registration and transfer of the public securities, and the depository of state funds.^ The Erie canal was completed in 1825 at a cost of $8,801,394; and the income from tolls soon relieved the state from the necessity of contributing to the interest fimd by taxation, and accumulated a surplus for the payment of the principal. MASSACHUSETTS AND PENNSYLVANIA The successful funding of New York's canal brought the other states to realize the possibilities of promotion through use of their credit, and soon the whole country was stirred to similar enterprise. The foreigner was ready to invest; and the American people gladly embraced the opportunity for which they had so long been waiting. But when the question as to whether railroads should be undertaken by 1 L. 1818, t. 282; L. 1819, u. 70. See also: L. 1799, c. 84, "An act for supplying the city of New York with pure and wholesome water"; Enox, Hist, of banking, 394-6; Bangs, A historic institution, Harper's Mag., XCVIII, 971-6; Banker's Mag., IV, 137-43. Digitized by Microsoft® 102 STATE FUNDING OF TRANSPORTATION the state presented itself in Massachusetts, neither gov- ernor nor legislature was prepared to decide. The canal to the Hudson had been proposed as a state work,* and the commission which prepared plans for the rail- favor'rf the ^^^'^ *-° ^^^^ "^^^ labored imder the impression private corpora- that it was to be imdertaken directly by the tion in Mas- gtate.^ Finally, the governor despairing of leg- islative action and knowing that capitalists were prepared to assiune the imdertaking, recommended the construction of railroads by corporations which should be subsidized by the state whenever such aid should be impera- tive or expedient.' With the adoption of this plan ended the period in which state ownership of railroads was a press- ing question in Massachusetts. This policy of corporate ownership has not been departed from except for purposes of salvage.^ In 1863 the state, upon the failure of the Troy and Greenfield railroad, was forced to take over the Hoosac tun- nel enterprise, in aid of which it had already issued $924,900, or about half the amount authorized. When the tunnel was opened for operation in 1876, the expenditure on that accoimt aggregated $17,322,000, and by 1887, when the property was turned over to the Fitchburg railroad, the cost had reached $26,357,426.= Until 1821 Pennsylvania had confined its fimding activi- ties to taxation. It had contributed liberally to the roads and bridges of the state through appropriation from the state 'Report on the routes of canals, 174-5. (1826.) ' Report on the practicability and expediency of a railroad from Boston to the Hudson, 73-6. (1829.) ' Speech of Levi Lincoln, January 6, 1830: 7-10. * It is to be noted that Massachusetts was more favorably situated for private funding of large enterprises than any other state. The financial strength of New England had been shown by the fact that its banks contin- ued to make specie payments throughout the war. For the financing of foreign trade and manufactures, Massachusetts had not wanted for funds. ' Bullock, Hist, of the finances of Mass., 71-3. Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 103 treasury; it had also subscribed to the stock of turnpike state enter- Companies, bridge companies, and banks. It prise in Penn- then entered upon a policy of obtaining capi- syivania ^g^j ^y borrowing. Aroused by the approach- ing completion of the Erie canal, the legislature in 1825 passed an act providing for the appointment of canal com- missioners to undertake preparations for the establishment of a canal between the eastern and western waters of the state.i In the following year, the construction of the Penn- sylvania canal was authorized along the portion of the route between Philadelphia and Pittsburgh where a waterway was practicable. Over the hills between the Schuylkill and the Susquehanna and across the crest of the Alleghanies between Hollidaysburg and Johnstown, canal construction was clearly impracticable. The legislature therefore authorized in 1828 the construction of a line of raUroad to connect Philadelphia with the eastern terminus of the canal system at Columbia,^ and three years later provided for the Portage railroad over the mountains.' The Philadelphia and Columbia railroad was not only one of the earliest works of its kind in this coimtry, but "the first railroad undertaken in any part of the world by a government." * The Portage road was largely a series of inclined planes worked by stationary power. The entire main line was opened in 1834, but as a rival of the Erie canal it was a failure. To avoid the delay and expense attending the use of the inclines, Philadelphia merchants soon foimd it to their interest to pay the freight on their goods to New York, and then ship to the West over the Erie canal.' In consequence, the state works of Pennsylvania never paid, except indirectly as a general benefit to trade. • L. 1824-5, '^- 126. » L. 1827-8, no. 98. ' L. 1830-1, no. 104. * Wilson, Internal improvements of Pa., 13-20. ' Atner. Railroad Jour., XXV, 67. Digitized by Microsoft® 104 STATE FUNDING OF TRANSPORTATION For the main line a debt of $33,364,555 was ultimately in- curred. The Lake Erie connection of 185 miles, improve- ments on the Susquehanna and Delaware, besides lateral canals and railroads, involved the state in a debt of over $40,000,000 within fifteen years. Ten years after the main line was opened, the state offered to sell; but it was not until 1857 that this was possible. The purchaser was the Pennsylvania railroad, which paid $7,500,000, or about half a million dollars less than the amount which had been expended in the construction of the Philadelphia and Columbia and Portage railroads.' ACTIVITY IN THE WKST As indicating the rapidity with which the West took up the ideas of the East, it is noteworthy that Governor Bond in his message to the first state legislature of Illinois recom- mended the construction of the lUinois and Michigan canal. This was in 1819.^ During the thirties the new states of the Middle West put forth projects for systems of internal improvements which were as far beyond their financial resources as they were in excess of any needs of the popu- lation for many years to come. Three of these states, lUinois, Indiana, and Michigan, adopted plans which in- cluded the construction of railroads as state works. In 1837 a law was passed by lUinois authorizing the construc- tion of railroads from Galena to Cairo ; from Alton to Shaw- neetown; from Alton to Mount Carmel; from Alton to the eastern boundary of the state near Terre Haute; from Quincy to the Wabash; from Bloomington to Pekin; and from Peoria to Warsaw. It was also planned to build three thousand miles of roads,. and to improve the Kaskaskia, fecte°f imnois Illinois, Great and Little Wabash, and Rock rivers, and $200,000 was distributed as com- pensating bounties to those counties which were not to be ■ Bishop, State works of Pa. (1907.) 2 Ford, Illinois, 28, Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 105 directly benefited.' Owing to sectional rivalry, it was pro- vided that the work of construction should begin simultane- ously all over the state. In the summer of 1837 the fund commissioners succeeded in negotiating a loan, and work was begun before the end of the year. They had also been authorized to subscribe to the stock of the newly chartered state banks, which were to act as fiscal agents of the canal and railroad funds. The panic of 1837 caused these banks to suspend specie payments, and this suspension was legaUzed at a special session of the legislature. Notwithstanding this, the fimd commissioners succeeded in effecting loans both in America and in Europe, some of which were put out by the United States bank under its Pennsylvania charter. At the next legislatiure, additional works were authorized. By the summer of 1838 the disre- pute into which state credit had fallen temporarily interfered with the making of new loans. The state had lost heavily in the bankruptcy of state banks, and in the failure of Wright and company, its London fiscal agents. But other loans were obtained, and many bonds were disposed of to con- tractors. By this means the work was continued imtil the people, tiring of delay and political frauds and fretting under the constantly increasing burden of taxation, were glad to dispose of their railroad interests to private corporations.^ When in the panic of 1847 credit again completely failed and the treasury was reduced to insolvency, but one railroad had been completed. After contracting a debt of $15,000,000 the state had, in addition to the Northern Cross road (extend- ing from Meredosia on the Illinois river to Springfield) , noth- ing but unfinished canals and detached and useless grades to mark the system which had been so splendidly planned.' ' L. 1836-7: 121; Ford, 179-89; Ackerman, Early Illinois railroads, 22; Chevalier, Society, manners and politics in the U. S., 250. 2 Ford, 189-98; Brown, Illinois, 417-27. "Ackerman, 24-5; Hunt, XXIII, 655. Digitized by Microsoft® 106 STATE FUNDING OF TRANSPORTATION In 1836 Indiana launched out into the construction of a complete system of internal improvements comprising canals, turnpikes, and railroads, designed to open up the remotest comers of the state to communication with the Lakes and the Ohio. As a part of this plan the construc- tion of a railroad from Madison on the Ohio river to Lafayette on the Wabash canal was imdertaken.' A section of this road was opened in 1842, but the state having imwisely undertaken too many projects at a time, was compelled to surrender this uncompleted work to the Madison and In- dianapoHs railroad company in 1843.^ Upon this project there had been expended over $1,600,000.' Indiana's ex- -^^ retum the State reserved the right to a share penment . i i i of net earnmgs to be represented by stock proportioned upon the mileage completed before the sur- render, but this was not to become payable imtil after eight years. The state finally sold its interest in 1852.^ The first session of the Michigan state legislature in 1837 authorized a loan to provide for the construction of a sys- tem of roads, canals, and railroads. There were to be four lines of railroads, three of which were to extend across the state by a northern, a central, and a southern route, respec- tively. In aU nearly six himdred miles of railroad were provided for.^ This action had been preceded by the grant- ing of charters to private corporations; and it had been brought about by the failure of those corporations for want of fimds. Starting upon the central route where the work had been abandoned by a private company, the state ■ L. 1835-6, c. 2; Message of N. Noble, Senate Journal, 1835: 19. 2 L. 1841-2, c. i; Loc. L. 1842-3, c. 132; Auditor's report, H. doc. 1843- 4: III. 2 Auditor's report, 1844: 40. ^ L. 1844-5, c. 52; Cottman, Internal improvements in Ind., Ind. Mag. of Hist., Ill, 154-7. = L. 1837, no. 67; Adams, Public debts, 325; Scott, Repudiation of state debts, 161. Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 107 extended a line westward as far as Kalamazoo by 1846, when the road was sold to the Michigan Central Michigan's railroad company for $2,000,000, or a quarter of a million dollars below cost.' The southern route was sold the same year to the Michigan Southern railroad company for $509,000, which was about half its cost. Upon the northern route less than $100,000 had been expended, but this was a total loss. In 1847 the right of way along this route was given to the Port Huron and North- ern Michigan raihoad company.^ As in the case of lUinois, action was compelled by the financial needs of the state. If the enterprise was to be continued, the people saw that they must face either heavier taxation or repudiation, neither of which they were wiUing to do. The only alternative was to throw off the burden of raihoad construction, and to offer sufficient inducements to attract private capital to continue the work. STATE RAILROADS IN THE SOUTH Contemporaneous with these Western experiments in state funding of public works was the construction of the Western and Atlantic raihoad by the state of Georgia. This hne connecting Atlanta with Chattanooga was under- taken by the state because the route was so difficult as to discourage all private investors.^ The work was provided The Western for in an act passed in 1836,* and contracts and Atlantic were let for the first sections of the route three of Georgia years later; but the dechne of state bonds caused delays so that the road was not opened until 185 1. Operation by the state was continued for twenty years, though in 1854 and again in 1857 agitation was set on foot for a lease to an operating company. While the charges ■ Kieth, Internal improvements in Mich., 31-3. 2 Ibid., 36-8. 3 De Bow, XXI, 433. «L. 1836: 214. Digitized by Microsoft® 108 STATE FUNDING OF TRANSPORTATION of maladministration were in most cases imfounded, earn- ings did not compare favorably with the returns upon pri- vate roads. This was due, not only to the fact that the route had been one of particular difficulty, but also to faulty construction and extravagant salaries paid to those in charge. During the Civil war this line suffered in common with other Southern railroads; and in the reconstruction period it was the object of mismanagement and poUtical plunder. By 1870 connecting lines began to protest against the dangerous condition of the track, and a movement was started which resulted in a lease of the property to the West- ern and Atlantic raibroad company at a fixed rental. At the expiration of this agreement in 1890, a new lease was made to the Nashville, Chattanooga, and St. Louis railroad company, which is still in force.^ The construction of a railroad across Virginia from tide- water to the Ohio was the favored project of the people of that state, but so great were the difficulties to be overcome in crossing the Blue Ridge that private capital was not attracted to the venture. For this reason the most difficult part of the work was undertaken entirely upon state account. In 1849 the board of public works was incorporated as the Blue Ridge railroad company, with authority to build a line over that section of the route from Blair Park through Rockfish Gap to Waynesburgh, a distance of seventeen miles, and to lease the completed road to the Virginia Cen- tral railroad company.^ At the end of ten years the state possessed a unique railroad, consisting of four tunnels and a long series of high embankments.' In 1855 the state began work upon the Covington and Ohio, from the western terminus of the Virginia Central at Covington to the Ohio river; and by 1861 there had been expended upwards of ' Phillips, History of transportation in the eastern cotton belt, 303-34. 2 L. 1848-g, c. 147. 2 Report of the board of public works, 1833-4: x-xi; 1869: xii-xiii. Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 109 $3,500,000 upon masonry and grading of the route as far The Blue Ridge west as the Kentucky boundary.' After the and the Coving- Civil war a change of plan was imperative, ton and Ohio ^^^ j^ ^g^g Virginia and West Virginia jointly surrendered this property to the Chesapeake and Ohio railroad company, which contracted to complete the road.^ Two years later this new company also came into posses- sion of the Blue Ridge railroad through the surrender of the state bonds to an amount representing the cost of the road, which was about $1,750,000.' Arkansas in 1897 made a belated attempt to provide for a state railroad, and to this end established a state board, which was endowed with corporate powers and authorized to receive gifts of lands and money. The state, however, would assume no liability for the debts of the board, and while loans were to be permitted, none could extend over more than three years.* By this means it was hoped to capitalize the spirit of hostility toward the Missouri Pacific and other lines in the state by offering opportunity for com- petition. As the plan was obviously impracticable, no attempt was made to carry the law into effect.^ THE SPECtTLATIVE ACCOMPANIMENT OF STATE FUNDESTG During the depression from 1825 to 1828, and again at the time of the disturbances due to Jackson's war on the United States bank, there was difficulty in obtaining capital for new enterprises. But with the chartering of state banks with the transfer of the Treasury surplus to these institutions, and with the increasing use of these banks to give strength to the market for state securities, the years 1835 and 1836 ' Auditor's report, 1865: 25. ' L. Va., 1866-7, c. 280; L. W. Va., 1867, c. 93. 3 Message of Gilbert C. Walker, March 8, 1870: 9. * L. 1897, no. 38. 'Message of Daniel W. Jones, 1897-8; 5. Digitized by Microsoft® 110 STATE FUNDING OF TRANSPORTATION may be characterized as years of financial folly, which find ^ ^ parallel only in the days of John Law. There Forces which J^ , / ,..,,,, -^ t i • i_ culminated in Seemed to be no hmit to the capital which was speculative ready to embark in internal improvements, excesses r^-^^ resources of the national government, which before the war were deemed essential, were now spurned, and their use was condemned as positively dangerous. The apparent prosperity and financial independence of the states was an influence so strong that it threatened the stability of the union. The speculative mania which spread over the country affected not only state legislatures, but it also impressed itself upon county and town boards, and upon the people themselves. Even men who had reputations for conserva- tive and investment opinion joined in the general land and townsite speculation. Discussing the causes of the failure of the United States bank, John J. Knox said: The abandon- "Its management was from all accounts ment of conser- comparatively conservative until 1835, when vative judgment ^^^ restraint which its managers felt under its national charter appears to have been withdrawn. Instead of retrenching after 1836, the management grew more and more reckless, and by July, 1840, it had borrowed upon its post notes and bonds more than twenty-three millions of dollars. During this time the loans on stocks continually increased. It seemed impossible for the managers to say no to any one. All projects were favorably received, and thus projectors found in Mr. Biddle a sympathetic listener. Commissioners and agents having bonds issued or guaran- teed by the States they represented, to place upon the market to speculators in turnpike and land company stocks, all came to Mr. Biddle, and everything in the shape of an in- corporation looked to him as the one who could place their credit on a firm basis. Bonds of Mississippi, Michigan, and Illinois, of the Territory of Florida, and even of the Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 111 struggling Republic of Texas, received from him the impress that was to make them pass in the markets of the world. Few seem to have been sent away disappointed. ... In 1840 it was found that the assets of the institution consisted chiefly of all kinds of internal improvement, and bank and State stocks and bonds. There was hardly an enterprise, good, bad or indifferent, in the United States that was not represented in the list. For years Mr. Biddle had been courted and flattered as the financial autocrat of the coun- try. He had, as a rule, been successful in the financial operations he had undertaken, representing as he did an institution of immense capital and in high credit both at home and abroad. . . The craze for internal improve- ments in most of the States had thrown on the market a new class of securities. Many others besides Mr. Biddle were deceived as to their value. The loans on stocks from 1835 to 1836, made contrary to the previous general policy of the bank, may have been made in anticipation of a rise in the stocks of all internal improvements from the distri- bution of the surplus among the States, authorized by the act of June 23, 1836, which had been under consideration for some time previous." * An analysis of the business judgment which lay behind such transactions was thus given by Governor Ford, of lUinois: "It appears . . . that it was believed; that the people were expecting and anxious for a system of internal improvements; that the system woidd be of great utility in multiplying population and wealth; that such a system was entirely practicable; that the cost of it could easily be guessed at without previous surveys; that even small sums could be profitably expended upon the rivers; that estimates for rail- roads could be ascertained by analogy and comparison with similar works in other states; that the system would cause a great deal of land to be entered, and increase the land • Enox, Hist, of banking, 77-8. Digitized by Microsoft® 112 STATE FUNDING OF TRANSPORTATION tax; . . . that the tolls on parts of the roads, as fast as they were completed both ways from the crossings of rivers and from considerable towns, would yield the interest on their cost; that the water-power made by improvements on the rivers would rent for a large sum; that the lands were to be entered all along the roads by the State, which were to be re- Premises on sold for a higher price; that eminent financiers which excesses were to be elected fund commissioners, whose were based j^jgj^ standing and eminent qualifications were to reflect credit upon the State, and to add to its resources; and with all these resources at command, that no great financial skill would be required in any future legislature to provide for paying the interest on the loans and carry the system to completion, without burdening the people. . . Not a soHtary one of these propositions has borne the test of experiment; but all have resulted just contrary to what was predicted. I will mention also, that it was confidently believed, in and out of the legislature, that the State stock to be issued would command a premium of lo per cent, which would go to swell the interest fimd; that the stock in the banks would yield enough to pay interest on bank bonds and a surplus besides; and that in fact the system was to be self-acting and self-sustaining; to provide for its own liquida- tion and payment, and enrich the State treasury into the bargain." ' Responsible for much of this folly was the popular mis- conception of the functions of financial institutions. A bank was supposed to create capital through some process of financial magic; and it was due to this belief that many of the early banking charters were granted subject to the condition that subscriptions be made to internal improve- ment enterprises. Thus Maryland from 1812 to 1831 forced the banks of that state to subscribe over $1,500,000, or one- eighth of their aggregate capital, to the stock of various ' Ford, 18S-9. Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 113 turnpike companies.* And Pennsylvania in 1836 in charter- ing the United States bank as a state institution required the subscription of over $10,000,000 to the stock of four raikoad companies, five turnpikes, and one canal.^ THE CRISIS OF 1837 The mania reached its chmax in the panic of 1837. Until then, foreign investment continued, and American securities stood high upon the market. "In 1836," says Worthington, "the speculation spirit was at fever heat. The United States debt was paid, credit everywhere was abundant and large sums of money were poured into the country for investment." ^ The crisis of 1837 and the long depression which followed left some of the states practically bankrupt. American bonds and securities were reduced from forty to sixty per cent, and some of them became unsalable. Many of the internal improvements imdertaken were uncompleted, and so were not in a condition to produce income. By offering higher wages and discounting their own paper, the states were able for a time to meet maturing claims for interest, but five years of depression left them financially stranded. State debts aggregated $231,000,000; and city obligations amoimted to $27,000,000. Banks were suspended; busi- ness prostrate; and property depreciated. With interest state bank- ^^ ^*^^^ ^^'^ local debts alone amoimting to ruptcy and an annual charge of nearly $16,000,000, there popular de- ^as a total population of but $17,060,000 to spon ency ^^^ j^^ rpj^^ people, however, were in no frame of mind for taxation; they were despondent and almost hopeless. A more dismal picture is not presented to the student of American history. The only hope lay in some ' Bryan, State banking in Md., Johns Hopkins Univ., Studies, XVII, 4S-7. 60-1. 2 L. 1835-6, no. 22. ^ Worthington, Finances of Pa., 39. 9 Digitized by Microsoft® 114 STATE FUNDING OF TRANSPORTATION scheme for refunding, or in repudiation. But with credit wrecked abroad, the states were unable to refund.* On the other hand the general government was free from debt, and its credit abroad was of the best. Besides all of the powers of taxation by impost and excise, the revenues from the public lands were at its command. Popular atten- tion was therefore again turned to congress. Memorials Second appeal for relief poured in from all parts of the coun- to the federal try, and a committee was appointed in 1842 government ^^ consider the matter. This committee re- ported: "The memorials are signed by many thousand citizens of different States, of every pursuit of industry, and of all political parties, miiting generally in a prayer to Con- gress to issue two himdred miUions of stock, to be divided among or credited to aU the States, Territories, and the Dis- trict of Columbia, upon an equitable basis. . . They all desire that the stock be issued upon the faith of the General Government, and the proceeds of the sales of the public lands be pledged for the payment of interest and principal. They unite in the expression of one common opinion — that industry has greatly lost its reward; that property and wages have fallen greatly in value; that confidence is im- paired between man and man; that industrial enterprise is paralyzed; and that while they have the will, they have not the means or abihty to discharge the annual exactions of direct taxes, which many of the States are forced to levy, in order to meet their engagements and preserve their phghted faith. And they express the earnest conviction, that con- fidence will not be restored; that industry, in all its depart- ments, will not thrive; that general prosperity will not return and abide; that the faith of many of the States will not be maintained, nor the General Government itself recover and sustain its former high credit and character, imless Congress extends its aid, and by prompt, decisive, and enlightened » 27 cong. 3 sess., H. rep. no. 296, p. 106. Digitized by Microsoft® STATE FUNDING OF TRANSPORTATION 115 legislation, rescues the people and the States from their present depressed and embarrassed condition. With these views, and under these circumstances, the memorialists make an earnest appeal to Congress to exercise the powers and means which have been extended to it, and out of the vast resources which the General Government can make a\«ailable, to extend its aid in this great emergency." * Since the time of Madison's veto, however, the popular atti- tude toward the participation of the national government in works of internal improvement had completely changed. Jackson and not Jefferson now represented the prevailing belief in the democratic party. The abandonment of the United States bank, the nullification episode of Calhoun, and Georgia's defiance of the national authority in the con- troversy over the Creek lands were circumstances which indicated the weakening of federal ideals. Moreover, the slaveholding states were becoming impressed with their danger from the increased development of the Northwest, which would result from the participation of congress in the support of internal improvements. Under such cir- cumstances, the assumption of the state debts by the federal government was effectively opposed. Morever, the ' Ibid., 1-2. The cause of the embarrassment, as expressed by the com- mittee, was to be found in loans for public improvements. "Animated by a spirit of enterprise, in some cases perhaps imprudent, to develop their resources, and encouraged for a time by the aid of the national Treasury, [Jackson's distribution of the surplus revenue] some of the States embarked in systems of internal improvement too vast in design and too expensive for immediate accomplishment with their limited means, and, when sud- denly all aid from the national Treasury was withheld, had recourse to their own separate credit to effect what only the joint action of the States and the General Government should perhaps have attempted, and which, by their united capacities alone, could have been successfully accomplished. The means and credit of these States became exhausted before their works were accomplished, and their only resource now for the payment of the incumbent debt and accruing interest, without aid of the General Govern- ment, rests wholly on direct taxation." — p. 2. Digitized by Microsoft® 116 STATE FUNDING OF TRANSPORTATION depression from 1837-43 was followed by an era of pros- perity. THE PASSING OVER OF STATE WORKS TO PRIVATE CORPORA- TIONS The financial relapses after 1837 and 1847 brought about a second step toward decentralization /for the people of the older states now had enough of state enterprise. The problem became one of lowering taxes and at the same time maintaining the benefits of the improvements which they had struggled so long to obtain. They turned again to the private corporation as the instrument through which public service undertakings could be financed and operated without burden to the people.^ By 1857 the transportation systems of all the states except Virginia and Georgia had passed over into private hands, and the states, as well as the national government, fell back into merely poHtical and administrative activities. (Beginning with the private cor- poration as a local funding agent impotent to finance the Support in aid larger improvements, and passing through a of private period of State funding, transportation again undertakings j^g^^ recourse to the private corporation Vhich was now grown to such proportions that with the aid of national land grants and national, state, and local subsidies, it was able to finance undertakings requiring millions of dollars. ; It has been under the management and control of the private corporation that the work of reclaiming the West has proceeded, and our unparalleled transportation facilities have been developed. Digitized by Microsoft® CHAPTER Vn Rivalry between Trade Centres in its Relation to Promotion and Capitalization A factor which must be considered in any study of the history of railroad promotion and capitalization is the rivalry Early attempts between competing trade centres. Before the to monopolize adoption of the constitution the colonies vied the ocean trade ^jj.jj ^^^-j^ ^^j^gj. jj^ attempting to obtain a monopoly of ocean trade through the imposition of tariffs. After the removal of such obstructions by constitutional inhibition, the spirit of rivalry began to express itself in measures for the development of inland trade. Even before the Revolutionary war a sharp conflict had arisen between Philadelphia and Baltimore for the control of the trade of the Susquehanna valley. As settlement got beyond the range of an ordinary wagon haul from Philadelphia, the natural trade outlet was down the Chesapeake to Baltimore. York, Lancaster, Columbia, Harrisburg, and d^aitinwre °^^^^ towns grew Up on this central water- course and its western branches. They came to appreciate the economy of the use of arks, rafts, and flatboats, and to join in appeals to the legislature for the removal of the obstructions to navigation which caused an estimated loss of from ten to twenty per cent of their cargoes. It was a peculiar quaUty of the Susquehanna and its tributaries that navigation was less impeded from Columbia (Wright's Ferry) north and west, than from that point south to the Chesapeake. Above, the current was narrowly con- fined; below, the water spread out and formed bars and 117 Digitized by Microsoft® 118 RIVALRY BETWEEN TRADE CENTRES shoals on which trees and other obstructions lodged.* This Rivalry for the was One of the obstacles which nature put in Susquehanna the way of Baltimore's capturing the trade of trade Pennsylvania and central New York. To take advantage of these natural obstacles Philadelphia employed two methods. In 1771 surveys were made for the purpose of connecting the Schuylkill and the Susquehanna north of Columbia by means of a canal; the same year the Susque- hanna was declared a public highway from Columbia north- wards, the portion of the river between Columbia and the Maryland hne being specifically excluded from the provisions of the act. Commissioners were also to be appointed to receive subscriptions for the removal of snags and other obstructions, but it was provided "that nothing in this act contained shall be deemed to enable the said Commissioners to clear the said River Susquehanna of and from the natural obstructions in the same southward of Wright's Ferry." ^ To overcome these obstacles, Baltimore procured in 1783 from the Maryland legislature a charter for the Susquehanna and Tidewater company for the purpose of building a canal northwards from the Chesapeake to the Pennsylvania line.' Such a canal must depend upon canals or river improve- ments in Pennsylvania as far north as Columbia. In 1785 the western and middle counties of Pennsylvania, whose trade advantage lay with Baltimore, had sufficient weight in the legislature to pass an act declaring the Susquehanna a pubhc highway to the Maryland Kne.^ This law, however, proved ineffective. As a means of overcoming any advan- tage which Baltimore might derive from it, Philadelphia in 1786 set on foot a counter project for the building of a canal to connect the Chesapeake with the Delaware, with the 1 A description of the river Susquehanna. (1796.) 2 Carey and Bioren, Laws of Pa., I, 516. s Kilty, Laws of Md., November, 1783, c. 23. * Carey and Bioren, III, 50. Digitized by Microsoft® RIVALRY BETWEEN TRADE CENTRES 119 intention of diverting trade at the mouth of the Delaware. The same year a communication was sent to Delaware and Maryland, asking them to cooperate in the incorporation of the Chesapeake and Delaware canal company. In default of response from those states, the Schuylkill and Susque- hanna ' and the Delaware and Schuylkill ^ canal companies were incorporated in 1791 and 1792 to divert the trade of the Susquehanna above Columbia. The Lancaster turnpike was another project which was designed to attract trade to Philadelphia, while the York turnpike was built as an aid to the merchants of Baltimore. The Delaware and Schuylkill and Schuylkill and Susque- hanna projects were abandoned in 1795, on account of the scarcity of capital for works of internal improvement in the face of the greater returns afforded by foreign trade. The attempt to divert trade at the mouth of the Delaware was therefore renewed. Favorable legislation was obtained in Maryland, but upon the express condition "that this law shall be of no force or effect . . . until a law be passed by the Legislature of Pennsylvania, declaring the river Susque- hanna to be a highway, and authorizing individuals or bodies corporate to remove obstructions therein at a period not exceeding three years from the first day of March, eighteen hundred." ^ Philadelphia had an equal interest with Balti- more in the improvement of this river so long as its only hope of attracting trade was by means of a canal at the mouth of the Delaware. But it was obviously to its interest to oppose reciprocal action on the part of the Pennsylvania legislature in view of its interest in the success of the Union canal, which was promoted as a successor to the defunct Delaware and Schuylkill and Schuylkill and Susquehanna projects. This opposition was not relaxed until after the construction > Carey and Bioren, IV., 88. 2 Ibid., IV, 189. ^ Kilty, November, 1799, c. 16. Digitized by Microsoft® 120 RIVALRY BETWEEN TRADE CENTRES of the railroad between Philadelphia and Columbia had begun, when in 1830 Pennsylvania went so far as to permit the construction of dams in the Susquehanna below Columbia.* Between 1820 and 1830 Baltimore became convinced that as soon as the Chesapeake and Delaware canal should be completed, any improvement in the lower Susquehanna would result to the advantage of .Philadelphia. It therefore projected a canal from Baltimore to Columbia along the west side of the Chesapeake but at some distance inland, and after the failure of this plan proposed the construction of a rail- road from Baltimore to York, there to connect by canal or railroad with Columbia. The surveyors of this road clearly indicated its purpose. They showed that competition with Philadelphia would become dangerous only when the current of trade was allowed to take a settled direction in the channels provided for by Baltimore's rival, but that in case this road should be constructed, "we make the efforts of our rivals tributary to our views, and they cannot make a foot of canal or railway, erect a bridge, or pave a turnpike road, which does not necessarily lead the trade or commerce embarked upon it directly to our door."^ But the building of a railroad required the sanction of Pennsylvania, and this was not obtained without a struggle. Philadelphia claimed that the aim of the Pennsylvania state works was to construct a complete system of transportation from Pittsburgh to Philadelphia, and that the city and county of Philadelphia paid one-third of the expense of the imder- taking. The counties along the Susquehanna and its tribu- taries answered that they could not "derive any benefit from 1 L. 1830-1, no. 58. See also Ibid., resolution no. lo, and Carey and Eioren, VI, 179. ' Report of proceedings in relation to a railroad from Baltimore to the Susquehanna, 3. (1828.) Digitized by Microsoft® RIVALRY BETWEEN TRADE CENTRES 121 the canal system now in progress within the State," because, owing to their location, they had a "distinct interest wholly unconnected with and independent of Philadelphia or the Canal." For this reason they protested "against the re- strictive policy that will enable the city of Philadelphia to command the trade of the Susquehanna country to seek an outlet ... by way of Philadelphia ... for the mere purpose of enriching her merchants at the expense of the farmers of the interior." ' Notwithstanding this protest, the legislature refused to grant a charter to the Baltimore and Susquehanna railroad. In 1830 favorable legislation was obtained in the assembly.^ But before the bill was finally acted upon in the senate, a mass meeting was called in Philadelphia which pointed out the folly of spending the state's money for the gain of a seaport of a rival state, and of permitting the passage of a law which would "prove the funeral knell of our city and county from which . . . seven eighths of the revenue of the State is derived." ' A mass meeting in York answered that "Baltimore is the market for the sale of the products of this part of Pennsylvania." * Nevertheless the action of Philadelphia had the desired effect, and the bill was rejected in the senate. A further attempt to pass such an act met with the same fate in the next legislature,^ and it was not until 1832 that the Pennsylvania legislature finally yielded .° But even now the Maryland company was handicapped; for the right of construction was granted to the citizens of York, and it was not until 1834 that the company obtained the necessary grants. In the following year Pennsylvania incorporated the ' Preamble and resolution relative to the Balto. and Susq. R. R. (1829), 3-10; Swift, Report on the Susq. R. R. (1828), 8; Address by the board of directors to the mayor and city council of Baltimore (1830), 4-14. 2 NUes, XXXVIII, 107. 2 Paulson's Amer. Daily Advertiser, March 25 and 27, 1830. 'Niles, XXXVIII, 125. » Ibid., XL, 47. " Ibid., XLII, 8i. Digitized by Microsoft® 122 RIVALRY BETWEEN TRADE CENTRES Susquehanna canal company for the construction of a canal from Columbia, the eastern terminus of the Pennsylvania canals, to tidewater.' In return, Maryland granted the FrankUn railroad of Pennsylvania the right to connect with the Baltimore and Ohio railroad.^ This ended the struggle between the two rival cities over the trade of the Susquehanna and its tributaries. By a strange coincidence the Baltimore and Susquehanna railroad and the Susquehanna canal were completed in the same year (1839). The canal was of as great advantage to Philadelphia as to Baltimore, for at least half of the descending trade on this route went to Philadel- phia by way of the Chesapeake and Delaware canal. The railroad, on the other hand, was solely for the advantage of Baltimore, which was able thus to connect with the Ohio thirteen years before the completion of the Baltimore and Ohio to Wheeling. With the completion of the Union canal (the northern route) in 1827, the completion of the Chesapeake and Delaware (the southern route) two years later, and the connection with Pittsburgh by the Pennsylvania state system in 1834, Philadelphia's supremacy over the richest industrial state in the union was firmly established. Baltimore's next move was to IheoS'ot^Iie S^'in control over the Ohio trade, and through the western terminus of the Pennsylvania system to make a successful entry to the Great Lakes. It was only after continued contest and compromise that Pittsburgh was entered, and it is said that the cost of over- coming the poHtical obstructions to gaining terminal facili- ties in Philadelphia was a chief cause of the financial down- fall of Maryland's greatest transportation company. The natural obstruction to the Susquehanna river trade was only one of the adverse conditions which Baltimore had to meet. Located on the Chesapeake, the city was cut off » L. 1834-S, no. 164. ' L. 1836-7, c. 79. Digitized by Microsoft® RIVALRY BETWEEN TRADE CENTRES 123 from a natural highway to the interior. On the Potomac were two aspiring towns which early entered into com- petition for commercial supremacy, — Alexandria and Georgetown. With the first effort of Washington and his colleagues to organize the Potomac canal company the spirit of rivalry between Baltimore and the Potomac towns became Baltimore and aroused. Two years before this company was the Potomac organized, the Susquehanna and Tidewater towns company was chartered. Three surveys were made for the purpose of locating a canal route from Balti- more to the Potomac, and aU showed that such a cut-off would not be feasible owing to the lack of water supply. Baltimore strenuously opposed the location of the national capital on the Potomac, urging that the national resources and the prestige of a capital city would combine to develop a great commercial rival. Despairing of canal competition, the projection of the Baltimore and Ohio railroad was Balti- more's counter plot to the Chesapeake and Ohio canal. The sharpness of the competition between these two enter- prises is illustrated in the contest for right of way. The Baltimore and Ohio railroad reached the Point of Rocks in 1832. At this place it suffered a ten years' delay before the controversy with the canal company as to the right to build to Harper's Ferry was settled, and this settlement was effected only after a monetary consideration had been arranged with the canal commissioners. It was one of the fateful coincidences which conspired to retard Baltimore's development that the city, with about one-third of the wealth and population of Maryland, had only two representatives in the assembly and one in the senate; and in the contest with the Potomac towns this was a circum- stance which stood in the way of the political readjustment necessary to give it fair consideration. But though handi- capped politically, financially, and by nature, the popular support given to every enterprise which looked toward its Digitized by Microsoft® 124 RIVALRY BETWEEN TRADE CENTRES development made Baltimore one of the leading factors in the promotion of transportation enterprise. Farther down the coast were Charleston and Savannah, each with its tributaries, and each seeking to reach to the interior for commercial advantage. Between Charleston and Savannah the contest was a bitter one. The support ob- tained for canals, wagon roads, and railroads in each case turned on the question as to which port the project would benefit. As a result of the opening of the so'uUiOTi°At- ^ railroad from Charleston to Hamburgh the lantic and trade of Charleston greatly increased, while Gulf coast ^j^^j q£ Savannah suffered a corresponding decline. Most of the transportation enterprise in this part of the South grew out of the contest between Savannah on the one hand and Charleston and Augusta on the other for the trade of the central Georgia cotton belt. The Georgia railroad company was chartered to build a road westward from Augusta to the middle of the state, and a rival was projected between Savannah and Macon.* Both of these roads were finally built. When, however, the construction of the Southwestern railroad of Georgia from Macon to the Chattahooche river was imdertaken, Savannah, with an eye to larger trade advantage, took a generous amount of stock, but the people of Macon, fearful that their trade would be lessened instead of increased by the proposed road, gave Httle support to the project.^ The extension of Georgia railroads encroached upon territory tributary to Mobile, and it was mainly for the purpose of strengthening that city in the contest with Savannah and Charleston on the east and New Orleans on the west that the construction of the Mobile and Ohio railroad was undertaken.^ To the North similar struggles for commercial supremacy ' Phillips, Hist, of transportation in the eastern cotton belt, 254. ^ Reprint of annual reports, 1849-69. ' Phillips, Early railroads in Ala., Gulf States Hist. Mag., I, 34. Digitized by Microsoft® RIVALRY BETWEEN TRADE CENTRES 125 were waging between Philadelphia and New York, and New York and Boston. Before the contemporaneous events of the embargo and non-intercourse acts and the introduction of the steamboat on the Hudson, the importance of New York had been slight. Albert Gallatin, going to Manhattan with a view to locating there, was not im- and^New '^rk P^^^scd with its future. He described it as local in its interests, and dominated by a few of the great land-holding families who were constantly fighting for social and political supremacy. Intermediate between Boston and Philadelphia, with no West behind it, and no way open to command the trade of the lake region, there seemed little to indicate the future metropolis. But conditions changed; the crushing of the shipbuilding and foreign trading interests, the sudden development of the argicultural regions of central New York, the settlement of the lake country, the opening of the Hudson by steam naviga- tion, and later the building of the Erie canal, marked New York as a city which could control the ocean commerce of the continent. Even before the Erie canal was completed, merchants of Philadelphia had found it more profitable to send goods by water to Albany and thence to Pittsburgh than to transport them by wagon across the Alleghanies. The successful Advantage of financing of the Erie canal threw the con- the Mohawk servative citizens of the Quaker city into a ''''"** state of feverish excitement.' Every private and political interest which centred in this city conspired to reduce the natural trade advantage of New York to a mini- mum, and to force upon Philadelphians a struggle to retain the supremacy which they had so long enjoyed. The great public works were undertaken to give to Phila- delphia control over the Ohio trade by way of Pittsburgh. The French Creek canal would give entrance to Lake Erie, • Turner, Rise of the new West, 32-9. Digitized by Microsoft® 126 RIVALRY BETWEEN TRADE CENTRES the Susquehanna canal would reach Sunbury, while the Sun- bury and Erie would give the double advantage of access to the mineral belt and a short cut to the Great Lakes. At the same time the Chesapeake and Delaware canal would develop much of the New Jersey and eastern Pennsylvania traffic. For the purpose of thwarting the effort of New York to enter her territory, Philadelphia resorted to the same tactics as had been so successfully used against Baltimore. Re- stniegie of sponding to Philadelphia influences, the legis- Phiiadeiphia to lature of Pennsylvania in 1852 passed a law retain suprem- providing for a Uniform gauge throughout the "'^ state for all railroads thereafter to be con- structed, the same to be uniform with that of the state system.^ Commenting upon the wisdom of such a measure a writer in the Philadelphia North American said: "The section [of the law], it will be seen, keeps the New York influence outside of the state lines and harmonizes the railroads of Pennsylvania into one complete system. It avoids transshipments within the state, and keeps our grasping neighbor within her own bounds; and, by binding together the interests of all counties, will foster everywhere a good feeling for Philadelphia. . . Pennsylvania soil should not be used as a highway leading to and from her rival and competitor — it should be ramified by railroads uniting in Philadelphia. . . New York has long indulged in the hope and expectation of running across eastern and northern Pennsylvania on the north with the six- foot gauge of track, and on the east with the New Jersey track of four feet ten inches gauge, and so, while running through the state, secure its local interior trade to the loss and injury of Philadelphia. But this cunning game has been efifectually checked in the adoption of the gauge law above alluded to." ^ • L. 1852, no. 36. '' Amer. Railroad Jour., XXV, i6o. Digitized by Microsoft® RIVALRY BETWEEN TRADE CENTRES 127 For a large part of the legislation and for the financing of transportation in northern Pennsylvania, the New York competition with Philadelphia was responsible. Phila- delphia was to a large degree successful in protecting its mineral fields, but just as it was able to wrest commercial control over the Susqueharma from Baltimore, so New York by utilizing its natural advantage was able to take from Philadelphia a large part of the commerce of the great West. As a result Philadelphia developed into an industrial centre, and became the staunch advocate of a protective tariff, while New York as the commercial metropoUs was one of the chief patrons of the commercial idea. New York's newly attained advantage stirred up another rival, which until the war of 1812 had held a commanding commercial position. Boston, the centre of shipbuilding interests and foreign trade, stricken as it was by the triple calamity of embargo, blockade, and protective tariff, was forced over to new lines of investment. After Bo^on""^ ^ ^^^^ '^^^ activities were made to depend upon manufacture and internal commerce. A canal to Albany appealed to the imagination, but not to the prac- tical sense of the Yankee. The first move in this contest for the trade of the West was the construction of the railroad to Albany, which connected not only with the Erie canal but with the westward moving line of railroads, which was eventually to become the New York Central. So eager were Boston people for an all-rail route to Buffalo that meet- ings were held in their city in 1840 for the purpose of raising money for the construction of the Attica and Buffalo rail- road.' With the opening of the Tonawanda railroad in 1843, the communication with the lakes was complete. For a time, the effect of prospective railroad competition upon New York was apparently not appreciated in that city, where so much security was felt in the possession of the > Niles, LIX., 86. Digitized by Microsoft® 128 RIVALRY BETWEEN TRADE CENTRES matchless "Grand canal," and the promoters of the New York and Erie railroad, starting in 1831 with the primary purpose of opening up the trade of the isolated valleys of the southern tier of counties, were unable to attract sufficient support until they could point out the necessity for a railroad directly tributary to the city of New York as the one means of preserving its commercial supremacy.' The effect of their argument was at once shown in the refusal of New York capitalists to subscribe to the stock in the Western railroad of Massachusetts, though before that time a great deal of the capital of the metropolis had found its way into New England railroad ventures.^ New York was now begin- ning to see that the completion of that road to Albany would make the entire canal system of the state tributary to Boston. After the completion of the Buffalo connection, Massachusetts at once became increasingly prosperous, and the progress of New York was checked. Statements were published to show that the valuation of New York real estate had fallen off with the opening of the Western railroad; and an agita- tion was begun which resulted in the building of the railroad from New York to Albany.^ Not only did Boston reach out toward the West through Albany and Buffalo, but through Ogdensburg and the Welland canal a trade route was opened which was free from the oppressive canal tolls which were exacted upon the railroad between Albany and Buffalo. In a smaller way this struggle for participation in the trade advantage accompanying the introduction of the rail- road was carried on among the trade centres throughout the country. When in 1826 the plans for the proposed Boston and Hudson river canal were presented, the commissioners • Mott, Between the ocean and the lakes, 45; Bloomfield, Influence of internal improvements on the growth of commercial cities, Hunt, XIII, 261. 2 Bliss, Hist, memoir of the Western railroad, 28. => Grant, Hudson River railroad, 10-9. Digitized by Microsoft® RIVALRY BETWEEN TRADE CENTRES 129 feared that if a southern route through Springfield should be adopted, trade might be lost to Hartford;* for with the introduction of steamboats upon the Connecticut, Boston's trade with the valley towns had greatly fallen off. By the time the railroad had been constructed as far t er centres ^^ Worcester, sentiment in Boston was divided 01 rivalry ' over its westward extension,^ and Worcester was opposed to the building of the road beyond that city because of the fear of becoming a mere way station.' Con- necticut incorporated the Worcester and Hartford railroad company, and Massachusetts also was asked to grant a charter.* The matter resolved itself into a struggle for financial support, which resulted to the advantage of the Western railroad through Springfield. Another instance of the intertown rivalry in the Connecticut valley was the contest between Amherst and Northampton over the ques- tion as to whether the east or west bank of the river should have the road which was projected along the Connecticut. Northampton had the larger financial backing, as a result of which the Vermont and Massachusetts road was built to favor that town. Between Troy and Albany there had been open hostility from before the beginning of the nineteenth century, but with the opening of the Erie canal the struggle increased in intensity. To prevent Albany from going to decay on account of the superior transportation facilities of Troy, the Mohawk and Hudson raihoad was built.* On account of their intense rivalry, neither city had been able to obtain legislative authority to bridge the Hudson, but in a bill for the incorporation of the Rensselaer and Saratoga railroad, ' Report on the routes of canals, 60. 2 Springfield Gazette, August 5, 1835. 3 Green, Springfield, 416. * Bliss, 25-6. ' Munsell, Mohawk and Hudson railroad, 6-7. 10 Digitized by Microsoft® 130 RIVALRY BETWEEN TRADE CENTRES a clause was introduced providing that a bridge might be built between any of the places named in the charter. Before the danger to Albany was recognized, the bill be- came a law. Then followed a series of petty retahatory acts. Albany attempted to draw the trade of northern New York by means of a branch railroad rimning from Schenectady, the terminus of the Mohawk Troy and ^^^ Hudson, to Saratoga; but Troy main- Albany . , . • . ,1 , ., . tamed its position through the construc- tion of the ^Rensselaer and Saratoga. When the rival railroads met at Saratoga, the Schenectady and Saratoga refused to exchange either passengers or freight. The merchants of Troy thereupon bought control of the rival road. Troy then sought a western outlet by means of an eastward extension of the Utica and Schenectady railroad, but faihng in this, through the opposition of Albany capi- talists, built the Schenectady and Troy railroad.^ When the charter of the New York and Albany railroad was granted, it provided that the road should be extended through Albany to Troy, and a track was laid between the two cities; but Albany obtained additional legislation, providing that before the road should be operated, $250,000 in addition to the amount already disbursed should be expended upon that part of the road south of Albany. This delayed the open- ing of the road for several years. In the West intercity rivalry was quite as marked. The lake ports were constantly striving for trade advantage, and this spirit was the most fruitful resource of the promoter. It is a fact of peculiar interest that Galena was Chicago"* °^^^ ^ "^^^ ° Chicago. Before the raihoad became a factor in internal development, Galena had the double advantage of being supported by a large min- eral industry and of having the Mississippi for an outlet. It ' Powell, Two experiments in public ownership of steam railroads, Qttar. Jour, of Econ., XXIII, 137-50. Digitized by Microsoft® RIVALRY BETWEEN TRADE CENTRES 131 is said that when the incorporators were deciding upon a name for the Galena and Chicago Union, objection was raised by some of the Chicagoans to giving Galena the preference in the title. To this it was answered that Galena was then and probably always would be the larger city, and the name was allowed to stand as proposed. The building of this road, however, was one of the chief means by which Chicago gained its advantage. South of Galena were the valley towns, each seeking to establish its advantage. Nashville, Chattanooga, Knox- ville, and other towns of the interior became centres of pro- motion and capitalization of enterprise which would bring trade to their own people. On the Ohio, Cincinnati and Louisville were prominent rivals. In the early steamboat days Cincinnati was an important river port, but with the building of railroads in the West its trade LOTU^ue "^^ ^^ slowly fallen off. Upon the completion of the Louisville and Nashville railroad in 1859, the loss of trade was so great as to call for action. As Ohio's constitution prohibits all forms of corporation sub- sidy by state or mimicipality, an effort was made to raise by popular subscription a cash bonus which would serve the piurpose within the law. This measure failed, as did a simi- lar effort in 1868. A proposition was then made for the direct construction of a railroad to Chattanooga upon municipal credit. An enabling act was obtained from the legislature in 1869 and after its validity had been determined by the courts, contracts were let for the construction of the Cincinnati Southern in 1874. Work was carried on imder the supervision of a board of trustees acting for the city, and in 1880 the hne was opened for traffic' In all these intercity contests for trade advantage, it was a small minority of aggressive merchants, either individually or cooperating through trade organizations, who bore the greatest ' Hollander, Cincinnati Southern railway. (1894.) Digitized by Microsoft® 132 RIVALRY BETWEEN TRADE CENTRES financial burdens, and organized and executed campaigns for the furtherance of their plans. When John Stevens appeared Th se contests ^^ Philadelphia as applicant for the support of conducted at his plans, it was only before the merchant class the expense of that he obtained a hearing.* While the Mas- merchants sachusetts legislature was delaying over the manner in which the construction of the several railroads projected out of Boston should be carried out, the business men of the city offered to assume the responsibility of the work.^ It was only natural that such should be the case. To the merchant, money put into railroad stock was an indirect investment in his own business, to be returned with increase in the profits of future trade; but to the manufac- turer there could be no appeal more urgent than the needs of his factory. And the Southern planter looked forward to a steadily increasing demand for cotton, which called for a reinvestment of his small cash surplus in additional slaves and lands. » McMaster, United States, V, 13^ 2 Bliss, 19. Digitized by Microsoft® CHAPTER VIII Promotion of Private Companies When a man with his own capital provides his own equip- ment, or devises some method for conducting his own busi- ness with greater economy and profit, this is considered a function of management. If, however, he addresses himself to a constituency and seeks to enhst the capital of others in a project from which some advantage is to be gained, he is regarded as a promoter. Promotion is based on the recogni- tion of the economic advantage inherent in an industrial situation, and the opportunity for capitahzing this advan- tage. The promoter is one who, recognizing this advantage, procures or paves the way to the procuring of the capital or equipment necessary to make it available. " As the term is usually employed, it suggests a person who gives his time and attention to obtaining control over properties, and who organizes and capitalizes some new method of operating the same. The promoter, as such, must from necessity be an enthusiast. Having himself become convinced of extraor- dinary profits to be derived from the capitalization of the new venture or improved method, it remains for him to con- vince others. He must be a man of originaUty and unusual activity. The successful promoter as such recognizes no obstacle that may not be overcome. The The promoter . i . , ^ , . r mental attitude which fits him for promotion, however, very often unfits him for the management of capital or for the long continued control of large enterprises. With- out sufficient funds of his own with which to provide the 133 Digitized by Microsoft® 134 PROMOTION OF PRIVATE COMPANIES necessary equipment, the promoter must appeal to the man of capital (the investor).' The investor (the capitalist) is by nature and business training a conservative. It is this habit of mind which fits him for his business. As investor, his first inquiry is for security. Usually without originality or initiative, his function is that of a conservator of funds. His suc- cess as capitalist depends on his ability to protect his original capital, and to increase it through the contractual claim which he obtains on the income of the prospective enterprise to which his capital is contributed. Though eminently conservative, so far as the protection of capital is concerned, it is the desire for enhancing this capital through increased income that makes for progress, and brings, the investor into sympathy with the promoter. The investor's The investor's eye being ever turned toward opportunity, he interest in the is constantly in Search of opportunity for capi- promoter ^^■^ employment, and for contracts through which he can obtain larger investment returns. The man of conservative judgment (the investor) thus comes into financial relations with the enthusiast (the promoter), the contract of investment establishing the basis for the division of the profits to be derived from the organization and capi- talization of the economic advantage which is made the subject of the promoter's energy. The promoter presents his project — his newly discovered business opportunity — to the investor; he himself is convinced that it offers an extraordinary return to capital after providing a profit for promotion, and he devotes himself assiduously to convincing the capitalist that he can enhance his income by furnishing the funds necessary for control, reorganization, or equipment. ' For definitions from legal cases see Alger, Treatise on the law in relation to promoters, 1—3. Digitized by Microsoft® PROMOTION OF PRIVATE COMPANIES 135 SPECULATION AND GAMBLING AS FACTORS EST CAPITALIZATION Failing to obtain a hearing with the capitalist, or being unable by direct appeal to induce the investor to enter into contracts favorable to the promoter, application may be made to the speculator. If the proposition assembled and controlled by the promoter will not stand the test of critical investment scrutiny, if it is so unusual that it does not permit the conservative to apply the actuarial test of experience, or if it is so local in its character as not to appeal to the larger investment market, the promoter may seek to capi- talize his opportunity through direct or indirect appeal to the speculative imagination of the public. In this relation, speculation should be clearly differentiated from investment. Speculation is a capital venture which relies upon chance for return. Investment is a capital venture which is entered upon as the result of calculative judgment. In principle, speculation is gambling, the difference being a matter of law. The gam- bler or the speculator places a wager on the happening of Speculation °°® ^^ ^"'■^ events, over which he has little differentiated or no coutrol. He Ventures a relatively small from invest- amount, and gn the happening of the event "^^ which is made the subject of the hazard, he is entitled to a much larger return. In case the stipulated event does not happen according to the terms of the agree- ment, the speculator or gambler usually forfeits all right to the capital ventured, i.e., he loses his margin or wager. Speculation and gambling, as such, have little or no concern with the success or failure of an enterprise. This has not been the subject of speculation for the reason that it takes too long to determine the result. Results from speculation do not come from the profits of a particular industry in which the capital contributed by the speculator is to be engaged. The stock speculator, for example, may not know even the location of the railroad or other enterprise whose stock is Digitized by Microsoft® 136 PROMOTION OF PRIVATE COMPANIES margined. The only facts before his mind are the market quotations of yesterday and to-day; his only hope is for a fluctuation in price which will determine the wager or con- test in his favor. Investment, on the other hand, carefully considers the industry, enterprise, or security to be purchased. The mind of the investor is ever turned to the economic or business advantage to be capitalized. With his capital the investor buys a right to share in the success of the venture. It is on his judgment as to the conditions which may be utihzed to advantage that he is willing to accept responsibility for loss. The profits are to be derived from operation, or from the capitahzation and sale of prospective profits. From the point of view of general welfare, speculation and gambling The vicious ^-^ vicious. They discourage individual in- aspects of spec- dustry and frugality; weaken the moral fibre uiation q£ ^ community; encourage trustees and agents to misuse funds and properties in their keeping; and destroy conservative judgment. Success in speculation and gam- bhng leads to lavish Hving and social waste; failure is followed by despondency and reduced individual efficiency. The exercise of investment judgment conserves industrial and social resources; the encouragement of speculative activities debauches and destroys. In relation to the development of a particular industry, however, speculator and gambler may be used to advantage. Upon this groimd was based the pubHc justification of the lottery as a means of capitahzation. When the capital of the country was small, when no institutions the*iotte*i7° ° existed for the collection of fimds large enough to capitaUze enterprises of which the country stood in need, legislatures authorized the seUing of chances which would entitle the successful drawer to a considerable fortune. This was the incentive offered to the individual to risk the amount to be paid for one or more tickets, the Digitized by Microsoft® PROMOTION OF PRIVATE COMPANIES 137 condition being that upon the completion of the subscrip- tions needed to legahze a drawing, a certain percentage would be set aside as prizes, the remainder to be used for purposes of capitalization. The lottery has been defined as " the only method by which laziness and avarice — those opposite and contradictory emotions — can combine and satisfy each other." * This method played an important part in the early history of this country. Few communities were willing to tax themselves sufficiently to provide for needed works of public improve- ment. Resort was therefore had to drawing small funds from that improvident class which preferred to look to chance rather than to industry and saving for the accumulation of a fortime. By this method every kind of institution and improvement requiring extraordinary outlay was aided. Colleges, churches, municipal buildings, docks and wharves, roads, bridges, and many other enterprises were objects of this form of funding. The action of New York in this respect has already been mentioned. Pennsylvania in 1795 authorized the holding of a lottery to raise capital for bridg- ing the Schuylkill at Easton. The Delaware and Schuylkill and the Schuylkill and Susquehanna companies, in 1795, were authorized to issue lottery tickets; and when their successor, the Union canal company, fell into financial straits in 1819, the state provided for the payment of interest on its bonds out of a fund to be derived from a lottery or series of lotteries. When a bridge was swept away, a lottery replaced it; a high- way in need of ballast was thus repaired, or a lock in a canal was rebuilt. When in 1822 it became necessary to lower the bed of the canal at South Hadley Falls, Massachusetts author- ized the company to raise $20,000 for the purpose by means of a lottery. Instances of the sort might be multiplied.^ It 1 Weeden, Econ. and soc. hist, of New England, II, 692. 2 Spofford, Lotteries in American history, Amer. Hist. Assoc, Report, 1802: 173-95; McMaster, United States, II, 23-4, III, 461; McMaster, Old Digitized by Microsoft® 138 PROMOTION OF PRIVATE COMPANIES was only after there had been a considerable increase in wealth and population throughout the country that the lot- tery came to be regarded as against good morals.' By the lottery no assurance was given to contributors that the funds collected and allotted to the enterprise would be properly apphed. The only guarantee was that a proper apportionment would be made. As a funding agency, therefore, it was in every way inferior to the corporation. In legal theory the corporation provided a trusteeship for subscription and collection, of funds as well as a trusteeship for their proper application and use as capital The lottery and ^^^^^ ^^ ^^^^ become the property of the the corporation -' . r r j company. There is a permanent relationship established between the contributor, or his assignee, and the officers and agents of the corporation. The contributors constitute the proprietors of the company. In legal con- templation, an appeal for corporate subscriptions is an appeal to conservative investment judgment. Lack of restraint on transfers of stock subscriptions and stock holdings, however, has made the price of shares one of the most frequent and active subjects of speculation. Gambhng on the price of shares has become an established business. Trading in shares has developed two classes of speculators, — professionals and outsiders. The professional is one who makes a business of operating in the market. The outsider is one who "takes a flier"; i.e., takes an occa- sional chance. Orders are executed through brokers who PubUc justifi- may also be traders on their own account, cation of stock and in such capacity operate as professionals, speculation rj,^^ ^^^ j.^^^^ qJ 5^^^.]^ speculation is to cause large funds to be brought together in stock-trading centres. standards of public morals, Amer. Hist. Rev., XI, 523-4; Ross, History of lotteries in New York, Mag. of Hist. V, 94, et seq.; Stiness, A century of lotteries in Rhode Island, R. I., Hist. Tracts (2 ser.) no. 3. • Weeden, II, 528, 691-3, 737. Digitized by Microsoft® PROMOTION OF PRIVATE COMPANIES 139 These funds consist of: (i) the cumulation of margins in the hands of brokers; (2) the cumulation of book profits, or drawing accounts in the hands of brokers; (3) the cumula- tion of large call loan funds in banks which are used in sup- port of speculative transactions; (4) the cumulation of large capital in the hands of brokers as the result of taking com- missions and interest, and (5) the cumulation of large capi- tal in the hands of professionals, the result of profits taken from outsiders. The gross amount of funds which have been brought together in a city like New York will not fall short of a thousand million dollars. The extent to which transfers are speculative has been estimated at from ninety to ninety-five per cent of all the transactions on the exchange. To this is to be added the large funds brought together in other forms of speculative trading. Indirectly stock gam- bling has aided in the capitaUzation of large corporate enter- prises by assisting in bringing together at trading centres those capital funds which may be utilized for purposes of flotation and investment. But speculation also contributes directly to the capitalization of individual enterprise. Cor- porate issues in new promotions may be entirely taken by stock market speculators, thus giving the corporation the funds desired, the speculator accepting the risk of selling them at a higher price; or they may be entirely disposed of outside a stock market by direct appeal to a speculating public through a published prospectus. Untold millions of dollars have thus been obtained for purposes that would not warrant investment consideration. While large funds have been brought together through speculation in the stock market, the practice at all times has been fraught with great danger to private credit and national prosperity. For the personal profit of promoters, stocks and bonds have been offered and sold to a venturesome or confiding public by irresponsible representation and false statement, by fraud and deceit; and this practice has con- Digitized by Microsoft® 140 PROMOTION OF PRIVATE COMPANIES tinued for nearly a century without serious interference of Public danger law. In periods of great activity, the agencies in stock of appeal and speculative sale have been well speculation organized and well supported in the financial centres; in many instances large stock exchange houses operating through banks and other financial institutions whose names carry the weight of authority and highest respect have been the means through which the popular purse has been reached. At such times, the financing of new projects has been devoid of that balance and control which comes through the interposition of critical investmient judgment. Being deprived of the poise of investment con- siderations, even the best of transportation opportunities after being capitalized and equipped have frequently been crippled, and later the courts have been employed to enforce contracts, the effect of which has been to wrest the property from those who furnished the means for development. Un- fortunately for our material welfare, under our lax corpora- tion laws the promoter has been free to win support for his projects by almost any method, fair or foul, which has seemed adapted to his ends. TYPES OF PROMOTION A former railroad president has thus described the methods of this class of railroad promoters, and others who with equal license have been permitted to abuse the confidence Promotion for oi investors: "Their plan was to procure the purposes of most favorable charters from the States or exploitation ^^^ Government, to obtain large concession in lands along the line, then organize a company, issue as much stock as they thought the public would take, obtain from cities and towns as large subsidies as possible in money and promises; then make contracts with themselves by which they received all the lands, subsidies, bonds and stock, for constructing the railway. They constructed it cheaply as Digitized by Microsoft® PROMOTION OF PRIVATE COMPANIES 141 possible; they sold the lands for the best price obtainable; sold the bonds and stock to the public; and then marched on to take other contracts and conquer other lands. When the day of reckoning came, as it was bound to, the public found themselves the owners of bonds upon which the interest could not be paid; the communities found themselves with a poor railway in which they had no direct pecuniary interest; they saw the contractors with enormous fortunes, and they con- cluded that they had been cheated and robbed." ' This picture is true of many aspects of railway promotion, but it is not typical of railroad development as a whole. Notwithstanding the fact that lines have been built by pro- moters to sell, that others have been built by ofi&cers and directors for stock-jobbing purposes, and that still others have been built for the profit arising from construction, a larger number have been promoted by men who afterwards re- mained as the managers of the lines they had built, or as investors who, from the beginning, exercised conservative judgment in control. Reflecting his contact with promoters of the conservative class, Wellington said: "Railroads are not undertaken unless they are expected to be profitable, not to the general public, nor to other parties in the near or distant future, nor to those who lend money on them, hut to those who at first control the enterprise. If the means in The projector hand be not sufiicient for the projectors to as prospective complete the road for operation and to control manager ^j^g operation, afterwards, the result to them is usually complete loss." ^ In most instances, it may be said, that those who have contributed the funds required for construction and equipment have been moved either by a well considered business judgment that the stock and bonds of the company would yield a safe and profitable return, or the ' Ingalls, The past, present and future of American railways, Purdue University, Lectures in railway engineering and allied subjects, 71-2. 2 Wellington, Economic theory of the location of railways, 15. Digitized by Microsoft® 142 PROMOTION OF PRIVATE COMPANIES subscription has been secondary to the development of a system of transportation needed to give wider scope and larger opportimity to some other enterprise to which the investor has devoted his capital. In either case it was a well considered business project. The only circumstance in which business judgment is not exercised is where appeals are made to a speculative constituency. To quote further from the same authority: "The general question of whether or not build the line at all is one of finance and business judgment alone, to be settled by a more or less visionary estimate of the available capital for construction, the prob- able gross and net receipts, and the resulting direct and indirect advantages to the projectors." ' The Economic Basis for the Morality of Promotion Neither of the opposing views above quoted gives an ade- quate hypothesis for the interpretation of historic facts, or the analysis of financial methods developed in the promotion of railroads. The conclusions are based on abstract concepts of morality. From this viewpoint the use and disuse of the lottery may not be imderstood; neither may practices relating to state transportation enterprise be justified. In fact, the moral code itself can be accounted for only when it is Moral prin- considered in the light of social necessity and cipies a result economic advantage. The method as well as of social de- the morality which has been incident to the ""^ promotion and capitalization of private trans- portation companies finds a coordinating principle in social necessity, and in the economic advantages to be gained through this method. The powers granted to persons to organize private corporations, and the powers granted to railroad corporations when organized, proceeded from con- siderations of commvmity welfare. The basis for private corporate legislation was as truly social and economic as 1 Wellington, Economic theory of the location of railways, 13. Digitized by Microsoft® PROMOTION OF PRIVATE COMPANIES 143 were authorizations to operate lotteries, and grants of appro- priations for state works. The primary difference was that under these private corporate laws both organization and capitalization were made to depend on private initiative. The promoter performed the public service of initiator. At the time of promotion he stood before the public as a great beneficial agent for bringing together the men and the means necessary to provide the people with a needed improvement. What we now call dishonesty on the part of the promoter was at the time publicly encouraged, in many instances legaUzed, at all times winked at, as a condition essential to the accomphshment of a desired end. In the initial stages of industrial development the efforts of the promoter were applauded by the community to be served. While at all times the economic advantage of the proposed improvement was kept before the pubhc, this was unnecessary, except so far as was helpful in winning favorable consideration from the investor as to the pro- spective earning power of the enterprise. The real subject for the exercise of the promoter's ingenuity and the display of his energy has been based upon the investment principle that one with capital will not withdraw it from a field in which it is already profitably occupied and which is well understood, unless some bonus or extraordinary inducement is offered. The history of the development of financial method - ^ in promotion finds in this principle its controUing Corporate prac- , _,, i- . ^ tices developed factor. The resourcefuuiess of the promoter in harmony of railroads is to be found in his methods of .^*^J°^7°"°- assembling or bringing under control a form of bonus which might be held out to induce capital to invest. In his effort he has had two distinct ends in view : the necessary elements of successful appeal to those outside of the range of the improvement itself, to whom appUcation must be made for fimds, and a residue which may be taken over by the promoter himself as compensation Digitized by Microsoft® 144 PROMOTION OF PRIVATE COMPANIES for his labor and talent in bringing together the elements Methods a necessary to success. The highest success re- product of quired that he be fully aUve to all the possibili- inducement ^jgg. a,nd these were ahnost unlimited. With population stretching out over a new and undeveloped con- tinent and seeking to possess the land, with resources of incalculable value offered by the government to any and all who might have the initiative to break away from the old associations and settle upon the new land; with such a vast bonus offered to settlement but with no means provided by the government for converting these resources into present means of individual comfort and industrial welfare, the promoter would indeed have been dead to opportunity if he had not insisted on a hberal reward for supplying the great need, — the railroad. Perhaps the methods of private financing may be better appreciated if the public aspects of the situation are again briefly stated. Immediately after the war of independence the public domain belonged to the states. In the interest of common welfare a large part of this was ceded to the national government. With the adoption of the federal constitution the most productive of the revenue powers were also sur- rendered by the states. With all this wealth of resource and revenue power, the federal government delayed undertaking transportation development on a scale commensurate with the growing demands of the people until the states foimd themselves able to sell their credit abroad. This placed the states in a position of political ascendency, and the federal government was reduced to a position of secondary impor- tance in the Hfe of the people. With nothing to rely upon in support of their credit but direct taxation after the financial relapses following the panics of 1837 ^^nd 1847, the burden of direct taxation became so heavy that the state electorates were glad to shift the burden of debt to other quarters, but not to the national government. Sectional conflict precluded Digitized by Microsoft® PROMOTION OP PRIVATE COMPANIES 145 favorable consideration of the taking over of state works and the assumption of state debts by the only governmental agency capable of financing them. For the same reasons the larger reserve powers of the federal government were not called into action in support of added facilities for interstate commerce; on the contrary these powers were repressed. The country was divided by economic strife; each section in turn seeking to minimize the powers granted under the federal constitution when they were used against it. The need for central regulation and control was not felt. Pubhc business was not taken seriously. The demand of the time was for uninterrupted and uncontrolled private ownership of the most important of our public service enterprises. What had already been established as a policy in giving away the pubhc domain to persons who would "settle " was extended to the states. Time and again, organized effort was made to have the pubhc lands re-ceded to the states. Large tracts were voted by congress to be held in trust by the states as a bonus to private corporations, which would imdertake internal improvements. To the railroad pro- moter was offered not only a share of the newly acquired gifts by the government to the settler, but also large tracts of land and valuable resources which were ceded to the states for this very purpose. This was not all; although the states A art of the themselves had been crippled from the start on general plan of account of their Hmited revenue powers, and had territorial proven their inabihty to support the large vol- spo la ion umes of Credit issued for the direct construction of state works, most of the cities and other pohtical divisions of the state still had their credit unimpaired. With the imperative demand for better transportation facihties, with the general government barred from such undertakings by warring pohtical sentiment, with all avenues closed to effort except through private corporate organization, the same individual self-interest which held out private estates Digitized by Microsoft® 146 PROMOTION OF PRIVATE COMPANIES and the public ^domain as a bonus made available the com- bined resources of the community in the form of subscrip- tions and loans by municipalities. The inducement to promotive effort was one of personal gain instead of appeal to patriotic endeavor. And this inducement was hmited only by the ingenuity of the promoter in converting the private and pubUc estate to his own use. Under such conditions no other result might be expected than that the promoter of the railroad would use every known device to bring influence to bear upon the private benefi- ciaries of the government, — "the settlers," who had received farms and forests and valuable mineral lands for the asking. The grafter a on officers entrusted with incurring public obli- part of the sys- gations in local communities, on executives who tern of morality ^^^^ ^^^^^ trustees for the distribution of land bonuses held by states, and on legislators who made the laws under which the public domain was disposed of to enable them to enhance the profits. Under such circumstances we have not far to look for the cause of what we now call pohtical corruption. That intense rivalry for favors should exist, that, for selfish consideration, neighbor should be used to decoy neighbor to sign deeds and mortgages, that city and state officials should forget their trusts, that legislators would abuse discretion, that companies were organized for the single purpose of converting these liberal bonuses to private use, that at times railroads were planned and constructed through territory where there was no transportation demand, that spurious argument was used for the opening up of new terri- tory to settlement while there were stiU large tracts unde- veloped within easy reach of existing fines but in territory where bonuses were no longer available, — these results fol- lowed as a natural consequence. So, too, may we accept as a logical sequence, practices such as the calculation of revenue not reafized, the impairment of investment judgment, the collapse of private fortunes Digitized by Microsoft® PROMOTION OF PRIVATE COMPANIES 147 and the impairment of the capital of institutions which had been invested in this growth of securities with The new mor ^j^jj-jj jjjg market was flooded. Under such code circumstances it should not be a matter of sur- prise that those who were able to obtain control over capital resources should divert them to private account through syndicates and intermediaries, and leave the public and the investor with a poorly equipped instrument of trade. All this was a necessary part of a system of promotion fostered by society in which every man, woman, and child felt that he was a partner and held a subsidized interest. It was only after the distribution of the spoils had been made, when each individual citizen had capitalized what- ever advantage he had gained, when a large majority of persons residing within a given territory was required to pro- duce in order to prosper, when the individual citizen no longer had an interest in the bonuses of government, when he no longer felt that he was being benefited by practices which we now condemn, that there began to be a moral 'Uprising against the corporation, the officer, or the corporate itrustee, who, under the contracts which represented his share in the division of the spoils of territorial conquest, continued to profit from the system. Then began the parting of the ways. The agriculturalist, the manufacturer, and the miner, who would have better and cheaper facilities, *ond^tions "*" Came into industrial and commercial rivalry with each other and with the transportation company. There was a demand for a readjustment; and in seeking this readjustment the public now complained because the corporation continued the very methods of pro- tecting its interests which it was induced by bonus and popular demand to employ from the hour of its birth. The out- cry against our Ameses, our Stanfords, and our Huntingtons, was not heard until after the enterprises for which subsidies were obtained had been capitalized; the complaint against Digitized by Microsoft® 148 PROMOTION OF PRIVATE COMPANIES the legislative lobby was not entered until it had been dec- ades in use as the regular instrument of obtaining legisla- tive action. The new morality of to-day is the product of new economic and social conditions, which require that the government become the effective agency representing general welfare, and that this agency be vigorously employed to guard the public against the exercises of the special privi- leges and private monopolies created under a regime of private spoliation of a new continent, the title to which rested in the general government. The promoter of the rail- road of yesterday was the enterprising citizen; he was the man who, accepting conditions as they were, made the most of them; and whatever conclusion may be drawn with reference to his morality when measured by new standards, it must be said that he did much to organize the forces which have given to America the best equipped transportation service in the world, i Digitized by Microsoft® CHAPTER IX Reconnaissance and Surveys While the matter of location is a well-understood factor in promotion and capitalization, and while the essentials as to method are well understood, concrete historical ma- terial on this subject is hard to find. This is due in part to the fact that the particulars of a survey were usually con- sidered as private in character, and in part to the fact that the observations of the engineers were made in the form of pencil notes which were seldom pubhshed. Although, logically, the location of a proposed road would be the first step, this has not always been the case. When the improvement was the result of a general condition which forced the need upon the attention of the community, some- times the first move was made by the people of the community itself. Such action was frequently taken at a pubhc meeting called by interested citizens for the purpose or by a local board of trade or civic organization. This method is illus- trated on a national scale in the marking out of the several prospective routes for raihoads to the Pacific coast. Here national interest was intensified by sectional feehng, and though from pubhc necessity one road was all that would have suggested national support, three different routes were fairly well defined in petitions and debates urging congres- sional aid. Not infrequently a person having influence with the party in power, or who had proved a successful lobbyist, obtained a valuable charter from g. legislature before a route has been even roughly located. In fact, numerous charters were 149 Digitized by Microsoft® 150 RECONNAISSANCE AND SURVEYS granted with authority so broad as to permit almost any kind of business to be conducted. Some of these came to naught but many were sold, as was the old Pennsylvania charter under which the famous "Credit Mobilier" was organized. But when the project was promoted privately, the first step was usually in the nature of a survey or viewing First steps of the prospective route. This may not have taken in pro- been more than a ride through the territory, motion jjj g^ prairie country it might have little or no regard for topographical features, the first view having been largely to determine the relative advantage to the promoters of possible routes according to the relative amount of local financial support offered, or to make representations as to possible future developments. If the stories of old resi- dents of the Middle West may be believed, the preliminary survey was often conducted from the back of a horse or from the seat of a buggy. Even in a territory where the way was of necessity carefully chosen in order that cost of construc- tion might not be prohibitive, the first plans were often formulated without the use of instruments. It has been the common practice to obtain a charter and to effect the organization of a corporation before attempting a detailed survey, but now the engineer is employed to ascertain the feasibility of a route, and the application for a charter is based largely upon his report. From what has been said it appears that surveys are of three kinds. First comes the superficial examination of the territory "with an eye to the country." This is called a "reconnaissance." Usually one or both terminals are definitely fixed at the outset by physical or commercial con- ditions, so that the range of choice is limited to the deter- mination of the exact region to be traversed. Following Surveys *^^ reconnaissance comes the preliminary survey, which is an instrumental examination of several possible routes for the purpose of obtaining data Digitized by Microsoft® RECONNAISSANCE AND SURVEYS 151 upon which a definite selection can be based. In some cases the formation of the country dictates the location of the route, but extensive surveys are usually required, and final choice is made only after minute consideration of all phases of the problem. Often several preliminary surveys are necessary. After approximate location is determined, the locating survey is made, to fix the centre line for the actual work of construction, and to obtain details which may serve as the basis of estimates for contracts. The problem of location is so to place a line that the largest traffic may be handled at least expense. Inclinations should be in the direction of the heaviest traffic, and the "ruling" grade should be made as low as possible.' It is necessary to select the most direct course and easiest of location™ gradients consistent with local physical condi- tions. Soils must be studied from the point of view of drainage, ease in excavation, and availability as ballast. Cuts and fills must so far as possible be placed so that the haul of earth will be minimized. Records of rain- fall extending over periods of years are usually consulted. In some instances engineers have been kept stationed on the route through several seasons in order to collect data upon which might be determined the height and length of a bridge, or whether a fill might not be substituted for a bridge. Liabihty to floods, snow-drifts, land-shdes, and even exposure to winds, must be considered. It is a problem of distance, curvature, and gradients in their relation to first and ultimate costs. Usually several ' "Not only must the engineer prepare a general description, a profile, of the different routes, but must determine the approximate cost of the various structures, embankments, cuts, tunnels, bridges, and culverts; the amount and quality of the earth that must be removed, and the distance it must be moved; the cost of track and other supplies, including ballast; and, finally, the maximum load that may be hauled in either direction over the whole line and over its different sections." — Kirkman, Financing, constructing and maintaining, 157-8. Digitized by Microsoft® 152 RECONNAISSANCE AND SURVEYS modifying factors are present. Sometimes there has been the necessity of getting the track on the ground in order to keep out prospective rivals. Much construction has been attempted on insufficient capital, and emphasis has neces- sarily been placed upon low first cost rather than upon high operative efficiency. The result in each case has been the same, — loss to security holders through inabihty to meet the operating costs of rival lines, or through the neces- sity for large additional sums put into the property in the form of betterments. In some cases the route selected has been that which has best served the private considered" " fortunes of engineers or directors; in others, the route has been diverted from its proper course to rea,ch locahties which have voted public aid. In a new country, in the absence of some such considerations, the straightest and cheapest line consistent with gradients is the one chosen, for towns will follow as a matter of course. But in a settled locality where the position of towns has already been fixed by economic conditions, it is necessary to reach them at the easiest gradients consistent with the face of the country and occupation by previously constructed lines, even if the distance is increased by curves. In a moun- tain country the problem is how to reach a destination regardless of everything except grade. As typical of the older methods, the steps taken in the organization of the Mobile and Ohio may be noted. The project of opening railroad communication between the Gulf and the Ohio river was first considered early in 1847 ^.t a public meeting in Mobile, at which a sum sufficient to defray ^^ ,, ^ , the expenses of a reconnaissance was raised, and The old method • 1 . . , , an engmeer chosen to examme the country along the route of the projected road. Charters were then ob- tained from the several states, and subscription books were opened in May, 1848. After twenty days it was found that 6317 shares had been taken by 699 subscribers. Organiza- Digitized by Microsoft® RECONNAISSANCE AND SURVEYS 153 tion was then effected, and the board of directors engaged an engineer to lay out the route. They also sent delegates to seek aid from congress, but they were not successful. As the best means of spreading information and arousing public interest in the enterprise, two commissioners were appointed to visit the counties along the route and call pubhc meetings, deliver addresses, and appoint local commissioners to receive subscriptions.^ With the introduction of improved machinery for the con- struction of engineering works of great magnitude, and with the increasing emphasis upon low cost of operation, ecent prac- ^ marked change has been effected in the meth- ods of railroad location. It is the modern prac- tice to determine the maximum of gradient and curvature in the quiet of a board room, and instruct the engineer to find within these Umits a practicable route between the chosen terminals. This places upon the engineering depart- ment the necessity of going over a much wider range of ter- ritory in order to lay out the best route, and so increases the number of surveys. It was in this manner that plans were drawn up for the Virginian railway, connecting the Poca- hontas coal fields of West Virginia with tidewater at Nor- folk. As a result the new line may be operated at much less cost than either of its competitors, the Norfolk and Western, and the Chesapeake and Ohio. Modern practice also differs widely from former methods in the length of time taken to consider the problem of loca- tion of a new line. Instead of concentrating the energies of the engineering staff in a mad effort to reach a strategic point in the least possible time, the railroad projector of to-day begins construction only after the most exhaustive investigations have proved to his satisfaction (and to the satisfaction of the bankers who are financing the project) ' Proceedings of the first annual meeting of the Mobile and Ohio rail- road. (1849.) Digitized by Microsoft® 154 RECONNAISSANCE AND SURVEYS that a line has been found which is not only the best from Operative ad- the operative standpoint, but which will com- vantage of this mand traffic in sufficient quantities to insure practice ^^le commercial success of the imdertaking. It is said that an extension from Ogden to San Francisco was determined upon by E. T. Jeffrey when he became presi- dent of the Denver and Rio Grande in 1891; yet it was not until thirteen years later that he was ready to announce the plans for the construction of the Western Pacific. Within that interval engineers went over the ground, searching out a route which would not only attract the most traffic, but which would handle it most economically. As a result the new line has a maximum grade of one per cent, as compared with the two and two tenths per cent upon the Central Pacific, which was projected and built according to the wasteful methods which characterized the early period of railroad construction. Similarly, the St. Paul extension has a maximum grade of one and eight tenths per cent, while the Northern Pacific in the same general territory has a maximum grade of two and four tenths per cent. What this means in operative efficiency, in low maintenance charges, and in greater revenue may be readily conceived. Digitized by Microsoft® CHAPTER X Legislative Provisions as an Element in Promotion AND Capitalization After determining the route and the territory to be served with transportation facilities, one of the most important financial considerations is the charter with provisions favor- able to the enterprise. A raihoad is a highway; it is made attractive to persons residing within a given territory by reason of the promise of increased facihties or increased economy offered for moving goods and persons from place to place; it is made attractive to those who would promote and capitalize the enterprise by reason of the inducement offered in the form of prospective financial return. Being a public highway, the protection offered to the pub- lic as well as that given to investors must in large measure come through contract. This contract takes the charter? " ^^^^ °^ ^ corporate charter. A charter is a formal grant by a state to persons associated for the purpose of exercising powers and enjoying privileges which they could not otherwise exercise or enjoy. Among the powers commonly conferred is the right of the group to enjoy corporate identity, the authority to exercise the right of eminent domain, to exert a monopoly control over all or a portion of the highways improved, to levy tolls, and to fix the charges for transportation. Among the privileges granted are limited liability, and corporate existence for a definite period or in perpetuity. The grant of a charter is an act of sovereignty. In Great Britain this proceeds from the crown. By revolution the Digitized by Microsoft® 156 LEGISLATION AN ELEMENT IN PROMOTION American colonies established the principle that the people in their organized political capacity are sov- Source of ercign. Constitutions are grants or charters charter powers . ° , , • / i , \ given by the sovereign (the people) to certain persons designated therein to exercise powers of govern- ment. In the disposition of these governmental powers the legislature as the direct representative of the people, instead of the executive, is constituted the branch of government from which private corporate charters may be obtained. To obtain a charter during the early period of railway promotion, it was only necessary to petition the legislature, setting forth the purpose of the proposed improvement, the public advantage to accrue, and the powers to be exercised. Favorable action by the legislature constituted a formal contract between the state and the parties in interest, joined by offer and acceptance. On account of the Se'obtotne^d^ Opportunity for bribery and fraud which this system afforded, it became the common prac- tice for the states by general enactment to prescribe the con- ditions which must be complied with before a certificate of incorporation would be granted. When under these provi- sions evidence is given that the conditions offered by the state have been complied with, the certificate is now issued as a matter of form. The powers and privileges contained in the general act are conferred by operation of law, and these may be exercised and enjoyed thereafter by the cor- poration to which a certificate is given in the same manner as if they had been conferred through a special grant. With a few exceptions in the West, each state began with special or private acts of incorporation, and later adopted general laws. This change was brought about very slowly. In most states useless dupHcation of legisla- ch^er'Tcts ^'"^^ '^'^^^ '^^ ^^ ^"^^t avoided by a system of abridgment. When enacted in this manner, a charter contained a few necessary local provisions with a Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 157 clause including all the privileges granted to another speci- fied corporation. The natural outcome of such a system (and of the popular outcry against the corruption associated with special privilege) was greater uniformity and, eventually, general acts of incorporation embodying the essential and common provisions of the older special charters. In some cases the first general laws contained only a brief outline of powers and privileges, leaving the chief features to be supplied by special charters. In many states, also, the grant- ing of special charters was continued after general laws of incorporation had been enacted. This practice has in some instances been precluded by constitutional amendment. While the states borrowed charter provisions from one another, and thus brought about a certain semblance of imiformity, selections were piecemeal, and the provisions which were copied were often those of minor importance, or unfitted to the needs of the borrowing state. Few states profited from the experience of others, and in general the history of acts of incorporation in the different states has -- , been essentially similar. "Each state — except- Uws of one ing a few in the West — had its crops of railway state on an- charters," says Dr. B. H. Meyer, "and as the °* " promoters moved westward from the Atlantic towards the Pacific, the charters were generally more loosely constructed through the omission of the more detailed, ex- plicit and often restrictive sections."' In New York until 1848 every railroad charter was a special concession. The constitution of 1846 required the legislature to pass general railroad laws under which corporations should be formed, and a general law was therefore passed in 1848 and again in 1850.^ This put an end to the organization of corpora- tions under special charters, except for municipal purposes ' Meyer, Railway charters, Amer. Econ. Assoc. Publications (3 ser.) I- 232-3. ^ L. 1850. c. 140. Digitized by Microsoft® 158 LEGISLATION AN ELEMENT IN PROMOTION and in cases where the objects desired make special legis- lation imperative. Under the system of special charters legislative corrup- tion flourished; for applicants for valuable privileges were in too many instances wiUing to pay money for the objects of their desire. It could be said of many of the early rail- road promoters as was said by Wendell Phillips of one of the most prominent ones, that "as he trailed his garments ContipHon in across the country, the members of twenty seeking special legislatures rustled like dry leaves in a winter's privileges wind." ' As early as 1857 a Texas governor said: "It is much to be regretted that we did not at first adopt the principle of granting to all railroad companies similar powers and privileges; if we had, there never would have been any inducement for besetting the legislative halls with applications for extraordinary favors." ^ A governor of Massachusetts, in a message of 1872, after commenting upon the presence of a railroad lobby in the legislature as sufficient reason for the enactment of an adequate general law, continued: "First and last nearly four hundred rail- way charters have been granted in this state, or more than one to every five miles of railroad ever constructed within our hmits. The Legislature of last year passed no less than fifty-three railway enactments, of which fourteen were acts for incorporation. The passage of one proper general law would have obviated the necessity for this and all similar special Legislation." ' Similarly, in recommending a gen- eral incorporation law for railroads in Maine, the governor's message in 1874 condemned the special charter which had "involved not only the evils incident to ordinary special legislation, but also, at least in some other States, in cases where proposed roads were supposed to conflict with exist- • Quoted in Col. Scott as a railroad manager, builder, and financier, 29. i' Message of E. M. Pease, Senate Journal, 1857: 30-1. = Address of William B. Washburn, 1872: 40. Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 159 ing railways, those fearfully demoralizing practices to which great corporations sometimes resort to defeat or promote legislative measures." ' By removing the principal cause, general laws have tended to do away with the evil of political favoritism and legisla- tive corruption in obtaining charters; for not only are the privileges which are obtainable under general laws definite and applicable to all cases, but amendments may be obtained when the demand for them is general enough. Fortunately, however, the hberal char- ters which were granted under the old regime of special legislation have not been the source of embarrassment that they once threatened to become. Failure to fulfil the terms has in many cases worked forfeiture of the special privileges, and bankruptcy has offered opportunity to most states to rid themselves of special obligations by dictating the terms of reorganization. While it may be true " that the laws of all the States taken together collectively do not contain all the provisions essen- tial for a complete railway law of to-day," ''' it is nevertheless possible to indicate powers and privileges which are typical, and which may be considered as essential to the organiza- tion, construction, and operation of a railroad ; in other words, to outline the typical charter. Under the old charter grants, as a means of utilizing the names of reputable citizens in raising funds locally, a number of commissioners were named whose duty it was to receive subscriptions to capital. The introduction of a general law changed this practice. As subscription must be attended to before the articles of association are filed with the secretary of state, the reputable name is utilized to head the subscription list. The general powers and privileges do not appear in articles filed by incor- 1 Address of Nelson Dingley, 1874 : 36. 2 Meyer, Railway charter, Amer. Econ. Assoc, Publications (3 ser.), I. 234-5- Digitized by Microsoft® 160 LEGISLATION AN ELEMENT IN PROMOTION porators, because these are contained in the law itself and in the constitution of the state. In other respects the provisions of charters and articles of association are similar, which are Each contains the name of the company, the common in names or number of directors; the amoimt of charters and capital stock authorized: the size of shares, and the amount required upon each at the time of subscription; the maximum of assessment per share, together with the number of days' notice required ; the man- ner of voting; the time within which construction must be commenced and completed; the connection with other lines; the building of branches and extensions; the route; the method of condemnation of private property; the amount of land and other property which may be held; the number of miles to be completed before beginning operations; the bor- rowing of money; the distribution of dividends; the Uability of stockholders; the filing of annual reports; and the pro- visions as to the fixing of the rates upon passengers and freight.^ "The greatest change brought about by the transition from special charters to incorporation under general laws," says Doctor Meyer, "consisted in imiformity. Almost in- finite variety in charter provisions was common during the early period of special legislation. Under general laws, even when compliance therewith was not enforced or en- forceable, a certain degree of uniformity was brought about from the very first." ^ As the first railways were regarded as improved highways, their charters in many cases con- ferred the right to collect toll for the use of the road, and an Provisions of additional charge for conducting transporta- speciai interest tion when the equipment of the company was to capital ygg^_ rpj^^g ^-^^ charter of the Boston and Providence gave the right to build a railroad which might 1 Meyer, Railway legislation^ in the U. S., 53-4. 2 Meyer, Railway regulation; Rep. Indus. Com. IX. Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 161 be used by any person who would comply with necessary regulations, and authorized the directors "to erect toll houses, establish gates, appoint toll gatherers and demand toll upon the road." ^ A step in advance was taken in the charter of the Maine, New Hampshire, and Massachusetts raihoad, which gave the corporation the privilege of buying cars and locomotives for the transportation of passengers and freight.^ The Baltimore and Ohio charter, however, although granted as early as 1827, conferred o'erate" authority over the directors to levy on all goods "a mileage charge for toll and one for transportation," ^ and the fact that it preceded many charters which included the clause providing for state operation shows that the form of legal phrasing persisted after the idea of the railroad as an improved form of road had been generally abandoned. It may safely be assumed, therefore, that the wording of early charters does not adequately reflect the contemporary idea regarding the operation of railroads. The presence of various saving and restrictive clauses in these acts shows, moreover, that legislators preferred to copy the provisions of English statutes rather than devise methods of their own to fit the case in hand. The charter of the Liverpool and Manchester contained a clause providing for a reduction in rates when the dividends should exceed a normal yield upon the investment, and this provision was included in many of the early American charters. Parliament also Maximum reserved in this charter the right to purchase rates for the property upon specified terms after the operation expiration of a certain period, and similar provisions found their way into early charters in America.* • L. Mass., 1830, c. 4, 95. 2 L. Me., 1831, c. 179. «L. Md., 1826-7, c. 123. ' Adams, Railroad legislation, Amer. Law Rev., II, 27-8. 12 Digitized by Microsoft® 162 LEGISLATION AN ELEMENT IN PROMOTION Yet American experience had brought out needs for legis- lation which the English models were thought to supply. Although it was not allowed, the claim made in the Warren and Charles river bridge case *■ for an exclusive right to a franchise under a general long-term grant of toll made the states cautious about all charters, so that it was thought reasonable to limit income to ten per cent by reserving the right to reduce rates when that figure should be exceeded. Limit of profits '^^^ reservation of the right to state purchase, to percentage moreover, afiforded an easy and convenient of capitaiiza- method of escape from final decision in the question of relative advantage of public and private ownership of railroads. But the Dartmouth col- lege case,^ which gave to corporate charters the standing of inviolable contracts, was alone responsible for a third limi- tation found in most American railroad charters reserving to the legislature the right to amend and repeal at pleasure. When a turnpike company earned more tolls than it could distribute in the form of dividends, it still remained open to all who would pay for its use, but a railroad not only sup- plied a thoroughfare but transportation as well; and when profits became unduly large it was obviously to the advantage of the directors to discourage measures which charter" "°*° would tend to Create traffic and increase re- ceipts. The Boston and Providence, Boston and Worcester, and Western railroads earned sufficient to declare dividends up to the legal limit of ten per cent. In conse- quence, progress was opposed upon the Boston and Provi- dence on the ground that charges might increase income and so attract hostile legislative action. The other two raihoads, after thirty years of operation and a long succes- sion of ten per cent dividends, found themselves with large surpluses awaiting transfer to stockholders. Because of ' Charles river bridge v. Warren bridge, ii Peters, 419. 2 Dartmouth college v. Woodward, 4 Wheaton, 518. Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 163 absence of competition, both roads became too conservative to provide necessary facilities for proper operation, so that a legislative committee found the management perfect from the standpoint of the investor but not sufficiently accom- modating to the public. It was only in states like Massa- chusetts where stock dividends were forbidden that this condition could exist; for in default of such prohibition nothing could be easier than to increase the amount of shares by issue of stock dividends and so keep down the rate of cash dividends. One of the sovereign powers which has been of advantage in the promotion and capitalization of the railroad is the right of expropriation, or eminent domain. This enables Eminent the private Corporation to lay out a road from domain in point to point as traffic demands suggest, and England ^^ condemn private property when the parties holding it will not sell on suitable terms. Conditions are now different from those existing at the time of the early application of the principle of eminent domain. Enghsh law once held property rights to be absolute, and considered it dangerous to allow an individual or even a pubhc tribunal to judge when intrusion upon these rights was for the com- mon good. In practice, however, Parliament found it necessary to take private property for public use on the ground that "the king has the better right." It did this by giving a full equivalent for the damages entailed, though the matter of compensation was held to be one of choice and not of obUgation. In this country the people have "the better right," and lands held by governments are condemned exactly as if they were the property of individuals.' The underlying theory of law which permits the legis- lature to grant to the railroad corporation the right to exer- cise powers of eminent domain is that the railroad is a pubhc » Barkworth, Eminent domain, Mich. Pol. Sci. Assoc, Publications, I, I2I-S. Digitized by Microsoft® 164 LEGISLATION AN ELEMENT IN PROMOTION highway, and that the railroad company is a creature of the people to construct and operate it for the public wel- fare. On this theory all states have conferred upon rail- road corporations the right of eminent domain. Usually in condemnation proceedings it is alleged than an unsuc- cessful attempt has been made to agree with the owner on a price, and in some states it is required to state that the lands are necessary for the enterprise.' Only a few states have gone so far as to take proper measures to prevent needless duplication of lines of railroad by providing united states* ^^^^ before the right of eminent domain may be exercised, a state board or commission must be convinced that "public necessity and convenience" demand the construction of the road.^ In New York it was provided that before the right of eminent domain might be exercised, evidence must be procured to the effect that the enterprise promised to be of public utiUty. Under this act (1848) it was also required that before a company might exercise the power of eminent domain it must obtain a special grant of authority from the legislature. The power of emi- nent domain is now generally regulated by constitutional and statute law, but it is available to public utihty companies. In some instances the right of expropriation attaches not only to land, but to other forms of property. A Connecti- cut statute has gone so far as to authorize the condemnation by a corporation of the outstanding shares of a corporation of which it owns three-fourths of the capital stock.' Many of the privileges granted to railroad corporations had an important bearing upon capitalization, among others being the right to enjoy franchises to the exclusion of all others. Any franchise which gives to a company the use ' Baldwin, American railroad law, 81. ' Whitten, Trend of legislation in the U. S., N. Y. State Library, Bulletin, "Legislation," XII, 419. a L. 189s, c. 232. Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 165 of a highway is in the nature of a monopoly, but some early charters in express terms gave immunity from piiviieges Competition. This was among the earliest privileges sought from state legislators. As has been already shown, when Livingston and Fulton introduced the steamboat on the Hudson they procured a monopoly grant which until adjudged illegal gave them control over steamboat traffic in New York waters. A provision not in- frequent in early American railroad charters is that by which the legislature renounces for a definite period of years the right to grant a charter over a competing route. A long con- troversy took place in Massachusetts between the legislature, which refused to undertake the construction of railroads upon state account, and petitioners for charters, who stood out for exclusive rights. Such rights were granted to the Boston and Lowell for a period of thirty years,' and the charter of the Western railroad contained a provision that no other raihoad should be built within thirty years from Worcester to Hampden county, or from Springfield to the county of Berkshire.^ The South Carolina act authorizing the incorporation of a company to construct a railroad or canal from Charleston to Hamburgh made provision for an exclusive right of con- struction of such works between these points for thirty-six years. This was later incorporated in the charter of the South Carolina Railroad and Canal company.' Kentucky made a practice of granting such term monopolies. In the Protection charter of the Green River railroad the legis- against com- lature agreed to incorporate no parallel line petition within twenty miles for twenty-five years. The charter of the Bardstown and Louisville conferred a ' Argument of Daniel Webster on behalf of the Boston and Lowell be- fore the railroad committee of the Mass. legislature. (1845.) 2 L. Mass., 1833, c. 116. 3 Stat, at large, VIII, 3S4-S- Digitized by Microsoft® 166 LEGISLATION AN ELEMENT IN PROMOTION monopoly for twenty years; that of the Louisville, Nash- ville, and Knoxville, for thirty-six years.' Similarly, Georgia in the charter of the Brunswick and Florida gave a monopoly within twenty miles for twenty-five years; ^ and Louisiana, in an act to provide for the construction of a railroad from Albany to the Texas line, offered an exclusive privilege within ten miles for twenty years.' The monopoly of the Delaware and Raritan canal and Camden and Amboy raihroad companies was unique in Ameri- can history. In the charter of the Camden and Amboy, New Jersey imposed the requirement of a transit duty of ten cents per passenger and fifteen cents per ton of merchan- dise transported across the state, subject to the agreement that if another railroad should be authorized the transit duties should cease. A supplementary act made lawful the transfer to the state of one thousand shares of full paid stock free of charge, with the provision that guwantees these shares should be returned in case an- other railroad should be constructed between New York and Philadelphia. The canal and railroad com- panies were then consohdated, and a second thousand shares transferred to the state under the same conditions. This agreement was to hold for thirty years from the completion of the railroad, but its terms practically nulhfied the bene- fits of this provision.^ The enjoyment of this monopoly, 'L. 1831, c. 712; 1833, c. 206; 1836, c. 371. " L. 183s, c. 187. ' L. 1850, no. 307. * Address of the joint board of directors of the Delaware and Raritan canal and Camden and Amboy railroad companies to the people of New Jersey (1848); An investigation into the affairs of the Delaware and Raritan canal and Camden and Amboy railroad companies in reference to certain charges by "A Citizen of Burlington" (1848); Stockton, Appeal to the people of New Jersey, in relation to the existence of contracts between the Dela- ware and Raritan canal and Camden and Amboy railroad companies (1848). Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 167 which was probably the most odious in American history, was continued until 1868, when a surrender was made by the joint companies.* The transit duties and special privi- leges were abolished by the legislature in 1869.^ Another financial privilege which has been granted is the use of the lottery. This institution was well-nigh aban- doned before the introduction of the railroad, yet the scarcity of capital and the public importance of a better means of transportation combined to secure from at least two states The lottery as authorization for this method of financial an aid to cap- appeal. In 1833 North Carolina appointed itaiization commissioners to raise $50,000 for the Cape Fear, Yadkin, and Pedee railroad by means of a lottery, and to invest the sum in the stock in the name of the town of Fayetteville.^ Missouri, also in 1833, authorized the trus- tees of New Franklin to raise by lottery the sum of $15,000 for the construction of a railroad from their town to the Mis- sissippi river.* This was reaffirmed in 1835.' The American is said to be an opportunist. Perhaps no practice better illustrates this characteristic in the develop- ment of financial methods than the granting of banking privileges to transportation companies. During the period Banking priv- in which the people were reaching out for iieges granted devices with which to provide funds for the to railroads development of the interior, banking privi- leges were granted to several bridge companies and canal companies and to many of the early railroads, particularly in the South. In some instances the power was made use of; in others it was forfeited through failure to comply with the requirements of the charter; in still others the law was repealed before the power was exercised. As early as 1814 1 Annual report of the state directors of the joint companies and the several railroad and canal companies of the state of New Jersey, 1868. 2 L. 1869, c. 104. ' L. 1824-36, c. 255. 3 L. 1833-4 : 196. « Ibid., c. 385. Digitized by Microsoft® 168 LEGISLATION AN ELEMENT IN PROMOTION Maryland chartered the Susquehanna Bank and Bridge company, with power to employ half its funds in the banking business.' In an amendment to the charter of the Delaware and Hudson canal granted by New York in 1824, the com- pany was given the right to exercise banking powers during a period of twenty years.^ New Jersey, the same year, granted a charter to the "Morris Canal and Banking com- pany" which gave the enjoyment of banking functions through a term of thirty-one years.' Maine, which in 1823 had authorized a lottery for the benefit of the Cumberland and Oxford canal, chartered "the Canal bank" in 1825, with authority to invest one-fourth of its paid subscriptions in the stock of the canal company.' The directors of the Blackstone canal annoimced in 1831 that they had received a charter for a bank to be operated for the benefit of the company. Shareholders were privileged to duplicate their holdings of canal stock with shares in the bank; and three- fifths of the funds thus raised by the bank were to be ex- changed for stock of the parent company.' The same year, the "New Orleans Canal and Banking company" was chartered by Louisiana to construct a waterway from Lake Ponchartrain to the Mississippi at New Orleans.' WTien the Western railroad project was in danger of aban- donment in Massachusetts, a proposition was made for the incorporation of a " Western Railroad bank," to be capitalized at $5,000,000.' The time was thought favorable, for it was in that year that the charter of the second United States bank expired. Another plan suggested was to establish a state bank, to the capital of which the state should sub- scribe one-half, and the directors of which should be 1 L. 1814, c. 66. 8 L. 1824 : 157-8. 2L. 1824, c. 270. i inseparably connected with the shares of the railroad, so that every one who held one hundred dollars of stock in the railroad was required to subscribe fifty dollars toward the capital of the bank. Forfeiture of either share therefore worked forfeiture of both. Branch banks were provided for in North Carolina and Tennessee, but neither the central bank in South CaroUna nor the branches could begin operations until three-fourths of the $12,000,000 capital of the railroad had been subscribed and paid; and then loans could not exceed one-half the amount of this stock. The term of the charter was ten years, but it was provided that in case the railroad should be completed to the Ohio with a double track prior to 1847, or in case the company should expend $12,000,000 upon the work, the charter should be extended to twenty-one years. The bank was not to permit the railroad to overdraw its account; and neither its property nor its debts could lawfully exceed three times the amount of the capital. The bank went into opera- tion in 1839, and to its stock South Carolina subscribed $500,000.° The purpose of this bank, according to Senator Robert Y. Hayne, who was president of the railroad, was to provide 1 Stat, at large, VIII, 96. s L. 1837-8, c. 6. 2 L. 1836-7, c. 2. ■> L. 1836, c. 342. ' Annual report of the Louisville, Cincinnati, and Charleston railroad, 1838. 6 Stat, at large, VIII, 104. Digitized by Microsoft® LEGISLATION AN ELEMENT' IN PROMOTION 175 dividends for the stockholders pending the completion of Purpose of the road. The bank was managed by a sepa^ banking priv- rate board of directors, and neither its stock ''*^*^ nor its profits were in any way liable for the construction expenses of the railroad. Said President Hayne : "We consider the establishment of the railroad bank as the bond which will serve to hold the company together, and afford a certain resource in time of need, and therefore essential to the success of our great work. . . . The history of the United States affords no parallel to our bank. Never have three states concurred in a bank charter, never have charter provisions been so liberal. . . . The notes of the bank are made receivable at the State Treasurers' — the only limitation is that after the first two instalments have been paid on the bank stock, the directors of the bank shall not call for any further sums unless equal amounts shall be called for on the Railroad, the effect of which is to insure the construction of the road." * But the demands for capital were beyond the abihty of the people to supply in the finan- cial stress of that time, and with the abandonment of the railroad project came the suspension of specie payments by the bank. Its affairs were closed out at the expiration of the charter in 1868.^ The granting of banking privileges to railroads belonged to the early period of our corporation history, when vague notions of the nature of capital were prevalent. Only two year^ after the liquidation of the South Western Railroad bank, however, Florida passed a law incorporating the "Santa Rosa Railroad, Banking, and Insurance company." This company on a capital of only $2,000,000 was author- ized to build a railroad from Milton to the Alabama line, to • Annual report of the Louisville, Cincinnati, and Charleston railroad, 1838. 2 Proceedings of the stockholders of the South Carolina railroad com- pany and of the South Western Railroad bank, i868j Phillips, 188-220, Digitized by Microsoft® 176 LEGISLATION AN ELEMENT IN PROMOTION insure both lives and property, and "to do and perform any and every act that may be necessary for the business of a railroad, banking and insurance company." '■ Among the rights granted which amounted to a public subsidy to raihoad enterprise was exemption from taxation. This privilege was granted both as a supplement to direct subsidies and as a substitute for them. In some instances Tax exemp- absolute immunity was promised, but there tions for a defi- was Usually a time or percentage limit. The nite period property of the Richmond and Danville,^ and of the Henderson and Nashville,' in their charters was declared forever exempt. The Louisville, Nashville, and Knoxville was to enjoy exemption until dividends should exceed the legal rate of interest, when a tax upon the divi- dends alone might be levied.* The stock and dividends of the Louisville, Cincinnati, and Charleston were to be exempt in South Carolina, North Carolina, Tennessee, and Ken- tucky, provided the dividends should not exceed the legal rate of interest.^ More common was the exemption for a specified period. The Vermont Central in its charter was declared free from all state taxes for a period of ten years after completion." Similar exemptions were granted: for twenty years to the Bardstown and Louisville; ' for twenty- five years to the Green River railroad,' and to the Inter- national and Great Northern; ° for thirty years to the Raymond railroad of Mississippi,*" the Jefferson and Pon- chartrain," and theHopkinsville and Cumberland River; " for thirty-six years to the Edgfield railroad of South Carolina; " and for forty years to the Vidalia, Harrisonburg, and Alex- 'L. 1870, no. 41. 8 Ibid., 1831, u. 712. 2L. Va., 1846-7, c. 117. "Spec. L. Tex., 1875, c. 49. » L. Ky., 1850-1, c. 384. 10 L. 1824-38: 853. * L. Ky., 1836, <_. 37. " L. La., 1840, no. 79. 6 Stat, at large of S. C, VIII, 409. " l. Ky., 1848, c. 290. » L. Vt., 1843, no. S3. »3 Stat, at large, VIII, 396. ' L. Ky., 1833, ... 206. Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 177 andria.' Instances of more recent date can also be cited. New Mexico in 1897 passed a law that all railroads con- structed after that time should enjoy exemption from tax- ation for six years after completion.^ An Arizona law of 1895 promised exemption to new railroads until 1905,' and this was later extended to ten years from 1903.* The Louisi- ana constitution of 1898 declared that any railroad built between the adoption of the constitution and 1904 should be exempt from taxation for ten years from the date of completion,^ and an amendment adopted in 1904 promised exemption for ten years to all railroads constructed and com- pleted between 1905 and 1909.° Exemptions until a certain dividend should be declared were also granted. The Hartford and New Haven under its charter was to remain free from taxation until profits Exemptions should warrant a dividend of five per cent.' conditioned on North Carolina declared exempt all the real dividends property of the North Carolina Central until dividends in excess of six per cent should be declared,' and also exempted the bonds of the company, amounting to $350,000.' Arkansas promised to exempt the Cairo and Fulton from taxation until dividends of ten per cent should be declared.'" Partial tax exemption has been a common form of subsidy. Often this limited exemption was to follow a period of absolute freedom from taxation. The charter of the Benton and Manchester exempted the stock for one year, and limited the tax thereafter to twenty-five cents a share," and that of the Pontotoc, Oxford, and Delta prescribed the same limit 1 L. La., 1837, no. 118. ^L. 1895, c. 43. 2 L. 1S97, ... 4. * L., 1903, no. 35. ^Message of Newton C. Blanchard, 1904: 12-3. " L. 1904, no. 16. ' Resolves and private laws of Conn., 1789-1836, II, 1002. ' L. 1854-5, c. 32. 10 L. 1855 : 149- »L. 1856-7, c. 32. " L. Miss., 1824-38; 713. 13 Digitized by Microsoft® 178 LEGISLATION AN ELEMENT IN PROMOTION after a period of six years.' The Brunswick and Florida, according to its charter, was to be exempt for ten years, and at the expiration of that period was to be assessed a maxi- mum of one-half of one per cent upon net income.^ The charter of the Michigan Southern provided that its property Tax exemp- should be assessed one-half of one per cent tions as a form upon Capital paid in, and that this should be of subsidy increased to three-fourths of one per cent after 1851.' The Georgia and the Central of Georgia railroads were in 1850 subjected to a tax of one-half of one per cent upon net income.* Wisconsin in 1854 imposed a tax of one per cent upon gross earnings.' In 1862 this was raised to three per cent," and in 1874 to four per cent.' Minnesota in the charter of the Lake Superior and Mississippi limited the rate of taxation to three per cent upon gross earnings.' In transferring to the Illinois Central the congressional grant of land, Illinois required, after a period of exemption of six years, in place of all other state taxation, a tax of five per cent upon gross earnings, and one upon property and assets not to exceed three-fourths of one per cent. The charter also provided that these taxes combined should be "equal at least to seven per cent of gross receipts." ° The company has assumed that it has met all of the requirements of this law by paying to the state seven per cent of gross earnings. The question whether this rate was intended as a minimum or maximum has been raised by the state's attorney, but never judicially determined."* Since counties, cities, and towns are creatures of the state, they have power to grant subsidies only after permission from » L. Miss., 657. 6 L. 1854, c. 74. ' L. Ga., 1835 : 187. » L. 1862, c. 22. 3 L. 1846, no. 113. J L. 1875, c. 315. * L. 1850 : 378. 8 L. 1865, c. 2. »Priv. L. 1851: 61; Allen, Charter tax of the Illinois Central railroad, Jour, of Pol. Econ., VI, 353-67. '" Railway Age, XL, 508-11. Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 179 the legislature has been obtained. Usually such authority has been freely granted, and the courts have sustained the practice. Authority to subscribe to railroad stock implies power to tax to obtain funds for the payment of the sub- scription, but the right to levy in payment of bonds issued can be conferred only upon express grant.* Legislative authority may be conferred by general or special law, and special laws may provide for aid from a enabiinracta Specific county or town or to a specific railroad. The charter of the city of Louis- ville was amended to authorize a subscription to the stock of the Lexington and Ohio.^ In 1837 New York author- ized a loan by the city of Albany for a subscription to the stock of the Albany and West Stockbridge.* Any county in Kentucky could, by virtue of a charter amendment obtained by the Louisville and Nashville, subscribe to stock upon vote of a majority of citizens.* Louisiana in 1852 passed a general law authorizing local aid to railroads when a vote of the citizens shoxdd favor such action. When a vote should be unfavorable, provision was made for a second submission of the question within six months.' Alabama passed a similar law in 1868.° A general law of 1869 in Indi- ana provided that whenever one hundred free-holders should petition for a local appropriation in aid of railroad construc- tion, the question should be submitted to popular vote.' Types of special laws of this character were various, and the list could be indefinitely extended with almost infinite variety of detail. In general the acts of this class made specific provision for the manner of voting, and required some percentage or absolute limit to the amount of aid which could be granted. Some reqxiired evidence of adequate in- ' Wood, Law of railways, I, 293-8. ' L. Ky., 1835, c. 892. « L. 1852, no. 175. 3 L. 1837, c. 390. « L. 1868, no. 172. * Loc. L. Ky., 1850-1, c. 505. ' L. 1869, c. 44. Digitized by Microsoft® 180 LEGISLATION AN ELEMENT IN PROMOTION dividual support to a project before the public aid could be given, but often the local government would impose such a condition of its own initiative. It was provided in several Kentucky acts that where local subsidies were paid from a tax levy, the stock should belong not to the local government, but to the individual holders of tax receipts. Such receipts were transferable by assignment, and exchangeable for stock when in multiples of one hundred dollars. New York authorized any town in the counties along the route of the Albany and Susquehanna to take stock in the road.* It also empowered Auburn to make a loan or sub- scription of $100,000 to any railroad which should be con- structed from Lake Ontario to any point on the New York and Erie or on the Cayuga and Susquehanna,^ and authorized towns along the chosen route to subscribe $25,000 each.' Cali- fornia in 1863 authorized subscriptions to the stock of the Central Pacific by the counties of Placer, San Francisco, and Sacramento.* A unique Kentucky law authorized and re- quired the trustees of the town of Paris to levy a tax, and to subscribe to the stock of the Covington and Lexington rail- road. As citizens from outside the town limits had almost unanimously petitioned the legislature to pass a similar law, the terms of the act were extended to include them, with the provision, however, that any one who had not signed a petition should be exempt from the tax.' The counties along the route of the Bellefontaine and Indiana were au- thorized in the charter of that road to subscribe to its stock.* Kentucky in 1851 gave authority to AUen county to sub- scribe to the stock of the Louisville and Nashville, but con- ditioned the act upon the building of the road through the county of Allen and the town of Scottsville.' This state, > L. 1856, c. 64. * L. 1863, c. I2S, 291, 310. 2 L. 1851, c. 484; 1852, L. 134. e Loc. L. Ky., 1850-1, c. 154. ' L. 1852, c. 375. « L. O., 1848-9: 178. ' Loc. L. Ky., 1850-1, c. 429. Digitized by Microsoft® LEGISLATION AN ELEMENT IN PROMOTION 181 also in 1851, passed a law providing that any railroad in- corporated to build a line to Lexington might ask the county court of Fayette county to subscribe not over $200,000, and thereupon the county court was to call for an election. It was provided, however, that no one company could make more than two requests, and that no more than two votes should be taken upon the request of any one road.* With the hands of legislators unfettered, even the later constitutions leaving them practically free to give or with- hold, it is easy to understand the attitude of those who profited by the exercise of broad corporate powers and privileges. Not only was it of prime importance to the promoter to obtain a charter which would be looked upon with favor by those to whom appeal must be made, but capital having been embarked, the temptation was ever before the officer or representative of capital interests to seek to have the Attitude of original powers and privileges enlarged. Under corporate inter- Constitutional inhibitions which restricted the ests in seeking legislature to general laws, thus doing away su El y aws ^j^j^ many of the evils of special and private monopoly grants, the effort was to obtain general laws which would be most favorable, both to capitalization and opera- tive return. The general subsidy acts and the general tax exemption acts were of this nature ; and corporations already established under special acts or under obligations to the state were ready to add to their own advantage at the expense of competitors or of the public. ' Loc. L. Ky., 1850-1, c. 163. Digitized by Microsoft® CHAPTER XI Methods of Appeal for Financial Support Whether surveys had been made and charters had been obtained or not, in most cases the first indication of activity in raising funds for railroad construction was the prepara- tion and circulation of some form of prospectus. By this is meant not alone the usual pamphlet setting forth the hopes of the promoters, but all devices by which public attention was aroused and popular support attracted through the medium of printers' ink. The prospectus has been found equally valuable whether the project was initiated as a citi- zen movement or as a private subject; whether appealing to local subscribers, to state support, to in- ^' prospec- vestors, or to the speculative public. In any event the prospectus is a significant document. Though without common authority, or recognition of common principle, the laws which rule the mind in making rhetorical appeal for a common purpose have given to the many pro- spectuses a certain similarity. As a matter of literary content they are characterized by two essential features: a portrayal of the advantage to be capitalized, — usually descrip- tive; and an appeal to the business imagination, — usually made up of collateral suggestion and expert opinion, which by process of indirect reasoning would lead to the conclu- sion that the contributor of capital would obtain a large profit from the enterprise. Frequently the prospectus was the product of a committee appointed at a public meeting or convention to formulate a plan and draft an appeal for popular support. A good Digitized by Microsoft® METHODS OF APPEAL FOR SUPPORT 183 example of this form of literary effort is found in the report of a convention at Danville, in 1837, an excerpt from which is given here : "An inspection of the map of Virginia as connected with her Southern, and South-western boundary offers at a glance to the eye of the examiner, an immediate and direct com- munication by the channel of the Roanoke, between the great South-western valley, and our Atlantic border. A rich and expanded area of the surface of Virginia, embra- cing not less than ten thousand square miles, with a popula- tion of one hundred and eighty thousand souls, a wide extent of the territories of Tennessee and Kentucky, and the rich- est portions of our sister state of North Carolina, embracing D cri Hon of °^ ^^^ population One hundred and sixty the advantage thousand souls, seems at once connected by to be capital- the ties of a common interest in this common "^ channel of commerce . . . "Is the contemplated work practicable? We assure our fellow citizens that it is not only practicable, but in our opinion presenting fewer obstacles to its accomplishment than any known work of the same extent on the continent of America. . . . Allowing for every contingency, it may be safely asserted, that the round sum of 5,000,000 dollars would cover the whole expenditure on the contemplated work. "Is that a sum within our resources? Is its magnitude such as to deter us from the prosecution of an enterprise, pregnant as we believe it is with blessing inestimable to so large a portion of our people ? Upon this part of the subject no observation of ours can be necessary. In times like these, of unexampled prosperity, when so large a portion of capital in every part of our wide-spread confederacy is courting a profitable investment, it can only be necessary to show that ample returns must reward the investment to ensure the application of the estimated sum to any contemplated work . . , Digitized by Microsoft® 184 METHODS OF APPEAL FOR SUPPORT "The aggregate amount of tonnage now annually seeking its destination by wagons, and other means of transportation, is 150,000 tons. From this calculation are excluded the vast mineral resources on the intermediate line of the road, — the salt, lime, gypsum, iron, and lead; the three last suffi- cient to supply every possible demand, in fact, inexhaustible; yet according to the report of the Abingdon Convention, . . . 'the transmission of mineral productions of South-western Virginia and East Tennessee would form the largest source of profit to the stockholders of the railroad company.' Add to all these the continued stream of travel which now runs through the South-western valley, and which as certain as cheapness, comfort, and expedition invite the steps of the traveler, woiild mainly be diverted to the projected route, and the revenue of the road would swell to an amount which this Committee would feel reluctant to indicate. . . . Sup- pose the 150,000 tons actually seeking its destination, to travel on an average through only half the extent of our contemplated road, and suppose the average freights on ex- ports and imports to be reduced to six cents per ton per mile, the aggregate amount of tonnage on the road, would yield a revenue of one million three hundred and fifty thousand dollars annually. "Without pretending to accuracy in all our estimates and calculations, although they seem to us based on unde- niable facts, and on the public reports of 'accredited pubhc agents, we may safely assume that no error can place the revenue on this investment below twenty-five per cent. It may be objected that we have not taken into consideration the cost of superintendence and reports. To meet this objection, we suggest that the conveyance of passengers and the transportation of the mails must amply cover, if not largely exceed, all such incidental expenses. But should our expectations from these sources prove fallacious, can a doubt be entertained that the transportation of the minerals Digitized by Microsoft® METHODS OF APPEAL FOR SUPPORT 185 above referred to, which as certainly as the work shall have been constructed must in large quantities be transported on this route, will more than compensate for any deficiency in the other resources of the improvement? "To the Capitalist it holds out the strongest inducement to investments, the certainty of large dividends. To the farmer it will be a clear saving of $20 on every hogshead of tobacco carried to market; it will afford him the means of enriching his lands, and, in many instances, will enhance their value tenfold. The great activity and impulse which it will impart to trade will enable the merchant to extend and enlarge his business, and the State will share the bene- fits of the general prosperity in the increased contributions to her Treasury — and in the wealth and social happiness of her citizens . . ." ' A striking illustration of a prospectus of a company pro- moted for the personal profit of the promoters is found in the Northern Pacific. An excerpt from the descriptive portion of the appeal to the uninformed investing public follows: "The Fertile Belt of the country — 1800 miles long and at least 700 in width — extending from Lake Superior to Puget Sound, and now being developed by the rapid con- struction of the Northern Pacific Railroad, is probably not surpassed by any area of like extent on the continent for healthfulness, abundance, and diversity of resources and capacity for sustaining a dense population. Besides its wealth of Minerals and of Timber it admirably combines the three essentials of good farming, — a temperate CHmate, a naturally rich Soil, and a fair supply of Moisture. "The climate of Central Minnesota (the coldest point on the Northern Pacific Road) is much like that of Central New York without its dampness and chill. From Minne- sota westward the season grows steadily milder. . . . The 1 Amer. Railroad Jour., January 28, 1837. See also earlier number for complete report of the engineer. Digitized by Microsoft® 186 METHODS OF APPEAL FOR SUPPORT entire line of the road lies considerably south of the lati- tude of Paris and Vienna. . . . The capacious and land- locked harbors of Puget Sound, the unequaled forests of The promoter's Washington Territory, the gold and silver appeal to the mines of the Rocky Mountain region, the imagination mineral wealth and fertile lands of Montana, the wheat and grazing lands of Dakota and the tributary British Provinces, and the Farm and Timber lands of Minne- sota — added to a climate of singular salubrity — are some of the attractions of this new region that is now fixing the attention of the country. Nature has leveled a pathway for the Northern Pacific Railroad through the ' Gate of the Mountains,' and along great river valleys from the Lakes to the Ocean. . . ." ' Constituting as it does the essential part of the prospectus literature, the report of the survey has always been dis- tributed as widely as possible by the promoters, and by the commissioners in charge of soliciting stock subscriptions. Such a report ordinarily set forth detailed information as Circulation of to grade and curvature; supported its state- the report of ments by a generous supply of maps, diagrams, the survey ^^^ tables; and prescribed estimates of the probable outlay of capital to be involved in the execution of the plans. Using the conclusions of engineers as an essen- tial ingredient, the prospectus enlarged upon the inducement by setting forth the resources of the country to be served, esti- mated the earnings based upon the amoimt of traffic tributary te the route under existing conditions, and showed the prob- able business to follow the completion of the work. Even- tually this sort of campaign has in most cases succeeded, although many promoters failed for want of support even after a charter had been obtained, only to be followed by others with the same general plans who succeeded because the time and conditions were ripe for the sale of securities. 'Poor's Manual, 1872-3: xxii. Digitized by Microsoft® METHODS OF APPEAL FOR SUPPORT 187 AGENCIES OF APPEAL In most cases where appeal was made directly to the public it was found impossible to dispose of sufl&cient stock by publishing prospectuses and notices, and opening sub- scription books along the route and in financial centres. Per- sonal conferences were often resorted to, and a systematic canvass instituted. When books were first opened for sub- scriptions to the stock of the Hudson River railroad, few shares were disposed of except to the commissioners them- selves. It was therefore necessary for the men behind the project to take such subscriptions as they anvassmg or ^.^^j^j from individuals untU they were able subscribers ■' to create a sentiment in the towns along the proposed route favorable to the enterprise. Obviously this method produced best results when prominent citizens were first induced to subscribe, for other subscriptions would foUow as a matter of course. But in order to dispose of the stock of the Pennsylvania railroad, subscription books "were carried from house to house by the active friends of the road, who solicited even single shares." Of the 2600 subscriptions first obtained, 1900 were for five shares or less.* This method of appeal is suggested in an account of the financing of the Lockport and Rochester: "An adjourned meeting of the citizens of Rochester, in furtherance of the Lockport and Rochester raUroad, was held last evening at the court house. . . . C. B. Stuart, Esq., reported in behalf of himself and others the progress made in respect to obtaining subscriptions to the stock. The returns from the wards are partial, there being several papers imreturned which are beUeved to contain subscriptions. The following shares are reported: ' Amer. Railroad Jour., XX, 790; Ringwalt, Development of transporta- tion systems, 125. Digitized by Microsoft® 188 METHODS OF APPEAL FOR SUPPORT ist ward 75 shares 2nd ward 30 shares 5th ward 118 shares 6th ward 54 shares 7th ward 16 shares 293 shares " Boston was thoroughly canvassed for subscriptions to the stock of the Western railroad, and those most interested in the project visited the large towns along the route, and interviewed every one whose influence was thought valuable. As a final effort to obtain enough subscriptions to meet the requirements of the charter, a meeting was held in Fanueil hall at which committees of solicitors were appointed for every ward in Boston and South Boston, and for the neigh- boring cities. Members of these committees were pledged to call upon every man in their precincts, and personally urge upon each one as a matter of public duty to share in the responsibilities of the work.' Canvasses were also made in the towns along the route of the Galena and Chicago Union railroad to obtain subscriptions to serve as a basis for solicitation for funds from Eastern capitalists,^ and at a convention in support of the Georgia Air Line canvassers were appointed to visit the various counties which would be benefited by the construction of the road, and solicit subscriptions to stock.' Local newspapers were almost invariably friendly to new railroads, and their liberal donation of news space was one of the most effective aids to those in charge. Editorial controversies over minor features of the plans, — choice of route, gauge, form and amount of public aid — kept popular interest alive. Many of the representative journals ' Bliss, Hist, memoir of the Western railroad, 27-8. 2 Eames, American Railroad, Mag. of West. Hist., XII, 96. ' Southern Watchman, July 31, 1856. Digitized by Microsoft® METHODS OF APPEAL FOR SUPPORT 189 of the country conducted the same sort of campaign of edu- cation. The American Railroad Journal was for many years little more than a collective prospectus. Niles' Register, De Bow's Commercial Review, and Hunt's Merchants' Maga- The press as a zine gave their influence freely in support of medium of ap- railroad enterprise, and, it must be said, with P**^ little examination of the merits of individual projects. The railroad came in an age of pamphleteering, and practically every fact which could be marshaled for or against any important project was presented to the public in this manner. Addresses at conventions, petitions and memorials to councils or legislatures, reso- uWic'bodies lutions of boards of trade and other repre- sentative bodies, were often reprinted and circulated in pamphlet form, together with information about the route, the productiveness of the territory which it was proposed to open, and the advantages of the connections which would be effected. In adopting the pubHc meeting for the furtherance of their plans the early railroad promoters were only employing an institution which, whether ofi&cial or not, had become estab- Pubiic meet- lished in the habits of the people. Such ings and con- gatherings had been held repeatedly to attract ventions support to canals and other forms of improve- ments throughout the country, and it was merely following precedent when in 1827 the merchants of Baltimore called a public meeting to adopt measures looking to the connec- tion of their city with the Ohio river by a line of railroad.' It must not be supposed, however, that all these popular gatherings had their initiation in the general enthusiasm in favor of railroad construction. Many meetings were undoubtedly held to offer inducements to railroad pro- moters, but in general it may be said that railroad meetings ' Amer. Railroad Jour., I, 18. Digitized by Microsoft® 190 METHODS OF APPEAL FOR SUPPORT were prompted and managed by promoters or by interests favorable to them. On the back of the cover convened V" ^^ ^ prospectus of the Albany and Susque- the promoter hanna is this notice: "The Directors of the himself Albany and Susquehanna R. R. Company propose holding the following series of meetings for the pur- pose of recommending this important enterprise to the favorable consideration of the people of the coimties of Schoharie, Otsego, Delaware, Chenango, and Broome. . . ." ' Larger and more formal assemblies were often held. Towns would send delegates to coimty conventions; counties along the route of a proposed line would hold conventions to discuss a project; and in some instances delegates from several states came together in conventions. Action in these assemblies was often indecisive. Citizens of six Massa- chusetts towns met at Sunderland to consider the construc- tion of a connecting line of railroad between Hadley- and Miller's Falls. The only result was a resolution in favor of the project.^ This may serve to illustrate the character of many such meetings, where little was advanced in support of the enterprise save good will and the hope that other people would furnish the capital and assume the risk of the enterprise. In many cases committees were appointed at these meetings to collect data bearing upon the route and the resources of the region to be traversed. This was done at Portland in connection with the proposed line to Quebec,' and at Hardwick, at a meeting in support of the projected road between Worcester and Springfield.'' At Montpeher delegates from the coimties of Orange and Washington assembled to consider the report of a committee which had • Some considerations respecting the proposed construction of the Albany and Susquehanna R. R. (1852.) * Connecticut Courant, July 6, 1844. " Portland Advertiser, May 29, 1835. < Springfield Gazette, April 22, 1835. Digitized by Microsoft® METHODS OF APPEAL FOR SUPPORT 191 been instructed to procure information regarding the possi- bilities of a railroad from Ogdensburg to Boston.' Sometimes at these meetings committees would be ap- pointed to prepare an address to the people, setting forth the arguments in favor of a projected line. This was done The appoint- at Okotona, Mississippi, where a convention ment of dele- was held to promote the building of a railroad ^***^ from Selma to Memphis. At this convention also, a committee was chosen to obtain the necessary char- ters for the enterprise.^ A committee was appointed at a railroad meeting in Clarksville, Georgia, to memorialize the legislature to grant a charter for the construction of a line from some point on the Georgia railroad to the Blue Ridge railroad at Clayton.' A meeting held at Newport in 1837 to take into consideration the expediency of con- structing a raihroad from that place to Taimton, "there to connect with the railroad running thence to Boston," is of interest because of the many fimctions assigned to commit- tees. "At said meeting, committees were appointed for the following purposes, viz: 1. To ascertain and report upon the practicability of con- structing the contemplated road, reference being had to the several modes of construction now in use, with the esti- mate of the cost of each, &c. 2. To report upon the sources whence the proposed road may derive an income sufi&cient to pay a fair and certain profit to its stockholders; on the presumable advantages to be derived by the various interests of Agriculture, Commerce, Manufactures, and general intercourse, &c. 3. To report upon the importance and validity of the road, in a national and military point of view, and in refer- 1 New England Palladium, March 12, 1830. 2 De Bow (n. s.), HI, 435- (1867.) s Southern Banner, September 22, 1853. Digitized by Microsoft® 192 METHODS OF APPEAL FOR SUPPORT ence to the establishment of a Naval Depot, Arsenal, and Foundry by Government. 4. To correspond with the Merchants, Manufacturers, Steamboat Companies, Capitalists, and others interested in New York, Providence, Boston, and elsewhere, to invite delegates from these places to attend a general Convention at Newport, and to collect and publish such facts relative to this important enterprise, from time to time, as they may deem advisable, and report their doings to the General Con- vention. 5. To report upon the necessary measures for procuring a charter and for uniting with the present incorporated companies." ' Committees of correspondence were often employed to commimicate with similar committees for the purpose of obtaining information, and also to secmre pledges of support from towns along the proposed line, as in the case of a con- vention at Winsor, Vermont, held to encourage the construc- tion of the Connecticut and Passumpsic Rivers ommi ees o j-ailroad;^ a meeting at Hartford in favor of correspondence ' *-> a railroad to Worcester; ^ and a similar gather- ing at Prattsburg, New York, in favor of the Canandaigua and Corning railroad.* Not infrequently these public meetings and conventions „ ,. . were held to invoke state aid. The towns of Meetings and conventions to Tompkms county. New York, met in conven- petition for tion at Ithaca, and petitioned the legislature state and mu- j^j. ^j^ ^^ ^-^^ j^^^ York and Erie raiboad,' nicipal aid . ' and a convention at Troy appealed to the legis- lature to establish a board of internal improvements, and to • Amer. Railroad Jour., VI, 131. ' Hampden Whig, January 8, 1836. ' Springfield Gazette, February 4, 1835. ' Rochester American, June 19, 1845. ■ Albany Evening Journal, February 9, 1839. Digitized by Microsoft® METHODS OF APPEAL FOR SUPPORT 193 pass subsidy acts.* At Macon, Georgia, in 1837, a conven- tion representing thirty-eight counties recommended a general system of railroad improvements.^ Resolutions in favor of local subscriptions were a com- mon feature of these assemblies. An Allegheny county convention at Pittsburgh in 1848 recommended a county subscription to 20,000 shares of Pennsylvania railroad stock.* Another meeting at Allegheny in 1849 favored subscriptions by Pittsburgh and Allegheny to the stock of the Ohio and Pennsylvania.' Railroad meetings were often more disposed to recom- mend that aid be given to a project by the general pubUc, or by some local or state government, than to propose sub- scriptions from those in attendance. Yet active individual support was forthcoming at many of these railroad meet- ings, and there is no doubt that the contributions attracted in this manner aggregated a substantial sum. Subscrip- tions were sometimes taken at these meetings to defray the expenses of a survey. This was done in 183 1 at a meeting Subscriptions in Carbondale in support of the Ithaca and taken at the Carbondale railroad,' and at Springfield, where meetings money was raised to pay the expenses of a survey for a railroad to Hartford.' Many meetings were held for the sole purpose of obtaining regular subscriptions to the stock. Such a one was held at Pittsburgh in 1835 to obtain enough subscriptions to the stock of the Balti- more and Ohio to induce the company to make that city the terminus of its northern division.' "A railroad meet- ing and barbecue was recently held at Dallas, Madison ' Troy Whig, August 2, 1839. 2 Jour, of the Franklin Institute (n. s.), XX, 259. ^ Amer. Railroad Jour., XXI, 372. ' Ibid., XXII, 278. ' Hazard's Register of Pa., VII, 238. » Springfield Gazette, December 5, 1838. ' Amer. Railroad Jour., IV, 465. 14 Digitized by Microsoft® 194 METHODS OF APPEAL FOR SUPPORT Parish, La., and $40,000 subscribed to the Vicksburg and Shreveport Railroad company," says a despatch of 1852.' Such meetings were held everywhere, and as early as 183 1 we are told that in New York state: "It is almost impos- sible to open a paper without finding an account of some railroad meeting. An epidemic on this subject seems nearly as prevalent throughout the country as the influenza." =* A Georgia editor about the same time said: "We now hear of meetings all around us, companies are being organized, and plans systematized for projecting and maturing objects of improvement." ^ A novel method of appeal for support of a railroad ven- ture was employed by the promoters of the Western railroad of Massachusetts. P. P. F. Degrand, an active supporter The pulpit as of the enterprise, learning that a young Boston an agency of minister had preached a sermon upon the moral *PP*^ and Christianizing influences of railroads, seized upon the idea and had a circular letter sent to the clergymen throughout the state, requesting their cooperation in similar addresses.* 1 Amer. Railroad Jour., XXV, 667. 2 Quoted by Mott, Between the ocean and the lakes, 9; from the Inde- pendent Republican, Goshen, N. Y., December 26, 1831. 'Southern Banner, September 14, 1833; from the Macon Messenger. * Adams, Railroads, their origin and problems, 65. A copy of this letter follows: Boston, December 19th, 1838. Dear Sir, — The Committee appointed by the Western Rail-Road Corporation to assist the Directors in their application to the Legislature for aid to finish the Road to the Western line of the State have thought that the surest way to obtain their object would be to bring the importance of Rail-Roads before the whole people of our beloved Commonwealth. Its importance to our worldly prosperity we point out by an address circulated extensively throughout the State. But we are desirous to spread far and wide the Moral effects of Rail-Roads on our widespread country. This, we think, can best be done from the Pulpit. In this belief, we take leave, most respectfully, but earnestly, to ask you to take an early opportunity Digitized by Microsoft® METHODS OF APPEAL FOR SUPPORT 195 A still wider appeal was made beyond the pale of local interest to the investment world at large. Stocks were put on sale in financial centres by banking houses selected by the raihoad as financial agents. In other agent °^" cases they were issued through the office of the treasurer which was located in New York or Boston for that purpose. Through financial agencies European investors were given opportunity to contribute to the building of American railroads. The Camden and Amboy raised $3,000,000 on a loan in England,' and the president of the Baltimore and Ohio was able to sell to London bankers the $3,000,000 of Maryland bonds which had been received in payment of the state subscription to the stock.^ But while EngUsh capitalists were willing to take our state railroad subsidy bonds, and railroad bonds which were supported by endorsement of public authority, for a long time they were wary of investments in American railroad bonds which had behind them nothing but the credit of the road. The Camden and Amboy loan was an exceptional case, for that road was bolstered up by its monopoly privi- lege; but when the Illinois Central sent Robert J. Walker to England to negotiate a direct loan, the success of the to deliver a Discourse before your Congregation on the Moral effects of Rail-Roads in our wide extended country. "Trusting that the great importance of the subject to every inhabitant "of this community vfill be a sufficient apology for asking your assistance in this great work, "I have the honor to be, Reverend Sir, Respectfully, your very ob't serv't, William Savage. Chairman of the Committee on Correspondence." Dimmick, Dbcourse on the moral influence of railroads, 3-4. (New- buryport, 1841.) "^ 1 Ringwalt, 79. ^ Amer. Railroad Jour., IX, 271; Bowen, Rambles in the path of the steam horse, 76-80. Digitized by Microsoft® 196 METHODS OP APPEAL FOR SUPPORT mission was regarded as questionable. Our best roads were not popular with British investors, who had suffered loss from their own railroad enterprises. The Germans and French generally had more confidence, and to them went most of our railroad securities which were sold on foreign account prior to 1852.' In 1853, according to a special report of the secretary of the treasury, based upon the returns of two hundred and twenty-two companies, $43,169,000 of American railroad securities were held by foreigners, of which $36,125,000 represented bonds.^ The banking house of Jay Cooke and company in 1869 estimated that there were held abroad, or for foreign accoimt, $130,- 000,000 of bonds and $113,000,000 of stock of American railroads. Complete returns from seven companies showed a total of $83,449,800 of stock; and fourteen companies reported a total of $61,350,349 of bonds.' It was estimated in 1907 that from $6,000,000,000 to $6,500,000,000 of Ameri- can securities of all kinds were held in Europe. These were distributed as follows: Great Britain, $4,000,000,000; Germany, $1,000,000,000; Holland, from $600,000,000 to $700,000,000; France, $300,000,000; Switzerland, $100,000,- 000. A large portion of these was made up of railroad securities.* 1 Amer. Railroad Jour., XXIV, 792, 827, XXV, 26, 114, XXVI, 379. 'Hunt, XXXI, 117. ' Report of the special commissioner of the revenue, 1869, 41 cong. 2 sess., H. ex. doc. v. 5, no. 27, serial 1416, p. xviii; D. A. Wells, Revenue of the U. S., 29-30. (1870.) * Speare, Selling American bonds in Europe, Annals, XXX, 283. See also Bacon, Amer. international indebtedness, Yale Rev., IX, 265-85. Digitized by Microsoft® CHAPTER XII Individual and Local Subsidies to Private Com- panies The form of financial support obtained depended upon the time and circumstances of the undertaking, and upon the motive of self-interest to which it appealed. Generally- speaking, contributions may be classed under one of the following heads: (i) subsidies, (2) speculative ventures, (3) investments. Among subsidies would be included gifts or donations of individuals and public corporations, and subscriptions of persons who were interested in obtaining a road simply as an aid to their own .enterprise. State and local aid, when given in the form of subscriptions or guaran- tees, may also be considered in this relation. Speculators in many instances were professionals who hoped to unload on a rising market, but most of this class purchased because of glowing descriptions of opportunity circulated in a well- written prospectus. Investors were of two classes, those who interested themselves in a project as a local improve- ment concerning which well-considered investment judg- ment mfght be arrived at, and the large investors who took stock or bonds after investigation by a financial agent. INDIVIDUAL SUBSIDIES As has been pointed out, it was customary for promoters to stimulate individual subsidies as much as possible. Men- tion has already been made of individual subscriptions taken to defray the expense of surveys. The Mobile and Ohio adopted the plan of looking to the region through 197 Digitized by Microsoft® 198 INDIVIDUAL AND LOCAL SUBSIDIES which the road was projected for support sufficient to defray local expenses and prepare the ground for the rails. Stock was assigned to the counties on the basis of wealth and population, and active work was depended upon to place it in the hands of the people.* A similar policy was adopted Subsidies of upon the Galena and Chicago Union, and labor and local support was found so satisfactory that materials ^.j^g projectors decided to begin the work of construction without waiting for outside capital, with the assurance that capitalists would be attracted to a venture which was regarded with so much local favor.^ An early report of the Indianapolis and Bellefontaine shows that of the $480,000 received in return for stock, only $206,000 was in cash. Land subscriptions aggregated $232,000, and the balance was paid in labor and materials.' An amend- ment to the charter of the Henderson and Nashville author- ized the receipt of labor and materials in payment of stock subscriptions,* and the charter of New Orleans, Shreveport, and Kansas also conferred this authority.' Individual subscriptions were often paid in land, labor, or some other substitute for money; and in some charters direct provision was made for this substitution. The Chesa- peake and Ohio was thus empowered to receive five million acres in subscriptions to its stock, or by purchase; but lands not necessary for the purposes of the road were requured Private lands ^° ^^ ^°^^ within ten years.' Less than five per cent of the subscriptions to the stock of the Ohio and Indiana was paid in cash. Shares were paid for in contractors' work, town lots, and farms. Similarly, the Ohio and Pennsylvania received only one-fifth of the • Amer. Railroad Jour., XXII, 137, XXIV, 557, XXVI, 465. 2 Eames, American railroad, Mag. of West. Hist., XII, 95-6. * Annual report, 1851. ■" Loc. L. Ky., 1830-1, c. 384. ' L. La., 1857, no. 230. •L. Va., 1866-7, c. 280; L. W. Va., 1867, l. 93. Digitized by Microsoft® INDIVIDUAL AND LOCAL SUBSIDIES 19 ft cost of the road and equipment in cash, and the Fort Wayne and Chicago, less than three per cent. The remainder represented lands, town lots, labor, and other forms of in- direct payment. The lands received in this way were mort- gaged, and the money obtained paid for construction.' Lands were regarded with particular favor by the pro- moters in the Middle West, for it was confidently believed that by the building of a railroad the prices of all lands in the neighborhood would so advance as to show a substantial profit independent of the profits from the railroad itself. And the fact that a railroad was privileged to hold lands was often put forth as a promise of a sufficient bonus to overcome the reluctance of capitalists to embark in the enterprise. The Moimt Carmel and New Albany railroad of Indiana possessed this authority, and in the prospectus the promoters asserted: "Were the company to purchase a million of acres of the lands adjacent to the work, the in- crease alone in the price of the lands so purchased, would, before the work is half completed, pay for the entire con- struction of the work. The bare location of the route will triple the price of every acre of land within two miles of it. All that is wanted is capital to invest in lands, and, go on with the work for a short time without being comp&ed to make sale of them." ^ While unreasonable demands have sometimes been made for land taken by exercise of corporate powers of expropria- tion, the railroads of this country have very generally ob- Ri ht of wa tained releases for right of way by donation. This in a measure explains the low cost of construction of American roads as compared with those of England and the continent. Many of the land owners along the route of the Boston and Worcester imited in an agree- ment to release the company from all claims for damages or ' Hist, of the Pittsburgh, Fort Wayne, and Chicago railroad, 2-6. ' Amer. Railroad Jour., VI, 546. (1837.) Digitized by Microsoft® 200 INDIVIDUAL AND LOCAL SUBSIDIES compensation for the use of their land. Others sold their property at a moderate price.' The Ohio and Indiana also generally obtained its right of way through donations.^ The same was true of the Sandusky and Mansfield and many other roads of the Middle West.^ The fact that so many of the people along the route of the New York and Erie owned stock in the company not only made general the free cession of right of way and lands for station purposes, but it also created a sentiment which kept down the prices of materials to reasonable figures.* Landholders on the route of the Georgia railroad generally gave the right of way, and also in many instances, timber for the superstructure.' Throughout the West it has been the rule that lands for stations and yards have been granted free of encumbrance station sites, or Condition, and in many cases the lands yards, and available for town site purposes about the town Sites stations have also been included in these gifts. Many Western railroad charters made specific provision for such donations. The Indianapolis and Bellefontaine railroad was empowered to obtain a relinquishment of so much of the land as might be necessary for the construction or location of the road, and also to accept donations of stone, gravel, timber, and other materials.^ In some states such grants have been provided for in the general statutes. A method of disposing of stock which was employed in the West, particularly in Wisconsin, was to accept in pay- ment of a subscription, a note secured by a farm mortgage. These notes were guaranteed by the company as to princi- pal and interest, and sold on the market. Agreements 1 Boston American Traveller, January j., 1839. ' Amer. Railroad Jour., January 8, 1853. ' Sherman, Recollections, I, 81. < New York, Report of the committee on railroads on the New York and Erie railroad, 11. (1841.) ■■ Annual report, 1838. •Loc. L. Ind., 1848, u. 34. Digitized by Microsoft® INDIVIDUAL AND LOCAL SUBSIDIES 201 were also made by which the companies paid interest on the notes to the end of the term, usually ten ^^ ™° ' years, and the farmer assigned prospective dividends on his stock to an amount sufficient to pay interest charges. This plan was adopted by the La Crosse and Milwaukee, which obtained $1,100,000 of sub- scriptions of this class; also by the Milwaukee and Missis- sippi, and the Racine and Mississippi,' the Chicago, St. Paul, and Fond du Lac, and the Madison and Watertown.^ An estimated total of $3,500,000 in this form was received by the railroads in Wisconsin.' Much of the stock given in return eventually proved worthless. In many cases stock subscriptions were given without any regard either to possible profits from sale or permanent income after construction. It is undoubtedly true that a large part of stock subscriptions which were taken along the route of any early railroad were regarded as private subsidies. Such were usually the subscriptions received at railroad meetings and conventions, where the appeal was invariably made upon the basis of public benefit rather than private profit. Such also were the subscriptions of the merchant class, desirous of a freer access to sources of supply, and a wider range for the marketing of goods; and the same was true of the farmer attracted by the prospect of gain stock subscrip- '^^^ ^° dividends but from increased prices of tions given as products and from added value to his land.* private sub- Fully two-thirds of the original stock of the sidies McGregor, St. Peter, and Missouri River rail- road was subscribed by farmers and mechanics along the line, and in small towns within the territory served by the 1 Gary, Organ, and hist, of the Chicago, Milwaukee, and St. Paul rail- way, 17, 1 25, 127. 2 Amer. Railroad Jour., XXVI, 104. ^Madison Democrat, September 10, 1874. * Sherman, I, 81-2. Digitized by Microsoft® 202 INDIVIDUAL AND LOCAL SUBSIDIES road.' Four-fifths of the stockholders of the Milwaukee, Waukesha, and Mississippi railroad were of the same class, and the others were Milwaukee business men.^ The manu- facturers of the Merrimac river were behind the Boston and LoweU project; and it was largely upon their financial sup- port that the road was biult.' Abbott Lawrence, one of the most prominent of these manufacturers, subscribed liberally to all of the projected lines, with reference more to the indirect than to the direct returns from the invest- ment.* The Boston and Worcester railroad was financed largely by the merchants of Boston;' and San Francisco merchants were prominent among those who organized the San Francisco and San Joaquin Valley railway in 1895.° The merchant class was also behind the Baltimore and Ohio, and when, at the inception of the project, it was in danger of being abandoned for want of funds, the subscrip- tions which were obtained were largely from business men. One-fifth of the total number of shares was taken by eleven individuals and firms.^ Subscriptions to stock of the Western railroad of Massachusetts averaged less than $1000, and most of them were made with a view to public interest rather than with any idea of direct profit.' No effort was made to procure outside subscriptions to the stock of the Tona- wanda railroad, but all the shares were disposed of within a single day.° In fact, so widely scattered were the shares 1 Annual report, 1858. ' Annual report, 1849. 2 Railroad jubilee. An account of the celebration of the opening of railroad communication between Boston and Canada, 233. (1852.) ^ Hill, Memoir of Abbott Lawrence, lo. ' Railroad jubilee, ut supra. ' Walker, Pioneers of prosperity, 97. ' Niles, XXXVI, 349. 8 Bliss, Hist, memoir of the Western railroad, 31; Springfield Gazette, December 9, 1835. " Amer. Railroad Jour., VI, 481. (1837.) Digitized by Microsoft® INDIVIDUAL AND LOCAL SUBSIDIES 203 of the railroads between Albany and Lake Erie that they were rarely quoted on the market. Towns situated at some distance from a line of railroad have not infrequently been required to furnish liberal sub- sidies to the railroads as a bonus before a desired connec- tion or extension woxild be furnished. In 1856 the people of Mansfield, Ohio, applied to the Atlantic and Great Western for terms upon which the road would be extended through their town. In return the directors prescribed a subscription of $100,000, and a right of way and station sites at fair prices, payable in stock. Under these conditions the road was built.^ A similar request from the citizens of Randolph and Terrell counties was met by the directors Pressure to of the South Western railroad of Georgia with obtain local a proposition that if these counties should subsidies subscribe to $175,000 of stock, the road would be extended to Cuthbert; if $150,000 of additional stock should be taken, the road would be built to the Chatta- hoochee river near Fort Gaines, and if a further subscrip- tion of $300,000 should be made by the citizens of Cuthbert and Eufaula, the terminus of the road would be located opposite Eufaula. The extension was made in accordance with these terms.^ The Northern Pacific in 1880, in response to a request for an extension into Superior, promised to build to that town for one-third of the "lands, premises, and real estate" in the city, together with a right of way. Hard as these terms were, " the town was railroad hungry," and the offer was accepted.' In 1895 an agreement was entered into between citizens of De Kalb, Illinois, and the Chicago Great Western, under which the De Kalb and Great Western railway was built between De Kalb and the line of the Chicago Great Western > Annual report, 1856. ■' Annual report, 1857. ' Griffin, The Great Lakes in relation to the railroad development of northern Wisconsin, St. Hist. Soc. of Wis., Proceedings, XLI, 222. Digitized by Microsoft® 204 INDIVIDUAL AND LOCAL SUBSIDIES at Sycamore, a distance of six miles. Money for construc- tion was furnished by the citizens and contractors, and the completed road was taken over by the Chicago Great Western at a rental of one-third the earnings of De Kalb station until cost plus six per cent was returned, when the branch passed without encumbrance into the possession of the Chicago Great Western.' LOCAL SUBSIDIES TO PRIVATE COMPANIES Local subsidies have been common in every state, but the aggregate amount which the railroads have received from this source has never been determined, and in view of the scattered nature of the essential data, it is probable that a rough approximation will be the utmost result obtain- able. There have been several attempts to estimate the The amount amount of aid of this character given within of local sub- a single state, but aU are admittedly incom- sidies granted pig^e. According to a statement made by the auditor-general to the Pennsylvania senate in 1852, the amount of local subsidies to railroads in that state was $9,866,502.^ In a special report to the senate of Kentucky in 187 1 the auditor stated that the local debt which had been incurred in aiding railroad construction aggregated $13,783,983,' and a statement prepared by the board of railroad commissioners of Massachusetts, also in 1871, showed that the amount voted by towns in that state in aid of railroad construction had reached $2,351,000.* The rail- road and warehouse commission of Illinois was able in 1873 to receive replies from only eighty-six out of one hundred and two counties in response to a request for reports of local 1 Poor's Manual, 1896: 299-300. = Statement of the amount of bonds, scrip, and other certificates of in- debtedness issued by the several counties, incorporated cities, etc. Senate Journal, 1852, II, 327-8. * Senate Journal, Adjourned sess., 1870-1: 314-8. ' Second annual report, 9. (1871.) Digitized by Microsoft® INDIVIDUAL AND LOCAL SUBSIDIES 205 railroad subsidies, but the aggregate figure for the reporting counties was $16,088,027.* A statement of local aid in Wisconsin, compiled in 1874, shows a total of $8,522,224, but some counties failed to report, and no deductions were made in this estimate to represent compromises effected after the aid had been authorized.^ The local railroad debt in Connecticut in 1883 amounted to $5,106,000. This was about three-fourths of the total local debt in the state.' A recent summary of town and country railroad aid in Ala- bama, which includes only subsidies authorized by special enactment, and thus ignores those granted under general law or without sanction of law, shows a total of $2,545,000.* Between 1869 and 1905 the towns and counties of Minne- sota issued $2,949,150 of bonds in aid of forty-eight railroads.' Two hundred and ninety-four cities, towns, and villages in New York contributed $29,978,206 to railroads, and fifty- one counties gave subsidies varying from $5000 to over $3,000,000 each.' In forty-three Nebraska counties there has been voted a total of $4,918,000 railroad subsidy bonds.' Seven Missouri railroads received $8,124,075 in city and county subscriptions.' The counties of Virginia have in- curred a railroad debt of over $10,000,000.° The amount of town and county railroad indebtedness in Iowa as early as 1856 was in excess of $7,000,000.*" According to a state- 1 Third annual report, 8. (1873.) See also Auditor's report, 1882: 217. 2 Madison Democrat, September 10, 1874. ^ Statement of indebtedness of every town in the state for railroads, state institutions, and war debt. (1883.) - Fleming, Civil war and reconstruction in Ala., 605. « Auditor's report, 1905-6: 201-6. 8 McVey, State aid to N. Y. railways. Social Economist, VII, 104-5. ' Tingley, Bond subsidies to railroads in Neb., Quar. Jour, of Econ., VI, 347- 8 Million, State aid to railways in Mo., 232-7. "Flanagan, Municipal aid to railroads, Virginia Law Jour., XV, 465. 10 Message of James W. Grimes, Shambaugh, Messages of the governors Of la., II, 37. Digitized by Microsoft® 206 INDIVIDUAL AND LOCAL SUBSIDIES ment prepared in 1853, the railroad debt of Wheeling amounted to $55 per capita; Baltimore, $43; Pittsburgh, $34; St. Louis, $30; LouisvUle, $25; New Orleans, $23; Philadelphia, $20. The aggregate figures were: Wheeling, $1,100,000; Baltimore, $7,830,000; Pittsburgh, $3,450,000; St. Louis, $2,500,000; Louisville, $1,500,000; New Orleans, $3,5oo,oooj Philadelphia, $8,154,000.^ Various motives prompted these local subsidies. All communities wish to increase trade activity, and to that end many have aided in the construction of railroads which promised to increase the area tributary to their merchants, or to preserve a trade advantage in competition with rivals. For this reason Baltimore became an early subscriber, ad- vancing large sums to the Baltimore and Ohio, and later to the Northwestern of Virginia, the Western Maryland, and other roads; Philadelphia subscribed liberally to the stock of the Pennsylvania, the Hempfield, and the Sunbury and Erie; and New Orleans took a large amoimt of stock in the New Orleans, Opelousas, and Great Western. In- ducements have many times been offered in this manner by Reasons as- towns which wished to be chosen as the termi- signed for nus of somc projected line. Thus Pittsburgh local aid ^qqJ^ g^Qj,]j jjj ^jjg Pittsburgh and Steubenville. Often such a subsidy was conditioned upon favorable action by the railroad. In this manner Allegheny county offered to take $1,000,000 of stock provided the Pennsylvania should locate its western terminus at Pittsburgh. Similarly Mason county, Virginia, offered an inducement to the Covington and Ohio in favor of the town of Point Pleasant; and Paducah by this means attracted the Mobile and Ohio. Because of a large subscription offered by Marietta, the Marietta and Cincinnati gave up Belpr^ as its Ohio river terminus, but it also constructed a branch to Belpr^, which was the western terminus of the Northwestern of Vir- » Hunt, XXIX, 613. Digitized by Microsoft® INDIVIDUAL AND LOCAL SUBSIDIES 207 ginia.' When the Rochester and Syracuse, the Auburn and Syracuse, and the Auburn and Rochester were built, capital was difficult to obtain, and the communities along the pro- posed route put forth every effort to assist the work. They exerted a commanding influence in determining the location of the route, which as the result of various local wants took an irregular course by way of Canadaigua, Auburn, and Geneva.^ As late as 1891 Lincoln, Nebraska, offered a subsidy to the Chicago, Rock Island, and Pacific, but in this instance the argument was not that the road would not otherwise come to the city, but that it would be bad policy to offend the Rock Island people by refusing to grant their request.' Railroad connection was so vital a matter to the trade of a community that the aid of a town or county took on the semblance of an investment. In some instances there was a belief that not only would the money advanced as a subsidy to railroads increase local trade activity, but also bring direct returns as an investment. Allegheny county thus subscribed to stock in the Pennsylvania railroad, expecting that the company would pay dividends sufficient to relieve the county from any taxation for interest on the bonds. This the rail- road could not do, and in consequence, for years no legis- lator could cast a vote for any measure favorable to the company without committing political suicide in that county.* „ , ,. . A Kentucky act authorizing Covington to Subsidies in ,.-^,_,. °,_. the form of take stock m the Covmgton and Lexmgton, town and provided that until dividends should be paid county sub- ,^ ^^le stock the city should receive six per scnptions '■ . i 1 • 1 cent mterest payable m stock upon the amount of its subscriptions.^ Hope of this sort was bolstered up by 1 Data from file of the American Railroad Journal. 2 Flint, Railroads of the U. S., 156. ^ Tingley, ut supra, 351. *McCIure, Old time notes of Pa., I, 142. ' Loc. L. 1850-1. c. S07« Digitized by Microsoft® 208 INDIVIDUAL AND LOCAL SUBSIDIES the fact that some cities and counties did receive dividends; but experience soon identified all local aid with subsidies, and subsidies were often loosely characterized as donations, whatever their form. When a railroad received local bonds in return for its stock, it would sell them in New York or in Europe, or wherever a market could be found, and often at a consider- able loss from discount and commissions. Sometimes a subscription would be paid pardy in bonds and partly in tax proceeds, as in the case of the Louisville subscription of $1,000,000 to the Louisville and Nashville in 1851.' It was the policy of the Mobile and Ohio to avoid long term local bonds with their inferior security, and to encourage the issue of "tax bonds." Thus Gibson county, Tennessee, in 1852, voted $150,000 in aid of that road, and pledged taxes for three years as security, and Madison county voted $250,000 under the same conditions. In Alabama, Mississippi, and Kentucky, this was also a common practice; and in Ten- nessee it was provided for by a law which prescribed that in no case could more than one-third of the debt be collected in any single year.'' FORMS OF LOCAL AID A subscription to railroad stock by a public corporation is an ordinary piirchase of proprietary interest in the cor- poration, but when bonds are issued in pay- Bcription ' ^^^^ ^°^ *^^^ ^^°^^ ^y ^^^ town or county, a loan of pubHc credit is involved. Within the meaning of this term are also included the guarantees of railroad bonds and the exchanges of pub- Guarantee and 1-i.jr -i ji. i a . endorsement ^'^ bonds for railroad bonds. A guarantee or simple endorsement constitutes a contingent liability. Under this heading comes the endorsement by the ' Amer. Railrod Jour., XXIV, 373. ''L. 185 1-2, c. 117. Digitized by Microsoft® INDIVIDUAL AND LOCAL SUBSIDIES 209 city of Covington upon the bonds of the Covington and Lexington to the amount of $200,000 in 1852/ and by Bal- timore upon $1,000,000 of Pittsburgh and Connellsville bonds in 1853.^ Portland pledged the interest upon $250,000 of the bonds of the Oregon Central, Yamhill coimty upon $75,000, and Washington county upon $50,000.' As late as 1891 Washington county, Maine, was empowered by a special act to guarantee for thirty years five per cent interest upon $650,000 of the bonds of the Maine Shore Line.* The exchange of municipal bonds for the bonds of rail- roads has been a much commoner form of local government subsidy than the guarantee. Here the liability of the city or coimty is absolute, and the bonds taken municipal i^ exchange for the public issues are secured bonds for by a lien upon the property of the corporation. se^iTi ^^^ "*y °^ Bangor loaned $500,000 to the European and North American, and took in re- turn bonds secured by a first mortgage upon the road from Bangor to Lincoln and Winn.' Baltimore loaned $1,500,000 in bonds to the Northwestern of Virginia, and $5,000,000 to the Baltimore and Ohio, and received a preferred lien in each case." Often an inferior lien was taken. Hartford and Providence exchanged bonds with the Hartford, Providence, and FishkiU to the amount of $500,000 each. Providence received a first mortgage upon the portion of the road in Rhode Island, but Hartford took a second mortgage upon the part in Connecticut.' Milwaukee received a second mortgage upon the Milwaukee and Horican as security for 1 Hunt, XIII, 528. ' Amer. Railroad Jour., XX, 34. ' Bancroft, Oregon, II, 699. * Priv. L. 1891, u. 257. » Memorial of the European and North American railway to the legis- lature of Mass. for state aid. (1866.) 'Amer. Railroad Jour., XXV, 283, XXVII, 806. ' Bayles, Providence county, I, 282. IS Digitized by Microsoft® 210 INDIVIDUAL AND LOCAL SUBSIDIES a subsidy loan,* but took from the Milwaukee and Fond du Lac, and the La Crosse and Milwaukee, first mortgages upon short sections of these roads, with the provision that the Hens might be reduced to second rank to allow new first mortgages to be executed tp the extent of $10,000 per mile.^ In aid of the Milwaukee and Mississippi this city issued bonds to the amount of $550,000, and exchanged $250,000 for stock, and $300,000 for third mortgage bonds.^ Nor- wich made two loans of $100,000 each to the Norwich and Worcester. One was secured by a mortgage upon the franchise and income of the road, and the other upon 1500 shares of stock as collateral.* Local subsidies have also been given in the form of dona- tions. In its grant of authority the legislature may deter- ^ mine whether aid shaU be by way of donation, Donations . , • i i • i or it may leave the question to be determined by the local government.' Thus acting under the provision of a New Hampshire law, the town of Keene voted a subsidy equal to three per cent of its valuation to the Manchester and Keene, expecting no return except the incidental benefits arising from increased trans- portation facilities." Center township, Indiana, in 1870 voted a donation to the Indiana and Illinois Central upon condition that the shops of the company be located at that point.' Many minor local gratuities have been given. Charleston appropriated money for the construction of the experimental railroad built in one of the squares of the city to demon- strate the mechanical practicability of the projected line to ' Gary, Organ, and hist, of the Chicago, Milwaukee, and St Paul rail- way, SI. 2 Ibid., 14-S. s Ibid., 84. ' Caulkins, Norwich, 532. 'Elliott, Law of railways, II, 1169; Rorer, Law of railways, I, 447-52. " Perry v. Keene, 56 N. H., 514. ' Board of commissioners of Marion county v. Center township, 105 Ind., 422. Digitized by Microsoft® INDIVIDUAL AND LOCAL SUBSIDIES 211 Hamburgh.' Savannah paid the expenses of the first sur- vey upon the route of the Central railroad of Georgia.^ Many towns, particularly throughout the West, have donated sites for stations and terminals. The Cairo and Fulton re- ceived 885,320 acres of coimty land grants in Missouri in 1857-8. Five counties took stock in this road, and paid for their subscriptions $419,000 in land at one dollar an acre.' San Francisco received au- thority in 1863 to issue bonds in exchange for Central Pacific and Western Pacific stock, but the subscription was pre- vented by opposition in the courts. Additional legislation was obtained in 1869, and a compromise made with the railroad by which the subscriptions were changed to dona- tions of $400,000 to the Central Pacific and $200,000 to the Western Pacific.^ La Crosse issued $50,000 of bonds to the Southern Minnesota, and "other donations" were made by mimicipalities along the Une to an aggregate of $148,000.^ Saline county, Illinois, changed to a donation its subscription of $100,000 to the Cairo and Vincennes. Similar action was taken by Alexander county." Arrangements were also affected between Santa Clara county and the San Francisco and San Jos6 railroad, by which the railroad company was released from $100,000 of obligations on condition that the line be extended thirty miles further ) to Gilroy.' Otoe county, Nebraska, gave $40,000 in bonds,' to the Council Bluffs and St. Joseph railroad in 1866, and! $150,000 to the Burlington and Missouri River railroad in| 1869.' j ' Charleston Observer, February 16, 1828. s Avery, Georgia, 632. 2 Million, 237, 242-3. * Central Pacific Railroad Company. Statement made to the senate committee of the Nevada legislature (1865); Bancroft, California, VII, 558. ' Cary, 163. ' Ashcroft's railway directory for 1868 : 6-7; from Cairo Democrat. ' Ibid.; from San Francisco BMetin. » Railroad company v. County of Otoe, 16 Wallace, 667. Digitized by Microsoft® CHAPTER XIII State Aid to Private Companies The policy of state aid was adopted as a necessary sub- stitute for direct state funding of railroad construction. At the time railroads were introduced the financial condition of the states had been weakened, in some instances by bank- ing ventures, but generally through ill-advised participation in tlie construction of public works.' There was, in conse- quence, little to favor the assumption of new obligations for works of similar nature and of unknown value and extent. At this time, also, ideas of corporate control were rudimentary, and the principle of limited liability to the holder of corporation stock was yielded grudgingly by legis- lators. The demand for capital for railroad construction was, moreover, far beyond the abiUty of individual capitalists or associations of capitalists to supply. In such a situation the necessity for supplementing the activity of individuals to provide capital for railroad construction seemed hardly open to argument. The most natural method of aid was to take a proprietary share in the associations or corpora- tions organized for undertaking the new ventures. SUBSCRIPTIONS TO CAPITAL STOCK First of its kind was the subscription of Maryland to $500,000 of stock of the Baltimore and Ohio in 1828.^ This Maryland ^^^ followed in 1 836 by a subscription of $3,000,000, which was conditioned upon the payment of six per cent dividends, with the provision that ' Ante, p. 96 et seq. 2 Niles, XXXIV, 17. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 213 all excess earnings should be credited to the individual stock holders; * — one of the first issues in this country of pre- ferred stock. In 1833 the state also took $500,000 of the stock of the Washington Branch of the Baltimore and Ohio, having first exacted the requirement that an equal subscrip- tion be obtained from other sources, and a bonus of one fifth of gross receipts.^ The second subscription to the Baltiniore and Ohio was payable in money to be raised from the sale of six per cent currency bonds, which were required to be offered first in Europe. To provide a sinking fund for interest it was required that the bonds must be sold at a net premium of twenty per cent. These terms proved impracticable, and sterling bonds which bore five per cent interest were substituted. An amoimt of bonds equal to $3,200,000 was issued directly to the company in payment of the state subscription and interest charges, a guarantee of principal and interest being exacted from the company. When efforts were made to dispose of these bonds in Lon- don, the market for securities was unsettled, and sales were impossible except at prices ruinous to the credit of both the company and the state. An arrangement was finally effected with the Barings.' Maryland also made small subscriptions to the stock of the Baltimore and Susquehanna, the Annapo- lis and Elkridge, and the Eastern Shore railroads.* Dela- ware, in 1852, subscribed $180,000 to the New Castle and Frenchtown Turnpike and Railroad company.' Virginia was conspicuous among the states which sub- „. . . sidized railroad construction by means of stock Virginia ^ subscriptions. It early adopted the policy of taking three-fifths of the stock of railroads within its borders • Amer. Railroad Jour., V, 658. 2 Bowen, Rambles in the path of the steam horse, 72. 3 Ibid., 76-8. * Hanna, Financial hist, of Md., 94. ' Message of William H. Rose, Senate Journal, 1853 : 9. Digitized by Microsoft® 214 STATE AID TO PRIVATE COMPANIES when the remainder of the capital had been subscribed. To the roads constituting the Chesapeake and Ohio the state subscription was over $5,000,000. This does not in- clude the amount expended upon the Blue Ridge railroad and tunnel, which was about $1,750,000. The subscrip- tion of the state to the Virginia and Tennessee was over $3,000,000; to the Manassas Gap, over $2,000,000; to the Richmond and Danville, $1,800,000; to the Norfolk and Petersburg, $1,500,000; and to the Alexandria, London, and Hampshire, $1,000,000. From a report to the Virginia senate in 1878 it appears that the amount of aid granted to railroads by this state prior to the Civil war was over $21,000,000, of which $1,640,000 was for railroads now beyond the boundaries of the state.* Georgia, imtil after the Civil war, was opposed to a general system of aid to internal improvements, preferring to limit subsidies to specific railroads. In the charter of the Monroe railroad the state offered to take one-fourth of the stock whenever outside subscriptions should be re- Georgia , ^ ceived for half of the capital, but it was pro- vided that the state subscription should be limited to $200,000. These conditions were fulfilled, and the subscription made in 1842.^ In 1867 a state subscription to $1,000,000 of Atlantic and Gulf stock was completed,' but the stock was declared worthless in 1889.* One instalment of $50,000 of this subscription was paid in cash.' Louisiana in 1853 adopted a general system of aid to rail- Louisiana roads within the state, providing for subscrip- tions to one-fifth of the capital stock." Prior to the Civil war, stock to the amount of $483,000 was taken ' Report of the senate committee on finance relative to the public debt, 2-4. (1878.) "Message of Charles J. McDonald, House Journal, 1843 : 20-1. = Comptroller's report, i86g : 7. « Ibid., 1890 : 85. "Message of Joseph E. Brown, House Journal, i860: 8-9. " L. 1853, no. 231. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 215 in the New Orleans and Nashville; the Mexican Gulf, $1,000,000; ' the New Orleans, Jackson, and Great Northern, $884,000, the New Orleans, Opelousas, and Great Western, $650,000; the Vicksburg, Shreveport, and Great Western, $298,000; and the Baton Rouge, Gross T6te, and Ope- lousas, $160,000. A subsequent subscription of $2,500,000 was made to the New Orleans, Mobile, and Texas.^ North Carolina in 1836 agreed to take two-fifths of the stock of the Wilmington and Raleigh when the rest of Una *'°" ^^^ stock should be subscribed and one-fourth paid in; ' and imder this act the state received $500,000 of stock.* In 1854 the state agreed to take two- thirds of the $1,800,000 capital stock of the Atlantic and North Carolina. Under a similar agreement it also took $4,000,000 of the stock in the Western North Carolina and $2,000,000 in the North Carolina. When later the capital stock of the North Carolina was increased by $1,000,000, the new stock was taken by the state, which thereby acquired a three-fourths' interest.^ Other railroads aided through state subscriptions to stock were the Wilmington, Charlotte, and Rutherford, ° and the Cape Fear and Yadkin.' Many of the South Carolina railroads were aided by state subscriptions to capital stock, but usually j.jj^ " in small amounts. To the Blue Ridge railroad, however, was subscribed $1,310,000.' The state also subscribed $800,000 to the stock of the Louisville, Cin- cinnati, and Charleston, and advanced $200,000 in cash." • Auditor's report, 1865 : 32-4. 'Ibid., 1879: 278. ' L. 1836, c. 22. * Weaver, Internal improvements in N. C, 83-4. « Vernon, Amer. railroad manual, 1873: 319-22. ° Treasurer's report, 1870: 45. ' Message of Thomas J. Jarvis, 1883 : 13. « Comptroller-general's report, 1868 : 29. ' Report of the state board of agriculture, 1883 : 646. Digitized by Microsoft® 216 STATE AID TO PRIVATE COMPANIES Part of the money received from the United States treasury at the distribution of the surplus revenue in 1837 was di- verted to the payment of instalments upon the stock of this company.' In 1848 the state took $75,000 of the stock of the Greenville and Columbia, and paid for it in stock of the South CaroUna railroad at par.^ In 1854 a subscription of $270,000 of the stock of the Charleston and Savannah was paid in stock of the Wilmington and Manchester, the South Carolina, and the King's Moimtain railroads.' Similarly, when in 1863 the state subscribed to $200,000 of the stock of the Coalfield railroad, payment was made in stock of the Cheraw and Darlington, and the North Eastern railroads.* Two Tennessee railroads were granted subsidies in the form of state subscriptions. The Memphis and Lagrange exchanged $207,500 of its stock for $200,000 Ke^ct7 *° °^ ^^^^^ bonds; and the Hiawasse railroad disposed of $651,000 of stock in return for an equal amoimt in bonds of the state.' Kentucky subscribed to $200,000 of the capital stock of the Lexington and Ohio." Alabama in 1850 appropriated half of its two per cent internal improvement fund, and the available part of its three per cent fund to the Alabama and Ten- nessee Rivers railroad in payment of stock, with the provision, however, that the sum to be derived from the latter fund should not exceed $100,000.'' The stock ob- tained in this manner amounted to $172,000 in 1869.' Mississippi in 1854 granted to the New Orleans, Jackson, ' Bourne, Hist, of the surplus revenue of 1837: 107-10. 2 Memorial of the Greenville and Columbia railroad to the general assembly. (1837.) ' Annual report, 1858. * Comptroller-general's report, 1858 : 40. ' The state debt. Report of the committee appointed to investigate it, 13-4. (1879.) « L. 1838, c. 8S7. ' L. 1849-50, no. 94. * Auditor's report, 1869 : 34-5. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 217 and Great Northern in the form of subscriptions to stock, one-third of the money in the internal improve- ^S^sas °ient fund. An act passed in 1857 provided for similar aid from the Chickasaw school fund.^ Arkansas in 1861 granted the proceeds of sales of swamp lands to the Mississippi, Ouachita, and Red River, the Cairo and Fulton, and the Northwestern Border railroads, and took stock in return.^ Few Northern states gave aid to railroads in the form of subscriptions to stock. Massachusetts, however, in 1836 authorized the Western railroad to increase Massachusetts . • ■, ■, r m. * its capital stock from $2,000,000 to $3,000,000, and took the new issue of stock on state account.' Prior to 1837 Ohio had granted aid to railroads in special cases, but in that year a general act was passed, promising a state subscription of one dollar for every other subscrip- tion of twice that amount to the stock of raUroads in the state.^ In the three years in which this law was operative the state subscribed to $717, 515 of stock in six railroads.' LOANS OF STATE CREDIT IN AID OF PRIVATE CORPORATIONS The loan of credit unaccompanied by a subscription to stock was widely used as a form of state subsidy. This was effected by guaranteeing the bonds of a railroad, or by issuing bonds in exchange for railroad bonds. Almost in- variably the statutes have required that such aid shall not be given without a lien upon the property of the subsidized railroad, but it has been decided that an express provision 1 Message of Charles M. Waterman, mayor of New Orleans, in relation to the New Orleans, Jackson, and Great Northern railroad. (1858.) 2 L. 1860-1, no. 108; Message of Isaac Murphy, 1866 : 21-5. "h. 1836, c. 131. * L. 1836-7: 76; Curwen's stat. at large, I, c. 145. ^Special report of the auditor of state on the condition of the several railroad companies to which the credit of the state has been loaned. (1843.) Digitized by Microsoft® 218 STATE AID TO PRIVATE COMPANIES in the statute is necessary to confer a lien in favor of the state. Of the states which adopted this form of aid, Massachusetts was probably most prominent. This was not Massachusetts , '^ .. ^r-ji-i because of the amount of aid which was given by this state, but because its rapidly increasing prosperity, and the strong financial condition of its railroads, was put forward as a weighty argument by the advocates of subsidies in other states. Loans aggregating $11,290,000 were author- ized by this state to eight railroads between 1837 and 1870. The recipients of these loans were: the Western, $4,000,000; the Boston, Hartford, and Erie, $3,600,000; the Troy and Greenfield, $2,000,000; the Norwich and Worcester, $800,- 000; the Eastern, $590,000; the Boston and Portland, $150,- 000; the Old Colony, $100,000; and the Nashua and Lowell, $50,000.^ The Troy and Greenfield, however, failed after having received $924,900 from the state.^ The state of New York in this manner gave aid to nine rail- roads to an amount, including interest, of $8,206,591. The New York and Erie received $6,217,097; the Ithaca and Owego, $650,815; the Canajoharie and Catskill, $380,000; the Hudson and Berkshire, $303,797; the Auburn and Syracuse, and the Auburn and Rochester, $200,000 each; the Schenectady and Troy, and theTonawanda, $100,000 each; and the Long Island, $108,882. From sales and redemptions the state received a return of $756,152.73.' Michigan in 1837 and 1838 loaned $100,000 to the De- Michi ^^°^^ ^°^ Pontiac, $60,000 each to the Ypsilanti and Tecumseh and the AUegan and Marshall, and $20,000 to the Palmyra and Jacksonburgh.* ' Derby, Argument in favor of a state loan to the Vermont and Massa- chusetts R. R. (185s); New York and New England R. R., Hearing before the committee on railroads. (1878.) ^Bullock, Hist, of the finances of Mass., 71. 3 Sterne, Proceedings of the N. Y. special [Hepburn] committee on railroads, I, loo-i. (1879.) * Treasurer's report, 1838 (in appx. to L. 1839), 270, 355. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 219 Two Indiana railroads received loans of . state bonds. To the Lawrenceburg and Indianapolis was issued $221,000/ and to the Madison and Indianapolis, $456,000.^ Minnesota in 1858 provided for loans to four railroads to an aggregate of $5,000,000.^ Under this law the Minne- sota and Pacific and the Minneapolis and Minnesota , Cedar Valley received $600,000 each; the Southern Minnesota, $575,000, and the Transit railroad, $500,000, or a total of $2,275,000.'' Defaults then neces- sitated foreclosure on the part of the state.^ Maryland aided the Baltimore and Susquehanna by a direct loan of $1,879,000.' In 1837 Delaware loaned $110,000 for two years to the Wilmington Dd^are ^ ^^'^ Susquehanna.' It also loaned $80,794 in state bonds to the Philadelphia, Wilmington, and Baltimore,* $170,000 to the Delaware railroad," $200,000 to the Breakwater and Frankfort, and $400,000 to the Junc- tion and Breakwater." Virginia took $130,000 of the bonds of the Hillsborough . . and Cincinnati, and $300,000 of the Norfolk and Petersburg; and guaranteed bonds of the Virginia Central to the amount of $100,000, and of the Rich- mond and Danville, $200,000." ' Message of N. Noble, Senate Journal, 1836 : 7. 2 Message of James Whitcomb, House Journal, 1844: 19: Auditor's report, 1844 : 40. a L. 1858 : 9. * Message of Henry H. Sibley, 1859 : 7. Auditor's report, i860 : 3. ' Scott, Repudiation of state debts, 154. ' Hanna, 94. 'L. 1837, I.. 127. ' Message of William B. Cooper, House Journal, 1843 : 11 ; House Jour- nal, 1859 : 204. ' House Journal, 1879 : 317. '» Senate Journal, 1891 : 784. " Report of the auditor of public accounts, 1865: 31, 33. Digitized by Microsoft® 220 STATE AID TO PRIVATE COMPANIES As early as 1833 Kentucky guaranteed $150,000 of the bonds of the Lexington and Ohio, and took a lien upon all the property of the road.* — After first aiding railroads by stock subscriptions, and then by endorsement of bonds, Tennessee adopted the policy of issuing its own bonds to the railroads under the security of a mortgage. The plan adopted in the act of 1852 provided that any railroad with suffi- cient subscriptions to prepare the roadway for the rails should be entitled to receive state bonds to the extent of $8000 per mile.^ This amoimt was raised to $10,000 two years later. Subsequently the length of the sections required completed before right to aid could be established was re- duced from the twenty miles of the act of 1852 to ten miles.' The railroad bonds endorsed by the state amounted to at least $2,196,000,* and $28,351,000 of bonds were issued in the form of direct loans to railroads. This figure does not include the $32,000 of bonds which were issued to the Louisville, Cincinnati, and Charleston, and returned, or the $851,000 of bonds which were issued in payment of stock subscriptions in the Hiawasse and the Memphis and Lagrange railroads.^ Missouri, in acts passed between 1851 and 1859, provided for a system of loans to railroads accompanied by statutory Missouri ^^^^^ ^P°° ^^^ property. Altogether this state issued $19,201,000 of bonds to the Missouri Pacific, the Hannibal and St. Joseph, the North Missouri, the St. Louis and Iron Moimtain, the Platte County, and the Cairo and Fulton railroads; and guaranteed bonds of the Southwest branch of the Pacific to the extent of $450,000.° " L. 1832, c. 226; 1838, c. 857. 3 Phelan, Tennessee, 290-2. ' L. 1851-2, c. 151. * Comptroller's report, 1868 : 53. ' The state debt. Report of the committee appointed to investigate it, 6, 13-4. (1879). ' Million, State aid to railways in Mo., 232-7. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 221 The Arkansas legislature in 1868 declared in favor of a policy of state aid to railroads, and referred the matter to the people by whom it was approved at a general election. In consequence state bonds were issued to the Memphis and Little Rock, the Arkansas Central, the Little Rock, Pine Bluff, and New Orleans the Little Rock and Fort Smith, and the Mississippi, Ouachita and Red River to the amount of $5,350,000. Upon these bonds $406,830 of interest had been paid and $1785 was due when in 1879 the entire railroad debt was repudiated.' After the Civil war Louisiana adopted the plan of lend- ing state bonds to railroads under security of a second ^ . . mortgage. Three roads received aid in this Louisiana ° ° . ^- , ^ . . 1 rri manner, — the North Lomsiana and 1 exas, $1,122,000; the New Orleans, Mobile, and Texas, $875,000; and the New Orleans, Mobile, and Chattanooga, $750,000.^ While in Alabama the legislature spent much time in the discussion of railroad subsidies, the combination of a determined governor and inferior credit prevented action until 1856, when laws were passed granting loans to the . , ^ Alabama and Tennessee Rivers, and the Mem- AlaDama , 1 .i phis and Charleston railroads. These laws were passed over the veto of the governor, but before further action could be taken they were repealed.' Under the pro- visional government, an act was passed in 1867 which au- thorized the endorsement of railroad bonds to an amount of $12,000 per mile upon completed twenty-mile sections. The first reconstruction legislature increased the endorsement to $16,000, and except for the first section reduced the required length of completed sections to five miles. Provision was also made for aid for twenty miles beyond the boundaries 1 Auditor's report, 1880 : 219. 2 Auditor's report, 1879 : 278. In Ibid., 1874, statement " G," the last two items are transposed. ' Martin, Internal improvements in Ala., 72-9. Digitized by Microsoft® 222 STATE AID TO PRIVATE COMPANIES of the state. As security, the state was to take a first mortgage upon the property. The bonds of ten rail- roads were endorsed under these laws to an amount of $16,751,000. The endorsements of the bonds of the Alabama and Chattanooga aggregated $5,300,000; the South and North Alabama, $4,026,000; the Mobile and Montgomery, $2,500,000; the Montgomery and Eufaula, $1,280,000; the Mobile and Alabama Grand Trunk, $880,000; the Selma, Marion, and Memphis, $765,000; the Selma and Gulf, and the Savannah and Memphis, $640,000 each; the East Alabama and Cincinnati, $400,000; and the New Orleans and Selma, $320,000.^ By special enactments in 1870 a direct loan of $2,000,000 was made to the Alabama and Chattanooga, secured by a lien upon the lands of the company, and one of $300,000 to the Montgomery and Eufaula.^ Bonds were also issued to the South and North Alabama to the amoimt of $732,000; to the Mobile and Alabama Grand Trunk, $220,000; and to the Savannah and Memphis, $204,000, in exchange for $5,103,000 of en- dorsed bonds. This was in accordance with an act of 1875 authorizing the governor to issue state bonds at the rate of $4000 per mile to such railroads as would surrender endorsed bonds.^ State railroad aid in Georgia after the Civil war was in the form of endorsement of bonds, though in the case of the Brunswick and Albany, $2,350,000 of bonds of the road were exchanged for $1,880,000 of bonds of the state.^ First mortgage bonds of this road were also endorsed Georgia , r m. to the amount of $3,330,000. Other endorse- ments were: the Macon and Brimswick, $2,550,000; the Bainbridge, Cuthbert, and Columbus, $600,000; the South ' Fleming, Civil war and reconstruction in Ala., 604. ' Message of William H. Smith, 1870 : 6; Auditor's report, 1873 : 109. = Martin, 85. * Wooley, Reconstruction of Ga., 103. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 223 Georgia and Florida, $464,000; the Alabama and Chatta- nooga, $194,000; the Cartersville and Van Wirt, $275,000; the same road, under the name of "Cherokee," $300,000; ' the North and South railroad, $240,000; the Memphis Branch railroad, $34,000;^ and the Northwestern railroad, $260,000.' In 1875 Florida established a board of trustees of internal improvements, which was instructed to pay interest upon the bonds of certain railroads in default of payment by the companies themselves, and it was provided that all such payments by the trustees should be represented by railroad stock.* Under this law endorse- ments were, made upon bonds of the Pensacola and Georgia to the amount of $1,220,000; the Tallahassee railroad, $206,000; the Florida railroad, $1,616,000; and the Florida Atlantic and Guh Central, $555,000, — a total of $3,597,000.' In 1869 the legislature changed the plan of aid, and offered bonds to the amoimt of $16,000 per mile in exchange for first mortgage bonds of the railroads. Under this plan state bonds amounting to $4,000,000 were issued to the Jack- son, Pensacola, and Mobile." As early as 1837, when the Louisville, Cincinnati, and Charleston project was being agitated, South Carolina offered to endorse bonds of the company to the amount of $2,000,000.'' Before and after the Civil war this policy o ... o ,- of endorsement was continued until the lia- South Carolina .... bility of the state on this account amounted to $8,787,608. The beneficiaries were: the Blue Ridge of South Carohna, $4,000,000; the South Carolina, $2,093,312; ' Comptroller-general's report, 1874: 12. 2 Ibid., 1876: 15. 'Message of Alfred H. Colquitt, Senate Journal, 1878: 32. * L. 1854-5, c. 610. •Message of W. D. Bloxham, 1883 : 11. ' Message of Marcellus L. Steams, 1875 : 10. 'Stat, at large, VI, 571. Digitized by Microsoft® 224 STATE AID TO PRIVATE COMPANIES the Greenville and Columbia, $1,426,546; the Charleston and Savannah, $505,000; the Savannah and Charleston, $245,750; the Spartanburg and Union, $350,000; the Laurens railroad, $75,000; '■ and the Northeastern railroad, $92,000.^ North Carolina in 1838-40 pledged the interest upon $300,000 of the bonds of the Wilmington and Weldon, and principal and interest upon $800,000 Raleigh and Gaston . „ , bonds.' Bonds were issued in exchange for North Carolina ^ , ttt-i • ,-.11. bonds of the Wilmmgton, Charlotte, and Rutherford, the Williamston and Tarborobugh, and the Chatham railroads.* STATE ENDORSEMENTS OF CITY BONDS There have been instances where the railroad subsidy bonds of a city have received a state guarantee. Virginia guaranteed $323,500 of the bonds of the city of Petersburg, issued in aid of the South Side railroad, and the $500,000 of bonds which Wheeling issued to pay for stock in the Balti- more and Ohio.° Tennessee endorsed the $350,000 of bonds which Memphis issued in payment of stock in the Memphis and Little Rock, and took in return a lien upon the city stock and also upon the iron and equipment of a division of the road." The state, however, refused to stand respon- sible for the endorsement when it appeared that no record of any mortgage in its favor existed in Arkansas.' 1 Proceedings of the tax-payer's convention of S. C, 126-7. (1871.) 2 Comptroller-general's report, 1870 : 72. 3 Weaver, 83-9. ' Treasurer's report, 1870, Table "D"; Message of W. W. Holden, 1869 : 2; Message of T. R. Caldwell, 1873 : 17. ' Report of the auditor of public accounts, 1865 : 31. « Message of John C. Brown, Senate Journal, 1875 : 52- ' Message of James D. Porter, 1877 : 13. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 225 LOANS FROM SPECIAL FUNDS By an act passed in 1856 Texas constituted the governor, comptroller, and attorney-general a board of school com- missioners, and authorized them to loan to railroads at six per cent the five per cent redemption bonds held in the special school fund. These loans were to be made at the rate of $6000 per mile in sections of ten miles, after the com- pletion of a single section of twenty-five miles. By an amendatory act of 1858 the length of the ad- ditional sections was reduced from ten to five miles. The act applied to the main line only, and specifi- cally excepted all railroads which received a larger land grant than sixteen sections to the mile. Before a loan could be made an engineer named by the governor was required to pass upon the construction. The railroads in return were to issue their mortgage bonds to the state and pay annual dues toward a sinking fund.' Six railroads received loans from this fund: the Houston and Texas Central, $450,000; the Washington County, $66,000; the Galves- ton, Houston, and San Antonio, $240,000; the Texas and New Orleans, $430,500; the Texas and Pacific, $150,000; and the Houston Tap and Brazoria, $300,000, — a total of $1,816,500. To this has been added $979,067 interest charged as principal, making a grand total of $2,795,070.^ States are not money lenders; but many railroads have been aided by means of direct advances of money, whether from the general treasury or from a special fund. While some states used the money belonging to their internal im- provement funds in payment of subscriptions °ra"tftes* " ^° railroad stock, Alabama distributed it in the form of loans. This state made a loan of $858,363 from the three per cent fund at six per cent, to six > L. 1856, c. 103 ; 1858, c. 54. 2 Comptroller's report, 1896 : xi. 16 Digitized by Microsoft® 226 STATE AID TO PRIVATE COMPANIES railroads receiving bonds of these companies as security. From the two per cent fund similar loans were made to three railroads to the amount of $449,521. By an act of 1868 the South and North Alabama railroad was made sole beneficiary of both funds, and the governor surrendered to that company $691,789 of the railroad bonds held as security by the state.' Arkansas in 1861 passed an act providing for a loan of $100,000 out of the five per cent in- ternal improvement fimd to the Memphis and Little Rock railroad. As at that time there was no money to the credit of this fund, a warrant drawn on the fund was paid to the company out of the money in the treasury applicable to ordi- nary expenditures.^ /^As early as 1829 South Carolina passed a law directing the comptroller upon application by the South Carolina Canal and Railroad company to loan $100,000 in money from the treasury, and receive in return a mortgage upon all the property. This was to continue seven years and bear five per cent.^ Kentucky in 1839 passed a law providing that the board of internal improvements should lend the Lexington and Ohio on the bonds of the city of Louisville a sum of not over $20,000 for twenty-five years at six per' cent for the purpose of finishing a bridge across the Kentucky river.* Alabama in 1852 loaned the Alabama and Mississippi $100,000, for five years, without interest, and for an equal period at five per cent.' SUBSIDIES m THE FORM OF EXPENSES OF SURVEY A form of state subsidy which was not uncommon was the grant of money for the expenses of a preliminary sur- vey. In 1836 Maine agreed to pay the necessary incidental expenses, not to exceed $5000, for a survey of the Belfast •Auditor's report, 1869: 28-35; Martin, 68-72. " Auditor's report, 1864-5-6 : 22-3. a Stat, at large, VI, 408. * L. 1839, c. 1400. » L. 1851-2, c. 135. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 227 and Quebec, but with the provision that the amount advanced should be returned within three years after the completion of the road.* South Carolina bore the cost of the first sur- vey of the route between Charleston and Hamburgh,^ and appropriated $10,000 for a survey of the line from Charles- ton to Cincinnati.' Tennessee appropriated $15,000 for the survey of a railroad route from the Mississippi to the eastern boundary of the state.^ New York made a similar appropriation for a preliminary examination of the route of the New York and Erie.' Vermont offered to contribute $3000 toward the expenses of a survey of the Connecticut River railroad upon condition that enough be raised in addition to insure the carrying out of the examination.* OTHER FORMS OF STATE AID Instances may be cited also where legislatures, without granting any direct aid from the state, have contributed to the success of raUroad projects. As has been already shown in another connection, Pennsylvania, in re-chartering the second United States bank, required that institution to subscribe $200,000 to the stock of the Baltimore and Ohio, $200,000 to the WiUiamsport and Elmira, $100,000 to the Cumberland Valley, and $20,000 to the Warren and Pine Grove railroads.' Arkansas in 1869 passed a law providing that whenever any person whose land had been forfeited for failure to pay taxes should donate or subscribe the prop- erty in aid of construction of any railroad, the claim of the state would be surrendered.' North Carolina turned over 1 McCrea, Taxation of transportation companies, Report of the. indus- trial commission, IX, 1008. 2 McMaster, United States, V, 144. a Stat, at large, VIII, 406. ' Jour, of the Franklin Institute (n. s.), XX, 260. (1837.) '' Mott, Between the ocean and the lakes, 23-4. " Springfield Gazette, November 30, 1S36. »L. 1835-6, no. 22. 8 L. 1S68-9, no. 65. Digitized by Microsoft® 228 STATE AID TO PRIVATE COMPANIES the state convicts upon favorable terms to the Cape Fear and Yadkin raihroad, which was constructed entirely by their labor. The same favor was also extended to the Western North CaroUna, and other roads.' The claim of Maine and Massachusetts against the United States for indemnity for lands assigned to settlers on disputed territory under provisions of the treaty of Washington was assigned in 1868 to the Eiu'opean and North American railway. This amounted to $32,688 from Massachusetts and $113,906 from Maine.^ This railway in 1870 also received a dona- tion in money amounting to $678,362, which was the amount of the payment by the United States of the claim of Massa- chusetts for advances made in the war of 181 2. Maine had become one-third owner of the claim of 1820, and both states assigned their interests in aid of the construction of this road.' The Central Pacific received authority in 1864 to issue $1,500,000 of seven per cent bonds upon which California agreed to pay interest for twenty years out of the proceeds of a special tax.* STATE LAND GRANTS The state of Maine, by acts passed in 1864 and 1868, authorized the transfer to the European and North Ameri- can railway of all the public lands and timber between the Penobscot and St. John rivers.^ Title was passed in 1868, and the company came into possession of lands 600,000 acres in extent. Texas retained its public lands upon annexation to the United States," and in consequence had full authority in the matter of granting lands in aid of rail- roads. To some of its earliest raibroads the state granted > Message of Thomas J. Jarvis, i88i : 24; 1883 : 13; 1885 : 19. = Message of Joshua L. Chamberlain, 1869 : 16. » U. S. Stat, at large, XVI, 197. ' L. 1863-4, c. 320. 6 L. 1864, c. 401; 1868, b. 604. 8 Address of Sidney Perhara, 1872: 9; see also Tenth census, IV, 566. Digitized by Microsoft® STATE AID TO PRIVATE COMPANIES 229 eight sections of land per mile, but by an act passed in 1854 a general system of land grants was inaugurated.' By the terms of this act any railroad which would survey the lands at its own expense and construct twenty-five miles of road was entitled to receive from the state a grant of sixteen sections for every mile. Other acts were passed making further grants of land in aid of railroads, but in 1882 the system was aboUshed. By that time 32,40o,cxra acres had been granted to railroads and other internal improvements, chiefly railroads.^ This is an area equal to the size of New York or Alabama, and half as large as Oregon or Colorado. Various states have turned over to railroads lands which were originally granted by congress, but without specific directions as to the manner of their use. Florida donated much of the swamp and overflowed lands in the state to railroads, as in the case of the Suwanne and Inland, which in its charter was given all such lands within six miles of its line.' Minnesota granted swamp lands to the St. Paul and Pacific in aid of a branch from St. Paul to Winona, and also to the Lake Superior and Mississippi railroad.* Arkansas as late as 1897 passed a law donating one thousand acres of swamp and forfeited lands per mile to the Mississippi River, Hamburg, and Western, and to the Springfield, Little Rock and Gulf.^ California granted to the Central Pacific and Southern Pacific raihoads, sixty acres of water-front land in San Francisco." To encourage the construction of the rail- road from the mainland to Key West, Florida in 1905 granted a right of way four hundred feet wide through the lands belonging to the state.' 1 L. 1853-4, c. 15. ' Data supplied by the commissioner of the general land office of Texas. 3 L. 1870, no. 49. * Message of Henry A. Swift, 1864 : 6. ' L. extra sess., 1897, no. 39. « Haymond, Central Pacific railroad, 87. ' L. 1905, no. 224. Digitized by Microsoft® CHAPTER XIV The Reaction against State and Local Subsidies Any attempt to state the amount of public subsidies to transportation companies must in the nature of the case prove a failure. The fact that a certain amount of aid was voted in favor of any railroad indicates nothing as to the actual receipts of the road from that source. Often the companies failed to qualify, and so re- measure the ceived no aid. When subsidy bonds were benefits from received they were usually sold at a discount; state and local ^^^ ^^^ ^^^^^^ repudiated their bonds be- subsidies ^ . . . , , fore their corporate benencianes had oppor- tunity to dispose of them. Even roughly to approximate the gains accruing to any railroad company from the exer- cise of special privileges would be obviously impossible, but such privileges were none the less productive. So, too, it may be said that it is impossible accurately to determine the cost or amount of losses to states and localities through failure of the companies to meet their obligations. Some railroads paid in fuU their obligations to states and municipalities, but others compromised, and many became insolvent. Upon foreclosure the amount realized by the state or local authorities on bonds secured by determine* ° mortgage has Usually been small when corn- amount of pared with the original outlay. To determine losses resulting the net loss resulting from the granting of di- tem' e sys- ^^^^ ^j^ ^^ railroads is a task for the special student. The enabling acts are misleading. Much aid authorized has never been granted; some aid has 230 Digitized by Microsoft® THE REACTION AGAINST SUBSIDIES 231 been granted and the pubKc liability definitely established in cases where the railroad has never been built; and there have been too many instances where grants have been in excess of the amoiuits allowed by the enabling acts, or with- out any enabUng act at all. Ofi&cial statements of public aid to railroads are rarely intelligible, frequently incomplete, and too often obviously inaccurate. In some instances disputes have arisen between the state auditor and the governor over the nature and amount of the public railroad debt. Auditors' reports rarely contain sufficient text to make their statements e iteness (-jgg^j_ Their inexact use of such definitive of reports terms as "contingent," "endorsement," and "loan" is in itself sufficient to cause confusion; and changes in their statements sometimes appear from year to year with nothing to indicate whether they are corrections or errors. Finally, in many states the subsidy problem has been com- phcated by refunding measures, and in some by compromise or repudiation. CONCLUSIONS WHICH MAY BE ACCEPTED There is, however, evidence sufiicient to show that the policy of granting subsidies to railroads was not only unneces- sary and productive of extravagance and fraud,' but also that it was of questionable value to the companies them- •"Ce system d'assistance, practicable d'ailleurs seulement par les fitats assez peuples et assez riches pour pouvoir retirer de I'impdt de quoi faire face ^ leurs engagements, parait en definitive avoir eu d'assez mediocres resultats. Si, dans certains fitats prospferes et bien administferes, il a permis d'etablir plus tot des lignes d'une importance i6eUe, qui sans cela, se ser- aient fait attendre plus longtemps, il a souvent aussi donn^ lieu aux plus grande abus, par suite du defaut de controle des pouvoirs publics sur les compagnies, et parfois de la connivence de certains membres des legisla- tures avec des speculateurs, pour lesquels les chemins de fer n'etaient qu'une mati^re k operations de bourse." — La Voinne et Pontzen, Chemins de fer en Amerique II, 417. Digitized by Microsoft® 232 THE REACTION AGAINST SUBSIDIES selves. It has been urged by some that the corporations as a whole would have been better capitalized ductivro/ex- and better managed if they had been left en- travagance tirely to private investment interests. If some and fraud ^^^^ ^^^^ ^^y^ earlier than would have been possible without pubhc aid, many others were constructed over routes which could not furnish enough traffic to sup- port them. This not only involved a great loss of public money, but it was in large part responsible for much of the subsequent controversy over the matter of rates. Subsidies attracted financial adventurers to the work of railroad construction, and many companies were organized primarily to obtain the valuable bonuses offered. Lawyers were hired and sent in droves to the legislatures and to con- ,, V -J. X gress to solicit favors. But states with un- Subsidies at- & . traded finan- occupied lands were desirous of openmg them ciai adven- to setdement, and those who opposed the *""^^ granting of pubhc aid to this end were not infrequently regarded as reactionary, and subjected to abuse. The awakening came, however. Said a governor of Texas: "The experience of Texas in subsidizing pubhc works has not been very satisfactory. We have invested in this way (including principal and interest due thereon) near two and three-fourths miUions of specie, or its equivalent, and up- wards of five millions of acres of our best lands (worth fully ten millions more in specie), and we have somewhat less than five hundred miles of railroad, which the state has mainly built (but does not own or control), to show for it. But this is not all. Every legislature and every convention of the people since these works received subsidies, has been beset by appUcations (sometimes not unaccompanied by the odor of corruption) for relief from the force and effects of the contracts under which the grants were made, while the restrictions placed upon the beneficiaries of these grants to secure the safety and convenience of the people and mod- Digitized by Microsoft® THE REACTION AGAINST SUBSIDIES 233 erate rates of fare and freight have been wholly disre- garded." ' In some instances there was so little appreciation of the responsibilities attending the granting of aid that to all appearances repudiation was invited. The legislature of Subsidies en- Arkansas passed over the governor's veto the couraged irre- act leading the faith of the state in aid of rail- sponsibUity for roads. Commenting upon this action, the use of funds • i. ji -j governor pomtediy said : "Inasmuch as the state has had no credit in the money markets of the World for the last twenty-seven years, and no interest paid on her outstanding debt for that time, not even an effort to pay made, imtil now the interest is more than double the original debt, it does seem to me very reck- less to offer to pledge the faith of the state so utterly lost by so long a failure to make any provision for the existing indebtedness." ^ PRACTICES WHICH SERVE TO ALIENATE FURTHER SUPPORT Instances of abuse of the subsidy system could be cited by the score. A few wUl suffice. Under the Ohio law of Money ob- -^^37 ^^^ Ohio railroad received $249,000 from tained by the State. To obtain this sum it was neces- misrepresenta- gaxy to show that twice that amount had been '°° contributed by the stockholders. This was done by adding to the $13,980 received in cash the subscrip- tions paid for in labor, materials, farms and town lots, and the donations of land for right of way. The lands were all taken at extravagant rates. The words of the report of the official investigation best describe the method of procedure : ' "The process of receiving these lands upon subscription constituted a very decided improvement upon the modern ' Message of Edmund J. Davis, Senate Journal 1870 : 18. ' Message of Isaac Murphy, 1868 : 7-8. Digitized by Microsoft® 234 THE REACTION AGAINST SUBSIDIES system of financiering. The lands were sold to the company by the owners, and general warrantee deeds executed for them. A credit was then given by the company for a pay- ment of stock to the amount and stock certificates issued. ... In many instances the owner remained in possession of the lands, offsetting the use and occupation of the same against the interest on his stock. In the great majority of cases, however, the lands were surrendered up to the com- pany, and the stock certificates became an article in the market. After the lands had been reported to the Fund Commissioners as a basis of a loan of credit, upon the grounds that they were 'lands purchased for the use of the road,' the company commenced the process of selling them for the certificates of stock issued for their purchase. . . . The result of the operation, if left to work itself out, will be that after the company has bought lands at excessive valuations, to the amount of more than half a million of doUars, and drawn upon them from the state $249,000 in state stocks, the lands will all be disposed of to the original or other owner, and the company have nothing for itself, or as a security to the state, than the six per centum stocks originally issued for the purchase. The capital stock would exist only in name, and the wholesale plimder of the state treasury would be complete. Nearly, if not quite all these sales of lands by the company were at prices less than the purchase." ' Alabama required the construction of twenty miles as a Mileage ob- Condition precedent to the endorsement of rail- lained by lease road bonds. The Alabama and Chattanooga instead of evaded this provision of the law by purchasing ns rue ion ^j^^ necessary mileage from the Northeast and Southwest Alabama, which was never properly equipped; and the first twenty-mile section out of Chattanooga upon • Special report of the auditor of state on the condition of the several railroad companies to which the credit of the state has been loaned, 17-9. (1843-) Digitized by Microsoft® THE REACTION AGAINST SUBSIDIES 235 which endorsements were obtained was only rented from another corporation which had already received an endorse- ment from Georgia.* An investigation finally disclosed the fact that the bonds of this company had been endorsed $500,000 in excess of the amoimt to which by any reasonable interpretation of the law it could be entitled.^ Similar con- ditions existed in Georgia. A committee of the Tennessee legislature, reporting in 1879 upon the state debt, said of the results of the state's connection with internal improvement cor- thtTTaw^ " porations: "The facts of the situation in this case, independent of the testimony, show all along the line a disposition on the part of many corporations to evade the strict provisions of the law designed to protect the State, and to get as much as possible from her with as little outlay as possible on the part of the companies." ' State subsidies stimulated similar aid from the local governments; for counties and towns would readily vote subscriptions when shown that their aid would enable the railroad to obtain further aid from the state. Like other forms of subsidy, local aid to railroad construction was not without its abuses. There was usually some deception employed to obtain the necessary votes, and in many obt^nfng votes ^^^^ ^he question was decided by the votes of those who paid but little or nothing in taxes. Towns were often misled as to the location of the route, and farmers were deluded by extravagant promises of increased values to their land and produce. The subject of local subsidies was ably discussed by Newton Booth, who as gov- ernor and United States senator proved himself one of the ablest men who have come out of the West. Booth had ' Fleming, Civil war and reconstruction in Ala., 591. 2 Message of Robert B. Lindsay, 1871: 11. ' The state debt. Report of the committee appointed to investigate it, IS- (1879-) Digitized by Microsoft® 236 THE REACTION AGAINST SUBSIDIES led in the creation of an anti-subsidy sentiment in California, and he was on familiar ground when in a speech at San Francisco in 1879 he said: "There was a time when it was the general feeling that all we wanted to usher in the millennial dawn in this State was railroad communication with the Atlantic, and that no sacrifice was too great to secure it. There was a time when counties and communities were bidding against each other for branches and connections. It was only as the evils of the system of building railroads by grants and subsidies developed themselves, its corruptions, wastefulness, and extravagance made manifest, that the people slowly awoke to the conviction that it was wrong; and not at once but by degrees came to the conclusion that if anyone wants to own a railroad he ought to build it — and any community that furnishes the money to build a road ought to own it — and that no man had the right to vote away the property of an- other for the benefit of a third. . . . The experience was not peculiar to this State. All through the Western and Southwestern States bankrupt towns and tax-ridden com- munities bear witness to the fact that the habit of voting subsidies was once as popular as it is now odious." '■ Booth's arraignment of the subsidy system was based upon several grounds. It was, he maintained, the most expensive method of raihoad building, because a large part of each subsidy granted leaked away, and was not expended Subsidies used in payment for work done. Railroad builders to influence were accustomed to ask that a town or county eg s ion ^^ ^^ j^g grant the amoimt necessary to carry a bill through the legislature, and an additional amount to carry the election before the people. It was also unneces- sary, because where there was promise of sufficient business, capital would always be attracted. To let the business bring the road without a public tax was the safer way. And " Crane, Newton Booth of California, 231, 237. Digitized by Microsoft® THE REACTION AGAINST SUBSIDIES 237 it was unjust, because of the certainty in every case that some interests would be taxed which would not be benefited, and that often (as in the case of towns- lying near, but not on the line), property would be taxed, the value of which would be impaired and possibly destroyed. And further- more, the system was demoralizing, opening the door to corruption.^ Sound or not, and in view of the evidence of abuse it is difi&cult to see upon what ground it may be challenged, this was the sort of argument which the oppo- nents of subsidies advanced. RESTRICTIVE LEGISLATION The reaction against state subsidies began soon after the years of depression following the panic of 1837, which had forced many states into financial deHnquency; for it Reaction was Seen that the states which were most against sub- seriously embarrassed were those which had ^"*'** been most lavish in their outlays to encourage the development of transportation routes, whether railroads or canals. Permsylvania, Michigan, Maryland, Indiana, Illinois, Mississippi, and Louisiana were in dire straits, and in most cases one of the prominent causes of the difficulty was ill-advised participation in works of internal improve- ment.^ The Northern states were first to adopt protective measures. New York in its constitution of 1846 declared against the practice; though throughout the South the policy of state aid flourished most in the years of readjustment following Constitutional the Civil war. lo-day, over a score of state and statutory constitutions eujoin both the lending of state provisions ^,j.gjjj ^^^ ^^^ holding by the state of the stock of a corporation; a few forbid donations of any sort; and a majority make impossible any loan of state credit. But ■ Ibid., 186-7. ''Curtis, Debts of the states, North Amer. Rev., LVIII, 123-37. Digitized by Microsoft® 238 THE REACTION AGAINST SUBSIDIES even after prohibitory laws had been enacted, the force of their prohibitions was negatived. The manner in which this was accomplished is thus shown by Doctor H. C. Adams: " The States, although prohibited by their organic laws from rendering direct assistance, yet discovered a way of granting material aid. The minor civil divisions were not included in the disabling act of the new or amended con- stitutions. Being creatures of the legislatures, their powers were determined by the legislatures, and it was no difficult task to obtain for them the authority to issue bonds in favor of private corporations. . . . Nor did this pernicious ten- dency stop with the issue of railroad bonds. Credit-finan- ciering as a part of local administration became familiar to the people, and it was but a step to the conclusion that other enterprises more nearly of a private nature might rightfully receive the assistance of the local treasuries. But it may be asked : What right had a legislature to authorize a town- ship or a city to do that which by public law it is itself pro- hibited from doing ? This is a question that has been raised in many of the States. . . . but in all, with the exception of Michigan, the courts were subservient to the manifest wish of the people, and supported laws granting to munic- ipalities the power to issue railroad bonds. . . . The rela- tion here traced between the restrictions imposed upon the States by their constitutions, and the issue of local bonds for granting assistance to railroads ... is found in the legal thinking of the country, and makes its appearance in many cases brought before the courts, which involve the validity of railroad bonds. ... It is not, then, an accident that the expansion of local credit took place almost imme- ately after the States had been shoved off the stage of in- dustrial action; indeed, one is warranted in the suggestion at least that had the States been free from the legal restric- tions imposed upon them by their constitutions, the inferior governments would never have been thus forced to respond Digitized by Microsoft® THE REACTION AGAINST SUBSIDIES 239 to the popular clamor for a collection of capital by govern- mental agency." ' Naturally the first steps toward the abolishment of local subsidies were in the direction of restrictive legislation. A New York law declared that local contributions to railroad enterprises should be conditioned upon the consent of a majority of citizens, a list of whom was required in the office of the town clerk, and in 1872 by a general law prohibited all forms of local railroad aid. Illinois declared that counties in the state could not be held after 1880 for any aid which they had promised to railroads. Over half the state con- stitutions now forbid local aid of any sort; but some sur- vivals are to be found. The Nevada constitution provides that no local government shall become a stockholder in any stock company, or lend its credit in aid of any such com- pany except a railroad corporation.^ Maryland allows counties to contract debt in the aid of railroad construction, and to loan their credit only when authorized by vote of the general assembly.' Tennessee local governments may take stock and loan credit when authorized by a three-fourths vote of the people.* Minnesota originally allowed municipal aid to railroads to the extent of ten per cent of assessed valuation, but the Umit has been reduced to five per cent.° As late as 1905 two Minnesota towns voted bonds in aid of the Duluth, St. Cloud, Glencoe, and Manketo railroad." Towns and counties of Nebraska are prohibited from subscribing to the stock of any corporation,' but they may make donations to any work of internal improvement when the action is sanc- tioned by popular vote. The aggregate aid is hmited to ten per cent of assessed valuation, unless by a two-thirds vote the people declare in favor of a contribution of fifteen per cent.^ ' Adams, Public debts, 3SS-7- 'Art. IX, sec. I4b-is. 'Art. VIII, sec. lo. "Auditor's report, 1905-6: 206. " Art. Ill, sec. 54. ' Art. III. ■" Art. II, sec. 29. " Art. XIV, sec. 2. Digitized by Microsoft® CHAPTER XV National Aid to Private Companies By joint resolution, December 8, 1828, congress declared itself opposed to the holding by the United States of the stock of any canal or road company.' Yet within a month a petition was received for a subscription to the stock of the Baltimore and Ohio railroad.^ Two months later a similar petition was received from the South Carolina Canal and Railroad company.^ In spite of favorable reports upon both petitions, no action was taken. Other petitions appeared from time to time well into the thirties; and some of the charters of the period contain provisions for the holding by the United States of a certain portion of the stock. TARIFF REMISSION ON RAILS A way was soon found in which congress could furnish aid to railroads. The capacity of iron plants in the United States at that time was small, and the output high in price. With this fact for an argument the early railroad promoters approached congress with a petition for the remission of customs duties on railroad iron. In March, 1828, the Baltimore and Ohio presented a memorial praying for relief,* and in the tariff act of 1830 provision was made for the re- duction of the duty to twenty-five per cent of means of a drawback upon the duties paid upon iron actually used for ' 20 cong. 2 ses., S. doc. v. i, no. 6. '■' 20 cong. 2 sess., H. ex. doc. v. 2, no. 48. 2 20 cong. 2 sess., S. doc. v. 2, no. 91. ' 20 cong. I sess., S. doc. v. 4, no, 140. 340 Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 241 railroad purposes. On July 14, 1832, congress passed an "act to release from duty iron prepared for and actually laid on railways or inclined planes." This provided that when evidence should be presented to the secretary of the treasury that any rail iron imported for the construction of any railroad or inclined plane had been permanently laid, a drawback on the duty should be allowed; or if the duty had been actually paid it shovJd be refunded.' This amounted to a reduction of from fifteen to twenty dollars per ton on the cost of rails, but the act did not apply to spikes, pins, or chains used in railroad construction.^ The law remained in force over ten years, and during that time all our railroads were laid with British iron. The Walker tariff of 1842, how- ever, imposed a duty of twenty-five dollars a ton upon all rails imported after March 3, 1843.' The sum of $5,989,992 was returned to the railroads imder these laws.^ ' Stat, at large, IV, 604. 2 Ibid., V, 61. 3 Ibid., V, 551; Carey, Railroad question, letter to Schuyler Colfax, February 10, 1865. ' Congressional globe, XIII, pt. II, app., 680. The amounts by years for the first eleven years were: 1831 6,847.90 1832 336,709.19 1833 202,210.70 1834 42i,oro.34 1835 529,529-79 1836 234,194.74 1837 407,517-05 1838 910,011.66 1839 672,376.86 1840 688,510.97 1841 391,264.64 (partial) $4,800,183.84 27 cong. 2 sess., H. doc. no. 265. See Haney, Congressional history of rail- ways, I, 132-51. 17 Digitized by Microsoft® 242 NATIONAL AID TO PRIVATE COMPANIES LAND GRANTS ' When the federal government came into possession of the unoccupied lands in the West through surrender of the claim of the seaboard states, its attitude toward these lands The early land was that of an individual proprietor desirous policy of the of obtaining the largest possible returns from government g^gg_ -^^^ ^f ^^^^i parties looked to the pubUc domain as a source from which might be derived revenues sufficient to pay the national debt, and warrant an ultimate reduction in taxes. To this end, the land policy of the government was changed from time to time with the hope of encouraging sales. At first contracts were made with large companies; later smaller parcels were offered, prices were reduced, and a system of credit was tried which in time was abandoned. With all these experiments, it was not imtil the thirties that there was any considerable increase in yield, and then in but a single year (1836) did the returns from this source exceed the customs receipts. The final change in the land pohcy may be considered a part of the general change in popular opinion, favoring local as opposed to national activities. In Jackson's time the public lands came to be regarded as a bonus to settle- ment and internal development rather than as a primary source of revenue. When, therefore, railroads appeared as applicants for government aid, interests were in control which were favorable to the granting of subsidies in the form of lands. For such action, many precedents already ex- isted. Even before the Revolution lands had been set aside Change from ^^ bounties for soldiers, for support of education, revenue to and for encouragement of internal improve- deveiopmentai ments. The first continental congress provided for grants of lands to soldiers who would serve throughout the war, and similar rewards were offered during ' See Haney, I, 161-218. Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 243 the second war with England. Various other grants were made as aids to education, as rewards and pensions to indi- viduals, and for other purposes. Beginning in 1802 with the admission of Ohio, all of the public land states received two, three, or five per cent upon the net yield of the sales of lands within their borders, for the furtherance of works of internal improvement. Public lands were often donated by the United States for the building of wagon roads and canals, and for the improvement of rivers. Owing to the spirit of localization, and the fear of strangling natural patronage, these grants were made indirectly through the states in the manner which later served as the model for the first railroad grants. Thus the policy of federal aid to railroads through the donations of portions of the public domain was the outcome of no radical change of theory or method, but the result of a slow and cautious movement in the direction of effective aid within the limits of constitutional propriety, and con- formable to poUtical interests. Not only were there prece- dents which warranted the bestowing of land grants upon railroads, but after the financial crisis of 1837 and the con- sequent disrepute into which American ventures had fallen abroad, necessity dictated this as the only manner in which sufficient aid could be extended. One other method would have been possible had it not been for the attitude toward the federal government which reflected itself in the acts of the administration. Congress had the right to make grants of money in aid of internal improvements, and it had the means of obtaining it; but it Influence of had come to be quite generally accepted by the crisis of the time of Jackson's inauguration that such '*^' action would not be taken, and as before stated, the veto of the Maysville turnpike bill effectually put an end to that form of subvention. After the crisis of 1837, the states generally were unable to give adequate financial aid to satisfy local transportation demands. Several had Digitized by Microsoft® 244 NATIONAL AID TO PRIVATE COMPANIES wrecked their treasuries in undertaking the construction of public works on state account, and as a matter of pro- tection many had by constitutional inhibition prohibited their governmental agents from making such grants. The federal government was not permitted directly to finance internal improvements. With increasing taxation and the wrecking of state credit, popular sentiment had become set against further imdertakings to be financed from the public treasury. Such were the changes in the attitude of the people toward the national and the state governments. The first was coincident with the development of an anti- national sentiment; the second resulted from the great de- pression and general insolvency following the crisis of 1837. In this view of the case, the practical necessity for land grants to railroads becomes apparent, though we may accept without reserve the conclusion reached by Doctor J. B. Sanborn that : " It seems quite possible that if this substi- tute for appropriations had not been at hand, the pressure on congress would have been strong enough to secure money instead of the land grants which were actually made." '■ But the lands were at hand, and the matter of their disposal was not so hopelessly befogged in abstractions of constitu- tional interpretation, evolved in support of the doctrine of Land grant State rights, as was the case with money grants, the means for It is true that there were some who denied further aid ^j^^ authority for all congressional aid to in- ternal improvements, basing their opposition upon the theory that, so far as results were concerned, there is a practical identity in land grants and direct appropriations; but against their contention is the provision of the constitution that "Congress shall have power to dispose of, and make all needful rules and regulations respecting the territory or other property belonging to the United States." ^ • Sanborn, Congressional grants of lands in aid of railways, 13. ' Ibid., 88. Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 245 The first congressional enactment providing for a land grant in aid of a railroad was passed March 2, 1833, when authority was granted to the state of Illinois to divert to the construction of a railroad the proceeds of a grant of land which had been made four years before for the benefit of the lUinois and Michigan canal. The state never availed itself of this privilege. Next in order was the granting to various railroad companies of rights of way fo^aiSiads through the pubhc domain, together with sufficient land for station sites, and the timber and materials necessary for construction and repairs. The first grant of this sort was made March 3, 1835, for a line of railroad in Florida between Tallahassee and St. Marks.' Other acts similar in terms followed at intervals until August 4, 1852, when a general grant of right of way was conferred upon all railroads within certain territories,^ and March 3, 1835, when the privilege was extended to all territories.' Beginning in 1836, and again in 1838 and 1840, bills pro- viding for grants of land in aid of railroads were introduced in congress. In 1846 the matter reappeared, and from that time it was considered almost without interruption imtil the final enactment of the bill, September 30, 1850, granting lands for the benefit of a fine of railroad from Mobile to Cairo, and from Cairo to Chicago and Galena.* While minor concessions of lands to railroads had preceded this act, none were effective, and it is therefore proper to date from 1850 the system of congressional land grants to rail- roads through the medium of the states as trus- a^Ued' rf ^ ^^^^ °'" 3'geQts of the transfer. By the terms of this law, a two-himdred foot right of way and alternate sections in width along the line were assigned to ■ Drummond, Land grants in aid of internal improvements, in Powell, Lands of the arid regions, 167; Donaldson, Public domain, 261. 2 Stat, at large, X, 28. 'Ibid., X, 683; Drummond, ut supra, 167-8. •" Stat, at large, IX, 466. Digitized by Microsoft® 246 NATIONAL AID TO PRIVATE COMPANIES Illinois, Alabama, and Mississippi. This amounted to 3840 acres for every mile. Provision was made that where any of the lands included in the limit of the grant had been already occupied, a hke amoimt of lands could be selected as indemnity within fifteen miles of the road. No lands were given in aid of those sections of the line in Kentucky and Tennessee, for the federal government owned none within those states. To meet the objections of those who opposed upon constitutional groimds the enactment of this measure as tending to a reduction of revenue, and therefore equivalent to an appropriation, the law provided that full return should be made by doubling the price of the sections retained by the United States.* Upon the face of it, this operation appeared in the nature of an ordinary business transaction. The lands were imoccupied, and so valueless. By the building of the railroads a market would be created, ; and by the doubling of the price of the sections reserved the : government would be reimbursed for the amount given away. ij The grant would therefore assume the nature of a com- ' mission from the government to the railroads as agents for placing the unoccupied lands upon the market.^ The lands received by Alabama and Mississippi under this act were transferred to the Mobile and Ohio raUroad, with the requirement that the road should forever remain a public highway for the United States government, free of tolls upon the transportation of troops or government freight, and that mails should be carried at rates to be determined by con- gress. Illinois, however, in the surrender of its grant to the Illinois Central railroad, at the suggestion of the com- pany itself, imposed an additional tax of seven per cent upon gross earnings in Ueu of all other state taxes.' ' Sanborn, 28. For an account of the proceedings in congress, see San- bom, 25-37. ' George, Our land and land policy, 24-35. ' Ackerman, Hist, sketch of the Illinois Central, 77-8; Amer. Railroad Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 247 The form of the act of 1850 was departed from but little in the grants which followed. In the second grant, which was made to Missouri, June 10, 1852, for the benefit of the Hannibal and St. Joseph and the Southwest branch of the Missouri Pacific, two new sections appeared. One pro- vided for the disposal of the grant, and the other directed the secretary of the interior to offer at public sale, from time to time, the reserved sections of government land at the in- creased price.' By act of February 9, 1853, congress made a grant of land to Arkansas and Missouri, uent^to^sso ^^^ ^^ ^^^ instance there was no provision for the offering of the reserved sections.' Various grants were made in 1856 to Iowa, Florida, Ala- bama, Louisiana, Wisconsin, Michigan, and Mississippi; and in 1857, to Minnesota and Alabama. In each year also from 1862 to 1866 some of these states were recipients of additional grants. A new departure was taken by congress in the act of March 3, 1863, granting lands to the state of Kansas. The number of sections per mile, which up to that "*^ *" time had been six, was increased to ten, and parture ' ' the indemnity limits were extended from fif- teen to twenty miles.' This action was taken because so much of the land included in the terms of the grant had already been taken up; but all subsequent grants followed the precedent set by this act, and called for 6400 acres per mile. , Opposition to the system of railroad land grants sub^ sided after the enactment of the IlUnois Central com^s°eenerai ^^^^ ^'^ 1850. Other states pressed claims for like treatment, and within a few years every applicant stood a good chance for success. Constitutional Jour., XXIV, 88-9; Allen, Ch9,rter tax of the Illinois Central, Jour, of Pol. Econ., VI, 353-67. ' Stat, at large, X, 8. ' Ibid., X, 155. 3 ibid., XII, 772. Digitized by Microsoft® 248 NATIONAL AID TO PRIVATE COMPANIES questions were seldom raised in the discussions in congress, and it came to be generally understood that any railroad which was constructed through the public lands was entitled to a grant.' With the growth of the practice, abuses arose, and several members of congress were active in efforts to enrich themselves and their favored constituents through the creation of conditions favorable to private and local enterprise.^ From an early date railroad connection with the Pacific coast had been the subject of discussion in and out of con- gress. With few exceptions, the plans proposed for its accomplishment contemplated some use of the lands along the chosen route. While originally the important trade with the Orient had been the main object in the minds of project- Efforts to ors, the annexation of California with the imme- reach the diate discovery of gold served to change the ^^"^^ emphasis. Constitutional obstacles were not raised against this measure, for there were no state govern- ments between the Missouri river and California, and the authority of congress over the territories was admittedly absolute. What discussion there was, concerned itself with the authority of congress to create a corporation, and the choice of route. About the first point there was little difficulty, and only the plans of Wilkes, Pike, and Benton contemplated direct construction by the government. The matter of selection of a route was the subject of sectional con- troversy which delayed action until the secession of the Southern states. This was coincident with the success of a national party, which looked toward the strengthening of the functions of the federal government. Although the RepubUcan party was at first split on the question of state > Sanborn, 53-5. ' Ibid., 55. For a specific instance, see Griffin, The Great Lakes in relation to the railroad development of northern Wisconsin, St. Hist. See. of Wis., Proceedings, XLVI, 217-8. Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 249 rights, necessities of war finally broke down all opposition to strong central government and federal activities. With the outbreak of the Civil war, and the uncertainty over the attitude of Californians upon the matter of open sympathy with the Southern cause, and with the possible danger of attack by nations friendly to the Southern states, a railroad to the Pacific coast was regarded as a poHtical if not a miUtary necessity. Congress was now willing to act; and decision was made in favor of the central route from the Missouri river at or near Omaha through the South Pass, to Sacramento and San Francisco. A law was passed, July i, 1862, granting to the Central Pacific, and Union Pacific, and to several connecting lines, five alternate sections of land theory *™° on each side of the road for every mile of main line. In addition to this, there was a subsidy of government bonds.^ But as investors did not find the proposition sufficiently attractive, an amendatory act of July 2, 1864, modified the terms of the loan, and doubled the acreage of the land grant. The indemnity limits were also increased from ten to twenty miles upon each side of the road.^ Both acts conveyed a right of way of four hun- dred feet, and the privilege of free use of necessary timber and building materials from the lands of the United States along the route. As in all preceding grants the lands were to be set apart, and delivered in instalments as sections of the road should be completed. A second transcontinental route was provided for, July 2, Subsequent 1 864, when a grant of lands was made to the grants to other Northern Pacific railroad of ten sections per Pacific roads jj^jj^ jjj ^j^^ ^^^^^^^ ^^^^ twenty sections in the territories along a route from Lake Superior to Puget Sound.^ A third line to the Pacific was authorized July 27, 1866, when the Atlantic and Pacific railroad company was chartered 1 Stat, at large, XII, 489. 2 Ibid., XIII, 356. » Ibid., XIII, 365. Digitized by Microsoft® 250 NATIONAL AID TO PRIVATE COMPANIES to build a line from Missouri to California along the route of the old Santa F^ trail. To this road were assigned twenty sections per mile with privilege of indemnity selection within thirty sections in the states, while in the territories the size of the grant was doubled, and the indemnity limits increased to fifty sections per mile. The act also provided for a grant upon the same terms to the main line of the Southern Pacific in California.' The last congressional grants of land were authorized March 3, i87i,in favor of a through line from New Orleans to San Diego. The beneficiaries were the Southern Pacific upon that portion of the route west of the Colorado river, the Texas and Pacific along the line in Arizona and New Mexico, and the New Orleans, Baton Rouge, and Vicksburg in the state of Louisiana. Both grants followed the terms of the Atlantic and Pacific act, and this allowed to the Texas and Pacific a double allotment.^ This road also received a generous donation of lands from the state of Texas, but it never earned any of the lands tendered by congress. There were in all seventy-nine land grant railroads, of which twenty-one were direct beneficiaries of congress. It is estimated by the general land office that had these com- panies been able to earn all the lands em- i^d^grants braced in the limits of the original grants they would have received in the aggregate nearly 200,000,000 acres; but because of forfeitures result- ing from failure to conform to the requirements of the law, this total has been reduced to 158,286,627 acres, title to 108,153,252 acres of which had been established up to June 30, 1907. Over half of this acreage was granted by acts passed between 1862 and 1864; and about 68,000,000 acres of the amount certified have passed directly from congress to the corporations.' Beginning in 1870 congress declared ' Stat, at large, XIV, 292. 2 Ibid., XVI, 573. s General Land OfiSce, Statement showing land grants made by congress to aid in the construction of railroads . . . (1908). Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 251 the grants of several railroads forfeited for failure to comply with the provisions of the law. It was 1890, however, before a general act could be passed which provided for the for- feiture of lands along all portions of railroads not then com- pleted and in operation.' From the records of the general land office it appears that the following proportions of the area of the several states were granted to railroads; Minnesota and Washing- ton, one-fourth; Wisconsin, Iowa, Kansas, North Dakota, and Montana, one-fifth; Nebraska, one-seventh; California, one-eighth; Louisiana, one-ninth. It also appears that Percentage of the Northern Pacific railroad was credited with total of state an acreage of about 44,000,000; the Southern "*^^ Pacific system, 24,000,000; the Union Pacific system, 20,000,000; and the Santa F^ system, 17,000,000.1 The Illinois Central grant amounted to over 2,500,000 acres, and that of the Mobile and Ohio to over 1,000,000 acres. Many of the lines now included in the "granger" systems — North Western, Burlington, Rock Island, and St. Paul — have received land grants, so that the aggregate acreage donated to each of these systems is several millions. It is perhaps necessary again to point out that title to all these lands has not yet been perfected by the railroads; for while certification is going on constantly, adjustments and failure to patent may reduce the amount of available acreage to a considerable extent. In their relations with the railroads in the matter of land grants, the various departments of the general government were from the first disposed toward a liberal interpretation Attitude of °^ ^^^ ^^^' ^^^ charges have repeatedly been public officers made that the general land office has been in construction subject to the dominance of railroads. In the ^^ granting of the indemnity privilege it was clearly the intention of the congress which passed the act ■ Stat, at large, XXVI, 496. Digitized by Microsoft® 252 NATIONAL AID TO PRIVATE COMPANIES of 1850 that the right should be exercised where lands in- cluded within the limits of the grant should be sold in the interval between the passing of the act and the definite loca- tion of the route. It is difficult, therefore, to find justification for the extension of this privilege to include all lands disposed of prior to the date of the grant. Yet, beginning with the Illinois Central grant it has been assumed that the railroads were entitled to the benefit of the most liberal interpretation of the law.* Notwithstanding that all grants were con- ditioned upon the completion of the work of construction within a specified time, and that in most cases this require- ment was not fulfilled, there was no disposition upon the part of those concerned with the administration of the law to take proper action except in the case of a few sporadic acts of congress. Not only have several railroads received lands in excess of the utmost allowed by the terms of the grants, but in- demnity lands once withdrawn from entry for settlement were reserved for years after the grants had expired, and in some cases where no mileage at all had been constructed.^ An end to this abuse came in 1887, when congress directed the department of the interior to adjust the grants, with the result that over 20,000,000 acres were restored to settlement.' Abuses of In consequence of the neglect of the general official discre- government to assert its rights of forfeiture *'°" in cases where the railroads had failed to build within the time set by the grants, it came to be generally understood that this important provision of the law would not be enforced, and congress, with perfect inconsistency, extended the time limits of some grants and declared the ' Julian, Railway influence in the general land oflace, North Amer. Rev., CXXXVI, 240-1. For the other side see Beard, Railways and the United States land office, 2-3. 2 Julian, Our land grant railways in congress, Internat. Rev., XIV, 198- 210- 'Sanborn, 78-9. Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 253 forfeiture of others. This left those grants about which no action had been taken in a state of uncertainty which was finally relieved by the decision of the supreme court to the effect that the refusal or failure of the United States to protect itself under the law in cases where grants had lapsed was in effect an extension of the time prescribed/ There is no doubt that the benefits received by the rail- roads from land grants have been smaller than was expected when they were so eagerly sought. To the states immedi- ately concerned, the grants have in many cases caused hard- ship. Following the withdrawal of large tracts of lands for indemnity piurposes construction was often brought to a halt on account of bankruptcy, and the result was that no railroad was built, and the state was left with a smaller population and less revenue than there would have been had the grants never been made. Cases of this sort were Some results not at all infrequent in undeveloped states not contem- like Florida, Arkansas, and Texas, and in the plated territories where population was scant and products limited. Of all the railroads in Missouri which received grants of land, a single one obtained any real aid to construction from this source.^ In some instances land grants have been a source of expense rather than a benefit to railroads. Admitting that some great speciilative induce- ment was necessary in the launching of such pioneer ventures as the construction of the Illinois Central-Mobile and Ohio, and Central-Union Pacific projects, the fact that some rail- roads have been constructed along similar routes and under identical conditions without the aid of grants of land points to the conclusion that the system of land subsidies was not an indispensable accompaniment of railroad construction in the West. When the grants have proved of service, it has generally been not at a time when their aid was most ' Schulenberg v. Harriman, 21 Wallace, 44. 2 Million, State aid to railways in Mo., 118. Digitized by Microsoft® 254 NATIONAL AID TO PRIVATE COMPANIES urgently needed, but after the initial stage of development had been passed by means of loans of public credit and the investment of private capital. It is impossible to determine the aggregate receipts of the railroads from sales of lands, and it would be difficult in the case of any single road.' In general it may be said that the receipts have been much less than is popularly be- lieved, and that the prices of lands were fixed with a view to rapid settlement and indirect returns through earnings Railroad policy from increased traffic.^ But while it is true in disposition that " no railroad can afford to look at its °* ^^^ land other than in relation to the traffic of its road," ' some few roads have failed to act upon this theory. A large part of the Oregon and California lands are now in the control of E. H. Harriman as president of the Central Pacific. In 1906 it was announced that these lands would not be sold to settlers, but retained as a permanent estate. For this and other alleged violations of the law, congress in 1908 instructed the attorney-general to institute proceedings to bring about the forfeiture of the grant. The construction of the Illinois Central was first undertaken by New York capitalists who, by putting a high price upon the lands and issuing land bonds, attempted to carry the work to com- pletion without the expenditure of capital, which was to be nominal.* Other measures were found necessary, but in the end the lands were disposed of at high prices and with great profit. Land grants had for their chief purpose the encourage- ment of railroad construction, but so far in excess of expecta- tions or needs was the increase of mUeage which followed that this became the grossest evil connected with the sys- > See Sanborn, 83, and 93-126, passim. 2 See Railway World, LII, 265, for some recent prices. ' Talbott, Railway land grants, 8-10. * Amer. Railroad Jour., XXIV, 497-8, 668-9, 792. Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 255 tem. So eager were promoters and speculators for the bonus of land that raikoads were in many instances projected The evUs of primarEy for the purpose of obtaining a grant; rapid develop- and it could be said of more than one railroad ™^°* company as was said by an English capitalist who in 1856 inspected the properties of the Illinois Central, ; " This is not a railway company; it is a land company." ' The result was the extension of lines into so many unde- ; veloped sections of the West that financial reverses were invited. Another result has been that on account of the, scattering of population, rates were necessarily placed so high as to result in the bitterness of the "granger" agitation, and in much abortive legislation. On the other side it must be said that land grants did con- tribute very largely toward the rapid upbuilding of the West, and that far-reaching political and economic changes have been brought about in consequence. It may also be admitted that the system of railroad land grants was as free from abuse as any of the methods adopted by congress for the disposition of its lands prior to the enactment of the home- stead law. Soldiers' bounty script found its way into the hands of speculators; many of the educational grants were sold in parcels too large to encourage immediate settlement; ^ the grants to land companies were subjects both of political favor and of public abuse. It is also certain that a large part of the success of the Homestead act has been due to the preliminary opening of unsettled areas by railroads constructed under stimulus of grants of land. In the light of recent developments in connection with the administra- tion of the public domain under the homestead and timber lands acts, it may be said that no system of disposal of our public lands has been free from questionable practices.' It is generally agreed that land grants were justified under ■ Ackerman, 75. 2 Talbott, 5-7. *See What is the matter with our land laws? Atlantic Mo., CII, 1-9. Digitized by Microsoft® 256 NATIONAL AID TO PRIVATE COMPANIES certain temporary and local conditions, but that the need for them passed long before the system was abolished. DIRECT FINANCIAL AID A third variety of federal aid took the form of loans of United States bonds.' The Pacific raihroad act of 1862 besides granting large tracts of land from the Loan of public domain directed the secretary of the treasury to issue to the six beneficiary com- panies thirty-year United States bonds payable in treasury notes or other forms of legal tender. Bonds were to be issued in amounts of sixteen, thirty-two, and forty-eight thousand dollars a mile, according to the nature of the country along the route; they were to be delivered as sections of the completed road were accepted by agents of the United States. These sections were to be forty miles long where the subsidy rate was $16,000 per mile, and twenty miles long where the rate was in excess of that figure. As security, the United States was to retain a first mortgage upon the property of the companies. Charges against the United States for the transportation of troops and freight were to be applied to the payment of the subsidy bonds and the in- terest thereon. Upon completion of the work of construc- tion, five per cent of net earnings was also to be applied to this purpose.^ Together with the proffered grants of land, these inducements were insufficient to attract the sup- port of the financial interests, and more generous terms were provided in the amendatory act of 1864. Congress now reduced the lien of the United States to a second mort- gage, and permitted the issues by the companies of first mortgage bonds equal and in every respect similar to the 1 It is interesting to note that in 1861 the Alabama and Mississippi Rivers railroad company addressed a memorial to the congress of the Con- federate States asking for aid. ' Stat, at large, XII, 489. Digitized by Microsoft® NATIONAL AID TO PRIVATE COMPANIES 257 subsidy bonds. The length of all sections was made uni- form at twenty miles, and only one-half of the compensation for services rendered the United States was required paid toward the retirement of the government bonds.' Bonds to the amount of $64,623,512 were issued from the United States treasury in accordance with these laws, thus allowing the companies to enjoy the benefit of credit to twice that figure, though the fact that all Amount of i j i_i • i ii • bonds issued bonds Were payable m currency made their value imcertain. The Union Pacific received $27,236,512, and the Central Pacific, $25,885,120. The others with the amounts were: Kansas Pacific, $6,303,000; Western Pacific, $1,970,560; Central Branch Union Pacific, $1,600,000; Sioux City, and Pacific, $1,628,320. These bonds fell due between 1895 ^^'^ 1^99) s^d after much dispute and litigation over the " interest question," ^ settlement was finally effected on such favorable terms that in 1900 the attorney-general was able to report thrdebt"* ° ^^^ °^* °^ ^ ^°^^^ indebtedness to the govern- ment of about $130,000,000 there had been received $124,554,551." The Union Pacific in 1897 guaran- teed to the United States the payment of $58,448,224 repre- senting principal and accrued interest.^ An agreement with the Central Pacific was made in 1898 whereby the claims of the United States against that company and its constituent, the Western Pacific, were refunded into twenty notes payable every six months for ten years from 1899. These notes were secured by a first lien upon the property, and bore interest at three per cent. The amount of this claim was $58,812,715. The last note was retired in 1908. From the Kansas » Stat, at large, XIII, 356. 2 Davis, Union Pacific railway, 208-24, contains a good discussion of these difficulties down to 1893. •Report of the attorney-general, 1900: 35. Davis, Union Pacific railway, 13. 2 Ibid., 14-5; Smalley, History of Northern Pacific railroad, 52-6, repro- duces the article in full. 3 Plumbe, Memorial against Mr. Asa Whitney's railroad scheme, 20; Davis, 18; Bancroft, California, VII, 499. "I claim to be the humble individual through whom the project of a railroad from the Altantic to the Pacific. . . . originated." (Plumbe, 20.) See King, John Plumbe, origi- nator of the Pacific railroad, Annals of Iowa (3 ser.), VI, 289^96. ■■ Carver, Proposal for a charter to build a railroad from Lake Michigan to the Pacific ocean, 25; Davis, 17. "As there are perhaps some doubts in the minds of many who the first projector of this enterprise actually was, Digitized by Microsoft® 266 TRANSCONTINENTAL RAILROADS In 1838 Rev. Samuel Parker, a missionary to the Indians in Oregon, published his journal. In this book, imder date of August 10, 1835, he recorded his progress through a pass in the Rocky mountains, and added: "There would be no difiSculty in the way of constructing a railroad from the At- lantic to the Pacific ocean, and probably the time may not be far distant when trips will be made across the continent, as they have been made to the Niagara falls, to see nature's wonders." ' The journal shows clearly, however, that it was largely rewritten for publication, so the earlier date can- not be assigned to this suggestion. Willis Gaylord Clark, the author would remark that ... he can, if necessary, to prove the fact beyond any possible doubt, that he was certainly the first who ever wrote and published anything upon the practicability and feasibility of this railroad, bring half of all western New York, as witnesses before the jury of the country, to substantiate the priority of the scheme fully to the satis- faction of all." (Carver, 3-4.) Mrs. Victor (Bancroft, California, VII, 498) gives the date as 1832, but this is obviously an error. If Carver's most extravagant claims were warranted, the date could not be put earlier than 1834. He says: "Your memorialist about fifteen years ago conceived this great and mighty plan of connecting these two great oceans by a rail- road, running in some direction across the continent, and at that early date commenced writing sind publishing to the world the importance of that sublime enterprise." (Memorial for a private charter asked for by Dr. Hartwell Carver and his associates, January, 1849 • 4)- Another of the Bancroft histories (Northwest Coast, I, 558) says that Hall Jackson Kelley of Boston began the agitation of the Pacific railroad question as early as 1831. Kelley's claim follows (A history of the settlement of Oregon, Springfield, Mass. 1868. 128 p. See pages 8 and 123): "As early as 1849 [1829,] I projected a railroad between the valley of the Mississippi and the shores of the Pacific. Reference to that project is made in my Geographical Sketch, printed in the above year [A geographical sketch of that part of North America called Oregon. Boston, 1830. 80 p. See pages 79-80], and also in my memorial to Congress in 1839 relative to the statistics and topography of that territory." (Memoir, Committee on For- eign Afifairs, Supplemental report, 25 cong. 3 sess., H. rep, v. 1, no. loi, serial 351. See page 48.) There is no warrant for this claim. ' Journal of an exploring tour beyond the Rocky mountains performed in the years 1835, '36 and '37 : 73. Digitized by Microsoft® TRANSCONTINENTAL RAILROADS 267 in a review of Parker's book published in the Knickerbocker, June, 1838, seized upon this sentence and said: "Our trav- eller is of opinion that there are no insurmountable barriers to the construction of a railroad from the Atlantic to the Pacific. No greater elevations would need to be overcome than have been surmounted on the Portage and Ohio Rail- road. And the work will be accomplished! Let the pre- diction be marked. . . ." ^ While for the most part the ridicule with which these predictions were met may be passed by, one significant pro- test may be cited. The Oregonian was the official organ of a Boston society which had for its purpose the elevation of the Indian race by means of a Christian settlement in Oregon. Its editor may safely be presumed cuUies^ ' ' ^•^ ^^^^ possessed a more intimate knowledge of the Far West than the ordinary person, yet in the issue of Jvine, 1839, he ridiculed the project for a rail- road to the Pacific. Prompted by the news of Plumbe's convention at Dubuque, and the discussion which followed, he protested in these words: "There are many things which must long, perhaps for ever, prevent such a road from being built or used. From thirty to fifty millions of dollars would be required at the very lowest calcxilation to build such a road, and probably it would cost much more. When it is completed, who wiU travel on it ? Where are the passengers ? Possibly five thou- sand might pass over it in one year. And then there would be the China and India trade, but that portion of it which would come by Oregon would for a long time be less than the interest of the sum required to support the road. How then is it to be maintained? What will be its use? We fear, too, that a railroad through the Indian country would not be exactly safe. , A train, loaded with Chinese or Indian goods, would possibly tempt the Indians, or hunters, that ■ The Knickerbocker, or New York Monthly Magazine, XI, 556. Digitized by Microsoft® 268 TRANSCONTINENTAL RAILROADS might plunder the wreck. A stampede would be no trick at all to such an achievement. What will the train do for wood, water, and provisions, and who will tend turn-outs a thousand miles from civilized man? We seriously doubt, too, whether a railroad can be cut from the Rocky mountains to the Pacific. AVhat route would be taken? We know of none which mountains impassable do not block up." ' The writer of the Emigrant article proposed government construction of the Pacific railroad, but he observed that if congress would not undertake the work, it probably would not object to the formation of a company for the purpose, and a subsidy of three million acres of public lands.^ Bar- low made no alternative suggestion, but proposed that the Suggestions as work should be carried on upon the basis of to methods of annual appropriations of the public money.^ funding jjj ^j^g £g^gg q£ j.jjg growing hostility to public funding of internal improvements, however, and with the prospect of large individual profits, most of the Pacific railroad projects which were actively pressed contemplated construction by a company which should receive some form of government aid. A grant of land was the most common form of subsidy sought. Plumbe proposed that alternate sections on each side of the route be turned over to a company which should provide for most of its capital out of land sales. The re- served sections of the government were to be doubled in price. "Consequently the proposed grant would . . . cost the Government nothing." ^ Carver varied his proposed^ ^ P^^^ froni time to time, but one of his propo- sitions was for a grant of land twenty miles on either side of the route.^ Another included among its pro- ' The Oregonian and Indian's Advocate, published under the direction of the Oregon Provisional Emigrant society, I, 221-2. ' Davis, 14. 3 Smalley, 53. * Plumbe, 30; Davis, 18. ' Carver, Memorial for a private charter, 2. Digitized by Microsoft® TRANSCONTINENTAL RAILROADS 269 visions a gtant of sufficient land and materials for the con- struction of the road and the location of buildings and sid- ings.^ WiUiam Bayard and company of New York offered to post a forfeit of $5,000,000, and to complete the work within eight years in return for a grant of land fifty miles wide along the entire route.^ Asa Whitney was the most prominent of the early advo- cates of a transcontinental railroad. He was a New York merchant who had been engaged in the China trade, and upon his return to the United States in 1844 he offered to build a railroad from Lake Michigan to the Pacific coast out of the proceeds of land sales. His plan was for congress to assign to him at a nominal price a strip of territory sixty „„ miles wide along the entire route, and to pass Asa vViiitDCV title as each ten-mile section of the road should be completed. To insure construction through those por- tions of the country where the lands were worthless, it was provided in the scheme that half of the lands in the valuable locations should be held in reserve by the United States, and sold at auction as additional capital should be needed. There was to be no stock, but an individual proprietorship in which the chance for success depended upon the increased value of the lands. Thus the railroad would be built by capital created by itself.' This was to be effected by a system of colonization by which it was proposed to people the territory through which the road would be led.* The profit from the venture was to be derived from the unsold lands which should be left after the completion of the work, for while the completed rail- road was to be Whitney's property, it was not expected that it would pay for several years. • Ibid., i; Proposal for a charter, 6. 2 Ibid., 4; Loughborough, Pacific telegraph and railway, 20. 3 Whitney, Project for a railroad to the Pacific, 9-12, 37. * Davis, 21-2. Digitized by Microsoft® 270 TRANSCONTINENTAL RAILROADS At this time it was not supposed that more than one trans- continental raUroad would be built, so these projects con- templated a monopoly of overland rail traffic. This was certainly true in the cases of Whitney, Carver, and Bayard and company, and probably also in that of Plumbe. Plumbe, however, desired a wide distribution of stock of his com- pany, so as to avoid the odium attached to exclusive privi- lege. There were to be twenty million shares at five dollars each, upon which one instalment of twenty-five cents was to be assessed, and further capital requirements were to be pro- vided for out of the sales of the land grant.* In another instance he modified this suggestion somewhat: "Let the stock be divided into shares of ten dollars each and every resident of the United States be afforded the opportimity of subscribing for one share each, before any are permitted to take a greater amount, thus seciuring to all an equal chance of participation in the control, honor, and profit of this glo- rious imdertaking.* Josiah Perham, in his plan for a "People's Pacific railroad company," proposed to ask one himdred dollars each from one million persons, and to derive further capital as needed from the proceeds of land sales.^ Carver, like Whitney, pro- posed that congress should sell him lands at nominal cost. Private pro- He Wanted the privilege of buying eight million posais from acres of the public lands, to be selected any- 1844 to 18S0 ^jjgj.g within thirty miles of the road. The price was to be $1.25 per acre, in contrast with ten cents per acre as in Whitney's plan, but this sum was to be paid in stock of the company as sections of the road should be com- pleted.^ Later he changed his plan and asked that the same acreage be sold for fifty cents per acre, selections to be ' Plumbe, 37. " Perham, People's Pacific railroad company, Charter, organization, address of the president, i8; Smalley, 97-105. 2 Carver, Proposal for a charter, 7. Digitized by Microsoft® TRANSCONTINENTAL RAILROADS 271 restricted within ten miles of the road. Under this modified plan congress was asked not only to take stock in payment for the land, but also to subscribe $8,000,000 of additional stock to be paid for in instalments, as in the case of indi- vidual holders. " This gives the Government and the people an equal control over the whole operation with the rest of the Company, and will do away with all fears of monopoly." * P. P. F. Degrand, of Boston, in 1850 put forth a propo- sition for a company to be chartered by congress with $100- 000,000 capital. This company, after assessing $2,000,000 upon the stock, was to be allowed to borrow United States six per cent bonds to an amoimt not to exceed $98,000,000, as might be sufficient to construct a double-track road. In addition he sought a land grant ten miles in width along the north side of the road, and land for the road bed, stations and sidings, with the right to take construction materials from the government lands.^ Against the greed which was so obviously at the bottom of many of these propositions, a reaction in favor of a gov- ernment railroad was to be expected. George Wilkes of New York in 1844 began agitation for a Pacific railroad to be constructed whoUy out of direct appropriations of con- gress. He scorned the land grant feature so prominent in similar plans of the day, and advocated not only govern- ment construction, but operation through commissioners to be elected either by the state legislatures or the people. He Propositions maintained that there was no necessity for for government any special measures for financing the work, construction declaring that the national treasury was able to provide the required capital without the aid of allotments > Carver, Memorial for a private charter, 1-2. ' Proceedings of the friends of a railroad to San Francisco . . . including an address to the people of the United St^es, showing ... P. P. F. Begrand's plan, 4. Digitized by Microsoft® 272 TRANSCONTINENTAL RAILROADS of public lands with the inevitable accompaniment of specu- lative abuses/ Another plan for a national raih-oad was proposed by Albert Pike at the Memphis convention in 1849. This provided that capital requirements should be satisfied by an issue of United States bonds secured by a pledge of the proceeds of public land sales. Upon completion of the road the cost was to be divided into as many equal parts as there were states and organized territories, and each state should be entitled to purchase its share. Each territory should have reserved to it the privilege of purchasing its allotment upon coming into statehood.^ Thomas H. Benton of Missouri also championed the proposition for a national railroad. He vigorously opposed all schemes calculated to mix public The views of a^d private interests, and held that construc- Thomas H. tion should be carried out by the United States Benton a ^^ y^^, ^^ ^^g^y territory extends, leaving the two ends, where it would go through States, to the operation of State laws and State authority." His plan was that an issue of government bonds should be made, secured upon the public lands.^ At another time he suggested that the necessary capital might be derived from the proceeds of sales of three-fourths of the public lands in Oregon and California, and one-half of those elsewhere in the country.^ Visionary and impracticable as were these plans, in the aggregate they constituted a fimd of suggestion from which were drawn the provisions of the first Pacific railroad acts. In pamphlets and in newspaper articles the matter was laid before the people, and advocates of the various plans and routes presented the subject from the platform. Plumbe 1 Wilkes, Memorial for a national railroad, 19-22. 2 National plan of an Atlantic and Pacific railroad, and remarks of Albert Pike made thereon at Memphis, •^. ^ Letter from Col. Benton to the people of Missouri, 9. * Davis, 31; Loughborough, 21. Digitized by Microsoft® TRANSCONTINENTAL RAILROADS 273 was active in lecturing, both in the West and in New England, but his efforts were without apparent effect. Whitney toured the entire country, addressing legislatures and conventions, lecturing, and in every possible way spreading his new gospel. Many of the legislatures endorsed his plans, although some of their recommendations were qualified. The matter of choice of route in itself proved a sufficient obstacle to the success of any plan, however well considered, and the defects of Whitney's scheme were many and obvi- ous. To discuss this question of route great conventions were held at St. Louis, Memphis, and Philadelphia, and there were also many minor gatherings in various other cities. This had the effect of clearly stating the points at issue, and bringing out the defects of the several plans and the ad- vantages of each of the proposed routes. In congress dis- cussion was aroused by the introduction of of routr '°° memorials by Whitney, Carver, Plumbe, and others; though Whitney's plan was the only scheme of a private nature to receive much favor.' The national plan of Wilkes was, however, sufficiently supported to present a formidable obstacle to congressional action in Whitney's favor even had there been no sectional division over the choice of route.^ Whitney's project was not con- sidered in congress after 1852, but the Pacific railroad ques- tion continued to occupy the attention of the leading men of the coimtry in or out of congress. Edwin F. Johnson, a well-known engineer, lent his energies to the advocacy of a northern route as the most feasible, and so convincingly did he present his case ^ that there is no doubt that he con- tributed more than any other individual, to the causes which > Committee on Roads and Canals, Whitney's railroad to the Pacific, 31 cong. I sess., H. rep. v. i, no 140, serial 583. Appendix of report contains Wlutney's memorials of 1845, 1846, and 1848. 2 Committee on Roads and Canals, Railroad to the Pacific ocean, 29 cong. I sess., H. rep. v. 4, no. 773, serial 491. ' Johnson, Railroad to the Pacific, northern route. 19 Digitized by Microsoft® 274 TRANSCONTINENTAL RAILROADS influenced congress in 1853 to authorize the examination of all the possible routes to the Pacific to determine which was most feasible. Under this law five corps of engineers were despatched by the secretary of war, and upon the publication of their reports in 1865 * the problem was no nearer solution than before, for it became known that several routes pre- sented attractive features, and that all were practicable. The question now became not which section of the country Sectional should have the only railroad to the Pacific, strife an ob- but which should be benefited by the con- stacie to prog- struction of the first, and what would be the effect on the balance of political power. The effect of the discussion was hopelessly to involve the issue in sectional strife,^ and although bills were constantly before congress, it was not until the withdrawal of the southern members at the outbreak of the Civil war that action was possible. The Republican party came into power pledged to the construction of a Pacific railroad, and public sentiment demanded that the work be carried out. An act was there- fore passed July 2, 1862,^ incorporating the Union Pacific railroad company, which later coimected with the Central Pacific railroad company of California.* Work was begun on the Central Pacific the same year, in 1864, route'^adopted ^^^ °" *^^ Union Pacific in 1865, and when the lines met at Promontory Point, May 10, 1869, the Central Pacific had built 689 miles from Sacra- ' Reports of explorations and surveys to ascertain the most practicable route for a railroad from the Missouri to the Pacific ocean, 33 cong. 2 sess., H. ex doc. V. II, no. 91, pt. i-ii; 36 cong. i sess., H. ex. doc. v. 11, no. 56. 2 Davis, 39-9S, "Sectionalism and localism," is an excellent detailed study of this period. ' Stat, at large, XII, 489. * Davis, 96-135, "The charter," is a detailed description of this and the amendatory act, together with an account of the deliberations of con- gress upon the subject. Digitized by Microsoft® TRANSCONTINENTAL RAILROADS 275 mento and the Union Pacific 1086 miles from Omaha. These results were brought about by the activities of two groups of men whose names have been inseparably linked with whatever of credit or of odium has attached itself to the achievement, and to the methods by which it was effected. Upon the Union Pacific was " the irrepressible George Francis Train," Thomas C. Durant, Sidney Dillon, and the brothers Oakes and Oliver Ames, and in charge of the work on the Central Pacific was that remarkably efficient quartet made up of Collis P. Himtingdon, Leland Stanford, Charles Crocker, and Mark Hopkins. The pioneer line was no sooner authorized than others were projected along the several routes to the Pacific which the government engineers had foimd to be feasible. The Atlantic and Pacific project was laimched in 1866,' but bankruptcy came after only a few miles had been constructed. In 1 88 1 the Atchison, Topeka, and Santa F^ and the St. Louis and San Francisco obtained joint control of this company. The same year the New Mexico branch of the The develop- Atchison reached Deming, where it connected ment of the with the eastward extension of the Southern southern route pg^ific and Opened the second through line to the Pacific. The Atlantic and Pacific reached Needles in 1883, and Barstow in 1885, when connection was made with the Southern California line to the coast. The Southern Pacific was already in possession of the route from Needles to Mojave, but the line was taken over by the Atchison » imder a lease. The Atchison in 1890 secured full control of the Atlantic and Pacific. In 1898 it purchased the San Francisco and San Joaquin Valley, running between Bakers- field and Stockton, projected by San Francisco capitalists as an independent route to the East, and the following year continued the line to Point Richmond on San Francisco bay. This gave the Atchison a through route from Chicago ' Stat, at large, XIV, 292. Digitized by Microsoft® 276 TRANSCONTINENTAL RAILROADS to San Francisco, except for sixty-eight miles through the Tehachapi mountains, between Mojave and Bakersfield, where trackage rights were obtained from the Southern Pacific. This road was largely the creation of William B. Strong of Boston, who lost control in the failure of 1889. Two companies competed for the privilege of building the through line between New Orleans and California. The Texas and Pacific under Thomas Scott finally obtained authority to extend as far west as the Colorado river, and the Southern Pa- cific was to complete the line from San Francisco to a con- nection at that point. The Southern Pacific, however, met with fewer delays, and without authority built eastward from the Colorado. El Paso was passed, and a connection effected with the Texas and Pacific at Sierra Blanca late in 1881. The Northern Pacific was chartered in 1864.* At first it was exclusively a New England enterprise, and it was the hope of the projectors by this means to open a direct through line from Boston to Puget Sound by way of the Vermont Central, and a cormection to be built between Montreal and Lake Superior. John Gregory Smith, the first president, was also head of the Vermont Central. The Pacific" *™ ^'•^^ ^^^ years were spent in a fruitless effort to obtain direct financial aid from congress, but an agreement was made with Jay Cooke and company as financial agents, and work was finally begun in 1870. The failure of this banking house in 1873 brought on the collapse of the road, and work was abandoned the following year, when construction had proceeded as far as Bismarck. After reorganization, construction was resumed in 1880 under the presidency of Frederick Billings. In 188 1 con- trol of the road passed into the hands of Henry Villard, who had made himself master of the transportation business on the Northwest Coast, and construction was completed in 1883 under his leadership. ' Stat, at large, XIII, 365. Digitized by Microsoft® TRANSCONTINENTAL RAILROADS 277 A fifth transcontinental road was formed in 1884 by the junction at Huntingdon of the Oregon Short Line and Utah Northern with the Oregon Railway and Navi- Short'Line" gation company's road. This opened com- munications between Portland and Ogden, and connected not only with the Union Pacific, but also with the Denver and Rio Grande Western which had been com- pleted the preceding year by William J. Palmer. When James J. Hill obtained control of the St. Paul and Pacific after the panic of 1873, he took the first step in the construction of the Great Northern. In 1879 he reorganized the bankrupt property and adopted the name Nort^'m* "St. Paul, Minneapolis, and Manitoba." This road was gradually extended westward, but in 1890 it was leased to the Great Northern railway company, which completed a road between St. Paul and Seattle in 1893. It has sometimes been claimed for this line that the . Great Northern is the only transcontinental which has been built without public aid, but the records show that the St. Paul, Minneapolis, and Manitoba received 3,675,000 acres of lands from the United States. Three new routes to the Pacific Coast have been projected since the opening of the twentieth century. Of these the San Pedro, Los Angeles, and Salt Lake, chartered in 1901, w'as opened in 1905. The Western Pacific was organized in 1903, and construction is now going on between San Francisco and Ogden to form a Pacific outlet to the Denver and Rio Grande and the other Gould roads. The Chicago, Milwaukee, and St. Paul, long classed as a "granger" road, in 1905 entered upon an era of expansion with Seattle as its Pacific terminus. Work was begun in 1906. A glance into the future leads to the belief that other roads roads ^" "^ situated as was the St. Paul, without friendly connections with the Pacific, will find it neces- sary to extend their lines to the west coast. The Rock Island Digitized by Microsoft® 278 TRANSCONTINENTAL RAILROADS already reaches to El Paso, but its relations with the Southern Pacific are such that that point must be regarded as a halt- ing place and not as a goal. The Chicago and North Western is also confronted with this problem of western connections, and its future seems to be along the direction of an independent route to the Pacific Coast. Even the Burlington, jointly controlled by two of the strongest trans- continental lines, is generally understood to be contemplating an extension to the Pacific. Digitized by Microsoft® CHAPTER XVII Financial Institutions and Syndicates as Agencies of Capitalization So long as funding was local in character, the employment of institutional agencies was for the most part unnecessary; in fact, individual appeal was more effective. Specialized Charter com- agencies were used, however, from the be- mission as a. ginning. Most common among these was the funding agency commission appointed by the legislature in an act of incorporation. Petitioners for charter grants would ask that trustees be appointed to open subscription books, to make allotment of shares, and by legal process to enforce the collection of subscriptions. The trustees were usually men of reputation, men in whose integrity and judg- ment the community had confidence. As relatively few companies were able to sell their shares by the simple method of opening books at points specified in the charter or as advertised by the commissioners, some more direct agency of appeal was required. Meetings were called by local boards, and committees and individuals ap- pointed to solicit subscriptions and thus enable the promoters to get in touch with the local constituency. These and other devices hereinbefore described at length were employed to supplement the work of the charter commission in assembling capital. There was a gradual transition from the use of the specially incorporated agency of capitalization to the employment of financial institutions. Banks and financial agents were first employed to sell state bonds which were issued to build 279 Digitized by Microsoft® 280 FINANCIAL INSTITUTIONS AND SYNDICATES canals and railroads or to aid private companies in carrying Sales by stock out works of internal improvement. The and bond methods used by agents working on commission agents varied according to circumstances. Many of the promoters from certain sections of the West sought sup- port in New England, and often selected agents to canvass in the towns in which they had once lived. The fact that nearly aU of the early New England roads paid large divi- dends made the stock of railroads attractive. Again, a di- rect appeal would be made to a financial centre like Boston, Philadelphia, or New York. This might be done by the promoter himself in a conference with the head of a financial house, or indirectly through agents who not infrequently were brokers having offices in an exchange centre. The brokers would seek to dispose of the securities to individuals by newspaper advertising, by circularizing lists of possible customers, or by public offering through a brokers' board. The stock and bond agent did not confine his operations to American capital, but frequently went abroad to lay his proposition before English, French, and Dutch investors. An early instance of this practice is found in the financing of the Illinois state canals through agents who were sent to Amsterdam and London for the purpose of disposing of bond issues. Relatively few of the early local roads obtained capital by sales of bonds, but with the introduction of state guaran- tees of credit and land grants, this policy was reversed. Thereafter, it was the common experience for companies to procure funds in the form of subscriptions of one kind or another sufiicient to build the road, then to mortgage the improvements to obtain the money needed for rails and equipment, leaving the stock as a bonus to be shared between the promoters and the bondholders. The early roads built by stock subscriptions also sooner or later came to issue bonds for betterments or extensions. A large part of the Digitized by Microsoft® FINANCIAL INSTITUTIONS AND SYNDICATES 281 securities offered to the public were in the nature of long- time credit obligations. For these the market was wider than for stock. Bonds were considered a better form of in- vestment. The bonds of small roads were frequently sold locally, but the bonds of the more extensive transportation enterprises went to the financial centres of America and Europe, where they were disposed of either through indi- vidual bond agents or through institutions acting as agents. FINANCIAL INSTITUTIONS AS FUNDING AGENTS The part taken by the Manhattan company in financing the Erie canal has already been referred to. The second United States bank dealt actively in railroad shares and bonds after it had been definitely settled that its career as a great central commercial agency was to come to an end. In 1836 this institution reported to the auditor of Pennsylvania that it had loans to the amoimt of nearly $7,000,000; and in The second 1 84 1, when its assets were reduced largely by bank of the holding securities, its loans abroad were re- united states ported at approximately $12,500,000. This gives some idea of the hold which the bank had on the foreign market, as well as the method by which foreign funds were drawn into use for purposes of American capital- ization when foreign sales could not be made. The railroad bank was an agency devised to serve a double purpose of financing railroads. It was intended to pro- vide an agency through which funds might be made avail- able for construction and equipment without requiring the company to issue a corresponding amount of shares and bonds. That is to say, the need for a medium of exchange being ever present, and these institutions being authorized to issue notes to meet this demand, the railroad was thus able through its banks to pay for labor and materials used in construction by the use of its own demand credit, which could be employed in the community in the form of current Digitized by Microsoft® 282 FINANCIAL INSTITUTIONS AND SYNDICATES funds. This enabled the company to carry on construction to an extent disproportionate to its capital. It was also looked to as a means of providing current funds in the form of notes, which might be issued in payment of the expenses of operation without the company's incurring an added charge for interest on loans. That is, to the extent which the community would retain and use the notes of the bank which were issued in settlement of expenses, to that extent it was relieved from a floating debt to which interest charges would attach. Besides these advantages, the railroad banks were used to give an institutional contact, which aided materially in disposing of securities and in supporting credit. The^raiiroad rpj^^ dangers of this practice lay in providing for a form of currency which would disturb commercial credit relations, rather than in the weaknesses attached to the method of financing the raihoad. The road having been completed and placed in operation, its continuance as an instrument of transportation was assured, for if it should become insolvent, it might be kept in opera- tion through a receivership. The railroad bank was the exception. The chief funding agencies for internal improvements were the regular com- mercial banks created in the several states in which capital was so much needed, — the state banks. As baak^**** soon as the states began to take a leading part in canal and railroad construction, the influ- ences which had theretofore been used in support of a great federal institution were gradually diverted to the upbuilding of similar state institutions. These banks became the centres of promoting activity. They acted as agents of sale of securities; they purchased securities; and they made loans to other banks and to individuals to enable them to purchase railroad securities, accepting the securities as collateral for the loans. Digitized by Microsoft® FINANCIAL INSTITUTIONS AND SYNDICATES 283 In its capacity of selling agent, the state bank did not depart from its true purpose; that is, it did not impair its ability to provide the commercial community with accom- modations in the form of short time and demand credit The bank's which might be safely used to facilitate ex- function as changes. In this capacity it might have con- agent of sale tinued to act indefinitely without weakening the basis of private commercial credit, thereby becoming one of the most conspicuous elements in the periodical in- flations and collapses which have come to be known as periods of prosperity and of depression. In this capacity, also, it was able to bring securities to the favorable attention of customers, and through institutional contact and correspond- ence to get new issues before the outside financial world. It served as a financial intermediary between the promoter and broker on the one hand, and persons who had funds to invest on the other. It was able to give wholesome counsel to persons having shares and bond issues for sale. But in the other two capacities mentioned it impaired the safety of financial credit. The decision which forced the second United States bank to close its doors was reached through an appeal to the Banks as pur- promotive instincts of the people, and the de- chasers of mand for new capital in promotive enterprises securities completely overbalanced the demand for safety to commercial credit. A well-established and con- servative commercial banking system was sacrificed to supply a new and fast developing community with funds needed for development even to the point of fostering speculation and carrying constructive work far beyond safe investment considerations. After the collapse of this bank it was found that a large part of its resources were in the form of immarket- able shares and bonds, and real estate purchased or held as security for loans. When the several states became em- barrassed by excessive debts incurred in direct construction Digitized by Microsoft® 284 FINANCIAL INSTITUTIONS AND SYNDICATES of state works, or in aid of private enterprise devoted to this end, the relief offered was a fictitious market for bonds created by laws empowering the banks to invest their capital in securities, and hypothecate these bonds as security for note issues. In New York the amount of securities held be- tween 1843 and 1853, as shown by state reports, was from twelve million to twenty million dollars. Wherever the free banking system was adopted this precedent was followed. In 1862 the national government in passing the national bank Act adopted the same method to support the market for its bonds. Its effect on the market for railway investments was indirect, though not less effective, in that it utilized practically all the banking capital of the country to assist in taking the government issue off the general investment market, thereby making it more free to invest in the bonds of railroads and other private enterprises. In other words, the net result of our banking laws since the adoption of the free bank acts has been to deprive commercial banks of the country of the free use of their capital, and to divert to the investment market the funds subscribed by their stockholders for the support of commercial credit. The most active and direct support given by national and state banks to the capitalization of railroads has been sup- plied through permitting call loans and short time loans to speculators and investors, upon the security of collateral in the form of corporate issues. This practice, in time of great promotive activity, has resulted in the aggregate in providing millions of dollars of capital to companies for purposes of construction and equipment. This has been done in con- Banks as travention of every principle of investment, agencies of and every principle of successful financial capitalization management, for it has enabled companies debt°**'°^ to obtain capital in exchange for floating debt, and this, too, in the most dangerous form. Fa- cility has also been given to the practice by both state and Digitized by Microsoft® FINANCIAL INSTITUTIONS AND SYNDICATES £85 national laws governing banking reserves. The national bank Act permits a country bank to loan three-fifths of its legal reserve to a reserve city bank, and still to count the loan as a part of its banking reserves; it permits the reserve city bank to loan half of its legal reserves to a central reserve city bank, and still count the loan as a part of its legal re- quirement; it permits the central reserve bank to borrow ad libitum to make up its legal reserve requirement by any method of borrowing which may be arranged. The result is that in the central reserve cities (the points where the large stock and bond exchanges are located) many millions of doUars accumulate, which may be used to advantage only through loans to speculators and margin purchasers of new corporate issues. It is this practice which has given such great facility to the floating of new capital issues in financial centres. Incidentally it has contributed more to overthrow investors' judgment, and to cripple the commerce of the nation than any single financial practice which has developed as a result of the ever-present demand for capital for internal improvement. UNDERWRITING AND HOLDING SYNDICATES The financial agent of to-day is a banker, but a banker in a different sense than is ordinarily understood by the term. His function is that of the middleman, supplying customers with investments, and thereby provid- ciai " b^er '^^ purchasers for the securities of corporations which are seeking capital. He "finances" new enterprises, furnishing funds for the expenses of organ- ization, with the assurance that his standing in the financial world is such as to enable him to place the securities when- ever market conditions warrant. Before a banking house will advance money in aid of a project, or undertake to market securities, it will usually require that an exhaustive examination be made into its Digitized by Microsoft® 286 FINANCIAL INSTITUTIONS AND SYNDICATES condition and prospects. If the finding is satisfactory, and the general industrial, financial, and stock-market condi- tions are favorable, the details of the financing will be worked out in conference. Here the wide experience of the banker and his intimate knowledge of financial affairs Conditions make his judgment final as to the form of precedent to security to be offered, the amount to be issued, accepting risk ^^^ ^^le price. If the financial market is undergoing a depression and there is already a surfeit of new capital issues awaiting the demands of investors, a new proposition will receive little consideration, or it will be deferred indefinitely; and it is the ability of the banker thus to sense market conditions which protects his house and its clientele. Every banking house has among its customers investors who rely absolutely upon its advice in the matter of investments. Some can always be counted upon to take an interest in any new security which is thus recommended. When, therefore, a new project is of sufficient promise to warrant the bank to handle its securities, its chances of success are good. The charge of the banker for this service will vary with the circumstances of each issue, ranging from two and a half per cent if the securities are merely placed, to ten per cent if their sale is guaranteed. Not infrequently a bonus is also exacted in the form of stock or junior bonds. The first mortgage bonds are sold; but as the other securities usually have little immediate value, they may finLctag*^ °^ ^^ ^^^^ "°til with the development of busi- ness the revenues of the new company war- rant a return upon its inferior securities. This furnishes the banker's opportunity. With the control which his ownership of the securities affords, he can determine the time and the amount of the division of profits. It is there- fore an easy matter for him to unload his holdings at a figure which will allow a return for his expert counsel, his position Digitized by Microsoft® FINANCIAL INSTITUTIONS AND SYNDICATES 287 of advantage in financial circles, and the risk attending the advancement of fxmds by his customers. It is a matter of great convenience for a railroad which is bidding for capital to obtain it in bulk through the sale of an entire issue of securities to a single buyer. It is im- portant, furthermore, to have the assurance that the fimds will be forthcoming at the time they are needed, regardless of the fluctuating conditions of the market. It is custom- ary, therefore, to obtain an agreement which will insure this end. This practice is known as "underwriting." The term "underwrite" implies the assumption of a risk, and as employed in finance it signifies the insuring or guaran- teeing of a market for securities. This is a contract under which the banker agrees to take an issue of securities at a specified time and price. The banker dis- de* '^itine? P^^^^ °^ these securities as opportunity offers, suffering the loss if they have to be kept for a long period, or if they must be sold below the purchase price. Where only a few millions are involved a single bank may conduct the imderwriting, but when business is offered which is larger than one bank can prudently handle a syndicate may be formed to divide the risk. The contract with the issuing corporation is first arranged in all its details. The bank now appears as syndicate manager; but two or more banks often act as joint managers. The underwriting syndicate as we know it was first em- ployed in this country in 1871 in connection with the sale of United States bonds by Jay Cooke, who had made a study of the working of the French syndicats while negotiating for the sale of Northern Pacific bonds in Europe.' Its use in England appears to date from about the same time, for in 1873 the London Economist called attention to the frequent reference, "of late years," to syndicates, especially in con- nection with the marketing of new securities. It also gave ' Oberholtzer, Jay Cooke, II, 275. Digitized by Microsoft® 288 FINANCIAL INSTITUTIONS AND SYNDICATES this definition: "An association of persons who guarantee the subscription of the issue either wholly or partially, each guarantor usually accepting the responsibility for so much to the actual contractors."* Preliminary to the organization of a syndicate the manager will send out notices to other banks and to individuals well known to him, describing the nature of the undertaking and inviting participation; or, as is more often the case, giving notice that certain allotments of securities have been reserved. Participation in a syndicate is a privilege which The under- is granted only to those whose influence will writing syndi- serve to widen the market for the securities, ■^^^^ or whose good-will as large purchasers of securi- ties it is advantageous to get and retain. It is obvious that a well-distributed underwriting is a source of strength in marketing securities, because each participant may be counted upon to do everything possible to create a demand and dispose of the issues to its clientele. Upon acceptance of an interest in the venture the formal agreement is sent to each participant or underwriter for his signature. Usually there is little hesitation over the matter of acceptance if a strong house has undertaken to underwrite, for to decline an allotment would remove one's name from the list which will be used in organizing future syndicates. Underwriting originally took the form of an obligation on the part of participants to take within a specified time and at a specified price such securities as had not been dis- posed of by the manager, in proportion to the several amounts underwritten. Recent examples of the use of this method may be given. In 1903 the Pennsylvania railroad announced an increase in its share capital of from $251,000,000 to $400,000,000. When the outstanding shares were quoted at 143, the company offered to stockholders the privilege of subscribing to $75,000,000 of the new issue at 120. At ' Economist, XXXI, 994. Digitized by Microsoft® FINANCIAL INSTITUTIONS AND SYNDICATES 289 that time it was not thought desirable to have an underwriting. But the old stock having fallen to 125, and the full quota of stockholders' subscriptions not having been obtained, recourse was had to bankers who guaranteed subscriptions to all the stock at 120 in consideration of a commission of two and a half per cent on the entire issue. The announce- ment of this agreement had the effect of causing the stock- holders to accept their privilege. The advantage to the company is shown by the fact that within the year Penn- sylvania stock was quoted as low as in. The Union Pa- cific in 1907 offered $75,000,000 of four per cent convertible bonds at 90 to stockholders at the rate of one bond for forty shares of stock. In order to insure the success of the issue an underwriting syndicate was formed which guaranteed the placing of the bonds in return for a fee of $1,875,000, of which $375,000 went to the syndicate managers. A decline in Union Pacific stock set in almost immediately, and before the subscription date the new bonds were quoted below the price at which they had been offered to the stock- holders, finally reaching a fraction above 78. Only $2,000,- 000 of the bonds were taken by the stockholders; and while the company received its money without delay, the syn- dicate was compelled to take over almost the entire issue. But the Atchison, also in 1907, invited its stockholders to take at par $26,000,000 of five per cent convertible bonds to the extent of twelve per cent of their holdings. No underwriting of any kind was provided, and less than $9,000,000 were disposed of at that time. The company was compelled, therefore, to defer certain improvements which might have been carried on at low cost on account of the general condition of depression. According to this method of imderwriting there need be no advance of cash in case the entire issue should be disposed of, and each participant would receive a commission of from two and a half to five per cent upon his maximum risk. Digitized by Microsoft® 290 FINANCIAL INSTITUTIONS AND SYNDICATES But frequently some time must elapse after the agreement is entered into before it is considered expedient to offer the securities for sale. In such a case a purchas- J''dic°te°^ ing syndicate is formed, and the securities are distributed among the participants of the purchasing syndicate as soon as they are delivered. By this method the money required to finance the enterprise must first be advanced by the purchasing syndicate, and as the sale progresses the allotments of securities are called back by the manager, who returns the amoimt advanced by the purchasing syndicate. Should the term of the syn- dicate agreement expire before a market is found for all of the securities, the underwriters are left with the bal- ance upon their hands, which they may dispose of as oppor- tunity offers. A common method of financing a syndicate is this: The syndicate managers will arrange a loan from some bank or trust company for such sum or sums of money as may be needed to control the properties or make advances for con- struction and operation during the period covered by the underwriting, the issues underwritten being used as collateral for the loan. As sales of securities are made, or when the underwriting expires and the underwriters take over the unsold balance of securities, the syndicate loan is paid and the securities held as the collateral is released. The transaction may be carried through on practically the same lines before the corporation issues the securities by means of participation certificates. If the underwriting results as favorably as is expected no capital is required, and the transaction takes on the aspect of a friendly relation with a bank which permits the borrowing of large sums of money on favorable terms. Sometimes the members of a syndicate are permitted to withdraw for their own use securities to the amoimt for which they are responsible, thereby relinquishing their Digitized by Microsoft® FINANCIAL INSTITUTIONS AND SYNDICATES 291 share of the profits upon the tmderwriting, but obtaining investment securities at a lower price than would otherwise be possible. During the sale, however, every withdrawals efifort is made to keep the issue off the "street," and to this end syndicate managers usually reserve the right to buy back for the syndicate any securities which may come into the market up to a certain limit. This is done to prevent a break in prices on accoimt of reselling by those who for any reason may throw over their holdings to prevent individual loss. After the expiration of the agree- ment, reselling affords a test of the standing of the securities upon the market. Underwritten securities may be offered directly for public subscription, or they may be disposed of at private sale. In most cases both methods are employed. A public offer- ing is advertised several weeks in advance, and bids are in- vited subject to the provision that the manager may reject any or aU applications, or allot a smaller amoimt than is bid for. In the Pennsylvania first mortgage bond issue of 1908 the securities were over subscribed many times, and applicants for small allotments got nothing, while large bidders received only a small portion of the amounts which they sought. In the case of such an amply secured issue of bonds by a well-known corporation like the Pennsylvania, this method is often the most satisfactory, but few railroads have the unencumbered property required to furnish such Sales of under- an attractive security, and still fewer possess written secu- the general credit that is enjoyed by this com- "^"^ pany. To dispose of many issues, therefore, it is necessary to enlist the services of traveling salesmen, who seek to place the securities with the particular classes of investors to which they are best adapted. Thus, one variety of bonds will be of the sort which is suitable for estates and trust funds; others will be adapted to the needs of national banks; still others, to savings institutions. Cer- Digitized by Microsoft® 292 FINANCIAL INSTITUTIONS AND SYNDICATES tain states allow domestic corporations to assume the tax upon their securities, and in this way exempt those in the hands of investors; the salesmen will endeavor to place the securities thus favored among investors and institutions which may profit from the exemption. Usually non-participating bankers are allowed a commission of about one-fourth of one per cent upon all securities which they dispose of, as are the members of the syndicate when acting as selling agents. When two or more houses work together as managers, one may remain inactive; or there may be a division of territory. The general public is appealed to through the medium of advertisements in periodicals and circulars setting forth the nature of the securities, and inviting correspondence with a view to subscription. For their services as syndicate managers, the banks charge a commission on par of securities purchased by the syndi- cate. Sometimes this charge is split so that one-half is figured upon the purchase and one-half upon the sale. The effect of this arrangement is to allow a rebate to participants upon whatever securities remain unsold. Syndicates have made large profits, especially in the late nine- PossibUities .. j • .u • j r i .• .• v of loss "^^' ^^^ ^ '•^^ period of speculative activity which came to an end in the early months of 1907. When this end came, many syndicates were dis- solved at a loss, and the participants were left with large amounts of securities on their hands for which there was no immediate promise of a market. This emphasizes the ele- ment of risk, and shows that the large syndicate profits which are made in periods of active demand for securities may be considerably reduced by operations in times when demand is suddenly withdrawn and the underwriters are forced to sell at a loss. Railroads have extended so widely over the country that there is now greater need for the improvement and exten- sion of existing lines than for the undertaking of new enter- Digitized by Microsoft® FINANCIAL INSTITUTIONS AND SYNDICATES 293 prises. Control of railroad systems, moreover, has passed into the hands of a comparatively few capitalists whose Influence of affiliated banks exert their influence to dis- the great courage new projects which threaten to com- °"^*^ pete either for traffic or for construction funds. So, while projects for the building of small independent roads are still frequently laid before the banking houses of the country, few bankers care to risk antagonizing the great financial powers from whom they may some day need to ask for accommodation. In a few instances railroad promoters, whether from necessity or choice, have been able to finance their enter- prises without the aid of Wall Street, but such cases are so rare as to be conspicuous. When, a generation ago, James J. Hill appealed to New York capitalists for funds with which to build a new transcontinental railroad through the North- west, his proposition was dismissed with abruptness, and with some ridicule. He thereupon obtained capital in Am- sterdam, and afterwards formed a connection with the Bank Conspicuous of Montreal which bought control from the independent Dutch bankers. With this aid he was able operations j^ j^^yj ^^xe Great Northern railway, and to establish himself in a dominant position in the territory served by that line. David H. Moffat, of Denver, who is now engaged in building the Denver, Northwestern, and Pacific between Denver and Salt Lake, was imable to ob- tain New York capital for his enterprise in face of the op- position of the Denver and Rio Grande and Union Pacific interests represented by Gould and Harriman. He went ahead, however, on his own funds, supplemented by the proceeds of a small amount of bonds which he was able to sell to European bankers. In 1907 he was forced to call in more outside aid, and, having interested several prominent capitalists of the Mormon church in his plans, the final suc- cess of his project is assured. Henry H. Rogers, from Digitized by Microsoft® 294 FINANCIAL INSTITUTIONS AND SYNDICATES motives of choice, attempted to finance his Virginian railway without recourse to the banks, but with the stringency of the money market in 1907 he foimd it necessary to go to bankers to obtain capital through an issue of short-term notes at a high rate of interest. Digitized by Microsoft® CHAPTER XVIII Bibliography There is an abundance of material upon railroad pro- motion, but for many phases of the subject reference can be made only to general sources. Charters appear in the session laws. They have been analyzed by B. H. Meyer in several monographs, and in his Railway Legislation in the United States. Noteworthy discussions upon Charters . . _, , \ charter evolution appear m bterne s openmg address, — The Railway Problem in the State of New York, — before the Hepburn committee, and in Adams' brief arti- cle on Railroad Legislation. For a general consideration of the law of promotion, reference may be had to Alger's Trea- tise on the Law in Relation to Promoters. The prospectus literature issued by railroad promoters constitutes the best source of information upon voeai ^^^ methods of appeal for financial support. Much of it originally appeared in pamphlet form, in Hunt, DeBow, and similar periodicals, and also in local newspapers. Reports of the proceedings of promotion meetings and conventions are also to be found in these journals. Annual reports of railroad companies are prepared for the individual stockholder, and so furnish some supoort" material upon the individual support given in response to the appeals of promoters. Rail- road stocks and bonds have always been the most promi- 295 Digitized by Microsoft® 296 BIBLIOGRAPHY nent securities dealt in upon the stock market, and some- thing upon this topic is therefore to be foimd throughout the periodical literature of investments; notably, in the American Railroad Journal, Himt, Bankers' Magazine, Wall Street Journal, and Commercial and Financial Chronicle. The first manual or investor's guide appears to have been Stow's Capitalist's Guide and Railway Annual, a single volimie of which was published in 1859. Poor's History of the Railroads and Canals of the United States, the fore- runner of his Manual, appeared in i860. No further volumes were published. Ashcroft's Directory of the Railroads of North America, published annually throughout the sixties is the best of several contemporary pubhcations of similar nature. Poor's Manual of the Railroads of the United States dates from 1868, and Lyle's Official Railway Manual, by far the most satisfactory of these early manuals, was started about the same time. Vernon's American Raihoad Manual, published in 1873 ^^"^ 1874, is largely given over to historical matter, though without neglecting financial subjects. It is the most convenient source of reference for any point in early American railroad history. All of these manuals abound in errors, but critically handled they possess decided value. Poor is the only one which has survived. The Manual of Statistics first appeared in 1879, and Moody's Manual of Railroad and Corporation Securities began publication in 1900. Items upon the subject of local aid are scattered through- out the files of the American Railroad Journal and Himt. Usually an examination of local newspapers and town and county histories discloses material of suggestive value, though always of questionable accuracy. Records of local bonded indebtedness appear in the United States census reports, but usually with nothing to indicate the purpose for which the bonds were issued, or the original amount of debt. In some states a register of local debt has been published b Digitized by Microsoft® BIBLIOGRAPHY 297 the annual report of the state auditor. Estimates of the aggregate of local aid to railroads have been sidtes ^" " compiled for several states. Most of these are incomplete, and in some instances where a fairly- comprehensive statement has been prepared, an undeter- mined amoimt of aid has been granted subsequent to the date of the report. Two studies of collateral phases of municipal activity contain material upon local railroad aid. Hollander's Financial History of Baltimore treats in detail of the relations between that city and the Baltimore and Ohio, Western Maryland, and other railroads; and the sub- sidizing activities of Philadelphia are recorded in Allinson and Penrose's Philadelphia; a History of Municipal Develop- ment.' In its legal aspect the subject of local aid is treated in Reid's Treatise on the Law Pertaining to Corporate Finance, Beach's Modern Law of Railways, Pierce's Treatise on the Law of Railroads; EUiott's Treatise on the Law of Railways, and Wood's Treatise on the Law of Railways. State railroad subsidies have been considered in a number of special studies, though often only as incidental to the treatment of a larger subject. Million's State Aid to Rail- ways in Missouri is the most ambitious attempt of this sort. It gives in detail the history of subsidies in Missouri, and out- lines the history of state aid in all the Southern states. McVey's State Aid to New York Railways, and Tingley's Bond Subsidies to Railroads in Nebraska are short articles, but both are contributions to the subject. Both Martin's Internal Improvement in Alabama and Weaver's Internal Improvements in North Carolina consider the matter of rail- road aid. Weaver's monograph extends only to the Civil war period, and its treatment of railroad mat- ters is limited to a few pages. A valuable dis- cussion of state aid in Alabama appears in Fleming's Civil War ' To these may be added a third, Larson's Financial and Administrative History of Milwaukee, which has recently appeared. Digitized by Microsoft® 298 BIBLIOGRAPHY and Reconstruction in Alabama. Most works upon recon- struction necessarily deal with railroad subsidies, but few are without extreme bias. Wooley's Reconstruction of Georgia is an impartial study, but its treatment of the railroad bond frauds is inadequate. An account of railroad subsidies in Tennessee appears in Phelan's History of Tennessee. Subsidies create debt, and some works upon state finance therefore consider the subject of railroad aid. Bullock's Historical Sketch of the Finances and Financial Policy of Massachusetts gives much attention to this subject, as does Hanna's Financial History of Maryland. Trotter's Obser- vations on the Financial Position of the States contains a fairly accurate record of the state subsidies granted in the thirties. An important contribution to the financial history of this early period is the article of Judge Curtis on the Debts of the States, which contains a thorough discussion of the financial policy of those states whose treasuries had been threatened through the direct construction of state works or the subsidizing of railroads. Scott's Repudiation of State Debts gives the main facts coimected with the issue of those subsidy bonds which were afterwards compromised or repudiated. Porter's State Debts and Repudiation dis- cusses the same subject within the limits of a magazine article. A record of state debts is given in the United States census, but the limitations of the material in these reports have already been pointed out. Scattered through the state documents there is much valuable material upon railroad aid. Statements of bonded debt appear in the reports of the auditor or comptroller. These may be supplemented by the governors' messages, and special reports of legislative committees, executive officials, etc. This documentary material will soon be more available through the Carnegie Institution's Index of Ec- onomic Material in Documents of the States, which is now in preparation under the direction of Adelaide R. Hasse. Digitized by Microsoft® BIBLIOGRAPHY 299 Federal aid in the form of remission of tariff duties is considered in a chapter in Haney's Congressional History of Railroads, I. The controversial writings of Henry C. Carey and others upon this subject have only incidental bearing upon its subsidy phase. The first authority upon land grants is Sanborn's Con- gressional Grants of Land in Aid of Railways. This em- phasizes the political more than the economic side of the subject, but it is full, clear, and generally accurate in detail. „ ^ , .^ Ford's article in Lalor, — Pubhc Lands of the Federal aid United States, — contains a good, brief dis- cussion upon raihoad grants. Drummond's chapter on Land Grants in Aid of Internal Improvements is valuable for its treatment of the earliest grants. Haney's Congres- sional History of Raihoads also considers the grants of the period before the Civil war. Donaldson's Public Domain contains material upon all phases of the subject. Smalley's History of the Northern Pacific Raihoad, Davis' Union Pacific Railway, and White's History of the Union Pacific Railway necessarily give considerable attention to land grants. Julian's articles, — Railway Influence in the Land Office, and Our Land Grant Rail- ways in Congress, — point out some of the abuses of the system. The raihoad side is best presented in Talbott's pamphlet on Railway Land Grants. Statistical records of the grants appear in the annual reports of the commissioner of the general land office, in the Report of the Public Lands Commission of 1905, and in the Statement Showing Land Grants Made by Congress to Aid in the Construction of Railroads, which completes the record through 1907. ElHott's Treatise on the Law of Railways contains a chapter on Land Grants. Bond aid to the Union Pacific is treated in the histories of Davis and White. Davis lays stress upon the political problems concerned in the obtaining of the grant, while Digitized by Microsoft® 300 BIBLIOGRAPHY AVhite deals more particularly with the financial problems arising under the loan. The Central Pacific nTad^debt"' ^°^^ ^^ Considered in the Bancroft History of California, VII, and in a number of contro- versial pamphlets upon the subject of refimding. The Report of the Pacific Railway Commission of 1887 is given over to de- tailed consideration of the Pacific railroad debt, and the accompanying testimony presents most of the essential facts upon the subject. H. R. Meyer's article on the Settlement with the Pacific Railways is a clear and adequate statement of the ultimate closing out of the debt. The operations of financial institutions as funding agencies for railroads have received little attention from writers on finance. The railroad banks of Michigan were the original "wild-cat" banks, and the state banks which flourished in the West in the second quarter of the last century were actively engaged in the furtherance of transportation develop- ment; yet their history has been considered for the most Railroads and P^rt from the Standpoint of the currency, financial in- to the neglect of the securities against which stitutions ^.jjgjj. j^Q^gg ^gj.g issued. Two brief articles which have to do with the operations of the Michigan railroad banks are Felch's Early Banks and Banking in Michigan, and Utley's Wild-cat Banking System of Michigan. Brough's monograph on the History of Banking in Missis- sippi contains but a single reference to the railroad banks in that state, and Sumner's History of Banking is equally unsatisfactory in this particular. The railroad banks in Georgia are the only ones which have received adequate treatment at the hands of the economic historian. Phillips' History of Transportation in the Eastern Cotton Belt con- siders these institutions in detail, and also devotes some attention to the South Western Railroad bank. The funding methods of the modem banking house are set forth in Greene's article on The Railroads and Wall Street. Digitized by Microsoft® BIBLIOGRAPHY 301 The subject is considered in a chapter in Nelson's Bond Buyers' Dictionary, which also contains a good syndlcatM™^ discussion of the methods of underwriting syndicates. Two brief articles on underwriting are Seligman's Underwriting the Sale of Corporate Securities and Stevenson's Underwriting. Though dealing specifically with industrial corporations, Meade's Trust Finance contains much discussion upon underwriting which is capable of general appUcation. A source reference for this subject is the Testimony taken at the New York life insurance investi- gation of 1905, with the supporting documents. References to the legal cases upon the subject are to be foimd in a note on Relations and Rights of Syndicate Members, in Lawyers' Reports Annotated, XL. n Abbott, Lyman. The American railroad. Harper's Magazine, N. Y., 1874: XLIX, 375-94. Ackerman, William K. Early Illinois railroads. Chicago, 1884. 174 PP- Historical sketch of the Illinois-Central railroad, together with a brief bibliographical record of its incorporators and some of its early officers. Chicago, i8go. 153 pp. Adams, Charles Francis, Jr. The canal and railroad enterprise of Boston. Winsor, The memorial history of Boston. Boston, 1881 : IV, 111-50. Railroad legislation. Anon. American Law Review. Boston, 1867: n, 25-46. Same. Merchants' Magazine and Commercial Review. N. Y., 1867: LVII, 335^55. Railroad subsidies. Anon. Nation. N. Y., 1870: XI, 219-20. Railroads: their origin and problems. N. Y., 1878. 216 pp. Also published under the title, "Railroads and Railroad Ques- tions." Adams, Henry Carter. 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Shaefifer, Henry Vamum I Poor, John H. Schultz, George F. Swain, Matthias Nace Forney. Various changes of sub-title. Published in Philadelphia, 1846-9. Continued as "Railroad and Engineering Journal"; since 1893, "The American Engineer and Railroad Journal." The American Railway Review. N. Y., 1859-61 -1- ?. Weekly. Anderson, James. On cast-iron rail-ways. Recreation in Agricul- ture, Natural History, Arts and Miscellaneous Literature. Lon- don, 1801: IV, 198-21. Arfwedsen, Carl Davis. The United States and Canada, in 1832, 1833, and 1834. London, 1834. 2 v. Canals and railroads, II, 261-8. Ashcroft, John (compiler). Ashcroft's railway directory, containing an official list of the officers and directors of the railroads in the United States and Canada, together with their financial condition and amount of rolling stock. N. Y., 1861-70-t- ?. Annual. Avery, Benjamin Parke. The building of the iron road. Overland Monthly. San Francisco, 1869: II, 469-78. Avery, Isaac Wheeler. 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American railroad law. Boston, 1904. 770 pp. Baltimore. Report of the commission to investigate the affairs of the Western Maryland railroad company and the interest of the city therein, together with the report of Stephen Little, expert account- ant, and H. T. Douglas, expert engineer. Baltimore, 1893. 75 + 90 + 36 PP- Bancroft, Hubert Howe [Frances Fuller Victor]. Chronicles of the builders of the commonwealth. San Francisco, 1891-2. V and VI. Biographical sketches of railroad men. History of California. San Francisco, 1890. Pacific railroads, VII, 495-635. Bankers' Magazine. N. Y., 1846 — . Monthly. Barkworth, T. E. Eminent domain, its growth and limitations. Michigan Political Science Association, Publications. Ann Arbor, 1894: I, 121-9. Bamum, R. L. The railroads dismiss their bankers. Van Norden Magazine. N. Y., 1907: II, no. ni: 112-3. Pates, Theodore Cornelius. Address. 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New Haven, 1906: XV, 391-411. The state works of Pennsylvania. Connecticut Academy of Arts and Sciences, Transactions. New Haven, 1907: XIII, 149-297. Bishop, James Leander. A history of American manufactures from 1608 to i860. Philadelphia (3 ed.), 1868. I and II. Contains scattered notes on canal and railroad development. Bishop, Judson W. History of the St. Paul and Sioux City railroad, 1864-1881. Minnesota Historical Society, Collections. St. Paul, 1905: X, 399-415- Blake, Henry Taylor. The Pacific railroads and the government. New Englander. New Haven, 1878: XXXVII, 490-513, 642-69. Bliss, George. Historical memoir of the Western railroad. Spring- field (Mass.), 1863. 190 pp. Bloodgood, Simeon DeWitt. Some account of the Mohawk and Hudson railroad. American Journal of Science. [" Silliman's."] New Haven, 1832: XXI, 141-8, 385-6. Bloomfield, Joseph E. First application of steam to railways. Hunt's Merchants' Magazine and Commercial Review. N. Y., 1846: XIV, 249-60. 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The history of the first locomotives in America, from original documents, and the testimony of living witnesses, N. Y. (rev. ed.), 1874. 246 pp. The history of the first locomotives in America, together with other valuable and interesting information from original docu- ments and testimony of living witnesses. Philadelphia, 1877. 48 pp. Brownson, Howard G. A history of the Illinois Central railroad. In preparation. Bullock, Charles Jesse. Historical sketch of the finances and finan- cial policy of Massachusetts, from 1780 to 1905. N. Y., 1907. 144 pp. American Economic Association, Publications (3 ser.), VIII, 263-412. Bullock, Rufus Brown. Address to the people of Georgia. A review of the revolutionary proceedings of the late repudiating legisla- ture, n. p., 1872. 59 pp. Burgess, Josiah J. (compiler). 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The Northwestern railway situation. Michigan Law Review. Ann Arbor, 1903: I, 251-76. Pacific railroad history. Wilkes, George. The history of Oregon, geographical and political, and a thorough examination of the project of a national railroad from the Atlantic to the Pacific ocean. N. Y., 1845. 128 pp. Proposal for a national rail -road to the Pacific ocean for the pur- pose of obtaining a short route to Oregon and the Indies. N. Y. (2 ed.), 1845. 23 pp. Williams, Archibald. The romance of modem locomotion; containing interesting descriptions ... of the use and development of the railroad in all parts of the world. London, 1905. 367 pp. Wilson, William Bender. The evolution, decadence, and abandon- ment of the Allegheny Portage railroad. Annual report of the secretary of internal affairs of Pennsylvania, 1898-9, part iv. Harrisburg, 1900: xli-xcvi. History of the Pennsylvania railroad company, with plan of organization, portraits of officials, and biographical sketches. Philadelphia, 1899. 2 v. Wilson, WiUiam Hasell. A brief review of railroad history from the earliest period to the year 1894. Philadelphia, 1895. 53 pp. -Notes on the internal improvements of Pennsylvania; and Rem- iniscences of the first railroad over to Alleghany mountain, by Soloman W. Roberts. Philadelphia, 1879. 83 pp. Wilson, 9-59; Roberts, 61 ff. Reminiscences of a railroad engineer. Philadelphia, 1896. 62 pp. Wisconsin. Report of a select committee ... to investigate the affairs of the Milwaukee and Superior R. R. Co. Madison, 1858. 72 pp. Fraudulent promotion. Wood, Horace Gay. A treatise on the law of railways. Edited by H. D. Minor. Boston (2 ed.), 1894. 3 v. Wood, Nicholas. A practical treatise on rail-roads, and interior com- munications in general; with original experiments and tables of the comparative value of canals and rail-roads. London, 1825. 314 pp. Digitized by Microsoft® BIBLIOGRAPHY 339 Same. First American from the second English edition. Edited by George Washington Smith. Philadelphia, 1832. 598 p. Wooley, Edwin C. The reconstruction of Georgia. N. Y., 1901. 112 pp. Colvmibia University, Studies in History, Economics and Public Law, XIII, 461-570. Worthington, Thomas Kimber. Historical sketch of the finances of Pennsylvania. N. Y., 1887. 108 pp. American Economic Association, Publications, II, 121-227. Wynne, J. The Pacific railroad. North American Review. Bos- ton, 1856: LXXXn, 211-36. Anti-alarmist and Charleston in reply to the objections to railroads by Anti-debt. Published in the Charleston Mercury. Charleston, 1848. 56 pp. Ask Missouri about state ownership. Railway Age. Chicago, 1906: XLII, 310. The subject is state aid; not state ownership. Baltimore and Ohio railroad. North American Review. Boston, 1827: XXV, 62-73. The business of a bond house. Van Norden Magazine. N. Y., 1906: I, no. i: 24-8; no. n: 49-51. California Credit MobUier, alias Contract and Finance Co. of the Central Pacific railroad. From the San Francisco Bulletin. San Francisco, 1873. 13 pp. Canals and raU-roads. Quarterly Review. London, 1825: XXXI, 349-78. Chevalier and Cooper on Europe and America. Quarterly Review. London, 1837: LVIII, 497-523. Col. Scott as a railroad manager, builder, and financier, n. p., n. d. 31 PP- Texas and Pacific. *rhe early history of railroads in this country. Railroad and Engineer- ing Journal. N. Y., 1887: LXI, 40-3. Early railway competition with the canals. Railway World. Phila- delphia, L, 9-ri. Early Western transportation methods. Railway World. Philadel- phia, 1906: L, 22-4. Digitized by Microsoft® 340 BIBLIOGRAPHY Experiments in state railway ownership. Railway Age. Chicago, 1906: XLII, 405-6. , The false-alarm — being a reply to Anti-debt on the subject of rail- roads. By Charleston. Published in the Charleston Mercury. Charleston, 1847. The freebooters of American finance. Blackwood's Magazine. Edin- burgh, 1884: CXXXVI, 114-24. Speculative construction. History and economy of railroads. Southern Quarterly Review. Charleston, 1848: XIII, 372-402. History of railroads, including the statistics of their present condition and future progress. Bankers' Magazine. N. Y., 1858: XII, 689-710. How congressmen are bribed. The Colton letters. Declaration of Huntingdon that congressman are for sale. n. p., n. d. 12 pp. Improvements in inland transport — railroads. Edinburgh Review. Edinburgh, 1834: LX, 94-124. Internal improvements. New York Review. N. Y., 1838: VI, 301- 22. Journal of the internal improvement convention which assembled in Baltimore, December 8, 1834. Baltimore, 1835. 93 pp. Legislative control over railway charters. American Law Review. Boston, 1867: I, 451-76. Minutes and proceedings of the Memphis convention, assembled Oc- tober 23, 1849. Memphis, 1850. 68 pp. Modem methods of railroad building. Railroad Gazette. N. Y., 1907: XLII, 325-6. A New England historical note. Railroad Gazette. N. Y., 1904: XXXVI, 128. Central New England railroad. Oakes Ames. A memoir. Cambridge, 1883. 143 pp. On the extension of railways in America. Eraser's Magazine. Lon- don, 1873: LXXXVII, 702-12. Pacific railroads. Sinking fund for the liquidation of the government bonds advanced in aid of construction. Arguments before the committee on the judiciary. United States senate. (45 cong. 1 sess.) [Washington, 1877?.] 212-^33 pp. Proceedings of the convention in favor of a national railroad to the Digitized by Microsoft® BIBLIOGRAPHY 341 Pacific ocean through the territories of the United States. Held at Philadelphia, April 1-3, 1850. Philadelphia, 1850. 79 pp. Proceedings of the friends of a rail-road to "San Francisco at their pub- lic meeting held at the U. S, hotel in Boston, April 19, 1849, inclu- ding an address to the people of the United States showing that P. P. F. Degrard's plan is the only one as yet proposed, which will secure promptly and certainly, and by a single act of legisla- tion, the construction of a rail-road to California, in the shortest time allowed by the physical obstacles. Boston, 1849. 24 pp. Proceedings of the public meetings at various times in Charleston, calling for the city council to make subscriptions to railroads, showing that the council have acted in conformity with resolutions adopted at these meetings, and in harmony with the expressed desire of the citizens. Extracted from the public prints. Charles- ton, 1854. 27 pp. Proceedings of sundry citizens of Baltimore, convened for the purpose of devising the most efficient means of improving the intercourse between that city and the Western states. Baltimore, 1827. 38 PP- Railroad mania — being a series of letters originally published in the Charleston Mercury. By "Anti-debt." Charleston, 1847. Rail-roads and locomotive steam carriages. Quarterly Review. Lon- don, 1830: XLII, 377-404. Railroads of the United States. Bankers' Magazine. N. Y., 1865: XX, 307-28. Railway building in the United States. Saturday Review. London, 1886: LXII, 751-2. Railway legislation. Quarterly Review. London, 1844: LXXIV, 224-80. (N. Y. ed., 120-50.) Relations and rights of syndicate members. Lawyers' Reports Anno- tated. Rochester, 1897: XL, 216-33. Report of the committee on internal improvements made to the trade convention of the city of Baltimore, 1834. Baltimore, 1835. 21 pp. Report on steam carriages by a select committee of the house of com- mons of Great Britain, with the minutes of evidence and appen- dix. Reprinted by order of the house of representatives. 1832. 346 pp. Digitized by Microsoft® 342 BIBLIOGRAPHY Documents in relation to the comparative merits of canals and railroads, 147 — 323. Additional documents, 324 ff. U. S. document; serial 218. The romance and reality of American railroads. Quarterly Review. London, 1884: CLVIII, 79-104. ''Statement of indebtedness of every town in the state [of Connecticut] for railroads, state institutions, and war debt. n. p., 1883. [11 PP-] Steam navigation. New York Review. N. Y., 1838: III, 95-128. Strange claim on the Illinois Central for taxes. Railway Age. Chi- cago, 1905: XL, 508-11. Syndicates. Economist. London, 1873: XXXI, 994. The West Shore enterprise. Bradstreet's. N. Y., 1885: XI, 274-7. The Western Pacific. Railroad Gazette. N. Y., 1906: XL, 252-3. Digitized by Microsoft® INDEX Aberdeen and Pontotoc Railroad and Banking company, 172. Accidents, Philadelphia and Co- lumbia, 71-2. Adams, Dr. H. C, local sub- sidies, 238-g. Adams, John Quincy, advocate of nationalization of internal improvements, 97, 99. Alabama, first railroad, 81; gen- eral subsidy enabling act, 179; subscriptions to railroad stock, 216; loans of credit, 221-2; loans from special funds, 225- 6; congressional land grants, 245-7. 251- Alabama and Chattanooga, sub- sidized by Ala., 222, by Ga., 222-3; abuse of subsidy law, 234-5- Alabama and Mississippi Rivers railroad, subsidized by Ala., 226; application to Confederate congress for subsidy, 256 n. Alabama and Tennessee Rivers raUroad, subsidized by Ala., 216, 221. Albany, trade rival of Troy, 129- 30; subscription to Albany and West Stockbridge, 179. Albany and Schenectady, com- petitor of Erie Canal, 74. Albany and Susquehanna, gauge, 71; subsidy emabling act, 180; prospectus, 190. Alexandria, trade rival of Balti- more, 15-16, 123. Alexandria, Loudon, and New Hampshire subsidized by Va., 214. Allegan and Marshall, subsidized by Mich., 218. Alleghany Potage railroad, sup- plement to state canals, 63; inclined planes, 64, 103; sale to Pennsylvania railroad, 104. American Farmer, proposal of transcontinental caravan, 259- 62. American Philosophical Society, projector of Chesapeake and Delaware canal, 9. Amherst, trade rival of North- ampton, 129. Ames, Oakes, builder of Union Pacific, 275. Ames, Oliver, builder of Union Pacific, 275. Anderson, Dr. James, plan for wagon railway train, 48-9. 343 Digitized by Microsoft® 344 INDEX Annapolis and Elk ridge, subsi- dized by Md., 213. Arizona, general tax-exemption law, 177. Arkansas, state railroad project, 109; subscriptions to railroad stock, 217; loans of credit, 221; loan from special funds, 226; indirect aid, 227; land grants, 229; inadequate basis for sub- sidies, 233; congressional land grants, 247, 253. Arkansas Central, subsidized by Ark., 221. Atchafalaya Railroad and Bank- ing company, 171. Atchison, Topeka and Santa F^, congressional land grants, 251; extension to Pacific, 275-6; issue of new securities without underwriting, 289. Atlantic and Great Western, local financing of extension into Mansfield, 203. Atlantic and Gulf, subsidized by Ga., 214. Atlantic and North Carolina, sub- sidized by N. C, 215. Atlantic and Pacific, congres- sional land grant, 249-50; pur- chased by Atchison, Topeka, and Santa Fe, 275. Attica and Buffalo, charter, 74; subscriptions in Boston, 127. Auburn and Rochester, charter, 74; effect of subsidies on choice of route, 207. Auburn and Syracuse, competitor of Erie canal, 74; effect of subsidies on choice of route, 207; subsidized by N. Y., 218. Bacon, Lord, essentials of a pros- perous nation, i. Bainbridge, Cuthbert, and Colum- bus, subsidized by Ga., 222. Baltimore, stage connection with Philadelphia, 4; road improve- ments, 16; trade rival of Phila- delphia, 15-16, 117-24, of Alex- andria, 15-16, 123, of George- town, 123; railroad debt, 206; subscriptions to railroad stock, 206; loans of credit, 209. Baltimore and Ohio, begun, 61; designed as trunk line, 62; use of inclined planes, 64, of horses and sail-cars, 65; track, 68-9; charter, 72, 161; rivalry with Pennsylvania railroad, 74-5; sale of stock, 79-80; open to Harper's Ferry and Washing- ton, 81; to Wheeling and Par- kersburg, 82; effect on trade of Baltimore, 122; contest with Chesapeake and Ohio canal, 123; inception at public meet- ing, 189; support at public meeting, 193; sale of sub- sidy bonds in England, 195; financed by merchant class, 202; subsidized by Baltimore, 206, 209, by Md., 212-13, by Wheeling and Va., 224, by Pa. through U. S. banks, 227; application for congressional Digitized by Microsoft® INDEX 345 subscription, 240, for tariff remission on railroad iron, 240. Baltimore and Susquehanna, use of horses, 65; contest for char- ter in Pa., 121; completed, 122; subsidized by Md., 213, 219. Bank of the Manhattan company, financing of Erie canal, loi, 281. Bank of Montreal, financing of Great Northern, 293. Bank of Tecumseh, railroad bank, 169. Bank of the United States, fiscal agent of 111., 105; cause of fail- ure, 1 10- 11; effect of expiration of national charter on organiza- tion of railroad banks, 168, 173; subscriptions to internal im- provements, 113, to railroads, 113, 227; fiscal agent of rail- roads, 281, 283. Banking privileges, bridge com- pany, 167-8; canals, 168; rail- roads, 168-176; purpose, 281-2. Banks, stimulated by European wars, 18; aids to railroad specu- lation, 78; strength in N. Eng., 102 n; funding agencies of in- ternal improvements, 109-13, of railroads, 279-96. Bardstown and Louisville, mo- nopoly, 165-6; tax exemption, 176. Barlow, Samuel Bancroft, pro- posal of transcontinental rail- road, 265. Baton Rouge Gros T6te, and Opelousas, subsidized by La., 214-15. "Bay-path," 7. Bayard, William, and company, proposal of transcontinental railroad, 269-70. Belfast and Quebec, survey on loan from Me., 226-7. Bellefontaine and Indiana, sub- sidy enabling act, 180. Benton, Thomas H., plan for government construction of transcontinental railroad, 248, 272. Benton and Manchester Railroad and Banking company, 172; tax exemption, 177. Bernard, John, description of N. Eng. roads, 7-8. Bibliography, early railroads, Anderson, 48-9, Edgeworth, 49-51; Johnson, 48-9; Gerstner, 52; Evans, 52-3; Stevens, 53-4; Gray, 54-5; Stevenson (High- land society), 55; Smith, 55; Wood, 55-6; charters, 295; periodicals, 188-9, 295-6; man- uals, 296; subsidies, 295-300; fiscal agencies, 300; syndicates, 300-1. Billings, Frederick, president of Northern Pacific, 276. Blackstone canal, construction, 41-2; banking privilege, 168. Blue Ridge railroad of S. C, subsidized by S. C, 215, 223. Blue Ridge railroad of Va., con- Digitized by Microsoft® 346 INDEX struction by state, ro8; sale to Chesapeake and Ohio railroad, 109; cost, 214. Bond, Shadrach, proposed con- struction of Illinois and Mich- igan canal, 104. Booth, Newton, opponent of sub- sidies, 235-7. Boston, stage connection with New York, 7; railroads to Lowell, Providence, and Wor- cester, 80, to Ogdensburg, 82; trade rival of New York, 127-8. Boston and Lowell, chartered, 62; success as competitor of Mid- dlesex canal, 63; track, 69; op- position, 73; completed, 80; monopoly, 165; supported by local merchants, 202. Boston and Portland, subsidized by Mass., 218. Boston and Providence, chartered, 62; completed, 70; investment basis, 90-1; charter provisions, 160-1; dividend limitations, 162. Boston and Worcester, chartered, planned as trunk line, 62; signals, 71; opposition of stage lines, 75; use of locomotives, 77; completed, 80; limitation of dividends, 162-3; donations of right of way, 199-200; financed by merchant class, 202. Boston, Hartford, and Erie, sub- sidized by Mass., 218. Boston, Norwich, and New Lon- don, banking privilege, 169. "Boston road," 7. Breakwater and Frankfort, sub- sidized by Del., 219. Bridge companies, charters, 38; financial failure, 39; opposition to railroads, 75. Brissot de WarvUle, rapid growth of Alexandria, 15 n. Brunswick and Albany, subsi- dized by Ga., 222. Brunswick and Florida, monop- oly, 166; tax exemption, 178. Burlington and Missouri River railroad, local donation, 211. Burr, Aaron, conspiracy, 22. Cairo and Fulton, tax exemption, 177; county land grants, 211; subsidized by Ark., 217, by Mo., 220. Cairo and Vincennes, local dona- tion, 211. Calhoun, John C, sponsor for internal improvements and home industry, 44. California, subsidy enabling acts, 180; subsidized Central Pacific, 228-9, Western Pacific, 229; congressional land grants, 251. Camden and Amboy, supplement to navigable waterways, 62-3; completed, 81; monopoly, 166- 7; sole of bonds in England, 195- Canajoharie and Catskill, sub- sidized by N. Y., 218. Canals, early projects, 9, 13-15, 39; need for government sup- Digitized by Microsoft® INDEX 3'17 port, 15; application for con- gressional appropriation, 27; financial difficulties, 42-3; rail- road competition, 63, 71, 73-5; inferior on long haul, 93; state works of 111., 104-5, of Ind., 106. Canals (individual), Blackstone, 41-2, 168; Champlain, 100; Chesapeake and Delaware, 27, 43) 97j 118-22; Chesapeake and Ohio, 42, 98, 123; Cumberland and Oxford, 168; Delaware and Hudson, 60-1, 168; Delaware and Schuylkill, 15, 43, 118-9; Delaware and Raritan, 42, 166- 7; Dismal Swamp, 15; Erie, 41, 44. 73, loo-i, 125, 127-9; Farmington (New Haven and Northampton), 41-2; Hamp- shire and Hampden (New Haven and Northampton), 41-2; Illinois, and Michigan, 104, 245; James River and Kanawha, 42; Massachusetts (project), 42, 61, 102, 128; Middlesex, 41, 63; Montague, 43; Morris, 168; New Orleans, 168; Northern Inland Lock Navigation Co., 15; Potomac, 14-15, 90, 123; Santee, 40-1; Schuylkill and Susquehanna, 9, 15, 1 18-9; South Hadley, 40, 137; Susquehanna, 13, 122; Susquehanna and Tidewater, 118, 125; Union, 119, 122, 137; Welland, 128; Western Inland Lock Navigation Co., 15. Canandaigua and Coming, pub- lic meeting to attract support, 192. Canvassing for stock subscrip- tions, 187-8. Cape Fear and Yadkin, subsi- dized by N. C, 215, 227-8. Cape Fear, Yadkin, and Pedee, lottery, 167. Carbondale and Honesdale, opened, 60-1; use of locomo- tives, 63. Carey, Mathew, promoter of internal improvements, 65. Carroll, Charles, proposed im- provement of Susquehanna, 13- Cartersville and Van Wirt, sub- sidized by Ga., 222-3. Carver, Dr. Hartwell, proposal of transcontinental railroad, 265, 268-71, 273. Central Branch Union Pacific railroad, congressional loan of credit, 256-8 Central Pacific, grades, 154; sub- sidy enabling acts, 180; dona- tion by San Francisco, 211, by Cal., 228-9; congressional land grant, 249, 251, 253-4; loan of ci*edit, 256-8; construction, 274- 5- Central Railroad and Banking company of Ga., charter, 172- 3; tax exemption, 178; local subsidy, 211. Charleston, trade rival of Savan- nah, 124. Digitized by Microsoft® 548 INDEX Charleston and Hamburgh, see South Carolina railroad. Charleston and Savannah, sub- sidized by S. C, 216, 223-4. Charters, definition, 155-6; how obtained, 156; special, 156-9; general, 156, 159-60; provisions of early laws, 67, 72-3, 160-3; eminent domain, 163-4; priv- ileges, monopoly, 164-7, lot- tery, 167, banking, 167-76, tax exemption, 176-8; subsidy provisions, 178-81;' bibliog- raphy, 295. Chatham railroad, subsidized by N. C, 224. Chattahooche railroad, banking privilege, 173. Cheraw and Darlington, subsi- dized by S. C, 216. Chesapeake and Delaware canal, congressional support, 27, 43, 97; importance to trade of Philadelphia, 118-20; com- pleted, 122. Chesapeake and Ohio canal, 42; divided support, 98; contest with Baltimore and Ohio, 123. Chesapeake and Ohio railroad, gauge, 71; merger of Virginia state works, 109; grades, 153; stock subscriptions in lands, 198; subsidized by Va., 214. Chevalier, Michel, railroad specu- lation, 80; investment basis for railroad construction, 94-5. Chicago, trade rival of Galena, 1 30-1. Chicago and Northwestern rail- road, gauge, 71; congressional land grants, 251; possible ex- tension to Pacific, 278. Chicago and Rock Island, com- pleted to the Mississippi, 82. Chicago, Burlington, and Quincy, congressional land grants, 251; possible extension to Pacific, 278. Chicago Great Western railway, local financing of extension to De Kalb, 203-4. Chicago, Milwaukee, and St. Paul railway, congressional land grants, 251; extension to Pacific, iS4> 277- Chicago, Rock Island, and Pacific, subsidized by Lincoln, 207; con- gressional land grants, 251; pos- sible extension to Pacific, 277-8. Chicago, St. Paul, and Fond du Lac, farm mortgages, 201. Cincinnati, trade rival of Louis- ville, 131. Cincinnati, Hamilton, and Day- ton, gauge, 71. Cincinnati Southern railway, con- structed by city, 131. Clark, Willis Gaylord, practicabil- ity of transcontinental railroad, 266-7. Clay, Henry, sponsor for internal improvements, 44, 97. Cleveland and Toledo, com- pleted, 82. Clinton and Port Hudson, bank- ing privileges, 171. Digitized by Microsoft® INDEX 349 Coalfield railroad, subsidized by S. C, 216. Commerce, foreign, promoted by European wars, 16-18, by Euro- pean demand for cotton, 18, for grain, 20-1; statistics, 17-18; retarded by European monop- olies, 10, by tariff, 25-6. Commerce, inland, promoted by westward migration, 10, by steamboats, 34; Susquehanna trade, 28 n. Commercial Railroad and Bank- ing company of Vicksburg, authorized to build Vicksburg and Jackson, 172. Committees of correspondence for furtherance of railroad projects, 192. Congress, support requested for internal improvements, 27, 43; internal improvement fund, 27, 43-4; subscription to Chesa- peake and Delaware canal, 97; tariff remission on railroad iron, 240-1; land grants, 242- 56, 277; loans of credit, 256-8; provisions of early transcon- tinental projects, 248, 268- 73- Connecticut, aggregate of local subsidies, 205. Connecticut and Passumpsic Rivers railroad, support at public meeting, 192. Connecticut River railroad, of- fered appropriation by Vt., for survey, 227. Continental Europe, beginning of inland transportation, 2-3. Convict labor, used in N. C. for railroad construction, 227-8. Cooke, Jay, and company, esti- mate of American securities in Europe, 196; fiscal agent of Northern Pacific, 276; intro- duction of syndicates, 287. Coimcil Bluffs and St. Joseph, local donation, 211. Covington and Lexington, sub- sidy enabling acts, 180, 207; subsidized by Covington, 208- 9- Covington and Ohio, begun as state enterprise, 108; surren- dered to Chesapeake and Ohio, 109; local subsidy, 206. Credit Mobilier of America, char- ter, 150. Crisis of 1837, effect on railroad construction, 81, 1 13-14. Crocker, Charles, builder of Cen- tral Pacific railroad, 275. Cumberland and Oxford canal, banking privilege, 168. Cumberland road, political sig- nificance, 24; begun, 27; effect on trade, 92; extension, 97. Cumberland Valley railroad, in- directly aided by Pa. through U. S. bank, 227. Dartmouth College case, effect on railroad charters, 162. Day, Dr. Clive, inland transporta- tion in Germany, 3. Digitized by Microsoft® 350 INDEX Dearborn, Benjamin, inventor of locomotive, 54. Degrand, P. P. F., supporter of Western railroad of Mass., 194; plan for transcontinental railroad, 271. De Kalb and Great Western rail- way, built from local subscrip- tions, 203-4. Delaware, subscription to rail- road stock, 213; loans of credit, 219. Delaware railroad, subsidized by Del., 219. Delaware and Hudson canal com- pany, its railroad, 60-1; use of locomotives, 63; banking priv- ilege, 168. Delaware and Raritan canal, 42; monopoly privilege, 166-7. Delaware and Schuylkill canal, chartered, 15; financial condi- tion, 43; lottery privilege, 137. Delaware, Lackawanna, and Wes- tern, gauge, 71. Denver and Rio Grande railroad, extension to Pacific, 154, 277; opposition to Denver, North- western, and Pacific project, 293- Denver, Northwestern, and Pa- cific railway, built without aid of Wall Street, 293. Detroit and Pontiac, banking privilege, 170; subsidized by Mich., 218. Detroit and St. Joseph, banking privilege, 169. Dillon, Sidney, builder of Union Pacific, 275. Donations, individual, 199-200; local, 210-211, 239. Duluth, St. Cloud, Glencoe, and Manketo, local subsidies, 239. Durant, Thomas C, builder of Union Pacific, 275. East Alabama and Cincinnati, subsidized by Ala., 222. Eastern railroad of Mass., sub- sidized by Mass., 218. Eastern Shore railroad, subsidized by Md., 213. Economic interests, influenced Braddock's choice of route, 11; conflict between seaboard and interior shown by Washington, 13; indicated by Burr's con- spiracy, 22; effect of European wars in N. Eng., 18, in South, 19-20, in interior, 20-4; cause of embargo, 24; alignment on tariff, 25-7; effect on Pacific railroad question, 248-9, 258, 273-4- Edgefield railroad, tax exemption, 176. Edgeworth, Richard L., plan for wagon railway train, 49-51. Embargo, product of conflict of economic interests, 24; effect on foreign trade, 25-6. Emigrant, proposal of transcon- tinental railroad, 265, 268. Eminent domain, 163-4. England, beginning of inland Digitized by Microsoft® INDEX 351 transportation, 1-2, 9; indus- trial revolution, 1-2, 9; colo- nial monopolies, 10; canals, 31; first railways, 46-8; investment in American securities, 78-9, 105, 195-6, 280; underwriting syndicates, 287-8. Erie canal, effect on private canal construction, 41; reason for state funding, 44; financing, loo-i; effect on Philadelphia, 125, on Boston, 128, on Albany and Troy, 129. Erie and Kalamazoo, banking privilege, 169-70. Europe, beginning of inland trans- portation on continent, 2-3; investment in American secu- rities, 40, 78-9, 105, 195-6, 280. European and North American railways, subsidized by Bangor, 209, by Me. and by Mass., 228. European wars, effect on economic interests, 16-24, on manufac- tures and on foreign com- merce, 35. Evans, Oliver, experiments with steam engines, 52; his prophecy, 53- Farm mortgage notes as means of payment of stock subscrip- tions, 200-201. Farmers, opposition to railroads, 75; support, 198-203. Farmington (New Haven and Northampton) canal, charter, 41; completed, 42. Fayetteville railroad, lottery priv- ilege, 167. Ferry companies, charters, 38; financial difficulties, 39. Financial agents, individuals, 195, 280; banks, 167-76, 281-94. Fitch, John, inventor of steam- boat, 32-3. Florida, loans of credit, 223; land grants, 229; congressional land grants 245, 247, 253. Florida railroad, subsidized by Fla., 223. Florida Atlantic and Gulf Cen- tral, subsidized by Fla., 223. Ford, Thomas, speculative rail- road construction, 111-112. Fort Wayne and Chicago, rail- road, stock subscriptions in labor and lands, 199. France, industrial revolution, 9; colonial monopolies, 10; invest- ments in American securities, 78-9, 196. Franklin railroad, connection with Baltimore and Ohio, 122. Fulton, Robert, steamboat mo- nopoly, 33, 165. Galena, trade rival of Chicago, 130-1. Galena and Chicago Union rail- road, 1 30-1; canvass for stock subscriptions, 188, 198. Gallatin, Albert, whiskey rebel- lion petition, 6-7; report on Digitized by Microsoft® 352 INDEX internal improvements, 28; de- scription of New York, 125. Galveston, Houston,- and San Antonio, subsidized by Tex., 225. Gauge, 70-1; law in aid of Phila- delphia, 126. Georgetown, trade rival of Bal- timore, 123. Georgia, state railroad, 107-8; subscriptions to railroad stock, 214; loans of credit, 222-3. Georgia Air Line, canvass for stock subscriptions, 188. Georgia Railroad and Banking company, 172-3; tax exemp- tion, 178; donation of right of way, 200. Germany, inland transportation, 3; investments in American securities, 78-9, 196. Gerstner, Franz Anton, von, pro- ject for railway, 51-2; essay on railways, 52; description of speculative condition in U. S., 78; Gould, George J., attitude toward Denver, Northwestern, and Pacific project, 293. Grand Gulf Railroad and Bank- ing company, 172. Gray, Thomas, plan for railway wagon train, 54-5. Great Northern railway, construc- tion, 277. Green River railroad, monopoly, 165; tax exemption, 176. Greenville and Columbia, subsi- dized by S. C, 216, 223-4. Hackworth, Timothy, inventor of locomotive, 54. Hale, Nathan, sponsor for rail- roads, 77. Hampshire and Hampden (New Haven and Northampton) canal, charter, 41; financial difficul- ties, 42. Hannibal and St. Joseph, com- pleted, 82; subsidized by Mo., 220; congressional land grant, 247. Harriman, E. H., Oregon and California land grant, 254; atti- tude toward Denver, North- western, and Pacific project, 293- Hartford, trade rival of Spring- field, 129. Hartford and New Haven, opened, 80; tax exemption, 177. Hartford, Providence, and Fish- kill, subsidized by Hartford and by Providence, 209. Hayne, Robert Y., purpose of South Western Railroad bank, 172-3. Hedley, William, inventor of loco- motive, 54. Hempfield railroad, subsidized by Philadelphia, 206. Henderson and Nashville, tax exemption, 176; stock subscrip- tions in labor and materials, 198. Hernando Railroad and Banking company, 172. Digitized by Microsoft® INDEX 353 Hiawasse railroad, subsidized by Tenn., 216, 220. Highland society, essays on rail- ways, ss. Hill, James J., builder of Great Northern, 277; marketing of securities, 295. Hillsborough and Cincinnati, sub- sidized by Va., 219. Holland, colonial monopolies, 10; investments in American secu- rities, 40, 78-9, 196. Hoosac rail or macadamized road company, 67. Hoosac Tunnel, construction by Mass., 102. Hopkins, Mark, builder of Cen- tral Pacific, 275. Hopkinsville and Cumberland River railroad, tax exemption, 176. Horses as motive power, in Eng- land, 46, so, 55, 57; on Quincy granite railway, 60, on pro- posed Massachusetts state rail- way, 61; on early American railroads, 65. Houston and Texas Central, sub- sidized by Tex., 225. Houston Tap and Brazoria, sub- sidized by Tex., 225. Hudson and Berkshire, subsidized by N. Y., 218. Hudson River railroad, can- vass for stock subscriptions, 187. Hulls, Jonathan, projector of steamboat, 30-1. 24 Huntingdon, CoUis P., builder of Central Pacific, 275. Illinois, state works, 104-5, 237, 280; aggregate of local subsidies, 204-5; anti-subsidy law, 239; congressional land grant, 245- 6, 251. Illinois Central, charter tax, 178, 246; sale of bonds in England, 195-6; land grant, 245-6, 251- 5- Improvements, internal, see in- ternal improvements. Inclined planes, on South Hadley canal, 40; on railroads, 51, 64. Indiana, state works, 106, 237; general subsidy enabling act, 179; loans of credit, 219. Indiana and Illinois Central, local donation, 210. Indianapolis and Bellefontaine, stock subscriptions in land, labor, and materials, 198; do- nations of land and materials, 200. Industrial revolution, effect on inland transportation in Eng- land, 1-2, in Continental Europe, 2-3, in America, 3-24. Inland transportation, see trans- portation, inland. Internal improvements, pre-Revo- lutionary suggestions, 9; effect of Revolutionary war, 10; de- mands of interior, 10, of sea- board, 10; effect of westward migration, 21-4, of tariff, 25-9; Digitized by Microsoft® 354 INDEX national aid, 27, 44; Jefferson's attitude, 27-8; Gallatin's report, 28; change in national attitude, 35; applications for congres- sional aid, 43; attitude of Clay, Calhoun, Madison, and Mon- roe, 44; Pennsylvania society, 65-6; nationalization, 96-100; indirect aid through banks, 112- 113- International and Great Northern, tax exemption, 176. Investments in American secu- rities by Europe, 40, 78-9, 105, 195-6, 280; the inducement, 85-95- Investor, definition, 134, 197. Iowa, aggregate of local subsidies, 205; congressional land grants, 247, 251. Ithaca and Carbondale, support at public meeting, 193. Ithaca and Owego, supplement to waterways, 63; operated as highway, 73; subsidized by. N. Y., 218. Jackson, Andrew, advocate of anti-national idea, 97; veto of Maysville and Lexington turn- pike bUl, 99; effect on land pol- icy of congress, 242-3. Jackson, Pensacola, and Mobile, subsidized by Florida, 223. James River and Kanawha canal, 42. Jefferson, Thomas, elected by interior party, 23-4; attitude toward internal improvements, IS, 27-8. Jefferson and Ponchartrain, tax exemption, 176. Jeffrey, E. T., location of West- em Pacific railway, 154. Johnson, Edward F., advocate of northern route for transconti- nental railroad, 273-4. Johnson, Samuel W., plan for railways, or "dry canals," SI- Junction and Breakwater, sub- sidized by Del., 219. Kansas, congressional land grants, 247, 251. Kansas Pacific, congressional loan of credit, 256-8. Kelley, Hall Jackson, claim as projector of transcontinental railroad, 266 n. Kentucky, first railroad, 81; sub- sidy enabling acts, 179-81; subscription to railroad stock, 216; loan of money, 226. King's Mountain railroad, sub- sidized by S. C, 216. Knox, Gen. Henry, canal project, 42. Knox, John J., causes of failure of second U. S. bank, iio-iii. Labor as means of payment for stock subscriptions, 198-9. La Crosse and Milwaukee, farm mortgages, 201; subsidized by Milwaukee, 210. Digitized by Microsoft® INDEX 355 Lake Shore and Michigan South- ern, gauge, 71. Lake Superior and Mississippi, tax exemption, 178; subsidized by Minn., 229. Lake Washington and Deer Creek Railroad and Banking com- pany, 172. Lambert, John, description of New York harbor, 25. Lancaster turnpike, charter, 16 extension to Pittsburgh, 38 inducement to subscription, 87 purpose, 119. Land bounties, 10, 242-3, 255. Lands as means of payment for stock subscriptions, 198-9. Lexington Railroad or Turnpike Company, 67. Lands, public, internal improve- ment fund, 27, 44, 225-6; Illi- nois Central grant, 175, 245-6, 251-5; grants by Me., 229, by Ark., Col., Fla., and Minn., 229, by congress, 242-56, 277; provisions of early transconti- nental projects, 248, 268-73; bibliography, 299. Lardner, Dionysius, inland trans- portation in England, 2. Laurens railroad, subsidized by S. C, 223-4. La Voinne and Pontzen, results of railroad subsidies, 221 n. Lawrence, Abbott, subsidies, 202. Lawrenceburg and Indianapolis, subsidized by Ind., 219. Leifer, Thomas, builder of tram- way, 60. Leutscher, Dr. G. D., distilleries in Pa. in relation to inland transportation, 7; Susquehanna trade, 28 n. Lewiston railroad, charter, 74. Lexington and Frankfort Turn- pike or Railroad company, 67, 81. Lexington and Ohio, subsidy en- abling act, 179; subsidized by Ky., 216, 220; 226. Lincoln, Levi, Boston and Provi- dence railroad project, 90-1. Little Rock and Fort Smith, sub- sidized by Ark., 221. Little Rock, Pine Bluff, and New Orleans, subsidized by Ark., 221. Liverpool and Manchester rail- way, contest of locomotives, 46, 58, 63; effect on American charters, 161. Livingston, Robert, steamboat monopoly, 33, 165. Loan of credit as form of local subsidy, 208-10. Locomotive, development, 52-3, 54, 57-8, 65-6; use in America, 63-5- Lockport and Rochester, canvass for stock subscriptions, 187-8. Long Island railroad, subsidized by N. Y., 218. Lotteries, for internal improve- ments, 13, 136-8; for railroads, 167. Digitized by Microsoft® 356 INDEX Louisiana, first railroad, 8i; tax- exemption clause in constitu- tution, 177; general subsidy enabling act, 179; subscrip- tions to railroad stock, 214-15; loans of credit, 221; congres- sional land grants, 247, 251. Louisville, trade rival of Cincin- nati, 131; subscription to Lex- ington and Ohio, 179; railroad debt, 206; tax bonds, 208. Louisville and Nashville, opened, 82; effect on trade of Cincinnati, 131; local subsidy enabling acts, 179-80; subsidized by Louisville, 208. Louisville and Portland canal, application for national appro- priation, 27. Louisville, Cincinnati, and Charleston railroad project, banking privilege, 173-5; tax exemption, 176; subsidized by S. C, 215-16, 223; by Tenn.,220; survey at expense of S. C, 227. Louisville, Nashville and Knox- ville monopoly, 166; tax ex- emption, 176. McGregor, St. Peter, and Mis- souri River railroad, 201-2. Macomb and Saginaw, banking privilege, 169-70. Macon and Brunsv^ick, subsi- dized by Ga., 222. Macon and Western, 173. Madison, James, attitude toward internal improvements, 44, 97. Madison and Indianapolis, begun as state enterprise, 106; sub- sidized by Ind., 219. Madison and Watertown, farm mortgages, 201. Maine, survey advance to Belfast and Quebec, 226-7; subsidized European and North American, 228. Maine Shore Line, subsidy en- abling act, 209. Maine, New Hampshire, and Massachusetts, charter provi- sions, 161. Manchester and Keene, local donation, 210. Manassas Gap railroad, subsi- dized by Va., 214. Manhattan company, fiscal agent of Erie canal, 101. Mansfield, Ohio, local financing of extension of Atlantic and Great Western, 203. Marietta and Cincinnati, subsi- dized by Marietta, 206-7. Maryland, support for Chesa- peake and Ohio canal, 98; sub- scription by banks to turnpike stock, 112-13; subscriptions to railroad stock, 212-13; ^oa^ of credit, 219; local subsidy law, 239- Massachusetts, early railroad pro- jects, 60, 61-2; attitude toward tariff (1824), 98; question of state ownership, 101; building of Hoosac tunnel, 102; aggre- gate of local subsidies, 204; Digitized by Microsoft® INDEX 357 subscription to Western rail- road, 217; loans of credit, 218; donations to European and North American, 228. Mauch Chunk gravity railway, 60. MaysviUe and Lexington turn- pike bill, Jackson's veto, 99; effect on land policy of con- gress, 242-3. Meetings in support of railroad projects, 189-94, 273. Memphis and Charleston, com- pleted, 82; subsidized by Ala., 221. Memphis and Lagrange, subsi- dized by Tenn., 216, 220. Memphis and Little Rock, sub- sidized by Ark., 221, 226; by Memphis and by Tenn., 224. Memphis Branch railroad, subsi- dized by Ga., 222-3. Merchants, supporters of railroad ventures, 131-2, 201-3. Mexican Gulf railroad, subsi- dized by La., 214-15. Meyer, Dr. B. H., charter evolu- tion, 157, 160, 295. Michigan, state works, 108-9, 237; loans of credit, 2r8, con- gressional land grants, 247. Michigan Central, 82; begun as state enterprise, 107. Michigan Southern, begun as state enterprise, 107; tax exemption, 178. Middlesex canal, 41; financial suc- cess, 43; loss of traffic to Boston and Lowell railroad, 63. Mills, Robert, proposal of trans- continental railroad and water- way system, 262-4; source of the suggestion, 259-62. Milwaukee and Fond du Lac, subsidized by Milwaukee, 210. Milwaukee and Horican, subsi- dized by Milwaukee, 209-10. Milwaukee and Mississippi, farm mortgages, 201; subsidized by Milwaukee, 210. Milwaukee, Waukesha, and Mis- sissippi, 202. Minneapolis and Cedar Valley, subsidized by Minn., 219. Minnesota, aggregate of local sub- sidies, 205; loans of credit, 219; land grants, 229; local subsidy law, 239; congressional land grants, 247, 25T. Minnesota and Pacific, subsidized by Minn., 219. Mississippi, subscription to rail- road stock, 216-17; congressional land grants, 245-7, 251. Mississippi and Alabama, bank- ing privilege, 172. Mississippi, Ouachita, and Red River, subsidized by Ark., 217, 221. Mississippi River railroad, bank- ing privilege, 172. Mississippi River, Hamburg, and Western, subsidized by Ark., 229. Missouri, aggregate of local sub- sidies, 205; loans of credit, 220; congressional land grants, 247. Digitized by Microsoft® 358 INDEX Missouri Pacific, gauge, 71; pop- ular hostility, 109; subsidized by Mo., 220; congressional land grant, 247. Mobile and Alabama Grand Trunk, subsidized by Ala., . 222. Mobile and Montgomery, subsi- dized by Ala., 222. Mobile and Ohio, opened, 82; purpose, 124; organization and surveys, 152-3; stimulation of individual subsidies, 197-8, 208; subsidized by Paducha, 206; land grant, 245-6, 251-3. Moffat, David H., builder of Denver, Northvyestem, and Pa- cific, 293. Mohawk and Hudson, supple- ment to waterways, 62; inclined planes, 64; locomotives, 64; charter, 73; competitor of Erie canal, 74; completed, 80; pur- pose, 129. See also Albany and Schenectady. Mohawk turnpike company, 75. Monopolies, colonial, 10, 16; steamboat, 33, 165; railroad, 164-7. Monroe, James, attitude toward internal improvements, 44, 97. Monroe railroad, banking privi- lege, 173; subsidized by Ga., 214. Montague canal, financial suc- cess, 43. Montana, congressional land grants, 251. Montgomery and Eufaula, subsi- dized by Ala., 222. Moore, Sir Henry, proposed canal around falls of Mohawk, 9. Morris Canal and Banking com- pany, 168. Mount Carmel and New Albany speculative land-holding, 199. Nashua and Lowell, completed, 80; subsidized by Mass., 218. Nashville, Chattanooga, and St. Louis, lease of Western and Atlantic, 108. "National school " of political economy, 23. Navigation, inland, difficulties, 3°- Nebraska, aggregate of county subsidies, 205; local subsidy law, 239; congressional land grants, 251. Nevada, local subsidy law, 239. New Castle and Frenchtown, charter, 67; completed, 81; subsidized by Delaware, 213. New Franklin, railroad lottery privilege, 167. New Haven and Northampton canal, 41-2. New Mexico, general tax-exemp- tion law, 177. New Orleans, railroad debt, 206; subscription to New Orleans, Opelousas, and Great Western, 206. New Orleans and Carrolton, banking privilege, 171. Digitized by Microsoft® INDEX 359 New Orleans and Nashville, sub- sidized by La., 214-15. New Orleans and Selma, subsi- dized by Ala., 222. New Orleans, Baton Rouge, and Vicksburg, congressional land grant, 250. New Orleans Canal and Banking company, 168. New Orleans, Jackson, and Great Northern, subsidized by La., 214-15, by Miss., 216-17. New Orleans, Mobile, and Chat- tanooga, subsidized by La., 221. New Orleans, Mobile, and Texas, subsidized by La., 214-15, 221. New Orleans, Opelousas, and Great Western, subsidized by New Orleans, 206, by La., 214-15. New Orleans, Shreveport, and Kansas, charter, 198. New York, city, stage connection with Philadelphia, 4, with Bos- ton, 7; description of harbor, 25; trade rival of Philadelphia, 124-7, of Boston, 127-8. New York, state, lottery for road improvements, 13; canal projects, 15; Erie canal, 44; subsidy enabling acts, 179-80; aggregate of local subsidies, 205; loans of credit, 218; ap- propriation for survey, 227; anti-subsidy laws, 237, 239. New York and Albany, charter, 130. New York and Erie, track, 70; gauge, 71; completed, 82; pur- pose, 128; popular petition for legislative support, 192-3; do- nation of right of way, 200; subsidized by N. Y., 218, 227. New York, Providence, and Bos- ton, 80. Non-intercourse act, product of conflict of economic interests, 25. Norfolk and Petersburg, subsi- dized by Va., 214, 219. Norfolk and Western, grades, 153. North, Roger, description of " way-leaves," 46. North and South railroad of Ga., subsidized by Ga., 222-3. North Carolina, subscriptions to railroad stock, 215; loans of credit, 224; leases of convict labor, 227-8. North Carolina railroad, subsi- dized by N. C, 215. North Carolina Central, tax exemption, 177. North Dakota, congressional land grants, 251. Northeastern railroad of S. C, subsidized by S. C, 216, 223-4. North Louisiana and Texas, sub- sidized by La., 221. North Missouri railroad, subsi- dized by Mo., 220. Northampton, trade rival of Am- herst, 129. Northeast and Southwest railroad of Ala., abuse of subsidy law, 234- Digitized by Microsoft® 360 INDEX Northern Bank of Miss., author- ized to build railroad, 172. Northern Cross railroad, con- structed by 111., 105. Northern Pacific, grade, 154; prospectus, 185-6; bonus for extension to Superior, 203; congressional land grant, 249, 251; construction, 276. Northwestern railroad of Ga., subsidized by Ga., 222-3. Northwestern railroad of Va, subsidized by Baltimore, 206, 209. Northwestern Border railroad, subsidized by Ark., 217. Norwich and Worcester, 169; sub- sidized by Norwich, 210, by Mass., 218. Ohio, military land bounties, 10; internal improvement fund, 27, 44; subscriptions to railroad stock, 217; results of subsidies, 233-4- Ohio company, influence on Brad- dock's choice of route, 11. Ohio railroad, banking privilege, 1 70-1; abuse of subsidy law, 233-4- Ohio and Indiana, stock sub- scriptions in contractors' work and lands, 198; donations of right of way, 200. Ohio and Pennsylvania, public meeting to attract support, 193; stock subscriptions in labor and lands, 198-9. Old Colony railroad, 60, 83, subsidized by Mass., 218. Oregon, action in favor of state railroads, 109 n. Oregon and California, congres- sional land grant, 254. Oregon Central, local subsidies, 209. Oregon Short Line and Utah Northern, construction, 277. Oregonian, ridicule of transconti- nental railroad project, 267-8. Palmer, William J., builder of Denver and Rio Grande Wes- tern, 277. Palmyra and Jacksonburgh sub- sidized by Mich., 218. Parker, Rev. Samuel, practicabil- ity of a transcontinental rail- road, 266. Paulding and Pontotoc, banking privilege, 172. Penn, William, proposed canal between Schuylkill and Sus- quehanna, 9. Pennsylvania, road-making, 12- 13; canal projects, 15; state works, 81, 102-4, 237; indirect aid to internal improvements through U. S. bank, 113, 227; aggregate of local subsidies, 204. Pennsylvania railroad, gauge, 71; tonnage tax, 74-5; open to Pittsburgh, 82; purchase of Portage and Philadelphia and Colimibia railroads, 104; can- vass for stock subscriptions. Digitized by Microsoft® INDEX 361 187; convention in favor of local support, 193; local sub- sidies, 206-7; underwriting of new securities, 288-9, 291. Pennsylvania society for promo- tion of internal improvements, 65-6. Pensacola and Georgia, subsi- dized by Fla., 223. People's Pacific railroad project, 270. Perham, Josiah, proposal of "People's Pacific railroad," 270. Philadelphia, stage connection with New York, 4, with Balti- more, 4, with Pittsburgh, 38; trade rival of Baltimore, 15-16, 118-22, of New York, 125-7; railroad debt, 206; subscrip- tions to railroad stock, 206. Philadelphia and Columbia, sup- plement to waterways, 63; its locomotives, 65; public high- way, 71-2; construction by Pa., 102-4. Philadelphia, Wilmington, and Baltimore, completed, 81; sub- sidized by Del., 219. Phillips, Wendell, railroad cor- ruption of legislatures, 158. Pike, Albert, plan for government construction of transcontinental railroad, 248, 272. Pittsburgh, stage connection with Philadelphia, 38; railroad debt, 206; subscription to Pittsburgh and SteubenvUle, 206. Pittsburgh and Connellsville, sub- sidized by Baltimore, 209. Platte County railroad, subsi- dized by Mo., 220. Plumbe, John, proposal of trans- continental railroad, 265, 268, 273- Ponchartrain railroad, banking privilege, 171. Pontotoc, Oxford, and Delta, tax exemption, 177-8. Poor, Henry V., statistics of rail- road construction, 81; history of railroads and canals, 296; manual of railroads, 296. Port Hudson and Northern Mich- igan, donation of right of way, 107. Portage railroad, inclined planes, 64; constructed by Pa., 102-4. Promoter, definition, 133. Promotion and morality, 140-8. Prospectus, 182-9. Public lands, see Lands, public. Public ownership, municipal, 130- 1; state, 100-116; proposed for line to Pacific, 268, 271-2. Quarterly Review, ridicule of rail- way projects, 57. Quincy granite railway, 60, 68. Quinebaug bank, adjimct to Bos- ton, Norwich, and New Lon- don, 169. Racine and Mississippi, farm mortgages, 201. Digitized by Microsoft® 362 INDEX Railroad, definition, 58. Railways, development of track, 47-8; wagon train proposed by Anderson, 48-9, by Edgeworth, 49-51, by Gray, 54-5; Surrey, 51; Gerstner's project, 51-2, his essay, 52. Raleigh and Gaston, subsidized by N. C, 224. RajTnond railroad, tax exemp- tion, 176. Rensselaer and Saratoga, com- pleted, 80-1; charter, 129-30. Revolution, industrial, effect on inland transportation, in Eng- land, 1-2, in Continental Europe, 2-3, in America, 3-24. Revolutionary war, effect on spirit of localism, 10; land bounties, 10. Richmond and Danville, tax exemption, 176; subsidized by Va., 214, 219. Rittenhouse, David, proposed canal between Schuylkill and Susquehanna, 9. River boats, description, 29-30. River improvements, 28-9. River Raisin and Grand River, banking privilege, 169. Roads, in England, 2; about Phil- adelphia, 4-5; in N. Eng., 7-8; want of, as cause of Wyoming massacre, 5-6, of "whiskey rebellion," 6-7; construction stimulated by Revolution, 9- 10; change in popular attitude, 11-13; lottery aid, 13; political importance shown by Washing- ton, 13-14; improvements by Baltimore, 16; Cimiberland, 24, 27> 97- Rochester and Syracuse, effect of subsidies on choice of route, 207. "Rocket," Stephenson's locomo- tive, 46, 58. Rogers, Henry H., personal finan- cing of Virginian railway, 293- 4- Rumsey, James, inventor of steamboat, 31-2. St. Louis, railroad debt, 206. St. Louis and Iron Moimtain, subsidized by Mo., 220. St. Paul and Pacific, subsidized by Minn., 229; nucleus of Great Northern, 277. St. Louis and San Francisco, joint control with Atchison, Topeka, and Santa F6 of Atlantic and Pacific, 275. St. Paul, Minneapolis, and Mani- toba, forerunner of Great Northern, 277, congressional land grant, 277. San Francisco, subsidy enabling act, 180; donations to Central Pacific and to Western Pacific, 211. San Francisco and San Joaquin Valley railway, financed by local merchants, 202; sale to Atchison, Topeka, and Santa F6, 275. Digitized by Microsoft® INDEX 363 San Francisco and San Josd, local donation, 211. San Pedro, Los Angeles, and Salt Lake, construction, 277. Sanborn, Dr. J. B., land grants, 244, 299. Sandusky and Mansfield, 68; donation of right of way, 200. Santa Rosa Railroad, Banking, and Insurance company, 173-4. Santee canal, 40-1. Savannah, trade rival of Charles- ton, 124. Savannah and Charleston, subsi- dized by S. C, 223-4. Savannah and Memphis, subsi- dized by Ala., 222. Schenectady and Saratoga, com- pleted, 80; opposition to Troy, 130. Schenectady and Troy, canal tolls, 74; built by Troy, 130; subsi- dized by N. Y., 218. Schuylkill and Susquehanna canal, proposed, 9; charter, 14; lot- tery privilege, 137. Scott, Thomas B., builder of Texas and Pacific, 276. Sebna and Gulf, subsidized by Ala., 222. Sehna, Marion, and Memphis, subsidized by Ala., 222. Sherman, John, railroads as local improvements, 68. Signals, 71-2. Sioux City and Pacific, congres- sional loan of credit, 256-8. Smith, George W., sponsor for railways, 55. Smith, John Gregory, first pres- ident of Northern Pacific, 276. Smith, William, proposed canal between Schuylkill and Sus- quehanna, 9. South and North Alabama, sub- sidized by Ala., 222, 225-6. South Carolina, subscription to South Western Railroad bank, 174; subscriptions to railroad stock, 215-16; loans of credit, 223-4, loans of money, 226, appropriations for surveys, 227; application for congressional subscription, 240. South Carolina (Charleston and Hamburgh) railroad, supple- ment to natural waterways, 62; use of locomotives, 63, of in- clined planes, 64, of horses and sail-cars, 64; track, 70; com- pleted, 81; effect on Charleston, 124; monopoly, 165; subsidized by S. C, 216, 223, 226-7. South Georgia and Florida, sub- sidized by Ga., 222-3. South Hadley canal, constructed, 40; lottery privilege, 137. South Side railroad, subsidized by Petersburg and by Va., 224. South Western railroad of Ga., local financing of extension, 203. South Western Railroad bank, adjimct to Louisville, Cincin- nati, and Charleston, 173-5. Digitized by Microsoft® 364 INDEX Southern California, port of Atchi- son, Topeka, and Santa Fe extension to Pacific, 275. Southern Minnesota, local dona- tions, 211; subsidized by Minn., 219. Southern Pacific, subsidized by Cal., 229; congressional land grant, 250-1; completed, 276. Spartanburg and Union, subsi- dized by S. C, 223-4. Speculation, definition, 135-6, effect on railroad construc- tion, 77-82, 109-112, 136, 138- 40. Springfield, trade rival of Hart- ford, 129. Springfield, Little Rock, and Gulf, subsidized by Ark., 229. Stages, the coach, 4; connection of New York and Philadelphia, 4, of New York and Boston, 7, of Philadelphia and Baltimore, 4, of Philadelphia and Pitts- burgh 38; opposition to rail- roads, 75. Stanford, Leland, builder of Cen- tral Pacific, 275. State banks as funding agencies of state works, 109-10. State works, New York, 44, 100- 1; proposed in Mass., 101-2; Pa., 102-4, 125-6; 111. 104-5; Ind., 105; Mich., 106-7; ^^-j 107-8; Va., 108-9. Stationary engines as motive power, proposed by Edgeworth, 51; used on Quincy Granite Railway, Mauch Chunk gravity railway, 60. Steamboats, projected by Hulls, 30-1; invented by Rumsey, 31- 2, by Fitch, 32-3; success of Fulton and Livingston, 33-4, of Fitch, 34, of Roosevelt, 34; effect on inland commerce, 34. Stephenson, George, inventor of locomotive, 46, 54; locomotives on Stockton and Darlington, 57-8; on Liverpool and Man- chester, 58; "Rocket," 58; his foresight, 58; influence on Strickland, 66; effect on rail- road development, 69; choice of gauge, 70. Stevens, John, steamboats on the Delaware, 34; railway pro- ject, 53-4, charter in N. J., 59, in Pa., 59, 132. Stevenson, Robert, 47. Stockton and Darlington railway, use of locomotives, 57-8. Strickland, William, his mission to England, and his prophecy, 65-6. Strong, William B., buUder of Atchison, Topeka, and Santa F6, 276. Subsidies, individual, for expenses of preliminary work, 197; stock subscription payable in labor and materials, 198, in lands, 198-200, in farm mortgage notes, 200-1, in cash, 198, 201- 2; donations of land, 199-200; motive, to stimulate business, Digitized by Microsoft® INDEX 365 201-3, to obtain needed facil- ities, 203-4; bibliography, 295- 6. Subsidies, local, effect on choice of route, 152, 207; enabling acts, 178-81; actions in public meetings, 193-4; aggregate amounts in various states, 204- S; motives, 206-8; in stock sub- scriptions, 208; loans of credit, 208-10; donations, 210-11; abuse and reaction, 230-2, 235-9; bibliography, 296-7. Subsidies, national, subscriptions to internal improvements, 27, 43) 97) 240; tariff remission on railroad iron, 240-1; land grants, 242-56, 277; loans of credit, 256-8; provisions of early transcontinental projects, 248, 268-73; bibliography, 299- 300. Subsidies, state, stock subscrip- tions, 212-17; loans of credit, 217-24; loans from special funds, 225-7; land grants, 228- 9; abuse and reaction, 230-5, 237-8; bibliography, 297-8. Sunbury and Erie, subsidized by Philadelphia, 206. Superior, bonus for extension of Northern Pacific, 203. Surrey Iron railway, 51. Surveys, reconnaissance, 150; pre- liminary, 150-1; locating, 151- 2; old method, 152-3; modem practice, 153-4; reports as pros- pectus, material, 186; state appropriations, 226-7; trans- continental routes, 273-4. Susquehanna and Tidewater canal project, 118, 123. Susquehanna Bank and Bridge company, 167-8. Susquehanna river, improvement proposed, 13; trade, 28 n; Bal- timore's interest in improve- ment, 117-22. Suwanne and Inland, subsidized by Fla., 229. Syndicates, 288-94. Syracuse and Utica, track, 70; charter, 74. Tallahassee railroad, subsidized by Fla., 223. Tariff, relation to conflict of eco- nomic interests (1816), 25-7, (1824), 98-9; remission on rail- road iron, 240-1. Tavern-keepers, opposition to rail- roads, 75-6. Tax exemptions, 176-8. Tennessee, subsidy enabling acts, 208; subscriptions to railroad stock, 216; loans of credit, 220, 224; appropriation for survey, 227; result of subsidies, 235; local subsidy law, 239. Texas, loans from special funds, 225; land grants, 228-9; re- sults of subsidies, 232-3, 253- Texas and New Orleans, subsi- dized by Tex., 225. Texas and Pacific, subsidized by Digitized by Microsoft® 366 INDEX Tex., 22S; congressional land grant, 250; construction, 276. Texas Railroad, Navigation and Banking company, 171. Tombigbee railroad, banking priv- ilege, 172. Tonawanda railroad, competitor of Erie canal, 74; completed, 127; local support, 202; sub- sidized by N. Y., 218. Track, development, 47-8, 68- 71- Trade centres, rivalry between, effect on canal construction, 41; contest of Baltimore and Phil- adelphia, 117-23, of Baltimore and Alexandria and George- town, 124, of Charleston and Savannah, 124, of Mobile and Charleston, Savannah, and New Orleans, 124, of Philadelphia and New York, 124-7, o^ New York and Boston, 127-8, of Springfield and Hartford, 128- 9, of Amherst and Northamp- ton, 129, of Troy and Albany, 129-30, of Galena and Chicago, 130-1, of Louisville and Cin- cinnati, 131. Train, George Francis, associ- ated with builders of Union Pacific, 275. Tramways, in England, 46-8; in America, 59-60. Transcontinental railroads, pro- posed, 262-7; government con- struction advocated, 268, 271- 2; public lands proposed as means of financing, 248-9, 268- 72; choice of route, 273-4; de- velopment of systems, 274-8. Transit railroad, subsidized by Minn., 219. Transportation, inland, beginning of, in England, 1-2, in Conti- nental Europe, 2-3, in Amer- ica, 3-24; political need shown by Burr's conspiracy, 22; Western steamboats, 34; waste- fulness of flat-boat navigation, 36; effect of British blockade, 37; expense, 93. Travel, slowness, 3-8, 39; ex- pense, 39. Trevethick, Richard, inventor of locomotives, 53, 58. Troy, trade rival of Albany, 129- 30- Troy and Greenfield, failure in Hoosac tunnel project, 102; subsidized by Mass., 218. Turnpikes, effect on travel and transportation, 38-9; opposition to railroads, 75; subscriptions by Md. banks, 112-13. Turnpikes (individual), Freder- ick, 16; Lancaster, 16, 38, 87, 119; Maysville and Lexington, 99, 242-3; Reistertown, 16; Shenandoah, 15; Uniontown and Cumberland, 88; Wilkes- barre, 88; York, 16. Underwriting syndicates, 288-94. Union canal, 119; open, 122; lottery privilege, 137. Digitized by Microsoft® INDEX 367 Union Pacific, congressional land grant, 249, 251, 253; loan of credit, 256-8; construction, 274- 5; underwriting of new securi- ties, 289; opposition to Denver, Northwestern, and Pacific, 293. United States bank, see Bank of the United States. Utica and Schenectady, charter, 73-5; opposition to Troy, 130. Vermont, offer of survey appro- priation to Connecticut River railroad, 227. Vermont and Massachusetts, choice of route, 129. Vermont Central, tax exemption, 176; relation to Northern Pa- cific project, 276. Vicksburg and Jackson, banking aiSIiation, 172. Vicksburg and Shreveport, sup- port at barbecue, 193-4. Vicksburg, Shreveport, and Great Western, subsidized by La., 214-15. Victor, Mrs. Frances Fuller, car- ver or originator of transcon- tinental project, 266 n. Vidalia, Harrisonburg, and Alex- andria, tax exemption, 176-7. Villard, Henry, builder of North- em Pacific, 276. Virginia, support for Chesapeake and Ohio canal, 98; construc- tion of state railroads, 108-9; aggregate of local subsidies, 205; subscriptions to railroad stock, 213-14; , loans of credit, 219, 224. Virginia and Tennessee, subsi- dized by Va., 214. Virginia Central, subsidized by Va., 219. Virginian railway, location, 153; financing, 293-4. Walker, Robert J., sale of Illi- nois Central bonds in England, 195-6. War of 1812, relation to conflict of economic interests,. 25; effect on development of inland trans- portation, 37. Warren and Charles River bridge case, effect on railroad charters, 162. Warren and Pine Grove, indirectly aided by Pa., through U. S. bank, 227. Washington, George, showed political necessity for communi- cation with interior, 13-14; pres- ident of Potomac company, 14-15,90; saw necessity for gov- ernment support for canals, 15; testimonial on steamboats, 32. Washington county railroad, sub- sidized by Tex., 225. "Way-leaves," 46-7. Wellington, Arthur M., the in- ducement to promotion, 141-2. West Feliciana and Woodville, banking privilege, 171. Western railroad, chartered, planned as part of trunk line, Digitized by Microsoft® 368 INDEX 62; effect on New York, 128; dividend limitations, 162-3; monopoly, 165; canvass for stock subscriptions, 188; ap- peal through the pulpit, 194; built from small subscriptions, 202 ; subsidized by Mass., 2 1 7-18. Western and Atlantic, a state enterprise, 107-8. Western Maryland, subsidized by Baltimore, 206. Western North Carolina railroad, subsidized by N. C, 215, 227- 8. Western Pacific railroad, donation by San Francisco, 211; con- gressional loan of credit, 256-8. Western Pacific railvsray, location, 154; construction, 277. Western Railroad bank, proposed adjunct to Western railroad, 168-9. Westward movement of popula- tion, stimulated by military land bounties, 10; by demand for cotton on invention of cotton-gin, 19-20; effect on balance of political power, 21-4; relation to Burr's conspiracy, 22; stimulated by depression, 35-6, by introduction of steam- boats, 36. Wheeling, railroad debt, 205-6. "Whiskey rebellion," the result of absence of roads, 6-7. Whitney, Asa, proposal of trans- continental railroad, 269-70, 273- Whitney, Silas, builder of tram- way, 60. Wilkes, George, proposal of government construction of transcontinental railroad, 248, 271-2. Williamsport and Elmira, in- directly aided by Pa., through U. S. bank, 227. Williamston and Tarborough, subsidized by N. C, 224. Wilmington and Manchester, sub- sidized by S. C, 216. Wilmington and Raleigh, sub- sidized by N. C, 215. Wilmington and Susquehanna, subsidized by Del., 219. Wilmington and Welden, sub- sidized by N. C, 224. Wilmington, Charlotte, and Rutherford, subsidized by N. C, 215, 224. Wisconsin, gross earnings tax, 178; aggregate of local subsi- dies, 205; congressional land grants, 247, 251. , Wood, Nicholas, treatise on rail- roads, 55-6; his qualified prophecy, 56-7. Worcester and Hartford project, 129; public meeting to attract support, 192. Worcester and Norwich, 169. Wyoming massacre, the result of absence of roads, 5-6. Ypsilanti and Tecumseh, subsi- dizes by Mich., 218. Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft®