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CHAPTERS ON THE HISTORY
CHAPTERS ON THE HISTORY
OF THE Southern Pacific By STUART DAGGETT, Ph.D. Professor of Railway Economics and Dean of the College of Commerce, University of California; Author of “Railroad Reorganization” NEW YORK THE RONALD PRESS COMPANY 1922 Copyright, 1922, by The Ronald Press Company...
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PREFACE
PREFACE
So far as the author knows there is no published study which discusses in detail the important business problems connected with the history of the Southern Pacific Railroad lines. Most of the books which contain references to the Southern Pacific or to the Central Pacific limit themselves to a few chapters upon the romantic aspects of their construction. The few works which treat of the later period confine themselves chiefly to particular episodes in Southern Pacific history, often with the del
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CHAPTER I
CHAPTER I
Significance of the History The history of the Southern Pacific and the railroad companies connected with it affords one of the many examples in American economic life of a great industrial organization built up from small beginnings within the lifetime of one group of men. It is a story full of the interest which attaches to constructive achievement in any line. When we remember that as late as 1870 there was no railroad west of the Mississippi-Missouri River except the Northern, Union, Kansas,
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CHAPTER II
CHAPTER II
Earnings and Stock Issues Probably, indeed, the earnings of the Central Pacific Railroad during construction were more important than the contributions of the partners. Between 1863 and 1869, according to the calculations of the United States Pacific Railway Commission, the gross earnings of the Central Pacific amounted to $10,807,508.76, its operating expenses to $4,700,625.56, and its net earnings to $6,106,884.20. The surplus after the deduction of interest and taxes for this period amounted
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CHAPTER III
CHAPTER III
From this position of advantage Judah was able to watch the progress of the Pacific Railroad bill which Mr. Sargent presently introduced, and to guide it to a certain extent. We know that it was Judah who procured the assent of the Kansas company mentioned in the bill to a change which required its road to meet the Union Pacific at the 100th meridian instead of at the 102d meridian. It was Judah also who secured the passage of the amendment retaining for the Central Pacific the timber on mineral
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CHAPTER IV
CHAPTER IV
PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES Commencement of Construction The construction of the Central Pacific Railroad of California was begun at Sacramento on the 8th of January, 1863. The day the work started was rainy and calculated to damp the most cheerful of spirits. There was, however, a brass band, banners, flags, speeches, and a crowd standing on bundles of hay near the levee to keep its feet dry. Two wagon-loads of earth were driven up before the platform on which were gathered
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CHAPTER V
CHAPTER V
In September, 1869, the transcontinental railroad from Omaha to San José was in working order. It would be an exaggeration to say that the line was in good shape. There was little or no ballast, and a good rain was said to make miles of the road-bed run like wet soap. Little had been done to eliminate grades and curves, sleeping-car accommodation at first was insufficient, the journey speed from Sacramento to Ogden was only 19 miles an hour, while schedules were not always adhered to. Cars were
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CHAPTER VI
CHAPTER VI
ACQUISITION OF THE CALIFORNIA PACIFIC Tendency to Monopoly Control The first intimation that the Central Pacific Railroad was on its way to something like a monopoly control in the state of California is to be found in the negotiations for terminals on San Francisco Bay. But it was not long before more evidence came to light. Looking back with the advantage of knowledge of the company’s later history, it seems probable that the possibilities of monopoly control of the railway business of Califor
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CHAPTER VII
CHAPTER VII
i142 Map showing northern end of the San Francisco and San José Railroad in 1862. The evidence suggests that the San Francisco and San José and the Southern Pacific Railroad companies fell under the control of Stanford, Huntington, Hopkins, and Crocker some time in 1868. Mr. Stanford published a statement on March 6, 1868, to the effect that any rumor that the Central Pacific or Western Pacific Railroad Company or any person connected with either of them had purchased the Southern Pacific or the
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CHAPTER VIII
CHAPTER VIII
ORGANIZATION OF THE CENTRAL PACIFIC-SOUTHERN PACIFIC SYSTEM, FROM 1870 TO 1893 Extent of System By 1877 the Central Pacific-Southern Pacific combination was in control of over 85 per cent of all the railroads in California, including all the lines of importance around San Francisco Bay, except the San Francisco and North Pacific Railroad, and in the Sacramento and San Joaquin valleys. Not only had the associates established the monopoly which they desired, but the operations of their system had
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CHAPTER IX
CHAPTER IX
Agreement Signed The result of these preliminary discussions was the conclusion of an agreement, dated October 5, 1874, whereby Colton received 20,000 shares of Central Pacific Railroad stock and 20,000 shares of Southern Pacific stock in return for his promissory note for $1,000,000, maturing in five years. [220] At the same time it was mutually understood that Colton should share in all the responsibilities and liabilities of the associates for five years in proportion to his stockholdings, an
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CHAPTER X
CHAPTER X
FINANCIAL DIFFICULTIES FROM 1870 TO 1879 Excessive Construction We may now return to the more general considerations affecting Central Pacific finance which characterized the years from 1870 to 1879. There is a good deal of evidence that the years during which Mr. Colton was connected with the Central Pacific enterprise were years of financial difficulty for the associates, due in part to general depression, in part to a disproportionate amount of new construction, and in part to the continued i
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CHAPTER XI
CHAPTER XI
Beginnings of State Regulation It is not necessary to dwell at this point on the reasons for the opinions voiced in these extracts from the press. The feeling of the general public, of which these extracts are the reflection, was doubtless due in part to anger at the methods employed by the Central Pacific in promoting subsidy legislation, in part to disappointment over the results of railroad construction, and in part to reaction against policies of the Central Pacific such as have been outline
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CHAPTER XII
CHAPTER XII
THE SOUTHERN PACIFIC AND POLITICS Appeals to Public We may now consider in a more general fashion the political methods of the Southern Pacific group during the first thirty years of their railroad history. We have seen that they not only relied upon the talents of their legal staff in taking advantage of defects in the law, but that in two cases—the case of the railroad commission of 1880, and that of the subsidy in San Francisco in 1863—they probably resorted to the direct use of money to acco
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CHAPTER XIII
CHAPTER XIII
The local river traffic which helps to distribute the cargoes brought by ocean boats to San Francisco attained some importance as early as 1847. In that year a small side-wheel steamer seems to have plied between San Francisco and Sacramento. In 1849 and 1850 larger boats were put on, the Sacramento was navigated to Colusa, and steamers ascended the San Joaquin to 150 miles above Stockton. In 1856 two steamers usually left San Francisco for Sacramento each afternoon at 4 P.M. , arriving between
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CHAPTER XIV
CHAPTER XIV
THE RATE SYSTEM OF THE CENTRAL PACIFIC City and Country in California For more than forty years the Southern Pacific interests sought with varying success to modify the intensity of water competition by agreement with or by purchase of competing lines. During all this period the existence of alternative water routes was probably the principal influence determining the relative adjustment of rates between different towns upon the Pacific Coast. In deciding upon the rates which they should charge,
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CHAPTER XV
CHAPTER XV
Still again, in 1884 an attempt was made to persuade the St. Louis-Kansas City lines to participate in a rate of 75 cents per hundred pounds on cast iron pipe from St. Louis to the Pacific Coast in order to encourage production in the Middle West in competition with that on the Atlantic seaboard. The matter of the 75-cent rate was taken up with J. W. Midgley, Trunk Line commissioner, who declined temporarily on December 24, 1884, on the ground that the rate would be a special one, and that there
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CHAPTER XVI
CHAPTER XVI
THE TRANSCONTINENTAL TARIFF Market and Railroad Competition The chief difference between the local situation in California and the condition of affairs which prevailed in the case of through shipments to eastern points, lay in the fact that the competition of markets and the rivalry of competing carriers played a more important part in the through shipments than they did in local shipments. By market competition we mean the attempt of geographically distinct producing centers, each aided by a se
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CHAPTER XVII
CHAPTER XVII
It may be doubted if the roundabout route followed by the nails, here the subject of litigation, would ever have afforded a noticeable relief to importers on the Pacific Coast. Whatever chance existed was removed, however, by an amendment to the statutes in 1893, specifically forbidding transportation from one port of the United States to another port of the United States via any foreign port except in an American vessel. [416] This ended the first phase of the revived competition of 1891. Organ
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CHAPTER XVIII
CHAPTER XVIII
The San Francisco and Great Salt Lake conducted extensive surveys and was said to have purchased a tract of land at Martinez for a terminal. The company was overtaken by the panic of 1893, however, before it had secured the financial support which was essential to its success. It suffered also from differences of opinion among its friends with respect to the policies to be pursued. Mr. Leeds insisted that to be a success the new road must have a through connection. Shippers, he said, would not p
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CHAPTER XIX
CHAPTER XIX
In respect to earnings also, the Southern Pacific bulked large among its contemporaries. In the single year 1892, with its affiliated railroads and ferries, it took in nearly $49,000,000 on 6,486 miles of line, or more than half the earnings of the Santa Fé, Union Pacific, and Northern Pacific combined. In 1896 the earnings of the Southern Pacific were about the same as in 1892 upon a substantially greater mileage, but the earnings of its competitors had also greatly declined. Naturally enough,
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CHAPTER XX
CHAPTER XX
THE THURMAN ACT A Loan, Not a Subsidy The original loan of the United States government to the Central and Western Pacific railroads amounted to $27,855,680. The bonds which were issued to the companies were United States currency bonds, bearing 6 per cent interest, payable semiannually and maturing at the end of thirty years. They fell due therefore between 1895 and 1899. Some question has been raised as to whether these bonds were to be regarded as a loan or as a donation to the corporations w
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CHAPTER XXI
CHAPTER XXI
Further Reports In 1894 still another report was rendered, this time by James Reilly, of Pennsylvania, from the House Committee on Pacific Railroads. The report reviewed briefly the history of the relations between the Pacific railroads and the government. It was opposed to foreclosure. Instead, it suggested that the debt due to the United States be calculated as of January 1, 1895, and be funded into railroad 3 per cent bonds. The companies were then to begin paying on the debt at the rate of o
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CHAPTER XXII
CHAPTER XXII
Huntington died, however, in August, 1900, leaving his Southern Pacific stock to his widow and nephew in the proportion of two-thirds and one-third, respectively; and both, as had been anticipated, proved willing to dispose of their holdings. Negotiations were carried to completion in February, 1901. Four hundred and seventy-five thousand shares were purchased from the Huntingtons and from Edwin Hawley, the late financier’s most intimate business associate, while enough was secured from other pa
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CHAPTER XXIII
CHAPTER XXIII
OIL AND TIMBER LAND LITIGATION Oil Land Ownership The discussion in the previous chapter dealt with litigation under the Sherman law which checked the absorption of the Southern Pacific by the Union Pacific system and profoundly altered the relations of these two companies to each other. Our narrative will close with the mention of two other suits or groups of suits which concerned, the one, the possession of certain oil properties in southern California, and the other, the administration of lan
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CHAPTER XXIV
CHAPTER XXIV
Doubtless most of the details of the Southern Pacific management were necessarily handled by subordinates. It is unlikely, for instance, that the associates had much to do with the construction of railroad rates in the West, with the negotiation of special contracts with California shippers, or with agreements with the Pacific Mail. The contribution of the owners was here the appointment of competent men at liberal salaries to attend to matters which they did not understand or for other reasons
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