Modern history

7

“Why Is It We Have So Many Bitter Enemies?”

It was a long way between Colorado’s mountains and California, but ever since his first conversations with John D. Perry and Thomas A. Scott, Collis P. Huntington was taking no chances that out of squabbles there might come a railroad streaking into California’s backdoor. He had too much at stake to do otherwise.

Few men saw their own power increase more dramatically than Huntington and his partners, Stanford, Crocker, and Hopkins, did in the decade of the 1860s. From four merely prosperous merchants, the Big Four were becoming the political and business fulcrum of California, if not the western United States.

Leland Stanford served a two-year term as California’s governor, became a mainstay of Republican Party politics, and enjoyed the prestige of being front and center as a railroad president. Charles Crocker ramrodded the flow of men and materiel to the railhead, whether that be in the snows of the high Sierras or later in the deserts of Nevada and Utah. Quiet Mark Hopkins stayed out of the limelight but presided over the myriad of financial details that would someday pay off in millions for each of them.

Huntington’s role was twofold: one assigned, the other assumed. Huntington was the designated rainmaker, the partner whose wheeling and dealing—and sometimes outright bribing—ensured the associates access to government land grants, foreign and domestic investment capital, and proceeds from the sale of largely unproven railroad bonds. But Huntington was also the inveterate railroad builder of the group. The other three were keenly interested in their holdings, but for them it was business. For Huntington, railroading became an insatiable obsession.

There is no question that Huntington was also the driving empire builder of the group. He had little patience in his manner and no wasted motion in his methods. “Had he been a soldier,” one newspaper editor observed, “he would not have depended upon tactics … he … would have struck directly at the enemy’s center.”1

In the beginning, the Big Four had their hands full with the Central Pacific and did not lack for competition in California. In 1860 a competing group of San Francisco businessmen incorporated the San Francisco and San Jose Railroad. After the usual false starts in the transition from paper railroad to construction, track was completed to San Jose in 1864.

Overshadowed by transcontinental aspirants, the San Francisco and San Jose was not accorded federal subsidies or land grants in the Pacific Railway acts. Nonetheless, the railroad raised local financing from the city of San Francisco and surrounding counties and extended almost 30 miles farther south to Gilroy. By then, the San Franciscans backing the venture had seen the growing power of federal land grants, and they readily incorporated another line with a less regional identity.

Called the Southern Pacific Railroad Company, its declared objective was to link San Francisco with Los Angeles and San Diego along the coast and then build east from San Diego to the eastern border of the state. In July 1866, Congress approved its right-of-way and land grants of ten alternate sections per mile on the condition that the railroad connect with the proposed Atlantic and Pacific Railroad near present-day Needles on the California-Arizona border. This had the effect of bending the Southern Pacific’s attention eastward from its stated route south to Los Angeles and San Diego, but as it had yet to lay a mile of track, there was plenty of time for maneuvering.2

Meanwhile, essentially the same group of San Francisco businessmen also incorporated the Western Pacific Railroad—not to be confused with a twentieth-century line of the same name. This Western Pacific was projected to build from San Jose around the eastern side of San Francisco Bay to Sacramento via Stockton.

In a complicated transaction they would come to regret and later rectify, the Big Four initially assigned the Central Pacific’s land grant rights west of Sacramento to the Western Pacific. They did so in order to secure San Francisco’s financial backing to their broader transcontinental enterprise and as a gesture that their line’s final terminus would be somewhere on San Francisco Bay and not up the Sacramento River.

But no matter who controlled it, the San Francisco–San Jose—Stockton–Sacramento route was circuitous at best. A competing all-water grade route was incorporated as the California Pacific along the Sacramento River. It relied on ferries across the bay and avoided the hilly divide between San Jose and Stockton. Other competition loomed for the Central Pacific north of Sacramento. Indeed, there appeared to be no shortage of California railroad ventures—some with actual track, many more with paper charters. 3

But by the spring of 1868—as Huntington was having his initial meetings with Perry and Scott—California railroads were coming under increasing criticism over rates from the very people who had once been so eager to cheer their advances. After Mark Hopkins made a point of noting such criticism, Huntington was quick with a rejoinder.

“I notice that you write that everybody is in favor of a railroad until they get it built, and then every one is against it, unless the railroad company will carry them and theirs for nothing,” Huntington wrote. “In all of which I think you are quite right; but I have about made up my mind that it is about as well to fight them on all the railroads in the State, as on our road, as it is not much more fight and there is more pay …”

Then in a postscript, Huntington added: “I wish you would send me the names of all the railroads in California, the length of them, and the names of the officers, stating starting point and terminus.” Hopkins knew that Huntington was not kidding.4

In truth, the Big Four had already purchased their earliest competitor, the Sacramento Valley Railroad from Sacramento to Folsom, as well as its extension east toward Placerville. To the south, the Big Four’s construction company ended up building the Western Pacific, and that route was soon back in their hands. Then, on August 25, 1869, the Central Pacific purchased the San Francisco and Alameda Railroad that ran from Niles on the Western Pacific straight into the heart of Oakland.

Frenzied development ensued on the Oakland waterfront, including a wharf over 2 miles in length, and, with the completion of the Central Pacific–Union Pacific earlier that year, there was no longer any doubt that the Big Four had secured their window on the Pacific. But what about the southern half of the state?5

Even before Huntington’s request to Hopkins for a list of the state’s railroads, there was talk that the emerging Central Pacific–Western Pacific alliance exerted influence, if not outright control, over the trackless Southern Pacific. As president of the Central Pacific, Leland Stanford denied these rumors so vehemently in the San Francisco Bulletin in March 1868 that for many it was a case that all his smoke had to conceal at least a little fire. Those flames became a public record the following September when it was Collis P. Huntington who signed the letter transmitting the Southern Pacific’s annual report to Congress as required by its land grant. Of course, the Big Four had interests south of San Francisco.6

The Southern Pacific’s original charter called for it to run south between the coast and the Coast Ranges to reach Los Angeles and San Diego. From the latter, it would angle northeast and complete a transcontinental link with the projected Atlantic and Pacific at the Needles crossing of the Colorado River. But when it became clear that prior Mexican land grants limited the amount of public lands available along that path in the southern third of the state, the Southern Pacific remapped its route.

Now it led southeast from the San Francisco and San Jose’s terminus at Gilroy, down the western edge of the Coast Range to Hollister and Tres Pinos, and then east across the Coast Range to the San Joaquin Valley. If a transcontinental connection at Needles was the objective, this was certainly the shorter, more direct route.

This hardly left commercial interests in Los Angeles and San Diego very pleased, but they soon found an unlikely hero. General William S. Rosecrans, who had chosen the wrong road at Chickamauga and ridden to ridicule, had nonetheless emerged from the Civil War determined to resurrect his career in California. He started by buying considerable real estate between Los Angeles and San Diego, flirted with running for the California governorship, and then settled on a brief appointment as ambassador to Mexico.

Rosecrans became convinced that yet another railroad promotion by John C. Frémont—this one to build the Memphis, El Paso, and Pacific along the 32nd parallel—stood half a chance of success. (Frémont was enthralled with the route’s warmer climates after his snowy experiences in Colorado.) Consequently, Rosecrans incorporated the California Southern Railroad to run from Frémont’s projected Pacific terminus at San Diego, north up the coast to San Francisco.

Though flaunting only a paper railroad, Rosecrans caught the attention of the Big Four when he boasted that if the Southern Pacific altered its route and bypassed Los Angeles and San Diego, he would build up the coast route. If the Southern Pacific stuck to the coast, Rosecrans threatened to cross into the San Joaquin Valley and challenge the Southern Pacific’s contemplated hookup with the Atlantic and Pacific, as well as tap the valley’s developing agricultural markets.

“Huntington,” his biographer David Lavender later wrote, “had heard many people talk about more railroad than they were able to build”—Huntington himself sometimes had more railroad than he could build—but Rosecrans seemed to have widespread support among the locals of Southern California and to be a credible threat. The general also had certain influence among former comrades in arms in Washington.7

Consequently, Huntington and his associates would take no chances. In exchange for an undisclosed sum and a vague promise to build a coastal line to San Diego, Rosecrans delivered the paper California Southern into the hands of the Big Four. The loosely held myth that the Central Pacific and Southern Pacific somehow answered to different masters was swept away on October 12, 1870, when Huntington next consolidated the Southern Pacific, the San Francisco and San Jose, and the California Southern under the name of the Southern Pacific Railroad Company. Huntington became its president.

Rosecrans later had second thoughts and tried to maneuver into the combined company. When Huntington suggested a substantial cash payment as a prerequisite for entry—he had enough partners, but cash for his highly leveraged operations was another matter—Rosecrans balked. In a huff, the general incorporated the California Southern Coast Railroad and tried to attract another offer. This time, having been to the well once before, he came up dry.8

But now Huntington faced an adversary waving more than incorporation papers. While stymied in Colorado with the Kansas Pacific, Thomas A. Scott was far from finished with railroading. Out of the quagmire of the eastern roads, Scott managed to resurrect the land grants to Frémont’s Memphis, El Paso, and Pacific that had lapsed for lack of construction.

In March 1871, Congress approved Scott’s new company, the Texas Pacific Railroad Company, building from Marshall, Texas, just west of Shreveport, Louisiana, west through Fort Worth and El Paso, and on across the 32nd parallel to San Diego. (A year later, its name would be changed to the Texas and Pacific Railway Company.)

Huntington was concerned, but his own machinations with Congress succeeded in including a little present for the Southern Pacific amidst the Texas Pacific authorization. Bolstered with a land grant of twenty sections of land per mile, the Southern Pacific was granted an additional right-of-way “from a point at or near Tehachapi Pass, by way of Los Angeles, to the Texas Pacific Railroad at or near the Colorado River.”9

Now the question was asked of Los Angeles, what inducements might that small town of 5,728 people offer an advancing railroad? Federal land grants aside, what would persuade the Southern Pacific to breach the San Gabriel Mountains and descend into the Los Angeles Basin, rather than skirt it and head straight east toward the Colorado River?

The answer was anything that the railroad demanded. California law limited a bond issue in support of railroads to 5 percent of a county’s assessed valuation. For Los Angeles County in 1872, that amount was $610,000. But even that wasn’t enough for the Big Four. Huntington also demanded $250,000 in bonds that Los Angeles held in the little Los Angeles and San Pedro Railroad. Completed in October 1869, the 22-mile line was the town’s commercial outlet to the Pacific. Giving up local control of its rail link to the coast proved such a hotly debated topic that the matter was placed on the November 1872 ballot.

But the election contest quickly shaped up to be about more than a subsidy to one railroad. Who should show up in Los Angeles that summer but Thomas A. Scott. The Pennsylvanian was in nearby San Diego—then less than half the size of Los Angeles—to get his own share of concessions from the proposed terminus of the Texas and Pacific. Scott came bearing a promise that he would extend the Texas and Pacific line north to Los Angeles from San Diego if the people of Los Angeles would subsidize his efforts—not for the full $610,000 demanded by Huntington but for only $377,000.

No matter Scott’s Pennsylvania Railroad connections, this was still rather bold talk for a railroad executive whose Texas and Pacific railhead was some 1,200 miles east of San Diego at Fort Worth. And despite Scott’s personal appeal, the Southern Pacific argument was persuasive. Which would Los Angeles rather be, Huntington’s man on the scene asked, a stop on the Southern Pacific’s line with its transcontinental aspirations one way and fixed connections to San Francisco the other, or merely the end of a branch line from the Texas and Pacific at San Diego? The latter, after all, was hardly going to give up any trade from its fine harbor to its neighbor. So, on Election Day 1872, while California voted for President Ulysses S. Grant’s reelection to a second term, Los Angelenos voted for the Southern Pacific over Scott and the Texas and Pacific, 1,896 to 650.10

But Los Angeles was going to have to wait awhile for a rail connection from either north or south. National economic concerns intervened. Even before what came to be called the panic of 1873, the fortunes of California railroading had never had smooth financial sailing. Cash was always tight, in large part because of the insatiable demands of Huntington’s relentless construction on so many fronts.

No wonder that Huntington’s partners tried to halt it from time to time, and no wonder that Huntington himself advised them to go slow with their own expenditures unless they knew “where the money was coming from. I certainly do not,” the rainmaker confessed.11

Decades later, when the Southern Pacific had become a colossus and Collis P. Huntington one of America’s undisputed industrial leaders, the depth of his despair and the narrow margin by which the Big Four prevailed would be downplayed. But suffice to say that in 1872 and 1873, they were on the ropes. So much so that Huntington did the unthinkable and not only sought buyers for the Southern Pacific but also actively courted Thomas A. Scott to be among them.

“It is possible that we could sell the So. P. road to Tom Scott,” Huntington mused to Hopkins as early as October 1872. “Give me your views on this, and as to the least amount that we should take.”

With short-term debt of about $5 million and interest on long-term bond coupons due semiannually, Huntington went begging to everyone. Yet somehow, the onetime peddler stayed the fox and did not become a chicken.

Scott met Huntington in November in New York to discuss the sale, but when the Pennsylvanian later telegraphed Huntington and asked him to come to Philadelphia to continue the negotiations, Huntington demurred. He told Hopkins, “I thought it would be better that he should come here to buy than for me to go there to sell.”

Only ten days before, Huntington had reported to Hopkins, “I have been out to see if I could borrow some money with which to pay January interest, and as yet have not been able to get any.”12

But playing cagey with Scott despite the Big Four’s desperate straits appeared to work. On January 17, 1873, Scott called on Huntington in New York and offered $16 million for the Southern Pacific, essentially the right to the unbuilt western half of his Texas and Pacific–Pennsylvania transcontinental supersystem.

Huntington’s answer is telling. Sixteen million dollars—albeit not all in cash—would have answered Huntington’s plea to get out of debt. But instead of jumping at the offer immediately, the fox tried to get as much cash out of the deal as possible, telling Hopkins afterward, “while I think the property worth much more, I should sell it if the pay is good, but I am fearful that he will fail in that.”

After Scott left to confer with his investors, Huntington was left to ponder a deal not made. More than a month later, Huntington was still urging Hopkins to “sell anything that we have that will bring money,” while assuring him, “I am doing all I can to close this trade with Scott for the sale of the So. P.”13

But as the year went on, Scott too began to suffer from a tightness of credit. The more time that went by, the less ability he had to consummate the Southern Pacific purchase even at his original offer. Cyrus K. Holliday and the Santa Fe interests might well have stepped into Scott’s shoes to negotiate on their own behalf, but their road was financially exhausted from the frenzy of its 1872 construction to reach the Colorado-Kansas line.

With no other suitors for the Southern Pacific, Huntington told Leland Stanford at the end of February that he had “made up my mind to get out of all active business” and encouraged Stanford to sell his own Central Pacific stock below par, if necessary—which it definitely was—and simply “retire and enjoy it.”

Meanwhile, lenders continued to hound Huntington. “I have never seen so blue a time for money here before,” he wrote in despair on March 8. “Something must be done, and that at once.” Two days later, Huntington wrote again. “You know,” he told Hopkins, “that when I have made up my mind to do a thing, dollars and cents have but little to do with it. I have got tired and am going to quit.”14

That statement—dollars and cents having little to do with it—concerned a possible sale of the Central Pacific, but it may well be read both ways. On the one hand, Huntington damned the dollars and pushed the construction, not just of his western railroads, but the Chesapeake and Ohio and other ventures in the East as well. But conversely, if he had indeed made up his mind to sell his western railroads, why had he tried to squeeze more ready cash out of Tom Scott? Even at the bottom, the builder in Huntington could not quit.

By the middle of March, it was getting too late to make a deal with anyone. Scott came to New York again, but it was to attend to his own finances and not to call on Huntington. “It looks a little as though he were playing us,” Huntington reported to Hopkins, “but his hands are very full.”

“If we do not trade with him [Scott],” Huntington bemoaned, “we must trade with someone, for we have to pay here, between this and the first of June, $1,033,903.23, a little over half of which is in gold, and this does not include what we owe F. & H. [Fisk and Hatch], which is, say, $1,700,000, all on call; and then come the bills for material, which is very considerable. So, you will see the necessity of doing something at once.”

By March 26, Huntington despaired that he had “been out today to borrow some money, and I could not get any.” Reluctantly, he acknowledged that Scott had been back in New York yet again without calling and that “he cannot do anything now.” Scott, too, was “a large borrower,” and the deal was off. But then things got worse.15

Two events shook the national economy during 1873 and rendered the tightness of credit that Huntington and Scott felt the norm throughout the country. The first was the infamous Crédit Mobilier scandal. There had been plenty of innuendo floated during the 1872 presidential campaign that numerous Republican members of Congress had accepted stock in the Union Pacific’s construction company under less than cash-on-the-barrelhead terms. Vice President Schuyler Colfax, long a proponent of a transcontinental railroad, was caught in the mess, as were two congressmen who would follow Grant to the White House: Rutherford B. Hayes and General Rosecrans’s ex-aide, James A. Garfield.

Congress did the usual and appointed a committee to investigate. While attention focused on the Union Pacific, Congress wanted to know how all railroads had used their government subsidies. In the course of the hearings, Collis P. Huntington was put on the stand and grilled about the operations of the Central Pacific’s own construction company, the Big Four–controlled Contract and Finance Company. His reception was far from friendly. “Why is it,” Huntington bristled to Hopkins as the California press added its criticisms, “that we have so many bitter enemies in California?”

Huntington was loath to open the Big Four’s books to outside eyes—what their profits were and how they applied them to their expanding empire was, in their minds, their private business. But he was also very nervous about showing the ownership of so vast a transportation network in the hands of only four men. For them, it really had been the sweetheart deal of the century.

Huntington had no choice but to appear before “these hellhounds,” as he characterized the congressional investigators. But that did not mean that he had to tell them much—“the truth, but nothing more,” as he put it.

The first to fall under the congressional inquisition was Republican congressman Oakes Ames of Massachusetts, one of the chief promoters of the Union Pacific. Ames and Congressman James Brooks, Democrat from New York, were offered up as the requisite scapegoats, Ames because he had sold Union Pacific stock to members of Congress at bargain prices and Brooks because he was one of the major purchasers. The House initially recommended their dismissal, but settled for a resolution of censure.

The Central Pacific, for which Huntington himself had done the bulk of the “stock promotion” and outright cash payments that Mark Hopkins listed on the books as “legal expenses,” was even more immune. Huntington and Hopkins produced a figure of what it had cost to build the Central Pacific. This figure was well in excess of the subsidies reported by the government and thus was offered as evidence that far from skimming the public trough, the associates had contributed considerable private capital to it.

By the time the committee put Huntington back on the stand in late July 1873 and asked to see the records of the Contract and Finance Company to corroborate his earlier testimony, Huntington was able to say with a straight face that they didn’t exist. Its work completed, the company was being dissolved, Huntington testified, and Mark Hopkins had burned the fifteen volumes of records in an effort to save space in the company’s cramped offices.16

The bottom line of the Crédit Mobilier scandal was that all railroad stocks and bonds were suspect, and it became very difficult to market them. What made their sale next to impossible was the collapse on September 18, 1873, of the banking firm of Jay Cooke and Company—the second major blow to railroads across the country.

The Cooke firm was heavily invested in railroads, but it had bet an inordinate amount of its cash on the unmarketable securities of the Northern Pacific Railroad, extending huge loans for the railroad’s construction west from Duluth, far in excess of the railroad’s ability to repay. When Cooke managers begged funds from other banks to stay liquid, their pleas were refused because Cooke had no remaining assets with which to secure them.

Feeling the credit tightening on the Santa Fe, Cyrus K. Holliday put his finger on the nub of the problem. Jay Cooke’s demise was the immediate cause of the panic, he told his wife, Mary, but “the remote cause was the widespread apprehension that if so strong a house as Jay Cooke’s should fail, how many others would be carried down with the crash!”

By the following day—one of many Black Fridays on Wall Street—news of Cooke’s insolvency triggered a domino effect of cash shortages. The ensuing panic of 1873 staggered postwar economic expansion and hit America’s railroads particularly hard. Most had used easy credit to push their expansion beyond any reasonable model of economic stability. When credit tightened or dried up, many roads found themselves unable to service their burgeoning debt.17

Among the casualties was Thomas A. Scott’s Atlantic and Pacific. Barely more than a paper railroad, the Atlantic and Pacific went into receivership, and Scott chose instead to save the Texas and Pacific. It was hardly knocking at the gates of Los Angeles, but it had constructed some track in Texas.

In a story related somewhat anecdotally by Grenville Dodge, Scott summoned his principal investors and asked whether they should “save the property or ourselves.” The unanimous answer was that they would “save the road and let the individuals go to the wall.” Thus, Scott and his associates assumed the Texas and Pacific’s entire debt in excess of $10 million, and the railroad remained afloat.18

For a time in the fall of 1873, it looked as if similar action by Huntington and his associates would not be enough to save their own railroads. They simply couldn’t do it; they were already mortgaged to the hilt. At the end of October, Huntington spent two days borrowing $48,150 to pay small notes that were due. No banking firm would consider the loan, so Huntington begged and borrowed from friends in amounts of about $5,000 each.

In return, Huntington pledged the only remaining collateral he had left: his personal guarantee. He made up the difference with $14,000 that belonged to Huntington-Hopkins Hardware and paid the last note with forty minutes to spare before it went to protest. “I would not go through another panic like this for all the railroads in the world,” he told Hopkins.19

Across the country, it was a similar story. Whether on Palmer’s Denver and Rio Grande or Holliday’s Atchison, Topeka and Santa Fe, construction slowed to a crawl or ground to a halt in the economic morass. But one thing was certain: No matter the dismal present, half a continent still remained to be won. The pause would be temporary. It would weed out the lightweights, and when the races renewed, the entire Southwest would be a contested empire.

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