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diff --git a/48879/48879-0.txt b/48879/48879-0.txt new file mode 100644 index 0000000..dd345c7 --- /dev/null +++ b/48879/48879-0.txt @@ -0,0 +1,18278 @@ +The Project Gutenberg EBook of Chapters on the History of the Southern
+Pacific, by Stuart Daggett
+
+This eBook is for the use of anyone anywhere in the United States and most
+other parts of the world at no cost and with almost no restrictions
+whatsoever. You may copy it, give it away or re-use it under the terms of
+the Project Gutenberg License included with this eBook or online at
+www.gutenberg.org. If you are not located in the United States, you'll have
+to check the laws of the country where you are located before using this ebook.
+
+Title: Chapters on the History of the Southern Pacific
+
+Author: Stuart Daggett
+
+Release Date: May 5, 2015 [EBook #48879]
+
+Language: English
+
+Character set encoding: UTF-8
+
+*** START OF THIS PROJECT GUTENBERG EBOOK CHAPTERS ON HISTORY OF SOUTHERN PACIFIC ***
+
+
+
+
+Produced by Giovanni Fini and the Online Distributed
+Proofreading Team at http://www.pgdp.net (This file was
+produced from images generously made available by The
+Internet Archive)
+
+
+
+
+
+
+[Illustration: “The Golden Gate”]
+
+
+
+
+ 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”
+
+ [Illustration: LOGO]
+
+ NEW YORK
+ THE RONALD PRESS COMPANY
+ 1922
+
+
+
+
+ Copyright, 1922, by
+ THE RONALD PRESS COMPANY
+
+
+
+
+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 deliberate attempt to discredit the railroad company.
+The truth is that most writers upon the Southern Pacific have relied
+upon the reports of the United States Pacific Railway Commission or on
+Bancroft’s “History of California,” and very few have done original
+work from source material.
+
+Yet the usable material dealing with the subject of Pacific railroads
+is abundant. The Southern Pacific has left a broad trail in California.
+The record of its doings is to be found in court reports; in state,
+city, and federal records; in the public testimony, or still better,
+in the private letters of owners or managers of company enterprises;
+in the reports of the company itself and of its engineers or other
+representatives; in pamphlets without number; in files of newspapers.
+It is true that much of the data is partisan and unreliable as to
+details. Yet a partisan statement is serviceable if one knows it to be
+partisan, and, if one has reliable information with which to check the
+unreliable, the extent of partisan exaggeration in a given case becomes
+itself a fact of no insignificant importance.
+
+Most of the documents used in the following pages have been consulted
+in one or another of three large collections: that of the Bancroft
+Library of the University of California; that of the Hopkins’ Railway
+Library of Stanford University; and that of the State Library at
+Sacramento. Use has also been made of data in the office of the
+Secretary of State of California and of the State Railroad Commission.
+In certain cases the manuscript has been submitted to officials of
+the Southern Pacific Company for their comment, or to shippers or
+business men who were believed to be well-informed. The work has been
+more or less actively in progress over a period of eight years so that
+there has been more than usual opportunity for checking, comparison of
+views, and the testing of material. It is the author’s hope that he has
+at least examined all the significant classes of information on the
+particular subjects which he has discussed. With a subject so extensive
+it is rarely, if ever, possible to reach all the fugitive literature,
+or to consult all the living men from whom opinions or scraps of
+information might be obtained. The most that can be said is that there
+has been a diligent search, with good facilities, through a number of
+years.
+
+The conclusions which the writer has himself reached with respect
+to the political and business activities of the Southern Pacific in
+California, he has explained in the book at length and will not now
+repeat. There is claimed for them no more conclusiveness than the facts
+presented in each particular case may justify, although the conclusions
+are free from conscious bias, and the author’s own interests are
+engaged on neither side.
+
+Acknowledgment is hereby made of the courtesies extended by the
+libraries of Berkeley, Palo Alto, and Sacramento, and of the patient
+attention which individuals have given to particular portions of the
+book.
+
+ STUART DAGGETT
+
+ Berkeley, California,
+ February 1, 1922.
+
+
+
+
+CONTENTS
+
+
+ CHAPTER PAGE
+
+ I INCEPTION OF THE PROJECT 3
+
+ II RESOURCES FOR CONSTRUCTION—STATE AND LOCAL AID 21
+
+ III FEDERAL LAND GRANTS AND SUBSIDIES 45
+
+ IV PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES 65
+
+ V THE SEARCH FOR A TERMINAL 83
+
+ VI ACQUISITION OF THE CALIFORNIA PACIFIC 104
+
+ VII BUILDING OF THE SOUTHERN PACIFIC 119
+
+ VIII ORGANIZATION OF THE CENTRAL PACIFIC-SOUTHERN
+ PACIFIC SYSTEM FROM 1870 TO 1893 140
+
+ IX THE CASE OF DAVID D. COLTON 154
+
+ X FINANCIAL DIFFICULTIES FROM 1870 TO 1879 169
+
+ XI THE RAILROAD COMMISSION OF 1880 TO 1883 181
+
+ XII THE SOUTHERN PACIFIC AND POLITICS 199
+
+ XIII WATER COMPETITION 222
+
+ XIV THE RATE SYSTEM OF THE CENTRAL PACIFIC 237
+
+ XV LOCAL RATES IN CALIFORNIA 257
+
+ XVI THE TRANSCONTINENTAL TARIFF 275
+
+ XVII THE TRAFFIC ASSOCIATION OF CALIFORNIA 293
+
+ XVIII THE SAN FRANCISCO AND SAN JOAQUIN VALLEY
+ RAILWAY 317
+
+ XIX OPERATING CHARACTERISTICS OF THE SOUTHERN PACIFIC
+ LINES 347
+
+ XX THE THURMAN ACT 370
+
+ XXI FINAL SETTLEMENT OF THE CENTRAL PACIFIC INDEBTEDNESS
+ TO THE GOVERNMENT 395
+
+ XXII THE SOUTHERN PACIFIC MERGER CASES 425
+
+ XXIII OIL AND TIMBER LAND LITIGATION 441
+
+ XXIV FINAL REMARKS 454
+
+
+
+
+ILLUSTRATIONS
+
+
+ PAGE
+
+ “The Golden Gate” (_Frontispiece_)
+
+ Theodore Dehone Judah (opposite) 6
+
+ Sketch of train on the Sacramento Valley Railroad 1860 ” 10
+
+ Leland Stanford ” 16
+
+ Henry P. Coon ” 32
+
+ Chas. Crocker ” 66
+
+ Summit Valley, Emigrant Mountain and Railroad Pass ” 72
+
+ Summit tunnel before completion—Sierra Nevada Mountains ” 80
+
+ Map of Oakland and Brooklyn 93
+
+ Boundaries of Railroad Tide-Land Grant, as proposed in 1868 96
+
+ Map of California Pacific Railroad 106
+
+ Map showing northern end of the San Francisco and San José
+ Railroad in 1862 121
+
+ Proposed route of the Southern Pacific Railroad, January 3, 1867 124
+
+ View south from over the San Fernando tunnel—Southern Pacific
+ Railroad (opposite) 128
+
+ David D. Colton ” 160
+
+ Mark Hopkins ” 176
+
+ George Stoneman ” 192
+
+ C. P. Huntington ” 208
+
+ Chart showing rates on second-class freight and on grain in the
+ Sacramento Valley, 1876 260
+
+ Chart showing rates on miscellaneous commodities in the San
+ Joaquin Valley, 1892 261
+
+ Diagram showing adjustment of freight rates between San Francisco
+ and Stockton, 1916 266
+
+ Diagram showing adjustment of freight rates between San Francisco,
+ Santa Rosa, and Sebastopol, 1916 268
+
+ Diagram showing adjustment of freight rates between Los Angeles
+ and points north and east of Los Angeles, 1916 269
+
+ Map showing the line of the San Francisco and San Joaquin Valley
+ Railway, together with portions of the systems of the Southern
+ Pacific and of the Atchison, Topeka and Santa Fé, 1898 325
+
+ Map showing mileage owned in 1913 by the Central Pacific Railway
+ and the Southern Pacific Railroad (opposite) 432
+
+
+
+
+ CHAPTERS ON THE HISTORY
+
+ OF THE
+
+ SOUTHERN PACIFIC
+
+
+
+
+CHAPTER I
+
+INCEPTION OF THE PROJECT
+
+
+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, and
+Central Pacific railroads, which possessed a mileage as great as 300
+miles, and when we recall that in 1860 the total railroad mileage of
+the states in this same territory amounted to only 6,000 miles, we are
+able to form some idea of the successful energy which created a system
+of 861 miles of railroad in the course of six and one-half years,
+across an unsettled country, in the face of obstacles due to climate,
+altitude, and distance from centers of traffic and of finance.
+
+The history of the Southern Pacific is significant, however, for still
+other reasons than because it illustrates what men can do in spite of
+serious difficulties. The company’s record is important to the student
+of transportation problems because there is embodied in it much of the
+experience of the Pacific Coast with respect to railroad construction,
+railroad finance, railroad rate-making, and the relation of railroad
+corporations to the public at large, as represented by local, state,
+and national governments. What the Pacific Coast, and what in
+particular the state of California know, first hand, of the habits and
+policies of railroad corporations, is mainly derived from contact with
+the Southern Pacific Railroad and its auxiliary companies.
+
+The narrative that follows is offered as a contribution from the far
+western portion of the United States which may help to explain the
+attitude of that section toward transportation matters; as well as an
+account of some phases of the earlier development of a railroad system
+which is now one of the most powerful in all the country, whether we
+compare this system with the railroads of the East or with those of the
+West.
+
+The Southern Pacific system today embraces lines from Ogden and New
+Orleans on the east, to Portland, San Francisco, and Los Angeles on the
+west. The part of the system first built, however, and at all times the
+most important part of it, is that section reaching from a few miles
+west of Ogden, Utah, to the cities of Sacramento and San Francisco.
+This portion of the larger system was built and is owned by the Central
+Pacific Railroad Company.[1] It is therefore to the circumstances
+attending the construction of this portion of the line that attention
+will first be directed.
+
+
+Early Activities of Theodore Dehone Judah
+
+The promoter of the Central Pacific Railroad was a young engineer named
+Theodore Dehone Judah. Judah was born in Bridgeport, Connecticut. He
+obtained his first experience in railroad building on the Troy and
+Schenectady Railroad in New York. Later he built a railroad down the
+gorge of the Niagara River to Lewiston, served as resident engineer
+on the Erie Canal, and in 1854 had charge of the Buffalo and New
+York Railroad then building to connect with the Erie. This was a
+responsible position for a man with so brief a period of training.
+When Judah came to California in 1854 he was only twenty-eight years
+of age. He was soon to make it evident, however, that he possessed
+more than respectable engineering ability, while he also displayed a
+capacity for sustained enthusiasm in connection with the project for
+a transcontinental railroad which eventually overcame all obstacles
+and resulted in the formulation of definite and successful plans for a
+transcontinental line.[2]
+
+Judah began work in California as engineer of the Sacramento Valley
+Railroad. He left the service of the company, however, before the
+road was finished to Folsom. Subsequently he made a survey for a
+railroad from Sacramento to Benicia, and also one for a short branch
+on the California Central Railroad. Still later he was employed by
+the trustee of the Sacramento Valley Railroad, J. Mora Moss, and the
+superintendent, J. P. Robinson, to explore the Sierra Nevada Mountains
+for wagon road routes north of the south fork of the American River,
+and at the same time to act as agent for the Sacramento Valley Railroad
+in soliciting freight.
+
+Details of Judah’s activities between 1854 and 1860 are difficult to
+obtain. We know that he visited Washington in order to procure the
+passage of a bill making grants of land to California for railroad
+purposes. In 1859 he was the delegate from Sacramento to the Pacific
+Railroad Convention, where he urged the importance of a thorough
+survey before any decision should be made regarding the route of a
+transcontinental railroad. When the convention adjourned he was sent to
+Washington at his own expense to urge the passage of a bill such as
+the convention favored. He returned in 1860 without having accomplished
+his purpose, but convinced that Congress was in favor of granting
+federal aid to a railroad to California from the East, and that it
+would act when more important matters had been disposed of.[3]
+
+
+Discovery of Transcontinental Route
+
+It was after Judah’s return from Washington in 1860 that he undertook
+the explorations for the Sacramento Valley Railroad to which reference
+has been made. Doubtless while engaged on this work he visited Dutch
+Flat, and doubtless also his enthusiasm for a transcontinental railroad
+became generally known. Judah was no mountaineer, but he could readily
+profit by the knowledge of men acquainted with the country. Such a man
+he found in Daniel W. Strong, a druggist at Dutch Flat, who accompanied
+him on his explorations. We have Strong’s statement that he himself
+conceived the idea that immigrant travel could be diverted through the
+Dutch Flat country by the construction of a railroad, and that he hired
+assistants, made a reconnaissance, and found a continuous divide over
+which he thought a road could pass. Knowing that Mr. Judah was trying
+to find a pass over the mountains, he wrote to him, and Judah came from
+Sacramento to Dutch Flat. Strong says that he showed Judah the route he
+had discovered, and that Judah thought well of it.[4]
+
+[Illustration: Theodore Dehone Judah]
+
+Such is Strong’s testimony given years afterwards, when the Central
+Pacific had proved a success, and it was a distinction to have been
+connected with it. It is possible that Strong overestimated his
+contribution to the work. Yet the essential fact is that Judah was in
+the mountains in August, 1860, and that he or Strong, or both of them
+hit upon a route which Judah pronounced practicable. One may hazard
+the guess that Strong pointed out a pass and Judah tested it with
+instruments.[5] Mrs. Judah repeats the story as she heard it:
+
+ It was in the drug store of Dr. Strong at Dutch Flat that the first
+ profile was marked out from notes taken by them (Judah and Strong).
+ Judah could not sleep or rest after they got into town and the store,
+ till he had stretched his paper on the counter and made his figures
+ thereon. Then, turning to Dr. Strong, [he] said for the first time,
+ “Doctor, I shall make my survey over this, the Donner Pass, or Dutch
+ Flat route, above every other.”[6]
+
+
+Appeal for Funds
+
+Judah drew up articles of association for a company late in 1860, and
+endeavored to get subscriptions for stock, but without much success.
+Meanwhile, the publication in the newspapers of information relating
+to the Dutch Flat route cost him his position with the Sacramento
+Valley Railroad, for the trustee of the company, J. Mora Moss, took the
+position that the information acquired by Judah while an employee of
+the Sacramento Valley belonged to the railroad company, and should not
+have been published without its consent. It is said that Judah was very
+indignant, but to no avail.[7]
+
+By October or November, 1860, the record thus shows that Judah had
+satisfied himself of the existence of a railroad route across the
+Sierras, and that he was intensely interested in having this railroad
+built. He was not personally a man of capital, although not entirely
+without means, and success in transforming his bare project into an
+actual operating line depended entirely upon the financial support
+which he could obtain. In November, accordingly, we find Judah
+endeavoring to give wide circulation to the results of his discoveries.
+
+Under date of November 1, 1860, a circular letter was issued directing
+the attention of the public to “some newly discovered facts with
+reference to the route of the Pacific Railroad through California.”
+This letter asserted that a practicable line had been discovered “from
+the city of Sacramento upon the divide between Bear River and North
+Fork of the American, via Illinois Town and Dutch Flat, through Lake
+Pass on the Truckee River, which gives nearly a direct line to Washoe,
+with maximum grades of 100 feet per mile.” The estimated length of
+line in California was 115 miles. It was said that if the Pacific
+Railroad bill then pending in Congress should be passed, providing an
+appropriation of $13,000 per mile from the navigable waters of the
+Sacramento River to the base of the Sierra Nevadas; thence $24,000
+per mile to the summit; thence an additional $3,000 per mile for
+each degree of longitude crossed until the 109th degree was reached,
+the entire road could be graded without appeal to private investors,
+leaving only the iron, rolling stock, etc., to be provided from private
+means. The projected railroad might connect with the Sacramento Valley
+Railroad at Folsom, or with the California Central Railroad at Lincoln.
+Subscriptions were asked to an amount of $1,000 per mile for 115 miles,
+with 10 per cent paid in, to allow the organization of a company under
+the state law; and it was promised that the money subscribed would be
+used to make a thorough, practical railroad survey.[8]
+
+In a letter dated the previous day, and addressed to John C. Burck,
+member of Congress from California, Judah added a few details:
+
+ We go out of Summit Valley through what I call Lake Pass, while
+ Fremont’s route, or the old Emigrant road, goes over Truckee Pass,
+ which is about 700 feet higher, and a few miles off my route. We
+ strike the foot of Truckee Lake, or the cabins of the Donner party,
+ nine miles from the summit, and from there it is an easy grade down
+ the Truckee River, descending about 40 feet per mile, over a smooth
+ country. The elevation of the pass is 6,690 feet. There are two other
+ passes leading out of Summit Valley, which I had not time to explore,
+ but either of them are practicable, although a little higher. This
+ route is at least 150 miles shorter than the Beckwourth route; crosses
+ the state at the narrowest point, and is on a direct line to the
+ Washoe mines. I will undertake to build a railroad over this route in
+ two years, for $70,000 per mile, from Sacramento City to the state
+ line or Washoe. Thus the question of crossing the Sierra Nevada, I
+ consider solved.
+
+After the tentative organization of his proposed railroad, and
+the publication of the news of his discoveries in the newspapers,
+Judah went to San Francisco. He managed to get in touch with some
+capitalists, but was unable to secure their support. If Congress did
+not pass a Pacific Railroad bill, they said, no railroad could be
+built; if a bill was passed, the road still could not be completed for
+ten or twenty years. They had other interests, and were disinclined to
+consider a scheme of this sort, however technically feasible. If we may
+believe the newspapers of the time, no inconsiderable reason for the
+reluctance of the men approached was the provision of the constitution
+of California making stockholders liable for their proportion of all
+the debts and liabilities of any company in which they held stock.[9]
+
+
+Sacramento Meetings
+
+When he failed to secure support in San Francisco, Judah went to
+Sacramento. The city of the plains, as it was then affectionately
+called by its inhabitants, was less wealthy than San Francisco, but for
+that very reason might be expected to take an interest in a project
+which promised her, for some years at least, a position of relative
+advantage with respect to the trade of the interior. The leading
+newspaper in that city, the _Sacramento Union_, could be counted on to
+support any plausible Pacific railroad scheme for political reasons.
+The citizens had further the advantage of first-hand experience with
+the workings of the Sacramento Valley Railroad, which had been opened
+from Sacramento to Folsom in 1856, and was still the only railroad in
+the state.
+
+It does not, however, appear that these various factors stirred the
+people of Sacramento to any extraordinary enthusiasm over Judah’s
+scheme, or that they regarded him in any other light than that of an
+engineer with a risky plan, which it was very desirable to have someone
+other than themselves finance. Judah, however, called a meeting at a
+local hotel, and people came. He told them he had made twenty-three
+barometrical reconnaissances over the Sierras, and had found a line.
+He needed money to carry the project further, in particular to make
+a thorough instrumental survey, and he asked them what they would
+subscribe. Nobody subscribed very much. Huntington says that some gave
+a barrel of flour, and some a sack of potatoes. Still, the additional
+subscriptions necessary to the legal organization of Judah’s company
+probably amounted to as much as $56,500[10] on the 115 miles of line
+contemplated, and small miscellaneous offerings were not likely to
+carry the promoter very far.
+
+
+Collis P. Huntington
+
+It is at this juncture that we first hear the names of Collis P.
+Huntington, Leland Stanford, Charles Crocker, and Mark Hopkins, all
+prosperous business men in Sacramento. Huntington and Hopkins ran
+one of the largest hardware stores in the town. Stanford and Crocker
+were merchants, and in addition, Stanford had dabbled in California
+politics to the extent of becoming a candidate for the position of
+state treasurer in 1857 and for that of governor in 1859, getting badly
+beaten on both occasions. It is difficult, even at this late date,
+to estimate the qualities of the four men with confidence. Beyond
+question, Huntington had the greatest genius for business of the four.
+Born in Connecticut, and self-supporting from the age of fourteen, he
+was a trader _par excellence_. In his youth he peddled watch findings
+from New York to the Missouri River. Later, it is related of him that
+he started for California with a capital of $1,200, which he increased
+to $4,000 during an enforced stay of three months on the Isthmus of
+Panama. He was cool, calculating, unscrupulous, a tireless worker,
+and a man with few interests outside of work. Enterprise for the
+public good interested him little. He had few friends, and some of
+these he lost in later years. Narrow in his sympathies, vindictive,
+sometimes untruthful, sarcastic, and domineering, he gained his success
+through the keenness of his mind and the energy and persistence of his
+character, and also through qualities of courage and imagination which
+were not absent from his business plans.
+
+[Illustration: Sketch of train on the Sacramento Valley Railroad,
+1860]
+
+
+Leland Stanford
+
+Stanford was a New York lawyer, who had practiced four years in
+Wisconsin between 1848 and 1852, and had emigrated to California in the
+last-named year to seek his fortunes in that state. Stanford came to
+California poor as the proverbial church mouse. Bassett, who was later
+his secretary, and who was likely to know the facts, says that two of
+Stanford’s brothers set him up in business in El Dorado County, near
+Latrobe, with a stock of miners’ supplies. Here Stanford remained a
+while, in partnership with a man named Smith. Stanford and Smith were
+said to have done a good business. They thought they were making money
+until they found that the San Francisco firm with which they dealt was
+charging them interest on unpaid balances; whereupon they promptly
+closed up, retiring with their debts paid, but with very little cash.
+
+From El Dorado County Stanford went to Michigan Bluffs, in Placer
+County, still trading, and in 1855 he moved to Sacramento to take over
+the business which his brothers had established there. Presumably his
+operations in Michigan Bluffs had provided him with a little capital.
+What was quite as much to the point, he had made a number of friends
+in the mining district, and it is not unreasonable to suppose that his
+attention had been directed toward politics. In 1857 and 1859, as has
+been mentioned, he ran for office, but without success. About this time
+a prospector in the vicinity of Auburn struck a rich pocket of decayed
+quartz. He knew Stanford, and put his name down for an interest in the
+claim. From this mine Stanford is reported to have cleaned up about
+$60,000, a sum which put him in comparatively easy circumstances. In
+1861 Stanford ran again for the office of governor, and this time was
+elected on the Republican ticket. He cannot be said to have yet shown
+any talent for statesmanship, but he was known as a staunch Union man
+and a faithful Republican, and he had a local popularity besides, which
+could be trusted to bring in some votes. After his term of office as
+governor, Stanford held no political position until 1885, when he
+was elected United States senator in place of A. A. Sargent. This
+office he retained until his death. He appears at one time to have had
+aspirations towards the presidency of the United States, though his
+candidacy could hardly have been considered seriously. Certainly he
+served with distinction neither as governor nor as senator.
+
+Stanford’s most marked traits were tenacity of purpose, and a certain
+rude energy in execution. His associates credited him with great
+solidity of judgment. Like Huntington, he was unscrupulous in the
+methods which he employed to reach his ends, but, unlike him, he showed
+ambition if not capacity outside of the business field. In private
+life, Stanford was distinguished by his love of horses, and by his
+donations to the university founded in memory of his son. One must hold
+him inferior to Huntington in business affairs, vain and extravagant.
+Yet not only his political influence, but the virile power of the man,
+the attitude of mind which once led an enemy to say of him that “no she
+lion defending her whelps or a bear her cubs, will make a more savage
+fight than will Mr. Stanford in defense of his material interests,”
+were invaluable to the transcontinental railroad project in the years
+of its development.[11]
+
+
+Crocker and Hopkins
+
+The other two members of the quartette may be dismissed with fewer
+words. Charles Crocker had no more education than Huntington. He
+had been peddler, iron maker, gold miner, and trader. In 1855 he
+was alderman of the city of Sacramento. First and last, his strong
+point was the handling of men. It was Crocker who drove the work of
+construction, roaring up and down the line, as he put it, like a mad
+bull. In deciding the larger problems of policy which arose later,
+there is no evidence that he had an important part. Indeed, Crocker
+endeavored to sell his holdings to his associates in 1871, and only
+continued in the organization because the others proved unable to buy
+him out.[12]
+
+Last of all, we have to mention Mark Hopkins, the “inside man.” Hopkins
+died in 1878, so that his connection with railroad work lasted only
+fourteen years, and during part of this time he was ill. Less is known
+of him than of any of his associates. He was the man of detail, the
+careful scrutinizer of contracts. He was Huntington’s partner in the
+hardware business for twenty-four years, and yet in all that time,
+according to Huntington, he never bought or sold as much as $10,000
+worth of goods.[13] That is to say, he was no trader. Bancroft speaks
+of him as the balance wheel in the business. We hear of him later as
+objecting to personal indorsements by the partners of Central Pacific
+notes. Mr. Crocker once said of him that he was a long-headed man
+without much executive ability but a wonderfully good man for an
+executive officer to counsel with. Possibly such a man played a useful
+part in the Central Pacific organization.
+
+
+Survey Financed
+
+Huntington, Stanford, Hopkins, and Crocker knew each other as merchants
+will. Crocker and Stanford may also have met in a political way. The
+four of them seem to have been friends, at least as early as 1860.
+Now it appears that Huntington and Crocker, and possibly Stanford and
+Hopkins also, attended one of Judah’s meetings in Sacramento, and were
+somewhat impressed by his statements. This was the second stage in the
+Central Pacific enterprise, when the promoter was in the presence of
+capitalists, and was seeking to convince them that a probability of
+profit lay in his plans. Huntington says that he spoke to Judah after
+the public meeting, and that Judah came to his house the following
+evening. He adds that subsequently he, Huntington, talked with Hopkins
+and Stanford, and persuaded them to join him in contributing the money
+necessary to finance an instrumental survey across the mountains. Other
+persons who agreed to share in the expense were Charles Marsh, James
+Peel, L. A. Booth, and Judah himself—each assuming one-seventh of the
+cost.[14] Charles Crocker was brought in a little later.
+
+The attitude of all these men was of course cautious. Judah had caught
+their attention, but as yet they would not commit themselves very far.
+The survey might cost them fifteen or twenty thousand dollars apiece,
+and they might never go further with the scheme. They thought they
+could build a railroad if anyone could, and there might be money in
+it, yet they knew that even to finance surveys involved considerable
+risk.[15]
+
+
+Likelihood of Government Aid
+
+Although we have no direct evidence to this effect, it seems very
+probable that the chance of profit to be secured in building a
+transcontinental railroad under government auspices stood out more
+prominently in the eyes of Huntington and his friends than any
+consideration of the ultimate earnings of the railroad, once it should
+have been built. What should two dry goods merchants and two dealers
+in hardware, who knew nothing first hand about railroad operation,
+have cared about the administration of a railroad 800 miles long?
+If they wanted interest on an investment, why money commanded 2 per
+cent a month in Sacramento itself. Only the prospect of still greater
+gains was likely to attract a speculative trader like Huntington, and
+the source of such profit could be found only in construction of the
+road. If this was the real inducement, and if the likelihood of a
+government subsidy was kept in mind from the first, it was fortunate
+for Mr. Judah that, owing to his familiarity with conditions both
+at Washington and in California, he was in a position to inform his
+prospective clients of the likelihood of government aid no less fully
+and authoritatively than he could advise them concerning routes over
+the Sierras.
+
+Indeed it was only on the question of government assistance that
+Judah could supply business men of Sacramento with information of a
+definite sort. He really knew little about the probable cost of a
+transcontinental line. In his original report of November, 1860, he had
+declared that the Central Pacific could be built for an appropriation
+ranging from $30,000 to $72,000 per mile, varying with the difficulty
+of the ground; but this was an estimate based on a very cursory
+examination of the line, and could pretend to no exactness. Possibly
+he was influenced by the fact that the Sacramento Valley Railroad had
+been contracted for in 1854 at $45,000 per mile, payable 44 per cent
+in capital stock of the company, 39 per cent in 10 per cent bonds, and
+17 per cent in cash. This was equivalent to perhaps $33,000 in cash.
+The contract price in this case did not include, however, the cost
+of right-of-way, depot grounds, and engineering expenses, for which
+additional stock was reserved.[16] Only one year later, when the first
+instrumental survey of the Central Pacific was completed, Judah was
+forced to change his estimate to $88,428 per mile for the first 140
+miles of that railroad, including 51 miles estimated at $1,000,000 per
+mile or above. Even these figures were later revised.
+
+
+Estimating Probable Earnings
+
+Nor was Judah’s information about probable earnings a great deal
+more trustworthy than that relating to probable costs. There are
+various ways of estimating the earnings which a new railroad is
+likely to secure—yet all of them may give curious results when
+applied to territory which has never enjoyed the benefits of any rail
+transportation at all, as was substantially the case with California
+before the Civil War. In general, engineers in California had to reckon
+with the facts that the population of the state was small; that it
+had only three cities of importance—San Francisco, Sacramento, and
+Stockton; that there was but one important business, mining; and that a
+dense traffic could accordingly be expected only in the distant future
+after the development of the country served. As a practical expedient
+most engineers in California who desired elaborate data had some more
+or less careful count made of the business moving over their projected
+route by pack train, wagon train, stage, or boat, and then made the
+broad assumption that this same volume, or this volume increased
+by an assumed factor, would move over a railroad during its early
+years. Such was the nature of the estimate made by the incorporators
+of the Sacramento Valley Railroad in 1853,[17] of the Stockton and
+Copperopolis in 1862,[18] of the Placerville and Sacramento Valley
+Railroad in 1863,[19] and of the North Pacific Coast in 1873.[20] Judah
+had no greater facilities than other engineers of the time, and in his
+own estimates followed the prevailing custom.[21]
+
+[Illustration: Leland Stanford]
+
+Estimates of this nature were not accurate, and it was unreasonable to
+suppose that they should be accurate. Judah in 1862 put the probable
+gross receipts of the Central Pacific on the first 160 miles out of
+Sacramento at $4,654,240, or $29,089 per mile. Mr. Montague, who
+succeeded him, estimated the annual receipts as far as Dutch Flat at
+$27,209 per mile and for the whole road, as far as Nevada Territory, he
+named the figures of $5,456,050, or $34,100 per mile. These were very
+optimistic figures. As a matter of fact, the earnings of the Central
+Pacific never much exceeded $14,000 a mile, and during the early
+period, up to 1870, were as often below $10,000 a mile as they were
+above it. If it had not been for an operating ratio which in 1866 and
+1867 touched the extraordinary figure of 23 per cent, and which did not
+reach 50 per cent until 1877, the owners of this road could scarcely
+have kept it out of receivers’ hands, so great was the miscalculation.
+
+
+Organization of Company
+
+We may assume, then, that Huntington and his friends went into the
+Central Pacific project as a speculation from which they hoped to
+retire with a profit derived largely from construction paid for out of
+government funds. Adopting this assumption, the next steps in advancing
+the enterprise may be briefly described. The meetings in Sacramento
+which have been mentioned took place in the winter of 1860-61. No
+progress in surveys could be made at that time, while the Sierra passes
+were covered with snow. In April, however, a meeting of subscribers
+to the stock of the Central Pacific Railroad was held in Sacramento,
+and on the 28th of June, 1861, a company was organized under the
+general law of the state, to be known as the Central Pacific Railroad
+of California. The capital of this corporation was set at $8,500,000,
+divided into shares of $100 each. The railroad contemplated was to
+run from Sacramento to the eastern boundary of California, over an
+estimated distance of 115 miles. Huntington, Hopkins, Stanford, and
+Crocker subscribed to 150 shares each, as did James Bailey and Theodore
+Judah. Charles Marsh took 50 shares, and other parties varying, but
+lesser amounts, to a total of 1,245 shares, or more than the $1,000
+per mile required by the law. Leland Stanford, Charles Crocker, James
+Bailey, Theodore D. Judah, L. A. Booth, C. P. Huntington, Mark Hopkins,
+D. W. Strong, and Charles Marsh were the first directors.
+
+
+Instrumental Survey Made
+
+As soon as the season permitted, Judah was sent back into the
+mountains, and in October, 1861, the directors had before them the
+substance of his second report, this time based on an instrumental
+survey. Judah now thought that a railroad from Sacramento to the state
+line would cost $12,380,000, or $88,428 per mile. He did not push his
+surveys beyond the point at which he reached the Truckee River, but
+from his general knowledge of the country he estimated that the 451
+miles between Lassen’s Meadows and Salt Lake could be built for $45,000
+per mile, and that the whole road of 733 miles could be constructed for
+$41,415,000, or an average of $56,500 per mile.[22]
+
+In every way this second report was a more careful piece of work
+than the one which had preceded it. The new route differed from that
+recommended in November, 1860, mainly in that it ran from Sacramento
+through Lincoln and Centralia instead of through Folsom, and also in
+the greater detail of its location. The principal characteristics of
+the line were two: (1) that it followed a nearly continuous ridge from
+Lincoln to the summit of the mountains, and (2) that east of the summit
+the road wound down the side of the mountain to Lake Truckee, following
+the Truckee River from the lake in the direction of Humbolt Sink, and
+entirely avoiding the second summit of the Sierras and the crossing of
+the Washoe Mountains.
+
+This is substantially the line of the Central Pacific today. The
+maximum grade which Judah allowed himself was 105 feet to the mile.
+Judah did not at this time re-examine alternative routes via Georgetown
+and via Henness Pass, which he had considered and rejected the previous
+fall. Nor did he refer to the line via Beckwourth’s Pass, the present
+route of the Western Pacific, which he later admitted to be easier in
+grade, if longer in distance, or to the possibility of a route directly
+east from Folsom via Placerville around the south end of Lake Tahoe. It
+is probable, however, that these two last-named routes were familiar to
+him in a general way, as considerable quantities of freight consigned
+to the Nevada mines were already moving over them.
+
+Emphasis should be laid upon Judah’s survey of October, 1861, because
+the continuance of the Sacramento capitalists in the enterprise
+depended upon its favorable outcome. After it was completed Huntington
+and his friends became, on the whole and except during certain
+intervals of weakness, inclined to see the project through even at
+the risk of their personal fortunes, provided reasonable government
+assistance could be secured. It was with this understanding that Judah
+went back to Washington in 1861 to procure the passage of needed
+legislation, and it was in this spirit that a formal beginning of
+construction upon the Central Pacific was made at Sacramento on January
+8, 1863.
+
+
+
+
+CHAPTER II
+
+RESOURCES FOR CONSTRUCTION—STATE AND LOCAL AID
+
+
+Source of Funds
+
+Some years after the Central Pacific and Western Pacific railroads were
+completed, Leland Stanford laid before a committee chosen by Congress
+the following memorandum showing the receipts of these two roads from
+all sources up to December 31, 1869:
+
+MEMORANDUM SHOWING THE RECEIPTS OF THE CENTRAL AND WESTERN PACIFIC
+RAILROADS FROM ALL SOURCES TO DECEMBER 31, 1869
+
+ Approximate
+ Par Sum
+ Source of Funds Value Realized
+
+ United States bonds issued to Central and
+ Western Pacific $27,855,680 $20,735,000
+ Central and Western Pacific first mortgage
+ bonds 27,855,560 20,750,000
+ Central Pacific convertible bonds 1,483,000 830,000
+ Central Pacific state aid bonds 1,500,000 980,000
+ City and County bonds:
+ San Francisco to Central Pacific 400,000 300,000
+ Sacramento to Central Pacific 300,000 190,000
+ Placer County to Central Pacific 250,000 160,000
+ San Francisco to Western Pacific 250,000 175,000
+ San Joaquin County to Western Pacific 250,000 125,000
+ Santa Clara County to Western Pacific 150,000 100,000
+ Land sales, balance Central Pacific 107,000
+ Profit and loss balance, January 1, 1870 1,610,000
+ ———————— ———————————
+ Total $46,062,000
+ Company owed Contract and Finance Company 1,827,000
+ ———————————
+ Grand total $47,889,000
+
+We have in the foregoing table a summation of the resources on which
+Judah and the Huntington group were able to draw in order to build a
+transcontinental road. It will be noticed that there is no mention
+in the table of the personal fortunes of the associates, unless the
+contribution of these gentlemen appears in the profit and loss balance,
+or in the debt to the Contract and Finance Company—none of the
+earnings of the railroad during construction, and none of the proceeds
+of the sale of Central Pacific capital stock. Under these categories
+some slight addition to Stanford’s list must probably be made, though
+the importance of the addition will not be great.
+
+Collectively the fortunes of the associates, while considerable, were
+not sufficient to cover more than the preliminary expenses of the work.
+Judah had but little capital, while, according to Huntington’s own
+statement some years later, the combined assets of Stanford, Crocker,
+and the firm of Huntington and Hopkins, amounted to something like
+$1,000,000 when the construction of the Central Pacific was begun.[23]
+Other estimates put the figure at $160,000,[24] or even as low as
+$109,000.[25] We do not know, as a matter of fact, how much property
+the associates possessed, but we do know that it was slight compared
+with the undertaking which they had in hand.
+
+
+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 to
+$2,427,533.80.[26] Most of these earnings came from local business,
+although an attempt was made to provide facilities for through travel
+before 1869, by arranging stage accommodation for stretches not yet
+covered by rails.
+
+If we add three or four million dollars to the receipts listed in
+Stanford’s table, we shall have made liberal allowance for railroad
+earnings and partnership contributions up to 1869. This allowance
+would not be materially increased if account were taken of sales of
+Central Pacific stock. The authorized stock issue of the Central
+Pacific Railroad in 1862 was $8,500,000. In 1864 this was raised
+to $20,000,000, and in 1868 it was made $100,000,000. In spite of
+these large issues, the evidence is perfectly clear that there were
+substantially no cash subscriptions to Central Pacific stock, nor any
+market for this stock when issued. It is on record, for example, that
+one M. D. Boruck opened an office at the corner of Bush and Montgomery
+streets in San Francisco on behalf of the company, and kept it open,
+off and on, for about twenty-two days in November and December, 1862,
+and in February, 1863. He secured three subscriptions to an aggregate
+of twelve or fifteen shares.[27]
+
+We know also that Crocker went personally to Virginia City to sell
+stock, but without success. He says of this experience:
+
+ They wanted to know what I expected the road would earn. I said I did
+ not know, though it would earn good interest on the money invested,
+ especially to those who went in at bed rock. “Well,” they said, “do
+ you think it will make 2 per cent a month?” “No,” said I, “I do not.”
+ “Well,” they answered, “we can get 2 per cent a month for our money
+ here,” and they would not think of going into a speculation that would
+ not promise that at once.[28]
+
+Stanford says that he bought 2,300 shares of Central Pacific at
+ten cents on the dollar at one time, in order to accommodate a
+stockholder,[29] and it appears that Charles and A. B. Crocker
+transferred their stock to Huntington, Hopkins, and Stanford in 1873,
+for $13 a share.[30] No attempt to sell Central Pacific stock generally
+was made until 1873, and it was not listed on the Stock Exchange until
+1874.[31]
+
+
+Bond Sales
+
+As a matter of fact, there was no sale at the beginning even for
+Central Pacific mortgage bonds. Huntington went to New York to get
+these securities started among the moneyed men there, and after a while
+he had some small success. But D. O. Mills gave it as his deliberate
+judgment on a later occasion that there was the greatest difficulty in
+securing loans on the bonds the Central Pacific had to offer—including
+government, county, convertible, state aid, and first mortgage
+bonds—to as much as 75 per cent of the face value of the issues.[32]
+Iron for the first 50 miles out of Sacramento was delivered to the
+associates only after they had given their own personal obligations
+secured by deposit of the company’s bonds. An agreement was entered
+into, besides, that Huntington and his friends would be responsible,
+as individuals, for ten years, for the payment of interest on these
+bonds.[33]
+
+After 1864 conditions improved somewhat, and first mortgage bonds were
+disposed of at about 75, while convertible and state aid bonds brought
+56 and 65 respectively.[34] Yet at the time when the construction of
+the Central Pacific Railroad was finished the private property of every
+one of the directors of the company was mortgaged up to the limit of
+all his individual credit would possibly allow and bear. The notes of
+the four associates were outstanding everywhere, many of them bearing
+interest rates as high as from 10 to 12 per cent, and the statement is
+made that Leland Stanford alone upon one occasion had his account at
+the bank overdrawn to the extent of $1,300,000.[35]
+
+The consideration of possible Central Pacific Railroad receipts, other
+than those derived from government aid and perhaps from the sale of
+the company’s first mortgage bonds, brings us back to Stanford’s list
+as containing substantially all the assets upon which the promoters of
+the Central Pacific were able to rely. Almost half of these assets were
+derived directly from political bodies of one type or another, and the
+value of the remainder of those assets was dependent for the most part
+upon the security which was afforded by the government donations made
+to the company.
+
+
+State and Local Grants
+
+Let us now consider with more care the circumstances under which
+the local and federal authorities extended such generous aid to the
+transcontinental project, and the extent and quality of the aid given.
+We may begin with the state and local grants, and in order to assist
+the reader, a portion of the table which was printed on page 21 will
+be set forth again at this point in slightly changed form. As thus
+presented the table is as follows:
+
+AID DERIVED BY CENTRAL AND WESTERN PACIFIC RAILROADS FROM STATE AND
+LOCAL GOVERNMENTS IN CALIFORNIA
+
+ Approximate
+ Par Sum
+ Source of Aid Value Realized
+
+ Aid by Cities:
+ San Francisco, donation to Central
+ Pacific $400,000 $300,000
+ Sacramento, subscription to Central
+ Pacific 300,000 190,000
+ San Francisco, donation to Western
+ Pacific 250,000 175,000
+
+ Aid by Counties:
+ Placer County, subscription to Central
+ Pacific 250,000 160,000
+ San Joaquin County, subscription to Western
+ Pacific 250,000 125,000
+ Santa Clara County, subscription to Western
+ Pacific 150,000 100,000
+
+ Aid by State:
+ Assumption of interest for twenty years on
+ $1,500,000 7 per cent bonds.
+
+
+Arguments for Local Aid
+
+Aid from local political bodies was considered legitimate in the early
+sixties, and was extended freely to a great number of corporations.
+Voters were told that the construction of railroads increased land
+values. Until transportation should be improved, it was argued,
+agriculture could make but little progress, because the products of
+agriculture could not be brought to market. The mining interest was
+depressed in 1870, and in partial explanation publicists pointed out
+that freight charges to the mines ranged from $50 to $180 a ton. Nor
+was even more precise calculation lacking. An advocate of subsidies in
+1870 stated:
+
+ It costs for passage to San Francisco from Visalia $25 and consumes
+ generally a day and a half. By rail the trip could be made in eight
+ hours, at a cost of $10, thus saving $15 and nearly a day in time.
+ If on the average, each adult makes one visit per annum to the upper
+ country, and taking 1,300, the number of registered voters, as the
+ adult population, it costs every passenger for the round trip $50 in
+ cash and three days in time—excess over railway fare, $30; board for
+ two extra days, $4; value of time at $2 per day, $4; total excess,
+ $38; total loss to 1,300 passengers, $49,400. I contend, therefore,
+ that the people of Tulare County are now actually paying, in addition
+ to the loss or inconvenience resulting from isolation from market,
+ the sum of $77,780 per annum, for the privilege of being without a
+ railroad.
+
+There was little that was novel in this sort of argument, or in the
+further contention that the increase of the tax roll of the counties,
+due to railroad construction, would yield a revenue more than
+sufficient to cover the taxes incident to the granting of a subsidy.
+Better transportation meant wider markets, denser population, higher
+values. Increasing values and volume of sales meant larger profits,
+higher wages, lower prices, and generally growing prosperity. These
+things were matters of reasonable anticipation, so that hard-headed
+business men had quite as much ground as usually underlies business
+action to approve of even a considerable pledge of state and county
+property in order to hasten the building of a railroad system. It could
+not be known whether or not railways would be constructed without
+subsidies. As we look at the situation today it seems probable that
+this would have been done, and that railroad building would not even
+have been greatly delayed. The risk in waiting was, however, great,
+and the difficulties of a conservative policy were enhanced by the
+competition of towns, each seeking priority of railroad connection.
+
+
+Playing Towns Against Each Other
+
+There is evidence that the promoters of the Central Pacific were
+perfectly aware of the possibilities of securing local subsidies by
+playing one California town against another. Huntington wrote David D.
+Colton in 1871 that the company ought to get a large amount of land and
+other good things from parties having interests along the line between
+Spadra and San Gregorio Pass, if it would build them a railroad on
+which to get out.[36] T. G. Phelps, president of the Southern Pacific,
+speaking in the same vein, told Colonel Baker, of Tulare, that it was
+his private opinion that if that county would donate $100,000 to the
+company, it would run its road through the town of Visalia. We also
+know that pressure was brought to bear upon the city of Stockton, to
+induce that city to grant a right-of-way, as well as other privileges,
+to the Western Pacific,[37] and it is notorious that the fears of San
+Francisco were played upon in order to obtain terminal facilities on
+San Francisco Bay.
+
+How this policy appeared from the point of view of the opponents of the
+Central Pacific, may be gathered from a description offered by a member
+of the Constitutional Convention of 1878:
+
+ They start out their railway track and survey their line near a
+ thriving village. They go to the most prominent citizens of that
+ village and say, “If you will give us so many thousand dollars we will
+ run through here; if you do not we will run by,” and in every instance
+ where the subsidy was not granted, that course was taken, and the
+ effect was just as they said, to kill off the little town. Here was
+ the town of Paradise, in Stanislaus County; because they did not get
+ what they wanted, they established another town 4 miles from there.
+ In every instance where they were refused a subsidy, in money, unless
+ their terms were acceded to, they have established a depot near to the
+ place, and always have frozen them out. As stated by the gentleman
+ from Los Angeles, General Howard, they have blackmailed Los Angeles
+ County $230,000 as a condition of doing that which the law compelled
+ them to do.
+
+
+County Stock Subscriptions
+
+Perhaps the earliest California statute in aid of railway construction
+was the act approved May 1, 1852, granting to the United States a
+right-of-way through the state for the purpose of constructing a
+railway from the Atlantic to the Pacific oceans.[38] In 1857 the
+supervisors of Yuba County were authorized to submit to the electors
+of that county a proposal to subscribe $200,000 to a railroad between
+Marysville and Benicia.[39] And during the following two years the
+San Francisco and Marysville Railroad not only received a land
+grant,[40] but secured an enactment, making it the duty of the Board
+of Supervisors of Sutter County to submit to popular vote the question
+of a $50,000 subscription to its capital stock,[41] and the duty of
+the supervisors of Solano and Yolo counties to call elections in those
+counties with similar intent.[42] No subscriptions were made under
+these acts.
+
+It seems to have been the intention of the legislature to treat the
+Central Pacific and the Western Pacific railroads after the same
+general fashion as other railroads had been treated—that is to say,
+to allow counties and cities interested to subscribe freely to their
+stock. By virtue of an act dated April 16, 1859, any county could so
+subscribe up to 5 per cent of its assessment roll when popular approval
+had been secured.[43] This was not, however, enough. Between March 21,
+1863, and April 4, 1864, the legislature passed eight acts granting
+special concessions to the Central Pacific and to the Western Pacific.
+Mr. Stanford had become governor of the state in January, 1862, and
+this legislation had of course his cordial approval.
+
+In March, 1863, the supervisors of San Joaquin County were authorized
+to hold a popular election on the question of subscribing $250,000 to
+the capital stock of the Western Pacific.[44] In April, Placer County
+was authorized to consider a subscription of equal amount to the stock
+of the Central Pacific.[45] Next, Santa Clara County was authorized to
+hold an election and to subscribe $150,000 to the Western Pacific, if
+it so desired.[46] Sacramento received the same privilege in April,
+to the extent of being permitted to take 3,000 shares of the Central
+Pacific,[47] and was in addition allowed to give away rights-of-way
+and certain rights of construction of considerable though indefinite
+value;[48] while San Francisco was permitted to subscribe $400,000 to
+the stock of the Western Pacific and $600,000 to that of the Central
+Pacific, making $1,000,000 in all.[49]
+
+Invariably subscriptions contemplated in the acts were to be made in
+bonds running twenty or thirty years, and bearing 7 or 8 per cent
+interest. Counties were to enjoy the usual privileges of stockholders,
+but were protected by special clauses against the proportional
+liability for debts of the corporation resting upon the ordinary
+stockholder by virtue of state law. The proceeds of county bonds issued
+in subscriptions were to be used for construction of the road, and it
+was provided that at least an equal amount of other funds obtained
+from stockholders was to be so used. It was thus the intention of the
+legislature that funds for construction should not be entirely derived
+from county subsidies.
+
+
+Direct State Aid
+
+In addition to the acts permitting county subscriptions, mention
+should be made of two important acts by which the state granted direct
+assistance. The first of these laws was dated April 25, 1863. It
+authorized the comptroller of the state to draw warrants in favor of
+the Central Pacific to the extent of $10,000 per mile, the warrants to
+be issued when the first 20 miles, the second 20 miles, and the last 10
+out of 50 miles were finished. These warrants were to bear 7 per cent
+interest if not cashed, because of lack of money in the treasury to pay
+them.[50]
+
+The second act, dated April 4, 1864, repealed the act just quoted, and
+proposed that the state government, instead of drawing warrants, should
+assume interest on 1,500 of the company bonds, bearing 7 per cent, and
+running for twenty years. This grant, like the earlier one, was made
+on certain conditions, such as that the company should transport free
+of charge public convicts going to the state prison, material for the
+construction of the state capitol, troops, munitions of war, and the
+like, that it should construct at least 20 miles of line annually,
+and in the case of the Act of 1864, that it should deed over certain
+granite quarries in Placer County.[51]
+
+On the face of it this grant was illegal, because of clauses in the
+state constitution which forbade the legislature to create liabilities
+in excess of $300,000 without submitting the proposal to popular vote,
+or to loan or give the credit of the state in any manner, in aid of any
+individual, association, or corporation.[52] But it was sustained on
+the theory that the act amounted to an appropriation in anticipation of
+revenue, and so did not create a debt at all. Thus the company was able
+to draw its first interest money in January, 1865.[53]
+
+
+Opposition to Aid in San Francisco
+
+The various acts just referred to were of course permissive, yet in
+general the counties seemed very willing to give up to the limit of
+their legal power. The two exceptions were the county of Placer and
+the city and county of San Francisco. In Placer County there was a very
+active campaign against the bonds, supported by newspapers such as the
+_Placer Herald_ and the _Advocate_. The proposal for a bond issue was
+carried, but only by a majority of 409 in a total vote of 3,810.[54]
+
+In the case of San Francisco, the city delegation in the legislature
+divided five to five on the proposal to authorize the city to
+subscribe. When the law was finally passed, a long and interesting
+struggle ensued. The first step after the passage of the act was to
+hold an election in San Francisco in order to ascertain whether the
+people would approve of a subscription to railroad bonds. This election
+took place in May, 1863, and the necessary popular consent was secured.
+There is reason to believe, however, that illegitimate means were
+employed to carry the election. We have affidavits that Philip Stanford
+went to the polls at San Francisco in a buggy, carrying a bag of money;
+that the said Stanford put his hand frequently in the bag of money
+and took money, some $20 pieces and some $5 pieces, to a considerable
+amount therefrom, and scattered the said money among the voters at
+the said polls, at the same time calling on them to vote in favor of
+the said subscription. Another eyewitness confirmed this account,
+adding that while the sum of money spent by the said Stanford was
+considerable, he could not tell how much as the crowd around the buggy
+of the said Stanford was so great. Still another testified to having
+received a written order on Stanford and others for $20, in return for
+which he and a man named Ross were to endeavor to influence voters at
+the polls to vote for the subscription.[55]
+
+These affidavits were later supported by the assertion of Hon. William
+A. Piper, on the floor of the House of Representatives at Washington,
+to the effect that he, Piper, was an eyewitness at the election, and
+saw the brother of Leland Stanford openly going about the polling
+places, scattering gold and silver to influence and buy votes for
+the municipal subsidy. Statements of this sort are too detailed and
+circumstantial to be brushed lightly aside.
+
+[Illustration: Henry P. Coon]
+
+
+Resort to Court
+
+Whether or not the election of 1863 was tainted with corruption, as
+soon as it was concluded, San Francisco became bound, on or about the
+25th of May, 1863, to subscribe $600,000 and $400,000 to the stock of
+the Central Pacific and Western Pacific railroads, respectively. The
+fight against subscriptions, however, did not stop at this point. In
+an attempt to prevent action, suit was brought by a man named W. N.
+French against the Board of Supervisors, in the case known as “French
+v. Teschemaker.” French was a resident of San Francisco and a taxpayer.
+Teschemaker was a member of the Board of Supervisors. The suit alleged
+certain irregularities in the city election, but rested mainly on the
+contention that the act authorizing the city and county to subscribe
+was void and of no effect, because it provided that the city and county
+should not be liable for any of the debts or liabilities of either the
+Central Pacific or the Western Pacific railroads beyond the amount
+subscribed, and that this provision as to liability should be a part of
+all contracts made by the companies for the construction and equipment
+of their roads. According to counsel, this was an attempt to create an
+exemption from the proportionate liability imposed on all stockholders
+by the state constitution, and was not only void in itself, but its
+lack of force invalidated the whole subscription, since it was not to
+be supposed that the legislature would have passed the other clauses of
+the act without the section in question.
+
+On the 23d of May, 1863, Judge Sawyer of the Twelfth Judicial District
+granted a temporary injunction. On appeal to the Supreme Court,
+however, this injunction was overruled. The court said:
+
+ True, the legislature cannot exempt the city and county from
+ liability, but it can authorize the corporation to refuse to contract
+ with persons who do not waive the proportionate liability established
+ for their protection. How the individual liability of a stockholder
+ of a corporation can be a matter of public concern any more than the
+ liability of a copartner, we are unable to perceive, and we are not
+ aware that it has ever been claimed that the latter liability had its
+ foundation in public policy. It is merely a liability created by law,
+ as it might be by contract, and is intended only for the benefit of
+ those who may deal with corporations. It is but another fund to which
+ the creditor may look when the social fund has been exhausted, and
+ whether he chooses to look to it or not is a matter of no concern to
+ the public.... There being, then, only a question of private right
+ involved, there can be no question but that the party interested in
+ the enforcement of the right may contract to waive it.[56]
+
+
+Compromise Plan
+
+The opponents of municipal subscription now turned to the legislature,
+and secured the passage of an act authorizing the Board of Supervisors
+of San Francisco to compromise and to settle all claims upon the part
+of the Western Pacific Railroad and the Central Pacific Railroad for
+cash or other security, in place of bonds claimed by the companies,
+provided the power to make such compromise should rest in the Board of
+Supervisors only after and in case said board should be compelled by
+final judgment of the Supreme Court to execute and deliver the bonds
+specified in the act.[57]
+
+Pursuant to this act of April 14, 1864, the Board of Supervisors
+appointed a special committee from among their number to consider and
+report a plan for a compromise. This action was taken on May 23, and
+the mandamus requiring the supervisors to subscribe $600,000 to the
+stock of the Central Pacific, which was essential to the adoption
+of any compromise, was issued on June 7.[58] The committee met with
+Stanford, reported back to the board, and on June 20 the board passed
+order No. 582 providing that the city of San Francisco order, execute,
+and deliver to the Central Pacific 400 bonds for $1,000 each, in full
+discharge of all obligations on the part of the city and county to make
+any subscription to the capital stock of said company.
+
+Order No. 582 was duly approved by the mayor on June 21, and became
+law on that day. On June 29 the acceptance of the Central Pacific was
+signified to the board, in due form, and on June 27 the supervisors
+appointed Messrs. Torrey, Bell, and Titcomb a committee to deliver to
+the Central Pacific the 400 bonds, with interest coupons attached.
+Nevertheless the mayor, Henry P. Coon, the auditor, Henry M. Hale, and
+the treasurer of the city, Joseph S. Paxon, constituting the Pacific
+Railroad Loan Fund Commissioners, refused to issue the bonds. The
+result was a petition for a mandamus directed against these persons
+individually, which developed into the case of People v. Coon.
+
+
+Agreements in Mandamus Proceedings
+
+The main legal points raised in this new litigation were three:
+
+1. The conditions precedent to the issuance of the bonds under the act
+of 1864 had not been fulfilled, said the petitioner, in that the board
+of supervisors had not been compelled by final judgment of the Supreme
+Court to execute and deliver the bonds.
+
+2. The second contention was that the railroad company could not call
+upon the supervisors to issue bonds on the city’s subscription unless
+the railroad should call in from other subscribers the whole amount of
+their respective subscriptions, or until, under the Act of 1863, a sum
+at least equal to the amount of the bonds should have been expended on
+the road from other sources. That either of these things had been done,
+the defendants vigorously denied.
+
+3. It was also declared by defendants that the Act of 1864 had
+been misconstrued—that it did not relieve San Francisco from her
+subscription, but simply authorized the city to liquidate that
+subscription “in cash or other security” instead of in bonds. “We
+claim,” said counsel, “that the act authorized no more than the
+reduction of the amount of subscription and a change of the mode of
+payment to cash or other security in place of bonds. It does not
+authorize a donation of $400,000 or any other amount. In other words,
+it authorizes a subscription for any amount less than $600,000, payable
+in cash in place of bonds.”[59]
+
+One has the feeling that at this stage of the proceedings, the first
+and third of these propositions were not well taken. It was too plainly
+the intention of the legislature to allow the city of San Francisco to
+withdraw from its subscription for a consideration, to permit weight
+to be given to technical points like these. On the other hand, it is
+very doubtful if the railroad had at this time either called in from
+other subscribers the whole amount of their respective subscriptions,
+or had expended on the road from other sources a sum equal to the
+amount of the bonds. The Supreme Court, however, did not make even this
+concession, but promptly issued a mandamus against Coon, Hale, and
+Paxon, commanding and requiring them to execute and deliver without
+delay, to the Central Pacific Railroad of California, the 400 bonds
+of the city and county of San Francisco, described in the ordinance
+before referred to.[60]
+
+
+Further Litigation
+
+Upon the issue of this mandamus, Coon, Hale, and Paxon signed the 400
+bonds. According to a subsequent complaint by the railroad, the bonds
+so signed were presented by the president of the Board of Supervisors
+to William Loewy, clerk of the city and county of San Francisco, at
+a meeting at which a quorum of the supervisors was present. Loewy
+refused or failed to countersign. On September 27, 1864, a regular
+meeting of the supervisors was held, at which resolutions were
+offered requesting Loewy to countersign the bonds, and providing for
+the affixing of the seal of the city and county to the bonds when
+countersigned. These resolutions failed of passage, and instead a
+resolution was adopted requesting the clerk to deposit the 400 bonds
+with the county treasurer, which he did forthwith. The treasurer then
+refused to deliver the bonds to the railroad, and fresh proceedings
+were instituted before the Supreme Court, this time asking for a writ
+of peremptory mandamus commanding Loewy or his successor to obtain
+possession of the bonds, and to countersign and assist in delivering
+them to the Central Pacific; commanding the Board of Supervisors or
+their successors to call a meeting of the board, to notify the clerk
+of a time and place at which he might complete the countersigning in
+the presence of a quorum of the board; to cause the seal of the city
+and county to be affixed to the bonds; and to appoint a committee to
+deliver the bonds to the Central Pacific; and commanding the members of
+the Board of Supervisors who might be appointed such a committee, to
+deliver the bonds to the Central Pacific. It was obviously hoped to tie
+things down so that no further delay would be possible.
+
+There seems to have been a split in the Board of Supervisors at
+this time. Six of the twelve members made individual returns to the
+complaint, and alleged that they had no part in the refusal to deliver
+the bonds. The other six and the mayor voted to employ counsel and to
+defend the suit.
+
+
+Contentions of Defendants
+
+The case came to a hearing January 7, 1865. In some respects the
+defense now rested on new ground; in some new emphasis was given
+matters previously brought forward.
+
+The supervisors in January alleged that the election in San Francisco
+held May 19, 1863, at which the electors of San Francisco had approved
+the subscription to the stock of the Central Pacific, had been carried
+by corruption and bribery. This assertion was given great prominence in
+the answer of the supervisors, though less in briefs of counsel. Nine
+instances were cited where A. P. Stanford had given sums ranging from
+$5 to $40 apiece to electors, or had thrown handfuls of money among the
+electors “and thereupon they scrambled among themselves for the same.”
+It was urged that these bribes had had great influence upon the vote
+and that the election was void. These facts had not been known to the
+supervisors on June 20, 1864, when order No. 582 had been passed, and
+defendants believed that knowledge of them would have prevented the
+passage of the ordinance.
+
+Besides this, the supervisors declared that the passage of ordinance
+No. 582 had been procured by false and fraudulent representations by
+the railroad company. More important, it was now contended that the
+Act of 1863 was unconstitutional, in that the legislature was without
+power to “impose on a municipal corporation of the state the burden
+of exclusively building or aiding to build a work of general interest
+to the state, which is in no sense a work of local interest to the
+corporation on which the burden is imposed.”
+
+It was pointed out that the Central Pacific was a work of general
+interest to the Pacific Coast. It did not come within 100 miles of San
+Francisco. It had received large subsidies from the federal government
+on the ground that it was of national importance. Counsel declared that:
+
+ The true test of whether a tax can be exclusively laid on a municipal
+ corporation, is to be found in the purpose for which municipal
+ government is confined within local limits. Citizens living within
+ those limits are exposed to exclusive taxation because, and only
+ because, a peculiar benefit is conferred upon this locality. When the
+ benefit is shared in by the rest of the state, then a state tax is
+ levied, because the citizens of San Francisco received advantage, not
+ in their character as citizens of San Francisco, but as citizens of
+ the state. The state government is as much a benefit to San Francisco
+ as its own municipal government. Yet no one would contend that she
+ could be compelled to support the entire expenses of the former, or
+ that any other city should be compelled to contribute towards the
+ expenses of the latter.
+
+
+City Compelled to Subscribe
+
+These and other more technical objections were considered by the
+Supreme Court and were swept aside in a decision rendered at the April
+term of 1865. The court now held that the legislature had imposed
+no burden on San Francisco by the Act of 1863, because under that
+act the city got a consideration, namely, the company stock, for its
+subscription. The court added:
+
+ Nor does it make any difference as to the validity of the compromise
+ whether the bonds were payable in instalments or in gross, nor whether
+ a legal assessment has been laid on the capital stock of the company,
+ for irrespective of the time the bonds under the Act of 1863 might
+ become due, the company held a claim against the city which was a
+ proper subject of and formed a good consideration for a compromise.[61]
+
+This ended the case. It may perhaps be pertinently inquired why it
+was, if the subscription required by the Act of 1863 imposed no burden
+on the city of San Francisco as the Supreme Court said, that the city
+could afford to give $400,000 to get rid of the obligation. Yet,
+perhaps it would be fruitless to follow too closely the windings of the
+judicial mind. Stanford later declared that the litigation had injured
+the Central Pacific very much,[62] while E. H. Miller, secretary of
+the company, estimated that the suit cost the Central Pacific not much
+less than $100,000. Of the bonds issued, 315 were sold at $751.60
+each, amounting to $236,754, while 85 were paid out at par for rolling
+stock.[63]
+
+
+Subscribing Counties Embarrassed
+
+The reluctance of San Francisco to subscribe was not typical of the
+general attitude toward the Central Pacific in 1865. But it became more
+typical as the years went on. For this, there were several reasons.
+
+In the first place, the state was much disappointed by the fact that
+the completion of the Central Pacific did not inaugurate a period
+of prosperity. The year 1870 was not a particularly good one in
+California, and the panic of 1873, with the intense depression which
+resulted, was soon to occur. Among the first effects of the two rail
+connections with the East, was an influx of eastern manufactures,
+unemployment, lower prices, and dissatisfaction. This in no way
+meant that the construction of the Central Pacific had not benefited
+California, but it gave evidence of a serious though temporary
+maladjustment.
+
+Moreover, the bonds which had been so lightly voted, proved a real
+burden on the scanty population of the counties, which was in no
+adequate way offset by increases in the assessment rolls. Indeed, the
+railroads in early years were assessed at figures that were remarkably
+low. In Placer County, for instance, the Central Pacific insisted
+that its road should be assessed at $6,000 per mile, and succeeded in
+carrying its point in 1865, 1866, and 1867. In 1868 the assessment was
+raised to $12,000 per mile. The railroad protested, and when forced to
+submit, increased the rate of freight to all points in Placer County
+about 40 cents a ton.[64] Nor were taxes even on such modest valuations
+easily collected. Between 1866 and 1887 railroad tax cases were almost
+constantly before the courts. At times the Central Pacific refused to
+pay any taxes at all, on the ground that it held a “federal franchise,”
+and at other times it objected to the terms of the law or to the amount
+of the assessment.[65] The result was to throw the local tax system
+into complete confusion.
+
+
+Experience of Placer County
+
+Let us refer again to the experience of Placer County. In 1863 the
+Central Pacific asked for a subscription of $250,000, promising to
+add $9,000,000 to the taxable property of the county. The county tax
+rate as fixed in February, 1863, for the following year, was 35 cents
+on $100, and the assessed valuation of the county was $3,071,911.78,
+yielding a revenue from county taxes of $10,751.69. The railroad
+company issued an address while the matter of a subscription was under
+consideration, pointing out that 8 per cent on a bond issue of $250,000
+would amount to $20,000, while a tax rate of 35 cents on $9,000,000 of
+increased valuation would yield $31,500, or a clear excess of $11,500,
+to the county without considering the effect of the railroad in
+increasing the valuation of real estate.
+
+These were the results which voters were led to expect. What happened
+was that the assessed valuation of the property of the Central Pacific
+in Placer County was $6,000 per mile as late as 1870, when the county
+sold its railroad stock; that the total railroad valuation was
+therefore $553,500, and that the county tax rate rose from 35 cents
+to $1.73½. Moreover, the railroad taxes for 1868 and 1869 were still
+unsettled and in dispute in 1870 and remained so until 1873. The total
+receipts of the county from all sources in 1869 were $127,492.54, of
+which $46,499.66 were for the state. Against the $80,992.88 remaining,
+the $20,000 of interest on the subsidy bonds was evidently a material
+charge.
+
+It was probably not true in general that the financial embarrassment
+in which many of the counties of California were plunged late in the
+sixties was due to the pressure of interest charges on bonds issued in
+aid of railroad construction. The highest rates of taxation for county
+purposes uncovered by the special legislative committee of 1868 which
+investigated this matter, were $36.70 per $1,000 for Tuolumne County,
+and $40 per $1,000 for Calaveras County, neither of which counties had
+issued bonds in aid of railroads. Extravagance in assistance tendered
+to railroads was only one of the financial sins of which the counties
+had been guilty. Nevertheless the burden of outstanding indebtedness
+for railroads was often severe on communities of declining industry and
+population, and contributed to the later severe revulsion in popular
+sentiment with regard to the desirability of local aid to railroad
+enterprise.
+
+
+Opposition by Other Transportation Interests
+
+It is proper to mention at this point, also, as throwing light upon
+popular sentiment, the opposition of the smaller transportation
+interests of the state to the development of the Central Pacific
+project. These interests included the stage companies, the express
+companies, the toll roads, and the Pacific Mail Steamship Company. In
+the aggregate their influence was considerable, and it was constantly
+thrown against the granting of aid to the Central Pacific.
+
+It is a curious commentary upon the effect of government subsidies,
+that the Huntington-Stanford group brought part of this opposition upon
+themselves by a deliberate refusal to buy up the Sacramento Valley
+Railroad for the reason that it was cheaper to build at the expense
+of the federal government from Sacramento to Auburn than to buy a
+railroad already in active operation for most of the distance between
+these points. In cold figures, it would have cost $400,000 to build a
+new line out of Sacramento, and $285,000, according to Central Pacific
+engineers, to put the Sacramento Valley Railroad in thoroughly good
+physical condition. But under federal legislation, to be described in a
+later chapter, only $250,000 out of the $400,000 would have to be paid
+by the Central Pacific in cash, leaving a clear gain of $35,000 if the
+policy of construction were pursued.[66]
+
+The result of this decision was to cause the backers of the Sacramento
+Valley project to denounce the Central Pacific enterprise as a
+fraud.[67]
+
+
+End of Local Subsidies
+
+In the year 1868, a resolution was introduced into the California State
+Senate urging the appointment of a committee to investigate the use of
+moneys contributed by the state toward the construction of the Central
+Pacific Railroad. This resolution was indefinitely postponed by a vote
+of 18 to 17. The same year notices began to appear in the press, urging
+the legislature to oppose further railroad-aid legislation. In 1869,
+the _Sacramento Union_, while in favor of a grant to the Stockton
+and Tulare Railroad, urged the counties to go slow and to secure an
+amendment to the general railway law, reducing maximum transportation
+charges to 10 cents per passenger per mile, and 15 cents per ton per
+mile, before voting aid.
+
+These were but symptoms of a profound dissatisfaction with the results
+of railroad subsidies. In the fall of 1869 both political parties
+pronounced against grants of state aid to railroads, but this could
+not prevent the passage of the so-called “Five Per Cent Act” of 1870,
+authorizing counties to subscribe to railroad stock up to 5 per cent
+of their assessed valuation; although it did encourage Governor Haight
+to veto two bills in March, 1870, the one authorizing the voters of
+certain counties in the San Joaquin Valley to donate their bonds to
+the San Joaquin Railroad Company at the rate of $6,000 per mile,[68]
+and the other providing for the construction of a railroad by the
+Southern Pacific through Monterey and San Luis Obispo counties, and
+permitting the counties interested to grant aid. The governor took
+the position that the proposed subsidies were not only unwise, but
+that they were unconstitutional for the reason that a donation to a
+private corporation was not a use of funds for a proper purpose.[69]
+After a fight which attracted much popular attention, the vetoes of the
+governor were sustained.
+
+In 1871, Governor Haight was defeated for re-election by Newton Booth,
+the Republican candidate. In the following year, however, the Five Per
+Cent Act was repealed, and the period of local subsidies in California
+came to an end.
+
+
+
+
+CHAPTER III
+
+FEDERAL LAND GRANTS AND SUBSIDIES
+
+
+Government Aid Deemed Necessary
+
+Serviceable as local subsidies were, there is no question that the
+most important aid granted to the Central Pacific Railroad came from
+Congress.[70] It was perfectly well understood on the Pacific Coast
+that no transcontinental railroad could be built without the assistance
+of the national government. This was the attitude of the California
+legislature in 1852, when it instructed its senators in Congress, and
+requested its representatives, to vote for an act providing for the
+construction of a railway from the Missouri or Mississippi River to
+the Pacific Ocean, the cost of which should be borne by the general
+government.[71] It was also the position of the Railroad Convention
+of 1853, which sat at San Francisco under the presidency of Governor
+Bigler, and of that better advertised gathering known as the Pacific
+Railroad Convention of 1859, the resolutions of which concerning routes
+and state bond issues in aid of railroads gave rise to so much heated
+discussion.[72]
+
+
+Judah’s Activities in Washington
+
+Not only was it the attitude of the Pacific Coast that federal aid
+was necessary, but, still more important, Judah was able to advise
+his associates that Congress looked with favor upon the plan. He was
+convinced of this of his own personal knowledge, for he had been in
+Washington both on his own account and as a delegate of the Convention
+of 1859, and had reported to his constituents that only the pressure of
+more important matters arising out of the Civil War prevented favorable
+action upon the bill which they had sent him east to support. Upon this
+information, indeed, much of the plans of the Huntington-Stanford group
+was based.
+
+Late in 1861, the Central Pacific Railroad sent Mr. Judah to Washington
+to solicit whatever aid the federal government might be disposed to
+give. We have in Judah’s report upon this visit, dated September
+1, 1862, a very full account of his negotiations. Judah sailed for
+the Atlantic states on October 10, 1861. During the trip he busied
+himself in talking with Mr. Sargent, Congressional representative from
+California, who was his fellow passenger, and in writing up the results
+of the survey which he had made during the summer of 1861. On his
+arrival in New York he completed this report, caused 1,000 copies of it
+to be printed, and distributed the copies widely where he thought they
+would do most good. Late in November, after conference with Senator
+McDougal, of California, chairman of the Senate Pacific Railroad
+Committee, he proceeded to Washington.
+
+From the time of his arrival there to the following July, Judah was
+engaged in energetic lobbying. His brief previous visits to the
+capitol had acquainted him with the routine of business there, as well
+as with the personalities of a considerable number of Congressmen.
+He was aided, also, by the fact that Sargent, at the opening of the
+session, was assigned to the Pacific Railroad Committee of the House,
+and by the further circumstance that, with questionable propriety,
+he, Judah—interested in the outcome of the pending legislation as he
+was—was made clerk of a subcommittee of the House Committee on Pacific
+Railroads and secretary of the Senate Pacific Railroad Committee, with
+the privilege of the floor of the Senate and of the House, and charge
+of all the papers of the Senate committee.
+
+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 land. Mineral lands were excepted from the lands
+granted to the Pacific railroads, and Judah was afraid lest this clause
+should deprive the Central Pacific of all benefit from a large part of
+the lands nominally given it. It was probably Judah, also, though this
+is less certain, who secured a change in the terms of the government
+subsidy increasing the amount and altering the distribution so that the
+largest payments were made for the road across the Sierras and not for
+the section east of the California state line, where the difficulties
+of construction were less. These were important matters, and Judah
+should not have been permitted to urge them from the vantage point of
+an official position.[73]
+
+It is perhaps natural to ask whether there is any evidence of improper
+methods used by the Central Pacific to obtain the passage of the
+Pacific Railroad bill beyond that just referred to. The weight of the
+record is in the negative. According to Stanford, Judah had $100,000
+in Central Pacific stock at his disposal to cover his expenses in the
+East. This stock was not worth much, and Judah did not use all of it.
+Besides this, Judah made an agreement with Hon. S. A. McDougal and
+Hon. T. G. Phelps, according to which he assigned to certain parties
+representing the interests of the San Francisco and San José Railroad,
+the rights, grants, and franchises of the Central Pacific for the
+portion of road between Sacramento and San Francisco. This looks like
+an attempt to quiet opposition in California, from which some of the
+California delegation may have profited. There is no further evidence,
+however, of any improper bargaining in connection with the passage
+of the bill, and it is probable that no money was corruptly used. If
+there had been, Campbell and Sargent would hardly have been naïve
+enough to send a letter to Judah in behalf of sixty-three senators and
+representatives, thanking him for his valuable assistance in aiding the
+passage of the Pacific Railroad bill.
+
+
+The Pacific Railroad Act
+
+Let us now consider the terms of the federal legislation of 1862 and
+1864. The Pacific Railroad Act in its first form was signed on July 1,
+1862,[74] and accepted by the company by letter dated November 1.[75]
+Bancroft says that the company was aware that the assistance offered
+in this act was not sufficient. The subsidy alone would not build the
+road, and capitalists would not subscribe on the security offered.
+However this may be, Judah arranged for the purchase of locomotives,
+cars, and railroad iron before he left the East, and took measures
+also to secure early action by the President on the question of gauge,
+and on the establishment of the western base of the Sierra Nevada
+Mountains.[76]
+
+In December, after Judah’s departure, a bill was introduced to amend
+the Act of July, 1862. This measure passed the Senate but was not acted
+upon by the House. A year and a half later, however, a new act was
+passed by both houses, and became law on the 2d of July, 1864, amending
+the Act of 1862, and materially increasing the aid which the Central
+Pacific was to enjoy.[77] To all intents and purposes the Acts of 1862
+and 1864 were one piece of legislation, and will be treated as such in
+the analysis which follows.[78]
+
+
+Grant of Right-of-Way
+
+What now were the advantages secured to the Central Pacific by the
+Acts of 1862 and 1864, and what were the obligations placed upon that
+company? We will take up first the advantages, not necessarily in order
+of importance.
+
+The first concession which the Central Pacific received under this
+legislation was the authority to complete its line from Sacramento to
+the eastern boundary of the state of California and thence eastward 150
+miles, provided that the Union Pacific had not by that time built west
+to a connection with it. The company was also authorized to build west
+and south from Sacramento to San Francisco, or to a point nearby. The
+Act of 1862 had contained no limitation on construction eastward beyond
+the reference to a Union Pacific connection. Huntington said later that
+the restriction of 150 miles should not have been inserted in 1864. He
+added, however:
+
+ I said to Mr. Union Pacific when I saw it, I would take that out
+ as soon as I wanted it out. In 1866 I went to Washington.... I saw
+ probably every member of Congress and the Senate except a few men who
+ were interested in the Union Pacific, or had a direct interest in the
+ Credit Mobilier.... We passed it through the Senate; I think we got
+ thirty-four against eight opposed to it. I took it over to the House
+ and old Thad Stevens attended to the bill for me, and it went through
+ the House with a vote, I think, of ninety-four for the bill and
+ thirty-three against it.[79]
+
+Judah said of the clause as it stood in 1862, that it virtually
+conceded to the company the right to construct at least one-half of the
+line of the Pacific Railroad. He was positive that it would be found
+advisable to undertake construction for about 300 miles easterly from
+the state line of California.[80]
+
+In addition to the authority to build, the Central Pacific was given a
+free right-of-way 400 feet wide across all government lands, besides
+necessary grounds for stations, machine shops, etc., with the privilege
+of taking earth, stone, timber, and other materials from the public
+lands adjacent to the line of said road for purposes of construction.
+
+
+Land Grant
+
+The company was also granted ten alternate sections per mile of public
+land on each side of the railroad on the line thereof, and within the
+limits of 20 miles on each side of the road. The government undertook
+to extinguish Indian titles, but did not include in its grant mineral
+lands except coal and iron lands, or lands sold, reserved, or otherwise
+disposed of by the United States, or lands to which a pre-emption,
+homestead, swamp-land, or other lawful claim might have attached at the
+time the line of the road should have been definitely fixed. The grant
+was thus not of a specified number of acres, and no compensation was
+provided to the company for lands which might prove to be occupied;
+but in order to prevent speculation and in a measure to safeguard the
+company’s interests, it was provided that at any time after the passage
+of the act, and before July 1, 1865, without waiting for definite
+location of the road, the company might designate the general route and
+file a map, whereupon the Secretary of the Interior should cause the
+lands within 25 miles of said route to be withdrawn from pre-emption,
+private entry, and sale. When any portion of the route should be
+finally located, the Secretary of the Interior should cause the granted
+lands to be surveyed and set off so far as might be necessary. As a
+matter of fact, Judah filed his map and general designation before he
+left Washington in 1862. Lands were to be conveyed to the company on
+completion of stretches of 20 consecutive miles. A special clause,
+never enforced, provided that all granted lands not sold or disposed
+of by the company within three years after the entire road should have
+been completed, should be subject to settlement and pre-emption like
+other lands, at a price not exceeding $1.25 per acre to be paid to the
+company.
+
+
+Government Subsidy
+
+In the way of a subsidy, Congress ordered the Secretary of the Treasury
+to issue to the Central Pacific, United States 6 per cent 30-year
+bonds, in amounts varying from $16,000 to $48,000 per mile. The
+subsidy of $48,000 was granted for the 150 miles east of the western
+base of the Sierra Nevada Mountains, this being the most mountainous
+and difficult portion of the road. East of this section of line the
+Central Pacific bond subsidy was to be $32,000 per mile, but west of
+it, it was to be only $16,000 per mile. It was the understanding of the
+company that these bonds were not redeemable by the government before
+maturity, and that until that time the interest charges were to be
+taken care of by the government. This last point was later the subject
+of litigation in which the company’s contention was sustained.[81]
+The subsidy offered by the government inured to the company on the
+completion of sections of 20 consecutive miles over the greater part
+of the road, except that bonds might be issued up to two-thirds of the
+value of uncompleted work when the chief engineer of the company should
+certify that a certain proportion of the work required to prepare the
+road for its superstructure had been done.
+
+
+Company’s Obligations
+
+In return for these very considerable privileges, the demands made
+upon the Central Pacific do not seem to have been excessive. First and
+foremost, the company was required to build its road at the rate of
+25 miles each year after filing its assent to the provisions of the
+act, and to reach the state line within four years. The track upon
+the entire line was to be of a uniform width, to be determined by the
+President of the United States, so that, when completed, cars could be
+run from the Missouri River to the Pacific Coast. The grades and curves
+were not to exceed the maximum grades and curves of the Baltimore and
+Ohio Railroad, and the whole line of railroad and branches, Union
+Pacific and Central Pacific included, was to be operated and used for
+all purposes of communication, travel, and transportation, so far
+as the public and the government were concerned, as one connected,
+continuous line.
+
+In the second place, demand was made that the company should pay the
+principal of the government bonds at maturity, and should meanwhile
+make certain payments on account of principal and interest. The
+following section taken from the Act of 1862 shows that there is no
+basis for the contention sometimes made that the government originally
+expected no repayment of its loan.
+
+ _And be it further enacted_ that the grants aforesaid are made upon
+ condition that said Company shall pay said bonds at maturity, and
+ shall keep said railroad and telegraph line in repair and use, and
+ shall at all times transmit dispatches over said telegraph line, and
+ transport mail, troops and munitions of war, supplies and public
+ stores upon said railroad for the Government, whenever required to do
+ so by any department thereof, and that the department shall at all
+ times have the preference in the use of the same for all the purposes
+ aforesaid (at fair and reasonable rates of compensation, not to exceed
+ the amounts paid by private parties for the same kind of service),
+ and all compensation for services rendered for the Government shall
+ be applied to the payment of said bonds and interest until the whole
+ amount is fully paid. Said Company may also pay the United States,
+ wholly or in part, in the same or other bonds, treasury notes, or
+ other evidences of debt against the United States, to be allowed at
+ par, and after said road is completed, until said bonds and interest
+ are paid, at least five per-centum of the net earnings of said road
+ shall also be annually applied to the payment hereof.[82]
+
+In 1864 this section was changed by requiring only one-half of the
+compensation for services rendered to the government to be applied to
+the payment of bonds issued by the government in aid of construction,
+but the declaration that the bonds should be paid was not altered. Not
+only was this true, but the government demanded security for repayment.
+In 1862 it declared that the issue of said bonds and delivery to the
+company should _ipso facto_ constitute a first mortgage on the whole
+line of the railroad and telegraph, together with the rolling stock,
+fixtures, and property of every kind and description. In 1864 the
+lien of the United States bonds was subordinated to that of a second
+mortgage, but the idea of some security was preserved.
+
+Third, the government reserved the right to reduce the rates of fare
+upon the Central Pacific, as well as upon the other railroads provided
+for in the Act of 1862, as unreasonable, when net earnings should
+exceed 10 per cent upon cost, exclusive of the 5 per cent to be paid to
+the United States.
+
+Fourth and last, an annual report was asked for, which was to set forth
+earnings, expenses, indebtedness, the amount of stock subscribed, a
+description of the lines of road surveyed, and the names and residences
+of the stockholders.
+
+
+Amounts Granted
+
+It is evident that these demands were very moderate indeed. Under
+the provisions of the Acts of 1862 and 1864, the Central Pacific and
+Western Pacific railroads received $27,855,680 in government bonds,
+and 10,081,945.18 acres in public lands (up to June 30, 1920). From
+the bonds the companies realized $20,735,000, or $24,092 per mile.
+From the lands, the Central Pacific received, up to June 30, 1919, the
+approximate sum of $17,430,000, about equally divided between receipts
+from sales and receipts from other sources, including leases, stumpage,
+timber, and miscellaneous. The expenses of the land department may be
+estimated at $7,000,000, and the net return therefore was $10,000,000.
+The yield of the bond subsidy not only exceeded the returns from the
+granted lands, but the subsidy was ten times the aid received from
+the state and counties put together, and of course many times the
+contribution of the partners themselves. What was almost as important,
+the grant of this federal assistance at once raised the company’s
+credit, so that it could sell its own first mortgage bonds. The sale
+of company bonds yielded $20,750,000, or a total of $41,485,000, for
+government and company bonds together, directly attributable to federal
+aid, and almost immediately available.
+
+From the point of view of serviceability, the land grant referred
+to in the Pacific Railroad legislation was much less important than
+the subsidy in bonds. Government lands along the line of the Central
+Pacific had no value until the road was completed, nor even then
+until the slow process of settlement had filled up in a measure the
+territory through which the railroad ran. Nor was the amount of the
+grant so definite as to make it a satisfactory basis for credit,
+although land grant bonds were sold in and after 1870. The theoretical
+grant was twenty sections, of 12,800 acres to the mile. The grant did
+not, however, follow the sinuosities in the track, so that in the
+mountain sections it was quite possible for two miles of railroad to be
+constructed and yet only one mile of land grant to be obtained.
+
+Not only was this true, but the exceptions provided for in the
+legislation were important. The records show that the saving clauses
+in the statutes, coupled with the inaccessibility of some of the lands
+within the nominal grants, and the differences between the actual
+mileage of the railroad and the mileage upon which land was awarded,
+reduced the area passing to the railroad by many hundred thousand
+acres. In California the Central Pacific was entitled to a nominal
+grant of 1,843,000 acres, at the rate of twenty sections per mile
+for a mileage of 144 miles. At least 887,000 acres of this amount
+were known to be lost to the grant as early as 1895, while the final
+adjustment will scarcely secure for the company more than half the
+amount originally expected. In Nevada the company’s losses approximated
+one-ninth and in Utah one-quarter of the nominal grant. The losses on
+the California and Oregon up to 1897 were 962,703 acres out of a total
+grant of 3,266,729 acres, but in this case the law permitted the
+company to select additional lands within “indemnity” limits.
+
+
+Delays in Transferring Title
+
+How far the government lands failed in providing the Central
+Pacific with funds with which to build its road, however, can best
+be understood when attention is paid to the delays incident to the
+transfer of title. The general procedure in transferring title from the
+government to the company was as follows:
+
+Under the Act of 1864, the Central Pacific was entitled to receive its
+lands upon completion of stretches of 20 consecutive miles in a fashion
+acceptable to commissioners appointed by the President of the United
+States. Upon acceptance by the government, the sections of land to
+which the company was entitled were listed and mapped and sent to the
+United States Land Office in the land district in which the land was
+located. The lists were examined there by registrars and receivers, and
+when declared cleared, the railroad company paid for the surveying,
+selecting, and conveying. Upon the payment of the fees, the lists were
+certified by the Surveyor-General of the state, and forwarded to the
+General Land Office at Washington for further examination. If found
+correct by the office in Washington, patents were issued. If there was
+doubt, the questionable cases were held for further examination.
+
+In all this procedure delays were frequent. The initiative in the
+process of conveyance of land lay with the railroad company and not
+with the government, so that failure to file lists with the local land
+office or failure to pay into the United States Treasury the cost of
+surveys of listed lands prevented progress in the distribution of the
+grant. On the other hand, the slowness of the government in making
+surveys hindered the railroad in its selections. Still another reason
+for delay was the fact that within the mineral belt the Commissioner
+of the General Land Office required the railroad to file affidavits
+defining the mineral or non-mineral character of lands by 40-acre
+tracts. This requirement arrested the selection and patenting of lands,
+because the government survey did not subdivide tracts of 640 acres,
+and there was no way of identifying any particular sixteenth section
+of a tract. There were delays also in determining the title to lands
+claimed by homesteaders and pre-emptors, and there were delays due to
+the faulty organization of the Federal Land Office.
+
+
+Land Office Responsible for Delays
+
+Opponents of the Central Pacific freely charged that the company
+refrained from patenting its land in order to avoid the payment of
+taxes. This the company denied, pointing to the fact that the lands
+listed to June 1, 1887, exceeded the lands patented by 622,612.54
+acres, and that the cash deposited with the United States Land
+Department to cover the cost of surveys exceeds the amount charged
+against the company up to January 15, 1886, by $28,771.92.[83] Mr.
+Stanford declared that it was the policy of the company to select its
+lands and present lists as promptly as possible, in order that lands
+might be disposed of to settlers, and it does appear that it was to
+the advantage of the Central Pacific to secure title as quickly as it
+could in the mineral belts, because the company was protected in its
+possession of land, which later turned out to contain minerals, if at
+the time of patenting no minerals had been discovered.
+
+The evidence is clear enough that the delay in the patenting of lands
+to the Central Pacific Railroad was due mainly to the inadequacy of
+the staff in the General Land Office at Washington and not to the
+policies of the railroad itself. This is shown by the wide disparity
+between listings and patents. The excess of lands selected over lands
+patented averaged 57,000 acres during the five years ending June 30,
+1869. During the next five years the average excess was 64,000 acres,
+and during the five years ending June 30, 1886, it rose to 248,000. In
+1887, as has been pointed out, there was a difference of 622,612.54
+acres between the amount of acres which had been listed and those
+which had been passed to patent. Between 1887 and 1897, there was no
+year in which the Central Pacific had less than 300,000 acres of land
+listed and selected and the selections on file in the General Land
+Office for land in California alone. Yet it is not so important to fix
+responsibility in this matter, as to observe that the construction
+of the Central Pacific was not aided to any material degree by the
+lands offered to it under the legislation of 1862 and 1864. Up to
+the beginning of 1870, the company had received only four patents,
+totaling 144,386.63 acres,[84] which if sold at $2.50 per acre would
+have brought it $360,966.57. As a matter of fact, less than this was
+disposed of in the early years, and what was sold was on terms, not for
+cash in hand. In the later period, land-grant bonds with a lien on the
+land grant were sold to investors. The first issue of such bonds was,
+however, in 1871.
+
+The bearing of these conditions on the land-grant policy of the United
+States is very plain. Congress was legislating in order to get a
+transcontinental railroad built. Every form of assistance which could
+be immediately transmuted into funds facilitated construction to the
+full value of those funds. In contrast with this, assistance which
+could be realized on only after a lapse of years, served not as an aid
+to construction, but as a reward to promoters for having taken risks.
+While to some extent the land grant to the Central Pacific may have
+aided the sale of Central Pacific first mortgage bonds, in the main its
+effect was to give a grossly excessive and unnecessary profit to a
+few persons who held most of the stock of the company, without having
+invested any considerable capital of their own. Such a policy needs
+only to be understood to be condemned.
+
+
+Fixing Western Base of Sierras
+
+Both the subsidy and the land-grant clauses of the Acts of 1862
+and 1864 were to receive interpretation by the courts. The subsidy
+provisions will be discussed again in a later chapter, so that the
+provisions designated to secure repayment of the government loan need
+not be considered at this time. Mention may be made, however, of
+President Lincoln’s action in fixing the western base of the Sierras at
+the point where the line of the Central Pacific crossed Arcade Creek
+in the Sacramento Valley, a location 7 miles east of Sacramento, in a
+country which a casual observer would not be likely to call mountainous.
+
+It is not at first sight evident why this point was chosen. The
+junction of Arcade Creek and the Central Pacific Railroad happens to be
+at about the edge of the alluvial plain of the Sacramento River, and so
+is marked by a slight rising of the ground. The rise is not, however,
+great. The beginning of the Sierra granite is at Rocklin, 22 miles
+east of Sacramento, and this spot rather than the one selected has the
+better right to be considered the real beginning of the mountains, so
+far as any single point can be fixed. As a matter of fact, the advisers
+of the President, who were in this instance the political authorities
+of the state of California, made their recommendation on the strength
+of what they conceived to be the purpose of the federal act rather
+than on scientific grounds. Mr. Whitney, state geologist, told the
+government that the intent of Congress was clearly to give a subsidy
+of $48,000 per mile over the most mountainous section of the road. If,
+therefore, he said, a distance of 150 miles measured east from the
+point in the Sacramento Valley where the ascent commenced would clear
+the most difficult and mountainous portion of the Sierra Nevadas and
+reach the valley on the eastern slope, then it seemed reasonable that
+the base of the Sierra Nevadas should be taken as beginning at that
+point. He recommended the place where the line of the Central Pacific
+crossed Arcade Creek as such a point.
+
+The same place was selected by the Surveyor-General of the state of
+California, on the principle that the two extremities of the 150
+miles upon which the maximum subsidy was to be given should rest upon
+corresponding grades, the one to the west, the other to the east of the
+mountains. These two recommendations seem to have been controlling,
+although the United States Surveyor-General for California suggested a
+location further east, where the ascending grade of the Sierras became
+plainly perceptible to the naked eye.[85] Since this interpretation of
+the act increased the bond subsidy which the Central Pacific was to
+receive, the company naturally made no objection.
+
+
+Conditions of Land Grant
+
+In regard to the land grant, the Land Office was called on for a great
+many decisions after 1864, mostly in interpretation of the exemptions
+carried in the federal legislation. The cases were not all brought by
+or against the Central Pacific, but they nevertheless affected its
+rights.
+
+In general, the grant of land to the Central Pacific was held to be
+an absolute unconditional present grant. The route not being at the
+time determined, the grant was in the nature of a float, and the title
+did not attach to any specific sections until they were capable of
+identification. When once identified, however, the title attached to
+specific sections as of the date of the grant, except in the case of
+sections which were specifically reserved.[86] While the grant was
+a present grant, it conveyed only land which was public land, that
+is to say, portions of the public domain which were open to sale or
+other disposition under general laws at the time the grant was made.
+This definition did not include lands which became public subsequent
+to the date of the grant, or lands reserved by competent authority for
+any purpose or in any manner, whether or not the reservations were
+mentioned in the granting act.[87]
+
+It followed from the theory that the land grant was a present grant,
+that a valid homestead entry existing at the date of the passage of
+the Land Grant Act excepted the land covered from the area granted to
+the railroad even though the entry were canceled prior to the definite
+location of the railroad line.[88] The same effect was produced by an
+uncanceled and unexpired pre-emption claim, or by any other valid claim
+or reservation which was alive at the date of approval of the granting
+act. In cases like these the cancellation of the claim restored the
+land in question to the public domain, but did not operate to replace
+it within the railroad grant.[89]
+
+Yet, although the theory that the grant took effect as of the date of
+the granting act was strictly applied against the railroad, the settler
+enjoyed the protection of a milder rule laid down in the statute
+itself. Section 7 of the Act of 1862 required the railroad company
+to designate the general route of the road within a stated time, and
+instructed the Secretary of the Interior thereupon to withdraw lands
+within 15 miles (changed to 25 miles in 1864) of the route designated
+from pre-emption, private entry, and sale; and Section 3 provided that
+the land grant to the railroad should not include lands to which a
+pre-emption or homestead claim might have attached at the time the
+line of road was definitely fixed. Pre-emption or homestead claims
+might therefore be established after the passage of the land-grant
+statute, provided that this was done before the lands were withdrawn
+from settlement.[90] Indeed, the Secretary of the Interior ruled that
+settlement and occupation exempted land from the grant even though
+the settler failed formally to assert his claim.[91] After the lands
+embraced in the grant were withdrawn from pre-emption, private entry,
+and sale, a settler could not secure acreage by subsequent occupation,
+although he settled prior to the time when the Central Pacific acquired
+actual title.
+
+
+Losses Due to Spanish and Mexican Grants
+
+A class of cases distinct from those of ordinary settlers arose in
+connection with Spanish and Mexican grants. It appeared that when
+California became a state, the Spanish and Mexican grants were both
+indefinite and unrecorded, so that it was not known just what lands
+were public domain and what lands were private. On March 3, 1861,
+Congress passed an act creating a Board of Land Commissioners in
+California, and provided that all persons claiming land in California
+by virtue of any right or title derived from either the Spanish or
+Mexican governments, should present the same to the board within two
+years for adjudication, with privilege of appeal to the United States
+courts.[92]
+
+Following this act, many claims were presented. The United States
+Supreme Court held that land within the boundaries of alleged Spanish
+or Mexican lands which were _sub judice_ at the time the Secretary of
+the Interior ordered the withdrawal of lands along the route of the
+road, were not embraced in the land granted to the company. There were
+many sections of California lands which were _sub judice_ on August
+2, 1862, and this fact caused serious loss to the Central Pacific in
+its grant in California. In addition to losses from the cause just
+mentioned, the company suffered from the indefiniteness of the Spanish
+and Mexican grants, and from the delay in determining the extent and
+boundaries of the Spanish and Mexican claims.
+
+
+Policy Toward Settlers
+
+It was the policy of the company to invite settlers upon its lands
+before the lands were patented, and then to select and apply for
+patents on lands which settlers desired to buy.[93] Sometimes, indeed,
+the company leased unpatented land to cattlemen at low rates, in spite
+of its lack of title. Actual transfers were made by bargain and sale
+deed warranting to the purchaser the entire title acquired by the
+company from the federal government. The prices ranged from $2.50 to
+$20 per acre, but little was sold at a price above $5. Usually land
+covered with tall timber was held at $5, and that covered with pine at
+$10. The actual cost to the purchaser was slightly greater, because
+he was compelled to pay for the acknowledgment of three signatures to
+the deed, and for the recording, amounting in all to perhaps $5.50
+or $6. On the other hand, the company granted as much as five years’
+credit, and through the practice of selling land seekers’ tickets
+from San Francisco, Sacramento, San José, Lathrop, and Los Angeles to
+points along the line of railroad, which were accepted as cash on the
+purchaser’s first payment for his land, it practically furnished free
+transportation for California terminals to the sections bought. This
+last practice, at least, was in force on the Southern Pacific in 1880,
+and presumably on the Central Pacific also.
+
+All in all, the Central Pacific does not seem to have attempted to
+withhold its lands from the market, and there is no evidence that the
+settlement of the coast was retarded by the inability of prospective
+settlers to get land. The price which the Central Pacific could exact
+was held in check by the retention by the government of alternate
+sections, while the large sums which the company spent for advertising
+redounded to the advantage of the government as well as to that of the
+railroad. To the general statement that the Central Pacific was not
+unreasonably grasping in its capacity as landed proprietor, exception
+must be made of its treatment of timber lands in the North, of which
+mention will be made elsewhere.
+
+The land-grant policy of the government was a mistake, but it was a
+mistake because it unnecessarily enriched a few men by securing to them
+an extravagant share in the unearned increment due to the development
+of the state of California, without aiding them materially in the task
+which the government most desired them to perform—not because the
+grantees endeavored to build up landed estates or to discourage the
+growth of population. Compared with the land grant, the bond subsidy
+was distinctly the better policy.
+
+
+
+
+CHAPTER IV
+
+PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES
+
+
+Commencement of Construction
+
+The construction of the Central Pacific Railroad of California was
+begun at Sacramento on the 8th of January, 1863. The day the work
+started was rainy and calculated to damp the most cheerful of spirits.
+There was, however, a brass band, banners, flags, speeches, and a
+crowd standing on bundles of hay near the levee to keep its feet dry.
+Two wagon-loads of earth were driven up before the platform on which
+were gathered the dignitaries present, and Stanford, then governor
+of California, seized a shovel and deposited the first earth for the
+embankment. The enthusiastic Charles Crocker promptly called for nine
+cheers. The sun smiled brightly, and everybody, for the moment at
+least, felt happy that after so many years of dreaming, they now saw
+with their own eyes the actual commencement of a Pacific railroad.[94]
+
+It was fortunate that Mr. Crocker was enthusiastic, for the
+difficulties which the Central Pacific had to overcome were serious.
+The chief difficulties were as follows:
+
+_Gradients._ Some reference has been made in the previous chapter to
+the elevations which the Central Pacific had to surmount. The highest
+point which the company had to reach was Summit Station, 105 miles from
+Sacramento, at an altitude of 7,042 feet. Since Sacramento lay only 56
+feet above sea level, to reach this point required an ascent of 6,986
+feet in a distance of 105 miles, more or less, according as the route
+chosen was longer or shorter. The company’s engineer said in 1864 that
+if it had been possible to maintain a continuous ascending grade, the
+maximum grade, from the foothills to the summit of the Sierras could
+have been reduced to 80 feet per mile.
+
+In the attempt to approach this ideal condition the Central Pacific
+surveyed and resurveyed continuously until its rails were actually on
+the ground. Barometrical reconnaissances were made in 1862 and 1863 on
+lines via Downieville and Yuba Gap, and via Oroville and Beckwourth’s
+Pass, in addition to the surveys via Georgetown, Dutch Flat, and
+Henness Pass, to which earlier reference has been made (page 20).[95]
+Location surveys reached Alta in 1863, the state line in 1866, and
+Ogden in 1868.[96] After Mr. Judah’s death almost an entire relocation
+of the line from the 31st to the 48th section was made in 1864 in
+order to avoid tunneling, and to reduce cost,[97] and still later
+it was found desirable to shift the whole route between Dutch Flat
+and Emigrant Gap from the Bear River side of the ridge, up which the
+Central Pacific was proceeding, to the American River side. This change
+avoided some 20 miles of 116-foot grade, together with a great deal of
+curvature.[98]
+
+The final result of these various surveys was a line with maximum
+grades of 116 feet to the mile. This does not compare unfavorably
+with most of the transcontinental routes subsequently built. It is
+interesting to observe, however, that the Central Pacific summit is
+some 2,000 feet higher than the altitude of Beckwourth’s Pass, and
+that the maximum grade of the Western Pacific Railway, built years
+afterwards through that pass, is only 52.8 feet to the mile, or one per
+cent. Neither Judah nor his immediate successors, therefore, discovered
+the best route across the Central Sierras.
+
+[Illustration]
+
+_Temperature._ A second physical difficulty incident to mountain
+construction was found in the mountain climate. The summer climate of
+the Sierras is delightful, at least at altitudes of about 6,000 to
+7,000 feet. At lower elevations the temperature is often uncomfortably
+warm. But the winter climate is quite different. As early as August the
+nights begin to get cold, the first snows come in November, while in
+January the trails become impassable, and the high levels are unvisited
+by man until the following year. The official record shows that the
+greater part of the mountain construction on the Central Pacific
+occurred between July, 1866, and July, 1868.
+
+Mr. Stanford has testified that both the winter of 1866-67 and that of
+1867-68 were unusually severe, and his engineers have dwelt in great
+detail upon the consequent impediments to their work. Not only did the
+frozen earth resist pick and shovel, but there were snow banks from
+30 to 100 feet deep. It was necessary to remove this snow to permit
+excavation, and to keep clear the space to be occupied by embankments
+in order to prevent settling. When the summit was approached tunnels
+had to be driven through the snow to the rock face. As the whole
+working force could not be employed in the tunnels, the surplus labor,
+with all its supplies, was hauled beyond the summit and put to work,
+at great expense, in the cañons of the Truckee River. The first snow
+sheds were built in the summer of 1867, and in the following years it
+was decided to cover all the cuts and points where the road crossed
+the paths of the great avalanches beyond the summit. The total length
+of sheds and galleries built by the fall of 1869 was 37 miles, and the
+cost was $2,000,000.[99]
+
+In addition to the difficulties caused by snow, it must be remembered
+that the frozen earth, though uncovered, was difficult to work.
+Not only was it necessary to blast out material which could have
+been cheaply moved at a more favorable time, but, when piled into
+embankments, the ground settled in the spring as the frost was leaving,
+and required constant attention.[100]
+
+All the various obstacles raised by climate would have been minimized
+if construction had proceeded more slowly. Indeed, Mr. Hood and Mr.
+Strobridge, engineers in charge of construction, agreed that if the
+Central Pacific had been built at less speed, and as such railways are
+usually constructed, the expense would have been from 70 to 75 per
+cent less than the actual cost. The saving would not have been due
+altogether to the abandonment of winter construction, but this would
+have been an important factor. The Central Pacific, however, preferred
+speed to economy, in the hope of outstripping the Union Pacific in the
+race for the business of Nevada, and for the subsidies and land grants
+offered by Congress.
+
+_Supplies._ A further obstacle in the way of successful construction
+of the Central Pacific lay in the difficulty of getting supplies. Wood
+and stone could be procured in the mountains, but iron, coal, and
+manufactured articles of all sorts, including rails, locomotives, and
+cars, were brought from Sacramento or from the East. Prices in general
+were high, in part because of the war. The first ten locomotives
+purchased by the Central Pacific Railway cost upwards of $191,000; the
+second ten upwards of $215,000. Iron rails cost $91.70 per ton at the
+mills. The price of powder increased from $2.25 to $6 during the period
+of construction. The cost of food was exorbitant. Hay was worth $100 a
+ton out upon the line, and oats about 14 or 15 cents a pound. Stanford
+says he sold one potato for $2.50.[101]
+
+In the cases cited, high cost of transportation often played an
+important part in determining the final prices, and in general,
+indeed, the expense of moving supplies was comparable with the initial
+cost. Among many possible illustrations one may mention the fact that
+shipments of rails via the Isthmus of Panama as late as 1868 cost, for
+transportation alone, $51.97 per ton, making the total cost of the rail
+delivered at Sacramento, $143.67, not including charges for transfer
+from ships at San Francisco, nor for transportation up the Sacramento
+River. Nor was this freight rate high when compared with the cost of
+wagon hauls in the mountains, when material had to be transported away
+from the finished track. Mr. Huntington tells of meeting some teams
+with ties in the Wahsatch Mountains. He continues:
+
+ They had seven ties on that wagon. I asked where they were hauled
+ from, and they said from a certain canon. They said it took three days
+ to get a load up to the top of the Wahsatch Mountains and to get back
+ to their work. I asked them what they had a day for their teams, and
+ they said $10. This would make the cost of each tie more than $6. I
+ passed back that way in the night in January, and I saw a large fire
+ burning near the Wahsatch summit, and I stopped to look at it. They
+ had, I think, some twenty to twenty-five ties burning. They said it
+ was so fearfully cold they could not stand it without having a fire to
+ warm themselves.
+
+Fortunately for the company, the cost of labor on the Central Pacific
+and transcontinental lines does not seem to have been excessive. The
+total number of men employed ranged from 1,200 in 1864, to 14,000 or
+14,500 in 1867, when construction was at its height. White men, of whom
+there were some 2,500 or 3,000 in 1867, received $35 a month and board
+as common laborers, and from $3 to $5 a day as skilled mechanics. Most
+of the track laborers, however, were Chinamen, who were paid $35 a
+month, and boarded themselves.[102] These Chinamen proved reliable and
+willing workers, and, because of his experience with them, it was with
+distinct reluctance that Mr. Stanford in later years allied himself
+with the friends of Chinese exclusion.[103]
+
+
+Letting of Construction Contracts
+
+Such obstacles as these made the task upon which the
+Huntington-Stanford group had entered a formidable one indeed. Just how
+the difficulties should be met, Mr. Huntington himself did not know.
+Arrangements were first made with small contractors for the building of
+stretches of road from Sacramento towards Newcastle. Charles Crocker
+resigned his directorship in 1862 and took the first contract for 18
+miles. Then Cyrus Collins and Brothers got a contract which they did
+not complete, and other contracts were let to Turton, Knox and Ryan, C.
+D. Bates, and S. D. Smith. Mr. Crocker says the people raised a hue and
+cry saying that he was a favored contractor, so that the directors told
+him that he could not have more than two miles of the road between the
+18th and 30th sections.[104] He adds that the independent contractors
+got to bidding against each other for laborers, and thus put up the
+price. Huntington was told that the smaller contractors quarreled with
+each other, and tried to “scoop” labor from each other;[105] while
+Mr. Stanford says that the small contractors did not finish their
+sections in consecutive order, that they did not hurry, and could not
+be sufficiently controlled.[106]
+
+At any rate, after the completion of section 29, no more contracts
+were let to anyone except Charles Crocker and Company. According
+to the associates, it was not so much a question of price as one
+of organization and control. This may be true, or it may be that
+the associates finally decided that it would be easier to make a
+satisfactory profit out of government subsidies by doing the building
+themselves, than by beating down subcontractors to the lowest possible
+contract price. It should be noticed that the change in policy referred
+to did not take place until 1864, when the federal Act of 1862 had been
+passed and that of 1864 was imminent, and that the Central Pacific did
+not select any single contractor, but gave all its work to Charles
+Crocker, one of the original associates.
+
+
+Contracts with Crocker
+
+The first contract with Charles Crocker, covering sections 1 to 18,
+provided for a lump sum payment of $400,000, of which $250,000 was to
+be in cash, $100,000 in bonds of the company, and $50,000 in capital
+stock. This was also the type of contract made with other contractors
+up to section 30, although the amounts paid varied. At least one bill
+for extras was allowed Mr. Crocker. Sections 30 and 31 were built by
+Crocker, and after these were completed he was permitted to continue
+without a written contract.
+
+In June, 1865, Mr. Hopkins made a report to the president and directors
+of the Central Pacific upon the general subject of contracts. In this
+report Hopkins dwelt upon the necessity of rapid construction for the
+purpose of capturing the passenger traffic between Sacramento and
+Virginia City; and also in order to comply with the acts of Congress
+and the state legislature, which required rapid construction of the
+road. Persons of large capital, he said, seemed unwilling to bind
+themselves to construct the road as rapidly as necessary. Charles
+Crocker and Company, on the other hand, had pushed and were pushing
+the work with extraordinary vigor and success, and had in all cases
+complied with the orders and directions of the officers of the company.
+He recommended, therefore, that arrangements be continued with that
+firm, at rates specified in an accompanying resolution.[107] The
+directors thereupon adopted this report, and resolved as follows:
+
+ _Resolved and ordered_ that Charles Crocker and Company be allowed
+ and paid for all work done and material furnished, or which may
+ hereafter be done and furnished, until the further order of the Board
+ of Directors, in the construction of the railroad of the Company, from
+ section 43 eastward, subject to and in accordance with the terms,
+ conditions and stipulations set forth in the contract with said
+ Charles Crocker and Company, dated September 19, 1863, except so far
+ as the same are modified or changed by this order, at the following
+ rates and prices, and in accordance with the following classification,
+ to-wit:
+
+ [Here are inserted the rates for clearing and grubbing, and excavation
+ in various kinds of rock, etc.]
+
+ The payments to be made monthly, according to the monthly estimates,
+ five-eighths thereof in gold coin, and the remaining three-eighths
+ in the capital stock of the Company, at the rate of two dollars of
+ capital stock for each one dollar of said three-eighths of said
+ estimate, with the privilege of paying said three-eighths in gold coin
+ in lieu of said stock, at the election of said Company, to be made at
+ the time of such payment.
+
+[Illustration: Summit Valley. Altitude 6,960 feet. Emigrant Mountain
+and Railroad Pass in the distance]
+
+
+Payments in Cash and Stock
+
+The essence of this arrangement was that Mr. Crocker was to go ahead
+indefinitely and that he was to be paid not a given sum per mile,
+but at a given rate of so much per unit for each class of work which
+he might find it necessary to do. Payments were to be made in cash,
+and also up to a certain per cent in stock, taken at a valuation of
+50 cents on the dollar. Under date of April 16, 1866, Mr. Crocker
+requested that stock be given him at a valuation of 30 cents on the
+dollar, instead of 50 cents, and this was agreed to.[108]
+
+The change from a 50-cent to a 30-cent valuation was made ostensibly
+because Crocker and Company could not realize more than 30 cents on the
+stock which they were receiving. As a matter of fact, Crocker could
+not sell Central Pacific stock at any price, so that the alteration
+of the contract merely increased his chance for a speculative gain,
+to be realized after construction should have been completed. Mr.
+Stanford has said that the directors did not care very much what the
+prices were, so long as the work was done. Under the contract, the
+Central Pacific Railroad itself, through Mr. Huntington, purchased
+locomotives and cars for Crocker and Company, and charged for them at
+cost.[109] Bonds were also sent from San Francisco to Huntington, but
+it was Huntington’s impression that they were sold for the company,
+not for the contractors. In any case, Huntington rendered an account
+every month of what he had done, and Hopkins settled with the company
+or with the contractors, as the case might be.[110] Describing the
+situation at a later date, Crocker said, “It was decided that I should
+go on immediately and see what I could do. I did go on until we got
+tied up in suits and I had to stop. I could not get any money. They had
+all the money I had, and all I could borrow. That was the time that I
+would have been very glad to take a clean shirt, lose all I had, and
+quit.”
+
+The total payments made to Charles Crocker or to Charles Crocker
+and Company, under the various arrangements just described, were as
+follows:[111]
+
+
+TOTAL AMOUNT PAID CHARLES CROCKER AND COMPANY ON HIS CONTRACT AND FOR
+EXTRA WORK
+
+ Cash, or its equivalent, including material furnished
+ him $8,853,117.93
+ Bonds, taken at par 100,000.00
+ Stock, taken at 50 cents on the dollar 2,696,200.00
+ Stock, taken at 30 cents on the dollar 11,947,530.00
+ Stock, taken at par value 57,980.22
+ ——————————————
+ Total $23,654,828.15
+ ══════════════
+
+If we take the cash payments at par and the bonds at 75, this would
+make the tidy sum of $69,210 per mile on 129 miles. When we bear in
+mind that Crocker accepted the contract for the first 18 miles out of
+Sacramento at a price including a cash payment of only $13,800 per
+mile, and that the arrangements with the small contractors who followed
+him were distinctly less favorable, it is possible to say with some
+confidence that the profits on the Crocker contracts were considerable.
+Whatever they were, Mr. Crocker shared them with his associates by
+depositing at a later date $14,000,000 in Central Pacific stock in the
+treasury of the Contract and Finance Company, (discussed in the next
+section) for the benefit of the stockholders of that organization.
+Inasmuch as Stanford was one of the principal stockholders in the
+Contract and Finance Company, his later categorical denial before the
+United States Pacific Railway Commission that he had participated in
+the profits of the Crocker contracts makes interesting reading.[112]
+
+
+“Contract and Finance Company”
+
+When the Central Pacific approached the state line of California in
+the latter part of 1867, the associates told Mr. Crocker that they did
+not think it best for him to go any further. They said they wanted
+more capital—they wanted to engage heavy men in the enterprise.[113]
+Crocker had not been successful in persuading capitalists to go in
+with him, while it was believed that investors were deterred from
+taking stock in the Central Pacific by reason of the liability which
+would be thereby incurred under California law. Either Huntington or
+Stanford—both claim the credit—conceived the idea that there would be
+an advantage in organizing a corporation to undertake the construction
+work. The subject was mentioned on the occasion of one of Huntington’s
+visits to California, although the company was formed while Huntington
+was in the East.[114] The name finally decided upon for the new
+corporation was that of “Contract and Finance Company.” Articles of
+association were filed in October, 1867. W. E. Brown, Theodore J.
+Milliken, and B. R. Crocker attended to the details. Milliken was a
+merchant in Sacramento, and the other two were connected with the
+Central Pacific.
+
+According to its articles of incorporation, the Contract and Finance
+Company was formed for the purpose of engaging in and carrying on
+the business of constructing, purchasing, leasing, selling, holding,
+maintaining, operating, and repairing railroads, wagon and transit
+roads, steamboats, vessels, telegraph lines, and rolling stock of
+railroads; the purchasing, holding, hypothecating, and selling of bonds
+and stocks issued by railroad and other companies or corporations;
+the purchasing and using of iron and other materials for railroad and
+telegraph lines; the borrowing and loaning of money; the conducting of
+an express and stage business, and any and all other kinds of business
+connected with or pertaining to railroads and telegraph lines; the
+transportation of persons and property, on land and water; and the
+purchasing, holding, leasing, and selling of real estate of all kinds.
+The capital stock was set at $5,000,000.
+
+
+Failure to Attract Outside Capital
+
+It is the unanimous testimony of the associates that the real and
+only reason for forming the Contract and Finance Company was that
+outside capital might be induced to come in. Huntington says that when
+the company was organized, he went with new energy to capitalists in
+the East to induce them to take a share in the risks and profits of
+construction. Yet from the point of view of attracting outside capital,
+the Contract and Finance Company was a complete failure. William
+and Commodore Garrison, of New York, A. A. Selover, Moses Taylor,
+and William E. Dodge, among others, considered the matter, but all
+concluded that the risk was too great. In California, Stanford applied
+to D. O. Mills, W. C. Ralston, Haggin and Tevis, Michael Reese—in
+short, to everybody whom he thought he might possibly induce to take
+an interest—but in vain.[115] The result of the failure to secure
+outside subscriptions to the Contract and Finance Company was that the
+associates had to take up the stock of that company themselves. Crocker
+was made president at an early date, and apparently took the bulk of
+the stock in the first instance. Then, when it was evident that no
+outside investors would come in, he put the stock back, and Stanford,
+Hopkins, Huntington, and E. B. Crocker took equal shares with him—each
+subscribing for 10,000 shares out of the 50,000 outstanding.[116] Later
+a little stock was disposed of to outsiders, but when the Contract and
+Finance Company got into the courts the associates bought this back.
+
+Throughout the whole life of the Contract and Finance Company the
+stockholders were the same men who held the bulk of the stock of the
+Central Pacific Railroad. Contracts between the finance company and the
+railroad company were therefore made by the associates in one capacity,
+with themselves in another capacity, a situation unfortunately not
+unique in the history of American railroad building. An unusual
+feature of the arrangement, however, which was common to arrangements
+with other construction companies formed by the associates, was that
+the funds of the Contract and Finance Company, over and above the
+sums received from the Central Pacific, were derived from loans to
+the company by its stockholders and not from payments on the stock
+subscribed. There is no evidence that Hopkins, Stanford, Huntington,
+or either of the Crockers paid a cent in cash on their subscriptions.
+Instead, they gave their notes. To provide the Contract and Finance
+Company with funds, they deposited money, sometimes more and sometimes
+less, paying interest on their notes, and receiving credit for interest
+on their balances, each partner as a rule putting in all the funds
+which he could spare, and having an individual account kept of his
+transactions. The Contract and Finance Company was, therefore, always
+heavily in debt, although the debt was owed to its own stockholders.
+The advantages of this arrangement would seem to be two: first, that
+it concealed effectively the profits which the company was making; and
+second, that it did not limit any stockholder to a proportionate share
+in the burdens and gains of the undertaking. If any of the associates
+desired to participate more heavily than his friends, or less heavily,
+he could do so. Such a privilege was probably not important before
+1869, but it became so later.
+
+
+Contracts with Construction Company
+
+A word may now be said about the contracts which the Contract and
+Finance Company secured. Under date of December 3, 1867, Mr. Stanford,
+as president of the Central Pacific, reported to his directors that he
+had made a contract for the construction and equipment of the railway
+and telegraph line of the company lying east of the eastern boundary
+of the line of California, and presented a draft of the contract,
+which the directors approved.[117] Leland Stanford, E. B. Crocker,
+Mark Hopkins, and E. H. Miller, Jr., were present and voted. Mr.
+Miller explains that he did not understand at the time who the owners
+of the Contract and Finance Company were, and that nothing was said
+about it at the meeting. The contract provided that the Contract and
+Finance Company should build the road of the Central Pacific from the
+state line, eastward, 552 miles. It was to grade the road, build the
+bridges, lay the track, build and complete a telegraph line, furnish
+telegraph offices and instruments, furnish rails, ties, buildings,
+roundhouses, turntables, and a specified number of engines and cars
+and running material per mile. On its part, the Central Pacific agreed
+to pay $86,000 per mile, half in cash and half in Central Pacific
+stock, and in practice the Central Pacific provided the equipment
+and the iron, charging them to the Contract and Finance Company at
+cost. This statement relative to the terms of the contract with the
+construction company is made on the strength of the recollections of
+parties interested,[118] for the actual contract is one of the missing
+documents characteristic of Central Pacific history. Stanford describes
+the contract as an exhaustive one. That is to say, the Central Pacific
+turned over all it had and the Contract and Finance Company built the
+road and got the profits, if there were any.
+
+The apparent advantages of an arrangement with a construction company
+as compared with those of construction by the Central Pacific itself,
+were those connected with specialization of the work. A company which
+does nothing but construction and which does that all the time, may be
+expected to have a force more highly trained in this particular grade
+of work, and a more abundant supply of tools and material than an
+organization which builds railroads only occasionally. The unfortunate
+necessity of hiring men for each new job and discharging them at the
+completion of the job is avoided. In the case of the Central Pacific
+this advantage was somewhat illusory, it is true, for the reason that
+the Contract and Finance Company on its first contract, whatever might
+have been the fact later, could scarcely have had an advantage over the
+railroad; and as for tools, the Contract and Finance Company had no
+machine tools at all at the beginning, and had to rely on the railroad
+not only for cars and engines to transport its men, but for equipment
+for large construction of any sort. The real reason for using a
+construction company in this case was a financial and not an operating
+one.
+
+
+Profits of Construction
+
+Much has been said about the profits of the Contract and Finance
+Company. Here, again, books are missing, having been packed into boxes
+by the industrious Mark Hopkins in 1873, and never again produced.[119]
+A man named John Miller, one-time secretary of the Contract and
+Finance Company, and defaulter to the alleged extent of $900,000 at
+a subsequent period, was in possession of transcripts from these
+books, if we may believe his statement; but even these transcripts
+disappeared, if indeed they ever existed.[120] We do not know,
+therefore, how much construction cost the Contract and Finance Company,
+and we cannot calculate with any accuracy the profit obtained.
+
+It does appear that the work done by the Contract and Finance Company
+cost the Central Pacific, in all $23,736,000 in cash and the same
+amount in capital stock.[121] If we add to this $100,000 in cash
+and $2,900,000 in bonds paid to the Union Pacific for the stretch
+of land from Promontory Point to a point five miles west of Ogden,
+and $1,072,874.79 for snowsheds and other extra work performed in
+1870, we have a total of $51,544,874.79, of which $24,908,874.79 was
+in cash. Taken in connection with the Crocker contracts, this makes
+an aggregate of $33,761,992.72 in cash, $3,000,000 in bonds, and
+$38,437,710.22 in stock. It was the judgment of the United States
+Pacific Railway Commission that the total cost of building the 690
+miles from Sacramento to Promontory Point, and of purchasing from
+the Union Pacific 47½ miles of road from Promontory Point to the end
+of the Central Pacific line, 5 miles west of Ogden, did not exceed
+$36,000,000, and this included 9 miles built by small contractors, the
+payment for which is not included in the figures just given.[122]
+
+[Illustration: Summit tunnel (altitude 7,042 feet) before
+completion—Sierra Nevada Mountains]
+
+In a word, if the conclusions of the United States Pacific Railway
+Commission are to be relied upon, and they were made by engineers
+relatively soon after the completion of the road, the builders of
+the Central Pacific were able to accomplish their contracts with the
+cash and the proceeds of the company’s bonds that were turned over to
+them, and to retain their Central Pacific stock as a clear profit. If
+we compare this stock surplus with the probable cash investment in
+the road, taking the shares at any reasonable valuation, say at $15
+or $20 per share, the profit does not seem excessive. If we compare
+it with the contributions of the associates, however, and this is the
+more reasonable because the associates received the full benefit of
+the difference between cost and receipts, it represents, on the most
+conservative calculation, 500 or 600 per cent for an investment which
+probably did not exceed $1,000,000, over a period of six years. To
+this should be added the proceeds of the land grant and of the local
+subsidies.
+
+The federal government seems in these matters to have assumed the
+major portion of the risk, and the associates seem to have derived
+the profits. Nor is this point of view vitiated by the fact that the
+federal government was ultimately repaid its loan in full, for the
+reason that the repayment was not at the expense of the associates, but
+was made possible by a credit arising out of the earnings of the road,
+and represented merely a shifting of the burden of the debt due the
+federal authorities to the communities along the line.
+
+Besides the completion of the main line of the Central Pacific, the
+Contract and Finance Company built a portion of the California and
+Oregon Railroad, part of the Western Pacific, and the entire San
+Joaquin Valley branch of the Central Pacific from Lathrop to Goshen.
+The arrangements between the Contract and Finance Company and Central
+Pacific for this work varied, but substantial additional profits were
+secured. In 1874, the Contract and Finance Company was dissolved.
+There is some dispute as to whether its assets were divided into
+four or five parts, but both Stanford and Crocker have testified that
+their dividend consisted of approximately $13,000,000 in Central
+Pacific stock, at par.[123] At the same time the stockholders of
+the construction company assumed its debts, amounting to perhaps
+$1,600,000.[124]
+
+
+
+
+CHAPTER V
+
+THE SEARCH FOR A TERMINAL
+
+
+Progress of Construction
+
+Under its various construction contracts, the Central Pacific steadily
+progressed, between 1863 and 1869, from Sacramento to a junction with
+the Union Pacific near Ogden. The official statement of the progress of
+construction is as follows:[125]
+
+ Broke ground at Sacramento January 8, 1863
+ Laid first rail October 27, 1863
+ Sacramento to Roseville (18 miles) Constructed in 1863
+
+ Road opened as follows:
+
+ To Newcastle 31 miles January, 1865
+ ” Auburn 36 ” May 15, 1865
+ ” Clipper Gap 42 ” June 10, 1865
+ ” Colfax 54 ” September 4, 1865
+ ” Secret Town 66 ” May 8, 1866
+ ” Alta 78 ” July 10, 1866
+ ” Cisco 94 ” November 9, 1866
+ ” Summit 105 ” July, 1867
+ ” State Line 278 ” January, 1868
+ ” Reno 294 ” May, 1868
+ ” Wadsworth 329 ” July, 1868
+ (362 miles constructed in 1868)
+
+ ” Monument Point 667 ” April 15, 1869
+ ” Ogden 743 ” May 10, 1869
+
+ Driving last spike, and opened
+ for business from Sacramento;
+ distance San Francisco to
+ Ogden, per time card 883 ” May 10, 1869
+
+
+Relations with Western Pacific
+
+It has already been noted that the line from Sacramento via Stockton
+to San José was not part of the original plan, and that the rights,
+grants, and franchises of the Central Pacific in it were assigned to
+other parties in the course of the Congressional fight. The original
+assignment of December 4, 1862, was to a group of men which included
+Timothy Dane, the original projector, and president of the San
+Francisco and San José Railroad, Charles McLoughlin, and A. H. Houston.
+In 1864, the first assignees having waived their rights, the Central
+Pacific Railroad made the same assignment to the Western Pacific
+Railroad of California.[126] The Western Pacific Railroad in turn let
+contracts for construction to Houston and McLoughlin, but by 1867,
+McLoughlin had become involved in litigation regarding his contracts
+and asked that all arrangements between himself and the Western Pacific
+be canceled.[127]
+
+This led the Western Pacific to enter into a contract with the Contract
+and Finance Company, with the result that substantially all the stock
+of the first-named corporation came into the hands of the Huntington
+group. McLoughlin retained the federal land grant; the federal subsidy,
+however, of $16,000 per mile, reverted to the Western Pacific as did
+the local subsidies, and through it passed to the Contract and Finance
+Company. The railroad from Sacramento to San José was opened September
+15, 1869; on June 22, 1870, the Central Pacific and the Western Pacific
+filed articles of consolidation.
+
+
+Lack of Terminal Facilities
+
+In September, 1869, the transcontinental railroad from Omaha to San
+José was in working order. It would be an exaggeration to say that the
+line was in good shape. There was little or no ballast, and a good rain
+was said to make miles of the road-bed run like wet soap. Little had
+been done to eliminate grades and curves, sleeping-car accommodation
+at first was insufficient, the journey speed from Sacramento to Ogden
+was only 19 miles an hour, while schedules were not always adhered to.
+Cars were heated by stoves, and passengers disembarked for their meals.
+But in a measure these were conditions to be expected at the start,
+and interfered only in a minor degree with the interest and excitement
+of a transcontinental trip. The great fact was that a railroad existed
+which could be used, and over which relatively direct, rapid, and cheap
+communication with the East could be secured.
+
+The greatest weakness of the Central Pacific Railroad in 1869 lay in
+its lack of terminal facilities on San Francisco Bay. When the company
+decided to begin work at Sacramento, its reasonable expectation had
+been that a railroad under one management would be built from that
+city around the southern end of San Francisco Bay to the city of San
+Francisco. The Central Pacific was willing to forego the advantage of
+this construction itself in order to gain friends, and did it the more
+willingly because this stretch of line was likely to be unprofitable
+by reason of steamship competition on the bay and on the Sacramento
+River. These conditions changed, however, when the Contract and Finance
+Company took over the construction of the railroad from Sacramento to
+San José. The Central Pacific interest then obtained a connection of
+its own with Niles near Oakland, and it was thus led to consider the
+question of terminals on the eastern side of San Francisco Bay.
+
+The easiest part of San Francisco Bay for the Western Pacific Railroad
+to reach was undoubtedly the shore south of Oakland or Alameda. It
+would probably have been possible to build from Stockton to Richmond,
+as the Santa Fé did later, or to develop Benicia or Port Costa, or even
+to build a terminus on an island in the bay. Yet as compared with
+these alternatives, the Oakland terminus had many advantages. It was
+near to the Western Pacific main line; it was served by two railroads
+which possessed valuable franchises that could be bought at not too
+great expense; and, most important of all, the conditions under which
+the water-front at Oakland was held were favorable to the acquisition
+of the necessary terminal facilities.
+
+
+Oakland Water-Front
+
+The situation at Oakland was briefly as follows: The first army of
+settlers in the city had been squatters on a portion of the Peralta
+grant. Among these had been Horace W. Carpentier, Edson Adams, and A.
+J. Moon. In 1852 the state legislature had incorporated the town of
+Oakland, had fixed its boundary, and had granted to it the land lying
+between high tide and ship channel along the whole of its water-front,
+with a view to facilitating the construction of walls and other
+improvements.[128] There were 75 to 100 inhabitants in Oakland at
+this time, with half a dozen residences, two hotels, a wharf, and two
+warehouses. There were no streets—only cattle trails.[129]
+
+As soon as incorporated, the town held an election, and chose Adams,
+Moon, Carpentier, and two others as trustees. Mr. Carpentier did not
+qualify or serve. On May 17 and 18, 1852, the board of trustees made
+two important grants: In the first place, it gave to Horace Carpentier
+for the period of thirty-seven years, the exclusive right to construct
+wharves, piers, and docks at any point within the corporate limits of
+Oakland, with the right of collecting wharfage and dockage; and in the
+second place, it sold, granted, and released to the said Carpentier
+all the town title in the land lying within the limits of the town of
+Oakland between high tide and ship channel.
+
+In return for this grant Carpentier agreed to build three wharves
+and a schoolhouse, and to pay to the town 2 per cent of his wharfage
+receipts—certainly a modest recompense. Mr. Marier, president of
+the board of trustees, later testified that Carpentier told him when
+the deed was signed that he would be willing at any time to reconvey
+the property to the town on being reimbursed for the moneys he had
+expended; and this was also the recollection of others.[130] But the
+understanding, if any existed, never could be enforced,[131] so that
+Carpentier was firmly established in his control of the tide-lands of
+the city of Oakland, and in spite of petitions, riots, and litigation,
+sat unshaken in 1867 when the Central Pacific became interested in the
+matter.[132]
+
+
+Oakland Water Front Company
+
+Sometime prior to 1867 Carpentier had several talks with Leland
+Stanford, and endeavored to persuade him to build north from Niles
+across the Ravenswood cut-off. In the fall of 1867, Carpentier and
+Stanford talked again, and Stanford came to entertain the idea as a
+matter of reasonable negotiation. John P. Felton was engaged by the
+city of Oakland to look into its rights. Carpentier says that he
+offered the railroad one-half of his water-front if it would make
+his property its terminus. He says that this mode of adjustment was
+acquiesced in by Mayor Merritt and Mr. Felton, and that about the end
+of the year (1867), it came to be understood between them and Governor
+Stanford and himself that something should be done on approximately
+this basis.[133] Judge E. B. Crocker, however, attorney for the Central
+Pacific, asked that outstanding disputes regarding the water-front be
+first settled. The legislature was soon to be in session, and it was
+urged that all should act together in trying to get an authorization
+for the settlement of difficulties.
+
+This was done.[134] On the 27th of March, 1868, as a part of a
+series of compromise arrangements, the Oakland Water Front Company
+was incorporated. The subscribers and original directors were H. W.
+Carpentier, president; Samuel Merritt, vice-president; Lloyd Tevis,
+secretary; Leland Stanford, treasurer; E. R. Carpentier and J. B.
+Felton. Mr. Tevis and H. W. Carpentier were in the same year directors
+of the Southern Pacific Railroad Company. The Oakland Water Front
+Company was capitalized for $5,000,000, and the stock was divided into
+50,000 shares. Of these shares H. W. Carpentier subscribed for 23,000,
+or 46 per cent; Stanford for 17,500, or 35 per cent; and Felton for
+4,999, or 10 per cent. Lloyd Tevis took 2,500 shares, E. R. Carpentier
+2,000 shares, and Samuel Merritt 1 share.
+
+On March 31, Mr. Carpentier deeded to the new corporation all the
+water-front of the city of Oakland, that is to say, all the lands,
+and the lands covered with water lying between high tide and ship
+channel, being the water-front lands described in and granted in the
+act of incorporation of May 4, 1852. He excepted from this deed only
+that water-front lying between the middle of Washington Street and the
+middle of Franklin Street and extending southerly to a line parallel
+with First Street. By Section 2 of an agreement made the following day,
+the Oakland Water Front Company agreed to deed this last-named area to
+the city of Oakland.[135]
+
+
+Cession of Land by Water Front Company
+
+On April 1, 1868, two further agreements were signed. One, styled an
+indenture, was between the Oakland Water Front Company, the Western
+Pacific Railroad Company, Carpentier, Felton, and Stanford. Under this
+indenture, and in consideration of the deed of March 31, the Oakland
+Water Front Company declared that it held the property conveyed to it
+subject to covenants which were particularly set forth as follows:
+
+The Western Pacific Railroad agreed to select within three months 500
+acres from the property conveyed by the deed of March 31, including
+not more than one-half mile of frontage on ship channel, together with
+not to exceed two strips of land over the remainder of the premises
+from high-water mark to the parcels selected. The strips running from
+high-water mark were each to be not more than 100 feet wide at grade.
+
+The Oakland Water Front Company agreed to convey to the Western Pacific
+Railroad the 500 acres selected, and to grant an exclusive right-of-way
+over the hundred-foot strips. It undertook, moreover, to sell no
+land west of the 500 acres, provided that these were located out to
+a westerly water-front of 24 feet depth of water at low tide, and to
+place no obstructions in front of them, or to do anything to obstruct
+the free approach of vessels to the parcels.
+
+The Water Front Company further agreed to convey to the city of Oakland
+on demand “so much of the premises as [lay] between the middle of
+Franklin Street and the easterly line of Webster Street, and extending
+out to a line parallel with First Street, and two hundred feet
+southerly of the present wharf at the foot of Broadway,” with the right
+of wharfage, dockage, and tolls thereon, and to designate and dedicate
+as a navigable water course for public use, the channel of San Antonio
+Creek, from ship channel to the town of San Antonio, to a width of not
+less than 200 feet over the shallow water at the bar, and 300 feet wide
+above that place.
+
+The Water Front Company, in the third place, undertook to convey 25,000
+shares of its stock to Carpentier, 5,000 shares to Felton, and 20,000
+shares to Stanford.
+
+Finally, the Water Front Company authorized the city of Oakland, or
+other parties, to construct a dam above the Oakland bridge, across the
+estuary, so as to keep the land above submerged to high-tide mark, for
+the use of the owners of the adjoining lands, and of the public.
+
+The second paper, also signed on April 1, was an agreement between
+the Western Pacific Railroad Company, Leland Stanford, and the Water
+Front Company. By it the railroad agreed to construct or to purchase
+within eighteen months and to complete a railroad from its main line,
+then at Niles, to and connecting with the parcels of land described in
+the indenture of the same date, together with the necessary buildings
+and structures for a freight and passenger depot on the premises. The
+railroad agreed to expend in new work within three years $500,000. The
+railroad company agreed that in construction across the estuary between
+Oakland proper and Brooklyn it would leave a space for forty feet free
+for the passage of vessels.[136]
+
+
+Attitude of City
+
+Up to this point the city had not entered into any contracts. On
+April 1, however, the city council passed an ordinance ratifying and
+confirming the grants made under the early ordinances of 1852 and
+1853, and the conveyance by Mr. Marier as president of the board of
+trustees, and granted, sold, and conveyed to the said Carpentier in
+fee simple forever, the city water-front, that is to say, the lands
+lying between high tide and ship channel. This ordinance further
+provided that Carpentier should convey to the Oakland Water Front
+Company the property and franchises conveyed at that time by the city
+to him, to be used in accordance with the terms and stipulations of the
+contract between the Oakland Water Front Company, the Western Pacific
+Railroad Company, and other parties. On the following day the council
+passed still another ordinance reciting that inasmuch as the terms and
+stipulations previously provided had been complied with by Carpentier,
+the grant was finally settled upon him.[137]
+
+The result of these somewhat complicated negotiations was that the
+Central Pacific acquired 500 acres of water-front property in Oakland,
+with a frontage of one-half mile on ship channel, merely as a reward
+for coming to the city. In addition, Mr. Stanford, acting presumably on
+behalf of his associates, received 40 per cent of the capital stock of
+the Oakland Water Front Company, which on its part owned substantially
+all of the water-front remaining. The city attorney, who was supposed
+to represent the interests of the city, was rewarded with 10 per cent
+of the stock of the Oakland Water Front Company, and the position of
+director. The mayor of the city, Mr. Merritt, was made vice-president
+of the same corporation, although the extent of his personal interest
+in it is not known. He seems to have held only qualifying shares.[138]
+
+In subsequent years the relations between the city of Oakland and the
+Oakland Water Front Company were repeatedly subjects of most bitter
+controversy. Extravagant as had been the consideration of the grant to
+the Central Pacific for coming to Oakland, this matter was less serious
+than the circumstance that the control of the remaining water-front by
+the Central Pacific through the Oakland Water Front Company appeared
+to make it impossible for any rival transportation company to gain
+a footing in the city. The city long endeavored to free itself from
+this monopoly. It contended at one time that Carpentier had secured
+the election of his own agents to the board of trustees which had made
+his grant, and that in any case Carpentier had agreed to reconvey
+the property to the city. Neither statement could be proved. On the
+contrary, in 1897 the Supreme Court of California definitely pronounced
+the compromise of 1868 binding upon the municipality, although it
+interpreted the words “ship channel” to mean the low-tide line and not
+a depth of three fathoms at low tide as had at first been supposed.[139]
+
+
+Water-Front Monopoly Broken
+
+Ten years later the title of the Oakland Water Front Company was
+again questioned in a case brought by the Western Pacific Railroad
+Company. By this time two jetties had been built by the United States
+government extending the lines of San Antonio Creek westward to deep
+water. As a result of the deposit of material taken out of the channel
+of the estuary and placed north of the northern training wall, and of
+additional deposits from dredging operations conducted by the Central
+Pacific and by private parties, the line of low tide had been moved
+appreciably out into the bay. Under the general rule that accretions
+belong to the proprietors of riparian lands, the Southern Pacific, as
+successor to the Oakland Water Front Company, asserted title up to
+the limit of the new line of low tide. This claim the federal court
+denied. The limit of the railroad company’s property was declared to
+be the low-tide line of 1852, extending first northwesterly and then
+northeasterly from the mouth of the San Antonio estuary at Sand Point
+as indicated in the map on page 93.[140]
+
+[Illustration: Map of Oakland and Brooklyn, showing location of Central
+Pacific terminals, 1871]
+
+This at one stroke transformed the Southern Pacific’s holding from
+a water-front to an interior location, by making it clear that the
+title to the substantial area between the bulkhead line of the city
+of Oakland and the low-water mark of 1852 lay in the city and not in
+private hands. The city had indeed given away its water-front as it
+existed in 1852, but the creation of a new water-front during the
+following years relieved it of the effects of its negligence. It thus
+appears that the alienation of the water-front of Oakland in 1868 did
+not permanently vest in the Central Pacific interest control of the
+tide-lands to which the compromise of that year referred. For the time
+being, however, the company secured a well-nigh complete monopoly. Not
+only had it convenient access to tide-water for its own trains, but
+it was able for many years to keep other railroads from obtaining a
+similar advantage. Up to this point, however, no arrangement had been
+completed for a terminus on the San Francisco side of San Francisco Bay.
+
+
+Proposed Grant of San Francisco Water-Front
+
+In order to establish the Central Pacific with complete adequacy, the
+associates accordingly now turned to the western side of San Francisco
+Bay and took steps to provide terminal facilities in the city of San
+Francisco itself. Possibly this was because they had acquired or were
+about to acquire a controlling interest in the San Francisco and San
+José Railroad; possibly it was due to Carpentier’s influence, or
+perhaps it was merely a recognition of the advantages of a terminal
+location in San Francisco.
+
+Unlike Oakland, the city of San Francisco had never received title
+to all its tide-lands from the state, and application had to be made
+to the legislature at Sacramento, direct. Early in 1868 the Senate
+Committee on Commerce and Navigation, of the state legislature,
+reported a bill granting to the Western Pacific Railroad Company and
+to the Southern Pacific Railroad Company, submerged and tide-lands in
+the Bay of San Francisco, from the foot of Channel Street to Point
+San Bruno, with the right to extend the railroads of said companies
+or construct branches thereof, and to purchase other railroads, and
+use the same for the purpose of reaching the place or places on said
+premises selected as termini for said railroads, and to maintain and
+operate the same by steam or other power from the present lines of said
+railroads to the said termini on said premises, and with all necessary
+and proper depots, side-tracks, etc.
+
+The boundaries of this extraordinary grant are indicated on the map on
+page 96.[141]
+
+The total length from the foot of Channel Street to Point San Bruno was
+a little over 8 miles. The maximum breadth was approximately 2½ miles,
+and the area was estimated by opponents of the scheme to be not less
+than 6,620 acres. The value of such a water-front on the principal city
+of the Pacific Coast was to be measured in millions of dollars, and its
+importance to the Huntington interests was not limited to a money value
+alone. The possession of the San Francisco water-front south of Channel
+Street meant the occupation of the only part of the city at which a
+first-class railroad could reach tide-water. The reason for this is
+that all railroads must come into the city of San Francisco from the
+south or the southwest on account of the shape of the peninsula, and
+no railroad can conceivably be allowed to cross the main thoroughfare.
+Market Street, or to penetrate the thinly settled residential districts
+in the north.
+
+[Illustration: Boundaries of Railroad Tide-Land Grant, as proposed in
+1868.]
+
+The bill provided that the Central Pacific, Western Pacific, Southern
+Pacific, and the San Francisco and San José railroads, which were
+the proposed grantees, should pay the fair market cash value of the
+submerged lands at the time of the passage of the act, being not less
+than $100 per acre for the lands lying north of Point Avisadero. But
+it was also provided that the surplus over $100 due for the land north
+of Point Avisadero might be spent in reclamation and improvement of
+the premises, and the companies were to receive patents if within five
+years not less than $1,000,000, in addition to such surplus, had been
+spent in this way. In plain English, the tide-lands were to be sold for
+$100 an acre, but in the case of some of them the beneficiaries might
+be required to spend additional amounts in improvements. The Senate
+committee defended its recommendation by saying that it was desirable
+to have the water-front improved, and that this was the way to have the
+thing done. It expected that the railroads would build a sea-wall; and
+observed that this wall, water-front, and docks would be subject to the
+control of the state harbor commissioners. How a rival railroad in the
+future would get access to the docks, it did not say.[142]
+
+
+Scheme Opposed
+
+Generally speaking, arrangements for the alienation of city water-front
+property into private hands are to be looked upon with suspicion
+unless extensive powers of control are reserved by state or city, and
+unless there is provision for the reversion of the property, including
+improvements, to the public at the end of a stipulated time not too
+far removed, on conditions and in a manner clearly stated. In the
+particular case in hand there were no such safe-guards to the public
+interest, except a general reservation of jurisdiction and control
+over the water-front by the State Board of Harbor Commissioners, and
+a provision that the grantees should charge no tolls or wharfage on
+the water-front sold to them. This was not enough. It was therefore
+fortunate under the circumstances that the improvident nature of the
+proposed contract was understood and its defects given full publicity
+by the San Francisco press. The _San Francisco Bulletin_ commented as
+follows:
+
+ The scheme is an outrageous one. A proposition to sell to the Railroad
+ Companies at a reasonable price, so much of the southern water-front
+ as would be actually necessary for depots, warehouses, workshops,
+ etc., might be considered favorably, but a proposal to give to what
+ is or will be virtually a single corporation two-thirds of the
+ frontage of a city destined to be the second in America, is utterly
+ indefensible ... this immense property will be worth eventually as
+ much as the Pacific Railroad itself.[143]
+
+The _Alta_ said:
+
+ If the parties who have so modestly presented their humble petition
+ for this concession had gone one step farther, and asked for a grant
+ of the whole State of California—all its tide and marsh lands—the
+ control of all its rivers, bays and inlets, we do not know that the
+ public amazement would have been any greater.[144]
+
+Even the conservative _San Francisco Times_ suggested that it would
+be well for the railroad companies to submit detailed estimates of
+the land needed for terminals and the uses to which this land was to
+be put,[145] while it refrained from commenting on the _Bulletin’s_
+assertions that it was the intent of the railroads to locate their
+terminus well south of the city of San Francisco to the great profit of
+parties from Sacramento who were buying lands around Hunter’s Point.
+
+
+Another Plan Substituted
+
+Whether or not this last accusation was well founded, the opposition of
+the city grew so intense that the legislature did not dare to carry
+out its original plan.[146] Instead, the Southern Pacific and Western
+Pacific were offered each 150 acres, to be located by the companies
+within specified limits south of Channel Street, and still later the
+amount was reduced to 30 acres apiece, and a donation was substituted
+for a sale. So amended, the act became law on March 30, 1868. It
+granted and donated to the Southern Pacific Railroad Company and to
+the Western Pacific Railroad Company for a terminus in the city of San
+Francisco, to each of said companies, 30 acres, exclusive of streets,
+basements, public squares, and docks. The land was to be selected by
+the railroad companies within ninety days, but it was to lie south of
+Channel Street, and outside of the Red-Line water-front of Mission
+Bay, and was not to extend beyond 24 feet of water at low tide, nor to
+within 300 feet of the line which should be selected by the tide-land
+commissioners as the permanent water line of the front of the city. A
+200-foot right-of-way was given to the companies to provide access to
+their tide-lands. The lands were to be located and $100,000 spent upon
+them by each of the grantees within thirty months, or the grant would
+revert to the state.[147]
+
+Compared with their original projects, the Act of 1868 represented a
+considerable check to the plans of Mr. Stanford and his friends. Yet
+the grant in San Francisco was important, and, added to what had been
+secured in Oakland, provided satisfactorily for the Central Pacific’s
+transportation needs.
+
+In 1871 the San Francisco supervisors granted to the Southern Pacific
+and Central Pacific railroads rights on various streets in the city in
+order that they might reach and enjoy their lands and depot grounds in
+Mission Bay. Late in the same year Stanford indicated his willingness
+to make Mission Bay the main terminus of both the Central Pacific and
+Southern Pacific, in consideration of a subsidy of $3,000,000 and of
+alterations in the terms of the Mission Bay grant so as to make it more
+acceptable. Nothing came of these last negotiations, nor of somewhat
+similar proposals made in 1872 by a citizens’ committee engaged in
+fighting the Goat Island scheme (see below) and submitted to popular
+vote. In 1873-74, however, the city granted Stanford additional though
+minor franchises, enabling him to run trains on certain city streets.
+
+
+Proposed Occupation of Goat Island
+
+It will be readily understood that feeling ran high both in Oakland and
+San Francisco while the railroad negotiations for terminal facilities
+were going on. Nor was the public excitement allayed by the attempt of
+the Huntington group to occupy Goat Island, which occurred at the same
+time. Goat Island, formerly known as “Yerba Buena” Island, is a small
+body of land lying about midway between San Francisco and Oakland.
+Reference to the inset accompanying the map of Oakland will show its
+exact location. It is obvious enough why the Central Pacific wanted
+the use of this island and of the mud flats lying directly north.
+It is just as obvious why, in the absence of regulation, the public
+should have objected to its exclusive occupation by any single railroad
+company. Yet, in March, 1868, one day after the action granting to the
+Central Pacific and to the Southern Pacific 60 acres of tide-lands in
+San Francisco, the state legislature granted to the Terminal Central
+Pacific Railroad Company—a corporation controlled by the associates—a
+defined area not to exceed 150 acres of the submerged shoal lands north
+of the island, with the right to reclaim these lands for railroad
+depot and commercial purposes, and to connect them by a bridge with
+the Oakland, Alameda, and Contra Costa shores. The company agreed to
+pay the fair appraised value of the lands into the state treasury, and
+to put into operation within four years a first-class rail and ferry
+communication between the city of San Francisco, the premises conveyed
+to it, Oakland and Vallejo.[148]
+
+Two years later the time for the completion of the promised road was
+extended, and a railway to the Straits of Carquinez, opposite Vallejo,
+was accepted as sufficient to fulfil the requirement of a line to the
+town of Vallejo itself,[149] and in 1871 a still further extension of
+time was given. The road which the Southern Pacific proposed to build
+was probably that indicated in the notice of new construction filed at
+Sacramento in March, 1867—that is to say, it was a line running from
+Sacramento east of the Sacramento River past Freeport, crossing the
+mouth of the San Joaquin River, and continuing west through Antioch and
+over the hills to San Francisco Bay. Such a road could easily have been
+brought to Carquinez Straits, but it could not have reached Vallejo.
+The associates did not at this time intend to enter the territory west
+of the Sacramento River.
+
+
+Project Lapses
+
+Following the vote of the California legislature, a bill was introduced
+in Congress, providing for the grant to the Central Pacific Company
+of the right to use Goat Island itself. This logical sequence to the
+state legislation was opposed by the United States military authorities
+and by the city of San Francisco. It appeared that residents of San
+Francisco anticipated the permanent loss of a large part of the
+transcontinental business if the Central Pacific should occupy Goat
+Island. The _San Francisco Bulletin_ insisted that there was room
+enough on the island and on the adjacent flat to accommodate all the
+warehouses and large shipping, mercantile, and financial establishments
+of a seaport of 500,000 inhabitants. It was stated that the advantages
+of the location would draw the warehouses, that other firms would
+follow, and that men who had business on the island would not live
+in San Francisco, but would make their homes on the eastern side of
+the Bay where land was cheaper, more level, and more fertile. These
+statements were generally believed.
+
+Nothing was done in 1869, 1870, or 1871 beyond the steps just
+mentioned. In March, 1872, however, the San Francisco chamber of
+commerce passed resolutions and prepared a memorial addressed to the
+President and to Congress opposing the proposed grant, and a mass
+meeting was held in San Francisco to make public protest. Following
+this, conferences were held between a committee of citizens and the
+president of the Central Pacific in the hope of arriving at some
+general understanding relative to terminal facilities, and eventually
+the whole Goat Island project lapsed.[150]
+
+
+Purchase of Other Roads
+
+By the middle of 1868 the Central Pacific had thus secured satisfactory
+water-front facilities in both Oakland and San Francisco, amounting
+in the case of the former city, through the Oakland Water Front
+Company, to monopoly control. Needless to say, it had also abundant
+accommodations at Sacramento. Through the Southern Pacific Railroad it
+had also franchises in San Francisco, including the right to maintain
+tracks in the vicinity of Third and Townsend Streets. Up to August,
+1868, however, it does not seem to have made the connections between
+its main line and Oakland that were necessary to enable its trains to
+reach San Francisco Bay at all. In that month Stanford, Huntington,
+Hopkins, and Crocker bought a majority of the stock of the San
+Francisco and Oakland Railroad, and the following year they purchased
+likewise the San Francisco and Alameda Railroad. The first-named
+company had 2 or 3 miles of track eastward from Oakland’s point. The
+Alameda company had about 16 to 18 miles. Both had valuable franchises,
+and both owned ferry-boats and piers extending some distance into the
+bay. In 1870 both of the companies were joined in the San Francisco,
+Oakland and Alameda Railroad, and in the same year this company was
+consolidated with the Central Pacific. By 1869 the gap between the end
+of the San Francisco and Alameda Railroad and Niles had been filled,
+and this in a real sense completed the transcontinental line.
+
+
+
+
+CHAPTER VI
+
+ACQUISITION OF THE CALIFORNIA PACIFIC
+
+
+Tendency to Monopoly Control
+
+The first intimation that the Central Pacific Railroad was on its way
+to something like a monopoly control in the state of California is to
+be found in the negotiations for terminals on San Francisco Bay. But
+it was not long before more evidence came to light. Looking back with
+the advantage of knowledge of the company’s later history, it seems
+probable that the possibilities of monopoly control of the railway
+business of California were present to the owners of the Central
+Pacific as early as 1868. The task of securing such control was not,
+after all, so very great. California had few railroads in the sixties,
+and those which were in operation were small and unprosperous, and
+could be cheaply acquired.
+
+Besides this, the topography of the state lent itself to schemes of
+conquest by a sharp separation of the interior valleys from each other
+and from the coast. It was not necessary to occupy the whole country,
+for an effective control over one valley could be maintained in spite
+of the fact that an adjacent valley was in hostile hands. Nor was there
+any public opinion in California at the time thoughtfully critical of
+monopoly, as such. The country was new. Theories covering the relations
+of large corporations to the consuming public had not been developed.
+People hated monopolies because monopolies meant high prices; but the
+very persons who were most likely to object to monopoly were also
+likely to seek positions of advantage for themselves when possible.
+
+Under conditions like these, Stanford, Huntington, Hopkins, and
+Crocker were almost sure to attempt to dominate the railway system of
+the state as soon as they determined to make their connection with it
+more than temporary. This decision was made as the Central Pacific
+approached Ogden in 1868 and 1869. Had the associates been able to
+sell out before this time, it is likely that they would have done so.
+Indeed, it is credibly reported that 80 per cent of the stock of the
+Central Pacific was offered to D. O. Mills as late as 1873, for a price
+of $20,000,000,[151] and this was probably the last of several offers
+made to different parties.
+
+The evidence seems to show, however, that by 1870 the Huntington group
+were inclined to remain in the railroad business. Strategically, the
+associates then occupied a very strong position. They possessed the
+only railroad line from California to the East. They dominated the
+Oakland water-front, and held important concessions in San Francisco.
+Branch lines, like long tentacles, stretched from Roseville north to
+Chico, on the way to the Oregon state line,[152] and from Lathrop south
+to Modesto, to be extended to Goshen by August 1, 1872.[153] By 1869
+the Sacramento Valley Railroad, with its extension to Placerville,
+had been bought, and the California Central Railroad from Folsom
+to Marysville was under Central Pacific control. Even the budding
+project for a Southern Pacific Railroad had received the attention of
+Stanford and his associates. Indeed, the only really weak spots in
+the associates’ position were their failure fully to occupy the San
+Joaquin Valley, and the fact that they did not control the short line
+between Sacramento and San Francisco. We will, accordingly, consider
+the situation and the policy of the Huntington group in these respects.
+
+[Illustration: Map of California Railroad, about 1870.]
+
+
+Competition of California Pacific
+
+The most direct railroad route from Sacramento to San Francisco is by
+way of Vallejo or Benicia, across the Straits of Carquinez, and along
+the eastern shore of San Francisco Bay. In 1865, after the Central
+Pacific had begun work in earnest, the California Pacific Railroad
+Company was incorporated to occupy this route from Sacramento as far
+as Vallejo. Contracts were let, though no material progress was made
+for two years. In 1867 the work was taken up with fresh energy, and
+in 1869 the road was finished between Vallejo and Sacramento, with
+a branch from Davisville to Marysville. The newly built Napa Valley
+Railroad from Adalanta, California, to Calistoga, was acquired at the
+same time. In 1870 the system reported 163 miles of road, of which 22
+miles consisted of a ferry connection from Vallejo to the city of San
+Francisco.
+
+It seems more probable that the California Pacific was originally
+intended as a connection for the Central Pacific than that it was built
+as a competitor with the larger road. This was satisfactory enough to
+the Central Pacific so long as this company terminated at Sacramento.
+But there is no manner of doubt that the California Pacific became a
+formidable competitor to the Central Pacific when the latter acquired
+its circuitous line to Oakland via Stockton. This was especially true
+with respect to the passenger business. The distance from Sacramento to
+San Francisco via Vallejo was 87 miles, via Stockton 137½ miles; the
+time via Vallejo was 3½ hours, via Stockton 5 hours. It appears that
+transcontinental passengers on Central Pacific trains often changed
+cars at Sacramento, sacrificing the balance of their through ticket and
+paying extra fare in order to save time.[154] Of the local passenger
+business between Sacramento and San Francisco, the California Pacific
+claimed three-fourths. How large a share of the freight went by the
+shorter line does not appear, but it must have been considerable, for
+Mr. Stubbs later estimated that the cost of operating the Benicia route
+could not have been more than 50 per cent of the cost of operating the
+Western Pacific,[155] and it is in evidence that the Central Pacific
+sent most of its freight via Benicia as soon as it obtained control of
+both lines.
+
+It should be remembered also that in addition to its competition for
+local business, the California Pacific had ambitious plans in other
+directions. We know, for example, that it proposed an extension
+eastward via Beckwourth’s Pass to a connection with the Union Pacific,
+at or near Ogden. This line was to be built by the California Pacific
+Railroad Eastern Extension Company, incorporated at Sacramento in
+March, 1871, with a capital stock of $50,000,000.[156] Other reports
+credited it with an intention to enter the San Joaquin Valley;[157]
+while its influence in Sonoma, Marin and Napa counties was recognized.
+In short, by 1870 the California Pacific was not only important in
+respect to what it had actually accomplished, but it had in it the germ
+of a railroad system in no way inferior to that of the Central Pacific
+itself.
+
+
+Rival’s Weakness
+
+Unfortunately for the California Pacific, the company’s physical and
+financial position in 1871 did not measure up to the magnitude of
+its ambitions. Counsel for the Central Pacific in later years drew a
+vivid picture of the condition of the railroad in 1867 which probably
+contained more than a grain of truth. According to this account, the
+right-of-way of the California Pacific was unfenced, its sidings were
+few, and its stations were insufficient. The road-bed was almost
+wholly unballasted, and inadequately supplied with ties. Embankments
+were so narrow that the ends of the ties projected on both sides. The
+slope of the cuts was insufficient and upon the Napa branch the rails
+were fastened to the ties with wrought nails without heads which were
+bent back over the flanges of the rails after being partly driven, in
+order to hold the rails in position.[158]
+
+On the other hand, in spite of the imperfect character of its
+construction, the California Pacific had paid large prices to
+contractors in its bonds and stock. In December, 1870, the company was
+compelled to borrow money to meet the January interest of 1871. By the
+following spring it was indebted to the extent of $8,450,000, of which
+$1,200,000 was floating debt, and had to prepare to meet an annual
+interest charge of $667,500. This was more than the company’s earnings
+could stand.
+
+In 1871 the Central Pacific, taking advantage of the weakness of its
+rival, proceeded to the attack by arranging to construct a branch from
+Sacramento, by way of Davisville, to Vallejo. In pursuance of this
+arrangement it accumulated iron and ties, made surveys, and succeeded
+in effecting a contract with an organization known as the Bridge
+Company of the City of Sacramento, for the exclusive use of its bridge
+for their new enterprise.[159] The California Pacific was already
+suffering from the competition of river boats, and the construction of
+the new road would have ruined it. The pressing nature of the danger
+was appreciated by the managers of the road, and Milton S. Latham,
+director and treasurer of the California Pacific, and agent for the
+holders of three-fourths of the capital stock of that company, promptly
+opened negotiations with the Central Pacific, through Collis P.
+Huntington, for an adjustment of difficulties. This was precisely the
+situation which the Central Pacific desired to bring about.
+
+
+Control of California Pacific Acquired
+
+The agreement that resulted from the conditions described may probably
+be explained as an elaboration of the Central Pacific’s statement
+to Mr. Latham that the company was willing to buy the California
+Pacific but did not have the money. It took the form of the following
+consecutive transactions:
+
+By agreement dated July 13, 1871, between Latham, Leland Stanford,
+and Mark Hopkins, Mr. Latham agreed to deliver 76,101 shares of the
+California Pacific Railroad Company, to assign three-fourths of the
+capital stock of the California Pacific Eastern Railroad Extension
+Company to the other parties to the contract, and to stipulate that
+the total indebtedness of the two companies named should not exceed
+$8,421,000. In consideration of this delivery, Stanford and Hopkins
+agreed to pay to Latham $1,579,000 in bonds of the California Pacific
+Railroad Company.
+
+On August 9, 1871, Mr. Latham presented, and the directors of the
+California Pacific at a formal meeting approved, resolutions to the
+effect that the sum of $1,600,000 was necessary for the purpose of
+constructing and completing an additional track, and for strengthening
+the California Pacific embankments across the tule lands. The directors
+further voted that the money be borrowed, and the necessary bonds be
+issued. President Jackson then stated to the board that a contract had
+been made, and the execution of this contract was approved.
+
+Under date of August 9, 1871, the California Pacific covenanted with
+Stanford, Hopkins, and Huntington for the construction referred to in
+the previous paragraph. The associates agreed
+
+ ... to enlarge the embankment of the railroad of the said party of
+ the second part, where embankment is required, and erect and widen
+ the trestle work, where trestle work is required, from the bridge
+ across the Sacramento River to Davisville, in the county of Yolo,
+ in the State of California, and place thereon a good and sufficient
+ superstructure, consisting of timber and ties and iron railroad
+ thereon, so as to make an additional railroad track from said bridge
+ to said Davisville, fully equal to the present railroad on the present
+ embankment and to connect the same with proper switches with both the
+ main track to Vallejo, and the track to Marysville of the railroads
+ of the party of the second part. Said parties of the first part to
+ furnish all the material for the said additional railroad track, and
+ embankment, and trestle work, and to have the same completed and
+ ready for use on or before the first day of January, in the year one
+ thousand eight hundred and seventy-three.
+
+In consideration of this construction, the California Pacific was to
+pay the associates 1,600 second mortgage California Pacific bonds.
+
+On August 19, 1871, the Huntington group, now controlling a majority
+of the board of directors of the California Pacific, entered into an
+agreement with the California Pacific under which the Central Pacific
+undertook to pay the California Pacific $5,000 per month, to furnish
+the equipment for passenger business, and to guarantee the interest on
+1,600 second mortgage bonds, while the California Pacific in return
+agreed to transport to or from San Francisco, passengers beginning or
+ending their trips on the Central Pacific or connecting roads, and to
+maintain its fare for other passengers at $4 between San Francisco and
+Sacramento. On September 1, 1871, the Central Pacific took full control
+of the California Pacific, and moved its offices from San Francisco to
+Sacramento.[160]
+
+
+Motives Behind Transactions
+
+Two explanations of these transactions are possible. Counsel for the
+Central Pacific, in 1886, maintained that the contracts fell into two
+distinct classes or groups. The California Pacific, according to this
+point of view, arranged for an additional track between Sacramento
+Bridge and Davisville, and for still more important enlargement
+in embankments and widening and erection of trestle work, by the
+transfer to defendants of second mortgage bonds. These bonds, it was
+alleged, though considerable in amount, had little value because of
+the desperate financial condition of the California Pacific. In the
+second place, the Central Pacific gave value to bonds which it held by
+a guaranty, and used them to buy a controlling interest in California
+Pacific stock. Of this, the minority stockholders of the corporation
+had no right to complain.
+
+Counsel on the other side maintained that the essential feature of the
+whole transaction was the purchase of California Pacific stock, and
+that the various contracts merely supplied a method of buying this
+stock without paying for it. Starting, therefore, with the contract
+of July 13, they pointed out that the defendants agreed to purchase
+California Pacific stock from Latham with California Pacific bonds
+which were not yet in existence, stipulating for full control of
+the California Pacific before payment should be made, in order that
+they might obtain the purchase price from that company. When Latham
+announced that he was ready to deliver the stock, it became necessary
+for the defendants to secure about $1,600,000 in California Pacific
+bonds. These bonds could be legally issued only for new construction,
+hence the contract for a second track from Sacramento to Davisville.
+When issued, and in the hands of the defendants, it was necessary to
+have the Central Pacific’s guaranty. For this the Central Pacific
+required the California Pacific to enter into the traffic agreement
+of August 19, obtaining thus a full _quid pro quo_. The result was
+that the California Pacific furnished first the bonds and then a
+consideration for the Central Pacific’s guaranty, which together served
+to purchase the California Pacific stock.
+
+
+Plausible Explanation
+
+There were several circumstances which made this second version
+plausible. It seems extraordinary, for one thing, that a company in
+the straits to which the California Pacific was reduced should have
+issued bonds for double-tracking 13 miles of road.[161] If it be
+answered that the strengthening of the road against the immediate
+danger of flood was the real reason for the issue, then it was still
+extraordinary that the time limit for construction of the work should
+be set as it was, eighteen months away, on January 1, 1873. As a matter
+of fact, the section of the California Pacific across the tule lands
+was washed away before the associates got around to strengthening it.
+This made it impossible for Stanford, Huntington, and Hopkins, or
+the Contract and Finance Company, to which they had assigned their
+contract, to carry out the original agreement. Instead, Mr. Montague,
+chief engineer of the California Pacific, reported to his board that
+the cost of restoring the washed-out line would be equal to the cost
+of carrying out the original contract, and the board, on November 15,
+1872, authorized the substitution of this work for that agreed on in
+the contract of August 9, 1871.
+
+Owing to the subsequent destruction of the books of the Contract and
+Finance Company, there is no way of telling accurately what the cost
+of restoration actually was. The Contract and Finance Company finished
+the job, however, in six weeks after the work was actually commenced,
+and what information is available leads one to doubt if the expense was
+very great. Another circumstance which raises a question as to the good
+faith of the consideration offered for the 1,600 California Pacific
+bonds, is the coincidence that the par value of the bonds issued for
+construction was practically identical with the amount needed to pay
+for the 76,101 shares of stock sold by Latham to Stanford, Huntington,
+and Hopkins. Still another peculiar incident was that of the execution,
+contemporaneously with the main contract, of a supplementary agreement,
+under which the Stanford group agreed to pay Latham $250,000 in a six
+months’ note, besides the other consideration for California Pacific
+stock, if he would visit New York at once, obtain the consent of
+the stockholders whom he represented, and personally assume all the
+obligations of the California Pacific above the sum of $8,421,000
+specified in the bond.
+
+Whatever the true motives for the transaction described, the
+coincidence of the stock sale with the other transactions relieved the
+representatives of the California Pacific of any intense interest in
+the matter, and must inevitably have made them pliable as to terms.
+The directors present at the meeting of August 9, when the contract
+for the construction of the second track was approved, were Jackson,
+Hammond, Latham, Sullivan, and Atherton. Of these gentlemen, Hammond,
+Sullivan, and Atherton each held five shares only, transferred to
+their names to qualify them as directors; while the shares of Latham
+and Jackson were ready for transfer to Stanford, Huntington, and
+Hopkins. Hammond, vice-president of the company, as well as a director,
+subsequently said, referring to the contract for a second track: “I
+don’t recollect that I ever saw or knew what that contract was, until
+it was brought into the board.... This contract was made with a party
+who was purchasing the majority of the stock of that company, and whose
+interest would be to do that work in a workmanlike manner.” Certainly
+this was not a desirable point of view for a representative of the
+California Pacific to take.
+
+
+Undisputed Control
+
+The inevitable result of the various contracts and agreements which
+have been described was to place the Huntington group in undisputed
+control of the California Pacific. On August 10, 1871, Mr. Stanford was
+elected president _vice_ Jackson, and on August 2, Mark Hopkins was
+elected treasurer _vice_ Latham. The following year Hammond and Moses
+Hopkins took the positions of president and treasurer, respectively,
+while Stanford and Mark Hopkins and Collis P. Huntington were appointed
+general agents of the company, with large powers.
+
+Once in control, Stanford and his associates proceeded to make the
+best use they could of the California Pacific in connection with other
+roads in their system. It does not appear that they felt any particular
+tenderness toward the enterprise. Most of the operating arrangements
+between the Central Pacific and the California Pacific were
+subsequently arranged by Mr. Towne for both parties, on terms favorable
+to the Central Pacific. It is on record that the California Pacific was
+allowed but $1 out of $16.75, the fare from Reno to San Francisco, for
+its haul from Sacramento to San Francisco, although the total distance
+was 240 miles, and the Sacramento-San Francisco haul amounted to 92
+miles. Likewise, contracts were made with the Contract and Finance
+Company which were later complained of as extravagant. Special mention
+is made of lumber which was bought of the Contract and Finance Company
+at $30 a thousand when the market price was $18. Mr. Towne was asked in
+1886:
+
+ _Q._ You say that you have done all that you could to increase the
+ earnings of the California Pacific, do you?
+
+ _A._ Having a due regard for the other company; yes, sir.
+
+ _Q._ Did you make that qualification?
+
+ _A._ I do now.
+
+Perhaps a policy of this sort was to be expected as the result of the
+conquest of a dangerous rival. Yet certain other arrangements between
+the Central Pacific and the California Pacific went beyond what one
+might have expected. It appears, for instance, that soon after the
+Stanford group obtained control of the last-named company, that portion
+of the contract of August 8, 1871, which provided for the payment of
+$5,000 monthly by the Central Pacific to the California Pacific, was
+eliminated. This elimination was said to have taken place by “mutual
+consent,” a meaningless phrase when the same men had charge of the
+negotiations for both sides.
+
+
+Independent Security Holders
+
+It has been charged, also, that Stanford and Huntington deliberately
+endeavored at this time to depress the value of California Pacific
+mortgage securities in order to induce independent holders to reduce
+their claims. In support of this contention there is evidence that very
+strong pressure was brought to bear upon independent security holders
+in 1874, and that as a result of this pressure the fixed charges of
+the California Pacific were reduced from $763,500 in 1875, to $303,500
+in 1886. No part of this burden was borne by the second mortgage
+bonds held by Stanford, Huntington, Hopkins, and Crocker, nor was any
+assessment levied upon the company’s stock.
+
+As a part of the campaign, during the period mentioned, wide
+publicity was given by the management of the California Pacific to
+financial difficulties, real or alleged, with which the company was
+confronted. Thus in June 1875, the board of directors confessed a
+judgment of $1,309,041.84 to one J. P. Haggin, assignee of certain
+claims of the Central Pacific, the Contract and Finance Company,
+and the associates, for advances previously made. Mr. Haggin had no
+interest in the matter, merely allowing the use of his name.[162] The
+following month, Vice-President Gray, of the California Pacific, made
+an extremely pessimistic report to his directors, declaring that the
+company’s deficit to date was $1,370,061.71, and that a large part
+of the outstanding bond issues of the company were represented by no
+construction that he was able to discover. On July 25, 1874, finally,
+a local capitalist named Michael Reese, acting in all probability on
+behalf of the associates, filed sensational charges against Mr. Latham,
+formerly general manager of the California Pacific, which called forth
+as sensational a reply.[163] These various activities roused holders
+of California Pacific Railroad Extension bonds to petition to have the
+California Pacific declared bankrupt, and drew forth a statement from
+the company, on the other hand, that it did not regard these bonds as
+constituting a valid legal claim upon it. The result was a compromise.
+The extension bondholders surrendered their 7 per cent bonds for a
+reduced amount in new 6 per cent securities, and the outstanding
+income bonds likewise exchanged their holdings for 3 per cent bonds.
+Both classes of bonds were guaranteed by the Central Pacific, and in
+consideration of the guaranty the California Pacific was leased to the
+Central Pacific on July 1, 1876, for 29 years, at a rental of $550,000
+per year, plus three-fourths of the net earnings of the company above
+that amount. At a subsequent period in December, 1879, when the Central
+Pacific was about to turn a considerable volume of business over the
+short line by way of Benicia, the California Pacific gave up its right
+to payments over the $550,000 minimum in consideration of a fixed
+additional payment of $50,000 a year.[164]
+
+By and large, the California Pacific proved a good investment for the
+larger company, especially after the Northern Railway had been built
+and a new route established between Oakland and Sacramento. The reason
+for its original acquisition was, nevertheless, in all probability,
+not the chance of a direct profit, but the advantage expected from a
+monopolistic control of the territory north of San Francisco Bay.
+
+
+
+
+CHAPTER VII
+
+BUILDING OF THE SOUTHERN PACIFIC
+
+
+San Francisco and San José Railroad
+
+The Huntington interests had secured control of the California Pacific.
+The next logical step was to strengthen the position of the Central
+Pacific south of San Francisco Bay. A start in this direction had
+already been made through the construction of a branch from Lathrop on
+the Central Pacific to Goshen in the San Joaquin Valley, finished in
+August, 1872. But this was not enough. Not only did the Central Pacific
+fail to reach the city of San Francisco, but the company was threatened
+in 1869 with the possibility that an independent Southern Railroad
+system might be created, no less ambitious than the California Pacific,
+and penetrating a richer if less developed territory. This projected
+system was that of the Southern Pacific Railroad, and in respect to it
+Mr. Stanford frankly said some years afterwards:
+
+ Well, the necessity of obtaining control of the Southern Pacific
+ Railroad was based really upon the act of Congress providing for its
+ construction. It became apparent that if that last was constructed
+ entirely independent to those who were interested in the Central
+ Pacific, it would become a dangerous rival not only for the through
+ business from the Atlantic Ocean, but it would enter into active
+ competition for the local business of California. It was of paramount
+ importance that the road should be controlled by the friends of the
+ Central Pacific; and all our anticipations consequent upon the control
+ of that road have been realized.[165]
+
+The small beginning of what later came to be known as the Southern
+Pacific Railroad system is to be found in the San Francisco and San
+José Railroad, which ran from San Francisco down the peninsula in a
+southerly direction to the city of San José. Originally this company
+was a local project only, and for some years an unsuccessful one.
+Several parties tried their hands at building it, but failed because
+they could not raise the necessary funds. In 1860 the project was
+taken up by a group of local capitalists of more than ordinary energy
+and resources, contracts were let, and four years later a line to San
+José was actually in running order. It was to these capitalists that
+the Central Pacific transferred its rights in the Western Pacific, and
+it seems to have been expected that the San Francisco and San José
+and the Western Pacific together would form the western end of the
+transcontinental line.
+
+This expectation was disappointed, as was the hope that the San
+Francisco and San José would participate in the federal subsidies and
+land grants provided in the Pacific Railway Acts of 1862 and 1864. The
+city of San Francisco did, however, subscribe $300,000 in city bonds to
+San Francisco and San José Railroad stock, and the counties of Santa
+Clara and San Mateo, $200,000 and $100,000, respectively. At this time
+the Huntington group had no interests south of Sacramento. In 1869 the
+San Francisco and San José was extended to Gilroy by a company known as
+the Santa Clara and Pajaro Valley Railroad Company.
+
+
+Southern Pacific Railroad Company
+
+Shortly after the completion of the San Francisco and San José, another
+company, the Southern Pacific Railroad Company, was incorporated[166]
+by local parties in San Francisco to build a line of railroad in as
+direct a route as feasible from San Francisco to the town of San Diego,
+through the counties of Santa Clara, Monterey, San Luis Obispo, Tulare,
+Los Angeles, and San Diego; thence eastward through the county of San
+Diego to the eastern boundary of the state of California. It is quite
+possible that this new company was organized in anticipation of further
+legislation at Washington. At any rate in July, 1866, Congress granted
+to the Southern Pacific Railroad, besides a right-of-way, ten alternate
+sections of unreserved and unappropriated public lands on either
+side of the road, in the state of California, on condition that it
+construct a line, presumably from San Francisco, to a connection with
+a projected railroad known as the Atlantic and Pacific Railroad, which
+was authorized to extend from the state of Missouri to the Pacific
+Ocean. In case any portion of the twenty sections indicated should be
+found to be occupied or reserved, the Southern Pacific was to be given
+the privilege of selecting other lands within 20 miles of its road. The
+company was to begin work within two years, and to complete not less
+than 50 miles annually after the second year. No money or bond subsidy
+was given.[167] By Act of July 25, 1868, Congress extended the time for
+the construction of the Southern Pacific line, requiring the completion
+of the first 30 miles by July 1, 1870, and subsequent construction of
+20 miles annually.[168] This was plainly an enterprise of first-class
+magnitude.
+
+[Illustration: Map showing northern end of the San Francisco and San
+José Railroad in 1862.]
+
+The evidence suggests that the San Francisco and San José and the
+Southern Pacific Railroad companies fell under the control of Stanford,
+Huntington, Hopkins, and Crocker some time in 1868. Mr. Stanford
+published a statement on March 6, 1868, to the effect that any rumor
+that the Central Pacific or Western Pacific Railroad Company or any
+person connected with either of them had purchased the Southern Pacific
+or the San Francisco and San José or any property or franchises
+connected therewith, or that any negotiations had been made tending to
+that result, was utterly without foundation.[169] On the other hand, it
+was Collis P. Huntington who signed a letter dated September 25, 1868,
+addressed to the Secretary of the Interior, at Washington, transmitting
+the annual report of the Southern Pacific Railroad required by the
+act of Congress. If Stanford told the truth in March, these two
+circumstances would indicate with sufficient precision the time when
+the associates took charge. In any case their influence was presently
+to appear.[170]
+
+
+Consolidation
+
+On October 12, 1870, the San Francisco and San José Railroad, the
+Southern Pacific, the Santa Clara and Pajaro Valley Railroad, and a
+new company, the California Southern, organized on paper only, were
+consolidated into a corporation known as the Southern Pacific Railroad
+of California. The directors for the first year were Lloyd Tevis,
+Leland Stanford, Charles Crocker, C. P. Huntington, Mark Hopkins,
+Charles Mayne, and Peter Donahue. Plainly, Central Pacific interests
+were in control. The purpose of the new company was stated to be to
+construct and operate a railroad from San Francisco to the Colorado
+River, through the counties of San Mateo, Santa Clara, Monterey,
+Fresno, Tulare, Kern, San Bernardino, and San Diego, together with a
+line from Gilroy through the counties of Santa Clara, Santa Cruz, and
+Monterey, to a point at or near Salinas City. This was not the line
+proposed in the articles of incorporation, as an examination of the
+accompanying map will show. It was, however, in the main the route
+designated by the Southern Pacific in 1867, upon which land had been
+withdrawn from entry by the government at Washington, and it had the
+advantage of reaching the eastern boundary of California with less
+mileage and fewer grades than the line originally laid out.[171]
+
+[Illustration: Proposed route of the Southern Pacific Railroad,
+according to map filed with the Commissioner of the General Land Office
+on January 3, 1867.]
+
+In 1871, an additional route from Los Angeles to Yuma was designated
+under the authority of the twenty-third section of the act to
+incorporate the Texas Pacific Railroad, which authorized the Southern
+Pacific Railroad Company to construct a line of railroad from a point
+at or near Techachapi Pass, by way of Los Angeles, to the Texas Pacific
+Railroad at or near the Colorado River, with the same rights and
+privileges, and subject to the same limitations and restrictions as
+were provided in the Atlantic and Pacific Act of 1866.[172]
+
+
+Ambitious Construction Program
+
+Because of the terms of the federal Act of 1866, it was necessary
+for the Southern Pacific to proceed steadily in its construction to
+the south. The first piece of road offered in satisfaction of the
+requirement for a minimum annual construction, was that from San José
+to Gilroy. Then came an extension to Tres Pinos, which ended, for the
+time being, building on the Northern Division. What happened was that
+the associates found the southern end of the San Benito Valley, in
+which Tres Pinos is located, relatively poor in traffic, and difficult
+to build in. Stanford visited the country personally, and found no
+business there, nor, in his opinion, any prospect of business. He
+accordingly shifted construction from the Tres Pinos line to the
+territory south of Goshen, and caused the Southern Pacific to build
+its next 20 miles in that section, expecting to connect with the San
+Joaquin Valley branch of the Central Pacific which ultimately came
+to Goshen in August, 1872. The Southern Pacific track reached Delano
+on July 14, 1873, Caliente on April 26, 1875, and Mojave on August
+9, 1876. The stretch of 240 miles from Mojave to The Needles was not
+finished until June 22, 1883, but that to Fort Yuma was completed in
+1877.
+
+In later years there was discussion concerning the right of the
+Southern Pacific to refuse to build the stretch of road lying between
+Tres Pinos and Alcalde, connecting the San Benito and the San Joaquin
+valleys. It was insisted that the contract implied in the Congressional
+land grant of 1866 was an entire one, and that the amount of land
+given had been fixed in consideration of the difficulties of mountain
+construction between the valleys named. This contention is not,
+however, borne out by the terms of the Act of 1866, and there seems to
+be no good reason why Congress should have stipulated for the building
+of this particular bit of road, when satisfactory connection between
+the San Joaquin Valley and San Francisco could be secured in another
+way. On their part, the associates never intended to build across the
+Coast Range, at least not out of the San Benito Valley. In 1872 the
+articles of association of the Southern Pacific Branch Railroad Company
+contained provision for a line from a point at or near Salinas City in
+the county of Monterey southeasterly to a point in Kern County south
+of Tulare Lake, intersecting the San Joaquin Division of the Southern
+Pacific. Even this road never was built.[173]
+
+At the time when the Southern Pacific Railroad entered upon its
+ambitious project for southern construction, the territory south and
+east of Goshen was very slightly developed. Los Angeles was a city of
+5,728 persons in 1870, with an assessed valuation of $2,108,061, and an
+average of one saloon to every fifty-five inhabitants.[174] San Diego
+had a population of 2,300, and Santa Ana 1,445. These were the largest
+concentrations of people to be found, and they amounted to nothing more
+than little country towns.[175] Nor were the statistics of industry
+much more striking. Los Angeles and Kern counties produced respectable
+amounts of wool, and in the matter of wine the output from the former
+amounted to nearly one-third of that for the entire state and one-sixth
+of that reported for the United States as a whole. The number of cattle
+was also considerable. But in grain only a beginning had been made,
+the yield of the orchards was still small, and the volume of general
+agriculture, to say nothing of manufactures, was insignificant.
+
+The railroad construction in the territory consisted of two local
+railroads connecting Los Angeles with the harbors of San Pedro and
+Santa Monica, to which should be added mention of the Texas Pacific
+project of Mr. Scott. The Los Angeles and San Pedro Railroad was
+organized in 1868 and was finished on October 26, 1869. The city of
+Los Angeles subscribed $75,000 in city bonds, and the county took an
+additional amount of $150,000, also paying in bonds. City and county
+bonds both bore 10 per cent. The construction of this railroad marked
+the fruition of efforts begun as early as 1861, but the credit for
+final accomplishment of the work was due to Phineas Banning, the
+principal business man of Wilmington.[176] General Banning is said
+to have entered the California legislature in order to advance his
+project and to have successfully overcome a great deal of opposition
+in his own district in order to put it through. The company was
+consolidated with the Southern Pacific in 1874.[177]
+
+In addition to the Los Angeles and San Pedro, reference should be
+made to the Los Angeles and Independence, a railroad built in 1875 by
+Senator John P. Jones, of Nevada, partly to afford an outlet to certain
+mines in Inyo County from which the senator expected large results,
+and partly to develop property on Santa Monica Bay. This road was also
+acquired by the Southern Pacific interests, but at a later date, and at
+the instance of Mr. Huntington against the judgment of at least one of
+his associates.
+
+
+Grant by Los Angeles
+
+By the acquisition of the Los Angeles and San Pedro Railroad, the
+Southern Pacific provided itself with a southern terminal, in advance
+even of the completion of its main line. At the same time it used the
+advantage which the location of its mileage in the San Joaquin Valley
+gave to it in order to persuade the people of Los Angeles to grant it
+aid in the measure they could afford. Speaking after the event, it is
+sufficiently obvious that sooner or later the Southern Pacific, or
+some other transcontinental road, was bound to seek an outlet on the
+Pacific Ocean either at San Diego or at San Pedro, and of these two San
+Pedro was the most likely to be chosen. But this fact, clear at the
+present time, was not obvious to the inhabitants of Los Angeles; on the
+contrary, the possibility that Los Angeles might be passed by caused
+them the liveliest concern. This feeling was known to the officials of
+the Southern Pacific. In May, 1872, two citizens of Los Angeles wrote
+Mr. Stanford stating that they expected to call a meeting of tax-paying
+citizens of the county in a few days, for the purpose of selecting
+from among them an executive committee which should have full power to
+meet the representatives of any railroad company who might visit Los
+Angeles, in order to agree upon some plan whereby a railroad to Los
+Angeles might be constructed.[178]
+
+[Illustration: View south from over the San Fernando tunnel—Southern
+Pacific Railroad]
+
+The meeting was called, and the committee appointed. Harris Newmark,
+a prominent business man of Los Angeles, says that before the meeting
+he and ex-Governor Downey went to San Francisco and canvassed the
+whole situation with Mr. Huntington. A delegation from the citizens’
+committee made a second visit and returned with a man named Hyde,
+who represented the railroad company. Between Mr. Hyde and the new
+committee terms were presently agreed upon. The Southern Pacific
+demanded a donation of 5 per cent of the assessed valuation of the
+county, which was the maximum authorized by state law. Since the
+county valuation in 1872 was set by the State Board of Equalization at
+$10,554,592, this meant a gift of $527,730. To cover this the county
+proposed to issue $377,000 in new 7 per cent bonds, and to turn over
+besides $150,000 in stock of the Los Angeles and San Pedro Railroad,
+which it held by virtue of its subscription to that company in 1868.
+The city added $75,000 in Los Angeles and San Pedro Railroad stocks,
+and 60 acres of depot ground. This made a clear gift in the aggregate
+of $602,000, besides whatever the depot ground might be worth, or $100
+per capita for a population of 6,000 souls. On its side the Southern
+Pacific agreed to build 50 miles of its main trunk line in the county
+of Los Angeles, 25 miles to be built northward and 25 miles eastward
+from Los Angeles city. Later the company promised to add a branch
+to Anaheim. The whole arrangement was submitted to popular vote on
+November 5, 1872, and was then approved.
+
+
+Inconveniences of Travel
+
+Construction in accordance with the terms of the agreement of 1872
+was promptly begun. San Fernando and San Pedro were reached in 1874,
+Anaheim in 1875, and the Southern Pacific main line in September, 1876.
+A vivid picture of the inconvenience of travel between Los Angeles and
+the East while the work was in progress, is given in the reminiscences
+of Harris Newmark, who has just been mentioned in connection with the
+negotiations between the railroad and the county of Los Angeles:
+
+ Before the completion of the San Fernando tunnel, a journey east from
+ Los Angeles by way of Sacramento was beset with inconveniences. The
+ traveler was lucky if he obtained passage to San Fernando on other
+ than a construction train, and twenty to twenty-four hours, often at
+ night, was required for a trip of the Telegraph Stage Lines’ creaking,
+ swaying coach over the rough roads leading to Caliente—the northern
+ terminal—where the longer stretch of the railroad north was reached.
+ The stage lines and the Southern Pacific Railroad were operated quite
+ independently, and it was therefore not possible to buy a through
+ ticket. For a time previously, passengers took the stage at San
+ Fernando and bounced over the mountains to Bakersfield, the point
+ farthest south on the railroad line. When the Southern Pacific was
+ subsequently built to Land’s Station, the stages stopped there; and
+ for quite a while a stage started from each side of the mountain, the
+ two conveyances meeting at the top and exchanging passengers. Once I
+ made the journey north by stage to Tipton in Tulare County, and from
+ Tipton by rail to San Francisco. The Coast line and the Telegraph
+ line stage companies carried passengers part of the way. The Coast
+ Line Stage Company coaches left Los Angeles every morning at five
+ o’clock and proceeded via Pleasant Valley, San Buenaventura, Santa
+ Barbara, Guadalupe, San Luis Obispo, and Paso de Robles Hot Springs,
+ and connected at Soledad with the Southern Pacific Railroad bound
+ for San Francisco by way of Salinas City, Gilroy, and San José, and
+ his line made a specialty of daylight travel, thus offering unusual
+ inducements to tourists. There was no limit as to time; and passengers
+ were enabled to stop over at any point and to reserve seats in the
+ stage coaches by giving some little notice in advance.
+
+ In 1876, I visited New York City for medical attention and for the
+ purpose of meeting my son Maurice, upon his return from Paris. I left
+ Los Angeles on the twenty-ninth of April by the Telegraph Stage Line,
+ traveling to San Francisco and thence east by the Central Pacific
+ railroad; and I arrived in New York on the eighth of May.[179]
+
+The San Fernando tunnel to which Mr. Newmark refers is located 27 miles
+north of Los Angeles in the valley of the same name. It lies along the
+most direct and convenient route from Los Angeles into the San Joaquin
+Valley. Because of its length, nearly one and a quarter miles, and the
+unfamiliarity of the people of the coast with projects of this kind,
+there was much interest in the work and many doubts as to whether it
+could succeed. Governor Stevenson was credited with the statement
+that a tunnel could not be constructed. Other critics maintained that
+people could never be induced to travel through so long a tunnel, and
+that in any case the winter rains would cause it to cave in, to which
+Stanford replied that it was “too damned dry in Southern California
+for any such catastrophe.” So far as the records now show, however,
+there was no unusual obstacle encountered in the work, although the
+slowness with which the bore advanced and the large expense connected
+with construction caused considerable anxiety to the management of the
+Southern Pacific.
+
+
+Western Development Company
+
+In carrying out their plans for the occupation of Southern California,
+the Huntington group naturally followed the same general policy that
+had proved profitable to them in the case of the Central Pacific.
+That is to say, they organized construction companies, controlled
+by themselves, caused these companies to contract with the Southern
+Pacific for the construction of specified sections of line, and in
+their capacity as stockholders of the Southern Pacific required that
+company to issue and turn over large quantities of stocks and bonds in
+payment for work done. No further comment upon this method of procedure
+is necessary.
+
+The first construction company which did work for the Southern Pacific,
+under the plan outlined in the preceding paragraph, was the Contract
+and Finance Company. This was the same organization that had completed
+the Central Pacific. It appears that the Contract and Finance Company
+simply shifted men, teams and equipment from the Central Pacific to
+the Southern Pacific line between San José and Tres Pinos. Later it
+built the road from Goshen to Sumner, and that from San Fernando via
+Los Angeles to Spadra. In all, it built for the Southern Pacific 143.65
+miles, including the stretch from Gilroy to Tres Pinos. In 1874 the
+Contract and Finance Company was dissolved and the Western Development
+Company took its place.
+
+The Western Development Company was incorporated December 15, 1874,
+for the announced purpose, among other things, of carrying on
+construction, manufacturing, mining, mercantile, mechanical, banking,
+and commercial business in all their branches, and also for the purpose
+of constructing, leasing, and operating all kinds of public and private
+improvements. That is to say, its powers were made as extensive as
+could well be imagined. Stanford, Hopkins, Huntington, and Crocker each
+held one-fourth of the stock.[180]
+
+Under date of February 2, 1875, the Western Development Company agreed
+to construct a railroad and a telegraph line on the routes selected by
+the Southern Pacific, between certain specified termini. The mileage
+actually built was that from Sumner to San Fernando, from Spadra to
+Fort Yuma, and from Goshen to Huron. Bills were rendered for this work
+on the basis of $72,000 per mile, or $29,153,520 for 404.91 miles, half
+in Southern Pacific first mortgage bonds and half in stock.[181]
+
+In addition to its contract with the Southern Pacific, the Western
+Development Company undertook certain miscellaneous construction,
+including work on the Northern Railway, and the San Pablo and Tulare
+Railroad, the building of steamers for the Central Pacific, bridges
+and buildings for the Central Pacific and Southern Pacific, general
+repairs for the various companies controlled by the associates, and
+even finally private residences for Hopkins, Stanford, and Crocker. In
+short, during its existence the Western Development Company, besides
+completing the major part of the Southern Pacific, did incidental
+building of any sort which the associates desired to have done.
+
+
+Pacific Improvement Company
+
+The death of Mr. Hopkins in 1878, and the temporary unwillingness of
+Mrs. Hopkins to participate in the financing of new construction,
+together with the death of Mr. Colton in the same year, led Stanford,
+Huntington, and Crocker to close up the affairs of the Western
+Development Company, and to continue their more or less speculative
+building enterprises under a new organization. This new company,
+incorporated November 4, 1878, was known as the “Pacific Improvement
+Company.” Its relations to the Southern Pacific and to the associates
+were the same as those of the Western Development Company, except that
+Mr. Colton, who had taken one-ninth of the Western Development Company
+stock in 1875, was not a stockholder, and that Mrs. Hopkins at the
+beginning took no part. Even the capital stock was placed at the same
+amount, $5,000,000.
+
+The main accomplishment of the Pacific Improvement Company was the
+construction of the Southern Pacific between Mojave and The Needles.
+Besides this, however, it extended the Southern Pacific from Soledad
+to San Miguel, built the Southern Pacific in Arizona and the Southern
+Pacific in New Mexico, completed the California and Oregon, and Oregon
+and California railroads, and continued the Northern Railroad from
+Willows to Tehama. The contracts made were similar to those executed by
+the Western Development Company, although the consideration varied.[182]
+
+The Pacific Improvement Company is still in existence. After the
+construction work for which it was incorporated was completed, Mr.
+Huntington sold his stock to the Hopkins estate. This gave to the
+Hopkins interest, then represented by Mr. Searles, possession of
+50 per cent of the stock of the Pacific Improvement Company. The
+other 50 per cent remained in the hands of the Stanford and Crocker
+interests. At a later date the Searles stock passed to the University
+of California. The Pacific Improvement Company is now in process of
+liquidation. It owns some thirty town sites, a considerable amount of
+real estate, including much unimproved property in the Potrero district
+of San Francisco, land in the Monterey peninsula, and other property
+in Buffalo, New York. It has, besides, the stock and bonds of certain
+railroad companies, stock of the Carbondale Coal Company of Washington,
+and of the Oakland Water Front Company of Oakland, California, and what
+is still more important, it holds a large number of bills receivable
+covering property of all sorts which it has sold in recent years but
+which has not been entirely paid for. The Pacific Improvement Company’s
+construction outfit was sold to the Central Pacific in 1883.
+
+The last of the construction companies, the Southern Development
+Company, became responsible for construction east of the Arizona state
+line when the Pacific Improvement Company left the field. It was of
+minor importance and may be dismissed with a word. In respect to
+ownership and operation it resembled the Contract and Finance Company,
+the Western Development Company, and the Pacific Improvement Company.
+
+
+Identical Control of Companies
+
+There is a great deal of history about the operation of the various
+construction companies mentioned, that has not been, and perhaps
+never will be, written. The men out on the road seem to have known
+little about any of them. The contact of these men was with Stanford,
+Huntingdon, Hopkins, and Crocker. They neither knew nor cared whether
+they received orders from the associates in their capacities as
+directors of the Central Pacific or of the Southern Pacific, or as
+stockholders in one of the construction companies. Nor was it easy
+for them to keep informed. The same construction force moved from
+place to place. The same man in the same pay-car paid off employees
+of the Central Pacific, the Southern Pacific, and the construction
+companies indiscriminately.[183] The same general shops furnished track
+materials.[184] The same equipment was found on all the different
+lines, except perhaps on the northern division. There was small wonder
+that even the higher engineering officials were unable to locate
+accurately the stretches built for each of the principal companies
+which they served, nor that men under them should have been altogether
+confused.
+
+As a matter of fact, the various corporations interested in the
+building of the Southern Pacific were, after 1870, only different
+manifestations of the activities of one group of men. It does not
+appear that any attempt was ever made to interest outside investors.
+On the contrary, Hopkins, Huntington, Colton, and perhaps the other
+partners as well, agreed that if anything happened to one of them,
+their stock in the Western Development Company should not go to outside
+parties until the existing stockholders had had a chance to take
+it.[185]
+
+This was a distinct contrast to the attitude of the same men when
+the Contract and Finance Company was formed, and indicates that they
+anticipated no such difficulty in raising funds as they had experienced
+when they built the Central Pacific. Had this not been true, it
+is probable that they would have let the Southern Pacific alone,
+competition or no competition.
+
+
+Construction Financing
+
+Under the terms of their contracts with the Southern Pacific, the
+construction companies received substantially all of the stock and
+bonds which that company put out. The same parties were, therefore,
+directly or indirectly in control both of the railroad and of the
+companies which did work for the railroad. These securities had,
+however, no market for many years, at any price. County donations,
+of which there were a few, also yielded but little, and the federal
+land grant was not easily or early sold. The real source of financial
+supplies for the Contract and Finance Company and its successors,
+the Western Development and the Pacific Improvement companies, in
+their work upon the Southern Pacific, were the Central Pacific, as a
+corporation, and the associates as individuals.
+
+As in the case of the Contract and Finance Company, the associates paid
+no money on their stock subscriptions, but deposited funds in varying
+amounts which were credited to them as loans. Interest was paid on
+these advances at rates varying from 6 to 10 per cent. It appears that
+the contributions by the associates to the Western Development Company
+began to be considerable in May, 1876. By January, 1877, they had
+reached the sum of $3,421,458.35. By March, 1878, the total advance was
+in the neighborhood of $11,000,000. It remained at this figure through
+1878, and the major part of 1879. The largest contributions were made
+by the estate of Mark Hopkins and by Collis P. Huntington, though both
+Crocker and Stanford kept substantial balances. There is no record of
+the size of advances made to the Pacific Improvement Company, but we
+know that the same general practice was continued.
+
+In addition to the advances made by the Huntington group, the
+construction companies benefited substantially by the assistance
+rendered them by the Central Pacific. This was a sort of help which the
+Central Pacific itself and the persons who built it had never known.
+It took a variety of forms. A very obvious service which the Central
+Pacific could and did offer was the operation of sections of the
+Southern Pacific as fast as completed in connection with the Central
+Pacific main line. Besides this, the Central Pacific acted as banker
+when the construction companies had spare funds. More important still,
+the Central Pacific on occasion lent considerable sums to the Western
+Development Company. This was later denied by representatives of the
+Central Pacific, but the evidence seems conclusive that the loans were
+made.[186]
+
+Similar advances were probably made by the Central Pacific to the
+Pacific Improvement Company,[187] and to the Contract and Finance
+Company, sometimes without interest. Money in the Central Pacific
+sinking fund was invested in this way, at interest.[188] Like use
+was made of surplus funds belonging to the Occidental and Oriental
+Steamship Company, which the Central Pacific was holding, until the
+Union Pacific discovered the matter, and, being interested in the
+money, demanded that its share be handed over.[189] There is even
+evidence that the associates borrowed money from the Central Pacific
+between 1874 and 1878, and that the treasurer of the company entered
+the sums taken on so-called “cash-tags,” carrying them as cash in his
+accounts.[190] How much all these transactions amounted to, it is very
+difficult to say, but it is probable that the aggregate was large.
+
+
+Profits of Associates
+
+There is no way of estimating the profits which Stanford, Huntington,
+Hopkins, and Crocker drew out of the Western Development, Pacific
+Improvement, and Southern Development companies. We know they were
+great, because the associates died very rich men. Mark Hopkins engaged
+in no important enterprise outside of his hardware business, except in
+railroad construction and operation, and yet in 1878 he left an estate
+appraised at over $19,000,000. Eleven years later, Charles Crocker’s
+estate was appraised at $24,142,475.84.[191] Stanford’s estate was
+not appraised in 1893, or at least no figures of value were made
+public, and Huntington did not die until long afterwards. Inasmuch as
+the associates up to 1878 were all interested in the same business
+together, and since the most important of their investments were in
+railroad construction work, it is fair to assume that the profits
+of the construction companies were considerable. Whatever they were
+it must, however, be remembered that they consisted in the main of
+Southern Pacific securities and of California real estate, neither of
+which were immediately salable. As a construction enterprise, the whole
+Southern Pacific affair was speculative. It was from the point of view
+of the owners of the Central Pacific alone that the construction of the
+Southern Pacific presented itself as a necessary policy, both for the
+protection of an existing investment, and for the full exploitation of
+the possibilities of monopoly in California.[192]
+
+
+
+
+CHAPTER 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 reached an
+extent which they themselves would have thought inconceivable a few
+years before. The operated mileage of the Central Pacific-Southern
+Pacific line on June 30, 1877, was 2,337.66 miles, the capitalization
+$224,952,580, and the gross earnings $22,247,030. There was a
+continuous stretch of road from Ogden to Sacramento, San Francisco, and
+Oakland, and from these cities to Los Angeles and Yuma, by way of the
+San Joaquin Valley; while a line from Mojave to the Colorado River and
+The Needles was in course of construction.
+
+Legally and technically, this comprehensive system was divided into
+five parts. The original Central Pacific Railroad ran from 5 miles west
+of Ogden to Sacramento. In 1870 this company consolidated with the
+Western Pacific Railroad, operating between Sacramento and San José
+via Stockton, the San Francisco, Oakland and Alameda Railroad, which
+connected the Western Pacific with the city of Oakland, the San Joaquin
+Valley Railroad branch from Lathrop to Goshen, and the California and
+Oregon Railroad, which left the main line of the Central Pacific near
+Roseville, and ran in a northwesterly direction to Redding toward the
+Oregon boundary. All these lines were directly under one operating
+control.
+
+A second important part of the system was the California Pacific
+between Sacramento and Vallejo, with a branch from Davis north to
+Marysville, and another from Napa Junction to Calistoga. The ownership
+of the third portion was vested in the Northern Railway. This company
+had been chartered in 1871, and had projected a line from Woodland, on
+the California Pacific, to Tehama, of which 82.20 miles were completed
+in 1875. In 1878 the company built from Oakland to Martinez, and from
+Benicia to Suisun, and still later it constructed a line from Benicia
+to Fairfield. This last bit of road enabled Central Pacific trains to
+run from Sacramento to San Francisco via Benicia, instead of passing
+through Vallejo. The San Pablo and Tulare, completed about the same
+time as the road from Oakland to Martinez, connected the Northern
+Railway with Tracy on the main line of the Central Pacific.
+
+The fourth part of the Huntington-Stanford system was the Northern
+Division of the Southern Pacific Railroad from San Francisco through
+San José to Soledad and Tres Pinos. The Tres Pinos line has been
+referred to in the previous chapter. The extension from Gilroy to
+Soledad up the Salinas Valley was in operation by 1877, and formed
+the first part of the route which later became the coast route to
+Los Angeles. The fifth and last part of the system was the Southern
+Division of the Southern Pacific Railroad from Goshen to Mojave, Los
+Angeles, and Yuma, with branches from Alcalde to Huron, and from Los
+Angeles to Wilmington. In addition to the main groups mentioned, there
+were certain minor extensions, such as the railroads from Sacramento to
+Shingle Springs (the Sacramento Valley and Placerville Railroad), from
+Stockton to Milton (the Stockton and Copperopolis Railroad), and from
+Peters to Oakdale (the Stockton and Visalia Railroad).
+
+
+Lease and Stock Control
+
+The various parts of the system were held together by a combination
+of leases and stock control. The associates in 1877 held all or
+a majority of the stock of each railroad company which has been
+mentioned. Usually this stock had come to them in their capacity as
+shareholders in the various construction companies which had built
+the roads. In some cases, however, as with the California Pacific and
+the Northern Division of the Southern Pacific, the greater part of it
+had been acquired by purchase. But the associates in most instances
+preferred to add to their control by stock ownership the further
+security of a lease—a procedure which had the additional advantage of
+simplifying the conditions under which the companies were operated,
+by concentrating operations under a single management. Only in the
+case of the Northern Division of the Southern Pacific do they seem to
+have temporarily departed from this procedure, and this exception can
+probably be explained by the special circumstances of the case.
+
+So long as the same parties held all the securities of all the
+companies in the Central Pacific-Southern Pacific system, it made
+little difference how payments under the various leases were
+determined. Yet the possibility that the Central Pacific might sometime
+divest itself of some portion of its property, was kept in mind, and
+rentals were fixed so that in most cases they were materially less than
+the net earnings of the leased mileage. This was probably not true of
+the Southern Pacific in early years, but it had become so by 1880. In
+form, the leases showed surprising variety. The rental of the Northern
+Railway to the California Pacific in 1876 was at the rate of $1,500
+per mile per year.[193] Mr. Stanford thought that this was based on
+an estimated cost of construction.[194] In 1879 the same property was
+leased to the Central Pacific for a payment of a given sum per mile
+for each piece of equipment passing over the road. That is to say, 25
+cents per mile was paid for each passenger or freight locomotive, 20
+cents for each passenger car, and 8 cents for each freight or caboose
+car.[195] This proved to be a very expensive rental, and was changed to
+a monthly payment of $47,500.[196]
+
+The lease of the California Pacific to the Central Pacific in 1876
+carried a rental of $550,000 per year, plus three-fourths of the net
+earnings of the California Pacific above that amount. The Central
+Pacific guaranteed principal and interest on $3,000,000 of bonds.
+This was changed to a flat payment of $600,000 per year in 1879.[197]
+The Central Pacific leased the Amador branch between Galt and Ione
+for $3,500 per month. In the case of the Stockton and Copperopolis,
+however, it undertook only to pay principal and interest on $500,000
+of thirty-year bonds, at 5 per cent, with the provision, however, that
+the net earnings should apply on the Stockton and Copperopolis floating
+debt.[198] These variations, if they show nothing else, are persuasive
+that the associates had no standard method of procedure but suited
+their arrangements to the facts in each individual case.
+
+
+Lease of Southern Pacific
+
+Perhaps the most interesting relations between the different companies
+in the Huntington-Stanford system were those existing between the
+Central Pacific and the Southern Pacific—the Central Pacific’s most
+important extension. It has already been noted that during the early
+period of construction the Southern Pacific lines south of Goshen
+were turned over to the Central Pacific operating department as fast
+as they were completed. At one time the authority of some Central
+Pacific officials reached east to New Orleans, though the general
+superintendent, Mr. Towne, seems never to have had jurisdiction beyond
+Vermillionville, 144 miles from New Orleans.[199] The advantages of
+this arrangement were obvious. Under the lease, the Central Pacific
+paid the Southern Pacific $500 per mile per month rental, less $250
+per mile per month to cover operating expenses, or a net sum of $250
+per mile per month. As amended in 1879 and 1880, the leases made
+no mention of the $500 payment, but the Central Pacific engaged to
+keep the Southern Pacific in good repair, and to pay $250 per mile
+monthly.[200] In its first form the lease contained the implication
+that the operating ratio of the Southern Pacific was only 50 per cent,
+and it has been suspected that this was deliberately arranged in order
+to assist Mr. Huntington in disposing of Southern Pacific securities
+in New York. The lease was originally terminable on twelve months’
+notice, but in 1880, on demand of New York bankers who contemplated the
+purchase of Southern Pacific bonds, it was changed to run for at least
+five years.
+
+The fact has already been mentioned that the lease of the Southern
+Pacific system to the Central Pacific never included what was known
+as the Northern Division, running from San Francisco through Gilroy
+to Tres Pinos and from Carnadero to Soledad. Its officers reported
+directly to the executive officials of the Southern Pacific Company,
+and not to Mr. Towne. The difference in treatment of this part of the
+line was striking. The Northern Division lay west of the Coast Range,
+and was separated to some extent from the lines of the San Joaquin
+Valley; yet it gave the main system entrance to the important city of
+San Francisco, and should have been operated in close harmony with its
+connections at San José.
+
+One suspects that Mr. Huntington desired to separate the Central
+Pacific and the Southern Pacific in the public mind in order that he
+might more successfully oppose Mr. Scott’s Texas and Pacific plans
+at Washington. “I think it unfortunate,” he wrote in 1875, “that he
+[Stanford] should so closely connect the Central Pacific with the
+Southern Pacific, as that is the only weapon our enemies have to
+fight us with in Congress.”[201] “I think it important,” he said in
+another letter about the same time, “that the Southern Pacific should
+be disconnected from the Central as much as it well can be. And ... I
+think it should have a superintendent that does not connect with the
+Central Pacific, although I think it would be difficult to get a man
+as good as Towne.”[202] Opinions like these were likely to perpetuate
+distinctions between the Central Pacific and the Southern Pacific
+railroads which could not be explained on other grounds.
+
+
+Arrangement Reversed
+
+A second stage in the connection between the Central Pacific and
+the Southern Pacific companies began in 1885 when a lease of the
+Central Pacific to the Southern Pacific took the place of the earlier
+arrangement in which the Central Pacific was the lessee. It appears
+that Timothy Hopkins, treasurer of the Central Pacific and director of
+the Southern Pacific Railroad of California, received a telegram from
+Mr. Stanford in the summer of 1884, asking him to come to New York.
+When Hopkins arrived he found Stanford, Huntington, and Crocker, and
+it was explained to him that the meeting was desired in order to go
+over the affairs of the associates generally, and in particular to
+take up the question of the organization of a new company for the
+purpose of holding and operating the railroad companies that were
+owned by the associates and controlled by them, both those under the
+management of the Central Pacific and those east of El Paso in Texas
+and Louisiana.[203] The meeting was recognized as important and minutes
+were kept, which have been preserved.
+
+There were several circumstances which made a reorganization at this
+time desirable. In the first place, the period of exceptional profits
+for the Central Pacific was passing away with the decline in the mining
+business in Nevada and the opening of other transcontinental lines. In
+the second place, the Southern Pacific was beginning to realize the
+earning power which it was to have as a completed road. It had now a
+through line to New Orleans; it reached San Francisco while the Central
+Pacific did not; it was handling 45 per cent of the transcontinental
+business in 1885; and while it could hardly yet be called a profitable
+enterprise, its prospects were bright. Southern Pacific bonds were
+first sold in New York in considerable quantities in 1880, when
+they brought between 86 and 90. Except on the supposition that the
+ownership of the Central Pacific and Southern Pacific was identical,
+there was beginning to be reason for the owners of the latter to feel
+dissatisfied with a lease like that of 1880, which compelled them to be
+contented with a fixed return.
+
+
+Stock Holdings
+
+On this last point the evidence, though not entirely conclusive, offers
+some interesting suggestions. Up to 1880 the number of stockholders in
+the Central Pacific remained small. Mr. Huntington had stock of the
+four associates for sale, and made efforts to place it in New York, but
+without success. In 1878 the report of the Central Pacific Railroad to
+the California Railroad Commission showed 82 stockholders, of whom 56,
+with a total holding of 432,563 shares, were residents of California.
+Mark Hopkins held 102,812 shares when he died in that same year, and
+Mr. Huntington, Mr. Stanford, and Mr. Crocker presumably possessed
+equal amounts. During the early eighties, however, while the Central
+Pacific was paying substantial dividends, large quantities of stock
+were sold in Europe. James Speyer has testified that when he came into
+the New York office of Speyer and Company, some time between 1883 and
+1885, large blocks were held in England and Holland. The sales had been
+made before 1884, probably at a price above 50.
+
+No record of the amount disposed of in these years is available,[204]
+but it is known that in 1884 the number of shares standing in the
+names of Huntington, Stanford, Crocker, and the Hopkins interests was
+considerably less than a majority of the stock outstanding.[205] Mr.
+Jackson, employee in the secretary’s office of the Central Pacific in
+1885, estimated the amount at from 30,000 to 35,000 shares apiece.[206]
+According to Mr. Brown, who inventoried the stock of the associates
+in 1884, the combined holdings of Stanford, Huntington, Crocker, and
+Mrs. Hopkins, including stock in the name of the Pacific Improvement
+Company, were 157,535 shares out of a total outstanding of 592,755
+shares at this date.[207] Timothy Hopkins later suggested that Brown’s
+figures might have included only stock free and available, and that
+the associates might have owned other stock pledged as collateral, but
+this was only a suggestion, without proof. As final bits of evidence,
+it is on record that Crocker possessed 34,049 shares of Central Pacific
+stock at his death in 1889,[208] while Stanford told the United States
+Pacific Railway Commission in 1887 that he owned 32,000 shares.[209]
+
+The conclusion to which this evidence leads is that Huntington and
+his friends did not own as much as 30 per cent of the Central Pacific
+shares outstanding when they met together in New York in 1884. Their
+control of the company depended on the proxies which were sent them,
+and in particular upon the fact that the individual liability imposed
+on corporation stockholders under California law led new purchasers
+of Central Pacific stock to delay recording their ownership, or even
+to place their stock under the name of third persons in New York.
+Dividends were collected by presentation of coupons clipped from stock
+certificates.[210] Mr. Klink testified that the majority of the stock
+was voted by proxy in 1885, and that the bulk of it was in the name
+of people in the New York office of the company. On the other hand,
+during the period in which the ownership of the Central Pacific became
+scattered, the stock of the Southern Pacific continued to be closely
+held by the original associates: Stanford, Huntington, Crocker, and the
+estate of Mark Hopkins.
+
+It is not difficult to understand why the associates should have
+gradually shifted their main interest from the Central Pacific to
+the Southern Pacific if we remember that their interests were widely
+extended as the result of their building enterprises in Southern
+California, and that Central Pacific securities were the only parts of
+their holdings on which they could realize in cash. Southern Pacific
+stock and bonds had no market in New York; Central Pacific stock and
+bonds had such a market. Doubtless, the associates could not have
+afforded to dispose of their Central Pacific holdings if this would
+have imperiled their control of the Ogden route, but such a result
+did not necessarily follow, as we shall see. Having sold Central
+Pacific securities in large quantities, however, it was natural
+for the Stanford-Huntington group to wish to make the company in
+which their main interest now lay a dominant partner in the Central
+Pacific-Southern Pacific combination. And this is probably the
+explanation of the transaction which we are about to describe.
+
+
+New York Meetings
+
+Let us return to the meeting of Huntington and his associates at New
+York in the summer and fall of 1884, at which the details of the
+reorganization were worked out. The first business there considered
+was the purchase of the interest of one T. W. Pierce in the Galveston,
+Harrisburg and San Antonio Railway and the making of certain
+adjustments of interests of the associates in connection therewith.
+The next was the taking of an inventory of securities on hand in New
+York and those used as collateral for the payment of liabilities
+of Stanford, Huntington, Hopkins, and Crocker. On September 11 the
+question of the reorganization of the Southern Pacific system was
+taken up, and the following order of business was agreed upon: (1)
+consolidation of all the lines of the Southern Pacific system in one
+company; (2) separation of Central Pacific business from Southern
+Pacific business; (3) leasing of the Central Pacific system to the
+Southern Pacific system (new organization); (4) general consolidation
+of lines from San Francisco to Newport News.
+
+The fourth item referred to a proposal that Stanford, Crocker, and
+the Hopkins estate enter with Huntington into the ownership of the
+Chesapeake and Ohio Railroad, opening the way for a transcontinental
+rail line from coast to coast. This offer was declined; no further
+reference need be made to it.[211]
+
+On September 25, the associates came together again, and from that time
+until November 7, meetings were held almost daily. From the meager
+reports of the proceedings kept by their secretary, we glean that
+more than one plan of adjustment was considered. It was agreed at one
+time that the Southern and Central Pacific companies might terminate
+their leases, and that the Central might lease from the Southern that
+portion of the railroad between Goshen and Mojave. Then a running
+arrangement was to be made between the Central Pacific and the Southern
+Pacific Company (new organization) to cover the line from Mojave to San
+Francisco and other California points.[212]
+
+This plan was not finally adopted. On October 1, Leland Stanford was
+appointed a committee of one to formulate his proposed method of
+leasing the several roads which should form the through line of the
+Southern Pacific Company. It was agreed that the stock of the Southern
+Pacific Company, which had been organized the previous year, should be
+raised to $100,000,000. During the following three weeks the discussion
+turned largely about the details of the Southern Pacific organization
+and the best methods of liquidating the Southern Development Company.
+On November 5, the question of leasing the Central Pacific system to
+the Southern Pacific came up. It was agreed to lease the property, and
+temporarily to fix the rental at fixed charges and a guarantee of 2
+per cent upon the capital stock, plus all the earnings of the Central
+Pacific system over and above that percentage until the amount should
+reach 6 per cent. All profits beyond 6 per cent were to go to the
+Southern Pacific Company. The last meeting was held on November 7.
+
+
+Reorganization of System
+
+The result of these exhaustive discussions was a threefold operation.
+In the first place, the Southern Pacific Company of Kentucky, organized
+in 1884 with a charter granting power to do most things in the world
+provided it did not operate in Kentucky, issued $100,000,000 in capital
+stock, and acquired in exchange for its certificates the stock of the
+Southern Pacific Railroad Company and that of the subsidiary companies
+completing the through line to New Orleans.[213]
+
+Secondly, the Southern Pacific Company leased the Southern Pacific
+Railroad and these same subsidiaries for ninety-nine years from the
+10th of February, 1885, undertaking to keep the properties in repair,
+and to pay over 93½ per cent of the net profits to the lessors in
+specified proportions.
+
+In the third place, the Southern Pacific Company leased the Central
+Pacific Railroad for ninety-nine years from the first of April, 1885,
+for a rental which might vary from $1,200,000 to $3,600,000 a year,
+according as the earnings of the Central Pacific and leased lines north
+of Goshen might be small or large. This substantially corresponded to
+the 2 per cent and the 6 per cent on the capital stock mentioned in the
+minutes of the associates. The Southern Pacific assumed all Central
+Pacific obligations except the payment of the principal of indebtedness
+incurred or guaranteed by that company, and various minor adjustments
+and assignments were made which it is not necessary to describe.[214]
+
+Mr. Stanford has testified that in fixing the rental of $1,200,000 the
+business of the previous years and the prospects of competition in the
+future were taken into account.[215] The United States Pacific Railway
+Commission approved the terms of the lease two years later.
+
+In 1888 the minimum rental was changed to $1,360,000 and the maximum
+to $4,080,000, in consequence of the extension of the Central Pacific
+from Delta, California, to a connection with the Oregon and California
+Railroad at the Oregon boundary. In 1893 the Southern Pacific
+complained that it was suffering very considerable losses under the
+lease and the terms were once more revised. Instead of a rental with a
+fixed minimum, the Southern Pacific now agreed to pay $10,000 a year
+for the leased property, plus all net earnings up to 6 per cent on the
+capital stock of the Central Pacific Railroad and one-half the excess
+over 6 per cent.[216]
+
+It was provided in the fourth article of the new lease that if the
+Southern Pacific should make any advances for payment on account of the
+Central Pacific, it should be entitled to receive interest on these
+advances at the rate of 6 per cent. On the 22d of March, 1894, this
+fourth article of the amended lease was again changed by inserting
+the words “lawful interest” instead of “interest at 6 per cent per
+annum” upon advances which might be made by the Southern Pacific
+Company. At the same time it was agreed between the Central Pacific
+and the Southern Pacific that if at any time it appeared that, by the
+operation of the agreement, either party was being benefited at the
+expense of the other, the agreement should be revised and changed.
+On the whole the earnings of the Central Pacific were less than were
+expected under the lease, particularly during the years 1888-93. Yet
+part of the difficulty arose from preferential solicitation of freight
+over the Sunset route, and for the rest the rental of the property was
+adjustable, as experience showed.
+
+
+
+
+CHAPTER IX
+
+THE CASE OF DAVID D. COLTON
+
+
+Meeting the Associates
+
+During the seventies the associates took a new partner. This was David
+D. Colton, one-time sheriff of Siskiyou County, brigadier-general of
+militia, second to Broderick in the famous Terry-Broderick duel, and
+still later colonel of United States Volunteers. In spite of these
+various military titles, Colton seems never to have seen service.
+But he had been active in California politics as a delegate of the
+Union Democratic party in 1861, and as chairman of the state central
+committee of that organization, and was widely known throughout the
+state. He was a man of fine physique, and endowed with a quick if not a
+profound intelligence.
+
+Colton first made the acquaintance of Charles Crocker in 1867, when
+the latter was on his way to inspect the work of construction of
+the Central Pacific beyond Elko. Three years later Crocker invited
+Colton to accompany him to Evanston, California, where he intended to
+look over, and perhaps to purchase, certain coal mining properties.
+According to Crocker, Colton said that he also would like to have an
+interest in the mines in question. Crocker, who had in the meantime
+completed negotiations for the purchase, replied with an offer to make
+Colton president and manager of the coal company if he would buy a
+thousand shares of its stock, which Colton immediately did.[217]
+
+The relations thus begun rapidly became more intimate. As early as
+1868, Mr. and Mrs. Colton had invitations from Mr. Crocker and passes
+to travel on the Central Pacific. In 1869 or 1870 the two families
+visited the Yosemite together, and in 1871-72, when the Crockers went
+to Europe and the two Crocker boys were left behind at a military
+academy in Oakland, the Coltons looked after the children generally,
+and had them at the Colton house for week-ends.[218]
+
+It was through his acquaintance with the Crockers that Mr. Colton met
+the other members of the Stanford group. Mr. Huntington was favorably
+impressed with him; Stanford and Hopkins less so. Huntington was
+becoming dissatisfied about this time with the amount of work done
+by his associates, and the suggestion soon made that Colton join the
+other members of the group and share the burden of managing the Central
+Pacific enterprise with them, met his approval. “I was worked,” he said
+later, “up to my full capacity, whatever that might be. Mr. Crocker was
+in the habit of going to Europe and having a good time and the Governor
+owned ranches, and his horses took a great deal of his time; in fact,
+the Governor never could confine himself right to the office; that is,
+I don’t consider that he could, to close, hard work, and we wanted
+somebody there to do that work; and Mr. Colton convinced me that he, of
+all men, was just the man that we wanted.” And again, speaking of his
+partners and of Colton, Huntington said: “He knew I was not satisfied
+with some things that my associate co-directors were doing there. The
+way they used to go to Europe and go away from business, while I was
+working every day in the year almost, and about fourteen hours a day;
+he knew I was not quite satisfied with the hours they put in.”[219] The
+fact that Mr. Hopkins’ health was not strong was an additional reason
+for taking in a new partner.
+
+
+Agreement Signed
+
+The result of these preliminary discussions was the conclusion of an
+agreement, dated October 5, 1874, whereby Colton received 20,000 shares
+of Central Pacific Railroad stock and 20,000 shares of Southern Pacific
+stock in return for his promissory note for $1,000,000, maturing in
+five years.[220] At the same time it was mutually understood that
+Colton should share in all the responsibilities and liabilities of
+the associates for five years in proportion to his stockholdings, and
+should stand in their shoes, as it were, holding the same positions and
+relations which they had to the Central Pacific Railroad, and to the
+Contract and Finance Company. The contract called for no cash payment,
+for obvious reasons.
+
+Mr. Huntington says he felt in 1874 that Colton was receiving something
+very handsome, and the opinion was not without some justification.
+Certainly, in the long run the opportunity to share in the profits
+of the associates was valuable. Colton was not a man of large means
+to begin with, yet after two years and three months with the Central
+Pacific, he inventoried his assets at $961,506.18,[221] and at the
+time of his death his rent roll alone amounted to $2,500 to $3,000 a
+month.[222]
+
+This was a very substantial compensation, even for very valuable
+service. But on the other hand, it is evident that Mr. Colton put
+himself entirely in the hands of the associates when he signed the
+agreement and the promissory note which have been described. He
+not only pledged his services for five years, but he assumed an
+unconditional liability to pay $1,000,000 at the end of this period, in
+return for which he obtained only 40,000 shares of unsalable securities
+and a right to participate in the management of the associates’
+property which was revocable at the pleasure of Huntington and his
+friends at any time within two years. This was a dangerously exposed
+position. It was not a wise thing even for the Huntington-Stanford
+group to put Colton in such a predicament, and much subsequent
+difficulty resulted therefrom.
+
+In 1876 the associates served notice on Mr. Colton, dissevering his
+connection with them. Mr. Crocker relates that Colton was very much
+affected. He said, according to Crocker, “It is generally known that I
+am here with you, and there is no one knows these relations are only
+temporary, and it will be next to ruin to me to have them dissevered
+now.” In fact, he wept. Crocker later testified that he liked the
+general very much, and was touched by his distress. Colton wished him
+to go and see the others, and Crocker did so. The result was that the
+notice was reconsidered and a second contract made.[223] After this,
+Colton bought one-ninth of the capital stock of the Western Development
+Company, and commenced to deposit money with that organization in the
+same manner as did the other members of the group.
+
+
+“Financial Director”
+
+During substantially the whole period from 1874 to 1878, Colton took
+active charge of the financial affairs of the Huntington group at the
+San Francisco end. His office and title beginning August 31, 1875, was
+that of “financial director.” Formally he acted under the direction of
+the treasurer of the company, Mr. Hopkins. Practically he reported to
+Mr. Huntington and perhaps to Mr. Crocker, more than to Mr. Hopkins,
+but exercised a good deal of independent initiative.[224] With the
+operation of neither the Central Pacific nor the Southern Pacific had
+he anything to do. On the other hand, it was either Colton in San
+Francisco, or Huntington in New York, as we shall presently see,
+who attended to the negotiation of short-time loans, often necessary
+to take care of interest on the railroad properties. It was also
+Colton who had particular charge of the many affairs of the Western
+Development Company;[225] it was Colton who was responsible head of the
+Rocky Mountain Coal and Iron Company’s mine at Ione; and it was Colton
+who took particular interest in finding a market for the output of this
+corporation.[226]
+
+From the tone of Mr. Huntington’s letters to Colton, it seems as though
+the former was reasonably well satisfied with the way the business in
+the West was conducted after 1874. On his part, Colton cultivated the
+idea that the interests of the five associates, himself included, were
+inextricably bound together. “I have learned one thing,” he wrote in
+1878, “we have got _no true friends_ outside of _us_ five.... People
+will profess friendship to one of us, just to either try to find out
+something, or when the time comes, lie about the rest of us. We cannot
+depend on a human soul outside of ourselves, and hence we must all be
+good-natured, stick together, and keep our own counsels.”[227]
+
+Yet, in spite of his assumption of the permanency of his relations
+with the Huntington group, Mr. Colton certainly understood that his
+position had no legal security whatever. Of this the episode of 1876
+must have been a disagreeable reminder. In particular, as has been
+observed, there was a reasonable likelihood that he would be called
+upon to pay his note for $1,000,000 in 1879, before the Central Pacific
+and Southern Pacific shares, which secured it, had become salable. It
+is evident that these matters were in Mr. Colton’s mind constantly, and
+gave him great concern. No other reason can be offered for his efforts
+to secure title to property with such feverish rapidity. How should
+he protect himself against the automatic presentation of a note which
+might require the sacrifice of all his accumulations to pay? How should
+he put himself in a position where his income was not wholly dependent
+on the forbearance of four men, with only one of whom he had ties of
+personal friendship? If Mr. Colton’s moral fiber weakened somewhat
+under the strain of the situation, the fact need occasion no great
+surprise.
+
+
+Western Development Dividend
+
+Some time after 1874 Colton suggested to Crocker that the salaries
+of the associates be raised. They were all drawing $10,000 a year,
+and were giving all their time for that salary. Colton said it was an
+insignificant sum. Men such as the associates ought to have $25,000 a
+year, at least. But Crocker replied prudently that a salary of $10,000
+could always be justified, while one of $25,000 might not be. He
+preferred to let the matter stay as it was.[228]
+
+Three years later, when the period of his contract was drawing to
+a close, Colton took more drastic action by causing the Western
+Development Company to distribute a substantial part of its assets in
+the form of a dividend. This provided him with property, upon which as
+security he might have borrowed considerable sums of money. A dividend
+was declared on September 4, 1877, which consisted of $13,500,000 in
+Central Pacific stock, $6,300,000 in Southern Pacific Railroad bonds,
+and $1,562,500 in other securities, amounting to between one-half and
+one-third of the holdings of the Western Development Company. Colton’s
+personal share was one-ninth.[229]
+
+Ostensibly the Western Development Company’s dividend was a
+distribution of surplus profits. In reality it was a division of
+capital. Nobody knew, in 1877, how great the profits of the Western
+Development Company had been, nor even whether the assets of the
+company equaled its liabilities, for the reason that the value of these
+assets was speculative and uncertain, and if realized on all at once,
+would have amounted to scarcely anything at all. It was known, of
+course, that the creditors of the company were also its stockholders,
+so that the distribution was not quite so reckless as it otherwise
+might have appeared; but yet the various stockholders were not holders
+of stock in the same proportions as they were creditors, and the
+heavier creditors, such as Huntington, might well have felt that their
+interests were not being sufficiently protected.
+
+[Illustration: David D. Colton]
+
+Nothing was said about the Western Development dividend to any of the
+associates at the time it was declared. Charles Crocker was in San
+Francisco, but knew nothing of it.[230] The fact came out, however,
+in August of the following year, when Huntington was in the West.
+Stanford, Huntington, and Crocker were all together in one of the
+Southern Pacific offices when Colton came in, accompanied by a couple
+of subordinates with their hands full of bonds, and said, “Gentlemen,
+here are your dividends.” Both Huntington and Crocker became at once
+very angry, and hot words seem to have passed. Huntington said that
+there was no sense in the dividend—it was wrong, the company ought
+to pay its debts before it paid a dividend—the stocks and bonds
+were of no particular value, but their distribution would leave the
+Western Development Company shorn of its resources, and they must be
+returned. Crocker agreed with Huntington. Colton begged the others not
+to injure him in the eyes of the employees of the company by compelling
+a return of the securities, and pledged his honor that he would not
+part with his shares, and would return them if needed. Stanford thought
+the matter might be passed with this understanding, and it was so
+agreed, not, however, without a good deal of resentment on the part of
+Huntington and Crocker.[231]
+
+
+Misappropriation of Funds
+
+The Western Development dividend and Colton’s request for a higher
+salary were, in a measure at least, open and above board. The same
+cannot be said of a number of other operations—in general, it is
+true, of minor importance—which took place between 1874 and 1878,
+and which became known only after Colton’s death. How far Colton was
+guilty of positive dishonesty during these years has been a matter of
+bitter dispute. There is no question, however, that he drew or credited
+himself with considerable amounts of money without the knowledge of
+the other partners, and that no vouchers were ever made out which
+sufficiently explained these transactions. Charges of embezzlement were
+even later made and not disproved. Three of four illustrations of such
+incidents may be given.
+
+1. Salary drawn from the Rocky Mountain Coal and Iron Company. Mr.
+Colton was made president of this company in 1871 at a salary of $100
+a month. In 1874 the associates agreed that Colton should receive a
+salary of $10,000 a year, as partner. No separate mention was made of
+the Rocky Mountain Coal and Iron Company in 1874, but it is reasonable
+to suppose that the new salary of $10,000 covered Colton’s work in
+supervising the coal property, as well as his share in the general
+administration of the railroad, especially as the coal business took
+comparatively little of his time. As a matter of fact, however, Colton
+restricted himself to $100 a month only during 1871. In 1872 he drew
+$400 a month, except during the month of March, when he took $366.50.
+In 1873 he took $23,500, of which a considerable amount was for back
+salary. In 1874 Colton drew $12,000, and in 1875, 1876, and 1877,
+$6,000 annually. According to the testimony of expert accountants
+who later went over the company’s books, Colton took $54,966.50 in
+salary during the years 1871-77 in excess of what he should have taken
+according to his agreement with Mr. Crocker, and beyond the amounts
+which the other associates intended he should have.[232]
+
+2. Interest on Rocky Mountain Company balances. It is admitted that
+Mr. Colton deposited the balances of the Rocky Mountain Coal and Iron
+Company, running all the way from $30,000 to $90,000, in his own
+private bank account, and used them in his own private transactions.
+
+3. Receipts from sale of coal. It appears that the Rocky Mountain
+Coal and Iron Company sold coal to the Central Pacific. For some time
+this coal was paid for at the rate of $2 and $2.65 per ton. In July,
+1874, the Central Pacific made an extra payment of $11,622 to Mr.
+Colton for the purpose of increasing the price paid during the months
+from January to May, 1874, to $2.85 per ton, and arranged to pay this
+increased amount thereafter. In his instructions to the superintendent
+of the mine, Mr. Colton made no mention of the retroactive payment, and
+apparently pocketed the $11,622.
+
+4. Appropriation of interest coupons. In 1876 Mr. Tevis wished to
+exchange some Southern Pacific bonds which he held, for certain
+lands owned by the Railroad Company. Colton agreed to facilitate
+the transaction by taking the bonds and giving his individual check
+for $140,700. Tevis delivered the check and $10.13 in cash to the
+Southern Pacific land agent, and got his deed. Colton eventually
+redeemed his check by delivery of the bonds to the treasurer of the
+Southern Pacific, but when the bonds came in, two interest coupons
+were missing. A similar transaction between the same parties, but for
+a lesser amount, took place later the same year, and again interest
+coupons were clipped from the bonds before Colton turned them in.[233]
+In each case Mr. Smith, the treasurer of the Southern Pacific, was
+compelled to hold Colton’s check for a considerable period before it
+was redeemed, and during this time Colton had, of course, the use of
+the money.
+
+In addition to matters such as those here partially enumerated, there
+were a multitude of instances in which Colton charged relatively small
+sums to various accounts without supplying any evidence that the
+charges were legitimate. Doubtless the other associates did the same,
+but Colton’s position in the group was peculiar, and he could not
+afford to allow himself equal freedom with Huntington and Stanford. It
+would serve no useful purpose to discuss these instances in detail.
+
+The aggregate of all the sums which Colton thus gathered into his
+control was considerable. The Western Development dividend alone
+supplied him with 700 Southern Pacific bonds that might have been used
+as collateral security for a loan, as well as with other securities,
+mostly of still uncertain value. Items of excess salary, interest
+on balances, and miscellaneous unaccounted-for expenses totaled
+$130,831.13. Had Colton succeeded in increasing his salary as financial
+director to $25,000, he would have added from $75,000 to $100,000 to
+his resources. Substantial progress was evidently being made toward
+meeting the million dollar note.
+
+
+Colton’s Death and Mrs. Colton
+
+Upon all the activities which have been described, Colton’s death in
+October, 1878, in the prime of life, fell with crushing force. In the
+first place, Colton’s manipulations were such as to be unforgivable
+by his business friends. Devious as Huntington’s ethical code was
+at times, he had no hesitation in pronouncing Mr. Colton guilty of
+robbery; that he himself was partly responsible was not likely to occur
+to him. In the second place, Colton’s assets at the time of his death
+were such as to render immediate liquidation impossible, and yet this
+was precisely the thing most likely to be demanded. Mrs. Colton, the
+sole heir, was a woman of unusual ability, clear-headed, definite in
+speech, and, although inexperienced in business, apparently quickly
+able to understand business problems. She had, moreover, a good adviser
+in the person of a San Francisco lawyer named S. M. Wilson. Her
+position was, nevertheless, one of disadvantage, which was intensified
+by her wish to shield her husband’s reputation.
+
+It does not appear that the associates were aware of the true state
+of affairs during the weeks immediately following Mr. Colton’s death.
+Mr. Huntington wrote cordial though not altogether sincere letters
+to Mrs. Colton, expressing willingness to serve her in those matters
+in which General Colton was interested with the associates,[234] and
+Crocker called at Mrs. Colton’s house and wept there while speaking of
+the death of Mr. Colton. This attitude soon changed, however, and Mr.
+Crocker became less friendly in his intercourse with Mrs. Colton, and
+at last ceased to visit her altogether.[235] In fact, all pretense of
+sympathy with Mrs. Colton was presently abandoned, and negotiations
+between her and the associates were continued upon a cold business
+basis.
+
+The attitude of the Stanford-Huntington crowd was officially that they
+were willing to have Mrs. Colton pay her obligations and continue with
+them. This meant a settlement of claims arising out of the improper
+withdrawal of moneys by Mr. Colton, but also more particularly the
+payment of the $1,000,000 note. It involved, also, for the future
+continued investment of funds in the Western Development Company, and
+the payment of assessments which might be levied upon Southern Pacific
+stock. It was insisted, however, that the matter be settled quickly,
+partly because Mr. Huntington was about to leave the city, and partly
+because the period for filing claims against the Colton estate would
+soon expire.[236]
+
+In the event that Mrs. Colton should not desire to continue with them,
+the associates demanded an accounting in which the liabilities of
+Mr. Colton on account of the $1,000,000 note, his share of the net
+indebtedness of the Western Development Company, and the sum of the
+alleged embezzlements, should be set against the estimated value of the
+stock and bonds of which Colton died possessed. In estimating the value
+of Mr. Colton’s securities, moreover, the associates declared that the
+question was not as to the amount which could be realized eventually
+and after the underlying property had had a chance to prove itself, but
+the market value at the time of negotiations.
+
+Mr. Crocker’s testimony on this point expresses very fully the attitude
+of the associates. He said:
+
+ Mr. Wilson and I had frequent conversations, and he sometimes asserted
+ we could do so and so with these bonds, that we could realize 80 or
+ 90 cents on them. I said in reply, “Possibly we can; I don’t know; it
+ is a matter of speculation; it depends on the future of the roads.”
+ Sometimes he would claim they would bring 80 or 85 cents; and then I
+ would say, “Very likely they may,” but it would require time to do
+ it, and a great deal of management necessarily to bring that out, and
+ if Mrs. Colton desired to realize the full value of these securities
+ after this lengthy handling of them, all she had to do was to pay the
+ amount of the note and continue in the company and we would manage
+ them for her, as well as we would for ourselves, of course, and she
+ should receive the full benefit of our knowledge and experience in
+ handling these securities, and we would get every dollar out of
+ them we could, and she should have her share to the last cent. Then
+ he would reply: “Well, that can’t be. We are determined to go out of
+ this.” “Well,” I says, “then it is a matter of speculation.”[237]
+
+Unquestionably these were hard terms, for it was out of the question
+for Mrs. Colton to continue with the associates in 1879, a fact of
+which these gentlemen must have been well aware. She did not have
+the necessary money, she could not afford in any case to risk her
+livelihood in so speculative an undertaking as building railroads in
+southern California, and the relations between her and the Huntington
+group did not savor of trust and confidence. The expressions of
+willingness to continue to treat Mrs. Colton as one of themselves cost
+the associates nothing, and were worth as much. Nor was the standard
+of valuation of the Colton assets offered by the associates, easily to
+be defended on ethical grounds. Mr. Colton had not played fair, it is
+true, but on his part he had been led into an improvement agreement and
+caused to sign a $1,000,000 note, in at least partial reliance upon the
+value of the stock of railroads under the associates’ control, which
+was given him in exchange. It was hardly appropriate for the Huntington
+group now to insist that the collateral security had no value.
+
+
+Settlement with Mrs. Colton
+
+Hard as the terms were, Mrs. Colton finally acceded to them. By
+agreement dated August 27, 1879, she turned over 408 shares of the
+capital stock of the Rocky Mountain Coal and Iron Company, all of
+the shares which she held of the Occidental and Oriental Steamship
+Company, all claims to the 40,000 shares of Central Pacific Railroad
+and Southern Pacific Railroad stock, pledged as collateral for the
+$1,000,000 note, all of the capital stock of the Western Development
+Company standing to Colton’s credit, and some $587,500 in par value of
+bonds of the Central Pacific-Southern Pacific system, of which $500,000
+was in first mortgage bonds of the Southern Pacific Railroad itself. In
+return for all this, the associates agreed to cancel Colton’s note for
+$1,000,000, and to release Mrs. Colton from any claims on the part of
+themselves, the Western Development Company, the Central Pacific, and
+its allied companies.[238]
+
+This settlement left Mrs. Colton with property reasonably valued
+at half a million dollars, and with an income of perhaps $28,000 a
+year. That she withdrew with so much to her credit was due to the
+interposition of Mr. Tevis on her behalf at the last moment, in
+consideration of a contingent fee,[239] and to the fact that the
+associates were on the point of floating large amounts of Central and
+Southern Pacific securities in New York. Mrs. Colton felt, however,
+that she had been robbed, and in May, 1882, commenced suit to reopen
+the whole transaction, and to annul the compromise agreement. It has
+been estimated that this famous suit cost the parties $100,000 apiece.
+Mrs. Colton alleged fraud and the withholding of essential facts which
+the associates should have disclosed by reason of the trust relations
+which had existed between Colton and his partners. In particular she
+insisted that the statements given her in 1879 with reference to the
+affairs of the Western Development Company had been misleading and
+untrue. She now offered to pay Colton’s $1,000,000 note, and other
+liabilities, and asked for the return of the securities which she had
+previously surrendered.
+
+The more important facts developed in this litigation have been dwelt
+upon in the preceding discussion, and need not be repeated here. The
+case went to the Supreme Court of the state, where Mrs. Colton was
+finally defeated. A careful reading of the evidence leads to the
+conviction that the court was right. Mrs. Colton had done the best she
+could under the circumstances and was properly held to an agreement she
+had made with her eyes open, some three years before. Yet the fault of
+the whole unsavory affair was not hers, nor altogether Mr. Colton’s,
+and the reputation of the associates thereby properly suffered in the
+public mind.
+
+
+
+
+CHAPTER X
+
+FINANCIAL DIFFICULTIES FROM 1870 TO 1879
+
+
+Excessive Construction
+
+We may now return to the more general considerations affecting Central
+Pacific finance which characterized the years from 1870 to 1879. There
+is a good deal of evidence that the years during which Mr. Colton was
+connected with the Central Pacific enterprise were years of financial
+difficulty for the associates, due in part to general depression, in
+part to a disproportionate amount of new construction, and in part to
+the continued inability of the Huntington-Stanford group for many years
+to interest eastern capital in western railroads.
+
+During the years from 1869, when the Central Pacific was first opened
+to Ogden, to 1874, the earnings of the Central Pacific main line, both
+gross and net, steadily increased. The following table sets forth the
+facts relating to this progress, as well as figures for the succeeding
+years from 1875 to 1881.
+
+EARNINGS AND EXPENSES OF THE CENTRAL PACIFIC RAILROAD, 1874-81(*)
+
+ Period Gross Earnings Operating Expenses Net Earnings
+
+ (Calendar years)
+ November 6 to
+ December 31, 1869 $ 1,024,680 $ 777,348 $ 247,332
+ 1870 7,519,983 6,009,426 1,510,557
+ 1871 8,862,054 5,937,890 2,924,164
+ 1872 11,963,641 8,645,276 3,318,265
+ 1873 12,867,600 7,822,638 5,044,962
+ 1874 13,726,561 6,468,145 7,258,416
+ 1875 15,665,082 9,937,465 5,727,617
+ 1876 16,994,216 10,970,599 6,023,617
+ 1877 16,471,144 12,761,639 3,709,505
+ 1878 17,530,859 12,005,535 5,525,324
+ 1879 17,153,163 11,126,298 6,026,865
+ 1880 20,508,113 12,814,121 7,693,992
+ 1881 24,094,001 14,546,899 9,547,102
+ ——————————— ——————————— ——————————
+ $184,381,097 $119,823,379 $64,557,718
+ ═══════════ ═══════════ ══════════
+
+(*)Report compiled by the Commissioner of Railroads, 47th Congress, 1st
+Session House, Executive Documents No. 123, 1882, Serial No. 2030.
+
+The greatest continuous drain upon Mr. Huntington and his friends
+during the decade from 1870 to 1880 came from the necessity of raising
+funds to provide for construction in southern California as described
+in earlier chapters. Had business considerations alone controlled,
+there is little doubt that this construction would have ceased. It did
+not pay for itself, and could not be expected to be profitable until
+the country served had been developed. Indeed, Charles Crocker once
+declared that when the Southern Pacific was built through the southern
+San Joaquin Valley, the company could have started with a railroad
+train at Sumner at the south of the valley and come to Stockton, and
+with one engine and one train of cars, hauled every living soul that
+lived in the valley out at one haul. The settlers between Yuma and San
+Bernardino could have been carried in one carload. This was as late as
+1876.[240]
+
+
+Inability to Get Eastern Capital
+
+It was largely owing to this construction, as well as to the general
+hard times, that the gross earnings per mile of the Central Pacific
+and leased lines fell from $12,068.63 in 1875, to $7,677.84 in 1879.
+The Central Pacific did not dare stop work for fear that the federal
+government might be persuaded to subsidize another transcontinental
+road, and so deprive it of the monopoly which it was so anxious to
+retain; but it built as slowly as it could, and endeavored to make up
+by retrenching in other directions. Had the associates been able to
+sell securities in New York, the slowness with which the earning power
+of their system developed would not have been so serious a handicap.
+The territory was after all a rich one, and given time was sure to
+yield substantial profits. But a market for their stock and bonds
+was impossible to secure for many years. We have seen the opinion
+expressed by the associates in the Colton settlement, with respect to
+the salability of Southern Pacific-Central Pacific securities. There is
+no reason to doubt that this judgment was correct. Before 1880 it does
+not appear that there was a market for any of the Huntington-Stanford
+issues except the Central Pacific first mortgage bonds, and the sale of
+these was very slow.[241]
+
+There is evidence that the associates not only recognized this
+situation, but that they took what steps they could to meet it. Central
+Pacific stock was listed on the New York Stock Exchange in 1874, and
+on the San Francisco Stock Exchange in 1878, not so much with the idea
+of selling any large number of shares, as in order to make a beginning
+which might ultimately lead to an established market. Arrangements
+were made to have the stock called at San Francisco every day, and the
+associates stood always ready to buy it back at a slight decline. The
+payment of dividends was begun in 1873 and continued until by the end
+of 1877 the sum of $18,453,670 had been distributed. Yet all this had
+little result for many reasons, among which doubtless should be again
+mentioned the personal liability attaching under California law to
+holders of stock in California corporations.
+
+Naturally Southern Pacific securities of any type were still more
+difficult to sell than Central Pacific stock. Mr. Huntington found
+that the Southern Pacific Railroad was not known in the East, even by
+parties who had spent some considerable time in California.[242] To
+overcome this he advertised Southern Pacific stock and bonds in a great
+variety of ways, sometimes by personal conference with eastern bankers,
+sometimes by the issue of pamphlets or by the insertion of items in
+the newspapers, sometimes by the manipulation of bond sales upon the
+Stock Exchange. Occasionally he bought a few outstanding Southern
+Pacific bonds in order to support the credit of the company.[243] But
+here again, in spite of his efforts practically no bonds were sold, and
+Southern Pacific stock could not be disposed of at any price.
+
+
+Market for Securities
+
+A good deal of specific testimony by New York brokers is available
+to show the estimation in which Central Pacific and Southern Pacific
+securities were held late as 1879. It is all cumulative, and to the
+effect that no market existed at that time for any of these issues
+except Central Pacific first mortgage bonds. Thus S. H. Thayer said of
+Central Pacific stock: “I don’t think it would have found any market;
+I do not think it would have been possible to have sold it at any
+price; the stock had no friends, nobody knew of it, nobody traded in
+it; that is, in a general market; I do not know what might have been
+done by private negotiation; but in the public market nothing could
+have been done with 20,000 shares towards selling it.”[244] Similar
+testimony was given by D. O. Mills, of San Francisco. Mr. Mills was
+asked what price could have been obtained in the San Francisco market
+in 1879 for $13,000,000 in Southern Pacific bonds, and replied that he
+did not think these bonds were salable then, that it would have been a
+matter of bargain and sale, and would not have depended upon any market
+value.[245] Mr. Thayer also testified that the Southern Pacific bonds
+were on the stock exchange list in New York, but were bonds no one
+dealt in, and about which few were informed.[246]
+
+It would probably be a mistake, in spite of this testimony, to
+attribute the reluctance of eastern investors to buy Southern Pacific
+bonds solely to unfamiliarity with the security. Not only was the
+economic development of southern California slight and the probable
+earnings of the Southern Pacific for some years small, but the state as
+a whole was not in the seventies an attractive field for investment.
+During the decade from 1860 to 1870, California had grown rapidly
+in wealth and prosperity. Population had increased and manufactures
+had begun to develop. In agriculture, fruits, berries, and grapes
+had been added to the important quantities of grain and vegetables
+already produced. But the immediate effects of the completion of the
+transcontinental railroad had been harmful to California, rather than
+beneficial.
+
+For this there were several reasons: (1) speculation in real estate
+around San Francisco Bay had so discounted the completion of the line
+that the actual opening of communication caused a reaction rather
+than an advance; (2) the combination of a stimulated immigration
+due to greater facilities for travel, with the sudden release of a
+considerable part of the labor used in railroad construction, had
+forced down wages, while, on their part, California merchants had
+become exposed to competition from eastern distributing houses; (3)
+droughts in the South, the decline in the production of the mines,
+and the collapse of speculation in Nevada silver properties, all had
+given rise to acute suffering and discontent. These things in turn
+had reacted on political conditions, and had produced, first, the
+so-called sand-lot excitement, and then the agitation that led in 1879
+to a revision of the state constitution. Meanwhile the passage of the
+Thurman Act, and the various disputes between the Pacific railroads and
+the federal government had provided special reasons for distrusting the
+securities of the Southern Pacific and Central Pacific companies, quite
+apart from conditions peculiar to the section in which their mileage
+lay.
+
+
+Short-Term Borrowing
+
+To repeat, it was this failure to dispose of the railroad stock and
+bonds which they had to sell that threw the associates back upon the
+necessity of raising money by short-time loans at extravagant rates of
+interest, and which, in the late seventies, peculiarly exposed them to
+the dangers of stringency in the New York money market. The partners
+at times paid as high as 12 per cent for loans.[247] Every element
+affecting their credit had to be closely watched, lest lenders refuse
+to discount their paper, and interest on the company’s bonds go by
+default; for it was a customary practice for the associates to take
+care of interest, at least over short periods, by loans.
+
+In December, 1876, Huntington wrote that the January interest would
+this time have to come out of earnings, as he had been away from New
+York so much that he had not been able to secure loans there.[248]
+The same month Huntington complained of certain pamphlets which one
+A. A. Cohen had been sending East. “If the parties that inaugurate
+such fights as we now have with Cohen,” he wrote, “and have with the
+_Sacramento Union_ and Senator Booth ... had to raise money outside
+of California, where our property cannot be seen, I am disposed to
+think such fights would be few.”[249] In May, 1877, Huntington let
+his partners know that reports from California to the effect that the
+railroad magnates there were spending their money for personal expenses
+with unexampled recklessness had hurt the Central Pacific credit.[250]
+At another time he reported that the rumor was abroad that the Central
+Pacific had no power under its charter to give notes for money, and
+that this had been denied.[251]
+
+All through 1877 the letters exchanged between Huntington and his
+partners in the West show the strain which the Central Pacific was
+under. Huntington was continually wiring for money in lots of $50,000
+to $100,000. Colton was sending it, sometimes by telegraphic transfer,
+sometimes in coin. As early as in May, 1877, Colton was talking of dull
+business and of reducing expenses. On August 23 he said that he did
+not exactly like the present financial outlook. The following day he
+spoke of the need of keeping credit good. “We cannot afford to ever be
+called on for money,” he wrote, “and not be able instantly to respond.
+Our affairs are too extended and extensive for us to take any chances
+of suspicion. It would hurt us in many ways, and take a long time to
+restore confidence.... I will now commence to renew our loans for six
+or twelve months, and take in sail everywhere.”[252] In September he
+repeated, “I am going to send you, for the next three months, every
+dollar I can, and, for God’s sake, keep all you can for the January
+interest. That must be paid. We will not pay out a dollar here, I am
+not obliged to. I read _every_ department a lecture on economy about
+once a week.”[253] Earlier in the year the accounts of the Huntington
+group with the London and San Francisco Bank and with the Bank of
+California had been overdrawn from $150,000 to $350,000 each, and
+Colton was picking up every dollar outside which he could secure
+without showing his hand.[254]
+
+
+Indorsement of Notes
+
+As a general practice the associates seem to have refused to put their
+personal indorsement on the notes which they discounted. Huntington was
+very insistent that no indorsements be given; yet in January, 1878,
+conditions had grown so bad that Huntington asked the associates to
+indorse 100 blank notes and send them to him, to be used as a last
+resort, and this was done in spite of the violent protest of Mark
+Hopkins. Colton wrote Huntington:
+
+ I told him [Hopkins] I felt the wise thing for us _all_ to do, was to
+ stand in and protect all interests against the debts now owing, but to
+ _all_ agree _not to incur any more, not to build any_ more road, or
+ to buy _any_ steamship, or property, either jointly or individually,
+ until we got out of debt, and had the money in bank to pay for what
+ we bought. That proposition just met his views, and he said that if I
+ would agree that we would _all_ live up to that, he would sign 20 of
+ the blank notes, which he did, 10 of each.[255]
+
+[Illustration: Mark Hopkins]
+
+Conditions in California grew worse rather than better after the notes
+were sent, but those in the East improved, and the indorsed notes do
+not seem to have been used. Yet, of course, the large accumulation
+of floating indebtedness of the Central Pacific could not be hidden
+altogether, and the credit of the company was correspondingly
+impaired.[256]
+
+
+Sale of Securities
+
+The first successful negotiations for the sale of Central Pacific and
+Southern Pacific securities were initiated in 1878 with the firm of
+Speyer and Company, of New York, and resulted in two agreements, dated
+the 27th and 28th of January, 1880, respectively. On the former date
+Huntington agreed to deliver, on or before January 31, 1880, as might
+be demanded, 50,000 shares of the capital stock of the Central Pacific
+Railroad at 72, ex-dividend, to Roswell P. Flower, John D. Prince, and
+Daniel Probst, representing a syndicate formed for the purpose. In
+case the parties took the stock just referred to, Huntington agreed
+further to deliver 50,000 more shares within six months from the date
+of the agreement, at 77. In any event, and provided that the syndicate
+took the first 50,000 shares mentioned in the agreement, Huntington
+undertook that no other Central Pacific stock beyond a stipulated
+amount of 40,000 shares should be sold to any other parties for a
+period of seven months from the date of the agreement.[257]
+
+The syndicate which took Central Pacific stock at this time seems
+to have considered the enterprise a speculation justified by the
+resumption of dividends by the company, and by the improving stock
+market conditions of the time. Mr. Probst said that the general market
+had become so strong in the latter part of 1879 that it was a good time
+to sell anything.[258] On conclusion of the agreement a regular stock
+market campaign was opened with the usual accompaniment of matched
+sales to give an appearance of activity.[259] The stock nevertheless
+steadily declined, and the option held by the syndicate to take a
+second block of shares was not exercised.
+
+The day after the arrangement for the purchase of the Central Pacific
+stock was concluded, and partly because of its conclusion, Speyer and
+Company entered into a written contract with the Western Development
+Company, containing a variety of provisions which together show the
+factors upon which the value of Southern Pacific securities then
+depended in the eyes of eastern bankers. Under an agreement dated
+January 28, the Western Development Company agreed to sell to Speyer
+and Company $1,000,000 in Southern Pacific bonds, within ten days,
+at 86. Within the year it undertook, in addition, to sell, if Speyer
+and Company should wish to buy, an additional $4,000,000 in bonds, at
+87.51, and a still further amount of $5,000,000 at 90. On their part,
+the Western Development and Southern Pacific companies agreed not to
+sell any of the said bonds within a year to others than Speyer and
+Company, and the Central Pacific agreed not to issue bonds under the
+mortgage in question, to exceed $40,000 per mile.
+
+
+Terms of Contract with Bankers
+
+The more important features of the agreement with Speyer and Company in
+1878 were, however, the following, relating to the lease arrangements
+between the Central Pacific and the Southern Pacific. Under these
+provisions the Southern Pacific agreed to secure a new lease from the
+Central Pacific within three months, containing (1) a provision that
+the lease should continue five years from the 1st of May, 1879; (2)
+a provision that the lease should be extended if the Southern Pacific
+was not connected with the eastern system of railroads, on the 32d
+parallel, within five years, until such connection should be made,
+provided that the extension of time should not exceed five years; and
+(3) a provision that the Central Pacific should pay a rental under the
+lease, sufficient to cover interest.
+
+The Southern Pacific also agreed with Speyer and Company that if at
+any time before the expiration of nine years from the date of the
+lease contemplated, a railroad should be extended so as to connect
+the railroad of the party of the first part with the eastern system
+of roads, and the Central Pacific Railroad Company should refuse to
+prorate with the party of the first part, then the party of the first
+part would, before the expiration of one year from the date of such
+refusal, fill up or cause to be filled up one of the two gaps then
+unfinished between Tres Pinos and Huron, and between Soledad and near
+Lerdo, whichever it might choose to build.
+
+The Southern Pacific finally undertook to furnish to the parties of the
+third part, within ninety days from the execution of the agreement, the
+written opinion and certificate of the chief engineer of the Southern
+Pacific, that the line of road either between Tres Pinos and Huron or
+between Soledad and near Lerdo could be completed and put in running
+order within twelve months of the commencement of work thereon, and
+could be constructed for the bonds reserved per mile.
+
+The stipulation in the agreements relating to the lease of the Southern
+Pacific to the Central Pacific, and those anticipating further
+construction along the coast route, are of special interest. It is
+evident that the credit of the Central Pacific and not that of the
+Southern Pacific was the basis of the whole transaction. At the time
+the contract was signed, the option to take Southern Pacific bonds at
+86 and 90, respectively, was considered valuable, but in fact this
+option was not exercised.
+
+
+Later Improvement
+
+After 1880 financial conditions generally improved. The earnings
+of the Central Pacific-Southern Pacific roads were still subject
+to fluctuations, but for several years substantial dividends were
+declared, and the sale of large quantities of Central Pacific stock in
+Europe enabled the associates to reduce their commitments. Moreover,
+by 1883 the long delayed extension to The Needles was completed and
+the necessary outlay for new construction was greatly lessened. The
+year 1883 may be taken as the close of the construction period of the
+Huntington system. Henceforth, in the absence of special disaster, and
+subject to successful settlement of its indebtedness to the government,
+the solvency of the Central Pacific and Southern Pacific railroads may
+be said to have been assured. We may therefore at this point turn away
+from the more personal and financial aspects of the enterprise, to the
+consideration of certain important political matters with which the
+associates were long concerned.
+
+
+
+
+CHAPTER XI
+
+THE RAILROAD COMMISSION OF 1880 TO 1883
+
+
+Early Agitation Against Company
+
+It is more difficult to describe the relations of the Central Pacific
+to the legislative bodies of California than it is to trace the history
+of the system in most other respects, because the details are less
+matters of public record. Some connection between the railroad and
+politics undoubtedly existed at an early date. Indeed, Stanford and
+Colton were politicians before they became railroad men, and the state
+and local aid which the railroad secured at the very beginning of its
+construction but confirmed an attitude favorable to continued relations
+between the corporation and the body politic which these gentlemen
+might have been expected to approve.
+
+Before 1876, the only regulation which the associates had to encounter
+was that resulting from the general railroad law, which required a
+minimum subscription before a railroad corporation could commence
+business, established proportionate liability of stockholders, and
+reserved to the legislature the right to reduce rates when the net
+income of any company exceeded 20 per cent. These and other provisions
+of like tenor were little calculated to interfere with the profitable
+operations of a railroad business except perhaps that the proportionate
+liability established by the law to some extent discouraged
+participation in railroad enterprise. In 1874 and in 1876, maximum
+rates and fare enactments were discussed in the legislature but failed
+of passage. In 1876, nevertheless, the accumulated resentment of the
+California public over what it considered the grasping and monopolistic
+policy of a selfish corporation led to important additions to the law.
+This resentment had been growing for several years. The Sacramento
+reporter for the _San Francisco Bulletin_ wrote, in March, 1868:
+
+ There is a strong prejudice existing here and daily growing stronger,
+ against the Central Pacific Railroad Company. The members from Placer,
+ Nevada, and El Dorado counties are all of them, I suppose, pledged to
+ endeavor to obtain a reduction of the rates of freight and fare on
+ the line. Petitions, apparently signed by nearly all the residents of
+ the districts which use the road for the transportation of freight
+ and travel, have poured in upon the legislature, asking a reduction
+ of prices. It is said that traders who complain of the rates are
+ discriminated against. A general feeling exists that, considering
+ how liberally it has been dealt with by Congress and the State, the
+ management of the business and affairs of the company is extremely
+ illiberal....
+
+In like vein the _Stockton Independent_ said of the owners of the
+Central Pacific in 1871:
+
+ No set of men on the face of the globe were ever placed in a more
+ enviable position, or in one where by the exercise of a reasonable
+ foresight, they could have retained their popularity and the
+ friendship of the people. It is now hardly two years since this work
+ was completed, and how remarkable has been the change in public
+ sentiment. Along the whole line of their main trunk road from San
+ Francisco to Ogden, as well as along the various branch roads of this
+ company, nothing is heard but one continuous murmur of complaint, and
+ it is safe to assert that this shortsighted, illiberal, and suicidal
+ policy of the company has so completely changed the sentiment of the
+ people that there is not in a single town on any of their lines of
+ road, either in this state or Nevada, one individual who approves of
+ this course, nor one who will speak well of the company, unless it be
+ one of their subsidized agents or strikers.
+
+
+Beginnings of State Regulation
+
+It is not necessary to dwell at this point on the reasons for the
+opinions voiced in these extracts from the press. The feeling of
+the general public, of which these extracts are the reflection, was
+doubtless due in part to anger at the methods employed by the Central
+Pacific in promoting subsidy legislation, in part to disappointment
+over the results of railroad construction, and in part to reaction
+against policies of the Central Pacific such as have been outlined in
+previous chapters. However this may be, the result was the passage of
+the so-called O’Connor bill in 1876, which erected a State Board of
+Transportation Commissioners, and defined and prohibited extortion
+and unjust discrimination. The commissioners were not only to enforce
+these prohibitions, but they were given extensive authority to secure
+information from the steam railroads of the state, and were charged
+with the duty of supervising all such railroads with reference to the
+security and accommodation of the public.[260]
+
+It appears from the report of the commissioners appointed under the
+O’Connor Act that the railroads in California, and in particular
+the Central Pacific, refused to render the reports required by the
+legislature, and that the commission was unable to compel them to do
+so.[261] Two years later the commissioners were legislated out of
+office, and a single commissioner was appointed in their place, acting
+under a statute similar in most important respects to that administered
+by his predecessors.[262] Mr. Tuttle, the new commissioner, accumulated
+certain statistics during his two-year term of office, but otherwise
+did little to which the railroads could object.
+
+The development of railroad regulation was thus temporarily arrested.
+Yet for several reasons the check to the progress of public control
+was not lasting. Feeling in the state was running high. The times
+were hard, both for reasons affecting the whole country, and because
+of circumstances peculiar to the Pacific Coast. The rainfall of the
+winter of 1876-77 was slight and, as happens in such cases, great loss
+of cattle on the ranges occurred, and the grain crop was seriously
+deficient. At the same time the yield of the Nevada silver mines
+declined—in fact the dividends of the important Consolidated Virginia
+mine stopped altogether in January, 1877, to the great disturbance of
+the stock market at San Francisco. Under these conditions unemployment
+and suffering were the experience of the working classes, while
+riots and later, political agitation also resulted. Even the radical
+labor leader, Dennis Kearney, in spite of his lack of character and
+self-restraint, or even of unusual mental ability, served as the
+temporary expression at this time of a real distress, and had some
+influence on the course of legislation.
+
+
+Railroad Question in Constitutional Convention
+
+So far as the railroads were concerned, the effect of the unrest
+throughout California and the activity of the Workingman’s party is
+seen in the railroad clauses of the Constitution of 1879, and of the
+Act of 1880, which carried them into effect. The call for a convention
+was issued by the same legislature which passed the railroad control
+bill of 1878.[263] Mr. Colton thought the call most unfortunate,[264]
+but there is no reason to suppose that the legislature had anything
+particularly radical in mind.
+
+When the convention began its sessions, however, its membership
+was found to include a majority of persons determined to force
+thoroughgoing regulation upon the railroad system of the state, as
+well as a minority opposed to government control of any kind. Just how
+regulation should be made effective, it is true, few members of the
+first-named group knew. Some were opposed to corporations as a class,
+and thought that at least unlimited liability should be imposed on
+holders of corporate stock. Others were in favor of declaring railroads
+public highways, upon which all persons should be allowed to run cars
+and locomotives under such regulations as might be prescribed by law.
+Still others desired to set a maximum limit of 10 per cent to the
+return on investment in railroad property. The extreme position on
+the other side was taken by men like McFarland, of Sacramento, who
+maintained that the clamor about railroads and corporations was a mania
+evolved from the inner consciousness of members of the convention, as
+spiders spin their webs.
+
+The discussion of railroad regulation by the Constitutional Convention
+of 1879 began on November 18 and ended on December 7. It was
+systematically conducted, participated in by men with a wide variety
+of views, and resulted in constructive conclusions of importance. More
+could scarcely be asked of a deliberative assembly. The main decisions
+reached were as given below.
+
+
+New Regulative Commission
+
+The first conclusion of the Constitutional Convention was that the
+regulation of railroads in California should be entrusted to an
+elective commission, holding office for four years, and vested with
+the power to establish and publish rates, to examine the books and
+records of transportation companies, and to prescribe a uniform system
+of accounts. Heavy penalties, including fine and imprisonment, were
+provided for failure to obey the orders the commissioners might make.
+
+The principal objection made to the establishment of a commission
+was that its power would be excessive. It was pointed out that
+the commission would combine legislative, judicial, and executive
+functions, and that its members could lower rates and increase railroad
+expenses at will. Mr. Wilson, of San Francisco, declared:
+
+ Here, then, will stand in our government a constitutional triumvirate
+ as great in many respects as that of Rome in the olden time. They may
+ raise and lower the rates of freight and fare to suit their powers,
+ and thus they can play with the value of the stock in the market,
+ and determine the value of the bonds and mortgages on the road....
+ They will be sole judges of what are abuses.... They will determine
+ complaints on their own notions of right and wrong, and however
+ erroneous or malicious their acts, there will be no remedy or appeal.
+
+Reference was made to the English Railway Commission of 1873 and to the
+Massachusetts Commission of 1869, and the Wisconsin experiment of 1874
+was held up as something to avoid. The reply to this kind of objection
+was that the power to control rates must be lodged somewhere, and that
+the legislature was inexpert, slow to act, and subject to corrupt
+influences.
+
+
+Other Constitutional Provisions
+
+The second decision of the convention was that a general prohibition
+of discrimination should be placed in the fundamental law. The
+clauses finally adopted provided that no discrimination in charges
+or facilities for transportation should be made by any railroad or
+other transportation company between places or persons, or in the
+facilities for the transportation of the same classes of freight or
+passengers within the state, or coming from or going to any other
+state. In addition to this general prohibition, it was enacted that
+persons and property transported over any railroad, or by any other
+transportation company or individual, should be delivered at any
+station at charges not exceeding the charges for the transportation
+of persons and property of the same class, in the same direction, to
+any more distant station. This amounted to a stringent prohibition of
+greater charges for shorter than for longer hauls. Speakers opposed to
+the discriminative clauses insisted that only unjust discrimination,
+not all discrimination, should be prohibited, and pointed out that
+the proposed law was unconstitutional in that it applied to commerce
+between the states. Neither objection was sufficient to persuade the
+convention that the proposals should not be approved.
+
+Besides the fundamental clauses relating to a commission and those
+prohibiting and defining discrimination, the Constitutional Convention
+of 1879 forbade railroads to grant passes to persons holding any office
+of honor, trust, or profit in the state; forbade them also to agree to
+divide earnings with owners of vessels entering or leaving the state,
+or, under certain conditions, with other common carriers; granted to
+all railroads the right to connect with, intersect, or cross other
+railroads; and provided that no officer or employee of any railroad
+or canal company should be interested in the furnishing of material
+or supplies to such company. One apparently important clause declared
+that a railroad which should lower its rates of fare or freight for the
+purpose of competing with any other common carrier, should not again
+raise these rates without the consent of the governmental authority in
+which should be vested the power to regulate fares and freights.
+
+
+Act of 1880
+
+Special emphasis should be placed upon the constitutional provisions
+adopted in 1879 because they created the framework upon which railroad
+regulation in California was to hang for thirty years. For a full
+understanding of the system the act of the legislature approved April
+15, 1880, should also be consulted. This act defined certain terms
+used in the law. It also fixed the salary of the commissioners at
+$4,000 each, provided a mechanism for enforcement of the commissioners’
+orders through the courts, placed the office of the board in the city
+of San Francisco, and required rates established by the commission
+to be posted in all offices, station houses, warehouses, and landing
+offices to or from which the rates applied. Finally, it granted to the
+commission, in general terms, all the necessary means and the authority
+to adopt any suitable procedure to make effective the powers conferred
+by the Constitution.[265]
+
+Harvey S. Brown, attorney for the Stanford interests, once said
+that the Constitution of the state of California was conceived in
+communistic malice, was framed by unpardonable ignorance, adopted in
+frenzied madness, and was valuable only as a beacon to other states and
+peoples to avoid its principles and results.[266]
+
+The document certainly compelled the associates to consider the best
+method of defence against a political attack which threatened to
+sterilize the monopoly control which they were slowly establishing over
+the railroad system of the state. From their point of view the danger
+was like any other—one to be met by skilful strategy, displayed in a
+new field, but resembling in impelling motive and essential character
+their action in adjusting rates and in dominating the terminal
+situation on San Francisco Bay.
+
+
+Personnel of First Commission
+
+According to the Constitution, one railroad commissioner was to be
+elected from each of three districts into which the state was to
+be divided. Elections were held in 1880, and J. S. Cone, C. J.
+Beerstecher, and George B. Stoneman were returned. Cone was a ranch
+owner, business man, and capitalist at Red Bluff, with an income of
+$50,000 a year, and property worth perhaps $200,000. He had been
+on friendly terms with Stanford before he became commissioner, and
+had known most of the prominent railroad officials of the state for
+twenty-five years. By association and point of view he represented the
+interests of large business in the state. Stoneman was a politician of
+the better type, later governor of the state, a Democrat, and believed
+to be a defender of the public interest.[267]
+
+The third member of the commission was C. J. Beerstecher, a San
+Francisco lawyer with a miscellaneous practice amounting to perhaps
+$50 a month. Judge Lawler, of the Superior Court of San Francisco,
+who knew Beerstecher well, says that he came to San Francisco, with
+nothing but a gripsack, and built up a small practice, mainly divorce
+suits, among the poorer classes in the city. For some time Beerstecher
+used Lawler’s office, living in rooms in the same building, for which
+he paid $15 a month; Lawler befriended him, and a man named Steinman
+advanced him money for electioneering expenses. In return for this,
+apparently, Steinman was later made bailiff to the railroad commission.
+That is to say, Beerstecher was poor, with no reputation to lose, and
+in circumstances in which his good-will had value.
+
+One would scarcely expect effective regulation of a commission composed
+of a wealthy farmer, a cheap lawyer, and a man who looked to a career
+in the public service. Nor was such regulation in fact secured.
+Stoneman once told Judge Reagan, of Texas, that when the California
+commissioners were elected, he, Stoneman, was elected because it
+was understood that he represented the popular interests; another
+gentleman (J. S. Cone) was elected because it was understood that he
+represented the feeling of the corporations, and a third (Beerstecher)
+was a sand-lot man. He added that, having the sand-lot man with him to
+take care of the interests of the people, he thought he was all right,
+but in a short time the sand-lot man sold out and did not amount to
+anything.[268] Cone also considered Beerstecher a reliable pro-railroad
+man. There is no direct evidence that Beerstecher accepted railroad
+money, but the probabilities are strong. Before discussing this point,
+however, the activities of the new commission may be briefly described.
+
+
+Indifference of Commissioners
+
+The evidence shows that from the very first the three members of the
+California commission devoted but a small portion of their time to the
+work of regulation. Mr. Beerstecher was accustomed to visit his office
+twice a day, spending perhaps an hour there each time. This was while
+Beerstecher was a resident of San Francisco. In the latter part of his
+term he lived in the Napa Valley and probably spent even less time
+on his official duties. Nor did Beerstecher compare unfavorably with
+his fellow appointees in application to his work. Governor Stoneman
+devoted five or six days a month to affairs of the commission; Mr.
+Cone about the same. Of 127 meetings held by the board between May 3,
+1880, and January 8, 1883, Cone was present at 99, Stoneham at 80, and
+Beerstecher at 109.[269]
+
+It seems beyond belief that a new commission, established to initiate
+public control of a great industry, should have approached the problem
+in this indifferent way. The undertaking called for the fullest
+exercise of the powers of all the commission’s members; but it was
+approached as a casual task to be accomplished in the spare hours of
+busy men.
+
+As a natural result of their attitude with respect to the importance
+and urgency of railroad regulation, the commissioners failed to
+make effective the most primary requirements of the law. Instead of
+preparing new rates except as hereinafter stated, the commission
+established the existing rates of the companies operating in the state.
+Instead of prescribing a system of keeping accounts, the existing
+system was adopted. Mr. Stoneman once tried to investigate the railroad
+books, but said they were all Greek to him, and he had no authority
+to employ an expert. Beerstecher testified that the commission asked
+certain questions, but that he did not, as an individual commissioner,
+consider that it was his business to go prying around into the business
+of the railroad companies.[270]
+
+Some slight attention was paid to the posting of rates, but the only
+inspection seems to have been by the bailiff of the commission.
+Doubtless the original cause for the failure of the commission in the
+respects mentioned was lack of money; but it was for the members to
+formulate boldly their ideas of what should be done, and to educate
+public opinion as to its necessity, making use meanwhile of all
+the authority which they could wield. It was gross negligence and
+indifference to rest content while the law stood unenforced.
+
+
+Adoption of First Rate Schedule
+
+The largest task eventually undertaken by the commission was the
+formulation of rate schedules for passengers and freight. During the
+spring and summer of 1880, the commissioners traveled through the state
+taking testimony and hearing complaints. In the winter and spring of
+1880-81, they attempted to formulate results. It appears that in May,
+1880, Stoneman introduced a resolution to the effect that maximum
+rates in California should not exceed five cents per ton per mile
+for distances 100 miles and over, and six cents per ton per mile for
+distances under 100 miles, and that maximum fares should not exceed
+four cents and five cents per mile within the same limitations. This
+was defeated by a vote of two to one. Nothing was done between this
+time and February, 1881, when the board unanimously adopted a schedule
+of passenger fares with maxima varying from five cents to three cents
+per mile.[271]
+
+At the same time that the passenger schedule was introduced Mr. Cone
+submitted a freight tariff, which was also adopted. This schedule cut
+rates mainly on agricultural products originating in the northern
+part of the state. Stoneman objected to it—but later said that he
+did not prepare an alternative schedule because he knew it would not
+be adopted. He did, however, call the attention of the board to the
+fact that southern California was being discriminated against.[272]
+Beerstecher had no part in the preparation of the new rates, but made
+no opposition to them.
+
+
+Delay in Enforcement
+
+Armed with the new passenger and freight schedules, Mr. Cone went over
+to the Southern Pacific offices and left the figures with Mr. Towne,
+general manager, for comment. The railroad people at once objected.
+They said they were building the Southern Pacific and selling bonds
+to raise the money. The proposed reductions would injure their credit
+and could not be accepted. Cone was anxious to avoid litigation and to
+get quick action.[273] Moreover, Stanford wished to get away and go
+to Europe, and Cone did not like to keep him. As Cone said in another
+connection, Stanford was pretty winning in his ways. The result was
+that the railroad agreed not to contest the new freight rates and Cone
+consented not to press the reduction in passenger rates, at least not
+until October, 1881. There is no evidence that Cone possessed authority
+from the commission to negotiate with the Central Pacific, but he
+seems to have acted in confidence that Beerstecher would support him
+in action favorable to the railroad and Stoneman in action of contrary
+tenor.
+
+[Illustration: George Stoneman]
+
+As a matter of fact the board did not take further action in regulation
+of passenger fares until August, 1882, a year and a half after
+the question had first been raised. By this time Cone had become
+convinced, so he says, that Stanford would concede no further reduction
+in railroad charges. On the 15th of August, Stoneman accordingly
+reintroduced his original passenger schedule, but slightly changed.
+The matter was laid over for a month, and in September, at a meeting
+at which only Cone and Stoneman were present, a substitute resolution
+was adopted, setting a maximum fare of four cents per mile. Stoneman
+thought the maximum should be three cents, but Cone would not consent.
+The new maxima were suspended in October “until further order of the
+board” in order to give the railroad companies an opportunity to be
+heard. Before the commission came together again, however, Stoneman
+had resigned. This left Beerstecher and Cone—with two as a quorum. It
+is eloquent of Beerstecher’s attitude that he attended no meeting of
+the board after November 22, 1882, and that on that day his action in
+respect to passenger rates was to move to postpone consideration.
+
+In two years and seven months the only reductions in rates and fares
+secured by the Railroad Commission were certain cuts in the rates on
+products of agriculture conceded to the farmer member of the commission
+by his railroad friends. The commission formulated no principles and
+worked out no effective procedure. Even its reports to the legislature
+had little value. The first two were prepared by Mr. Beerstecher, the
+third by Mr. Tuttle, former railroad commissioner but no longer in any
+official way connected with regulation work. When the commission was
+not unanimous in its decisions, the division usually was that of Cone
+and Beerstecher against Stoneman—a fact which leads us back to the
+question of the nature of the influence which the Stanford group was
+able to exert.
+
+
+Bribery Committed
+
+The charge is made that the Central Pacific bought and paid for
+Beerstecher’s services while a member of the Railroad Commission, and
+that Cone was so influenced by his personal and business relations
+with the managers of the Central Pacific as to be unable to view
+their activities in the critical and impartial way which his position
+demanded. The evidence in the case is purely circumstantial, but
+seems to be convincing. So far as the former is concerned we have the
+admitted fact that Beerstecher was richer at the end of his term of
+office than at the beginning by at least $12,000 and probably by a
+good deal more. As he put it, he thought he saved his entire salary of
+$4,000 a year as commissioner, during these years. Beerstecher asserted
+incidentally that his legal practice while a member of the Railroad
+Board amounted to from $1,200 to $1,500 a year—although the records
+of the Superior Court of San Francisco, before which Beerstecher
+practiced, show that this was highly unlikely,[274] and the testimony
+of the bailiff to the commission is directly to the contrary. $12,000
+may be regarded as adequate compensation for a man of Beerstecher’s
+type.[275]
+
+
+Gerke Transaction
+
+Cone’s case is not quite so simple. It seems unlikely that a man of
+his standing should have consciously accepted a bribe. There is,
+however, direct evidence of a reliable character that Cone was given
+unusual consideration by the railroad in connection with the purchase
+of certain lands in the northern part of the state, and Cone himself
+admitted that while he was commissioner he had bought some lands from a
+man named Gerke and had resold them within two or three months to the
+treasurer of the Southern Pacific at a profit of $100,000.[276]
+
+What happened in the first of these two instances was this: It seems
+that there was a tract of about 34,000 acres of the Oregon grant of
+the Central Pacific lying east of Cone’s ranch—rough, chapparal land,
+graded at from 50 cents to $2.50 an acre. Cone was running about 20,000
+sheep at the time, and was using the land without paying for it, as
+certain other individuals were also doing. Among these other persons
+was a man named Wilson, who was not only a small sheep owner, but an
+actual settler as well. Wilson originally applied to purchase from
+5,000 to 7,000 acres of the tract, and was quoted the first graded
+price, $1.25 to $2.50 an acre. At this quotation he took some land that
+had water on it, but in general could not afford to buy. Later the land
+was regraded, and Redding, the Central Pacific land agent, told Wilson
+that the regrade price was 50 cents. A few months after, in June, 1881,
+Wilson applied to purchase, although he believed that the application
+was unimportant, since as a settler he was entitled to second grade. He
+had the land fenced by this time.
+
+Meanwhile, on the 21st of April, 1880, Cone had negotiated with the
+Central Pacific for a tract of 34,097.45 acres, including the land in
+which Wilson was interested. He did not offer to purchase, but asked
+to have the lands that were free reserved for him, that he might
+ascertain the bounds of his range. In fact, when the statement of the
+cost of the lands was made out for him he refused to take them at
+the graded price, and abruptly left the Central Pacific land office,
+exhibiting considerable ill feeling. This was the situation when Wilson
+applied. Properly considered, Wilson seems to have been entitled to
+purchase at the new price. His application was subsequent to Cone’s
+conference with the Central Pacific land commissioner, but Cone had
+then refused to pay the price asked, which left the lands open. The
+Central Pacific, however, through Mr. Redding, its agent, refused to
+sell. Mr. Redding later said:
+
+ When Mr. Wilson demanded a right to purchase a portion of these lands
+ because Mr. Cone had bargained for them and then refused to take them,
+ I told Mr. Wilson the circumstances and said to him that Mr. Cone had
+ refused under so great an exhibition of temper that it was my duty
+ to wait until Mr. Cone became more calm. I also added that the new
+ Constitution and the people had given Mr. Cone and his associates
+ powers that were more extensive than those of the Czar of Russia; that
+ he and his associates could virtually confiscate the property of the
+ stockholders of the railroad company, and that I could not afford to
+ add to a quarrel which by any possibility might be construed into an
+ excuse for unjust action.
+
+The result was that Wilson hunted up Cone and tried to get a
+relinquishment. Cone offered to let Wilson have the land at the graded
+price—the first graded price, as Wilson understood it. This offer
+was naturally refused, and Cone subsequently bought the whole tract
+for $29,199.67. Although the facts are somewhat complicated, it seems
+clear that Mr. Cone received special treatment, due to his position as
+railroad commissioner.
+
+Of the Gerke transaction, Cone testified:
+
+ I would say that the ranch was held under a deed of trust, and parties
+ were foreclosing it, and at the time I bought it it would have been
+ sold under a deed of trust in fourteen days, and the party came to me
+ and asked what I would pay for it and I didn’t dream they intended to
+ sell it because I didn’t know the condition the land was in, and they
+ insisted on my making an offer that day for it. I made an offer and it
+ was accepted.
+
+ _Mr. Storke_: What was your profit on that transaction?
+
+ _A._ I think in the neighborhood of one hundred thousand dollars, and
+ the worst trade I ever made when I sold it.
+
+
+Finding of Legislative Committee
+
+Dealings of this kind were improper, to say the least, and calculated
+to interfere with the impartial discharge of a commissioner’s duties.
+On the whole subject a committee of the California legislature reported
+as follows:
+
+ As to the second subject of inquiry, whether the Commissioners,
+ or either of them, during their term of office, may have made any
+ extraordinary acquisition of property ... your committee report
+ that in their opinion Commissioner Stoneman did not make any
+ extraordinary acquisition of property; that Commissioner Cone made a
+ large acquisition to his wealth, which was already great when he was
+ elected Railroad Commissioner, and your committee believe that such
+ acquisition of wealth was largely due to extraordinary and unusual
+ facilities afforded by the railroad officers; and that Commissioner
+ Cone, in the purchase of thirty-four thousand acres of land for
+ twenty-nine thousand dollars, was made a privileged purchaser, and
+ received from the railroad company facilities in this regard denied
+ to other applicants for portions of the tract; and further, that the
+ transaction by which the Gerke farm was purchased by Commissioner Cone
+ in April, 1881, and sold in September of the same year to Nicholas
+ Smith, the Treasurer of the Southern Pacific Railroad Company, at a
+ profit of one hundred thousand dollars, gives rise to the suspicion
+ that more was contemplated in the purchase and sale than appears on
+ the face of the transaction. As to Commissioner Beerstecher, your
+ committee find that by general report, and in the opinion of his
+ associates, he was without means at the time of his election, and his
+ sudden acquisition of wealth while Commissioner was without adequate
+ explanation....
+
+ As to the fourth subject of inquiry, your committee report that
+ Commissioners Cone and Beerstecher knew of and permitted both
+ systematic and casual discrimination in charges and facilities for
+ transportation between persons and places by railroad corporations in
+ this State, and that through their conduct in permitting and upholding
+ the same, Commissioner Stoneman was unable to accomplish a redress
+ of such discriminations while Commissioner. Further, under this
+ fourth subject of inquiry, your committee find that Commissioner Cone
+ sacrificed the best interests of the State through personal friendship
+ for Governor Stanford, and in return therefor received favors from
+ him; and that Commissioner Beerstecher’s conduct admits of no other
+ explanation than that he was bribed, and that in the opinion of this
+ committee Commissioners Cone and Beerstecher acted in the interests of
+ the railroad corporations rather than of the people.
+
+This finding of the legislative committee is justified by the facts
+elicited in their investigation.
+
+
+
+
+CHAPTER XII
+
+THE SOUTHERN PACIFIC AND POLITICS
+
+
+Appeals to Public
+
+We may now consider in a more general fashion the political methods
+of the Southern Pacific group during the first thirty years of their
+railroad history. We have seen that they not only relied upon the
+talents of their legal staff in taking advantage of defects in the law,
+but that in two cases—the case of the railroad commission of 1880, and
+that of the subsidy in San Francisco in 1863—they probably resorted
+to the direct use of money to accomplish their ends. Yet a whole state
+cannot be bought, though individuals may be, and it would do injustice
+to the breadth of view of the associates to suppose that they limited
+themselves to any such crude device. Indeed, the frequency with which
+money bribes were offered probably diminished as time went on.
+
+Consideration of the general policies of Mr. Stanford and of Mr.
+Huntington seems to show that they met the public demand for regulation
+of rates and fares in no less than five distinct ways.
+
+The first method consisted of appeals to the general public through
+testimony before legislative committees, communications to the
+newspapers, letters to private organizations which interested
+themselves in the government control of corporations, and other
+similar devices. By these various means Stanford, at least, spread his
+philosophy of industry widely abroad. He took the general position that
+agitation upon the subject of railroads was due to misapprehension of
+the facts. Most alleged abuses were imaginary, but the Central Pacific
+stood ready to correct any that were shown to exist.[277] Railroad
+fares and freights were cheaper in California than anywhere else in
+the world, all things considered.[278] In case further reduction were
+desired, the true policy was to place as few burdens upon the railroads
+as possible, to encourage in this way new construction, and to rely
+on competition for the desired result. The interests of the railroad
+and of the public were the same.[279] Monopolies in the United States
+were possible only to the extent that they were beneficent. There was
+properly no right of control in the state. The Granger decisions of the
+Supreme Court of the United States were a flagrant violation of the
+principles of free government. If the people wanted to exercise control
+over a railroad they must do as the state does when it exercises
+the right of eminent domain; that is to say, they must pay to the
+individual owners the full value of whatever was taken for public use.
+Anything else was confiscation. Moreover, at best, regulation could
+not be complete, because it could not ever compel the shipper to ship
+equally over all lines, and because, while commerce was world-wide,
+American governments could regulate but one link in the chain. In
+California, regulation was peculiarly inexpedient so long as the
+railway system of the state was incomplete.[280]
+
+
+Huntington’s Views
+
+Mr. Huntington shared Mr. Stanford’s views, or at least approved the
+conclusion to which they led, but does not seem to have courted the
+same publicity in respect to the matter. Interviews he distrusted. “I
+notice,” he wrote in 1875, “that some correspondent of a San Diego
+paper has been interviewing Mr. Crocker. It is very difficult for any
+one to be interviewed by an infernal newspaper without getting hurt;
+and Mr. Crocker is not the most unlikely to get hurt of all the men I
+know.”
+
+Yet in spite of this attitude towards the newspaper reporter,
+Huntington had a keen appreciation of the importance of shaping public
+opinion, and was familiar with the ordinary devices used for the
+purpose, including the manipulation of the press. He was concerned over
+the attitude of the _Sacramento Record Union_. “If I owned the paper,”
+he said, “I would control it or burn it.”[281] “I wish you would have
+it sent over the wires as often as you can that the Southern Pacific
+is being rapidly built,” he wrote Colton from New York in 1877.[282]
+Again, “Yours of November 28 with Northern Pacific clips is received.
+Many of the articles are very good. It is much better that all such
+articles with petitions be sent direct to members of the Senate and
+House, we keeping in the background as much as possible.”[283]
+
+In November, 1875, Huntington wrote Colton that:
+
+ Gwynn left for the South yesterday. I think he can do us considerable
+ good if he sticks for his hard money and anti-subsidy schemes; but if
+ it was understood by the public that he was here in our interest, it
+ would no doubt hurt us. When he left I told him he must not write to
+ me, but when he wanted I should know his whereabouts, etc., to write
+ to R. T. Colburn of Elizabeth, New Jersey.[284]
+
+
+Influential Individuals Favored
+
+A second method employed by the associates in their efforts to oppose
+public regulation of corporate affairs was that of paying personal
+attention to men who possessed or were believed to possess influence.
+In its simplest form this involved the employment at liberal salaries
+of the ablest legal talent which could be found. The policy was,
+however, pushed much further than the statement made would indicate.
+Huntington’s letters to his associates in the West were full of
+suggestions as to what should be done and of commendations for, or
+criticism of, what had been accomplished.
+
+In April, 1875, Huntington wrote Colton that he had given Dr.
+Linderman, director of the United States Mint, a letter of introduction
+to him, Colton, at San Francisco. This was because the location of
+a new building for the Mint might be of importance to the Central
+Pacific.[285] In October of the same year Huntington gave a pass to a
+certain congressman and ex-governor, but warned Colton that the man
+was a slippery fellow and should not be trusted too much.[286] Crocker
+wrote to Colton in February, 1875:
+
+ I fully appreciate your position there and need of ... a Senator of
+ the United States. We tried to get him off sooner the best we knew. I
+ think he did not want to go, and I fear when he gets there he will not
+ be earnest in our interest as formerly. Stanford thinks I am mistaken
+ and I hope I am.[287]
+
+A letter dated July 26, 1876, shows that Huntington was trying to
+get up a party of twenty-five southern members of Congress to visit
+California over the Southern Pacific. He wanted none but the best
+men—that is, men who would “go for the right as they understand it,
+and not as Tom Scott[288] or somebody else understands it,” but he was
+willing to pay the expenses of the trip for such men.[289] In order
+to help persuade representative men to make this trip, Huntington
+telegraphed Colton to have some of the prominent men in San Francisco
+wire Senator Gordon, of Georgia, urging that the visit should be
+made.[290] “I noticed you are looking after the State Railroad
+Commission,” Huntington adds in another letter to the same address, “I
+think it is time.”[291] Again:
+
+ I am sorry to learn that the receipts are so very poor south of
+ San Francisco, but it is a good time to take the State Railroad
+ Commissioners over the roads. I am glad to notice that you are looking
+ after the Commissioners. I think it very important.[292]
+
+Still again, in May, 1877, Huntington wrote:
+
+ I am glad you are paying some attention to General Taylor and Mr.
+ Kasson. Taylor can do us much good in the South. I think, by the way,
+ he would like to get some position with us in California. Mr. Kasson
+ has always been our friend in Congress, and as he is a very able man,
+ has been able to do us much good, and he has never lost us one dollar.
+ I think I have written you before about Senator.... He may want to
+ borrow some money, but we are so short this summer, I do not see how
+ we can let him have any in California.[293]
+
+Letters like these cover only one period and refer to the activity
+of only three out of the five associates, but there is sufficient
+outside evidence of a general nature to indicate that this policy was
+systematically followed by the Stanford group.
+
+
+Lobbying in Washington and Sacramento
+
+In addition to the attempt in a general way to gain the good-will of
+the public or of influential members of it, the Central Pacific was
+regularly represented at Washington and Sacramento when legislation
+was pending. Huntington, as has been said, took care of the company’s
+affairs in Washington. He had offices in New York and Boston also,
+and divided his time between the three places while Congress was
+in session—four days in Washington, two in New York, and one in
+Boston.[294] Stanford attended to matters in Sacramento, either in
+person or through representatives such as William Carr or Stephen T.
+Gage. The latter was also for many years the company’s agent in Nevada.
+Both Huntington and Stanford, of course, were assisted by a corps of
+lawyers and political aides-de-camp, some of whom were very highly
+paid. General Franchot, for instance, Huntington’s chief assistant,
+received at one time a salary of $20,000 a year, besides a liberal
+expense account. Much criticism has been directed at the activity of
+Central Pacific agents in the lobbies at Washington and Sacramento, but
+a large portion of it was probably legitimate.
+
+
+Correspondence from Washington
+
+Certainly the watch which the associates kept on legislation was very
+close. Huntington’s own activities in 1875, 1876, 1877, and 1878 are
+vividly described in the letters which he wrote Colton during these
+years, and some few of these deserve to be reproduced if only for
+the picture they suggest of the man who wrote them. In March, 1875,
+Huntington wrote:
+
+ I notice a bill passed the House some few days since, called up by
+ Williams of Michigan. I forget its title, but it called for reports,
+ etc., etc., from the Pacific roads. Of course it was something ugly or
+ it would not have passed.[295]
+
+This was mere routine. By June, 1876, however, the legislative work had
+increased. Mr. Huntington told Colton:
+
+ There is a terrible fight kept up on us in Washington. But while they
+ may bite us, they will not eat us up. Sherrell telegraphed me to come
+ to Washington in great haste, as Lawrence was to pass his bill at
+ once; so I went over and got the committee to recall it from the House
+ back to the committee, so the demagogue from Ohio cannot trouble us
+ before the 6th of July. In the meantime we will be working on our land
+ proposition in the Senate. Just what we can do I cannot say, but I
+ shall surely keep trying.[296]
+
+The following month he added:
+
+ I returned from Washington last night. Our matters look better there,
+ but we are not out of danger. It has been so very hot here for the
+ last few weeks that it has come near using me up. You know I do not
+ spare myself when I have anything to do.[297]
+
+In August, 1876, Huntington wrote Colton:
+
+ I have thought I could stand anything, but I am fearful this damnation
+ Congress will kill me. Senator Edmunds told another Senator yesterday
+ that he would pass his Pacific Railroad Sinking Fund Bill before
+ Congress adjourned, but I think he will not, and I have some hope
+ Congress will adjourn by the time this reaches you.[298]
+
+And in March, 1877, he was able to say:
+
+ Congress has adjourned, and we have not been hurt, except by the
+ paying out in Washington of some money for hotel bills, etc.
+
+ I am quite sure that we stand better in Washington at this time than
+ we ever did before.
+
+ The Pacific Mail Steamship Co. got no aid. I will tell you some things
+ about that some time. The Sinking Fund Bill did not pass, but is in a
+ much better shape to pass than it has ever been before. I stayed in
+ Washington two days to fix up the Railroad Committee in the Senate.
+ Scott was there, working for the same thing, but I beat him for once
+ certain, as the committee is just what we want it, which is a very
+ important thing for us. You will no doubt notice before you get this
+ that we were not able to pass the Texas-Pacific bill.[299]
+
+The committee with which Huntington was so content was changed somewhat
+later, much to his disgust.[300]
+
+It was not until the first part of 1878, however, that his letters show
+him again hard at work. In January, 1878, Huntington wrote to Colton:
+
+ I notice what you write of the communists in the California
+ Legislature, and am very sorry to know it, but the feeling in Congress
+ is not much better, and yet, somehow, I do not think we shall be much
+ hurt, although Scott is working hard and developing more strength than
+ I supposed he had. He had the Railroad Committee of the House. I think
+ we have it now.[301]
+
+The following month he said:
+
+ I returned from Washington last night, and I am as near used up
+ as I ever was in my life before. I am spending my last winter at
+ Washington. As I feel today, I would not agree to spend another there
+ for all the property we all have. Our matters are looking fair in
+ Washington, Scott is very bitter in the discussion. He used some
+ business compliments and all such stuff, and I am compelled to play
+ him; but it is very distasteful to me.[302]
+
+
+This letter is followed in the record by a series of others of the same
+tenor, which will be presented without comment.
+
+ ... I have done all I can to prevent certain bills from being reached,
+ and do not think any bills can be that will hurt us, but if there are,
+ they will pass, as this Congress is, I think, the worst set of men
+ that have ever been collected together since man was created.[303]
+
+ I returned from Washington last night. I am almost happy to think
+ I shall not be called there again this session, as Congress has
+ adjourned its first session, and may the likes of it never meet again.
+ I think in all the world’s history never before was such a wild set of
+ demagogues honored by the name of Congress. We have been hurt some,
+ but some of the worst bills have been defeated, but we cannot stand
+ many such congresses.[304]
+
+ * * * * *
+
+ Friend Colton: I returned from Washington this morning and found on my
+ desk yours of the 10th inst., No. 74. Thurman’s funding bill has not
+ passed the House yet, but it will, I think, although I am endeavoring
+ to get it to the Judiciary Committee. If I can I think we can get it
+ amended, but even that is doubtful. There were some mistakes made by
+ us when the bill was in the Senate; the greatest was in Gould going
+ to Washington; but it is too long a story to write now. I will tell
+ you when we meet, if we have nothing better to talk of. This Congress
+ is nothing but an agrarian camp, the worst body of men that ever
+ before got together in this country. Scott is making a hard fight
+ on his Texas and Pacific bill. He has made a combination with the
+ Northern Pacific, which will give him some strength, how much I cannot
+ tell. The Northern Pacific are to ask for guarantee of their bonds
+ by the United States. I shall come to California soon after Congress
+ adjourns. Find some one to buy me out of everything there. I am tired
+ and want to quit.[305]
+
+ * * * * *
+
+ ... I notice what you say of Thurman’s Sinking Fund Bill—of course it
+ is bad, but if we could have amended it so as to make it a finality,
+ and give us 6 per cent on the fund, it would not have been so bad. It
+ may not pass, but I think it will for this is the worst Congress we
+ have ever had; if it should, we must beat it in the courts, if we can.
+
+ I go to Washington tonight; I should have gone last night, but for the
+ reason that Clara has been quite sick for some days.
+
+ Mr. Sherrell telegraphed me yesterday that I must not fail of being
+ there this morning. I cannot attend to this Washington business much
+ longer.[306]
+
+ I returned from Washington last night. I hope to get through there
+ without being hurt any more; but it seems as though every committee in
+ both Houses had something before them that we had an interest in.[307]
+
+
+Skilled Wire-Pulling
+
+There is no need to comment in any detail upon these letters. Their
+occasional indication of discouragement doubtless meant nothing more
+than that Huntington sometimes grew tired and hot and angry with the
+opposition which he encountered. A characteristic of the man was that
+he never really gave up. The Thurman bill referred to will be described
+in another connection.
+
+Scott was a railroad man, at one time president of the Pennsylvania
+Railroad, who was seeking to persuade Congress to subsidize a
+transcontinental railway by the southern route. The land proposition
+was a scheme of the associates to induce the federal legislature to
+buy back a portion of the Central Pacific land grant at the government
+price. As a whole, the letters so far quoted show that Huntington was a
+persistent and energetic lobbyist, although the record of Congressional
+legislation shows that he was far from uniformly successful.
+
+[Illustration: C. P. Huntington]
+
+On the whole, the railroad managers pulled wires with a skill which
+rapidly increased with experience. Sometimes the company was made to
+appear prominently, and sometimes it was kept in the background when
+legislation was desired. Huntington found that some members of Congress
+were disinclined to talk to him concerning Southern Pacific matters.
+In such cases he had recourse to third parties—perhaps a constituent
+of the member in question, perhaps a friend. The same methods were
+employed in dealing with state legislation. In 1875 the Southern
+Pacific desired a franchise permitting it to build through Arizona.
+Huntington wrote Colton that he thought this would cost less if other
+interests than the associates stood at the front while the franchises
+were being obtained, but that after the charters were obtained it
+should be known that they were controlled by the Southern Pacific.[308]
+He said:
+
+ I am inclined to believe that if you could get the right man on that
+ line in Arizona to work with the few papers they have there, to
+ agitate the question in the territory, asking that some arrangement be
+ made with the S. P., at the same time offer the S. P. a charter in the
+ territory that would free the road from taxation, and one that would
+ not allow for any interference with rates until ten per cent interest
+ was declared on the common stock, I believe the Legislature could be
+ called together by _the people_ for $5,000 and such a charter granted.
+ Then we would take the chances of having such a charter made good by
+ Congress or the State when it became one.[309]
+
+At one time Huntington even suggested that the Southern Pacific might
+bear the expense of an extra session of the Arizona legislature
+in order to hasten consideration of legislation favorable to the
+company.[310] The desired legislation was eventually obtained, but not
+until February, 1887.
+
+
+Unethical Dealings
+
+Did or did not the Huntington group, including Stanford at Sacramento
+and Reno, and Huntington at Washington, employ improper means in
+their endeavor to influence votes? This is another question upon the
+answer to which much depends. That passes were issued to members of
+the legislature, members of Congress, and judges of courts, and that
+gentlemen of these types were entertained at dinner in Sacramento was
+generally known. We have Mr. Gage’s statement, at least, that no more
+than this took place in Nevada. He told the United States Pacific
+Railway Commission of 1887, that his expenditures in that state over a
+period of eight years had amounted to $2,000, and added:
+
+ ... and I would like to produce to you the files of the newspapers in
+ order to show the existence of the misapprehensions that existed among
+ the good people of Nevada, as indicated by their press, concerning
+ my relations with the legislature of Nevada, session after session
+ for the sixteen years. I remarked yesterday that it was one of the
+ greatest sources of regret that I had, the imputations which were
+ cast on my character, and which I feel I have not deserved, and which
+ I feel I may not live long enough to outgrow. One of these is that I
+ have spent money in the Nevada legislature for the Central Pacific
+ like water; and those things were constantly asserted, and I believe
+ frequently believed by a good many good people in the State, but they
+ were not true. As I asserted to you yesterday, I have kept an accurate
+ account of the expenses for the first eight years that I was attending
+ the sessions of the Nevada legislature, which included my personal
+ expenses during that time, and they figure up $2,000, or a fraction
+ under it, as it was. Now, if any one thinks that $2,000, or less,
+ could corrupt a legislature for eight years, including the personal
+ expenses of myself, he must invoice members of the Nevada legislature
+ at a very low price, and “buy them by the string.”[311]
+
+Mr. Gage would not say, however, when asked pointblank, whether or not
+he had paid any money or made any provisions of advantage or reward to
+any member of the legislature of California or Nevada.[312] Nor would
+Mr. Stanford say more in reply to the inquiries of the United States
+Pacific Railway Commission than that the company would not include in
+any settlement with the United States, vouchers to which objections
+were made.[313]
+
+On the whole, there is a good deal of evidence that the owners of the
+Central Pacific went further in influencing legislation than any
+strict system of ethics would allow. Huntington once stated his own
+position as follows:
+
+ If you have to pay money to have the right thing done, it is only just
+ and fair to do it.... If a man has the power to do great evil and
+ won’t do right unless he is bribed to do it, I think the time spent
+ will be gained when it is a man’s duty to go up and bribe the judge. A
+ man that will cry out against them himself will also do these things
+ himself. If there was none for it, I would not hesitate.[314]
+
+
+Further Evidence
+
+More important than the record of such general expressions of opinion
+are the affidavits filed in the San Francisco subsidy litigation
+described in an earlier chapter. Nor is anyone likely to read the
+letters of Mr. Huntington to Mr. Colton in the late seventies without
+becoming convinced that the possibility of purchasing votes was
+constantly before Huntington’s mind. Huntington wrote Colton at one
+time that the (Southern Pacific) company could not get legislation
+unless it paid more than it was worth.[315] In another communication
+he said: “If we pass the Sinking Fund Bill and beat Scott and the
+Union Pacific, it will hurt us not less than half flora”;[316] and in
+still another we find the cheery comment: “Matters do not look well in
+Washington, but I think we shall not be much hurt, although the boys
+are very hungry and it will cost considerably to be saved.”[317]
+
+In November, 1877, Huntington wrote Colton:
+
+ You have no idea how I am annoyed by this Washington business, and I
+ must and will give it up after this session. If we are not hurt this
+ session it will be because we pay much money to prevent it, and you
+ know how hard it is to get it to pay for such purposes; and I do not
+ see my way clear to get through here and pay the January interest
+ with other bills payable to January 1st, with less than $2,000,000,
+ and possibly not for that.... I think Congress will try very hard to
+ pass some kind of a bill to make us commence paying on what we owe the
+ Government. I am striving very hard to get a bill in such a shape that
+ we can accept it, as this Washington business will kill me yet if I
+ have to continue the fight from year to year, and then every year the
+ fight grows more and more expensive; and rather than let it continue
+ as it is from year to year, as it is, I would rather they take the
+ road and be done with it.[318]
+
+In one case where the salary to be paid a certain individual was under
+consideration, Huntington wrote Colton frankly that it was important
+that the man’s friends in Washington should be on the railroad’s side,
+and that if this could be brought about a salary of $10,000 to $20,000
+a year would be worth while. Huntington wanted the man to make a
+proposition in writing, however, that he would control his friends for
+a fixed sum.[319] When asked about the meaning of his correspondence,
+Huntington denied that these expressions had any vicious significance.
+He said he kept on high ground,[320] and even objected to the free use
+of liquor and cigars.[321] Specifically, he gave instructions to his
+people never to use money in any immoral or illegal sense. “Buying
+votes in a legislature was bad policy,” said he, and his position
+in these matters received the formal support of Stanford. But such
+assertions are entitled to less weight than Huntington’s less guarded
+phrases.
+
+
+Heavy General and Legal Expenses
+
+There is no question that the control exercised by the Central Pacific
+management over the legal and miscellaneous expenses of the company
+was informal to the last degree. Huntington had a great deal of
+money to spend and he turned it over to trusted agents without too
+many questions. He would pay $5,000 or $10,000 at a time to General
+Franchot, for instance, without inquiring where it went or how it
+was paid.[322] Checks were made out in all cases to I. E. Gates, Mr.
+Huntington’s assistant in New York, and were indorsed by him either
+to payee or in blank.[323] Vouchers covering such items were made
+out simply to “Expense,” or to “Legal expense.”[324] In many cases
+expenditures authorized by Stanford, Crocker, or Huntington were
+represented by no vouchers at all,[325] the filing of vouchers being
+subsequently waived at stockholders’ meetings.
+
+All in all, the general and legal expenses of the Central Pacific
+between the years 1875 and 1885 averaged over $500,000 annually. The
+only reply to the government inquiry as to what this money had been
+paid out for was Stanford’s statement already quoted that vouchers to
+which there were objections would not be included in any settlement
+with the United States, but that the moneys would be treated as still
+in the treasury.[326] This was plainly an evasion of the point at issue.
+
+
+Company in Politics
+
+Still another question is how far the headquarters of the Central
+Pacific in the various capitals were used as agencies for the election
+of legislators and other persons who owed their position to railroad
+influence. It is the unhesitating popular judgment that the railroad
+at an early date “entered politics.” In a long letter dated August
+26, 1873, Eugene Casserly asserted that the Central Pacific aimed to
+be and was a third party in the politics of the state, holding the
+balance of power between the Democratic and the Republican parties, and
+controlling or seeking to control at will each or both of them. “This
+third party,” continued Mr. Casserly, “has the usual attributes of a
+political party, the same apparatus and appliances. It has its leaders,
+its managers, its editors, its orators, its adherents. It selects
+these from both parties, but mostly from the party in the majority.
+Whether they call themselves Republicans or Democrats, and however they
+divide or contend on party issues, they move as one man in the cause of
+the railroad against the people. To that cause they give their first
+allegiance.”
+
+
+Bassett Polemic
+
+This statement of Mr. Casserly calls to mind another charge or series
+of charges made by a man named J. M. Bassett in the years following
+1892. Mr. Bassett was one of the early pioneers. He came to California
+in 1851, and was at various times miner, printer, newspaper man,
+railroad employee, and member of the Oakland city council. At one time
+he was Leland Stanford’s secretary. After Mr. Stanford had been forced
+out of the presidency of the Southern Pacific, Bassett began to publish
+a series of open letters to Collis P. Huntington, and continued them
+weekly, with occasional intervals, for several years. The sustained
+vivacity and pungency of this polemic, and the systematic virulence
+with which Bassett reviewed and criticized the Huntington policies make
+the series a noteworthy journalistic achievement. Mr. Bassett denounced
+Mr. Huntington for the overcapitalization of the Southern Pacific
+system, for its failure to pay taxes, for its carelessness of the lives
+of its employees and of the public, for its attempt to evade repayment
+of the debt which it owed to the United States government, and for
+the general mismanagement which, he asserted, had taken place under
+Huntington’s control. With respect to the interference of the Southern
+Pacific in politics, Bassett wrote to Huntington in 1895:
+
+ What chief executive of the State, before the present incumbent,
+ has there been who did not owe his nomination and election to the
+ Southern Pacific Company and in acknowledgment of his debt hasten to
+ obey its slightest command? Has there ever been a Board of Railroad
+ Commissioners before last November in which you did not own at least
+ two members? Have you not named every Harbor Commissioner appointed
+ during the past twelve years?
+
+ Have you not hitherto chosen San Francisco’s Police Commissions and
+ do you not now exercise a dictatorial power over the city’s police,
+ especially the Harbor Police? Were not the Judges of the two United
+ States Courts in San Francisco appointed at the instance of Leland
+ Stanford? How many Superior Courts are there in the State in which a
+ citizen may bring an action against you in full confidence that he
+ will be fairly and impartially dealt with? Doubtless there are such
+ but the difficulty is to find them. Before the recent elections how
+ long did you control the government of San Francisco? Have you not
+ dictated the government of Oakland for the past twenty-five years?
+ Until last election had you not continuous control of Alameda County’s
+ government?...[327]
+
+When one desires to test the accuracy of accusations like those of
+Casserly and of Bassett, one has first to remember that they are in
+accord with the substantially uncontradicted declarations of men
+of all degrees of prominence in California over a period of fifty
+years. Political campaigns have been waged on the question of the
+railroad versus the people. Not only newspapers like the _Sacramento
+Union_ and the _San Francisco Examiner_, but men like John T. Doyle,
+at one time state railroad commissioner, General Howard, a leading
+member of the Constitutional Convention of 1879, and H. H. Haight,
+at one time governor of the state of California, have asserted that
+railroad influence was a real and important factor in the politics of
+California. While neither a corporation nor an individual can properly
+be convicted on the strength of current report, the presence of so much
+smoke, over so long a period, is fair evidence of some fire.
+
+
+Documentary Evidence
+
+Direct testimony relating to the political activity of the Huntington
+group comes from Mr. Huntington himself in two ways. In the first
+place there have been published certain letters which passed between
+Huntington and his associate, Mr. Colton, in the years 1875 to 1878.
+These documents have been referred to in other connections. They
+came out in the course of court proceedings, and have the weight of
+confidential communications, not intended for publication. Extracts
+from these letters will presently be given. Besides this, certain
+statements were given by Huntington to the press in 1890 which bear
+directly upon the point at issue. These statements were intended to
+discredit Stanford, but in the course of the heated controversy to
+which they gave rise they were not denied by Stanford nor withdrawn by
+their author.
+
+On May 1, 1875, Huntington wrote Colton:
+
+ I noticed what you say of Piper; he is a wild hog; don’t let him come
+ back to Washington, but as the house is to be largely Democratic, and
+ if he was to be defeated, likely it would be charged to us, hence,
+ I should think it would be well to beat him with a Democrat; but I
+ would defeat him anyway, and if he got the nomination put up another
+ Democrat and run against him, and in that way elect a Republican. Beat
+ him.[328]
+
+Asked to whom the letter referred, Huntington later said that if he
+remembered the person, and he thought he did, he was a man whose views
+ran contrary to all human interests.[329]
+
+A letter in June, 1876, reads as follows:
+
+ I hope ... will be sent back to Congress. I think it would be a
+ misfortune if he was not.... has not always been right, but he is
+ a good fellow and is growing every day.... is always right, and it
+ would be a misfortune to Cal. not to have him in Congress. Piper is a
+ damned hog, and should not come back. It is shame enough for a great
+ commercial city like San Francisco to send a scavenger like him to
+ Congress once....[330]
+
+Again, in November, 1876, Huntington wrote Colton:
+
+ I hope ... is elected and ... defeated, as it was generally understood
+ here that our hand was over one and under the other....[331]
+
+A still later letter relates to the pending election of a senator from
+California. Huntington said:
+
+ We should be very careful to get a U. S. Senator from Cal. that will
+ be disposed to use us fairly, and then have the power to help us ...,
+ I think, will be friendly, and there is no man in the Senate that can
+ push a measure further than he can.[332]
+
+
+Controversy between Associates
+
+The correspondence which has just been cited is not offered in order
+to discredit Mr. Huntington, or for any reason except to show that
+it was Huntington’s belief in the years 1875, 1876, and 1877 that
+the influence of the Central Pacific should be used to advance the
+political interests of persons favorably inclined toward his railroad
+system and to discourage those in opposition. The personal controversy
+which took place between Stanford and Huntington in 1890 brought
+out some additional evidence of the same sort. This dispute arose
+ostensibly because of the election of Stanford in 1883-84 as senator
+from California in place of A. A. Sargent, one of Huntington’s friends.
+In reality it was probably only the final outcome of a growing tension
+between the two men, due to dissatisfaction on Huntington’s part with
+the small amount of time which Stanford devoted to railroad affairs,
+and perhaps to jealousy of the prominence which Stanford enjoyed in
+public estimation.[333]
+
+However this may be, Stanford resigned the presidency of the Southern
+Pacific Company at the annual meeting of the stockholders on April 9,
+1890, and Huntington was elected in his place. In his address to the
+board of directors of the company, Huntington used the following words:
+
+ Gentlemen, for the honor that you have done me in electing me
+ President of the Southern Pacific Company ... I promise you that I
+ will be as true to the interest of the company in the future as I have
+ been in the past. I can promise you nothing more, for at all times my
+ personal interest has been second to that of the company. It shall be
+ so in the future, and in no case will I use this great corporation to
+ advance my personal ambition at the expense of its owners, or put my
+ hands into the treasury to defeat the people’s choice, and thereby put
+ myself into positions that should be filled by others; but to the best
+ of my ability will I work for the interest of the shareholders of the
+ company and the people, whom it should serve.[334]
+
+This statement attracted attention, and Huntingdon was asked to
+explain. In an interview with a reporter of the _San Francisco
+Examiner_ he said further:
+
+ From this time on we are going to follow one business. We are railroad
+ men and intend to conduct a legitimate railroad business. To do that
+ successfully politics must be let alone.... If a man wants to make
+ a business of politics, all well and good; if he wants to manage a
+ railroad, all well and good; but he can’t do both at the same time.
+
+ I have seen the ante-rooms down here in this building full of men
+ trying to learn or get something out of politics. Why should they come
+ here? This is no place for them. But then they were not to blame.
+ The tip went forth that political work was being done at Fourth and
+ Townsend streets, and they merely followed the tip. Well, there won’t
+ be any more tips sent out of these railroad offices. Politics have
+ worked enough demoralization in our company already, and they have
+ gone out of the door never to return....
+
+ Things have got to such a state, that if a man wants to be a constable
+ he thinks he has first got to come down to Fourth and Townsend streets
+ to get permission. Hereafter people who come to Fourth and Townsend
+ streets must have railroad business to transact. The Southern Pacific
+ Company is out of politics, and will attend to its business like any
+ other private company or individual should do.[335]
+
+Such statements naturally led to an open breach between Huntingdon and
+Stanford.[336]
+
+The point at issue was not, however, whether it was proper for the
+Southern Pacific to defend itself against political attack. On this
+there is every reason to suppose that all parties were agreed. It was
+rather whether the company should be used as an instrument to advance
+the personal interests of individuals. In the same connection the
+question arose whether railroad men should act together in political
+matters not connected with railroad affairs. Huntington, who had
+little interest in general politics, thought they should not. It is
+probable enough that Stanford or some of his subordinates had, on the
+other hand, used their influence as railroad men for personal and party
+ends.
+
+
+Unscrupulousness of Associates
+
+One rises from the study of the political activities of the owners of
+the Central Pacific with a feeling of indignation at the selfishness
+of these men, their indifference to all save considerations of private
+gain, and their readiness to use any and all methods which would
+advance their financial interests. The associates met the proposal of
+government regulation as a threat to rob them of their property and
+resisted it as they would have opposed any other attack. They never
+conceded that any question of public interest was involved which it was
+necessary for them to respect. They frankly defended the use of money
+as a method of persuading men to do what was right—which inevitably
+meant, of course, what in their judgment was right. They fell out among
+themselves, not because any one of them questioned the philosophy which
+inspired their opposition to public control, but because one of them
+was suspected of using power, developed in the course of the defense of
+railroad interests, to advance personal ambitions which ran counter to
+the views of his associates. These things should be plainly stated and
+their force clearly understood.
+
+It is the writer’s opinion, however, that the amount of money spent
+by the Central Pacific in the purchase of legislative or other votes
+has probably been overestimated in the public mind. Direct bribery
+is a clumsy weapon and one difficult to conceal if practiced on any
+considerable scale. It was probably also unnecessary to a corporation
+such as the Central Pacific with other favors to bestow. Members of
+Congress might, indeed, be employed by the railroad when legislation
+was pending. Huntington maintained that this was legitimate,[337] and
+Gage once admitted that the company had to employ everybody who could
+pull a pound. The practice was more easily defensible than bribery, and
+could be applied to a better class of men. Other men might be reached
+through patronage, still others through discrimination in rates or
+through preferences. The suggestion that unfavorable legislation would
+hinder construction was potent with legislators from districts which
+still lacked rail connection. Yet Huntington once said of a man who
+was opposing him and whom he thought he could bribe, that his better
+judgment told him the associates could not afford to take the scamp
+into camp,[338] and this probably represented the situation at most
+times. Whether this worked for the eventual salvation of the Huntington
+group, is for the moralist to say.
+
+
+
+
+CHAPTER XIII
+
+WATER COMPETITION
+
+
+Rate Policy
+
+We may now pass from the question of the relation of the Central
+Pacific-Southern Pacific system to legislative bodies in California
+and in Washington, to another matter of general importance in respect
+to which Southern Pacific policies profoundly affected the development
+of the West—the matter of railroad rates. Just as the associates were
+compelled to face the possibility of government regulation soon after
+they were fairly launched in their careers as railroad men, so they had
+to consider and determine the rate policies which they should adopt,
+independent of regulation, with respect to the shipping and traveling
+interests of the territory which they served. Their decisions in rate
+matters were certainly of no less significance than their attitude
+toward political control, and deserve the same broad consideration.
+
+We shall attempt in the following chapters to describe the conditions
+which affected the ability of the associates to set rates in California
+and on business to and from that state, and to consider the attitude
+of the Southern Pacific with regard to the more important questions of
+rates and of competition which arose. For reasons which will become
+apparent as the discussion proceeds, the scope and importance of water
+competition in the West will first be set forth.
+
+
+Water Transportation
+
+One of the most important conditions affecting railroad business in
+California is the ease with which freight and passengers may take
+advantage of the water routes. The long coast line of California
+affords relatively few good harbors, but it is broken in the center
+by the splendid bay of San Francisco, and in the south by the less
+commodious but still adequate ports of San Pedro and San Diego. Between
+these termini a considerable commerce has long been carried on.
+
+Still more important than the coastwise trade, however, has always been
+the deep sea commerce of San Francisco, and to a less extent that of
+the other ports. San Francisco is a focus for ocean lines connecting
+the Pacific Coast of the United States with the Atlantic seaboard,
+with Europe, with South America, and with the Orient. Likewise from
+San Francisco steamers ply up the Sacramento and San Joaquin rivers,
+carrying traffic well into the interior of the state. A mere mention
+of these facilities is sufficient to suggest the part which water
+transportation has played in the commercial and industrial life of the
+Far West.
+
+
+River Traffic
+
+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 12 and 3 A.M. of the following morning.
+Corresponding boats left Sacramento at 2 P.M., arriving between 9 and
+11 P.M. Often as many as four boats left San Francisco loaded in one
+day.[339]
+
+The total tonnage of steam vessels plying on California rivers and
+bays was estimated by the State Transportation Commission in 1878
+at 30,704. The bay vessels were all ferry-boats and tugs, but river
+vessels with a total tonnage of 10,990 tons made trips of considerable
+length. Most of these were small craft, but the larger river steamers
+ranged between 400 and 520 tons each, while the ferry-boats sometimes
+reached a size of 1,600 or 1,700 tons. Vallejo, Benicia, Napa, Knight’s
+Landing, Colusa, Chico, Red Bluff, Antioch, and Pacheco were among
+those able to take advantage of the water service.[340]
+
+Generally speaking, the importance of the river traffic was diminished
+by the fact that after 1853 most of it fell under the control of one
+company, the California Steam Navigation Company,[341] and that in 1869
+this company sold its steamships to the Central Pacific. The volume
+of river traffic also fell off because of railroad competition. In
+spite of these drawbacks competition on the river was lively at times
+and rates were low, to the disgust of some merchants in the interior
+cities. The California Steam Navigation Company charged $8 and $6 per
+ton for freight, and $10 and $8 for cabin fares from San Francisco
+to Sacramento and Stockton. Meals were a dollar apiece. These were,
+however, the rates in the absence of competition. When the steamer
+“Willamette” was brought from Oregon to Stockton, rates were fixed
+at $3 for freight, $3 for cabin fare, and $1 for deck passage. In
+December, 1860, the fare from Sacramento was $1 in a cabin and 25 cents
+for deck accommodation. People traveled because it was as cheap to go
+as to remain at home.[342]
+
+
+Ocean Commerce
+
+The first regular water connection between the eastern and western
+coasts of the United States was provided by the clipper ships on
+the route around Cape Horn. These swift sailing vessels supplied the
+gold miners with the tools and manufactured goods necessary for their
+enterprises, and took back such commodities as California was able to
+export. Oil, soap, cement, coal, iron, nails, paper, glass, tobacco,
+liquors, dry goods, and the like moved west—hides, wool, canned
+fruits, salmon, sugar, wine, and grain went east. The business was for
+the most part handled by ships chartered for single voyages, not by
+lines of ships operating on regular schedules.[343]
+
+As early as October, 1848, however, at least one regular line, the
+Pacific Mail Steamship Company, entered the field. The establishment
+of the Pacific Mail service was made possible by the grant of a
+government contract for the carriage of mails—its profits during the
+early years were largely derived from business arising out of the
+gold discoveries in California. The business of the Pacific Mail grew
+rapidly. In 1851 it operated eleven steamers varying in size from 600
+to 1,300 tons, and had a capital stock of $2,000,000. Thirty years
+later it operated fourteen ships, large and small,[344] reported gross
+earnings of $3,762,083 (1882) and had $20,000,000 in stock outstanding.
+At first the Pacific Mail operated steamships between Panama and San
+Francisco. Later it extended its service to Astoria; and still later it
+established a line across the Pacific to China and Australia. Among
+its competitors by sea at one time or another, besides the clipper
+ships, were Mr. Vanderbilt’s Atlantic and Pacific Company, the Mexican
+Coast Steamship Company, and Messrs. Goodall and Perkins. At one time
+Jay Gould, at another Trenor W. Park, of the Panama Railroad, were
+dominant in its affairs.
+
+
+Problem of Water Competition
+
+There is much of romance in the history of ocean transportation into
+and out of San Francisco, and in its proper place the story should be
+told at length. Some aspects of the water service, indeed, will be
+touched on later in this book. Attention is directed to the matter at
+present, however, not for its own sake, but because the fact of water
+competition raised one of the problems with which the Southern Pacific
+had to deal. It seems clear that the associates were compelled to
+define their attitude toward water competition as soon as their through
+line was completed in 1869.
+
+Broadly speaking, the alternatives were competition or agreement. In
+respect to the Pacific Mail, however, the situation was complicated
+by the fact that the relations between the railroads and the shipping
+lines were of two sorts: In the first place, the Pacific Mail served as
+a valuable connection for the transcontinental railroads on business
+originating in or destined to China and Japan. Tea and silk eastbound
+were usually delivered by the steamships to the rail lines at San
+Francisco. Westbound the higher classes of manufactured goods likewise
+moved part way by rail and part way by water haul. During the ten years
+ending in February, 1881, the Pacific roads carried 177,278,505 pounds
+of tea and other Asiatic goods, secured to them by the co-operation
+of the Pacific Mail Steamship Company, resulting in earnings of
+$3,264,456.44.[345] On the other hand, the rail and water lines were
+competitors in important respects.
+
+
+Steamship Company Organized
+
+In 1874 the Huntington interests organized the Occidental and Oriental
+Steamship Company and chartered three steamships to ply between
+San Francisco and the Far East. This was said to be the result of
+a decision of the Pacific Mail to make Panama the terminus of its
+transpacific route, relegating San Francisco to the secondary position
+of a port of call.[346]
+
+Huntington wrote to Colton, on November 9, 1874:
+
+ I am surprised to learn that anyone should think it was for our
+ interest to put on the China line seven steamers to start with. I
+ think three is plenty, and we shall, no doubt, have such an opposition
+ on the start that we shall have to run them at a loss, but with those
+ three we can make the prices for the old line, and I think there is
+ enough to break them with, unless the managers of that company are
+ changed, and then we most likely can get their steamers.[347]
+
+Huntington intended to develop the Occidental and Oriental Steamship
+Company as a permanent connection of the Central Pacific for Oriental
+business in competition with the Pacific Mail. At the time his decision
+was made he discussed with his associates the advisability of asking
+enough eastern lines to join with the Central Pacific to form a single
+transcontinental route from the Pacific to the Atlantic coasts for
+export and import traffic, but decided against this project because
+it would make enemies of the railroads which were not included, and
+because also the admission of partners would make it impossible for the
+Central Pacific to control by itself a majority of the shares of the
+Occidental and Oriental Company. Huntington’s letter to Colton on this
+matter is a model of sound reasoning on a large question of policy:
+
+ I think very likely we could make out a through line. Very likely
+ the Baltimore and Ohio would come in, and make up a line that would
+ run to Omaha or Fort Kearney, passing through St. Louis and Chicago.
+ But if this was done, very likely it would be difficult for us to
+ control the steamship Company, and if we make up this line, leaving
+ out the roads above mentioned, of course they would not expect any
+ of the China business coming over our road, and then would they not
+ be likely to work against us by allowing the Pacific Mail Steamship
+ Company and any other companies to give bills of lading from China
+ and Japan to Chicago, St. Louis, etc., over their roads, and to bring
+ freight from those points to the sea coast here, to go by steamer
+ and sail to California?... We cannot be too careful in starting this
+ steamship line, for it is one of the things that if we go into, I have
+ little doubt we shall hold it for years, and therefore the more reason
+ why we should hold a majority of the stock of the company, as almost
+ every road here is controlled by those that are always short or long
+ of stock and endeavor to render everything bend to their particular
+ wants. If short, they want to put the stock down, and if long they
+ work for the reverse and we cannot afford to be in their power.[348]
+
+
+Ownership of Shares
+
+Doubtless for financial reasons the policy here laid down was departed
+from sufficiently to allow the Union Pacific a half-interest in the new
+company. For their part, Stanford, Huntington, Hopkins, Crocker and
+Colton subscribed each to 10,000 shares of the stock of the Occidental
+and Oriental Steamship Company. The account was charged to the Western
+Development Company and was held by that company as an asset. The
+remaining 50,000 shares were owned by the Union Pacific, and Mr. Gould
+shared with the associates the management of the enterprise.[349]
+It may be added that the Occidental and Oriental owned no steamers,
+but chartered the “Oceanic,” the “Belgic,” and the “Gaelic.” The
+“Oceanic” was a boat of 3,800 tons; the other ships were of 2,600 tons
+each.[350] The first dividend was declared in July, 1878, and by 1881
+the rate had been raised to 4 per cent. Mr. Stanford has testified that
+the company expected to lose $100,000 a year, but that its owners were
+pleasantly disappointed.[351]
+
+
+Agreement with Pacific Mail
+
+There is evidence that as early as 1870 some agreement was entered
+into between the Huntington interests and the Pacific Mail Steamship
+Company, and that in 1871 a formal contract was concluded by these
+companies, defining their relation to each other. The terms of the
+contract of 1871 are not available, but a subsequent agreement, dated
+October 1, 1872, contained the following principal provisions:
+
+The Pacific Mail Steamship Company agreed to provide every month three
+first-class steamers to sail from the port of New York for the Isthmus
+of Panama, with connecting steamers on the Pacific Ocean for the port
+of San Francisco. The company undertook to supply space in these
+steamers for an amount of freight not exceeding 14,700 tons annually.
+
+The steamship company accorded to the railroad company the exclusive
+right to fix the rates on freight of every description, moving from
+New York to San Francisco during the period of the agreement, provided
+that the rates should not exceed the rates then in force, nor in any
+event $160 first-class, $140 second-class, $90 third-class, and $60
+fourth-class and special.
+
+Out of the gross receipts on the freight westbound the steamship
+company was first to draw $735,000, or at the rate of $50 per ton on
+14,700 tons. If the amount of the freight handled should not equal
+14,700 tons, or if that quantity of freight should be handled but the
+receipts therefrom should not amount to $50 per ton, the railroad
+agreed to make up the difference, so that the receipts on the first
+14,700 tons should always amount to $735,000. If, on the other hand,
+the steamship should collect thereon an average rate exceeding $50, the
+railroad was to be entitled to the surplus.
+
+In the event that through westbound freight exceeded in volume 14,700
+tons, the gross earnings on the excess quantity were to be divided
+between steamship company and railroad company as follows: first, $30
+per ton was to be taken by the steamship company; additional receipts
+up to $50 a ton were to be divided equally between steamship and
+railroad; and earnings over $50 were to go to the railroad.[352]
+
+The essential facts in this agreement were that the steamship company
+surrendered the power of fixing the westbound rates in return for a
+guarantee of $735,000 a year.
+
+
+Later Contracts
+
+This feature was also characteristic of later agreements between the
+same parties, different as the details of the subsequent arrangements
+sometimes were. In 1879 the Union Pacific, Central Pacific, and Pacific
+Mail companies agreed that the last-named should set aside space for
+600 tons of railroad freight in each of its steamers moving monthly
+between New York and San Francisco. The railroads were to exercise
+full authority over the through rates of the steamship company, and
+for their part were to guarantee that the earnings on the railroad
+freight shipped were not to be less than $48,000 monthly westbound,
+and $35,000 monthly eastbound. In case the earnings on the 600 tons or
+less of railroad freight which might be sent in each vessel exceeded
+the guaranteed minimum, the balance of freight money was to be paid
+over to the railroad, while the moneys received on all freight between
+New York and San Francisco and between San Francisco and New York in
+excess of 600 tons for each vessel were to be equally divided between
+the railroad and the steamship company.[353] An additional clause in
+this agreement bound the railroads to pay to the steamship company $5
+for each passenger carried whose ticket was purchased at a point east
+of Ogdensburg, Suspension Bridge, Buffalo, Pittsburgh, and Wheeling, to
+a point west of Sacramento, and vice versa.
+
+An agreement dated June 1, 1885, between the Transcontinental
+Association and the Pacific Mail does not differ strikingly from that
+of 1879 just summarized, except that the payments per month were to be
+$85,000 for a two-way service, instead of $83,000, and that there was
+no passenger subsidy. Moreover, the right of the steamship company to
+fix rates for the use of its capacity above the 600 tons mentioned in
+the agreement was specifically reserved. The $85,000 payment in this
+year represented a reduction from the figure of $110,000 contained in
+a contract dated March 4, 1880, and from one of $95,000 concluded in
+1882. In 1887 the subsidy was set at $65,000, and in 1889, when still
+another arrangement between the Transcontinental Association and the
+Pacific Mail was signed, it was put at $75,000.[354]
+
+From a statement made to the United States Pacific Railway Commission,
+it appears that the aggregate earnings guaranteed by the railroads to
+the Pacific Mail Steamship Company from September 30, 1871, to March
+21, 1886, were $11,227,939.27. This did not include Central or South
+American business. Of the guaranteed sum the steamship company earned
+$5,854,113.06, leaving $5,373,826.21 to be made up by the guarantors.
+The distribution of the burden among the railroads interested may be
+suggested by the fact that out of $146,170.29 which had to be paid
+during the three months from January to March, 1886, the Union Pacific
+paid $34,652.94, the Central Pacific $31,927.57, the Southern Pacific
+$30,172.79, the Santa Fé $15,086.11, the Galveston, Harrisburg and San
+Antonio $11,536.82, and seven other companies smaller sums.[355]
+
+
+Change in Ocean Traffic
+
+The change which took place in the volume of water-borne commerce in
+and out of San Francisco coincident with the arrangements between the
+railroads and the Pacific Mail which have been described, is clearly
+indicated in the following table:[356]
+
+VALUE OF COMMODITIES SHIPPED FROM NEW YORK TO SAN FRANCISCO AND FROM
+SAN FRANCISCO TO NEW YORK VIA PANAMA EACH YEAR FROM 1869 TO 1884
+
+ Shipped from New York Shipped from San
+ Year ended to San Francisco Francisco to New
+ June 30 York Total
+
+ 1869 $50,015,994 $20,186,035 $70,202,029
+ 1870 15,334,945 3,259,310 18,594,255
+ 1871 9,391,607 2,161,106 11,552,713
+ 1872 6,739,563 3,086,874 9,826,437
+ 1873 3,042,617 3,667,107 6,709,724
+ 1874 7,049,821 1,752,653 8,802,474
+ 1875 6,057,202 2,382,928 8,440,130
+ 1876 4,470,594 1,983,261 6,453,855
+ 1877 3,398,864 2,205,979 5,604,843
+ 1878 3,976,358 3,211,245 7,187,603
+ 1879 2,781,065 2,166,690 4,947,755
+ 1880 2,963,065 2,865,237 5,828,302
+ 1881 815,893 2,598,868 3,414,761
+ 1882 1,270,900 3,153,902 4,424,802
+ 1883 1,192,912 2,394,430 3,587,342
+ 1884 1,040,495 1,264,682 2,305,177
+
+If we compare the year 1869—probably the last in which the Pacific
+Mail and the Huntington interests were in active competition—with
+the year 1884, it appears that the value of commodities shipped in and
+out of San Francisco via Panama during these years declined from about
+seventy to about two million dollars. Doubtless this falling off was
+not all due to agreements between rail and water carriers. For instance
+the sudden decline between 1869 and 1870 was occasioned in large part
+by the sudden diversion of bullion shipments from the water routes when
+the rail lines were opened, while passengers also rapidly deserted
+the water for the more speedy and comfortable rail service. Moreover,
+at a slightly later date the special contract system played its part
+in limiting shipments by sea. Yet it is not unfair to credit the
+arrangements between the Huntington group and the Pacific Mail with a
+considerable share of the reduction in water tonnage so desirable from
+the point of view of the land carriers.
+
+
+Pacific Mail and Panama Railroad
+
+The difficulty in bringing about a substantial lessening of competition
+by agreement with a water carrier is found in the fact that the sea
+is free, so that new ships and new shipping companies can readily
+take the place of those that are withdrawn. The peculiar strength
+of the Pacific Mail in negotiating with the railroad company lay in
+the fact that it enjoyed for many years the exclusive privilege of
+through-billing freight between San Francisco and New York, including
+the privilege of quoting a through rate. From all other steamship
+companies the Panama Railroad exacted a local rate for hauling freight
+across the Isthmus.[357] Inasmuch as this local rate was very high,
+it was impossible for a competing steamship company to handle through
+business at a profit. It was thus the railroad which determined whether
+competition by way of the Isthmus of Panama should succeed or fail. It
+may be added that after the year 1893 the Panama Railroad assumed the
+responsibility not only of the rail haul across the Isthmus, but of
+the water connection between Colon and New York as well, thus becoming
+the preponderant partner in respect to length of route, as well as in
+respect to strategic position.
+
+In return for the exclusive right of through-billing, and of quoting
+through rates, as well as for its agreements not to operate vessels in
+the Pacific, the Panama Railroad was promised a certain division of
+the through rate, which was not to be less monthly than a stipulated
+minimum. The minimum varied, but always was a substantial part of
+the payment which the transcontinental railroads were making to the
+Pacific Mail. In 1878 the railroads guaranteed the Pacific Mail $90,000
+a month, out of which the Panama Railroad received $75,000. When the
+Pacific Mail subsidy was lowered from $90,000 to $75,000, the amount
+guaranteed to the Panama Railroad fell off from $75,000 to $55,000.
+
+It is a matter of history also that during the years 1876 to 1878, the
+Panama Railroad not only was a party to the elaborate traffic agreement
+with the Pacific Mail which has been described, but that it exercised
+for a time direct control of the steamship company by domination of
+its president and board of directors. This control was the outcome of
+a conflict between Jay Gould, then president of the Pacific Mail, and
+Trenor W. Park, of the Panama Railroad, which in 1875 resulted in the
+election of a board of directors satisfactory to the latter and in the
+choice of a new president.
+
+The lever which the railroad used at this time was the cancellation of
+its contract with the Pacific Mail, the organization of a company known
+as the Pacific Transit Company, the purchase of three old refitted
+warships, and the threat to engage in active competition. Mr. Park
+was asked if he would desist from his attack on the Pacific Mail if a
+neutral board of directors were elected. He consented to this, and was
+satisfied by a board composed for the most part of Panama Railroad
+men. This was followed by the consolidation of the Pacific Mail and the
+Panama Transit Company, by the renewal of contracts between railroad
+and steamship, and finally in 1878, by the execution of a bill of
+sale by the steamship to the railroad company for twenty-two steamers
+to secure a loan of $1,000,000 in Panama Railroad bonds for four
+years.[358]
+
+
+Railroads’ Main Reliance
+
+It thus appears that during the first ten years after the completion
+of the Central Pacific, the interests of the Panama Railroad and those
+of the Pacific Mail were closely bound together, so that during this
+period an agreement with the former was sufficient to control the
+route over which both were operating. It was upon this fact that the
+transcontinental railroads chiefly relied. Nor was there any important
+change in the relations between the Panama Railroad and the Pacific
+Mail, or in those between the Pacific Mail and the transcontinental
+railroads during the following twelve years. Mr. Park’s control of
+the Pacific Mail proved only temporary, it is true, and the terms of
+the contracts between the parties changed from time to time; yet the
+principle of a guaranty of earnings to the Pacific Mail in return for
+the maintenance of rates was always adhered to, and the Panama Railroad
+always received the lion’s share of this guaranty for a division. The
+amount of the subsidy paid by the railroad has already been given.
+When in 1885 the Pacific Mail received $85,000 per month from the
+transcontinental lines, it paid over $70,000 to the Panama Railroad.
+When the Pacific Mail subsidy was reduced to $65,000 in 1887, the
+payment to the Isthmian railroad likewise fell to $55,000. In 1881 the
+Panama Canal Company, a French corporation under the direction of De
+Lesseps, purchased the Panama Railroad for $20,000,000; but this does
+not seem to have affected the relations between the last-named railroad
+and the Pacific Mail.
+
+
+
+
+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, the Southern Pacific interests had
+other factors to consider, however, besides the presence of water
+competition—factors which can be understood only after a careful study
+of local conditions in the Far West.
+
+The state of California is characteristically a country of great
+distances, occupied by a relatively sparse and unequally distributed
+population. Its industry is primarily agricultural and mining. Although
+some manufactures have developed since 1870, such as foundries,
+woolen and sugar mills, glass, paper, cordage, powder, tobacco, tin,
+and hardware manufacturing concerns, yet even today the absence of
+adequate supplies of good coal, the smallness of the local market,
+and the distance from the great centers of population in the East
+hold manufactures within narrow limits. As explained in the previous
+chapter, the state is best fitted to produce and export products of the
+soil, and raw materials such as grain, fruit, wool, hides, and later
+wines, lumber, and oil. To this list should also be added salmon.
+
+In such an economy, the cities of California play the part of
+distributing agencies rather than that of centers of industry. Such
+was the first function of Stockton, Sacramento, Los Angeles, and
+indeed of San Francisco itself, and the work of distribution still
+remains these cities’ principal means of support. Originally the chief
+profit of the northern towns came from supplying the mining population
+of the Sierras with supplies brought by sea from Europe or from the
+Atlantic Coast of the United States. The nature of California imports
+has somewhat changed since the early days; a larger commerce with the
+Orient and with the west coast of South America has developed, and a
+large part of the freight handled on the Pacific Coast now comes in by
+rail. This has multiplied the number of distributing points, and has to
+some degree built up the interior of the state. The character of the
+cities has not, however, changed and they remain as before—trading and
+consuming rather than producing centers.
+
+
+Conflict of Interest
+
+It follows from this division of labor between town and country on
+the Pacific Coast, and from the rivalry of different cities in the
+distribution of finished goods, that striking divergencies in point of
+view have arisen, both between individual cities, and also between the
+city communities as a whole and the farming and manufacturing interests
+of the state. These differences have received free expression in the
+discussion of railroad rates. Inasmuch as the articles distributed by
+the towns are in large part imported goods, the cities as a group have
+demanded low westbound carload rates from eastern sources of supply.
+The larger centers of population, however, have opposed low rates on
+small consignments, because that tends to deprive them of a rehandling
+profit by promoting direct relations between the consumer and the
+eastern wholesale house. As compared with the cities, on the other
+hand, the farming interests have been relatively indifferent to the
+level of westbound rates, so long as they have enjoyed low eastbound
+rates on the product of the farm and field; while the struggling
+manufacturers have resisted low rates westbound, because these have
+exposed them to the competition of eastern factories. The interests of
+the consumer have not until quite recent years been represented.
+
+
+No Settled Rate Policy
+
+Owing to these persistent conflicts between various classes of
+shippers, public opinion in California has not been easily enlisted
+as a whole in support of any concrete proposals for the readjustment
+of railroad rates, although complaints from all sections have been
+numerous. There has been, on the contrary, a persistent series of
+appeals to the railroad, now to favor one set of interests, now to
+favor another—appeals which, when granted, often have resulted in
+gross discrimination, and which, when refused, have swelled the tide
+of protest against the transportation lines. The serious side of this
+situation in California is that the conflict of interest between buyers
+of transportation has exposed the railroad to temptations which it has
+had neither will nor ability to withstand. Where there is constant
+demand for favors there is likely to be discrimination unless the
+person or institution to which demand is made is fortified by a clear
+view of public policy and a sense of morality more than ordinarily
+acute.
+
+It is no secret that the Southern Pacific has had neither the one nor
+the other of these qualifications. For its part, it has acknowledged
+no duties other than those generally incumbent upon private business.
+It has insisted upon complete freedom to follow its own advantage. In
+a speech to the men in the railroad shops at Sacramento in September,
+1873, Stanford explained his position by asking: “Does Governor
+Booth sell at the same per cent of profit his sugar, pork, beans,
+bacon, lard, candles, soap, spice, coffee, whiskey, brandy, and other
+articles? So with the mechanic, the manufacturer, the farmer, and
+others. The market price governs. A farmer takes two and one-half cents
+for his grain as justly and as cheerfully as one and one-half cents,
+the cost of producing being the same.”[359] “The Southern Pacific,”
+said Mr. William B. Curtis, of that company, in 1894, in the same
+strain, “sells transportation precisely as a merchant disposes of
+his wares, adjusting its tariff to conform to the situation with the
+object in view of inducing the largest amount of transportation at fair
+rates.”[360]
+
+This announced willingness to differentiate led in the course of time
+to the greatest variety of railroad rates in California, some rates
+being low, some high, some public, some secret. Generally speaking,
+indeed, rates were low where competition was present, and high where it
+was absent. The big man was favored over the little man, the shipper
+with an alternative route over the shipper confined to one railroad
+line. Some of the details of this interesting system will now be
+presented.
+
+
+Separate Rate Classifications
+
+In discussing the adjustment of local charges in California, attention
+will be first directed to the absolute level of local railroad rates.
+Separate mention must be made of the local classifications and of the
+local rates.
+
+As late as 1877, each of the principal railroads in California had its
+own classification. These were far from being the same. Baled hops
+moved at one and one-half times first-class on the Central Pacific.
+On the Southern Pacific compressed hops took third-class. On the
+California Pacific pressed hops took double first-class. Liquors took
+one and one-half times first-class on the Central Pacific (in jars,
+owner’s risk); second-class on the Southern Pacific (in glass, packed,
+owner’s risk); double first-class on the California Pacific (in jars
+or glass); first-class on the North Pacific Coast (in glass, packed,
+owner’s risk); and double first-class on the San Francisco and North
+Pacific (in glass or demijohns, owner’s risk). Window glass took
+first-class on the Central Pacific, one and one-half times first-class
+on the California Pacific, and fourth-class on the Southern Pacific
+if not over three feet long. Boiler flues moved first-class on the
+Central Pacific, third-class on the North Pacific Coast, and fourth-or
+fifth-class according as made of copper or brass, or of iron, on the
+Southern Pacific.[361]
+
+Generally speaking, however, the classifications were much less
+elaborate than they later became. A committee of the California
+Senate observed in 1893 that the theory of the local classification
+of the Southern Pacific was to simplify so far as possible. Hence
+that classification started out with the announcement, in effect,
+that all articles not named specifically therein would be charged for
+at merchandise rates. It then continued to indicate the exceptions,
+enumerating articles that were light, bulky, of excessive value, liable
+to damage, etc., proceeding in this way along the same lines as the
+Western classification.[362]
+
+When the Santa Fé later built into southern California it brought
+in the Western classification, tariffs, rules, and conditions that
+governed its lines elsewhere, and applied the Southern Pacific
+schedules of merchandise rates to this classification. Since, however,
+the Southern Pacific had only one merchandise class, the Santa Fé
+applied the same rates to each of the first four classes of the
+Western classification in California. The result of this adjustment
+of tariff to the Western classification was to produce practically
+the same revenue as would have resulted from the local classification
+and merchandise rates of the Southern Pacific Company. In 1893 the
+Southern Pacific itself substituted the Western classification for the
+one which it had been using.[363]
+
+
+Local Rates
+
+Under the law the maximum rate which any California railroad could
+charge for the transportation of freight, was 15 cents per ton per
+mile. In spite of the statement of Mr. Stanford to the contrary,[364]
+the evidence is to the effect that this maximum was generally applied
+on short-haul local business as late as 1877 and perhaps afterwards.
+In some cases, the published rate was even greater than the maximum,
+though a note to the schedule provided that when the calculated rate
+exceeded the legal maximum, the latter would apply. The rates on the
+Central Pacific main line in 1866 were almost exactly 15 cents per ton
+per mile.
+
+The report of the California Board of Transportation Commissioners in
+1877 showed that generally throughout the state first-class rates for
+short hauls ranged from 14 to 30 cents per ton per mile. For the 10
+miles from Lathrop to Stockton the tariff charge was $1.60 per ton,
+and for the 6 miles from Pleasanton to Livermore, the rate was $1.
+The charge from Roseville Junction to Truckee, 102 miles, was $15.20.
+When river competition entered in, rates were markedly reduced. The
+charge from San Francisco to Stockton, 92 miles, was $3.20 per ton, or
+3½ cents per ton per mile; that from San Francisco to Sacramento, 140
+miles, was $3.60, or 2⅗ cents per ton per mile. On the other hand, the
+rates of the California Pacific were somewhat higher than those of the
+other lines, except at competitive points.[365]
+
+In later years the charges of the Southern Pacific naturally declined.
+Yet the rate on brick from San Francisco to Soledad in 1892 was 5½
+cents per ton per mile on a haul of 143 miles, and that to San Miguel,
+64 miles farther on, was almost 5 cents per ton per mile.[366] The
+average receipts per ton per mile upon the Southern Pacific system
+were 2.04 cents per ton per mile for all freight as late as 1885, in
+spite of the large quantity of long distance through traffic. Plainly
+the average receipts on local business were much greater. There seems
+little doubt but that the local rates in California were always
+distinctly higher than in the eastern states, although they have been
+lowered in recent years. The reason was in the main the relatively
+slight density of traffic upon all except the trunk routes, as well as
+the higher cost of coal, and the successful control of competition to
+which the Southern Pacific attained.
+
+
+Rate Discrimination
+
+Turning now from the absolute level of local rates to the question of
+the relations which those rates bore to each other, we come to the
+question of discrimination in California. Railroad discrimination may
+be personal, in which case it involves the quoting of different rates
+to different persons for the same or a similar service, or it may be
+local, as in instances where the interests of competing localities
+are concerned. Either kind of discrimination is of profound social
+importance, for, after all, it must be remembered that the significant
+question for the producing and distributing interests of a state is
+not how much they pay for transportation, but whether this amount,
+be it much or little, is less than is paid by their competitors. The
+remainder of the present chapter will be devoted to the discussion
+of personal discrimination; in the next chapter the topic of local
+discrimination will be considered.
+
+The policy of granting special concessions in rates to special shippers
+was one which the Southern Pacific followed freely whenever it seemed
+likely to increase the profits of the company. There was never any
+disposition to apologize for this—it was known to be the practice
+of other roads as well, and the Southern Pacific accepted the system
+as a matter of course. The methods employed were various. One method
+was that of granting passes. Mr. Stubbs explained that passes were
+commonly issued in cases where shippers came to the Central Pacific
+and represented that they were offered transportation by the company’s
+competitors over such competitors’ lines. “They were our patrons,” said
+Mr. Stubbs, “shipping our way, and I may say that wherever we were
+satisfied that the statement was true, we generally met the case by
+giving a pass!”[367]
+
+
+Sudden Tariff Changes
+
+In addition to granting passes, the Southern Pacific discriminated
+by changing open rates suddenly for the benefit of persons fortunate
+enough to be advised in advance. Mr. Stanford once explained that
+individual items in the company’s tariff were changed whenever by so
+doing the company could encourage business in any direction.[368]
+Indeed, a tariff would scarcely be in force ten days before the
+necessity for changes would be apparent.[369]
+
+How this might work was shown in 1892, when complaint was made of
+discrimination in favor of the Standard Oil Company. It was then
+alleged that the Central Pacific was lowering oil rates from $1.25 per
+hundred pounds to 82½ or 90 cents, when the Standard Oil desired to
+make shipments from eastern refining points to the Pacific Coast, the
+rates being subsequently raised when the shipments had been completed.
+A letter to the vice-president of the Standard Oil Company, bearing
+upon an episode of this sort, written under date of December 4, 1888,
+got into the public press, and seems to establish the fact that
+transactions of this nature were going on. The letter follows and is
+self-explanatory.[370]
+
+ SAN FRANCISCO, December 4, 1888
+
+ W. H. TILFORD, Vice-President, Standard Oil Company,
+ 26 Broadway, New York
+
+ DEAR SIR:
+
+ I herewith hand you copy of a letter I have just received from Mr.
+ Sproule, Assistant General Freight Agent of the Southern Pacific
+ Company, this city. This letter I interpret to mean the 90-cent rate
+ is for us to stock up from time to time, and that the $1.25 rate will
+ be in effect whenever we may desire. This $1.25 rate is what Mr.
+ Sproule refers to in the latter portion of his letter, as my offer of
+ 90 cents to Mr. Stubbs was on condition that he has the rate of $1.25
+ put into effect when we might ask him. This letter also reads as if
+ the 90-cent rate and the $1 rate was to be put in effect January 1st.
+ No doubt Mr. Stubbs was unaware that we were stocked up at the present
+ rate of 82½.
+
+ The Transcontinental Association adjourned at Chicago yesterday, and
+ I understand that Mr. Stubbs is now on his way home. I will see him
+ on his arrival here, and if Chairman Leeds of the Transcontinental
+ Association has been notified to put the 90-cent rate in effect
+ January 1st I will have the same corrected by wire and the $1.25
+ rate put in. As soon as Mr. Stubbs reaches home I will telegraph you
+ whether it is intended that the 90-cent rate should be put in effect
+ January 1st or the $1.25.
+
+ Yours truly,
+
+ E. A. TILFORD
+
+
+Relations with Standard Oil
+
+The fact that relations between the Southern Pacific and the Standard
+Oil Company were very close during the late eighties and early
+nineties is well established, not only by the correspondence just
+referred to, but also by other available evidence. In June, 1892,
+to cite a small but interesting episode, the Union Pacific issued a
+circular applying a rate of 78½ cents per hundred pounds on oil from
+Colorado points to the Pacific Coast. This rate had been in effect
+some years before, previous to the organization of the Western Traffic
+Association, under a rule which made Missouri River commodity rates a
+maximum on business originating west of the 97th meridian. The rule
+in question had never been withdrawn, although it developed that the
+Southern Pacific had forgotten it, and believed that a rate of $1.60
+applied.
+
+At this time the independent firm of Whittier, Fuller and Company
+was endeavoring to find a market for the products of its Colorado
+plant upon the Pacific Coast. In order to head off this anticipated
+competition, the Standard Oil representative in San Francisco took the
+matter up with the general traffic manager of the Southern Pacific, Mr.
+Gray. The latter at once wired to Mr. Munroe of the Union Pacific as
+follows:
+
+ SAN FRANCISCO, June 10, 1892
+
+ J. A. MUNROE,
+
+ Omaha, Nebraska
+
+ It is reported you are antagonizing Standard Oil Company in Colorado.
+ I hope you will do nothing to affect our joint relation with that
+ company with regard to Pacific Coast business. Have you observed the
+ large tonnage you have lately been handling for them? I think it is so
+ great you should be careful how you jeopardize your own interest in
+ this direction.
+
+ R. GRAY
+
+Under pressure from the Standard Oil, the Southern Pacific followed up
+this telegram by refusing to prorate on any basis lower than $1.60. As
+a result the objectionable circular was withdrawn.[371]
+
+
+Rate Rebates
+
+A third method of granting concessions to shippers whom the Central
+Pacific desired to favor, was that of the rebate. Rebates were usually
+granted in exchange for an undertaking by the shipper to send all
+his freight over the lines of the railroads by which the rebate was
+paid. Mr. Stubbs once explained to the United States Pacific Railway
+Commission that the granting of rebates was a regular practice, not
+only of the Central Pacific, but of all its connecting lines. He
+explained the mechanism of the operation as follows:
+
+ Suppose that you were a merchant, and I should go to you to make a
+ contract for the rail lines—because all the lines were parties to
+ it between New York and San Francisco. It was not a Central Pacific
+ affair. You understand that all the lines between San Francisco and
+ New York, probably embracing all the roads in the East, shared in
+ this reduced rate that was given to the merchant in consideration of
+ his exclusive patronage—I should go to you and make a contract, and
+ should say that it is impossible for us, in billing, to bill this to
+ you at the net rates. We will bill it at the full rates, and when
+ you receive your goods at the depot you pay the full rates, and we
+ will refund to you the difference between the agreed rate under the
+ contract and the rates which you have paid. Of course that is an
+ overcharge. We overcharged those goods above the price that you had
+ previously agreed to pay for the transportation of them.[372]
+
+In the single year of 1884 the Central Pacific paid out $1,060,275.92
+as refunds in behalf of itself and its connections.
+
+
+Extent of Practice
+
+Evidence showing how radically published rates were reduced by the
+practice of rebating is to be found in the following testimony by G.
+W. Luce, now freight traffic manager of the Southern Pacific, and long
+connected with the traffic department of that company. Speaking before
+the Interstate Commerce Commission of the period about 1887, Mr. Luce
+said:
+
+ Just prior to that time I had in mind, there had been a very severe
+ war in rates. I do not know whether that was the reason for the
+ creation of this Commission or not, but the struggle had been very
+ disastrous; two or three lines, I think, were very much crippled,
+ going into the hands of receivers; and just before the act was passed,
+ effective in April, 1887, I think, the lines got together and said,
+ “Here, let us stop this foolishness; let us have some standard of
+ rates and see what we can do on that basis. I believe the rates were
+ made 50 per cent of the old tariff rate that had been used for two
+ or three years. I presume the carriers thought that it would not be
+ judicious to put their rates right up to standard 100 per cent, so
+ they decided on a 50 per cent tariff.”
+
+ THE CHAIRMAN. You mean 50 per cent more than the published rate, or 50
+ per cent of the published rate?
+
+ MR. LUCE. Of the published rate....
+
+ THE CHAIRMAN. That means your published rates, which your line had
+ published up to that time in the eighties, were probably about twice
+ that much?
+
+ MR. LUCE. Yes, sir.
+
+ THE CHAIRMAN. And yet that was an effort to bring together a stability
+ of rates, and to get more out of the traffic than you had been getting
+ during this war, I suppose?
+
+ MR. LUCE. Yes, sir.
+
+ THE CHAIRMAN. So that, as a matter of fact, prior to that, you had not
+ been getting even as much as ... the 50 per cent basis?
+
+ MR. LUCE. No, sir.
+
+ THE CHAIRMAN. It was a general departure from the so-called published
+ rates of more than 50 per cent?
+
+ MR. LUCE. Oh, yes.[373]
+
+
+Concrete Instances
+
+The practice of quoting a lower rate to one person than to another
+in order to secure a specific shipment, or in consideration of an
+agreement for exclusive patronage of the railroad which granted the
+rebate, was clearly a case of personal discrimination. A concrete
+case which is illustrative of the general policy with which we are
+concerned was brought to public notice in California in the year 1886,
+when the Central Pacific was charged with rebating large sums to two
+favored shippers named Friedlander and Reed. It appeared in fact that
+the railroad had paid $6,000 at one time to Friedlander for rent of a
+wharf at Vallejo, and 25 cents a ton on a shipment to a certain Mr.
+Reed at Knight’s, on business destined to Vallejo. These payments were
+explained by the company as follows:
+
+The Friedlander wharf vouchers were explained by showing that, in
+consideration of the rental of said wharf, Friedlander agreed to, and
+did, send the whole of his immense grain purchases on the Sacramento
+River, and at other competing points on the California Pacific, by
+rail instead of by steamer and sail; and when one remembers the
+enormous quantities of wheat and barley purchased by him, the “grain
+king of California,” there is no doubt that the contract was a source
+of much profit to the company. The Reed voucher for 25 cents per ton
+for loading wheat from his warehouse at Knight’s Landing, was fully
+explained by Reed himself. He had a warehouse at that point on the
+bank of the river, and water craft would take his grain at the same
+rate charged by the railroad company, loading and unloading the same
+at their own expense, while the railroad company required the shipper
+to do the loading. When asked to patronize the railroad, Reed told Mr.
+Towne, general manager, that he could have the grain carried by water
+at the same price that the Southern Pacific demanded, and that the
+steamers and schooners would do the loading without charge. In order to
+secure the business, Mr. Towne told Reed that if he would ship by rail,
+the company would allow him 25 cents per ton for loading, thus securing
+business for the road that would have been otherwise lost.
+
+
+“Special” Contract System
+
+In all probability the Reed and Friedlander cases were but two of a
+great many instances of similar favors granted to large shippers, and
+to shippers strategically placed on water lines in California. This
+is certainly implied in the testimony of Mr. Stubbs before the United
+States Pacific Railway Commission. Moreover, there is good independent
+evidence to the same effect in the available data concerning the
+“seasonal” or “special” contract system which became notorious in
+California in the late seventies and early eighties. The outlines of
+this last-named arrangement were as follows:
+
+As early as May, 1878, the Central Pacific Railroad offered to
+guarantee a maximum rate of $2 per hundred pounds upon all grease wool,
+eastbound, moving over its lines from San Francisco to New York. In
+consideration of this guaranty it required shippers to undertake to
+ship all wool which they sent to destinations east of the meridian
+of Omaha by way of the Central Pacific and such connecting lines as
+the Central Pacific Railroad Company might elect. In case of failure
+to live up to the agreement, the shipper bound himself to pay an
+additional rate of 75 cents per hundred pounds upon all shipments made
+or which might have been made by rail during the time of the contract.
+Before this arrangement was insisted on, shippers were accustomed to
+forward their finer wools by rail at the $2 rate, but to send their
+low-grade wool by sea at a rate of 50 cents per hundred pounds.[374]
+
+The system of special rates and exclusive contracts was not at first
+applied to westbound freight, nor to general merchandise, whether
+moving east or west. Late in July, 1878, however, notice was given
+of advances in westbound merchandise rates which in many instances
+amounted to as much as 100 per cent, and at the same time a tender was
+made of rates below the published tariff to shippers who entered into
+special contracts with the railroad for exclusive handling of their
+freight. The Central Pacific management placed the responsibility
+for the rate advance upon the Union Pacific, and gave publicity to
+a telegram of protest signed by Mr. Stanford.[375] There is reason
+to believe, nevertheless, that the Central Pacific management was
+cognizant of the matter from the first, and it is certain that Mr.
+Stubbs, general traffic manager of the Central Pacific, warmly defended
+the system.
+
+
+Terms of Contract
+
+Under the special contract plan, the railroad company agreed to
+charge not more than certain specified rates on articles named in the
+agreement shipped from New York, Pittsburgh, Cincinnati, and Chicago,
+and other points taking the same rates to the Pacific Coast. Rates
+on freight not specifically provided for were not to exceed those
+published in the general tariff. In case rival railroads cut rates,
+or in case competition by the Pacific Mail should become active, the
+shipper was to be protected. That is to say, it was declared to be the
+intent and purpose of the agreement to guarantee to the contracting
+merchant rates which should be as low as those charged and collected
+upon the same articles, between the same points, by any other all-rail
+route which might compete for the traffic of California at any time
+during the term of the contract.
+
+The carrier also agreed that in the event of active competition with
+the Pacific Mail for the traffic between New York and San Francisco,
+the rates charged by rail during the period of competition should not
+exceed those current on Pacific Mail vessels by more than certain named
+amounts, ranging from 50 cents on goods taken at rates not exceeding
+$3.50, to $3 on goods taken at rates exceeding $6. This guaranty was
+not to be enforced at times when the rates of the Pacific Mail were
+subject to the control of the railroads.
+
+In consideration of these assurances the shipper agreed to forward “by
+way of the railroads owned or operated by the contracting carriers
+and such other connecting railroads as might be designated from time
+to time, all goods, wares, and merchandise handled by the merchants
+entering into the agreement which might or should be purchased in or
+obtained from any point in the United States or Canada east of the
+meridian of Omaha, during the term of this contract, for sale or use on
+the Pacific Coast.”[376]
+
+
+Rates under System
+
+It appears that at the beginning the same rates were quoted to all
+shippers signing the contract. That is to say, two rate sheets were
+published, one known as the “white list,” and the other as the “pink
+list.” The white list contained the open, or public rate; the pink
+list contained the contract rate. Contracts were made with individual
+shippers that if they would give to the railroad line all of their
+traffic for a year to the exclusion of ocean carriers, they would have
+a rebate down to the figure fixed in the pink list. Somewhat later,
+however, jobbers on the Pacific Coast were individually dealt with, and
+the rates began to vary.
+
+Mr. Stubbs says in describing this phase of the matter:
+
+ We tramped the streets here for a couple of months, explaining our
+ ideas to the principal importers. By some we were met with cordiality
+ and approval. Others were a little indifferent. Where a merchant liked
+ the scheme, we would sit down with him, and, by examining his bills of
+ lading by Cape Horn and his insurance policies, we would get an idea
+ of the quantity he would ship by the several routes and the cost to
+ him by the use of the several routes. We would then aim to make the
+ rate so that upon the whole it would average about the same. We would
+ average the rate while he was using the three routes.
+
+Still later the railroads returned to the one-rate policy. To arrive
+at this rate they adopted a plan of “harmonization”; they averaged
+the rates upon various commodities which had been charged to various
+shippers and made a new schedule of rates, from which they varied as
+emergency might require or expediency advise, by the current method of
+rebating.[377]
+
+
+Administration of Contracts
+
+The railroad company reserved from the beginning the option of
+way-billing the goods and collecting freights according to the printed
+rates, agreeing to return the difference on presentation of vouchers to
+the general freight agent of the Central Pacific at San Francisco after
+the lapse of a reasonable time for auditing and adjusting the bills.
+The carrier also always insisted on the privilege of examining the
+shipper’s books in case it suspected a violation of the agreement. In
+some respects, the wording and administration of the contracts became
+more stringent in the later years. J. T. Doyle, a well-informed San
+Francisco attorney, asserts that at the beginning merchants were merely
+forbidden to import goods otherwise than by rail. Following this the
+prohibition was extended to the handling or buying of goods imported
+by sea by other parties. Finally the boycott reached to the offending
+importers themselves, and firms signing the contracts were bound not
+to sell or deliver goods to anyone who was in the habit of importing
+otherwise than by rail.[378]
+
+Probably there was some difference in the treatment of different
+shippers in these matters. Mr. Hawley, a large importer of hardware,
+told a committee of the California legislature in 1884 that he was at
+liberty to buy a great many things “to sort up with,” even goods sent
+via the Horn. On the other hand, there were a good many cancellations
+of contracts for alleged violations, and shippers lived in continual
+apprehension.
+
+Taken as a whole, the special contract system was an exchange of a
+rebate by the railroad for an agreement for exclusive patronage on the
+part of the shipper. Prior to 1878, bulky, low-grade articles moving
+between the Atlantic and the Pacific coasts usually went by sea. Rates
+were lower and saving in time not important. High-grade goods and
+freight requiring quick transportation went by rail. It was the idea of
+the railroad that if compelled to choose, Pacific Coast business men
+would prefer to import all their freight by rail rather than to bring
+it all in by water, and that this would substantially increase railroad
+revenues even though incidental concessions in rates had to be made.
+
+
+Objections to Contract Plan
+
+This special contract plan was objectionable to shippers for three
+reasons. In the first place, it seemed likely to increase the rates
+which they would have to pay. Although the railroad undertook at the
+inception of the scheme to meet existing rates by water, at least to
+such an extent that the total expense to shippers who made special
+contracts with the railroads would not be increased, it needed no great
+prescience to foresee that the exclusion of water carriers from the
+business of the Pacific Coast would sooner or later bring about an
+increase in transcontinental rates. When special contracts were offered
+to merchants in Stockton, Los Angeles, Marysville, and Sacramento, San
+Francisco importers made the additional complaint that their natural
+advantages as residents in a seaport town were neutralized.
+
+In the second place, the administration of the plan required a
+supervision over the business of individual dealers which was
+extremely distasteful. It was asserted that the railroads placed men
+on the wharves to take the marks of goods brought in by sea, that
+they followed up the drays to see where the goods went, and that they
+inspected the books of merchants to make sure that importers who had
+signed contracts had no dealings with firms who still patronized the
+shipping lines. Nor was this a casual abuse, but a necessary feature in
+the plan.
+
+Again, the system lent itself to discrimination. Mr. Stubbs insisted
+that contract rates were open to all shippers, large or small, who
+would sign the necessary papers, but it was not denied that the first
+arrangements were made with large dealers only,[379] nor that during
+at least one period the whole scheme involved the abandonment of a
+published and open tariff in favor of a system of bargains in which
+each shipper’s rate was individually and secretly determined. Under
+such a plan it was inconceivable that discrimination should not develop.
+
+Ostensibly the offer of a special contract was one which shippers were
+free to accept or to reject as they saw fit. Practically, this was not
+so. If A took a contract and B did not, the latter’s ability to compete
+was seriously impaired. For B had to import some things by rail in any
+case, while the fact that less business in the aggregate reached the
+Pacific Coast by sea reduced the shipping facilities which B otherwise
+would have had at his command.[380]
+
+
+Transcontinental Traffic Stimulated
+
+Special contracts seem to have been a distinct success from the
+point of view of the western carriers. When they were introduced the
+percentage of transcontinental freight carried by the rail lines was
+small, probably not over 25 per cent of the whole. At the end of six
+years under the new system this percentage had risen to between 60 and
+75 per cent.[381] The change was certainly not entirely due to the
+policy of special contracts, but part of the change may be attributed
+to the plan.
+
+The policy was nevertheless given up in 1884 owing to the refusal of
+the eastern trunk lines to take any further part in it. According to
+Mr. Stubbs, the eastern companies believed that the advantage of the
+system hardly paid them for the confusion in their accounts incident
+to this method of conducting business. Moreover, there was legitimate
+apprehension lest the contracts provoke antagonistic legislation
+at Washington. Mr. Stubbs tried to argue the question, but without
+success.[382]
+
+
+
+
+CHAPTER XV
+
+LOCAL RATES IN CALIFORNIA
+
+
+Charging What the Traffic Will Bear
+
+The general policy of the associates in dealing with problems of
+rate-making in which rival towns were interested, was the same as that
+which they adopted to meet differences in competitive power between
+different individuals. The tests applied were simple. What was the
+market to be reached? Had the community concerned an alternative
+route? Was there an alternative source of supply which limited the
+willingness of the community to pay freight? If so, was this second
+source of supply one served by the Central Pacific, or one which had
+the benefit of water communication, or possibly one which possessed a
+rival rail connection? To what extent should concession be made from
+the highest rate which could be charged, in order to promote the growth
+of business?[383]
+
+The standard of rate-making just described, which may be summed up as a
+policy of charging what the traffic would bear, was not peculiar to the
+Southern Pacific at the time it was adopted, nor was it particularly
+repugnant to public opinion in California, taken as a whole. The
+error must not be made of ascribing to the western communities of the
+seventies and eighties a clear conception of the reasons of public
+policy which are properly urged today against the unlimited recognition
+in railway rate schedules of the competitive forces which still have
+free play in private business. Such ideas have slowly developed only
+during the last forty years.
+
+
+Limited Encouragement of Business
+
+Nor was the policy of adapting rates to the ability of shippers to pay
+inconsistent with the rendering of important service to business men in
+California and elsewhere who were seeking to expand their sales. Only
+a few illustrations need be given of the promotion of business by rate
+adjustments, but they will serve as examples of many more about which
+information is on record.
+
+One case of this sort, which shows the willingness of the Southern
+Pacific management to respond to what they considered a reasonable
+request, had to do with the shipment of beer from a place known as
+Boca, in the state of Nevada, to San Francisco. It appears that a
+gentleman named Hess once conceived the idea of establishing a brewery
+at Boca. This town was 220 miles from San Francisco, and yet all of Mr.
+Hess’s beer had to find a market in the latter place, in competition
+with beer from Milwaukee and St. Louis. Mr. Stubbs, general traffic
+manager of the Central Pacific, welcomed the proposal to build a
+brewery in the West, and put in special rates to help shut out the
+eastern product. Every pound of brewery supplies, he reasoned, would
+have to go over the Central Pacific. It was all clear gain, like so
+much money picked up out of the ditch. In another case the Southern
+Pacific quoted special rates on sugar from San Francisco to the
+Missouri River, to enable the California Sugar Refining Company and
+the American Sugar Refining Company to sell their sugar at the Missouri
+River in competition with sugar reaching New York by water and thence
+moving westward.[384]
+
+Still again, in 1884 an attempt was made to persuade the St.
+Louis-Kansas City lines to participate in a rate of 75 cents per
+hundred pounds on cast iron pipe from St. Louis to the Pacific Coast
+in order to encourage production in the Middle West in competition
+with that on the Atlantic seaboard. The matter of the 75-cent rate was
+taken up with J. W. Midgley, Trunk Line commissioner, who declined
+temporarily on December 24, 1884, on the ground that the rate would
+be a special one, and that there was an understanding that no special
+rates should be made prior to January 31 next ensuing, pending an
+anticipated agreement between the Transcontinental Association and its
+eastern connections.[385]
+
+In the instances which have been given, the impelling motive of the
+Southern Pacific was frankly to increase its profit by increasing the
+movement of freight over its line. Yet the shipper was also benefited
+because his interests were substantially identical with those of the
+railroad company, and he warmly welcomed the powerful support of the
+railroad lines. These cases are not unimportant. The enumeration of
+such isolated instances, however interesting as they may be, affords
+no very clear picture of the aggregate of local rate adjustments with
+which the Southern Pacific interests were concerned. For this purpose a
+more systematic survey of the rate system administered by the Southern
+Pacific is necessary, and to this attention is now directed.
+
+
+Distance the Governing Factor
+
+The foundation of any system of railroad rates is the distance which
+commodities are carried. Generally speaking, the Southern and Central
+Pacific railroads, like other companies in the United States and
+Europe, varied their local charges with the distance between point of
+origin and point of destination. To illustrate this point briefly, two
+charts are here presented.
+
+[Illustration: Chart showing rates on second-class freight and on grain
+in the Sacramento Valley, 1876.]
+
+The first chart depicts the rates on second-class freight and those
+on grain in January, 1876, between Sacramento and points in the
+Sacramento Valley north of that city. Second-class freight at this
+time on the Southern Pacific included articles such as coal oil,
+agricultural implements, machinery, furniture, crated glassware, and
+wines and liquors. Freight of the description mentioned ordinarily
+moved north from the city of Sacramento. Grain, on the contrary, moved
+south. It will be observed that rates on the lines of the Southern
+Pacific increased with considerable regularity as point of origin or
+destination proceeded north into the non-competitive territory around
+Tehama and Redding.
+
+[Illustration: Chart showing rates on miscellaneous commodities in the
+San Joaquin Valley, 1892.]
+
+The second chart displays rates between San Francisco and stations in
+the San Joaquin Valley as far south as Fowler, 205 miles distant from
+point of origin. These rates are for the year 1892.
+
+Non-competitive rates in the San Joaquin Valley in 1892 increased as
+distance grew greater, much as they had increased in the northern
+territory sixteen years before. The rates given are for a few
+commodities only, namely, agricultural implements, barbed wire, boots
+and shoes, coal, and grain; but these are typical of the construction
+of schedules on a much larger number of articles. The extent of the
+increase was relatively greater to points beyond Lathrop because of the
+effect of water competition on San Francisco Bay.
+
+
+Grades and Traffic Density
+
+These two schedules illustrate a fact which could be readily proved by
+repeated examples, namely, that local rates in California were and are
+first based on the element of distance. Possibly such a fact might be
+assumed; yet in California, as elsewhere, the statement that railroad
+rates have varied with the distance traversed needs promptly to be
+qualified in order to be true. For, first of all, it was evident at
+the beginning that costs of transportation were not solely determined
+by distance, and that other considerations had to enter in. One of
+these other considerations was the matter of grades. Because of the
+conditions under which the Central Pacific was constructed, to say
+nothing of the extremely mountainous character of certain portions of
+the Central Pacific lines, differences in the rates per ton per mile
+between the valley and the mountain sections were introduced by the
+company at the commencement of its history.
+
+A second characteristic of railway traffic which had a profound effect
+upon early railroad tariffs was the relative density of business. Mr.
+Stanford advanced the theory that the railroad should strive to secure
+a certain average earning per car; and in sections where business was
+light, as well as upon commodities which were bulky in proportion to
+their weight, a high average rate per hundred pounds was accordingly
+charged.
+
+Relative grades and relative density of traffic were not the only
+conditions relating to cost which influenced the varying level of
+transportation rates in California, but, apart from distance, they
+were perhaps the most important, and in any case they may be taken
+as illustrative of the group of circumstances to which they belong.
+In addition to the whole class of facts relating to cost, however,
+the Southern Pacific gave heed to matters of value of service in the
+fixing of its rates. Nothing will be said here of the principles of
+classification of freight, principles which have to do in part with the
+value of the service rendered; nor of individual differences between
+shippers, which have been alluded to in the preceding chapter in the
+discussion of personal discrimination. The effect of competition in
+distorting distance schedules in California will, however, be dealt
+with at some length.
+
+
+Water Competition
+
+It has already been pointed out that the presence or absence of water
+competition has always been a most important factor in determining the
+relative adjustment of local rates in the state of California. This
+competition has been extremely pervasive. Although the scarcity of
+good harbors and the location of the Coast Range of mountains hinders
+access from the sea into the interior of California, yet, on the other
+hand, the ports of San Diego, San Pedro, and San Francisco, and the
+long stretches of navigable water on the Sacramento and San Joaquin
+rivers have opened the possibilities of water shipment to a multitude
+of inland towns. Indeed, in 1883 General Manager Towne, of the Central
+Pacific, submitted to the State Railroad Commission a list of fifty-two
+points in California at which the Central Pacific and its leased lines
+met direct water competition. The water routes included San Francisco
+Bay and the Sacramento River and sloughs, Suisun Bay, Napa River,
+San Joaquin River, Feather River, the Pacific Ocean, Wilmington Bay,
+and the Colorado River. In addition, Mr. Towne enumerated eighty-two
+points where rates were affected by proximity to the competitive points
+previously mentioned.[386] On the face of things, the extent of the
+water competition thus indicated was sufficient to warp almost beyond
+recognition the simple distance scale of tariffs which a railroad
+completely protected from competition would naturally apply.
+
+
+Low Rates to Competitive Points
+
+An illustration of the effect of the water routes on local rates
+is found in the fact that the round trip fare from San Francisco
+to Sacramento by rail in 1878 was $3, while that to Woodland was
+$4.25.[387] The _San Francisco Chronicle_ declared in 1879 that,
+according to a recently published schedule, the movement charge
+for grain, potatoes, vegetables, and wool from Lathrop to Mojave
+was exactly the same as to Ravenna, Newhall, or Los Angeles. The
+first-named distance was 288 miles, making the movement mileage rate
+7.2 cents; the second-named distance was 337 miles and the rate per
+mile was 6.2 cents; the third distance was 356 miles, the rate being
+only 5.8 cents; and the distance to Los Angeles was 388 miles,
+or a mileage rate of 5.4 cents. The truth of the statement of the
+_Chronicle_ is established by data published by the State Commissioners
+of Transportation in 1877, which show the striking contrast that
+existed in 1877 between non-competitive rates in the interior valleys
+and rates to points which enjoyed the advantage of nearness to the
+water routes.
+
+Low water-compelled rates to Sacramento and to Los Angeles were in
+force as early as 1877. Yet this was only a beginning, and as time went
+on and the number of towns in California increased, the practice of
+recognizing the force of water competition was extended. Moreover, the
+Southern Pacific began to quote _lower_ instead of merely equal rates
+to more distant points which enjoyed the advantage of nearness to a
+water location. Since the ability to make use of a competing railway
+afforded opportunities similar to those afforded by ability to use a
+water route, low rates were also extended to towns served by more than
+one railroad line. All this greatly complicated the rate situation in
+the state, gave rise to numerous complaints, and renders difficult the
+task of concise description.
+
+
+Rates to Intermediate Points
+
+Official confirmation of the general correctness of the complaint of
+discrimination which reached the public press from time to time is
+found in a comprehensive investigation of railroad rates in California
+which the Railroad Commission of that state undertook as late as the
+year 1916. This inquiry was provoked by an application by the Southern
+Pacific, Santa Fé, and other railroads in California for relief from
+the clauses of the amended state constitution and of the California
+Public Utilities Act prohibiting greater charges to intermediate points
+than were collected on shipments to more distant points over the same
+line. Although the legal aspects of the case were therefore the result
+of modern legislation, the facts brought out were typical of conditions
+of long standing.[388]
+
+[Illustration: Diagram showing adjustment of freight rates between San
+Francisco and Stockton, 1916.]
+
+Exhibit No. 1 in the case in question referred to class rates in
+the San Joaquin Valley. It appeared that class rates between San
+Francisco, San José, Port Costa, Stockton, Sacramento, Marysville, and
+intermediate points to Los Angeles, were 60 cents per hundred pounds
+first-class, and corresponding sums less for the lower classes. These
+rates were shown to be controlled by the class rate of the Pacific
+Coast Steamship Company, which quoted a through first-class rate of 52
+cents, including wharfage and handling, between San Francisco and Los
+Angeles via San Pedro. On all-rail shipments down the valley, as well
+as on shipments over the coast rail route, however, water competition
+was not effective. The rate from San Francisco to Simi, 429 miles from
+San Francisco, was therefore 80 cents, and that to Acton, 415 miles
+from San Francisco, was 83 cents, although shipments from San Francisco
+to Los Angeles passed through Simi and Acton on their way to Los
+Angeles over the coast and San Joaquin Valley routes, respectively.
+
+A condition similar to that at Los Angeles and at points in the San
+Joaquin Valley was developed in connection with shipments from San
+Francisco to Stockton. The diagram on page 266 will show the relative
+position of these two towns as well as that of an intermediate place
+named Banta.
+
+The distance between San Francisco and Stockton was 91 miles, and
+the first-class rate was 10 cents per hundred pounds. This rate
+was identical with the rate charged by boat lines operating on San
+Francisco Bay, and on the Sacramento and San Joaquin rivers. But
+although these boats touched at some intermediate points, their
+competition was not everywhere effective; so that the first-class rate
+from San Francisco to Banta, 74 miles, could be and was 17 cents,
+although freight from San Francisco passed through Banta on its way to
+Stockton.
+
+
+Other Instances
+
+Still another illustration of the influence of water competition upon
+local rates in California may be drawn from the territory immediately
+north of San Francisco Bay. The towns involved in this adjustment were
+San Francisco, Sebastopol, and Santa Rosa, as shown in the diagram on
+page 268. The first-class rate from San Francisco to Sebastopol on the
+Northwestern Pacific was 23 cents. This rate was shown to be limited by
+the competition of a rail and water line, including a steamship haul
+from San Francisco to Petaluma and a haul over an electric railway
+from Petaluma to Sebastopol. The distance from San Francisco to
+Sebastopol over the Northwestern Pacific was 58.5 miles. The distances
+from San Francisco to the towns of Kenilworth and Santa Rosa, on the
+same railroad, were 45.7 and 52.5 miles, respectively. Shipments to
+Sebastopol passed through these places, but because neither enjoyed
+the advantage of an alternative route, the first-class rate to Santa
+Rosa was 25 cents and that to Kenilworth 28 cents—materially more than
+was charged for the longer haul to Sebastopol.
+
+[Illustration: Diagram showing adjustment of freight rates between San
+Francisco, Santa Rosa, and Sebastopol, 1916.]
+
+While instances of the extreme discrimination of a greater charge for
+a shorter than for a longer haul were shown in 1916 to be usually the
+result of water competition, it has already been suggested that not
+all cases of discrimination were of this sort. A particularly striking
+case of unequal rates due to rail competition alone was brought out
+in the same proceedings from which the preceding illustrations have
+been drawn, by the application of the Atchison, Topeka and Santa Fé
+Railway to continue lower rates from Los Angeles to Mojave, California,
+a distance of 212 miles, and to Lindsay, a distance of 411 miles,
+than were charged to Kramer, an intermediate point 174 miles from Los
+Angeles. The relative position of the points is shown in the diagram
+given above.
+
+[Illustration: Diagram showing adjustment of freight rates between Los
+Angeles and points north and east of Los Angeles, 1916.]
+
+In this case the rate to Mojave at the time application was filed was
+52 cents first-class, and that to Lindsay 70 cents, while the rate to
+Kramer was 78 cents. But at both Mojave and Lindsay, the Santa Fé had
+to meet the competition of the short Southern Pacific line, while at
+Kramer this competition was not effective.
+
+
+Development of State Retarded
+
+The data which have been presented show that, while the system of
+local rates in California was based originally upon distance, it soon
+became profoundly modified by conditions of cost, and still more by
+the presence of competition at strategic points, and by the occasional
+necessity of reducing rates in order to stimulate the movement of
+freight. The charges for short hauls in the interior valleys where
+the Southern or Central Pacific possessed a monopoly were made high,
+because traffic was scant and because the railroad was able to exact
+a monopoly return. Rates were also regularly progressive under these
+conditions. In sharp contrast to the practice which obtained where the
+Southern Pacific was the only carrier, rates to points located upon
+the coast, on navigable rivers, or on competing railroad lines were
+relatively low and were often extremely irregular.
+
+It is generally difficult to criticize a system of rate-making upon _a
+priori_ grounds because the test of such a system is to be found only
+in the form which it gives to the industrial life of the community to
+which it is applied. There is reason to believe, nevertheless, that the
+local rate structure created by the Southern Pacific gave an advantage
+to a few shippers and to a few towns which affected unfavorably the
+development of the state. This is the fundamental objection to any
+system of rates in which competitive influences are recognized to an
+unlimited extent.
+
+Without going further into the matter at this point, we will content
+ourselves with adding to our description of local rates in California
+some observations upon the attitude of California shippers with respect
+to railroad charges.
+
+
+Conflicting Claims of Cities
+
+The rates of the Southern Pacific and of the Central Pacific railroads
+were unpopular in California because they were believed to be too high.
+Beyond this, and when it came to questions of relative adjustments,
+each community looked at the relations of rates which interested it
+from the narrow viewpoint of its individual advantage. Indeed, when one
+reviews the course of the controversy between railroad and shipper in
+the state, it seems very clear that, apart from questions of excessive
+profit, the objections which California cities entertained toward the
+irregular and unequal rates charged by the Southern Pacific Company
+were only slightly based on considerations of general policy, but
+were, on the contrary, due to the feeling of various towns that their
+distributing areas were unfairly circumscribed by the manner in which
+railroad rates were arranged.
+
+One small piece of evidence to show that competition between rival
+towns or producing districts was the reason for some of the most
+bitter attacks upon the railroad, may be found in the complaint of the
+anti-monopolists of Tulare County in 1885 that their fruits, which
+ought to have found a market in the southern parts of the state and in
+Arizona, were subjected to higher freight rates than were the fruits
+of Sacramento and of San José, points more than 200 miles to the
+north.[389]
+
+A few years earlier the merchants of Stockton insisted that the rates
+out of Stockton were extortionate as compared with the rates out of
+San Francisco. The distance from Lathrop to Stockton was said to be 10
+miles, and the railroad rate per ton on wheat was $1.20, or 12 cents
+per mile. The distance from Lathrop to San Francisco was 82 miles, or
+more than eight times the distance to Stockton, but the price per ton
+for wheat was only $2.50, or about one quarter the price per ton per
+mile in the first instance. The price per ton from Lodi to Stockton was
+$1.40, and to San Francisco $2.50; but whereas the last-named sum was
+less than twice the former, the distance from Lodi to San Francisco was
+eight times as great as the distance to Stockton.[390]
+
+In addition to their contention that mileage rates on shipments
+into Stockton compared unfavorably with rates on shipments into San
+Francisco, Stockton residents made the general charge that rates up the
+San Joaquin Valley were generally less than the rates down the valley.
+The rate from Stockton to Merced was said to be $6.80 per ton, but the
+rate from Merced to Stockton was $3.40. Stockton objected to forcing of
+the San Joaquin Valley to make San Francisco its market.[391]
+
+
+Interstate Commerce Decision
+
+Complaints similar to those voiced by Stockton were registered by the
+people of Los Angeles. In the eyes of inhabitants of that city, the
+rates on northbound freight from Los Angeles consigned to the San
+Joaquin Valley were relatively higher than the rates from San Francisco
+south into that same valley. Yet, dissatisfied as Los Angeles was with
+the relation which her rates bore to those out of San Francisco, it
+seemed to other cities in the south that her position was on the whole
+more favorable than was that of her neighbors. In 1889 a dealer in the
+city of San Bernardino protested against being forced to pay a higher
+rate from eastern points than was charged the city of Los Angeles. He
+showed that the rate on agricultural implements from the Missouri River
+to San Bernardino was $1.27 per hundred pounds while to Los Angeles it
+was $1.07. On stoves the rates were $1.19 and 99 cents, respectively,
+and on school furniture $1.55 and $1.35. This preference was alleged to
+be discriminative and illegal.[392]
+
+In a decision approving the discrimination against San Bernardino,
+the Interstate Commerce Commission in 1890 remarked that originally
+southern California had been served from San Francisco direct; and that
+San Francisco jobbers had covered its territory. When the railroads
+reached Los Angeles they found it to their advantage to grant it low
+rates, not so much because it lay near the Pacific Ocean as because
+the interests of the Southern Pacific and especially of the Santa Fé
+demanded that some point in southern California should be given such
+a rate that merchandise from the East could be brought there all-rail
+and from that point be distributed. The fact that water competition
+was not the only influence which determined the Los Angeles rate from
+the eastern states was indeed shown later by the fact that the port of
+Los Angeles, San Pedro, did not receive a terminal rate until 1910,
+although Los Angeles itself had been given terminal privileges at least
+twenty years before.[393]
+
+Stockton, Los Angeles, and San Bernardino thus illustrate in their
+conflicting claims the constant effort of cities in California to
+extend the area over which they might distribute goods. Among other
+instances of dispute between California cities may be mentioned
+the demand of Santa Barbara in 1907 to be made a Pacific Coast
+terminal,[394] and the angry contentions of Santa Clara, San José,
+Marysville, Santa Rosa, and Fresno in 1914 over the question of
+relative railroad rates from eastern points.[395] The characteristics
+of the system of transcontinental rates which were involved in these
+complaints will be discussed in the following chapter.
+
+
+
+
+CHAPTER 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 separate group of railroad lines, to sell in
+a common area of consumption. Such competition occurred, for instance,
+when California oranges sold in the Mississippi Valley in competition
+with oranges from Florida, or when California lemons sold in the same
+territory in competition with Sicilian lemons imported at New Orleans
+or at New York. We have already seen that cities competed with each
+other within California itself, but this competition was less important
+within the state than it was in the case of hauls across the continent.
+
+It should be recalled that the Huntington interests possessed a virtual
+monopoly of local business, while the extent of the competition between
+carriers on through traffic may be briefly indicated by observing that
+the Central and Southern Pacific companies had direct relations with
+no less than six other transcontinental railroads, namely, the Union
+Pacific, completed in 1869; the Santa Fé, which reached the town of
+Deming and effected a connection with the Southern Pacific in 1881; the
+Texas Pacific, built to El Paso in 1882; the Northern Pacific, opened
+from St. Paul to Portland in 1883; the Canadian Pacific, completed in
+1887; and the Great Northern, which was finished in 1893. None of these
+railroads reached San Francisco except the Santa Fé, which obtained an
+independent California connection in the late nineties. The Santa Fé
+entered Los Angeles, however, in 1885, and the Union Pacific enjoyed a
+connection with Portland through the Oregon Short Line and the Oregon
+Railway and Navigation Company as early as 1884. From Portland, Los
+Angeles, and Vancouver, freight could be distributed by water all up
+and down the Pacific Coast.[396] Moreover, the competitive relations
+which Pacific Coast cities bore to each other made it necessary to keep
+their rates from the East on an approximate parity, and caused the
+Central Pacific to be affected by charges which were not on their face
+applicable to any point in which that company had an interest. There
+were combinations in respect to transcontinental railroad business from
+time to time, but none sufficient to control rates except for short
+periods.
+
+
+Transcontinental Rate Adjustment
+
+These differences in conditions between state and interstate traffic
+doubtless influenced Mr. Huntington and his advisors when they came to
+establish what is known as the transcontinental rate adjustment. Yet
+any examination of the through rates charged by the Central Pacific
+will show that in their relation to each other, at least, these rates
+were built upon much the same principles as the local rates discussed
+in the previous chapter. There is no essential difference between a
+rate schedule which applies a lower rate between New York and San
+Francisco than it applies between New York and Denver, and one which
+provides a lower charge between San Francisco and Los Angeles than
+between San Francisco and Bakersfield.
+
+The tendency in public discussion is to regard the transcontinental
+rate structure as different from all other structures. It is not
+different, either from the rate systems in force in some other parts
+of the country, such as the Southern classification territory, or from
+the general arrangement of rates in business local to California. The
+reason why transcontinental rates to Pacific terminals are low is
+that there is competition at terminal points. The reason why rates
+to intermediate stations are high is that competition is lacking at
+such places. The reason why local rates between San Francisco and Los
+Angeles are low is that shipments must be diverted from the water
+lines; while the rates from San Francisco to points in the upper San
+Joaquin Valley are high either because competition is absent or because
+it is less severe. Similar general causes in both cases produce similar
+results.
+
+
+Rate Structure
+
+It is necessary to describe the transcontinental system at this
+point in order that the reader may have before him the outlines of
+the rate scheme for which the Huntington-Stanford group were in part
+responsible; but in view of the very general understanding which the
+public has of the system, the description will be brief. A summary
+account is as follows:
+
+The primary fact in transcontinental rate-making is that railroad
+rates between the Atlantic and the Pacific coasts of the United States
+were originally made, and have remained relatively low. The lowest
+rates quoted, however, have never until recently been available at
+all points in California, Oregon, and Washington, but only at certain
+selected cities. The towns to which low rates have been quoted under
+the transcontinental adjustment are called Pacific Coast terminals.
+Terminals, being mostly located on the seaboard, or within easy reach
+of it, enjoy rates low enough to induce their residents to patronize
+the rail lines rather than the water lines around the Horn or the
+combined rail and water routes across the Isthmus of Panama and the
+Isthmus of Tehuantepec. This does not mean, of course, that rail rates
+to terminals have been as low as water rates, but it does mean that,
+all conditions of shipment, including speed, safety, and regularity,
+being taken into account, the advantages of shipment have been
+equalized. The rates to and from all terminals have been uniformly the
+same.
+
+A characteristic feature of the transcontinental rate system is
+that the rates to towns and cities in the vicinity of terminals are
+determined by the absence of water competition. Inasmuch as a shipper
+located at an inland point is obliged to send his goods to the seaboard
+before he can avail himself of the advantage of a water haul, it
+becomes possible to charge him a rate equal to the sum of the terminal
+rate and the local rate which he will have to pay without causing a
+diversion of his freight from the rail to the water lines. It is true
+that there is a certain limit to the total charge which can be demanded
+from such a shipper, due to the circumstance that at some figure the
+expense of a direct haul from the local point in question to the
+final destination of the goods upon a non-competitive mileage basis
+will be less than the combination upon the terminal, but this limit
+is effective only in the case of communities located a considerable
+distance to the east of the seaboard shipping point. One result of the
+application of this system to local points is that towns situated upon
+the direct line between eastern cities and Pacific terminals often
+pay higher rates than are charged upon freight passing through these
+places and carried possibly several hundred miles beyond to the coast
+terminals. Local communities so situated are known as “intermediate”
+towns.
+
+These three features of the transcontinental rate structure, namely,
+that rates between the Atlantic and the Pacific seaboards are low,
+that the lowest rates are charged only to selected towns, and that
+rates to places other than terminals are made by combination upon
+the terminals, are the elements which have given character to this
+adjustment, and are therefore the points in it which are best known. To
+make a statement of the broad outlines of the plan complete, however,
+two other statements must be added.
+
+
+Group System in the East
+
+The first additional characteristic of transcontinental rates is that
+on eastbound business, particularly in the case of the products of
+California agriculture, the same rates are applied from intermediate
+as from terminal points. This is to place the shipping communities of
+the state all upon an equal footing. The second feature has reference
+to conditions upon the eastern end of the transcontinental haul, rather
+than upon the western. In the eastern part of the country the system of
+terminal and intermediate rates is not applied upon transcontinental
+business. Instead, it has been customary to divide the area east of the
+Rocky Mountains into a series of great groups, now ten in number, and
+to quote to each of these groups rates which are either the same in all
+cases, or which increase as the distance grows greater.
+
+This failure to apply in the East the same principles which govern
+in the West has been doubtless due to the insistence of cities like
+Chicago that her rates be at least as low on shipments to and from the
+Pacific Coast as the rates which New York enjoys, as well as to the
+desire of railroads which begin at Chicago or the Mississippi-Missouri
+River to encourage the growth of business in the Middle West. Mr.
+Huntington was credited with the desire to establish rates from the
+Missouri River which should be lower than rates from New York, and the
+reasons which were in his mind may easily be imagined. Such rates were
+actually in effect between 1887 and 1894, but the principle of graded
+charges was abandoned as a result of a rate war which broke out in
+1894.[397]
+
+
+Terminal Points
+
+This brief description of a complicated rate adjustment will show
+that in through as well as in local rate-making the Central Pacific
+management yielded to the unequal pressure of competition, and
+particularly of water competition, at different points. Generally
+speaking, the most important of all the forms of competition which the
+company had to meet was water competition. Common alike to local and to
+through transportation, this was important because it was difficult to
+control, because it operated on a low cost basis, because it offered
+transportation facilities to a very wide variety of classes of goods,
+and because its possibilities for expansion were indefinite.
+
+It is a mistake to believe that only low-grade commodities have been
+shipped by the water routes. While it is true that the principal
+movements by water are of the coarser freights, such as hardware,
+rails, pipe, sugar, hardwood lumber, and asphaltum, yet there has
+always been also a considerable transportation of higher grade
+articles, including cotton ducks and denims, beans, canned goods, and a
+large number of kinds of general merchandise. Indeed, all the canned
+salmon and a very large percentage of the canned goods, together with
+two-thirds of the beans produced in California, originate near enough
+to the coast to reach tide-water at an expense not exceeding 20 cents
+per hundred pounds. The Interstate Commerce Commission has remarked
+that almost every article which moves from the East to the Pacific
+Coast has been at times carried by the ocean,[398] and the truth of
+this statement is generally conceded in discussions on the water
+business.
+
+It was the pervasive character of water competition, and the fact that
+such competition was felt upon the Pacific Coast and not at interior
+points, which originally established the position of the Pacific
+terminal.[399] A terminal point, be it recalled, was, and is, under
+the transcontinental system, a place which enjoys rates low enough
+to attract traffic from the water to the railroad lines—a point
+also upon whose rates the rates to other points are based after the
+manner of the “basing point” system. San Francisco was a terminal.
+So was Stockton, Sacramento, Port Costa, Richmond, Oleum, Antioch,
+San José, Santa Clara, Los Angeles, and a considerable list of other
+towns. At the beginning the city of San Francisco received a lower
+rate than any other town because the competition of the water route
+between New York and San Francisco was most evident. Mr. Stanford,
+however, disclaimed responsibility for this limitation. His eastern
+connections, he said, were to blame. The Central Pacific was willing
+to be more liberal from the start, but the other lines would not join
+with it in establishing through rates, and insisted on their locals.
+For this reason goods originating at interior points were often hauled
+to San Francisco, and then back east, in part over the same line by
+which they had come.[400] Such a condition was highly unsatisfactory
+to California towns other than San Francisco, yet by 1873 Sacramento,
+Marysville, and San José had been given terminal rates,[401] and still
+later the list of terminal points was very greatly extended. In 1910
+there were 152 terminal cities on the Pacific Coast, of which 97 were
+in California.[402]
+
+
+Dissatisfaction with Rate System
+
+Owing to the peculiar intensity of competition at their doors, Pacific
+terminals therefore enjoyed exceptional advantages in rates as compared
+with their less favored neighbors. On the other hand, even the terminal
+cities expressed some dissatisfaction with the transcontinental
+adjustment. It appears, for instance, that the growth of great
+distributing centers was difficult under the scheme of rates which
+was applied. So long as terminals were few in number, a considerable
+concentration in business was possible. But when the terminals
+multiplied, the territory controlled by any single city became limited
+by the low rates accorded to the nearby terminal cities, and expansion
+in any one spot became difficult. This rendered the volume of business
+of the Pacific Coast jobbers comparatively small. In the case of the
+Business Men’s League of St. Louis v. the Atchison, Topeka and Santa
+Fé, already cited, the two eastern firms of most prominence in the
+proceedings were the Simmons Hardware Company, of St. Louis, and
+Hibbard, Spencer, Bartlett and Company, of Chicago. The former of these
+firms then did business in every part of the United States except New
+England, while the representatives of the latter testified that the
+operations of his house were limited only by the confines of the earth.
+Competition by concerns of this magnitude was difficult for California
+houses to meet, especially at times when the eastern firms used the
+Pacific Coast as surplus territory in which they could afford to
+operate at a low margin of profit.
+
+Another ground for dissatisfaction on the part of the coast cities
+arose out of their belief that the system as applied, in spite of
+its recognition of the advantages of the Pacific Coast, still fell
+short of the real equities of the situation. It was insisted that San
+Francisco was improperly shut out from Denver, Cheyenne, Salt Lake
+City, and Ogden. The Southern Pacific was charged with carrying hats
+from New York by way of the Union and Central Pacific routes and then
+down the San Joaquin Valley to Yuma at a lower rate of freight than the
+San Francisco dealer could send the same goods from his city to the
+Colorado River.[403] This same complaint was repeated by Mr. Leeds,
+of the San Francisco Traffic Association, in October, 1892, with the
+observation that if the same rate per mile were applied on eastbound
+traffic from San Francisco that was charged on westbound business from
+Chicago to Utah common points, then San Francisco would do the lion’s
+share of the Utah business instead of a mere 16 per cent.[404]
+
+There is no doubt that a good deal of dissatisfaction with the
+transcontinental system was felt first and last by shippers to and from
+the terminal cities. Yet, after all, the situation of these cities as
+a group was excellent. The communities which were really handicapped
+were the towns intermediate between the Pacific terminals and the East,
+towns which paid higher rates for less service than did the terminal
+cities, and which found that this condition not only increased the
+cost of living to their consumers, but prevented their merchants from
+enjoying a profitable distributing trade.
+
+It seems probable that the associates intended from the beginning to
+charge the mountain towns more on through hauls than was exacted from
+towns on the coast. Huntington relates a conversation which took place
+at Carson, Nevada, in 1861, between Stanford, Dr. Strong, Mr. Crocker,
+and himself, representing the railroad, and some twenty representative
+men of Nevada. The Nevada people observed that Huntington kept a
+pretty good hardware store, but that he was likely to leave it in the
+mountains if he started to build a railroad in Nevada. Huntington
+replied that he would look out for that, but, he continued, when the
+road was built he proposed to charge through rates which, while less
+than the Nevada people were paying for goods which then came to San
+Francisco by boat and were subsequently teamed across the mountains,
+would be materially greater than the rates to San Francisco. “We shall
+charge you for bringing back,” said he, “almost as much as we shall
+charge from New York.” After the road was built Huntington says he met
+one of these same men with whom he had talked in 1861. “Said I, ‘You
+recollect that talk we had in the Curry House in 1861?’ ‘Yes, oh yes.’
+Well, we talked about that. He said, ‘You’ve got me there, Huntington.’
+‘Well,’ said I, ‘I said you would grumble. Now,’ said I, ‘you shut
+up.’”[405]
+
+
+Objections
+
+It is to be presumed that Mr. Huntington’s rejoinder was effective
+in the particular discussion which he relates. Yet the grievances of
+the interior towns found full and repeated expression after 1869,
+and indeed are still emphatically presented at the present day. The
+more fundamental criticisms of the transcontinental rate system are
+the following: The principal objection directed against the whole
+adjustment is that it leads to charges to intermediate points which are
+prima facie unreasonable. Speaking of the rates on iron and steel, a
+representative of the Traffic Bureau of Utah called the attention of
+the House Committee on Interstate and Foreign Commerce in 1918 to the
+fact that the rate on iron and steel articles for export from Chicago
+territory to Pacific Coast terminals was 40 cents per hundred weight or
+3.54 mills per ton per mile. He continued:
+
+ They take an identical carload of the same commodity, and when it is
+ going to the Pacific Coast for domestic consumption the rate is 65
+ cents a hundred, or 5.76 mills per ton-mile. If they were to apply
+ that rate at the Utah common points—the same 65-cent rate—it would
+ pay 8.65 mills per ton-mile. But they say, “We cannot afford that; you
+ must pay 10.84. We haul it for a man in Russia for 3.54, but that is
+ only the out-of-pocket cost. We will make you a rate of 10.84, which
+ is a lower rate than you are entitled to.
+
+ I think any article, whether it is transportation or anything else,
+ that could be produced at some profit at a price of 3.54, when you pay
+ 5.76 for it you are paying a handsome profit; and if you pay 8.65 for
+ it you are paying an abnormal profit; and if you pay 10.84 for the
+ same thing you are being outrageously imposed upon, which is what we
+ are doing.”[406]
+
+The second objection of the interior cities is that the system of
+transcontinental rates limits the territory in which intermediate
+wholesale firms can do a distributing business; and the third ground
+of complaint, resulting from the other two, is that the policy of
+permitting low rail rates to the coast cities has the effect of
+building up large cities on the seaboard at the expense of the whole
+interior country.
+
+
+Reply of Railroads
+
+In replying to these objections the coast towns take the position that
+they are not especially concerned with the rates to intermountain
+places, nor indeed with the rates which the railroads make from coast
+to coast, except in the sense that the greater the number of carriers
+which participate in transcontinental business, the better the service
+is likely to be. Secure in the possession of adequate water connection,
+they do not expect to pay higher rates than they have paid in the past,
+whatever policy the railroads may adopt. They have no controversy with
+the intermediate territory, and only support the present adjustment
+because they conceive it to be for the best interests of the country as
+a whole.
+
+The burden of the defense therefore falls upon the railroads, and the
+railroads assert that the policy of quoting low rates to meet the force
+of water competition is necessary if the comparatively moderate rates
+to intermountain territory are to be continued. Unless—said Mr. Spence
+of the Southern Pacific, in his recent testimony before the House
+Committee on Interstate Commerce—the rail lines are permitted to make
+rates which will hold the through business, the terminal roads will
+lose all of the net revenue derived from the port rate upon what is a
+very large volume of traffic. The millions of dollars involved cannot
+be withdrawn from the net revenues of the railroads without impairing
+their efficiency and usefulness, while to compel the carriers to apply
+sea-compelled rates to all traffic would yield an inadequate revenue,
+because it would mean that the traffic as a whole would be carried at
+rates which were not sufficient to cover all the elements of cost,
+including fixed charges and other similar expenses.[407]
+
+
+Further Comments
+
+The most casual description of any basing system such as the one which
+the railroads apply to transcontinental freight, suggests at once
+several matters in respect to which special defense and justification
+are required. One just cause of complaint arises out of the fact that
+the through rate to any point except to a basing point is made up by
+the addition of two rates, each of which includes an allowance for the
+cost to the carrier of providing terminal facilities, or four terminals
+in all, whereas no actual shipment makes use of terminal facilities
+at more than two points, namely, the place of origin and the place of
+destination.
+
+A second cause for criticism of a basing system is due to the striking
+disregard of distance which is inherent in it. Shippers are not only
+apt to feel that for reasons of natural right rates for transportation
+should vary with the distance moved, but, as we have seen, they are
+usually quite incapable of being convinced that the costs of shorter
+hauls are not less than the costs of longer ones, so that for this
+reason also the nearer places should enjoy the lower rates. Again, and
+this also has been suggested in the preceding discussion, a basing
+system is attacked because it is said to centralize business unduly by
+forcing the distributing business into the control of a few localities
+such as the Pacific Coast terminals, to the exclusion of outlying
+cities which could handle it more cheaply and more conveniently under a
+proper adjustment of rates, by reason of their greater nearness both to
+centers of supply and of consumption.
+
+There is no question that the rate system upon the Pacific Coast made
+it difficult for intermediate and local towns to import supplies
+directly from the East and to distribute them through their own
+organization. This was not the result of the difference between
+terminal and local rates alone, but was the combined result of the
+practice of the transcontinental carriers with respect to rates and
+their practice with regard to carload shipments. That is to say,
+the carriers not only quoted generally lower rates, carload against
+carload, and small consignment against small consignment, to terminal
+cities than to intermediate or to interior towns, but they also
+granted many carload ratings to terminals which were altogether denied
+to their interior competitors. In some cases this occasioned an
+extraordinary difference in the total charge.
+
+On the other hand, it should not be forgotten that to encourage
+distribution through Pacific Coast terminals was not necessarily
+to concentrate the whole business of distribution. The competition
+between the Pacific terminal and the eastern jobber was just as real
+as that between the Pacific terminal and the intermediate point. It
+is sometimes forgotten how active this eastern competition was. That
+it continually threatened the western distributor is shown by the
+fact that in spite of the advantages enjoyed by western terminals, 50
+per cent of the jobbing business in the hardware trade in southern
+California was done in 1902 by houses east of the Missouri River, so
+that the Interstate Commerce Commission expressed the opinion that in
+the absence of some distinct advantage in the rate it would be very
+difficult for Pacific Coast dealers to hold their own.[408] In central
+California the proportion of the jobbing business done by eastern
+firms ranged from 25 to 40 per cent. Certainly no decentralization
+in business would have taken place had the California distributors
+been compelled to withdraw in favor of men in Chicago and St. Louis,
+nor would the aggregate cost of getting goods from producer to final
+consumer have been decreased.
+
+
+Inconsistency
+
+It has been made clear in the discussion of transcontinental rates,
+that the transcontinental carriers as a group have not been consistent
+in applying the principles upon which they rely in justification of
+their charges. Not only have towns like Los Angeles been given terminal
+rates for reasons of general policy, but cities in the Mississippi
+Valley, upon the other end of the transcontinental haul, have been
+granted the same rates as New York on business to and from the Pacific
+Coast, in order to place them on an equality with points on the
+Atlantic seaboard. As the Interstate Commerce Commission remarked when
+the matter was brought to its attention, there is no logical ground
+for recognizing the desire of Chicago to compete with New York, and
+for refusing to accord the same privilege to Denver.[409] If market
+competition is to be recognized in one instance, it should be in
+another.
+
+It is a striking fact that when the commission was considering the
+question of transcontinental rates in 1910, it appeared that the great
+bulk of traffic destined to intermountain cities originated at Chicago
+or at points west. Thus out of 21,000,000 pounds of carload freight
+moved from eastern territory to Reno, Nevada, during the year 1908,
+only 4,500,000 pounds originated east of Chicago, and of approximately
+1,000,000 pounds of less than carload freight concerning which data
+were available, only 10 per cent originated at the Atlantic Coast
+cities of New York, Boston, and Philadelphia. The commission found in
+the case in which these facts were brought out that taking traffic
+to Reno as a whole, 75 per cent of it had its source between Chicago
+and Denver.[410] On this traffic, at least, the effect of water
+competition was slight, and yet it is upon the assumed presence of
+water competition that the transcontinental system primarily rests.
+
+
+Not Responsive to Changed Conditions
+
+Nor have the transcontinental carriers been quick to recognize changes
+in conditions which, temporarily at least, have eliminated water
+competition from coast to coast. When the Panama Canal was opened,
+considerable apprehension was felt by the carriers lest the new
+all-water route between the Pacific and the Atlantic seaboards should
+divert a substantial portion of the transcontinental traffic formerly
+handled by the railroads. On this ground the railroads applied to the
+Interstate Commerce Commission, and received permission not only to
+continue the practice of quoting higher rates to interior towns than
+were charged between eastern points and the Pacific Coast,[411] but
+actually to increase the difference upon a selected list of eastbound
+articles.[412] So much was directly in line with previous action and
+was to be expected.
+
+The carriers were not, however, so ready to recognize the interruption
+of canal traffic as they had been prepared to take notice of its
+beginning, and in spite of slides and war conditions which suspended
+water competition, it took an order of the Interstate Commerce
+Commission to secure an equality in the treatment of intermountain
+and seaboard cities to which the former in accordance with the
+fundamental theory of transcontinental rates were entitled under the
+new conditions.[413]
+
+In forming an opinion upon the rate system of the Central Pacific,
+however, too much weight must not be attached to inconsistencies in
+application so long as these are not altogether arbitrary, any more
+than to the demand of competing cities for their “fair share” of
+the business that is to be done. City ambitions are limitless, and
+impossible to reconcile. The question is not how to determine the
+territory within which a given city may be said to have a right to
+distribute its goods, but whether or not the rate system introduced by
+the Huntington group, all things considered, promotes the interests
+of the territory which is served better than some system that may be
+suggested.
+
+
+Basing Rate System Necessary
+
+It is the writer’s opinion that the transcontinental rate system has
+always had evident defects. In the first place, it has generally
+provided low rates to towns and it has quoted low rates on commodities
+which have no access to the water routes. In the absence of competition
+the distance principle should prevail. Second, it has often failed in
+the past to make concessions to the cost basis of rate-making, which
+would have removed complaint without altering the plan in principle,
+such concessions, for example, as the reduction of rates to interior
+points to something less than the sum of through and local rates to
+allow for the relatively small amount of terminal service rendered.
+And, finally, it has increased the amount of transportation incident
+to the distribution of a given amount of freight. While the assertion
+of cities without terminal privileges that they have the right to do a
+specified amount of business is to be received usually with skepticism,
+it does seem probable that the transcontinental railroads would have
+reduced the aggregate cost of distributing transcontinental freight had
+they encouraged more than they did the growth of the interior towns,
+provided that they had supported these towns both against Chicago and
+St. Louis and against the Pacific Coast.
+
+This same policy would have had the important advantage, from the
+railroad’s point of view, of developing industry at points which were
+not affected by every change in the rates of its competitors. The
+Central Pacific was not the first railroad in the country confronted
+with the problem of how to treat the non-competitive points upon its
+lines. Nor, unfortunately, was it the only railroad which adopted the
+drifting policy of quoting rates to hold the business, thus favoring
+the towns served also by its rivals in preference to towns more
+peculiarly its own, and through the stimulus given to such places, in
+the end creating a distribution of production which, of all possible
+alternative distributions, was the one which rendered its hold upon the
+business of its territory the least secure.
+
+In spite of these defects, it is the writer’s judgment that
+some basing rate system, in its broad outlines similar to the
+transcontinental system actually applied, was necessary and desirable
+for the development of the West. The principal advantages of such an
+arrangement were that it gave to the Pacific Coast the benefits of
+competing rail and water routes as no distance system could have done,
+and that it enabled the railroads to fill their trains with traffic
+which paid them something over the out-of-pocket costs. It is clear
+that the interior cities were mistaken in supposing that this practice
+increased the rates which they had to pay. On the contrary, it reduced
+them. There is also reason to believe that the transcontinental rate
+system decentralized the distribution of goods, while it certainly
+afforded western buyers and producers in most instances the important
+advantage of access on equal terms to the markets of Chicago and of New
+York.
+
+There is little evidence that either Huntington, Stanford, Crocker, or
+Hopkins had an active part in moulding the local or the through rate
+structures of the Central and the Southern Pacific railroads. The work
+was probably done by the traffic experts whom they hired, of whom the
+chief was that very able individual, J. C. Stubbs. The contribution of
+the associates may be taken to have been a clear appreciation of the
+advantage of monopoly to railroad revenues, and the consistent support
+which they gave to the efforts of men who knew more about the subject
+of railroad rates than they did themselves.
+
+
+
+
+CHAPTER XVII
+
+THE TRAFFIC ASSOCIATION OF CALIFORNIA
+
+
+Discontent
+
+The discussion of the transcontinental rate structure leads naturally
+to a consideration of a very serious controversy in which the Southern
+Pacific became engaged in 1891. This controversy arose as the result
+of an attempt by certain merchants of San Francisco to secure lower
+distributive rates in the interior California valleys. The official
+statement of the shippers’ side of the case in this lively conflict of
+the nineties has been compiled and published.[414] No similar statement
+of the position of the railroad has come out, but the important facts
+are pretty well on record.
+
+There is no question that the political and commercial policies of the
+Southern Pacific had by 1890 engendered restlessness and discontent
+among the commercial classes on the Pacific Coast. It was believed that
+railroad rates from the East were high. It was thought that use of the
+water lines had been limited by the special contract system while that
+was in force, and that water competition had been affected subsequently
+by arrangements between the transcontinental lines and the Pacific Mail
+Steamship Company. The work of the State Railroad Commission had proved
+disappointing. In short, the situation was such that it needed only
+the pressure of the business depression of 1890 to 1897 to stir men to
+vigorous action.
+
+
+Coastwise Trade via Foreign Port
+
+The episode which is to be described began with an attempt on the
+part of certain San Francisco merchants to use British clippers for
+the importation of freight from New York, in spite of the fact that
+the right to engage in coastwise traffic was limited by statute to
+ships flying the American flag. It appears that in 1891 a consignment
+of nails was shipped from New York in a Belgian vessel to Antwerp,
+consigned to a commercial house there. At Antwerp the merchandise
+was discharged and landed, and from that city it was then shipped
+on a British vessel to Redondo, California, where it was entered at
+the customs house as a manufacture of the United States, entitled as
+an American product to free entry under American law. Nor was this
+the only case of the sort. In all, sixteen shipments were sent to
+California via European ports between October 16, 1891, and May 28,
+1892.
+
+The obvious intent of the whole transaction was to evade the statute
+governing the movements of merchandise by water between United States
+ports, in order to effect a saving in freight estimated to amount
+to $4 a ton. In spite of the somewhat transparent nature of the
+business, the District Court of the United States for the Southern
+District of California and the Circuit Court of Appeals both held
+that the operation had been legally accomplished. According to these
+courts the law forbade a method, not a result, and unless goods were
+transported from one port of the United States to another port in a
+vessel belonging in whole or in part to foreign subjects, no penalty
+was incurred.[415]
+
+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.
+
+
+Organization of Association
+
+The same month which saw the entrance of the 250 kegs of nails into
+the port of Redondo, saw also the establishment of the so-called
+Traffic Association in San Francisco. The Traffic Association was
+originally conceived as an organization of merchants of San Francisco
+for mutual protection, and for overcoming by united effort an alleged
+unjust discrimination against the business interests of the city.
+In fact the name first proposed for the new body was “Merchants’
+Traffic Association,” and it was intended that the executive committee
+should be composed of eighteen members of the mercantile community.
+These details were, however, changed,[417] the words “merchant” and
+“mercantile community” were left out, and when the association was
+finally organized on October 30, 1891, the constitution and by-laws
+provided merely for the admittance of merchants, manufacturers,
+producers, and others interested in and favorable to its objects.
+Railroad employees or persons holding free passes over railroads
+were the only classes debarred. Subsequently an attempt was made to
+interest parties outside of San Francisco, but without large success.
+Characteristically the Traffic Association began and remained an
+association of San Francisco shippers for their own protection,
+particularly in the matter of transportation rates. Fifteen out of
+nineteen members of the first executive committee were representatives
+of San Francisco firms, and 97 per cent of the membership did business
+in that town. The first president was Mr. Stetson, of Holbrook,
+Merrill, and Stetson, and from first to last the overwhelming
+proportion of the association funds came from San Francisco.
+
+The government of the Traffic Association was placed in the hands of an
+executive committee from which were to be selected the usual executive
+officers. All power was to be vested in the committee; that is to say,
+the executive committee was to have, in general, entire control and
+management of the affairs of the association, and in particular was to
+appoint a manager and other employees, who were to be relied on for the
+active work. By a special section the committee reserved the right to
+route all freight of members, should emergency require it and provided
+that the action was approved by at least ten members of the committee.
+Membership fees ranged from $60 to $150 per annum, payable quarterly
+in advance. Moreover, the constitution provided that any unusual work
+undertaken for the benefit of any particular line of trade, which
+entailed any unusual expenditure, should be charged pro rata to the
+firms or corporations most directly affected, and in accordance with
+the benefits derived. No membership was to be for a shorter period than
+two years.[418]
+
+
+Functions
+
+Inasmuch as some controversy later occurred with respect to the proper
+purposes of the Traffic Association of California, it is necessary
+to be explicit regarding the functions which, at the beginning, it
+was expected that the association would perform. According to the
+statements of its promoters, the association was not formed to fight
+the Southern Pacific or any other individual railroad company. The
+assertion was repeatedly made, on the contrary, that the intent was,
+by organization, merely to enable the shippers of California to deal
+collectively with the railroads, instead of one by one as heretofore,
+and so to secure a presentation of the shippers’ point of view which
+would carry weight by reason of the united sentiment behind it. In
+this way the shippers’ bargaining power would be improved without
+giving legitimate cause for offense to parties upon the other side, and
+without exposing individual complainants to retaliation.
+
+In the invitation to the mass meeting which took up the question of
+organization on the 17th of October in San Francisco, it was explained
+that merchants, producers, and shippers could accomplish nothing at
+that time because they were disorganized. By opposing a solid front to
+the railroad combine, it was said, a good deal could be accomplished.
+Further, it was declared that the railroad would not resist such a
+movement. J. B. Stetson, chairman of the mass meeting, stated:
+
+ Our object ... is to organize a Freight Bureau or Traffic Association
+ or whatever it may be termed, whose purpose shall be for mutual
+ protection and extension of the interests of San Francisco; for
+ overcoming, by united effort, discriminations and inequalities against
+ the interests of San Francisco; for representation in conferences upon
+ matters of importance to the shipping public to and with railroad or
+ transportation companies. Associations similar to the one we propose
+ forming here are in existence in all the eastern cities, and great
+ benefits have accrued from them, and will not fail to prove successful
+ here. We do not meet here for the purpose of waging warfare or
+ encouraging antagonisms between the shipping public and the railroads,
+ or any transportation lines. We believe that the same theory would
+ govern them as would govern ourselves as business men in the redress
+ of any grievance of our customers. We believe that by united action
+ we can present to the railroad and transportation companies views in
+ reference to freights, classifications, etc., that will cause them
+ to make changes that will be beneficial both to ourselves and to
+ them.... I cannot too earnestly advise prudence and caution in the
+ outset, for if this association is started properly, great good will
+ come from it and [it will] prove of lasting benefit to the commercial
+ community.[419]
+
+
+First Meeting
+
+The first public announcement that a traffic association was in process
+of organization was made late in September, 1891, at which time
+merchants were asked to pledge themselves to send representatives to
+a mass meeting of merchants, producers, and manufacturers to be held
+on October 17 in San Francisco.[420] This mass meeting occurred as
+planned. There were speeches, discussion, and amendment of proposed
+resolutions, and the final indorsement of a plan for joint action.
+That is to say, it was declared to be the sense of those present that
+an organization be formed, that the management of it be entrusted to
+an executive committee and to the usual officers, and that revenue be
+derived from dues. Most of the program was cut and dried. Among the
+incidental but interesting features of the meeting, however, was an
+address by a gentleman from Fresno calling for the construction of
+another competing railroad, and the presentation of a communication
+from San Diego, suggesting that the Santa Fé be induced to extend its
+line to San Diego, and that provision be then made for connection by
+sea between that city and San Francisco.[421]
+
+The net result of the meeting of October 17 was to reveal an interest
+in the plan for a shippers’ organization which encouraged the promoters
+to go ahead, while at the same time the meeting provided the machinery
+which made further progress possible. From now on, matters moved
+rapidly. The executive committee was appointed, and its membership was
+made public on October 23;[422] on October 30 a complete constitution
+and set of by-laws was adopted by the association, and on November 2 a
+general call for members was issued.[423]
+
+
+Interior Towns
+
+It was in securing members that the Traffic Association met with
+its first check—a check which consisted in the general refusal of
+residents of the country districts and of the interior towns to join
+with San Francisco in its fight against the railroads. It has already
+been pointed out that 97 per cent of the members of the association did
+business in San Francisco, and the check came in spite of a deliberate
+and persistent attempt by the Traffic Association to conciliate the
+interior. It was partly with the idea of gaining support from outside
+of San Francisco, for instance, that the mass meeting of October 17
+changed the name of the association from that of “Merchants’ Traffic
+Association of San Francisco and the State of California” to the
+simpler “Traffic Association of California.” Another concession was
+the appointment of four outside members to the controlling executive
+committee—a proportion far exceeding either the relative outside
+membership or the funds contributed from that source. Still other
+attempts to gain support were made through meetings held in Fresno and
+San José at which the advantages of the Traffic Association idea were
+presented.[424]
+
+
+Dissension
+
+There appears, however, to have been some difference of opinion within
+the Traffic Association itself with regard to the best policy to be
+pursued toward the interior. The fundamental complaint of San Francisco
+was that her distributing territory was being curtailed. Isidor Jacobs
+said quite frankly that San Francisco jobbers believed at the time when
+the Traffic Association was formed that the jobbing interests of the
+city were in a bad way. It was claimed, and with reason, he said, that
+San Francisco had natural advantages, and that in recognition of these
+advantages railroad rates from eastern points to San Francisco should
+be sufficiently less than to interior points, to enable San Francisco
+jobbers to control the distribution even of eastern goods as far as
+many Nevada points on the east, and as far as Tucson, Arizona, on the
+south.[425]
+
+Ideas the same as those expressed by Mr. Jacobs appeared in a petition
+made public in December, 1892, and signed by over 150 firms in
+San Francisco, and in an address published at the same time which
+purported to be signed by 75 per cent of the membership of the Traffic
+Association.[426]
+
+Nor were there lacking specific complaints to the same general effect.
+A San Francisco merchant explained that he had a carload rate of
+$1.75 per hundredweight on goods which he imported from Chicago to
+San Francisco. The rate on a hundredweight of the same commodity from
+Chicago to Fresno was $2. The local rate from San Francisco to Fresno
+was nearly half the rate per hundredweight from Chicago to Fresno,
+being in fact 90 cents per hundredweight. The addition of the 90 cents
+to the carload rate of $1.75 made it evident how small a chance he had
+to do a jobbing trade with the interior in these goods.[427] Another
+San Francisco dealer, a grocer by trade, was reported as saying that
+he had been compelled to give up his grocery business because his
+customers could buy directly from the East more cheaply than he could
+supply them. The same man asserted that his customers could save a cent
+and a half per pound on tobacco by dealing direct with Chicago.[428]
+
+It was unfortunate that dissension arose within the Traffic Association
+on so fundamental a point of policy as the proper attitude that should
+be taken toward interior towns, for the effect was, in spite of the
+best efforts of the men in control of association affairs, to deprive
+that body of the support of the interior. Moreover, opportunity was
+given to newspapers friendly to the railroads to attack the whole
+project as a selfish attempt on the part of San Francisco to improve
+her distributing position. The leading paper which took advantage of
+this opportunity was the _Sacramento Union_. This journal for a number
+of months denounced San Francisco as a city of hucksters, seeking a
+monopoly of the jobbing and wholesale trade of the Pacific Coast, not
+in the interest of the consumer, but in order to widen the margin
+between the cost of goods in which they dealt and the price at which
+these goods could be sold on the market. The charge was not fair, but
+the attitude of Mr. Jacobs and his friends embarrassed the Traffic
+Association in denying it.
+
+
+Traffic Manager
+
+In spite of the unwillingness of the state as a whole to join in a
+campaign which appeared to be designed primarily in the interests
+of San Francisco, the promoters of the new movement proceeded
+systematically with their plans. On November 18, 1891, the executive
+committee appointed a subcommittee to select a traffic manager for
+the association. Much depended on the choice, and the committee was
+fortunate in the man whom it secured, Joseph S. Leeds, of Ohio. Mr.
+Leeds was an individual of marked ability, with a valuable railroad
+experience behind him. He had been telegraph operator, station agent,
+assistant general freight agent, general freight agent, and traffic
+manager on various eastern railroad systems, and at one time had held
+the position of chairman of the Transcontinental Association. He had
+been removed from his post of traffic manager of the Missouri Pacific
+some time before on a charge of rate-cutting, and might reasonably be
+believed to cherish some animosity toward the railroads which had once
+employed him. It may be added, as a fact of some importance to the
+future of the Traffic Association, that Mr. Leeds possessed qualities
+of energy and aggressiveness which unfitted him for a temporizing or
+conciliatory rôle. Under his leadership the association promptly became
+a fighting organization, and remained such until its demise. Mr. Leeds
+arrived in San Francisco on November 21, 1891, and at once entered upon
+his duties.[429]
+
+
+Policy
+
+For some weeks after Mr. Leeds’ arrival, the policy which the Traffic
+Association should pursue remained unsettled. It will be recalled that
+the promoters of the association had originally contemplated a policy
+of harmonious co-operation with the railroad. This implied negotiation
+and exchange of views between shippers and railroad. Mr. Leeds,
+however, seems soon to have lost faith in such a method of procedure,
+if indeed he ever possessed faith to lose. He once remarked that no one
+ever got anything from a railroad just by asking for it. Moreover, the
+refusal of the executive committee of the association to push demands
+for preferential treatment of San Francisco as compared with other
+cities, removed from the field of negotiation a matter which called for
+readjustment of rates only, without reduction of railroad revenues,
+upon which San Francisco and the Southern Pacific might possibly have
+agreed, and left only demands which the railroad was likely to fight
+with all its strength. Whatever the reason, no friendly approach to the
+Southern Pacific seems to have been made.
+
+The apparent methods of bringing pressure to bear upon the rail
+carriers, on the assumption that the plan of friendly negotiation
+was to be abandoned, were three: the first was that of appeal to
+the Railroad Commission of the state and ultimately to the state
+legislature; the second was the encouragement of water competition;
+and the third was the construction, or assistance in the construction,
+of a competing railroad, if not across the continent, yet at least to
+a junction with one of the existing roads, such as the Santa Fé or
+the Union Pacific. It must be admitted that no one of these resources
+looked particularly promising in 1891, but together they exhausted the
+field. To appeal to the Interstate Commerce Commission was not thought
+of, and in view of the limited authority and brief experience of that
+body it is not probable that an appeal would have produced important
+results.
+
+
+“Merchants’ Shipping Association”
+
+In December, 1891, the report of the Nicaragua Canal Commission to the
+federal legislature gave the Traffic Association opportunity to collect
+signatures to a petition, and generally to indorse the project for the
+construction of an Isthmian canal. The first circular emanating from
+Mr. Leeds’ office, however, was dated January 6, 1892, and called the
+attention of shippers to a reduction in rates from San Francisco to
+Puget Sound points. This was followed later in the same month by a
+circular which attracted some attention, and which pointed out that
+shippers of freight had the legal right to designate the route over
+which their property should move from point of shipment to destination.
+It was recommended that all members of the Traffic Association route
+their freight in every case where they were the owners of the property
+at point of shipment. Meanwhile, a force of clerks was set to work,
+and elaborate data relating to railroad expenses and railroad rates in
+California and elsewhere were compiled.
+
+The first aggressive step of the new association was taken early in
+1892, when the executive committee directed the attention of members to
+the possibilities of water competition. This was done after a meeting
+of the executive committee in March, at which the committee voted that
+a line of clipper ships should be established between New York and San
+Francisco, and referred the preparation of plans for such a line to the
+president and manager of the association.[430]
+
+In response to the proposal of the Traffic Association, nine of the
+larger jobbing firms in San Francisco formed in May, 1892, a so-called
+“Merchants’ Shipping Association.” It was the purpose of the new body
+to finance a line of clipper ships as proposed, and to cause it to be
+operated in free competition with the existing lines of William Dimond
+and Company, and Sutton and Beebe, concerns which, it was believed,
+were conducted in the interests of the Southern Pacific. This was too
+ambitious an undertaking for the Traffic Association to underwrite with
+its slender revenues of about $25,000 a year.
+
+Three months later, in August, the membership of the Shipping
+Association was largely increased, and a guaranty fund of from $85,000
+to $100,000 was subscribed. At this time most of the leading wholesale
+firms of San Francisco joined. The Traffic Association lent its full
+moral support to the enterprise, and was reported to have contributed
+$10,000 to the guaranty fund just mentioned. Actual operation of the
+ships was entrusted to J. W. Grace and Company as agents. While the
+exact arrangements between the Shipping Association and these agents
+have never been made public, the merchants appear to have undertaken
+to meet all deficits, and to supply at least two-thirds of the
+freight. According to statements made at the time, Grace and Company
+were expected to find freight in the open market up to one-third of
+the capacity of their boats. Practical details of operation were left
+entirely in the agents’ hands.[431]
+
+
+Effect of Competition
+
+Some hint of the attitude of the older transportation companies toward
+this new rivalry may be found in a circular issued by the Traffic
+Association under date of June 22, 1892. This circular, after referring
+to the new Grace line, and after speaking also of the Atlantic and
+Pacific Steamship Company, and of a new clipper line established by
+Balfour, Guthrie and Company, continues as follows:
+
+ It has already been given out by the old lines that these new
+ competitors in the field will be short-lived, and that shippers
+ who desert the old lines at this time will be remembered when the
+ competitors are out of the way.
+
+ For your information we desire to state that the new lines have been
+ thoroughly investigated by the Committee and we are satisfied as to
+ the reliability and stability of the enterprise, and that with our
+ support they are here to stay and deserving of our patronage.[432]
+
+In spite of the attempts of the older companies to crush the new
+adventure at its inception, the clipper ships thus established in
+1892 with the support of the Traffic Association maintained an active
+competition with the railroad and older sailing lines over a period
+of more than a year. Short as this period was, there is no question
+that the effect upon water rates between San Francisco and New York
+was tremendous. The former rates of the Sutton and Beebe and of the
+William Dimond and Company lines had been about $15 a ton. The rates
+charged by all lines during the summer of 1892 were from $3.50 to $6 a
+ton, a figure certainly below the cost of operation.[433]
+
+This reduction in rates, and the facility which merchants in San
+Francisco enjoyed in securing through bills of lading by sea and rail
+from San Francisco to points on the Missouri River by way of Cape Horn
+and New York, enabled shippers to reach the interior Mississippi Valley
+at a rate and with a convenience superior to that obtainable by rail.
+According to the _San Francisco Bulletin_, indeed, it was $2.15 a ton
+cheaper to send California canned goods from San Francisco to Kansas
+City by sea and rail than to ship them by rail direct. On westbound
+freight the results were the same. The rate on canned meats from Kansas
+City to New York was $9.40 per ton. The rate from New York to San
+Francisco by sea, after adding interest and insurance, did not exceed
+$15 per ton, making a total of about $25, which was $10 less per ton
+than the direct rail rate from Kansas City to San Francisco.[434]
+
+On heavy iron products the figures were quite as striking. The
+all-rail rate on a number of such products was $24 from Pittsburgh to
+San Francisco. From Pittsburgh to New York the rail rate on the same
+articles was $3 a ton. Adding to this $6 per ton for the clipper rate
+from New York to San Francisco, $1.25 per ton for insurance, and $2.50
+per ton for interest, the total became $12.75, or $10.25 per ton less
+than the all-rail rate.[435]
+
+No wonder that the business of the water lines increased, and that
+railroad rates materially declined. Thus the rail rate on canned goods
+out of San Francisco, which had been $1 per hundred pounds, was
+reduced to 75 cents to Chicago and to 50 cents to New York. The rate on
+beans fell from $1.10 to 75 and 50 cents to the same destinations. On
+wine, brandy, borax, and wool, rail rates declined from 25 to 35 per
+cent.[436]
+
+So far as the quantity of freight moving by water was concerned, it was
+estimated in August, 1892, that 42,000 tons of freight were on the way
+by sea to San Francisco from New York, and that 15,300 tons more were
+on the way via Cape Horn from Philadelphia. Twenty-four vessels were at
+sea or loading, bound from the Atlantic to the Pacific coast.[437]
+
+
+Discontinuance of Pacific Mail Subsidy
+
+The work which fell to Mr. Leeds and to his associates upon the
+Traffic Association clipper ship committee in this struggle between
+the rail and the water lines, was largely that of propaganda. This
+meant interviews with shippers to impress upon them the importance of
+the contest which was being waged against the railroads and against
+the Southern Pacific in particular. It meant also the soliciting of
+subscriptions to the clipper ship guaranty fund. Mr. Leeds threw
+himself vigorously into the fight, and as the movement progressed he
+allowed his satisfaction to appear. He wrote the Merchants’ Shipping
+Association in August, 1892:
+
+ I venture the prediction that if this movement is placed upon a
+ permanent footing the Pacific Mail subsidy which has been assessed
+ against the commerce of the coast for many years will be discontinued
+ ... I predict that this will, if properly supported, prove the
+ beginning of the end of commercial oppression for this city and this
+ State. The doctrine of helping yourselves by every means you can
+ command, holding fast to that which you have and reaching out for
+ more, will prove the deliverance of San Francisco.[438]
+
+It was doubtless a considerable satisfaction to Mr. Leeds and to
+members of the Traffic Association that the water competition so
+vigorously inaugurated by the Merchants’ Shipping Association was
+increased late in 1892 by the formation of an independent steamship
+line known as the North American Navigation Company. The foundation
+of this new company was not directly due to the Traffic Association,
+although the Association gave it what support it could. It was
+rather the result of the discontinuance of the railroad subsidy to
+the Pacific Mail, which actually took place in 1892, as Mr. Leeds
+anticipated, and to the consequent separation of the Pacific Mail
+and the Panama Railroad Company—a separation which assured to an
+independent steamship line upon the Pacific Ocean equal or even
+preferential treatment at the Isthmus of Panama. This meant that San
+Francisco shippers were no longer restricted to clipper ships and to
+the Cape Horn route, but could promote a shorter and speedier line with
+reasonable hope of success.
+
+In the year 1892 the transcontinental railroads determined to dissolve
+the transcontinental railroad association. The reasons alleged were
+the withdrawal of the Northern Pacific Railroad from the association,
+and the announcement by the Canadian Pacific of reduced rates to take
+effect September 10. The dissolution of the association meant the
+termination of the subsidy which the railroads had been paying to
+the Pacific Mail, and notice of cancellation was promptly given. The
+Pacific Mail was then paying to the Panama Railroad $55,000 per month,
+an amount that was more than 70 per cent of the sum which it received
+from the association. In spite of the termination of its own relations
+with the transcontinental railroads, the Pacific Mail offered to
+continue the payment of a subsidy to the Panama Railroad, but the two
+companies proved unable to agree on terms. Mr. Stubbs later explained
+the break as follows:
+
+ When the contract between the Panama Railroad Company and the Pacific
+ Mail Company expired, they found it impossible to agree on terms for
+ continuing the business. The transcontinental railroad companies had
+ quarreled, and freight rates were demoralized. The Panama Railroad
+ insisted on the former basis of traffic, and the Pacific Mail refused
+ to go ahead on that understanding. Then there was some bad management,
+ and the two companies began to throw mud. The trouble got into the
+ courts, and finally it was called to the attention of Congress. The
+ Panama road and the Pacific Mail consequently found themselves to be
+ bitter enemies, and it didn’t seem that they could agree.[439]
+
+
+Independent Steamship Line
+
+Now it appears that a San Francisco shipping firm, the Johnson-Locke
+Mercantile Company, which was participating in the anti-railroad fight
+in 1891 and 1892 to the extent of operating a line of steamships around
+the Horn, noticed telegraphic advices in the San Francisco newspapers
+announcing the termination of relations between the Pacific Mail and
+the Panama Railroad. Describing the episode, Mr. Johnson later said:
+
+ I felt this was our opportunity, and immediately wired General
+ Newton, of the Panama Railroad, suggesting that, in view of their
+ determination to throw open the Isthmus and put on a line of their
+ own steamers from New York to Colon, I thought we could secure the
+ co-operation of the merchants of San Francisco, in this movement;
+ that we had some steamers we were running between San Francisco and
+ New York via Cape Horn, and asking, in the event of our organizing a
+ company here, if they would join this company in maintaining a through
+ line from San Francisco to New York.[440]
+
+At this time the Panama Railroad was under the control of the official
+liquidator of the French Panama Canal Company. The railroad had
+already decided to operate a line of steamships between New York and
+Colon, and it accepted readily Mr. Johnson’s offer from the West. Yet
+Johnson himself lacked capital—as his own statement admits. To raise
+the necessary capital a new company—the North American Navigation
+Company—was at once organized, and subscriptions were solicited from
+San Francisco business men. Not all those approached were enthusiastic.
+Some merchants were afraid of antagonizing the Southern Pacific, some
+had an interest in it. James G. Fair said: “I am holding some millions
+of dollars in Southern Pacific bonds. Do you want me to put my eggs in
+a basket, get on a fence and chuck stones at it?”[441]
+
+On the other hand, the promoters of the new company were able to
+make a strong plea based on the unsatisfactory conditions of water
+transportation in previous years. For the first time in fifteen years
+San Francisco shippers had a remedy in their own hands.
+
+ With the successful operation of this company, San Francisco need fear
+ no excessive prohibitory rates from the Transcontinental or similar
+ associations; the relief in transportation will be immediate and
+ ample, which, together with sailing ships via Cape Horn, solves the
+ immediate question of cheap transportation, freedom from excessive
+ freights, and makes our city again the distributing point, instead of
+ an isolated terminus of a long haul by rail.[442]
+
+
+The Raising of Funds
+
+The original intention was to raise a fund of $100,000, and it appears
+that the Panama Railroad agreed to enter into a contract with the
+North American Navigation Company providing that sum were subscribed.
+When $80,000 had been promised, however, the promoters solicited the
+aid of the recently formed Traffic Association, and upon its advice
+increased their capital to the sum of $200,000. As is frequently the
+case, in such campaigns no subscriptions were binding until the whole
+amount should have been subscribed. Before this point was reached
+the promoters nevertheless concluded their contract with the Panama
+Railroad. Perhaps they were over-optimistic, perhaps they felt that the
+chance of making such a contract should not be allowed to pass—at any
+rate they signed the contract and thereby agreed to dispatch steamers
+from San Francisco on fixed dates to connect with the rail line at the
+Isthmus. The text of the contract was not divulged, but the public was
+informed that it was to go into effect March 8, 1893, and that it gave
+to the North American Navigation Company the exclusive right of through
+billing between New York and San Francisco by way of the Isthmus of
+Panama.[443]
+
+When the time came to dispatch the first vessel called for under this
+contract, the Navigation Company found itself in the uncomfortable
+position of a concern with important responsibilities and no money with
+which to meet them. Not a dollar of the capital stock had been paid
+in, and only $160,000 had been subscribed. Under these circumstances
+certain of the individuals most interested personally guaranteed the
+charter hire of the first boat, and the same was done for the second,
+and for the third, at intervals of twenty days. Before the time arrived
+for the departure of the fourth vessel, the entire $200,000 asked for
+had been pledged. By December, 1893, this fund was exhausted, and
+$100,000 more was raised—not without difficulty, and with some feeling
+of discouragement on the part of the promoters.[444] The additional
+subscription made possible the continuance of the service approximately
+till the 1st of May, 1894, or for a total period of a little over a
+year. There is some evidence that the managers of the company desired
+a still further extension, but if an attempt of this sort was made, it
+met with no success.
+
+During the life of the North American Navigation Company five
+steamships were chartered: the St. Paul, Mexico, Keweenaw, Progreso,
+and Saturn. The “St. Paul” and the “Mexico” were small boats, with a
+net tonnage, respectively, of about 700 and 1,350 tons dead weight. The
+net tonnage of the “Keweenaw” was reported to be 2,004 tons, that of
+the “Progreso” and “Saturn” somewhat less.[445] Some passengers were
+carried by the line, but not many. The Pacific Mail also operated five
+vessels with capacity carrying from 2,000 to 2,500 tons. These were all
+small craft as compared with steamers of the present day. The original
+program, as has been said, called for a twenty-day interval between
+sailings, and the total estimated time consumed in shipment from San
+Francisco to New York was put at thirty-two days. It could scarcely
+have been expected that these ships could accommodate any large portion
+of the business of the Pacific Coast, nor indeed was there much chance
+for them to earn any considerable profit on the business which they
+did carry. The fact that so large a guaranty fund was insisted upon by
+the Panama Railroad before any exclusive through billing arrangement
+would be made, is evidence that a deficit was expected. As a matter of
+fact the total fund of $300,000 was used up before the fifteen months
+contemplated in the original agreement had entirely expired.
+
+
+Drop in Railroad Rates
+
+The principal purpose of the North American Navigation Company was,
+beyond question, to compel a reduction in transcontinental rates by
+rail and water by demonstrating that the business men of San Francisco
+could establish an independent connection of their own. This accounts
+for the enthusiasm with which the project was greeted in the community
+at large. The Navigation Company was looked upon as a kind of St.
+George tilting against the dragon of monopoly. The newspapers printed
+columns of description with pictures of the boats chartered by the new
+line, the promoters gave out interviews, and crowds gathered at the
+wharves to see the vessels leave. And it was by pointing to the rate
+reductions accomplished that the company subsequently justified itself.
+
+Mr. Leeds, manager of the Traffic Association, estimated that the
+84,000 tons which he thought the new steamship line would handle, added
+to what the clipper ships were carrying, would leave about 250,000 tons
+for the railroads to transport from coast to coast. On this he expected
+to see a decline in rates of not less than 20 per cent. More exactly,
+he calculated that the saving to shippers due directly to the operation
+of the North American Navigation Company would amount to $660,000;
+that due to clipper ship competition would total $1,110,000; and that
+secured through a decline in railroad rates would be $1,248,000; or a
+total of $3,018,000.[446] Captain Merry, president of the Navigation
+Company, declared when all was over that a saving of $3,500,000 had
+been made on Pacific Coast products shipped east during the life of the
+company, in addition to the saving of perhaps $1,500,000 on westbound
+freight.[447]
+
+Undoubtedly the operations of the Navigation Company intensified
+the rate war started by the clipper ships, and the reductions in
+transcontinental charges were considerable. According to Mr. Leeds the
+cuts on eastbound transcontinental freight, all-rail, on representative
+articles, by January, 1894, were as follows:[448]
+
+REDUCTIONS IN TRANSCONTINENTAL RAIL RATES TO JANUARY, 1894
+
+ Old Rate per New Rate per Reduction
+ Article 100 pounds 100 pounds per cent
+
+ Beans $1.10 $ .50 55
+ Canned goods 1.00 .50 50
+ Barley .90 .30 66⅔
+ Dried fruits, raisins, and
+ prunes (in boxes) 1.40 1.00 28
+ Wine 1.50 .37½ 80
+ Mustard seed 1.10 .30 73
+ Wool, in grease 1.50 .75 50
+ Wool, scoured 2.50 .75 70
+
+
+Uncertain Benefit
+
+On westbound freight it was estimated that the reductions amounted to
+at least 50 per cent. These estimates, however, do not distinguish
+between the results produced by the Navigation Company and those which
+were the consequence of the operation of the clipper ships—perhaps no
+separate estimate is possible or important. On the basis of the rates
+charged, the railroad admitted that it was losing money, at least so
+far as eastbound freight was concerned. It maintained, however, that it
+continued to make a profit on its westbound freight and on its local
+traffic.[449] There was no question that the steamships and the Panama
+Railroad lost money, although they declared stoutly that they would
+meet any cuts which the railroads might make.[450]
+
+Whether the shippers benefited by the general demoralization in rates
+which occurred during the war is uncertain, as it always is under such
+circumstances. They certainly lost the $300,000 which they put into the
+North American Navigation Company, besides the guaranty fund subscribed
+by the Merchants’ Shipping Association. Moreover, they suffered
+from the competition of eastern jobbers during the hostilities, a
+competition which the railroads encouraged by reducing the differences
+between carload and less than carload rates, by the extension of the
+privilege of shipping in mixed carloads, and by reduction in westbound
+rates. On the other hand, they gained directly through lower rates, and
+indirectly by the demonstration that, to some extent at least, their
+access to eastern markets was not subject to railroad control.
+
+
+New Transcontinental Tariff
+
+The North American Navigation Company operated only a little over a
+year, as has been said. Its vessels, however, were taken over by the
+Panama Railroad, and competition continued until the end of the year
+1895. Not long after that, it seems, negotiations between the shippers
+and the railroads began. Representatives of the transcontinental lines
+upon the coast were instructed to mollify Pacific Coast shippers so far
+as possible, and the shippers in their turn seem to have been anxious
+to meet this advance. In 1897 a communication was addressed to the
+railways by the jobbing interests upon the Pacific Coast, stating in
+substance that rates ought to be readjusted in the interests of the
+coast jobbers; that more rigid inspection rules should be enforced
+preventing their competitors in the Middle West from obtaining
+fraudulent rates; and intimating that if this was done they would not
+object to an advance in rates and would find it to their interest to
+place shipments largely with the railroads.
+
+For the purpose of effecting some arrangement, a meeting of
+representatives of the transcontinental lines was held at Del Monte in
+the fall of that year. Representatives of the Pacific Coast jobbers and
+also of the jobbers of the Middle West were present. Both parties were
+heard separately and much discussion was had but no definite conclusion
+reached. The conference adjourned to meet at Milwaukee the following
+spring. The final result was a new transcontinental tariff effective
+June 25, 1898, which seems to have given reasonable satisfaction until
+attacked by representatives of the intermountain towns.[451]
+
+
+
+
+CHAPTER XVIII
+
+THE SAN FRANCISCO AND SAN JOAQUIN VALLEY RAILWAY
+
+
+Attempt to Fix Maximum Rates
+
+Properly considered, the construction of the San Francisco and San
+Joaquin Valley Railway was the complement of the campaign for the
+encouragement of water competition which the Traffic Association waged
+between 1891 and 1897. The plans for the subsidizing of clipper ships
+and for the support of steamship service to and from Panama had from
+first to last one grave defect—they afforded no means of distributing
+from San Francisco the products which dealers might succeed in having
+brought in by sea. That is to say, while the consuming populations
+of San Francisco, Sacramento, and Stockton might benefit by securing
+their goods at lower cost because of the activity of water competition,
+these cities could not extend their markets unless the sum of the
+through rate from points of origin to terminal city and from terminal
+city to local point should be made lower than the direct rate from
+the Mississippi Valley or the Atlantic Coast to the smaller towns in
+California, Nevada, and New Mexico.
+
+Now the question of local rates differed from that of through rates, in
+that it dealt with a matter over which the state legislature and the
+State Railroad Commission appeared to have complete control. In 1892
+the Traffic Association accordingly made a serious attempt to persuade
+the state legislature to undertake direct regulation of railroad rates
+in California, and to insert a provision for certain maximum rates
+in the constitution of the state which should affect a considerable
+reduction in the rates then charged. This attempt failed, for reasons
+into which it is not necessary to go. There remained another method
+of influencing local rates, namely, the construction of a competing
+railroad which should lead from San Francisco Bay to the interior
+counties of the state, and to this alternative the San Francisco
+merchants turned in the year 1893. The movement was important, and will
+be discussed at some length.
+
+
+First Proposal for Competing Railroad
+
+The proposal that a competing railroad should be built from San
+Francisco Bay to the interior was not a new one in California in 1893.
+On the contrary, in February, 1892, President Stetson, of the Traffic
+Association, told a reporter that no less than nine propositions had
+been submitted to him as president of the organization, looking to
+give San Francisco a competing line of railroad. These were successors
+to still other plans prepared in earlier years. Most of the schemes
+proposed to Mr. Stetson involved the construction of lines out of
+San Francisco to a connection with the Santa Fé, but two or three of
+them contemplated construction from San Francisco across the Sierra
+Nevada Mountains to the termini of the Union Pacific or the Rio Grande
+Western. At the time, President Stetson replied that he was a merchant
+and had neither the time nor the money to build roads, although he
+added that San Francisco merchants desired more railroads and would
+under reasonable conditions and at the proper time furnish substantial
+encouragement to one or more feasible railway projects.[452]
+
+Soon after this, possibly at the suggestion of Mr. Leeds, steps were
+taken to investigate the possibilities of a line from San Francisco
+or Oakland to Stockton and thence eastward through Nevada and Utah to
+Salt Lake City. In May, 1892, a company was formed under the name of
+the San Francisco and Great Salt Lake Railroad Company, to build from
+San Francisco to Stockton, with an initial capital of $2,000,000.
+This was the moment when the Traffic Association was vigorously
+pushing its plans for the encouragement of water competition, and when
+it was beginning the legislative campaign mentioned in a preceding
+paragraph. Little active support could therefore be expected from
+the San Francisco shippers, although the executive committee of the
+Traffic Association authorized Mr. Leeds to give the projectors of the
+San Francisco and Great Salt Lake the benefit of his advice, and the
+California League of Progress formally indorsed the enterprise.[453]
+
+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 patronize a purely local line when a through line was
+available, because a competitor with through facilities could afford
+them service which a local line could not.[454] On the other hand,
+there were capitalists who expressed willingness to subscribe to the
+stock of a local system, but who would not put a cent into an overland
+line,[455] and between the two parties the necessary subscriptions were
+not obtained. The project was finally withdrawn when the promoters
+failed to secure certain legislation which they thought necessary to
+make their plans a success.[456]
+
+
+Another Project
+
+Following the failure of the San Francisco and Great Salt Lake
+enterprise, plans for railroad construction in California made no
+progress for several months. It had now become evident, however,
+that the state legislature was not disposed to pass a maximum rate
+enactment, and that any reduction in the level of local rates in
+California must come either from the good-will of the Southern Pacific
+or from the construction of competing lines. Under these circumstances,
+plans for railroad construction were revived, this time under the
+direct leadership of the Traffic Association of California.
+
+Exactly when the Traffic Association took up the idea of promoting a
+competing railroad in the San Joaquin Valley cannot be stated with
+confidence. Newspaper reports indicate that the project was discussed
+at least as early as April, 1893. Whether or not a beginning was made
+in this month, it appears that by June, 1893, plans had progressed
+sufficiently to permit the publication of a prospectus, sent out with
+the approval of San Francisco shippers. This prospectus invited the
+citizens of San Francisco and of the state of California to subscribe
+to the capital stock of a railroad which should run from the city of
+Stockton to the head of the San Joaquin Valley, in Kern County, a
+distance of about 230 miles. The plan was said to be to secure as much
+money as possible in the city of San Francisco, and then to ask the
+people of the valley, from Stockton up, to add thereto a fair quota.
+Construction was to begin at Stockton instead of at San Francisco,
+in order to save expense and in reliance upon the effect of water
+competition on San Francisco Bay—a competition which was expected to
+maintain a low level of rates between Stockton and its larger neighbor.
+The cost of a good road from Stockton to Bakersfield was estimated at
+something less than $20,000 per mile.
+
+Appealing particularly to San Francisco, the promoters of the new
+enterprise declared that a competing railroad was essential to that
+city’s prosperity. San Francisco amounted to no more than any other
+collection of people unless it used its facilities as a seaport.
+Facilities unused might just as well not exist. It had been a part
+of the policy of all the transcontinental roads for many years to
+neutralize this seaport by all the means at their command, including
+the practice of maintaining excessively high local rates between the
+sea and the interior. This condition must be remedied. The prospectus
+also explained that the new line would benefit the producer and the
+consumer in the interior as well as in the city of San Francisco.[457]
+
+
+Lack of Financial Support
+
+Once the prospectus was out, the project for a local competing railroad
+was pushed with all the energy characteristic of Mr. Leeds and the
+Traffic Association. It received substantial support also from a
+portion of the San Francisco press. In order to test sentiment, a
+subcommittee of the executive committee of the Traffic Association
+started a canvass of the wealthy men of San Francisco, not to secure
+subscriptions, but to seek general assurances of co-operation. With
+one exception the citizens interviewed were reported to have promised
+to take stock in the road, and to have invited the committee to call
+again. Such an indication of unanimity was considered important.[458]
+Not only did the moneyed men of San Francisco encourage the enterprise
+at this time, but the newspapers printed accounts of the interest taken
+by men of small means. Mechanics and laborers were said to be coming
+to the offices of the Traffic Association, and offers to subscribe for
+small amounts of stock, payable in labor, were received.[459] Yet there
+is some question about the warmth with which the original proposal
+for a competing line was received. Certainly the minimum amount
+necessary to be raised in order to make all subscriptions binding was
+small—$350,000—and the slowness with which this sum was approximated
+did not indicate enthusiasm.[460] In the valley generally there were
+indications of interest, such as favorable newspaper notices, offers of
+rights-of-way for the new company, and resolutions of indorsement by
+boards of trade, and by meetings of citizens. But here, too, there were
+few subscriptions, and after the panic of 1893 the Traffic Association
+recognized that their initial attempt had failed.
+
+
+Failure of Second Attempt
+
+The second campaign for subscriptions to the stock of the Valley
+road began about August, 1894, when the executive committee of the
+Traffic Association decided to renew its search for funds. It was now
+decided to call the new enterprise the San Francisco, Stockton and
+San Joaquin Valley Railway Company, and to define its route generally
+as between San Francisco, or some convenient point on the Bay of San
+Francisco, via Stockton and Fresno by a convenient and practicable
+route thereafter to be determined, to some point in Kern County. The
+minimum subscription was again set at $350,000, and, as in the earlier
+project, a trust was devised to hold the stock of the company and to
+preserve its status as an independent carrier.[461]
+
+In October stock subscription books were thrown open to the public
+and some thousands of dollars of subscriptions received. Mr. Leeds
+went to Stockton to see what could be done there. In San Francisco,
+Mr. Van Sicklen, a member of the executive committee, endeavored to
+reach the business men of the town in a somewhat systematic fashion.
+Large subscriptions and small were invited, but once more small
+success was obtained. The members of the executive committee of the
+Traffic Association were busy men and disinclined to devote much time
+to personal campaigning, while, even had they done so, the chances of
+success were not good. The primary defect in the Traffic Association’s
+campaign lay in the fact that no man in the group of promoters
+interested in the new enterprise had sufficient prestige so to impress
+the public imagination as to lead investors to have confidence from the
+beginning that the projected railroad would be built. The composition
+of the Traffic Association was admirable for the purpose of encouraging
+water competition. It was as inadequate to the financing of a large
+railroad to be conducted without government support as it had been
+shown to be to the management of a political campaign.
+
+Nor was it unimportant that the organization was asking for a sum
+which on the face of it was insufficient to accomplish the purposes
+which were in mind. Nobody pretended that $350,000 would do more than
+permit of the organization of the San Francisco and San Joaquin Valley
+Railway. To build the line would cost ten times that sum or more.
+Indeed, the company was actually capitalized at $6,000,000, a not
+unreasonable figure under the circumstances. Thus a subscription to
+a fund of $350,000 merely committed the subscriber to an enterprise
+which might involve him, if it was to be successful, in an additional
+large and undetermined expense, on the penalty of losing his original
+subscription if the additional sums were not forthcoming.
+
+
+Final Success
+
+We have now seen that two attempts to secure support for a new
+independent railroad in the San Joaquin Valley failed between June,
+1893, and the end of 1894. The third stage in the progress of the
+Valley road began with a meeting called by the Traffic Association on
+January 22, 1895, for the purpose of interesting the realty owners
+of San Francisco in the construction of a railroad. By this time the
+Traffic Association’s second campaign for subscriptions had failed as
+definitely as had its first. Only about one-half of the desired sum
+of $350,000 was on hand. No more could be secured from the merchants
+of the city. There was little enthusiasm in San Francisco, and in the
+interior, cities like Fresno were becoming impatient and were turning
+to the south instead of to San Francisco for relief from the burden of
+high rates.[462]
+
+It was at this point and under these conditions that the management of
+the enterprise passed to new men and that a complete reorganization of
+its affairs occurred. In the main this change in control and in the
+policies of the projected Valley railroad was due to the energy of one
+man. Claus Spreckels, of San Francisco, the leading sugar refiner of
+the Pacific Coast, was not a member of the Traffic Association, and was
+not pledged to the support of the San Francisco and San Joaquin Valley
+Railway. He was, however, one of the speakers at the January meeting,
+and when the formal proceedings were over he came forward with an offer
+to subscribe $50,000 provided that the minimum amount to be raised were
+increased from $350,000 to $3,000,000 or to $5,000,000. On Spreckel’s
+motion, moreover, the chairman was authorized to appoint a committee
+of twelve from among the property owners of the city to solicit
+subscriptions from holders of real estate. After the adoption of this
+motion the meeting adjourned.
+
+[Illustration: Map showing the line of the San Francisco and San
+Joaquin Valley Railway, together with portions of the systems of the
+Southern Pacific and of the Atchison, Topeka and Santa Fé, 1898.]
+
+The subscriptions in definite amounts received on Tuesday, January
+22, 1895, did not much exceed $20,000. The committee of twelve met,
+however, on January 24 and Claus Spreckels was elected chairman.
+Soon after this, larger pledges began to appear. Spreckels himself
+now subscribed $500,000, or ten times his initial offer, and at
+his instance, John D. and Adolph Spreckels, his sons, subscribed
+$100,000 apiece. From this one family, therefore, came twice the sum
+which the Traffic Association had tried in vain to raise from all
+of San Francisco. The whole complexion of the business changed as a
+result of this beginning. By January 30 over $1,200,000 was pledged.
+Subscriptions through February 2 amounted to $1,536,500, and on
+February 8 the $2,000,000 mark was reached. This so encouraged the
+committee that it immediately resolved that the sum of $4,000,000
+should and must be obtained from the city of San Francisco, and that
+with the aid of the interior the competing line could be constructed on
+a cash basis. To this end every effort was to be turned.[463]
+
+It is very evident that the substantial wealth of the Spreckels group
+and the reputation for success which Claus Spreckels enjoyed, made
+a powerful impression both in San Francisco and in the San Joaquin
+Valley. The proposed railroad enterprise was the same as before, but
+the leadership was different. At the same time the amount of money
+necessary to be raised in the first instance was increased from
+$350,000 to $2,000,000.[464] Large sums are sometimes easier to secure
+than small, for reasons both sentimental and practical, and it proved
+so in this case. Claus Spreckels said himself that he had never made
+a failure in his life, while with $2,000,000 in hand it seemed so
+unnecessary for anyone to fail that people hastened to share in the
+anticipated success.
+
+
+Campaign for Stock Subscriptions
+
+As we look back upon the circumstances attending the construction of
+the San Francisco and San Joaquin Valley Railway, it is evident that
+after January, 1895, its managers played their cards with considerable
+shrewdness. Regarded as a direct profit-making enterprise, the ability
+of the new company to earn dividends was questionable. It was all very
+well to dwell upon the fertility of the San Joaquin Valley, and to
+point out the large proportion of the revenues of the Southern Pacific
+derived from this source.[465] Doubtless these conditions would count
+in the long run. Yet the fact remained that the new road was entering
+a not too highly developed territory already served by a through line
+of large capacity. It was expected to reduce rates, and was likely to
+be compelled to reduce them; and it was to do this while it was in the
+course of developing its own organization and establishing business
+relations with a new clientèle. Huntington said that he thought there
+was room in California for both the Southern Pacific and the new line.
+It required, he said, only a space of thirteen feet from the center
+of one track to the center of another, and there was lots of room in
+California. The projectors of the new road would have no trouble in
+finding room.[466] But this remark was not meant to convey comfort to
+subscribers to the stock of the San Francisco and San Joaquin Valley
+Railway, and probably did not do so.
+
+What, then, were the conditions of success for the new road? They
+were: first, such a popular support as would minimize the cost of
+construction and maximize its business; and second, such an alliance
+with some other large railroad system as would give stability and
+permanency to its traffic relations. If the new company possessed these
+advantages it would probably be able to live and to render a useful
+service in distributing products brought to California and to San
+Francisco by sea; without them it was not likely to survive.
+
+It was in order to increase their popular support, and not alone for
+the sake of the money involved, that the promoters of the San Francisco
+and San Joaquin Valley Railway early began a campaign for small
+subscriptions. Claus Spreckels took pains to say that while large
+subscriptions were all right and desirable, it would be the $20,000,
+$10,000, and $5,000 stockholders who would control the property and
+its policy.[467] In February, after the first arrangements had been
+made for reaching the larger business interests of the city, attention
+was paid to the offering of facilities for subscription to all classes
+of investors in San Francisco. Districts were mapped out and assigned
+to canvassers.[468] The following month the _San Francisco Examiner_,
+which had taken a prominent part in the fight from the first, began to
+print subscription blanks in its daily issues. Arrangements were made
+by which persons might subscribe for fractions of shares by joining
+with their neighbors in share clubs. The _Examiner_ offered a gold
+watch to the first person forming such a club, and when there was doubt
+as to priority, compromised by giving two watches. The formation of
+the first colored club was given special mention, as was the decision
+of a colored club in San Francisco to make one paid-up share in the
+San Francisco and San Joaquin Valley Railway a tug-of-war prize to be
+competed for at its annual games. The winning team was to constitute a
+share club, and was to choose a trustee from among its members.[469]
+
+
+Appeal to Local Patriotism
+
+While devices such as these were perfectly ineffective as a means
+for raising large sums of money, they did give the new road valuable
+advertising, and helped to predispose the whole community in its favor.
+For the same reasons that actuated the promoters in their attempt
+to gain the support of investors of small means, the San Francisco
+committee also made appeals to the public which rested upon moral and
+patriotic as well as upon financial grounds. Without going into this
+aspect of the matter at length, it may be said that there has probably
+never been a commercial enterprise launched on the Pacific Coast so
+advertised, and praised, and predicted about as was the project of the
+San Joaquin Valley Railway. Participation in the movement became a
+test of local patriotism. The railroad took the aspect not merely of
+a business expedient, to be considered solely from the point of view
+of monetary gain, but it also became an expression of the hopes of
+expansion entertained by a generation of business men, strengthened
+by the accumulated antagonism of years between the Southern Pacific
+Railroad and the shipping public.
+
+Nor was this feature of the campaign confined to San Francisco alone.
+The main interest from first to last was of course in San Francisco.
+Yet the valley towns also showed sympathy with the new development,
+rising at times to excitement as construction became imminent, and
+questions of route had to be determined. Here, it is true, there was
+more business and less sentiment. “What is the new road going to do for
+Oakland?” a man asked John D. Spreckels one day in the Palace Hotel.
+“It is too early to put that question,” replied Mr. Spreckels, “as it
+could only be answered by some theorist. The question is, What will
+Oakland do for the new road?”[470]
+
+In spite of occasional skepticism, and here and there active
+opposition, the San Joaquin Valley received the new enterprise
+cordially. Among the Valley towns from which assurances of support were
+received may be mentioned Stockton, San José, Fresno, Madera, Modesto,
+Hanford, Merced, Visalia, Selma, and Bakersfield. Oakland also, though
+not properly in the Valley, manifested considerable interest in the
+work. Generally speaking, the directors of the San Francisco and San
+Joaquin Valley Railway asked local committees to select what in their
+judgment was the best route over which the railroad could pass. They
+then asked them to give rights-of-way, depot grounds, and terminal
+facilities, and to subscribe to all the stock that they could afford.
+It was announced that the railroad was being built on a business basis,
+and that it would go through the best country and where the greatest
+inducements were offered.[471]
+
+This did not seem unreasonable to the local communities, and the
+company’s requests were generally complied with. The principal reason
+for raising money under such an arrangement was to pay local property
+owners whose lands were taken for railroad purposes. There were no
+money subsidies, and no land grants except to the extent sufficient for
+the company’s actual needs. Yet, of course, even so relatively moderate
+a provision of local aid materially reduced the cost of construction
+which the railroad company had to meet.
+
+
+Purchase of Road by Santa Fé
+
+Articles of association of the San Francisco and San Joaquin Valley
+Railway Company were filed at Sacramento in February, 1895, and
+construction was begun at Stockton late in the same year. By the
+end of December, 26.1 miles had been built, carrying the railroad to
+the Stanislaus River. During 1896 the track reached Fresno, and in
+1897 Bakersfield was attained. On June 30, 1898, the company reported
+a total mileage of 278.91 miles, including a branch to Visalia. It
+had at that time an authorized capital stock of $6,000,000, of which
+$2,464,480 was issued and paid in, a funded debt of $2,671,000, and
+current liabilities of $110,928. The bonds outstanding were mortgage
+securities bearing 5 per cent interest and maturing in 1940. In 1897
+the company reported gross earnings of $209,133 (of which $178,494
+were from freight), and operating expenses of $153,102, on an average
+operated mileage of 123.44 miles. For the year ending June 30, 1898,
+the earnings were $411,179 and the operating expenses $282,326, on a
+mileage, however, which was considerably greater. These were the only
+years for which statistics are available, for the company was purchased
+by the Santa Fé in December, 1898.
+
+The circumstance that the San Francisco and San Joaquin Valley Railway
+was purchased by the Atchison, Topeka and Santa Fé only a few months
+after the company had completed its road to Bakersfield, served as
+a dramatic illustration of the fact that alliance with some larger
+railroad system was considered by its promoters to be essential to the
+road’s success. There is no question but that this sale of the system
+came as a shock and a disappointment to many persons whose enthusiasm
+had been aroused by the proposal to build an independent railroad
+for the service of shippers in San Francisco and in the San Joaquin
+Valley. The high hopes of San Francisco merchants could scarcely be
+satisfied by anything short of a system permanently under the control
+of the commercial interests of that city. When the San Francisco press
+declared that San Francisco was preparing to reach out for the trade of
+all the western part of the American continent, and when the Spreckels
+committee declared that the new road was to be a people’s road, owned
+by the people, and operated in the interests of the people,[472] the
+implication clearly was that the ownership of the property was to
+remain in the hands of the original subscribers to the stock or in the
+hands of other persons of like character. Nor was the argument that
+the construction of the San Francisco and San Joaquin Valley Railway
+would prevent the diversion of eastern freight from San Francisco to
+distributing centers of the South,[473] easily to be reconciled with
+the sale of the railroad to a company which, like the Santa Fé, had a
+terminus in Los Angeles.
+
+
+Spreckels Interests
+
+There were, on the other hand, indications from the beginning that
+the Spreckels group did not intend to commit itself to the permanent
+management of a railroad system, but that they regarded connection
+with, and perhaps amalgamation between, the San Francisco and San
+Joaquin Valley and the Atchison, Topeka and Santa Fé as the natural
+culmination of the former road’s career. Like Stanford, Mark Hopkins,
+Huntington, and Crocker, Claus Spreckels, his sons, and the persons
+most intimately associated with them were not originally railroad men,
+and were not, when they began railroad construction, particularly
+interested in the railroad business as a business. They were therefore
+to be tempted to continue railroad management only by a chance for
+extraordinary profits—a chance which the San Francisco and San Joaquin
+Valley Railway did not offer. Looking at the matter from a business
+standpoint, it is not unreasonable to suppose that they saw that
+the best opportunity for withdrawing their capital from the valley
+speculation lay in negotiations with the Santa Fé. Of course this is
+surmise, and perhaps is mainly plausible as a late interpretation
+of happenings which we know took place, but it has a certain
+reasonableness in view of all the facts.
+
+The concrete evidence that combination between the San Francisco and
+San Joaquin Valley and the Atchison, Topeka and Santa Fé was looked
+upon as a possibility from the first, is to be found in the provisions
+of the trust agreement entered into by subscribers to the San Francisco
+and San Joaquin Valley Railway stock, and in the negotiations between
+that railroad and the city of San Francisco and the state government of
+California, over what was known as the China Basin lease.
+
+
+Trust Agreement
+
+Soon after the promoters of the San Francisco and San Joaquin Valley
+Railway had successfully organized their corporation, subscribers
+to the stock of the company were asked to enter into a certain
+trust agreement or pooling plan designed primarily to prevent the
+railroad from falling into the hands of the Southern Pacific. Briefly
+summarized, this plan contemplated the transfer of the stock of the
+company to seven (later nine) trustees. Individual stockholders so
+transferring their holdings were to receive trust certificates clothing
+them with the powers and privileges usual in such cases. The trustees
+on their part were to administer the railway for a period of ten years
+unless three-quarters of the certificate holders should request an
+earlier termination of the trust, or unless all of the subscribers
+should die.
+
+This administration was, however, subject to restrictions, of which two
+deserve special notice. In the first place, the trustees undertook to
+operate the railroad, when completed, on such a basis that the rates
+and fares charged should be the lowest rates and fares which would
+yield enough earnings to meet costs of operation, interest, and sinking
+fund requirements, and to pay a dividend not exceeding 6 per cent upon
+capital stock paid in. This clause was evidently intended to reassure
+shippers who had been or might become interested in the new railroad.
+But besides this, the trustees agreed that they would not knowingly
+vote said stock “for the benefit or in the interest of any person or
+corporation or interest hostile to the interest of, or in business
+competition with the San Francisco and San Joaquin Valley Railway
+Company, or of or to or in favor of any party or parties or company
+or companies owning or controlling any parallel line of road to the
+detriment and injury of the corporation hereinbefore mentioned.”[474]
+
+To this clause there was later added another of the same import, to
+the effect that the San Francisco and San Joaquin Valley Railway
+should not be leased to, or consolidated with, any company which
+might own, control, manage, or operate any of the roads then existing
+in the San Joaquin Valley, and that neither the trustees nor their
+successors should have any power as stockholders to assent to any such
+consolidation or lease, or in any way to put the San Francisco and San
+Joaquin Valley Railway under the same management as that of any other
+railroad then existing in the San Joaquin Valley.[475]
+
+In so carefully worded a document as the trust agreement here under
+consideration, the prohibition of combination with competing railroads
+or with railroads then existing in the San Joaquin Valley had the force
+of an affirmative permission to the trustees to consolidate their
+property with that belonging to any company not in the prohibited
+class. As a practical matter this meant consolidation with the Santa
+Fé and with that railroad only, for the reason that there was no other
+system with which combination would have been significant. The trust
+agreement was approved at a meeting of stockholders held on April 5,
+1895,[476] and by the middle of the following month holders of more
+than three-fourths of the stock had given written assent to the trust
+conditions.
+
+The fair inference from the terms of the trust agreement is that the
+promoters looked upon the union of the San Francisco and San Joaquin
+Railway and the Atchison, Topeka and Santa Fé as a proper and likely
+outcome of the construction of the former road. This same conclusion
+is strengthened by consideration of the China Basin lease, concerning
+which a few words may be said.
+
+
+The China Basin Lease
+
+The China Basin lease related to a tract of land on the water-front
+between the foot of Third Street and the foot of Fourth Street in San
+Francisco. The San Francisco and San Joaquin Valley Railway needed a
+terminus in San Francisco even before it entered upon construction west
+of Stockton, because it wished to encourage the shipment of freight
+from San Francisco up the Sacramento River to the head of its rail line
+at Stockton. It also looked forward to the day when it should have a
+railroad of its own to Oakland or to some other point on San Francisco
+Bay, possibly to the city of San Francisco itself.
+
+According to the precedent set in the southern counties, the San
+Francisco and San Joaquin Valley should have applied to the city and
+county of San Francisco for terminal privileges. The piece of property
+which it desired, however, consisted of certain mud flats at China
+Basin, control over which had been specifically vested in the State
+Board of Harbor Commissioners by a law passed in 1878.[477] Not only
+were the flats in question thus removed from the control of the city,
+but the State Board of Harbor Commissioners itself had apparently
+no authority to conclude binding leases of this area covering a
+substantial period of time, although it did have power to grant
+temporary permits for the use of water-front property. Before any
+progress could be made, therefore, it was necessary to apply to the
+state legislature in order that the powers of the harbor commissioners
+might be enlarged, after which negotiations could be continued with the
+commissioners direct.
+
+As a first step toward obtaining a lease of the China Basin tract,
+Claus Spreckels went to Sacramento in March, 1895, accompanied by other
+directors of the San Francisco and San Joaquin Valley Railway. With
+characteristic emphasis he declared to members of the legislature that
+if the promoters of the new enterprise did not get the mud flats they
+might as well give up the road.[478] No senator, he said, who voted
+against his bill could dare to face his constituents again. Senators
+who voted against the proposed amendment to the law voted to take the
+bread out of the mouth of the workingman’s child. They voted to keep
+the unemployed out of work, and they voted for their own damnation.[479]
+
+
+Necessary Legislation Enacted
+
+There was little opposition in the assembly to giving the Spreckels
+group what it wanted. Principally the discussion was as to whether it
+was better to clothe the harbor commissioners in general terms with the
+power to lease water-front property,[480] or whether the board should
+be authorized only to lease a described parcel to a specified group of
+persons.[481] The fear was expressed in the course of the debate lest
+the tract desired by the San Francisco and San Joaquin Valley Railway
+might be leased to a corporation controlled by the Southern Pacific,
+and that other parcels might go the same way. On the other hand, it was
+pointed out that a provision for a lease to specified parties might
+prove unconstitutional as an example of special legislation.
+
+In the end the “Gleaves” bill with the so-called “Powers” amendment
+passed the assembly by a vote of 60 to 9, and the senate by a narrower
+margin of 21 to 17. In its final form it authorized the State Board of
+Harbor Commissioners to lease any land belonging to the state which was
+required for terminal purposes, at a maximum rental of $1,000 a year.
+No land was to be leased for a longer period than fifty years, not more
+than 50 acres was to be leased to any one railroad, and no lease was
+to be assignable without the written consent of the commissioners. As
+a still further protection, it was provided that the beneficiary of
+the lease must be a railroad company. Such a company, moreover, must
+be incorporated within the state of California, and it might not be
+a corporation which, at the date of the passage of the act, had any
+terminal facilities in the city and county of San Francisco.[482]
+
+
+Terms of Lease
+
+Armed with the legislative sanction, Mr. Spreckels undertook
+negotiations with the Board of Harbor Commissioners and with Mayor
+Sutro, of San Francisco, and Governor Budd, which lasted from the
+middle of March, 1895, to the second week in July. In its main outlines
+the lease finally agreed upon offered to the San Francisco and San
+Joaquin Valley Railway Company the use of a defined area of 24¼ acres
+more or less located near the foot of Fourth Street, San Francisco,
+and bounded upon the water side by the sea-wall and thoroughfare
+established by the legislature of 1878. In return for this considerable
+grant, the lessee agreed to reclaim the lands granted from the tide,
+to place tracks, warehouses, and freight sheds upon them; to pay a
+nominal rental of $1,000 a year; and in addition, to commence within
+six months, and to construct and have in operation within ten years,
+not less than 50 miles in continuous railroad in addition to the
+mileage already constructed in 1895, one end of which was to be at some
+point on the Bay of San Francisco south of an east and west line drawn
+through Point Pinole.
+
+The improvement of the leased property and the undertaking of new
+construction were obviously the real considerations for the lease. For
+the rest the terms of the lease carried out the spirit of the Gleaves
+Act by providing that the lease should terminate and all rights under
+it should cease if the demised premises, or the lessee corporation,
+should ever, by or through any corporate act of the latter, become,
+during the period of the lease, subject directly or indirectly to the
+control or dominion of any person, company, or corporation having
+railway terminal facilities on the Bay of San Francisco. Likewise the
+lease was to terminate if the party of the second part (the railway)
+should enter into any combination, arrangement, pool, trust, or
+agreement with any railroad corporation, or individual, having railroad
+terminal facilities upon, or adjacent to, the water-front of the city
+of San Francisco, for the purpose of preventing or limiting competition
+in the business of carrying freight or passengers. This wording
+permitted merger or agreement between the San Francisco and San Joaquin
+Valley Railway and the Atchison, Topeka and Santa Fé Railway Company,
+but not between the former company and the Southern Pacific, and was
+quite evidently intended to have this effect. In accordance with the
+terms of the Gleaves Act, the lease was made non-assignable.[483]
+
+
+Reasons for Consolidation
+
+A very interesting statement issued in October, 1898, by a
+vice-president of the Valley road, Robert Watts, explains the
+development of the relations between the Santa Fé and the San Francisco
+and San Joaquin Valley Railway with what appears to have been
+considerable frankness. This statement is valuable enough to be quoted
+at length:
+
+ I have said that the Santa Fé Railroad was not consulted upon the
+ organization of the Valley Road. This is strictly true. But it is also
+ true that shortly after we began work that discussions arose among
+ ourselves and the public as to a probable connection with that road,
+ but we were not organized with that object in view. Wherever we have
+ gone in the San Joaquin Valley the people have asked us when we would
+ connect with the Santa Fé road....
+
+ For a little time we clung to the belief that we could make a traffic
+ arrangement with the Santa Fé road, and from the day that we saw that
+ connection with that road was inevitable we worked toward that end. We
+ worked to keep the Valley Road in its original form, and give original
+ stockholders a personal interest in the terminus of an overland line.
+ But we found that our stockholders were not all actuated by the same
+ sentiment that actuated the directors and trustees.
+
+ When we began to negotiate with the Santa Fé people we found that
+ some of our richest stockholders had sold their stock at 50 cents on
+ the dollar; and when we talked traffic arrangement with the Santa Fé
+ people they showed us that in that way the Southern Pacific people
+ could quietly buy in a control of the stock and could then abrogate
+ their traffic agreement at the conclusion of the trusteeship in less
+ than seven years and leave them no better off than they were.
+
+ It was only when we saw that there was absolutely no hope of making
+ the overland connection without a sale of the stock and there was a
+ possibility, if not a danger, that the Southern Pacific Company might
+ obtain control of the stock of the road that we decided to talk with
+ our stockholders and we laid the whole matter before them and told
+ them not to sell their stock at less than par and then the option was
+ taken upon the stock and it will undoubtedly be closed.[484]
+
+This statement of Mr. Watts bears out the conclusion at which we
+had already arrived, namely, that the promoters of the Valley road
+appreciated from the first that they must connect their enterprise with
+some larger system in order to be permanently successful. At the same
+time the prominent mention of the Santa Fé Railroad in the statement, a
+railroad system which had neither rails in the San Joaquin Valley nor
+termini on San Francisco Bay, suggests why the promoters were willing
+to accept the restrictions imposed by the trust agreement of 1895 and
+by the China Basin lease.
+
+
+Transfer of Control
+
+In the fall of 1898, the directors of the San Francisco and San Joaquin
+Valley Railway requested the holders of trust certificates to deposit
+these certificates with the Union Trust Company of San Francisco,
+and to give an option for the purchase of them at par, valid for a
+period of three months. The prospective purchaser was not named, but
+the Santa Fé was understood to be the party interested. Certificate
+holders responded very generally to the request. Apprehensions were
+expressed by a number of shippers at this time, and also by some of
+the San Francisco newspapers, that the deposit of certificates under
+the conditions required meant an end of railroad competition in the
+San Joaquin Valley.[485] The plan was nevertheless considered by the
+trustees of the San Francisco and San Joaquin Valley Railway and was
+approved by them, Mr. Ripley giving written and verbal assurances in
+behalf of the Santa Fé that the Valley road would be continued as a
+competing line.[486] In due course the option was taken up and the
+expected transfer of control to the Santa Fé occurred.
+
+It may be observed, to conclude this part of the story, that when the
+Santa Fé began negotiations with the managers of the Valley road in
+April, 1898, its operated mileage ran from Chicago west to Mojave,
+Los Angeles, and San Diego (National City). It had no route over the
+Tehachapi Pass between Mojave and Bakersfield, and thus no way of
+reaching the San Joaquin Valley save by traffic arrangement with the
+Southern Pacific. The purchase of the San Francisco and San Joaquin
+Railway gave to the Santa Fé control over a system of 279 miles,
+stretching from Stockton to Bakersfield, with a branch from Fresno
+through Visalia and Tulare, and an extension from Stockton to Point
+Richmond which, while not completed, was under way, and funds for
+the construction of which were in hand. Actual construction of the
+Stockton-Point Richmond line had begun in April, 1898. The work was
+continued by the Santa Fé, and the road was opened for freight and
+passengers, respectively, in May and July, 1900. There was talk also
+of building across the 68-mile gap between Mojave and Bakersfield.
+Eventually, however, an amicable arrangement with the Southern Pacific
+was concluded in this territory under which the use of the Southern
+Pacific line across the mountains was thrown open to both companies.
+This finally admitted the Santa Fé to northern California.
+
+
+Reduction of Grain Shipment Rates
+
+Did the building of the San Francisco and San Joaquin Valley Railway
+justify itself? From the financial point of view the answer is clearly
+in the negative. To say nothing of the energy spent in its development,
+investors in the stock of the railroad received no dividends. They
+therefore lost the use of the capital which they contributed for a
+period of three years. The principal of their investment they did,
+indeed, recover, but the interest upon it was gone. On the other hand,
+the enterprise was never regarded as likely to be a money-making affair
+in the narrow sense, and the financial point of view was not the chief
+one to be regarded. The real benefit expected from the construction
+of the Valley road was that which would come from a reduction in
+transportation charges between San Francisco and points in the San
+Joaquin Valley, and the success of the project was therefore to be
+measured primarily by the cuts in railroad rates for which it might be
+held responsible. We may consider the problem a moment from this point
+of view.
+
+The first reduction in rates which may be attributed to the Valley road
+occurred in June, 1896, when the new railroad published a schedule of
+charges on wheat and on burlap bags to Stockton from stations upon its
+line south of the last-named city. This schedule showed substantial
+reductions. On September 15, 1895, the Southern Pacific rate from
+Ripon, a town 20 miles distant from Stockton, to Stockton was 95
+cents per ton of 2,000 pounds. The Valley road in 1896 filed a rate of
+80 cents a ton from Escalon, 21 miles distant from Stockton upon its
+own line. The Southern Pacific rate for the 29 miles from Modesto to
+Stockton was $1.35 a ton. From Empire, the nearest station to Modesto
+upon the San Francisco and San Joaquin Valley, the new railroad put
+in a rate of $1.10. The rate from Merced was $1.85 over the Southern
+Pacific; it was now made $1.70 by the Valley road. In addition to these
+reductions in the rates to Stockton, the new company afforded shippers
+a sensible relief by abolishing the switching charge of 15 cents per
+ton which the Southern Pacific had been accustomed to demand on grain
+handled at that point.[487]
+
+As the Valley road extended itself to the south and added new
+stations at which it was prepared to receive business, the policy of
+rate-cutting was continued. In September, 1896, a wheat rate of $2.15
+per ton was established from Fresno to Stockton, 20 cents less than the
+Southern Pacific charge.[488] By 1898 the line had reached Bakersfield,
+and grain rates were put in from towns between Hanford and that city
+which were from 10 to 15 cents per ton less than the rates which the
+Southern Pacific was accustomed to exact.[489] All the rates quoted
+were met by the Southern Pacific; moreover, word was sent to Mr. Moss,
+traffic manager of the San Francisco and San Joaquin Valley, that the
+Southern Pacific would continue to meet reductions as fast as they were
+made.
+
+
+Merchandise Tariff
+
+The first merchandise tariff to be established by the new line was
+somewhat slower in appearing than the tariff on grain, because the
+formulation of it was a more complicated matter. Nevertheless, such
+a tariff was filed with the State Railroad Commission on August
+22, 1896. The new merchandise rates were based upon the Western
+classification, and were believed to represent reductions of from
+10 to 50 per cent as compared with Southern Pacific rates before
+the competition of the Valley road had become effective. In the new
+schedule the first-class rate from Stockton to Merced was 31 cents
+per hundred pounds, or approximately .9 cents per ton per mile. On
+class five, the highest carload class, the rate was $4 per ton, or .6
+cents per ton per mile.[490] As in the case of the grain rates, the
+publication of new merchandise schedules continued as the Valley road
+proceeded south. Thus when the company reached Bakersfield it put in
+a first-class rate of 83 cents per hundred pounds, a cut of 19 cents
+under the Southern Pacific tariff, with rates on other classes reduced
+to correspond.[491]
+
+In addition to grain and merchandise rates, the Valley road also quoted
+commodity rates. The rate on flour from Merced to San Francisco was
+set at $2.75 per ton, and that on potatoes and on lime at $1.85 per
+ton, as compared with rates of $4.20 and $3.10 over Southern Pacific
+lines.[492] Likewise passengers were carried from Stockton to Fresno
+and to intermediate points at a flat rate of 3 cents per mile. Later,
+the fare from San Francisco to Hanford was reduced from $7.30 to $4.65,
+that to Visalia from $7.40 to $5,[493] and that to Bakersfield from
+$9.10 to $6.90.[494]
+
+
+Relative Position of San Francisco Improved
+
+It should be added that the adjustment both of grain and of merchandise
+rates was such as to improve the relative position of San Francisco as
+compared with other cities, as well as to reduce directly the freight
+bills which she had to pay. Generally speaking, the grain rates between
+points in the San Joaquin Valley and San Francisco were made 50 cents
+per ton higher than the rates to Stockton. This in itself represented
+a reduction of 50 cents under the Southern Pacific rates, inasmuch
+as the Southern Pacific had been accustomed to quote a rate to San
+Francisco which was $1 per ton higher than the rate to Stockton, in
+order to encourage shipments to Port Costa. The Southern Pacific rate
+to Port Costa, exceeded its rate to Stockton by only 50 cents, and was
+less than the Southern Pacific grain rate to San Francisco by the same
+amount.[495]
+
+The differentials in the case of merchandise southbound varied. On
+first-class the rate from San Francisco to valley points was 5 cents
+per hundred pounds higher than the rate from Stockton. On second-class
+the differential was 3 cents, and on third and fourth classes it
+was 2 cents per hundred pounds. Groceries and supplies for country
+stores generally fell in classes two, three, and four. These figures
+compared with Southern Pacific differentials of 5 cents on classes one
+and two, and 4 cents on classes three and four.[496] Here again the
+relative position of San Francisco was improved, not unnaturally to the
+satisfaction of dealers in that city.
+
+It is clear from the facts set forth in the last few pages that the San
+Francisco and San Joaquin Valley Railway accomplished a considerable
+reduction in rates, at least for a time, in the San Joaquin Valley.
+When we bear in mind that this was the principal purpose for which the
+road was built, and when we recall that after all its promoters escaped
+without considerable financial sacrifice, it is hard to avoid the
+conclusion that the enterprise was justified, and may be considered to
+have been worth what it cost. The company did not fulfil the hopes of
+its projectors; it failed to maintain its independence, and only for
+a few years served as an aggressive competitor of the system which San
+Francisco business men so cordially disliked. But it did do something
+to relieve the mercantile community, at no great expense to the persons
+who invested in it, or to the city which promoted it, and so, in a
+modest way the railroad may be considered a success.
+
+
+
+
+CHAPTER XIX
+
+OPERATING CHARACTERISTICS OF THE SOUTHERN PACIFIC LINES
+
+
+Proprietary and Leased Properties
+
+Let us now leave the general questions of rates and competition in
+California, and return again to the more intimate history of Southern
+Pacific development, and particularly to the story of the later
+years. The present chapter describes the organization and operating
+characteristics of the Southern Pacific system after 1885; the chapters
+next following take up that all-important financial problem which
+faced the Central Pacific in the later nineties—the repayment of the
+government debt.
+
+A glance at the annual report of the Huntington lines shows that
+from the point of view of ownership the system, as early as 1885,
+was divided into two parts. The first of these was known as the
+“proprietary companies,” and included the Southern Pacific Railroad
+of California, the Southern Pacific Railroad of New Mexico, the
+Southern Pacific Railroad of Arizona, Morgan’s Louisiana and Texas
+Railroad and Steamship Company, the Louisiana and Western Railroad,
+the Texas and New Orleans Railroad, the Galveston, Harrisburg and San
+Antonio Railway, and the Northern Railway. The second was known as
+the “leased companies,” and its principal components were the Central
+Pacific Railroad, the California Pacific Railroad, and the Oregon and
+California Railroad.
+
+The difference between leased and proprietary lines was not in the
+operating relations between the two groups and the Southern Pacific
+Company, for as a matter of fact all were “leased lines” in this
+regard, but in the circumstance that the Southern Pacific Company
+held substantially all the stock of the proprietary companies in its
+treasury as the result of the issue of its own stock in exchange; this
+was not true of the so-called leased companies. In December, 1896, the
+Southern Pacific reported 5,250 miles of proprietary lines, and 2,128
+miles of leased properties.[497]
+
+From the standpoint of operation the distinction between proprietary
+and leased lines was completely disregarded, and naturally so because,
+as has been said, both kinds of properties were operated after the same
+general fashion. Instead of being classed as proprietary or leased
+companies, the Southern Pacific lines were divided for operating
+purposes between the Pacific system including the mileage south of and
+including Portland, Oregon, and west of Ogden and El Paso, and the
+Atlantic system, including the railroads east of El Paso. In 1889 local
+legislation compelled the separate operation of the lines in Texas. In
+1896 there were 4,966 miles of main line in the Pacific system, 1,967
+miles in Texas, and 445 miles in Louisiana. Mention should also be
+made of over 3,500 miles of water routes, chiefly those connecting New
+Orleans and Morgan City with the West Indies and with New York.
+
+
+Bigness of System
+
+The fact concerning Southern Pacific properties that seems to have
+most impressed observers was their sheer size. A company controlling
+7,300 miles of railroad and 3,500 miles of water lines, and operating
+between Portland, New Orleans, and New York, was unusually large even
+to men accustomed to the great eastern corporations which operated
+in the nineties. The railroad mileage of the Southern Pacific in 1896
+exceeded that of the Union Pacific by 2,600 miles, that of the Santa
+Fé by 940 miles, and that of the Northern Pacific by 2,800 miles. Even
+the Pennsylvania Railroad operated only 6,700 miles in 1896, including
+lines both east and west of Pittsburgh, while the reported mileage of
+the New York Central and Hudson River Railroad was but 2,395 miles in
+the same year.
+
+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, the great extent of the Southern Pacific system made
+its problems those of extensive rather than of intensive operation.
+Locomotive runs were longer on the Southern Pacific than elsewhere, and
+more attention was paid to questions of organization, particularly in
+later years.
+
+There were other features about the Southern Pacific lines, however,
+besides their length, which deserve at least a passing mention. The
+system enjoyed, for example, the advantage of a highly diversified
+traffic. The year 1900 was not exceptional in this regard, yet in 1900,
+22 per cent of the freight carried by the Southern Pacific fell in the
+class of products of agriculture, 17 per cent was manufactures, 15
+per cent was products of the forest, 10 per cent products of mines, 8
+per cent merchandise, and 4 per cent animal products. When we recall
+that in the same year 47 per cent of all the freight carried by the
+Pennsylvania Railroad Company consisted of anthracite and bituminous
+coal, and that nearly half of the freight transported over the
+Chicago, Milwaukee and St. Paul Railroad consisted of products of
+agriculture and of the forest, we can understand the unusual position
+in which the Southern Pacific was placed.[498]
+
+
+High Average Earnings
+
+Generally speaking, on a railroad system which handles a large traffic
+in manufactured goods, the average return per ton per mile will be
+large. This is particularly true when the company’s coal tonnage is
+of small proportions. In the case of the Southern Pacific, the effect
+of such a distribution of business was increased by the fact that the
+company possessed the well-nigh exclusive control of a large local
+business on the Pacific Coast, on which high rates could be charged.
+This was where the efforts of the associates to maintain a monopoly
+of rail transportation in California bore fruit. Eighty-two per cent
+in weight of the commercial freight handled in 1883 by the Central
+Pacific Railroad was classified as local, and almost two-thirds of
+this company’s earnings were derived from local business. Indeed, the
+local freight during the early years of operation exceeded expectations
+as much as the through freight fell behind what was thought would
+be its probable development. Prior to the construction of the Union
+and Central Pacific railroads, it was supposed that for many years
+the through business of the new lines would constitute by far their
+principal source of revenue. It was also supposed that the traffic
+of the companies would consist very largely in the transportation
+across the continent of the products of Asia in transit to the states
+situated east of the Mississippi River and to Europe. Both of these
+anticipations proved entirely mistaken.
+
+Partly, then, because of the character of the freight which it handled,
+and partly because of the fact that a large proportion of its business
+was local, the average rate upon the Southern Pacific was very high.
+The average freight receipts of the Central Pacific in 1872 were 3.66
+cents per ton per mile. While they declined in subsequent years, the
+figure was still 2.75 cents in 1878, and 2.14 cents in 1881. In 1878,
+while the Central Pacific was earning 2.75 cents per ton per mile, the
+Santa Fé received only 2.12 cents, the Union Pacific 2.27 cents, the
+Chicago and Northwestern 1.72 cents, the Pennsylvania .92 cents, and
+the Lake Shore and Michigan Southern .73 cents.[499] Fourteen years
+later, the average receipts on the entire Southern Pacific system were
+exactly twice the average receipts per ton per mile on the Illinois
+Central, and materially greater than those of most roads in other parts
+of the country.
+
+It is evident that the average earnings of the Southern Pacific system
+were superior to those of the other transcontinental railroads, to
+say nothing of such eastern properties as the Illinois Central and
+the Chicago and Northwestern. To break the force of the comparison,
+Mr. Huntington was wont to compare Southern Pacific figures with
+the averages reported by the Interstate Commerce Commission for the
+so-called Group X, which included the Pacific Coast. These statistics
+showed, for example, in 1894, that the average receipts per ton per
+mile of railroads in Group X were 1.343 cents, while those of the
+Southern Pacific (Pacific system) were 1.316 cents. Territorial
+averages, however, made up of returns from small companies and from
+large, from local and from through concerns, may reasonably be expected
+to be higher than averages which apply only to large systems. The
+Southern Pacific received more on the average than its competitors,
+and almost as much as the group in which it lay, in spite of the fact
+that it enjoyed a through business in which a great many of the small
+western lines had no share.
+
+
+Long Average Haul
+
+The influence of through business on the Southern Pacific lines was,
+on the whole, opposed to that of the local business. Not only was the
+through business highly competitive, but, as might be anticipated, it
+was characterized by an extremely long haul. Indeed, in the year 1895
+the average length of haul on the through freight transported over the
+Pacific system of the Southern Pacific was 844 miles. The average haul
+of freight on the entire business of the company was 279 miles. During
+the same year the New York Central Railroad reported an average haul of
+169 miles, and the Erie one of 156 miles.
+
+The reason for the extraordinary length of haul on the Southern Pacific
+lay in the fact that the company served a rich community far removed
+from eastern centers of population, yet relying to a considerable
+extent upon these centers both as a market for its produce and as a
+source for its supplies. Moreover, the commodities of California, such
+as fruit and lumber, wool, fish, and wine, and the imports through the
+port of San Francisco, such as tea, sugar, and silk, were sufficiently
+distinct in character from the typical products of the East to give
+something of the stability of international division of labor to the
+movements between the Pacific Coast and the eastern states. Much the
+same can be said of the transportation of manufactured goods westbound
+in view of the high price of labor in the West and the scarcity of coal.
+
+These matters have been considered in a preceding chapter. Their
+effect was to make it easy to secure a great many full cars, or even
+trainloads, and to reduce terminal expenses to a minimum. Inasmuch,
+however, as the raw products of California were heavier and took up
+more space than the manufactured goods received in exchange for them,
+a very considerable excess of eastbound tonnage often existed. In
+1888, to take a year at random for purposes of illustration, the tons
+of through freight carried one mile eastward on the Pacific system
+were reported as amounting to 335,330,035, while the through westbound
+freight amounted to only 232,682,578. This meant light loads and empty
+mileage on the westbound traffic. The difference would doubtless have
+been greater had it not been for the large westward moving company
+freight. Such a tendency called for constant effort on the part of the
+officials of the Southern Pacific to secure eastern manufactures for
+westbound transportation, and this effort in turn gave rise to friction
+between the railroad and the manufacturing interests upon the Pacific
+Coast.
+
+On the other hand, the tendency of the passenger traffic was in the
+direction of an excess of westbound business, because of the migration
+of permanent settlers to California. During the three years from 1888
+to 1890, 328,892 through passengers were reported as moving westward
+on the Pacific system alone, and only 241,643 as moving eastward, or
+an excess of 36 per cent in favor of the West. The excess of westbound
+passenger traffic during these three years reached the large total of
+76,580,470 passengers, or more than the total eastbound movement in any
+one year of the period.
+
+
+Earnings Density
+
+The greatest density of earnings on the Southern Pacific system was
+on properties such as the Central Pacific and the California Pacific,
+which together with the Northern Railway formed the main trunk line
+from San Francisco to the East. In 1895 the Central Pacific earned
+$9,537 per mile and the California Pacific $9,266, amounts which were
+far inferior to the results of the operation of railroads in thickly
+settled districts east of the Mississippi River, but which yet exceeded
+the returns on the Santa Fé, the Illinois Central, and even those
+reported on the western portions of such a railroad as the Baltimore
+and Ohio.
+
+Next to the California Pacific in the Southern Pacific system, in
+respect to earnings, came, in 1895, the South Pacific Coast Railroad,
+with gross earnings of $8,000 per mile; the Southern Pacific railroads
+of New Mexico, California, and Arizona, with earnings ranging from
+$6,500 to $5,800; the Northern Railway with $5,177; and finally the
+Northern California and the Oregon and California Railroad companies,
+with earnings per mile of $2,600 and $2,400, respectively. The figures
+so far given all relate to the Pacific system. In general it may be
+said that the earnings of Atlantic system lines were slightly greater
+per mile than those of the western properties. This statement does not,
+however, hold good of all the Atlantic companies, nor, on the average,
+for the Texas roads, statistics for which are given separately.
+
+
+Diversion of Traffic to El Paso Route
+
+Unquestionably there was a difference in interest between different
+parts of the Southern Pacific system, particularly between the Central
+Pacific or Ogden route, and the Southern Pacific or El Paso route.
+When the Southern Pacific was first completed to El Paso, the question
+was raised as to whether it would be the policy of the management
+of the whole system to divert all transcontinental freight via the
+southern route. In a letter to a bureau of the United States Treasury
+Department, Mr. Huntington observed that it would be necessary to
+continue to do a large part of the through business over the Central
+Pacific in order that that road might be enabled to meet its interest
+charges and the requirements of the government indebtedness. The point
+was evidently regarded as one which called for a decision as to policy.
+Mr. Huntington further pointed out that it would be injudicious for
+the Southern Pacific to push any advantage too strongly which it might
+have, lest it provoke retaliatory action by other lines.[500]
+
+The early practice of the Southern Pacific did not, however, altogether
+accord with this counsel of moderation, and the company seems not only
+to have been very active, but actually to have succeeded in capturing
+as much as 90 per cent of the New York-San Francisco business; also,
+while it did not permanently retain so large a share of the through
+freight which moved by rail, it continued to carry the major portion of
+the westbound traffic from the Atlantic seaboard to California until
+perhaps the year 1887.[501] Some of the freight which the Southern
+Pacific handled during this period was new business, but a considerable
+portion of it was taken from the Central Pacific.
+
+There is more or less evidence that it was the practice of the Southern
+Pacific management to lay special emphasis upon the advantages of the
+southern route, in the attempt to divert as much business as possible
+to what was known as a 100 per cent line. That shippers believed such
+a policy was being followed, is evident from statements which appeared
+in the public press. It was currently asserted, for instance, that
+ticket and traveling agents of the Southern Pacific all over the state
+of California were instructed to use their best endeavors to induce
+passengers to move by way of the southern line instead of by way of
+Ogden.[502] It was claimed that better time was made over the Southern
+Pacific than over the Central Pacific, and that freight shipments were
+more easily traced.
+
+Speaking of westbound freight, a San Francisco merchant was quoted in
+1896 as stating that the Southern Pacific delivered freight from New
+York to San Francisco in from twelve to twenty days. Should the freight
+not come to hand promptly, officials of the company were said to be
+exceedingly careful to discover the causes of the delay and to see that
+the goods were pushed forward as rapidly as possible. On the other
+hand, if freight came via Chicago and Ogden, all the way from 18 to
+28 days might be spent upon the journey, while information as to the
+causes of delay was difficult to obtain.[503]
+
+
+Testimony of Employees and Officials
+
+One may readily concede that complaints of the character referred
+to are to be accepted only with reservations; yet there is later
+information which bears out the substance of the charges in convincing
+fashion. When the Southern Pacific system was attacked in 1914 as a
+combination in restraint of trade, a great many railroad employees were
+put upon the stand, and testimony was secured which related not only
+to current policy, but also to practices which had been followed by
+members of the Southern Pacific staff for a number of years in the past.
+
+It appears without substantial contradiction from the testimony in
+this case, that Southern Pacific, and even Central Pacific employees,
+solicited for the Sunset route before its combination with the Union
+Pacific in preference to the route via Ogden in order to obtain the
+long haul, even when the Sunset route was very roundabout. Mr. Connor,
+commercial agent of the Southern Pacific at Cincinnati from 1889 to
+1901, testified that his office had directed its exclusive time and
+attention to securing traffic from California points for the New
+Orleans gateway. Shipments moving via Ogden he regarded as lost and
+reported them accordingly.[504] Mr. Sproule said that the same was true
+of the whole Central Freight Association territory, from Buffalo and
+Pittsburgh on the east, to Chicago and St. Louis on the west.[505]
+
+Mr. Spence, director of traffic of the Southern Pacific Company,
+admitted that effort was made to send business to California via New
+Orleans when the point of origin was in territory east of a line drawn
+from Toledo through Indianapolis and Terre Haute to St. Louis.[506] Mr.
+Lovett thought that Southern Pacific solicitors even in Chicago did not
+work against the solicitation of lines leading to New Orleans, though
+acting independently they would solicit business via Ogden.[507] It is
+in the record, also, that Southern Pacific solicitors in 1914 sought
+freight from the Atlantic seaboard to Oregon and Nevada through the New
+Orleans gateway,[508] and that the great bulk of wool from western and
+central Nevada destined to the Atlantic seaboard actually moved west
+to Sacramento and then south and east over the Sunset line, instead of
+taking the direct route via Ogden.[509]
+
+
+Complaints of Others
+
+This direct testimony of Southern Pacific employees is in harmony with
+repeated assertions made by persons outside of the organization, and
+seems to indicate that some discrimination against the Central Pacific
+and in favor of the Southern Pacific on transcontinental business
+was encouraged by those in control of the Southern Pacific Company’s
+affairs. As well informed a man as P. P. Shelby, traffic manager of
+the Union Pacific, declared in 1887 that he knew by conversation with
+shippers that the Central Pacific had diverted all the traffic they
+could control to the Sunset route ever since the Southern Pacific
+was completed, commencing in 1882. All kinds of merchandise had been
+diverted, especially such goods as canned fruits, canned fish, and
+wool. Asked whether the Union Pacific would carry 25 per cent more
+freight if the Central Pacific were separated from the Southern
+Pacific, Mr. Shelby qualified his statement by saying that it was hard
+to answer the question. The Southern Pacific gave the Central Pacific
+a good deal of freight which that company would not have received were
+the two lines segregated. Had they been two independent lines, under
+independent management, the Southern Pacific would not have given the
+Central Pacific any freight at all.[510]
+
+Similar charges were made by representatives of interests such as
+those of the English stockholders of the Central Pacific, who asserted
+that Mr. Huntington wished to ruin the Central Pacific, and dwelt
+upon the advantages of bankruptcy to a company from which the United
+States government was about to attempt to collect a debt. Knowing as
+we do that the Huntington-Stanford group shifted the weight of their
+investments from the Central to the Southern Pacific in the eighties,
+there is of course ground for suspicion that the diversion of freight,
+to which the evidence that has been quoted refers, was part of a
+carefully thought-out plan, and that more than traffic matters were
+involved.
+
+
+Real Reasons for Traffic Diversion
+
+Yet the truth of the matter probably is that while some diversion from
+the Central to the Southern route occurred, this diversion, although
+looked upon with equanimity by Mr. Huntington, was not part of an
+attack upon the Central Pacific, but may be explained by certain simple
+traffic considerations. There were at least two good reasons why an
+attempt should have been made to handle business from New York over
+the Southern Pacific rather than over the Central Pacific. The first
+reason was that it was more profitable for the Southern Pacific to take
+freight from New York by a route which it entirely controlled, than
+to divide the earnings on such business with the direct lines between
+New York and Ogden. The second reason was that the Southern Pacific
+could offer better service on the Sunset route than over the Central
+Pacific because of the indifference of the lines east of Omaha. The
+Central Pacific business was done on a different classification from
+that in use in the East. Also, many classes of freight were taken at
+low rates because of water competition, so that the divisions accruing
+to eastern lines were very small, and their interest in the traffic
+correspondingly slight.
+
+Finally, to the eastern roads the whole business was unimportant
+compared with the volume of other kinds of goods which they
+were handling. The result was that Mr. Stubbs, of the Southern
+Pacific, complained very vigorously that eastern lines neglected
+transcontinental business. It took four to six days he said, to get
+freight through the city of Chicago, and often thirty to thirty-five
+days to transport it from Omaha to New York. Freight had to be
+way-billed three times via Ogden as compared with one billing via El
+Paso. In fact, in 1885 and 1886 the trunk lines practically withdrew
+from the transcontinental business, and to this withdrawal should be
+attributed the large proportion of the traffic between San Francisco
+and New York which was handled by the Sunset route during these
+years.[511]
+
+These two reasons, of which one still has force, and the other was
+important for a number of years, are sufficient to account for most
+of the diversions complained of, and it is not necessary to attribute
+additional motives to the Huntington management.
+
+As a matter of fact, in spite of the traffic policy described, the
+gross earnings per mile of the Southern Pacific did not move very
+differently from those of the Central Pacific during the years from
+1886 to 1895, when the data are distinguishable in the companies’
+reports. The advances and recessions in volume of traffic were not
+identical for the two companies during these years, nor did they occur
+at exactly the same times, but the figures seem to offer no support to
+the charge that the prosperity of either company was being sacrificed.
+
+It may also be observed that the policy of freight diversion was
+not confined to the period when the Central Pacific was negotiating
+with the government for the payment of its debt and with the English
+stockholders for the adjustment of their claims, nor to the years when
+the management of the Southern Pacific Company owned Southern Pacific
+shares and did not own a corresponding amount of the shares of the
+Central Pacific. In fact, as has been said, the policy of seeking to
+obtain the benefits of the long haul is still followed by the Southern
+Pacific Company, and its agents still take credit for sending freight
+all the way to New York by company lines, although the financial
+control of both the Southern and the Central Pacific has long been in
+one set of hands.
+
+
+Traffic in Early Eighties
+
+Like other systems in the United States, the earnings of the Southern
+and Central Pacific railroads fluctuated considerably from year to
+year. It has been pointed out in a previous chapter that during the
+period from 1870 to 1879 the rapid extension of the Southern Pacific
+in the South West, and the temporarily unproductive character of the
+new mileage built, well-nigh caused the bankruptcy of the entire
+concern. The associates were then saved by the completion of the
+Southern Pacific main line to The Needles, and by an improvement in
+general stock market conditions which enabled them to sell securities
+in New York. In 1885 the Central Pacific retired the greater part of a
+floating debt of $12,873,946 by an issue of bonds, and for the first
+time in many years was freed from what had always been a pressing
+danger.
+
+In spite of this important relief, the years 1882, 1883, 1884, and 1885
+were still years of considerable difficulty. Although the mileage of
+the system now increased but slowly, the revenue per mile declined.
+Thus the Central Pacific earned $9,449 per mile of line in 1881,
+$8,437 in 1882, $8,253 in 1883, and $7,496 in 1884. In three years
+gross earnings per mile dropped 21 per cent. This decline was due to a
+number of causes. The Central Pacific suffered greatly, for one thing,
+from the falling off in the tonnage supplied by the Nevada mines.
+Roads like the Eureka and Palisade, the Nevada Central, the Nevada and
+California, and the Virginia and Truckee railroads, which were at one
+time lucrative feeders to the Central Pacific main line, all showed a
+considerable decline in earnings and business between 1875 and 1885
+because of the failure of the mines. The freight received at Palisade,
+the terminus of the Eureka and Palisade Railroad, declined 74 per
+cent between 1875 and 1888. The freight received at Battle Mountain,
+the terminus of the Nevada Central, fell off 78 per cent, while that
+arriving at Virginia City over the Virginia and Truckee Railroad
+dropped 86 per cent.
+
+It was estimated that the shrinkage of traffic between 1876 and 1885
+was not less than $2,000,000 per annum as compared with the period
+of highest prosperity of the Nevada country. The decrease was due in
+the first instance to the working out of the ore deposits, not only
+of the Comstock lode but of nearly all other camps within the states
+of Nevada and Utah west of Ogden which were tributary to the Central
+Pacific line. Following this, there was a large falling off in traffic,
+consisting of mining machinery and all kinds of supplies previously
+required by the miners at the mining camps, and also a large falling
+off in passenger travel as compared with the first and prosperous years
+of operation.[512]
+
+Besides the loss of the Nevada mining traffic in the late seventies and
+early eighties, the Central Pacific also had to reckon with a certain
+loss of business by reason of the opening of transcontinental competing
+routes such as the Santa Fé in 1881 and the Northern Pacific in 1883.
+In the early part of the period the decline in business seems to have
+been due mainly to local conditions; in 1884, however, as was to be
+expected, a serious decrease in the earnings from through business
+occurred.
+
+
+Later Earnings
+
+As a contrast to the unsatisfactory character of the returns for the
+years 1883, 1884, and 1885, the reports of the companies show that,
+taking the Central Pacific-Southern Pacific system as a whole, the
+total earnings from 1885 to 1891 steadily increased, both in the
+aggregate and per mile of line. If we compare the condition of the
+system in 1891 with its condition in 1885, we find a progress which may
+be summarized as follows:
+
+COMPARATIVE STATEMENT OF MILEAGE, CAPITALIZATION, EARNINGS, AND
+EXPENSES OF THE SOUTHERN PACIFIC SYSTEM, 1885,(*) 1886, and 1891
+
+ Item 1885 1886 1891
+
+ Mileage operated 4,698 4,847 6,376
+ Capital stock $171,036,160 $198,668,170 $264,375,066
+ Funded debt 158,970,716 181,041,680 205,621,373
+ Gross earnings 25,006,106 31,797,882 50,449,816
+ Operating expenses 12,149,824 18,514,656 31,163,612
+ Net earnings 12,856,282 13,283,226 19,286,214
+
+ (*) The figures of earnings for 1885 represent the results of from
+ nine to ten months’ operation only.
+
+This was a satisfactory showing. The total mileage operated by the
+Southern Pacific Company and by the Southern Pacific Railroad, Northern
+Division, increased between 1885 and 1891 from 4,698 miles to 6,376
+miles, not including the mileage of the steamship routes between New
+Orleans and Galveston and New York. The principal elements of new
+mileage added were certain lines in Oregon, including the property
+of the Oregon and California Railroad from Portland to the California
+state line (650 miles); a second road down the San Joaquin Valley on
+the west bank of the river (190 miles); and additional construction on
+the Coast Division (150 miles). Comparatively little was added during
+these years to the Central Pacific main line, or to the properties east
+of El Paso.
+
+While the mileage operated thus increased by 1,678 miles, or 36 per
+cent, gross earnings became greater by the sum of $25,000,000, or
+approximately 100 per cent, and net earnings by $6,429,921, or about 50
+per cent. This was accomplished with an increase in bonded indebtedness
+of only 30 per cent. The increase in stock outstanding was greater, it
+is true, than the increase in the funded debt, but the new stock issue
+did not increase the fixed charges of the road, and therefore in no way
+imperiled its solvency. In none of the figures cited are the so-called
+subsidy bonds issued by the United States government or the accrued
+interest upon the same included.
+
+
+Decline Following 1893
+
+Unfortunately, the progress of the Southern Pacific toward prosperity,
+which was so considerable between 1885 and 1891, was interrupted by the
+difficult commercial and industrial years between 1891 and 1897. The
+effect of world-wide depression upon American railroads is apparent
+when we observe that in the eastern part of the United States the gross
+earnings of companies like the New York Central fell off during this
+period from $21,000 per mile in 1892 to $18,000 per mile in 1897. The
+Pennsylvania lines west of Pittsburgh earned $44,210,000 in 1891 on
+a mileage of 3,502 miles. Six years later they hardly equaled this
+record on a mileage 500 miles greater. Even the protected system of the
+New York, New Haven and Hartford saw its gross earnings decline from
+$22,000 per mile in 1891 to $20,000 per mile in 1897.
+
+It was scarcely to be expected that the relatively new system of the
+Southern Pacific would not suffer with the rest. The figures seem
+to show, however, that the Huntington lines suffered more than most
+eastern railroads from the depression in business following the panic
+of 1893. While it is true that the portion of the roads operated by
+the Southern Pacific Company which was known as the Atlantic system,
+comprising the lines east of El Paso, escaped with a decline of
+earnings from $7,700 per mile to $7,400, or only 43 per cent, the
+Pacific system, including the Central Pacific and the Southern Pacific
+Railroad of California, witnessed a decline in its returns from $8,000
+per mile in 1891 to $6,400 per mile in 1897, or a loss of from five to
+six times as much in gross, and a still greater relative decline in
+net, receipts.
+
+The following table shows the earnings and expenses of the Central
+Pacific Railroad per mile of road from 1885 to the reorganization of
+the company in 1898:
+
+OPERATING RECEIPTS AND EXPENSES OF THE CENTRAL PACIFIC RAILROAD OF
+CALIFORNIA, 1885-98 PER MILE OF ROAD
+
+ Year Gross Earnings Operating Expenses Net Earnings
+
+ 1885 $ 8,383.26 $3,712.93 $4,670.33
+ 1886 9,135.18 4,445.62 4,689.56
+ 1887 10,092.27 5,394.48 4,697.79
+ 1888 11,641.24 7,079.38 4,561.86
+ 1889 11,416.92 7,178.13 4,238.79
+ 1890 11,715.97 7,259.55 4,456.42
+ 1891 12,224.76 6,771.95 5,452.81
+ 1892 10,745.16 6,548.29 4,196.87
+ 1893 10,488.89 6,267.71 4,221.18
+ 1894 9,578.18 6,008.06 3,570.12
+ 1895 9,534.31 5,990.94 3,543.37
+ 1896 9,159.68 5,706.59 3,453.09
+ 1897 4,270.75(*) 2,715.62(*) 1,555.13(*)
+ 1898 11,595.87 6,769.00 4,826.87
+
+ (*) Six months only.
+
+These figures show very clearly that the gross receipts of the Ogden
+route increased on the average per mile of road from 1885 to 1891, but
+that they fell off largely and persistently from 1891 to 1897. Indeed,
+the net earnings per mile each year from 1894 to 1897 inclusive, were
+less than those for any of the nine preceding years.
+
+
+Suspension of Central Pacific Dividends
+
+It seems very likely that this unusual falling off in the receipts
+of the Central Pacific Railroad Company is to be associated with the
+exceptionally disturbed traffic conditions on the Pacific Coast during
+the four or five years beginning in the latter part of 1891. These were
+the years when the Traffic Association of California was conducting
+its violent attack upon the Huntington interests. The period was
+also marked by the dissolution of the Transcontinental Association,
+and by the construction of the San Francisco and San Joaquin Valley
+Railroad. It was not to be expected that a campaign such as has been
+described in previous chapters would fail to have an influence upon
+the receipts of a company interested in business in, to, and from the
+state of California, so that a disproportionate decrease in Central
+Pacific earnings was not surprising. However this may be, the effect of
+the decline in earnings was to force the Central Pacific to stop the
+payment of dividends; and the cessation of dividends, together with
+other elements of uncertainty in the situation to which reference will
+be made, eventually caused the price of Central Pacific and of Southern
+Pacific stock to decline.[513]
+
+
+Dividend Policy
+
+In respect to dividends a word should be said here, enough at least to
+make clear that the whole dividend policy of the Central Pacific was a
+matter which provoked criticism, and that this criticism grew acute at
+the close of the period we are discussing. As a general matter it was
+charged that the Central Pacific had no business to pay any dividends
+at all while its indebtedness to the United States government remained
+uncanceled. It was further alleged, with more show of reason, that
+the dividends of the eighties were declared in order to assist the
+associates in disposing of Central Pacific stock in Europe, and not
+because there existed any surplus to which they could be properly and
+wisely charged. Finally, enemies of the company asserted, and showed
+ground for believing, that the dividends set forth in the annual
+reports of the Central Pacific to its stockholders did not represent
+all dividends actually declared; they asserted that, in addition, by
+special arrangement, considerable sums were paid out in unreported
+dividends, which may or may not have reached all holders of the stock.
+
+It appeared in this connection that a gentleman named Sir Rivers
+Wilson had come to the United States in 1894 as a representative of
+English shareholders.[514] Sir Rivers interviewed officers of the
+Central Pacific, inspected the property, and it was reported in the
+newspapers after his return to the East that he had arrived at a
+compromise with Mr. Huntington. The terms of the compromise were at
+first only vaguely understood, but the _London Economist_, in its
+issue of March 23, 1895, declared specifically that Mr. Huntington had
+undertaken to pay 1 per cent per annum in the shape of dividends until
+satisfactory legislation had been obtained for the adjustment of the
+Central Pacific’s debt to the government, and that he had also agreed
+to pay 2 per cent per annum for two years after the debt question had
+been settled, during which time the shareholders would have opportunity
+to review their position and to consider effecting an arrangement of a
+more permanent character.
+
+Mr. Huntington’s attention was called to this statement of the
+_Economist_, but he made no denial of the facts stated. Three years
+later Mr. Huntington went further, and admitted that he had agreed with
+Sir Rivers Wilson to pay shareholders—all shareholders—an annual
+dividend of 1 per cent upon their stock.[515] It was understood that
+the money for the secret Central Pacific dividends was loaned to the
+Central Pacific by the Southern Pacific, although this detail was not
+authoritatively established.
+
+
+Market Prices of Stock Shares
+
+Neither the Central Pacific nor the Southern Pacific were ever
+investment properties under the Huntington régime, in the sense that a
+stable return could be expected by holders of their stock, or even in
+the sense that the selling price of their shares remained reasonably
+uniform or ever reached a quotation in the neighborhood of par. Central
+Pacific stock sold at 34 in January, 1885. It rose to 51 in 1886,
+fluctuated principally between 26½ and 42 during the years from 1887
+to 1892, and then proceeded to fall in value until in the spring of
+1897 it was quoted on the New York Stock Exchange at the nominal figure
+of 7⅛ per share. The stock was ordinarily not traded in to any extent
+probably because so much of it was held abroad.
+
+Southern Pacific stock was listed on the New York market in 1885, but
+as has been explained in a previous chapter, quotations on the shares
+were for several years artificial. In 1890 the stock sold mostly
+between 25 and 35. It declined slightly during the latter part of
+1890 and the early part of 1891, but from September, 1891, to August,
+1892, most of the sales were between 35 and 40. Beginning in 1893 the
+price of Southern Pacific stock began to decline. In 1894 it reached
+17½, in 1895, 16¾; and in 1897 it touched the low point of 13½. After
+1898 Central Pacific stock left the market, but Southern Pacific stock
+recovered to about 50 in the middle of 1901, at which approximate price
+46 per cent of it was purchased by the Oregon Short Line.
+
+It is not without interest that the fluctuations in the quotations
+of the stock of the Central Pacific were quite as extreme between
+1885 and 1890 as were those of the Southern Pacific shares, although
+one stock was occasionally a dividend payer and the other was not,
+and that the Central Pacific stock was quoted at a distinctly lower
+figure between 1894 and 1898 than was the stock of its apparently more
+speculative associate. The reason is not to be found in the different
+natures of the properties represented by the two stocks, nor in any
+difference in operating conditions. It was plainly due to the gradually
+approaching maturity of the debt which the Central Pacific owed to the
+United States government, and to the complete uncertainty as to the
+effect which government action might have upon the solvency of the
+Central Pacific Railroad. So long as there seemed a possibility that
+the Central Pacific would be called upon to make good, in cash, an
+advance which by 1898 would amount to nearly $60,000,000—a sum which
+few persons believed that the Central Pacific would be able to pay—the
+stock certificates of this company could have only a speculative value.
+
+The question of the best way to meet the huge obligation which had
+grown out of the assistance tendered to the Central Pacific Railroad
+by the federal government under the Pacific Railroad Acts of 1862 and
+1864, was indeed the most important financial problem which the company
+had to solve after Mr. Stanford’s death. The two following chapters
+will be devoted to an exposition of the points involved in this
+transaction, and to a description of the solution finally reached in
+the year 1898.
+
+
+
+
+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 which received
+them. Setting aside the fact that a loan at a critical moment may be
+almost as serviceable to the recipient as a gift, the evidence shows
+that the unquestionable purpose of Congress in 1862 and 1864 was that
+principal and interest of the bonds should be met by the railroads for
+the benefit of which they were issued. It follows that this bond issue
+constituted an advance to the Central and Western Pacific railroads,
+not a gift; a loan, not a donation. It was the contention of Mr.
+Huntington, indeed, that the very name “subsidy” was a misnomer. He
+said:
+
+ The Central Pacific never got a subsidy; they got the loan of a small
+ subsidy. The government loaned money at six per cent and they expected
+ and did receive direct benefits from the time the road was built. It
+ was not a subsidy in any way.... A subsidy as I believe is where you
+ give ... For instance if you will build a railroad I will give you
+ $10,000 as a subsidy; as to being a loan of money it is no such thing.
+ It is only a business negotiation.[516]
+
+We must therefore recognize that the government advances to the
+Central Pacific did not constitute a subsidy in the ordinary meaning
+of that term. At the same time it should be observed that the Pacific
+railroads occupied a peculiarly advantageous position in respect to
+the loans which the government made to them. As will presently appear,
+although interest on this loan was charged, the companies were not
+obliged to pay a cent of this interest until the maturity of the
+bonds. This unusual concession was declared by the Supreme Court to be
+the necessary result of the absence of a precise stipulation to the
+contrary in the Acts of 1862 and 1864. The court said:
+
+ It is one thing to be required to pay principal and interest when
+ the bonds have reached maturity, and a wholly different thing to be
+ required to pay the interest every six months, and the principal at
+ the end of thirty years. The obligations are so different, that they
+ cannot both grow out of the words employed, and it is necessary to
+ superadd other words in order to include the payment of semiannual
+ interest as it falls due.[517]
+
+
+Payment of Simple Interest at Maturity
+
+A second concession to the Pacific railroads was made when no interest
+on deferred interest payments was exacted. Ordinarily in such cases
+interest is compounded at intervals of six months. On a thirty-year
+loan of $27,855,680, issued under the conditions which characterized
+the subsidies to the Central and Western Pacific railroads, the
+difference between simple interest and interest compounded semiannually
+would be $113,974,300. That is to say, simple interest would amount
+to $50,140,224 at the end of thirty years, while compound interest
+would equal the materially greater sum of $164,114,524. Put another
+way, the value in January, 1865, of the right to receive the principal
+of the government loan increased by simple interest according to the
+terms and at the dates contemplated by the Acts of 1862 and 1864, was
+only $13,000,000. This was the value of the monetary consideration
+which the federal government accepted from the Central and Western
+Pacific railroads. On the other hand, the value of the advance made
+by the government to the same railroads as of the same date was
+$23,000,000, or a difference of $10,000,000. This computation assumes
+that government bonds were sold at par, and that the current rate of
+interest was 6 per cent. The difference indicated would be reduced if
+government bonds were assumed to have sold for less than par, and it
+would be increased were a higher rate of interest than 6 per cent used
+in the calculation. Discussions of the Acts of 1862 and 1864 usually
+fail to make clear that the government demanded simple interest only on
+its loan, but as a matter of fact this was a feature of the contract
+which was of substantial value to the beneficiary.
+
+
+Claims for Indemnity
+
+It was of course expected by Congress that the Pacific railroads would
+make adequate provisions during the life of the bonds to meet the
+interest and principal due at their maturity. Before discussing the
+disputes concerning the size and nature of the sinking funds which
+should have been erected, a few words may be said regarding certain
+equities to which the Stanford-Huntington group repeatedly alluded as
+constituting reasons for not paying the bonds at all. These equities
+may be briefly enumerated as follows:
+
+The first equity was said to have arisen out of the loss which it was
+claimed the Central Pacific had sustained through failure to sell
+the bonds received by it from the government at par. This loss was
+estimated at $7,120,074, a sum which was raised by accrued interest
+up to the time of the maturity of the bonds to the very considerable
+figure of $19,936,206. According to Stanford, the government loan
+netted the company only 65 cents on the dollar. He said:
+
+ Indeed, if the company had taken advantage of the time allowed by
+ Congress for the completion of the road, they could not only have sold
+ the government bonds at par, but could also have disposed of their own
+ first mortgage bonds at their face value, which would have been a net
+ gain, over and above what was actually received, of $7,120,074, the
+ interest on which for thirty years would have been $12,816,132, which
+ would make an aggregate saving on the government bonds and the bonds
+ issued by the company, principal and interest in round numbers, of
+ about $40,000,000.[518]
+
+In the second place the Central Pacific insisted that there should be
+credited to it a portion of the amount which the government saved in
+the transportation of government employees and freight as a result of
+the rapid construction of its railroad. Under the terms of the Acts
+of 1862 and 1864, the Central Pacific and Union Pacific might have
+delayed completion of their road until July, 1876. As a matter of fact
+the through line from Sacramento to Ogden was opened in May, 1869. The
+consequent saving to the government was estimated at $47,763,178, of
+which the Central Pacific proportion was set at $21,971,062. A similar
+calculation laid before the United States Pacific Railway Commission in
+1886 reached the conclusion that the total saving to the government up
+to January 1 of that year had reached the sum of $139,347,741 on the
+Union and Central Pacific combined. The basis for these estimates was
+found in a comparison of the rates which the government had paid for
+rail movement and the rates which it would have had to pay for ox team
+and mule team transportation.
+
+Still a third claim was based upon an alleged loss of business
+consequent upon government subsidies to other transcontinental roads.
+The loss of earnings to the two roads from this cause was set at
+$37,000,000, of which the Central Pacific share was put at 46 per cent,
+or $17,000,000. Stanford did not deny that the government had a right
+in its discretion to aid other lines of railroad, but he took the
+position that if Congress found it in the interest of the country to do
+something which deprived the Central Pacific of the means of paying
+its debts, then it should compensate the Central Pacific for this
+action.[519]
+
+
+No Basis for Claims
+
+These three principal claims for indemnity were set up by officials of
+the Southern Pacific at one time or another as complete offsets to the
+obligations laid upon the company by the Acts of 1862 and 1864. Among
+minor equities should be mentioned also an alleged loss to the Southern
+Pacific by reason of the government’s slowness in issuing patents to
+land. Another claim was based on a loss in respect to sinking fund
+investments of the company; and still another on the shipment of United
+States mails by other than bond-aided lines when the use of the latter
+was possible.
+
+There was no real reason, however, why the government should have
+reduced its claims against the Pacific companies because of any of the
+equities mentioned. The administration certainly gave no guaranty in
+1864 that the subsidy bonds would sell at par. The government offered
+the bonds for what they were worth, and the companies accepted them
+on that basis. Nor did the government at any time agree to preserve a
+monopoly of transcontinental business for the Central route, or to send
+its own freight over the Central and Union Pacific railroads to any
+greater extent than might prove convenient. On these points the facts
+are perfectly clear. It would seem clear, also, that the government was
+under no obligation to share with the companies any saving which it
+had made by reason of the early construction of the transcontinental
+line. The companies had built more rapidly than had been expected, it
+is true, but the construction was pushed in their own interest, not in
+that of the government, and gave rise to no proper claim against the
+latter. The other points in the companies’ contentions do not deserve
+special mention.
+
+
+Sinking Fund Provisions
+
+We may now return to the question of the government debt and its
+repayment. The Laws of 1862 and 1864 contained two provisions intended
+to enforce the original stipulation that principal and interest of
+the subsidy bonds should be paid by the beneficiaries. These laws
+required that 5 per cent of the net earnings of the Central Pacific
+after the completion of the road,[520] and second, that one-half of the
+compensation for services rendered to the government should be annually
+applied to the payment of interest and principal of the subsidy bonds
+until the whole amount was fully paid. It was then expected that these
+two sources of income would provide a fund sufficient to meet both
+principal and interest in full.[521]
+
+This expectation was not, however, fulfilled. On the contrary, it was
+already apparent in the seventies that the amount which the companies
+would be called upon to repay was mounting up much more rapidly than
+the credits designed to meet it. Six per cent interest upon $27,855,680
+of bonds called for an annual interest of $1,671,340.80. From 1867 to
+October 31, 1877, the one-half of transportation account for carrying
+mails, troops, supplies, etc., withheld by the government and credited
+to the Central Pacific sinking fund was only $1,423,555.74, or less
+than $200,000 a year.[522] The 5 per cent of net earnings account
+averaged $331,481 from 1872 to 1876.[523] The total annual payment
+by the Central and Western Pacific railroad companies, therefore,
+approximated $530,000, leaving a deficit of over $1,100,000 a year. At
+this rate it was not unreasonable to suppose that the Central Pacific
+would be much more heavily in debt to the government at the maturity of
+the bonds than it was at the time of their original issue.
+
+
+Right of “Set-Off”
+
+Alarmed at the probable failure of the sinking fund provisions, the
+Secretary of the Treasury, on advice of the Attorney-General, withheld
+from the Central Pacific Railroad _all_ the compensation due it for
+services rendered to the government. The same action was taken with
+respect to the other bond-aided lines. This was clearly illegal, and
+Congress accordingly passed the Act of March 3, 1871, directing payment
+of the sums withheld.[524] On passage of the Act of 1871, the Secretary
+of the Treasury began to pay to the Central Pacific and to the other
+bond-aided companies, the 50 per cent of compensation for services
+rendered to the government which the statutes required. Since, however,
+there seemed to be a legitimate difference of opinion as to whether the
+government should continue to pay money to companies already heavily in
+debt to it, Congress proceeded two years later to pass the Act of March
+3, 1873, which, in effect, remitted the whole controversy to the court.
+
+The terms of the Act of 1873 were as follows:
+
+ That the Secretary of the Treasury is directed to withhold all
+ payments to any railroad company and its assigns, on account of
+ freights or transportation, over their respective roads, of any kind,
+ to the amount of payments made by the United States for interest upon
+ bonds of the United States issued to any such company, and which
+ shall not have been reimbursed together with the five per cent. of
+ net earnings due and unapplied as provided by law; and any such
+ company may bring suit in the court of claims to recover the price of
+ such freight and transportation; and in such suit the right of such
+ company to recover the same upon the law and the facts of the case
+ shall be determined and also the rights of the United States upon the
+ merits of all the points presented by it in answer thereto by them and
+ either party to such suit may appeal to the Supreme Court; and both
+ said courts shall give such cause or causes precedence of all other
+ business.[525]
+
+The intent of Congress in 1873 was that, in order to make a case, the
+Secretary of the Treasury should withhold the sums demanded by the
+bond-aided railroads including the Central Pacific, that the companies
+should sue, and that the court should then decide. In pursuance of this
+idea, the Union Pacific promptly brought suit against the government
+in the Court of Claims to recover the amount due from the United
+States for transportation of government passengers and property after
+deducting one-half of the amount as required by law. A decision being
+rendered in favor of the company, the United States appealed to the
+Supreme Court, where the judgment was affirmed.
+
+The foundation of the government position was that the United States
+could legitimately offset the interest on subsidy bonds which it was
+paying currently against the sums due the bond-aided railroads for
+government transportation. The reply of the court was, first, that the
+general principles of “set-off” did not apply in the case at bar; and
+second, that the United States had no claim in any event because the
+law did not require the Union Pacific (and the same principles applied
+to other bond-aided railroads) to meet the interest charges on the
+government advances until the maturity of the bond.[526] A later case
+added the ruling that the United States had in the matter only the
+right of a creditor growing out of contract, and could not fall back
+upon its sovereign rights in order to protect its financial claim.[527]
+
+Not only did the Supreme Court decide completely in favor of the
+companies in the important matter of “set-off,” and in that relating to
+the date upon which the Pacific railroads became liable for the payment
+of accruing interest on the subsidy bonds, but it diminished also the
+sinking fund payments of the companies by holding that under existing
+legislation it was proper for the companies, in calculating net
+earnings, to deduct from gross earnings expenses incurred for enlarging
+and improving their property. The particular account involved was
+that of expenditure for station buildings, shops, and fixtures. Such
+expenditures are not ordinarily charged to operating expenses, and the
+court admitted that “theoretically” they should not be so charged. The
+practice was nevertheless justified on the ground of general policy, as
+likely to encourage a liberal application of earnings to improvements.
+The same decision also authorized the Central and the Union Pacific to
+deduct interest on first mortgage bonds from earnings before computing
+the 5 per cent of net earnings which was to be credited to the sinking
+fund. This ruling was defended as a legitimate consequence of the
+concession of priority to the first mortgage bonds.[528]
+
+
+Need of Governmental Action
+
+While Congress was considering ways and means for enforcing some
+adequate provision for the eventual repayment of the government’s
+advance to the Pacific railroads, the Central Pacific declared
+dividends which amounted to no less than $18,453,670 in the five years
+from September 13, 1873, to October 1, 1877. In 1873, 3 per cent was
+declared; in 1874, 5 per cent; in 1875, 10 per cent; and in 1876 and
+1877, 8 per cent. To see earnings divided among a group of financiers
+who were believed to be already overpaid, while the unpaid interest on
+the government subsidy bonds piled up, was all the more exasperating
+because of the apparent helplessness of Congress. Some action, however,
+was presently to be taken. In 1874 a bill was introduced in the Senate
+to alter and amend the Acts of 1862 and 1864 so as to safeguard the
+government equity. In 1876 Mr. Thurman, of Ohio, presented another
+bill, which was reintroduced in 1877, referred to the Committee on
+Judiciary, and ultimately reached the Senate in March, 1878. This bill
+ultimately became the Thurman Act of 1878.[529]
+
+The situation as it appeared in 1878 was succinctly presented by Mr.
+Thurman on the floor of the Senate. The government’s loan to the
+Central and Western Pacific amounted to $27,855,680. The interest
+upon that sum for thirty years would be $50,140,224, making a total
+of $77,995,904. The probable reimbursement from the 5 per cent of net
+earnings and the half of the transportation accounts would be about
+$15,000,000, leaving probably due at the maturity of the government
+loan, should the laws remain unchanged, the sum of $62,995,904, which,
+added to the amount that would probably be due from the Union Pacific,
+made an aggregate of $119,248,979.[530] To this amount there was also
+to be added in estimating the payments which the Central Pacific,
+Western Pacific, and Union Pacific would be called upon to make in the
+late nineties, the amount of the first mortgage bonds of the three
+companies, the lien of which was prior to the lien of the subsidy bonds.
+
+It seemed manifest to Mr. Thurman in March, 1878, that the bare
+statement of the amount for which the government would be the creditor
+of the Pacific railroad companies ought to satisfy anyone that some
+step should be taken by Congress to secure the government from loss.
+This point of view was not seriously contested. Objection to any
+action there was, indeed, but not based on any denial of the assertion
+that the security of the government was becoming impaired.
+
+
+Thurman Bill
+
+On the basis of the admitted need, Mr. Thurman, in behalf of the
+Committee on the Judiciary of the United States Senate, made a series
+of concrete proposals. The essence of the Thurman plan was that the
+annual payments of the Pacific railroads for the eventual retirement of
+the government debt should be largely increased. It was contemplated
+that 5 per cent of the net earnings of these railroads, together with
+half of the sums due to the companies for government transportation,
+should continue to be applied to the retirement of the subsidy bonds.
+This annual appropriation Mr. Thurman estimated at $531,000. But it was
+now intended that in addition to this sum there should be retained by
+the government and credited to a sinking fund, the other half of the
+sums due to the companies for government transportation; proceeding
+still further, the Thurman bill provided that in case the whole of the
+government transportation accounts, added to the 5 per cent of net
+earnings, did not make a sum equal to 25 per cent of net earnings, then
+the Pacific railroads should pay into the sinking fund such sums not
+exceeding $1,200,000 for the Central Pacific and $850,000 for the Union
+Pacific, as would bring the companies’ payment up to 25 per cent.
+
+Textually, the section of the Thurman bill relating to the Central
+Pacific sinking fund read as follows:
+
+ Sec. 4. That there shall be carried to the credit of the said
+ fund, on the first day of February in each year, the one-half of
+ the compensation for service hereinbefore named, rendered for the
+ Government by said Central Pacific Railroad Company, not applied in
+ liquidation of interest; and, in addition thereto, the said company
+ shall, on said day in each year, pay into the Treasury, to the credit
+ of said sinking fund the sum of one million, two hundred thousand
+ dollars, or so much thereof as shall be necessary to make the five
+ per centum of the net earnings of its said road payable to the United
+ States under said act of eighteen hundred and sixty-two, and the
+ whole sum earned by it as compensation for service rendered for the
+ United States, together with the sum by this section required to be
+ paid, amount in the aggregate to twenty-five per cent of the whole
+ net earnings of said railroad company, ascertained and defined as
+ hereinbefore provided, for the year ending on the thirty-first day of
+ December next preceding.[531]
+
+Mr. Thurman estimated the total payments which the Central Pacific
+would have to make under his bill at $1,900,000 annually, or
+substantially more than the accruing 6 per cent on the subsidy
+loans.[532] In case earnings should be insufficient to meet interest
+charges on underlying first mortgage bonds after the deduction of 25
+per cent, the Secretary of the Treasury was authorized to remit as much
+of the 25 per cent as might be necessary to avoid default.
+
+
+Disappointing Results
+
+From the point of view of the government, the clauses of the Thurman
+bill relating to the annual payments of the companies were of the first
+importance, because upon them depended the adequacy of the provision
+for the eventual cancellation of the government debt. As a matter of
+fact, the payments were less than Senator Thurman anticipated, because
+the earnings of the Pacific railroads proved disappointing. Instead
+of $1,900,000 annually, the average contribution up to 1897 was only
+$629,690. In particular, the clauses requiring the companies to add to
+the sums earned from government transportation and that measured by 5
+per cent of net earnings sufficient to bring the total up to 25 per
+cent of net earnings, were ineffective. In but one year after 1883 was
+anything paid on this last account. Indeed, the earnings of the Central
+Pacific fell so low that the government transportation and 5 per cent
+accounts at times amounted to 50 per cent of net earnings without any
+addition from other sources.
+
+It was assumed by some speakers on the Thurman bill in the Senate, that
+under the proposed plan the total contribution of the Pacific railroads
+toward the reduction of the government debt was to be paid into a
+sinking fund. This was not, however, the case, as a careful reading of
+the statement already made will make clear. Instead, the payments which
+these railroads had been making under the Acts of 1862 and 1864 were
+to be continued, and were to be credited directly to the railroad debt
+as before. The money was to be held in the United States Treasury, and
+no interest was to be allowed upon it.[533] It was only the balance,
+comprising the half of the payment due the companies for government
+transportation which they had received under the Act of 1864, and such
+additional payment, not exceeding $1,200,000 or $850,000 respectively,
+as would be necessary to bring the whole contribution of the companies
+under the proposed law up to 25 per cent of net earnings, which was
+credited to the sinking fund. The distinction is important, because
+the sums paid into the sinking fund earned compound interest, whereas
+the sums credited to bond and interest account earned no interest at
+all. That is to say, the contributions to the sinking fund were to be
+invested in government bonds, and the interest on these bonds was to be
+reinvested semiannually in the same security, but other payments merely
+gave rise to credits on the government books.
+
+
+Sinking Fund Investments
+
+The mention of the sinking fund leads naturally, however, to a
+reference to the provisions of the Thurman bill relating to sinking
+fund investments. Mr. Thurman proposed in 1878 that the sums credited
+to the Pacific railroads’ sinking funds be used to purchase United
+States bonds, preferably 5 per cent bonds because other outstanding
+issues were either insufficient in amount or had only a short time to
+run. Up to June 30, 1897, about $6,000,000 were available for such
+purchases. But this limitation of the field of investment seriously
+crippled the earning power of the fund by requiring the purchase of
+securities of classes which either bore low rates of interest or which
+commanded considerable premiums in the market. The average premium paid
+by the Central Pacific up to 1883 was approximately 13 per cent.[534]
+In 1891 the Commissioner of Railroads reported that between the date of
+the creation of the sinking fund in 1878 and the date of his report,
+on June 30, 1891, the government had bought bonds with a par value of
+$6,138,800 for the Central Pacific, for which it had paid a premium
+of $1,110,409.62, or an average of 18 per cent. At times the premium
+paid had gone as high as 35 per cent,[535] and in the earlier years the
+payments on account of premiums materially exceeded the earnings of
+the sinking fund in the way of interest. This excess disappeared, of
+course, as the fund grew larger, but the absolute amount of the premium
+continued to grow.
+
+The principal bonds in which the sinking funds were invested up to
+1882 were the United States currency sixes, the 5 per cent funded loan
+of 1881, and the 4 per cent funded loan of 1907. In 1881 the funded
+fives matured and were continued at 3½ per cent. In 1882 the Treasurer
+of the United States exchanged these bonds for a new 3 per cent
+issue. Inasmuch as the bonds which bore the higher interest rates all
+commanded a premium, the actual yield of the fund up to 1886 was only
+from 2½ to 3 per cent. This condition was recognized as disadvantageous
+by all concerned. The Commissioner of Railroads declared in 1883 that
+it would require a century or more at the rate provided in the Thurman
+Act to accumulate a fund sufficient to discharge the railroad debt,
+with a strong probability that even then it could not be done.[536] The
+Auditor of Railroads in 1879, the Secretary of the Treasury in 1881,
+and the Commissioner of Railroads, in various reports, all urged that
+the field for investment of the sinking funds be widened, at least
+to include the first mortgage bonds of the Pacific railroads. Since
+the lien of these bonds was prior to that of the sinking fund itself,
+it seemed appropriate to allow the Secretary of the Treasury to buy
+them with sinking fund money. The suggestion was adopted by Congress
+in 1887,[537] with the result that interest on the funds placed in
+this new investment amounted to 4.15 per cent. This was a substantial
+increase from the 2½ or 3 per cent realized from government bonds,
+though still less than the 6 per cent carried by the subsidy bonds
+themselves.[538]
+
+
+Passage of Bill
+
+The Thurman bill was carefully considered by the Senate before its
+enactment, and may fairly be said to embody the best judgment of
+Congress at the time of its enactment. The final vote in the Senate was
+taken on April 9, 1879. Forty Senators voted for the bill, and twenty
+against it.[539] If paired votes for and against the act be included,
+the vote was forty-four to twenty-six. Twenty-seven Democrats voted for
+the bill, and six against it. Yet in spite of this strong Democratic
+party support and the opposition of Senators Blaine and Conkling,
+nearly as many Republicans went on record for the bill as voted or were
+paired against it. In the House there were but two votes against the
+bill compared with 243 in favor of it.[540]
+
+In neither house was there marked party or sectional division.
+Doubtless the passage of the act was made easier by the general
+unpopularity of railroad enterprise in 1878, although adequate reasons
+for additional legislation undoubtedly existed. It was the period of
+the aftermath of the panic of 1873—the epoch of Granger legislation
+and railroad control bills, of revelations regarding rebates and
+construction frauds. Sentiment ran strongly against great railroad
+corporations. Railroads still had stalwart supporters, but it is
+putting it mildly to say that the presumption in doubtful cases was
+against them.
+
+
+Feeling of Railroad Men
+
+There is plenty of evidence, nevertheless, that railroad men felt very
+bitter that the Thurman bill should ever have been passed. Stanford
+declared that no act so destructive to private right had ever before
+been attempted in this country, and that only two examples of such
+atrocity could be found in English history; one being the suppression
+of the order of Templars in the time of Edward the Second, and the
+other, the suppression of the religious houses in the time of Henry
+the Eighth. Undoubtedly, also, the railroads were active in Congress
+in the attempt to prevent the passage of the Thurman Act. The
+reader’s attention has already been directed in a previous chapter
+to correspondence relating to the Thurman bill which passed between
+Huntington and Colton in 1877 and 1878. It will be recalled that in
+January, 1878, Huntington wrote that matters did not look well at
+Washington. He thought, however, that the railroad would not be much
+hurt, although “the boys are very hungry, and it will cost considerably
+to be saved.” Some time before this, in May, 1877, Huntington wrote:
+
+ We must have friends in Congress from the West Coast, as it is very
+ important. I think that we can kill the open highway, and get a fair
+ sinking fund bill by which we can get time beyond the maturity of the
+ bonds that the Government loaned us, to pay the indebtedness.[541]
+
+Again, in November, Huntington said:
+
+ Some parties are making great efforts to pass a bill through Congress
+ that will compel the Union Pacific and Central Pacific to pay large
+ sums into a sinking fund, and I have some fears that such a bill will
+ pass.... The temper of Congress is not good and I fear we may be
+ hurt.[542]
+
+A letter from Colton dated March 5, 1878, reads:
+
+ By the telegraph this morning in the papers I see outline of Thurman’s
+ Sinking Fund Bill, etc. It does seem as though the whole world, Courts
+ and all, were determined to rob us.
+
+ * * * * *
+
+ I know you are having a terrible struggle on that side, and think of
+ you very often, but, Huntington, I see no way but to fight it out on
+ these lines, and fight them inch by inch while we last; let’s look to
+ paying our debts, incurring no more, and stand by the wreck to the
+ last. We can at least die game.[543]
+
+When the Thurman bill passed the Senate, the correspondence took a
+still more gloomy turn. Huntington wrote Colton on April 19, 1878,
+that in his judgment the House would follow the Senate’s lead. He
+had made some mistakes, of which the greatest was Gould’s going to
+Washington. Colton replied, on April 29:
+
+ We all agree with you that this Congress is simply a band of robbers.
+ They were such a set of cowards they dare not go onto the highway and
+ give the man they rob an even show with them, but went to Congress and
+ did it through that channel. But Huntington, we will live to see many
+ of these fellows come to grief. I trust the day will soon come that
+ we can get in a shape that you can avoid going to Washington during a
+ session of Congress. A few sessions like the present one and the last
+ will wear you out....
+
+ * * * * *
+
+ I think you will remember I wrote you once or twice that in my opinion
+ Jay Gould would be a heavy load for us to carry in Washington or
+ elsewhere, whenever we had connections with him that would affect our
+ interests, on account of the general feeling against him. So I am not
+ surprised to read what you say of him and the Funding bill, but it was
+ a thing we could not help, as I understand it....
+
+ * * * * *
+
+ I hope Congress will adjourn soon, and that you will be able to get
+ out here as early as possible, for I want very much to see you again.
+ There is much for us all to talk over and look after. I do not think
+ you will find anyone to buy you out, nor do I want you to. I think we
+ must stick to the wreck.[544]
+
+Letters such as those quoted display the state of mind of the Central
+Pacific associates during the months when the Thurman bill was under
+discussion. It was perhaps natural that they should have opposed
+sinking fund legislation, for this cut into the surplus which the
+Central Pacific would otherwise have had for dividends, and depressed
+the price of the railroad’s securities. Nor, indeed, was it perfectly
+clear that the new legislation did not constitute a breach of the
+contract between the Pacific railroad companies and the government
+which could be deduced from the Acts of 1862 and 1864. The legislation
+in these acts had, it is true, reserved to subsequent Congresses the
+right of amendment and repeal, but it was uncertain, nevertheless,
+to what extent this right could properly be exercised. On this point
+a decision of the Supreme Court was had in 1878, upholding the
+constitutionality of the Thurman Law on broad grounds, but by a divided
+court.[545]
+
+
+Charge Against Railroad
+
+The unfortunate fact about the Thurman Act, however, was not that it
+excited the anger of representatives of the railroad companies to which
+it applied, but that it proved a failure in its primary purpose of
+providing for the eventual retirement of the subsidy bonds. But before
+summarizing the workings of the law in this respect, a word may be
+said regarding certain disputes which occurred in the course of its
+administration.
+
+In February, 1881, Thomas French, Auditor of Railroads, made the charge
+that the Central Pacific was diverting business from the subsidized
+portions of its line to its leased properties in order to lessen the
+payments required under the Thurman law. The basis for this charge, so
+far as reported, appeared to lie in the fact that the net earnings of
+the Central Pacific were decreasing, while those of the Union Pacific
+were going up. Mr. French suggested that the Pacific railroads be
+required to contribute up to 50 per cent of net earnings for retirement
+of the government debt, instead of up to 25 per cent as then required
+by the law.[546]
+
+Mr. French’s suggestion was not adopted, but the government
+subsequently advanced the claim that it had the right to retain
+all the compensation for service rendered to the government by the
+bond-aided companies without regard to the conditions of construction
+of particular sections of the road. The company took a different view
+of the matter, but in deference to an opinion of the Attorney-General
+on this point, the Secretary of the Treasury in 1884 withheld
+compensation on the entire mileage of the Pacific railroads pending an
+authoritative decision. The Supreme Court, however, ruled in favor of
+the companies,[547] and the sums withheld had to be paid over.
+
+In subsequent years the earnings of the portions of the Central and
+Union Pacific which had received no bond subsidies were credited, in so
+far as they arose from government business, as a part of the 5 per cent
+of net earnings which these companies were required to apply to the
+eventual retirement of the government debt. This meant a considerable
+amount of bookkeeping, which was increased by other claims of the
+companies of which no detailed mention is here made. Indeed, when the
+final settlement was concluded between the Central Pacific and the
+government, credits to this one company were allowed by the United
+States to the amount of no less than $1,162,939.48.[548]
+
+
+Definition of Net Earnings
+
+In addition to the controversy over earnings on government
+transportation over non-bond-aided lines, there developed a second
+difference of opinion over the calculation of the net earnings of the
+Pacific railroads. It has already been observed that the Law of 1862,
+as interpreted by the Supreme Court, allowed the Pacific railroad
+companies to charge expenditures for additions and improvements to
+operating expenses, and thus to reduce their net earnings, upon the
+size of which the rate of provision for repayment of the government
+debt depended. The Central Pacific insisted that the same practice was
+legitimate under the Thurman law. But in this last-named legislation
+the wording of the clause relating to net earnings had been changed.
+In 1862 no definition of net earnings had been given. In 1878 it was
+provided that net earnings should be calculated “by deducting from the
+gross amount of their [the Pacific railroads’] earnings, respectively,
+the necessary expenses actually paid within the year in operating the
+same and keeping the same in a state of repair, and also the sums
+paid by them respectively within the year in discharge of interest
+on their first mortgage bonds.” This was deliberately intended as an
+amendment of the Act of 1862. As Mr. Thurman told the Senate, it was
+his intention to leave the question of the nature of the net earnings,
+so far as the past was concerned, for the decision of the Supreme Court
+without any retroactive legislation at all, but to define net earnings
+for the future.
+
+In spite of the apparently clear wording of the law, and the definite
+expression of the views of the Senate Committee on the Judiciary at
+the time the act was passed, the Central Pacific still maintained
+that it possessed the right to deduct expenditures for improvements
+and betterments from gross earnings, in the process of arriving at
+the figure of net earnings upon which its contributions toward the
+retirement of government indebtedness were in part based. A decision
+of the Court of Claims and another by the Supreme Court of the United
+States were necessary before this position was abandoned.[549]
+
+Still other controversies arose between the Union Pacific and the
+United States government over earnings from the operation of the bridge
+across the Missouri River between Council Bluffs and Omaha, over
+receipts from the operation of Pullman cars, and over the payments by
+the Union and Central Pacific railroads to the Pacific Mail Steamship
+Company according to the terms of contracts described in a preceding
+chapter.[550]
+
+
+Inadequacy of Law
+
+The persistent disputes between the government and the railroad
+companies over the proper interpretation of the Thurman law made the
+administration of the statute difficult. The primary defect of the act,
+however, lay in the fact that the contributions which it compelled the
+companies to make were too small to provide for the retirement of the
+subsidy bonds with interest at their maturity. How far the ultimate
+provision under the law fell short of a proper accumulation may be seen
+from the table given in the next paragraph, in which the debits and
+credits on account of the government loan to the Central and Western
+Pacific railroads are given as of June 30, 1897, six months before the
+greater part of the subsidy bonds fell due.
+
+According to the Commissioner of Railroads, the account between the
+United States and the Central Pacific Railroad stood on the 30th of
+June, 1897, as follows:[551]
+
+
+STATEMENT ON THE GOVERNMENT LOAN TO THE CENTRAL AND WESTERN PACIFIC
+RAILROADS, AS OF JUNE 30, 1897
+
+ _Debits_:
+ Principal of subsidy bonds issued $27,855,680.00
+ Interest paid by the United States 47,954,139.78
+ ——————————————
+ Total debits $75,809,819.78
+ ══════════════
+ _Credits_:
+ Applied to bond and interest account:
+ Transportation $7,977,535.66
+ Cash 658,283.26
+ Applied to sinking fund account:
+ Transportation 5,027,848.71
+ Cash 633,992.48
+ Proceeds of sinking fund investments 1,683,127.38
+ ——————————————
+ Total credits $15,980,787.49
+ ══════════════
+ Balance of debt, June 30, 1897 $59,829,032.29
+ Excess of interest paid by the
+ United States over all credits $31,973,352.29
+
+The reasons for the inadequacy of the Thurman law were, first, the
+failure of the net earnings of the Pacific railroads to increase as
+rapidly as had been expected, and second, the meager results of the
+sinking fund accumulations. Net earnings were disappointing because
+of general business conditions, especially after 1893, and because of
+competition from other transcontinental railroads. The accumulation of
+the Central Pacific sinking funds proceeded at a slower rate than had
+been anticipated, for reasons already given. Up to June 30, 1897, the
+table shows that the total proceeds of sinking fund investments by the
+Central Pacific Railroad had amounted to only $1,683,127.28. When it is
+understood that this was less than a third of the sum which the moneys
+paid into the sinking fund would have earned if invested promptly and
+continuously at 6 per cent, the loss which resulted from the purchase
+of government bonds becomes evident.
+
+After thirty years of contention and nineteen years of operation under
+the Thurman law, the accumulated reserve for the retirement of the
+subsidy bonds was less than $16,000,000, of which only $7,300,000 was
+the result of the Thurman sinking fund. On June 30, 1897, the United
+States had actually paid out in interest on its bonds issued in aid of
+the Central Pacific Railroad, $31,000,000 more than had been provided
+against both the interest and the principal of the debt. Except to the
+extent of $7,300,000, the problem remained substantially as it had been
+presented in 1878.
+
+
+
+
+CHAPTER XXI
+
+FINAL SETTLEMENT OF THE CENTRAL PACIFIC INDEBTEDNESS TO THE GOVERNMENT
+
+
+Refunding Proposals
+
+It is the purpose of the present chapter to describe proposals for
+the settlement of the government’s claims against the Central Pacific
+Railroad which were made between 1878 and the date of maturity of the
+subsidy bonds, and to explain in some detail the adjustment finally
+arrived at in 1899.
+
+Soon after it became apparent that the Thurman law would not provide
+adequately for the retirement of the federal subsidy bonds at their
+maturity, agitation began for other and more stringent arrangements.
+As early as 1882, the Commissioner of Railroads suggested that the
+indebtedness of the Pacific railroads be changed from a running
+book account and that there be a settlement and actual delivery
+of interest-bearing bonds for the amount found to be due upon a
+convenient day, say July 1, 1883. On this day he proposed that the
+companies should deliver to the government 100 redemption bonds, each
+representing a hundredth part of the indebtedness. One bond was to fall
+due thereafter every six months, and interest was to accrue as before
+upon the unpaid bonds outstanding.[552]
+
+Five years later the United States Pacific Railway Commission, in
+an important report, recommended also that the net indebtedness of
+the Central Pacific Railroad Company be ascertained as of a certain
+date—this time as of July 1, 1888—and that arrangements be made to
+fund the amount so determined into new railroad fifty-year 3 per cent
+bonds, which should be made a lien upon all the property which the
+Central Pacific owned or in which it had an interest.[553] Congress
+was not ready, however, to refund the Pacific railroad debts upon the
+terms proposed either by the Commissioner of Railroads or by this
+special body of experts.
+
+The next official report was that issued by a select committee to which
+the United States Pacific Railway Commission report was referred. This
+committee report was known as the Frye-Davis report, from the names of
+the Senators who transmitted the sections dealing with the Union and
+Central Pacific railroads, respectively. The committee was instructed
+to, and did, personally examine the roads of the Union, Kansas,
+Central, and Western Pacific Railroad companies, together with that
+of the Central Branch Union Pacific. It further prepared a plan for
+refunding the Pacific railroad debt.
+
+So far as the Central Pacific was concerned, the committee proposed
+that the company should pay its debt in seventy-five years from date,
+with interest at 2 per cent. In view of the serious financial condition
+of the company, and the alleged necessity of building several bridges
+and some additional mileage in California, 1 per cent of the 2 per
+cent was to be capitalized for ten years. During the first ten years
+the company’s annual payment was thus to be from $600,000 to $650,000
+per year; after that time it was to be about $1,400,000 annually.
+The Frye-Davis committee therefore required a smaller payment and
+contemplated a longer extension of time than did the United States
+Pacific Railway Commission. Like its predecessor, it demanded from the
+Central Pacific, as security, a mortgage on all the roads and property
+of every name and description which the Central Pacific possessed,
+including a mortgage on the whole road from four miles west of Ogden to
+San José. This mortgage was to include the lease of the Central Pacific
+to the Southern Pacific, and there was now inserted a provision that
+the rental paid by the latter should never be less than the sums that
+the bill called for from the Central Pacific, thus making the Southern
+Pacific in effect a guarantor of the arrangement.[554]
+
+
+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 one-half of 1 per cent semiannually, for a period of ten years,
+commencing on the 1st of July, 1895. For the next period of ten years,
+three-quarters of 1 per cent was to be paid; for the next period 1 per
+cent; and so continuing that the railroad bonds, and therefore the
+principal of the debt, should be wiped out in fifty years. Meanwhile
+the railroads were to pay off their first mortgage bonds, leaving the
+new funding bonds a prior lien upon the property of the companies,
+including both the aided and the non-aided portions. Nothing was done
+with this report except to submit it.[555]
+
+As the period when the greater part of the subsidy bonds were to
+mature approached, committee reports upon the Pacific railway debts
+multiplied. On the 28th of January, the Committee on Pacific Railroads
+submitted a long discussion through Senator Brice, of Ohio. The
+committee was opposed to government operation and pessimistic about
+the results of a foreclosure sale. It recommended that the subsidy
+bonds be refunded for such a period and at such a rate of interest as
+should enable the companies, under ordinary circumstances and business
+conditions, to meet the current interest and a portion of the principal
+of the debt each year.
+
+
+Powers Bill
+
+On April 25, 1896, Mr. Powers, of Vermont, in behalf of the House
+Committee on Pacific Railroads, presented a bill and a report to
+accompany it. The House committee now definitely proposed that the
+Pacific railroad companies issue, and that the government accept,
+bonds equal in amount to the whole balance due the United States, and
+bearing interest at 2 per cent, payable semiannually. These bonds
+were to be secured by second mortgages, which were to embrace not
+only the subsidized parts of the Pacific railroads, but also all the
+other railroads, terminals, lands, and equipments belonging to the
+companies, to which the lien of the government did not then extend. It
+was provided that the companies should make annual payments on account
+of the principal of the bonds—smaller payments during the earlier, and
+larger payments during the later years—in such fashion that the debt
+would be repaid in about eighty-five years.
+
+In addition to providing the government with the additional security
+which came from extending the lien of its second mortgage bonds, the
+Powers bill required, as one of the terms of the settlement, that the
+lease of the Central Pacific Railroad to the Southern Pacific Company
+should be so modified as to require, first, that the Southern Pacific
+Company guarantee the full payment of the obligations imposed upon the
+Central Pacific by the new legislation so long as it should remain
+lessee of the property; and second, that if the Southern Pacific
+Company should consent to the termination of the lease before the
+maturity of all instalments payable under the act, it should in that
+event guarantee the payment by the Central Pacific of all required
+payments. In case of any abrogation or termination of the lease, the
+principal of all bonds issued under the act was, at the option of the
+President of the United States, immediately to mature.[556]
+
+The Powers bill was debated in the House of Representatives from
+January 7 to January 11, 1897. It was supported by the friends of the
+railroad companies, doubtless because of the long period over which the
+railroad debt was to be extended and the low rates of interest on the
+refunding bonds. It was opposed by anti-railroad men, and by those who
+thought the bargain a bad one for the government from a business point
+of view, and it was finally defeated because Congress was unwilling to
+extend the government loan at 2 per cent for eighty-five years until
+more convinced of the necessity of compromise.[557]
+
+
+Additional Schemes
+
+Four days after the submission of the Powers report and its
+accompanying bill, a report was presented to the Senate by Mr. Gear,
+of Iowa, which recommended the passage of a substantially identical
+statute.[558] Nothing was done with this report, nor with a suggestion
+which Mr. Gear made in January that the whole matter be referred to a
+commission to be appointed for the purpose.
+
+The submission of the Gear report brings the account of the
+negotiations for the settlement of the Pacific railroads’ indebtedness
+down to the spring of 1897. Four Congressional committees had reported
+up to this time. Of these, two had recommended that the subsidy bonds
+be refunded at the rate of 3 per cent for fifty years, and two that
+they be refunded at the rate of 2 per cent for seventy-five years or
+more. All four had proposed an improvement of the government’s security
+by extending the government lien to cover the non-aided portions of the
+Pacific railroads, and in addition to this the Reilly bill had provided
+that the government should secure a first lien upon the railroad
+property in question by paying off the underlying bonds.
+
+It would be possible to lengthen the list of suggestions for the
+repayment of the subsidy bonds which were made during the eighties
+and the nineties, by including schemes elaborated by other persons
+than members of Congress and presented in other ways than through
+formal reports of Congressional committees to the legislature. This
+will not be done to any great extent because of limitations of time
+and space. While, however, the greater part of outside comment upon
+various pending refunding bills must be omitted, it is important to
+remember that the discussion outside of Congress, especially during the
+nineties, was quite as active as that within, and that it was conducted
+with great bitterness of feeling and freedom of expression. Indeed, the
+extreme contentions on either side are quite inadequately set forth in
+the Congressional debates.
+
+
+Railroad Proposals
+
+The general railroad position with respect to the repayment of the
+subsidy bonds was that the entire debt to the government should
+be remitted.[559] Failing this, the companies contended that the
+government should satisfy its claim by taking back a portion of the
+railroad land grant. If the United States should be indisposed to
+resume the land grant, then Mr. Stanford suggested that the government
+should take up all the liens on the Central Pacific Railroad prior to
+the subsidy bonds, and in lieu of them issue government bonds bearing
+interest at the rate of 2 per cent. The saving to the company, due
+to the reduction in the interest rate on first mortgage bonds from
+6 to 2 per cent, would enable it to pay off its indebtedness to the
+government, sufficient time being given and a moderate rate of interest
+allowed.[560] In case even this settlement were rejected, it was
+proposed that the government refund the subsidy bonds by a new issue,
+running 100 or 125 years, and bearing interest at the rate of 2 per
+cent.[561]
+
+In opposition to the railroad proposals, western shippers, who
+represented the extreme anti-railroad sentiment, violently objected to
+a refunding bill of any description. It was the belief of California
+men that a refunding bill would simply saddle the railroad debt upon
+the shipping public. For the railroad would make the necessary annual
+payments for interest and sinking fund from the proceeds of rates,
+which would necessarily be paid by the shipper. As able a man as John
+T. Doyle, of San Francisco, maintained, moreover, that refunding was
+unnecessary, because it would be found that the assets of the Central
+Pacific would be adequate on foreclosure sale to meet both its first
+and its second mortgage obligations. In saying this, Mr. Doyle relied
+upon the ability of the government to hold directors of the Central
+Pacific personally liable for misappropriation of funds, as well as
+upon alleged illegalities in the issue of first mortgage bonds, and
+upon the chance that the courts would consider the San Francisco
+terminals of the Western Pacific, together with other miscellaneous
+property, subject to the lien of the government mortgage, although the
+property was not “bond-aided” in a narrow sense.[562]
+
+
+Pacific Coast Agitation
+
+As an example of the feeling in the West concerning the policy of
+refunding, particular reference may be made to expressions of opinion
+in the city of San Francisco. In May, 1894, a mass meeting of citizens
+of San Francisco elected a committee of three to proceed to Washington
+and to oppose the funding of the debt of the Central Pacific Railroad
+to the United States. In a memorial addressed to the Senate and House
+of Representatives, and designed to oppose the Huntington scheme of a
+long-time extension of the subsidy bonds at a low rate of interest,
+this committee said:
+
+ In the name of the people of San Francisco, of California, and of the
+ whole Pacific Coast, we protest against the acceptance by Congress of
+ a plan which will keep more than $77,000,000 of the public’s money
+ from being paid to the United States Treasury, and which will secure
+ in their present wrongful possession of that sum, besides promoting
+ their other selfish and unpatriotic schemes, men who have for thirty
+ years been wrecking a railroad, defrauding the Government, corrupting
+ public morals, plundering and oppressing the people, and violating
+ every principle of business probity, of law, right, justice, and
+ public policy.
+
+Another meeting, held in the Metropolitan Temple, in San Francisco,
+on June 19, 1894, called on the state conventions of both parties to
+introduce into their platform resolutions against the funding of the
+debt of the Central Pacific Railroad Company to the United States at
+the rate of 2 per cent per annum for one hundred years, at a rate of
+4 per cent per annum for fifty years, or at any other percentage, or
+during any other period. Under the leadership of the eccentric Adolph
+Sutro, this meeting adopted an arraignment of the Southern Pacific
+which was almost inarticulate in its denunciation. It was charged that:
+
+ This monopoly has spread a black cloud over the surface of the
+ State. It has manœuvred through a large number of corporations, of
+ which the Southern Pacific Company of Kentucky is now the center.
+ It has seduced and drawn into its service many prominent men, whose
+ Americanism and integrity were not equal to their brains. It has
+ antagonized the people, minimized immigration, choked enterprise, and,
+ in this unrelenting attack, has used the supposed representatives of
+ the people in each department of the government, Municipal, State,
+ and National. It has controlled legislation, executive action and the
+ administration of justice. It has discriminated in freights and fares
+ and, at every station on its many thousands of miles of railroad,
+ maintained a Custom House of its own.
+
+This was followed on June 29 by a telegram, signed by Sutro and
+addressed to Grover Cleveland, advising the President that history
+would record him as the greatest benefactor of the American people if
+he would recommend the foreclosure of the mortgages on the Pacific
+railroads and the purchase of these railroads by the government at
+foreclosure sale. It was Sutro’s idea that the government should hold
+the transcontinental lines as a great national highway, and permit all
+American railroads to run their locomotives and cars over it under
+payment of tolls to be regulated by the Treasury Department.
+
+During the summer of 1894 the _San Francisco Examiner_ circulated a
+petition against the Reilly funding bill, to which, by September 20, it
+was said that 194,663 names had been attached.[563] In January, 1895,
+both the Colorado and the California legislatures adopted resolutions
+opposing the refunding. In California there was not a dissenting vote.
+The same month another mass meeting was held in San Francisco, and
+in December, 1895, still another one followed, with the result that
+a committee of fifty was appointed, and a recommendation sent to the
+national government.
+
+The San Francisco agitation in 1894 and 1895 was addressed to the
+comparatively moderate provisions of the Reilly bill, proposing the
+refunding of the government debt for fifty years at 3 per cent. In
+1896, when the more liberal Powers bill was under discussion, the
+agitation revived. At this time Mayor Sutro, of San Francisco, made
+an unsuccessful attempt to persuade the people of Kentucky to repeal
+the charter of the Southern Pacific Company. Although this particular
+move met with no success, a state anti-funding convention was held at
+the Metropolitan Temple in San Francisco on January 18, 1896, a new
+committee was appointed, and a new memorial was framed.
+
+This memorial reiterated and reinforced most of the arguments presented
+in the memorial of the committee of fifty. It dwelt on the alleged
+frauds of the Central Pacific and Southern Pacific companies, the
+uncertainty as to the extent of the property of these corporations, and
+as to the validity of certain liens against them. The whole matter,
+the memorial urged, was distinctly one for judicial investigation.
+It urged that the government let foreclosure take its course. The
+Central Pacific should not be allowed to confirm possession of money it
+might have stolen. It was sound policy, the memorial agreed, to make
+sure that the company really had not enough to pay its debts, and to
+this end to see that transferred, withdrawn, and stolen assets were
+restored. Agitation along these same lines continued through 1896, and
+in January of the following year the legislature adopted a resolution
+opposing refunding and calling for foreclosure if necessary.[564]
+
+
+Different Points of View
+
+The fundamental difference between the sentiment in Congress in 1897
+and that on the Pacific Coast was that the legislature at Washington
+addressed itself to Pacific railroad legislation with the object
+of recovering as much of the government’s advances to the Pacific
+railroads as was possible under the circumstances. The gains sought
+were primarily financial. In California, on the other hand, public
+sentiment was more concerned with railroad service and railroad rates
+than with finance. And this was a principal reason for the insistence
+upon foreclosure and the equanimity with which government operation was
+regarded. That the difference between the two points of view was not
+more fully appreciated was doubtless because the necessity of shaping
+its arguments so as to influence Congress led the Pacific Coast to
+talk in terms of finance, even when they thought in terms of monopoly.
+So much must be understood in order that the animus behind the San
+Francisco agitation may be clear.
+
+From the point of view of Congress, the weakness of the government’s
+position in 1897 lay in the fact that its debt was secured by a second
+mortgage, and a mortgage which covered, at that, only a portion of the
+road. There seems to have been substantial unanimity of opinion among
+official representatives of the government after 1882 and 1883, that
+the bond-aided parts of the Pacific railroads would not bring at a
+forced sale a sufficient price to cover both the first and the second
+mortgage liens upon them. In fact, it was believed that if the Pacific
+railroad property should be put up at foreclosure sale, no bidder would
+appear except the Huntington-Stanford interest, and perhaps the Union
+Pacific Railway. Under these circumstances the price obtained was sure
+to be low, and it was not unlikely that the result of the sale would
+be to leave the railroad in the hands of its original owners free from
+all obligations to the government. “These very men whom you are now
+scolding about,” said Mr. Powers, of Vermont, in 1897, “the very men
+who own the terminals and own these connecting lines are the only ones
+who can safely bid on the property, and probably they will be the only
+bidders. They would get the property at their own figures.”[565]
+
+
+Stockholders’ Liability
+
+It is true that there were two possibilities that improved the
+government’s position slightly. The first was found in the suggestion
+that directors or stockholders of the Central Pacific might in some way
+be held individually responsible for the debts of the company. If this
+could be done, the great wealth of the Stanford-Huntington group made
+the resource a substantial asset. It was pointed out by anti-railroad
+men that the Central Pacific was a California corporation, and that
+under California law each stockholder of a railroad corporation was
+liable, in proportion to the stock owned and held by him, for all its
+debts and liabilities. Moreover, the directors of the Central Pacific
+were said to be liable as directors because of the diversion of Central
+Pacific funds to the payment of dividends at a time when the company
+owed the government and its first mortgage bondholders large sums
+which it was unable to pay. In addition the directors were charged
+with illegal use of Central Pacific money in the construction of the
+Southern Pacific Railroad.
+
+Unfortunately for the government, the United States Supreme Court
+squarely refused to entertain the notion that Central Pacific
+stockholders were individually liable for repayment of advances which
+the United States had made to that company. Individual liability
+depends upon express statutory prescription, and no word upon this
+point was to be found in the federal laws of 1862 and of 1864. While
+California railroad stockholders were undoubtedly personally liable to
+some degree for the debts of California corporations, yet the state
+law which established this liability was held not to apply to the debt
+due to the United States. The terms of liability as regards this debt
+were to be sought, according to the Supreme Court, in the Congressional
+enactment, and there only. It was said that any other ruling would not
+only lack solid legal foundation, but would have the unfortunate effect
+of imposing a heavier burden upon stockholders of the Central Pacific
+than upon those of the Union Pacific.[566]
+
+
+Lien of Subsidy Bonds
+
+A second possibility which might have strengthened the government’s
+claim that the lien of the subsidy bonds might be held to extend to
+the non-bond-aided portions of the Central Pacific as well as to
+those portions for the construction of which the government had given
+aid. This was also the contention of Mr. Doyle, of San Francisco.
+The point was of the highest importance, because if it were denied,
+the government possessed a mortgage upon only the trunk lines of the
+Pacific railroads. It had no interest in, and could by foreclosure
+secure no control over any branches, or over the principal terminals.
+On the Central Pacific it could acquire by judicial sale only 860 miles
+from a total of 1,360, and on the Union Pacific 1,532 miles from a
+total of 7,944. The bond-aided portions of the Central Pacific reached
+neither Oakland nor San Francisco.[567]
+
+In order to understand the relation of the subsidy bonds to the
+non-aided portions of the Central Pacific, it is necessary to refer for
+a moment to the terms of the Pacific railroad legislation. The clauses
+of the Act of 1862 which relate to the lien of the subsidy bonds of
+the Central Pacific were to be found in Section 5 of that law. They
+provided as follows, namely, that:
+
+ ... the issue of said bonds and delivery to the company shall ipso
+ facto constitute a first mortgage on the whole line of the railroad
+ and telegraph, together with the rolling stock, fixtures and property
+ of every kind and description, and in consideration of which said
+ bonds may be issued; and on the refusal or failure of said company
+ to redeem said bonds, or any part of them, when required so to do by
+ the Secretary of the Treasury, in accordance with the provisions of
+ the act, the said road, with all the rights, functions, immunities,
+ and appurtenances thereunto belonging, and also all lands granted to
+ the said company by the United States, which, at the time of said
+ default, shall remain in the ownership of the said company, may be
+ taken possession of by the Secretary of the Treasury, for the use and
+ benefit of the United States.[568]
+
+By the Act of July 2, 1864, the lien of the subsidy bonds was
+subordinated to that of first mortgage bonds which the company was then
+authorized to issue, but no other change in the underlying security was
+made.[569]
+
+The meaning of Section 5 of the Act of 1862, as amended, was considered
+by the United States Supreme Court in 1878 in a case brought against
+the Kansas Pacific Railway to recover 5 per cent of the net earnings
+of the Kansas Pacific, payment of which was required by Section 6 of
+the same act. In these matters the Kansas Pacific and the Central
+Pacific were subject to the same requirements. It appeared that the
+Kansas Pacific had received subsidy bonds for 393-15/16 miles of line,
+from the Missouri River to the hundredth meridian, but had actually
+constructed 637 miles, reaching as far west as Denver. The question
+arose as to whether the company was responsible to the government for
+5 per cent of its net earnings on the whole mileage, or only for 5
+per cent on 393-15/16 miles. Upon this point the Supreme Court ruled
+that “the subsidy bonds granted to the company, being granted only in
+respect to the original road, terminating at the hundredth meridian,
+are a lien on that portion only; and that the five per cent of the net
+earnings is only demandable on the net earnings of said portion.”[570]
+
+
+Provision in Thurman Law
+
+The decision in the Kansas case clearly meant that the lien of the
+subsidy bonds authorized by the Act of 1862 did not extend to the
+non-bond-aided portions of the Central Pacific or to similar sections
+of any of the other Pacific railroads. This appears to be a conclusive
+answer to the later government argument, so far as the Act of 1862 is
+concerned. The legislation of 1862 was, however, amended in 1878, as we
+have seen in the previous chapter. Section 9 of the Thurman law read as
+follows:
+
+ That all sums due to the United States from any of said companies
+ respectively, whether payable presently or not, and all sums required
+ to be paid to the United States or into the Treasury, or into said
+ sinking fund under this act, or under the acts hereinbefore referred
+ to, or otherwise, are hereby declared to be a lien upon all the
+ property, estate, rights, and franchises of every description granted
+ or conveyed by the United States to any of said companies respectively
+ or jointly, and also upon all the estate and property, real, personal,
+ and mixed, from whatever source derived, subject to any lawfully prior
+ or paramount mortgage lien, or claim thereon.[571]
+
+A comparison of the Thurman law with the Act of 1862 shows that the
+later law expressly extended the lien of the subsidy bonds to all
+Pacific railroad property “from whatever source derived,” instead of
+limiting the lien to property “in consideration of which said bonds
+may be issued.” It does not appear that this change was particularly
+considered in the debates on the Thurman bill. Mr. Thurman himself did
+not mention Section 9 in his opening address, and while members of
+the Senate discussed at length the power of Congress to alter, amend,
+or repeal the Act of 1862, they usually had in mind the sinking fund
+provisions of the Thurman law and not those relating to the lien of
+the subsidy bonds. The exception to this statement is to be found in
+a colloquy between Mr. Dawes, of Massachusetts, and Mr. Edmunds, of
+Vermont. Mr. Dawes called attention on April 3 to the sweeping nature
+of the amendment contained in Section 9. He was of the opinion that in
+1862 Congress never undertook to put a mortgage on anything except that
+which they granted to the railroad. Under the Thurman Act, however,
+he understood that all subsequently acquired property was also to be
+pledged, with the effect, Mr. Dawes added, that, among other results,
+all payment of dividends would become illegal.
+
+To this criticism Senator Edmunds replied that the Act of 1862 already
+subjected all the property of the Pacific railroads to the lien of the
+subsidy bonds. It was the view of the Senator from Vermont that the
+words “in consideration of which said bonds may be issued” did not
+have the limiting effect in the Act of 1862 which Mr. Dawes ascribed
+to them, but rather that they conveyed the idea, with other words in
+the same clause, that the Secretary of the Treasury might from time to
+time issue bonds of the United States in consideration of the fact,
+which the law declared, that every particle of the property of the
+Pacific companies, real and personal, franchises, tolls, and everything
+else, were the security upon which the bonds were to be a lien.[572]
+Subsequent discussion did not serve to clear up the differences in
+interpretation brought out in the Congressional debate, but the later
+decision of the Supreme Court showed that, in the principal matter at
+issue, Mr. Dawes was right.
+
+We may say with some confidence that the nature of the lien of the
+second mortgage subsidy bonds of the United States depended, under the
+Thurman Act, upon the power of Congress to alter, amend, and repeal the
+terms of the Acts of 1862 and 1864 in respect to the security provided
+for the government loan.
+
+
+Court Decisions
+
+Now on the question of the meaning of the “saving clause” in the Act of
+1864, the courts had not in 1897, and still have not, satisfactorily
+passed. That the clause did not authorize unlimited changes in the
+provisions of existing legislation was evident. The majority of the
+Supreme Court expressed the view in the sinking fund cases that the
+reserved power could not be used to undo what had already been done
+or to unmake contracts which had already been made, but that Congress
+could provide for what should be done in the future, and might even
+direct what preparation should be made for the due performance of
+contracts already entered into.[573] Under this interpretation the
+Supreme Court upheld the clauses in the Thurman law which required the
+Pacific railroads to pay certain moneys into a sinking fund.
+
+The same court in 1895 decided that a federal act which required
+bond-aided railroads to operate their own telegraph lines was a
+legitimate amendment of the clause of the Act of 1862 which authorized
+these companies to enter into agreements with specified private
+corporations for the rendering of telegraph service.[574]
+
+Again, in Menotti v. Dillon (1897), the court approved an amendment
+to the land-grant provisions of the Act of 1862 designed to quiet
+litigation in land cases in California;[575] and in Union Pacific v.
+Mason City and Fort Dodge, it sustained a law of 1871 which authorized
+the Union Pacific to issue bonds for the construction of a bridge
+across the Missouri River at Omaha, but required the company to permit
+the trains of all railroads terminating at the Missouri River at Omaha
+to use the new bridge up to a fair limit of its capacity and on payment
+of a reasonable compensation.[576]
+
+None of these cases, however, can fairly be taken as precedents for so
+radical an alteration in a bargain made as would have been produced
+by an extension of the lien of the subsidy bonds to non-aided portions
+of the Pacific railroads. On this precise point the nearest approach
+to a decision is found in a dictum growing out of litigation under
+the Thurman law with respect to the proper handling of compensation
+for government services. As explained in the previous chapter, the
+government contended at one time that all compensation for services
+rendered to the government by the Central Pacific Railroad should be
+paid into a sinking fund for the eventual retirement of the subsidy
+bonds or should be applied in liquidation of interest on these bonds,
+whether these services were rendered on bond-aided or on non-bond-aided
+portions of the company’s lines. When this contention reached the
+Supreme Court it was rejected, on the ground that the Thurman Act,
+properly interpreted, applied only to the bond-aided lines.
+
+The court went on to remark, moreover, that the construction which the
+government here sought to place upon the law would not only render the
+second section of the Thurman Act a breach of faith on the part of the
+United States, but would make it an invasion of the constitutional
+rights of the railroad company.[577] This indicates that the court
+would not have approved a law which clearly compelled the Central
+Pacific to turn over to the government the compensation for the
+transportation of government troops and supplies earned over sections
+of its lines which had not received a subsidy in government bonds. If
+this really represented the attitude of the court, then it seems still
+more unlikely that an attempt to extend the lien of subsidy bonds to
+these same non-bond-aided sections would have been sustained.
+
+
+Critical Situation
+
+It is reasonable to suppose that the repeated discussion of refunding
+plans in Washington was due to the fact that Congress was of the
+opinion that a rigid insistence by the government upon its legal
+rights would result in a minimum rather than a maximum recovery from
+the Pacific railroads. At the same time, the shrewder heads in the
+legislature were perhaps hopeful that results might be obtained by
+negotiation which could not be secured by legal proceedings. Hence the
+refusal to approve of any specific plan for the settlement of the debt.
+
+In the year 1897 the pending maturity of the United States subsidy
+bonds made the situation too critical for action to be much further
+delayed. On March 4, 1897, the 54th Congress and the second
+administration of President Cleveland came to an end, and the
+administration of President McKinley began. A special session of
+Congress, called by the new President, convened on March 15. During
+this session Mr. Gear introduced a bill for the appointment of a
+commission to settle the debt of the Central Pacific and Western
+Pacific railroads to the government.[578] This bill failed to pass.
+In December, 1897, the first regular session of the 55th Congress
+convened. By this time the maturity of a large portion of the subsidy
+bonds was distant only a few weeks. That is to say, the bonds issued to
+the Central and Western Pacific railroads matured as follows:
+
+ January 16, 1895 $ 2,362,000
+ ” 1, 1896 1,600,000
+ ” 1, 1897 2,432,000
+ ” 1, 1898 10,614,120
+ ” 1, 1899 10,847,560
+
+About $2,000,000 of these bonds were held in the sinking fund
+established by the Thurman Act. These had naturally been canceled as
+they fell due. On December 21, 1896, moreover, most of the remaining
+bonds held by the government in the Central Pacific sinking fund had
+been sold and the proceeds applied to maturing indebtedness.[579]
+
+These resources, together with the credits in the Central Pacific bond
+and interest account, had covered the demands upon the company up to
+January 1, 1898. Meanwhile coupons on the first mortgage bonds had been
+regularly paid, and arrangements had been made with first mortgage
+bondholders to extend the maturity of each instalment until January
+1, 1898, at which date first mortgage bonds of the Central Pacific
+Railroad Company to the amount of $25,883,000 were to mature. First
+mortgage bonds of the Western Pacific Railroad, aggregating $1,970,000,
+matured on July 1, 1899. It was evident that all available Central
+Pacific resources would be exhausted by the 1st of January, 1898.
+
+
+Negotiations Initiated
+
+In the face of what amounted to a real crisis, involving not only
+the possibility of loss to the government, but also that of serious
+financial injury to private interests connected with the Pacific
+railroads, the initiative in seeking a compromise was now taken by the
+banking firm of James Speyer and Company, of New York, through which
+a large amount of Central Pacific securities had been marketed. Mr.
+Speyer felt responsibility in the matter because so many of his clients
+were involved. He later testified:
+
+ I think it naturally suggested itself to us as bankers, having sold
+ such a large amount of securities and the company being threatened
+ with bankruptcy, we naturally sat up nights thinking how we could
+ save it, because these bonds were all out, all over Europe, and stock
+ too; and we tried to find some means to work it out so that these
+ people would not lose their money. So that I think that originally
+ when this debt came nearer and nearer, when it got so that it
+ became a threatening thing to the Central Pacific security holders,
+ we naturally began to look around to see how we could stave off
+ receivership and bankruptcy.[580]
+
+There were also certain strategic considerations which had weight
+at this time. These affected the dominant interests in the Southern
+Pacific particularly. In spite of the apparently indifferent attitude
+of the Stanford-Huntington group, these gentlemen could not have been,
+and were not, blind to the fact that a receivership for the Central
+Pacific opened possibilities of disaster, not only for the Central
+Pacific itself, but also for the Southern Pacific, in which their main
+interest then lay. Such a receivership, if followed by a foreclosure
+sale, would have wiped out the last vestiges of the Stanford-Huntington
+stock holdings in the Central Pacific Railroad and would in all
+probability have eliminated also the lease of the Central Pacific
+to the Southern Pacific. This suggested the possibility of a severe
+competition for Pacific Coast business, from which the Southern Pacific
+could scarcely have escaped unscathed. The whole future control of the
+railroad systems of the South West was clearly at stake.
+
+It appears that Mr. Speyer took the matter up with Mr. Huntington,[581]
+probably early in 1898. Mr. Huntington was receptive and the subject
+was then discussed with representatives of the government. At an
+early stage in the negotiations President McKinley was consulted. The
+matter was one deemed of great importance to the government; in fact,
+in January, 1898, the President directed the Attorney-General to give
+immediate attention to the Pacific railroad debts, to take every means
+necessary, and to spend as much money as should be needed in order to
+enforce the government’s lien.[582] In later proceedings Mr. Griggs,
+the Attorney-General, and Mr. Gage, Secretary of the Treasury, took an
+active part. Mr. McKinley continued to follow the negotiations, and
+was about as well informed as any of the others as to how matters were
+getting on. Elihu Root was employed by the Attorney-General as special
+counsel.[583] In short, the administration responded cordially to the
+initiative of the railroad and banking group.
+
+
+Government Commission
+
+While negotiations were going on, Congress passed the Act of July 7,
+1897. This act appointed the Secretary of the Treasury, the Secretary
+of the Interior, and the Attorney-General a commission with full power
+to settle the indebtedness to the government growing out of the issue
+of bonds in aid of the Central Pacific and Western Pacific bond-aided
+railroads. The commission was required to submit any settlement made
+to the President for his approval, and it was forbidden to accept a
+less sum in settlement of the debt due the United States than the full
+amount of the principal and interest of the subsidy bonds. It was
+empowered to grant an extension of time for repayment not exceeding ten
+years, at a rate of interest not less than 3 per cent, and to accept
+such security as might seem expedient.[584] So far as the commission
+was concerned, this was Mr. Gear’s proposal of the previous year.
+
+It seems probable that negotiations had already reached an advanced
+stage before the Act of July 7 was passed. Mr. Griggs was later of
+the impression that the act was drawn and passed to fit a tentative
+agreement which had already been made.[585] If such were the case
+the willingness of Congress to entrust the matter to the executive
+branch of the government, after having once refused to do so, may be
+explained. Possibly, also, the fact that the Union Pacific had been
+sold at foreclosure on November 1, 1897, for $58,448,223.75, a sum
+sufficient to cover the full amount of both first and second mortgage
+bonds, had weight.[586]
+
+The indebtedness of the Central and Western Pacific railroads to the
+United States government as of February 1, 1899, was $58,812,715.48.
+These figures were reached by adding thirty years’ interest at 6 per
+cent to the original loan of $27,855,680, and by deducting accumulated
+credits resulting either from the deposits in the sinking fund
+established by the Thurman law, or from the operation of the bond and
+interest account originating in the Acts of 1862 and 1864. Comparison
+of the figure of $58,812,715.48 with the slightly larger amount given
+in the previous chapter as of June 30, 1897, will show that during the
+intervening nineteen months the net amount of indebtedness had slightly
+decreased.
+
+
+Plan of Settlement
+
+In view of the impending maturity of large quantities of subsidy bonds,
+the first essential point in the negotiations between Mr. Speyer and
+the government was necessarily that more time should be allowed the
+Central Pacific for the payment of its debt. It was agreed that at
+least certain portions might be extended for as long as ten years.
+Mr. Speyer was of the opinion that, given this extension, the Central
+Pacific could repay its debt in full—a striking contrast to the former
+statements of Central Pacific Railroad men. By paying the debt in full
+was meant paying with interest on all delayed balances.[587]
+
+In order to cover the matters just referred to, Mr. Speyer agreed in
+1898 that the indebtedness of the Central Pacific to the government
+should be refunded into twenty notes of the railroad company, falling
+due one every six months, beginning August 1, 1899, and ending February
+1, 1909. The notes were to carry interest at 3 per cent per annum,
+payable semiannually. Taken by itself, this offer was the most liberal
+that the railroad company had ever made. Yet it represented up to this
+point only a promise, without security. In order to provide security,
+Mr. Speyer proposed an additional arrangement, in two parts.
+
+By the first part of the additional agreement, Speyer and Company
+undertook to purchase the four Central Pacific notes earliest in point
+of maturity, and to pay the face value thereof as soon as received
+from the government. This obligation of a reputable banking house to
+pay the substantial sum of $11,762,543.12 was a valuable thing in
+itself, and materially increased the attractiveness of the whole plan
+from the government’s point of view. In consideration for its advance,
+Speyer and Company received new first mortgage bonds of the Central
+Pacific Railroad, of an issue presently to be described. By the second
+part of the same arrangement, each note remaining in the hands of the
+government was to be secured by deposit of first refunding 4 per cent
+gold bonds of the Central Pacific equal in amount to the face of the
+note.[588]
+
+It will, however, be asked how, in view of the outstanding
+capitalization of the Central Pacific, it was possible to offer a
+first mortgage security as collateral for the refunding notes. This
+was provided for by the further reorganization of the Central Pacific,
+and by the issue in particular of two new classes of bonds, of which
+the first was to be a 4 per cent, and the second a 3½ per cent issue,
+having a first and second mortgage lien, respectively, upon all
+property of which the Central Pacific was possessed.
+
+
+Reorganization Proposal
+
+On February 1, 1899, the outstanding debt of the Central Pacific
+Railroad consisted of the following issues:
+
+ Central Pacific Railroad of California, first mortgage
+ bonds $25,881,000
+
+ Western Pacific Railroad Company, first mortgage
+ bonds 2,735,000
+
+ Central Pacific Railroad Company (San Joaquin
+ Valley branch), first mortgage bonds 6,080,000
+
+ Central Pacific Railroad Company, land bonds 2,134,000
+
+ Central Pacific Railroad Company, 50-year 6 per
+ cent bonds 56,000
+
+ Central Pacific Railroad Company, 50-year 5 per
+ cent bonds 10,245,000
+
+ California and Oregon Railroad Company, and
+ Central Pacific Railroad Company, successor,
+ first mortgage bonds 10,340,000
+
+ ———————————
+ Total $57,471,000
+
+Under the proposed reorganization plan, the aggregate of $57,471,000
+of securities listed was to be retired in exchange for $51,253,500
+in new 4 per cent bonds, $13,695,000 in new 3½ per cent bonds, and
+$1,987,383.70 in cash. Generally speaking, the outstanding first
+mortgage bonds were offered par in new fours, with a slight bonus in
+new 3½ per cents. Junior mortgages received 50 per cent in new fours,
+and from 70 to 90 per cent in new 3½ per cent securities. After the
+retirement of outstanding first mortgages, the 4 per cent bond issue
+was then to be increased further by the amount necessary to provide
+the government with the collateral stipulated for in the negotiations.
+Thus the government was set on a par with outstanding first mortgage
+bondholders.
+
+Here, however, was a real difficulty. It was plain that while the old
+first mortgage bondholders might consent to the retirement of the
+issues which they held by exchange for new bonds, on the terms stated,
+they would yet hesitate to allow the inflation of the first mortgage
+issue by putting out $58,000,000 first mortgage bonds over and above
+the amount of their holdings in order to satisfy a government claim
+hitherto secured only by a second mortgage lien. It must be remembered
+that the reorganization was a voluntary one, requiring for its success
+the free consent of all parties. Some additional considertion had
+to be offered at this point in order to satisfy first mortgage
+bondholders. It was at this juncture that the Southern Pacific Company
+stepped in, with a guaranty on both the new 4 per cent and the new 3½
+per cent issues. The additional security provided by this guaranty
+was without doubt an element contributing strongly to the successful
+carrying out of the proposed exchanges. At the same time the guaranty
+was received with favor by the government, because it increased the
+government’s security as well as that possessed by former bondholders.
+
+In subsequent years there was dispute as to how far the government
+relied on the Southern Pacific guaranty as an essential element in the
+security provided for the ultimate repayment of the government loan.
+Curiously enough, the fact of the guaranty was not mentioned in the
+original agreement of February 1, 1899, between the Central Pacific and
+the government, nor was it referred to in the report dated February
+15, 1899, which the commissioners appointed to settle the Central
+Pacific indebtedness made to Congress, nor in the clauses of the
+refunding mortgage itself. But the testimony of all concerned is that
+the guaranty was understood to be a vital part of the agreement, and
+Attorney-General Griggs later went so far as to say that the Central
+Pacific bonds without the guaranty would not have been acceptable.[589]
+When the bonds to which the government was entitled were delivered to
+the United States Treasury Department, they had indorsed on them in
+proper form the guaranty of the Southern Pacific Company.
+
+
+Treatment of Stockholders
+
+In addition to the promises for settlement of the government debt,
+mention should be made of the allowance made to Central Pacific
+stockholders in the reorganization plan, and of the provision for cash
+requirements.
+
+Some provision for cash requirements is a necessary part of any
+reorganization plan. In the case of the Central Pacific and Western
+Pacific, the cash requirements consisted of $11,762,543.12, which were
+needed to take up the first four notes issued to the government, and
+of $9,657,556.88 for new equipment, improvements, and other purposes
+of the new company, including expenses, commissions, compensation,
+and similar items incident to the reorganization. Speyer and Company,
+it will be recalled, had agreed to purchase the first four maturing
+notes issued to the government. The inclusion of the amount paid for
+these notes as a cash requirement of the Central Pacific was due to the
+fact that the money paid by the bankers for this purpose was regarded
+merely as a loan by the bankers to the railroad company. In all, the
+sum which it was necessary to raise amounted to $21,420,100. This money
+was raised by the sale to Speyer and Company, on behalf of a syndicate,
+of portions of the new 4 per cent and 3½ per cent issues aggregating
+$12,995,500, and by the issue of $12,000,000 of new preferred stock to
+the Southern Pacific in exchange for a like amount of that company’s
+4 per cent bonds. In addition, the Southern Pacific agreed to take
+up $8,000,000 additional preferred stock of the Central Pacific, as
+issued, upon the same terms.
+
+As for the common stock of the Central Pacific Railroad, this was
+exchanged, dollar for dollar, for stock of the Central Pacific
+Railway Company (new corporation). Such an exchange was the best that
+stockholders could hope for. At the same time the Southern Pacific,
+here too, became a factor in the operation, by offering to issue its
+own stock, dollar for dollar, in exchange for the new stock of the
+Central Pacific Railway and to add thereto a bonus in the shape of
+Southern Pacific 4 per cent bonds to the extent of 25 per cent of the
+new stock issue.
+
+Examination of the elaborate arrangements between the Central Pacific,
+the government, and the Southern Pacific in 1899 shows that the
+last-named company participated in the reorganization plan which has
+been described to the following extent:
+
+ It became guarantor in respect of a bond issue
+ (new 4 per cent first mortgage) of $100,000,000
+
+ It became guarantor in respect of a bond issue
+ (new 3½ per cent second mortgage) of 25,000,000
+
+ It issued its own bonds for the purchase of
+ $12,000,000 of the preferred stock of the new
+ company, in the amount of 12,000,000
+
+ It agreed as and when required to purchase the
+ remaining $8,000,000 of the preferred stock
+ of the new company with bonds in the
+ amount of 8,000,000
+
+ It agreed to issue its bonds as part payment in
+ the purchase of $67,275,500 of the common
+ stock of the new Central Pacific Railway in
+ the amount of 16,819,000
+
+ It issued its own stock in partial payment for
+ $67,275,500 of the common stock of the new
+ Central Pacific Railway Company in the
+ amount of 67,275,500
+ ————————————
+ Making a total of assumed liabilities of $229,094,500
+
+This was a very substantial contribution for any third party to
+make to the success of a Central Pacific reorganization plan. True,
+the Southern Pacific received Central Pacific stock for its cash
+advance, but the value of this stock at the time was slight. The real
+consideration which counted with the Southern Pacific was the control
+of the Central Pacific system.
+
+
+Execution of Agreement
+
+In carrying out the proposed plan the commission named in the Act of
+July 7, 1897, reported to Congress under date of February 15, 1899,
+that an agreement had been reached, and that the subsidy bonds were
+to be refunded into twenty notes of $2,940,635.78 each. On March 3,
+1899, Congress authorized the Secretary of the Treasury to sell the
+first four notes in order that the agreement with Speyer and Company
+might be carried out.[590] These notes were already in the Secretary’s
+hands. They were duly purchased by the bankers named on March 10 of
+the same year. During the summer of 1899, the Central Pacific Railway
+was incorporated to succeed the former railroad company, and the
+various issues called for by the reorganization plan were put forth. On
+February 1, 1909, the last of the refunding notes matured and was duly
+paid. The divorce of the Central and Western Pacific companies from the
+government was complete.
+
+To anyone who has followed the long drawn-out discussions between the
+Central Pacific and the government, the speed with which the final
+settlement was made and the favorable terms which the government
+secured come as a distinct surprise. Not once during the twenty years
+following the passage of the Thurman Act had it been suggested that the
+Central Pacific could meet principal and interest of the government
+loan on condition only that it be granted an average extension of
+five years on its indebtedness with interest at 3 per cent on delayed
+payments. The result was properly regarded as a triumph for the
+administration.
+
+In a measure, also, the settlement justifies in a general way the
+entire policy of the administration with respect to the issue of
+subsidy bonds to the Central and Western Pacific Railroad companies.
+These subsidy bonds were issued originally for a well-considered
+purpose. The purpose was accomplished, and repayment of the loan was
+secured without important delay. From a business point of view the
+operation was therefore a distinct success. Doubtless there were
+disadvantages connected with the policy. Such were the many disputes
+between railroad and government, which hampered the railroad in its
+later development, and occupied the time and energy of public men.
+Such, also, was the apparent consent which the government yielded
+to the permanent consolidation of the Central and Southern Pacific
+companies by its acceptance of the reorganization of 1899. The final
+price paid by the public was larger than is sometimes appreciated. But
+the final gain was also very large.
+
+
+
+
+CHAPTER XXII
+
+THE SOUTHERN PACIFIC MERGER CASES
+
+
+New Era
+
+There is no question that the final separation of the finances of
+the Central Pacific from those of the United States government was a
+matter of very great importance to both parties. The direct result was
+to place the federal government outside the Central Pacific instead
+of inside it. Instead of holding the dual relation of creditor and
+regulating body, Congress now stood as regards the Central Pacific in
+the same position as with respect to every other railroad in the United
+States—without interest in the company’s internal finance, but free to
+act in the interests of the consuming, shipping, and investing public.
+This was an immense advantage, both from the point of view of the
+government and from that of the railroad itself.
+
+The Central Pacific reorganization of 1899, moreover, not only
+accomplished a desirable change in the external relations of the
+Huntington lines, but it also brought about a change in the relations
+between the Central Pacific Railroad and the Southern Pacific Company
+which was of considerable significance. It will be recalled that
+from 1885 to the time of the reorganization of the Central Pacific
+in 1899, these relations had rested upon a leasehold interest only.
+The insecurity of such a connection had been brought forcibly to the
+attention of the Southern Pacific management during the course of the
+reorganization proceedings. But as a result of the participation of
+the Southern Pacific in the reorganization which made possible the
+repayment of the government debt, that company became possessed of
+the ownership of the entire outstanding Central Pacific common and
+preferred stock. While such ownership still lacked the completeness
+which would have followed the assumption of direct title to the Central
+Pacific road-bed and rolling stock, it was considered satisfactory, and
+certainly was an improvement from the Southern Pacific’s point of view
+over anything which had gone before.
+
+Separated from all financial connection with the government and with
+its parts joined together by the double tie of leasehold and stock
+control, the Central Pacific-Southern Pacific system, on the conclusion
+of the Central Pacific reorganization of 1899, entered upon a new era
+which contained possibilities of new policies, and of a sounder and
+more profitable development than it had yet known. There was, too, one
+additional circumstance which made it easy for the stockholders of
+the Southern Pacific in 1900 to embark upon new policies—namely, the
+death of Mr. Huntington. Of the original associates, Huntington was
+the last survivor. Mark Hopkins had died in 1878, Charles Crocker in
+1888, and Stanford in 1893. For ten years, at least, Huntington had
+been the active manager of the Southern Pacific properties. Personally,
+he never owned so much as 50 per cent of the Southern Pacific stock
+outstanding,[591] but by virtue of the support of the Crocker and the
+Hopkins interests, he exercised almost undisputed control. Huntington
+had reached the ripe age of seventy-nine years in 1900, and his death
+was not unexpected. The effect was none the less great, however, for
+the passing of Mr. Huntington meant the removal of the last of the men
+to whom the integrity and independence of the Central and Southern
+Pacific companies were matters of personal pride.
+
+
+Purchase of Control by Union Pacific
+
+It was the death of Mr. Huntington, to repeat, which now made possible
+a very important change in the relations which the Central Pacific
+and the Union Pacific railroads bore to each other. While the Union
+and the Central Pacific roads both owed their existence to the same
+federal legislation, and while they had been close business associates
+for over thirty years by virtue of geographical necessity, both had
+uncompromisingly maintained their independence. Neither Jay Gould,
+who was long influential in Union Pacific affairs, nor Huntington
+himself, were men who cared to form part of organizations which they
+could not control. Moreover, Huntington distrusted Gould. He once
+wrote Colton that Gould had scared the Kansas Pacific people so that
+they had let him, Gould, get into bed with them. For his part, he did
+not intend to follow the Kansas Pacific example. Gould might frighten
+him so that he would leave the bed, but never so that he would share
+it. After Gould’s death in 1890, the same disinclination to combine
+persisted. The Huntington group was now powerful, and still unwilling
+to enter a combination which it could not control. The record shows
+that proposals were made. The Union Pacific, dependent upon the Central
+Pacific for direct connection with San Francisco, and fearful lest at
+Mr. Huntington’s death his Southern Pacific stock should fall into
+unfriendly hands, offered to purchase his shares, or, failing in this,
+to conclude a permanent alliance. To this offer Mr. Huntington remained
+indifferent.
+
+Huntington died, however, in August, 1900, leaving his Southern Pacific
+stock to his widow and nephew in the proportion of two-thirds and
+one-third, respectively; and both, as had been anticipated, proved
+willing to dispose of their holdings. Negotiations were carried to
+completion in February, 1901. Four hundred and seventy-five thousand
+shares were purchased from the Huntingtons and from Edwin Hawley, the
+late financier’s most intimate business associate, while enough was
+secured from other parties through Kuhn, Loeb and Company to make an
+aggregate of 677,700 shares, at an average price of 50.6146. Market
+quotations were then in the neighborhood of 45. On February 4, Kuhn,
+Loeb and Company engaged to deliver to the Union Pacific one month
+later 72,300 additional shares at the same price, plus 4 per cent
+interest from February 11, bringing the company’s holdings up to
+750,000 shares.
+
+This, in Mr. Harriman’s opinion, was sufficient for control. A year or
+two later an attempt to force the Southern Pacific to pay in dividends
+earnings which its managers thought should be expended in improvements
+led the Union Pacific to acquire 150,000 additional shares. In January,
+1910, purchases were renewed for the last time, in view of pending
+legislation in Congress which promised to make the possession of an
+absolute majority of Southern Pacific stock desirable; but these
+purchases ceased after 74,000 shares had been obtained, and 50,000 of
+these shares were subsequently sold. This concluded the episode. On
+June 30, 1911, the Union Pacific through the Oregon Short Line owned
+1,266,500 shares of Southern Pacific common, or 46 per cent of all
+outstanding stock—sufficient to give undisputed control.
+
+
+Harriman System
+
+This purchase by the Union Pacific of a controlling interest in the
+stock of the Southern Pacific, made the latter a partner in a railroad
+system of about 18,500 miles, stretching from Omaha, Kansas City, and
+New Orleans on the east, to Los Angeles, San Francisco, and Portland
+on the west, and, by means of the Morgan Steamship Line, reaching
+New York. In addition, the Union Pacific owned a majority of stock
+in the Pacific Mail Steamship Company, which carried freight and
+passengers from the Pacific Coast to the Orient and to Panama. Of the
+total mileage west of the Mississippi-Missouri River and south of the
+Northern Pacific Railroad, the Harriman management controlled 19 per
+cent. Finally, through stock ownership in the Illinois Central, the
+Chicago and Alton, and other lines, and by contract with the San Pedro,
+Los Angeles, and Salt Lake, it possessed in varying degree influence
+over connecting and competing roads.
+
+Undoubtedly its association with the Union Pacific increased the
+prestige of the Southern Pacific Company at the time when the merger
+took place. The association involved, however, serious dangers, for
+it placed the credit and the earning power of the Southern Pacific
+at the disposal of Mr. Harriman for speculative projects in eastern
+fields, and also it ran counter to a national policy opposed to great
+accumulations of capital under single control which was presently to
+become clearly defined. It is true that public hostility toward big
+business seemed unimportant in 1901 when the Union Pacific and the
+Southern Pacific first combined, yet the attitude of the courts toward
+monopoly became a matter for serious consideration by the latter
+in 1911, ten years after the original merger had taken place, when
+the federal government attacked the Union Pacific-Southern Pacific
+consolidation as a combination in restraint of trade under the terms of
+the Sherman Anti-Trust Act of 1890. A brief discussion of the issues of
+this extremely important lawsuit is therefore necessary.
+
+There was perhaps some ground for conflicting views with respect to the
+motive which had induced the Harriman interests to seek control of the
+Southern Pacific. The obvious explanation of the operation was that the
+Union Pacific desired to increase its power in the South West. It was
+stoutly maintained by Mr. Kahn, of Kuhn, Loeb and Company, however,
+that the desire to control the Southern Pacific line from San Francisco
+to El Paso was not a motive in the transaction. The necessity of buying
+the Sunset route, he said, was considered an obstacle and a deterring
+feature. If a way could have been found to secure the Central Pacific
+alone, it would have been preferred at the time. The possible reduction
+of competition was not even considered at any of the meetings of the
+executive committee at which the subject was brought up. Speaking of
+the Southern Pacific, Mr. Kahn declared:
+
+ We knew it would require a great deal of money to be spent on it, we
+ knew it added thousands of miles to the burden of administration and
+ management. We were very anxious that the Union Pacific should receive
+ as much of the administrative ability and of the railroad genius of
+ Mr. Harriman as it was possible for him to give it, and we were rather
+ disinclined to put upon him any more burden than was necessary to the
+ best development of the Union Pacific; and therefore we, individually,
+ felt that if the Southern Pacific could be separated, keeping only
+ the Central Pacific and the north and south lines in California, and
+ getting rid of the southern part of the Southern Pacific, we would be
+ getting rid of a nuisance.[592]
+
+
+Arguments of Railroad Counsel
+
+The contention of the Union Pacific Railroad in 1911 was that the
+consolidation of the Union Pacific and Southern Pacific properties
+was legal under the Sherman law irrespective of motive, because the
+two systems were not competing, and that the government was unable to
+interfere in any case because the consolidation took place through
+the means of a purchase of stock instead of by contract or agreement
+between the railroad corporations concerned. On this last point the
+railroad also argued that, as a matter of law, ownership by one
+railroad of another’s stock did not constitute control unless a clear
+majority was held. Control, said counsel, is a matter of power. A
+minority may direct the operation of a railroad because the majority
+has confidence in it, but this is lawful. The argument applied to the
+Southern Pacific case because it was known that the Union Pacific
+possessed only a minority interest in the first-named company.
+
+Apart from this, counsel contended that a purchase of stock was a thing
+which the federal government could not control, for the reason that the
+acquisition or disposition of property was not commercial intercourse.
+“If any citizen should step into a broker’s office on Broadway, New
+York, buy some stock in the Pennsylvania Railroad, pay for it, put the
+certificates in his pocket, and walk out, would he, or the broker, or
+the broker’s principal, be engaged in commercial intercourse between
+nations and parts of nations?... Would a state corporation buying
+those certificates be in any different situation from an individual
+purchaser, if the State of its domicile had endowed it with corporate
+power to buy stock?”
+
+Moreover, to continue the argument, though purchases of stock were
+subject to federal law, they would violate no provisions of the Sherman
+Act. A purchase or sale is not a contract in restraint of trade, for
+a contract is executory, implying something yet to be done; while a
+sale is executed, completed when made and because it is made. Nor
+is a contract in restraint of trade necessarily unlawful. It must
+be undue, that is, not entered into with the legitimate purpose of
+reasonably forwarding personal interest and developing trade. The same
+may be said of an attempt to monopolize. Every act of competition
+tends to drive competitors out of business, but competition is legal,
+in the absence of fraud or duress. It follows that an individual may
+buy out a competitor, and then another competitor, and so on, and a
+corporation may do the same thing. “It is evident,” said Mr. Dunne’s
+brief, “fraudulent, intimidating, coercive, and other like wrongful and
+unlawful methods apart—that here we touch a fundamental principle of
+the freedom to buy and sell, of the legal right of the individual in
+respect to his own property.”
+
+
+Government’s Contention of Previous Competition
+
+The arguments of railroad counsel in defense of the Union
+Pacific-Southern Pacific merger rested predominantly, although not
+wholly, upon points of law such as have been mentioned. Fundamental
+as some of these were, the main interest in the case for the ordinary
+student will be found in the elaborate analysis of the competitive
+relations between the Southern Pacific and the Union Pacific which
+the government developed in the course of its argument. So far as
+the writer is aware, no record has ever been presented to any court
+in which the nature and extent of the competition between two great
+railroad systems has been so thoroughly discussed.
+
+In establishing the fact that competition had been active between
+the Southern Pacific and the Union Pacific before the merger of the
+two companies in 1901, the government insisted upon the fact that
+the Central and Southern Pacific managers had continuously diverted
+all the traffic which they could control to the Sunset route so
+long as they remained independent of Union Pacific dictation.[593]
+The government examined no less than seventy witnesses—shippers,
+Southern Pacific employees and ex-employees, and representatives of
+independent railroad lines. Among those who testified were Mr. Hawley,
+for nineteen years eastern agent of the Southern Pacific and afterwards
+a financier of prominence; Messrs. Stubbs, Spence, and Munroe, of the
+traffic department of the Southern Pacific; Paul Morton, one-time
+vice-president of the Equitable Life Assurance Company; Mr. Jeffery,
+president of the Denver and Rio Grande; and Mr. Hannaford, in charge of
+traffic on the Northern Pacific.
+
+Substantially all these witnesses testified that traffic from the
+Atlantic seaboard could move to the Pacific Coast either via the Morgan
+Steamship Line to New Orleans and thence over the Sunset route of the
+Southern Pacific to San Francisco, or via the trunk lines and their
+connections to Omaha, thence over the Union Pacific to Ogden and over
+the Central Pacific to the coast. Although the Southern Pacific was
+interested in both of these routes, it secured all the revenues from
+freight moving via the Sunset route, and only 30.1 per cent of the
+total revenue from freight delivered to it by the Union Pacific at
+Ogden. In consequence, it used its best efforts to influence freight to
+travel by the southern line.
+
+[Illustration: Map showing mileage owned in 1913 by the Central Pacific
+Railway and the Southern Pacific Railroad.]
+
+The government showed by the evidence of shippers that freight was
+actually solicited in competition between the two Pacific companies.
+The Southern Pacific, it appeared, took traffic at New York rates from
+as far west as Buffalo and Pittsburgh, not including those cities, and
+from as far south as Norfolk. Not only this, but the Union Pacific was
+not altogether restricted to the route via Ogden. By diverting freight
+at Granger and sending it north to Portland over the Oregon Short
+Line and the Oregon Railroad and Navigation Company, it could affect
+the transcontinental rate in two ways. In the first place, it was
+physically possible for traffic to move from Portland to San Francisco
+by boat; and in the second place, a slight reduction in the rate to
+Portland compelled a cut to every Pacific terminal point in order to
+maintain these different cities in the same relative position for the
+distribution of eastern goods. As Mr. Stubbs expressed it, “Let the
+rate be cut on the Great Northern, and it goes down to the Gulf of
+California.”
+
+Mention may also be made of the route via the Isthmus of Panama, in
+which the Southern Pacific had an interest by virtue of its control of
+a steamship line from San Francisco to Panama. The business was not
+large, but in so far as any moved this way it was in competition with
+the rail lines via Ogden.
+
+
+Competition between Other Points
+
+In addition to competition between the Southern Pacific and the Union
+Pacific on business between the Pacific Coast and points east of the
+Missouri River, the government succeeded in showing the existence of
+competition between the Atlantic seaboard and Colorado and Utah common
+points. A good many sheep wintered in the desert west of Salt Lake,
+and in the spring moved to the summer ranges in Idaho where they were
+sheared. The railroad near which the shearing took place secured the
+outbound wool, and for this reason the Union Pacific, Southern Pacific,
+and Rio Grande Western offered every attraction possible in order to
+influence the movement of the flocks. The Union Pacific for instance,
+at one time paid a head tax which Wyoming levied on all sheep brought
+into that state. The Oregon Short Line purchased salt on behalf of the
+sheep owners, carried it to Idaho, and collected the purchase price
+only when the salt was delivered. In the same way there was competition
+in respect to cattle and horses which wintered in southern Idaho and
+northern Nevada and moved east in the spring.
+
+In return for the wool, cattle, hides, etc., shipped east, there
+were brought in shipments of miscellaneous merchandise, dry goods,
+machinery, and the like. When the Union Pacific handled the business,
+the freight moved from New York to Norfolk or Newport News, thence by
+rail to Omaha and over the Union Pacific lines to destination. When the
+Southern Pacific took it, the freight went by Southern Pacific steamers
+to New Orleans or Galveston, and thence over railroads controlled by
+the company to Fort Worth, Texas, where it was given to connecting
+lines for delivery at destination. The rate was the same either way,
+but the rivalry between soliciting agencies was intense.
+
+Still again, there was competition between Portland and Utah and
+Colorado common points, including certain points in Nevada. Portland
+enjoys a fairly direct route over the Oregon Railroad and Navigation
+Company’s tracks to Huntington, and from there over the Oregon Short
+Line to Granger, a few miles east of Ogden. The Southern Pacific
+runs south from Portland to Roseville, near Sacramento, and thence
+east through California, Nevada, and Utah to Ogden. The distance over
+the one route is 945.3 miles, and over the other 1,487.3 miles. The
+Roseville route has nearly twice the rise and fall of the route via
+Huntington, while the curvature also is greater. In a calculation
+made by Mr. Kruttschnitt, he estimated that the direct line haul
+was equivalent to 3,498 miles of straight level track, but that the
+haul via Roseville was equivalent to 6,164 such miles. The evidence
+nevertheless showed that some business, especially lumber, had moved
+the long way round before 1901. Traffic had also moved via the Oregon
+Short Line and Central Pacific to points as far west of Ogden as Wells,
+Nevada. How much all this amounted to was not clearly shown—at best
+it was probably not a great deal. After the consolidation of the Union
+Pacific and Southern Pacific in 1902, through rates with the Oregon
+Railroad and Navigation Company via the Shasta route were discontinued
+and competition ceased.
+
+Other kinds of competition included competition for traffic between San
+Francisco and Portland, between San Francisco and points in Montana
+and Idaho, and competition for Oriental traffic destined to points in
+the United States east of the Missouri River. In short, the voluminous
+evidence thus summarized showed that active competition had existed of
+almost every conceivable kind. There had been competition of parallel
+routes between the same termini, of parallel or roundabout routes
+between different termini, of roundabout routes entirely controlled
+by the competing lines, of the routes in which the Union Pacific
+and Southern Pacific were links only in chains of connecting and
+independent roads, and finally there had been competition in cases
+where one competitor had to rely upon the other for a greater or less
+proportion of the haul.
+
+
+Dissolution of Merger
+
+This demonstration that the Union Pacific and the Southern Pacific had
+competed with each other before the merger of 1901, followed by easily
+secured evidence that the competition had ceased after the merger,
+was sufficient to persuade the Supreme Court to grant the government
+a decree, in spite of the protests of the defendant railroads.[594]
+The effect upon the Southern Pacific was of course important. A
+drastic reorganization of the affairs of the company was called for
+in order to take the Southern Pacific out of the control of the Union
+Pacific and to re-establish the conditions of the Huntington régime.
+Such a reorganization presently occurred. While the details of this
+transaction are not of present significance, it may be said, in brief,
+that after several abortive attempts the Union Pacific disposed of all
+its Southern Pacific stock under a reorganization plan dated May, 1913,
+delivering some of this stock to the Pennsylvania Railroad in exchange
+for stocks of the Baltimore and Ohio Railroad, and selling the rest
+to the general public.[595] Henceforth the rail lines of the Southern
+Pacific were not to reach east of New Orleans and of Ogden.
+
+
+Attack on Control of Central Pacific
+
+When the United States Supreme Court declared that the Union and
+Southern Pacific systems must be separated, it merely restored the
+latter to a condition of independence. The United States Department
+of Justice was of opinion, however, that the logic of the decision
+went further than this, and, encouraged by its preliminary success, it
+took the dramatic step of attempting to separate the Southern Pacific
+and the Central Pacific companies by the application of the same
+principles which had torn the Southern Pacific and the Union Pacific
+apart. The new suit was known as the United States v. Southern Pacific
+Company, and, like the old, was brought under the Sherman law.[596]
+
+The principal points in the case of the United States v. the Southern
+Pacific Company were as follows. A glance at the accompanying map will
+show that the Central Pacific Railroad, from Ogden to Sacramento, and
+the Western Pacific, from Sacramento to Oakland, were in practical
+effect but the western end of a route of which the Union Pacific formed
+the eastern part. So far as competition was concerned, all parts of the
+route were on a parity. If the Union Pacific competed with the Southern
+Pacific when it hauled eastern freight from Omaha to Ogden, the Central
+Pacific did likewise when it hauled the same freight from Ogden to
+Sacramento. If it would promote competition to place the Southern
+Pacific and the Union Pacific in separate hands, the same could be said
+of the Central Pacific and its southern neighbor. So much is reasonably
+clear even from a cursory examination of the facts.
+
+In at least two important respects, however, the relations between
+the Southern Pacific and the Central Pacific differed from those
+between the Southern Pacific and the Union Pacific. These points were
+emphasized in the briefs of counsel, and formed the basis of the
+companies’ defense. Unlike the Union Pacific, the Southern Pacific
+had obtained control of the stock of the Central Pacific at a time
+when and under circumstances in which the federal government was an
+interested party. If the details of the reorganization of 1898 are
+recalled, it will be remembered that the government then accepted
+notes in satisfaction of its claims against the Central Pacific which
+were secured by mortgage bonds carrying a Southern Pacific guaranty.
+This guaranty, in turn, was offered by the guaranteeing company as one
+element in a series of transactions which included the acquisition
+of Central Pacific stock by the Southern Pacific in exchange for the
+latter’s own stock certificates. The implications of this episode were
+mentioned when the transaction was described. While it certainly gave
+no permission to the Southern Pacific to violate the Sherman or any
+other law as a consideration for assisting the Central Pacific to pay
+its debts, the government did lay itself open to the charge of having
+at one time approved and enjoyed the fruits of a transaction of which
+it later complained.
+
+The more important distinction between the later and the earlier
+merger cases in which the Southern Pacific was involved, lay in the
+circumstances that the combination of the Union Pacific and the
+Southern Pacific had been a recent matter, while the relations between
+the Central Pacific and the Southern Pacific had begun almost as
+soon as the latter corporation had been organized. In discussing the
+construction of the Southern Pacific, the remark has been made that the
+two enterprises were originally but different manifestations of the
+activities of a single group of men. The first statement in the brief
+of Mr. Herrin, chief counsel for the defense in the Central Pacific
+case, was similarly that: “This case does not involve any combination
+of competitive units, or any combination at all, for the Southern
+Pacific and Central Pacific lines were projected and built and have
+been operated since their organization as one property.”[597] These two
+characterizations indicate a difference of considerable significance
+between the Union Pacific and the Central Pacific cases.
+
+
+Final Decision Doubtful
+
+It must be pointed out, nevertheless, that in spite of the long
+and close association between the Central and the Southern Pacific
+railroads, there were certain features in this controversy which made
+it difficult to forecast the final decision of the Supreme Court of the
+United States. Counsel for the railroad company in the Union Pacific
+case dwelt much upon legal technicalities. But in the Southern Pacific
+case the forms were all opposed to the company’s contentions. For
+one reason or another, doubtless largely for political effect, the
+associates had always scrupulously insisted upon the separate identity
+of the two companies concerned. The corporations had been made to
+appear to deal with each other at arm’s length, and there had even been
+much discussion of the relative profitableness to each of the contracts
+concluded between them.
+
+Nor was the matter one of form alone, as we have seen in earlier
+chapters of this study. While the construction of both roads was
+financed by the same parties, after 1880 the associates disposed of the
+greater part of their Central Pacific holdings. The Southern Pacific
+and the Central Pacific were still held together by lease relations, it
+is true, but they then became separate, not merely in organization but
+also in ownership. The separate ownership continued until 1899, when
+the new arrangements were made to undo which the government brought
+suit. It followed that counsel for the defendant railroads were in the
+position of defending a combination of legally distinct corporations,
+owned by different parties, with no connection between them save
+through the minority holdings of individual stockholders and through
+the very arrangements of which complaint was made. As an answer to this
+indictment, the circumstance that the same parties had found their
+profit in building each of the defendant lines could hardly be given
+weight, nor was the fact that the original consolidation antedated the
+Sherman law important.
+
+The suit of the United States v. Southern Pacific Company was argued
+before the circuit judges of the Eighth Circuit sitting at St. Louis
+in December, 1915. The decision of a majority of this court was
+rendered in March, 1917, and was unfavorable to the government’s
+contention.[598] The grounds of this opinion were not brought out with
+complete distinctness, but two judges held that there had never been a
+“natural and existing competition” in interstate commerce between the
+Southern Pacific and the Central Pacific. Nearly half of the text of
+the decision, moreover, was devoted to a description of the financial
+settlement of 1899, in which Congress appeared to have treated the
+control of the Central Pacific by the Southern Pacific as consistent
+with the statutes of the United States. Judge Carland dissented from
+the conclusions of his colleagues in a carefully prepared opinion.
+The case was appealed, and after full oral argument, was submitted to
+the Supreme Court on April 19, 1921. An early decision is expected.
+Meanwhile, the continued close relations between the Central Pacific
+and the Southern Pacific are approved by public sentiment upon the
+Pacific Coast, while the continuance for the present of common control
+of the two companies certainly avoids many practical difficulties.
+
+
+
+
+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 lands—mainly timber lands—granted to the
+Oregon and California Railroad in the North by federal legislation of
+1866 and 1869. The Southern Pacific Company took part in both of these
+controversies as a principal interested party.
+
+The oil lands which until recently belonged to the Southern Pacific
+Railroad lay principally in the West San Joaquin fields in southern
+California. They covered an area of between 160,000 and 170,000 acres.
+In 1917, a committee of the California State Council of Defense
+estimated that the Southern Pacific and its subsidiary companies
+controlled 26.4 per cent of the total output of the state, although
+much of the oil so controlled was not produced upon the company’s own
+land. The actual production of oil by the Southern Pacific Company
+in June, 1918,[599] was 49,679 barrels out of 282,672 barrels of
+production by all companies in the state, or a little less than 18 per
+cent.[600] No later statistics of production by companies have been
+made public. In June, 1920, however, the Southern Pacific Land Company
+owned 19.38 per cent of all the proven oil land in California, and in
+addition the Southern Pacific Company held a controlling interest in
+the Associated Oil Company, also a large producer.
+
+Unquestionably the Southern Pacific oil lands are valuable. A witness
+in one of the recent cases testified that he had told Mr. Huntington
+in 1893 that the railroad oil lands were worth more than the entire
+Southern Pacific Railroad, while it is common report that the value of
+the properties may run into the hundreds of millions of dollars. All
+this is, moreover, recent. The discovery of oil in large quantities
+was first made in southern California in the Kern River field, near
+Bakersfield, in the spring of 1899. This was followed by discoveries
+in the so-called McKittrick and Sunset fields, and by an oil boom of
+extraordinary proportions. In so far as the railroad owns oil lands, it
+has therefore recently secured an unearned increment which is not only
+of great size, but of a character entirely unanticipated by legislators
+of earlier days. This has given rise to controversy, in which the
+government has questioned the railroad title.
+
+The peculiarity of the oil land litigation, and the reason why the
+federal government is involved, is found in the fact that the railroad
+land is mostly land-grant land, lying within the limits laid down by
+the Act of 1866 from which the Southern Pacific Railroad took its life.
+It follows from this that the railroad title was affected by certain
+reservations in the land-grant legislation, such as that of exempting
+mineral lands from the operation of the grants. The government offered
+to convey certain land to the railroad free of charge when it undertook
+to stimulate railroad building in California, but it did not include
+mineral land in this offer, except coal land and iron land. Not only
+this, but the exception of mineral lands was repeated in the patents
+later issued by the Department of the Interior, and in such patents the
+words, “excluding and excepting all mineral lands should any such be
+found in the tracts aforesaid,” were used, making the exemption apply
+to future discoveries as well as to discoveries occurring before the
+patents were issued. Evidently the legislature and the land office
+intended to limit the donations to the Southern Pacific by excluding
+unknown and immeasurable increments of value in so far as this might be
+done. Coal and iron were left, for the reason that these minerals were
+intimately connected with the construction and operation of the road.
+
+
+Test Case
+
+In 1910, one Edmund Burke filed a bill in equity in the Circuit Court
+of the United States for the Southern District of California, in
+which he challenged the title of the railroad to oil lands in an area
+covering five sections in Fresno County, California. This was a test
+case. Disregarding minor points, the larger questions at issue were the
+following:
+
+The first question was as to whether or not oil was a mineral. The
+plaintiff said that it was a mineral, the defendant said that it was
+not. If oil was a mineral, then the railroad could not obtain title
+under the land-grant laws to land which was known to contain oil at the
+time the patent was applied for. If oil was not a mineral, there was no
+limitation. Now matters of definition always cause trouble. The word
+“mineral” is sometimes associated with metallic ores, a notion which
+would not include a resultant from the decomposition of organic matter
+such as California petroleum. Indeed, the Secretary of the Interior
+once held that the word “mineral” embraced only the more precious
+metals, such as gold, silver, cinnabar, etc., although on rehearing
+this view was rejected. Common usage includes more than the metallic
+ores, and the courts have considered as mineral such articles as clay,
+coal, and marble, and even deposits such as guano.[601] When the matter
+was presented to it, the United States Supreme Court followed common
+usage and held that petroleum was a mineral.[602]
+
+The second point had to do with the effect of a patent. It was shown
+that the Southern Pacific had received patents as early as 1892 to
+lands which ultimately proved to contain petroleum, and there was
+dispute as to whether this subsequent discovery invalidated title to
+property once patented. On this point, fortunately, the law was clear.
+Quoting the Supreme Court:
+
+ The settled course of decision ... has been that the character of land
+ is a question for the Land Department, the same as the qualifications
+ of the applicant and his performance of the acts upon which the
+ right to receive the title depends, and ... [that] when a patent
+ issues it is to be taken upon a collateral attack, as affording
+ conclusive evidence of the non-mineral character of the land and of
+ the regularity of the acts and proceedings resulting in its issue, and
+ upon a direct attack, as affording such presumptive evidence as to
+ require plain and convincing proof to overcome it.
+
+The Supreme Court therefore held that the Southern Pacific was secure
+in its possession of lands to which it held patent, unless fraud could
+be shown, and this irrespective of any saving clause in the patent
+itself, and without regard to the nature of the investigation by which
+the Land Office had originally satisfied itself as to the character of
+the land.[603]
+
+
+Elk Hills Suit
+
+The effect of the rulings of the Supreme Court in the test case of
+Burke v. Southern Pacific was not only to cause the dismissal of the
+pending suit, but to make it evident that the government must show
+fraud on the part of the railroad company before the company’s title
+could be disturbed. The holding of the court that oil lands were
+mineral lands was, however, an important victory for the government. It
+was under these circumstances that the federal government instituted a
+fresh series of suits. Of these, one suit called in question the title
+of the Southern Pacific to some 6,109 acres of land in the Elk Hills
+region of southern California, held under a patent issued December
+12, 1904. The other suits attacked the legality of the railroad’s
+possession of substantially all its remaining oil lands, obtained at
+various dates from 1892 to 1902. The value of the lands involved in
+the second proceedings was estimated by the government as in excess
+of $421,000,000. Counsel alleged that the company’s land agents,
+Messrs. Eberlein and Madden, had accompanied the lists, which they had
+submitted to the government for patenting, with affidavits stating that
+the lands were not mineral lands, although both agents knew at the
+time the patents were applied for that the lands in question contained
+oil. This charge, if substantiated, amounted to a showing of fraud. In
+both cases the government sought to show that the presence of oil upon
+the lands sought was a matter of common knowledge, and that there was
+reason to believe that the company was fully cognizant of the facts.
+
+Most of the sensational testimony taken in the oil land cases appeared
+in the so-called Elk Hills case. Mr. Eberlein here figured as the
+land agent for the Southern Pacific. Omitting again all relatively
+unimportant detail, it appeared that Mr. Eberlein had filed an
+affidavit with the Land Office in November, 1903, in which he swore to
+two pertinent facts: first, that he had caused the lands for which the
+railroad applied to be carefully examined by the agents and employees
+of the company as to their mineral or agricultural character; and
+second, that to the best of his knowledge and belief, none of the lands
+returned in the list were mineral lands. These statements had been
+repeated in September, 1904, when a substitute list was filed.
+
+In the face of these sworn assertions, the United States Supreme Court
+later found that Mr. Eberlein had not examined the lands in question,
+nor had he caused them to be examined by others. Indeed, Eberlein
+had even objected to the examination of the lands. He had protested
+verbally to Judge Cornish, vice-president of the Southern Pacific
+Company against examination, and to Mr. Markham, its general manager,
+and in 1908 he had summed up his repeated objections by writing to the
+assistant land agent of the company as follows:
+
+ The examination of our S. P. lands not yet patented by our oil experts
+ must be stopped as information that they may obtain or give as to
+ mineral character prior to patent will forever prevent our getting
+ title.... Mr. Dumble (the company’s geologist) and his men should not
+ be furnished by us with any data whatever except as to _patented_
+ lands. For reasons above given such information will be embarrassing
+ to them and us and may make them witnesses against this company in
+ mineral contests hereafter.[604]
+
+The most that can be said for such an epistle is that it indicated an
+anxiety to keep within the letter of the law.
+
+
+Government Victory and Defeat
+
+Besides falsely swearing that he had made an examination of the
+lands involved in the Elk Hills case, Mr. Eberlein made the positive
+statement in his affidavit that none of the lands covered by his
+application were mineral lands, in so far as he was informed. Now in
+this matter it is clear that the evidence before Mr. Eberlein, such as
+it was, pointed to a mineral and not to a non-mineral content of the
+land in question. This evidence consisted primarily in the results of
+work of Southern Pacific geologists in the general region of which the
+Elk Hills were a part, and in the presence there of a certain number
+of producing wells. It is on record that in 1902 the Southern Pacific
+withdrew from sale many of its patented lands which surrounded or were
+adjacent to the land in controversy “because they were in or near oil
+territory.” The following year the company decided to lease such of
+its lands as were considered valuable for oil purposes to a subsidiary
+company—the Kern Trading and Oil Company. The proposed lease was laid
+before Eberlein in August, 1904. He at once objected. In a letter to C.
+H. Markham, general manager of the Southern Pacific Company and second
+vice-president of the Southern Pacific Railroad Company, Eberlein set
+forth (September 10, 1904) the reasons for his opposition in these
+words:
+
+ In addition to this there is a very urgent reason for delaying the
+ execution of these papers. We have selected a large body of lands
+ interspersed with the lands sought to be conveyed by this lease and
+ which we have represented as non-mineral in character. Should the
+ existence of this lease become known, it would go a long way toward
+ establishing the mineral character of the lands referred to and which
+ are still unpatented.[605]
+
+A similar letter addressed the week before to Judge Cornish in New York
+contained arguments of a similar nature. The protests were heeded, and
+the leases of lands in the McKittrick and Coalinga districts were held
+up. It was recognized, moreover, that the matter was a delicate one,
+and the papers relating to the proposed leases were placed in a special
+and private file separate from the general file of the land department
+of the railroad company. Summing up the evidence in the case, the
+United States Supreme Court later observed that the natural, if not the
+only, conclusion from the facts was that in pressing the selection the
+officers of the railroad company were not acting in good faith, but
+were attempting to obtain the patent by representing that the lands
+(covered by the Elk Hills litigation) were not mineral when they
+believed the fact was otherwise.[606] The decree of the United States
+Supreme Court requiring the cancellation of the railroad patents to the
+6,000 acres of land in the Elk Hills district was given on November 17,
+1919.
+
+Three months before this Supreme Court decision, Judge Bledsoe, in
+the District Court for the Southern District of California, dismissed
+a suit challenging title to some 165,000 acres of land in the oil
+territory on the west side of the San Joaquin Valley.[607] This suit
+represented a consolidation of the oil land suits other than those
+included in the Elk Hills case. Perhaps 156,000 of the acres under
+litigation were claimed by the railroad. Cases are seldom alike, and
+the Bledsoe case differed from the Elk Hills controversy in several
+important details. In this case, for example, it appeared that the
+railroad had sold lands in the disputed territory at agricultural
+prices—a policy which it presumably would not have followed had it
+believed that these lands had mineral value. There was also lacking
+much of the direct evidence which had helped to demonstrate the fact
+that Mr. Eberlein had distorted the truth in his representations to the
+government. On the other hand, the refusal of Judge Bledsoe to believe
+that men like the general manager of the Southern Pacific, its land
+agent, and its vice-president would lend themselves to fraud, is less
+impressive after a perusal of the Elk Hills material. The government
+has announced that it will not appeal from Judge Bledsoe’s ruling—a
+decision which, on the face of things, appears to be a mistake.
+
+
+Sale of Oil Lands
+
+The most recent development in connection with the Southern Pacific
+oil lands is associated with the organization of the Pacific Oil
+Company. The formation of this company was announced in March, 1921.
+It purchased from the Southern Pacific Land Company, for the sum of
+$43,750,000, about 259,000 acres of lands in California, most of which
+were proven oil lands, and 200,690 shares (50.48 per cent) of the
+capital stock of the Associated Oil Company. This was the whole of
+the Southern Pacific interest in the oil fields. The Southern Pacific
+Company provided the funds for the purchase by subscribing to 3,500,000
+shares of the Pacific Oil Company at $15 per share, but the railroad
+disposed of its newly acquired shares by extending to holders of its
+own stock the right to purchase Pacific Oil stock at $15 per share,
+one share of stock of the new company for each share of the Southern
+Pacific Company stock so held. This transaction will transfer the
+ownership of the railroad oil lands from the Southern Pacific Company
+to the stockholders of that company as fast as the subscription rights
+are taken up. Commenting on the plan for the separation of the oil
+and railroad properties, President Sproule observed that the plan was
+simply responsive to the spirit of the times. It seems likely, however,
+that it will have the additional result of preventing further action
+tending to disturb the railroad title. The president of the Pacific
+Oil Company is Mr. Shoup and its directors are men of influence in the
+East.[608]
+
+
+Timber Land Grant
+
+This summary discussion of the oil land litigation in California brings
+us to the last of the great cases with which the Southern Pacific
+has, in recent years, been concerned, namely, to the dispute between
+the federal government and the Oregon and California Railroad over
+the administration of timber lands in Oregon. By the Act of July 25,
+1866,[609] Congress authorized the California and Oregon Railroad to
+build a railroad and telegraph line in the state of California from a
+point on the Central Pacific in the Sacramento Valley to the northern
+boundry of the state. The same act empowered “such company, organized
+under the laws of Oregon, as that state should designate,” to construct
+a railroad from Portland, Oregon, to a junction with the California
+and Oregon upon the Oregon-California boundary line. The legislature
+granted to the company mentioned a right-of-way, and in addition ten
+alternate sections of public land on each side of its track.
+
+At the time Congress acted, there was no company in Oregon in condition
+to become the beneficiary of the grant. In 1867, however, the Oregon
+Central Railroad Company of Salem was incorporated, and the following
+year this railroad received the needed legislative designation. It
+appears that there was some dispute between the Oregon Central of Salem
+and another organization known simply as the Oregon Central Railroad
+Company, and that the doubt as to which of these two was entitled to
+receive the granted lands in Oregon delayed the filing of the necessary
+formal assent to the terms of the Congressional Act of 1866. In 1869,
+therefore, Congress extended the time for the filing of the required
+assent.[610]
+
+At the time this privilege was accorded, however, Congress introduced
+an important limitation to its previous action, by providing that the
+lands granted by the Act of 1866 should be sold to actual settlers
+only, in quantities not greater than 160 acres to one purchaser, and
+for a price not exceeding $2.50 per acre. So amended, the Act of 1866
+was accepted by the Oregon Central, and on March 16, 1870, the rights
+acquired were assigned to the Oregon and California Railroad. In 1887,
+the Oregon and California was absorbed by the Southern Pacific.
+
+As a result of the legislation described, the Oregon and California
+Railroad Company received a total grant estimated at 3,821,902 acres,
+which it held subject to the requirement that it should dispose of the
+property to actual settlers, in small lots, at prices not exceeding
+$2.50 per acre. Now the simple facts with regard to the company’s
+administration of this estate are that it did not limit the price
+which it charged to $2.50 per acre, that it took no pains to ascertain
+whether or not, purchasers of its lands were actual settlers, and that
+it sold in whatever quantities were convenient from the point of view
+of revenue. Between 1894 and 1903, to take the period when the company
+neglected its obligations most grossly, there were sales at prices
+ranging from $5 to $40 an acre, and in amounts which in one instance
+reached the figure of 45,000 acres to a single purchaser. Out of
+820,000 acres sold during this period, approximately 370,000 were sold
+to 38 purchasers in quantities exceeding 2,000 acres to each purchaser,
+and at prices higher than $2.50. These sales, according to the Supreme
+Court, were to persons other than actual settlers, and for other
+purposes than settlement. On January 1, 1903, the company reached the
+climax of its disobedience to law by withdrawing all of its lands from
+sale and refusing to accept offers for any of them, asserting that they
+were timber lands and unsuitable for settlement. In 1911 there were
+2,360,492.81 acres unsold, of which 2,075,616.45 had been patented.
+Only a comparatively small part of the grant, that is to say, had been
+disposed of.
+
+
+Land Rebought by Government
+
+It is somewhat amazing that so clear a violation of the terms under
+which the Oregon and California held its land grant should have passed
+unchallenged. Nor can the obstinacy of the company’s defense fail
+to excite surprise. When the Attorney-General of the United States
+sought to have the Oregon and California grant declared forfeit[611]
+because of the company’s disregard of the terms of the law, it proved
+necessary to litigate for eight years, to take seventeen volumes of
+testimony, to consider 2,500 pages of briefs, and to obtain three
+court decisions and the enactment of a new law before the matter could
+be finally set at rest. It is unnecessary to go into the elaborate
+record, or the arguments by which counsel sought to demonstrate that
+the restrictive provisions of the Act of 1869 were beyond the power
+of Congress to enact, or to discuss the contentions that breaches of
+the law had been condoned and that the covenants were not in any case
+enforceable. The case was considered by the Circuit Court of the United
+States for the District of Oregon in 1911,[612] and by the Supreme
+Court of the United States in 1915.[613] Both courts pronounced the
+restriction on the alienation of Oregon and California lands binding.
+
+The controversy was at last settled by a new Act of June 9, 1916, in
+which Congress resumed possession of the unsold lands appertaining to
+the grant, while appropriating the sum of $2.50 an acre for these lands
+as a payment to the railroad company.[614]
+
+Under the terms of the act, the Secretary of the Interior was directed
+to ascertain the exact number of acres of land patented to the railroad
+company, and the number of acres of unpatented land which the company
+was entitled to receive in the future according to the original grants.
+The Secretary was then to calculate the value of all this land at $2.50
+per acre, and to pay over the amount so ascertained to the railroad
+company from time to time from the proceeds of future sales of the
+lands or of the timber upon it, after deducting from the valuation the
+amounts already received by the railroad and by its predecessors in
+interest. The intent was clearly to allow to the railroad $2.50 per
+acre of the original grant, no more and no less, taking full account of
+the sums already received by the company. The constitutionality of the
+law was later upheld by the Supreme Court.[615]
+
+
+
+
+CHAPTER XXIV
+
+FINAL REMARKS
+
+
+Character of Associates
+
+It is to be regretted that the oil, land, and timber litigation of
+recent years has once more presented the Southern Pacific in the light
+of a corporation more heedful of its own financial interests than of
+the requirements of public policy or of a high ethical code. In all
+fairness to the company, it should be said that this controversy does
+not truly represent its attitude at the present time. Stanford and
+Huntington are dead, and their properties are in other hands. The
+great railroad system which they left, controlled by leaders who are
+responsive to new policies, is in general no longer a profit-making
+device in the hands of a small group of men, but instead is a powerful
+machine for the promotion of industry and commerce on the Pacific Coast.
+
+Our narrative will now close with a few words of summary and conclusion.
+
+The purpose of the writer in presenting the story of the Southern
+Pacific has been to throw light upon the problems encountered by the
+most important railroad upon the Pacific Coast, and to characterize
+and interpret the policies adopted by that railroad and by the men who
+governed it.
+
+The writer’s view with regard to the so-called Southern Pacific
+associates, Stanford, Huntington, Mark Hopkins, and Crocker, is that
+they were rough, vigorous, and grasping men, tenacious of rights
+to property once acquired, kind-hearted within the circle of their
+families and intimate friends, but narrow in vision, uneducated, and
+inexpert in the details of railroad operation, and uninformed in all
+that related to questions of public policy. Huntington alone, while
+rough and selfish as the others, showed important constructive capacity
+in the railroad field. The strength of the associates lay in their
+courage and persistence, in their loyalty to each other in business
+matters, in their readiness to attract and to support able men whose
+views did not differ too greatly from their own, and in a native
+shrewdness which, in Huntington at least, reached to a superlative
+degree.
+
+
+Achievements of Group
+
+The reputation of the Huntington group rests upon the fact that
+within fifty years they built up an organization operating 11,152
+miles of lines and earning an operating revenue in a single year of
+no less than $282,000,000. A statement like this is quickly made. The
+significance of it comes home, however, only to those who understand
+the difficulties of successful management of great corporations and
+who appreciate the multitude of decisions as to policy which must have
+been, on the whole, soundly made, at least from the point of view of
+the corporation itself, in order to achieve such a success.
+
+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 were not able to handle themselves. The credit for
+general direction and support of the policies adopted, however, belongs
+to the associates even in these matters, when credit is due, just as
+responsibility for errors properly falls upon them.
+
+
+Principles of Operation
+
+There are three principles relating to the operation of these railroad
+properties which the author feels that he can attribute with some
+confidence to Huntington and his friends. The first of these was that
+the Southern Pacific enterprise should remain under the associates’
+control and free from eastern entanglements. The second was that
+railroad monopoly in California was essential to a satisfactory
+railroad profit, and that the utmost possible profit should be
+exacted when monopoly power had been attained; and the third was that
+regulation by public bodies was in all respects objectionable, although
+public grants were considered to be legitimate sources of revenue.
+
+Looked at in a comprehensive way, the history of the Southern Pacific
+may be said to have centered in the application of these principles to
+the solution of a series of problems, of which the final disposition of
+the Southern Pacific oil and timber lands was the last. These problems,
+to name them consecutively, included the construction of the original
+Central Pacific and Southern Pacific railroads; the establishment of
+these companies as going concerns with opportunity for prosperity and
+power; and the adoption by the associates of policies with respect
+to government regulation, with respect to rates, and with respect to
+relations with competing lines. They included also the negotiation
+of a plan of settlement with the federal government under which the
+financial assistance tendered to the companies in their younger days
+was repaid, and the railroad stood forth free of unusual responsibility
+and devoid of special privilege. At a later date the merger of the
+Southern Pacific with the Union Pacific represented an additional
+adventure, although one which was never part of Huntington’s plan; and
+still another episode, the oil and timber litigation just described,
+was concerned with a forced liquidation of interests of which
+Huntington had known and approved.
+
+
+Two Eras in Company’s History
+
+Grouped in a somewhat different way, but with the same essential point
+of view, the history of the Southern Pacific may be divided into two
+parts, the one ending and the other beginning in or about the year
+1883. Before 1883, the Huntington group was primarily interested in
+construction from Sacramento to Ogden in order to obtain the benefit
+of the federal subsidy, and in construction in southern California,
+New Mexico, and Arizona, in order to prevent the building of an
+independent competing line. In this period, also, steps were taken
+to crush the competition of certain local enterprises in California.
+After 1883, or more accurately, after 1879, the attention of the
+associates was concentrated upon the establishment of their credit,
+the resistance to the threatened regulation by the state of their
+properties in California, and upon the competition of the newly created
+transcontinental railroad lines and the water routes from the Pacific
+to the Atlantic Coast. The second of these dangers led them into local
+politics, and the third resulted not only in a variety of agreements
+with competitors, but also caused the Southern Pacific to modify its
+rate structures and to subsidize potential competitors upon the sea.
+Still later came the necessity of repaying the loans which the Central
+Pacific had received from the federal government at the time of the
+construction of its road and the new relations with the Union Pacific
+under the Harriman régime. The oil and timber litigation, though
+falling within the second period, represented the closing up of grants
+received in the first.
+
+In solving all the problems presented in the course of the Southern
+Pacific’s career, the associates followed consistently the three
+fundamental principles laid down in a preceding paragraph whenever
+the principles were applicable and the circumstances permitted
+of a deliberate choice. The only striking variation from them
+occurred when the Union Pacific was allowed to obtain a controlling
+interest in Southern Pacific stock—a transaction which occurred
+after Huntington’s death and one for which the associates were not
+responsible.
+
+
+The Charge against Associates
+
+The weakness in the position of the Huntington group lay in the fact
+that their insistence upon monopolistic control of railroads in the
+state of California and their resistance to government regulation,
+ran counter to public policies of a most fundamental kind. A further
+ground for incisive criticism is properly found in the methods which
+the associates adopted in their business and political campaigns. It is
+not sufficient to declare that Huntington and Stanford merely imitated
+practices which they found about them. There is reason to believe
+that the Southern Pacific associates lowered the standard of business
+ethics of their time. The reader who has examined the data submitted in
+preceding pages will need no specification of this charge. In finance,
+in politics, in questions of rates, and in their relations with public
+bodies, the associates were indifferent to standards of private and
+public conduct, which alone can bring trust and confidence into
+business relations. The great material achievements of the Huntington
+group were marred by the moral and spiritual defects of its members.
+
+
+Public’s Present Favorable Attitude
+
+This narrative closes without consideration of the part which the
+Southern Pacific played in the war of 1914-1918, and without detailed
+analysis of the present position of the company or of its prospects for
+the future. As a matter of fact, the tendency today is for individual
+systems to be assimilated into the national railroad net through
+governmental regulation of rates, of wages, and of many details of
+operation, so that elaborate discussion of the affairs of single
+companies has lost much of the interest which it once possessed. The
+future of the Southern Pacific will depend more on the outcome of
+national policies with respect to the support and control of railroads
+in all parts of the country, than it will on the success of the
+strategy of any group of railroad men.
+
+For good or bad the pioneer days are over. Public opinion in California
+is now well disposed toward the Southern Pacific in marked contrast
+to the attitude of earlier days. Probably the change is in part due
+to the efficiency of the technical staff of the company and to the
+excellence of its service as compared with other roads. Probably also
+the recent enforced separation of the Union Pacific and the Southern
+Pacific has on the whole strengthened the latter by relieving it of the
+unpopularity which would have followed long-continued outside control,
+while the completeness of public authority over rates through state and
+federal commissions has removed still another cause of discontent. In
+spite of past errors the Southern Pacific now looks forward to a long
+and prosperous career and to a popularity properly the result of the
+loyal and efficient service of a great body of official employees.
+
+
+
+
+INDEX
+
+
+ A
+
+ Adams, Edson, 86
+
+ Agricultural products, 349
+
+ Alcade, 141
+
+ Amador branch, 143
+
+ Antioch, 224
+
+ Associated Oil Company, 449
+
+ Atchison, Topeka and Santa Fé Railroad, 241, 275;
+ acquires San Francisco and San Joaquin Valley Railroad, 331, 339-342
+
+ Atlantic and Pacific Company, 226
+
+ Atlantic and Pacific Railroad, 122, 125
+
+ Atlantic and Pacific Steamship Company, 305
+
+
+ B
+
+ Baker, Col., of Tulare, 28
+
+ Bakersfield, oil fields, 442
+
+ Balfour, Guthrie and Company, 305
+
+ Bankruptcy, threat of, 415
+
+ Banning, Phineas, 127
+
+ Bassett, J. M., 214
+
+ Battle Mountain, 361
+
+ Bear River, 8
+
+ Beerstecher, Mr., member, State Railroad Board, 1880-1883, 189-198
+
+ Benicia, 107, 141, 224
+
+ Board of Land Commissioners in California, 62
+
+ Bonds, California Pacific Railroad Company, 110-118;
+ Central Pacific Railroad, 418;
+ United States subsidy, 51-56;
+ lien on, 407-410;
+ payment and refunding of, 371-424;
+ payment of interest at maturity, 371;
+ settlement of indebtedness, 416-424;
+ sinking fund provision, 376, 383
+
+ Booth, L. A., 15, 19
+
+ Brice, Senator, 397
+
+ Brown, Mr., 147
+
+ Brown, Harvey S., 188
+
+ Brown, W. E., 75
+
+ Burch, John C., Congressman from California, 8
+
+ Burke v. Southern Pacific, 443
+
+ Business depression of 1891-1897, 363
+
+ Business Men’s League v. Atchison, Topeka and Santa Fé, 281, 282
+
+
+ C
+
+ California, aids Central Pacific Railroad, 25-44;
+ “Five Per Cent Act,” of 1870, 44;
+ industrial conditions, 237;
+ Judah’s work in, 5;
+ Spanish and Mexican grants, 62
+
+ California and Oregon Railroad, 81, 140, 152, 363, 450
+
+ California League of Progress, 319
+
+ California Pacific Eastern Railroad Extension Company, 110
+
+ California Pacific Railroad Company, acquired by Central Pacific,
+ 104-118;
+ alleged mismanagement of, 116;
+ bonds of, 111;
+ competition of, 107;
+ growth of, 1871-1877, 141;
+ lease, 143;
+ shares, 112
+
+ California Southern Railroad, 123
+
+ California State Board of Transportation Commissioners, 181-198, 242, 335
+
+ California Steam Navigation Company, 224
+
+ Calistoga, 141
+
+ Canadian Pacific Railroad, 276, 308
+
+ Cape Horn route to San Francisco, 225, 306
+
+ Capital (See “Finance”)
+
+ Carpentier, E. R., 88
+
+ Carpentier, H. W., 86, 88, 89, 90
+
+ Carr, William, 204
+
+ Casserly, Eugene, 213
+
+ Central Pacific Railroad Company, 4;
+ Acts of 1862 and 1864, 49-64;
+ acquires California Pacific Railroad, 104-118;
+ acquires California Steam Navigation Company, 224;
+ bond issues, 24, 51-56, 370-424;
+ capital of, 22;
+ consolidation with Western Pacific Railroad, 84;
+ construction of, 1863-1869, 65-83;
+ ceremonies attending inauguration of work, 65;
+ contracts for, 70;
+ cost estimated, 16;
+ financing of, 75-82;
+ gradients, 65;
+ supplies for, 68;
+ temperature of climate, 67;
+ contract with California Pacific, 112;
+ discriminations against charged, 357;
+ dividends, 365, 374;
+ earnings, 16, 22, 169, 361;
+ expenses, legal and general, 213;
+ finances, 1870-1879, 169-180;
+ financing of California survey, 14;
+ government aid by California, 25-44;
+ government aid expected, 15;
+ government debt, 370-424;
+ in 1877, 140;
+ incorporation, 1899, 421, 423;
+ Judah’s second survey for, 19;
+ Judah’s work for, 4-10;
+ land grants, 50-64;
+ leases, 142, 153;
+ litigation with San Francisco, 31-40;
+ monopoly control by, 104;
+ Oakland water-front acquired, 85-94;
+ organization, 1861, 18;
+ rates, 237-256;
+ receipts to December, 1869, 21;
+ refuses to buy Sacramento Valley railroad, 43;
+ reorganization plan, 1899, 418;
+ San Francisco water-front acquired, 94-103;
+ stockholders, 146-149;
+ stock issues, 1863-1869, 23;
+ county subscriptions, 29;
+ subsidies demanded from towns, 28;
+ surveys, 66;
+ terminal facilities in 1869, 85;
+ transcontinental line finished, 84
+
+ Centralia, 19
+
+ Chesapeake and Ohio Railroad, 149
+
+ Chico, 224
+
+ China Basin, 335-338
+
+ Chinese labor, 70
+
+ Cleveland, Grover, 403
+
+ Clipper ships, 225, 303-316
+
+ Cohen, A. A., 174
+
+ Colon, Panama, 234
+
+ Colorado River, 140
+
+ Colton, David D., 28, 133, 154-168, 175, 184, 201, 202, 204-217, 387
+
+ Colton, Mrs. David B., 164-168
+
+ Colusa, 223, 224
+
+ Commissioner of railroads (See “Railroad Commissions”)
+
+ Competition, effect of, on rates, 263, 280;
+ foreign ships, 294;
+ proposal for competing railroad, 318;
+ restraint of trade, accusations of, 356, 429-440;
+ San Joaquin project, 320;
+ transcontinental, 275;
+ water, 222-236, 303-316
+
+ Cone, J. S., member of State Railroad Board, 1880-1883, 189-198
+
+ Congress (See “Legislation”)
+
+ Connor, Mr., commercial agent, 356
+
+ Consolidation, Union Pacific and Southern Pacific, 425-440
+
+ Constitutional convention, California 1879, 184-187
+
+ Contract and Finance Company, 75-82;
+ builds railroad from Sacramento to Dansville, 113;
+ construction of Southern Pacific, 132
+
+ Contracts, construction of Central Pacific, 70-82;
+ rates, 250-255
+
+ Coon, Henry P., Mayor of San Francisco, 35
+
+ Cornish, Judge, 446, 447
+
+ County stock subscriptions, 28, 29
+
+ Crocker, Charles, 13, 19, 22, 65, 70, 145, 170, 284;
+ contracts for construction, 70-75;
+ director, Southern Pacific Railroad, 123;
+ President Contract and Finance Company, 77;
+ relations with David D. Colton, 154-168;
+ shares of, 146-149
+
+ Crocker, E. B., Judge, 88
+
+ Curtis, William B., 240
+
+
+ D
+
+ Dane, Timothy, 84
+
+ Davisville, 112, 141
+
+ Dawes, Mr., 409
+
+ Debts (See “Government aid”)
+
+ Dimond, William and Company, 304, 306
+
+ Dividends, payment of, 171, 374;
+ policy, 366;
+ suspension of, 365
+
+ Donahue, Peter, 123
+
+ Doyle, John T., 216, 401, 407
+
+ Dutch Flat, 6, 7, 8
+
+
+ E
+
+ Earnings, Central Pacific, 16, 22, 169, 361, 364;
+ charges by Auditor of Railroads, 389;
+ net earnings defined, 391;
+ Southern Pacific, 347-369
+
+ Eberlein, land agent, 445-448
+
+ Edmonds, Senator, 409
+
+ El Paso route, 354
+
+ Election of 1863, 32, 33, 38
+
+ Elk Hills title suit, 445
+
+ Eureka and Palisade Railroad, 361
+
+
+ F
+
+ Fair, James G., 310
+
+ Farming, 237
+
+ Felton, John P., 87, 88, 89, 90
+
+ Finance, construction work, Central Pacific, 71-82;
+ Southern Pacific, 136-139;
+ early years, 360;
+ federal aid, 42-64;
+ survey, 14;
+ inability to get capital, 170;
+ notes, 1878, 176;
+ organization of company, 18;
+ repayment of government debt, 370-424;
+ San Francisco and San Joaquin Valley Railroad, 322;
+ short-term borrowing, 174;
+ state and local aid, 21-41
+
+ “Five Per Cent Act,” of 1870, 44
+
+ Flower, Roswell P., 177
+
+ Folsom, 8, 10, 19
+
+ Franchot, General, 204, 213
+
+ Freight traffic, 353;
+ rates, 191, 349
+
+ Fremont’s route, 9
+
+ French, Thomas, 89
+
+ French v. Teschemaker, 33
+
+ Friedlander and Reed, 249
+
+ Frye-Davis report, 396
+
+
+ G
+
+ Gage, L. J., Secretary, U. S. Treasury, 415
+
+ Gage, Stephen T., 204, 209, 210
+
+ Galveston, Harrisburg and San Antonio Railway, 149
+
+ Gates, I. E., 213
+
+ Gear, Congressman, bill for refunding of debt, 399, 416
+
+ General Land Office, 57-59
+
+ Gerke, Mr., 195-197
+
+ Gilroy, 141
+
+ Gleaves Act, 338
+
+ Goat Island, 100, 101
+
+ Goodall and Perkins, 226
+
+ Gordon, Senator from Georgia, 203
+
+ Goshen, 119, 126, 127, 140
+
+ Gould, Jay, 226, 234, 427
+
+ Government aid, California, 25-44;
+ California laws, 1864, 34;
+ claim for indemnity, 374;
+ county stock subscriptions, 29;
+ federal, 45-64;
+ Judah’s proposals, 15;
+ opposition to in San Francisco, 31;
+ Pacific Railroad bill, 1860, 8;
+ repayment of debt, 370-424;
+ state aid, direct, 30;
+ United States bonds, 51-56, 371
+
+ Government, U. S., withholds payments, 377
+
+ Grace, J. W., and Company, 304
+
+ Grading of railroad, 65
+
+ Grain rates, 342
+
+ Gray, R., 246
+
+ Great Northern Railroad, 276
+
+ Griggs, U. S. Attorney-General, 415, 416
+
+
+ H
+
+ Haight, H. H., 216
+
+ Hale, Henry M., auditor of San Francisco, 35
+
+ Hammond, President, California Pacific Railroad, 115;
+ Vice-President, California Pacific Railroad, 114, 115
+
+ Hannaford, Mr., 432
+
+ Harriman, E. H., 428
+
+ Harriman system, 428
+
+ Hawley, Edwin, 253, 427, 432
+
+ Hess, Mr., of Boca, 258
+
+ Hibbard, Spencer, Bartlett and Company, 282
+
+ Hood, engineer, 68
+
+ Hopkins, Mark, 22;
+ agreement with California Pacific Railroad 110;
+ biography, 14;
+ death of, 133;
+ director, Southern Pacific Railroad, 123;
+ finances Judah, 14;
+ general agent, California Pacific Railroad, 115;
+ report on construction, 72;
+ shareholder of Central Pacific Railroad, 19;
+ shares of, 147
+
+ Hopkins, Moses, treasurer, California Pacific Railroad, 115
+
+ Hopkins, Timothy, 145
+
+ Houston, H. A., 84
+
+ Howard, General, 216
+
+ Huntington, Collis P., 22, 28, 69, 73, 144, 145, 279, 283, 327, 351,
+ 354, 357, 367, 370, 415;
+ acquires control of California Pacific Railroad, 109-118;
+ against state regulation, 200;
+ biography, 10;
+ death of, 426;
+ director, Southern Pacific Railroad, 123;
+ estate of, 427;
+ finances T. D. Judah, 14;
+ lobbying methods, 203-221;
+ negotiates purchase of California Pacific Railroad, 109-118;
+ organizes Contract and Finance Company, 75;
+ organizes Occidental and Oriental Steamship Company, 227;
+ policies, 426;
+ President of Southern Pacific, 218;
+ relations with Colton, 154-168;
+ shareholder of Central Pacific Railroad, 19;
+ shares of, 146-149;
+ submits annual report of Southern Pacific, 123;
+ Thurman bill, 387;
+ valuation of oil land, 442
+
+ Huron, 141, 179
+
+ Hyde, Mr., 129
+
+
+ I
+
+ Illinois Town, 8
+
+ Interest, on government bonds, 371
+
+
+ J
+
+ Jackson, Mr., 147
+
+ Jacobs, Isidor, 300, 301
+
+ Jeffery, President, Denver and Rio Grande Railroad, 432
+
+ Johnson-Locke Mercantile Company, 309
+
+ Jones, John P., Senator from Nevada, 128
+
+ Judah, Theodore Dehone, 4-10;
+ estimates construction cost of Central Pacific, 16;
+ financed by Huntington and others, 14;
+ organizes Central Pacific Railroad, 18;
+ solicits federal aid, 46-48
+
+
+ K
+
+ Kahn, Otto H., 429, 430
+
+ Kansas Pacific Railway, 408
+
+ Kasson, Mr., 203
+
+ Kearney, Dennis, 184
+
+ Kern county, 127
+
+ Kern Trading and Oil Company, 447
+
+ Knight’s Landing, 224
+
+ Kuhn, Loeb and Company, 428, 429
+
+
+ L
+
+ Labor, cost of, on construction of Central Pacific, 67
+
+ Lake Pass on the Truckee River, 8
+
+ Land, rebought by federal government, 451
+
+ Land grants, 50-64;
+ company policies toward settlers, 63;
+ transfer of title, 56-59
+
+ Lassen’s Meadows, 19
+
+ Latham, Milton, General Manager, California Pacific Railroad Company,
+ 109, 110, 112, 114, 117
+
+ Lathrop to Goshen route, 119, 140
+
+ Lawler, Judge, 189
+
+ Leases, 142, 153, 335-338
+
+ Leeds, Joseph S., 283, 301, 302, 303, 307, 308, 313, 318-323
+
+ Legislation, Act of March 3, 1873, 377;
+ Act of 1880, 187;
+ “Five Per Cent” Act of 1870, 44;
+ Gleaves Act, 338;
+ influencing of, 199-221;
+ O’Connor bill, 183;
+ Pacific Railroad bill, 8, 47-64;
+ railroad control bill, 184-187;
+ state constitutional provisions, 1879, 184-187;
+ Thurman Act, 380-394
+
+ Lien on subsidy bonds, 407-410
+
+ Lincoln, Abraham, 8, 19
+
+ Litigation, oil and timber lands, 441-453;
+ U. S. v. Union Pacific and Southern Pacific, 425-440
+
+ Loans, short-term, 174
+
+ Lobbying, 203-221
+
+ Loewy, William, clerk of the city of San Francisco, 37
+
+ London Economist, 367
+
+ Long hauls, 352
+
+ Los Angeles, 140, 141;
+ grants rights, 128;
+ in 1870, 127
+
+ Los Angeles and Independence Railroad, 128
+
+ Los Angeles and San Pedro Railroad, 127
+
+ Los Angeles to Yuma route, 125
+
+ Lovett, Mr., 357
+
+ Luce, G. W., 247
+
+
+ M
+
+ McDougal, Senator, 46, 48
+
+ McFarland, Mr., 185
+
+ McKinley, William, President, 415
+
+ McLoughlin, Charles, 84
+
+ Manufactures, 237
+
+ Marier, Mr., of Oakland, 90
+
+ Markham, C. H., 446, 447
+
+ Marsh, Charles, finances Judah, 15;
+ shareholder of Central Pacific Railroad, 19
+
+ Martinez, 141, 319
+
+ Marysville, 29, 141
+
+ Mayne, Charles, 123
+
+ Meeting of associates in New York, 149
+
+ Merchants’ Shipping Association, 304
+
+ Merger, Southern Pacific and Union Pacific, 425-440
+
+ Merritt, Samuel, 87, 88, 91
+
+ Mexican Coast Steamship Company, 226
+
+ Mexican lands in California, 62
+
+ Midgley, J. W., 259
+
+ Mileage, 348
+
+ Miller, John, secretary, Contract and Finance Company, 80
+
+ Milliken, Theodore J., 75
+
+ Mills, D. O., 105, 172
+
+ Milton, 141
+
+ Mojave, 140
+
+ Montague, chief engineer, California Pacific Railroads, 113
+
+ Moon, A. J., 86
+
+ Morton, Paul, 432
+
+ Moss, J. Mora, 5, 7
+
+ Munroe, J. A., 246, 432
+
+
+ N
+
+ Napa, 224
+
+ Napa Valley Railroad, 107
+
+ Navigation lines, 222-236
+
+ Needles, the, 140, 180, 360
+
+ Nevada, influencing legislation in, 210
+
+ Nevada and California Railroad, 361
+
+ Nevada Central Railroad, 361
+
+ New York Stock Exchange, Central Pacific stock listed, 171
+
+ Newmark, Harris, 129, 130
+
+ Nicaragua Canal Commission, 303
+
+ North American Navigation Company, 308, 310-316
+
+ North Fork, 8
+
+ Northern Division of the Southern Pacific, 141, 144
+
+ Northern Pacific Railroad, 275, 308
+
+ Northern Railroad, 141;
+ lease, 142
+
+
+ O
+
+ Oakdale, 141
+
+ Oakland, 140, 141;
+ terminal at, 85-94
+
+ Oakland Water Front Company, 87-94
+
+ Occidental and Oriental Steamship Company, 227-229
+
+ O’Connor bill of 1876, 183
+
+ Ogden, 4, 140, 354
+
+ Oil land, litigation over, 441-453
+
+ Oil rates, 246
+
+ Operating, Southern Pacific, 347-369
+
+ Oregon (See also “California and Oregon Railroad”); connection with,
+ 152, 276
+
+ Oregon Central Railroad Company, 450
+
+ Oregon Short Line, 276
+
+ Orient, trade with, 227
+
+
+ P
+
+ Pacheco, 224
+
+ Pacific Improvement Company, 133-135
+
+ Pacific Mail Steamship Company, 225-308;
+ agreement with, 229-232;
+ arrangements with Panama Railroad, 233-236, 309
+
+ Pacific Oil Company, 448
+
+ Pacific Railroad bill, 8, 47, 48-64
+
+ Pacific steamships, 225-236
+
+ Palisade, 361
+
+ Panama, 227-236
+
+ Panama Canal, 289
+
+ Panama, Isthmus of, 309-312
+
+ Panama Railroad, 233-236, 309, 310
+
+ Park, Trenor W., 226, 234
+
+ Paxon, Joseph S., Treasurer of San Francisco, 35
+
+ Peel, James, finances Judah, 15
+
+ People v. Coon, 35
+
+ Peters, 141
+
+ Phelps, T. G., 28, 48
+
+ Pierce, T. W., 149
+
+ Piper, William A., 32, 216
+
+ Placer county, subscriptions to stock, 41
+
+ Placerville and Sacramento Valley Railroad, 17;
+ Judah’s work for, 4-10;
+ refusal of Central Pacific to buy, 43;
+ Sacramento to Shingle Springs, 141
+
+ Political methods, 199-221
+
+ Population, southern California in 1876, 170
+
+ Portland, Ore., 276
+
+ Powers, Congressman, bill for refunding of debt, 398
+
+ Prince, John D., 177
+
+ Probst, Daniel, 177
+
+
+ R
+
+ Railroad Commission, United States Pacific, 80, 152, 209, 210;
+ report of commissioner on repayment of government debts, 395;
+ State Board of Transportation, 181-198, 242
+
+ Rates, as affected by industrial conditions, 238;
+ charging what the traffic will bear, 257;
+ classifications, 240;
+ competing railroad to cut, 318;
+ competition of steamship lines, 303-316;
+ contract system, 250-255;
+ controversy with Traffic Association, 293-316;
+ discrimination, 243;
+ dissatisfaction with, 282;
+ effect of water competition on, 263, 280;
+ favoring of interests, 239;
+ local, 242, 257-274;
+ rebates, 247;
+ San Francisco and San Joaquin Valley Railroad, 342;
+ State Board adopts new schedule, 1880, 191-194;
+ state regulation over local, 317;
+ transcontinental, 275-292
+
+ Reagan, Judge, 189
+
+ Red Bluff, 224
+
+ Redding, 141
+
+ Reese, Michael, 117
+
+ Reilly, James, report on refunding of debt, 397
+
+ Reorganization plan, 418-424, 436
+
+ Restraint of trade, government action, 1911, 429;
+ testimony in regard, 356
+
+ River traffic, 223
+
+ Robinson, J. P., 5
+
+ Rocky Mountain Coal and Iron Company, 158, 161, 162
+
+ Root, Elihu, 415
+
+ Roseville, 141
+
+ Routes, Dutch Flat, 6;
+ Judah’s second report, 1861, 19
+
+
+ S
+
+ Sacramento, Judah, T. D., in, 9;
+ rates, 317;
+ route to Benicia route, 5;
+ route to San Francisco route, 107;
+ route to San Francisco via Benicia, finished, 141;
+ route to San José, 84, 140;
+ route to Shingle Springs, 141;
+ route to Ogden, 140;
+ route to Washoe, 8
+
+ Sacramento River bridge to Davisville, 111, 112
+
+ Sacramento Union, 215
+
+ Sacramento Valley Railroad (See “Placerville and Sacramento
+ Valley Railroad”)
+
+ Salinas Valley, 141
+
+ Salt Lake, contemplated railroad to, 318
+
+ San Benito Valley, 125
+
+ San Diego, 127, 223
+
+ San Fernando tunnel, 131
+
+ San Francisco, 140, 223, 321;
+ meeting at, to object to refunding bill, 402;
+ opposes to government aid, 31-40;
+ port of, 223;
+ rates, 281, 317;
+ terminal facilities in, in 1869, 85;
+ water-front grants, 94-103
+
+ San Francisco and Great Salt Lake Railroad Company, 318
+
+ San Francisco and Marysville Railroad, 29
+
+ San Francisco, Oakland and Alameda Railroad, purchased by Huntington
+ and associates, 103, 140
+
+ San Francisco and San Joaquin Valley Railroad, 44, 81, 140, 317-346;
+ China Basin lease, 335-338
+
+ San Francisco and San José Railroad, 48, 84, 120, 121, 123
+
+ San Francisco to Great Salt Lake, 318;
+ to Soledad, 141
+
+ San Francisco Bulletin, 98, 101, 182, 306
+
+ San Francisco Chronicle, 215, 219, 264
+
+ San Francisco Examiner, 328, 403
+
+ San Francisco Stock Exchange, Central Pacific stock listed, 171
+
+ San Francisco Times, 98
+
+ San Joaquin Valley, 119, 140
+
+ San Joaquin Valley Railroad (See “San Francisco and San Joaquin Valley
+ Railroad”)
+
+ San José, 141
+
+ San Pablo and Tulare Railroad, 141
+
+ San Pedro, 223
+
+ Santa Ana, in 1870, 127
+
+ Santa Clara and Pajaro Valley Railroad, 123
+
+ Santa Fé Railroad (See “Atchison, Topeka and Santa Fé Railroad”)
+
+ Sargent, Congressman, 46, 47
+
+ Scott, Tom, 202, 208
+
+ Securities, advertised, 172;
+ first sale of, 177;
+ market for, 171
+
+ Shelby, P. P., 357
+
+ Shingle Springs, 141
+
+ Shipping statistics, New York to San Francisco, 1869-1884, 232
+
+ Ships, British vs. American, 294
+
+ Sierra Nevada Mountains, surveys of, 5, 59
+
+ Simmons Hardware Company, 282
+
+ Sinking funds, bond provisions, 376, 383;
+ court decisions, 410
+
+ Smith, Mr., Treasurer of the Southern Pacific, 163
+
+ Snow sheds, 67
+
+ Soledad, 141, 179
+
+ Southern Development Company, 135
+
+ Southern Pacific Company of Kentucky, 150
+
+ Southern Pacific Railroad acquires Los Angeles and San Pedro Railroad,
+ 128;
+ bonds of, 370-424;
+ construction of, companies organized to build, 132-136;
+ early routes, 125-128;
+ controlled by Stanford and associates, 122;
+ earnings, 347-369;
+ El Paso route, 354;
+ in 1877, 140;
+ incorporated, 120-123;
+ grant by Los Angeles, 128;
+ growth of, 1871-1878, 141;
+ leases of, 143-153;
+ northern division, 141, 144;
+ operating characteristics, 347-369;
+ reorganization plan, 1884, 149, 1913, 436;
+ rivalry feared by Stanford, 119;
+ route, 123;
+ traffic diversion charged, 356;
+ Union Pacific gains control of, 428
+
+ Spanish lands in California, 62
+
+ Spence, Mr., 286, 356, 432
+
+ Speyer, James, and Company, contract to sell securities, 147, 177-180,
+ 414, 417
+
+ Spreckels, Adolph, 326
+
+ Spreckels, Claus, 324-328, 332, 336
+
+ Spreckels, John D., 326, 329
+
+ Sproule, Mr., 356
+
+ Standard Oil Company, 245
+
+ Stanford, Leland, 22, 64, 145, 284;
+ acquires control California Pacific Railroad, 109-118;
+ against state regulation, 199;
+ agreement with California Pacific Railroad, 110;
+ biography, 11;
+ claim against federal government, 374;
+ director, Southern Pacific Railroad, 123;
+ finances T. D. Judah, 14;
+ lobbying methods, 204-221;
+ Oakland Water Front Company, 87, 89, 90, 91;
+ objects to freight rates of 1880, 192;
+ on rates, 239;
+ organizes Contract and Finance Company, 75;
+ resigns presidency of Southern Pacific, 218;
+ senator from California, 218;
+ shareholder of Central Pacific Railroad, 19;
+ shares of, 146-149;
+ statement regarding Southern Pacific, 122;
+ Thurman bill, 385
+
+ Stanford, Philip, 32
+
+ State aid, 30
+
+ State boards (see under names of states, California, Utah, etc.)
+
+ State regulation, arguments against, 199;
+ local control, 317;
+ railroad commission, 1880-1883, 181-198
+
+ Steinman, Mr., 189
+
+ Stetson, J. B., President, Traffic Association, 295, 297, 318, 359
+
+ Stock, Central Pacific Railroad, 1863-1869, 23;
+ county subscriptions, 29;
+ California Pacific Railroad Company, 109-118;
+ prices of, 365-369
+
+ Stock exchange listings, 171
+
+ Stockholders, 142, 146-149;
+ English, 367;
+ liability of, 406;
+ under reorganization plan, 420
+
+ Stockton, 17, 107, 140, 141, 223, 224, 272, 317, 320
+
+ Stockton and Copperopolis Railroad, 17, 141, 143
+
+ Stockton and Tulare Railroad, 44
+
+ Stockton and Visalia Railroad, 141
+
+ Stockton Independent, 182
+
+ Stoneman, George B., member, State Railroad Board, 1880-1883, 189-198
+
+ Strobridge, engineer, 68
+
+ Strong, Daniel W., 6, 284
+
+ Stubbs, J. C., General Traffic Manager, 244, 249, 250, 252, 253, 255,
+ 256, 258, 292, 432
+
+ Subsidies (See “Government aid”)
+
+ Summit Station, 65
+
+ Supplies, for construction of Central Pacific, 68
+
+ Sutro, Adolph, 402
+
+ Sutton and Beebe, 304, 306
+
+
+ T
+
+ Taylor, General, 203
+
+ Tehama, 141
+
+ Temperature, affecting construction, 67
+
+ Terminal Central Pacific Railroad Company, 100
+
+ Terminals, China Basin lease, 335-338;
+ facilities in 1869, 85;
+ Oakland, 85-94;
+ rates, 281;
+ San Francisco, 94-103
+
+ Tevis, Lloyd, 88, 123, 162, 167
+
+ Texas Pacific Railroad, 125, 275
+
+ Thayer, S. H., 172, 173
+
+ Thurman act, 380-394, 408
+
+ Tilford, A. E., 245
+
+ Tilford, W. H., 245
+
+ Timber land, litigation over, 441-453
+
+ Towne, Mr., general superintendent, 115, 144, 249, 264
+
+ Tracy, 141
+
+ Traffic, operating characteristics, 347-369;
+ rates, 237-274;
+ transcontinental, 275-292;
+ Traffic Association of California, rate war, 293-316, 318-323, 365
+
+ Traffic Bureau of Utah, 284
+
+ Tres Pinos, 126, 141, 179
+
+ Truckee River, 8, 9, 19
+
+ Tulare, 141
+
+ Tuttle, Mr., 194
+
+
+ U
+
+ Union Pacific Railroad Company, 49, 230, 275;
+ gains control of Southern Pacific, 428;
+ reorganization, 1913, 436
+
+ United States v. Kansas Pacific Railway Company, 408
+
+ United States v. Southern Pacific, 444-448
+
+ United States Pacific Railway Commission, 80, 152, 209, 210
+
+
+ V
+
+ Vallejo, 107, 141, 224
+
+ Vancouver, 276
+
+ Vanderbilt, Cornelius, 226
+
+ Van Sicklen, Mr., 323
+
+ Virginia and Truckee Railroad, 361
+
+ Virginia City, 361
+
+ Visalia, 141
+
+ Votes, purchasing of, 209
+
+
+ W
+
+ Washoe, 8, 9
+
+ Water routes to California, 222-236, 263, 303-316
+
+ Western Development Company, 132;
+ Colton interests in, 157, 158, 159, 165;
+ contract with Speyer, 178;
+ dividends, 160
+
+ Western Pacific Railroad, consolidation with Central Pacific Railroad,
+ 84, 140;
+ constructed by Contract and Finance Company, 81;
+ litigation with San Francisco, 31-40;
+ receipts to December, 1869, 21
+
+ Whittier, Fuller and Company, 246
+
+ “Willamette,” steamer, 224
+
+ Wilmington, 141
+
+ Wilson, Mr., real estate transaction by, 195-197
+
+ Wilson, Sir Rivers, 367
+
+ Wilson, S. M., 164
+
+ Woodland to Tehama route, 141
+
+
+ Y
+
+ Yuma, 140
+
+
+
+
+FOOTNOTES:
+
+[1] The statement in the text is sufficiently accurate as a preliminary
+generalization. As will appear later, the road between Sacramento and
+Oakland was not built by the Central Pacific, but by certain other
+companies of which the Western Pacific and the California Pacific
+were the most important. It may also be important for some purposes
+to observe that the Southern Pacific system enters Ogden over Union
+Pacific tracks, and New Orleans over the tracks of the Illinois Central
+Railroad Company.
+
+[2] On the early history of the Central Pacific, see a document printed
+by order of the Nevada Senate, entitled “Evidence concerning projected
+railways across the Sierra Nevada Mountains from Pacific tide-water in
+California, etc., procured by the Committee on Railroads of the First
+Nevada Legislature” (Carson City, 1865). This document contains several
+valuable reports and some interesting testimony.
+
+[3] Judah’s report of his mission to Washington as a delegate of the
+Pacific Railroad Convention is printed in full in the _Sacramento
+Union_ for July 25, 1860.
+
+[4] Testimony taken by the United States Pacific Railway Commission,
+appointed under an Act of Congress approved March 3, 1887, entitled,
+“An act authorizing an investigation of the books, accounts, and
+methods of railroads which have received aid from the United States,
+and other purposes.” (50th Congress, 1st Session, Senate Executive
+Document No. 51, pp. 2838-39, testimony D. W. Strong.) Hereafter
+referred to as United States Pacific Railway Commission.
+
+[5] The expenses of this preliminary investigation were provided by
+small subscribers around Dutch Flat. A paper dated at Dutch Flat,
+June 26, 1860, contains 47 names, including that of D. W. Strong. No
+subscription was for over $15, and only nine were for as much as $10
+apiece. (United States Pacific Railway Commission, p. 2959.)
+
+[6] Judah manuscript, letter of Mrs. Anne Judah.
+
+[7] Evidence concerning projected railways across the Sierra Nevada
+Mountains, _sup cit._, testimony L. L. Robinson.
+
+[8] United States Pacific Railway Commission, pp. 2960-61, testimony D.
+W. Strong.
+
+[9] _Sacramento Union_, January 9 and 10, 1861.
+
+[10] _Sacramento Union_, January 4, 1861.
+
+[11] Stanford’s election to the United States Senate was resented
+by Huntington, and led eventually to an open breach between the two
+men. It is not improbable, however, that Stanford’s friends, and not
+Stanford himself, were responsible for the latter’s candidacy. It would
+not have been difficult to persuade a man of Stanford’s temperament
+that he was performing a public service in allowing his name to be used.
+
+[12] Crocker said of his own personal appearance during the sixties:
+“While I was building the road, I weighed nearly all the time 264-5
+pounds; at one time, in China, I weighed about 274 pounds; the Chinaman
+who weighed me called me a 4-_picul_ man--a ‘_picul_’ being 66⅔
+pounds.... While I was building the road, I weighed the first year,
+244, which increased to 265, and when I finished the work, was weighing
+that. I am 5 feet 10¾ inches tall.” (Crocker manuscript, p. 63.)
+
+[13] Huntington manuscript, p. 36. The Bancroft Library of the
+University of California possesses notes of interviews with a number of
+men prominent in California history collected by H. H. Bancroft or his
+representatives. In some cases these notes are very full and informing.
+They will be referred to in the present volume as “Huntington
+manuscript,” “Crocker manuscript,” etc. See also Redding, “Sketch of
+the Life of Mark Hopkins” (San Francisco, 1881).
+
+[14] Huntington manuscript, pp. 9-10.
+
+[15] Crocker manuscript, pp. 28-29. See also Hittell, “History of
+California,” Vol. 4.
+
+[16] Report of a committee of the board of directors, Sacramento Valley
+Railroad Company, August 7, 1855.
+
+[17] Articles of association and by-laws of the Sacramento Valley
+Railroad Company, together with an estimate of the gross receipts of
+the road when in operation, New York, 1853.
+
+[18] Engineer’s report of a preliminary survey of the Stockton and
+Copperopolis Railroad with estimates of cost and traffic, October, 1862.
+
+[19] Report of the chief engineer on the survey, cost of construction,
+and estimated revenue of the Placerville and Sacramento Valley Railroad
+of California, San Francisco, 1863.
+
+[20] Report of President Moore to stockholders, 1873.
+
+[21] Report of the chief engineer on the preliminary survey, cost of
+construction, and estimated revenue of the Central Pacific Railroad of
+California, etc., October 22, 1862; report of Acting Chief Engineer
+Montague, October 8, 1864. Reprinted in “Evidence concerning projected
+railways across the Sierra Nevada Mountains,” _sup. cit._
+
+[22] Report of the chief engineer on the preliminary survey, cost of
+construction, etc., October 22, 1862 (October 1, 1861), _sup. cit._
+
+[23] United States Pacific Railway Commission, p. 3774, testimony C. P.
+Huntington.
+
+[24] Complaint of Samuel Brannan, June 21, 1870. Filed in the case
+of Brannan v. Central Pacific Railroad, in the District Court of the
+Fifteenth Judicial District of the State of California.
+
+[25] Bancroft, “History of California,” Vol. 7. p. 545, note. The
+assessed value of the associates’ property in Sacramento County in 1861
+was $118,035.
+
+[26] United States Pacific Railway Commission Report, p. 87.
+
+[27] United States Pacific Railway Commission, p. 3421, testimony M. D.
+Boruck.
+
+[28] Crocker manuscript, p. 32.
+
+[29] United States Pacific Railway Commission, pp. 2630-31, testimony
+Leland Stanford.
+
+[30] _Ibid._, p. 2652. testimony Leland Stanford. Stanford and his
+associates bought stock in 1871 for which they paid $400 or $500 a
+share, but Stanford says that this was to quiet litigation which he
+described as blackmail.
+
+[31] Ellen M. Colton v. Leland Stanford _et al._, in the Superior Court
+of the State of California in and for the County of Sonoma, 1883.
+Hereafter referred to as “Colton case.” The record in this proceeding
+contains much valuable information relative to the history of the
+Southern Pacific and the activities of the Huntington-Stanford group.
+
+[32] United States Pacific Railway Commission, p. 3493, testimony D. O.
+Mills.
+
+[33] Crocker manuscript, pp. 29-30.
+
+[34] United States Pacific Railway Commission, p. 2731, testimony
+Leland Stanford.
+
+[35] _Ibid._, p. 2399, testimony A. Cohen; p. 2767, testimony Leland
+Stanford.
+
+[36] Colton case, pp. 948-49, Huntington to Colton, October 8, 1874.
+
+[37] Tinkham, “History of Stockton,” p. 356; _San Francisco Chronicle_,
+June 13, 1874.
+
+[38] Laws of California, 1852, Ch. 77.
+
+[39] _Ibid._, 1857, Ch. 243.
+
+[40] _Ibid._, 1858, Ch. 300.
+
+[41] _Ibid._, 1859, Ch. 241.
+
+[42] _Ibid._, 1859, Ch. 263, 264.
+
+[43] _Ibid._, 1859, Ch. 262.
+
+[44] Laws of California, 1863, Ch. 77
+
+[45] _Ibid._, 1863, Ch. 125.
+
+[46] _Ibid._, 1863, Ch. 207.
+
+[47] _Ibid._, 1863, Ch. 310.
+
+[48] _Ibid._, 1863, Ch. 209. The value of these privileges has been
+estimated at $200,000.
+
+[49] _Ibid._, 1863, Ch. 291.
+
+[50] _Ibid._, 1863, Ch. 314.
+
+[51] _Ibid._, 1864, Ch. 320. Twenty years later the quarries were still
+undelivered.
+
+[52] Constitution of the State of California, Arts. VIII, XI, Sec. 10.
+
+[53] People v. Pacheco, 27 Cal., 176 (1865).
+
+[54] Angel. “History of Placer County,” 1882, p. 280.
+
+[55] “The Great Dutch Flat Swindle!--An address to the Board of
+Supervisors, Officers and People of San Francisco,” 1864.
+
+[56] French v. Teschemaker, 24 Cal. 518 (1864).
+
+[57] Laws of California, 1864, Ch. 344.
+
+[58] California Supreme Court Records, Vol. 38, case of People v. Coon.
+
+[59] California Supreme Court Records, Vol. 38, p. 98, _sup. cit._
+
+[60] People v. Coon, 25 Cal. 635 (1864).
+
+[61] People v. Supervisors, 27 Cal. 655 (1865).
+
+[62] United States Pacific Railway Commission, pp. 3610-11, testimony
+Leland Stanford.
+
+[63] _Ibid._, p. 3464, testimony E. H. Miller.
+
+[64] Angel, “History of Placer County,” pp. 158-65.
+
+[65] Fankhauser, “Financial History of California,” p. 299 _ff._
+
+[66] Report of the chief engineer upon recent surveys, progress of
+construction, and an approximate estimate of cost of first division of
+50 miles of the Central Pacific Railroad of California, July 1, 1863.
+
+[67] Letter of L. L. Robinson, chief engineer, to Chas. A. Sumner and
+Henry Epstein, Chairmen Committees on Railroads, Legislature of Nevada,
+Sacramento, February 3, 1865. Printed in a pamphlet entitled “Evidence
+concerning projected railways across the Sierra Nevada Mountains,”
+_sup. cit._
+
+[68] Stanislaus, Merced, Fresno, Tulare, and Kern counties. In Kern
+County the bond issue was limited to $480,000 and in Stanislaus to
+$180,000.
+
+[69] Letters of Governor Haight, on the constitutional power of the
+legislature to authorize cities and counties to donate bonds to
+railroad corporations, Sacramento, 1870.
+
+[70] Persons who desire details of the controversies in Congress prior
+to the outbreak of the Civil War may consult Haney, “Congressional
+History of Railways,” or Davis “History of the Union Pacific.”
+
+[71] Laws of California, 1852, p. 276. See also resolutions passed May
+17, 1853 (Laws of 1853, p. 315); May 13, 1854 (Laws of 1854, p. 224);
+February 25, 1854 (Laws of 1854, p. 227); March 19, 1857 (Laws of 1854,
+p. 370); April 1, 1859 (Laws of 1859, p. 390); April 15, 1859 (Laws of
+1859, p. 394). In 1859 the legislature adopted a memorial to the same
+general effect (Laws of 1859, p. 395).
+
+[72] The proceedings of the Pacific Railroad Convention of 1859 were
+published in the _San Francisco Alta_, September 21-26, 1859, and in a
+special supplement of the same paper. See also _The Pacific_, October
+6, 1859, and other California papers. The convention was attended by
+delegates from Oregon and Washington. It thought that the Pacific
+Railroad should run from the city of San Francisco through the counties
+of San Mateo, Santa Clara, and Alameda, to the city of Stockton, thence
+over the Sierras by a central route. It favored also a branch to Puget
+Sound. Resolutions were adopted contemplating an issue of $15,000,000
+in bonds by the state of California to cover the cost of railroads
+within that state, and an issue of an unspecified amount, presumably
+$5,000,000 by the state of Oregon. In February, 1860, an adjourned
+meeting of the same convention was held at Sacramento. Considerable
+opposition developed at this meeting to the proposal to bond the
+state for The vote taken at San Francisco was reconsidered, and a
+new resolution passed, recommending state aid to a transcontinental
+railroad to the extent of not more than $15,000,000, but proposing
+that security be taken for the advances made so that the sum should
+not become a state charge. In other words, this idea of a loan was
+substituted for that of a donation. (_Sacramento Union_, February 7-11,
+1860.)
+
+[73] Report of the chief engineer of the Central Pacific Railroad
+Company of California, on his operations in the Atlantic states,
+Sacramento, 1862. It should be added that Huntington himself was in
+Washington while the Act of 1864 was being debated. Cornelius Cole,
+one time senator from California, says of Huntington’s activity at
+this time: “During the pendency of this legislation [Act of 1864],
+C. P. Huntington spent much of his time in Washington. Many of the
+amendments were suggested by him, and it gave me much satisfaction to
+forward his views. In former years in Sacramento we had been in close
+political fellowship, besides ... I had been associated with him and
+others in the organization of the Central Pacific Railroad Company....”
+(Cornelius Cole, Memoirs, pp. 179-80.)
+
+[74] 12 United States Statutes 489 (1862).
+
+[75] United States v. Southern Pacific Co., Record, pp. 1654-57.
+
+[76] Report of chief engineer, Central Pacific Railroad of California,
+on his operations in the Atlantic states, 1862.
+
+[77] 13 United States Statutes 356 (1864).
+
+[78] For a full digest of the Acts of 1862 and 1864, and for an account
+of the Congressional history involved, the reader is referred to Haney,
+“A Congressional History of Railways.” Senator A. A. Sargent asserted
+in 1878 that he, Sargent, wrote the acts himself. (45th Congress, 2d
+Session, Congressional Record, Vol. 7. p. 2024.)
+
+[79] Huntington manuscript, pp. 78-79. The act referred to appears in
+14 United States Statutes 78-79.
+
+[80] Report of the chief engineer on the preliminary survey of the
+Central Pacific Railroad, etc., October 22, 1862.
+
+[81] United States v. Union Pacific, 91 U. S. 72 (1875).
+
+[82] 12 United States Statutes 489 (1862), Sec. 6.
+
+[83] United States Pacific Railway Commission, p. 2562, testimony W. H.
+Mills.
+
+[84] The Western Pacific had received in addition two patents conveying
+27,505.93 acres, but these lands were assigned by the Central Pacific
+to outside parties.
+
+[85] United States Pacific Railway Commission, pp. 3569-70.
+
+[86] United States v. Southern Pacific Railroad Co., 146 U. S. 570, 593
+(1892).
+
+[87] Newhall v. Sanger, 92 U. S. 761 (1875).
+
+[88] Kansas Pacific v. Dunmeyer, 113 U. S. 629 (1885).
+
+[89] Hastings and D. R. Co. v. Whitney, 132 U. S. 357 (1889); Whitney
+v. Taylor, 158 U. S. 85, 92 (1895); Bardon v. Northern Pacific, 145 U.
+S. 535 (1892).
+
+[90] Menotti v. Dillon. 167 U. S. 703 (1897).
+
+[91] Central Pacific Railroad case, 3 L. D. 264.
+
+[92] 9 United States Statutes 631 (1851).
+
+[93] United States Pacific Railway Commission, p. 2412, testimony W. H.
+Mills.
+
+[94] 1863 to 1913 “An Account of the Ceremonies Attending the
+Inauguration of the Work of Construction of the Central Pacific.”
+Interesting details of the course of construction of the Central and
+Union Pacific railroads are given in Carter, “When Railroads Were New,”
+and in Sabin, “Building the Pacific Railway.”
+
+[95] Report of the chief engineer upon recent surveys of the Central
+Pacific Railroad of California, July, 1863.
+
+[96] _Ibid._, December, 1865, and July, 1869.
+
+[97] _Ibid._, October 8, 1864.
+
+[98] _Ibid._, December, 1863.
+
+[99] United States Pacific Railway Commission, pp. 2581-82, testimony
+Arthur Brown, superintendent of bridges and buildings.
+
+[100] United States Pacific Railway Commission, p. 2579, statement
+William Hood; pp. 2580-81, 3150, statement J. H. Strobridge; pp.
+2576-77, statement L. M. Clement; p. 3055, testimony E. H. Miller; pp.
+2581-82, statement Arthur Brown.
+
+[101] United States Pacific Railway Commission, p. 2523, testimony
+Leland Stanford. On the other hand, there were abundant supplies of
+timber along the line, and the price of machinery declined after the
+war.
+
+[102] United States Pacific Railway Commission, pp. 3139-41, testimony
+J. H. Strobridge. The following table is prepared from Mr. Strobridge’s
+testimony:
+
+
+NUMBER OF MEN EMPLOYED IN CENTRAL PACIFIC CONSTRUCTION, 1864-69, AND
+RATE OF PAY
+
+ Number of Number of
+ Year Chinamen Rate of pay White Men Rate of pay
+
+ 1864 Very few 1,200 $30 a month
+ 1865 7,000 $30 a month 2,500 35 ” ”
+ 1866 11,000 35 ” ” 2,500-3,000 35 ” ”
+ 1867 11,000 35 ” ” 2,500-3,000
+ 1868 5,000-6,000 2,000-3,000
+ 1869 5,000 1,500-1,600
+
+
+[103] Huntington was always openly in favor of unrestricted Chinese
+immigration. He said that exclusion deprived the United States of
+tractable and cheap labor, which was needed to build up the desert
+places of the country. He believed the fanatical hostility to the
+Chinese was limited to California, where, he asserted, the Irish
+Catholics swung the balance of power. (_San Francisco Examiner_,
+January 4, 1889.)
+
+[104] United States Pacific Railway Commission, p. 3642, testimony
+Charles Crocker. A letter from Mr. Judah to Dr. Strong, dated July 10,
+1863, suggests that it was Judah’s influence which prevented Crocker
+from building sections 19 to 30. Judah wrote: “I have had a big row
+and fight on the contract question, and although I had to fight alone,
+carried my point and prevented a certain gentleman from becoming
+a further contractor on the Central Pacific Railroad at present.”
+(_Ibid._, p. 2966, testimony Strong.) This was probably only one of a
+number of differences of opinion between the Stanford-Huntington group
+and the original promoters of the Central Pacific, led by Judah. It was
+only after Judah’s death that the first-named interests were able to
+dominate the situation completely.
+
+[105] United States Pacific Railway Commission, p. 3769, testimony
+Collis P. Huntington.
+
+[106] _Ibid._, pp. 2621-26, testimony Leland Stanford.
+
+[107] United States Pacific Railway Commission, p. 3048, testimony E.
+H. Miller. For a general discussion of the relative advisability of
+construction by contract as opposed to construction by the Central
+Pacific itself, see an earlier report by Stanford, Hopkins, and Miller.
+(_Ibid._, pp. 3045-46.) This report made the point that the letting of
+contracts to a responsible contractor would raise the credit of the
+railroad.
+
+[108] United States Pacific Railway Commission, p. 3436.
+
+[109] _Ibid._, p. 3157, testimony J. H. Strobridge.
+
+[110] The actual cost of the whole work to the Central Pacific
+depended upon Mr. Crocker’s reports upon the work which he did. There
+is no evidence that the company exercised any supervision over these
+reports, although it was to the advantage of the construction company
+to describe as much of the work as possible as heavy; but on the other
+hand, Mr. Crocker’s engineers testified that Crocker never attempted
+to influence them in their estimates. (United States Pacific Railway
+Commission, p. 3207, testimony L. Clement.)
+
+[111] United States Pacific Railway Commission, p. 3511, testimony
+Richard F. Stevens.
+
+[112] United States Pacific Railway Commission, p. 2636, testimony
+Leland Stanford.
+
+[113] _Ibid._, p. 3661, testimony Charles Crocker.
+
+[114] Colton case, pp. 266-68, deposition of Collis P. Huntington.
+
+[115] United States Pacific Railway Commission, p. 2640, testimony
+Leland Stanford.
+
+[116] _Ibid._, p. 3661, testimony Charles Crocker; p. 2637, testimony
+Leland Stanford.
+
+[117] United States Pacific Railway Commission, pp. 3436-37.
+
+[118] United States Pacific Railway Commission, p. 2897, testimony W.
+E. Brown; p. 3062, testimony E. H. Miller; pp. 3511-20, testimony R. F.
+Stevens.
+
+[119] United States Railway Commission, pp. 2712-17, testimony D. Z.
+Yost.
+
+[120] _Ibid._, pp. 2875-92, testimony John Miller; pp. 3028-33,
+testimony N. Greene Curtis.
+
+[121] There is some evidence that $6,000,000 of this cash was not
+strictly cash, but took the form of notes of the Central Pacific
+Railroad which were ultimately settled in land-grant bonds at $86.50.
+(United States Pacific Railway Commission Report, p. 75.) Mr. Crocker
+says that the interest on a portion of these bonds paid his expenses on
+a trip to Europe. (_Ibid._, p. 3668, testimony Charles Crocker.)
+
+[122] United States Pacific Railway Commission Report, pp. 74-75.
+
+[123] United States Pacific Railway Commission, pp. 2655-56, testimony
+Leland Stanford; p. 3668, testimony Charles Crocker. Mr. Huntington
+said in 1873 that he thought his dividend amounted to about $1,000,000,
+but in 1887 he admitted that he had earlier mistaken the facts.
+(_Ibid._, pp. 4026-28, testimony C. P. Huntington.)
+
+[124] United States Pacific Railway Commission, pp. 2977-88, testimony
+W. E. Brown.
+
+[125] 1863-1913. An Account of the Ceremonies Attending the
+Inauguration of the Work of Constructing the Central Pacific.
+_Scribner’s Magazine_ for August, 1892, contains an article describing
+the completion of the Central Pacific and also a reproduction of the
+well-known painting, “The Joining of the Central and Union Pacific”
+(“The Last Spike”).
+
+[126] The indenture making this assignment, dated October 31, 1864,
+is printed in full in the appendix to the journals of the Senate
+and Assembly of the 20th Session of the Legislature of the State of
+California, Vol. 6 (1874), No. 2. pp. 27-29. It covers not only the
+right to build and operate a railroad between Sacramento and San José,
+but also “all the rights, grants, donations, rights-of-way, loan of the
+credit of the Government of the United States, or the bonds thereof.”
+
+[127] United States Pacific Railway Commission, p. 2785, testimony
+Leland Stanford.
+
+[128] Laws of California, 1852, Ch. 107.
+
+[129] City of Oakland v. Oakland Water Front Company, transcript of
+testimony, p. 649, deposition Horace W. Carpentier; p. 1755, testimony
+A. J. Moon.
+
+[130] City of Oakland v. Oakland Water Front Company, transcript of
+testimony, pp. 704-5, deposition Horace W. Carpentier; Wood, “History
+of Alameda County”; _San Francisco Examiner_, June 26, 1892, July 3,
+1892.
+
+[131] Moon, one of the trustees who approved the grant, was afterwards
+taken into Carpentier’s employ. Adams, another trustee, secured the
+property now known as the “Adams Wharf” to the east of the narrow-gauge
+bridge.
+
+[132] City of Oakland v. Carpentier, 13 Cal. 540 (1859); 21 Cal. 642
+(1863). The Oakland ordinances were ratified and confirmed by act of
+the California legislature passed May 15, 1861. (Laws of California,
+1861, Ch. 377.)
+
+[133] City of Oakland v. Oakland Water Front Company, transcript on
+appeal, pp. 652-54, deposition Horace W. Carpentier.
+
+[134] Laws of California, 1868, Ch. 230.
+
+[135] City of Oakland v. Oakland Water Front Company, transcript of
+testimony, _sup. cit._ pp. 976-80.
+
+[136] City of Oakland v. Oakland Water Front Company, transcript of
+testimony, pp. 657-64, deposition Horace W. Carpentier.
+
+[137] See the Ordinance of the City of Oakland, No. 302 (April 2,
+1868). An excellent account of these transactions is given in an
+unpublished manuscript in the University of California Library,
+prepared by Stephen S. Barrows, one-time student in the University of
+California. It is of some interest to observe that among the direct
+beneficiaries of the agreements cited were Messrs. Carpentier, Felton,
+and Merritt, all three at one time or other mayors of Oakland. Mr.
+Merritt was mayor at the time ordinances Nos. 300, 301, and 302 were
+passed. The compromise described was effected under authority of an act
+of the California legislature dated March 21, 1868.
+
+[138] By ordinance passed August 31, 1867, the Oakland City Council
+voted to pay Mr. Felton a fee equal to 15 per cent of all the property
+recovered by the city in the water-front litigation. (Transcript of
+testimony, _sup. cit._ p. 759.) Mr. Merritt was subsequently accused
+of having promoted the settlement between the city of Oakland and the
+Oakland Water Front Company in order to derive a pecuniary profit for
+himself. In 1869 the city council of Oakland authorized the appointment
+of a committee of three to ascertain by what title Mr. Merritt held
+certain water-front property near the foot of Broadway in Oakland. On
+report of the committee the council exonerated Mr. Merritt. (_Ibid._,
+pp. 1406-7, 1410-21.)
+
+[139] City of Oakland v. Oakland Water Front Company, 118 Cal. 160
+(1897).
+
+[140] Western Pacific Railway Company v. Southern Pacific Company,
+151 Fed. 376 (1907). The court also pointed out in the decision that
+although the low-tide line was projected across the mouth of the
+estuary for the purpose of determining the boundary of Oakland, this
+should not be done in ascertaining the limit of the railroad grant.
+
+[141] The boundaries are set forth in the _San Francisco Times_ of
+March 7, 1868. As later amended and confined to the area north of Point
+Avisadero, they are described in the _Daily Alta_ of March 14, 1868.
+
+[142] Appendix to journals of Senate and Assembly of the California
+Legislature, 17th Session, Vol. 3, 1868.
+
+[143] _San Francisco Bulletin_, March 7, 1868.
+
+[144] _Daily Alta California_, March 10, 1868.
+
+[145] _San Francisco Times_, March 13, 1868.
+
+[146] See resolutions of a meeting of San Francisco business men in
+March, 1868, recommending that the legislature grant 150 acres each
+to the Central Pacific and Southern Pacific; and the admission of the
+Southern Pacific that it could get along with 250 acres.
+
+[147] Laws of California, 1867-68, Ch. 543.
+
+[148] Laws of California, 1867-68, Ch. 386. A lively account of the
+circumstances attending the passage of the Goat Island bill through
+the legislature was published by an old newspaper man, Sam Leake by
+name, in the _San Francisco Bulletin_, March 17 and 19, 1917. There is,
+however, no way of verifying this story, and it cannot be accepted on
+Mr. Leake’s authority alone.
+
+[149] Laws of California, 1869-70, Ch. 381.
+
+[150] Mr. Stanford has asserted that the whole trouble was caused by
+six gentlemen, three of whom had interests near Ravenswood, where it
+was thought that the Central Pacific might cross, and three of whom had
+interests in Sausalito. He says he was informed by a member of Congress
+that he could have had necessary legislation in Congress for $10,000.
+This refers to the campaign of 1875-76. (United States Pacific Railway
+Commission, pp. 3170-71, testimony Leland Stanford.)
+
+[151] United States Pacific Railway Commission, pp. 3496-3500,
+testimony D. O. Mills.
+
+[152] The California and Oregon Railroad Company was subsidized
+by Congress by Act of July 25, 1866, to build from a point on the
+Central Pacific Railroad to the Oregon boundary, where it was to meet
+a railroad coming south from Portland. Tracks reached Chico, July 2,
+1870. In 1870, the California and Oregon was consolidated with the
+Central Pacific. In 1872 it reached Redding, and on October 5, 1887,
+the state line. The federal legislation relating to the California and
+Oregon Railroad is notable for the liberality of the land grant made.
+
+[153] This branch was known as the San Joaquin Valley Railroad.
+The company bearing this name was incorporated in 1868. Stanford,
+Huntington, Hopkins, Charles, and E. B. Crocker were directors. In 1870
+it was consolidated with the Central Pacific. Stanford declared in 1887
+that the trunk lines up the San Joaquin and Sacramento valleys were the
+most important factors in the Central Pacific’s local business.
+
+[154] United States Pacific Railway Commission, pp. 3628-29, testimony
+J. P. Jackson; p. 3613, testimony Leland Stanford.
+
+[155] United States Pacific Railway Commission, pp. 3366-67, testimony
+J. C. Stubbs.
+
+[156] _Ibid._, pp. 3628-29, testimony J. C. Jackson.
+
+[157] _San Francisco Bulletin_, November 29, 1869.
+
+[158] Main v. Central Pacific, argument of Harvey S. Brown, of counsel
+for the defendants, 1886.
+
+[159] _San Francisco Chronicle_, August 16, 1874, statement Milton
+S. Latham. This was the bridge over which the California Pacific was
+entering Sacramento.
+
+[160] Main v. Central Pacific. Statement of facts. The closing argument
+of L. E. Chittenden, of counsel for plaintiffs, 1886. See also _San
+Francisco Chronicle_, August 16, 1874, statement of Milton S. Latham.
+
+[161] Opponents of the Central Pacific described the transaction in
+1886 as follows: “Huntington, the incarnation of this hostility, whose
+name was an inspiration of personal aversion, entered the state on the
+24th of June; and the suggestion is, that the Court shall believe that
+under these circumstances, the directors of the California Pacific
+loaded their staggering trust with a new debt of $1,600,000, on which
+interest should commence at once, to pay for a second track, not to
+be finished until about two years, at the small end of their railroad
+where there was no need of it, at a point where it was doubtful if one
+track would stand—and contracted with their hereditary enemies to do
+it—all without the remotest reference to any purchase of, or intended
+future control of the corporation!”
+
+[162] Colton case, pp. 3214-15.
+
+[163] _San Francisco Chronicle_, August 16, 1874. According to A. A.
+Cohen, a San Francisco lawyer one time in the employ of the Central
+Pacific and intimately acquainted with its policies, Stanford told
+Latham that he, Stanford, was extremely sorry that the Reese suit
+had been commenced, and that it would not have been if he had known
+anything at all about it. Cohen, however, made public the following
+letter, written by Stanford the day before the suit was brought, which
+puts an altogether different face upon the matter. Stanford wrote as
+follows:
+
+ “July 24th, 1874.
+
+ DEAR COHEN:
+
+ Regret on your own account that you are so ill. Send Mr. Yost over
+ particularly to report, and carry this message. Michael Reese is
+ willing to commence suit as stockholder. Please transfer to him 150
+ shares of your stock in the California Pacific. Hoping to hear a more
+ favorable account of your health, I remain,
+
+ Yours truly,
+
+ STANFORD.”
+
+The inference from this letter is, of course, that the Reese suit was
+brought at Stanford’s own instance.
+
+[164] United States Pacific Railway Commission, pp. 3936-42, testimony
+L. E. Chittenden.
+
+[165] United States Pacific Railway Commission, p. 3614, testimony
+Leland Stanford.
+
+[166] On December 2, 1865. United States v. Southern Pacific,
+transcript of testimony, p. 1284. Hereafter referred to as “United
+States v. Southern Pacific.” This company was organized under the
+general California statute relating to incorporations approved May 20,
+1861.
+
+[167] 14 United States Statutes 292 (1866). An act granting lands to
+aid in the construction of railroad and telegraph line from the states
+of Missouri and Arkansas to the Pacific Ocean. The provisions of this
+act were promptly accepted by the Southern Pacific. See United States
+v. Southern Pacific, pp. 1672-73.
+
+[168] 15 United States Statutes 187 (1868).
+
+[169] _San Francisco Bulletin_, March 14, 1868.
+
+[170] United States v. Southern Pacific, Defendant’s Exhibit No. 23.
+Neither Huntington nor Stanford signed the articles of association
+of 1870 as holders of stock of the consolidating companies. This may
+merely mean, however, that the stock of these companies was placed
+under other names for purposes of convenience.
+
+[171] The change of route was authorized by Congressional resolution,
+dated June 28, 1870 (16 United States Statutes 382 [1870].) It should
+be observed that the so-called Mussel Slough “massacre” resulted
+from a dispute over the ownership of land south of Hanford, Tulare
+County, which lay along the line of railroad as designated in 1867,
+but not along that proposed in 1865. It appears that a number of
+persons settled upon and improved tracts near Hanford before the
+railroad applied for patent to land in this vicinity, but after the
+Southern Pacific had filed the map showing its intended route with the
+Commissioner of the General Land Office in 1867, and after lands along
+this route had been withdrawn.
+
+When the railroad secured title it offered to sell this occupied land
+to the parties who had settled upon it, but at prices which were much
+above those current for unimproved farm land. That is to say, the
+railroad asked from $11 to $35 an acre, instead of the customary $2.50
+to $5 an acre. The settlers understood from this that the company
+was trying to make them pay for improvements which they themselves
+had made, and resorted to active opposition. In 1876 the settlers
+petitioned Congress to restore a portion of the land grant in question
+to the public domain, on the ground that no railroad had ever been
+constructed along it.
+
+In 1881 the railroad attempted to take forcible possession of two
+pieces of the disputed land. There was resistance, and in the shooting
+which followed, eight men were killed, including six settlers. This was
+the “massacre.” There seems to be no question but that the railroad
+possessed legal title to the Tulare County property. The weakness of
+its position lay in the fact that it was attempting to build a railroad
+in one place and to secure a land grant in another—a procedure never
+contemplated by Congress, and one not unlikely to lead to hostile
+legislation. Eventually the railroad title was sustained, and the land
+sold by the company, though at reduced prices.
+
+[172] 16 United States Statutes 573 (1871).
+
+[173] See on this matter Colton case, p. 1621, Crocker to Colton,
+February 12, 1875.
+
+[174] Guinn, “A History of California,” pp. 254, 276.
+
+[175] Ninth Census of the United States, 1870.
+
+[176] Newmark, “Sixty Years in Southern California.” The Los Angeles
+and San Pedro was built to Wilmington only in 1869. It was not extended
+to San Pedro until 1881.
+
+[177] Ranchers near Los Angeles feared lest the construction of the
+railroad would do away with horses and the demand for barley.
+
+[178] “Illustrated History of Los Angeles County” (Chicago, 1889), p.
+136.
+
+[179] Newmark, “Sixty Years in Southern California,” pp. 496-97.
+
+[180] Articles of incorporation are printed in Colton case, pp.
+5475-77, testimony F. S. Douty. See also _ibid._, pp. 2993-95,
+testimony Reynolds. The material and accounts for repairs possessed
+by the Contract and Finance Company were turned over to the Western
+Development Company at this time at a valuation of $431,530.53.
+
+[181] Colton case, pp. 362-65, 7806-22, testimony F. S. Douty. The
+actual payments were, as the result of certain adjustments, slightly
+less.
+
+[182] United Slates Railway Commission, p. 2701, testimony F. S. Douty.
+
+[183] United States v. Southern Pacific, pp. 553-55, testimony
+Redington.
+
+[184] _Ibid._, pp. 533-35, testimony Luckett.
+
+[185] Colton case, p. 7637, Colton to Huntington.
+
+[186] Colton case, pp. 231-32, testimony F. S. Douty; United States
+Pacific Railway Commission, pp. 3626–27, testimony F. S. Douty.
+
+[187] United States Pacific Railway Commission, p. 2832, testimony
+Leland Stanford.
+
+[188] United States Pacific Railway Commission, p. 2994, testimony C.
+F. Crocker.
+
+[189] Colton case, pp. 7646-54, 1586.
+
+[190] _Ibid._, pp. 9669-73, testimony Charles Crocker.
+
+[191] _San Francisco Examiner_, October 8, 1889.
+
+[192] Jay Gould once testified that Huntington had offered an interest
+in the Southern Pacific to himself and his Union Pacific associates,
+and that they had offered to take an interest, provided that Huntington
+would cut the Southern Pacific bonds outstanding from $40,000 to
+$25,000 per mile, and throw the stock in. Gould thought that $25,000
+per mile was all that the road had cost. (Colton case, deposition Jay
+Gould, pp. 8, 23-24.)
+
+It should be observed that a great deal of the mileage now owned by the
+Southern Pacific Railroad was not originally built by that company,
+but by or for small separate companies, most of them organized by
+the Huntington group, which were later consolidated with the parent
+corporation. The complete list of these consolidations is as follows:
+
+October 12, 1870. Consolidation of the Southern Pacific Railroad
+Company, the San Francisco and San José Railroad Company, the Santa
+Clara and Pajaro Valley Railroad Company, and the California Southern
+Railroad Company.
+
+August 19, 1873. Consolidation of the Southern Pacific Railroad Company
+and the Southern Pacific Branch Railroad Company.
+
+December 18, 1874. Consolidation of the Southern Pacific Railroad
+Company and the Los Angeles and San Pedro Railroad Company.
+
+May 14, 1888. Consolidation of the Southern Pacific Railroad Company,
+the San José and Almaden Railroad Company, the Pajaro and Santa Cruz
+Railroad Company, the Monterey Railroad Company, the Monterey Extension
+Railroad Company, the Southern Pacific Branch Railway Company, the San
+Pablo and Tulare Railroad Company, the San Pablo and Tulare Extension
+Railroad Company, the San Ramon Valley Railroad Company, the Stockton
+and Copperopolis Railroad Company, the Stockton and Tulare Railroad
+Company, the San Joaquin Valley and Yosemite Railroad Company, the
+Los Angeles and San Diego Railroad Company, the Los Angeles and
+Independence Railroad Company, the Long Beach, Whittier and Los Angeles
+County Railroad Company, the Long Beach Railroad Company, the Southern
+Pacific Railroad Extension Company, and the Ramona and San Bernardino
+Railroad Company.
+
+April 13,1898. Consolidation of the Southern Pacific Railroad Company,
+the Northern Railway Company, the Northern California Railway Company,
+and the California Pacific Railroad Company.
+
+March 7, 1902. Consolidation of the Southern Pacific Railroad Company
+(of California), the Southern Pacific Railroad Company (of Arizona),
+and the Southern Pacific Railroad Company of New Mexico.
+
+[193] Colton case, pp. 1522-24, 1529.
+
+[194] United States Pacific Railway Commission, pp. 2791-92, testimony
+Leland Stanford.
+
+[195] Colton case, pp. 1524-29.
+
+[196] _Ibid._, pp. 1510-13.
+
+[197] United States Pacific Railway Commission, p. 3445, testimony E.
+H. Miller, Jr.
+
+[198] For terms of leases see especially United States Pacific Railway
+Commission, pp. 3443-53, testimony of E. H. Miller. Jr.
+
+[199] United States v. Southern Pacific, p. 708, testimony Julius
+Kruttschnitt. This was a case brought in 1915 before the District Court
+of the United States for the District of Utah in order to compel the
+separation of the Central Pacific from the Southern Pacific railroad.
+The suit was brought under the Anti-Trust Law of 1890, and in the
+course of the testimony the history of the Southern Pacific was very
+fully brought out.
+
+[200] Colton case, pp. 814-26.
+
+[201] Colton case, pp. 1643-44, Huntington to Colton, May 28, 1875.
+
+[202] _Ibid._, pp. 1615-16, Huntington to Colton, December 10, 1874.
+
+[203] United States v. Southern Pacific, p. 655, testimony Timothy
+Hopkins.
+
+[204] United States v. Southern Pacific, pp. 1191-96, testimony James
+Speyer.
+
+[205] _Ibid._, pp. 613-18, testimony George T. Klink.
+
+[206] _Ibid._, p. 645, testimony George R. Jackson.
+
+[207] _Ibid._, p. 1695, Defendant’s Exhibit No. 21.
+
+[208] _Ibid._, p. 871, inventory of Charles Crocker estate, filed July
+12, 1889.
+
+[209] United States Pacific Railway Commission, p. 2657, testimony
+Leland Stanford.
+
+[210] United States v. Southern Pacific, pp. 615, 645, testimony George
+T. Klink.
+
+[211] United States v. Southern Pacific, p. 666, testimony Timothy
+Hopkins.
+
+[212] United States v. Southern Pacific, pp. 1688-1702, Defendant’s
+Exhibit No. 21.
+
+[213] United States v. Southern Pacific, pp. 621-22, testimony George
+T. Klink. It has been suggested that Huntington had the charter of the
+Southern Pacific Company taken out in Kentucky, in order to enable the
+company to conduct its suits in California in the federal and not in
+the state courts.
+
+[214] J. M. Bassett said of the action of Kentucky in granting a
+charter to the Southern Pacific Company, that it amounted to granting
+a letter of marque to that company on the condition that it make no
+reprisals in Kentucky. He argued that the lease of the Central Pacific
+was defective because its duration was to be greater than the life of
+the Central Pacific under its articles of incorporation, because the
+liability of Southern Pacific stockholders was not unlimited as in the
+case of California corporations, and because the rule of comity under
+which foreign corporations operated in California could not be expected
+to apply to a corporation which was forbidden to do business in the
+state of its nativity. None of these objections, however, proved to
+have any practical importance.
+
+[215] United States Pacific Railway Commission, pp. 2812-13, testimony
+Leland Stanford.
+
+[216] The following table shows the result of operation under the lease
+for each year from 1885 to 1893:
+
+NET PROFITS AND RENTALS CENTRAL PACIFIC RAILROAD, 1885-93
+
+ Net Profit Rental Paid to Excess of
+ Central Pacific Central Pacific Rental over
+ Period Railroad Company Railroad Company Net Profit
+ April to December, 1885 $1,482,033 $1,482,033 ..........
+ 1886 1,324,998 1,324,998 ..........
+ 1887 1,086,733 1,200,000 $113,267
+ 1888 962,830 1,360,000 397,170
+ 1889 1,035,418 1,360,000 324,582
+ 1890 999,223 1,360,000 360,777
+ 1891 2,144,425 2,144,425 ..........
+ 1892 861,874 1,360,000 498,127
+ 1893 784,717 1,360,000 575,283
+ —————————— —————————— —————————
+ Totals $10,682,251 $12,951,456 $2,269,206
+ ══════════ ══════════ ═════════
+
+Brice Report, 53d Congress, 3d Session, January 28, 1895 (Senate
+Report, No. 830, Serial No. 3288).
+
+[217] Colton case, pp. 8839-42, testimony Charles Crocker. A discussion
+of the relations between Colton and the Huntington group which differs
+from that given in the text is presented in Russell, “Stories of the
+Great Railroads,” 1914.
+
+[218] Colton case, pp. 2446-50, testimony Mrs. Colton.
+
+[219] _Ibid._, pp. 172-73, deposition C. P. Huntington.
+
+[220] Colton case, pp. 5872-74. See also Colton manuscript, pp. 36-40.
+It was stipulated that either party might cancel the agreement at any
+time within two years, upon which stock and promissory note were to be
+mutually returned, and the parties placed in the same position relative
+to each other as before the agreement was made.
+
+[221] Colton case, pp. 7018-19.
+
+[222] _Ibid._, p. 6529, testimony H. K. White.
+
+[223] Colton case, p. 8869, testimony Charles Crocker.
+
+[224] _Ibid_., pp. 1058, 1064-66, testimony E. H. Miller, Jr.; p. 8957,
+testimony Charles Crocker.
+
+[225] Colton case, pp. 2711-12, 478-81, testimony F. S. Douty.
+
+[226] Newell Beeman, superintendent of the Rocky Mountain Coal and Iron
+Company, says that Colton knew nothing about the practical working of
+the mine. (Colton case, pp. 3849-50, testimony Newell Beeman.)
+
+[227] Colton case, pp. 7612-13, Colton to Huntington, January 31, 1878.
+
+[228] Colton case, p. 8915, testimony Charles Crocker.
+
+[229] United States Pacific Railway Commission, p. 3255, testimony F.
+S. Douty; Colton case, pp. 423-24, testimony F. S. Douty.
+
+[230] Colton case, pp. 8883, 8887, testimony Charles Crocker.
+
+[231] Colton case, pp. 8881-82, testimony Charles Crocker; pp. 36-37,
+deposition C. P. Huntington.
+
+[232] Colton case, pp. 2335-46, testimony Gunn; pp. 3127-29, 3227,
+testimony W. G. Fullerton.
+
+[233] Colton case, pp. 7187-92, testimony Madden; pp. 7217-24,
+testimony N. T. Smith.
+
+[234] Colton case, pp. 2436-39, Huntington to Mrs. Colton, November 15,
+1878, and November 21, 1878.
+
+[235] _Ibid._, pp. 2485-92, testimony Mrs. Colton; pp. 8892-99;
+testimony Charles Crocker.
+
+[236] Colton case, pp. 16-32, deposition S. N. Wilson.
+
+[237] Colton case, pp. 8931-32, testimony Charles Crocker.
+
+[238] In the case of the Central Pacific claims, the qualification “so
+far as known at the time” was introduced.
+
+[239] Colton case, pp. 2815-16, testimony Mrs. Colton; pp. 8943-44,
+testimony Charles Crocker.
+
+[240] Crocker manuscript, pp. 40-41.
+
+[241] Colton case, p. 248, testimony Douty; United States Pacific
+Railway Commission, p. 3494, testimony D. O. Mills.
+
+[242] Colton case, p. 1662, Huntington to Colton, May 1, 1875.
+
+[243] _Ibid._, pp. 1720-31, Huntington to Colton, June 24, 1875; pp.
+1743-45, Huntington to Colton, December 4, 1875.
+
+[244] _Ibid._, miscellaneous depositions, p. 41, depositions S. H.
+Thayer.
+
+[245] Colton case, p. 33, deposition D. O. Mills.
+
+[246] _Ibid._, p. 45, deposition S. H. Thayer.
+
+[247] Colton case, pp. 1684-85, Huntington to Colton, November 13, 1875.
+
+[248] _Ibid._, pp. 1747-48, Huntington to Colton, December 20, 1876.
+
+[249] Colton case, pp. 1746-47, Huntington to Colton, December 8, 1870.
+
+[250] _Ibid._, pp. 1768-70, Huntington to Colton, May 6, 1877.
+
+[251] _Ibid._, pp. 1772-73, Huntington to Colton, May 9, 1877.
+
+[252] _Ibid._, pp. 7517-18, Colton to Huntington, August 24, 1877.
+
+[253] _Ibid._, p. 7523, Colton to Huntington, September 28, 1877.
+
+[254] Colton case, pp. 7625-26, Colton to Huntington, March 13, 1878.
+
+It is extraordinary that a man in Colton’s position with his intimate
+knowledge of the precarious condition of Central Pacific finance should
+have allowed that railroad to declare a 4 per cent dividend in October,
+1877, great though his personal necessities may have been. This was,
+however, done. In reply to a letter from Huntington criticizing this
+action, Colton later wrote:
+
+“I never had the least intimation of objecting to the dividend until
+some time after it was declared. Governor Stanford informed me that
+you had telegraphed him, advising relative to this October dividend.
+We discussed it some time afterward in the Board meeting and found the
+whole matter of dividend had been written up in the books, and had
+gone so far before it had been brought before the Board that it was
+considered best to let the matter stand as it was.... I did not give
+the matter any attention outside of the Board meeting, for I felt it
+was a matter that Governor Stanford was personally attending to.
+
+“I do not, however, see the matter in just the light you do, and think
+so few will know of it that it cannot hurt us in Washington, for if you
+who are one of the largest stockholders, have not found it out, I do
+not see much show for outsiders. That there were ample surplus earnings
+to declare it there is no doubt. So it was a question of policy.... I
+would think in a business way the Government would be glad to see us
+doing well and prosperous, and evincing ability to pay dividends and
+_all_ of our _debts_.” (Colton case, pp. 7533-34, Colton to Huntington,
+November 24, 1877.)
+
+[255] Colton case, pp. 7608-14, Colton to Huntington, January 31, 1878.
+
+[256] In 1885 the Central Pacific directors authorized the issue of
+$10,000,000 in bonds to pay off the floating debt. (United States
+Pacific Railway Commission, p. 3019, testimony C. F. Crocker.) There is
+some reason to suspect that Stanford was individually embarrassed in
+1878, as a result of the financial stringency in California. Huntington
+telegraphed Colton in September of that year to let him know Stanford’s
+financial condition as near as he could ascertain it, and proposed to
+have the Western Development Company assume Stanford’s indebtedness,
+taking Southern Pacific bonds from Stanford in exchange, at 65. Colton
+replied that the Western Development Company would have to take about
+$3,000,000 in Southern Pacific bonds under such an arrangement to
+cover Stanford’s obligations. The French bank in San Francisco had
+just closed its doors, and he, Colton, was anxious about Stanford’s
+collaterals. He thought that Stanford had $800,000 of United States
+bonds in that institution. Michael Reese’s executors were calling for
+money. It does not appear what conclusion was finally reached.
+
+[257] Colton case, pp. 704-705.
+
+[258] Colton case, p. 112, deposition J. D. Probst.
+
+[259] _Ibid._, pp. 146-47, deposition A. L. Thompson.
+
+[260] Laws of California, 1875-76, Ch. 515. For a readable account
+of the history of the California Railroad Commission up to 1895,
+see Moffet, “The Railroad Commission of California—A Study in
+Irresponsible Government,” (Annals of the American Academy of Political
+and Social Science, March, 1895).
+
+[261] Report of the Board of Commissioners of Transportation to the
+Legislature of the State of California, December, 1877.
+
+[262] Laws of California, 1877-78, Ch. 641.
+
+[263] Laws of California, 1877-78, Ch. 490.
+
+[264] Colton case, p. 7646, Colton to Huntington, May 23, 1878.
+
+[265] Laws of California, 1880, Ch. 59. Under the view that a clause
+in the Constitution merely amounted to a mandate to the legislature,
+an enactment such as that of 1880 was obviously necessary. It
+should be said, however, that in later years this conception has
+somewhat changed, and constitutional provisions have been held to
+be self-executing. This was not the case in 1870. (McMurray, “Some
+Tendencies in Constitution Making,” in _California Law Review_, March,
+1914.)
+
+[266] City and County of San Francisco v. L. Stanford, Charles Crocker,
+_et al_, argument in the Circuit Court of the United States, 9th
+Circuit, District of California.
+
+[267] The _Visalia Delta_ said of Stoneman, with unconscious humor:
+“France has her Napoleon; Italy her Garibaldi; America her Washington;
+Ireland her O’Connell; and the state of California her Stoneman.”
+
+[268] Arguments and statements before the Committee on Commerce, House
+of Representatives, 47th Congress, 1st Session, 1882, House Misc. Doc.
+55, p. 262, Serial No. 2047.
+
+[269] Report of the Committee on Corporations, 1883, testimony W. R.
+Andros, secretary to the commission (in appendix to journals of the
+Senate and Assembly of the Legislature of California, 25th Session,
+1883).
+
+[270] Report of the Committee on Corporations, 1883, p. 48, testimony
+C. J. Beerstecher.
+
+[271] This schedule was prepared under the direction of Stoneman and
+was approved by Beerstecher on the understanding that the railroad
+companies were to be asked to show cause why it should not be adopted.
+(Report of the Committee on Corporations, 1883, testimony C. J.
+Beerstecher.)
+
+[272] _Ibid._, p. 11, testimony G. B. Stoneman. Mr. Cone says that the
+freight schedule was not fully prepared till March, 1881.
+
+[273] _Ibid._, testimony J. S. Cone.
+
+[274] Report of the Committee on Corporations, 1883, testimony C. J.
+Beerstecher.
+
+[275] When Beerstecher came up for re-election in 1882, the opposition
+press asserted that a railroad official handed every employee of
+the railroad in Beerstecher’s district a Republican ticket with
+Beerstecher’s name printed on it, with orders to vote it. (_Mussel
+Slough Delta_, May 12, 1882.)
+
+[276] Report of the Committee on Corporations, 1883, testimony J. S.
+Cone.
+
+[277] Letter to Senate Committee on Corporations, California
+Legislature, January 22, 1874; _San Francisco Chronicle_, January 23,
+1874.
+
+[278] Testimony before Senate Committee on Corporations, February 16,
+1874 (in appendix to journals of Senate and Assembly, 20th Session
+California Legislature, Vol. 4); _San Francisco Chronicle_, February
+17, 1874.
+
+[279] Letter to Committee of the New York Chamber of Commerce, January
+20, 1881.
+
+[280] The following interview with Charles Crocker, reported in the
+_Placerville Democrat_ for March 3, 1883, suggests how the doctrine
+described in the text was concretely applied:
+
+“A gentleman of Placerville called upon Mr. Charles Crocker, of the
+railroad company, in San Francisco last Saturday, to ascertain just
+what we might calculate upon in reference to the extension of the
+railroad from Shingle Springs to Placerville. He reports that Mr.
+Crocker conversed freely on the subject, and with an appearance of
+perfect candor. He said emphatically that his company would not build
+or extend any branch roads under existing conditions as to uncertainty
+of action by the Railroad Commission, and the apparent state of
+public opinion as manifested in the Legislature and portions of the
+public press. He says that if the Commission intends to make sweeping
+reductions on the branch roads, such action would make these roads
+valueless, and he is not disposed to build roads to be thus destroyed.
+In answer to a direct question, with a full understanding that it was
+to be reported to our people, he said that if the Robinson suit were
+settled, and the position of the Commission ascertained as disposed to
+non-interference with the branch roads, his company was anxious to and
+would immediately extend the road to this place.”
+
+[281] Colton case, pp. 1717-19, Huntington to Colton, April 27, 1876.
+
+[282] _Ibid._, p. 1754, Huntington to Colton, January 22, 1877.
+
+[283] _Ibid._, p. 1814, Huntington to Colton, December 7, 1875.
+
+[284] _Ibid._, pp. 1684-85, Huntington to Colton, November 13, 1875.
+
+[285] Cotton case, pp. 1642-43, Huntington to Colton, April 26, 1875.
+
+[286] _Ibid._, pp. 1676-77, Huntington to Colton, October 19, 1875.
+
+[287] _Ibid._, pp. 1624-25, Crocker to Colton, February 8, 1875.
+
+[288] Tom Scott was president of the Pennsylvania Railroad at one time
+and an active opponent of Huntington before Congress.
+
+[289] Cotton case, p. 1735, Huntington to Colton, July 26, 1876.
+
+[290] _Ibid._, pp. 1736-37, Huntington to Colton, August 7, 1876.
+
+[291] _Ibid._, pp. 1756-58, Huntington to Colton, March 7, 1877.
+
+[292] _Ibid._, pp. 1763-65, Huntington to Colton, March 31, 1877.
+
+[293] _Ibid._, pp. 1776-77, Huntington to Colton, May 15, 1877.
+
+[294] Huntington manuscript, p. 17.
+
+[295] Colton case, pp. 1622-23, Huntington to Colton, March 3, 1875.
+
+[296] Colton case, p. 1728, Huntington to Colton, June 21, 1876.
+
+[297] _Ibid._, pp. 1731-32, Huntington to Colton, July 16, 1876.
+
+[298] _Ibid._, p. 7669, Huntington to Colton, August 1, 1876.
+
+[299] Colton case, p. 1756, Huntington to Colton, March 7, 1877.
+
+[300] _Ibid._, p. 1758, Huntington to Colton, March 14, 1877; pp.
+1812-13, Huntington to Colton, December 5, 1877.
+
+[301] _Ibid._, pp. 7776-77, Huntington to Colton, January 11, 1878.
+
+[302] _Ibid._, pp. 1847-48, Huntington to Colton, February 9, 1878.
+
+[303] _Ibid._, p. 1833, Huntington to Colton, New York, June 15, 1878.
+
+[304] Colton case, pp. 833-34, Huntington to Colton, New York, June 20,
+1878.
+
+[305] _Ibid._, p. 1822, Huntington to Colton, New York, April 19, 1878.
+
+[306] _Ibid._, pp., 1823-24, Huntington to Colton, New York, April 23,
+1878.
+
+[307] Colton case, pp. 1828-29, Huntington to Colton, New York, May 24,
+1878.
+
+[308] Colton case, pp. 1673-74, Huntington to Colton, October 9, 1875.
+
+[309] _Ibid._, pp. 1679-81, Huntington to Colton, October 29, 1875.
+
+[310] _Ibid._, pp. 1669-70, Huntington to Colton, September 27, 1875.
+
+[311] United States Pacific Railway Commission, p. 3276, testimony S.
+T. Gage.
+
+[312] _Ibid._, pp. 3287-88, testimony S. T. Gage.
+
+[313] _Ibid._, pp. 4174-75, testimony Leland Stanford.
+
+[314] Huntington manuscript, p. 80.
+
+[315] Colton Case, pp. 1802-3, Huntington to Colton, November 9, 1877.
+
+[316] _Ibid._, pp. 1843-45, Huntington to Colton, January 28, 1878.
+J. M. Bassett declared that Huntington paid out $1,700,000 to prevent
+Scott from securing a subsidy for the Atlantic and Pacific Railroad.
+
+[317] _Ibid._, p. 1840, Huntington to Colton, January 12, 1878.
+
+[318] Colton case, p. 1803, Huntington to Colton, November 15, 1877.
+
+[319] _Ibid._, pp. 1700-1, Huntington to Colton, January 14, 1876.
+
+[320] _Ibid._, pp. 1712-13, Huntington to Colton, March 23, 1876.
+
+[321] United States Pacific Railway Commission, p. 3738, testimony C.
+P. Huntington.
+
+[322] United States Pacific Railway Commission, pp. 35-36, testimony C.
+P. Huntington.
+
+[323] _Ibid._, p. 3869, testimony I. E. Gates.
+
+[324] _Ibid._, p. 3697, testimony C. P. Huntington.
+
+[325] _Ibid._, pp. 2995-99, testimony C. F. Crocker; p. 3200, testimony
+Leland Stanford.
+
+[326] _Ibid._, pp. 4174-75, testimony Leland Stanford.
+
+[327] Most of the so-called “Dear Pard letters” from which the above
+is taken, appeared in the _San Francisco Daily Report_ after November,
+1892. In the majority of cases the letters were printed in the Saturday
+edition. The correspondence continued with varying frequency until
+Bassett’s death in 1903. It was credited with a considerable share in
+preventing the refunding of the Central Pacific indebtedness to the
+United States government on terms favorable to the corporation, and
+Bassett himself believed that his “exposures” had seriously injured
+Southern Pacific credit in the financial markets.
+
+[328] Colton case, p. 1661, Huntington to Colton, May 1, 1875.
+
+[329] United States Pacific Railway Commission, p. 3721, testimony C.
+P. Huntington.
+
+[330] Colton case, pp. 1726-27, Huntington to Colton, June 7, 1876.
+
+[331] _Ibid._, pp. 1740-41, Huntington to Colton, November 11, 1876.
+
+[332] _Ibid._, pp. 1765-66, Huntington to Colton, April 3, 1877.
+
+[333] It has also been asserted that the failure of Mr. and Mrs.
+Stanford to attend one of the Huntington weddings was sharply
+resented by Mr. Huntington. J. M. Bassett, at one time secretary to
+Mr. Stanford, says that the latter came to regard Huntington as an
+individual of shady characteristics, and was not inclined to trust him
+further than he could throw Trinity Church up the side of Mt. Shasta.
+For his part, Huntington spoke of Stanford as a “blanked old fool.”
+(_San Francisco Daily Report_, July 21, 1894.)
+
+[334] _San Francisco Examiner_, April 10, 1890.
+
+[335] _San Francisco Examiner_, April 10, 1890.
+
+[336] _Ibid._, April 13, 1890; April 18, 1890.
+
+[337] United States Pacific Railway Commission, pp. 3697-98, testimony
+C. P. Huntington.
+
+[338] Colton case, p. 1729, Huntington to Colton, June 24, 1876.
+
+[339] Report of the chief engineer upon the preliminary survey,
+revenue, and cost of construction of the San Francisco and Sacramento
+Railroad, 1856.
+
+[340] Biennial Report of the Commissioner of Transportation of the
+State of California for the years ending December 31, 1877 and 1878.
+
+[341] Hittell, “The Commerce and Industries of the Pacific Coast of
+North America,” 1882, Ch. XI; Sheppard. “F. F. Low, Ninth Governor of
+California” (in University of California _Chronicle_, April, 1917);
+_San Francisco Argonaut_, June 22, 1878.
+
+[342] _Sacramento Union_, December 19, 1860.
+
+[343] In 1869 a committee of the California legislature estimated the
+volume of California products annually arriving at and exported from
+the port of San Francisco as follows (in appendix to journal of Senate
+and Assembly, 18th session, California Legislature, Vol 2):
+
+ Products Annual Receipts Annual Exports
+
+ Wheat 225,000 tons 200,000 tons
+ Barley 30,000 ” 10,000 ”
+ Oats 15,000 ” 2,500 ”
+ Corn 5,000 ” 1,000 ”
+ Hay 40,000 ” 1,000 ”
+ Potatoes 37,500 ” 10,000 ”
+ Beans 3,600 ” 1,000 ”
+ Hops and broom corn 3,600 ” 1,000 ”
+ Beets, carrots, tomatoes,
+ parsnips, peas, cabbages,
+ melons, squashes, etc. 40,000 ” 500 ”
+ Butter and cheese 10,000 ” 500 ”
+ Brandy and wine 6,000,000 gals. 4,000,000 gals.
+ Fruits, dried and fresh 20,000 tons 500 tons
+ Beef, mutton, and pork 6,000 ” .........
+ Poultry and eggs 12,000 ” .........
+ Wool 7,500 ” 4,000 ”
+ Hides 168,000 ” one-half
+
+
+[344] Hittell, “Commerce and Industries on the Pacific Coast,” Ch. 11.
+
+[345] United States Pacific Railway Commission, p. 3576, testimony
+Richard Gray, general freight agent, Central Pacific Railroad.
+
+[346] United States Pacific Railway Commission, p. 2924, testimony
+Leland Stanford.
+
+[347] Colton case, pp. 981-83.
+
+[348] Colton case, pp. 981-83, Huntington to Colton, November 9, 1874.
+
+[349] _Ibid._, pp. 466, 495-96, testimony F. S. Douty.
+
+[350] Hittell, “Commerce and Industries of the Pacific Coast,” Ch. 11.
+
+[351] United States Pacific Railway Commission, p. 2924, testimony
+Leland Stanford.
+
+[352] United States v. Union Pacific Railroad, pp. 3316-20.
+
+[353] Message from the President of the United States to the House of
+Representatives transmitting copies of contracts and leases entered
+into by the Southern Pacific Company, etc., February 4, 1886. 49th
+Congress, 1st Session, House Exec. Doc. No. 60, Serial No. 2398.
+
+[354] United States v. Union Pacific, pp. 3321-25.
+
+[355] United States Pacific Railway Commission, pp. 4276-77.
+
+[356] Report on the internal commerce of the United States, by Joseph
+Nimmo, Jr., Chief of the Bureau of Statistics, Treasury Department,
+1884, Serial No. 2295.
+
+[357] Exception should be made of the period between December 16, 1900,
+and June 11, 1902, when there was no agreement between the Pacific Mail
+and the Panama Railroad. (United States v. Union Pacific, p. 2911,
+testimony Conner.)
+
+[358] Bancroft, “Chronicles of the Builders,” Vol. 5. Ch. 6; _San
+Francisco Chronicle_, November 10, 1878.
+
+[359] _California Mail Bag_, August, 1874.
+
+[360] _San Francisco Examiner_, May 1, 1894. Discrimination was easy
+because rates were not published. Freight schedules were considered to
+be for the information of employees and not for general publication.
+
+[361] Report of California Commissioners of Transportation, 1877, table
+1, pp. 34-38.
+
+[362] Report of the Senate Committee on Constitutional Amendments,
+relative to constitutional amendment No. 8, abrogating provisions of
+constitution as to railroad commission (in appendix to journals of the
+Senate and Assembly of the Legislature of the State of California, 30th
+Session, Vol. 8, 1893.)
+
+[363] _San Francisco Examiner_, October 27, 1893. Even in the case of
+through rates more than one classification was used. It appeared in a
+case brought before the Interstate Commerce Commission in 1887 that
+while the Western classification governed shipments from San Francisco
+to Denver, another classification, known as the Pacific Coast eastbound
+classification, was used in connection with freight moving from San
+Francisco to the Missouri River. (Martin v. Southern Pacific Company, 2
+I. C. R. 1 [1888].)
+
+[364] United States Pacific Railway Commission, pp. 2536-37, testimony
+Leland Stanford.
+
+[365] Report of California Commissioners of Transportation, 1877.
+
+[366] Statement of J. S. Leeds, submitted to the State Railroad
+Commission (_San Francisco Bulletin_, April 4, 1892).
+
+[367] United States Pacific Railway Commission, p. 3344, testimony J.
+C. Stubbs.
+
+[368] Letter of Stanford to Committee of San Francisco Chamber of
+Commerce, December 1, 1873.
+
+[369] United States Pacific Railway Commission, pp. 3292-93, testimony
+J. C. Stubbs.
+
+[370] _San Francisco Examiner_, December 30, 1892, October 29, 1894;
+_San Francisco Bulletin_, January 31, 1893.
+
+[371] _San Francisco Examiner_, October 30, 1894.
+
+[372] United States Pacific Railway Commission, pp. 3299, 3300,
+testimony J. C. Stubbs.
+
+[373] Railroad Commission of Nevada v. Southern Pacific Company, 21, I.
+C. C. R. 329, 349 (1911).
+
+[374] A copy of this contract is printed in the _San Francisco
+Chronicle_ of May 7, 1879.
+
+[375] _San Francisco Call_, August 1, 1878.
+
+[376] Report of the Committee on Corporations of the Assembly of
+California, 1883, _sup. cit._ See also testimony taken before
+the Senate Judiciary Committee of the legislature of California
+in considering Assembly Bill No. 10 concerning the Regulation of
+Railroads, 1884 (in Appendix to the journals of the Senate and Assembly
+of the Legislature of the State of California, 25th Session, Extra).
+
+[377] Railroad Commission of Nevada v. Southern Pacific Company, 21 I.
+C. C. R. 329, 346 (1911).
+
+[378] Letter written by John T. Doyle and printed in the _Nation_,
+December 8, 1881.
+
+[379] United States Pacific Railway Commission, pp. 3333-34, 3358-59,
+testimony J. C. Stubbs.
+
+[380] The special contract system had the bad effect of repressing
+complaints from shippers. Mr. Overheiser, member of the State Grange,
+farmer, and resident of California since 1849, testified in 1884 before
+a committee of the California Senate as follows:
+
+“_Q._ Are you sufficiently acquainted with the commercial community of
+Stockton to know whether they have any reluctance in making complaint
+... before any Court of justice, or in going before the Railroad
+Commissioners, or an investigating committee? _A._ All I know about it
+is the impressions I have drawn from what I have heard.
+
+“_Q._ To what effect? _A._ I would be very reluctant to come before
+this body and state what firm I belong to, or represent, for fear that
+the railroad might chastise me for it, or my firm.
+
+“_Q._ Is that opinion generally shared among the merchants? _A._ As I
+understand it, that is the general opinion.
+
+“_Q._ What do you mean by the word ‘chastise’? _A._ They might take our
+contracts away from us.”
+
+This testimony was corroborated by at least one well-established
+merchant in San Francisco, who declared before the same Senate
+committee that business men in San Francisco were afraid to testify
+against the railroad for fear that their contracts might be broken.
+(Testimony before the Senate Judiciary Committee of the Legislature on
+Assembly Bill No. 10, 1884.)
+
+[381] Business Men’s League of St. Louis v. Atchison, Topeka and Santa
+Fé Railroad, 9 I. C. C. R. 318 (1902). The number of vessels with their
+tonnage which entered the port of San Francisco in the trade with the
+Atlantic ports of the United States by way of Cape Horn from 1867 to
+1884 was as follows:
+
+ Year ended June 30 Number Tonnage
+
+ 1867 103 110,721
+ 1868 119 124,504
+ 1869 139 153,784
+ 1870 111 126,726
+ 1871 53 66,289
+ 1872 63 70,956
+ 1873 87 104,586
+ 1874 62 83,248
+ 1875 75 110,071
+ 1876 88 124,793
+ 1877 86 124,746
+ 1878 68 104,544
+ 1879 57 92,683
+ 1880 53 86,332
+ 1881 55 89,097
+ 1882 67 104,157
+ 1883 71 118,494
+ 1884 48 84,196
+
+
+[382] Proceedings of the Transcontinental Association, 1885. The
+special contract system was strikingly similar to the system of
+“deferred rebates,” until recently in good repute among ocean steamship
+companies. The argument in defense of this last-named system shows
+how slowly an understanding of the advantages of equality in matters
+of transportation rates spreads in a community. It is the view of the
+writer that both the special contract and the deferred rebate systems
+were and are contrary, to sound public policy, whether applied on land
+or sea.
+
+[383] A miner in Shasta County wrote to the _San Francisco Examiner_ in
+1893:
+
+“I will state some facts about the attempt that was made to ship ores
+from here. Up to 1887 little or no assorted gold ores had been shipped.
+It was so new an enterprise that it was not classified in freight rates
+of the railroad company. The company was asked to establish rates,
+which it did—at $50 per car from Redding to San Francisco. This was
+satisfactory to the miners. We commenced to ship, and in a few months
+were sending down over 100 tons per month and had hopes of building
+up a permanent business. All at once, without notice, the freight was
+increased to $73 per car, and in a short time it was again raised,
+this time to $95 per car, and lots of less than one car were raised
+from 48 cents to 76 cents per 100 pounds. I went to San Francisco
+to see why this was done, and after considerable trouble gained an
+audience with an official at Fourth and Townsend streets. I spoke to
+the official about the advance on ore freight rates. His reply was:
+‘Why, you are sending down ore that would make a prince rich. We can’t
+pull high-grade ore on low-grade rates.’ I reminded him that it was
+billed at a valuation of $100 per ton and that the railroad company’s
+responsibility ended there, and that we wished rates on all grades of
+ore, as there were so many values we could not classify them.
+
+“Then he made me the proposition that there be no regular rates
+established, but to ship to the smelter for one month and then bring
+my returns and he would take out what he might think a recompense for
+pulling these values over the road. For cheek as a business proposition
+I think this stands pre-eminent. Of course it was rejected, and I was
+given rates as follows: Anderson, $71; Redding, $73 per car.” (_San
+Francisco Examiner_, May 8, 1893.)
+
+[384] United States Pacific Railway Commission, pp. 3319-20, testimony
+J. C. Stubbs.
+
+[385] Proceedings of the Transcontinental Railway Association, 1885,
+pp. 17-18.
+
+[386] Letter to the State Railroad Commission, February 20, 1883.
+
+[387] _San Francisco Chronicle_, August 25, 1879. It appears that
+the fare from San Francisco to Sacramento by steamer had been $5 in
+pre-railroad days. When the California Pacific commenced operations in
+1869, the fare fell to $4, and when the Western Pacific was opened,
+a $3 rate was put in. As far back as the fifties, rates were still
+higher. (A. A. Cohen, Letter to the State Railroad Commission, 1883.)
+
+[388] Opinions and Orders of the Railroad Commission of California,
+1916, Vol. 10, p. 354 ff.
+
+[389] Declaration of Principles of the Anti-Monopoly Party of Tulare
+County (_Mussell Slough Delta_, February 24, 1882).
+
+[390] _San Francisco Chronicle_, August 27, 1879.
+
+[391] _Stockton Independent_, March 10, 1876.
+
+[392] San Bernardino Board of Trade v. Atchison, Topeka and Santa Fé
+Railroad Company, 3 I. C. C. R. 138 (1890). The Circuit Court for the
+Southern District of California refused to enforce the decree of the
+Interstate Commerce Commission in this case. (Interstate Commerce
+Commission v. Atchison, Topeka, and Santa Fé Railroad Company, 50 Fed.
+295 [1892].)
+
+[393] Harbor City Wholesale Company of San Pedro, California, v.
+Southern Pacific Company, 19 I. C. C. R. 323 (1910).
+
+[394] Commercial Club of Santa Barbara, California, v. Southern Pacific
+Company, 12 I. C. C. R. 495 (1907).
+
+[395] Santa Rosa Traffic Association v. Southern Pacific Company, 24
+I. C. C. R. 46 (1912); 29 I. C. C. R. 65 (1914); Transcontinental
+Commodity Rate to San José, Santa Clara and Marysville, California, 32
+I. C. C. R. 449 (1914).
+
+[396] In 1887 a steamer of the Pacific Coast Steamship Company left San
+Francisco weekly for Vancouver, where its freight was loaded upon cars
+of the Canadian Pacific Company and taken east across the mountains.
+The Canadian Pacific demanded, and in 1888 was conceded, the privilege
+of accepting freight from San Francisco to Chicago and points east at
+rates less than those charged by the other transcontinental lines.
+(Martin v. Southern Pacific Company, I. C. C. R. 1 [1888].)
+
+[397] Business Men’s League of St. Louis v. Atchison, Topeka and Santa
+Fé Railway Company, 9 I. C. C. R. 318 (1902).
+
+When the Interstate Commerce Act was passed in 1887 the
+transcontinental carriers agreed to grade eastbound rates back to the
+Pacific Coast. Under tariffs issued April 5, 1887, Missouri River rates
+were applied for about 350 miles west of the river, from which point
+they gradually decreased to Denver. The Denver rates were applied from
+Denver to a point near Green River, over 300 miles west from Cheyenne.
+From Green River the rates again decreased gradually to the Pacific
+Coast. The tariff of April 5 was published in order to comply with
+Section 4 of the Interstate Commerce Law, and it was superseded by
+other tariffs in April and May, 1887, by permission of the Interstate
+Commerce Commission. (Martin v. Southern Pacific Company, 2 I. C. C. R.
+I [1888].)
+
+In later years transcontinental rates to interior points were not
+uniformly built by combination upon the terminals. In many cases, even
+in westbound rates, the terminal rates served as maxima beyond which
+intermediate rates were higher than to terminal points, but not by the
+full extent of the local back. Thus on the Central Pacific in 1902
+the company named class rates to intermediate points which acted as
+maxima to all points, which meant that when the specified intermediate
+rate was less than the terminal plus the local back, the lower rate
+prevailed. Nor must the influence of the Interstate Commerce Commission
+in reducing intermediate rates be left out of account. Yet it was the
+conclusion of this same commission as late as 1902, that the point
+where the direct rate from the East was at least as high as the sum
+of the terminal rate and the local rate from terminal to intermediate
+destination, was on the average 300 miles east of the Pacific Coast,
+and in some instances several times that distance, a fact which is
+sufficient to characterize the system as a whole.
+
+[398] Business Men’s League of St. Louis v. Atchison, Topeka and
+Santa Fé Railway Company, 9 I. C. C. R. 318 (1902). See also Rates on
+Asphaltum, etc., 33 I. C. C. R. 480 (1915).
+
+[399] In so far as there is rail competition between transcontinental
+carriers, this rivalry also is keenest upon the Pacific Coast, and
+weakest in the intermediate territory.
+
+[400] Report of Senate Judiciary Committee on Assembly Bill No. 10,
+1884, testimony C. S. Stevens.
+
+[401] Letter of Stanford to a committee of the San Francisco Chamber of
+Commerce, 1873.
+
+[402] Railroad Commission of Nevada v. Southern Pacific Company, 19
+I.C.C.R. 238 (1910).
+
+[403] _San Francisco Bulletin_, March 26, 1892.
+
+[404] _Ibid._, October 12, 1892.
+
+[405] Huntington manuscript, pp. 27-28.
+
+[406] Hearings before the Committee on Interstate and Foreign Commerce
+of the House of Representatives on H. R. 9928 (55th Congress, 2d
+Session, March 26 to April 2, 1918, pp. 84-85, testimony W. S.
+McCarthy).
+
+[407] Hearings before House Committee on Interstate and Foreign
+Commerce, _sup. cit._, pp. 170-71, testimony, L. J. Spence.
+
+[408] Business Men’s League of St. Louis v. Atchison, Topeka and Santa
+Fé, _sup. cit._
+
+[409] Kindel v. Atchison, Topeka and Santa Fé Railway. 8 I. C. C.
+R. 608 (1900). In its first exercise of authority under the amended
+long-and short-haul clause, the Interstate Commerce Commission of 1911
+prescribed the extent to which rates from eastern points of origin at
+and west of the Atlantic seaboard to Reno and other points upon the
+main line of the Central Pacific might exceed the rates to Pacific
+Coast terminals. (Railroad Commission of Nevada v. Southern Pacific.
+21 I. C. C. R. 329 [1911].) _Cf._ Commodity Rates to Pacific Coast
+Terminals, 32 I. C. C. R. 611 (1915).
+
+[410] Railroad Commission of Nevada v. Southern Pacific Company, 19
+I.C.C.R. 238 (1910).
+
+[411] Commodity Rates to Pacific Coast Terminals, 32 I. C. C. R. 611;
+34 I. C. C. R. 13 (1915).
+
+[412] Daggett, “The Panama Canal and Transcontinental Rates,” (in
+_Journal of Political Economy_, December, 1915); Rates on Asphaltum,
+etc., _sup. cit._
+
+[413] Reopening Fourth Section Applications, 40 I. C. C. R. 35 (1916);
+Transcontinental Rates, 46 I. C. C. R. 236 (1917). See also Skinner and
+Eddy Corporation v. United States, 39 Supreme Court Report 375 (1919).
+
+[414] Wheeler, “The Valley Road—A History of the Traffic Association
+of California, the League of Progress, the North American Navigation
+Company, the Merchants’ Shipping Association, and the San Francisco and
+San Joaquin Valley Railway” (San Francisco, 1896). See also Walker,
+“Pioneers of Prosperity” (San Francisco, 1895).
+
+[415] United States v. 250 Kegs of Nails, 52 Fed. 231 (1892); 61 Fed.
+410 (1894). See also _San Francisco Bulletin_, November 19, 1891.
+
+[416] 27 United States Statutes 455 (1893). This bill was introduced by
+Senator Frye.
+
+[417] Proceedings of the Merchants’ Convention (_San Francisco
+Bulletin_, October 19, 1891).
+
+[418] The constitution of the Traffic Association is printed in full in
+the _San Francisco Bulletin_, November 4, 1891.
+
+[419] _San Francisco Bulletin_, October 17, 1891.
+
+[420] _San Francisco Examiner_, October 8, 1891.
+
+[421] _San Francisco Bulletin_, October 17, 19, 1891; _San Francisco
+Chronicle_, October 18, 1891.
+
+[422] _San Francisco Chronicle_, October 24, 1891.
+
+[423] _San Francisco Bulletin_, November 4, 1891.
+
+[424] It was the position of the executive committee of the Traffic
+Association, and in this they were supported by the traffic expert
+whom they employed, that it would be exceedingly bad policy for San
+Francisco to antagonize the interior by endeavoring to secure special
+advantages for itself. (_San Francisco Chronicle_, December 10, 1892.)
+
+The Traffic Association was said to be, under its constitution and
+by-laws, a state institution, organized to promote the welfare of the
+whole state. The executive committee did not believe that San Francisco
+should be made the sole terminal even were this possible. The city
+would assume its proper and legitimate place not as the oppressor,
+but as the protector of every industry in the state, provided free
+competition and equally adjusted local rates could be secured.
+(_Ibid._, December 18, 1892.)
+
+[425] _San Francisco Chronicle_, November 3, 1892.
+
+[426] _Ibid._, December 7, 1892. The reply of the executive committee
+of the Traffic Association to this address is printed in the _San
+Francisco Examiner_, December 18, 1892.
+
+[427] _Sacramento Union_, April 4, 1892.
+
+[428] _Ibid._, May 13, 1892. San Francisco merchants declared that it
+was cheaper to send nails from San Francisco to Bakersfield via Los
+Angeles, water and rail, than to move them direct by rail over the
+floor of the San Joaquin Valley.
+
+[429] _San Francisco Bulletin_, November 23, 1891. Mr. Leeds was given
+a two-year appointment, at a salary of $12,000 per annum.
+
+[430] Walker, “Pioneers of Prosperity,” _sup. cit._, p. 46.
+
+[431] The Merchants’ Shipping Association continued in active operation
+until January 1, 1894, when Grace and Company agreed to carry on
+the business on their own account. The first boat to arrive in San
+Francisco was the “Charles E. Moody,” of 1,915 tons. The next two were
+the “T. F. Oakes,” of 1,897 tons, and the “Emily Reed,” of 1,488 tons.
+Subsequently, still other vessels were added.
+
+[432] _San Francisco Bulletin_, June 24, 1892.
+
+[433] _San Francisco Chronicle_, August 6, 1892.
+
+[434] _San Francisco Bulletin_, August 4, 1892.
+
+[435] _San Francisco Examiner_, August 18, 1892.
+
+[436] _San Francisco Bulletin_, January 5, 1893.
+
+[437] Walker, “Pioneers of Prosperity,” _sup. cit._, p. 173.
+
+[438] _San Francisco Bulletin_, August 31, 1892.
+
+[439] _San Francisco Examiner_, January 9, 1894. _Cf._ statement by
+General John Newton, president Panama Railroad Company, _ibid._,
+November 29, 1892.
+
+[440] Wheeler, “The Valley Road,” _sup. cit._
+
+[441] Wheeler, “The Valley Road,” _sup. cit._
+
+[442] _San Francisco Examiner_, January 21, 1893.
+
+[443] _San Francisco Examiner_, February 28, March 5, 1893.
+
+[444] _Ibid._, December 20, 28, 30, 31, 1893, and January 3, 1894.
+
+[445] _San Francisco Examiner_, April 1, 1893.
+
+[446] _San Francisco Examiner_, March 19, 1893.
+
+[447] Wheeler, “The Valley Road,” _sup. cit._, pp. 32-33.
+
+[448] _San Francisco Examiner_, January 10, 1894.
+
+[449] _San Francisco Examiner_, September 21, 1893, statement by H. E.
+Huntington.
+
+[450] _Ibid._, April 25, 1893, statement by Agent Hinton of the Panama
+Railroad.
+
+[451] Business Men’s League of St. Louis v. Atchison, Topeka and Santa
+Fé Railroad Company, 9 I.C.C.R. 318 (1902).
+
+[452] _San Francisco Examiner_, February 4, 1892.
+
+[453] _San Francisco Bulletin_, August 20, 23, 1892. The League of
+Progress was an organization composed of the younger business men in
+San Francisco in sympathy with the policies of the Traffic Association.
+
+[454] _San Francisco Bulletin_, October 12, 1892.
+
+[455] _San Francisco Examiner_, December 23, 1892.
+
+[456] _Ibid._, March 8, 1893. See also _ibid._, March 4, 1893. With
+respect to the whole project Mr. Huntington said to a reporter:
+
+“As to building a railroad to Salt Lake, I certainly have no objection
+to other people doing it. I should very much dislike to do it myself. I
+do not believe it would be for the interest of San Francisco merchants
+to build it; hence I do not think it will be built. A good railroad
+from San Francisco to Salt Lake, with good terminals, as good a road as
+the Central Pacific, would cost at least $50,000,000. Of course, a road
+can be built for a much less sum, but such a road would not compete
+with the present line, for certainly the present rates are not as much
+as it would cost to haul the tonnage over a cheap line that could be
+built for much, if any, less than the figure named. When the Central
+Pacific Railroad was built I urged the moneyed men of San Francisco
+to take an interest with us on exactly the same basis as I and my
+associates hold our interests. But no one here would take an interest.
+If they would not take an interest then when every man, woman, and
+child in the State wanted a road so that they could go East and see the
+old folks at home, they would hardly be likely to take it now, with
+at least seven lines across the continent, charging rates of fare and
+freight very, very much less than they were when the first road was
+built, or than they expected these rates would be when the first road
+was inaugurated.” (_Ibid._, September 20, 1892.)
+
+[457] _San Francisco Bulletin_, June 22, 1893.
+
+[458] _Ibid._, July 17, 1893.
+
+[459] _San Francisco Bulletin_, July 18, 1893.
+
+[460] _Ibid._, July 10, 1893. The stock was to be issued in the
+name of nine trustees, and was to be voted by these gentlemen. The
+trustees were to have the right to cause the consolidation of the
+proposed corporation with another company. Possibly the railroad
+project suffered somewhat from the fact that a plan existed for the
+construction of a ship canal up the San Joaquin Valley to Bakersfield.
+Fresno people were particularly interested in this scheme, which
+contemplated the connection of Fresno with the navigable part of the
+San Joaquin River at Crowe’s Landing, or some other convenient point.
+(_San Francisco Examiner_, June 3, June 5, 1894.)
+
+[461] _San Francisco Bulletin_, September 27, 1894.
+
+[462] _San Francisco Examiner_, January 18, 1895.
+
+[463] _San Francisco Examiner_, February 9, 1895.
+
+[464] _Ibid._, January 30, 1895.
+
+[465] Statement of J. S. Leeds in the _San Francisco Bulletin_, October
+1, 1894, and in the _San Francisco Examiner_, January 27, 1895.
+
+[466] _San Francisco Examiner_, March 6, 1895.
+
+[467] _San Francisco Examiner_, January 31, 1895. As a matter of fact,
+the bulk of the subscriptions came from a very few sources.
+
+[468] _San Francisco Bulletin_, March 1, 1895.
+
+[469] _San Francisco Examiner_, April 27, 1895.
+
+[470] The question as to what the valley towns would do for the new
+enterprise was repeatedly asked, and received a reasonably satisfactory
+reply. Depot sites and rights-of-way were freely offered, and
+subscriptions to stock were talked about, if not often pledged in any
+binding way. The Spreckels group tried to encourage donations of all
+lands, and to play one town against another where this was possible.
+It refused to say, for example, whether the new road would begin at
+Stockton, as once proposed, or even whether the new route would not
+run through San José. Stockton organized a committee to present her
+claims. San José did the same. Mass meetings were held in both places,
+that in San José being marked by a procession, with transparencies
+and a band. Stockton merchants agreed to give to the San Francisco
+and San Joaquin Valley Railway rights-of-way 100 feet wide along the
+adopted survey for the railroad from the city of Stockton through San
+Joaquin County to the boundary line between San Joaquin and Stanislaus
+counties. They further agreed to convey to the railway company certain
+specified parcels of land in the city of Stockton, to aid the company
+in obtaining franchises and rights-of-way in Stockton, and to obtain
+subscriptions to the capital stock of the company to the amount of
+$100,000. (_San Francisco Examiner_, May 3, 1895.)
+
+The San José delegation which came to San Francisco in March said that
+$148,000 had already been secured for the new road in their district,
+that $200,000 was in sight, and that $300,000 in subscriptions could be
+obtained with a guaranty of shipments by the new route from the large
+fruit packers, business men, farmers, and horticulturists. They added
+that rights-of-way, 75 per cent of which would be free of cost to the
+company, and also terminal facilities in San José would be provided.
+(_Ibid._, March 27, 1895.)
+
+It is of some interest to recall that when the decision was made in
+favor of Stockton, her representatives had difficulty in making their
+promises good. It was remarked at one time that apparently one of the
+things most needed to help on the era of progress in California was a
+number of judiciously selected funerals—presumably of opponents to the
+new developments.
+
+[471] See address of Robert Watt at Bakersfield, _San Francisco
+Examiner_, April 29, 1895.
+
+[472] _San Francisco Examiner_, January 30, 1895.
+
+[473] Letter from the Spreckels’ Committee to San Francisco Bankers,
+_San Francisco Examiner_, February 3, 1895.
+
+[474] _San Francisco Examiner_, March 26, 1895.
+
+[475] _Ibid._, April 6, 1895.
+
+[476] _San Francisco Bulletin_, April 6, 1895.
+
+[477] Laws of California, 1878, Ch. 219.
+
+[478] _San Francisco Examiner_, March 9, 1895.
+
+[479] _Ibid._, March 11. 1895.
+
+[480] This was the proposal of Mr. Powers, of San Francisco. See
+Journal of the Assembly, 31st Session, March 8, 1895, p. 904.
+
+[481] Reid amendment, Journal of the Assembly, 31st Session, March 11,
+pp. 961-62.
+
+[482] Laws of California, 1895, Ch. 171.
+
+[483] Indenture dated July 8, 1895. The lease was to expire May 1,
+1945. Five years after the lease was signed, however, the State Harbor
+Commission declared it terminated because of the failure of the railway
+company to make agreed improvements. A new indenture was then signed
+by the parties under date of November 21, 1900. By this document the
+state slightly increased the area leased to the railway company, and
+extended the term to December 1, 1950. For its part, the railway
+agreed to construct a definite length of sea-wall along the front of
+the leased property, and to spend $50,000 annually for six years on
+improvements. It is interesting to observe that while the new lease,
+like the old, was non-assignable, the restriction in the indenture
+of 1900 did not apply to any assignment or transfer that might occur
+at the expiration of the Valley company’s corporate life through
+foreclosure of its bonded indebtedness, nor to any sale, transfer, or
+assignment to the Atchison, Topeka and Santa Fé Railway Company. The
+Santa Fé road, successor to the San Francisco and San Joaquin Valley
+Railway, purchased additional property adjacent to and south of China
+Basin, but its terminals are still on the land leased from the state.
+This includes the company’s freight ferry lands, its freight houses,
+and most of its yard tracks in San Francisco. See on this matter the
+annual reports of the Atchison, Topeka and Santa Fé Railroad, and also
+the _San Francisco Examiner_, November 15, 1898.
+
+[484] _San Francisco Examiner_, October 27, 1898. Another point of view
+with respect to the consolidation of the San Francisco and San Joaquin
+Valley Railway with the Santa Fé is presented by W. B. Storey, chief
+engineer and general superintendent of the Valley line from 1895 to
+1900 and now president of the Santa Fé. Mr. Storey writes:
+
+“My views do not coincide with yours in regard to the reasons actuating
+the promoters of the railroad. Popular opinion in California believed
+that the domination of one railroad greatly retarded the progress of
+the state and it was the feeling that the prosperity of the state
+would be very greatly increased if competition could be provided. As
+a possible means of obtaining such competition resort was made to
+water competition and a steamship line was organized to handle freight
+via the Isthmus. This line was maintained until the money raised had
+been absorbed and it had been practically demonstrated that such a
+line could not pay. The public was, therefore, eager for any other
+competition that might present itself. It was the thought of the
+projectors that a local line should be built which might ultimately,
+if opportunity offered, become part of a transcontinental line. The
+Santa Fé, however, was not in a position to do anything, as it was at
+that time in a Receiver’s hands. It was, however, the nearest railroad
+and it, therefore, seemed wise in projecting a new road branching from
+San Francisco to so locate it that it could later become part of the
+Santa Fé if that road desired an entrance to San Francisco. Most of the
+people who subscribed did so with the idea of providing competition
+and not with the idea of making money out of the investment.... By the
+time the road reached Bakersfield it became evident to the Directors
+that the road could not successfully compete with the Southern Pacific,
+because while for the time the people in the valley were giving the
+road all the freight that came from San Francisco, they were not able
+to turn the freight coming from the east over the Valley Road, the
+Southern Pacific refusing to make joint rates. The consequence was that
+the Valley Road had to depend exclusively on local business, and it was
+felt that in time even this would drop off materially by reason of the
+competitive methods of the Southern Pacific. Mr. Spreckels expressed
+the case in the following manner: It was not possible for the Valley
+Road to exist unless it became a transcontinental road and California
+could not raise money enough to make it such. The Santa Fé, by an
+extension to Bakersfield, could make it a transcontinental road and
+offered to buy a controlling interest.”
+
+[485] See especially a letter written by John T. Doyle under date of
+September 29, 1898, and published in the _San Francisco Bulletin_,
+October 5, 1898. The whole matter was extensively discussed in the
+columns of the San Francisco press in October, 1898.
+
+[486] _San Francisco Examiner_, October 27, 1898.
+
+[487] Biennial Report of the Board of Railroad Commissioners of the
+State of California for the years 1895 and 1896.
+
+[488] _San Francisco Examiner_, September 19, 1896.
+
+[489] _Ibid._, June 28, 1898.
+
+[490] _San Francisco Examiner_, August 23, 1896.
+
+[491] _Ibid._, June 4, 1898.
+
+[492] _Ibid._, July 18, 1896.
+
+[493] _Ibid._, September 15, 1897.
+
+[494] _Ibid._, June 4, 1898.
+
+[495] In order to make possible its low San Francisco rate, the San
+Francisco and San Joaquin Valley Railway concluded an arrangement with
+the California Navigation and Improvement Company by which the latter
+agreed to run two steamers a day each way between Stockton and San
+Francisco, and to handle all wheat shipments to Port Costa, Benicia,
+Vallejo, and San Francisco which were delivered to it by the Valley
+road. The same rate was to be charged from Stockton to all the points
+named. (_San Francisco Examiner_, July 9, 1896.)
+
+[496] _Ibid._, August 23, 1896.
+
+[497] The relations between the Southern Pacific Company and the
+proprietary companies were governed by what was known as the “omnibus”
+lease, under which the Southern Pacific agreed to operate and to
+maintain the properties of the proprietary companies, to pay all fixed
+and other charges, including interest on bonds and floating debt, and
+to divide the surplus net profits between the parties to the agreement
+in stipulated proportions. In 1896 the percentages for division of
+profits were as follows: Southern Pacific Railroad of California, 44
+per cent; Southern Pacific Railroad of Arizona, 10 per cent; Southern
+Pacific Railroad of New Mexico, 6 per cent; Louisiana Western Railroad
+Company, 7 per cent; Morgan’s Louisiana and Texas Railroad Company, 23
+per cent; Southern Pacific Company, 10 per cent.
+
+[498] In later years the lumber business of the Southern Pacific
+developed, but the coal business has always remained small.
+
+[499] _Cf._ Annual Report of United States Commissioner of Railroads,
+1883-84.
+
+[500] Report on the Internal Commerce of the United States (Treasury
+Department, 1884), _sup. cit._
+
+[501] United States v. Southern Pacific, p. 155, testimony of
+Schumacher; p. 942, testimony of Chambers; pp. 1028-29. testimony of
+Spence.
+
+[502] _San Francisco Examiner_, October 24, 1895.
+
+[503] _San Francisco Examiner_, February 25, 1896.
+
+[504] United States v. Southern Pacific, pp. 328, 338, testimony of
+Connor.
+
+[505] _Ibid._, p. 199, testimony of Sproule.
+
+[506] _Ibid._, p. 1034, testimony of Spence.
+
+[507] _Ibid._, p. 290, testimony of Lovett.
+
+[508] _Ibid._, p. 305, testimony of De Friest; p. 311, testimony of
+Johnson; p. 312, testimony of Hall.
+
+[509] _Ibid._, p. 219, testimony of Sproule; p. 152, testimony of
+Schumacher; p. 827, testimony of Kruttschnitt.
+
+[510] United States Pacific Railway Commission, p. 2150, testimony of
+Shelby.
+
+[511] United States Pacific Railway Commission, pp. 3304-6, 3362,
+testimony of Stubbs; pp. 3572-73, testimony of Gray.
+
+[512] Frye-Davis Report (51st Congress, 1st Session, February 17, 1890,
+Senate Report No. 293, Serial No. 2703).
+
+[513] The dividends declared by the Central Pacific Railroad Company
+from 1861 to 1898 were as follows:
+
+ Year Month Per Cent Amount
+
+ 1873 September 3 $1,628,265
+ 1874 August 5 2,713,775
+ 1875 April 4 2,171,020
+ 1875 October 6 3,256,530
+ 1876 April 4 2,171,020
+ 1876 October 4 2,171,020
+ 1877 April 4 2,171,020
+ 1877 October 4 2,171,020
+
+ 1880 February 3 1,628,265
+ 1880 August 3 1,778,265
+ 1881 February 3 1,778,265
+ 1881 August 3 1,778,265
+ 1882 February 3 1,778,265
+ 1882 August 3 1,778,265
+ 1883 February 3 1,778,265
+ 1883 August 3 1,778,265
+ 1884 January 3 1,778,265
+
+ 1888 February 1 672,755
+ 1888 August 1 672,755
+ 1889 February 1 672,755
+ 1889 August 1 672,755
+ 1890 February 1 672,755
+ 1890 August 1 672,755
+ 1891 February 1 672,755
+ 1891 August 1 672,755
+ 1892 February 1 672,755
+ 1892 August 1 672,755
+ 1893 February 1 672,755
+ 1893 September 1 672,755
+
+There were no dividends declared between September, 1893, and the
+reorganization of the Central Pacific in 1899.
+
+[514] _San Francisco Bulletin_, November 20, 1894. Sir Rivers Wilson
+was ex-controller of the British National Debt Office.
+
+[515] Testimony of Mr. Huntington before the California Railroad
+Commission, _San Francisco Examiner_, May 14, 1898.
+
+[516] Huntington Manuscript, p. 91. On the general subject of the
+Thurman Act, see Davis, “History of the Union Pacific Railway,” Ch. 4.
+
+[517] United States v. Union Pacific Railroad, 91 U. S. 72, 86 (1875).
+
+[518] United States Pacific Railway Commission, p. 2529, testimony
+Leland Stanford. In order that the reader may have full data concerning
+the issue of the Government subsidy bonds, the following table of
+amounts and dates of issue is presented:
+
+UNITED STATES SIX PER CENT CURRENCY BONDS ISSUED TO CENTRAL PACIFIC
+RAILROAD COMPANY
+
+ Maturity Interest
+ Date Issued of Bonds Commenced Amount
+
+ May 12, 1865 Jan. 16, 1895 Jan. 16, 1865 $1,258,000
+ Aug. 14, ” ” 16, ” Aug. 14, ” 384,000
+ Oct. 16, ” ” 16, ” Oct. 16, ” 256,000
+ Dec. 11, ” ” 16, ” Nov. 29, ” 464,000
+ Mar. 6, 1866 ” 1, 1896 Mar. 6, 1866 640,000
+ July 10, ” ” 1, ” July 10, ” 640,000
+ Oct. 31, ” ” 1, ” Oct. 29, ” 320,000
+ Jan. 15, 1867 ” 1, 1897 Jan. 14, 1867 640,000
+ Oct. 25, ” ” 1, ” Oct. 25, ” 320,000
+ Dec. 12, ” ” 1, ” Dec. 11, ” 1,152,000
+
+ June 10, 1868 ” 1, 1898 June 9, 1868 946,000
+ July 11, ” ” 1, ” July 10, ” 320,000
+ Aug. 5, ” ” 1, ” Aug. 4, ” 640,000
+ ” 14, ” ” 1, ” ” 13, ” 1,184,000
+ Sep. 12, ” ” 1, ” Sep. 11, ” 1,280,000
+ ” 21, ” ” 1, ” ” 19, ” 1,120,000
+ Oct. 13, ” ” 1, ” Oct. 12, ” 1,280,000
+ ” 28, ” ” 1, ” ” 26, ” 640,000
+ Nov. 5, ” ” 1, ” Nov. 3, ” 640,000
+ ” 12, ” ” 1, ” ” 11, ” 640,000
+ Dec. 5, ” ” 1, ” Dec. 5, ” 640,000
+ ” 7, ” ” 1, ” ” 7, ” 640,000
+ ” 30, ” ” 1, ” ” 29, ” 640,000
+
+ Jan. 15, 1869 ” 1, 1899 Jan. 13, 1869 640,000
+ ” 29, ” ” 1, ” ” 28, ” 640,000
+ Feb. 17, ” ” 1, ” Feb. 17, ” 640,000
+ Mar. 2, ” ” 1, ” ” 17, ” 1,066,000
+ ” 3, ” ” 1, ” Mar. 2, ” 1,333,000
+ May 28, ” ” 1, ” May 27, ” 1,786,000
+ July 15, ” ” 1, ” ” 27, ” 1,314,000
+ ” 16, ” ” 1, ” July 15, ” 268,000
+ Dec. 7, ” ” 1, ” ” 16, ” 1,510,000
+ Jan. 2, 1872 ” 1, 1898 Nov. 28, 1868 4,120
+ ———————————
+ Total $25,885,120
+
+ Jan. 24, 1867 Jan. 1, 1897 Jan. 26, 1867 320,000
+ Sept. 1, 1869 ” 1, 1899 Sept. 3, 1869 320,000
+ Oct. 29, ” ” 1, ” Oct. 28, ” 1,008,000
+ Jan. 27, 1870 ” 1, ” Jan. 22, 1870 322,000
+ ” 8, 1872 ” 1, ” ” 22, 1872 560
+ ——————————
+ Total $1,970,560
+
+Undoubtedly many of the bonds listed were disposed of at a considerable
+discount. Subsidy bonds to the amount of $4,922,000 had been issued by
+the government to the Central Pacific by October 25, 1866, and had been
+sold for $3,546,478. The subsidy bonds (currency sixes) were listed on
+the New York Stock Exchange, but there were few, if any, sales until
+1868. Not a single transaction in these bonds was recorded for the
+year 1867. In 1869, however, the bonds went above par, the average
+sale price for the year being 108⅛. (United States Pacific Railway
+Commission, pp. 4682-83.)
+
+[519] United States Pacific Railway Commission, p. 275, testimony
+Leland Stanford; Report, pp. 91-95.
+
+[520] The Supreme Court later held that the Central Pacific and Union
+Pacific railroads were completed on the 6th of November, 1869, in the
+sense that the companies became liable to pay over 5 per cent of their
+net earnings from this date. (99 U. S. 402, 449 [1878].)
+
+[521] The Central Pacific Railroad Company in equitable account with
+the United States. A review of the testimony and exhibits presented
+before the Pacific Railway Commission, appointed according to the Act
+of Congress, approved March 3, 1887, by Roscoe Conkling and William D.
+Shipman of Counsel for the Central Pacific R. R. Co., New York, 1887.
+
+[522] Report of the Secretary of the Interior, 1877, p. xxviii.
+
+[523] Report of Mr. Thurman from the Committee on the Judiciary (45th
+Congress, 2d Session, March 4, 1878, Senate Report No. 111, p. 8).
+
+[524] 16 United States Statutes 225 (1871).
+
+[525] 17 United States Statutes 485, 508 (1873).
+
+[526] United States v. Union Pacific Railroad Company, 91 U. S. 72
+(1875).
+
+[527] _Ibid._, 98 U. S. 569 (1878).
+
+[528] Union Pacific Railroad Company v. United States, 99 U. S. 402
+(1878).
+
+[529] The Congressional history of the Thurman bill is as follows:
+Introduced, October 16, 1877, and referred to the Senate Committee on
+Judiciary (45th Congress, 1st Session, Congressional Record, Vol. 6,
+p. 58); reported back from Committee March 4, 1878 (45th Congress, 2d
+Session, _ibid._, Vol. 7, p. 1445); debated in Senate March 12 to April
+9 (_ibid._, pp. 1688-2384); passed by Senate April 9 (_ibid._, pp.
+2779-90); approved by President, May 8 (_ibid._, p. 3257).
+
+[530] Speech of Senator Thurman of Ohio (45th Congress, 2d Session,
+March 12, 1878, Congressional Record, Vol. 7, p. 1690).
+
+[531] 20 United States Statutes 56 (1878).
+
+[532] Report of Mr. Thurman from the Senate Committee on the Judiciary
+(45th Congress, 2d Session, March 4, 1878, Senate Report No. 111,
+Serial No. 1789).
+
+[533] Annual Report of the Commissioner of Railroads, 1882, p. 440.
+
+[534] Annual Report of the Commissioner of Railroads, 1883.
+
+[535] See also the Brice Report (53d Congress, 3d Session, Senate
+Report No. 830, p. 17, Serial No. 3288).
+
+[536] Annual Report of the Commissioner of Railroads, 1883.
+
+[537] 24 United States Statutes 488 (1887).
+
+[538] Annual Report of the Treasurer of the United States. 1887, p. 28.
+
+Owing to the protests of the Pacific railroad companies at the low
+rates of interest earned by the sinking funds, considerable amounts
+remained uninvested between 1882 and 1886. The following table shows
+the cash uninvested in the Treasury to the credit of the Central
+Pacific Railroad Company for a series of years:
+
+ Date Amount
+
+ June 30, 1882 $527,886.53
+ ” 30, 1883 844,652.13
+ ” 30, 1884 1,089,159.75
+ ” 30, 1885 2,020,900.13
+ Dec. 31, 1886 2,345,984.21
+ ” 31, 1887 76,905.49
+ June 30, 1889 2,766.14
+
+No interest was earned on these uninvested balances. After 1886, with
+the single exception of the year 1895, the uninvested portion of the
+sinking fund was negligible. (Annual Reports of the Commissioner of
+Railroads, 1882-89.)
+
+[539] 20 United States Statutes 56 (1878). On June 19, 1878, another
+act established the office of an “Auditor of Railroad Accounts” with
+authority to prescribe reports from subsidized railroads west, north,
+or south of the Missouri River, to examine books, and to furnish
+information to various government departments as it might be required.
+(20 United States Statutes 169, [1878].) Name changed to “Commissioner
+of Railroads” in 1881. (21 United States Statutes 381, 409 [1881].)
+
+[540] 45th Congress, 2d Session, Congressional Record, pp. 2384, 2790.
+The House vote as given does not include pairs.
+
+[541] Colton case, p. 1770-71.
+
+[542] _Ibid._, p. 1802, November 9, 1877.
+
+[543] _Ibid._, argument of Hall McAllister, p. 248.
+
+[544] Colton case, argument of Hall McAllister, p. 249. Huntington
+never forgave Congress for having passed the Thurman bill. Years
+afterward he inserted the following comments in an autobiographical
+statement which he gave to the California historian, H. H. Bancroft:
+
+“Senator Ransom voted for the Thurman bill. He came out and said ‘Mr.
+Huntington, I voted for that bill. I knew I was wrong.’ He said, ‘I
+ought not to have done it.’ Said I, ‘Senator Ransom, I pity you.’ Said
+he, ‘What do you say?’ Said I, ‘Senator Ransom, I said and I repeat
+it for I do really pity you.’ I turned on my heel and left him. Now
+there are a great many men in just that kind of a way; they don’t dare
+to vote according to their convictions; they are afraid of what other
+people think of their acts....”
+
+ * * * * *
+
+“I know old Thurman well. He expected to be President of the United
+States by passing the Thurman Act, but he was not honored of course.
+I don’t believe he was in earnest. I don’t believe he thought the Act
+was proper. It was a false contract. There was no warrant in law or
+equity. He turned demagogue for political purposes; ... I think Thurman
+is a pretty good liar; lying was his best forte. He is an impressive
+speaker; he always seems to be so in earnest.” (Huntington manuscript,
+p. 24-25, 76-77.)
+
+It may throw some light upon the attitude of the Huntington group
+toward the Thurman Act to remember that the moneys in the sinking
+funds which the Central Pacific established for the retirement of its
+own mortgage securities were, at least in part, loaned to the Western
+Development Company, and used by this company in railroad building in
+southern California. This was, of course, an ideal arrangement from the
+point of view of Huntington and his friends.
+
+[545] Sinking Fund Cases, 99 U. S. 700 (1878).
+
+[546] Report of the Auditor of Railroad Accounts, 1881 (46th
+Congress, 3d Session, Exec. Doc. No. 87, Serial No. 1978). The same
+recommendation is contained in the Report of Commissioner of Railroads,
+1894, p. 93.
+
+[547] United States v. Central Pacific Railroad Company, 118 U. S. 235
+(1886).
+
+[548] 56th Congress, 2d Session, Senate Document No. 227, Serial No.
+4043.
+
+[549] United States v. Central Pacific Railroad Company, 138 U. S. 84
+(1891). See also Annual Report of the Commissioner of Railroads, 1883,
+p. 428 _ff._
+
+[550] 54th Congress, 2nd Session, January 11, 1897, Senate Document No.
+52, Serial No. 3469.
+
+[551] Annual Report of the Commissioner of Railroads, 1897.
+
+[552] Annual Report of the Commissioner of Railroads, 1882, p. 440.
+
+[553] United States Pacific Railway Commission Report, December 1, 1887
+(50th Congress, 1st Session, Senate Executive Documents No. 51, Serial
+No. 2505).
+
+[554] Frye-Davis Report (51st Congress, 1st Session, February 17, 1890.
+Senate Report No. 293, Serial No. 2703). See also speech by Senator
+Frye, _ibid._, Congressional Record, p. 1377 _ff_.
+
+[555] Reilly Report (53d Congress, 2d Session, July 21, 1894. House
+Report No. 1290, Serial No. 3272).
+
+[556] Powers Report (54th Congress, 1st Session, April 25, 1896. H. R.
+Report No. 1497. Serial No. 3462). The Powers bill also required the
+consent of the Southern Pacific to the appropriation for payment of
+Central Pacific indebtedness, of the sum of $2,409,818.20, which stood
+credited on the books of the United States Treasury to the Central
+Pacific for services on non-aided lines. The consent of the Southern
+Pacific was necessary for this appropriation because a considerable
+portion of the amount in question had been adjudged by the Court of
+Claims to be due to the Southern Pacific for the reason that the
+services for which the sums mentioned were credited had been in large
+part performed by that company.
+
+[557] The Powers bill was finally defeated—yeas, 103; nays, 168; not
+voting, 84. (54th Congress, 2d Session, Congressional Record, p. 689.)
+
+[558] Gear Report, 1896 (54th Congress, 1st Session, May 1, 1896,
+Senate Report No. 778, Serial No. 3365; The House bill was numbered H.
+R. 8189; the Senate bill S. 2894).
+
+[559] United States Pacific Railway Commission, pp. 3589-90, letter
+from A. N. Towne.
+
+[560] Frye-Davis Report (51st Congress, 1st Session, February 17, 1890,
+Senate Report No. 293, p. 76, Serial No. 2703).
+
+[561] _San Francisco Examiner_, February 18 and March 15, 1890.
+
+[562] Memorial of the committee of fifty appointed at the San Francisco
+mass meeting of December 7, 1895.
+
+[563] _San Francisco Examiner_, September 21, 1894.
+
+[564] Laws of California, 1897, p. 581. Joint Resolution, adopted
+January 8, 1897.
+
+[565] 54th Congress, 2d Session, January 7, 1897, Congressional Record,
+p. 559.
+
+[566] United States v. Stanford, 161 U. S. 412 (1896). The United
+States sued the Stanford estate in this case for $15,237,000.
+
+[567] See Annual Report of the Commissioner of Railroads, 1892, p. 141.
+
+[568] 12 United States Statutes 489 (1862).
+
+[569] 13 United States Statutes 356 (1864).
+
+[570] United States v. Kansas Pacific Railway Company, 99 U. S. 455
+(1878). See also United States v. Denver Pacific Railway Company, 99 U.
+S. 460 (1878).
+
+[571] 20 United States Statutes 56 (1878).
+
+[572] 45th Congress, 2d Session, April 3, 1878, Congressional Record,
+p. 2229.
+
+[573] Sinking Fund Cases, 99 U. S. 700, 721.
+
+[574] United States v. Union Pacific Railway Company and Western Union
+Telegraph Company, 160 U. S. 1 (1895).
+
+[575] Menotti v. Dillon, 167 U. S. 703 (1897).
+
+[576] Union Pacific Railroad Company v. Mason City and Fort Dodge
+Railroad Company, 199 U. S. 160 (1905).
+
+[577] United States v. Central Pacific Railroad Company, 118 U. S. 235
+(1886).
+
+[578] Gear Report, 1897, 55th Congress, 1st Session. April 8, 1897
+(Senate Report No. 20, Serial No. 3569).
+
+[579] Commercial and Financial Chronicle, Vol. 63, p. 1114.
+
+[580] United States v. Southern Pacific Company, pp. 1200-1201,
+testimony James Speyer.
+
+[581] United States v. Southern Pacific Company, p. 1201, testimony
+James Speyer.
+
+[582] _Ibid._, p. 993, testimony John W. Griggs.
+
+[583] United States v. Southern Pacific Company, p. 998, testimony John
+W. Griggs.
+
+[584] 30 United States Statutes 652, 659 (1898).
+
+[585] United States v. Southern Pacific Company, p. 994, testimony John
+W. Griggs.
+
+[586] See Report of Attorney-General, 1897, pp. vi-vii; 1898, p. xv.
+The legislation described was inserted in the Deficiency Appropriation
+bill on motion of Mr. Gear. The provision requiring full payment within
+ten years was added on motion of Mr. White, of California. (55th
+Congress, 2d Session, June 29, 1898, Congressional Record, pp. 6464-65.)
+
+[587] United States v. Southern Pacific Company, p. 1199, testimony
+James Speyer.
+
+[588] The exact amount of 4 per cent bonds to be deposited as security
+was $58,820,000.
+
+[589] United States v. Southern Pacific Company, p. 1000, testimony
+Griggs.
+
+[590] 30 United States Statutes 1214, 1245 (1899).
+
+[591] At his death in August, 1900, Huntington owned 37½ per cent of
+the stock of the Southern Pacific Company.
+
+[592] Full information with respect to the Union Pacific-Southern
+Pacific merger case is to be found in the record and briefs submitted
+to the Supreme Court. The testimony and exhibits in this case fill
+thirteen volumes, and constitute an important addition to the source
+material on railroad transportation. The case is discussed in detail
+in Daggett, “The Decision on the Union Pacific Merger,” in _Quarterly
+Journal of Economics_, February, 1913, and in another article by the
+same author, entitled “Later Developments in the Union Pacific Merger
+Case” (_ibid._, August, 1914).
+
+[593] This question of the diversion of business from the central route
+has been discussed in Chapter XX.
+
+[594] United States v. Union Pacific Railroad Company, 226 U. S. 61,
+470 (1912, 1913).
+
+[595] Preferential subscription rights were given to Union Pacific and
+Oregon Short Line Railroad Company stockholders, on condition that
+these last-named individuals divest themselves of their ownership of
+Union Pacific and Oregon Short Line shares before actually receiving
+their Southern Pacific certificates. See Daggett, “Later Developments
+in the Union Pacific Merger Case,” _sup. cit._
+
+[596] This was the second suit of the same nature. In July, 1894,
+Richard Olney, United States Attorney-General, filed a bill in the
+United States District Court at Los Angeles to dissolve the Southern
+Pacific combination. In 1894, as in 1915, it was charged that the
+consolidation of the Southern Pacific and the Central Pacific companies
+was illegal under the Sherman law. The Olney suit was later withdrawn.
+
+[597] United States of America v. Southern Pacific Company. The record
+and briefs in the case of the United States v. the Southern Pacific
+are as extensive as those submitted in the Union Pacific merger case.
+No attempt will be made to give detailed references to accompany the
+summary account presented in the remainder of this chapter.
+
+[598] United States v. Southern Pacific Company, 239 Fed. 998 (1917).
+
+[599] Including the output of the Associated Oil Company.
+
+[600] Third Annual Report of the State Oil and Gas Supervisor of
+California, 1917-18.
+
+[601] For a full discussion of this and kindred subjects, see Lindley
+on Mines, ed. 3.
+
+[602] Burke v. Southern Pacific, 234 U. S. 669 (1914).
+
+[603] _Ibid._, pp. 691-92. See also Roberts v. Southern Pacific
+Company, 186 Fed. 934 (1911).
+
+[604] Southern Pacific v. United States, in the United States Circuit
+Court of Appeals for the Ninth Circuit (Brief of United States,
+Appellee, pp. 364-65).
+
+[605] _Ibid._, p. 363.
+
+[606] United States v. Southern Pacific Company, 251 U. S. 1 (1919).
+The decision of the Circuit Court of Appeals, which was favorable to
+the railroad, is reported in 249 Fed. 785 (1918).
+
+[607] United States v. Southern Pacific, 260 Fed. 511 (1919). See also
+_ibid._, 225 Fed. 197 (1915).
+
+[608] The annual report of the Southern Pacific Company for the year
+ending December 31, 1920, contained the statement that Southern Pacific
+Company stockholders or their assigns had purchased an aggregate of
+3,414,604 shares of Pacific Oil Company stock, thus leaving 85,395
+shares still in possession of the company.
+
+[609] 14 United States Statutes 239 (1866).
+
+[610] 16 United States Statutes 47 (1869).
+
+[611] See Joint Resolution No. 18, 35 United States Statutes 571
+(1908), instructing the Attorney-General to institute certain suits.
+
+[612] United States v. Oregon and California Railroad Company, 186 Fed.
+861 (1911).
+
+[613] Oregon and California Railroad Company v. United States, 238 U.
+S. 393 (1915).
+
+[614] 39 United States Statutes 218, Ch. 137 (1916).
+
+[615] Oregon and California Railroad Company v. United States, 243
+U. S. 549 (1917). Suit was brought by the United States in 1917, in
+accordance with the law, seeking to offset against the compensation of
+$2.50 per acre due the company for the unsold lands, moneys received
+by the company, in excess of $2.50 per acre, by reason of past sales,
+leases, and otherwise, as well as taxes levied since the forfeiture
+decision and voluntarily paid by the federal government to the state of
+Oregon. This case was ready for trial in 1921 and will probably be soon
+heard and decided.
+
+
+
+
+ TRANSCRIBER’S NOTE:
+
+—Obvious print and punctuation errors were corrected.
+
+
+
+
+
+End of the Project Gutenberg EBook of Chapters on the History of the
+Southern Pacific, by Stuart Daggett
+
+*** END OF THIS PROJECT GUTENBERG EBOOK CHAPTERS ON HISTORY OF SOUTHERN PACIFIC ***
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+<pre>
+
+The Project Gutenberg EBook of Chapters on the History of the Southern
+Pacific, by Stuart Daggett
+
+This eBook is for the use of anyone anywhere in the United States and most
+other parts of the world at no cost and with almost no restrictions
+whatsoever. You may copy it, give it away or re-use it under the terms of
+the Project Gutenberg License included with this eBook or online at
+www.gutenberg.org. If you are not located in the United States, you'll have
+to check the laws of the country where you are located before using this ebook.
+
+Title: Chapters on the History of the Southern Pacific
+
+Author: Stuart Daggett
+
+Release Date: May 5, 2015 [EBook #48879]
+
+Language: English
+
+Character set encoding: UTF-8
+
+*** START OF THIS PROJECT GUTENBERG EBOOK CHAPTERS ON HISTORY OF SOUTHERN PACIFIC ***
+
+
+
+
+Produced by Giovanni Fini and the Online Distributed
+Proofreading Team at http://www.pgdp.net (This file was
+produced from images generously made available by The
+Internet Archive)
+
+
+
+
+
+
+</pre>
+
+
+<div class="limit">
+
+<div class="sum">
+
+<p class="vh"><a name="i001" id="i001"></a></p>
+
+<div class="figcenter">
+ <img src="images/ill-001.jpg" width="450" height="292"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc">“The Golden Gate”</p>
+</div></div>
+
+<hr class="chap" />
+
+<p><span class="pagenum"><a name="Page_i" id="Page_i">[i]</a></span></p>
+
+
+<h1 class="p4">CHAPTERS ON THE HISTORY</h1>
+
+<p class="pc mid">OF THE</p>
+
+<p class="pc elarge"><span class="smcap">Southern Pacific</span></p>
+
+<p class="pc2 lmid">By</p>
+
+<p class="pc2 mid">STUART DAGGETT, <span class="smcap">Ph.D.</span></p>
+
+<p class="pc1">Professor of Railway Economics and Dean of the<br />
+College of Commerce, University of California;<br />
+Author of “Railroad Reorganization”</p>
+
+
+<div class="figcenter">
+ <img src="images/ill-002.jpg" width="200" height="161"
+ alt=""
+ title="" />
+</div>
+
+<p class="pc2 mid">NEW YORK</p>
+<p class="pc large">THE RONALD PRESS COMPANY</p>
+<p class="pc mid">1922</p>
+
+<p><span class="pagenum"><a name="Page_ii" id="Page_ii">[ii]</a></span></p>
+
+<p class="pc4 reduct">Copyright, 1922, by<br />
+<span class="smcap">The Ronald Press Company</span></p>
+
+<hr class="chap" />
+
+<p><span class="pagenum"><a name="Page_iii" id="Page_iii">[iii]</a></span></p>
+
+<h2 class="p4">PREFACE</h2>
+
+<p class="p2">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 deliberate attempt to discredit the railroad company.
+The truth is that most writers upon the Southern Pacific have
+relied upon the reports of the United States Pacific Railway
+Commission or on Bancroft’s “History of California,” and
+very few have done original work from source material.</p>
+
+<p>Yet the usable material dealing with the subject of Pacific
+railroads is abundant. The Southern Pacific has left a broad
+trail in California. The record of its doings is to be found in
+court reports; in state, city, and federal records; in the public
+testimony, or still better, in the private letters of owners or
+managers of company enterprises; in the reports of the company
+itself and of its engineers or other representatives; in
+pamphlets without number; in files of newspapers. It is true
+that much of the data is partisan and unreliable as to details.
+Yet a partisan statement is serviceable if one knows it to be
+partisan, and, if one has reliable information with which to
+check the unreliable, the extent of partisan exaggeration in a
+given case becomes itself a fact of no insignificant importance.</p>
+
+<p>Most of the documents used in the following pages have
+been consulted in one or another of three large collections: that
+of the Bancroft Library of the University of California; that
+of the Hopkins’ Railway Library of Stanford University;<span class="pagenum"><a name="Page_iv" id="Page_iv">[iv]</a></span>
+and that of the State Library at Sacramento. Use has also
+been made of data in the office of the Secretary of State of
+California and of the State Railroad Commission. In certain
+cases the manuscript has been submitted to officials of the
+Southern Pacific Company for their comment, or to shippers
+or business men who were believed to be well-informed. The
+work has been more or less actively in progress over a period of
+eight years so that there has been more than usual opportunity
+for checking, comparison of views, and the testing of material.
+It is the author’s hope that he has at least examined all the
+significant classes of information on the particular subjects
+which he has discussed. With a subject so extensive it is
+rarely, if ever, possible to reach all the fugitive literature, or
+to consult all the living men from whom opinions or scraps
+of information might be obtained. The most that can be said
+is that there has been a diligent search, with good facilities,
+through a number of years.</p>
+
+<p>The conclusions which the writer has himself reached with
+respect to the political and business activities of the Southern
+Pacific in California, he has explained in the book at length
+and will not now repeat. There is claimed for them no more
+conclusiveness than the facts presented in each particular case
+may justify, although the conclusions are free from conscious
+bias, and the author’s own interests are engaged on neither
+side.</p>
+
+<p>Acknowledgment is hereby made of the courtesies extended
+by the libraries of Berkeley, Palo Alto, and Sacramento, and
+of the patient attention which individuals have given to particular
+portions of the book.</p>
+
+<p class="pr4"><span class="smcap">Stuart Daggett</span></p>
+<p class="pn">Berkeley, California,</p>
+<p>February 1, 1922.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_v" id="Page_v">[v]</a></span></p>
+
+<div class="sum">
+
+<h2 class="p4">CONTENTS</h2>
+
+<hr class="dec1" />
+
+<table id="toc" summary="cont">
+
+ <tr>
+ <td class="tdr"><span class="smcap">Chapter</span></td>
+ <td> </td>
+ <td class="tdr"><span class="smcap">Page</span></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">I</td>
+ <td class="tdt"><span class="smcap">Inception of the Project</span></td>
+ <td class="tdrl"><a href="#Page_3">3</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">II</td>
+ <td class="tdt"><span class="smcap">Resources for Construction—State and Local Aid</span></td>
+ <td class="tdrl"><a href="#Page_21">21</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">III</td>
+ <td class="tdt"><span class="smcap">Federal Land Grants and Subsidies</span></td>
+ <td class="tdrl"><a href="#Page_45">45</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">IV</td>
+ <td class="tdt"><span class="smcap">Progress of Construction—Construction Companies</span></td>
+ <td class="tdrl"><a href="#Page_65">65</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">V</td>
+ <td class="tdt"><span class="smcap">The Search for a Terminal</span></td>
+ <td class="tdrl"><a href="#Page_83">83</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">VI</td>
+ <td class="tdt"><span class="smcap">Acquisition of the California Pacific</span></td>
+ <td class="tdrl"><a href="#Page_104">104</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">VII</td>
+ <td class="tdt"><span class="smcap">Building of the Southern Pacific</span></td>
+ <td class="tdrl"><a href="#Page_119">119</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">VIII</td>
+ <td class="tdt"><span class="smcap">Organization of the Central Pacific-Southern
+Pacific System From 1870 To 1893</span></td>
+ <td class="tdrl"><a href="#Page_140">140</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">IX</td>
+ <td class="tdt"><span class="smcap">The Case of David D. Colton</span></td>
+ <td class="tdrl"><a href="#Page_154">154</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">X</td>
+ <td class="tdt"><span class="smcap">Financial Difficulties from 1870 To 1879</span></td>
+ <td class="tdrl"><a href="#Page_169">169</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XI</td>
+ <td class="tdt"><span class="smcap">The Railroad Commission of 1880 To 1883</span></td>
+ <td class="tdrl"><a href="#Page_181">181</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XII</td>
+ <td class="tdt"><span class="smcap">The Southern Pacific and Politics</span></td>
+ <td class="tdrl"><a href="#Page_199">199</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XIII</td>
+ <td class="tdt"><span class="smcap">Water Competition</span></td>
+ <td class="tdrl"><a href="#Page_222">222</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XIV</td>
+ <td class="tdt"><span class="smcap">The Rate System of the Central Pacific</span></td>
+ <td class="tdrl"><a href="#Page_237">237</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XV</td>
+ <td class="tdt"><span class="smcap">Local Rates in California</span></td>
+ <td class="tdrl"><a href="#Page_257">257</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XVI</td>
+ <td class="tdt"><span class="smcap">The Transcontinental Tariff</span></td>
+ <td class="tdrl"><a href="#Page_275">275</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XVII</td>
+ <td class="tdt"><span class="smcap">The Traffic Association of California</span></td>
+ <td class="tdrl"><a href="#Page_293">293</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XVIII</td>
+ <td class="tdt"><span class="smcap">The San Francisco and San Joaquin Valley
+Railway</span></td>
+ <td class="tdrl"><a href="#Page_317">317</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XIX</td>
+ <td class="tdt"><span class="smcap">Operating Characteristics of the Southern Pacific
+Lines</span></td>
+ <td class="tdrl"><a href="#Page_347">347</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XX</td>
+ <td class="tdt"><span class="smcap">The Thurman Act</span></td>
+ <td class="tdrl"><a href="#Page_370">370</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XXI</td>
+ <td class="tdt"><span class="smcap">Final Settlement of the Central Pacific Indebtedness
+to the Government</span></td>
+ <td class="tdrl"><a href="#Page_395">395</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XXII</td>
+ <td class="tdt"><span class="smcap">The Southern Pacific Merger Cases</span></td>
+ <td class="tdrl"><a href="#Page_425">425</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XXIII</td>
+ <td class="tdt"><span class="smcap">Oil and Timber Land Litigation</span></td>
+ <td class="tdrl"><a href="#Page_441">441</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdrt">XXIV</td>
+ <td class="tdt"><span class="smcap">Final Remarks</span></td>
+ <td class="tdrl"><a href="#Page_454">454</a></td>
+ </tr>
+
+</table>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_vi" id="Page_vi">[vi]</a></span></p>
+
+<div class="sum">
+
+<h2 class="p4">ILLUSTRATIONS</h2>
+
+<hr class="dec1" />
+
+<table id="toi" summary="illus">
+
+ <tr>
+ <td colspan="2"> </td>
+ <td class="tdr"><span class="smcap">Page</span></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">“The Golden Gate”</td>
+ <td colspan="2"><a href="#i001">(<i>Frontispiece</i>)</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Theodore Dehone Judah</td>
+ <td class="tdcl">(opposite)</td>
+ <td class="tdrl"><a href="#i014">6</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Sketch of train on the Sacramento Valley Railroad 1860</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i020">10</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Leland Stanford</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i028">16</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Henry P. Coon</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i046">32</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Chas. Crocker</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i082">66</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Summit Valley, Emigrant Mountain and Railroad Pass</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i090">72</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Summit tunnel before completion—Sierra Nevada Mountains</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i100">80</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Map of Oakland and Brooklyn</td>
+ <td class="tdrl"><a href="#i114">93</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Boundaries of Railroad Tide-Land Grant, as proposed in 1868</td>
+ <td class="tdrl"><a href="#i117">96</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Map of California Pacific Railroad</td>
+ <td class="tdrl"><a href="#i127">106</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Map showing northern end of the San Francisco and San José
+Railroad in 1862</td>
+ <td class="tdrl"><a href="#i142">121</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Proposed route of the Southern Pacific Railroad, January 3, 1867</td>
+ <td class="tdrl"><a href="#i145">124</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">View south from over the San Fernando tunnel—Southern Pacific
+Railroad</td>
+ <td class="tdcl">(opposite)</td>
+ <td class="tdrl"><a href="#i150">128</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">David D. Colton</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i184">160</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Mark Hopkins</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i202">176</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">George Stoneman</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i220">192</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">C. P. Huntington</td>
+ <td class="tdcl">”</td>
+ <td class="tdrl"><a href="#i238">208</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Chart showing rates on second-class freight and on grain in the
+Sacramento Valley, 1876</td>
+ <td class="tdrl"><a href="#i291">260</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Chart showing rates on miscellaneous commodities in the San
+Joaquin Valley, 1892</td>
+ <td class="tdrl"><a href="#i292">261</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Diagram showing adjustment of freight rates between San Francisco
+and Stockton, 1916</td>
+ <td class="tdrl"><a href="#i297">266</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Diagram showing adjustment of freight rates between San Francisco,
+Santa Rosa, and Sebastopol, 1916</td>
+ <td class="tdrl"><a href="#i299">268</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Diagram showing adjustment of freight rates between Los Angeles
+and points north and east of Los Angeles, 1916</td>
+ <td class="tdrl"><a href="#i300">269</a></td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Map showing the line of the San Francisco and San Joaquin Valley
+Railway, together with portions of the systems of the Southern
+Pacific and of the Atchison, Topeka and Santa Fé, 1898</td>
+ <td class="tdrl"><a href="#i356">325</a></td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Map showing mileage owned in 1913 by the Central Pacific Railway
+and the Southern Pacific Railroad</td>
+ <td class="tdcl">(opposite)</td>
+ <td class="tdrl"><a href="#i464">432</a></td>
+ </tr>
+
+</table>
+
+</div>
+
+<p><span class="pagenum"><a name="Page_1" id="Page_1">[1]</a></span></p>
+
+<div class="break">
+
+<hr class="chap" />
+
+<p class="pc4 large">CHAPTERS ON THE HISTORY</p>
+<p class="pc mid">OF THE</p>
+<p class="pc elarge b4"><span class="smcap">Southern Pacific</span></p>
+
+<p><span class="pagenum"><a name="Page_2" id="Page_2">[2]</a></span></p>
+
+<hr class="chap" />
+
+<p><span class="pagenum"><a name="Page_3" id="Page_3">[3]</a></span></p>
+
+<h2 class="p4">CHAPTER I</h2>
+
+<p class="pch">INCEPTION OF THE PROJECT</p>
+
+<p class="pnb">Significance of the History</p>
+
+<p>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, and Central Pacific railroads, which possessed a
+mileage as great as 300 miles, and when we recall that in
+1860 the total railroad mileage of the states in this same
+territory amounted to only 6,000 miles, we are able to form
+some idea of the successful energy which created a system of
+861 miles of railroad in the course of six and one-half years,
+across an unsettled country, in the face of obstacles due to
+climate, altitude, and distance from centers of traffic and of
+finance.</p>
+
+<p>The history of the Southern Pacific is significant, however,
+for still other reasons than because it illustrates what men can
+do in spite of serious difficulties. The company’s record is
+important to the student of transportation problems because
+there is embodied in it much of the experience of the Pacific
+Coast with respect to railroad construction, railroad finance,
+railroad rate-making, and the relation of railroad corporations
+to the public at large, as represented by local, state, and national
+governments. What the Pacific Coast, and what in particular
+the state of California know, first hand, of the habits and<span class="pagenum"><a name="Page_4" id="Page_4">[4]</a></span>
+policies of railroad corporations, is mainly derived from contact
+with the Southern Pacific Railroad and its auxiliary companies.</p>
+
+<p>The narrative that follows is offered as a contribution from
+the far western portion of the United States which may help
+to explain the attitude of that section toward transportation
+matters; as well as an account of some phases of the earlier
+development of a railroad system which is now one of the
+most powerful in all the country, whether we compare
+this system with the railroads of the East or with those of the
+West.</p>
+
+<p>The Southern Pacific system today embraces lines from
+Ogden and New Orleans on the east, to Portland, San Francisco,
+and Los Angeles on the west. The part of the system
+first built, however, and at all times the most important part of
+it, is that section reaching from a few miles west of Ogden,
+Utah, to the cities of Sacramento and San Francisco. This
+portion of the larger system was built and is owned by the
+Central Pacific Railroad Company.<a name="FNanchor_1_1" id="FNanchor_1_1"></a><a href="#Footnote_1_1" class="fnanchor">[1]</a> It is therefore to the circumstances
+attending the construction of this portion of the
+line that attention will first be directed.</p>
+
+<p class="pnb">Early Activities of Theodore Dehone Judah</p>
+
+<p>The promoter of the Central Pacific Railroad was a young
+engineer named Theodore Dehone Judah. Judah was born in
+Bridgeport, Connecticut. He obtained his first experience in
+railroad building on the Troy and Schenectady Railroad in
+New York. Later he built a railroad down the gorge of the
+Niagara River to Lewiston, served as resident engineer on
+the Erie Canal, and in 1854 had charge of the Buffalo and<span class="pagenum"><a name="Page_5" id="Page_5">[5]</a></span>
+New York Railroad then building to connect with the Erie.
+This was a responsible position for a man with so brief a
+period of training. When Judah came to California in 1854
+he was only twenty-eight years of age. He was soon to make
+it evident, however, that he possessed more than respectable
+engineering ability, while he also displayed a capacity for
+sustained enthusiasm in connection with the project for a
+transcontinental railroad which eventually overcame all obstacles
+and resulted in the formulation of definite and successful
+plans for a transcontinental line.<a name="FNanchor_2_2" id="FNanchor_2_2"></a><a href="#Footnote_2_2" class="fnanchor">[2]</a></p>
+
+<p>Judah began work in California as engineer of the Sacramento
+Valley Railroad. He left the service of the company,
+however, before the road was finished to Folsom. Subsequently
+he made a survey for a railroad from Sacramento to
+Benicia, and also one for a short branch on the California
+Central Railroad. Still later he was employed by the trustee
+of the Sacramento Valley Railroad, J. Mora Moss, and
+the superintendent, J. P. Robinson, to explore the Sierra
+Nevada Mountains for wagon road routes north of the south
+fork of the American River, and at the same time to act as
+agent for the Sacramento Valley Railroad in soliciting
+freight.</p>
+
+<p>Details of Judah’s activities between 1854 and 1860 are
+difficult to obtain. We know that he visited Washington in
+order to procure the passage of a bill making grants of land to
+California for railroad purposes. In 1859 he was the delegate
+from Sacramento to the Pacific Railroad Convention, where
+he urged the importance of a thorough survey before any
+decision should be made regarding the route of a transcontinental
+railroad. When the convention adjourned he was sent
+to Washington at his own expense to urge the passage of a<span class="pagenum"><a name="Page_6" id="Page_6">[6]</a></span>
+bill such as the convention favored. He returned in 1860
+without having accomplished his purpose, but convinced that
+Congress was in favor of granting federal aid to a railroad to
+California from the East, and that it would act when more
+important matters had been disposed of.<a name="FNanchor_3_3" id="FNanchor_3_3"></a><a href="#Footnote_3_3" class="fnanchor">[3]</a></p>
+
+
+<p class="pnb">Discovery of Transcontinental Route</p>
+
+<p>It was after Judah’s return from Washington in 1860 that
+he undertook the explorations for the Sacramento Valley
+Railroad to which reference has been made. Doubtless while
+engaged on this work he visited Dutch Flat, and doubtless also
+his enthusiasm for a transcontinental railroad became generally
+known. Judah was no mountaineer, but he could readily profit
+by the knowledge of men acquainted with the country. Such a
+man he found in Daniel W. Strong, a druggist at Dutch Flat,
+who accompanied him on his explorations. We have Strong’s
+statement that he himself conceived the idea that immigrant
+travel could be diverted through the Dutch Flat country by the
+construction of a railroad, and that he hired assistants, made a
+reconnaissance, and found a continuous divide over which he
+thought a road could pass. Knowing that Mr. Judah was trying
+to find a pass over the mountains, he wrote to him, and
+Judah came from Sacramento to Dutch Flat. Strong says
+that he showed Judah the route he had discovered, and that
+Judah thought well of it.<a name="FNanchor_4_4" id="FNanchor_4_4"></a><a href="#Footnote_4_4" class="fnanchor">[4]</a></p>
+
+<p class="vh"><a name="i014" id="i014">i014</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-014.jpg" width="350" height="524"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc">Theodore Dehone Judah</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_7" id="Page_7">[7]</a></span></p>
+
+<p>Such is Strong’s testimony given years afterwards, when
+the Central Pacific had proved a success, and it was a distinction
+to have been connected with it. It is possible that Strong
+overestimated his contribution to the work. Yet the essential
+fact is that Judah was in the mountains in August, 1860, and
+that he or Strong, or both of them hit upon a route which
+Judah pronounced practicable. One may hazard the guess
+that Strong pointed out a pass and Judah tested it with instruments.<a name="FNanchor_5_5" id="FNanchor_5_5"></a><a href="#Footnote_5_5" class="fnanchor">[5]</a>
+Mrs. Judah repeats the story as she heard it:</p>
+
+<p class="pbq p1">It was in the drug store of Dr. Strong at Dutch Flat that
+the first profile was marked out from notes taken by them
+(Judah and Strong). Judah could not sleep or rest after they
+got into town and the store, till he had stretched his paper on
+the counter and made his figures thereon. Then, turning to
+Dr. Strong, [he] said for the first time, “Doctor, I shall make
+my survey over this, the Donner Pass, or Dutch Flat route,
+above every other.”<a name="FNanchor_6_6" id="FNanchor_6_6"></a><a href="#Footnote_6_6" class="fnanchor">[6]</a></p>
+
+<p class="pnb">Appeal for Funds</p>
+
+<p>Judah drew up articles of association for a company late
+in 1860, and endeavored to get subscriptions for stock, but
+without much success. Meanwhile, the publication in the
+newspapers of information relating to the Dutch Flat route
+cost him his position with the Sacramento Valley Railroad, for
+the trustee of the company, J. Mora Moss, took the position
+that the information acquired by Judah while an employee of
+the Sacramento Valley belonged to the railroad company, and
+should not have been published without its consent. It is said
+that Judah was very indignant, but to no avail.<a name="FNanchor_7_7" id="FNanchor_7_7"></a><a href="#Footnote_7_7" class="fnanchor">[7]</a></p>
+
+<p>By October or November, 1860, the record thus shows
+that Judah had satisfied himself of the existence of a railroad
+route across the Sierras, and that he was intensely interested
+in having this railroad built. He was not personally a man of
+capital, although not entirely without means, and success in<span class="pagenum"><a name="Page_8" id="Page_8">[8]</a></span>
+transforming his bare project into an actual operating line
+depended entirely upon the financial support which he could
+obtain. In November, accordingly, we find Judah endeavoring
+to give wide circulation to the results of his discoveries.</p>
+
+<p>Under date of November 1, 1860, a circular letter was
+issued directing the attention of the public to “some newly
+discovered facts with reference to the route of the Pacific
+Railroad through California.” This letter asserted that a
+practicable line had been discovered “from the city of Sacramento
+upon the divide between Bear River and North Fork of
+the American, via Illinois Town and Dutch Flat, through Lake
+Pass on the Truckee River, which gives nearly a direct line to
+Washoe, with maximum grades of 100 feet per mile.” The
+estimated length of line in California was 115 miles. It was
+said that if the Pacific Railroad bill then pending in Congress
+should be passed, providing an appropriation of $13,000 per
+mile from the navigable waters of the Sacramento River to the
+base of the Sierra Nevadas; thence $24,000 per mile to the
+summit; thence an additional $3,000 per mile for each degree
+of longitude crossed until the 109th degree was reached, the
+entire road could be graded without appeal to private investors,
+leaving only the iron, rolling stock, etc., to be provided from
+private means. The projected railroad might connect with
+the Sacramento Valley Railroad at Folsom, or with the
+California Central Railroad at Lincoln. Subscriptions were
+asked to an amount of $1,000 per mile for 115 miles, with 10
+per cent paid in, to allow the organization of a company under
+the state law; and it was promised that the money subscribed
+would be used to make a thorough, practical railroad survey.<a name="FNanchor_8_8" id="FNanchor_8_8"></a><a href="#Footnote_8_8" class="fnanchor">[8]</a></p>
+
+<p>In a letter dated the previous day, and addressed to John
+C. Burck, member of Congress from California, Judah added
+a few details:</p>
+
+<p><span class="pagenum"><a name="Page_9" id="Page_9">[9]</a></span></p>
+
+<p class="pbq p1">We go out of Summit Valley through what I call Lake
+Pass, while Fremont’s route, or the old Emigrant road, goes
+over Truckee Pass, which is about 700 feet higher, and a few
+miles off my route. We strike the foot of Truckee Lake, or
+the cabins of the Donner party, nine miles from the summit,
+and from there it is an easy grade down the Truckee River,
+descending about 40 feet per mile, over a smooth country.
+The elevation of the pass is 6,690 feet. There are two other
+passes leading out of Summit Valley, which I had not time
+to explore, but either of them are practicable, although a little
+higher. This route is at least 150 miles shorter than the Beckwourth
+route; crosses the state at the narrowest point, and is on
+a direct line to the Washoe mines. I will undertake to build
+a railroad over this route in two years, for $70,000 per mile,
+from Sacramento City to the state line or Washoe. Thus the
+question of crossing the Sierra Nevada, I consider solved.</p>
+
+<p class="p1">After the tentative organization of his proposed railroad,
+and the publication of the news of his discoveries in the
+newspapers, Judah went to San Francisco. He managed to get
+in touch with some capitalists, but was unable to secure their
+support. If Congress did not pass a Pacific Railroad bill, they
+said, no railroad could be built; if a bill was passed, the road
+still could not be completed for ten or twenty years. They
+had other interests, and were disinclined to consider a scheme
+of this sort, however technically feasible. If we may believe
+the newspapers of the time, no inconsiderable reason for the
+reluctance of the men approached was the provision of the
+constitution of California making stockholders liable for their
+proportion of all the debts and liabilities of any company in
+which they held stock.<a name="FNanchor_9_9" id="FNanchor_9_9"></a><a href="#Footnote_9_9" class="fnanchor">[9]</a></p>
+
+<p class="pnb">Sacramento Meetings</p>
+
+<p>When he failed to secure support in San Francisco, Judah
+went to Sacramento. The city of the plains, as it was then<span class="pagenum"><a name="Page_10" id="Page_10">[10]</a></span>
+affectionately called by its inhabitants, was less wealthy than
+San Francisco, but for that very reason might be expected
+to take an interest in a project which promised her, for some
+years at least, a position of relative advantage with respect to
+the trade of the interior. The leading newspaper in that city,
+the <i>Sacramento Union</i>, could be counted on to support any
+plausible Pacific railroad scheme for political reasons. The
+citizens had further the advantage of first-hand experience
+with the workings of the Sacramento Valley Railroad, which
+had been opened from Sacramento to Folsom in 1856, and
+was still the only railroad in the state.</p>
+
+<p>It does not, however, appear that these various factors
+stirred the people of Sacramento to any extraordinary enthusiasm
+over Judah’s scheme, or that they regarded him in any
+other light than that of an engineer with a risky plan, which
+it was very desirable to have someone other than themselves
+finance. Judah, however, called a meeting at a local hotel, and
+people came. He told them he had made twenty-three barometrical
+reconnaissances over the Sierras, and had found a line.
+He needed money to carry the project further, in particular to
+make a thorough instrumental survey, and he asked them what
+they would subscribe. Nobody subscribed very much. Huntington
+says that some gave a barrel of flour, and some a sack
+of potatoes. Still, the additional subscriptions necessary to the
+legal organization of Judah’s company probably amounted to
+as much as $56,500<a name="FNanchor_10_10" id="FNanchor_10_10"></a><a href="#Footnote_10_10" class="fnanchor">[10]</a> on the 115 miles of line contemplated,
+and small miscellaneous offerings were not likely to carry the
+promoter very far.</p>
+
+<p class="pnb">Collis P. Huntington</p>
+
+<p>It is at this juncture that we first hear the names of Collis
+P. Huntington, Leland Stanford, Charles Crocker, and Mark
+Hopkins, all prosperous business men in Sacramento. Huntington
+and Hopkins ran one of the largest hardware stores in
+the town. Stanford and Crocker were merchants, and in
+addition, Stanford had dabbled in California politics to the
+extent of becoming a candidate for the position of state
+treasurer in 1857 and for that of governor in 1859, getting
+badly beaten on both occasions. It is difficult, even at this late
+date, to estimate the qualities of the four men with confidence.
+Beyond question, Huntington had the greatest genius for business
+of the four. Born in Connecticut, and self-supporting
+from the age of fourteen, he was a trader <i>par excellence</i>. In
+his youth he peddled watch findings from New York to the
+Missouri River. Later, it is related of him that he started for
+California with a capital of $1,200, which he increased to
+$4,000 during an enforced stay of three months on the Isthmus
+of Panama. He was cool, calculating, unscrupulous, a tireless
+worker, and a man with few interests outside of work. Enterprise
+for the public good interested him little. He had few
+friends, and some of these he lost in later years. Narrow in his
+sympathies, vindictive, sometimes untruthful, sarcastic, and
+domineering, he gained his success through the keenness of his
+mind and the energy and persistence of his character, and also
+through qualities of courage and imagination which were not
+absent from his business plans.</p>
+
+<p class="vh"><a name="i020" id="i020">i020</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-020.jpg" width="450" height="124"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc">Sketch of train on the Sacramento Valley Railroad, 1860</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_11" id="Page_11">[11]</a></span></p>
+
+<p class="pnb">Leland Stanford</p>
+
+<p>Stanford was a New York lawyer, who had practiced four
+years in Wisconsin between 1848 and 1852, and had emigrated
+to California in the last-named year to seek his fortunes in that
+state. Stanford came to California poor as the proverbial
+church mouse. Bassett, who was later his secretary, and who
+was likely to know the facts, says that two of Stanford’s
+brothers set him up in business in El Dorado County, near
+Latrobe, with a stock of miners’ supplies. Here Stanford
+remained a while, in partnership with a man named Smith.<span class="pagenum"><a name="Page_12" id="Page_12">[12]</a></span>
+Stanford and Smith were said to have done a good business.
+They thought they were making money until they found that
+the San Francisco firm with which they dealt was charging
+them interest on unpaid balances; whereupon they promptly
+closed up, retiring with their debts paid, but with very little cash.</p>
+
+<p>From El Dorado County Stanford went to Michigan
+Bluffs, in Placer County, still trading, and in 1855 he moved
+to Sacramento to take over the business which his brothers had
+established there. Presumably his operations in Michigan
+Bluffs had provided him with a little capital. What was quite
+as much to the point, he had made a number of friends in
+the mining district, and it is not unreasonable to suppose that
+his attention had been directed toward politics. In 1857 and
+1859, as has been mentioned, he ran for office, but without
+success. About this time a prospector in the vicinity of
+Auburn struck a rich pocket of decayed quartz. He knew
+Stanford, and put his name down for an interest in the claim.
+From this mine Stanford is reported to have cleaned up about
+$60,000, a sum which put him in comparatively easy circumstances.
+In 1861 Stanford ran again for the office of governor,
+and this time was elected on the Republican ticket. He cannot
+be said to have yet shown any talent for statesmanship, but he
+was known as a staunch Union man and a faithful Republican,
+and he had a local popularity besides, which could be trusted to
+bring in some votes. After his term of office as governor,
+Stanford held no political position until 1885, when he was
+elected United States senator in place of A. A. Sargent. This
+office he retained until his death. He appears at one time to
+have had aspirations towards the presidency of the United
+States, though his candidacy could hardly have been considered
+seriously. Certainly he served with distinction neither as
+governor nor as senator.</p>
+
+<p>Stanford’s most marked traits were tenacity of purpose,
+and a certain rude energy in execution. His associates credited<span class="pagenum"><a name="Page_13" id="Page_13">[13]</a></span>
+him with great solidity of judgment. Like Huntington, he was
+unscrupulous in the methods which he employed to reach his
+ends, but, unlike him, he showed ambition if not capacity
+outside of the business field. In private life, Stanford was
+distinguished by his love of horses, and by his donations to the
+university founded in memory of his son. One must hold
+him inferior to Huntington in business affairs, vain and
+extravagant. Yet not only his political influence, but the
+virile power of the man, the attitude of mind which once led
+an enemy to say of him that “no she lion defending her
+whelps or a bear her cubs, will make a more savage fight than
+will Mr. Stanford in defense of his material interests,” were
+invaluable to the transcontinental railroad project in the years
+of its development.<a name="FNanchor_11_11" id="FNanchor_11_11"></a><a href="#Footnote_11_11" class="fnanchor">[11]</a></p>
+
+<p class="pnb">Crocker and Hopkins</p>
+
+<p>The other two members of the quartette may be dismissed
+with fewer words. Charles Crocker had no more education
+than Huntington. He had been peddler, iron maker, gold
+miner, and trader. In 1855 he was alderman of the city of
+Sacramento. First and last, his strong point was the handling
+of men. It was Crocker who drove the work of construction,
+roaring up and down the line, as he put it, like a mad bull. In
+deciding the larger problems of policy which arose later, there
+is no evidence that he had an important part. Indeed, Crocker
+endeavored to sell his holdings to his associates in 1871, and
+only continued in the organization because the others proved
+unable to buy him out.<a name="FNanchor_12_12" id="FNanchor_12_12"></a><a href="#Footnote_12_12" class="fnanchor">[12]</a></p>
+
+<p><span class="pagenum"><a name="Page_14" id="Page_14">[14]</a></span></p>
+
+<p>Last of all, we have to mention Mark Hopkins, the “inside
+man.” Hopkins died in 1878, so that his connection with
+railroad work lasted only fourteen years, and during part of
+this time he was ill. Less is known of him than of any of
+his associates. He was the man of detail, the careful
+scrutinizer of contracts. He was Huntington’s partner in the
+hardware business for twenty-four years, and yet in all that
+time, according to Huntington, he never bought or sold as
+much as $10,000 worth of goods.<a name="FNanchor_13_13" id="FNanchor_13_13"></a><a href="#Footnote_13_13" class="fnanchor">[13]</a> That is to say, he was
+no trader. Bancroft speaks of him as the balance wheel in the
+business. We hear of him later as objecting to personal
+indorsements by the partners of Central Pacific notes. Mr.
+Crocker once said of him that he was a long-headed man
+without much executive ability but a wonderfully good man
+for an executive officer to counsel with. Possibly such a man
+played a useful part in the Central Pacific organization.</p>
+
+<p class="pnb">Survey Financed</p>
+
+<p>Huntington, Stanford, Hopkins, and Crocker knew each
+other as merchants will. Crocker and Stanford may also have
+met in a political way. The four of them seem to have been
+friends, at least as early as 1860. Now it appears that
+Huntington and Crocker, and possibly Stanford and Hopkins
+also, attended one of Judah’s meetings in Sacramento, and
+were somewhat impressed by his statements. This was the
+second stage in the Central Pacific enterprise, when the promoter
+was in the presence of capitalists, and was seeking to
+convince them that a probability of profit lay in his plans.
+Huntington says that he spoke to Judah after the public meeting,
+and that Judah came to his house the following evening.<span class="pagenum"><a name="Page_15" id="Page_15">[15]</a></span>
+He adds that subsequently he, Huntington, talked with
+Hopkins and Stanford, and persuaded them to join him in
+contributing the money necessary to finance an instrumental
+survey across the mountains. Other persons who agreed to
+share in the expense were Charles Marsh, James Peel, L. A.
+Booth, and Judah himself—each assuming one-seventh of
+the cost.<a name="FNanchor_14_14" id="FNanchor_14_14"></a><a href="#Footnote_14_14" class="fnanchor">[14]</a> Charles Crocker was brought in a little later.</p>
+
+<p>The attitude of all these men was of course cautious.
+Judah had caught their attention, but as yet they would not
+commit themselves very far. The survey might cost them
+fifteen or twenty thousand dollars apiece, and they might never
+go further with the scheme. They thought they could build
+a railroad if anyone could, and there might be money in it,
+yet they knew that even to finance surveys involved considerable
+risk.<a name="FNanchor_15_15" id="FNanchor_15_15"></a><a href="#Footnote_15_15" class="fnanchor">[15]</a></p>
+
+<p class="pnb">Likelihood of Government Aid</p>
+
+<p>Although we have no direct evidence to this effect, it seems
+very probable that the chance of profit to be secured in building
+a transcontinental railroad under government auspices stood
+out more prominently in the eyes of Huntington and his
+friends than any consideration of the ultimate earnings of the
+railroad, once it should have been built. What should two
+dry goods merchants and two dealers in hardware, who knew
+nothing first hand about railroad operation, have cared about
+the administration of a railroad 800 miles long? If they
+wanted interest on an investment, why money commanded 2
+per cent a month in Sacramento itself. Only the prospect of
+still greater gains was likely to attract a speculative trader like
+Huntington, and the source of such profit could be found only
+in construction of the road. If this was the real inducement,
+and if the likelihood of a government subsidy was kept in mind<span class="pagenum"><a name="Page_16" id="Page_16">[16]</a></span>
+from the first, it was fortunate for Mr. Judah that, owing to
+his familiarity with conditions both at Washington and in
+California, he was in a position to inform his prospective
+clients of the likelihood of government aid no less fully and
+authoritatively than he could advise them concerning routes
+over the Sierras.</p>
+
+<p>Indeed it was only on the question of government assistance
+that Judah could supply business men of Sacramento with
+information of a definite sort. He really knew little about the
+probable cost of a transcontinental line. In his original report
+of November, 1860, he had declared that the Central Pacific
+could be built for an appropriation ranging from $30,000 to
+$72,000 per mile, varying with the difficulty of the ground;
+but this was an estimate based on a very cursory examination
+of the line, and could pretend to no exactness. Possibly he was
+influenced by the fact that the Sacramento Valley Railroad
+had been contracted for in 1854 at $45,000 per mile, payable
+44 per cent in capital stock of the company, 39 per cent in 10
+per cent bonds, and 17 per cent in cash. This was equivalent
+to perhaps $33,000 in cash. The contract price in this case
+did not include, however, the cost of right-of-way, depot
+grounds, and engineering expenses, for which additional stock
+was reserved.<a name="FNanchor_16_16" id="FNanchor_16_16"></a><a href="#Footnote_16_16" class="fnanchor">[16]</a> Only one year later, when the first instrumental
+survey of the Central Pacific was completed, Judah was
+forced to change his estimate to $88,428 per mile for the
+first 140 miles of that railroad, including 51 miles estimated
+at $1,000,000 per mile or above. Even these figures were
+later revised.</p>
+
+<p class="pnb">Estimating Probable Earnings</p>
+
+<p>Nor was Judah’s information about probable earnings a
+great deal more trustworthy than that relating to probable
+costs. There are various ways of estimating the earnings
+which a new railroad is likely to secure—yet all of them may
+give curious results when applied to territory which has never
+enjoyed the benefits of any rail transportation at all, as was
+substantially the case with California before the Civil War.
+In general, engineers in California had to reckon with the
+facts that the population of the state was small; that it had
+only three cities of importance—San Francisco, Sacramento,
+and Stockton; that there was but one important business,
+mining; and that a dense traffic could accordingly be expected
+only in the distant future after the development of the country
+served. As a practical expedient most engineers in California
+who desired elaborate data had some more or less careful
+count made of the business moving over their projected route
+by pack train, wagon train, stage, or boat, and then made the
+broad assumption that this same volume, or this volume increased
+by an assumed factor, would move over a railroad
+during its early years. Such was the nature of the estimate
+made by the incorporators of the Sacramento Valley Railroad
+in 1853,<a name="FNanchor_17_17" id="FNanchor_17_17"></a><a href="#Footnote_17_17" class="fnanchor">[17]</a> of the Stockton and Copperopolis in 1862,<a name="FNanchor_18_18" id="FNanchor_18_18"></a><a href="#Footnote_18_18" class="fnanchor">[18]</a> of the
+Placerville and Sacramento Valley Railroad in 1863,<a name="FNanchor_19_19" id="FNanchor_19_19"></a><a href="#Footnote_19_19" class="fnanchor">[19]</a> and of
+the North Pacific Coast in 1873.<a name="FNanchor_20_20" id="FNanchor_20_20"></a><a href="#Footnote_20_20" class="fnanchor">[20]</a> Judah had no greater
+facilities than other engineers of the time, and in his own
+estimates followed the prevailing custom.<a name="FNanchor_21_21" id="FNanchor_21_21"></a><a href="#Footnote_21_21" class="fnanchor">[21]</a></p>
+
+<p class="vh"><a name="i028" id="i028">i028</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-028.jpg" width="350" height="507"
+ alt=""
+ title="" />
+</div>
+
+<p><span class="pagenum"><a name="Page_17" id="Page_17">[17]</a></span></p>
+
+<p>Estimates of this nature were not accurate, and it was
+unreasonable to suppose that they should be accurate. Judah<span class="pagenum"><a name="Page_18" id="Page_18">[18]</a></span>
+in 1862 put the probable gross receipts of the Central Pacific
+on the first 160 miles out of Sacramento at $4,654,240, or $29,089
+per mile. Mr. Montague, who succeeded him, estimated
+the annual receipts as far as Dutch Flat at $27,209 per mile
+and for the whole road, as far as Nevada Territory, he named
+the figures of $5,456,050, or $34,100 per mile. These were
+very optimistic figures. As a matter of fact, the earnings of
+the Central Pacific never much exceeded $14,000 a mile, and
+during the early period, up to 1870, were as often below
+$10,000 a mile as they were above it. If it had not been for
+an operating ratio which in 1866 and 1867 touched the extraordinary
+figure of 23 per cent, and which did not reach
+50 per cent until 1877, the owners of this road could scarcely
+have kept it out of receivers’ hands, so great was the
+miscalculation.</p>
+
+<p class="pnb">Organization of Company</p>
+
+<p>We may assume, then, that Huntington and his friends
+went into the Central Pacific project as a speculation from
+which they hoped to retire with a profit derived largely from
+construction paid for out of government funds. Adopting
+this assumption, the next steps in advancing the enterprise
+may be briefly described. The meetings in Sacramento which
+have been mentioned took place in the winter of 1860-61.
+No progress in surveys could be made at that time, while the
+Sierra passes were covered with snow. In April, however,
+a meeting of subscribers to the stock of the Central Pacific
+Railroad was held in Sacramento, and on the 28th of June,
+1861, a company was organized under the general law of the
+state, to be known as the Central Pacific Railroad of California.
+The capital of this corporation was set at $8,500,000,
+divided into shares of $100 each. The railroad
+contemplated was to run from Sacramento to the eastern
+boundary of California, over an estimated distance of 115<span class="pagenum"><a name="Page_19" id="Page_19">[19]</a></span>
+miles. Huntington, Hopkins, Stanford, and Crocker subscribed
+to 150 shares each, as did James Bailey and Theodore
+Judah. Charles Marsh took 50 shares, and other parties
+varying, but lesser amounts, to a total of 1,245 shares, or more
+than the $1,000 per mile required by the law. Leland Stanford,
+Charles Crocker, James Bailey, Theodore D. Judah, L. A.
+Booth, C. P. Huntington, Mark Hopkins, D. W. Strong, and
+Charles Marsh were the first directors.</p>
+
+<p class="pnb">Instrumental Survey Made</p>
+
+<p>As soon as the season permitted, Judah was sent back into
+the mountains, and in October, 1861, the directors had before
+them the substance of his second report, this time based on
+an instrumental survey. Judah now thought that a railroad
+from Sacramento to the state line would cost $12,380,000, or
+$88,428 per mile. He did not push his surveys beyond the
+point at which he reached the Truckee River, but from his
+general knowledge of the country he estimated that the 451
+miles between Lassen’s Meadows and Salt Lake could be built
+for $45,000 per mile, and that the whole road of 733 miles
+could be constructed for $41,415,000, or an average of
+$56,500 per mile.<a name="FNanchor_22_22" id="FNanchor_22_22"></a><a href="#Footnote_22_22" class="fnanchor">[22]</a></p>
+
+<p>In every way this second report was a more careful piece
+of work than the one which had preceded it. The new route
+differed from that recommended in November, 1860, mainly
+in that it ran from Sacramento through Lincoln and Centralia
+instead of through Folsom, and also in the greater detail of
+its location. The principal characteristics of the line were
+two: (1) that it followed a nearly continuous ridge from
+Lincoln to the summit of the mountains, and (2) that east of
+the summit the road wound down the side of the mountain
+to Lake Truckee, following the Truckee River from the lake<span class="pagenum"><a name="Page_20" id="Page_20">[20]</a></span>
+in the direction of Humbolt Sink, and entirely avoiding the
+second summit of the Sierras and the crossing of the Washoe
+Mountains.</p>
+
+<p>This is substantially the line of the Central Pacific today.
+The maximum grade which Judah allowed himself was 105
+feet to the mile. Judah did not at this time re-examine
+alternative routes via Georgetown and via Henness Pass,
+which he had considered and rejected the previous fall. Nor
+did he refer to the line via Beckwourth’s Pass, the present
+route of the Western Pacific, which he later admitted to be
+easier in grade, if longer in distance, or to the possibility of
+a route directly east from Folsom via Placerville around the
+south end of Lake Tahoe. It is probable, however, that these
+two last-named routes were familiar to him in a general way,
+as considerable quantities of freight consigned to the Nevada
+mines were already moving over them.</p>
+
+<p>Emphasis should be laid upon Judah’s survey of October,
+1861, because the continuance of the Sacramento capitalists in
+the enterprise depended upon its favorable outcome. After it
+was completed Huntington and his friends became, on the
+whole and except during certain intervals of weakness,
+inclined to see the project through even at the risk of
+their personal fortunes, provided reasonable government
+assistance could be secured. It was with this understanding
+that Judah went back to Washington in 1861 to procure the
+passage of needed legislation, and it was in this spirit that a
+formal beginning of construction upon the Central Pacific
+was made at Sacramento on January 8, 1863.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_21" id="Page_21">[21]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER II</h2>
+
+<p class="pch">RESOURCES FOR CONSTRUCTION—STATE
+AND LOCAL AID</p>
+
+<p class="pnb">Source of Funds</p>
+
+<p>Some years after the Central Pacific and Western Pacific
+railroads were completed, Leland Stanford laid before a committee
+chosen by Congress the following memorandum showing
+the receipts of these two roads from all sources up to
+December 31, 1869:</p>
+
+<p class="pc1"><span class="smcap">Memorandum Showing the Receipts of the Central
+and Western Pacific Railroads from All
+Sources to December 31, 1869</span></p>
+
+<table id="t01" summary="t01">
+
+ <tr>
+ <td class="tdcl">Source of Funds</td>
+ <td class="tdcl">Par<br />Value</td>
+ <td class="tdcl">Approximate<br />Sum<br />Realized</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">United States bonds issued to Central and Western Pacific</td>
+ <td class="tdrl">$27,855,680</td>
+ <td class="tdrl">$20,735,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Central and Western Pacific first mortgage bonds</td>
+ <td class="tdrl">27,855,560</td>
+ <td class="tdrl">20,750,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Central Pacific convertible bonds</td>
+ <td class="tdrl">1,483,000</td>
+ <td class="tdrl">830,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Central Pacific state aid bonds</td>
+ <td class="tdrl">1,500,000</td>
+ <td class="tdrl">980,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">City and County bonds:</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">San Francisco to Central Pacific</td>
+ <td class="tdrl">400,000</td>
+ <td class="tdrl">300,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">Sacramento to Central Pacific</td>
+ <td class="tdrl">300,000</td>
+ <td class="tdrl">190,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">Placer County to Central Pacific</td>
+ <td class="tdrl">250,000</td>
+ <td class="tdrl">160,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">San Francisco to Western Pacific</td>
+ <td class="tdrl">250,000</td>
+ <td class="tdrl">175,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">San Joaquin County to Western Pacific</td>
+ <td class="tdrl">250,000</td>
+ <td class="tdrl">125,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">Santa Clara County to Western Pacific</td>
+ <td class="tdrl">150,000</td>
+ <td class="tdrl">100,000</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Land sales, balance Central Pacific</td>
+ <td class="tdrl">107,000</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Profit and loss balance, January 1, 1870</td>
+ <td class="tdrl">1,610,000</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdrl">—————</td>
+ <td class="tdrl">—————</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt3">Total</td>
+ <td class="tdrl">$46,062,000</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Company owed Contract and Finance Company</td>
+ <td class="tdrl">1,827,000</td>
+ </tr>
+
+ <tr>
+ <td colspan="3" class="tdrl">—————</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt3">Grand total</td>
+ <td class="tdrl">$47,889,000</td>
+ </tr>
+
+</table>
+
+<p><span class="pagenum"><a name="Page_22" id="Page_22">[22]</a></span></p>
+
+<p class="p1">We have in the foregoing table a summation of the
+resources on which Judah and the Huntington group were able
+to draw in order to build a transcontinental road. It will be
+noticed that there is no mention in the table of the personal
+fortunes of the associates, unless the contribution of these
+gentlemen appears in the profit and loss balance, or in the
+debt to the Contract and Finance Company—none of the
+earnings of the railroad during construction, and none of the
+proceeds of the sale of Central Pacific capital stock. Under
+these categories some slight addition to Stanford’s list must
+probably be made, though the importance of the addition will
+not be great.</p>
+
+<p>Collectively the fortunes of the associates, while considerable,
+were not sufficient to cover more than the preliminary
+expenses of the work. Judah had but little capital, while,
+according to Huntington’s own statement some years later, the
+combined assets of Stanford, Crocker, and the firm of Huntington
+and Hopkins, amounted to something like $1,000,000
+when the construction of the Central Pacific was begun.<a name="FNanchor_23_23" id="FNanchor_23_23"></a><a href="#Footnote_23_23" class="fnanchor">[23]</a>
+Other estimates put the figure at $160,000,<a name="FNanchor_24_24" id="FNanchor_24_24"></a><a href="#Footnote_24_24" class="fnanchor">[24]</a> or even as low as
+$109,000.<a name="FNanchor_25_25" id="FNanchor_25_25"></a><a href="#Footnote_25_25" class="fnanchor">[25]</a> We do not know, as a matter of fact, how much
+property the associates possessed, but we do know that it was
+slight compared with the undertaking which they had in hand.</p>
+
+<p class="pnb">Earnings and Stock Issues</p>
+
+<p>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<span class="pagenum"><a name="Page_23" id="Page_23">[23]</a></span>
+$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 to
+$2,427,533.80.<a name="FNanchor_26_26" id="FNanchor_26_26"></a><a href="#Footnote_26_26" class="fnanchor">[26]</a> Most of these earnings came from local
+business, although an attempt was made to provide facilities
+for through travel before 1869, by arranging stage accommodation
+for stretches not yet covered by rails.</p>
+
+<p>If we add three or four million dollars to the receipts
+listed in Stanford’s table, we shall have made liberal allowance
+for railroad earnings and partnership contributions up to
+1869. This allowance would not be materially increased if
+account were taken of sales of Central Pacific stock. The
+authorized stock issue of the Central Pacific Railroad in
+1862 was $8,500,000. In 1864 this was raised to $20,000,000,
+and in 1868 it was made $100,000,000. In spite of these large
+issues, the evidence is perfectly clear that there were substantially
+no cash subscriptions to Central Pacific stock, nor
+any market for this stock when issued. It is on record, for
+example, that one M. D. Boruck opened an office at the corner
+of Bush and Montgomery streets in San Francisco on behalf
+of the company, and kept it open, off and on, for about twenty-two
+days in November and December, 1862, and in February,
+1863. He secured three subscriptions to an aggregate of
+twelve or fifteen shares.<a name="FNanchor_27_27" id="FNanchor_27_27"></a><a href="#Footnote_27_27" class="fnanchor">[27]</a></p>
+
+<p>We know also that Crocker went personally to Virginia
+City to sell stock, but without success. He says of this
+experience:</p>
+
+<p class="pbq p1">They wanted to know what I expected the road would earn.
+I said I did not know, though it would earn good interest on
+the money invested, especially to those who went in at bed
+rock. “Well,” they said, “do you think it will make 2 per
+cent a month?” “No,” said I, “I do not.” “Well,” they<span class="pagenum"><a name="Page_24" id="Page_24">[24]</a></span>
+answered, “we can get 2 per cent a month for our money here,”
+and they would not think of going into a speculation that would
+not promise that at once.<a name="FNanchor_28_28" id="FNanchor_28_28"></a><a href="#Footnote_28_28" class="fnanchor">[28]</a></p>
+
+<p class="p1">Stanford says that he bought 2,300 shares of Central
+Pacific at ten cents on the dollar at one time, in order to
+accommodate a stockholder,<a name="FNanchor_29_29" id="FNanchor_29_29"></a><a href="#Footnote_29_29" class="fnanchor">[29]</a> and it appears that Charles and
+A. B. Crocker transferred their stock to Huntington, Hopkins,
+and Stanford in 1873, for $13 a share.<a name="FNanchor_30_30" id="FNanchor_30_30"></a><a href="#Footnote_30_30" class="fnanchor">[30]</a> No attempt to
+sell Central Pacific stock generally was made until 1873, and
+it was not listed on the Stock Exchange until 1874.<a name="FNanchor_31_31" id="FNanchor_31_31"></a><a href="#Footnote_31_31" class="fnanchor">[31]</a></p>
+
+<p class="pnb">Bond Sales</p>
+
+<p>As a matter of fact, there was no sale at the beginning
+even for Central Pacific mortgage bonds. Huntington went to
+New York to get these securities started among the moneyed
+men there, and after a while he had some small success. But
+D. O. Mills gave it as his deliberate judgment on a later occasion
+that there was the greatest difficulty in securing loans on
+the bonds the Central Pacific had to offer—including government,
+county, convertible, state aid, and first mortgage bonds—to
+as much as 75 per cent of the face value of the issues.<a name="FNanchor_32_32" id="FNanchor_32_32"></a><a href="#Footnote_32_32" class="fnanchor">[32]</a>
+Iron for the first 50 miles out of Sacramento was delivered to
+the associates only after they had given their own personal
+obligations secured by deposit of the company’s bonds. An
+agreement was entered into, besides, that Huntington and
+his friends would be responsible, as individuals, for ten years,
+for the payment of interest on these bonds.<a name="FNanchor_33_33" id="FNanchor_33_33"></a><a href="#Footnote_33_33" class="fnanchor">[33]</a></p>
+
+<p><span class="pagenum"><a name="Page_25" id="Page_25">[25]</a></span></p>
+
+<p>After 1864 conditions improved somewhat, and first
+mortgage bonds were disposed of at about 75, while convertible
+and state aid bonds brought 56 and 65 respectively.<a name="FNanchor_34_34" id="FNanchor_34_34"></a><a href="#Footnote_34_34" class="fnanchor">[34]</a> Yet
+at the time when the construction of the Central Pacific Railroad
+was finished the private property of every one of the
+directors of the company was mortgaged up to the limit of all
+his individual credit would possibly allow and bear. The notes
+of the four associates were outstanding everywhere, many of
+them bearing interest rates as high as from 10 to 12 per cent,
+and the statement is made that Leland Stanford alone upon one
+occasion had his account at the bank overdrawn to the extent
+of $1,300,000.<a name="FNanchor_35_35" id="FNanchor_35_35"></a><a href="#Footnote_35_35" class="fnanchor">[35]</a></p>
+
+<p>The consideration of possible Central Pacific Railroad
+receipts, other than those derived from government aid and
+perhaps from the sale of the company’s first mortgage bonds,
+brings us back to Stanford’s list as containing substantially
+all the assets upon which the promoters of the Central Pacific
+were able to rely. Almost half of these assets were derived
+directly from political bodies of one type or another, and the
+value of the remainder of those assets was dependent for the
+most part upon the security which was afforded by the government
+donations made to the company.</p>
+
+<p class="pnb">State and Local Grants</p>
+
+<p>Let us now consider with more care the circumstances
+under which the local and federal authorities extended such
+generous aid to the transcontinental project, and the extent
+and quality of the aid given. We may begin with the state and
+local grants, and in order to assist the reader, a portion of the
+table which was printed on page 21 will be set forth again at
+this point in slightly changed form. As thus presented the
+table is as follows:</p>
+
+<p><span class="pagenum"><a name="Page_26" id="Page_26">[26]</a></span></p>
+
+<p><span class="smcap">Aid Derived by Central and Western Pacific Railroads
+From State and Local Governments in California</span></p>
+
+<table id="t02" summary="t02">
+
+ <tr>
+ <td class="tdcl">Source of Aid</td>
+ <td class="tdcl">Par<br />Value</td>
+ <td class="tdcl">Approximate<br />Sum<br />Realized</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Aid by Cities:</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">San Francisco, donation to Central Pacific</td>
+ <td class="tdrl">$400,000</td>
+ <td class="tdrl">$300,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Sacramento, subscription to Central Pacific</td>
+ <td class="tdrl">300,000</td>
+ <td class="tdrl">190,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">San Francisco, donation to Western Pacific</td>
+ <td class="tdrl">250,000</td>
+ <td class="tdrl">175,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Aid by Counties:</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Placer County, subscription to Central Pacific</td>
+ <td class="tdrl">250,000</td>
+ <td class="tdrl">160,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">San Joaquin County, subscription to Western Pacific</td>
+ <td class="tdrl">250,000</td>
+ <td class="tdrl">125,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Santa Clara County, subscription to Western Pacific</td>
+ <td class="tdrl">150,000</td>
+ <td class="tdrl">100,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Aid by State:</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Assumption of interest for twenty years on
+$1,500,000 7 per cent bonds.</td>
+ </tr>
+
+</table>
+
+<p class="pnb">Arguments for Local Aid</p>
+
+<p>Aid from local political bodies was considered legitimate
+in the early sixties, and was extended freely to a great number
+of corporations. Voters were told that the construction of
+railroads increased land values. Until transportation should
+be improved, it was argued, agriculture could make but little
+progress, because the products of agriculture could not be
+brought to market. The mining interest was depressed in
+1870, and in partial explanation publicists pointed out that
+freight charges to the mines ranged from $50 to $180 a ton.
+Nor was even more precise calculation lacking. An advocate
+of subsidies in 1870 stated:</p>
+
+<p class="pbq p1">It costs for passage to San Francisco from Visalia $25 and
+consumes generally a day and a half. By rail the trip could be
+made in eight hours, at a cost of $10, thus saving $15 and nearly<span class="pagenum"><a name="Page_27" id="Page_27">[27]</a></span>
+a day in time. If on the average, each adult makes one visit per
+annum to the upper country, and taking 1,300, the number of
+registered voters, as the adult population, it costs every passenger
+for the round trip $50 in cash and three days in time—excess
+over railway fare, $30; board for two extra days, $4;
+value of time at $2 per day, $4; total excess, $38; total loss
+to 1,300 passengers, $49,400. I contend, therefore, that the
+people of Tulare County are now actually paying, in addition
+to the loss or inconvenience resulting from isolation from
+market, the sum of $77,780 per annum, for the privilege of
+being without a railroad.</p>
+
+<p class="p1">There was little that was novel in this sort of argument,
+or in the further contention that the increase of the tax roll
+of the counties, due to railroad construction, would yield a
+revenue more than sufficient to cover the taxes incident to the
+granting of a subsidy. Better transportation meant wider
+markets, denser population, higher values. Increasing values
+and volume of sales meant larger profits, higher wages, lower
+prices, and generally growing prosperity. These things were
+matters of reasonable anticipation, so that hard-headed business
+men had quite as much ground as usually underlies
+business action to approve of even a considerable pledge of
+state and county property in order to hasten the building of a
+railroad system. It could not be known whether or not railways
+would be constructed without subsidies. As we look at the situation
+today it seems probable that this would have been done,
+and that railroad building would not even have been greatly
+delayed. The risk in waiting was, however, great, and the
+difficulties of a conservative policy were enhanced by the competition
+of towns, each seeking priority of railroad connection.</p>
+
+<p class="pnb">Playing Towns Against Each Other</p>
+
+<p>There is evidence that the promoters of the Central Pacific
+were perfectly aware of the possibilities of securing local
+subsidies by playing one California town against another.<span class="pagenum"><a name="Page_28" id="Page_28">[28]</a></span>
+Huntington wrote David D. Colton in 1871 that the company
+ought to get a large amount of land and other good things
+from parties having interests along the line between Spadra
+and San Gregorio Pass, if it would build them a railroad on
+which to get out.<a name="FNanchor_36_36" id="FNanchor_36_36"></a><a href="#Footnote_36_36" class="fnanchor">[36]</a> T. G. Phelps, president of the Southern
+Pacific, speaking in the same vein, told Colonel Baker, of
+Tulare, that it was his private opinion that if that county
+would donate $100,000 to the company, it would run its
+road through the town of Visalia. We also know that pressure
+was brought to bear upon the city of Stockton, to induce that
+city to grant a right-of-way, as well as other privileges, to the
+Western Pacific,<a name="FNanchor_37_37" id="FNanchor_37_37"></a><a href="#Footnote_37_37" class="fnanchor">[37]</a> and it is notorious that the fears of San
+Francisco were played upon in order to obtain terminal facilities
+on San Francisco Bay.</p>
+
+<p>How this policy appeared from the point of view of the
+opponents of the Central Pacific, may be gathered from a
+description offered by a member of the Constitutional Convention
+of 1878:</p>
+
+<p class="pbq p1">They start out their railway track and survey their line near
+a thriving village. They go to the most prominent citizens of
+that village and say, “If you will give us so many thousand
+dollars we will run through here; if you do not we will run
+by,” and in every instance where the subsidy was not granted,
+that course was taken, and the effect was just as they said, to
+kill off the little town. Here was the town of Paradise, in
+Stanislaus County; because they did not get what they wanted,
+they established another town 4 miles from there. In every instance
+where they were refused a subsidy, in money, unless their
+terms were acceded to, they have established a depot near to
+the place, and always have frozen them out. As stated by
+the gentleman from Los Angeles, General Howard, they have
+blackmailed Los Angeles County $230,000 as a condition of
+doing that which the law compelled them to do.</p>
+
+<p><span class="pagenum"><a name="Page_29" id="Page_29">[29]</a></span></p>
+
+<p class="pnb">County Stock Subscriptions</p>
+
+<p>Perhaps the earliest California statute in aid of railway
+construction was the act approved May 1, 1852, granting to
+the United States a right-of-way through the state for the
+purpose of constructing a railway from the Atlantic to the
+Pacific oceans.<a name="FNanchor_38_38" id="FNanchor_38_38"></a><a href="#Footnote_38_38" class="fnanchor">[38]</a> In 1857 the supervisors of Yuba County
+were authorized to submit to the electors of that county a
+proposal to subscribe $200,000 to a railroad between Marysville
+and Benicia.<a name="FNanchor_39_39" id="FNanchor_39_39"></a><a href="#Footnote_39_39" class="fnanchor">[39]</a> And during the following two years the
+San Francisco and Marysville Railroad not only received a
+land grant,<a name="FNanchor_40_40" id="FNanchor_40_40"></a><a href="#Footnote_40_40" class="fnanchor">[40]</a> but secured an enactment, making it the duty of
+the Board of Supervisors of Sutter County to submit to
+popular vote the question of a $50,000 subscription to its
+capital stock,<a name="FNanchor_41_41" id="FNanchor_41_41"></a><a href="#Footnote_41_41" class="fnanchor">[41]</a> and the duty of the supervisors of Solano and
+Yolo counties to call elections in those counties with similar
+intent.<a name="FNanchor_42_42" id="FNanchor_42_42"></a><a href="#Footnote_42_42" class="fnanchor">[42]</a> No subscriptions were made under these acts.</p>
+
+<p>It seems to have been the intention of the legislature to
+treat the Central Pacific and the Western Pacific railroads
+after the same general fashion as other railroads had been
+treated—that is to say, to allow counties and cities interested
+to subscribe freely to their stock. By virtue of an act dated
+April 16, 1859, any county could so subscribe up to 5 per
+cent of its assessment roll when popular approval had been
+secured.<a name="FNanchor_43_43" id="FNanchor_43_43"></a><a href="#Footnote_43_43" class="fnanchor">[43]</a> This was not, however, enough. Between March
+21, 1863, and April 4, 1864, the legislature passed eight acts
+granting special concessions to the Central Pacific and to the
+Western Pacific. Mr. Stanford had become governor of the
+state in January, 1862, and this legislation had of course his
+cordial approval.</p>
+
+<p>In March, 1863, the supervisors of San Joaquin County
+were authorized to hold a popular election on the question of<span class="pagenum"><a name="Page_30" id="Page_30">[30]</a></span>
+subscribing $250,000 to the capital stock of the Western
+Pacific.<a name="FNanchor_44_44" id="FNanchor_44_44"></a><a href="#Footnote_44_44" class="fnanchor">[44]</a> In April, Placer County was authorized to consider
+a subscription of equal amount to the stock of the Central
+Pacific.<a name="FNanchor_45_45" id="FNanchor_45_45"></a><a href="#Footnote_45_45" class="fnanchor">[45]</a> Next, Santa Clara County was authorized to hold
+an election and to subscribe $150,000 to the Western Pacific,
+if it so desired.<a name="FNanchor_46_46" id="FNanchor_46_46"></a><a href="#Footnote_46_46" class="fnanchor">[46]</a> Sacramento received the same privilege in
+April, to the extent of being permitted to take 3,000 shares of
+the Central Pacific,<a name="FNanchor_47_47" id="FNanchor_47_47"></a><a href="#Footnote_47_47" class="fnanchor">[47]</a> and was in addition allowed to give away
+rights-of-way and certain rights of construction of considerable
+though indefinite value;<a name="FNanchor_48_48" id="FNanchor_48_48"></a><a href="#Footnote_48_48" class="fnanchor">[48]</a> while San Francisco was
+permitted to subscribe $400,000 to the stock of the Western
+Pacific and $600,000 to that of the Central Pacific, making
+$1,000,000 in all.<a name="FNanchor_49_49" id="FNanchor_49_49"></a><a href="#Footnote_49_49" class="fnanchor">[49]</a></p>
+
+<p>Invariably subscriptions contemplated in the acts were to
+be made in bonds running twenty or thirty years, and bearing
+7 or 8 per cent interest. Counties were to enjoy the usual
+privileges of stockholders, but were protected by special clauses
+against the proportional liability for debts of the corporation
+resting upon the ordinary stockholder by virtue of state law.
+The proceeds of county bonds issued in subscriptions were to
+be used for construction of the road, and it was provided that
+at least an equal amount of other funds obtained from stockholders
+was to be so used. It was thus the intention of the
+legislature that funds for construction should not be entirely
+derived from county subsidies.</p>
+
+<p class="pnb">Direct State Aid</p>
+
+<p>In addition to the acts permitting county subscriptions,
+mention should be made of two important acts by which the
+state granted direct assistance. The first of these laws was
+dated April 25, 1863. It authorized the comptroller of the<span class="pagenum"><a name="Page_31" id="Page_31">[31]</a></span>
+state to draw warrants in favor of the Central Pacific to the
+extent of $10,000 per mile, the warrants to be issued when the
+first 20 miles, the second 20 miles, and the last 10 out of
+50 miles were finished. These warrants were to bear 7 per
+cent interest if not cashed, because of lack of money in the
+treasury to pay them.<a name="FNanchor_50_50" id="FNanchor_50_50"></a><a href="#Footnote_50_50" class="fnanchor">[50]</a></p>
+
+<p>The second act, dated April 4, 1864, repealed the act just
+quoted, and proposed that the state government, instead of
+drawing warrants, should assume interest on 1,500 of the
+company bonds, bearing 7 per cent, and running for twenty
+years. This grant, like the earlier one, was made on certain
+conditions, such as that the company should transport free of
+charge public convicts going to the state prison, material for
+the construction of the state capitol, troops, munitions of war,
+and the like, that it should construct at least 20 miles of line
+annually, and in the case of the Act of 1864, that it should
+deed over certain granite quarries in Placer County.<a name="FNanchor_51_51" id="FNanchor_51_51"></a><a href="#Footnote_51_51" class="fnanchor">[51]</a></p>
+
+<p>On the face of it this grant was illegal, because of clauses
+in the state constitution which forbade the legislature to create
+liabilities in excess of $300,000 without submitting the proposal
+to popular vote, or to loan or give the credit of the state in
+any manner, in aid of any individual, association, or corporation.<a name="FNanchor_52_52" id="FNanchor_52_52"></a><a href="#Footnote_52_52" class="fnanchor">[52]</a>
+But it was sustained on the theory that the act
+amounted to an appropriation in anticipation of revenue, and
+so did not create a debt at all. Thus the company was able to
+draw its first interest money in January, 1865.<a name="FNanchor_53_53" id="FNanchor_53_53"></a><a href="#Footnote_53_53" class="fnanchor">[53]</a></p>
+
+<p class="pnb">Opposition to Aid in San Francisco</p>
+
+<p>The various acts just referred to were of course permissive,
+yet in general the counties seemed very willing to give up to
+the limit of their legal power. The two exceptions were the<span class="pagenum"><a name="Page_32" id="Page_32">[32]</a></span>
+county of Placer and the city and county of San Francisco.
+In Placer County there was a very active campaign against the
+bonds, supported by newspapers such as the <i>Placer Herald</i> and
+the <i>Advocate</i>. The proposal for a bond issue was carried, but
+only by a majority of 409 in a total vote of 3,810.<a name="FNanchor_54_54" id="FNanchor_54_54"></a><a href="#Footnote_54_54" class="fnanchor">[54]</a></p>
+
+<p>In the case of San Francisco, the city delegation in the
+legislature divided five to five on the proposal to authorize the
+city to subscribe. When the law was finally passed, a long and
+interesting struggle ensued. The first step after the passage
+of the act was to hold an election in San Francisco in order to
+ascertain whether the people would approve of a subscription
+to railroad bonds. This election took place in May, 1863, and
+the necessary popular consent was secured. There is reason
+to believe, however, that illegitimate means were employed to
+carry the election. We have affidavits that Philip Stanford
+went to the polls at San Francisco in a buggy, carrying a bag
+of money; that the said Stanford put his hand frequently in
+the bag of money and took money, some $20 pieces and some
+$5 pieces, to a considerable amount therefrom, and scattered
+the said money among the voters at the said polls, at the same
+time calling on them to vote in favor of the said subscription.
+Another eyewitness confirmed this account, adding that while
+the sum of money spent by the said Stanford was considerable,
+he could not tell how much as the crowd around the buggy of
+the said Stanford was so great. Still another testified to
+having received a written order on Stanford and others for
+$20, in return for which he and a man named Ross were to
+endeavor to influence voters at the polls to vote for the
+subscription.<a name="FNanchor_55_55" id="FNanchor_55_55"></a><a href="#Footnote_55_55" class="fnanchor">[55]</a></p>
+
+<p>These affidavits were later supported by the assertion of
+Hon. William A. Piper, on the floor of the House of Representatives
+at Washington, to the effect that he, Piper, was an
+eyewitness at the election, and saw the brother of Leland
+Stanford openly going about the polling places, scattering gold
+and silver to influence and buy votes for the municipal subsidy.
+Statements of this sort are too detailed and circumstantial to
+be brushed lightly aside.</p>
+
+<p class="vh"><a name="i046" id="i046">i046</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-046.jpg" width="350" height="412"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc">Henry P. Coon</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_33" id="Page_33">[33]</a></span></p>
+
+<p class="pnb">Resort to Court</p>
+
+<p>Whether or not the election of 1863 was tainted with
+corruption, as soon as it was concluded, San Francisco became
+bound, on or about the 25th of May, 1863, to subscribe $600,000
+and $400,000 to the stock of the Central Pacific and
+Western Pacific railroads, respectively. The fight against
+subscriptions, however, did not stop at this point. In an
+attempt to prevent action, suit was brought by a man named
+W. N. French against the Board of Supervisors, in the case
+known as “French v. Teschemaker.” French was a resident
+of San Francisco and a taxpayer. Teschemaker was a member
+of the Board of Supervisors. The suit alleged certain irregularities
+in the city election, but rested mainly on the contention
+that the act authorizing the city and county to subscribe was
+void and of no effect, because it provided that the city and
+county should not be liable for any of the debts or liabilities
+of either the Central Pacific or the Western Pacific railroads
+beyond the amount subscribed, and that this provision as to
+liability should be a part of all contracts made by the companies
+for the construction and equipment of their roads.
+According to counsel, this was an attempt to create an exemption
+from the proportionate liability imposed on all stockholders
+by the state constitution, and was not only void in
+itself, but its lack of force invalidated the whole subscription,
+since it was not to be supposed that the legislature would have
+passed the other clauses of the act without the section in
+question.</p>
+
+<p><span class="pagenum"><a name="Page_34" id="Page_34">[34]</a></span></p>
+
+<p>On the 23d of May, 1863, Judge Sawyer of the Twelfth
+Judicial District granted a temporary injunction. On appeal
+to the Supreme Court, however, this injunction was overruled.
+The court said:</p>
+
+<p class="pbq p1">True, the legislature cannot exempt the city and county
+from liability, but it can authorize the corporation to refuse
+to contract with persons who do not waive the proportionate
+liability established for their protection. How the individual
+liability of a stockholder of a corporation can be a matter of
+public concern any more than the liability of a copartner, we
+are unable to perceive, and we are not aware that it has ever
+been claimed that the latter liability had its foundation in public
+policy. It is merely a liability created by law, as it might be by
+contract, and is intended only for the benefit of those who may
+deal with corporations. It is but another fund to which the
+creditor may look when the social fund has been exhausted, and
+whether he chooses to look to it or not is a matter of no concern
+to the public.... There being, then, only a question
+of private right involved, there can be no question but that the
+party interested in the enforcement of the right may contract
+to waive it.<a name="FNanchor_56_56" id="FNanchor_56_56"></a><a href="#Footnote_56_56" class="fnanchor">[56]</a></p>
+
+<p class="pnb">Compromise Plan</p>
+
+<p>The opponents of municipal subscription now turned to
+the legislature, and secured the passage of an act authorizing
+the Board of Supervisors of San Francisco to compromise and
+to settle all claims upon the part of the Western Pacific Railroad
+and the Central Pacific Railroad for cash or other
+security, in place of bonds claimed by the companies, provided
+the power to make such compromise should rest in the Board
+of Supervisors only after and in case said board should be compelled
+by final judgment of the Supreme Court to execute and
+deliver the bonds specified in the act.<a name="FNanchor_57_57" id="FNanchor_57_57"></a><a href="#Footnote_57_57" class="fnanchor">[57]</a></p>
+
+<p>Pursuant to this act of April 14, 1864, the Board of<span class="pagenum"><a name="Page_35" id="Page_35">[35]</a></span>
+Supervisors appointed a special committee from among their
+number to consider and report a plan for a compromise. This
+action was taken on May 23, and the mandamus requiring the
+supervisors to subscribe $600,000 to the stock of the Central
+Pacific, which was essential to the adoption of any compromise,
+was issued on June 7.<a name="FNanchor_58_58" id="FNanchor_58_58"></a><a href="#Footnote_58_58" class="fnanchor">[58]</a> The committee met with Stanford,
+reported back to the board, and on June 20 the board passed
+order No. 582 providing that the city of San Francisco order,
+execute, and deliver to the Central Pacific 400 bonds for
+$1,000 each, in full discharge of all obligations on the part
+of the city and county to make any subscription to the capital
+stock of said company.</p>
+
+<p>Order No. 582 was duly approved by the mayor on June
+21, and became law on that day. On June 29 the acceptance
+of the Central Pacific was signified to the board, in due form,
+and on June 27 the supervisors appointed Messrs. Torrey,
+Bell, and Titcomb a committee to deliver to the Central Pacific
+the 400 bonds, with interest coupons attached. Nevertheless
+the mayor, Henry P. Coon, the auditor, Henry M. Hale, and
+the treasurer of the city, Joseph S. Paxon, constituting the
+Pacific Railroad Loan Fund Commissioners, refused to issue
+the bonds. The result was a petition for a mandamus directed
+against these persons individually, which developed into the
+case of People v. Coon.</p>
+
+<p class="pnb">Agreements in Mandamus Proceedings</p>
+
+<p>The main legal points raised in this new litigation were
+three:</p>
+
+<p>1. The conditions precedent to the issuance of the bonds
+under the act of 1864 had not been fulfilled, said the petitioner,
+in that the board of supervisors had not been compelled by
+final judgment of the Supreme Court to execute and deliver
+the bonds.</p>
+
+<p><span class="pagenum"><a name="Page_36" id="Page_36">[36]</a></span></p>
+
+<p>2. The second contention was that the railroad company
+could not call upon the supervisors to issue bonds on the city’s
+subscription unless the railroad should call in from other
+subscribers the whole amount of their respective subscriptions,
+or until, under the Act of 1863, a sum at least equal to the
+amount of the bonds should have been expended on the road
+from other sources. That either of these things had been
+done, the defendants vigorously denied.</p>
+
+<p>3. It was also declared by defendants that the Act of 1864
+had been misconstrued—that it did not relieve San Francisco
+from her subscription, but simply authorized the city to liquidate
+that subscription “in cash or other security” instead of in
+bonds. “We claim,” said counsel, “that the act authorized no
+more than the reduction of the amount of subscription and a
+change of the mode of payment to cash or other security in
+place of bonds. It does not authorize a donation of $400,000
+or any other amount. In other words, it authorizes a subscription
+for any amount less than $600,000, payable in cash in
+place of bonds.”<a name="FNanchor_59_59" id="FNanchor_59_59"></a><a href="#Footnote_59_59" class="fnanchor">[59]</a></p>
+
+<p>One has the feeling that at this stage of the proceedings,
+the first and third of these propositions were not well taken.
+It was too plainly the intention of the legislature to allow the
+city of San Francisco to withdraw from its subscription for a
+consideration, to permit weight to be given to technical points
+like these. On the other hand, it is very doubtful if the railroad
+had at this time either called in from other subscribers
+the whole amount of their respective subscriptions, or had
+expended on the road from other sources a sum equal to the
+amount of the bonds. The Supreme Court, however, did not
+make even this concession, but promptly issued a mandamus
+against Coon, Hale, and Paxon, commanding and requiring
+them to execute and deliver without delay, to the Central
+Pacific Railroad of California, the 400 bonds of the city and<span class="pagenum"><a name="Page_37" id="Page_37">[37]</a></span>
+county of San Francisco, described in the ordinance before
+referred to.<a name="FNanchor_60_60" id="FNanchor_60_60"></a><a href="#Footnote_60_60" class="fnanchor">[60]</a></p>
+
+<p class="pnb">Further Litigation</p>
+
+<p>Upon the issue of this mandamus, Coon, Hale, and Paxon
+signed the 400 bonds. According to a subsequent complaint by
+the railroad, the bonds so signed were presented by the president
+of the Board of Supervisors to William Loewy, clerk of the
+city and county of San Francisco, at a meeting at which a
+quorum of the supervisors was present. Loewy refused or
+failed to countersign. On September 27, 1864, a regular
+meeting of the supervisors was held, at which resolutions
+were offered requesting Loewy to countersign the bonds, and
+providing for the affixing of the seal of the city and county
+to the bonds when countersigned. These resolutions failed of
+passage, and instead a resolution was adopted requesting the
+clerk to deposit the 400 bonds with the county treasurer,
+which he did forthwith. The treasurer then refused to deliver
+the bonds to the railroad, and fresh proceedings were instituted
+before the Supreme Court, this time asking for a writ of
+peremptory mandamus commanding Loewy or his successor to
+obtain possession of the bonds, and to countersign and assist in
+delivering them to the Central Pacific; commanding the Board
+of Supervisors or their successors to call a meeting of the
+board, to notify the clerk of a time and place at which he might
+complete the countersigning in the presence of a quorum of the
+board; to cause the seal of the city and county to be affixed
+to the bonds; and to appoint a committee to deliver the bonds
+to the Central Pacific; and commanding the members of the
+Board of Supervisors who might be appointed such a committee,
+to deliver the bonds to the Central Pacific. It was
+obviously hoped to tie things down so that no further delay
+would be possible.</p>
+
+<p><span class="pagenum"><a name="Page_38" id="Page_38">[38]</a></span></p>
+
+<p>There seems to have been a split in the Board of Supervisors
+at this time. Six of the twelve members made individual
+returns to the complaint, and alleged that they had no part in
+the refusal to deliver the bonds. The other six and the mayor
+voted to employ counsel and to defend the suit.</p>
+
+<p class="pnb">Contentions of Defendants</p>
+
+<p>The case came to a hearing January 7, 1865. In some
+respects the defense now rested on new ground; in some new
+emphasis was given matters previously brought forward.</p>
+
+<p>The supervisors in January alleged that the election in San
+Francisco held May 19, 1863, at which the electors of San
+Francisco had approved the subscription to the stock of the
+Central Pacific, had been carried by corruption and bribery.
+This assertion was given great prominence in the answer of the
+supervisors, though less in briefs of counsel. Nine instances
+were cited where A. P. Stanford had given sums ranging from
+$5 to $40 apiece to electors, or had thrown handfuls of money
+among the electors “and thereupon they scrambled among themselves
+for the same.” It was urged that these bribes had had
+great influence upon the vote and that the election was void.
+These facts had not been known to the supervisors on June
+20, 1864, when order No. 582 had been passed, and defendants
+believed that knowledge of them would have prevented the
+passage of the ordinance.</p>
+
+<p>Besides this, the supervisors declared that the passage of
+ordinance No. 582 had been procured by false and fraudulent
+representations by the railroad company. More important, it
+was now contended that the Act of 1863 was unconstitutional,
+in that the legislature was without power to “impose on a
+municipal corporation of the state the burden of exclusively
+building or aiding to build a work of general interest to the
+state, which is in no sense a work of local interest to the
+corporation on which the burden is imposed.”</p>
+
+<p><span class="pagenum"><a name="Page_39" id="Page_39">[39]</a></span></p>
+
+<p>It was pointed out that the Central Pacific was a work of
+general interest to the Pacific Coast. It did not come within
+100 miles of San Francisco. It had received large subsidies
+from the federal government on the ground that it was of
+national importance. Counsel declared that:</p>
+
+<p class="pbq p1">The true test of whether a tax can be exclusively laid on a
+municipal corporation, is to be found in the purpose for which
+municipal government is confined within local limits. Citizens
+living within those limits are exposed to exclusive taxation because,
+and only because, a peculiar benefit is conferred upon this
+locality. When the benefit is shared in by the rest of the state,
+then a state tax is levied, because the citizens of San Francisco
+received advantage, not in their character as citizens of San
+Francisco, but as citizens of the state. The state government
+is as much a benefit to San Francisco as its own municipal
+government. Yet no one would contend that she could be compelled
+to support the entire expenses of the former, or that any
+other city should be compelled to contribute towards the expenses
+of the latter.</p>
+
+<p class="pnb">City Compelled to Subscribe</p>
+
+<p>These and other more technical objections were considered
+by the Supreme Court and were swept aside in a decision
+rendered at the April term of 1865. The court now held that
+the legislature had imposed no burden on San Francisco by
+the Act of 1863, because under that act the city got a consideration,
+namely, the company stock, for its subscription.
+The court added:</p>
+
+<p class="pbq p1">Nor does it make any difference as to the validity of the
+compromise whether the bonds were payable in instalments or
+in gross, nor whether a legal assessment has been laid on the
+capital stock of the company, for irrespective of the time the
+bonds under the Act of 1863 might become due, the company
+held a claim against the city which was a proper subject of and
+formed a good consideration for a compromise.<a name="FNanchor_61_61" id="FNanchor_61_61"></a><a href="#Footnote_61_61" class="fnanchor">[61]</a></p>
+
+<p><span class="pagenum"><a name="Page_40" id="Page_40">[40]</a></span></p>
+
+<p class="p1">This ended the case. It may perhaps be pertinently
+inquired why it was, if the subscription required by the Act
+of 1863 imposed no burden on the city of San Francisco as
+the Supreme Court said, that the city could afford to give
+$400,000 to get rid of the obligation. Yet, perhaps it would
+be fruitless to follow too closely the windings of the judicial
+mind. Stanford later declared that the litigation had injured
+the Central Pacific very much,<a name="FNanchor_62_62" id="FNanchor_62_62"></a><a href="#Footnote_62_62" class="fnanchor">[62]</a> while E. H. Miller, secretary
+of the company, estimated that the suit cost the Central Pacific
+not much less than $100,000. Of the bonds issued, 315 were
+sold at $751.60 each, amounting to $236,754, while 85 were
+paid out at par for rolling stock.<a name="FNanchor_63_63" id="FNanchor_63_63"></a><a href="#Footnote_63_63" class="fnanchor">[63]</a></p>
+
+<p class="pnb">Subscribing Counties Embarrassed</p>
+
+<p>The reluctance of San Francisco to subscribe was not
+typical of the general attitude toward the Central Pacific in
+1865. But it became more typical as the years went on. For
+this, there were several reasons.</p>
+
+<p>In the first place, the state was much disappointed by the
+fact that the completion of the Central Pacific did not
+inaugurate a period of prosperity. The year 1870 was not a
+particularly good one in California, and the panic of 1873,
+with the intense depression which resulted, was soon to occur.
+Among the first effects of the two rail connections with the
+East, was an influx of eastern manufactures, unemployment,
+lower prices, and dissatisfaction. This in no way meant that
+the construction of the Central Pacific had not benefited California,
+but it gave evidence of a serious though temporary
+maladjustment.</p>
+
+<p>Moreover, the bonds which had been so lightly voted,
+proved a real burden on the scanty population of the counties,
+which was in no adequate way offset by increases in the assessment<span class="pagenum"><a name="Page_41" id="Page_41">[41]</a></span>
+rolls. Indeed, the railroads in early years were assessed
+at figures that were remarkably low. In Placer County, for
+instance, the Central Pacific insisted that its road should be
+assessed at $6,000 per mile, and succeeded in carrying its
+point in 1865, 1866, and 1867. In 1868 the assessment was
+raised to $12,000 per mile. The railroad protested, and when
+forced to submit, increased the rate of freight to all points in
+Placer County about 40 cents a ton.<a name="FNanchor_64_64" id="FNanchor_64_64"></a><a href="#Footnote_64_64" class="fnanchor">[64]</a> Nor were taxes even
+on such modest valuations easily collected. Between 1866 and
+1887 railroad tax cases were almost constantly before the
+courts. At times the Central Pacific refused to pay any taxes
+at all, on the ground that it held a “federal franchise,” and
+at other times it objected to the terms of the law or to the
+amount of the assessment.<a name="FNanchor_65_65" id="FNanchor_65_65"></a><a href="#Footnote_65_65" class="fnanchor">[65]</a> The result was to throw the local
+tax system into complete confusion.</p>
+
+<p class="pnb">Experience of Placer County</p>
+
+<p>Let us refer again to the experience of Placer County. In
+1863 the Central Pacific asked for a subscription of $250,000,
+promising to add $9,000,000 to the taxable property of the
+county. The county tax rate as fixed in February, 1863, for
+the following year, was 35 cents on $100, and the assessed
+valuation of the county was $3,071,911.78, yielding a revenue
+from county taxes of $10,751.69. The railroad company
+issued an address while the matter of a subscription was under
+consideration, pointing out that 8 per cent on a bond issue of
+$250,000 would amount to $20,000, while a tax rate of 35 cents
+on $9,000,000 of increased valuation would yield $31,500, or
+a clear excess of $11,500, to the county without considering
+the effect of the railroad in increasing the valuation of real
+estate.</p>
+
+<p>These were the results which voters were led to expect.<span class="pagenum"><a name="Page_42" id="Page_42">[42]</a></span>
+What happened was that the assessed valuation of the property
+of the Central Pacific in Placer County was $6,000 per mile
+as late as 1870, when the county sold its railroad stock; that the
+total railroad valuation was therefore $553,500, and that the
+county tax rate rose from 35 cents to $1.73½. Moreover, the
+railroad taxes for 1868 and 1869 were still unsettled and in
+dispute in 1870 and remained so until 1873. The total receipts
+of the county from all sources in 1869 were $127,492.54, of
+which $46,499.66 were for the state. Against the $80,992.88
+remaining, the $20,000 of interest on the subsidy bonds was
+evidently a material charge.</p>
+
+<p>It was probably not true in general that the financial embarrassment
+in which many of the counties of California were
+plunged late in the sixties was due to the pressure of interest
+charges on bonds issued in aid of railroad construction. The
+highest rates of taxation for county purposes uncovered by
+the special legislative committee of 1868 which investigated
+this matter, were $36.70 per $1,000 for Tuolumne County,
+and $40 per $1,000 for Calaveras County, neither of which
+counties had issued bonds in aid of railroads. Extravagance
+in assistance tendered to railroads was only one of the financial
+sins of which the counties had been guilty. Nevertheless the
+burden of outstanding indebtedness for railroads was often
+severe on communities of declining industry and population,
+and contributed to the later severe revulsion in popular sentiment
+with regard to the desirability of local aid to railroad
+enterprise.</p>
+
+<p class="pnb">Opposition by Other Transportation Interests</p>
+
+<p>It is proper to mention at this point, also, as throwing light
+upon popular sentiment, the opposition of the smaller transportation
+interests of the state to the development of the Central
+Pacific project. These interests included the stage companies,
+the express companies, the toll roads, and the Pacific Mail<span class="pagenum"><a name="Page_43" id="Page_43">[43]</a></span>
+Steamship Company. In the aggregate their influence was
+considerable, and it was constantly thrown against the granting
+of aid to the Central Pacific.</p>
+
+<p>It is a curious commentary upon the effect of government
+subsidies, that the Huntington-Stanford group brought part
+of this opposition upon themselves by a deliberate refusal to
+buy up the Sacramento Valley Railroad for the reason that
+it was cheaper to build at the expense of the federal government
+from Sacramento to Auburn than to buy a railroad already
+in active operation for most of the distance between these
+points. In cold figures, it would have cost $400,000 to build
+a new line out of Sacramento, and $285,000, according to
+Central Pacific engineers, to put the Sacramento Valley Railroad
+in thoroughly good physical condition. But under federal
+legislation, to be described in a later chapter, only $250,000
+out of the $400,000 would have to be paid by the Central
+Pacific in cash, leaving a clear gain of $35,000 if the policy
+of construction were pursued.<a name="FNanchor_66_66" id="FNanchor_66_66"></a><a href="#Footnote_66_66" class="fnanchor">[66]</a></p>
+
+<p>The result of this decision was to cause the backers of the
+Sacramento Valley project to denounce the Central Pacific
+enterprise as a fraud.<a name="FNanchor_67_67" id="FNanchor_67_67"></a><a href="#Footnote_67_67" class="fnanchor">[67]</a></p>
+
+<p class="pnb">End of Local Subsidies</p>
+
+<p>In the year 1868, a resolution was introduced into the California
+State Senate urging the appointment of a committee to
+investigate the use of moneys contributed by the state toward
+the construction of the Central Pacific Railroad. This resolution
+was indefinitely postponed by a vote of 18 to 17. The
+same year notices began to appear in the press, urging the
+legislature to oppose further railroad-aid legislation. In 1869,<span class="pagenum"><a name="Page_44" id="Page_44">[44]</a></span>
+the <i>Sacramento Union</i>, while in favor of a grant to the Stockton
+and Tulare Railroad, urged the counties to go slow and
+to secure an amendment to the general railway law, reducing
+maximum transportation charges to 10 cents per passenger
+per mile, and 15 cents per ton per mile, before voting aid.</p>
+
+<p>These were but symptoms of a profound dissatisfaction
+with the results of railroad subsidies. In the fall of 1869 both
+political parties pronounced against grants of state aid to railroads,
+but this could not prevent the passage of the so-called
+“Five Per Cent Act” of 1870, authorizing counties to subscribe
+to railroad stock up to 5 per cent of their assessed valuation;
+although it did encourage Governor Haight to veto two
+bills in March, 1870, the one authorizing the voters of certain
+counties in the San Joaquin Valley to donate their bonds to the
+San Joaquin Railroad Company at the rate of $6,000 per
+mile,<a name="FNanchor_68_68" id="FNanchor_68_68"></a><a href="#Footnote_68_68" class="fnanchor">[68]</a> and the other providing for the construction of a railroad
+by the Southern Pacific through Monterey and San Luis
+Obispo counties, and permitting the counties interested to grant
+aid. The governor took the position that the proposed subsidies
+were not only unwise, but that they were unconstitutional
+for the reason that a donation to a private corporation
+was not a use of funds for a proper purpose.<a name="FNanchor_69_69" id="FNanchor_69_69"></a><a href="#Footnote_69_69" class="fnanchor">[69]</a> After a fight
+which attracted much popular attention, the vetoes of the
+governor were sustained.</p>
+
+<p>In 1871, Governor Haight was defeated for re-election
+by Newton Booth, the Republican candidate. In the following
+year, however, the Five Per Cent Act was repealed, and
+the period of local subsidies in California came to an end.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_45" id="Page_45">[45]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER III</h2>
+
+<p class="pch">FEDERAL LAND GRANTS AND SUBSIDIES</p>
+
+<p class="pnb">Government Aid Deemed Necessary</p>
+
+<p>Serviceable as local subsidies were, there is no question
+that the most important aid granted to the Central Pacific
+Railroad came from Congress.<a name="FNanchor_70_70" id="FNanchor_70_70"></a><a href="#Footnote_70_70" class="fnanchor">[70]</a> It was perfectly well understood
+on the Pacific Coast that no transcontinental railroad
+could be built without the assistance of the national government.
+This was the attitude of the California legislature in
+1852, when it instructed its senators in Congress, and requested
+its representatives, to vote for an act providing for the construction
+of a railway from the Missouri or Mississippi River
+to the Pacific Ocean, the cost of which should be borne by the
+general government.<a name="FNanchor_71_71" id="FNanchor_71_71"></a><a href="#Footnote_71_71" class="fnanchor">[71]</a> It was also the position of the Railroad
+Convention of 1853, which sat at San Francisco under the
+presidency of Governor Bigler, and of that better advertised
+gathering known as the Pacific Railroad Convention of 1859,
+the resolutions of which concerning routes and state bond
+issues in aid of railroads gave rise to so much heated discussion.<a name="FNanchor_72_72" id="FNanchor_72_72"></a><a href="#Footnote_72_72" class="fnanchor">[72]</a></p>
+
+<p><span class="pagenum"><a name="Page_46" id="Page_46">[46]</a></span></p>
+
+<p class="pnb">Judah’s Activities in Washington</p>
+
+<p>Not only was it the attitude of the Pacific Coast that federal
+aid was necessary, but, still more important, Judah was able
+to advise his associates that Congress looked with favor upon
+the plan. He was convinced of this of his own personal
+knowledge, for he had been in Washington both on his own
+account and as a delegate of the Convention of 1859, and had
+reported to his constituents that only the pressure of more
+important matters arising out of the Civil War prevented
+favorable action upon the bill which they had sent him east to
+support. Upon this information, indeed, much of the plans
+of the Huntington-Stanford group was based.</p>
+
+<p>Late in 1861, the Central Pacific Railroad sent Mr. Judah
+to Washington to solicit whatever aid the federal government
+might be disposed to give. We have in Judah’s report upon
+this visit, dated September 1, 1862, a very full account of his
+negotiations. Judah sailed for the Atlantic states on October
+10, 1861. During the trip he busied himself in talking with
+Mr. Sargent, Congressional representative from California,
+who was his fellow passenger, and in writing up the results of
+the survey which he had made during the summer of 1861.
+On his arrival in New York he completed this report, caused
+1,000 copies of it to be printed, and distributed the copies
+widely where he thought they would do most good. Late in
+November, after conference with Senator McDougal, of California,
+chairman of the Senate Pacific Railroad Committee, he
+proceeded to Washington.</p>
+
+<p>From the time of his arrival there to the following July,
+Judah was engaged in energetic lobbying. His brief previous
+visits to the capitol had acquainted him with the routine of
+business there, as well as with the personalities of a considerable<span class="pagenum"><a name="Page_47" id="Page_47">[47]</a></span>
+number of Congressmen. He was aided, also, by the fact that
+Sargent, at the opening of the session, was assigned to the Pacific
+Railroad Committee of the House, and by the further circumstance
+that, with questionable propriety, he, Judah—interested
+in the outcome of the pending legislation as he was—was
+made clerk of a subcommittee of the House Committee on Pacific
+Railroads and secretary of the Senate Pacific Railroad Committee,
+with the privilege of the floor of the Senate and of the
+House, and charge of all the papers of the Senate committee.</p>
+
+<p>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 land. Mineral lands were excepted from the
+lands granted to the Pacific railroads, and Judah was afraid
+lest this clause should deprive the Central Pacific of all benefit
+from a large part of the lands nominally given it. It was
+probably Judah, also, though this is less certain, who secured
+a change in the terms of the government subsidy increasing the
+amount and altering the distribution so that the largest payments
+were made for the road across the Sierras and not for
+the section east of the California state line, where the difficulties
+of construction were less. These were important
+matters, and Judah should not have been permitted to urge
+them from the vantage point of an official position.<a name="FNanchor_73_73" id="FNanchor_73_73"></a><a href="#Footnote_73_73" class="fnanchor">[73]</a></p>
+
+<p><span class="pagenum"><a name="Page_48" id="Page_48">[48]</a></span></p>
+
+<p>It is perhaps natural to ask whether there is any evidence
+of improper methods used by the Central Pacific to obtain the
+passage of the Pacific Railroad bill beyond that just referred
+to. The weight of the record is in the negative. According to
+Stanford, Judah had $100,000 in Central Pacific stock at his
+disposal to cover his expenses in the East. This stock was not
+worth much, and Judah did not use all of it. Besides this,
+Judah made an agreement with Hon. S. A. McDougal and
+Hon. T. G. Phelps, according to which he assigned to certain
+parties representing the interests of the San Francisco and
+San José Railroad, the rights, grants, and franchises of the
+Central Pacific for the portion of road between Sacramento
+and San Francisco. This looks like an attempt to quiet
+opposition in California, from which some of the California
+delegation may have profited. There is no further evidence,
+however, of any improper bargaining in connection with the
+passage of the bill, and it is probable that no money was
+corruptly used. If there had been, Campbell and Sargent
+would hardly have been naïve enough to send a letter to Judah
+in behalf of sixty-three senators and representatives, thanking
+him for his valuable assistance in aiding the passage of the
+Pacific Railroad bill.</p>
+
+<p class="pnb">The Pacific Railroad Act</p>
+
+<p>Let us now consider the terms of the federal legislation of
+1862 and 1864. The Pacific Railroad Act in its first form was
+signed on July 1, 1862,<a name="FNanchor_74_74" id="FNanchor_74_74"></a><a href="#Footnote_74_74" class="fnanchor">[74]</a> and accepted by the company by letter
+dated November 1.<a name="FNanchor_75_75" id="FNanchor_75_75"></a><a href="#Footnote_75_75" class="fnanchor">[75]</a> Bancroft says that the company was
+aware that the assistance offered in this act was not sufficient.
+The subsidy alone would not build the road, and capitalists
+would not subscribe on the security offered. However this
+may be, Judah arranged for the purchase of locomotives, cars,<span class="pagenum"><a name="Page_49" id="Page_49">[49]</a></span>
+and railroad iron before he left the East, and took measures
+also to secure early action by the President on the question of
+gauge, and on the establishment of the western base of the
+Sierra Nevada Mountains.<a name="FNanchor_76_76" id="FNanchor_76_76"></a><a href="#Footnote_76_76" class="fnanchor">[76]</a></p>
+
+<p>In December, after Judah’s departure, a bill was introduced
+to amend the Act of July, 1862. This measure passed the
+Senate but was not acted upon by the House. A year and a
+half later, however, a new act was passed by both houses, and
+became law on the 2d of July, 1864, amending the Act of
+1862, and materially increasing the aid which the Central
+Pacific was to enjoy.<a name="FNanchor_77_77" id="FNanchor_77_77"></a><a href="#Footnote_77_77" class="fnanchor">[77]</a> To all intents and purposes the Acts
+of 1862 and 1864 were one piece of legislation, and will be
+treated as such in the analysis which follows.<a name="FNanchor_78_78" id="FNanchor_78_78"></a><a href="#Footnote_78_78" class="fnanchor">[78]</a></p>
+
+<p class="pnb">Grant of Right-of-Way</p>
+
+<p>What now were the advantages secured to the Central
+Pacific by the Acts of 1862 and 1864, and what were the
+obligations placed upon that company? We will take up first
+the advantages, not necessarily in order of importance.</p>
+
+<p>The first concession which the Central Pacific received
+under this legislation was the authority to complete its line
+from Sacramento to the eastern boundary of the state of
+California and thence eastward 150 miles, provided that the
+Union Pacific had not by that time built west to a connection
+with it. The company was also authorized to build west and
+south from Sacramento to San Francisco, or to a point nearby.
+The Act of 1862 had contained no limitation on construction
+eastward beyond the reference to a Union Pacific
+connection. Huntington said later that the restriction of 150<span class="pagenum"><a name="Page_50" id="Page_50">[50]</a></span>
+miles should not have been inserted in 1864. He added,
+however:</p>
+
+<p class="pbq p1">I said to Mr. Union Pacific when I saw it, I would take
+that out as soon as I wanted it out. In 1866 I went to Washington....
+I saw probably every member of Congress and the
+Senate except a few men who were interested in the Union
+Pacific, or had a direct interest in the Credit Mobilier.... We
+passed it through the Senate; I think we got thirty-four against
+eight opposed to it. I took it over to the House and old Thad
+Stevens attended to the bill for me, and it went through the
+House with a vote, I think, of ninety-four for the bill and
+thirty-three against it.<a name="FNanchor_79_79" id="FNanchor_79_79"></a><a href="#Footnote_79_79" class="fnanchor">[79]</a></p>
+
+<p class="p1">Judah said of the clause as it stood in 1862, that it virtually
+conceded to the company the right to construct at least one-half
+of the line of the Pacific Railroad. He was positive that
+it would be found advisable to undertake construction for
+about 300 miles easterly from the state line of California.<a name="FNanchor_80_80" id="FNanchor_80_80"></a><a href="#Footnote_80_80" class="fnanchor">[80]</a></p>
+
+<p>In addition to the authority to build, the Central Pacific
+was given a free right-of-way 400 feet wide across all government
+lands, besides necessary grounds for stations, machine
+shops, etc., with the privilege of taking earth, stone, timber,
+and other materials from the public lands adjacent to the line of
+said road for purposes of construction.</p>
+
+<p class="pnb">Land Grant</p>
+
+<p>The company was also granted ten alternate sections per
+mile of public land on each side of the railroad on the line
+thereof, and within the limits of 20 miles on each side of the
+road. The government undertook to extinguish Indian titles,
+but did not include in its grant mineral lands except coal and
+iron lands, or lands sold, reserved, or otherwise disposed of<span class="pagenum"><a name="Page_51" id="Page_51">[51]</a></span>
+by the United States, or lands to which a pre-emption, homestead,
+swamp-land, or other lawful claim might have attached
+at the time the line of the road should have been definitely
+fixed. The grant was thus not of a specified number of acres,
+and no compensation was provided to the company for lands
+which might prove to be occupied; but in order to prevent
+speculation and in a measure to safeguard the company’s
+interests, it was provided that at any time after the passage of
+the act, and before July 1, 1865, without waiting for definite
+location of the road, the company might designate the general
+route and file a map, whereupon the Secretary of the Interior
+should cause the lands within 25 miles of said route to be
+withdrawn from pre-emption, private entry, and sale. When
+any portion of the route should be finally located, the Secretary
+of the Interior should cause the granted lands to be surveyed
+and set off so far as might be necessary. As a matter of fact,
+Judah filed his map and general designation before he left
+Washington in 1862. Lands were to be conveyed to the
+company on completion of stretches of 20 consecutive miles.
+A special clause, never enforced, provided that all granted
+lands not sold or disposed of by the company within three
+years after the entire road should have been completed, should
+be subject to settlement and pre-emption like other lands, at a
+price not exceeding $1.25 per acre to be paid to the company.</p>
+
+<p class="pnb">Government Subsidy</p>
+
+<p>In the way of a subsidy, Congress ordered the Secretary
+of the Treasury to issue to the Central Pacific, United States
+6 per cent 30-year bonds, in amounts varying from $16,000
+to $48,000 per mile. The subsidy of $48,000 was granted for
+the 150 miles east of the western base of the Sierra Nevada
+Mountains, this being the most mountainous and difficult portion
+of the road. East of this section of line the Central
+Pacific bond subsidy was to be $32,000 per mile, but west of<span class="pagenum"><a name="Page_52" id="Page_52">[52]</a></span>
+it, it was to be only $16,000 per mile. It was the understanding
+of the company that these bonds were not redeemable
+by the government before maturity, and that until that time
+the interest charges were to be taken care of by the government.
+This last point was later the subject of litigation in
+which the company’s contention was sustained.<a name="FNanchor_81_81" id="FNanchor_81_81"></a><a href="#Footnote_81_81" class="fnanchor">[81]</a> The subsidy
+offered by the government inured to the company on the completion
+of sections of 20 consecutive miles over the greater part
+of the road, except that bonds might be issued up to two-thirds
+of the value of uncompleted work when the chief engineer
+of the company should certify that a certain proportion
+of the work required to prepare the road for its superstructure
+had been done.</p>
+
+<p class="pnb">Company’s Obligations</p>
+
+<p>In return for these very considerable privileges, the demands
+made upon the Central Pacific do not seem to have been
+excessive. First and foremost, the company was required to
+build its road at the rate of 25 miles each year after filing its
+assent to the provisions of the act, and to reach the state line
+within four years. The track upon the entire line was to be
+of a uniform width, to be determined by the President of the
+United States, so that, when completed, cars could be run from
+the Missouri River to the Pacific Coast. The grades and
+curves were not to exceed the maximum grades and curves
+of the Baltimore and Ohio Railroad, and the whole line of
+railroad and branches, Union Pacific and Central Pacific included,
+was to be operated and used for all purposes of communication,
+travel, and transportation, so far as the public
+and the government were concerned, as one connected, continuous
+line.</p>
+
+<p>In the second place, demand was made that the company
+should pay the principal of the government bonds at maturity,<span class="pagenum"><a name="Page_53" id="Page_53">[53]</a></span>
+and should meanwhile make certain payments on account of
+principal and interest. The following section taken from the
+Act of 1862 shows that there is no basis for the contention
+sometimes made that the government originally expected no
+repayment of its loan.</p>
+
+<p class="pbq p1"><i>And be it further enacted</i> that the grants aforesaid are made
+upon condition that said Company shall pay said bonds at
+maturity, and shall keep said railroad and telegraph line in
+repair and use, and shall at all times transmit dispatches over
+said telegraph line, and transport mail, troops and munitions
+of war, supplies and public stores upon said railroad for the
+Government, whenever required to do so by any department
+thereof, and that the department shall at all times have the
+preference in the use of the same for all the purposes aforesaid
+(at fair and reasonable rates of compensation, not to
+exceed the amounts paid by private parties for the same kind of
+service), and all compensation for services rendered for the
+Government shall be applied to the payment of said bonds and
+interest until the whole amount is fully paid. Said Company
+may also pay the United States, wholly or in part, in the same
+or other bonds, treasury notes, or other evidences of debt
+against the United States, to be allowed at par, and after said
+road is completed, until said bonds and interest are paid, at least
+five per-centum of the net earnings of said road shall also be
+annually applied to the payment hereof.<a name="FNanchor_82_82" id="FNanchor_82_82"></a><a href="#Footnote_82_82" class="fnanchor">[82]</a></p>
+
+<p class="p1">In 1864 this section was changed by requiring only one-half
+of the compensation for services rendered to the government
+to be applied to the payment of bonds issued by the
+government in aid of construction, but the declaration that
+the bonds should be paid was not altered. Not only was this
+true, but the government demanded security for repayment.
+In 1862 it declared that the issue of said bonds and delivery
+to the company should <i>ipso facto</i> constitute a first mortgage
+on the whole line of the railroad and telegraph, together with<span class="pagenum"><a name="Page_54" id="Page_54">[54]</a></span>
+the rolling stock, fixtures, and property of every kind and
+description. In 1864 the lien of the United States bonds was
+subordinated to that of a second mortgage, but the idea of
+some security was preserved.</p>
+
+<p>Third, the government reserved the right to reduce the rates
+of fare upon the Central Pacific, as well as upon the other
+railroads provided for in the Act of 1862, as unreasonable,
+when net earnings should exceed 10 per cent upon cost, exclusive
+of the 5 per cent to be paid to the United States.</p>
+
+<p>Fourth and last, an annual report was asked for, which was
+to set forth earnings, expenses, indebtedness, the amount of
+stock subscribed, a description of the lines of road surveyed,
+and the names and residences of the stockholders.</p>
+
+<p class="pnb">Amounts Granted</p>
+
+<p>It is evident that these demands were very moderate indeed.
+Under the provisions of the Acts of 1862 and 1864,
+the Central Pacific and Western Pacific railroads received
+$27,855,680 in government bonds, and 10,081,945.18 acres in
+public lands (up to June 30, 1920). From the bonds the
+companies realized $20,735,000, or $24,092 per mile. From
+the lands, the Central Pacific received, up to June 30, 1919,
+the approximate sum of $17,430,000, about equally divided
+between receipts from sales and receipts from other sources,
+including leases, stumpage, timber, and miscellaneous. The
+expenses of the land department may be estimated at $7,000,000,
+and the net return therefore was $10,000,000. The
+yield of the bond subsidy not only exceeded the returns from
+the granted lands, but the subsidy was ten times the aid received
+from the state and counties put together, and of course
+many times the contribution of the partners themselves. What
+was almost as important, the grant of this federal assistance
+at once raised the company’s credit, so that it could sell its
+own first mortgage bonds. The sale of company bonds yielded<span class="pagenum"><a name="Page_55" id="Page_55">[55]</a></span>
+$20,750,000, or a total of $41,485,000, for government and
+company bonds together, directly attributable to federal aid,
+and almost immediately available.</p>
+
+<p>From the point of view of serviceability, the land grant
+referred to in the Pacific Railroad legislation was much less
+important than the subsidy in bonds. Government lands along
+the line of the Central Pacific had no value until the road was
+completed, nor even then until the slow process of settlement
+had filled up in a measure the territory through which the
+railroad ran. Nor was the amount of the grant so definite
+as to make it a satisfactory basis for credit, although land
+grant bonds were sold in and after 1870. The theoretical grant
+was twenty sections, of 12,800 acres to the mile. The grant
+did not, however, follow the sinuosities in the track, so that
+in the mountain sections it was quite possible for two miles
+of railroad to be constructed and yet only one mile of land
+grant to be obtained.</p>
+
+<p>Not only was this true, but the exceptions provided for in
+the legislation were important. The records show that the
+saving clauses in the statutes, coupled with the inaccessibility
+of some of the lands within the nominal grants, and the differences
+between the actual mileage of the railroad and the
+mileage upon which land was awarded, reduced the area passing
+to the railroad by many hundred thousand acres. In
+California the Central Pacific was entitled to a nominal grant
+of 1,843,000 acres, at the rate of twenty sections per mile for
+a mileage of 144 miles. At least 887,000 acres of this amount
+were known to be lost to the grant as early as 1895, while the
+final adjustment will scarcely secure for the company more
+than half the amount originally expected. In Nevada the
+company’s losses approximated one-ninth and in Utah one-quarter
+of the nominal grant. The losses on the California
+and Oregon up to 1897 were 962,703 acres out of a total grant
+of 3,266,729 acres, but in this case the law permitted<span class="pagenum"><a name="Page_56" id="Page_56">[56]</a></span>
+the company to select additional lands within “indemnity”
+limits.</p>
+
+<p class="pnb">Delays in Transferring Title</p>
+
+<p>How far the government lands failed in providing the
+Central Pacific with funds with which to build its road, however,
+can best be understood when attention is paid to the
+delays incident to the transfer of title. The general procedure
+in transferring title from the government to the company was
+as follows:</p>
+
+<p>Under the Act of 1864, the Central Pacific was entitled to
+receive its lands upon completion of stretches of 20 consecutive
+miles in a fashion acceptable to commissioners appointed
+by the President of the United States. Upon acceptance by
+the government, the sections of land to which the company
+was entitled were listed and mapped and sent to the United
+States Land Office in the land district in which the land was
+located. The lists were examined there by registrars and receivers,
+and when declared cleared, the railroad company paid
+for the surveying, selecting, and conveying. Upon the payment
+of the fees, the lists were certified by the Surveyor-General
+of the state, and forwarded to the General Land Office
+at Washington for further examination. If found correct
+by the office in Washington, patents were issued. If there was
+doubt, the questionable cases were held for further examination.</p>
+
+<p>In all this procedure delays were frequent. The initiative
+in the process of conveyance of land lay with the railroad
+company and not with the government, so that failure to file
+lists with the local land office or failure to pay into the United
+States Treasury the cost of surveys of listed lands prevented
+progress in the distribution of the grant. On the other hand,
+the slowness of the government in making surveys hindered
+the railroad in its selections. Still another reason for delay<span class="pagenum"><a name="Page_57" id="Page_57">[57]</a></span>
+was the fact that within the mineral belt the Commissioner of
+the General Land Office required the railroad to file affidavits
+defining the mineral or non-mineral character of lands by
+40-acre tracts. This requirement arrested the selection and
+patenting of lands, because the government survey did not
+subdivide tracts of 640 acres, and there was no way of identifying
+any particular sixteenth section of a tract. There were
+delays also in determining the title to lands claimed by homesteaders
+and pre-emptors, and there were delays due to the
+faulty organization of the Federal Land Office.</p>
+
+<p class="pnb">Land Office Responsible for Delays</p>
+
+<p>Opponents of the Central Pacific freely charged that the
+company refrained from patenting its land in order to avoid
+the payment of taxes. This the company denied, pointing to
+the fact that the lands listed to June 1, 1887, exceeded the
+lands patented by 622,612.54 acres, and that the cash deposited
+with the United States Land Department to cover the
+cost of surveys exceeds the amount charged against the company
+up to January 15, 1886, by $28,771.92.<a name="FNanchor_83_83" id="FNanchor_83_83"></a><a href="#Footnote_83_83" class="fnanchor">[83]</a> Mr. Stanford
+declared that it was the policy of the company to select its
+lands and present lists as promptly as possible, in order that
+lands might be disposed of to settlers, and it does appear that
+it was to the advantage of the Central Pacific to secure title
+as quickly as it could in the mineral belts, because the company
+was protected in its possession of land, which later turned out
+to contain minerals, if at the time of patenting no minerals
+had been discovered.</p>
+
+<p>The evidence is clear enough that the delay in the patenting
+of lands to the Central Pacific Railroad was due mainly to the
+inadequacy of the staff in the General Land Office at Washington
+and not to the policies of the railroad itself. This is shown
+by the wide disparity between listings and patents. The excess<span class="pagenum"><a name="Page_58" id="Page_58">[58]</a></span>
+of lands selected over lands patented averaged 57,000 acres during
+the five years ending June 30, 1869. During the next five
+years the average excess was 64,000 acres, and during the five
+years ending June 30, 1886, it rose to 248,000. In 1887, as
+has been pointed out, there was a difference of 622,612.54
+acres between the amount of acres which had been listed and
+those which had been passed to patent. Between 1887 and
+1897, there was no year in which the Central Pacific had less
+than 300,000 acres of land listed and selected and the selections
+on file in the General Land Office for land in California
+alone. Yet it is not so important to fix responsibility in this
+matter, as to observe that the construction of the Central
+Pacific was not aided to any material degree by the lands offered
+to it under the legislation of 1862 and 1864. Up to the
+beginning of 1870, the company had received only four patents,
+totaling 144,386.63 acres,<a name="FNanchor_84_84" id="FNanchor_84_84"></a><a href="#Footnote_84_84" class="fnanchor">[84]</a> which if sold at $2.50 per acre
+would have brought it $360,966.57. As a matter of fact, less
+than this was disposed of in the early years, and what was sold
+was on terms, not for cash in hand. In the later period, land-grant
+bonds with a lien on the land grant were sold to investors.
+The first issue of such bonds was, however, in 1871.</p>
+
+<p>The bearing of these conditions on the land-grant policy
+of the United States is very plain. Congress was legislating
+in order to get a transcontinental railroad built. Every form
+of assistance which could be immediately transmuted into
+funds facilitated construction to the full value of those funds.
+In contrast with this, assistance which could be realized on
+only after a lapse of years, served not as an aid to construction,
+but as a reward to promoters for having taken risks.
+While to some extent the land grant to the Central Pacific
+may have aided the sale of Central Pacific first mortgage
+bonds, in the main its effect was to give a grossly excessive and<span class="pagenum"><a name="Page_59" id="Page_59">[59]</a></span>
+unnecessary profit to a few persons who held most of the stock
+of the company, without having invested any considerable
+capital of their own. Such a policy needs only to be understood
+to be condemned.</p>
+
+<p class="pnb">Fixing Western Base of Sierras</p>
+
+<p>Both the subsidy and the land-grant clauses of the Acts
+of 1862 and 1864 were to receive interpretation by the courts.
+The subsidy provisions will be discussed again in a later chapter,
+so that the provisions designated to secure repayment of
+the government loan need not be considered at this time. Mention
+may be made, however, of President Lincoln’s action in
+fixing the western base of the Sierras at the point where the
+line of the Central Pacific crossed Arcade Creek in the Sacramento
+Valley, a location 7 miles east of Sacramento, in a
+country which a casual observer would not be likely to call
+mountainous.</p>
+
+<p>It is not at first sight evident why this point was chosen.
+The junction of Arcade Creek and the Central Pacific Railroad
+happens to be at about the edge of the alluvial plain of the
+Sacramento River, and so is marked by a slight rising of the
+ground. The rise is not, however, great. The beginning of
+the Sierra granite is at Rocklin, 22 miles east of Sacramento,
+and this spot rather than the one selected has the better right
+to be considered the real beginning of the mountains, so far
+as any single point can be fixed. As a matter of fact,
+the advisers of the President, who were in this instance the
+political authorities of the state of California, made their
+recommendation on the strength of what they conceived to be
+the purpose of the federal act rather than on scientific grounds.
+Mr. Whitney, state geologist, told the government that the
+intent of Congress was clearly to give a subsidy of $48,000
+per mile over the most mountainous section of the road. If,
+therefore, he said, a distance of 150 miles measured east from<span class="pagenum"><a name="Page_60" id="Page_60">[60]</a></span>
+the point in the Sacramento Valley where the ascent commenced
+would clear the most difficult and mountainous portion of the
+Sierra Nevadas and reach the valley on the eastern slope, then
+it seemed reasonable that the base of the Sierra Nevadas should
+be taken as beginning at that point. He recommended the
+place where the line of the Central Pacific crossed Arcade
+Creek as such a point.</p>
+
+<p>The same place was selected by the Surveyor-General of
+the state of California, on the principle that the two extremities
+of the 150 miles upon which the maximum subsidy was to
+be given should rest upon corresponding grades, the one to the
+west, the other to the east of the mountains. These two recommendations
+seem to have been controlling, although the United
+States Surveyor-General for California suggested a location
+further east, where the ascending grade of the Sierras became
+plainly perceptible to the naked eye.<a name="FNanchor_85_85" id="FNanchor_85_85"></a><a href="#Footnote_85_85" class="fnanchor">[85]</a> Since this interpretation
+of the act increased the bond subsidy which the
+Central Pacific was to receive, the company naturally made
+no objection.</p>
+
+<p class="pnb">Conditions of Land Grant</p>
+
+<p>In regard to the land grant, the Land Office was called on
+for a great many decisions after 1864, mostly in interpretation
+of the exemptions carried in the federal legislation. The
+cases were not all brought by or against the Central Pacific,
+but they nevertheless affected its rights.</p>
+
+<p>In general, the grant of land to the Central Pacific was
+held to be an absolute unconditional present grant. The route
+not being at the time determined, the grant was in the nature
+of a float, and the title did not attach to any specific sections
+until they were capable of identification. When once identified,
+however, the title attached to specific sections as of the
+date of the grant, except in the case of sections which were<span class="pagenum"><a name="Page_61" id="Page_61">[61]</a></span>
+specifically reserved.<a name="FNanchor_86_86" id="FNanchor_86_86"></a><a href="#Footnote_86_86" class="fnanchor">[86]</a> While the grant was a present grant,
+it conveyed only land which was public land, that is to say,
+portions of the public domain which were open to sale or other
+disposition under general laws at the time the grant was made.
+This definition did not include lands which became public
+subsequent to the date of the grant, or lands reserved by competent
+authority for any purpose or in any manner, whether
+or not the reservations were mentioned in the granting act.<a name="FNanchor_87_87" id="FNanchor_87_87"></a><a href="#Footnote_87_87" class="fnanchor">[87]</a></p>
+
+<p>It followed from the theory that the land grant was a
+present grant, that a valid homestead entry existing at the
+date of the passage of the Land Grant Act excepted the land
+covered from the area granted to the railroad even though
+the entry were canceled prior to the definite location of the
+railroad line.<a name="FNanchor_88_88" id="FNanchor_88_88"></a><a href="#Footnote_88_88" class="fnanchor">[88]</a> The same effect was produced by an uncanceled
+and unexpired pre-emption claim, or by any other valid
+claim or reservation which was alive at the date of approval
+of the granting act. In cases like these the cancellation of the
+claim restored the land in question to the public domain, but
+did not operate to replace it within the railroad grant.<a name="FNanchor_89_89" id="FNanchor_89_89"></a><a href="#Footnote_89_89" class="fnanchor">[89]</a></p>
+
+<p>Yet, although the theory that the grant took effect as of
+the date of the granting act was strictly applied against the
+railroad, the settler enjoyed the protection of a milder rule
+laid down in the statute itself. Section 7 of the Act of 1862
+required the railroad company to designate the general route
+of the road within a stated time, and instructed the Secretary
+of the Interior thereupon to withdraw lands within 15 miles
+(changed to 25 miles in 1864) of the route designated from
+pre-emption, private entry, and sale; and Section 3 provided
+that the land grant to the railroad should not include lands to
+which a pre-emption or homestead claim might have attached<span class="pagenum"><a name="Page_62" id="Page_62">[62]</a></span>
+at the time the line of road was definitely fixed. Pre-emption
+or homestead claims might therefore be established after the
+passage of the land-grant statute, provided that this was done
+before the lands were withdrawn from settlement.<a name="FNanchor_90_90" id="FNanchor_90_90"></a><a href="#Footnote_90_90" class="fnanchor">[90]</a> Indeed,
+the Secretary of the Interior ruled that settlement and occupation
+exempted land from the grant even though the settler
+failed formally to assert his claim.<a name="FNanchor_91_91" id="FNanchor_91_91"></a><a href="#Footnote_91_91" class="fnanchor">[91]</a> After the lands embraced
+in the grant were withdrawn from pre-emption, private entry,
+and sale, a settler could not secure acreage by subsequent occupation,
+although he settled prior to the time when the Central
+Pacific acquired actual title.</p>
+
+<p class="pnb">Losses Due to Spanish and Mexican Grants</p>
+
+<p>A class of cases distinct from those of ordinary settlers
+arose in connection with Spanish and Mexican grants. It
+appeared that when California became a state, the Spanish and
+Mexican grants were both indefinite and unrecorded, so that
+it was not known just what lands were public domain and
+what lands were private. On March 3, 1861, Congress passed
+an act creating a Board of Land Commissioners in California,
+and provided that all persons claiming land in California by
+virtue of any right or title derived from either the Spanish or
+Mexican governments, should present the same to the board
+within two years for adjudication, with privilege of appeal to
+the United States courts.<a name="FNanchor_92_92" id="FNanchor_92_92"></a><a href="#Footnote_92_92" class="fnanchor">[92]</a></p>
+
+<p>Following this act, many claims were presented. The
+United States Supreme Court held that land within the boundaries
+of alleged Spanish or Mexican lands which were <i>sub
+judice</i> at the time the Secretary of the Interior ordered the
+withdrawal of lands along the route of the road, were not
+embraced in the land granted to the company. There were<span class="pagenum"><a name="Page_63" id="Page_63">[63]</a></span>
+many sections of California lands which were <i>sub judice</i> on
+August 2, 1862, and this fact caused serious loss to the Central
+Pacific in its grant in California. In addition to losses from
+the cause just mentioned, the company suffered from the
+indefiniteness of the Spanish and Mexican grants, and from
+the delay in determining the extent and boundaries of the
+Spanish and Mexican claims.</p>
+
+<p class="pnb">Policy Toward Settlers</p>
+
+<p>It was the policy of the company to invite settlers upon its
+lands before the lands were patented, and then to select and
+apply for patents on lands which settlers desired to buy.<a name="FNanchor_93_93" id="FNanchor_93_93"></a><a href="#Footnote_93_93" class="fnanchor">[93]</a>
+Sometimes, indeed, the company leased unpatented land to
+cattlemen at low rates, in spite of its lack of title. Actual transfers
+were made by bargain and sale deed warranting to the
+purchaser the entire title acquired by the company from the
+federal government. The prices ranged from $2.50 to $20
+per acre, but little was sold at a price above $5. Usually land
+covered with tall timber was held at $5, and that covered with
+pine at $10. The actual cost to the purchaser was slightly
+greater, because he was compelled to pay for the acknowledgment
+of three signatures to the deed, and for the recording,
+amounting in all to perhaps $5.50 or $6. On the other hand,
+the company granted as much as five years’ credit, and through
+the practice of selling land seekers’ tickets from San Francisco,
+Sacramento, San José, Lathrop, and Los Angeles to
+points along the line of railroad, which were accepted as cash
+on the purchaser’s first payment for his land, it practically furnished
+free transportation for California terminals to the sections
+bought. This last practice, at least, was in force on the
+Southern Pacific in 1880, and presumably on the Central
+Pacific also.</p>
+
+<p><span class="pagenum"><a name="Page_64" id="Page_64">[64]</a></span></p>
+
+<p>All in all, the Central Pacific does not seem to have
+attempted to withhold its lands from the market, and there is
+no evidence that the settlement of the coast was retarded by
+the inability of prospective settlers to get land. The price
+which the Central Pacific could exact was held in check by the
+retention by the government of alternate sections, while the
+large sums which the company spent for advertising redounded
+to the advantage of the government as well as to that of the
+railroad. To the general statement that the Central Pacific
+was not unreasonably grasping in its capacity as landed proprietor,
+exception must be made of its treatment of timber
+lands in the North, of which mention will be made elsewhere.</p>
+
+<p>The land-grant policy of the government was a mistake,
+but it was a mistake because it unnecessarily enriched a few
+men by securing to them an extravagant share in the unearned
+increment due to the development of the state of California,
+without aiding them materially in the task which the government
+most desired them to perform—not because the grantees
+endeavored to build up landed estates or to discourage the
+growth of population. Compared with the land grant, the
+bond subsidy was distinctly the better policy.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_65" id="Page_65">[65]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER IV</h2>
+
+<p class="pch">PROGRESS OF CONSTRUCTION—CONSTRUCTION
+COMPANIES</p>
+
+<p class="pnb">Commencement of Construction</p>
+
+<p>The construction of the Central Pacific Railroad of California
+was begun at Sacramento on the 8th of January, 1863.
+The day the work started was rainy and calculated to damp the
+most cheerful of spirits. There was, however, a brass band,
+banners, flags, speeches, and a crowd standing on bundles of
+hay near the levee to keep its feet dry. Two wagon-loads of
+earth were driven up before the platform on which were gathered
+the dignitaries present, and Stanford, then governor of
+California, seized a shovel and deposited the first earth for the
+embankment. The enthusiastic Charles Crocker promptly
+called for nine cheers. The sun smiled brightly, and everybody,
+for the moment at least, felt happy that after so many
+years of dreaming, they now saw with their own eyes the actual
+commencement of a Pacific railroad.<a name="FNanchor_94_94" id="FNanchor_94_94"></a><a href="#Footnote_94_94" class="fnanchor">[94]</a></p>
+
+<p>It was fortunate that Mr. Crocker was enthusiastic, for the
+difficulties which the Central Pacific had to overcome were
+serious. The chief difficulties were as follows:</p>
+
+<p><i>Gradients.</i> Some reference has been made in the previous
+chapter to the elevations which the Central Pacific had to surmount.
+The highest point which the company had to reach
+was Summit Station, 105 miles from Sacramento, at an altitude
+of 7,042 feet. Since Sacramento lay only 56 feet above
+sea level, to reach this point required an ascent of 6,986 feet<span class="pagenum"><a name="Page_66" id="Page_66">[66]</a></span>
+in a distance of 105 miles, more or less, according as the route
+chosen was longer or shorter. The company’s engineer said
+in 1864 that if it had been possible to maintain a continuous
+ascending grade, the maximum grade, from the foothills
+to the summit of the Sierras could have been reduced to
+80 feet per mile.</p>
+
+<p>In the attempt to approach this ideal condition the Central
+Pacific surveyed and resurveyed continuously until its rails
+were actually on the ground. Barometrical reconnaissances
+were made in 1862 and 1863 on lines via Downieville and Yuba
+Gap, and via Oroville and Beckwourth’s Pass, in addition to
+the surveys via Georgetown, Dutch Flat, and Henness Pass,
+to which earlier reference has been made (page 20).<a name="FNanchor_95_95" id="FNanchor_95_95"></a><a href="#Footnote_95_95" class="fnanchor">[95]</a> Location
+surveys reached Alta in 1863, the state line in 1866, and
+Ogden in 1868.<a name="FNanchor_96_96" id="FNanchor_96_96"></a><a href="#Footnote_96_96" class="fnanchor">[96]</a> After Mr. Judah’s death almost an entire
+relocation of the line from the 31st to the 48th section was
+made in 1864 in order to avoid tunneling, and to reduce cost,<a name="FNanchor_97_97" id="FNanchor_97_97"></a><a href="#Footnote_97_97" class="fnanchor">[97]</a>
+and still later it was found desirable to shift the whole route
+between Dutch Flat and Emigrant Gap from the Bear River
+side of the ridge, up which the Central Pacific was proceeding,
+to the American River side. This change avoided some
+20 miles of 116-foot grade, together with a great deal of curvature.<a name="FNanchor_98_98" id="FNanchor_98_98"></a><a href="#Footnote_98_98" class="fnanchor">[98]</a></p>
+
+<p>The final result of these various surveys was a line with
+maximum grades of 116 feet to the mile. This does not compare
+unfavorably with most of the transcontinental routes subsequently
+built. It is interesting to observe, however, that the
+Central Pacific summit is some 2,000 feet higher than the altitude
+of Beckwourth’s Pass, and that the maximum grade of the
+Western Pacific Railway, built years afterwards through that
+pass, is only 52.8 feet to the mile, or one per cent. Neither
+Judah nor his immediate successors, therefore, discovered the
+best route across the Central Sierras.</p>
+
+<p class="vh"><a name="i082" id="i082">i082</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-082.jpg" width="350" height="465"
+ alt=""
+ title="" />
+</div>
+
+<p><span class="pagenum"><a name="Page_67" id="Page_67">[67]</a></span></p>
+
+<p><i>Temperature.</i> A second physical difficulty incident to
+mountain construction was found in the mountain climate.
+The summer climate of the Sierras is delightful, at least at
+altitudes of about 6,000 to 7,000 feet. At lower elevations the
+temperature is often uncomfortably warm. But the winter
+climate is quite different. As early as August the nights begin
+to get cold, the first snows come in November, while in January
+the trails become impassable, and the high levels are unvisited
+by man until the following year. The official record
+shows that the greater part of the mountain construction on
+the Central Pacific occurred between July, 1866, and July,
+1868.</p>
+
+<p>Mr. Stanford has testified that both the winter of 1866-67
+and that of 1867-68 were unusually severe, and his engineers
+have dwelt in great detail upon the consequent impediments
+to their work. Not only did the frozen earth resist pick and
+shovel, but there were snow banks from 30 to 100 feet deep.
+It was necessary to remove this snow to permit excavation,
+and to keep clear the space to be occupied by embankments in
+order to prevent settling. When the summit was approached
+tunnels had to be driven through the snow to the rock face.
+As the whole working force could not be employed in the
+tunnels, the surplus labor, with all its supplies, was hauled beyond
+the summit and put to work, at great expense, in the
+cañons of the Truckee River. The first snow sheds were built
+in the summer of 1867, and in the following years it was decided
+to cover all the cuts and points where the road crossed the
+paths of the great avalanches beyond the summit. The total
+length of sheds and galleries built by the fall of 1869 was 37
+miles, and the cost was $2,000,000.<a name="FNanchor_99_99" id="FNanchor_99_99"></a><a href="#Footnote_99_99" class="fnanchor">[99]</a></p>
+
+<p><span class="pagenum"><a name="Page_68" id="Page_68">[68]</a></span></p>
+
+<p>In addition to the difficulties caused by snow, it must be
+remembered that the frozen earth, though uncovered, was
+difficult to work. Not only was it necessary to blast out material
+which could have been cheaply moved at a more favorable
+time, but, when piled into embankments, the ground settled in
+the spring as the frost was leaving, and required constant
+attention.<a name="FNanchor_100_100" id="FNanchor_100_100"></a><a href="#Footnote_100_100" class="fnanchor">[100]</a></p>
+
+<p>All the various obstacles raised by climate would have been
+minimized if construction had proceeded more slowly. Indeed,
+Mr. Hood and Mr. Strobridge, engineers in charge of construction,
+agreed that if the Central Pacific had been built
+at less speed, and as such railways are usually constructed,
+the expense would have been from 70 to 75 per cent less
+than the actual cost. The saving would not have been due
+altogether to the abandonment of winter construction, but
+this would have been an important factor. The Central Pacific,
+however, preferred speed to economy, in the hope of
+outstripping the Union Pacific in the race for the business of
+Nevada, and for the subsidies and land grants offered by
+Congress.</p>
+
+<p><i>Supplies.</i> A further obstacle in the way of successful construction
+of the Central Pacific lay in the difficulty of getting
+supplies. Wood and stone could be procured in the mountains,
+but iron, coal, and manufactured articles of all sorts,
+including rails, locomotives, and cars, were brought from
+Sacramento or from the East. Prices in general were high, in
+part because of the war. The first ten locomotives purchased
+by the Central Pacific Railway cost upwards of $191,000;
+the second ten upwards of $215,000. Iron rails cost $91.70
+per ton at the mills. The price of powder increased from $2.25
+to $6 during the period of construction. The cost of food was
+exorbitant. Hay was worth $100 a ton out upon the line, and<span class="pagenum"><a name="Page_69" id="Page_69">[69]</a></span>
+oats about 14 or 15 cents a pound. Stanford says he sold one
+potato for $2.50.<a name="FNanchor_101_101" id="FNanchor_101_101"></a><a href="#Footnote_101_101" class="fnanchor">[101]</a></p>
+
+<p>In the cases cited, high cost of transportation often played
+an important part in determining the final prices, and in general,
+indeed, the expense of moving supplies was comparable
+with the initial cost. Among many possible illustrations one
+may mention the fact that shipments of rails via the Isthmus
+of Panama as late as 1868 cost, for transportation alone,
+$51.97 per ton, making the total cost of the rail delivered at
+Sacramento, $143.67, not including charges for transfer from
+ships at San Francisco, nor for transportation up the Sacramento
+River. Nor was this freight rate high when compared
+with the cost of wagon hauls in the mountains, when material
+had to be transported away from the finished track. Mr.
+Huntington tells of meeting some teams with ties in the Wahsatch
+Mountains. He continues:</p>
+
+<p class="pbq p1">They had seven ties on that wagon. I asked where they
+were hauled from, and they said from a certain canon. They
+said it took three days to get a load up to the top of the
+Wahsatch Mountains and to get back to their work. I asked
+them what they had a day for their teams, and they said $10.
+This would make the cost of each tie more than $6. I passed
+back that way in the night in January, and I saw a large fire
+burning near the Wahsatch summit, and I stopped to look at
+it. They had, I think, some twenty to twenty-five ties burning.
+They said it was so fearfully cold they could not stand it without
+having a fire to warm themselves.</p>
+
+<p class="p1">Fortunately for the company, the cost of labor on the Central
+Pacific and transcontinental lines does not seem to have
+been excessive. The total number of men employed ranged
+from 1,200 in 1864, to 14,000 or 14,500 in 1867, when construction
+was at its height. White men, of whom there were<span class="pagenum"><a name="Page_70" id="Page_70">[70]</a></span>
+some 2,500 or 3,000 in 1867, received $35 a month and board
+as common laborers, and from $3 to $5 a day as skilled mechanics.
+Most of the track laborers, however, were Chinamen,
+who were paid $35 a month, and boarded themselves.<a name="FNanchor_102_102" id="FNanchor_102_102"></a><a href="#Footnote_102_102" class="fnanchor">[102]</a> These
+Chinamen proved reliable and willing workers, and, because of
+his experience with them, it was with distinct reluctance that
+Mr. Stanford in later years allied himself with the friends of
+Chinese exclusion.<a name="FNanchor_103_103" id="FNanchor_103_103"></a><a href="#Footnote_103_103" class="fnanchor">[103]</a></p>
+
+<p class="pnb">Letting of Construction Contracts</p>
+
+<p>Such obstacles as these made the task upon which the
+Huntington-Stanford group had entered a formidable one
+indeed. Just how the difficulties should be met, Mr. Huntington
+himself did not know. Arrangements were first made with
+small contractors for the building of stretches of road from
+Sacramento towards Newcastle. Charles Crocker resigned his
+directorship in 1862 and took the first contract for 18 miles.
+Then Cyrus Collins and Brothers got a contract which they did
+not complete, and other contracts were let to Turton, Knox
+and Ryan, C. D. Bates, and S. D. Smith. Mr. Crocker says
+the people raised a hue and cry saying that he was a favored
+contractor, so that the directors told him that he could not
+have more than two miles of the road between the 18th and<span class="pagenum"><a name="Page_71" id="Page_71">[71]</a></span>
+30th sections.<a name="FNanchor_104_104" id="FNanchor_104_104"></a><a href="#Footnote_104_104" class="fnanchor">[104]</a> He adds that the independent contractors got
+to bidding against each other for laborers, and thus put up the
+price. Huntington was told that the smaller contractors quarreled
+with each other, and tried to “scoop” labor from each
+other;<a name="FNanchor_105_105" id="FNanchor_105_105"></a><a href="#Footnote_105_105" class="fnanchor">[105]</a> while Mr. Stanford says that the small contractors
+did not finish their sections in consecutive order, that they did
+not hurry, and could not be sufficiently controlled.<a name="FNanchor_106_106" id="FNanchor_106_106"></a><a href="#Footnote_106_106" class="fnanchor">[106]</a></p>
+
+<p>At any rate, after the completion of section 29, no more
+contracts were let to anyone except Charles Crocker and Company.
+According to the associates, it was not so much a question
+of price as one of organization and control. This may be
+true, or it may be that the associates finally decided that it
+would be easier to make a satisfactory profit out of government
+subsidies by doing the building themselves, than by beating
+down subcontractors to the lowest possible contract price. It
+should be noticed that the change in policy referred to did not
+take place until 1864, when the federal Act of 1862 had been
+passed and that of 1864 was imminent, and that the Central
+Pacific did not select any single contractor, but gave all its
+work to Charles Crocker, one of the original associates.</p>
+
+<p class="pnb">Contracts with Crocker</p>
+
+<p>The first contract with Charles Crocker, covering sections
+1 to 18, provided for a lump sum payment of $400,000, of
+which $250,000 was to be in cash, $100,000 in bonds of the
+company, and $50,000 in capital stock. This was also the type
+of contract made with other contractors up to section 30,
+although the amounts paid varied. At least one bill for extras<span class="pagenum"><a name="Page_72" id="Page_72">[72]</a></span>
+was allowed Mr. Crocker. Sections 30 and 31 were built by
+Crocker, and after these were completed he was permitted to
+continue without a written contract.</p>
+
+<p>In June, 1865, Mr. Hopkins made a report to the president
+and directors of the Central Pacific upon the general subject
+of contracts. In this report Hopkins dwelt upon the necessity
+of rapid construction for the purpose of capturing the passenger
+traffic between Sacramento and Virginia City; and also in
+order to comply with the acts of Congress and the state legislature,
+which required rapid construction of the road. Persons
+of large capital, he said, seemed unwilling to bind themselves to
+construct the road as rapidly as necessary. Charles Crocker
+and Company, on the other hand, had pushed and were pushing
+the work with extraordinary vigor and success, and had in all
+cases complied with the orders and directions of the officers of
+the company. He recommended, therefore, that arrangements
+be continued with that firm, at rates specified in an accompanying
+resolution.<a name="FNanchor_107_107" id="FNanchor_107_107"></a><a href="#Footnote_107_107" class="fnanchor">[107]</a> The directors thereupon adopted this report,
+and resolved as follows:</p>
+
+<div class="pbq">
+<p class="p1"><i>Resolved and ordered</i> that Charles Crocker and Company
+be allowed and paid for all work done and material furnished,
+or which may hereafter be done and furnished, until the further
+order of the Board of Directors, in the construction of the railroad
+of the Company, from section 43 eastward, subject to and
+in accordance with the terms, conditions and stipulations set
+forth in the contract with said Charles Crocker and Company,
+dated September 19, 1863, except so far as the same are modified
+or changed by this order, at the following rates and prices,
+and in accordance with the following classification, to-wit:</p>
+
+<p>[Here are inserted the rates for clearing and grubbing, and
+excavation in various kinds of rock, etc.]</p>
+
+<p>The payments to be made monthly, according to the monthly
+estimates, five-eighths thereof in gold coin, and the remaining
+three-eighths in the capital stock of the Company, at the rate
+of two dollars of capital stock for each one dollar of said
+three-eighths of said estimate, with the privilege of paying said
+three-eighths in gold coin in lieu of said stock, at the election
+of said Company, to be made at the time of such payment.</p></div>
+
+<p class="vh"><a name="i090" id="i090">i090</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-090.jpg" width="400" height="298"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Summit Valley. Altitude 6,960 feet. Emigrant Mountain and Railroad Pass in the distance</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_73" id="Page_73">[73]</a></span></p>
+
+<p class="pnb">Payments in Cash and Stock</p>
+
+<p>The essence of this arrangement was that Mr. Crocker was
+to go ahead indefinitely and that he was to be paid not a given
+sum per mile, but at a given rate of so much per unit for each
+class of work which he might find it necessary to do. Payments
+were to be made in cash, and also up to a certain per cent in
+stock, taken at a valuation of 50 cents on the dollar. Under
+date of April 16, 1866, Mr. Crocker requested that stock be
+given him at a valuation of 30 cents on the dollar, instead of
+50 cents, and this was agreed to.<a name="FNanchor_108_108" id="FNanchor_108_108"></a><a href="#Footnote_108_108" class="fnanchor">[108]</a></p>
+
+<p>The change from a 50-cent to a 30-cent valuation was made
+ostensibly because Crocker and Company could not realize
+more than 30 cents on the stock which they were receiving. As
+a matter of fact, Crocker could not sell Central Pacific stock at
+any price, so that the alteration of the contract merely increased
+his chance for a speculative gain, to be realized after
+construction should have been completed. Mr. Stanford has
+said that the directors did not care very much what the prices
+were, so long as the work was done. Under the contract, the
+Central Pacific Railroad itself, through Mr. Huntington,
+purchased locomotives and cars for Crocker and Company, and
+charged for them at cost.<a name="FNanchor_109_109" id="FNanchor_109_109"></a><a href="#Footnote_109_109" class="fnanchor">[109]</a> Bonds were also sent from San
+Francisco to Huntington, but it was Huntington’s impression
+that they were sold for the company, not for the contractors.
+In any case, Huntington rendered an account every month of
+what he had done, and Hopkins settled with the company or<span class="pagenum"><a name="Page_74" id="Page_74">[74]</a></span>
+with the contractors, as the case might be.<a name="FNanchor_110_110" id="FNanchor_110_110"></a><a href="#Footnote_110_110" class="fnanchor">[110]</a> Describing the
+situation at a later date, Crocker said, “It was decided that I
+should go on immediately and see what I could do. I did go on
+until we got tied up in suits and I had to stop. I could not
+get any money. They had all the money I had, and all I could
+borrow. That was the time that I would have been very glad
+to take a clean shirt, lose all I had, and quit.”</p>
+
+<p>The total payments made to Charles Crocker or to Charles
+Crocker and Company, under the various arrangements just
+described, were as follows:<a name="FNanchor_111_111" id="FNanchor_111_111"></a><a href="#Footnote_111_111" class="fnanchor">[111]</a></p>
+
+<p class="pc1"><span class="smcap">Total Amount Paid Charles Crocker and Company
+on His Contract and for Extra Work</span></p>
+
+<table id="t03" summary="t03">
+
+ <tr>
+ <td class="tdt">Cash, or its equivalent, including material furnished him</td>
+ <td class="tdrl">$8,853,117.93</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Bonds, taken at par</td>
+ <td class="tdrl">100,000.00</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Stock, taken at 50 cents on the dollar</td>
+ <td class="tdrl">2,696,200.00</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Stock, taken at 30 cents on the dollar</td>
+ <td class="tdrl">11,947,530.00</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Stock, taken at par value</td>
+ <td class="tdrl">57,980.22</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdrl">——————</td>
+ </tr>
+
+ <tr>
+ <td class="tdt3">Total</td>
+ <td class="tdrl">$23,654,828.15</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdrl">═════════</td>
+ </tr>
+
+</table>
+
+<p class="p1">If we take the cash payments at par and the bonds at 75,
+this would make the tidy sum of $69,210 per mile on 129 miles.
+When we bear in mind that Crocker accepted the contract for
+the first 18 miles out of Sacramento at a price including a cash
+payment of only $13,800 per mile, and that the arrangements
+with the small contractors who followed him were distinctly
+less favorable, it is possible to say with some confidence that the
+profits on the Crocker contracts were considerable. Whatever
+they were, Mr. Crocker shared them with his associates by<span class="pagenum"><a name="Page_75" id="Page_75">[75]</a></span>
+depositing at a later date $14,000,000 in Central Pacific stock
+in the treasury of the Contract and Finance Company,
+(discussed in the next section) for the benefit of the stockholders
+of that organization. Inasmuch as Stanford was one
+of the principal stockholders in the Contract and Finance
+Company, his later categorical denial before the United States
+Pacific Railway Commission that he had participated in the
+profits of the Crocker contracts makes interesting reading.<a name="FNanchor_112_112" id="FNanchor_112_112"></a><a href="#Footnote_112_112" class="fnanchor">[112]</a></p>
+
+<p class="pnb">“Contract and Finance Company”</p>
+
+<p>When the Central Pacific approached the state line of California
+in the latter part of 1867, the associates told Mr.
+Crocker that they did not think it best for him to go any
+further. They said they wanted more capital—they wanted to
+engage heavy men in the enterprise.<a name="FNanchor_113_113" id="FNanchor_113_113"></a><a href="#Footnote_113_113" class="fnanchor">[113]</a> Crocker had not been
+successful in persuading capitalists to go in with him, while it
+was believed that investors were deterred from taking stock in
+the Central Pacific by reason of the liability which would be
+thereby incurred under California law. Either Huntington or
+Stanford—both claim the credit—conceived the idea that there
+would be an advantage in organizing a corporation to undertake
+the construction work. The subject was mentioned on the
+occasion of one of Huntington’s visits to California, although
+the company was formed while Huntington was in the East.<a name="FNanchor_114_114" id="FNanchor_114_114"></a><a href="#Footnote_114_114" class="fnanchor">[114]</a>
+The name finally decided upon for the new corporation was that
+of “Contract and Finance Company.” Articles of association
+were filed in October, 1867. W. E. Brown, Theodore J. Milliken,
+and B. R. Crocker attended to the details. Milliken was a
+merchant in Sacramento, and the other two were connected
+with the Central Pacific.</p>
+
+<p>According to its articles of incorporation, the Contract and<span class="pagenum"><a name="Page_76" id="Page_76">[76]</a></span>
+Finance Company was formed for the purpose of engaging in
+and carrying on the business of constructing, purchasing,
+leasing, selling, holding, maintaining, operating, and repairing
+railroads, wagon and transit roads, steamboats, vessels, telegraph
+lines, and rolling stock of railroads; the purchasing,
+holding, hypothecating, and selling of bonds and stocks issued
+by railroad and other companies or corporations; the purchasing
+and using of iron and other materials for railroad and
+telegraph lines; the borrowing and loaning of money; the conducting
+of an express and stage business, and any and all other
+kinds of business connected with or pertaining to railroads and
+telegraph lines; the transportation of persons and property,
+on land and water; and the purchasing, holding, leasing, and
+selling of real estate of all kinds. The capital stock was set at
+$5,000,000.</p>
+
+<p class="pnb">Failure to Attract Outside Capital</p>
+
+<p>It is the unanimous testimony of the associates that the
+real and only reason for forming the Contract and Finance
+Company was that outside capital might be induced to come in.
+Huntington says that when the company was organized, he
+went with new energy to capitalists in the East to induce them
+to take a share in the risks and profits of construction. Yet
+from the point of view of attracting outside capital, the Contract
+and Finance Company was a complete failure. William
+and Commodore Garrison, of New York, A. A. Selover, Moses
+Taylor, and William E. Dodge, among others, considered
+the matter, but all concluded that the risk was too great. In
+California, Stanford applied to D. O. Mills, W. C. Ralston,
+Haggin and Tevis, Michael Reese—in short, to everybody
+whom he thought he might possibly induce to take an interest—but
+in vain.<a name="FNanchor_115_115" id="FNanchor_115_115"></a><a href="#Footnote_115_115" class="fnanchor">[115]</a> The result of the failure to secure outside
+subscriptions to the Contract and Finance Company was that<span class="pagenum"><a name="Page_77" id="Page_77">[77]</a></span>
+the associates had to take up the stock of that company themselves.
+Crocker was made president at an early date, and
+apparently took the bulk of the stock in the first instance.
+Then, when it was evident that no outside investors would
+come in, he put the stock back, and Stanford, Hopkins, Huntington,
+and E. B. Crocker took equal shares with him—each
+subscribing for 10,000 shares out of the 50,000 outstanding.<a name="FNanchor_116_116" id="FNanchor_116_116"></a><a href="#Footnote_116_116" class="fnanchor">[116]</a>
+Later a little stock was disposed of to outsiders, but when the
+Contract and Finance Company got into the courts the associates
+bought this back.</p>
+
+<p>Throughout the whole life of the Contract and Finance
+Company the stockholders were the same men who held the
+bulk of the stock of the Central Pacific Railroad. Contracts
+between the finance company and the railroad company were
+therefore made by the associates in one capacity, with themselves
+in another capacity, a situation unfortunately not unique
+in the history of American railroad building. An unusual
+feature of the arrangement, however, which was common to
+arrangements with other construction companies formed by
+the associates, was that the funds of the Contract and Finance
+Company, over and above the sums received from the Central
+Pacific, were derived from loans to the company by its stockholders
+and not from payments on the stock subscribed. There
+is no evidence that Hopkins, Stanford, Huntington, or either
+of the Crockers paid a cent in cash on their subscriptions.
+Instead, they gave their notes. To provide the Contract and
+Finance Company with funds, they deposited money, sometimes
+more and sometimes less, paying interest on their notes,
+and receiving credit for interest on their balances, each partner
+as a rule putting in all the funds which he could spare, and
+having an individual account kept of his transactions. The
+Contract and Finance Company was, therefore, always heavily
+in debt, although the debt was owed to its own stockholders.<span class="pagenum"><a name="Page_78" id="Page_78">[78]</a></span>
+The advantages of this arrangement would seem to be two:
+first, that it concealed effectively the profits which the company
+was making; and second, that it did not limit any stockholder
+to a proportionate share in the burdens and gains of the undertaking.
+If any of the associates desired to participate more
+heavily than his friends, or less heavily, he could do so. Such a
+privilege was probably not important before 1869, but it became
+so later.</p>
+
+<p class="pnb">Contracts with Construction Company</p>
+
+<p>A word may now be said about the contracts which the
+Contract and Finance Company secured. Under date of
+December 3, 1867, Mr. Stanford, as president of the Central
+Pacific, reported to his directors that he had made a contract
+for the construction and equipment of the railway and telegraph
+line of the company lying east of the eastern boundary
+of the line of California, and presented a draft of the contract,
+which the directors approved.<a name="FNanchor_117_117" id="FNanchor_117_117"></a><a href="#Footnote_117_117" class="fnanchor">[117]</a> Leland Stanford, E. B.
+Crocker, Mark Hopkins, and E. H. Miller, Jr., were present
+and voted. Mr. Miller explains that he did not understand at
+the time who the owners of the Contract and Finance Company
+were, and that nothing was said about it at the meeting. The
+contract provided that the Contract and Finance Company
+should build the road of the Central Pacific from the state line,
+eastward, 552 miles. It was to grade the road, build the
+bridges, lay the track, build and complete a telegraph line,
+furnish telegraph offices and instruments, furnish rails, ties,
+buildings, roundhouses, turntables, and a specified number of
+engines and cars and running material per mile. On its part,
+the Central Pacific agreed to pay $86,000 per mile, half in cash
+and half in Central Pacific stock, and in practice the Central
+Pacific provided the equipment and the iron, charging them to
+the Contract and Finance Company at cost. This statement<span class="pagenum"><a name="Page_79" id="Page_79">[79]</a></span>
+relative to the terms of the contract with the construction
+company is made on the strength of the recollections of parties
+interested,<a name="FNanchor_118_118" id="FNanchor_118_118"></a><a href="#Footnote_118_118" class="fnanchor">[118]</a> for the actual contract is one of the missing documents
+characteristic of Central Pacific history. Stanford describes
+the contract as an exhaustive one. That is to say, the
+Central Pacific turned over all it had and the Contract and
+Finance Company built the road and got the profits, if there
+were any.</p>
+
+<p>The apparent advantages of an arrangement with a construction
+company as compared with those of construction by
+the Central Pacific itself, were those connected with specialization
+of the work. A company which does nothing but construction
+and which does that all the time, may be expected to
+have a force more highly trained in this particular grade of
+work, and a more abundant supply of tools and material than
+an organization which builds railroads only occasionally. The
+unfortunate necessity of hiring men for each new job and discharging
+them at the completion of the job is avoided. In the
+case of the Central Pacific this advantage was somewhat
+illusory, it is true, for the reason that the Contract and Finance
+Company on its first contract, whatever might have been the
+fact later, could scarcely have had an advantage over the railroad;
+and as for tools, the Contract and Finance Company had
+no machine tools at all at the beginning, and had to rely on the
+railroad not only for cars and engines to transport its men, but
+for equipment for large construction of any sort. The real
+reason for using a construction company in this case was a
+financial and not an operating one.</p>
+
+<p class="pnb">Profits of Construction</p>
+
+<p>Much has been said about the profits of the Contract and
+Finance Company. Here, again, books are missing, having<span class="pagenum"><a name="Page_80" id="Page_80">[80]</a></span>
+been packed into boxes by the industrious Mark Hopkins in
+1873, and never again produced.<a name="FNanchor_119_119" id="FNanchor_119_119"></a><a href="#Footnote_119_119" class="fnanchor">[119]</a> A man named John Miller,
+one-time secretary of the Contract and Finance Company, and
+defaulter to the alleged extent of $900,000 at a subsequent
+period, was in possession of transcripts from these books, if
+we may believe his statement; but even these transcripts disappeared,
+if indeed they ever existed.<a name="FNanchor_120_120" id="FNanchor_120_120"></a><a href="#Footnote_120_120" class="fnanchor">[120]</a> We do not know,
+therefore, how much construction cost the Contract and Finance
+Company, and we cannot calculate with any accuracy the
+profit obtained.</p>
+
+<p>It does appear that the work done by the Contract and
+Finance Company cost the Central Pacific, in all $23,736,000
+in cash and the same amount in capital stock.<a name="FNanchor_121_121" id="FNanchor_121_121"></a><a href="#Footnote_121_121" class="fnanchor">[121]</a> If we add to
+this $100,000 in cash and $2,900,000 in bonds paid to the
+Union Pacific for the stretch of land from Promontory Point
+to a point five miles west of Ogden, and $1,072,874.79 for
+snowsheds and other extra work performed in 1870, we have
+a total of $51,544,874.79, of which $24,908,874.79 was in
+cash. Taken in connection with the Crocker contracts, this
+makes an aggregate of $33,761,992.72 in cash, $3,000,000 in
+bonds, and $38,437,710.22 in stock. It was the judgment of the
+United States Pacific Railway Commission that the total cost
+of building the 690 miles from Sacramento to Promontory
+Point, and of purchasing from the Union Pacific 47½ miles
+of road from Promontory Point to the end of the Central
+Pacific line, 5 miles west of Ogden, did not exceed $36,000,000,
+and this included 9 miles built by small contractors, the payment
+for which is not included in the figures just given.<a name="FNanchor_122_122" id="FNanchor_122_122"></a><a href="#Footnote_122_122" class="fnanchor">[122]</a></p>
+
+<p class="vh"><a name="i100" id="i100">i100</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-100.jpg" width="400" height="290"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Summit tunnel (altitude 7,042 feet) before completion—Sierra Nevada Mountains</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_81" id="Page_81">[81]</a></span></p>
+
+<p>In a word, if the conclusions of the United States Pacific
+Railway Commission are to be relied upon, and they were made
+by engineers relatively soon after the completion of the road,
+the builders of the Central Pacific were able to accomplish their
+contracts with the cash and the proceeds of the company’s
+bonds that were turned over to them, and to retain their Central
+Pacific stock as a clear profit. If we compare this stock surplus
+with the probable cash investment in the road, taking the shares
+at any reasonable valuation, say at $15 or $20 per share, the
+profit does not seem excessive. If we compare it with the
+contributions of the associates, however, and this is the more
+reasonable because the associates received the full benefit of the
+difference between cost and receipts, it represents, on the most
+conservative calculation, 500 or 600 per cent for an investment
+which probably did not exceed $1,000,000, over a period of six
+years. To this should be added the proceeds of the land grant
+and of the local subsidies.</p>
+
+<p>The federal government seems in these matters to have
+assumed the major portion of the risk, and the associates seem
+to have derived the profits. Nor is this point of view vitiated
+by the fact that the federal government was ultimately repaid
+its loan in full, for the reason that the repayment was not at
+the expense of the associates, but was made possible by a credit
+arising out of the earnings of the road, and represented merely
+a shifting of the burden of the debt due the federal authorities
+to the communities along the line.</p>
+
+<p>Besides the completion of the main line of the Central
+Pacific, the Contract and Finance Company built a portion of
+the California and Oregon Railroad, part of the Western
+Pacific, and the entire San Joaquin Valley branch of the
+Central Pacific from Lathrop to Goshen. The arrangements
+between the Contract and Finance Company and Central
+Pacific for this work varied, but substantial additional profits
+were secured. In 1874, the Contract and Finance Company
+was dissolved. There is some dispute as to whether its assets<span class="pagenum"><a name="Page_82" id="Page_82">[82]</a></span>
+were divided into four or five parts, but both Stanford and
+Crocker have testified that their dividend consisted of approximately
+$13,000,000 in Central Pacific stock, at par.<a name="FNanchor_123_123" id="FNanchor_123_123"></a><a href="#Footnote_123_123" class="fnanchor">[123]</a> At the
+same time the stockholders of the construction company
+assumed its debts, amounting to perhaps $1,600,000.<a name="FNanchor_124_124" id="FNanchor_124_124"></a><a href="#Footnote_124_124" class="fnanchor">[124]</a></p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_83" id="Page_83">[83]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER V</h2>
+
+<p class="pch">THE SEARCH FOR A TERMINAL</p>
+
+<p class="pnb">Progress of Construction</p>
+
+<p>Under its various construction contracts, the Central Pacific
+steadily progressed, between 1863 and 1869, from Sacramento
+to a junction with the Union Pacific near Ogden. The official
+statement of the progress of construction is as follows:<a name="FNanchor_125_125" id="FNanchor_125_125"></a><a href="#Footnote_125_125" class="fnanchor">[125]</a></p>
+
+<table id="t04" summary="t04">
+
+ <tr>
+ <td colspan="4">Broke ground at Sacramento</td>
+ <td>January 8, 1863</td>
+ </tr>
+
+ <tr>
+ <td colspan="4">Laid first rail</td>
+ <td>October 27, 1863</td>
+ </tr>
+
+ <tr>
+ <td colspan="4">Sacramento to Roseville (18 miles)</td>
+ <td>Constructed in 1863</td>
+ </tr>
+
+ <tr>
+ <td colspan="5" class="tdtop">Road opened as follows:</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">To</td>
+ <td>Newcastle</td>
+ <td class="tdr">31</td>
+ <td class="tdc">miles</td>
+ <td>January, 1865</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Auburn</td>
+ <td class="tdr">36</td>
+ <td class="tdc">”</td>
+ <td>May 15, 1865</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Clipper Gap</td>
+ <td class="tdr">42</td>
+ <td class="tdc">”</td>
+ <td>June 10, 1865</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Colfax</td>
+ <td class="tdr">54</td>
+ <td class="tdc">”</td>
+ <td>September 4, 1865</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Secret Town</td>
+ <td class="tdr">66</td>
+ <td class="tdc">”</td>
+ <td>May 8, 1866</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Alta</td>
+ <td class="tdr">78</td>
+ <td class="tdc">”</td>
+ <td>July 10, 1866</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Cisco</td>
+ <td class="tdr">94</td>
+ <td class="tdc">”</td>
+ <td>November 9, 1866</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Summit</td>
+ <td class="tdr">105</td>
+ <td class="tdc">”</td>
+ <td>July, 1867</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>State Line</td>
+ <td class="tdr">278</td>
+ <td class="tdc">”</td>
+ <td>January, 1868</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Reno</td>
+ <td class="tdr">294</td>
+ <td class="tdc">”</td>
+ <td>May, 1868</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Wadsworth</td>
+ <td class="tdr">329</td>
+ <td class="tdc">”</td>
+ <td>July, 1868</td>
+ </tr>
+
+ <tr>
+ <td colspan="5">(362 miles constructed in 1868)</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Monument Point</td>
+ <td class="tdr">667</td>
+ <td class="tdc">”</td>
+ <td>April 15, 1869</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td>Ogden</td>
+ <td class="tdr">743</td>
+ <td class="tdc">”</td>
+ <td>May 10, 1869</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdt">Driving last spike, and opened
+for business from Sacramento;
+distance San Francisco to
+Ogden, per time card</td>
+ <td class="tdrl">883</td>
+ <td class="tdcl">”</td>
+ <td class="tdll">May 10, 1869</td>
+ </tr>
+
+</table>
+
+<p><span class="pagenum"><a name="Page_84" id="Page_84">[84]</a></span></p>
+
+<p class="pnb">Relations with Western Pacific</p>
+
+<p>It has already been noted that the line from Sacramento
+via Stockton to San José was not part of the original plan,
+and that the rights, grants, and franchises of the Central Pacific
+in it were assigned to other parties in the course of the
+Congressional fight. The original assignment of December 4,
+1862, was to a group of men which included Timothy Dane,
+the original projector, and president of the San Francisco and
+San José Railroad, Charles McLoughlin, and A. H. Houston.
+In 1864, the first assignees having waived their rights, the
+Central Pacific Railroad made the same assignment to the
+Western Pacific Railroad of California.<a name="FNanchor_126_126" id="FNanchor_126_126"></a><a href="#Footnote_126_126" class="fnanchor">[126]</a> The Western Pacific
+Railroad in turn let contracts for construction to Houston and
+McLoughlin, but by 1867, McLoughlin had become involved
+in litigation regarding his contracts and asked that all arrangements
+between himself and the Western Pacific be canceled.<a name="FNanchor_127_127" id="FNanchor_127_127"></a><a href="#Footnote_127_127" class="fnanchor">[127]</a></p>
+
+<p>This led the Western Pacific to enter into a contract with
+the Contract and Finance Company, with the result that substantially
+all the stock of the first-named corporation came into
+the hands of the Huntington group. McLoughlin retained the
+federal land grant; the federal subsidy, however, of $16,000
+per mile, reverted to the Western Pacific as did the local
+subsidies, and through it passed to the Contract and Finance
+Company. The railroad from Sacramento to San José was
+opened September 15, 1869; on June 22, 1870, the Central
+Pacific and the Western Pacific filed articles of consolidation.</p>
+
+<p class="pnb">Lack of Terminal Facilities</p>
+
+<p>In September, 1869, the transcontinental railroad from
+Omaha to San José was in working order. It would be an<span class="pagenum"><a name="Page_85" id="Page_85">[85]</a></span>
+exaggeration to say that the line was in good shape. There
+was little or no ballast, and a good rain was said to make miles
+of the road-bed run like wet soap. Little had been done to
+eliminate grades and curves, sleeping-car accommodation at
+first was insufficient, the journey speed from Sacramento to
+Ogden was only 19 miles an hour, while schedules were not
+always adhered to. Cars were heated by stoves, and passengers
+disembarked for their meals. But in a measure these were
+conditions to be expected at the start, and interfered only in a
+minor degree with the interest and excitement of a transcontinental
+trip. The great fact was that a railroad existed which
+could be used, and over which relatively direct, rapid, and cheap
+communication with the East could be secured.</p>
+
+<p>The greatest weakness of the Central Pacific Railroad in
+1869 lay in its lack of terminal facilities on San Francisco Bay.
+When the company decided to begin work at Sacramento, its
+reasonable expectation had been that a railroad under one
+management would be built from that city around the southern
+end of San Francisco Bay to the city of San Francisco. The
+Central Pacific was willing to forego the advantage of this
+construction itself in order to gain friends, and did it the more
+willingly because this stretch of line was likely to be unprofitable
+by reason of steamship competition on the bay and on the
+Sacramento River. These conditions changed, however, when
+the Contract and Finance Company took over the construction
+of the railroad from Sacramento to San José. The Central
+Pacific interest then obtained a connection of its own with Niles
+near Oakland, and it was thus led to consider the question of
+terminals on the eastern side of San Francisco Bay.</p>
+
+<p>The easiest part of San Francisco Bay for the Western
+Pacific Railroad to reach was undoubtedly the shore south of
+Oakland or Alameda. It would probably have been possible to
+build from Stockton to Richmond, as the Santa Fé did later, or
+to develop Benicia or Port Costa, or even to build a terminus<span class="pagenum"><a name="Page_86" id="Page_86">[86]</a></span>
+on an island in the bay. Yet as compared with these alternatives,
+the Oakland terminus had many advantages. It was
+near to the Western Pacific main line; it was served by two
+railroads which possessed valuable franchises that could be
+bought at not too great expense; and, most important of all,
+the conditions under which the water-front at Oakland was
+held were favorable to the acquisition of the necessary terminal
+facilities.</p>
+
+<p class="pnb">Oakland Water-Front</p>
+
+<p>The situation at Oakland was briefly as follows: The first
+army of settlers in the city had been squatters on a portion of
+the Peralta grant. Among these had been Horace W.
+Carpentier, Edson Adams, and A. J. Moon. In 1852 the state
+legislature had incorporated the town of Oakland, had fixed
+its boundary, and had granted to it the land lying between high
+tide and ship channel along the whole of its water-front, with
+a view to facilitating the construction of walls and other
+improvements.<a name="FNanchor_128_128" id="FNanchor_128_128"></a><a href="#Footnote_128_128" class="fnanchor">[128]</a> There were 75 to 100 inhabitants in Oakland
+at this time, with half a dozen residences, two hotels, a wharf,
+and two warehouses. There were no streets—only cattle trails.<a name="FNanchor_129_129" id="FNanchor_129_129"></a><a href="#Footnote_129_129" class="fnanchor">[129]</a></p>
+
+<p>As soon as incorporated, the town held an election, and
+chose Adams, Moon, Carpentier, and two others as trustees.
+Mr. Carpentier did not qualify or serve. On May 17 and 18,
+1852, the board of trustees made two important grants: In the
+first place, it gave to Horace Carpentier for the period of
+thirty-seven years, the exclusive right to construct wharves,
+piers, and docks at any point within the corporate limits of
+Oakland, with the right of collecting wharfage and dockage;
+and in the second place, it sold, granted, and released to the
+said Carpentier all the town title in the land lying within the<span class="pagenum"><a name="Page_87" id="Page_87">[87]</a></span>
+limits of the town of Oakland between high tide and ship
+channel.</p>
+
+<p>In return for this grant Carpentier agreed to build three
+wharves and a schoolhouse, and to pay to the town 2 per cent of
+his wharfage receipts—certainly a modest recompense. Mr.
+Marier, president of the board of trustees, later testified that
+Carpentier told him when the deed was signed that he would
+be willing at any time to reconvey the property to the town on
+being reimbursed for the moneys he had expended; and this
+was also the recollection of others.<a name="FNanchor_130_130" id="FNanchor_130_130"></a><a href="#Footnote_130_130" class="fnanchor">[130]</a> But the understanding,
+if any existed, never could be enforced,<a name="FNanchor_131_131" id="FNanchor_131_131"></a><a href="#Footnote_131_131" class="fnanchor">[131]</a> so that Carpentier was
+firmly established in his control of the tide-lands of the city
+of Oakland, and in spite of petitions, riots, and litigation, sat
+unshaken in 1867 when the Central Pacific became interested
+in the matter.<a name="FNanchor_132_132" id="FNanchor_132_132"></a><a href="#Footnote_132_132" class="fnanchor">[132]</a></p>
+
+<p class="pnb">Oakland Water Front Company</p>
+
+<p>Sometime prior to 1867 Carpentier had several talks with
+Leland Stanford, and endeavored to persuade him to build
+north from Niles across the Ravenswood cut-off. In the fall
+of 1867, Carpentier and Stanford talked again, and Stanford
+came to entertain the idea as a matter of reasonable negotiation.
+John P. Felton was engaged by the city of Oakland to look
+into its rights. Carpentier says that he offered the railroad
+one-half of his water-front if it would make his property its
+terminus. He says that this mode of adjustment was
+acquiesced in by Mayor Merritt and Mr. Felton, and that about
+the end of the year (1867), it came to be understood between
+them and Governor Stanford and himself that something<span class="pagenum"><a name="Page_88" id="Page_88">[88]</a></span>
+should be done on approximately this basis.<a name="FNanchor_133_133" id="FNanchor_133_133"></a><a href="#Footnote_133_133" class="fnanchor">[133]</a> Judge E. B.
+Crocker, however, attorney for the Central Pacific, asked that
+outstanding disputes regarding the water-front be first settled.
+The legislature was soon to be in session, and it was urged that
+all should act together in trying to get an authorization for the
+settlement of difficulties.</p>
+
+<p>This was done.<a name="FNanchor_134_134" id="FNanchor_134_134"></a><a href="#Footnote_134_134" class="fnanchor">[134]</a> On the 27th of March, 1868, as a part
+of a series of compromise arrangements, the Oakland Water
+Front Company was incorporated. The subscribers and
+original directors were H. W. Carpentier, president; Samuel
+Merritt, vice-president; Lloyd Tevis, secretary; Leland Stanford,
+treasurer; E. R. Carpentier and J. B. Felton. Mr. Tevis
+and H. W. Carpentier were in the same year directors of the
+Southern Pacific Railroad Company. The Oakland Water
+Front Company was capitalized for $5,000,000, and the stock
+was divided into 50,000 shares. Of these shares H. W.
+Carpentier subscribed for 23,000, or 46 per cent; Stanford for
+17,500, or 35 per cent; and Felton for 4,999, or 10 per cent.
+Lloyd Tevis took 2,500 shares, E. R. Carpentier 2,000 shares,
+and Samuel Merritt 1 share.</p>
+
+<p>On March 31, Mr. Carpentier deeded to the new corporation
+all the water-front of the city of Oakland, that is to say,
+all the lands, and the lands covered with water lying between
+high tide and ship channel, being the water-front lands
+described in and granted in the act of incorporation of May 4,
+1852. He excepted from this deed only that water-front lying
+between the middle of Washington Street and the middle of
+Franklin Street and extending southerly to a line parallel with
+First Street. By Section 2 of an agreement made the following
+day, the Oakland Water Front Company agreed to deed this
+last-named area to the city of Oakland.<a name="FNanchor_135_135" id="FNanchor_135_135"></a><a href="#Footnote_135_135" class="fnanchor">[135]</a></p>
+
+<p><span class="pagenum"><a name="Page_89" id="Page_89">[89]</a></span></p>
+
+<p class="pnb">Cession of Land by Water Front Company</p>
+
+<p>On April 1, 1868, two further agreements were signed.
+One, styled an indenture, was between the Oakland Water
+Front Company, the Western Pacific Railroad Company, Carpentier,
+Felton, and Stanford. Under this indenture, and in
+consideration of the deed of March 31, the Oakland Water
+Front Company declared that it held the property conveyed to it
+subject to covenants which were particularly set forth as follows:</p>
+
+<p>The Western Pacific Railroad agreed to select within three
+months 500 acres from the property conveyed by the deed of
+March 31, including not more than one-half mile of frontage
+on ship channel, together with not to exceed two strips of
+land over the remainder of the premises from high-water
+mark to the parcels selected. The strips running from
+high-water mark were each to be not more than 100 feet wide
+at grade.</p>
+
+<p>The Oakland Water Front Company agreed to convey to
+the Western Pacific Railroad the 500 acres selected, and to
+grant an exclusive right-of-way over the hundred-foot strips.
+It undertook, moreover, to sell no land west of the 500 acres,
+provided that these were located out to a westerly water-front
+of 24 feet depth of water at low tide, and to place no obstructions
+in front of them, or to do anything to obstruct the free
+approach of vessels to the parcels.</p>
+
+<p>The Water Front Company further agreed to convey to the
+city of Oakland on demand “so much of the premises as [lay]
+between the middle of Franklin Street and the easterly line of
+Webster Street, and extending out to a line parallel with First
+Street, and two hundred feet southerly of the present wharf
+at the foot of Broadway,” with the right of wharfage, dockage,
+and tolls thereon, and to designate and dedicate as a navigable
+water course for public use, the channel of San Antonio Creek,
+from ship channel to the town of San Antonio, to a width of<span class="pagenum"><a name="Page_90" id="Page_90">[90]</a></span>
+not less than 200 feet over the shallow water at the bar, and
+300 feet wide above that place.</p>
+
+<p>The Water Front Company, in the third place, undertook
+to convey 25,000 shares of its stock to Carpentier, 5,000 shares
+to Felton, and 20,000 shares to Stanford.</p>
+
+<p>Finally, the Water Front Company authorized the city of
+Oakland, or other parties, to construct a dam above the
+Oakland bridge, across the estuary, so as to keep the land above
+submerged to high-tide mark, for the use of the owners of the
+adjoining lands, and of the public.</p>
+
+<p>The second paper, also signed on April 1, was an agreement
+between the Western Pacific Railroad Company, Leland Stanford,
+and the Water Front Company. By it the railroad agreed
+to construct or to purchase within eighteen months and to
+complete a railroad from its main line, then at Niles, to and
+connecting with the parcels of land described in the indenture
+of the same date, together with the necessary buildings and
+structures for a freight and passenger depot on the premises.
+The railroad agreed to expend in new work within three years
+$500,000. The railroad company agreed that in construction
+across the estuary between Oakland proper and Brooklyn it
+would leave a space for forty feet free for the passage of
+vessels.<a name="FNanchor_136_136" id="FNanchor_136_136"></a><a href="#Footnote_136_136" class="fnanchor">[136]</a></p>
+
+<p class="pnb">Attitude of City</p>
+
+<p>Up to this point the city had not entered into any contracts.
+On April 1, however, the city council passed an ordinance
+ratifying and confirming the grants made under the early
+ordinances of 1852 and 1853, and the conveyance by Mr.
+Marier as president of the board of trustees, and granted, sold,
+and conveyed to the said Carpentier in fee simple forever, the
+city water-front, that is to say, the lands lying between high<span class="pagenum"><a name="Page_91" id="Page_91">[91]</a></span>
+tide and ship channel. This ordinance further provided that
+Carpentier should convey to the Oakland Water Front Company
+the property and franchises conveyed at that time by the
+city to him, to be used in accordance with the terms and
+stipulations of the contract between the Oakland Water Front
+Company, the Western Pacific Railroad Company, and other
+parties. On the following day the council passed still another
+ordinance reciting that inasmuch as the terms and stipulations
+previously provided had been complied with by Carpentier, the
+grant was finally settled upon him.<a name="FNanchor_137_137" id="FNanchor_137_137"></a><a href="#Footnote_137_137" class="fnanchor">[137]</a></p>
+
+<p>The result of these somewhat complicated negotiations was
+that the Central Pacific acquired 500 acres of water-front
+property in Oakland, with a frontage of one-half mile on ship
+channel, merely as a reward for coming to the city. In addition,
+Mr. Stanford, acting presumably on behalf of his
+associates, received 40 per cent of the capital stock of the
+Oakland Water Front Company, which on its part owned
+substantially all of the water-front remaining. The city
+attorney, who was supposed to represent the interests of the
+city, was rewarded with 10 per cent of the stock of the Oakland
+Water Front Company, and the position of director. The
+mayor of the city, Mr. Merritt, was made vice-president of the
+same corporation, although the extent of his personal interest
+in it is not known. He seems to have held only qualifying
+shares.<a name="FNanchor_138_138" id="FNanchor_138_138"></a><a href="#Footnote_138_138" class="fnanchor">[138]</a></p>
+
+<p><span class="pagenum"><a name="Page_92" id="Page_92">[92]</a></span></p>
+
+<p>In subsequent years the relations between the city of
+Oakland and the Oakland Water Front Company were repeatedly
+subjects of most bitter controversy. Extravagant as
+had been the consideration of the grant to the Central Pacific
+for coming to Oakland, this matter was less serious than the
+circumstance that the control of the remaining water-front by
+the Central Pacific through the Oakland Water Front Company
+appeared to make it impossible for any rival transportation
+company to gain a footing in the city. The city long
+endeavored to free itself from this monopoly. It contended
+at one time that Carpentier had secured the election of his own
+agents to the board of trustees which had made his grant, and
+that in any case Carpentier had agreed to reconvey the property
+to the city. Neither statement could be proved. On the contrary,
+in 1897 the Supreme Court of California definitely
+pronounced the compromise of 1868 binding upon the municipality,
+although it interpreted the words “ship channel” to mean
+the low-tide line and not a depth of three fathoms at low tide
+as had at first been supposed.<a name="FNanchor_139_139" id="FNanchor_139_139"></a><a href="#Footnote_139_139" class="fnanchor">[139]</a></p>
+
+<p class="pnb">Water-Front Monopoly Broken</p>
+
+<p>Ten years later the title of the Oakland Water Front Company
+was again questioned in a case brought by the Western
+Pacific Railroad Company. By this time two jetties had been
+built by the United States government extending the lines of
+San Antonio Creek westward to deep water. As a result of
+the deposit of material taken out of the channel of the estuary
+and placed north of the northern training wall, and of additional
+deposits from dredging operations conducted by the
+Central Pacific and by private parties, the line of low tide had
+been moved appreciably out into the bay. Under the general
+rule that accretions belong to the proprietors of riparian lands,
+the Southern Pacific, as successor to the Oakland Water Front
+Company, asserted title up to the limit of the new line of low
+tide. This claim the federal court denied. The limit of the
+railroad company’s property was declared to be the low-tide
+line of 1852, extending first northwesterly and then northeasterly
+from the mouth of the San Antonio estuary at Sand
+Point as indicated in the map on page 93.<a name="FNanchor_140_140" id="FNanchor_140_140"></a><a href="#Footnote_140_140" class="fnanchor">[140]</a></p>
+
+<p><span class="pagenum"><a name="Page_93" id="Page_93">[93]</a></span></p>
+
+<p class="vh"><a name="i114" id="i114">i114</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-114.jpg" width="450" height="220"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc450">Map of Oakland and Brooklyn, showing location of Central Pacific terminals, 1871</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_94" id="Page_94">[94]</a></span></p>
+
+<p>This at one stroke transformed the Southern Pacific’s holding
+from a water-front to an interior location, by making it
+clear that the title to the substantial area between the bulkhead
+line of the city of Oakland and the low-water mark of 1852 lay
+in the city and not in private hands. The city had indeed given
+away its water-front as it existed in 1852, but the creation of
+a new water-front during the following years relieved it of
+the effects of its negligence. It thus appears that the alienation
+of the water-front of Oakland in 1868 did not permanently vest
+in the Central Pacific interest control of the tide-lands to which
+the compromise of that year referred. For the time being,
+however, the company secured a well-nigh complete monopoly.
+Not only had it convenient access to tide-water for its own
+trains, but it was able for many years to keep other railroads
+from obtaining a similar advantage. Up to this point, however,
+no arrangement had been completed for a terminus on
+the San Francisco side of San Francisco Bay.</p>
+
+<p class="pnb">Proposed Grant of San Francisco Water-Front</p>
+
+<p>In order to establish the Central Pacific with complete
+adequacy, the associates accordingly now turned to the western
+side of San Francisco Bay and took steps to provide terminal
+facilities in the city of San Francisco itself. Possibly this was
+because they had acquired or were about to acquire a controlling
+interest in the San Francisco and San José Railroad; possibly<span class="pagenum"><a name="Page_95" id="Page_95">[95]</a></span>
+it was due to Carpentier’s influence, or perhaps it was
+merely a recognition of the advantages of a terminal location
+in San Francisco.</p>
+
+<p>Unlike Oakland, the city of San Francisco had never received
+title to all its tide-lands from the state, and application
+had to be made to the legislature at Sacramento, direct. Early
+in 1868 the Senate Committee on Commerce and Navigation,
+of the state legislature, reported a bill granting to the Western
+Pacific Railroad Company and to the Southern Pacific Railroad
+Company, submerged and tide-lands in the Bay of San Francisco,
+from the foot of Channel Street to Point San Bruno,
+with the right to extend the railroads of said companies or
+construct branches thereof, and to purchase other railroads, and
+use the same for the purpose of reaching the place or places on
+said premises selected as termini for said railroads, and to
+maintain and operate the same by steam or other power from
+the present lines of said railroads to the said termini on said
+premises, and with all necessary and proper depots, side-tracks,
+etc.</p>
+
+<p>The boundaries of this extraordinary grant are indicated
+on the map on page 96.<a name="FNanchor_141_141" id="FNanchor_141_141"></a><a href="#Footnote_141_141" class="fnanchor">[141]</a></p>
+
+<p>The total length from the foot of Channel Street to Point
+San Bruno was a little over 8 miles. The maximum breadth
+was approximately 2½ miles, and the area was estimated by
+opponents of the scheme to be not less than 6,620 acres. The
+value of such a water-front on the principal city of the Pacific
+Coast was to be measured in millions of dollars, and its importance
+to the Huntington interests was not limited to a money
+value alone. The possession of the San Francisco water-front
+south of Channel Street meant the occupation of the only part
+of the city at which a first-class railroad could reach tide-water.
+The reason for this is that all railroads must come into the city<span class="pagenum"><a name="Page_96" id="Page_96">[96]</a></span>
+of San Francisco from the south or the southwest on account
+of the shape of the peninsula, and no railroad can conceivably
+be allowed to cross the main thoroughfare. Market Street, or
+to penetrate the thinly settled residential districts in the north.</p>
+
+<p class="vh"><a name="i117" id="i117">i117</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-117.jpg" width="400" height="507"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Boundaries of Railroad Tide-Land Grant, as proposed in 1868.</p>
+</div></div>
+
+<p>The bill provided that the Central Pacific, Western Pacific,
+Southern Pacific, and the San Francisco and San José railroads,
+which were the proposed grantees, should pay the fair
+market cash value of the submerged lands at the time of the<span class="pagenum"><a name="Page_97" id="Page_97">[97]</a></span>
+passage of the act, being not less than $100 per acre for the
+lands lying north of Point Avisadero. But it was also provided
+that the surplus over $100 due for the land north of Point
+Avisadero might be spent in reclamation and improvement of
+the premises, and the companies were to receive patents if
+within five years not less than $1,000,000, in addition to such
+surplus, had been spent in this way. In plain English, the
+tide-lands were to be sold for $100 an acre, but in the case of
+some of them the beneficiaries might be required to spend additional
+amounts in improvements. The Senate committee defended
+its recommendation by saying that it was desirable to
+have the water-front improved, and that this was the way to
+have the thing done. It expected that the railroads would
+build a sea-wall; and observed that this wall, water-front, and
+docks would be subject to the control of the state harbor commissioners.
+How a rival railroad in the future would get
+access to the docks, it did not say.<a name="FNanchor_142_142" id="FNanchor_142_142"></a><a href="#Footnote_142_142" class="fnanchor">[142]</a></p>
+
+<p class="pnb">Scheme Opposed</p>
+
+<p>Generally speaking, arrangements for the alienation of city
+water-front property into private hands are to be looked upon
+with suspicion unless extensive powers of control are reserved
+by state or city, and unless there is provision for the reversion
+of the property, including improvements, to the public at the
+end of a stipulated time not too far removed, on conditions and
+in a manner clearly stated. In the particular case in hand there
+were no such safe-guards to the public interest, except a general
+reservation of jurisdiction and control over the water-front by
+the State Board of Harbor Commissioners, and a provision
+that the grantees should charge no tolls or wharfage on the
+water-front sold to them. This was not enough. It was therefore
+fortunate under the circumstances that the improvident<span class="pagenum"><a name="Page_98" id="Page_98">[98]</a></span>
+nature of the proposed contract was understood and its defects
+given full publicity by the San Francisco press. The <i>San
+Francisco Bulletin</i> commented as follows:</p>
+
+<p class="pbq p1">The scheme is an outrageous one. A proposition to sell
+to the Railroad Companies at a reasonable price, so much
+of the southern water-front as would be actually necessary
+for depots, warehouses, workshops, etc., might be considered
+favorably, but a proposal to give to what is or will be virtually
+a single corporation two-thirds of the frontage of a city
+destined to be the second in America, is utterly indefensible
+... this immense property will be worth eventually as much
+as the Pacific Railroad itself.<a name="FNanchor_143_143" id="FNanchor_143_143"></a><a href="#Footnote_143_143" class="fnanchor">[143]</a></p>
+
+<p class="p1">The <i>Alta</i> said:</p>
+
+<p class="pbq p1">If the parties who have so modestly presented their humble
+petition for this concession had gone one step farther, and asked
+for a grant of the whole State of California—all its tide and
+marsh lands—the control of all its rivers, bays and inlets, we
+do not know that the public amazement would have been any
+greater.<a name="FNanchor_144_144" id="FNanchor_144_144"></a><a href="#Footnote_144_144" class="fnanchor">[144]</a></p>
+
+<p class="p1">Even the conservative <i>San Francisco Times</i> suggested that
+it would be well for the railroad companies to submit detailed
+estimates of the land needed for terminals and the uses to which
+this land was to be put,<a name="FNanchor_145_145" id="FNanchor_145_145"></a><a href="#Footnote_145_145" class="fnanchor">[145]</a> while it refrained from commenting
+on the <i>Bulletin’s</i> assertions that it was the intent of the railroads
+to locate their terminus well south of the city of San
+Francisco to the great profit of parties from Sacramento who
+were buying lands around Hunter’s Point.</p>
+
+<p class="pnb">Another Plan Substituted</p>
+
+<p>Whether or not this last accusation was well founded, the
+opposition of the city grew so intense that the legislature did<span class="pagenum"><a name="Page_99" id="Page_99">[99]</a></span>
+not dare to carry out its original plan.<a name="FNanchor_146_146" id="FNanchor_146_146"></a><a href="#Footnote_146_146" class="fnanchor">[146]</a> Instead, the Southern
+Pacific and Western Pacific were offered each 150 acres, to be
+located by the companies within specified limits south of Channel
+Street, and still later the amount was reduced to 30 acres
+apiece, and a donation was substituted for a sale. So amended,
+the act became law on March 30, 1868. It granted and donated
+to the Southern Pacific Railroad Company and to the Western
+Pacific Railroad Company for a terminus in the city of San
+Francisco, to each of said companies, 30 acres, exclusive of
+streets, basements, public squares, and docks. The land was
+to be selected by the railroad companies within ninety days, but
+it was to lie south of Channel Street, and outside of the Red-Line
+water-front of Mission Bay, and was not to extend beyond
+24 feet of water at low tide, nor to within 300 feet of the line
+which should be selected by the tide-land commissioners as the
+permanent water line of the front of the city. A 200-foot
+right-of-way was given to the companies to provide access to
+their tide-lands. The lands were to be located and $100,000
+spent upon them by each of the grantees within thirty months,
+or the grant would revert to the state.<a name="FNanchor_147_147" id="FNanchor_147_147"></a><a href="#Footnote_147_147" class="fnanchor">[147]</a></p>
+
+<p>Compared with their original projects, the Act of 1868
+represented a considerable check to the plans of Mr. Stanford
+and his friends. Yet the grant in San Francisco was important,
+and, added to what had been secured in Oakland, provided
+satisfactorily for the Central Pacific’s transportation needs.</p>
+
+<p>In 1871 the San Francisco supervisors granted to the
+Southern Pacific and Central Pacific railroads rights on various
+streets in the city in order that they might reach and enjoy their
+lands and depot grounds in Mission Bay. Late in the same
+year Stanford indicated his willingness to make Mission Bay
+the main terminus of both the Central Pacific and Southern<span class="pagenum"><a name="Page_100" id="Page_100">[100]</a></span>
+Pacific, in consideration of a subsidy of $3,000,000 and of alterations
+in the terms of the Mission Bay grant so as to make
+it more acceptable. Nothing came of these last negotiations,
+nor of somewhat similar proposals made in 1872 by a citizens’
+committee engaged in fighting the Goat Island scheme (see
+below) and submitted to popular vote. In 1873-74, however,
+the city granted Stanford additional though minor franchises,
+enabling him to run trains on certain city streets.</p>
+
+<p class="pnb">Proposed Occupation of Goat Island</p>
+
+<p>It will be readily understood that feeling ran high both in
+Oakland and San Francisco while the railroad negotiations for
+terminal facilities were going on. Nor was the public excitement
+allayed by the attempt of the Huntington group to occupy
+Goat Island, which occurred at the same time. Goat Island,
+formerly known as “Yerba Buena” Island, is a small body of
+land lying about midway between San Francisco and Oakland.
+Reference to the inset accompanying the map of Oakland will
+show its exact location. It is obvious enough why the Central
+Pacific wanted the use of this island and of the mud flats lying
+directly north. It is just as obvious why, in the absence of
+regulation, the public should have objected to its exclusive occupation
+by any single railroad company. Yet, in March, 1868,
+one day after the action granting to the Central Pacific and
+to the Southern Pacific 60 acres of tide-lands in San Francisco,
+the state legislature granted to the Terminal Central Pacific
+Railroad Company—a corporation controlled by the associates—a
+defined area not to exceed 150 acres of the submerged shoal
+lands north of the island, with the right to reclaim these lands
+for railroad depot and commercial purposes, and to connect
+them by a bridge with the Oakland, Alameda, and Contra
+Costa shores. The company agreed to pay the fair appraised
+value of the lands into the state treasury, and to put into operation
+within four years a first-class rail and ferry communication<span class="pagenum"><a name="Page_101" id="Page_101">[101]</a></span>
+between the city of San Francisco, the premises conveyed
+to it, Oakland and Vallejo.<a name="FNanchor_148_148" id="FNanchor_148_148"></a><a href="#Footnote_148_148" class="fnanchor">[148]</a></p>
+
+<p>Two years later the time for the completion of the promised
+road was extended, and a railway to the Straits of Carquinez,
+opposite Vallejo, was accepted as sufficient to fulfil the requirement
+of a line to the town of Vallejo itself,<a name="FNanchor_149_149" id="FNanchor_149_149"></a><a href="#Footnote_149_149" class="fnanchor">[149]</a> and in 1871 a still
+further extension of time was given. The road which the
+Southern Pacific proposed to build was probably that indicated
+in the notice of new construction filed at Sacramento in March,
+1867—that is to say, it was a line running from Sacramento
+east of the Sacramento River past Freeport, crossing the mouth
+of the San Joaquin River, and continuing west through Antioch
+and over the hills to San Francisco Bay. Such a road
+could easily have been brought to Carquinez Straits, but it
+could not have reached Vallejo. The associates did not at this
+time intend to enter the territory west of the Sacramento River.</p>
+
+<p class="pnb">Project Lapses</p>
+
+<p>Following the vote of the California legislature, a bill was
+introduced in Congress, providing for the grant to the Central
+Pacific Company of the right to use Goat Island itself. This
+logical sequence to the state legislation was opposed by the
+United States military authorities and by the city of San Francisco.
+It appeared that residents of San Francisco anticipated
+the permanent loss of a large part of the transcontinental business
+if the Central Pacific should occupy Goat Island. The
+<i>San Francisco Bulletin</i> insisted that there was room enough
+on the island and on the adjacent flat to accommodate all the
+warehouses and large shipping, mercantile, and financial establishments
+of a seaport of 500,000 inhabitants. It was stated<span class="pagenum"><a name="Page_102" id="Page_102">[102]</a></span>
+that the advantages of the location would draw the warehouses,
+that other firms would follow, and that men who had business
+on the island would not live in San Francisco, but would make
+their homes on the eastern side of the Bay where land was
+cheaper, more level, and more fertile. These statements were
+generally believed.</p>
+
+<p>Nothing was done in 1869, 1870, or 1871 beyond the steps
+just mentioned. In March, 1872, however, the San Francisco
+chamber of commerce passed resolutions and prepared a memorial
+addressed to the President and to Congress opposing the
+proposed grant, and a mass meeting was held in San Francisco
+to make public protest. Following this, conferences were held
+between a committee of citizens and the president of the Central
+Pacific in the hope of arriving at some general understanding
+relative to terminal facilities, and eventually the whole
+Goat Island project lapsed.<a name="FNanchor_150_150" id="FNanchor_150_150"></a><a href="#Footnote_150_150" class="fnanchor">[150]</a></p>
+
+<p class="pnb">Purchase of Other Roads</p>
+
+<p>By the middle of 1868 the Central Pacific had thus secured
+satisfactory water-front facilities in both Oakland and San
+Francisco, amounting in the case of the former city, through
+the Oakland Water Front Company, to monopoly control.
+Needless to say, it had also abundant accommodations at Sacramento.
+Through the Southern Pacific Railroad it had also
+franchises in San Francisco, including the right to maintain
+tracks in the vicinity of Third and Townsend Streets. Up
+to August, 1868, however, it does not seem to have made the
+connections between its main line and Oakland that were necessary
+to enable its trains to reach San Francisco Bay at all. In
+that month Stanford, Huntington, Hopkins, and Crocker<span class="pagenum"><a name="Page_103" id="Page_103">[103]</a></span>
+bought a majority of the stock of the San Francisco and Oakland
+Railroad, and the following year they purchased likewise
+the San Francisco and Alameda Railroad. The first-named
+company had 2 or 3 miles of track eastward from Oakland’s
+point. The Alameda company had about 16 to 18 miles. Both
+had valuable franchises, and both owned ferry-boats and piers
+extending some distance into the bay. In 1870 both of the
+companies were joined in the San Francisco, Oakland and
+Alameda Railroad, and in the same year this company was
+consolidated with the Central Pacific. By 1869 the gap between
+the end of the San Francisco and Alameda Railroad
+and Niles had been filled, and this in a real sense completed the
+transcontinental line.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_104" id="Page_104">[104]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER VI</h2>
+
+<p class="pch">ACQUISITION OF THE CALIFORNIA PACIFIC</p>
+
+<p class="pnb">Tendency to Monopoly Control</p>
+
+<p>The first intimation that the Central Pacific Railroad was
+on its way to something like a monopoly control in the state of
+California is to be found in the negotiations for terminals on
+San Francisco Bay. But it was not long before more evidence
+came to light. Looking back with the advantage of knowledge
+of the company’s later history, it seems probable that the possibilities
+of monopoly control of the railway business of California
+were present to the owners of the Central Pacific as early
+as 1868. The task of securing such control was not, after all,
+so very great. California had few railroads in the sixties, and
+those which were in operation were small and unprosperous,
+and could be cheaply acquired.</p>
+
+<p>Besides this, the topography of the state lent itself to
+schemes of conquest by a sharp separation of the interior valleys
+from each other and from the coast. It was not necessary
+to occupy the whole country, for an effective control over
+one valley could be maintained in spite of the fact that an
+adjacent valley was in hostile hands. Nor was there any
+public opinion in California at the time thoughtfully critical
+of monopoly, as such. The country was new. Theories
+covering the relations of large corporations to the consuming
+public had not been developed. People hated monopolies
+because monopolies meant high prices; but the very persons
+who were most likely to object to monopoly were
+also likely to seek positions of advantage for themselves when
+possible.</p>
+
+<p>Under conditions like these, Stanford, Huntington, Hopkins,<span class="pagenum"><a name="Page_105" id="Page_105">[105]</a></span>
+and Crocker were almost sure to attempt to dominate the
+railway system of the state as soon as they determined to make
+their connection with it more than temporary. This decision
+was made as the Central Pacific approached Ogden in 1868 and
+1869. Had the associates been able to sell out before this
+time, it is likely that they would have done so. Indeed, it is
+credibly reported that 80 per cent of the stock of the Central
+Pacific was offered to D. O. Mills as late as 1873, for a price
+of $20,000,000,<a name="FNanchor_151_151" id="FNanchor_151_151"></a><a href="#Footnote_151_151" class="fnanchor">[151]</a> and this was probably the last of several offers
+made to different parties.</p>
+
+<p>The evidence seems to show, however, that by 1870 the
+Huntington group were inclined to remain in the railroad business.
+Strategically, the associates then occupied a very strong
+position. They possessed the only railroad line from California
+to the East. They dominated the Oakland water-front,
+and held important concessions in San Francisco. Branch
+lines, like long tentacles, stretched from Roseville north to
+Chico, on the way to the Oregon state line,<a name="FNanchor_152_152" id="FNanchor_152_152"></a><a href="#Footnote_152_152" class="fnanchor">[152]</a> and from Lathrop
+south to Modesto, to be extended to Goshen by August 1, 1872.<a name="FNanchor_153_153" id="FNanchor_153_153"></a><a href="#Footnote_153_153" class="fnanchor">[153]</a>
+By 1869 the Sacramento Valley Railroad, with its extension
+to Placerville, had been bought, and the California Central
+Railroad from Folsom to Marysville was under Central Pacific
+control. Even the budding project for a Southern Pacific Railroad
+had received the attention of Stanford and his associates.
+Indeed, the only really weak spots in the associates’ position
+were their failure fully to occupy the San Joaquin Valley, and<span class="pagenum"><a name="Page_106" id="Page_106">[106]</a></span>
+the fact that they did not control the short line between Sacramento
+and San Francisco. We will, accordingly, consider the
+situation and the policy of the Huntington group in these respects.</p>
+
+<p class="vh"><a name="i127" id="i127">i127</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-127.jpg" width="450" height="541"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc450">Map of California Railroad, about 1870.</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_107" id="Page_107">[107]</a></span></p>
+
+<p class="pnb">Competition of California Pacific</p>
+
+<p>The most direct railroad route from Sacramento to San
+Francisco is by way of Vallejo or Benicia, across the Straits of
+Carquinez, and along the eastern shore of San Francisco Bay.
+In 1865, after the Central Pacific had begun work in earnest,
+the California Pacific Railroad Company was incorporated to
+occupy this route from Sacramento as far as Vallejo. Contracts
+were let, though no material progress was made for two
+years. In 1867 the work was taken up with fresh energy, and in
+1869 the road was finished between Vallejo and Sacramento,
+with a branch from Davisville to Marysville. The newly built
+Napa Valley Railroad from Adalanta, California, to Calistoga,
+was acquired at the same time. In 1870 the system reported
+163 miles of road, of which 22 miles consisted of a ferry connection
+from Vallejo to the city of San Francisco.</p>
+
+<p>It seems more probable that the California Pacific was
+originally intended as a connection for the Central Pacific than
+that it was built as a competitor with the larger road. This
+was satisfactory enough to the Central Pacific so long as this
+company terminated at Sacramento. But there is no manner
+of doubt that the California Pacific became a formidable competitor
+to the Central Pacific when the latter acquired its circuitous
+line to Oakland via Stockton. This was especially true
+with respect to the passenger business. The distance from
+Sacramento to San Francisco via Vallejo was 87 miles, via
+Stockton 137½ miles; the time via Vallejo was 3½ hours,
+via Stockton 5 hours. It appears that transcontinental passengers
+on Central Pacific trains often changed cars at Sacramento,
+sacrificing the balance of their through ticket and
+paying extra fare in order to save time.<a name="FNanchor_154_154" id="FNanchor_154_154"></a><a href="#Footnote_154_154" class="fnanchor">[154]</a> Of the local passenger
+business between Sacramento and San Francisco, the
+California Pacific claimed three-fourths. How large a share<span class="pagenum"><a name="Page_108" id="Page_108">[108]</a></span>
+of the freight went by the shorter line does not appear, but it
+must have been considerable, for Mr. Stubbs later estimated
+that the cost of operating the Benicia route could not have been
+more than 50 per cent of the cost of operating the Western
+Pacific,<a name="FNanchor_155_155" id="FNanchor_155_155"></a><a href="#Footnote_155_155" class="fnanchor">[155]</a> and it is in evidence that the Central Pacific sent most
+of its freight via Benicia as soon as it obtained control of both
+lines.</p>
+
+<p>It should be remembered also that in addition to its competition
+for local business, the California Pacific had ambitious
+plans in other directions. We know, for example, that it proposed
+an extension eastward via Beckwourth’s Pass to a connection
+with the Union Pacific, at or near Ogden. This line
+was to be built by the California Pacific Railroad Eastern Extension
+Company, incorporated at Sacramento in March, 1871,
+with a capital stock of $50,000,000.<a name="FNanchor_156_156" id="FNanchor_156_156"></a><a href="#Footnote_156_156" class="fnanchor">[156]</a> Other reports credited it
+with an intention to enter the San Joaquin Valley;<a name="FNanchor_157_157" id="FNanchor_157_157"></a><a href="#Footnote_157_157" class="fnanchor">[157]</a> while its
+influence in Sonoma, Marin and Napa counties was recognized.
+In short, by 1870 the California Pacific was not only
+important in respect to what it had actually accomplished, but
+it had in it the germ of a railroad system in no way inferior to
+that of the Central Pacific itself.</p>
+
+<p class="pnb">Rival’s Weakness</p>
+
+<p>Unfortunately for the California Pacific, the company’s
+physical and financial position in 1871 did not measure up to
+the magnitude of its ambitions. Counsel for the Central Pacific
+in later years drew a vivid picture of the condition of the
+railroad in 1867 which probably contained more than a grain of
+truth. According to this account, the right-of-way of the
+California Pacific was unfenced, its sidings were few, and its
+stations were insufficient. The road-bed was almost wholly<span class="pagenum"><a name="Page_109" id="Page_109">[109]</a></span>
+unballasted, and inadequately supplied with ties. Embankments
+were so narrow that the ends of the ties projected on
+both sides. The slope of the cuts was insufficient and upon the
+Napa branch the rails were fastened to the ties with wrought
+nails without heads which were bent back over the flanges of
+the rails after being partly driven, in order to hold the rails in
+position.<a name="FNanchor_158_158" id="FNanchor_158_158"></a><a href="#Footnote_158_158" class="fnanchor">[158]</a></p>
+
+<p>On the other hand, in spite of the imperfect character of
+its construction, the California Pacific had paid large prices to
+contractors in its bonds and stock. In December, 1870, the
+company was compelled to borrow money to meet the January
+interest of 1871. By the following spring it was indebted to
+the extent of $8,450,000, of which $1,200,000 was floating
+debt, and had to prepare to meet an annual interest charge of
+$667,500. This was more than the company’s earnings could
+stand.</p>
+
+<p>In 1871 the Central Pacific, taking advantage of the weakness
+of its rival, proceeded to the attack by arranging to construct
+a branch from Sacramento, by way of Davisville, to
+Vallejo. In pursuance of this arrangement it accumulated iron
+and ties, made surveys, and succeeded in effecting a contract
+with an organization known as the Bridge Company of the
+City of Sacramento, for the exclusive use of its bridge for
+their new enterprise.<a name="FNanchor_159_159" id="FNanchor_159_159"></a><a href="#Footnote_159_159" class="fnanchor">[159]</a> The California Pacific was already
+suffering from the competition of river boats, and the construction
+of the new road would have ruined it. The pressing
+nature of the danger was appreciated by the managers of the
+road, and Milton S. Latham, director and treasurer of the
+California Pacific, and agent for the holders of three-fourths
+of the capital stock of that company, promptly opened negotiations
+with the Central Pacific, through Collis P. Huntington,<span class="pagenum"><a name="Page_110" id="Page_110">[110]</a></span>
+for an adjustment of difficulties. This was precisely the situation
+which the Central Pacific desired to bring about.</p>
+
+<p class="pnb">Control of California Pacific Acquired</p>
+
+<p>The agreement that resulted from the conditions described
+may probably be explained as an elaboration of the Central
+Pacific’s statement to Mr. Latham that the company was willing
+to buy the California Pacific but did not have the money.
+It took the form of the following consecutive transactions:</p>
+
+<p>By agreement dated July 13, 1871, between Latham, Leland
+Stanford, and Mark Hopkins, Mr. Latham agreed to
+deliver 76,101 shares of the California Pacific Railroad Company,
+to assign three-fourths of the capital stock of the California
+Pacific Eastern Railroad Extension Company to the
+other parties to the contract, and to stipulate that the total
+indebtedness of the two companies named should not exceed
+$8,421,000. In consideration of this delivery, Stanford and
+Hopkins agreed to pay to Latham $1,579,000 in bonds of the
+California Pacific Railroad Company.</p>
+
+<p>On August 9, 1871, Mr. Latham presented, and the directors
+of the California Pacific at a formal meeting approved,
+resolutions to the effect that the sum of $1,600,000 was necessary
+for the purpose of constructing and completing an additional
+track, and for strengthening the California Pacific embankments
+across the tule lands. The directors further voted
+that the money be borrowed, and the necessary bonds be issued.
+President Jackson then stated to the board that a contract had
+been made, and the execution of this contract was approved.</p>
+
+<p>Under date of August 9, 1871, the California Pacific
+covenanted with Stanford, Hopkins, and Huntington for the
+construction referred to in the previous paragraph. The
+associates agreed</p>
+
+<p class="pbq p1">... to enlarge the embankment of the railroad of the said
+party of the second part, where embankment is required, and<span class="pagenum"><a name="Page_111" id="Page_111">[111]</a></span>
+erect and widen the trestle work, where trestle work is required,
+from the bridge across the Sacramento River to Davisville,
+in the county of Yolo, in the State of California, and place
+thereon a good and sufficient superstructure, consisting of timber
+and ties and iron railroad thereon, so as to make an additional
+railroad track from said bridge to said Davisville, fully
+equal to the present railroad on the present embankment and
+to connect the same with proper switches with both the main
+track to Vallejo, and the track to Marysville of the railroads
+of the party of the second part. Said parties of the first part
+to furnish all the material for the said additional railroad track,
+and embankment, and trestle work, and to have the same completed
+and ready for use on or before the first day of January,
+in the year one thousand eight hundred and seventy-three.</p>
+
+<p class="p1">In consideration of this construction, the California Pacific
+was to pay the associates 1,600 second mortgage California
+Pacific bonds.</p>
+
+<p>On August 19, 1871, the Huntington group, now controlling
+a majority of the board of directors of the California
+Pacific, entered into an agreement with the California Pacific
+under which the Central Pacific undertook to pay the California
+Pacific $5,000 per month, to furnish the equipment for
+passenger business, and to guarantee the interest on 1,600
+second mortgage bonds, while the California Pacific in return
+agreed to transport to or from San Francisco, passengers beginning
+or ending their trips on the Central Pacific or connecting
+roads, and to maintain its fare for other passengers at $4 between
+San Francisco and Sacramento. On September 1, 1871,
+the Central Pacific took full control of the California Pacific,
+and moved its offices from San Francisco to Sacramento.<a name="FNanchor_160_160" id="FNanchor_160_160"></a><a href="#Footnote_160_160" class="fnanchor">[160]</a></p>
+
+<p class="pnb">Motives Behind Transactions</p>
+
+<p>Two explanations of these transactions are possible. Counsel
+for the Central Pacific, in 1886, maintained that the contracts<span class="pagenum"><a name="Page_112" id="Page_112">[112]</a></span>
+fell into two distinct classes or groups. The California
+Pacific, according to this point of view, arranged for an additional
+track between Sacramento Bridge and Davisville, and
+for still more important enlargement in embankments and
+widening and erection of trestle work, by the transfer to defendants
+of second mortgage bonds. These bonds, it was
+alleged, though considerable in amount, had little value because
+of the desperate financial condition of the California Pacific.
+In the second place, the Central Pacific gave value to bonds
+which it held by a guaranty, and used them to buy a controlling
+interest in California Pacific stock. Of this, the minority
+stockholders of the corporation had no right to complain.</p>
+
+<p>Counsel on the other side maintained that the essential
+feature of the whole transaction was the purchase of California
+Pacific stock, and that the various contracts merely supplied
+a method of buying this stock without paying for it. Starting,
+therefore, with the contract of July 13, they pointed out that
+the defendants agreed to purchase California Pacific stock
+from Latham with California Pacific bonds which were not yet
+in existence, stipulating for full control of the California
+Pacific before payment should be made, in order that they
+might obtain the purchase price from that company. When
+Latham announced that he was ready to deliver the stock, it became
+necessary for the defendants to secure about $1,600,000
+in California Pacific bonds. These bonds could be legally
+issued only for new construction, hence the contract for a
+second track from Sacramento to Davisville. When issued,
+and in the hands of the defendants, it was necessary to have
+the Central Pacific’s guaranty. For this the Central Pacific
+required the California Pacific to enter into the traffic agreement
+of August 19, obtaining thus a full <i>quid pro quo</i>. The
+result was that the California Pacific furnished first the bonds
+and then a consideration for the Central Pacific’s guaranty,
+which together served to purchase the California Pacific stock.</p>
+
+<p><span class="pagenum"><a name="Page_113" id="Page_113">[113]</a></span></p>
+
+<p class="pnb">Plausible Explanation</p>
+
+<p>There were several circumstances which made this second
+version plausible. It seems extraordinary, for one thing, that
+a company in the straits to which the California Pacific was
+reduced should have issued bonds for double-tracking 13 miles
+of road.<a name="FNanchor_161_161" id="FNanchor_161_161"></a><a href="#Footnote_161_161" class="fnanchor">[161]</a> If it be answered that the strengthening of the road
+against the immediate danger of flood was the real reason for
+the issue, then it was still extraordinary that the time limit for
+construction of the work should be set as it was, eighteen
+months away, on January 1, 1873. As a matter of fact, the
+section of the California Pacific across the tule lands was
+washed away before the associates got around to strengthening
+it. This made it impossible for Stanford, Huntington, and
+Hopkins, or the Contract and Finance Company, to which they
+had assigned their contract, to carry out the original agreement.
+Instead, Mr. Montague, chief engineer of the California
+Pacific, reported to his board that the cost of restoring
+the washed-out line would be equal to the cost of carrying out
+the original contract, and the board, on November 15, 1872,
+authorized the substitution of this work for that agreed on in
+the contract of August 9, 1871.</p>
+
+<p>Owing to the subsequent destruction of the books of the
+Contract and Finance Company, there is no way of telling
+accurately what the cost of restoration actually was. The Contract
+and Finance Company finished the job, however, in six
+weeks after the work was actually commenced, and what information
+is available leads one to doubt if the expense was
+very great. Another circumstance which raises a question as
+to the good faith of the consideration offered for the 1,600<span class="pagenum"><a name="Page_114" id="Page_114">[114]</a></span>
+California Pacific bonds, is the coincidence that the par value
+of the bonds issued for construction was practically identical
+with the amount needed to pay for the 76,101 shares of stock
+sold by Latham to Stanford, Huntington, and Hopkins. Still
+another peculiar incident was that of the execution, contemporaneously
+with the main contract, of a supplementary agreement,
+under which the Stanford group agreed to pay Latham
+$250,000 in a six months’ note, besides the other consideration
+for California Pacific stock, if he would visit New York
+at once, obtain the consent of the stockholders whom he represented,
+and personally assume all the obligations of the California
+Pacific above the sum of $8,421,000 specified in the
+bond.</p>
+
+<p>Whatever the true motives for the transaction described,
+the coincidence of the stock sale with the other transactions
+relieved the representatives of the California Pacific of any
+intense interest in the matter, and must inevitably have made
+them pliable as to terms. The directors present at the meeting
+of August 9, when the contract for the construction of the
+second track was approved, were Jackson, Hammond, Latham,
+Sullivan, and Atherton. Of these gentlemen, Hammond, Sullivan,
+and Atherton each held five shares only, transferred to
+their names to qualify them as directors; while the shares of
+Latham and Jackson were ready for transfer to Stanford,
+Huntington, and Hopkins. Hammond, vice-president of the
+company, as well as a director, subsequently said, referring to
+the contract for a second track: “I don’t recollect that I ever
+saw or knew what that contract was, until it was brought
+into the board.... This contract was made with a party
+who was purchasing the majority of the stock of that company,
+and whose interest would be to do that work in a workmanlike
+manner.” Certainly this was not a desirable point
+of view for a representative of the California Pacific to
+take.</p>
+
+<p><span class="pagenum"><a name="Page_115" id="Page_115">[115]</a></span></p>
+
+<p class="pnb">Undisputed Control</p>
+
+<p>The inevitable result of the various contracts and agreements
+which have been described was to place the Huntington
+group in undisputed control of the California Pacific. On
+August 10, 1871, Mr. Stanford was elected president <i>vice</i> Jackson,
+and on August 2, Mark Hopkins was elected treasurer <i>vice</i>
+Latham. The following year Hammond and Moses Hopkins
+took the positions of president and treasurer, respectively, while
+Stanford and Mark Hopkins and Collis P. Huntington were
+appointed general agents of the company, with large powers.</p>
+
+<p>Once in control, Stanford and his associates proceeded to
+make the best use they could of the California Pacific in connection
+with other roads in their system. It does not appear
+that they felt any particular tenderness toward the enterprise.
+Most of the operating arrangements between the Central
+Pacific and the California Pacific were subsequently arranged
+by Mr. Towne for both parties, on terms favorable to the
+Central Pacific. It is on record that the California Pacific was
+allowed but $1 out of $16.75, the fare from Reno to San Francisco,
+for its haul from Sacramento to San Francisco, although
+the total distance was 240 miles, and the Sacramento-San
+Francisco haul amounted to 92 miles. Likewise, contracts
+were made with the Contract and Finance Company which
+were later complained of as extravagant. Special mention is
+made of lumber which was bought of the Contract and Finance
+Company at $30 a thousand when the market price was $18.
+Mr. Towne was asked in 1886:</p>
+
+<div class="pbq">
+<p class="p1"><i>Q.</i> You say that you have done all that you could to increase
+the earnings of the California Pacific, do you?</p>
+
+<p><i>A.</i> Having a due regard for the other company; yes, sir.</p>
+
+<p><i>Q.</i> Did you make that qualification?</p>
+
+<p><i>A.</i> I do now.</p></div>
+
+<p class="p1">Perhaps a policy of this sort was to be expected as the
+result of the conquest of a dangerous rival. Yet certain other<span class="pagenum"><a name="Page_116" id="Page_116">[116]</a></span>
+arrangements between the Central Pacific and the California
+Pacific went beyond what one might have expected. It appears,
+for instance, that soon after the Stanford group obtained
+control of the last-named company, that portion of the contract
+of August 8, 1871, which provided for the payment of
+$5,000 monthly by the Central Pacific to the California Pacific,
+was eliminated. This elimination was said to have taken place
+by “mutual consent,” a meaningless phrase when the same men
+had charge of the negotiations for both sides.</p>
+
+<p class="pnb">Independent Security Holders</p>
+
+<p>It has been charged, also, that Stanford and Huntington
+deliberately endeavored at this time to depress the value of
+California Pacific mortgage securities in order to induce independent
+holders to reduce their claims. In support of this
+contention there is evidence that very strong pressure was
+brought to bear upon independent security holders in 1874, and
+that as a result of this pressure the fixed charges of the California
+Pacific were reduced from $763,500 in 1875, to
+$303,500 in 1886. No part of this burden was borne by the
+second mortgage bonds held by Stanford, Huntington, Hopkins,
+and Crocker, nor was any assessment levied upon the
+company’s stock.</p>
+
+<p>As a part of the campaign, during the period mentioned,
+wide publicity was given by the management of the California
+Pacific to financial difficulties, real or alleged, with which the
+company was confronted. Thus in June 1875, the board of
+directors confessed a judgment of $1,309,041.84 to one J. P.
+Haggin, assignee of certain claims of the Central Pacific, the
+Contract and Finance Company, and the associates, for advances
+previously made. Mr. Haggin had no interest in the
+matter, merely allowing the use of his name.<a name="FNanchor_162_162" id="FNanchor_162_162"></a><a href="#Footnote_162_162" class="fnanchor">[162]</a> The following
+month, Vice-President Gray, of the California Pacific, made<span class="pagenum"><a name="Page_117" id="Page_117">[117]</a></span>
+an extremely pessimistic report to his directors, declaring that
+the company’s deficit to date was $1,370,061.71, and that a
+large part of the outstanding bond issues of the company were
+represented by no construction that he was able to discover.
+On July 25, 1874, finally, a local capitalist named Michael
+Reese, acting in all probability on behalf of the associates,
+filed sensational charges against Mr. Latham, formerly general
+manager of the California Pacific, which called forth as sensational
+a reply.<a name="FNanchor_163_163" id="FNanchor_163_163"></a><a href="#Footnote_163_163" class="fnanchor">[163]</a> These various activities roused holders of
+California Pacific Railroad Extension bonds to petition to have
+the California Pacific declared bankrupt, and drew forth a
+statement from the company, on the other hand, that it did not
+regard these bonds as constituting a valid legal claim upon it.
+The result was a compromise. The extension bondholders
+surrendered their 7 per cent bonds for a reduced amount in
+new 6 per cent securities, and the outstanding income bonds
+likewise exchanged their holdings for 3 per cent bonds. Both
+classes of bonds were guaranteed by the Central Pacific, and
+in consideration of the guaranty the California Pacific was
+leased to the Central Pacific on July 1, 1876, for 29 years, at a
+rental of $550,000 per year, plus three-fourths of the net earnings
+of the company above that amount. At a subsequent
+period in December, 1879, when the Central Pacific was about
+to turn a considerable volume of business over the short line
+by way of Benicia, the California Pacific gave up its right to<span class="pagenum"><a name="Page_118" id="Page_118">[118]</a></span>
+payments over the $550,000 minimum in consideration of a
+fixed additional payment of $50,000 a year.<a name="FNanchor_164_164" id="FNanchor_164_164"></a><a href="#Footnote_164_164" class="fnanchor">[164]</a></p>
+
+<p>By and large, the California Pacific proved a good investment
+for the larger company, especially after the Northern
+Railway had been built and a new route established between
+Oakland and Sacramento. The reason for its original acquisition
+was, nevertheless, in all probability, not the chance of a
+direct profit, but the advantage expected from a monopolistic
+control of the territory north of San Francisco Bay.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_119" id="Page_119">[119]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER VII</h2>
+
+<p class="pch">BUILDING OF THE SOUTHERN PACIFIC</p>
+
+<p class="pnb">San Francisco and San José Railroad</p>
+
+<p>The Huntington interests had secured control of the California
+Pacific. The next logical step was to strengthen the
+position of the Central Pacific south of San Francisco Bay.
+A start in this direction had already been made through the construction
+of a branch from Lathrop on the Central Pacific to
+Goshen in the San Joaquin Valley, finished in August, 1872.
+But this was not enough. Not only did the Central Pacific fail
+to reach the city of San Francisco, but the company was
+threatened in 1869 with the possibility that an independent
+Southern Railroad system might be created, no less ambitious
+than the California Pacific, and penetrating a richer if less
+developed territory. This projected system was that of the
+Southern Pacific Railroad, and in respect to it Mr. Stanford
+frankly said some years afterwards:</p>
+
+<p class="pbq p1">Well, the necessity of obtaining control of the Southern
+Pacific Railroad was based really upon the act of Congress providing
+for its construction. It became apparent that if that
+last was constructed entirely independent to those who were
+interested in the Central Pacific, it would become a dangerous
+rival not only for the through business from the Atlantic
+Ocean, but it would enter into active competition for the local
+business of California. It was of paramount importance that
+the road should be controlled by the friends of the Central
+Pacific; and all our anticipations consequent upon the control
+of that road have been realized.<a name="FNanchor_165_165" id="FNanchor_165_165"></a><a href="#Footnote_165_165" class="fnanchor">[165]</a></p>
+
+<p class="p1">The small beginning of what later came to be known as the
+Southern Pacific Railroad system is to be found in the San<span class="pagenum"><a name="Page_120" id="Page_120">[120]</a></span>
+Francisco and San José Railroad, which ran from San Francisco
+down the peninsula in a southerly direction to the city
+of San José. Originally this company was a local project only,
+and for some years an unsuccessful one. Several parties tried
+their hands at building it, but failed because they could not
+raise the necessary funds. In 1860 the project was taken up
+by a group of local capitalists of more than ordinary energy
+and resources, contracts were let, and four years later a line
+to San José was actually in running order. It was to these
+capitalists that the Central Pacific transferred its rights in the
+Western Pacific, and it seems to have been expected that the
+San Francisco and San José and the Western Pacific together
+would form the western end of the transcontinental line.</p>
+
+<p>This expectation was disappointed, as was the hope that
+the San Francisco and San José would participate in the federal
+subsidies and land grants provided in the Pacific Railway Acts
+of 1862 and 1864. The city of San Francisco did, however,
+subscribe $300,000 in city bonds to San Francisco and San
+José Railroad stock, and the counties of Santa Clara and San
+Mateo, $200,000 and $100,000, respectively. At this time the
+Huntington group had no interests south of Sacramento. In
+1869 the San Francisco and San José was extended to Gilroy
+by a company known as the Santa Clara and Pajaro Valley
+Railroad Company.</p>
+
+<p class="pnb">Southern Pacific Railroad Company</p>
+
+<p>Shortly after the completion of the San Francisco and San
+José, another company, the Southern Pacific Railroad Company,
+was incorporated<a name="FNanchor_166_166" id="FNanchor_166_166"></a><a href="#Footnote_166_166" class="fnanchor">[166]</a> by local parties in San Francisco to
+build a line of railroad in as direct a route as feasible from
+San Francisco to the town of San Diego, through the counties
+of Santa Clara, Monterey, San Luis Obispo, Tulare, Los
+Angeles, and San Diego; thence eastward through the county
+of San Diego to the eastern boundary of the state of California.
+It is quite possible that this new company was organized in
+anticipation of further legislation at Washington. At any rate
+in July, 1866, Congress granted to the Southern Pacific Railroad,
+besides a right-of-way, ten alternate sections of unreserved
+and unappropriated public lands on either side of the
+road, in the state of California, on condition that it construct a
+line, presumably from San Francisco, to a connection with a
+projected railroad known as the Atlantic and Pacific Railroad,
+which was authorized to extend from the state of Missouri to
+the Pacific Ocean. In case any portion of the twenty sections
+indicated should be found to be occupied or reserved, the
+Southern Pacific was to be given the privilege of selecting
+other lands within 20 miles of its road. The company was to
+begin work within two years, and to complete not less than 50
+miles annually after the second year. No money or bond subsidy
+was given.<a name="FNanchor_167_167" id="FNanchor_167_167"></a><a href="#Footnote_167_167" class="fnanchor">[167]</a> By Act of July 25, 1868, Congress extended
+the time for the construction of the Southern Pacific line, requiring
+the completion of the first 30 miles by July 1, 1870,
+and subsequent construction of 20 miles annually.<a name="FNanchor_168_168" id="FNanchor_168_168"></a><a href="#Footnote_168_168" class="fnanchor">[168]</a> This was
+plainly an enterprise of first-class magnitude.</p>
+
+<p><span class="pagenum"><a name="Page_121" id="Page_121">[121]</a></span></p>
+
+<p class="vh"><a name="i142" id="i142">i142</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-142.jpg" width="450" height="259"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc450">Map showing northern end of the San Francisco and San José Railroad in 1862.</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_122" id="Page_122">[122]</a></span></p>
+
+<p>The evidence suggests that the San Francisco and San José
+and the Southern Pacific Railroad companies fell under the
+control of Stanford, Huntington, Hopkins, and Crocker some
+time in 1868. Mr. Stanford published a statement on March
+6, 1868, to the effect that any rumor that the Central Pacific
+or Western Pacific Railroad Company or any person connected
+with either of them had purchased the Southern Pacific or the
+San Francisco and San José or any property or franchises connected<span class="pagenum"><a name="Page_123" id="Page_123">[123]</a></span>
+therewith, or that any negotiations had been made tending
+to that result, was utterly without foundation.<a name="FNanchor_169_169" id="FNanchor_169_169"></a><a href="#Footnote_169_169" class="fnanchor">[169]</a> On the
+other hand, it was Collis P. Huntington who signed a letter
+dated September 25, 1868, addressed to the Secretary of the
+Interior, at Washington, transmitting the annual report of the
+Southern Pacific Railroad required by the act of Congress.
+If Stanford told the truth in March, these two circumstances
+would indicate with sufficient precision the time when the associates
+took charge. In any case their influence was presently to
+appear.<a name="FNanchor_170_170" id="FNanchor_170_170"></a><a href="#Footnote_170_170" class="fnanchor">[170]</a></p>
+
+<p class="pnb">Consolidation</p>
+
+<p>On October 12, 1870, the San Francisco and San José
+Railroad, the Southern Pacific, the Santa Clara and Pajaro
+Valley Railroad, and a new company, the California Southern,
+organized on paper only, were consolidated into a corporation
+known as the Southern Pacific Railroad of California. The
+directors for the first year were Lloyd Tevis, Leland Stanford,
+Charles Crocker, C. P. Huntington, Mark Hopkins, Charles
+Mayne, and Peter Donahue. Plainly, Central Pacific interests
+were in control. The purpose of the new company was stated
+to be to construct and operate a railroad from San Francisco
+to the Colorado River, through the counties of San Mateo,
+Santa Clara, Monterey, Fresno, Tulare, Kern, San Bernardino,
+and San Diego, together with a line from Gilroy through the
+counties of Santa Clara, Santa Cruz, and Monterey, to a point
+at or near Salinas City. This was not the line proposed in the
+articles of incorporation, as an examination of the accompanying
+map will show. It was, however, in the main the route
+designated by the Southern Pacific in 1867, upon which land
+had been withdrawn from entry by the government at Washington,
+and it had the advantage of reaching the eastern boundary
+of California with less mileage and fewer grades than the
+line originally laid out.<a name="FNanchor_171_171" id="FNanchor_171_171"></a><a href="#Footnote_171_171" class="fnanchor">[171]</a></p>
+
+<p><span class="pagenum"><a name="Page_124" id="Page_124">[124]</a></span></p>
+
+<p class="vh"><a name="i145" id="i145">i145</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-145.jpg" width="400" height="480"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Proposed route of the Southern Pacific Railroad, according to map filed with
+the Commissioner of the General Land Office on January 3, 1867.</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_125" id="Page_125">[125]</a></span></p>
+
+<p>In 1871, an additional route from Los Angeles to Yuma
+was designated under the authority of the twenty-third section
+of the act to incorporate the Texas Pacific Railroad, which
+authorized the Southern Pacific Railroad Company to construct
+a line of railroad from a point at or near Techachapi Pass, by
+way of Los Angeles, to the Texas Pacific Railroad at or near
+the Colorado River, with the same rights and privileges, and
+subject to the same limitations and restrictions as were provided
+in the Atlantic and Pacific Act of 1866.<a name="FNanchor_172_172" id="FNanchor_172_172"></a><a href="#Footnote_172_172" class="fnanchor">[172]</a></p>
+
+<p class="pnb">Ambitious Construction Program</p>
+
+<p>Because of the terms of the federal Act of 1866, it was
+necessary for the Southern Pacific to proceed steadily in its
+construction to the south. The first piece of road offered in
+satisfaction of the requirement for a minimum annual construction,
+was that from San José to Gilroy. Then came an
+extension to Tres Pinos, which ended, for the time being,
+building on the Northern Division. What happened was that
+the associates found the southern end of the San Benito Valley,<span class="pagenum"><a name="Page_126" id="Page_126">[126]</a></span>
+in which Tres Pinos is located, relatively poor in traffic,
+and difficult to build in. Stanford visited the country personally,
+and found no business there, nor, in his opinion, any
+prospect of business. He accordingly shifted construction
+from the Tres Pinos line to the territory south of Goshen, and
+caused the Southern Pacific to build its next 20 miles in that
+section, expecting to connect with the San Joaquin Valley
+branch of the Central Pacific which ultimately came to Goshen
+in August, 1872. The Southern Pacific track reached Delano
+on July 14, 1873, Caliente on April 26, 1875, and Mojave on
+August 9, 1876. The stretch of 240 miles from Mojave to
+The Needles was not finished until June 22, 1883, but that to
+Fort Yuma was completed in 1877.</p>
+
+<p>In later years there was discussion concerning the right of
+the Southern Pacific to refuse to build the stretch of road lying
+between Tres Pinos and Alcalde, connecting the San Benito
+and the San Joaquin valleys. It was insisted that the contract
+implied in the Congressional land grant of 1866 was an entire
+one, and that the amount of land given had been fixed in consideration
+of the difficulties of mountain construction between
+the valleys named. This contention is not, however, borne out
+by the terms of the Act of 1866, and there seems to be no good
+reason why Congress should have stipulated for the building
+of this particular bit of road, when satisfactory connection
+between the San Joaquin Valley and San Francisco could be
+secured in another way. On their part, the associates never
+intended to build across the Coast Range, at least not out of
+the San Benito Valley. In 1872 the articles of association of
+the Southern Pacific Branch Railroad Company contained provision
+for a line from a point at or near Salinas City in the
+county of Monterey southeasterly to a point in Kern County
+south of Tulare Lake, intersecting the San Joaquin Division
+of the Southern Pacific. Even this road never was built.<a name="FNanchor_173_173" id="FNanchor_173_173"></a><a href="#Footnote_173_173" class="fnanchor">[173]</a></p>
+
+<p><span class="pagenum"><a name="Page_127" id="Page_127">[127]</a></span></p>
+
+<p>At the time when the Southern Pacific Railroad entered
+upon its ambitious project for southern construction, the territory
+south and east of Goshen was very slightly developed.
+Los Angeles was a city of 5,728 persons in 1870, with an
+assessed valuation of $2,108,061, and an average of one saloon
+to every fifty-five inhabitants.<a name="FNanchor_174_174" id="FNanchor_174_174"></a><a href="#Footnote_174_174" class="fnanchor">[174]</a> San Diego had a population
+of 2,300, and Santa Ana 1,445. These were the largest concentrations
+of people to be found, and they amounted to
+nothing more than little country towns.<a name="FNanchor_175_175" id="FNanchor_175_175"></a><a href="#Footnote_175_175" class="fnanchor">[175]</a> Nor were the statistics
+of industry much more striking. Los Angeles and Kern
+counties produced respectable amounts of wool, and in the
+matter of wine the output from the former amounted to nearly
+one-third of that for the entire state and one-sixth of that
+reported for the United States as a whole. The number of
+cattle was also considerable. But in grain only a beginning
+had been made, the yield of the orchards was still small, and the
+volume of general agriculture, to say nothing of manufactures,
+was insignificant.</p>
+
+<p>The railroad construction in the territory consisted of two
+local railroads connecting Los Angeles with the harbors of
+San Pedro and Santa Monica, to which should be added mention
+of the Texas Pacific project of Mr. Scott. The Los
+Angeles and San Pedro Railroad was organized in 1868 and
+was finished on October 26, 1869. The city of Los Angeles
+subscribed $75,000 in city bonds, and the county took an additional
+amount of $150,000, also paying in bonds. City and
+county bonds both bore 10 per cent. The construction of this
+railroad marked the fruition of efforts begun as early as 1861,
+but the credit for final accomplishment of the work was due
+to Phineas Banning, the principal business man of Wilmington.<a name="FNanchor_176_176" id="FNanchor_176_176"></a><a href="#Footnote_176_176" class="fnanchor">[176]</a>
+General Banning is said to have entered the California<span class="pagenum"><a name="Page_128" id="Page_128">[128]</a></span>
+legislature in order to advance his project and to have successfully
+overcome a great deal of opposition in his own district
+in order to put it through. The company was consolidated
+with the Southern Pacific in 1874.<a name="FNanchor_177_177" id="FNanchor_177_177"></a><a href="#Footnote_177_177" class="fnanchor">[177]</a></p>
+
+<p>In addition to the Los Angeles and San Pedro, reference
+should be made to the Los Angeles and Independence, a railroad
+built in 1875 by Senator John P. Jones, of Nevada, partly
+to afford an outlet to certain mines in Inyo County from which
+the senator expected large results, and partly to develop property
+on Santa Monica Bay. This road was also acquired by
+the Southern Pacific interests, but at a later date, and at the
+instance of Mr. Huntington against the judgment of at least
+one of his associates.</p>
+
+<p class="pnb">Grant by Los Angeles</p>
+
+<p>By the acquisition of the Los Angeles and San Pedro Railroad,
+the Southern Pacific provided itself with a southern
+terminal, in advance even of the completion of its main line.
+At the same time it used the advantage which the location of
+its mileage in the San Joaquin Valley gave to it in order to
+persuade the people of Los Angeles to grant it aid in the
+measure they could afford. Speaking after the event, it is
+sufficiently obvious that sooner or later the Southern Pacific,
+or some other transcontinental road, was bound to seek an outlet
+on the Pacific Ocean either at San Diego or at San Pedro,
+and of these two San Pedro was the most likely to be chosen.
+But this fact, clear at the present time, was not obvious to the
+inhabitants of Los Angeles; on the contrary, the possibility
+that Los Angeles might be passed by caused them the liveliest
+concern. This feeling was known to the officials of the Southern
+Pacific. In May, 1872, two citizens of Los Angeles wrote
+Mr. Stanford stating that they expected to call a meeting of
+tax-paying citizens of the county in a few days, for the purpose
+of selecting from among them an executive committee
+which should have full power to meet the representatives of
+any railroad company who might visit Los Angeles, in order
+to agree upon some plan whereby a railroad to Los Angeles
+might be constructed.<a name="FNanchor_178_178" id="FNanchor_178_178"></a><a href="#Footnote_178_178" class="fnanchor">[178]</a></p>
+
+<p class="vh"><a name="i150" id="i150">i150</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-150.jpg" width="400" height="391"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">View south from over the San Fernando tunnel—Southern Pacific Railroad</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_129" id="Page_129">[129]</a></span></p>
+
+<p>The meeting was called, and the committee appointed.
+Harris Newmark, a prominent business man of Los Angeles,
+says that before the meeting he and ex-Governor Downey
+went to San Francisco and canvassed the whole situation with
+Mr. Huntington. A delegation from the citizens’ committee
+made a second visit and returned with a man named Hyde,
+who represented the railroad company. Between Mr. Hyde
+and the new committee terms were presently agreed upon. The
+Southern Pacific demanded a donation of 5 per cent of the
+assessed valuation of the county, which was the maximum
+authorized by state law. Since the county valuation in 1872
+was set by the State Board of Equalization at $10,554,592,
+this meant a gift of $527,730. To cover this the county proposed
+to issue $377,000 in new 7 per cent bonds, and to turn
+over besides $150,000 in stock of the Los Angeles and San
+Pedro Railroad, which it held by virtue of its subscription to
+that company in 1868. The city added $75,000 in Los Angeles
+and San Pedro Railroad stocks, and 60 acres of depot ground.
+This made a clear gift in the aggregate of $602,000, besides
+whatever the depot ground might be worth, or $100 per capita
+for a population of 6,000 souls. On its side the Southern
+Pacific agreed to build 50 miles of its main trunk line in the
+county of Los Angeles, 25 miles to be built northward and 25
+miles eastward from Los Angeles city. Later the company
+promised to add a branch to Anaheim. The whole arrangement
+was submitted to popular vote on November 5, 1872,
+and was then approved.</p>
+
+<p><span class="pagenum"><a name="Page_130" id="Page_130">[130]</a></span></p>
+
+<p class="pnb">Inconveniences of Travel</p>
+
+<p>Construction in accordance with the terms of the agreement
+of 1872 was promptly begun. San Fernando and San Pedro
+were reached in 1874, Anaheim in 1875, and the Southern
+Pacific main line in September, 1876. A vivid picture of the
+inconvenience of travel between Los Angeles and the East while
+the work was in progress, is given in the reminiscences of
+Harris Newmark, who has just been mentioned in connection
+with the negotiations between the railroad and the county of
+Los Angeles:</p>
+
+<p class="pbq p1">Before the completion of the San Fernando tunnel, a
+journey east from Los Angeles by way of Sacramento was beset
+with inconveniences. The traveler was lucky if he obtained
+passage to San Fernando on other than a construction train,
+and twenty to twenty-four hours, often at night, was required
+for a trip of the Telegraph Stage Lines’ creaking, swaying
+coach over the rough roads leading to Caliente—the northern
+terminal—where the longer stretch of the railroad north was
+reached. The stage lines and the Southern Pacific Railroad
+were operated quite independently, and it was therefore not
+possible to buy a through ticket. For a time previously, passengers
+took the stage at San Fernando and bounced over the
+mountains to Bakersfield, the point farthest south on the railroad
+line. When the Southern Pacific was subsequently built
+to Land’s Station, the stages stopped there; and for quite a
+while a stage started from each side of the mountain, the two
+conveyances meeting at the top and exchanging passengers.
+Once I made the journey north by stage to Tipton in Tulare
+County, and from Tipton by rail to San Francisco. The Coast
+line and the Telegraph line stage companies carried passengers
+part of the way. The Coast Line Stage Company coaches left
+Los Angeles every morning at five o’clock and proceeded via
+Pleasant Valley, San Buenaventura, Santa Barbara, Guadalupe,
+San Luis Obispo, and Paso de Robles Hot Springs, and connected
+at Soledad with the Southern Pacific Railroad bound
+for San Francisco by way of Salinas City, Gilroy, and San
+José, and his line made a specialty of daylight travel, thus<span class="pagenum"><a name="Page_131" id="Page_131">[131]</a></span>
+offering unusual inducements to tourists. There was no limit
+as to time; and passengers were enabled to stop over at any
+point and to reserve seats in the stage coaches by giving some
+little notice in advance.</p>
+
+<p class="pbq">In 1876, I visited New York City for medical attention and
+for the purpose of meeting my son Maurice, upon his return
+from Paris. I left Los Angeles on the twenty-ninth of April
+by the Telegraph Stage Line, traveling to San Francisco and
+thence east by the Central Pacific railroad; and I arrived in
+New York on the eighth of May.<a name="FNanchor_179_179" id="FNanchor_179_179"></a><a href="#Footnote_179_179" class="fnanchor">[179]</a></p>
+
+<p class="p1">The San Fernando tunnel to which Mr. Newmark refers
+is located 27 miles north of Los Angeles in the valley of the
+same name. It lies along the most direct and convenient route
+from Los Angeles into the San Joaquin Valley. Because of
+its length, nearly one and a quarter miles, and the unfamiliarity
+of the people of the coast with projects of this kind, there was
+much interest in the work and many doubts as to whether it
+could succeed. Governor Stevenson was credited with the
+statement that a tunnel could not be constructed. Other critics
+maintained that people could never be induced to travel through
+so long a tunnel, and that in any case the winter rains would
+cause it to cave in, to which Stanford replied that it was “too
+damned dry in Southern California for any such catastrophe.”
+So far as the records now show, however, there was no unusual
+obstacle encountered in the work, although the slowness with
+which the bore advanced and the large expense connected with
+construction caused considerable anxiety to the management of
+the Southern Pacific.</p>
+
+<p class="pnb">Western Development Company</p>
+
+<p>In carrying out their plans for the occupation of Southern
+California, the Huntington group naturally followed the same
+general policy that had proved profitable to them in the case<span class="pagenum"><a name="Page_132" id="Page_132">[132]</a></span>
+of the Central Pacific. That is to say, they organized construction
+companies, controlled by themselves, caused these
+companies to contract with the Southern Pacific for the construction
+of specified sections of line, and in their capacity as
+stockholders of the Southern Pacific required that company to
+issue and turn over large quantities of stocks and bonds in
+payment for work done. No further comment upon this
+method of procedure is necessary.</p>
+
+<p>The first construction company which did work for the
+Southern Pacific, under the plan outlined in the preceding
+paragraph, was the Contract and Finance Company. This was
+the same organization that had completed the Central Pacific.
+It appears that the Contract and Finance Company simply
+shifted men, teams and equipment from the Central Pacific
+to the Southern Pacific line between San José and Tres Pinos.
+Later it built the road from Goshen to Sumner, and that from
+San Fernando via Los Angeles to Spadra. In all, it built for
+the Southern Pacific 143.65 miles, including the stretch from
+Gilroy to Tres Pinos. In 1874 the Contract and Finance
+Company was dissolved and the Western Development Company
+took its place.</p>
+
+<p>The Western Development Company was incorporated
+December 15, 1874, for the announced purpose, among other
+things, of carrying on construction, manufacturing, mining,
+mercantile, mechanical, banking, and commercial business in
+all their branches, and also for the purpose of constructing,
+leasing, and operating all kinds of public and private improvements.
+That is to say, its powers were made as extensive as
+could well be imagined. Stanford, Hopkins, Huntington, and
+Crocker each held one-fourth of the stock.<a name="FNanchor_180_180" id="FNanchor_180_180"></a><a href="#Footnote_180_180" class="fnanchor">[180]</a></p>
+
+<p>Under date of February 2, 1875, the Western Development<span class="pagenum"><a name="Page_133" id="Page_133">[133]</a></span>
+Company agreed to construct a railroad and a telegraph line
+on the routes selected by the Southern Pacific, between certain
+specified termini. The mileage actually built was that from
+Sumner to San Fernando, from Spadra to Fort Yuma, and
+from Goshen to Huron. Bills were rendered for this work
+on the basis of $72,000 per mile, or $29,153,520 for 404.91
+miles, half in Southern Pacific first mortgage bonds and half in
+stock.<a name="FNanchor_181_181" id="FNanchor_181_181"></a><a href="#Footnote_181_181" class="fnanchor">[181]</a></p>
+
+<p>In addition to its contract with the Southern Pacific, the
+Western Development Company undertook certain miscellaneous
+construction, including work on the Northern Railway,
+and the San Pablo and Tulare Railroad, the building of steamers
+for the Central Pacific, bridges and buildings for the Central
+Pacific and Southern Pacific, general repairs for the various
+companies controlled by the associates, and even finally private
+residences for Hopkins, Stanford, and Crocker. In short,
+during its existence the Western Development Company, besides
+completing the major part of the Southern Pacific, did
+incidental building of any sort which the associates desired to
+have done.</p>
+
+<p class="pnb">Pacific Improvement Company</p>
+
+<p>The death of Mr. Hopkins in 1878, and the temporary
+unwillingness of Mrs. Hopkins to participate in the financing
+of new construction, together with the death of Mr. Colton in
+the same year, led Stanford, Huntington, and Crocker to close
+up the affairs of the Western Development Company, and to
+continue their more or less speculative building enterprises
+under a new organization. This new company, incorporated
+November 4, 1878, was known as the “Pacific Improvement
+Company.” Its relations to the Southern Pacific and to the
+associates were the same as those of the Western Development<span class="pagenum"><a name="Page_134" id="Page_134">[134]</a></span>
+Company, except that Mr. Colton, who had taken one-ninth
+of the Western Development Company stock in 1875, was not
+a stockholder, and that Mrs. Hopkins at the beginning took
+no part. Even the capital stock was placed at the same amount,
+$5,000,000.</p>
+
+<p>The main accomplishment of the Pacific Improvement
+Company was the construction of the Southern Pacific between
+Mojave and The Needles. Besides this, however, it extended
+the Southern Pacific from Soledad to San Miguel, built the
+Southern Pacific in Arizona and the Southern Pacific in New
+Mexico, completed the California and Oregon, and Oregon and
+California railroads, and continued the Northern Railroad from
+Willows to Tehama. The contracts made were similar to those
+executed by the Western Development Company, although the
+consideration varied.<a name="FNanchor_182_182" id="FNanchor_182_182"></a><a href="#Footnote_182_182" class="fnanchor">[182]</a></p>
+
+<p>The Pacific Improvement Company is still in existence.
+After the construction work for which it was incorporated was
+completed, Mr. Huntington sold his stock to the Hopkins estate.
+This gave to the Hopkins interest, then represented by
+Mr. Searles, possession of 50 per cent of the stock of the
+Pacific Improvement Company. The other 50 per cent remained
+in the hands of the Stanford and Crocker interests.
+At a later date the Searles stock passed to the University of
+California. The Pacific Improvement Company is now in
+process of liquidation. It owns some thirty town sites, a considerable
+amount of real estate, including much unimproved
+property in the Potrero district of San Francisco, land in the
+Monterey peninsula, and other property in Buffalo, New York.
+It has, besides, the stock and bonds of certain railroad companies,
+stock of the Carbondale Coal Company of Washington,
+and of the Oakland Water Front Company of Oakland, California,
+and what is still more important, it holds a large number
+of bills receivable covering property of all sorts which it<span class="pagenum"><a name="Page_135" id="Page_135">[135]</a></span>
+has sold in recent years but which has not been entirely paid
+for. The Pacific Improvement Company’s construction outfit
+was sold to the Central Pacific in 1883.</p>
+
+<p>The last of the construction companies, the Southern Development
+Company, became responsible for construction east
+of the Arizona state line when the Pacific Improvement Company
+left the field. It was of minor importance and may be dismissed
+with a word. In respect to ownership and operation it
+resembled the Contract and Finance Company, the Western Development
+Company, and the Pacific Improvement Company.</p>
+
+<p class="pnb">Identical Control of Companies</p>
+
+<p>There is a great deal of history about the operation of the
+various construction companies mentioned, that has not been,
+and perhaps never will be, written. The men out on the road
+seem to have known little about any of them. The contact of
+these men was with Stanford, Huntingdon, Hopkins, and
+Crocker. They neither knew nor cared whether they received
+orders from the associates in their capacities as directors of
+the Central Pacific or of the Southern Pacific, or as stockholders
+in one of the construction companies. Nor was it easy
+for them to keep informed. The same construction force
+moved from place to place. The same man in the same pay-car
+paid off employees of the Central Pacific, the Southern Pacific,
+and the construction companies indiscriminately.<a name="FNanchor_183_183" id="FNanchor_183_183"></a><a href="#Footnote_183_183" class="fnanchor">[183]</a> The same
+general shops furnished track materials.<a name="FNanchor_184_184" id="FNanchor_184_184"></a><a href="#Footnote_184_184" class="fnanchor">[184]</a> The same equipment
+was found on all the different lines, except perhaps on
+the northern division. There was small wonder that even the
+higher engineering officials were unable to locate accurately the
+stretches built for each of the principal companies which they
+served, nor that men under them should have been altogether
+confused.</p>
+
+<p><span class="pagenum"><a name="Page_136" id="Page_136">[136]</a></span></p>
+
+<p>As a matter of fact, the various corporations interested in
+the building of the Southern Pacific were, after 1870, only
+different manifestations of the activities of one group of men.
+It does not appear that any attempt was ever made to interest
+outside investors. On the contrary, Hopkins, Huntington,
+Colton, and perhaps the other partners as well, agreed that if
+anything happened to one of them, their stock in the Western
+Development Company should not go to outside parties until the
+existing stockholders had had a chance to take it.<a name="FNanchor_185_185" id="FNanchor_185_185"></a><a href="#Footnote_185_185" class="fnanchor">[185]</a></p>
+
+<p>This was a distinct contrast to the attitude of the same
+men when the Contract and Finance Company was formed, and
+indicates that they anticipated no such difficulty in raising
+funds as they had experienced when they built the Central
+Pacific. Had this not been true, it is probable that they would
+have let the Southern Pacific alone, competition or no competition.</p>
+
+<p class="pnb">Construction Financing</p>
+
+<p>Under the terms of their contracts with the Southern
+Pacific, the construction companies received substantially all
+of the stock and bonds which that company put out. The same
+parties were, therefore, directly or indirectly in control both
+of the railroad and of the companies which did work for the
+railroad. These securities had, however, no market for many
+years, at any price. County donations, of which there were a
+few, also yielded but little, and the federal land grant was not
+easily or early sold. The real source of financial supplies for
+the Contract and Finance Company and its successors, the
+Western Development and the Pacific Improvement companies,
+in their work upon the Southern Pacific, were the Central
+Pacific, as a corporation, and the associates as individuals.</p>
+
+<p>As in the case of the Contract and Finance Company, the
+associates paid no money on their stock subscriptions, but deposited<span class="pagenum"><a name="Page_137" id="Page_137">[137]</a></span>
+funds in varying amounts which were credited to them
+as loans. Interest was paid on these advances at rates varying
+from 6 to 10 per cent. It appears that the contributions
+by the associates to the Western Development Company began
+to be considerable in May, 1876. By January, 1877, they had
+reached the sum of $3,421,458.35. By March, 1878, the total
+advance was in the neighborhood of $11,000,000. It remained
+at this figure through 1878, and the major part of 1879. The
+largest contributions were made by the estate of Mark Hopkins
+and by Collis P. Huntington, though both Crocker and
+Stanford kept substantial balances. There is no record of the
+size of advances made to the Pacific Improvement Company,
+but we know that the same general practice was continued.</p>
+
+<p>In addition to the advances made by the Huntington group,
+the construction companies benefited substantially by the
+assistance rendered them by the Central Pacific. This was a
+sort of help which the Central Pacific itself and the persons
+who built it had never known. It took a variety of forms. A
+very obvious service which the Central Pacific could and did
+offer was the operation of sections of the Southern Pacific as
+fast as completed in connection with the Central Pacific main
+line. Besides this, the Central Pacific acted as banker when
+the construction companies had spare funds. More important
+still, the Central Pacific on occasion lent considerable sums to
+the Western Development Company. This was later denied
+by representatives of the Central Pacific, but the evidence seems
+conclusive that the loans were made.<a name="FNanchor_186_186" id="FNanchor_186_186"></a><a href="#Footnote_186_186" class="fnanchor">[186]</a></p>
+
+<p>Similar advances were probably made by the Central Pacific
+to the Pacific Improvement Company,<a name="FNanchor_187_187" id="FNanchor_187_187"></a><a href="#Footnote_187_187" class="fnanchor">[187]</a> and to the Contract
+and Finance Company, sometimes without interest. Money
+in the Central Pacific sinking fund was invested in this way,<span class="pagenum"><a name="Page_138" id="Page_138">[138]</a></span>
+at interest.<a name="FNanchor_188_188" id="FNanchor_188_188"></a><a href="#Footnote_188_188" class="fnanchor">[188]</a> Like use was made of surplus funds belonging
+to the Occidental and Oriental Steamship Company, which the
+Central Pacific was holding, until the Union Pacific discovered
+the matter, and, being interested in the money, demanded that
+its share be handed over.<a name="FNanchor_189_189" id="FNanchor_189_189"></a><a href="#Footnote_189_189" class="fnanchor">[189]</a> There is even evidence that the
+associates borrowed money from the Central Pacific between
+1874 and 1878, and that the treasurer of the company entered
+the sums taken on so-called “cash-tags,” carrying them as
+cash in his accounts.<a name="FNanchor_190_190" id="FNanchor_190_190"></a><a href="#Footnote_190_190" class="fnanchor">[190]</a> How much all these transactions
+amounted to, it is very difficult to say, but it is probable that
+the aggregate was large.</p>
+
+<p class="pnb">Profits of Associates</p>
+
+<p>There is no way of estimating the profits which Stanford,
+Huntington, Hopkins, and Crocker drew out of the Western
+Development, Pacific Improvement, and Southern Development
+companies. We know they were great, because the associates
+died very rich men. Mark Hopkins engaged in no
+important enterprise outside of his hardware business, except in
+railroad construction and operation, and yet in 1878 he left
+an estate appraised at over $19,000,000. Eleven years later,
+Charles Crocker’s estate was appraised at $24,142,475.84.<a name="FNanchor_191_191" id="FNanchor_191_191"></a><a href="#Footnote_191_191" class="fnanchor">[191]</a>
+Stanford’s estate was not appraised in 1893, or at least no
+figures of value were made public, and Huntington did not
+die until long afterwards. Inasmuch as the associates up to
+1878 were all interested in the same business together, and
+since the most important of their investments were in railroad
+construction work, it is fair to assume that the profits of the
+construction companies were considerable. Whatever they
+were it must, however, be remembered that they consisted in
+the main of Southern Pacific securities and of California real<span class="pagenum"><a name="Page_139" id="Page_139">[139]</a></span>
+estate, neither of which were immediately salable. As a construction
+enterprise, the whole Southern Pacific affair was
+speculative. It was from the point of view of the owners of
+the Central Pacific alone that the construction of the Southern
+Pacific presented itself as a necessary policy, both for the
+protection of an existing investment, and for the full exploitation
+of the possibilities of monopoly in California.<a name="FNanchor_192_192" id="FNanchor_192_192"></a><a href="#Footnote_192_192" class="fnanchor">[192]</a></p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_140" id="Page_140">[140]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER VIII</h2>
+
+<p class="pch">ORGANIZATION OF THE CENTRAL PACIFIC-SOUTHERN
+PACIFIC SYSTEM, FROM
+1870 TO 1893</p>
+
+<p class="pnb">Extent of System</p>
+
+<p>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 reached an extent
+which they themselves would have thought inconceivable a
+few years before. The operated mileage of the Central
+Pacific-Southern Pacific line on June 30, 1877, was 2,337.66
+miles, the capitalization $224,952,580, and the gross earnings
+$22,247,030. There was a continuous stretch of road from
+Ogden to Sacramento, San Francisco, and Oakland, and from
+these cities to Los Angeles and Yuma, by way of the San Joaquin
+Valley; while a line from Mojave to the Colorado River
+and The Needles was in course of construction.</p>
+
+<p>Legally and technically, this comprehensive system was
+divided into five parts. The original Central Pacific Railroad
+ran from 5 miles west of Ogden to Sacramento. In 1870 this
+company consolidated with the Western Pacific Railroad,
+operating between Sacramento and San José via Stockton, the
+San Francisco, Oakland and Alameda Railroad, which connected
+the Western Pacific with the city of Oakland, the San
+Joaquin Valley Railroad branch from Lathrop to Goshen, and
+the California and Oregon Railroad, which left the main line<span class="pagenum"><a name="Page_141" id="Page_141">[141]</a></span>
+of the Central Pacific near Roseville, and ran in a northwesterly
+direction to Redding toward the Oregon boundary. All these
+lines were directly under one operating control.</p>
+
+<p>A second important part of the system was the California
+Pacific between Sacramento and Vallejo, with a branch from
+Davis north to Marysville, and another from Napa Junction
+to Calistoga. The ownership of the third portion was vested
+in the Northern Railway. This company had been chartered
+in 1871, and had projected a line from Woodland, on the California
+Pacific, to Tehama, of which 82.20 miles were completed
+in 1875. In 1878 the company built from Oakland to
+Martinez, and from Benicia to Suisun, and still later it constructed
+a line from Benicia to Fairfield. This last bit of road
+enabled Central Pacific trains to run from Sacramento to San
+Francisco via Benicia, instead of passing through Vallejo.
+The San Pablo and Tulare, completed about the same time as
+the road from Oakland to Martinez, connected the Northern
+Railway with Tracy on the main line of the Central Pacific.</p>
+
+<p>The fourth part of the Huntington-Stanford system was
+the Northern Division of the Southern Pacific Railroad from
+San Francisco through San José to Soledad and Tres Pinos.
+The Tres Pinos line has been referred to in the previous chapter.
+The extension from Gilroy to Soledad up the Salinas
+Valley was in operation by 1877, and formed the first part of
+the route which later became the coast route to Los Angeles.
+The fifth and last part of the system was the Southern Division
+of the Southern Pacific Railroad from Goshen to Mojave, Los
+Angeles, and Yuma, with branches from Alcalde to Huron,
+and from Los Angeles to Wilmington. In addition to the
+main groups mentioned, there were certain minor extensions,
+such as the railroads from Sacramento to Shingle Springs (the
+Sacramento Valley and Placerville Railroad), from Stockton
+to Milton (the Stockton and Copperopolis Railroad), and from
+Peters to Oakdale (the Stockton and Visalia Railroad).</p>
+
+<p><span class="pagenum"><a name="Page_142" id="Page_142">[142]</a></span></p>
+
+<p class="pnb">Lease and Stock Control</p>
+
+<p>The various parts of the system were held together by a
+combination of leases and stock control. The associates in
+1877 held all or a majority of the stock of each railroad company
+which has been mentioned. Usually this stock had come
+to them in their capacity as shareholders in the various construction
+companies which had built the roads. In some cases,
+however, as with the California Pacific and the Northern Division
+of the Southern Pacific, the greater part of it had been
+acquired by purchase. But the associates in most instances
+preferred to add to their control by stock ownership the further
+security of a lease—a procedure which had the additional advantage
+of simplifying the conditions under which the companies
+were operated, by concentrating operations under a
+single management. Only in the case of the Northern Division
+of the Southern Pacific do they seem to have temporarily departed
+from this procedure, and this exception can probably
+be explained by the special circumstances of the case.</p>
+
+<p>So long as the same parties held all the securities of all
+the companies in the Central Pacific-Southern Pacific system,
+it made little difference how payments under the various leases
+were determined. Yet the possibility that the Central Pacific
+might sometime divest itself of some portion of its property,
+was kept in mind, and rentals were fixed so that in most cases
+they were materially less than the net earnings of the leased
+mileage. This was probably not true of the Southern Pacific
+in early years, but it had become so by 1880. In form, the
+leases showed surprising variety. The rental of the Northern
+Railway to the California Pacific in 1876 was at the rate of
+$1,500 per mile per year.<a name="FNanchor_193_193" id="FNanchor_193_193"></a><a href="#Footnote_193_193" class="fnanchor">[193]</a> Mr. Stanford thought that this
+was based on an estimated cost of construction.<a name="FNanchor_194_194" id="FNanchor_194_194"></a><a href="#Footnote_194_194" class="fnanchor">[194]</a> In 1879 the
+same property was leased to the Central Pacific for a payment<span class="pagenum"><a name="Page_143" id="Page_143">[143]</a></span>
+of a given sum per mile for each piece of equipment passing
+over the road. That is to say, 25 cents per mile was paid for
+each passenger or freight locomotive, 20 cents for each passenger
+car, and 8 cents for each freight or caboose car.<a name="FNanchor_195_195" id="FNanchor_195_195"></a><a href="#Footnote_195_195" class="fnanchor">[195]</a> This
+proved to be a very expensive rental, and was changed to a
+monthly payment of $47,500.<a name="FNanchor_196_196" id="FNanchor_196_196"></a><a href="#Footnote_196_196" class="fnanchor">[196]</a></p>
+
+<p>The lease of the California Pacific to the Central Pacific
+in 1876 carried a rental of $550,000 per year, plus three-fourths
+of the net earnings of the California Pacific above that
+amount. The Central Pacific guaranteed principal and interest
+on $3,000,000 of bonds. This was changed to a flat payment
+of $600,000 per year in 1879.<a name="FNanchor_197_197" id="FNanchor_197_197"></a><a href="#Footnote_197_197" class="fnanchor">[197]</a> The Central Pacific leased
+the Amador branch between Galt and Ione for $3,500 per
+month. In the case of the Stockton and Copperopolis, however,
+it undertook only to pay principal and interest on
+$500,000 of thirty-year bonds, at 5 per cent, with the provision,
+however, that the net earnings should apply on the Stockton
+and Copperopolis floating debt.<a name="FNanchor_198_198" id="FNanchor_198_198"></a><a href="#Footnote_198_198" class="fnanchor">[198]</a> These variations, if they
+show nothing else, are persuasive that the associates had no
+standard method of procedure but suited their arrangements
+to the facts in each individual case.</p>
+
+<p class="pnb">Lease of Southern Pacific</p>
+
+<p>Perhaps the most interesting relations between the different
+companies in the Huntington-Stanford system were those
+existing between the Central Pacific and the Southern Pacific—the
+Central Pacific’s most important extension. It has already
+been noted that during the early period of construction the
+Southern Pacific lines south of Goshen were turned over to
+the Central Pacific operating department as fast as they were
+completed. At one time the authority of some Central Pacific<span class="pagenum"><a name="Page_144" id="Page_144">[144]</a></span>
+officials reached east to New Orleans, though the general superintendent,
+Mr. Towne, seems never to have had jurisdiction
+beyond Vermillionville, 144 miles from New Orleans.<a name="FNanchor_199_199" id="FNanchor_199_199"></a><a href="#Footnote_199_199" class="fnanchor">[199]</a> The advantages
+of this arrangement were obvious. Under the lease,
+the Central Pacific paid the Southern Pacific $500 per mile
+per month rental, less $250 per mile per month to cover operating
+expenses, or a net sum of $250 per mile per month. As
+amended in 1879 and 1880, the leases made no mention of the
+$500 payment, but the Central Pacific engaged to keep the
+Southern Pacific in good repair, and to pay $250 per mile
+monthly.<a name="FNanchor_200_200" id="FNanchor_200_200"></a><a href="#Footnote_200_200" class="fnanchor">[200]</a> In its first form the lease contained the implication
+that the operating ratio of the Southern Pacific was only 50
+per cent, and it has been suspected that this was deliberately
+arranged in order to assist Mr. Huntington in disposing of
+Southern Pacific securities in New York. The lease was
+originally terminable on twelve months’ notice, but in 1880,
+on demand of New York bankers who contemplated the purchase
+of Southern Pacific bonds, it was changed to run for
+at least five years.</p>
+
+<p>The fact has already been mentioned that the lease of the
+Southern Pacific system to the Central Pacific never included
+what was known as the Northern Division, running from San
+Francisco through Gilroy to Tres Pinos and from Carnadero
+to Soledad. Its officers reported directly to the executive
+officials of the Southern Pacific Company, and not to Mr.
+Towne. The difference in treatment of this part of the line
+was striking. The Northern Division lay west of the Coast
+Range, and was separated to some extent from the lines of
+the San Joaquin Valley; yet it gave the main system entrance
+to the important city of San Francisco, and should<span class="pagenum"><a name="Page_145" id="Page_145">[145]</a></span>
+have been operated in close harmony with its connections at
+San José.</p>
+
+<p>One suspects that Mr. Huntington desired to separate the
+Central Pacific and the Southern Pacific in the public mind in
+order that he might more successfully oppose Mr. Scott’s
+Texas and Pacific plans at Washington. “I think it unfortunate,”
+he wrote in 1875, “that he [Stanford] should so
+closely connect the Central Pacific with the Southern Pacific,
+as that is the only weapon our enemies have to fight us with
+in Congress.”<a name="FNanchor_201_201" id="FNanchor_201_201"></a><a href="#Footnote_201_201" class="fnanchor">[201]</a> “I think it important,” he said in another
+letter about the same time, “that the Southern Pacific should
+be disconnected from the Central as much as it well can be.
+And ... I think it should have a superintendent that does
+not connect with the Central Pacific, although I think it would
+be difficult to get a man as good as Towne.”<a name="FNanchor_202_202" id="FNanchor_202_202"></a><a href="#Footnote_202_202" class="fnanchor">[202]</a> Opinions like
+these were likely to perpetuate distinctions between the Central
+Pacific and the Southern Pacific railroads which could not be
+explained on other grounds.</p>
+
+<p class="pnb">Arrangement Reversed</p>
+
+<p>A second stage in the connection between the Central
+Pacific and the Southern Pacific companies began in 1885
+when a lease of the Central Pacific to the Southern Pacific took
+the place of the earlier arrangement in which the Central
+Pacific was the lessee. It appears that Timothy Hopkins,
+treasurer of the Central Pacific and director of the Southern
+Pacific Railroad of California, received a telegram from Mr.
+Stanford in the summer of 1884, asking him to come to New
+York. When Hopkins arrived he found Stanford, Huntington,
+and Crocker, and it was explained to him that the meeting
+was desired in order to go over the affairs of the associates
+generally, and in particular to take up the question of the<span class="pagenum"><a name="Page_146" id="Page_146">[146]</a></span>
+organization of a new company for the purpose of holding and
+operating the railroad companies that were owned by the associates
+and controlled by them, both those under the management
+of the Central Pacific and those east of El Paso
+in Texas and Louisiana.<a name="FNanchor_203_203" id="FNanchor_203_203"></a><a href="#Footnote_203_203" class="fnanchor">[203]</a> The meeting was recognized
+as important and minutes were kept, which have been preserved.</p>
+
+<p>There were several circumstances which made a reorganization
+at this time desirable. In the first place, the period of
+exceptional profits for the Central Pacific was passing away
+with the decline in the mining business in Nevada and the
+opening of other transcontinental lines. In the second place,
+the Southern Pacific was beginning to realize the earning
+power which it was to have as a completed road. It had now
+a through line to New Orleans; it reached San Francisco
+while the Central Pacific did not; it was handling 45 per cent
+of the transcontinental business in 1885; and while it could
+hardly yet be called a profitable enterprise, its prospects were
+bright. Southern Pacific bonds were first sold in New York
+in considerable quantities in 1880, when they brought between
+86 and 90. Except on the supposition that the ownership of
+the Central Pacific and Southern Pacific was identical, there
+was beginning to be reason for the owners of the latter to feel
+dissatisfied with a lease like that of 1880, which compelled
+them to be contented with a fixed return.</p>
+
+<p class="pnb">Stock Holdings</p>
+
+<p>On this last point the evidence, though not entirely conclusive,
+offers some interesting suggestions. Up to 1880 the
+number of stockholders in the Central Pacific remained small.
+Mr. Huntington had stock of the four associates for sale, and
+made efforts to place it in New York, but without success.
+In 1878 the report of the Central Pacific Railroad to the California<span class="pagenum"><a name="Page_147" id="Page_147">[147]</a></span>
+Railroad Commission showed 82 stockholders, of whom
+56, with a total holding of 432,563 shares, were residents of
+California. Mark Hopkins held 102,812 shares when he died
+in that same year, and Mr. Huntington, Mr. Stanford, and
+Mr. Crocker presumably possessed equal amounts. During
+the early eighties, however, while the Central Pacific was paying
+substantial dividends, large quantities of stock were sold in
+Europe. James Speyer has testified that when he came into
+the New York office of Speyer and Company, some time between
+1883 and 1885, large blocks were held in England and
+Holland. The sales had been made before 1884, probably at
+a price above 50.</p>
+
+<p>No record of the amount disposed of in these years is
+available,<a name="FNanchor_204_204" id="FNanchor_204_204"></a><a href="#Footnote_204_204" class="fnanchor">[204]</a> but it is known that in 1884 the number of shares
+standing in the names of Huntington, Stanford, Crocker, and
+the Hopkins interests was considerably less than a majority
+of the stock outstanding.<a name="FNanchor_205_205" id="FNanchor_205_205"></a><a href="#Footnote_205_205" class="fnanchor">[205]</a> Mr. Jackson, employee in the
+secretary’s office of the Central Pacific in 1885, estimated the
+amount at from 30,000 to 35,000 shares apiece.<a name="FNanchor_206_206" id="FNanchor_206_206"></a><a href="#Footnote_206_206" class="fnanchor">[206]</a> According
+to Mr. Brown, who inventoried the stock of the associates in
+1884, the combined holdings of Stanford, Huntington,
+Crocker, and Mrs. Hopkins, including stock in the name of
+the Pacific Improvement Company, were 157,535 shares out
+of a total outstanding of 592,755 shares at this date.<a name="FNanchor_207_207" id="FNanchor_207_207"></a><a href="#Footnote_207_207" class="fnanchor">[207]</a> Timothy
+Hopkins later suggested that Brown’s figures might have included
+only stock free and available, and that the associates
+might have owned other stock pledged as collateral, but this
+was only a suggestion, without proof. As final bits of evidence,
+it is on record that Crocker possessed 34,049 shares of Central
+Pacific stock at his death in 1889,<a name="FNanchor_208_208" id="FNanchor_208_208"></a><a href="#Footnote_208_208" class="fnanchor">[208]</a> while Stanford told the<span class="pagenum"><a name="Page_148" id="Page_148">[148]</a></span>
+United States Pacific Railway Commission in 1887 that he
+owned 32,000 shares.<a name="FNanchor_209_209" id="FNanchor_209_209"></a><a href="#Footnote_209_209" class="fnanchor">[209]</a></p>
+
+<p>The conclusion to which this evidence leads is that Huntington
+and his friends did not own as much as 30 per cent of
+the Central Pacific shares outstanding when they met together
+in New York in 1884. Their control of the company depended
+on the proxies which were sent them, and in particular upon
+the fact that the individual liability imposed on corporation
+stockholders under California law led new purchasers of Central
+Pacific stock to delay recording their ownership, or even
+to place their stock under the name of third persons in New
+York. Dividends were collected by presentation of coupons
+clipped from stock certificates.<a name="FNanchor_210_210" id="FNanchor_210_210"></a><a href="#Footnote_210_210" class="fnanchor">[210]</a> Mr. Klink testified that the
+majority of the stock was voted by proxy in 1885, and that the
+bulk of it was in the name of people in the New York office
+of the company. On the other hand, during the period in
+which the ownership of the Central Pacific became scattered,
+the stock of the Southern Pacific continued to be closely held
+by the original associates: Stanford, Huntington, Crocker, and
+the estate of Mark Hopkins.</p>
+
+<p>It is not difficult to understand why the associates should
+have gradually shifted their main interest from the Central
+Pacific to the Southern Pacific if we remember that their
+interests were widely extended as the result of their building
+enterprises in Southern California, and that Central Pacific
+securities were the only parts of their holdings on which they
+could realize in cash. Southern Pacific stock and bonds had no
+market in New York; Central Pacific stock and bonds had
+such a market. Doubtless, the associates could not have
+afforded to dispose of their Central Pacific holdings if this
+would have imperiled their control of the Ogden route, but
+such a result did not necessarily follow, as we shall see. Having<span class="pagenum"><a name="Page_149" id="Page_149">[149]</a></span>
+sold Central Pacific securities in large quantities, however,
+it was natural for the Stanford-Huntington group to wish to
+make the company in which their main interest now lay a dominant
+partner in the Central Pacific-Southern Pacific combination.
+And this is probably the explanation of the transaction
+which we are about to describe.</p>
+
+<p class="pnb">New York Meetings</p>
+
+<p>Let us return to the meeting of Huntington and his associates
+at New York in the summer and fall of 1884, at which
+the details of the reorganization were worked out. The first
+business there considered was the purchase of the interest of
+one T. W. Pierce in the Galveston, Harrisburg and San
+Antonio Railway and the making of certain adjustments of
+interests of the associates in connection therewith. The next
+was the taking of an inventory of securities on hand in New
+York and those used as collateral for the payment of liabilities
+of Stanford, Huntington, Hopkins, and Crocker. On September
+11 the question of the reorganization of the Southern
+Pacific system was taken up, and the following order of business
+was agreed upon: (1) consolidation of all the lines of the
+Southern Pacific system in one company; (2) separation of
+Central Pacific business from Southern Pacific business; (3)
+leasing of the Central Pacific system to the Southern Pacific
+system (new organization); (4) general consolidation of lines
+from San Francisco to Newport News.</p>
+
+<p>The fourth item referred to a proposal that Stanford,
+Crocker, and the Hopkins estate enter with Huntington into the
+ownership of the Chesapeake and Ohio Railroad, opening the
+way for a transcontinental rail line from coast to coast. This
+offer was declined; no further reference need be made to it.<a name="FNanchor_211_211" id="FNanchor_211_211"></a><a href="#Footnote_211_211" class="fnanchor">[211]</a></p>
+
+<p>On September 25, the associates came together again, and
+from that time until November 7, meetings were held almost<span class="pagenum"><a name="Page_150" id="Page_150">[150]</a></span>
+daily. From the meager reports of the proceedings kept by
+their secretary, we glean that more than one plan of adjustment
+was considered. It was agreed at one time that the Southern
+and Central Pacific companies might terminate their leases,
+and that the Central might lease from the Southern that portion
+of the railroad between Goshen and Mojave. Then a running
+arrangement was to be made between the Central Pacific
+and the Southern Pacific Company (new organization) to
+cover the line from Mojave to San Francisco and other California
+points.<a name="FNanchor_212_212" id="FNanchor_212_212"></a><a href="#Footnote_212_212" class="fnanchor">[212]</a></p>
+
+<p>This plan was not finally adopted. On October 1, Leland
+Stanford was appointed a committee of one to formulate his
+proposed method of leasing the several roads which should
+form the through line of the Southern Pacific Company. It
+was agreed that the stock of the Southern Pacific Company,
+which had been organized the previous year, should be raised
+to $100,000,000. During the following three weeks the discussion
+turned largely about the details of the Southern Pacific
+organization and the best methods of liquidating the Southern
+Development Company. On November 5, the question of leasing
+the Central Pacific system to the Southern Pacific came up.
+It was agreed to lease the property, and temporarily to fix the
+rental at fixed charges and a guarantee of 2 per cent upon the
+capital stock, plus all the earnings of the Central Pacific system
+over and above that percentage until the amount should
+reach 6 per cent. All profits beyond 6 per cent were to go to
+the Southern Pacific Company. The last meeting was held
+on November 7.</p>
+
+<p class="pnb">Reorganization of System</p>
+
+<p>The result of these exhaustive discussions was a threefold
+operation. In the first place, the Southern Pacific Company
+of Kentucky, organized in 1884 with a charter granting power<span class="pagenum"><a name="Page_151" id="Page_151">[151]</a></span>
+to do most things in the world provided it did not operate in
+Kentucky, issued $100,000,000 in capital stock, and acquired
+in exchange for its certificates the stock of the Southern Pacific
+Railroad Company and that of the subsidiary companies completing
+the through line to New Orleans.<a name="FNanchor_213_213" id="FNanchor_213_213"></a><a href="#Footnote_213_213" class="fnanchor">[213]</a></p>
+
+<p>Secondly, the Southern Pacific Company leased the Southern
+Pacific Railroad and these same subsidiaries for ninety-nine
+years from the 10th of February, 1885, undertaking
+to keep the properties in repair, and to pay over 93½
+per cent of the net profits to the lessors in specified proportions.</p>
+
+<p>In the third place, the Southern Pacific Company leased the
+Central Pacific Railroad for ninety-nine years from the first
+of April, 1885, for a rental which might vary from $1,200,000
+to $3,600,000 a year, according as the earnings of the Central
+Pacific and leased lines north of Goshen might be small or large.
+This substantially corresponded to the 2 per cent and the 6 per
+cent on the capital stock mentioned in the minutes of the associates.
+The Southern Pacific assumed all Central Pacific obligations
+except the payment of the principal of indebtedness
+incurred or guaranteed by that company, and various minor
+adjustments and assignments were made which it is not necessary
+to describe.<a name="FNanchor_214_214" id="FNanchor_214_214"></a><a href="#Footnote_214_214" class="fnanchor">[214]</a></p>
+
+<p>Mr. Stanford has testified that in fixing the rental of
+$1,200,000 the business of the previous years and the prospects
+of competition in the future were taken into account.<a name="FNanchor_215_215" id="FNanchor_215_215"></a><a href="#Footnote_215_215" class="fnanchor">[215]</a> The<span class="pagenum"><a name="Page_152" id="Page_152">[152]</a></span>
+United States Pacific Railway Commission approved the terms
+of the lease two years later.</p>
+
+<p>In 1888 the minimum rental was changed to $1,360,000
+and the maximum to $4,080,000, in consequence of the extension
+of the Central Pacific from Delta, California, to a connection
+with the Oregon and California Railroad at the Oregon
+boundary. In 1893 the Southern Pacific complained that it
+was suffering very considerable losses under the lease and the
+terms were once more revised. Instead of a rental with a fixed
+minimum, the Southern Pacific now agreed to pay $10,000 a
+year for the leased property, plus all net earnings up to 6 per
+cent on the capital stock of the Central Pacific Railroad and
+one-half the excess over 6 per cent.<a name="FNanchor_216_216" id="FNanchor_216_216"></a><a href="#Footnote_216_216" class="fnanchor">[216]</a></p>
+
+<p>It was provided in the fourth article of the new lease that if
+the Southern Pacific should make any advances for payment on
+account of the Central Pacific, it should be entitled to receive
+interest on these advances at the rate of 6 per cent. On the
+22d of March, 1894, this fourth article of the amended lease
+was again changed by inserting the words “lawful interest”
+instead of “interest at 6 per cent per annum” upon advances
+which might be made by the Southern Pacific Company. At
+the same time it was agreed between the Central Pacific and
+the Southern Pacific that if at any time it appeared that, by<span class="pagenum"><a name="Page_153" id="Page_153">[153]</a></span>
+the operation of the agreement, either party was being benefited
+at the expense of the other, the agreement should be
+revised and changed. On the whole the earnings of the Central
+Pacific were less than were expected under the lease, particularly
+during the years 1888-93. Yet part of the difficulty
+arose from preferential solicitation of freight over the Sunset
+route, and for the rest the rental of the property was adjustable,
+as experience showed.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_154" id="Page_154">[154]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER IX</h2>
+
+<p class="pch">THE CASE OF DAVID D. COLTON</p>
+
+<p class="pnb">Meeting the Associates</p>
+
+<p>During the seventies the associates took a new partner.
+This was David D. Colton, one-time sheriff of Siskiyou
+County, brigadier-general of militia, second to Broderick in the
+famous Terry-Broderick duel, and still later colonel of United
+States Volunteers. In spite of these various military titles,
+Colton seems never to have seen service. But he had been active
+in California politics as a delegate of the Union Democratic
+party in 1861, and as chairman of the state central committee
+of that organization, and was widely known throughout
+the state. He was a man of fine physique, and endowed with
+a quick if not a profound intelligence.</p>
+
+<p>Colton first made the acquaintance of Charles Crocker in
+1867, when the latter was on his way to inspect the work of
+construction of the Central Pacific beyond Elko. Three years
+later Crocker invited Colton to accompany him to Evanston,
+California, where he intended to look over, and perhaps to purchase,
+certain coal mining properties. According to Crocker,
+Colton said that he also would like to have an interest in the
+mines in question. Crocker, who had in the meantime completed
+negotiations for the purchase, replied with an offer to
+make Colton president and manager of the coal company if he
+would buy a thousand shares of its stock, which Colton immediately
+did.<a name="FNanchor_217_217" id="FNanchor_217_217"></a><a href="#Footnote_217_217" class="fnanchor">[217]</a></p>
+
+<p><span class="pagenum"><a name="Page_155" id="Page_155">[155]</a></span></p>
+
+<p>The relations thus begun rapidly became more intimate.
+As early as 1868, Mr. and Mrs. Colton had invitations from
+Mr. Crocker and passes to travel on the Central Pacific. In
+1869 or 1870 the two families visited the Yosemite together,
+and in 1871-72, when the Crockers went to Europe and the
+two Crocker boys were left behind at a military academy in
+Oakland, the Coltons looked after the children generally, and
+had them at the Colton house for week-ends.<a name="FNanchor_218_218" id="FNanchor_218_218"></a><a href="#Footnote_218_218" class="fnanchor">[218]</a></p>
+
+<p>It was through his acquaintance with the Crockers that
+Mr. Colton met the other members of the Stanford group.
+Mr. Huntington was favorably impressed with him; Stanford
+and Hopkins less so. Huntington was becoming dissatisfied
+about this time with the amount of work done by his associates,
+and the suggestion soon made that Colton join the other members
+of the group and share the burden of managing the Central
+Pacific enterprise with them, met his approval. “I was
+worked,” he said later, “up to my full capacity, whatever that
+might be. Mr. Crocker was in the habit of going to Europe and
+having a good time and the Governor owned ranches, and his
+horses took a great deal of his time; in fact, the Governor
+never could confine himself right to the office; that is, I don’t
+consider that he could, to close, hard work, and we wanted
+somebody there to do that work; and Mr. Colton convinced me
+that he, of all men, was just the man that we wanted.” And
+again, speaking of his partners and of Colton, Huntington said:
+“He knew I was not satisfied with some things that my associate
+co-directors were doing there. The way they used to go
+to Europe and go away from business, while I was working
+every day in the year almost, and about fourteen hours a day;
+he knew I was not quite satisfied with the hours they put in.”<a name="FNanchor_219_219" id="FNanchor_219_219"></a><a href="#Footnote_219_219" class="fnanchor">[219]</a>
+The fact that Mr. Hopkins’ health was not strong was an additional
+reason for taking in a new partner.</p>
+
+<p><span class="pagenum"><a name="Page_156" id="Page_156">[156]</a></span></p>
+
+<p class="pnb">Agreement Signed</p>
+
+<p>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.<a name="FNanchor_220_220" id="FNanchor_220_220"></a><a href="#Footnote_220_220" class="fnanchor">[220]</a> At
+the same time it was mutually understood that Colton should
+share in all the responsibilities and liabilities of the associates
+for five years in proportion to his stockholdings, and should
+stand in their shoes, as it were, holding the same positions and
+relations which they had to the Central Pacific Railroad, and
+to the Contract and Finance Company. The contract called
+for no cash payment, for obvious reasons.</p>
+
+<p>Mr. Huntington says he felt in 1874 that Colton was receiving
+something very handsome, and the opinion was not
+without some justification. Certainly, in the long run the opportunity
+to share in the profits of the associates was valuable.
+Colton was not a man of large means to begin with, yet after
+two years and three months with the Central Pacific, he inventoried
+his assets at $961,506.18,<a name="FNanchor_221_221" id="FNanchor_221_221"></a><a href="#Footnote_221_221" class="fnanchor">[221]</a> and at the time of his death
+his rent roll alone amounted to $2,500 to $3,000 a month.<a name="FNanchor_222_222" id="FNanchor_222_222"></a><a href="#Footnote_222_222" class="fnanchor">[222]</a></p>
+
+<p>This was a very substantial compensation, even for very
+valuable service. But on the other hand, it is evident that Mr.
+Colton put himself entirely in the hands of the associates when
+he signed the agreement and the promissory note which have
+been described. He not only pledged his services for five years,
+but he assumed an unconditional liability to pay $1,000,000 at
+the end of this period, in return for which he obtained only
+40,000 shares of unsalable securities and a right to participate
+in the management of the associates’ property which was revocable<span class="pagenum"><a name="Page_157" id="Page_157">[157]</a></span>
+at the pleasure of Huntington and his friends at any
+time within two years. This was a dangerously exposed position.
+It was not a wise thing even for the Huntington-Stanford
+group to put Colton in such a predicament, and much
+subsequent difficulty resulted therefrom.</p>
+
+<p>In 1876 the associates served notice on Mr. Colton, dissevering
+his connection with them. Mr. Crocker relates that
+Colton was very much affected. He said, according to Crocker,
+“It is generally known that I am here with you, and there is
+no one knows these relations are only temporary, and it will
+be next to ruin to me to have them dissevered now.” In fact,
+he wept. Crocker later testified that he liked the general very
+much, and was touched by his distress. Colton wished him
+to go and see the others, and Crocker did so. The result was
+that the notice was reconsidered and a second contract made.<a name="FNanchor_223_223" id="FNanchor_223_223"></a><a href="#Footnote_223_223" class="fnanchor">[223]</a>
+After this, Colton bought one-ninth of the capital stock of the
+Western Development Company, and commenced to deposit
+money with that organization in the same manner as did the
+other members of the group.</p>
+
+<p class="pnb">“Financial Director”</p>
+
+<p>During substantially the whole period from 1874 to 1878,
+Colton took active charge of the financial affairs of the Huntington
+group at the San Francisco end. His office and title
+beginning August 31, 1875, was that of “financial director.”
+Formally he acted under the direction of the treasurer of the
+company, Mr. Hopkins. Practically he reported to Mr. Huntington
+and perhaps to Mr. Crocker, more than to Mr. Hopkins,
+but exercised a good deal of independent initiative.<a name="FNanchor_224_224" id="FNanchor_224_224"></a><a href="#Footnote_224_224" class="fnanchor">[224]</a> With the
+operation of neither the Central Pacific nor the Southern
+Pacific had he anything to do. On the other hand, it was
+either Colton in San Francisco, or Huntington in New York,<span class="pagenum"><a name="Page_158" id="Page_158">[158]</a></span>
+as we shall presently see, who attended to the negotiation of
+short-time loans, often necessary to take care of interest on the
+railroad properties. It was also Colton who had particular
+charge of the many affairs of the Western Development
+Company;<a name="FNanchor_225_225" id="FNanchor_225_225"></a><a href="#Footnote_225_225" class="fnanchor">[225]</a> it was Colton who was responsible head of the
+Rocky Mountain Coal and Iron Company’s mine at Ione; and
+it was Colton who took particular interest in finding a market
+for the output of this corporation.<a name="FNanchor_226_226" id="FNanchor_226_226"></a><a href="#Footnote_226_226" class="fnanchor">[226]</a></p>
+
+<p>From the tone of Mr. Huntington’s letters to Colton, it
+seems as though the former was reasonably well satisfied with
+the way the business in the West was conducted after 1874. On
+his part, Colton cultivated the idea that the interests of the
+five associates, himself included, were inextricably bound
+together. “I have learned one thing,” he wrote in 1878, “we
+have got <i>no true friends</i> outside of <i>us</i> five.... People will
+profess friendship to one of us, just to either try to find out
+something, or when the time comes, lie about the rest of us.
+We cannot depend on a human soul outside of ourselves, and
+hence we must all be good-natured, stick together, and keep
+our own counsels.”<a name="FNanchor_227_227" id="FNanchor_227_227"></a><a href="#Footnote_227_227" class="fnanchor">[227]</a></p>
+
+<p>Yet, in spite of his assumption of the permanency of his
+relations with the Huntington group, Mr. Colton certainly
+understood that his position had no legal security whatever.
+Of this the episode of 1876 must have been a disagreeable
+reminder. In particular, as has been observed, there was a
+reasonable likelihood that he would be called upon to pay his
+note for $1,000,000 in 1879, before the Central Pacific and
+Southern Pacific shares, which secured it, had become salable.
+It is evident that these matters were in Mr. Colton’s mind constantly,
+and gave him great concern. No other reason can be<span class="pagenum"><a name="Page_159" id="Page_159">[159]</a></span>
+offered for his efforts to secure title to property with such
+feverish rapidity. How should he protect himself against the
+automatic presentation of a note which might require the
+sacrifice of all his accumulations to pay? How should he put
+himself in a position where his income was not wholly dependent
+on the forbearance of four men, with only one of
+whom he had ties of personal friendship? If Mr. Colton’s
+moral fiber weakened somewhat under the strain of the situation,
+the fact need occasion no great surprise.</p>
+
+<p class="pnb">Western Development Dividend</p>
+
+<p>Some time after 1874 Colton suggested to Crocker that the
+salaries of the associates be raised. They were all drawing
+$10,000 a year, and were giving all their time for that salary.
+Colton said it was an insignificant sum. Men such as the
+associates ought to have $25,000 a year, at least. But Crocker
+replied prudently that a salary of $10,000 could always be
+justified, while one of $25,000 might not be. He preferred to
+let the matter stay as it was.<a name="FNanchor_228_228" id="FNanchor_228_228"></a><a href="#Footnote_228_228" class="fnanchor">[228]</a></p>
+
+<p>Three years later, when the period of his contract was
+drawing to a close, Colton took more drastic action by causing
+the Western Development Company to distribute a substantial
+part of its assets in the form of a dividend. This provided
+him with property, upon which as security he might have
+borrowed considerable sums of money. A dividend was
+declared on September 4, 1877, which consisted of $13,500,000
+in Central Pacific stock, $6,300,000 in Southern Pacific
+Railroad bonds, and $1,562,500 in other securities, amounting
+to between one-half and one-third of the holdings of the
+Western Development Company. Colton’s personal share was
+one-ninth.<a name="FNanchor_229_229" id="FNanchor_229_229"></a><a href="#Footnote_229_229" class="fnanchor">[229]</a></p>
+
+<p><span class="pagenum"><a name="Page_160" id="Page_160">[160]</a></span></p>
+
+<p>Ostensibly the Western Development Company’s dividend
+was a distribution of surplus profits. In reality it was a division
+of capital. Nobody knew, in 1877, how great the profits
+of the Western Development Company had been, nor even
+whether the assets of the company equaled its liabilities, for the
+reason that the value of these assets was speculative and uncertain,
+and if realized on all at once, would have amounted to
+scarcely anything at all. It was known, of course, that the
+creditors of the company were also its stockholders, so that the
+distribution was not quite so reckless as it otherwise might
+have appeared; but yet the various stockholders were not
+holders of stock in the same proportions as they were creditors,
+and the heavier creditors, such as Huntington, might well have
+felt that their interests were not being sufficiently protected.</p>
+
+<p class="vh"><a name="i184" id="i184">i184</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-184.jpg" width="400" height="490"
+ alt=""
+ title="" />
+</div>
+
+<p><span class="pagenum"><a name="Page_161" id="Page_161">[161]</a></span></p>
+
+<p>Nothing was said about the Western Development dividend
+to any of the associates at the time it was declared. Charles
+Crocker was in San Francisco, but knew nothing of it.<a name="FNanchor_230_230" id="FNanchor_230_230"></a><a href="#Footnote_230_230" class="fnanchor">[230]</a> The
+fact came out, however, in August of the following year, when
+Huntington was in the West. Stanford, Huntington, and
+Crocker were all together in one of the Southern Pacific offices
+when Colton came in, accompanied by a couple of subordinates
+with their hands full of bonds, and said, “Gentlemen, here are
+your dividends.” Both Huntington and Crocker became at
+once very angry, and hot words seem to have passed. Huntington
+said that there was no sense in the dividend—it was
+wrong, the company ought to pay its debts before it paid a
+dividend—the stocks and bonds were of no particular value,
+but their distribution would leave the Western Development
+Company shorn of its resources, and they must be returned.
+Crocker agreed with Huntington. Colton begged the others
+not to injure him in the eyes of the employees of the company
+by compelling a return of the securities, and pledged his honor
+that he would not part with his shares, and would return them
+if needed. Stanford thought the matter might be passed with
+this understanding, and it was so agreed, not, however, without
+a good deal of resentment on the part of Huntington and
+Crocker.<a name="FNanchor_231_231" id="FNanchor_231_231"></a><a href="#Footnote_231_231" class="fnanchor">[231]</a></p>
+
+<p class="pnb">Misappropriation of Funds</p>
+
+<p>The Western Development dividend and Colton’s request
+for a higher salary were, in a measure at least, open and above
+board. The same cannot be said of a number of other operations—in
+general, it is true, of minor importance—which took
+place between 1874 and 1878, and which became known only
+after Colton’s death. How far Colton was guilty of positive
+dishonesty during these years has been a matter of bitter
+dispute. There is no question, however, that he drew or
+credited himself with considerable amounts of money without
+the knowledge of the other partners, and that no vouchers
+were ever made out which sufficiently explained these transactions.
+Charges of embezzlement were even later made and not
+disproved. Three of four illustrations of such incidents may
+be given.</p>
+
+<p>1. Salary drawn from the Rocky Mountain Coal and Iron
+Company. Mr. Colton was made president of this company in
+1871 at a salary of $100 a month. In 1874 the associates
+agreed that Colton should receive a salary of $10,000 a year, as
+partner. No separate mention was made of the Rocky Mountain
+Coal and Iron Company in 1874, but it is reasonable to
+suppose that the new salary of $10,000 covered Colton’s work
+in supervising the coal property, as well as his share in the
+general administration of the railroad, especially as the coal
+business took comparatively little of his time. As a matter of
+fact, however, Colton restricted himself to $100 a month only
+during 1871. In 1872 he drew $400 a month, except during<span class="pagenum"><a name="Page_162" id="Page_162">[162]</a></span>
+the month of March, when he took $366.50. In 1873 he took
+$23,500, of which a considerable amount was for back salary.
+In 1874 Colton drew $12,000, and in 1875, 1876, and 1877,
+$6,000 annually. According to the testimony of expert accountants
+who later went over the company’s books, Colton
+took $54,966.50 in salary during the years 1871-77 in excess
+of what he should have taken according to his agreement with
+Mr. Crocker, and beyond the amounts which the other associates
+intended he should have.<a name="FNanchor_232_232" id="FNanchor_232_232"></a><a href="#Footnote_232_232" class="fnanchor">[232]</a></p>
+
+<p>2. Interest on Rocky Mountain Company balances. It is
+admitted that Mr. Colton deposited the balances of the Rocky
+Mountain Coal and Iron Company, running all the way from
+$30,000 to $90,000, in his own private bank account, and used
+them in his own private transactions.</p>
+
+<p>3. Receipts from sale of coal. It appears that the Rocky
+Mountain Coal and Iron Company sold coal to the Central
+Pacific. For some time this coal was paid for at the rate of
+$2 and $2.65 per ton. In July, 1874, the Central Pacific made
+an extra payment of $11,622 to Mr. Colton for the purpose of
+increasing the price paid during the months from January to
+May, 1874, to $2.85 per ton, and arranged to pay this increased
+amount thereafter. In his instructions to the superintendent of
+the mine, Mr. Colton made no mention of the retroactive payment,
+and apparently pocketed the $11,622.</p>
+
+<p>4. Appropriation of interest coupons. In 1876 Mr. Tevis
+wished to exchange some Southern Pacific bonds which he
+held, for certain lands owned by the Railroad Company. Colton
+agreed to facilitate the transaction by taking the bonds and
+giving his individual check for $140,700. Tevis delivered the
+check and $10.13 in cash to the Southern Pacific land agent,
+and got his deed. Colton eventually redeemed his check by
+delivery of the bonds to the treasurer of the Southern Pacific,<span class="pagenum"><a name="Page_163" id="Page_163">[163]</a></span>
+but when the bonds came in, two interest coupons were missing.
+A similar transaction between the same parties, but for a lesser
+amount, took place later the same year, and again interest
+coupons were clipped from the bonds before Colton turned
+them in.<a name="FNanchor_233_233" id="FNanchor_233_233"></a><a href="#Footnote_233_233" class="fnanchor">[233]</a> In each case Mr. Smith, the treasurer of the
+Southern Pacific, was compelled to hold Colton’s check for a
+considerable period before it was redeemed, and during this
+time Colton had, of course, the use of the money.</p>
+
+<p>In addition to matters such as those here partially enumerated,
+there were a multitude of instances in which Colton
+charged relatively small sums to various accounts without
+supplying any evidence that the charges were legitimate. Doubtless
+the other associates did the same, but Colton’s position in
+the group was peculiar, and he could not afford to allow himself
+equal freedom with Huntington and Stanford. It would serve
+no useful purpose to discuss these instances in detail.</p>
+
+<p>The aggregate of all the sums which Colton thus gathered
+into his control was considerable. The Western Development
+dividend alone supplied him with 700 Southern Pacific bonds
+that might have been used as collateral security for a loan, as
+well as with other securities, mostly of still uncertain value.
+Items of excess salary, interest on balances, and miscellaneous
+unaccounted-for expenses totaled $130,831.13. Had Colton
+succeeded in increasing his salary as financial director to $25,000,
+he would have added from $75,000 to $100,000 to his
+resources. Substantial progress was evidently being made
+toward meeting the million dollar note.</p>
+
+<p class="pnb">Colton’s Death and Mrs. Colton</p>
+
+<p>Upon all the activities which have been described, Colton’s
+death in October, 1878, in the prime of life, fell with crushing
+force. In the first place, Colton’s manipulations were such as
+to be unforgivable by his business friends. Devious as Huntington’s<span class="pagenum"><a name="Page_164" id="Page_164">[164]</a></span>
+ethical code was at times, he had no hesitation in
+pronouncing Mr. Colton guilty of robbery; that he himself
+was partly responsible was not likely to occur to him. In the
+second place, Colton’s assets at the time of his death were such
+as to render immediate liquidation impossible, and yet this was
+precisely the thing most likely to be demanded. Mrs. Colton,
+the sole heir, was a woman of unusual ability, clear-headed,
+definite in speech, and, although inexperienced in business,
+apparently quickly able to understand business problems. She
+had, moreover, a good adviser in the person of a San Francisco
+lawyer named S. M. Wilson. Her position was, nevertheless,
+one of disadvantage, which was intensified by her wish to
+shield her husband’s reputation.</p>
+
+<p>It does not appear that the associates were aware of the
+true state of affairs during the weeks immediately following
+Mr. Colton’s death. Mr. Huntington wrote cordial though not
+altogether sincere letters to Mrs. Colton, expressing willingness
+to serve her in those matters in which General Colton was
+interested with the associates,<a name="FNanchor_234_234" id="FNanchor_234_234"></a><a href="#Footnote_234_234" class="fnanchor">[234]</a> and Crocker called at Mrs.
+Colton’s house and wept there while speaking of the death of
+Mr. Colton. This attitude soon changed, however, and Mr.
+Crocker became less friendly in his intercourse with Mrs.
+Colton, and at last ceased to visit her altogether.<a name="FNanchor_235_235" id="FNanchor_235_235"></a><a href="#Footnote_235_235" class="fnanchor">[235]</a> In fact, all
+pretense of sympathy with Mrs. Colton was presently
+abandoned, and negotiations between her and the associates
+were continued upon a cold business basis.</p>
+
+<p>The attitude of the Stanford-Huntington crowd was officially
+that they were willing to have Mrs. Colton pay her obligations
+and continue with them. This meant a settlement of
+claims arising out of the improper withdrawal of moneys by
+Mr. Colton, but also more particularly the payment of the<span class="pagenum"><a name="Page_165" id="Page_165">[165]</a></span>
+$1,000,000 note. It involved, also, for the future continued
+investment of funds in the Western Development Company,
+and the payment of assessments which might be levied upon
+Southern Pacific stock. It was insisted, however, that the
+matter be settled quickly, partly because Mr. Huntington was
+about to leave the city, and partly because the period for filing
+claims against the Colton estate would soon expire.<a name="FNanchor_236_236" id="FNanchor_236_236"></a><a href="#Footnote_236_236" class="fnanchor">[236]</a></p>
+
+<p>In the event that Mrs. Colton should not desire to continue
+with them, the associates demanded an accounting in which the
+liabilities of Mr. Colton on account of the $1,000,000 note, his
+share of the net indebtedness of the Western Development
+Company, and the sum of the alleged embezzlements, should
+be set against the estimated value of the stock and bonds of
+which Colton died possessed. In estimating the value of Mr.
+Colton’s securities, moreover, the associates declared that the
+question was not as to the amount which could be realized
+eventually and after the underlying property had had a chance
+to prove itself, but the market value at the time of negotiations.</p>
+
+<p>Mr. Crocker’s testimony on this point expresses very fully
+the attitude of the associates. He said:</p>
+
+<p class="pbq p1">Mr. Wilson and I had frequent conversations, and he sometimes
+asserted we could do so and so with these bonds, that
+we could realize 80 or 90 cents on them. I said in reply,
+“Possibly we can; I don’t know; it is a matter of speculation;
+it depends on the future of the roads.” Sometimes he would
+claim they would bring 80 or 85 cents; and then I would say,
+“Very likely they may,” but it would require time to do it, and
+a great deal of management necessarily to bring that out, and
+if Mrs. Colton desired to realize the full value of these securities
+after this lengthy handling of them, all she had to do was
+to pay the amount of the note and continue in the company and
+we would manage them for her, as well as we would for ourselves,
+of course, and she should receive the full benefit of our
+knowledge and experience in handling these securities, and we<span class="pagenum"><a name="Page_166" id="Page_166">[166]</a></span>
+would get every dollar out of them we could, and she should
+have her share to the last cent. Then he would reply: “Well,
+that can’t be. We are determined to go out of this.” “Well,”
+I says, “then it is a matter of speculation.”<a name="FNanchor_237_237" id="FNanchor_237_237"></a><a href="#Footnote_237_237" class="fnanchor">[237]</a></p>
+
+<p class="p1">Unquestionably these were hard terms, for it was out of the
+question for Mrs. Colton to continue with the associates in
+1879, a fact of which these gentlemen must have been well
+aware. She did not have the necessary money, she could not
+afford in any case to risk her livelihood in so speculative an
+undertaking as building railroads in southern California, and
+the relations between her and the Huntington group did not
+savor of trust and confidence. The expressions of willingness
+to continue to treat Mrs. Colton as one of themselves cost the
+associates nothing, and were worth as much. Nor was the
+standard of valuation of the Colton assets offered by the associates,
+easily to be defended on ethical grounds. Mr. Colton had
+not played fair, it is true, but on his part he had been led into
+an improvement agreement and caused to sign a $1,000,000
+note, in at least partial reliance upon the value of the stock of
+railroads under the associates’ control, which was given him in
+exchange. It was hardly appropriate for the Huntington group
+now to insist that the collateral security had no value.</p>
+
+<p class="pnb">Settlement with Mrs. Colton</p>
+
+<p>Hard as the terms were, Mrs. Colton finally acceded to
+them. By agreement dated August 27, 1879, she turned over
+408 shares of the capital stock of the Rocky Mountain Coal
+and Iron Company, all of the shares which she held of the
+Occidental and Oriental Steamship Company, all claims to the
+40,000 shares of Central Pacific Railroad and Southern Pacific
+Railroad stock, pledged as collateral for the $1,000,000 note,
+all of the capital stock of the Western Development Company<span class="pagenum"><a name="Page_167" id="Page_167">[167]</a></span>
+standing to Colton’s credit, and some $587,500 in par
+value of bonds of the Central Pacific-Southern Pacific system,
+of which $500,000 was in first mortgage bonds of the
+Southern Pacific Railroad itself. In return for all this, the
+associates agreed to cancel Colton’s note for $1,000,000, and
+to release Mrs. Colton from any claims on the part of themselves,
+the Western Development Company, the Central Pacific,
+and its allied companies.<a name="FNanchor_238_238" id="FNanchor_238_238"></a><a href="#Footnote_238_238" class="fnanchor">[238]</a></p>
+
+<p>This settlement left Mrs. Colton with property reasonably
+valued at half a million dollars, and with an income of perhaps
+$28,000 a year. That she withdrew with so much to her credit
+was due to the interposition of Mr. Tevis on her behalf at the
+last moment, in consideration of a contingent fee,<a name="FNanchor_239_239" id="FNanchor_239_239"></a><a href="#Footnote_239_239" class="fnanchor">[239]</a> and to the
+fact that the associates were on the point of floating large
+amounts of Central and Southern Pacific securities in New
+York. Mrs. Colton felt, however, that she had been robbed,
+and in May, 1882, commenced suit to reopen the whole transaction,
+and to annul the compromise agreement. It has been
+estimated that this famous suit cost the parties $100,000
+apiece. Mrs. Colton alleged fraud and the withholding of
+essential facts which the associates should have disclosed by
+reason of the trust relations which had existed between Colton
+and his partners. In particular she insisted that the statements
+given her in 1879 with reference to the affairs of the Western
+Development Company had been misleading and untrue. She
+now offered to pay Colton’s $1,000,000 note, and other liabilities,
+and asked for the return of the securities which she had
+previously surrendered.</p>
+
+<p>The more important facts developed in this litigation have
+been dwelt upon in the preceding discussion, and need not be
+repeated here. The case went to the Supreme Court of the<span class="pagenum"><a name="Page_168" id="Page_168">[168]</a></span>
+state, where Mrs. Colton was finally defeated. A careful reading
+of the evidence leads to the conviction that the court was
+right. Mrs. Colton had done the best she could under the
+circumstances and was properly held to an agreement she had
+made with her eyes open, some three years before. Yet the
+fault of the whole unsavory affair was not hers, nor altogether
+Mr. Colton’s, and the reputation of the associates thereby
+properly suffered in the public mind.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_169" id="Page_169">[169]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER X</h2>
+
+<p class="pch">FINANCIAL DIFFICULTIES FROM 1870 TO 1879</p>
+
+<p class="pnb">Excessive Construction</p>
+
+<p>We may now return to the more general considerations
+affecting Central Pacific finance which characterized the years
+from 1870 to 1879. There is a good deal of evidence that the
+years during which Mr. Colton was connected with the Central
+Pacific enterprise were years of financial difficulty for the
+associates, due in part to general depression, in part to a disproportionate
+amount of new construction, and in part to the
+continued inability of the Huntington-Stanford group for
+many years to interest eastern capital in western railroads.</p>
+
+<p>During the years from 1869, when the Central Pacific was
+first opened to Ogden, to 1874, the earnings of the Central
+Pacific main line, both gross and net, steadily increased. The
+following table sets forth the facts relating to this progress, as
+well as figures for the succeeding years from 1875 to 1881.</p>
+
+<p class="pc1"><span class="smcap">Earnings and Expenses of the Central Pacific
+Railroad, 1874-81(*)</span></p>
+
+<table id="t05" summary="t05">
+
+ <tr>
+ <td class="tdc">January 8, 1863</td>
+ <td> </td>
+ <td colspan="2" class="tdc">Gross Earnings</td>
+ <td colspan="2" class="tdc">Operating Expenses</td>
+ <td colspan="2" class="tdc">Net Earnings</td>
+ </tr>
+
+ <tr>
+ <td>(Calendar years)</td>
+ </tr>
+
+ <tr>
+ <td>November 6 to</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">December 31,</td>
+ <td>1869</td>
+ <td class="tdr2">$</td>
+ <td class="tdr">1,024,680</td>
+ <td class="tdr2">$</td>
+ <td class="tdr">777,348</td>
+ <td class="tdr05">$</td>
+ <td class="tdr">247,332</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1870</td>
+ <td colspan="3" class="tdr">7,519,983</td>
+ <td colspan="2" class="tdr">6,009,426</td>
+ <td colspan="2" class="tdr">1,510,557</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1871</td>
+ <td colspan="3" class="tdr">8,862,054</td>
+ <td colspan="2" class="tdr">5,937,890</td>
+ <td colspan="2" class="tdr">2,924,164</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1872</td>
+ <td colspan="3" class="tdr">11,963,641</td>
+ <td colspan="2" class="tdr">8,645,276</td>
+ <td colspan="2" class="tdr">3,318,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1873</td>
+ <td colspan="3" class="tdr">12,867,600</td>
+ <td colspan="2" class="tdr">7,822,638</td>
+ <td colspan="2" class="tdr">5,044,962</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1874</td>
+ <td colspan="3" class="tdr">13,726,561</td>
+ <td colspan="2" class="tdr">6,468,145</td>
+ <td colspan="2" class="tdr">7,258,416</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1875</td>
+ <td colspan="3" class="tdr">15,665,082</td>
+ <td colspan="2" class="tdr">9,937,465</td>
+ <td colspan="2" class="tdr">5,727,617</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1876<span class="pagenum"><a name="Page_170" id="Page_170">[170]</a></span></td>
+ <td colspan="3" class="tdr">16,994,216</td>
+ <td colspan="2" class="tdr">10,970,599</td>
+ <td colspan="2" class="tdr">6,023,617</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1877</td>
+ <td colspan="3" class="tdr">16,471,144</td>
+ <td colspan="2" class="tdr">12,761,639</td>
+ <td colspan="2" class="tdr">3,709,505</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1878</td>
+ <td colspan="3" class="tdr">17,530,859</td>
+ <td colspan="2" class="tdr">12,005,535</td>
+ <td colspan="2" class="tdr">5,525,324</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1879</td>
+ <td colspan="3" class="tdr">17,153,163</td>
+ <td colspan="2" class="tdr">11,126,298</td>
+ <td colspan="2" class="tdr">6,026,865</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1880</td>
+ <td colspan="3" class="tdr">20,508,113</td>
+ <td colspan="2" class="tdr">12,814,121</td>
+ <td colspan="2" class="tdr">7,693,992</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1881</td>
+ <td colspan="3" class="tdr">24,094,001</td>
+ <td colspan="2" class="tdr">14,546,899</td>
+ <td colspan="2" class="tdr">9,547,102</td>
+ </tr>
+
+ <tr>
+ <td> </td>
+ <td colspan="3" class="tdr">—————</td>
+ <td colspan="2" class="tdr">—————</td>
+ <td colspan="2" class="tdr">—————</td>
+ </tr>
+
+ <tr>
+ <td colspan="4" class="tdr">$184,381,097</td>
+ <td colspan="2" class="tdr">$119,823,379</td>
+ <td colspan="2" class="tdr">$64,557,718</td>
+ </tr>
+
+ <tr>
+ <td colspan="4" class="tdr">════════</td>
+ <td colspan="2" class="tdr">════════</td>
+ <td colspan="2" class="tdr">═══════</td>
+ </tr>
+
+</table>
+
+<p class="pbq">(*)Report compiled by the Commissioner of Railroads, 47th Congress, 1st Session House,
+Executive Documents No. 123, 1882, Serial No. 2030.</p>
+
+<p class="p1">The greatest continuous drain upon Mr. Huntington and
+his friends during the decade from 1870 to 1880 came from
+the necessity of raising funds to provide for construction in
+southern California as described in earlier chapters. Had business
+considerations alone controlled, there is little doubt that
+this construction would have ceased. It did not pay for
+itself, and could not be expected to be profitable until the
+country served had been developed. Indeed, Charles Crocker
+once declared that when the Southern Pacific was built through
+the southern San Joaquin Valley, the company could have
+started with a railroad train at Sumner at the south of the
+valley and come to Stockton, and with one engine and one
+train of cars, hauled every living soul that lived in the valley
+out at one haul. The settlers between Yuma and San
+Bernardino could have been carried in one carload. This was
+as late as 1876.<a name="FNanchor_240_240" id="FNanchor_240_240"></a><a href="#Footnote_240_240" class="fnanchor">[240]</a></p>
+
+<p class="pnb">Inability to Get Eastern Capital</p>
+
+<p>It was largely owing to this construction, as well as to the
+general hard times, that the gross earnings per mile of the
+Central Pacific and leased lines fell from $12,068.63 in 1875,
+to $7,677.84 in 1879. The Central Pacific did not dare stop<span class="pagenum"><a name="Page_171" id="Page_171">[171]</a></span>
+work for fear that the federal government might be persuaded
+to subsidize another transcontinental road, and so deprive it
+of the monopoly which it was so anxious to retain; but it built
+as slowly as it could, and endeavored to make up by retrenching
+in other directions. Had the associates been able to sell securities
+in New York, the slowness with which the earning power
+of their system developed would not have been so serious a
+handicap. The territory was after all a rich one, and given time
+was sure to yield substantial profits. But a market for their
+stock and bonds was impossible to secure for many years. We
+have seen the opinion expressed by the associates in the Colton
+settlement, with respect to the salability of Southern Pacific-Central
+Pacific securities. There is no reason to doubt that
+this judgment was correct. Before 1880 it does not appear
+that there was a market for any of the Huntington-Stanford
+issues except the Central Pacific first mortgage bonds, and the
+sale of these was very slow.<a name="FNanchor_241_241" id="FNanchor_241_241"></a><a href="#Footnote_241_241" class="fnanchor">[241]</a></p>
+
+<p>There is evidence that the associates not only recognized
+this situation, but that they took what steps they could to meet
+it. Central Pacific stock was listed on the New York Stock
+Exchange in 1874, and on the San Francisco Stock Exchange
+in 1878, not so much with the idea of selling any large number
+of shares, as in order to make a beginning which might ultimately
+lead to an established market. Arrangements were
+made to have the stock called at San Francisco every day, and
+the associates stood always ready to buy it back at a slight
+decline. The payment of dividends was begun in 1873 and
+continued until by the end of 1877 the sum of $18,453,670 had
+been distributed. Yet all this had little result for many reasons,
+among which doubtless should be again mentioned the personal
+liability attaching under California law to holders of stock in
+California corporations.</p>
+
+<p><span class="pagenum"><a name="Page_172" id="Page_172">[172]</a></span></p>
+
+<p>Naturally Southern Pacific securities of any type were still
+more difficult to sell than Central Pacific stock. Mr. Huntington
+found that the Southern Pacific Railroad was not known
+in the East, even by parties who had spent some considerable
+time in California.<a name="FNanchor_242_242" id="FNanchor_242_242"></a><a href="#Footnote_242_242" class="fnanchor">[242]</a> To overcome this he advertised Southern
+Pacific stock and bonds in a great variety of ways, sometimes
+by personal conference with eastern bankers, sometimes by the
+issue of pamphlets or by the insertion of items in the newspapers,
+sometimes by the manipulation of bond sales upon the
+Stock Exchange. Occasionally he bought a few outstanding
+Southern Pacific bonds in order to support the credit of the
+company.<a name="FNanchor_243_243" id="FNanchor_243_243"></a><a href="#Footnote_243_243" class="fnanchor">[243]</a> But here again, in spite of his efforts practically
+no bonds were sold, and Southern Pacific stock could not be
+disposed of at any price.</p>
+
+<p class="pnb">Market for Securities</p>
+
+<p>A good deal of specific testimony by New York brokers is
+available to show the estimation in which Central Pacific and
+Southern Pacific securities were held late as 1879. It is all
+cumulative, and to the effect that no market existed at that
+time for any of these issues except Central Pacific first
+mortgage bonds. Thus S. H. Thayer said of Central Pacific
+stock: “I don’t think it would have found any market; I do
+not think it would have been possible to have sold it at any
+price; the stock had no friends, nobody knew of it, nobody
+traded in it; that is, in a general market; I do not know what
+might have been done by private negotiation; but in the
+public market nothing could have been done with 20,000 shares
+towards selling it.”<a name="FNanchor_244_244" id="FNanchor_244_244"></a><a href="#Footnote_244_244" class="fnanchor">[244]</a> Similar testimony was given by D. O.
+Mills, of San Francisco. Mr. Mills was asked what price could
+have been obtained in the San Francisco market in 1879 for<span class="pagenum"><a name="Page_173" id="Page_173">[173]</a></span>
+$13,000,000 in Southern Pacific bonds, and replied that he
+did not think these bonds were salable then, that it would have
+been a matter of bargain and sale, and would not have
+depended upon any market value.<a name="FNanchor_245_245" id="FNanchor_245_245"></a><a href="#Footnote_245_245" class="fnanchor">[245]</a> Mr. Thayer also testified
+that the Southern Pacific bonds were on the stock exchange
+list in New York, but were bonds no one dealt in, and about
+which few were informed.<a name="FNanchor_246_246" id="FNanchor_246_246"></a><a href="#Footnote_246_246" class="fnanchor">[246]</a></p>
+
+<p>It would probably be a mistake, in spite of this testimony,
+to attribute the reluctance of eastern investors to buy Southern
+Pacific bonds solely to unfamiliarity with the security. Not
+only was the economic development of southern California
+slight and the probable earnings of the Southern Pacific for
+some years small, but the state as a whole was not in the
+seventies an attractive field for investment. During the decade
+from 1860 to 1870, California had grown rapidly in wealth
+and prosperity. Population had increased and manufactures
+had begun to develop. In agriculture, fruits, berries, and
+grapes had been added to the important quantities of grain and
+vegetables already produced. But the immediate effects of the
+completion of the transcontinental railroad had been harmful
+to California, rather than beneficial.</p>
+
+<p>For this there were several reasons: (1) speculation in
+real estate around San Francisco Bay had so discounted the
+completion of the line that the actual opening of communication
+caused a reaction rather than an advance; (2) the combination
+of a stimulated immigration due to greater facilities
+for travel, with the sudden release of a considerable part of the
+labor used in railroad construction, had forced down wages,
+while, on their part, California merchants had become exposed
+to competition from eastern distributing houses; (3) droughts
+in the South, the decline in the production of the mines, and
+the collapse of speculation in Nevada silver properties, all had<span class="pagenum"><a name="Page_174" id="Page_174">[174]</a></span>
+given rise to acute suffering and discontent. These things in
+turn had reacted on political conditions, and had produced,
+first, the so-called sand-lot excitement, and then the agitation
+that led in 1879 to a revision of the state constitution. Meanwhile
+the passage of the Thurman Act, and the various disputes
+between the Pacific railroads and the federal government had
+provided special reasons for distrusting the securities of the
+Southern Pacific and Central Pacific companies, quite apart
+from conditions peculiar to the section in which their mileage
+lay.</p>
+
+<p class="pnb">Short-Term Borrowing</p>
+
+<p>To repeat, it was this failure to dispose of the railroad stock
+and bonds which they had to sell that threw the associates back
+upon the necessity of raising money by short-time loans at
+extravagant rates of interest, and which, in the late seventies,
+peculiarly exposed them to the dangers of stringency in the
+New York money market. The partners at times paid as high
+as 12 per cent for loans.<a name="FNanchor_247_247" id="FNanchor_247_247"></a><a href="#Footnote_247_247" class="fnanchor">[247]</a> Every element affecting their credit
+had to be closely watched, lest lenders refuse to discount their
+paper, and interest on the company’s bonds go by default; for
+it was a customary practice for the associates to take care of
+interest, at least over short periods, by loans.</p>
+
+<p>In December, 1876, Huntington wrote that the January
+interest would this time have to come out of earnings, as he
+had been away from New York so much that he had not been
+able to secure loans there.<a name="FNanchor_248_248" id="FNanchor_248_248"></a><a href="#Footnote_248_248" class="fnanchor">[248]</a> The same month Huntington
+complained of certain pamphlets which one A. A. Cohen had
+been sending East. “If the parties that inaugurate such fights
+as we now have with Cohen,” he wrote, “and have with the
+<i>Sacramento Union</i> and Senator Booth ... had to raise
+money outside of California, where our property cannot be<span class="pagenum"><a name="Page_175" id="Page_175">[175]</a></span>
+seen, I am disposed to think such fights would be few.”<a name="FNanchor_249_249" id="FNanchor_249_249"></a><a href="#Footnote_249_249" class="fnanchor">[249]</a>
+In May, 1877, Huntington let his partners know that reports
+from California to the effect that the railroad magnates there
+were spending their money for personal expenses with
+unexampled recklessness had hurt the Central Pacific credit.<a name="FNanchor_250_250" id="FNanchor_250_250"></a><a href="#Footnote_250_250" class="fnanchor">[250]</a>
+At another time he reported that the rumor was abroad that
+the Central Pacific had no power under its charter to give
+notes for money, and that this had been denied.<a name="FNanchor_251_251" id="FNanchor_251_251"></a><a href="#Footnote_251_251" class="fnanchor">[251]</a></p>
+
+<p>All through 1877 the letters exchanged between Huntington
+and his partners in the West show the strain which the
+Central Pacific was under. Huntington was continually wiring
+for money in lots of $50,000 to $100,000. Colton was sending
+it, sometimes by telegraphic transfer, sometimes in coin. As
+early as in May, 1877, Colton was talking of dull business and
+of reducing expenses. On August 23 he said that he did not
+exactly like the present financial outlook. The following day
+he spoke of the need of keeping credit good. “We cannot afford
+to ever be called on for money,” he wrote, “and not be able
+instantly to respond. Our affairs are too extended and extensive
+for us to take any chances of suspicion. It would hurt us
+in many ways, and take a long time to restore confidence....
+I will now commence to renew our loans for six or twelve
+months, and take in sail everywhere.”<a name="FNanchor_252_252" id="FNanchor_252_252"></a><a href="#Footnote_252_252" class="fnanchor">[252]</a> In September he
+repeated, “I am going to send you, for the next three months,
+every dollar I can, and, for God’s sake, keep all you can for the
+January interest. That must be paid. We will not pay out
+a dollar here, I am not obliged to. I read <i>every</i> department a
+lecture on economy about once a week.”<a name="FNanchor_253_253" id="FNanchor_253_253"></a><a href="#Footnote_253_253" class="fnanchor">[253]</a> Earlier in the year
+the accounts of the Huntington group with the London and San
+Francisco Bank and with the Bank of California had been<span class="pagenum"><a name="Page_176" id="Page_176">[176]</a></span>
+overdrawn from $150,000 to $350,000 each, and Colton was
+picking up every dollar outside which he could secure without
+showing his hand.<a name="FNanchor_254_254" id="FNanchor_254_254"></a><a href="#Footnote_254_254" class="fnanchor">[254]</a></p>
+
+<p class="pnb">Indorsement of Notes</p>
+
+<p>As a general practice the associates seem to have refused to
+put their personal indorsement on the notes which they discounted.
+Huntington was very insistent that no indorsements
+be given; yet in January, 1878, conditions had grown so bad
+that Huntington asked the associates to indorse 100 blank notes
+and send them to him, to be used as a last resort, and this was
+done in spite of the violent protest of Mark Hopkins. Colton
+wrote Huntington:</p>
+
+<p class="pbq p1">I told him [Hopkins] I felt the wise thing for us <i>all</i> to do,
+was to stand in and protect all interests against the debts now
+owing, but to <i>all</i> agree <i>not to incur any more, not to build any</i>
+more road, or to buy <i>any</i> steamship, or property, either jointly
+or individually, until we got out of debt, and had the money
+in bank to pay for what we bought. That proposition just met
+his views, and he said that if I would agree that we would <i>all</i>
+live up to that, he would sign 20 of the blank notes, which he
+did, 10 of each.<a name="FNanchor_255_255" id="FNanchor_255_255"></a><a href="#Footnote_255_255" class="fnanchor">[255]</a></p>
+
+<p class="vh"><a name="i202" id="i202">i202</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-202.jpg" width="400" height="608"
+ alt=""
+ title="" />
+</div>
+
+<p><span class="pagenum"><a name="Page_177" id="Page_177">[177]</a></span></p>
+
+<p>Conditions in California grew worse rather than better
+after the notes were sent, but those in the East improved, and
+the indorsed notes do not seem to have been used. Yet, of
+course, the large accumulation of floating indebtedness of the
+Central Pacific could not be hidden altogether, and the credit
+of the company was correspondingly impaired.<a name="FNanchor_256_256" id="FNanchor_256_256"></a><a href="#Footnote_256_256" class="fnanchor">[256]</a></p>
+
+<p class="pnb">Sale of Securities</p>
+
+<p>The first successful negotiations for the sale of Central
+Pacific and Southern Pacific securities were initiated in 1878
+with the firm of Speyer and Company, of New York, and
+resulted in two agreements, dated the 27th and 28th of January,
+1880, respectively. On the former date Huntington agreed to
+deliver, on or before January 31, 1880, as might be demanded,
+50,000 shares of the capital stock of the Central Pacific Railroad
+at 72, ex-dividend, to Roswell P. Flower, John D. Prince,
+and Daniel Probst, representing a syndicate formed for the
+purpose. In case the parties took the stock just referred to,
+Huntington agreed further to deliver 50,000 more shares
+within six months from the date of the agreement, at 77. In
+any event, and provided that the syndicate took the first 50,000
+shares mentioned in the agreement, Huntington undertook that
+no other Central Pacific stock beyond a stipulated amount of
+40,000 shares should be sold to any other parties for a period
+of seven months from the date of the agreement.<a name="FNanchor_257_257" id="FNanchor_257_257"></a><a href="#Footnote_257_257" class="fnanchor">[257]</a></p>
+
+<p>The syndicate which took Central Pacific stock at this time
+seems to have considered the enterprise a speculation justified
+by the resumption of dividends by the company, and by the
+improving stock market conditions of the time. Mr. Probst<span class="pagenum"><a name="Page_178" id="Page_178">[178]</a></span>
+said that the general market had become so strong in the latter
+part of 1879 that it was a good time to sell anything.<a name="FNanchor_258_258" id="FNanchor_258_258"></a><a href="#Footnote_258_258" class="fnanchor">[258]</a> On
+conclusion of the agreement a regular stock market campaign
+was opened with the usual accompaniment of matched sales to
+give an appearance of activity.<a name="FNanchor_259_259" id="FNanchor_259_259"></a><a href="#Footnote_259_259" class="fnanchor">[259]</a> The stock nevertheless
+steadily declined, and the option held by the syndicate to take
+a second block of shares was not exercised.</p>
+
+<p>The day after the arrangement for the purchase of the
+Central Pacific stock was concluded, and partly because of its
+conclusion, Speyer and Company entered into a written contract
+with the Western Development Company, containing a variety
+of provisions which together show the factors upon which the
+value of Southern Pacific securities then depended in the eyes
+of eastern bankers. Under an agreement dated January 28, the
+Western Development Company agreed to sell to Speyer and
+Company $1,000,000 in Southern Pacific bonds, within ten
+days, at 86. Within the year it undertook, in addition, to sell,
+if Speyer and Company should wish to buy, an additional
+$4,000,000 in bonds, at 87.51, and a still further amount of
+$5,000,000 at 90. On their part, the Western Development
+and Southern Pacific companies agreed not to sell any of the
+said bonds within a year to others than Speyer and Company,
+and the Central Pacific agreed not to issue bonds under the
+mortgage in question, to exceed $40,000 per mile.</p>
+
+<p class="pnb">Terms of Contract with Bankers</p>
+
+<p>The more important features of the agreement with Speyer
+and Company in 1878 were, however, the following, relating
+to the lease arrangements between the Central Pacific and the
+Southern Pacific. Under these provisions the Southern Pacific
+agreed to secure a new lease from the Central Pacific within
+three months, containing (1) a provision that the lease should<span class="pagenum"><a name="Page_179" id="Page_179">[179]</a></span>
+continue five years from the 1st of May, 1879; (2) a provision
+that the lease should be extended if the Southern Pacific
+was not connected with the eastern system of railroads, on the
+32d parallel, within five years, until such connection should be
+made, provided that the extension of time should not exceed
+five years; and (3) a provision that the Central Pacific should
+pay a rental under the lease, sufficient to cover interest.</p>
+
+<p>The Southern Pacific also agreed with Speyer and Company
+that if at any time before the expiration of nine years from the
+date of the lease contemplated, a railroad should be extended
+so as to connect the railroad of the party of the first part with
+the eastern system of roads, and the Central Pacific Railroad
+Company should refuse to prorate with the party of the first
+part, then the party of the first part would, before the
+expiration of one year from the date of such refusal, fill up or
+cause to be filled up one of the two gaps then unfinished between
+Tres Pinos and Huron, and between Soledad and near Lerdo,
+whichever it might choose to build.</p>
+
+<p>The Southern Pacific finally undertook to furnish to the
+parties of the third part, within ninety days from the execution
+of the agreement, the written opinion and certificate of the
+chief engineer of the Southern Pacific, that the line of road
+either between Tres Pinos and Huron or between Soledad and
+near Lerdo could be completed and put in running order within
+twelve months of the commencement of work thereon, and
+could be constructed for the bonds reserved per mile.</p>
+
+<p>The stipulation in the agreements relating to the lease of
+the Southern Pacific to the Central Pacific, and those anticipating
+further construction along the coast route, are of special
+interest. It is evident that the credit of the Central Pacific
+and not that of the Southern Pacific was the basis of the whole
+transaction. At the time the contract was signed, the option
+to take Southern Pacific bonds at 86 and 90, respectively, was
+considered valuable, but in fact this option was not exercised.</p>
+
+<p><span class="pagenum"><a name="Page_180" id="Page_180">[180]</a></span></p>
+
+<p class="pnb">Later Improvement</p>
+
+<p>After 1880 financial conditions generally improved. The
+earnings of the Central Pacific-Southern Pacific roads were
+still subject to fluctuations, but for several years substantial
+dividends were declared, and the sale of large quantities of
+Central Pacific stock in Europe enabled the associates to reduce
+their commitments. Moreover, by 1883 the long delayed extension
+to The Needles was completed and the necessary outlay
+for new construction was greatly lessened. The year 1883 may
+be taken as the close of the construction period of the Huntington
+system. Henceforth, in the absence of special disaster,
+and subject to successful settlement of its indebtedness to the
+government, the solvency of the Central Pacific and Southern
+Pacific railroads may be said to have been assured. We may
+therefore at this point turn away from the more personal and
+financial aspects of the enterprise, to the consideration of
+certain important political matters with which the associates
+were long concerned.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_181" id="Page_181">[181]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XI</h2>
+
+<p class="pch">THE RAILROAD COMMISSION OF 1880 TO 1883</p>
+
+<p class="pnb">Early Agitation Against Company</p>
+
+<p>It is more difficult to describe the relations of the Central
+Pacific to the legislative bodies of California than it is to
+trace the history of the system in most other respects, because
+the details are less matters of public record. Some connection
+between the railroad and politics undoubtedly existed at an
+early date. Indeed, Stanford and Colton were politicians before
+they became railroad men, and the state and local aid
+which the railroad secured at the very beginning of its construction
+but confirmed an attitude favorable to continued relations
+between the corporation and the body politic which these
+gentlemen might have been expected to approve.</p>
+
+<p>Before 1876, the only regulation which the associates had
+to encounter was that resulting from the general railroad law,
+which required a minimum subscription before a railroad corporation
+could commence business, established proportionate
+liability of stockholders, and reserved to the legislature the
+right to reduce rates when the net income of any company
+exceeded 20 per cent. These and other provisions of like
+tenor were little calculated to interfere with the profitable operations
+of a railroad business except perhaps that the proportionate
+liability established by the law to some extent discouraged
+participation in railroad enterprise. In 1874 and
+in 1876, maximum rates and fare enactments were discussed
+in the legislature but failed of passage. In 1876, nevertheless,
+the accumulated resentment of the California public over what
+it considered the grasping and monopolistic policy of a selfish<span class="pagenum"><a name="Page_182" id="Page_182">[182]</a></span>
+corporation led to important additions to the law. This resentment
+had been growing for several years. The Sacramento
+reporter for the <i>San Francisco Bulletin</i> wrote, in March,
+1868:</p>
+
+<p class="pbq p1">There is a strong prejudice existing here and daily growing
+stronger, against the Central Pacific Railroad Company. The
+members from Placer, Nevada, and El Dorado counties are all
+of them, I suppose, pledged to endeavor to obtain a reduction
+of the rates of freight and fare on the line. Petitions, apparently
+signed by nearly all the residents of the districts which
+use the road for the transportation of freight and travel, have
+poured in upon the legislature, asking a reduction of prices.
+It is said that traders who complain of the rates are discriminated
+against. A general feeling exists that, considering how
+liberally it has been dealt with by Congress and the State, the
+management of the business and affairs of the company is extremely
+illiberal....</p>
+
+<p class="p1">In like vein the <i>Stockton Independent</i> said of the owners
+of the Central Pacific in 1871:</p>
+
+<p class="pbq p1">No set of men on the face of the globe were ever placed
+in a more enviable position, or in one where by the exercise of
+a reasonable foresight, they could have retained their popularity
+and the friendship of the people. It is now hardly two
+years since this work was completed, and how remarkable has
+been the change in public sentiment. Along the whole line
+of their main trunk road from San Francisco to Ogden, as
+well as along the various branch roads of this company, nothing
+is heard but one continuous murmur of complaint, and it is
+safe to assert that this shortsighted, illiberal, and suicidal
+policy of the company has so completely changed the sentiment
+of the people that there is not in a single town on any of their
+lines of road, either in this state or Nevada, one individual
+who approves of this course, nor one who will speak well of
+the company, unless it be one of their subsidized agents or
+strikers.</p>
+
+<p><span class="pagenum"><a name="Page_183" id="Page_183">[183]</a></span></p>
+
+<p class="pnb">Beginnings of State Regulation</p>
+
+<p>It is not necessary to dwell at this point on the reasons for
+the opinions voiced in these extracts from the press. The
+feeling of the general public, of which these extracts are the
+reflection, was doubtless due in part to anger at the methods
+employed by the Central Pacific in promoting subsidy legislation,
+in part to disappointment over the results of railroad
+construction, and in part to reaction against policies of the
+Central Pacific such as have been outlined in previous chapters.
+However this may be, the result was the passage of the so-called
+O’Connor bill in 1876, which erected a State Board of
+Transportation Commissioners, and defined and prohibited extortion
+and unjust discrimination. The commissioners were
+not only to enforce these prohibitions, but they were given
+extensive authority to secure information from the steam
+railroads of the state, and were charged with the duty of supervising
+all such railroads with reference to the security and
+accommodation of the public.<a name="FNanchor_260_260" id="FNanchor_260_260"></a><a href="#Footnote_260_260" class="fnanchor">[260]</a></p>
+
+<p>It appears from the report of the commissioners appointed
+under the O’Connor Act that the railroads in California, and
+in particular the Central Pacific, refused to render the reports
+required by the legislature, and that the commission was unable
+to compel them to do so.<a name="FNanchor_261_261" id="FNanchor_261_261"></a><a href="#Footnote_261_261" class="fnanchor">[261]</a> Two years later the commissioners
+were legislated out of office, and a single commissioner was
+appointed in their place, acting under a statute similar in most
+important respects to that administered by his predecessors.<a name="FNanchor_262_262" id="FNanchor_262_262"></a><a href="#Footnote_262_262" class="fnanchor">[262]</a>
+Mr. Tuttle, the new commissioner, accumulated certain statistics
+during his two-year term of office, but otherwise did little
+to which the railroads could object.</p>
+
+<p><span class="pagenum"><a name="Page_184" id="Page_184">[184]</a></span></p>
+
+<p>The development of railroad regulation was thus temporarily
+arrested. Yet for several reasons the check to the progress
+of public control was not lasting. Feeling in the state was
+running high. The times were hard, both for reasons affecting
+the whole country, and because of circumstances peculiar to the
+Pacific Coast. The rainfall of the winter of 1876-77 was
+slight and, as happens in such cases, great loss of cattle on
+the ranges occurred, and the grain crop was seriously deficient.
+At the same time the yield of the Nevada silver mines declined—in
+fact the dividends of the important Consolidated Virginia
+mine stopped altogether in January, 1877, to the great disturbance
+of the stock market at San Francisco. Under these
+conditions unemployment and suffering were the experience
+of the working classes, while riots and later, political agitation
+also resulted. Even the radical labor leader, Dennis Kearney,
+in spite of his lack of character and self-restraint, or even of
+unusual mental ability, served as the temporary expression at
+this time of a real distress, and had some influence on the course
+of legislation.</p>
+
+<p class="pnb">Railroad Question in Constitutional Convention</p>
+
+<p>So far as the railroads were concerned, the effect of the
+unrest throughout California and the activity of the Workingman’s
+party is seen in the railroad clauses of the Constitution
+of 1879, and of the Act of 1880, which carried them into
+effect. The call for a convention was issued by the same legislature
+which passed the railroad control bill of 1878.<a name="FNanchor_263_263" id="FNanchor_263_263"></a><a href="#Footnote_263_263" class="fnanchor">[263]</a> Mr.
+Colton thought the call most unfortunate,<a name="FNanchor_264_264" id="FNanchor_264_264"></a><a href="#Footnote_264_264" class="fnanchor">[264]</a> but there is no
+reason to suppose that the legislature had anything particularly
+radical in mind.</p>
+
+<p>When the convention began its sessions, however, its membership
+was found to include a majority of persons determined<span class="pagenum"><a name="Page_185" id="Page_185">[185]</a></span>
+to force thoroughgoing regulation upon the railroad system of
+the state, as well as a minority opposed to government control
+of any kind. Just how regulation should be made effective, it
+is true, few members of the first-named group knew. Some
+were opposed to corporations as a class, and thought that at
+least unlimited liability should be imposed on holders of
+corporate stock. Others were in favor of declaring railroads
+public highways, upon which all persons should be allowed to
+run cars and locomotives under such regulations as might be
+prescribed by law. Still others desired to set a maximum limit
+of 10 per cent to the return on investment in railroad property.
+The extreme position on the other side was taken by men like
+McFarland, of Sacramento, who maintained that the clamor
+about railroads and corporations was a mania evolved from
+the inner consciousness of members of the convention, as
+spiders spin their webs.</p>
+
+<p>The discussion of railroad regulation by the Constitutional
+Convention of 1879 began on November 18 and ended on
+December 7. It was systematically conducted, participated in
+by men with a wide variety of views, and resulted in constructive
+conclusions of importance. More could scarcely be asked
+of a deliberative assembly. The main decisions reached were
+as given below.</p>
+
+<p class="pnb">New Regulative Commission</p>
+
+<p>The first conclusion of the Constitutional Convention was
+that the regulation of railroads in California should be entrusted
+to an elective commission, holding office for four
+years, and vested with the power to establish and publish rates,
+to examine the books and records of transportation companies,
+and to prescribe a uniform system of accounts. Heavy penalties,
+including fine and imprisonment, were provided for
+failure to obey the orders the commissioners might make.</p>
+
+<p>The principal objection made to the establishment of a<span class="pagenum"><a name="Page_186" id="Page_186">[186]</a></span>
+commission was that its power would be excessive. It was
+pointed out that the commission would combine legislative,
+judicial, and executive functions, and that its members could
+lower rates and increase railroad expenses at will. Mr. Wilson,
+of San Francisco, declared:</p>
+
+<p class="pbq p1">Here, then, will stand in our government a constitutional
+triumvirate as great in many respects as that of Rome in the
+olden time. They may raise and lower the rates of freight
+and fare to suit their powers, and thus they can play with the
+value of the stock in the market, and determine the value of
+the bonds and mortgages on the road.... They will be sole
+judges of what are abuses.... They will determine complaints
+on their own notions of right and wrong, and however erroneous
+or malicious their acts, there will be no remedy or appeal.</p>
+
+<p class="pn1">Reference was made to the English Railway Commission of
+1873 and to the Massachusetts Commission of 1869, and the
+Wisconsin experiment of 1874 was held up as something to
+avoid. The reply to this kind of objection was that the power
+to control rates must be lodged somewhere, and that the legislature
+was inexpert, slow to act, and subject to corrupt influences.</p>
+
+<p class="pnb">Other Constitutional Provisions</p>
+
+<p>The second decision of the convention was that a general
+prohibition of discrimination should be placed in the fundamental
+law. The clauses finally adopted provided that no discrimination
+in charges or facilities for transportation should be
+made by any railroad or other transportation company between
+places or persons, or in the facilities for the transportation of
+the same classes of freight or passengers within the state,
+or coming from or going to any other state. In addition to
+this general prohibition, it was enacted that persons and property
+transported over any railroad, or by any other transportation
+company or individual, should be delivered at any station<span class="pagenum"><a name="Page_187" id="Page_187">[187]</a></span>
+at charges not exceeding the charges for the transportation of
+persons and property of the same class, in the same direction,
+to any more distant station. This amounted to a stringent
+prohibition of greater charges for shorter than for longer
+hauls. Speakers opposed to the discriminative clauses insisted
+that only unjust discrimination, not all discrimination, should
+be prohibited, and pointed out that the proposed law was
+unconstitutional in that it applied to commerce between the
+states. Neither objection was sufficient to persuade the convention
+that the proposals should not be approved.</p>
+
+<p>Besides the fundamental clauses relating to a commission
+and those prohibiting and defining discrimination, the Constitutional
+Convention of 1879 forbade railroads to grant passes
+to persons holding any office of honor, trust, or profit in the
+state; forbade them also to agree to divide earnings with
+owners of vessels entering or leaving the state, or, under certain
+conditions, with other common carriers; granted to all
+railroads the right to connect with, intersect, or cross other
+railroads; and provided that no officer or employee of any railroad
+or canal company should be interested in the furnishing
+of material or supplies to such company. One apparently important
+clause declared that a railroad which should lower its
+rates of fare or freight for the purpose of competing with any
+other common carrier, should not again raise these rates without
+the consent of the governmental authority in which should
+be vested the power to regulate fares and freights.</p>
+
+<p class="pnb">Act of 1880</p>
+
+<p>Special emphasis should be placed upon the constitutional
+provisions adopted in 1879 because they created the framework
+upon which railroad regulation in California was to hang for
+thirty years. For a full understanding of the system the act of
+the legislature approved April 15, 1880, should also be consulted.
+This act defined certain terms used in the law. It also<span class="pagenum"><a name="Page_188" id="Page_188">[188]</a></span>
+fixed the salary of the commissioners at $4,000 each, provided
+a mechanism for enforcement of the commissioners’ orders
+through the courts, placed the office of the board in the city of
+San Francisco, and required rates established by the commission
+to be posted in all offices, station houses, warehouses, and
+landing offices to or from which the rates applied. Finally, it
+granted to the commission, in general terms, all the necessary
+means and the authority to adopt any suitable procedure to
+make effective the powers conferred by the Constitution.<a name="FNanchor_265_265" id="FNanchor_265_265"></a><a href="#Footnote_265_265" class="fnanchor">[265]</a></p>
+
+<p>Harvey S. Brown, attorney for the Stanford interests,
+once said that the Constitution of the state of California was
+conceived in communistic malice, was framed by unpardonable
+ignorance, adopted in frenzied madness, and was valuable
+only as a beacon to other states and peoples to avoid its
+principles and results.<a name="FNanchor_266_266" id="FNanchor_266_266"></a><a href="#Footnote_266_266" class="fnanchor">[266]</a></p>
+
+<p>The document certainly compelled the associates to consider
+the best method of defence against a political attack which
+threatened to sterilize the monopoly control which they were
+slowly establishing over the railroad system of the state. From
+their point of view the danger was like any other—one to be
+met by skilful strategy, displayed in a new field, but resembling
+in impelling motive and essential character their action in
+adjusting rates and in dominating the terminal situation on
+San Francisco Bay.</p>
+
+<p class="pnb">Personnel of First Commission</p>
+
+<p>According to the Constitution, one railroad commissioner
+was to be elected from each of three districts into which the
+state was to be divided. Elections were held in 1880, and<span class="pagenum"><a name="Page_189" id="Page_189">[189]</a></span>
+J. S. Cone, C. J. Beerstecher, and George B. Stoneman were
+returned. Cone was a ranch owner, business man, and capitalist
+at Red Bluff, with an income of $50,000 a year, and
+property worth perhaps $200,000. He had been on friendly
+terms with Stanford before he became commissioner, and had
+known most of the prominent railroad officials of the state for
+twenty-five years. By association and point of view he represented
+the interests of large business in the state. Stoneman
+was a politician of the better type, later governor of the state,
+a Democrat, and believed to be a defender of the public
+interest.<a name="FNanchor_267_267" id="FNanchor_267_267"></a><a href="#Footnote_267_267" class="fnanchor">[267]</a></p>
+
+<p>The third member of the commission was C. J. Beerstecher,
+a San Francisco lawyer with a miscellaneous practice amounting
+to perhaps $50 a month. Judge Lawler, of the Superior
+Court of San Francisco, who knew Beerstecher well, says
+that he came to San Francisco, with nothing but a gripsack,
+and built up a small practice, mainly divorce suits, among the
+poorer classes in the city. For some time Beerstecher used
+Lawler’s office, living in rooms in the same building, for which
+he paid $15 a month; Lawler befriended him, and a man named
+Steinman advanced him money for electioneering expenses.
+In return for this, apparently, Steinman was later made bailiff
+to the railroad commission. That is to say, Beerstecher was
+poor, with no reputation to lose, and in circumstances in which
+his good-will had value.</p>
+
+<p>One would scarcely expect effective regulation of a commission
+composed of a wealthy farmer, a cheap lawyer, and a
+man who looked to a career in the public service. Nor was
+such regulation in fact secured. Stoneman once told Judge
+Reagan, of Texas, that when the California commissioners
+were elected, he, Stoneman, was elected because it was understood
+that he represented the popular interests; another gentleman<span class="pagenum"><a name="Page_190" id="Page_190">[190]</a></span>
+(J. S. Cone) was elected because it was understood that he
+represented the feeling of the corporations, and a third (Beerstecher)
+was a sand-lot man. He added that, having the sand-lot
+man with him to take care of the interests of the people,
+he thought he was all right, but in a short time the sand-lot
+man sold out and did not amount to anything.<a name="FNanchor_268_268" id="FNanchor_268_268"></a><a href="#Footnote_268_268" class="fnanchor">[268]</a> Cone also considered
+Beerstecher a reliable pro-railroad man. There is no
+direct evidence that Beerstecher accepted railroad money, but
+the probabilities are strong. Before discussing this point, however,
+the activities of the new commission may be briefly
+described.</p>
+
+<p class="pnb">Indifference of Commissioners</p>
+
+<p>The evidence shows that from the very first the three members
+of the California commission devoted but a small portion
+of their time to the work of regulation. Mr. Beerstecher was
+accustomed to visit his office twice a day, spending perhaps an
+hour there each time. This was while Beerstecher was a resident
+of San Francisco. In the latter part of his term he lived
+in the Napa Valley and probably spent even less time on his
+official duties. Nor did Beerstecher compare unfavorably with
+his fellow appointees in application to his work. Governor
+Stoneman devoted five or six days a month to affairs of the
+commission; Mr. Cone about the same. Of 127 meetings
+held by the board between May 3, 1880, and January 8, 1883,
+Cone was present at 99, Stoneham at 80, and Beerstecher at
+109.<a name="FNanchor_269_269" id="FNanchor_269_269"></a><a href="#Footnote_269_269" class="fnanchor">[269]</a></p>
+
+<p>It seems beyond belief that a new commission, established to
+initiate public control of a great industry, should have approached
+the problem in this indifferent way. The undertaking
+called for the fullest exercise of the powers of all the commission’s<span class="pagenum"><a name="Page_191" id="Page_191">[191]</a></span>
+members; but it was approached as a casual task
+to be accomplished in the spare hours of busy men.</p>
+
+<p>As a natural result of their attitude with respect to the
+importance and urgency of railroad regulation, the commissioners
+failed to make effective the most primary requirements
+of the law. Instead of preparing new rates except as hereinafter
+stated, the commission established the existing rates of
+the companies operating in the state. Instead of prescribing
+a system of keeping accounts, the existing system was adopted.
+Mr. Stoneman once tried to investigate the railroad books, but
+said they were all Greek to him, and he had no authority to
+employ an expert. Beerstecher testified that the commission
+asked certain questions, but that he did not, as an individual
+commissioner, consider that it was his business to go prying
+around into the business of the railroad companies.<a name="FNanchor_270_270" id="FNanchor_270_270"></a><a href="#Footnote_270_270" class="fnanchor">[270]</a></p>
+
+<p>Some slight attention was paid to the posting of rates, but
+the only inspection seems to have been by the bailiff of the commission.
+Doubtless the original cause for the failure of the
+commission in the respects mentioned was lack of money; but
+it was for the members to formulate boldly their ideas of what
+should be done, and to educate public opinion as to its necessity,
+making use meanwhile of all the authority which they
+could wield. It was gross negligence and indifference to rest
+content while the law stood unenforced.</p>
+
+<p class="pnb">Adoption of First Rate Schedule</p>
+
+<p>The largest task eventually undertaken by the commission
+was the formulation of rate schedules for passengers and
+freight. During the spring and summer of 1880, the commissioners
+traveled through the state taking testimony and hearing
+complaints. In the winter and spring of 1880-81, they attempted
+to formulate results. It appears that in May, 1880,
+Stoneman introduced a resolution to the effect that maximum<span class="pagenum"><a name="Page_192" id="Page_192">[192]</a></span>
+rates in California should not exceed five cents per ton per mile
+for distances 100 miles and over, and six cents per ton per mile
+for distances under 100 miles, and that maximum fares should
+not exceed four cents and five cents per mile within the same
+limitations. This was defeated by a vote of two to one. Nothing
+was done between this time and February, 1881, when the
+board unanimously adopted a schedule of passenger fares with
+maxima varying from five cents to three cents per mile.<a name="FNanchor_271_271" id="FNanchor_271_271"></a><a href="#Footnote_271_271" class="fnanchor">[271]</a></p>
+
+<p>At the same time that the passenger schedule was introduced
+Mr. Cone submitted a freight tariff, which was also adopted.
+This schedule cut rates mainly on agricultural products originating
+in the northern part of the state. Stoneman objected
+to it—but later said that he did not prepare an alternative
+schedule because he knew it would not be adopted. He did,
+however, call the attention of the board to the fact that southern
+California was being discriminated against.<a name="FNanchor_272_272" id="FNanchor_272_272"></a><a href="#Footnote_272_272" class="fnanchor">[272]</a> Beerstecher
+had no part in the preparation of the new rates, but made no
+opposition to them.</p>
+
+<p class="pnb">Delay in Enforcement</p>
+
+<p>Armed with the new passenger and freight schedules, Mr.
+Cone went over to the Southern Pacific offices and left the
+figures with Mr. Towne, general manager, for comment.
+The railroad people at once objected. They said they were
+building the Southern Pacific and selling bonds to raise the
+money. The proposed reductions would injure their credit
+and could not be accepted. Cone was anxious to avoid litigation
+and to get quick action.<a name="FNanchor_273_273" id="FNanchor_273_273"></a><a href="#Footnote_273_273" class="fnanchor">[273]</a> Moreover, Stanford wished to
+get away and go to Europe, and Cone did not like to keep him.
+As Cone said in another connection, Stanford was pretty winning
+in his ways. The result was that the railroad agreed not
+to contest the new freight rates and Cone consented not to
+press the reduction in passenger rates, at least not until October,
+1881. There is no evidence that Cone possessed authority from
+the commission to negotiate with the Central Pacific, but he
+seems to have acted in confidence that Beerstecher would support
+him in action favorable to the railroad and Stoneman in
+action of contrary tenor.</p>
+
+<p class="vh"><a name="i220" id="i220">i220</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-220.jpg" width="400" height="546"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc">George Stoneman</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_193" id="Page_193">[193]</a></span></p>
+
+<p>As a matter of fact the board did not take further action
+in regulation of passenger fares until August, 1882, a year
+and a half after the question had first been raised. By this
+time Cone had become convinced, so he says, that Stanford
+would concede no further reduction in railroad charges. On
+the 15th of August, Stoneman accordingly reintroduced his
+original passenger schedule, but slightly changed. The matter
+was laid over for a month, and in September, at a meeting at
+which only Cone and Stoneman were present, a substitute
+resolution was adopted, setting a maximum fare of four cents
+per mile. Stoneman thought the maximum should be three
+cents, but Cone would not consent. The new maxima were
+suspended in October “until further order of the board” in
+order to give the railroad companies an opportunity to be heard.
+Before the commission came together again, however, Stoneman
+had resigned. This left Beerstecher and Cone—with two
+as a quorum. It is eloquent of Beerstecher’s attitude that he
+attended no meeting of the board after November 22, 1882,
+and that on that day his action in respect to passenger rates
+was to move to postpone consideration.</p>
+
+<p>In two years and seven months the only reductions in rates
+and fares secured by the Railroad Commission were certain cuts
+in the rates on products of agriculture conceded to the farmer
+member of the commission by his railroad friends. The commission
+formulated no principles and worked out no effective<span class="pagenum"><a name="Page_194" id="Page_194">[194]</a></span>
+procedure. Even its reports to the legislature had little value.
+The first two were prepared by Mr. Beerstecher, the third by
+Mr. Tuttle, former railroad commissioner but no longer in any
+official way connected with regulation work. When the commission
+was not unanimous in its decisions, the division
+usually was that of Cone and Beerstecher against Stoneman—a
+fact which leads us back to the question of the nature
+of the influence which the Stanford group was able to
+exert.</p>
+
+<p class="pnb">Bribery Committed</p>
+
+<p>The charge is made that the Central Pacific bought and
+paid for Beerstecher’s services while a member of the Railroad
+Commission, and that Cone was so influenced by his personal
+and business relations with the managers of the Central Pacific
+as to be unable to view their activities in the critical and impartial
+way which his position demanded. The evidence in
+the case is purely circumstantial, but seems to be convincing.
+So far as the former is concerned we have the admitted fact
+that Beerstecher was richer at the end of his term of office than
+at the beginning by at least $12,000 and probably by a good deal
+more. As he put it, he thought he saved his entire salary of
+$4,000 a year as commissioner, during these years. Beerstecher
+asserted incidentally that his legal practice while a member of
+the Railroad Board amounted to from $1,200 to $1,500 a year—although
+the records of the Superior Court of San Francisco,
+before which Beerstecher practiced, show that this was
+highly unlikely,<a name="FNanchor_274_274" id="FNanchor_274_274"></a><a href="#Footnote_274_274" class="fnanchor">[274]</a> and the testimony of the bailiff to the commission
+is directly to the contrary. $12,000 may be
+regarded as adequate compensation for a man of Beerstecher’s
+type.<a name="FNanchor_275_275" id="FNanchor_275_275"></a><a href="#Footnote_275_275" class="fnanchor">[275]</a></p>
+
+<p><span class="pagenum"><a name="Page_195" id="Page_195">[195]</a></span></p>
+
+<p class="pnb">Gerke Transaction</p>
+
+<p>Cone’s case is not quite so simple. It seems unlikely that
+a man of his standing should have consciously accepted a
+bribe. There is, however, direct evidence of a reliable character
+that Cone was given unusual consideration by the railroad
+in connection with the purchase of certain lands in the
+northern part of the state, and Cone himself admitted that
+while he was commissioner he had bought some lands from a
+man named Gerke and had resold them within two or three
+months to the treasurer of the Southern Pacific at a profit of
+$100,000.<a name="FNanchor_276_276" id="FNanchor_276_276"></a><a href="#Footnote_276_276" class="fnanchor">[276]</a></p>
+
+<p>What happened in the first of these two instances was this:
+It seems that there was a tract of about 34,000 acres of the
+Oregon grant of the Central Pacific lying east of Cone’s ranch—rough,
+chapparal land, graded at from 50 cents to $2.50 an
+acre. Cone was running about 20,000 sheep at the time, and
+was using the land without paying for it, as certain other individuals
+were also doing. Among these other persons was a
+man named Wilson, who was not only a small sheep owner,
+but an actual settler as well. Wilson originally applied to
+purchase from 5,000 to 7,000 acres of the tract, and was quoted
+the first graded price, $1.25 to $2.50 an acre. At this quotation
+he took some land that had water on it, but in general could
+not afford to buy. Later the land was regraded, and Redding,
+the Central Pacific land agent, told Wilson that the regrade
+price was 50 cents. A few months after, in June, 1881, Wilson
+applied to purchase, although he believed that the application
+was unimportant, since as a settler he was entitled to
+second grade. He had the land fenced by this time.</p>
+
+<p>Meanwhile, on the 21st of April, 1880, Cone had negotiated
+with the Central Pacific for a tract of 34,097.45 acres,
+including the land in which Wilson was interested. He did not
+offer to purchase, but asked to have the lands that were free<span class="pagenum"><a name="Page_196" id="Page_196">[196]</a></span>
+reserved for him, that he might ascertain the bounds of his
+range. In fact, when the statement of the cost of the lands
+was made out for him he refused to take them at the graded
+price, and abruptly left the Central Pacific land office, exhibiting
+considerable ill feeling. This was the situation when
+Wilson applied. Properly considered, Wilson seems to have
+been entitled to purchase at the new price. His application was
+subsequent to Cone’s conference with the Central Pacific land
+commissioner, but Cone had then refused to pay the price asked,
+which left the lands open. The Central Pacific, however,
+through Mr. Redding, its agent, refused to sell. Mr. Redding
+later said:</p>
+
+<p class="pbq p1">When Mr. Wilson demanded a right to purchase a portion
+of these lands because Mr. Cone had bargained for them and
+then refused to take them, I told Mr. Wilson the circumstances
+and said to him that Mr. Cone had refused under so great an
+exhibition of temper that it was my duty to wait until Mr.
+Cone became more calm. I also added that the new Constitution
+and the people had given Mr. Cone and his associates
+powers that were more extensive than those of the Czar of
+Russia; that he and his associates could virtually confiscate
+the property of the stockholders of the railroad company, and
+that I could not afford to add to a quarrel which by any possibility
+might be construed into an excuse for unjust action.</p>
+
+<p class="p1">The result was that Wilson hunted up Cone and tried to get
+a relinquishment. Cone offered to let Wilson have the land
+at the graded price—the first graded price, as Wilson understood
+it. This offer was naturally refused, and Cone subsequently
+bought the whole tract for $29,199.67. Although the
+facts are somewhat complicated, it seems clear that Mr. Cone
+received special treatment, due to his position as railroad commissioner.</p>
+
+<p>Of the Gerke transaction, Cone testified:</p>
+
+<p class="pbq p1">I would say that the ranch was held under a deed of trust,
+and parties were foreclosing it, and at the time I bought it it<span class="pagenum"><a name="Page_197" id="Page_197">[197]</a></span>
+would have been sold under a deed of trust in fourteen days,
+and the party came to me and asked what I would pay for it
+and I didn’t dream they intended to sell it because I didn’t
+know the condition the land was in, and they insisted on my
+making an offer that day for it. I made an offer and it was
+accepted.</p>
+
+<p class="pbq"><i>Mr. Storke</i>: What was your profit on that transaction?</p>
+
+<p class="pbq"><i>A.</i> I think in the neighborhood of one hundred thousand
+dollars, and the worst trade I ever made when I sold it.</p>
+
+<p class="pnb">Finding of Legislative Committee</p>
+
+<p>Dealings of this kind were improper, to say the least, and
+calculated to interfere with the impartial discharge of a commissioner’s
+duties. On the whole subject a committee of the
+California legislature reported as follows:</p>
+
+<p class="pbq p1">As to the second subject of inquiry, whether the Commissioners,
+or either of them, during their term of office, may have
+made any extraordinary acquisition of property ... your committee
+report that in their opinion Commissioner Stoneman did
+not make any extraordinary acquisition of property; that
+Commissioner Cone made a large acquisition to his wealth,
+which was already great when he was elected Railroad Commissioner,
+and your committee believe that such acquisition of
+wealth was largely due to extraordinary and unusual facilities
+afforded by the railroad officers; and that Commissioner
+Cone, in the purchase of thirty-four thousand acres of land
+for twenty-nine thousand dollars, was made a privileged purchaser,
+and received from the railroad company facilities in this
+regard denied to other applicants for portions of the tract;
+and further, that the transaction by which the Gerke farm
+was purchased by Commissioner Cone in April, 1881, and sold
+in September of the same year to Nicholas Smith, the Treasurer
+of the Southern Pacific Railroad Company, at a profit of one
+hundred thousand dollars, gives rise to the suspicion that more
+was contemplated in the purchase and sale than appears on the
+face of the transaction. As to Commissioner Beerstecher, your
+committee find that by general report, and in the opinion of his
+associates, he was without means at the time of his election,<span class="pagenum"><a name="Page_198" id="Page_198">[198]</a></span>
+and his sudden acquisition of wealth while Commissioner was
+without adequate explanation....</p>
+
+<p class="pbq">As to the fourth subject of inquiry, your committee report
+that Commissioners Cone and Beerstecher knew of and permitted
+both systematic and casual discrimination in charges
+and facilities for transportation between persons and places by
+railroad corporations in this State, and that through their conduct
+in permitting and upholding the same, Commissioner
+Stoneman was unable to accomplish a redress of such discriminations
+while Commissioner. Further, under this fourth subject
+of inquiry, your committee find that Commissioner Cone
+sacrificed the best interests of the State through personal
+friendship for Governor Stanford, and in return therefor received
+favors from him; and that Commissioner Beerstecher’s
+conduct admits of no other explanation than that he was bribed,
+and that in the opinion of this committee Commissioners Cone
+and Beerstecher acted in the interests of the railroad corporations
+rather than of the people.</p>
+
+<p class="p1">This finding of the legislative committee is justified by the
+facts elicited in their investigation.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_199" id="Page_199">[199]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XII</h2>
+
+<p class="pch">THE SOUTHERN PACIFIC AND POLITICS</p>
+
+<p class="pnb">Appeals to Public</p>
+
+<p>We may now consider in a more general fashion the political
+methods of the Southern Pacific group during the first
+thirty years of their railroad history. We have seen that they
+not only relied upon the talents of their legal staff in taking advantage
+of defects in the law, but that in two cases—the case
+of the railroad commission of 1880, and that of the subsidy
+in San Francisco in 1863—they probably resorted to the direct
+use of money to accomplish their ends. Yet a whole state cannot
+be bought, though individuals may be, and it would do injustice
+to the breadth of view of the associates to suppose that
+they limited themselves to any such crude device. Indeed, the
+frequency with which money bribes were offered probably
+diminished as time went on.</p>
+
+<p>Consideration of the general policies of Mr. Stanford and
+of Mr. Huntington seems to show that they met the public demand
+for regulation of rates and fares in no less than five
+distinct ways.</p>
+
+<p>The first method consisted of appeals to the general public
+through testimony before legislative committees, communications
+to the newspapers, letters to private organizations which
+interested themselves in the government control of corporations,
+and other similar devices. By these various means
+Stanford, at least, spread his philosophy of industry widely
+abroad. He took the general position that agitation upon the
+subject of railroads was due to misapprehension of the facts.
+Most alleged abuses were imaginary, but the Central Pacific<span class="pagenum"><a name="Page_200" id="Page_200">[200]</a></span>
+stood ready to correct any that were shown to exist.<a name="FNanchor_277_277" id="FNanchor_277_277"></a><a href="#Footnote_277_277" class="fnanchor">[277]</a> Railroad
+fares and freights were cheaper in California than anywhere
+else in the world, all things considered.<a name="FNanchor_278_278" id="FNanchor_278_278"></a><a href="#Footnote_278_278" class="fnanchor">[278]</a> In case further
+reduction were desired, the true policy was to place as few
+burdens upon the railroads as possible, to encourage in this way
+new construction, and to rely on competition for the desired
+result. The interests of the railroad and of the public were the
+same.<a name="FNanchor_279_279" id="FNanchor_279_279"></a><a href="#Footnote_279_279" class="fnanchor">[279]</a> Monopolies in the United States were possible only to
+the extent that they were beneficent. There was properly no
+right of control in the state. The Granger decisions of the
+Supreme Court of the United States were a flagrant violation
+of the principles of free government. If the people
+wanted to exercise control over a railroad they must do as the
+state does when it exercises the right of eminent domain; that
+is to say, they must pay to the individual owners the full value
+of whatever was taken for public use. Anything else was confiscation.
+Moreover, at best, regulation could not be complete,
+because it could not ever compel the shipper to ship equally over
+all lines, and because, while commerce was world-wide, American
+governments could regulate but one link in the chain. In
+California, regulation was peculiarly inexpedient so long as
+the railway system of the state was incomplete.<a name="FNanchor_280_280" id="FNanchor_280_280"></a><a href="#Footnote_280_280" class="fnanchor">[280]</a></p>
+
+<p><span class="pagenum"><a name="Page_201" id="Page_201">[201]</a></span></p>
+
+<p class="pnb">Huntington’s Views</p>
+
+<p>Mr. Huntington shared Mr. Stanford’s views, or at least
+approved the conclusion to which they led, but does not seem to
+have courted the same publicity in respect to the matter. Interviews
+he distrusted. “I notice,” he wrote in 1875, “that some
+correspondent of a San Diego paper has been interviewing Mr.
+Crocker. It is very difficult for any one to be interviewed by
+an infernal newspaper without getting hurt; and Mr. Crocker
+is not the most unlikely to get hurt of all the men I know.”</p>
+
+<p>Yet in spite of this attitude towards the newspaper reporter,
+Huntington had a keen appreciation of the importance of shaping
+public opinion, and was familiar with the ordinary devices
+used for the purpose, including the manipulation of the press.
+He was concerned over the attitude of the <i>Sacramento Record
+Union</i>. “If I owned the paper,” he said, “I would control it
+or burn it.”<a name="FNanchor_281_281" id="FNanchor_281_281"></a><a href="#Footnote_281_281" class="fnanchor">[281]</a> “I wish you would have it sent over the wires
+as often as you can that the Southern Pacific is being rapidly
+built,” he wrote Colton from New York in 1877.<a name="FNanchor_282_282" id="FNanchor_282_282"></a><a href="#Footnote_282_282" class="fnanchor">[282]</a> Again,
+“Yours of November 28 with Northern Pacific clips is received.
+Many of the articles are very good. It is much
+better that all such articles with petitions be sent direct to
+members of the Senate and House, we keeping in the background
+as much as possible.”<a name="FNanchor_283_283" id="FNanchor_283_283"></a><a href="#Footnote_283_283" class="fnanchor">[283]</a></p>
+
+<p>In November, 1875, Huntington wrote Colton that:</p>
+
+<p class="pbq p1">Gwynn left for the South yesterday. I think he can do us
+considerable good if he sticks for his hard money and anti-subsidy
+schemes; but if it was understood by the public that he was
+here in our interest, it would no doubt hurt us. When he left
+I told him he must not write to me, but when he wanted I
+should know his whereabouts, etc., to write to R. T. Colburn
+of Elizabeth, New Jersey.<a name="FNanchor_284_284" id="FNanchor_284_284"></a><a href="#Footnote_284_284" class="fnanchor">[284]</a></p>
+
+<p><span class="pagenum"><a name="Page_202" id="Page_202">[202]</a></span></p>
+
+<p class="pnb">Influential Individuals Favored</p>
+
+<p>A second method employed by the associates in their efforts
+to oppose public regulation of corporate affairs was that of
+paying personal attention to men who possessed or were believed
+to possess influence. In its simplest form this involved
+the employment at liberal salaries of the ablest legal talent
+which could be found. The policy was, however, pushed much
+further than the statement made would indicate. Huntington’s
+letters to his associates in the West were full of suggestions
+as to what should be done and of commendations for, or
+criticism of, what had been accomplished.</p>
+
+<p>In April, 1875, Huntington wrote Colton that he had given
+Dr. Linderman, director of the United States Mint, a letter
+of introduction to him, Colton, at San Francisco. This was
+because the location of a new building for the Mint might be
+of importance to the Central Pacific.<a name="FNanchor_285_285" id="FNanchor_285_285"></a><a href="#Footnote_285_285" class="fnanchor">[285]</a> In October of the same
+year Huntington gave a pass to a certain congressman and
+ex-governor, but warned Colton that the man was a slippery
+fellow and should not be trusted too much.<a name="FNanchor_286_286" id="FNanchor_286_286"></a><a href="#Footnote_286_286" class="fnanchor">[286]</a> Crocker wrote
+to Colton in February, 1875:</p>
+
+<p class="pbq p1">I fully appreciate your position there and need of ...
+a Senator of the United States. We tried to get him off sooner
+the best we knew. I think he did not want to go, and I fear
+when he gets there he will not be earnest in our interest as
+formerly. Stanford thinks I am mistaken and I hope I am.<a name="FNanchor_287_287" id="FNanchor_287_287"></a><a href="#Footnote_287_287" class="fnanchor">[287]</a></p>
+
+<p class="p1">A letter dated July 26, 1876, shows that Huntington was
+trying to get up a party of twenty-five southern members of
+Congress to visit California over the Southern Pacific. He
+wanted none but the best men—that is, men who would “go
+for the right as they understand it, and not as Tom Scott<a name="FNanchor_288_288" id="FNanchor_288_288"></a><a href="#Footnote_288_288" class="fnanchor">[288]</a> or<span class="pagenum"><a name="Page_203" id="Page_203">[203]</a></span>
+somebody else understands it,” but he was willing to pay the
+expenses of the trip for such men.<a name="FNanchor_289_289" id="FNanchor_289_289"></a><a href="#Footnote_289_289" class="fnanchor">[289]</a> In order to help persuade
+representative men to make this trip, Huntington telegraphed
+Colton to have some of the prominent men in San Francisco
+wire Senator Gordon, of Georgia, urging that the visit should
+be made.<a name="FNanchor_290_290" id="FNanchor_290_290"></a><a href="#Footnote_290_290" class="fnanchor">[290]</a> “I noticed you are looking after the State Railroad
+Commission,” Huntington adds in another letter to the same
+address, “I think it is time.”<a name="FNanchor_291_291" id="FNanchor_291_291"></a><a href="#Footnote_291_291" class="fnanchor">[291]</a> Again:</p>
+
+<p class="pbq p1">I am sorry to learn that the receipts are so very poor south
+of San Francisco, but it is a good time to take the State Railroad
+Commissioners over the roads. I am glad to notice that
+you are looking after the Commissioners. I think it very important.<a name="FNanchor_292_292" id="FNanchor_292_292"></a><a href="#Footnote_292_292" class="fnanchor">[292]</a></p>
+
+<p class="p1">Still again, in May, 1877, Huntington wrote:</p>
+
+<p class="pbq p1">I am glad you are paying some attention to General Taylor
+and Mr. Kasson. Taylor can do us much good in the South.
+I think, by the way, he would like to get some position with us
+in California. Mr. Kasson has always been our friend in Congress,
+and as he is a very able man, has been able to do us
+much good, and he has never lost us one dollar. I think I have
+written you before about Senator.... He may want to
+borrow some money, but we are so short this summer, I do not
+see how we can let him have any in California.<a name="FNanchor_293_293" id="FNanchor_293_293"></a><a href="#Footnote_293_293" class="fnanchor">[293]</a></p>
+
+<p class="p1">Letters like these cover only one period and refer to the
+activity of only three out of the five associates, but there is
+sufficient outside evidence of a general nature to indicate that
+this policy was systematically followed by the Stanford group.</p>
+
+<p class="pnb">Lobbying in Washington and Sacramento</p>
+
+<p>In addition to the attempt in a general way to gain the
+good-will of the public or of influential members of it, the<span class="pagenum"><a name="Page_204" id="Page_204">[204]</a></span>
+Central Pacific was regularly represented at Washington and
+Sacramento when legislation was pending. Huntington, as
+has been said, took care of the company’s affairs in Washington.
+He had offices in New York and Boston also, and divided
+his time between the three places while Congress was in session—four
+days in Washington, two in New York, and one
+in Boston.<a name="FNanchor_294_294" id="FNanchor_294_294"></a><a href="#Footnote_294_294" class="fnanchor">[294]</a> Stanford attended to matters in Sacramento,
+either in person or through representatives such as William
+Carr or Stephen T. Gage. The latter was also for many years
+the company’s agent in Nevada. Both Huntington and Stanford,
+of course, were assisted by a corps of lawyers and political
+aides-de-camp, some of whom were very highly paid. General
+Franchot, for instance, Huntington’s chief assistant, received
+at one time a salary of $20,000 a year, besides a liberal expense
+account. Much criticism has been directed at the activity
+of Central Pacific agents in the lobbies at Washington and
+Sacramento, but a large portion of it was probably legitimate.</p>
+
+<p class="pnb">Correspondence from Washington</p>
+
+<p>Certainly the watch which the associates kept on legislation
+was very close. Huntington’s own activities in 1875, 1876,
+1877, and 1878 are vividly described in the letters which he
+wrote Colton during these years, and some few of these deserve
+to be reproduced if only for the picture they suggest of the man
+who wrote them. In March, 1875, Huntington wrote:</p>
+
+<p class="pbq p1">I notice a bill passed the House some few days since, called
+up by Williams of Michigan. I forget its title, but it called for
+reports, etc., etc., from the Pacific roads. Of course it was
+something ugly or it would not have passed.<a name="FNanchor_295_295" id="FNanchor_295_295"></a><a href="#Footnote_295_295" class="fnanchor">[295]</a></p>
+
+<p class="p1">This was mere routine. By June, 1876, however, the
+legislative work had increased. Mr. Huntington told Colton:</p>
+
+<p><span class="pagenum"><a name="Page_205" id="Page_205">[205]</a></span></p>
+
+<p class="pbq p1">There is a terrible fight kept up on us in Washington. But
+while they may bite us, they will not eat us up. Sherrell telegraphed
+me to come to Washington in great haste, as Lawrence
+was to pass his bill at once; so I went over and got the committee
+to recall it from the House back to the committee, so the
+demagogue from Ohio cannot trouble us before the 6th of July.
+In the meantime we will be working on our land proposition
+in the Senate. Just what we can do I cannot say, but I shall
+surely keep trying.<a name="FNanchor_296_296" id="FNanchor_296_296"></a><a href="#Footnote_296_296" class="fnanchor">[296]</a></p>
+
+<p class="pn1">The following month he added:</p>
+
+<p class="pbq p1">I returned from Washington last night. Our matters look
+better there, but we are not out of danger. It has been so very
+hot here for the last few weeks that it has come near using
+me up. You know I do not spare myself when I have anything
+to do.<a name="FNanchor_297_297" id="FNanchor_297_297"></a><a href="#Footnote_297_297" class="fnanchor">[297]</a></p>
+
+<p class="pn1">In August, 1876, Huntington wrote Colton:</p>
+
+<p class="pbq p1">I have thought I could stand anything, but I am fearful this
+damnation Congress will kill me. Senator Edmunds told another
+Senator yesterday that he would pass his Pacific Railroad
+Sinking Fund Bill before Congress adjourned, but I think
+he will not, and I have some hope Congress will adjourn by
+the time this reaches you.<a name="FNanchor_298_298" id="FNanchor_298_298"></a><a href="#Footnote_298_298" class="fnanchor">[298]</a></p>
+
+<p class="pn1">And in March, 1877, he was able to say:</p>
+
+<div class="pbq">
+<p class="p1">Congress has adjourned, and we have not been hurt, except
+by the paying out in Washington of some money for hotel bills,
+etc.</p>
+
+<p>I am quite sure that we stand better in Washington at this
+time than we ever did before.</p>
+
+<p>The Pacific Mail Steamship Co. got no aid. I will tell you
+some things about that some time. The Sinking Fund Bill did
+not pass, but is in a much better shape to pass than it has ever
+been before. I stayed in Washington two days to fix up the
+Railroad Committee in the Senate. Scott was there, working<span class="pagenum"><a name="Page_206" id="Page_206">[206]</a></span>
+for the same thing, but I beat him for once certain, as the committee
+is just what we want it, which is a very important thing
+for us. You will no doubt notice before you get this that we
+were not able to pass the Texas-Pacific bill.<a name="FNanchor_299_299" id="FNanchor_299_299"></a><a href="#Footnote_299_299" class="fnanchor">[299]</a></p></div>
+
+<p class="pn1">The committee with which Huntington was so content was
+changed somewhat later, much to his disgust.<a name="FNanchor_300_300" id="FNanchor_300_300"></a><a href="#Footnote_300_300" class="fnanchor">[300]</a></p>
+
+<p>It was not until the first part of 1878, however, that his
+letters show him again hard at work. In January, 1878,
+Huntington wrote to Colton:</p>
+
+<p class="pbq p1">I notice what you write of the communists in the California
+Legislature, and am very sorry to know it, but the feeling in
+Congress is not much better, and yet, somehow, I do not think
+we shall be much hurt, although Scott is working hard and
+developing more strength than I supposed he had. He had the
+Railroad Committee of the House. I think we have it now.<a name="FNanchor_301_301" id="FNanchor_301_301"></a><a href="#Footnote_301_301" class="fnanchor">[301]</a></p>
+
+<p class="pn1">The following month he said:</p>
+
+<p>I returned from Washington last night, and I am as near
+used up as I ever was in my life before. I am spending my last
+winter at Washington. As I feel today, I would not agree to
+spend another there for all the property we all have. Our matters
+are looking fair in Washington, Scott is very bitter in the
+discussion. He used some business compliments and all such
+stuff, and I am compelled to play him; but it is very distasteful
+to me.<a name="FNanchor_302_302" id="FNanchor_302_302"></a><a href="#Footnote_302_302" class="fnanchor">[302]</a></p>
+
+
+<p>This letter is followed in the record by a series of others
+of the same tenor, which will be presented without comment.</p>
+
+<div class="pbq">
+<p class="p1">... I have done all I can to prevent certain bills from being
+reached, and do not think any bills can be that will hurt us, but
+if there are, they will pass, as this Congress is, I think, the
+worst set of men that have ever been collected together since
+man was created.<a name="FNanchor_303_303" id="FNanchor_303_303"></a><a href="#Footnote_303_303" class="fnanchor">[303]</a></p>
+
+<p><span class="pagenum"><a name="Page_207" id="Page_207">[207]</a></span></p>
+
+<p>I returned from Washington last night. I am almost happy
+to think I shall not be called there again this session, as Congress
+has adjourned its first session, and may the likes of it never
+meet again. I think in all the world’s history never before was
+such a wild set of demagogues honored by the name of Congress.
+We have been hurt some, but some of the worst bills have been
+defeated, but we cannot stand many such congresses.<a name="FNanchor_304_304" id="FNanchor_304_304"></a><a href="#Footnote_304_304" class="fnanchor">[304]</a></p>
+
+<p class="p2">Friend Colton: I returned from Washington this morning
+and found on my desk yours of the 10th inst., No. 74. Thurman’s
+funding bill has not passed the House yet, but it will,
+I think, although I am endeavoring to get it to the Judiciary
+Committee. If I can I think we can get it amended, but even
+that is doubtful. There were some mistakes made by us when
+the bill was in the Senate; the greatest was in Gould going to
+Washington; but it is too long a story to write now. I will tell
+you when we meet, if we have nothing better to talk of. This
+Congress is nothing but an agrarian camp, the worst body of
+men that ever before got together in this country. Scott is
+making a hard fight on his Texas and Pacific bill. He has made
+a combination with the Northern Pacific, which will give him
+some strength, how much I cannot tell. The Northern Pacific
+are to ask for guarantee of their bonds by the United States.
+I shall come to California soon after Congress adjourns. Find
+some one to buy me out of everything there. I am tired and
+want to quit.<a name="FNanchor_305_305" id="FNanchor_305_305"></a><a href="#Footnote_305_305" class="fnanchor">[305]</a></p>
+
+<p class="p2">... I notice what you say of Thurman’s Sinking Fund
+Bill—of course it is bad, but if we could have amended it so
+as to make it a finality, and give us 6 per cent on the fund, it
+would not have been so bad. It may not pass, but I think it
+will for this is the worst Congress we have ever had; if it
+should, we must beat it in the courts, if we can.</p>
+
+<p>I go to Washington tonight; I should have gone last night,
+but for the reason that Clara has been quite sick for some days.</p>
+
+<p>Mr. Sherrell telegraphed me yesterday that I must not fail
+of being there this morning. I cannot attend to this Washington
+business much longer.<a name="FNanchor_306_306" id="FNanchor_306_306"></a><a href="#Footnote_306_306" class="fnanchor">[306]</a></p>
+
+<p><span class="pagenum"><a name="Page_208" id="Page_208">[208]</a></span></p>
+
+<p>I returned from Washington last night. I hope to get
+through there without being hurt any more; but it seems as
+though every committee in both Houses had something before
+them that we had an interest in.<a name="FNanchor_307_307" id="FNanchor_307_307"></a><a href="#Footnote_307_307" class="fnanchor">[307]</a></p></div>
+
+<p class="pnb">Skilled Wire-Pulling</p>
+
+<p>There is no need to comment in any detail upon these letters.
+Their occasional indication of discouragement doubtless meant
+nothing more than that Huntington sometimes grew tired and
+hot and angry with the opposition which he encountered. A
+characteristic of the man was that he never really gave up. The
+Thurman bill referred to will be described in another connection.</p>
+
+<p>Scott was a railroad man, at one time president of the
+Pennsylvania Railroad, who was seeking to persuade Congress
+to subsidize a transcontinental railway by the southern route.
+The land proposition was a scheme of the associates to induce
+the federal legislature to buy back a portion of the Central
+Pacific land grant at the government price. As a whole, the
+letters so far quoted show that Huntington was a persistent
+and energetic lobbyist, although the record of Congressional
+legislation shows that he was far from uniformly successful.</p>
+
+<p class="vh"><a name="i238" id="i238">i238</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-238.jpg" width="400" height="573"
+ alt=""
+ title="" />
+</div>
+
+<p><span class="pagenum"><a name="Page_209" id="Page_209">[209]</a></span></p>
+
+<p>On the whole, the railroad managers pulled wires with a
+skill which rapidly increased with experience. Sometimes the
+company was made to appear prominently, and sometimes it
+was kept in the background when legislation was desired.
+Huntington found that some members of Congress were disinclined
+to talk to him concerning Southern Pacific matters.
+In such cases he had recourse to third parties—perhaps a constituent
+of the member in question, perhaps a friend. The
+same methods were employed in dealing with state legislation.
+In 1875 the Southern Pacific desired a franchise permitting
+it to build through Arizona. Huntington wrote Colton that
+he thought this would cost less if other interests than the associates
+stood at the front while the franchises were being obtained,
+but that after the charters were obtained it should be
+known that they were controlled by the Southern Pacific.<a name="FNanchor_308_308" id="FNanchor_308_308"></a><a href="#Footnote_308_308" class="fnanchor">[308]</a>
+He said:</p>
+
+<p class="pbq p1">I am inclined to believe that if you could get the right man
+on that line in Arizona to work with the few papers they have
+there, to agitate the question in the territory, asking that some
+arrangement be made with the S. P., at the same time offer the
+S. P. a charter in the territory that would free the road from
+taxation, and one that would not allow for any interference with
+rates until ten per cent interest was declared on the common
+stock, I believe the Legislature could be called together by <i>the
+people</i> for $5,000 and such a charter granted. Then we would
+take the chances of having such a charter made good by Congress
+or the State when it became one.<a name="FNanchor_309_309" id="FNanchor_309_309"></a><a href="#Footnote_309_309" class="fnanchor">[309]</a></p>
+
+<p class="p1">At one time Huntington even suggested that the Southern
+Pacific might bear the expense of an extra session of the
+Arizona legislature in order to hasten consideration of legislation
+favorable to the company.<a name="FNanchor_310_310" id="FNanchor_310_310"></a><a href="#Footnote_310_310" class="fnanchor">[310]</a> The desired legislation was
+eventually obtained, but not until February, 1887.</p>
+
+<p class="pnb">Unethical Dealings</p>
+
+<p>Did or did not the Huntington group, including Stanford
+at Sacramento and Reno, and Huntington at Washington,
+employ improper means in their endeavor to influence votes?
+This is another question upon the answer to which much depends.
+That passes were issued to members of the legislature,
+members of Congress, and judges of courts, and that
+gentlemen of these types were entertained at dinner in
+Sacramento was generally known. We have Mr. Gage’s statement,
+at least, that no more than this took place in Nevada.
+He told the United States Pacific Railway Commission of<span class="pagenum"><a name="Page_210" id="Page_210">[210]</a></span>
+1887, that his expenditures in that state over a period of eight
+years had amounted to $2,000, and added:</p>
+
+<p class="pbq p1">... and I would like to produce to you the files of the
+newspapers in order to show the existence of the misapprehensions
+that existed among the good people of Nevada, as indicated
+by their press, concerning my relations with the legislature
+of Nevada, session after session for the sixteen years. I
+remarked yesterday that it was one of the greatest sources of
+regret that I had, the imputations which were cast on my
+character, and which I feel I have not deserved, and which I
+feel I may not live long enough to outgrow. One of these is
+that I have spent money in the Nevada legislature for the
+Central Pacific like water; and those things were constantly
+asserted, and I believe frequently believed by a good many
+good people in the State, but they were not true. As I asserted
+to you yesterday, I have kept an accurate account of the expenses
+for the first eight years that I was attending the sessions
+of the Nevada legislature, which included my personal expenses
+during that time, and they figure up $2,000, or a fraction under
+it, as it was. Now, if any one thinks that $2,000, or less, could
+corrupt a legislature for eight years, including the personal
+expenses of myself, he must invoice members of the Nevada
+legislature at a very low price, and “buy them by the string.”<a name="FNanchor_311_311" id="FNanchor_311_311"></a><a href="#Footnote_311_311" class="fnanchor">[311]</a></p>
+
+<p class="p1">Mr. Gage would not say, however, when asked pointblank,
+whether or not he had paid any money or made any provisions
+of advantage or reward to any member of the legislature of
+California or Nevada.<a name="FNanchor_312_312" id="FNanchor_312_312"></a><a href="#Footnote_312_312" class="fnanchor">[312]</a> Nor would Mr. Stanford say more
+in reply to the inquiries of the United States Pacific Railway
+Commission than that the company would not include in any
+settlement with the United States, vouchers to which objections
+were made.<a name="FNanchor_313_313" id="FNanchor_313_313"></a><a href="#Footnote_313_313" class="fnanchor">[313]</a></p>
+
+<p>On the whole, there is a good deal of evidence that the
+owners of the Central Pacific went further in influencing<span class="pagenum"><a name="Page_211" id="Page_211">[211]</a></span>
+legislation than any strict system of ethics would allow. Huntington
+once stated his own position as follows:</p>
+
+<p class="pbq p1">If you have to pay money to have the right thing done, it
+is only just and fair to do it.... If a man has the power to
+do great evil and won’t do right unless he is bribed to do it,
+I think the time spent will be gained when it is a man’s duty
+to go up and bribe the judge. A man that will cry out against
+them himself will also do these things himself. If there was
+none for it, I would not hesitate.<a name="FNanchor_314_314" id="FNanchor_314_314"></a><a href="#Footnote_314_314" class="fnanchor">[314]</a></p>
+
+<p class="pnb">Further Evidence</p>
+
+<p>More important than the record of such general expressions
+of opinion are the affidavits filed in the San Francisco
+subsidy litigation described in an earlier chapter. Nor is anyone
+likely to read the letters of Mr. Huntington to Mr. Colton
+in the late seventies without becoming convinced that the possibility
+of purchasing votes was constantly before Huntington’s
+mind. Huntington wrote Colton at one time that the (Southern
+Pacific) company could not get legislation unless it paid
+more than it was worth.<a name="FNanchor_315_315" id="FNanchor_315_315"></a><a href="#Footnote_315_315" class="fnanchor">[315]</a> In another communication he said:
+“If we pass the Sinking Fund Bill and beat Scott and the Union
+Pacific, it will hurt us not less than half flora”;<a name="FNanchor_316_316" id="FNanchor_316_316"></a><a href="#Footnote_316_316" class="fnanchor">[316]</a> and in still
+another we find the cheery comment: “Matters do not look
+well in Washington, but I think we shall not be much hurt,
+although the boys are very hungry and it will cost considerably
+to be saved.”<a name="FNanchor_317_317" id="FNanchor_317_317"></a><a href="#Footnote_317_317" class="fnanchor">[317]</a></p>
+
+<p>In November, 1877, Huntington wrote Colton:</p>
+
+<p class="pbq p1">You have no idea how I am annoyed by this Washington
+business, and I must and will give it up after this session. If
+we are not hurt this session it will be because we pay much<span class="pagenum"><a name="Page_212" id="Page_212">[212]</a></span>
+money to prevent it, and you know how hard it is to get it to
+pay for such purposes; and I do not see my way clear to get
+through here and pay the January interest with other bills
+payable to January 1st, with less than $2,000,000, and possibly
+not for that.... I think Congress will try very hard to pass
+some kind of a bill to make us commence paying on what we
+owe the Government. I am striving very hard to get a bill in
+such a shape that we can accept it, as this Washington business
+will kill me yet if I have to continue the fight from year to
+year, and then every year the fight grows more and more expensive;
+and rather than let it continue as it is from year to year, as
+it is, I would rather they take the road and be done with it.<a name="FNanchor_318_318" id="FNanchor_318_318"></a><a href="#Footnote_318_318" class="fnanchor">[318]</a></p>
+
+<p class="p1">In one case where the salary to be paid a certain individual
+was under consideration, Huntington wrote Colton frankly
+that it was important that the man’s friends in Washington
+should be on the railroad’s side, and that if this could be
+brought about a salary of $10,000 to $20,000 a year would be
+worth while. Huntington wanted the man to make a proposition
+in writing, however, that he would control his friends for
+a fixed sum.<a name="FNanchor_319_319" id="FNanchor_319_319"></a><a href="#Footnote_319_319" class="fnanchor">[319]</a> When asked about the meaning of his correspondence,
+Huntington denied that these expressions had
+any vicious significance. He said he kept on high ground,<a name="FNanchor_320_320" id="FNanchor_320_320"></a><a href="#Footnote_320_320" class="fnanchor">[320]</a>
+and even objected to the free use of liquor and cigars.<a name="FNanchor_321_321" id="FNanchor_321_321"></a><a href="#Footnote_321_321" class="fnanchor">[321]</a> Specifically,
+he gave instructions to his people never to use money
+in any immoral or illegal sense. “Buying votes in a legislature
+was bad policy,” said he, and his position in these matters received
+the formal support of Stanford. But such assertions are
+entitled to less weight than Huntington’s less guarded phrases.</p>
+
+<p class="pnb">Heavy General and Legal Expenses</p>
+
+<p>There is no question that the control exercised by the
+Central Pacific management over the legal and miscellaneous<span class="pagenum"><a name="Page_213" id="Page_213">[213]</a></span>
+expenses of the company was informal to the last degree.
+Huntington had a great deal of money to spend and he turned
+it over to trusted agents without too many questions. He
+would pay $5,000 or $10,000 at a time to General Franchot,
+for instance, without inquiring where it went or how it was
+paid.<a name="FNanchor_322_322" id="FNanchor_322_322"></a><a href="#Footnote_322_322" class="fnanchor">[322]</a> Checks were made out in all cases to I. E. Gates, Mr.
+Huntington’s assistant in New York, and were indorsed by
+him either to payee or in blank.<a name="FNanchor_323_323" id="FNanchor_323_323"></a><a href="#Footnote_323_323" class="fnanchor">[323]</a> Vouchers covering such
+items were made out simply to “Expense,” or to “Legal
+expense.”<a name="FNanchor_324_324" id="FNanchor_324_324"></a><a href="#Footnote_324_324" class="fnanchor">[324]</a> In many cases expenditures authorized by Stanford,
+Crocker, or Huntington were represented by no vouchers
+at all,<a name="FNanchor_325_325" id="FNanchor_325_325"></a><a href="#Footnote_325_325" class="fnanchor">[325]</a> the filing of vouchers being subsequently waived at
+stockholders’ meetings.</p>
+
+<p>All in all, the general and legal expenses of the Central
+Pacific between the years 1875 and 1885 averaged over $500,000
+annually. The only reply to the government inquiry as
+to what this money had been paid out for was Stanford’s statement
+already quoted that vouchers to which there were objections
+would not be included in any settlement with the United
+States, but that the moneys would be treated as still in the
+treasury.<a name="FNanchor_326_326" id="FNanchor_326_326"></a><a href="#Footnote_326_326" class="fnanchor">[326]</a> This was plainly an evasion of the point at issue.</p>
+
+<p class="pnb">Company in Politics</p>
+
+<p>Still another question is how far the headquarters of the
+Central Pacific in the various capitals were used as agencies
+for the election of legislators and other persons who owed
+their position to railroad influence. It is the unhesitating
+popular judgment that the railroad at an early date “entered
+politics.” In a long letter dated August 26, 1873, Eugene
+Casserly asserted that the Central Pacific aimed to be and was<span class="pagenum"><a name="Page_214" id="Page_214">[214]</a></span>
+a third party in the politics of the state, holding the balance of
+power between the Democratic and the Republican parties, and
+controlling or seeking to control at will each or both of them.
+“This third party,” continued Mr. Casserly, “has the usual
+attributes of a political party, the same apparatus and appliances.
+It has its leaders, its managers, its editors, its orators,
+its adherents. It selects these from both parties, but mostly
+from the party in the majority. Whether they call themselves
+Republicans or Democrats, and however they divide or contend
+on party issues, they move as one man in the cause of the
+railroad against the people. To that cause they give their
+first allegiance.”</p>
+
+<p class="pnb">Bassett Polemic</p>
+
+<p>This statement of Mr. Casserly calls to mind another
+charge or series of charges made by a man named J. M.
+Bassett in the years following 1892. Mr. Bassett was one of
+the early pioneers. He came to California in 1851, and was
+at various times miner, printer, newspaper man, railroad
+employee, and member of the Oakland city council. At one
+time he was Leland Stanford’s secretary. After Mr. Stanford
+had been forced out of the presidency of the Southern Pacific,
+Bassett began to publish a series of open letters to Collis P.
+Huntington, and continued them weekly, with occasional intervals,
+for several years. The sustained vivacity and pungency
+of this polemic, and the systematic virulence with which
+Bassett reviewed and criticized the Huntington policies make
+the series a noteworthy journalistic achievement. Mr. Bassett
+denounced Mr. Huntington for the overcapitalization of the
+Southern Pacific system, for its failure to pay taxes, for its
+carelessness of the lives of its employees and of the public, for
+its attempt to evade repayment of the debt which it owed to
+the United States government, and for the general mismanagement
+which, he asserted, had taken place under Huntington’s<span class="pagenum"><a name="Page_215" id="Page_215">[215]</a></span>
+control. With respect to the interference of the
+Southern Pacific in politics, Bassett wrote to Huntington in
+1895:</p>
+
+<p class="pbq p1">What chief executive of the State, before the present incumbent,
+has there been who did not owe his nomination and
+election to the Southern Pacific Company and in acknowledgment
+of his debt hasten to obey its slightest command? Has
+there ever been a Board of Railroad Commissioners before
+last November in which you did not own at least two members?
+Have you not named every Harbor Commissioner appointed
+during the past twelve years?</p>
+
+<p class="pbq">Have you not hitherto chosen San Francisco’s Police Commissions
+and do you not now exercise a dictatorial power over
+the city’s police, especially the Harbor Police? Were not the
+Judges of the two United States Courts in San Francisco
+appointed at the instance of Leland Stanford? How many
+Superior Courts are there in the State in which a citizen may
+bring an action against you in full confidence that he will be
+fairly and impartially dealt with? Doubtless there are such
+but the difficulty is to find them. Before the recent elections
+how long did you control the government of San Francisco?
+Have you not dictated the government of Oakland for the past
+twenty-five years? Until last election had you not continuous
+control of Alameda County’s government?...<a name="FNanchor_327_327" id="FNanchor_327_327"></a><a href="#Footnote_327_327" class="fnanchor">[327]</a></p>
+
+<p class="p1">When one desires to test the accuracy of accusations like
+those of Casserly and of Bassett, one has first to remember
+that they are in accord with the substantially uncontradicted
+declarations of men of all degrees of prominence in California
+over a period of fifty years. Political campaigns have been
+waged on the question of the railroad versus the people. Not
+only newspapers like the <i>Sacramento Union</i> and the <i>San<span class="pagenum"><a name="Page_216" id="Page_216">[216]</a></span>
+Francisco Examiner</i>, but men like John T. Doyle, at one time
+state railroad commissioner, General Howard, a leading
+member of the Constitutional Convention of 1879, and H. H.
+Haight, at one time governor of the state of California, have
+asserted that railroad influence was a real and important factor
+in the politics of California. While neither a corporation nor
+an individual can properly be convicted on the strength of
+current report, the presence of so much smoke, over so long a
+period, is fair evidence of some fire.</p>
+
+<p class="pnb">Documentary Evidence</p>
+
+<p>Direct testimony relating to the political activity of the
+Huntington group comes from Mr. Huntington himself in two
+ways. In the first place there have been published certain
+letters which passed between Huntington and his associate,
+Mr. Colton, in the years 1875 to 1878. These documents have
+been referred to in other connections. They came out in the
+course of court proceedings, and have the weight of confidential
+communications, not intended for publication. Extracts from
+these letters will presently be given. Besides this, certain statements
+were given by Huntington to the press in 1890 which
+bear directly upon the point at issue. These statements were
+intended to discredit Stanford, but in the course of the heated
+controversy to which they gave rise they were not denied by
+Stanford nor withdrawn by their author.</p>
+
+<p>On May 1, 1875, Huntington wrote Colton:</p>
+
+<p class="pbq p1">I noticed what you say of Piper; he is a wild hog; don’t let
+him come back to Washington, but as the house is to be largely
+Democratic, and if he was to be defeated, likely it would be
+charged to us, hence, I should think it would be well to beat
+him with a Democrat; but I would defeat him anyway, and
+if he got the nomination put up another Democrat and run
+against him, and in that way elect a Republican. Beat him.<a name="FNanchor_328_328" id="FNanchor_328_328"></a><a href="#Footnote_328_328" class="fnanchor">[328]</a></p>
+
+<p><span class="pagenum"><a name="Page_217" id="Page_217">[217]</a></span></p>
+
+<p class="pn1">Asked to whom the letter referred, Huntington later said that
+if he remembered the person, and he thought he did, he was a
+man whose views ran contrary to all human interests.<a name="FNanchor_329_329" id="FNanchor_329_329"></a><a href="#Footnote_329_329" class="fnanchor">[329]</a></p>
+
+<p>A letter in June, 1876, reads as follows:</p>
+
+<p class="pbq p1">I hope ... will be sent back to Congress. I think it would
+be a misfortune if he was not.... has not always been right,
+but he is a good fellow and is growing every day.... is
+always right, and it would be a misfortune to Cal. not to have
+him in Congress. Piper is a damned hog, and should not
+come back. It is shame enough for a great commercial
+city like San Francisco to send a scavenger like him to Congress
+once....<a name="FNanchor_330_330" id="FNanchor_330_330"></a><a href="#Footnote_330_330" class="fnanchor">[330]</a></p>
+
+<p class="pn1">Again, in November, 1876, Huntington wrote Colton:</p>
+
+<p class="pbq p1">I hope ... is elected and ... defeated, as it was generally
+understood here that our hand was over one and under the
+other....<a name="FNanchor_331_331" id="FNanchor_331_331"></a><a href="#Footnote_331_331" class="fnanchor">[331]</a></p>
+
+<p class="pn1">A still later letter relates to the pending election of a senator
+from California. Huntington said:</p>
+
+<p class="pbq p1">We should be very careful to get a U. S. Senator from
+Cal. that will be disposed to use us fairly, and then have the
+power to help us ..., I think, will be friendly, and there is
+no man in the Senate that can push a measure further than he
+can.<a name="FNanchor_332_332" id="FNanchor_332_332"></a><a href="#Footnote_332_332" class="fnanchor">[332]</a></p>
+
+<p class="pnb">Controversy between Associates</p>
+
+<p>The correspondence which has just been cited is not offered
+in order to discredit Mr. Huntington, or for any reason except
+to show that it was Huntington’s belief in the years 1875,
+1876, and 1877 that the influence of the Central Pacific should<span class="pagenum"><a name="Page_218" id="Page_218">[218]</a></span>
+be used to advance the political interests of persons favorably
+inclined toward his railroad system and to discourage those in
+opposition. The personal controversy which took place
+between Stanford and Huntington in 1890 brought out some
+additional evidence of the same sort. This dispute arose
+ostensibly because of the election of Stanford in 1883-84 as
+senator from California in place of A. A. Sargent, one of
+Huntington’s friends. In reality it was probably only the
+final outcome of a growing tension between the two men, due
+to dissatisfaction on Huntington’s part with the small amount
+of time which Stanford devoted to railroad affairs, and
+perhaps to jealousy of the prominence which Stanford enjoyed
+in public estimation.<a name="FNanchor_333_333" id="FNanchor_333_333"></a><a href="#Footnote_333_333" class="fnanchor">[333]</a></p>
+
+<p>However this may be, Stanford resigned the presidency of
+the Southern Pacific Company at the annual meeting of the
+stockholders on April 9, 1890, and Huntington was elected in
+his place. In his address to the board of directors of the
+company, Huntington used the following words:</p>
+
+<p class="pbq p1">Gentlemen, for the honor that you have done me in electing
+me President of the Southern Pacific Company ... I promise
+you that I will be as true to the interest of the company in the
+future as I have been in the past. I can promise you nothing
+more, for at all times my personal interest has been second to
+that of the company. It shall be so in the future, and in no case
+will I use this great corporation to advance my personal ambition
+at the expense of its owners, or put my hands into the
+treasury to defeat the people’s choice, and thereby put myself
+into positions that should be filled by others; but to the best
+of my ability will I work for the interest of the shareholders
+of the company and the people, whom it should serve.<a name="FNanchor_334_334" id="FNanchor_334_334"></a><a href="#Footnote_334_334" class="fnanchor">[334]</a></p>
+
+<p><span class="pagenum"><a name="Page_219" id="Page_219">[219]</a></span></p>
+
+<p class="p1">This statement attracted attention, and Huntingdon was
+asked to explain. In an interview with a reporter of the <i>San
+Francisco Examiner</i> he said further:</p>
+
+<div class="pbq">
+<p class="p1">From this time on we are going to follow one business. We
+are railroad men and intend to conduct a legitimate railroad
+business. To do that successfully politics must be let alone....
+If a man wants to make a business of politics, all well and good;
+if he wants to manage a railroad, all well and good; but he
+can’t do both at the same time.</p>
+
+<p>I have seen the ante-rooms down here in this building full
+of men trying to learn or get something out of politics. Why
+should they come here? This is no place for them. But then
+they were not to blame. The tip went forth that political work
+was being done at Fourth and Townsend streets, and they
+merely followed the tip. Well, there won’t be any more tips
+sent out of these railroad offices. Politics have worked enough
+demoralization in our company already, and they have gone out
+of the door never to return....</p>
+
+<p>Things have got to such a state, that if a man wants to
+be a constable he thinks he has first got to come down to Fourth
+and Townsend streets to get permission. Hereafter people
+who come to Fourth and Townsend streets must have railroad
+business to transact. The Southern Pacific Company is out
+of politics, and will attend to its business like any other private
+company or individual should do.<a name="FNanchor_335_335" id="FNanchor_335_335"></a><a href="#Footnote_335_335" class="fnanchor">[335]</a></p></div>
+
+<p class="p1">Such statements naturally led to an open breach between
+Huntingdon and Stanford.<a name="FNanchor_336_336" id="FNanchor_336_336"></a><a href="#Footnote_336_336" class="fnanchor">[336]</a></p>
+
+<p>The point at issue was not, however, whether it was proper
+for the Southern Pacific to defend itself against political
+attack. On this there is every reason to suppose that all
+parties were agreed. It was rather whether the company
+should be used as an instrument to advance the personal
+interests of individuals. In the same connection the question
+arose whether railroad men should act together in political
+matters not connected with railroad affairs. Huntington, who<span class="pagenum"><a name="Page_220" id="Page_220">[220]</a></span>
+had little interest in general politics, thought they should not.
+It is probable enough that Stanford or some of his subordinates
+had, on the other hand, used their influence as railroad
+men for personal and party ends.</p>
+
+<p class="pnb">Unscrupulousness of Associates</p>
+
+<p>One rises from the study of the political activities of the
+owners of the Central Pacific with a feeling of indignation
+at the selfishness of these men, their indifference to all save
+considerations of private gain, and their readiness to use any
+and all methods which would advance their financial interests.
+The associates met the proposal of government regulation as a
+threat to rob them of their property and resisted it as they
+would have opposed any other attack. They never conceded
+that any question of public interest was involved which it was
+necessary for them to respect. They frankly defended the use
+of money as a method of persuading men to do what was
+right—which inevitably meant, of course, what in their judgment
+was right. They fell out among themselves, not because
+any one of them questioned the philosophy which
+inspired their opposition to public control, but because one of
+them was suspected of using power, developed in the course
+of the defense of railroad interests, to advance personal ambitions
+which ran counter to the views of his associates.
+These things should be plainly stated and their force clearly
+understood.</p>
+
+<p>It is the writer’s opinion, however, that the amount of
+money spent by the Central Pacific in the purchase of legislative
+or other votes has probably been overestimated in the public
+mind. Direct bribery is a clumsy weapon and one difficult to
+conceal if practiced on any considerable scale. It was probably
+also unnecessary to a corporation such as the Central Pacific
+with other favors to bestow. Members of Congress might,
+indeed, be employed by the railroad when legislation was pending.<span class="pagenum"><a name="Page_221" id="Page_221">[221]</a></span>
+Huntington maintained that this was legitimate,<a name="FNanchor_337_337" id="FNanchor_337_337"></a><a href="#Footnote_337_337" class="fnanchor">[337]</a> and
+Gage once admitted that the company had to employ everybody
+who could pull a pound. The practice was more easily defensible
+than bribery, and could be applied to a better class of men.
+Other men might be reached through patronage, still others
+through discrimination in rates or through preferences. The
+suggestion that unfavorable legislation would hinder construction
+was potent with legislators from districts which still
+lacked rail connection. Yet Huntington once said of a man who
+was opposing him and whom he thought he could bribe, that
+his better judgment told him the associates could not afford to
+take the scamp into camp,<a name="FNanchor_338_338" id="FNanchor_338_338"></a><a href="#Footnote_338_338" class="fnanchor">[338]</a> and this probably represented the
+situation at most times. Whether this worked for the eventual
+salvation of the Huntington group, is for the moralist to say.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_222" id="Page_222">[222]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XIII</h2>
+
+<p class="pch">WATER COMPETITION</p>
+
+<p class="pnb">Rate Policy</p>
+
+<p>We may now pass from the question of the relation of the
+Central Pacific-Southern Pacific system to legislative bodies
+in California and in Washington, to another matter of general
+importance in respect to which Southern Pacific policies profoundly
+affected the development of the West—the matter of
+railroad rates. Just as the associates were compelled to face
+the possibility of government regulation soon after they were
+fairly launched in their careers as railroad men, so they had to
+consider and determine the rate policies which they should
+adopt, independent of regulation, with respect to the shipping
+and traveling interests of the territory which they served.
+Their decisions in rate matters were certainly of no less significance
+than their attitude toward political control, and deserve
+the same broad consideration.</p>
+
+<p>We shall attempt in the following chapters to describe the
+conditions which affected the ability of the associates to set
+rates in California and on business to and from that state, and
+to consider the attitude of the Southern Pacific with regard to
+the more important questions of rates and of competition which
+arose. For reasons which will become apparent as the discussion
+proceeds, the scope and importance of water competition
+in the West will first be set forth.</p>
+
+<p class="pnb">Water Transportation</p>
+
+<p>One of the most important conditions affecting railroad
+business in California is the ease with which freight and
+passengers may take advantage of the water routes. The long<span class="pagenum"><a name="Page_223" id="Page_223">[223]</a></span>
+coast line of California affords relatively few good harbors, but
+it is broken in the center by the splendid bay of San Francisco,
+and in the south by the less commodious but still adequate
+ports of San Pedro and San Diego. Between these termini a
+considerable commerce has long been carried on.</p>
+
+<p>Still more important than the coastwise trade, however,
+has always been the deep sea commerce of San Francisco, and
+to a less extent that of the other ports. San Francisco is a
+focus for ocean lines connecting the Pacific Coast of the United
+States with the Atlantic seaboard, with Europe, with South
+America, and with the Orient. Likewise from San Francisco
+steamers ply up the Sacramento and San Joaquin rivers, carrying
+traffic well into the interior of the state. A mere mention
+of these facilities is sufficient to suggest the part which water
+transportation has played in the commercial and industrial life
+of the Far West.</p>
+
+<p class="pnb">River Traffic</p>
+
+<p>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 <span class="smcap">P.M.</span>, arriving between 12 and 3 <span class="smcap">A.M.</span> of the
+following morning. Corresponding boats left Sacramento at
+2 <span class="smcap">P.M.</span>, arriving between 9 and 11 <span class="smcap">P.M.</span> Often as many as four
+boats left San Francisco loaded in one day.<a name="FNanchor_339_339" id="FNanchor_339_339"></a><a href="#Footnote_339_339" class="fnanchor">[339]</a></p>
+
+<p>The total tonnage of steam vessels plying on California
+rivers and bays was estimated by the State Transportation<span class="pagenum"><a name="Page_224" id="Page_224">[224]</a></span>
+Commission in 1878 at 30,704. The bay vessels were all ferry-boats
+and tugs, but river vessels with a total tonnage of 10,990
+tons made trips of considerable length. Most of these were
+small craft, but the larger river steamers ranged between 400
+and 520 tons each, while the ferry-boats sometimes reached a
+size of 1,600 or 1,700 tons. Vallejo, Benicia, Napa, Knight’s
+Landing, Colusa, Chico, Red Bluff, Antioch, and Pacheco were
+among those able to take advantage of the water service.<a name="FNanchor_340_340" id="FNanchor_340_340"></a><a href="#Footnote_340_340" class="fnanchor">[340]</a></p>
+
+<p>Generally speaking, the importance of the river traffic was
+diminished by the fact that after 1853 most of it fell under
+the control of one company, the California Steam Navigation
+Company,<a name="FNanchor_341_341" id="FNanchor_341_341"></a><a href="#Footnote_341_341" class="fnanchor">[341]</a> and that in 1869 this company sold its steamships
+to the Central Pacific. The volume of river traffic also fell
+off because of railroad competition. In spite of these drawbacks
+competition on the river was lively at times and rates
+were low, to the disgust of some merchants in the interior
+cities. The California Steam Navigation Company charged
+$8 and $6 per ton for freight, and $10 and $8 for cabin fares
+from San Francisco to Sacramento and Stockton. Meals were
+a dollar apiece. These were, however, the rates in the absence
+of competition. When the steamer “Willamette” was brought
+from Oregon to Stockton, rates were fixed at $3 for freight,
+$3 for cabin fare, and $1 for deck passage. In December,
+1860, the fare from Sacramento was $1 in a cabin and 25
+cents for deck accommodation. People traveled because it was
+as cheap to go as to remain at home.<a name="FNanchor_342_342" id="FNanchor_342_342"></a><a href="#Footnote_342_342" class="fnanchor">[342]</a></p>
+
+<p class="pnb">Ocean Commerce</p>
+
+<p>The first regular water connection between the eastern and
+western coasts of the United States was provided by the clipper<span class="pagenum"><a name="Page_225" id="Page_225">[225]</a></span>
+ships on the route around Cape Horn. These swift sailing
+vessels supplied the gold miners with the tools and manufactured
+goods necessary for their enterprises, and took back
+such commodities as California was able to export. Oil, soap,
+cement, coal, iron, nails, paper, glass, tobacco, liquors, dry
+goods, and the like moved west—hides, wool, canned fruits,
+salmon, sugar, wine, and grain went east. The business was
+for the most part handled by ships chartered for single voyages,
+not by lines of ships operating on regular schedules.<a name="FNanchor_343_343" id="FNanchor_343_343"></a><a href="#Footnote_343_343" class="fnanchor">[343]</a></p>
+
+<p>As early as October, 1848, however, at least one regular
+line, the Pacific Mail Steamship Company, entered the field.
+The establishment of the Pacific Mail service was made possible
+by the grant of a government contract for the carriage of
+mails—its profits during the early years were largely derived
+from business arising out of the gold discoveries in California.
+The business of the Pacific Mail grew rapidly. In 1851 it
+operated eleven steamers varying in size from 600 to 1,300
+tons, and had a capital stock of $2,000,000. Thirty years later
+it operated fourteen ships, large and small,<a name="FNanchor_344_344" id="FNanchor_344_344"></a><a href="#Footnote_344_344" class="fnanchor">[344]</a> reported gross
+earnings of $3,762,083 (1882) and had $20,000,000 in stock
+outstanding. At first the Pacific Mail operated steamships
+between Panama and San Francisco. Later it extended its
+service to Astoria; and still later it established a line across<span class="pagenum"><a name="Page_226" id="Page_226">[226]</a></span>
+the Pacific to China and Australia. Among its competitors
+by sea at one time or another, besides the clipper ships, were
+Mr. Vanderbilt’s Atlantic and Pacific Company, the Mexican
+Coast Steamship Company, and Messrs. Goodall and Perkins.
+At one time Jay Gould, at another Trenor W. Park, of the
+Panama Railroad, were dominant in its affairs.</p>
+
+<p class="pnb">Problem of Water Competition</p>
+
+<p>There is much of romance in the history of ocean transportation
+into and out of San Francisco, and in its proper
+place the story should be told at length. Some aspects of the
+water service, indeed, will be touched on later in this book.
+Attention is directed to the matter at present, however, not for
+its own sake, but because the fact of water competition raised
+one of the problems with which the Southern Pacific had to
+deal. It seems clear that the associates were compelled to
+define their attitude toward water competition as soon as their
+through line was completed in 1869.</p>
+
+<p>Broadly speaking, the alternatives were competition or
+agreement. In respect to the Pacific Mail, however, the situation
+was complicated by the fact that the relations between the
+railroads and the shipping lines were of two sorts: In the first
+place, the Pacific Mail served as a valuable connection for the
+transcontinental railroads on business originating in or destined
+to China and Japan. Tea and silk eastbound were usually
+delivered by the steamships to the rail lines at San Francisco.
+Westbound the higher classes of manufactured goods likewise
+moved part way by rail and part way by water haul. During
+the ten years ending in February, 1881, the Pacific roads
+carried 177,278,505 pounds of tea and other Asiatic goods,
+secured to them by the co-operation of the Pacific Mail Steamship
+Company, resulting in earnings of $3,264,456.44.<a name="FNanchor_345_345" id="FNanchor_345_345"></a><a href="#Footnote_345_345" class="fnanchor">[345]</a> On<span class="pagenum"><a name="Page_227" id="Page_227">[227]</a></span>
+the other hand, the rail and water lines were competitors in
+important respects.</p>
+
+<p class="pnb">Steamship Company Organized</p>
+
+<p>In 1874 the Huntington interests organized the Occidental
+and Oriental Steamship Company and chartered three steamships
+to ply between San Francisco and the Far East. This
+was said to be the result of a decision of the Pacific Mail to
+make Panama the terminus of its transpacific route, relegating
+San Francisco to the secondary position of a port of call.<a name="FNanchor_346_346" id="FNanchor_346_346"></a><a href="#Footnote_346_346" class="fnanchor">[346]</a></p>
+
+<p>Huntington wrote to Colton, on November 9, 1874:</p>
+
+<p class="pbq p1">I am surprised to learn that anyone should think it
+was for our interest to put on the China line seven steamers to
+start with. I think three is plenty, and we shall, no doubt,
+have such an opposition on the start that we shall have to run
+them at a loss, but with those three we can make the prices
+for the old line, and I think there is enough to break them with,
+unless the managers of that company are changed, and then
+we most likely can get their steamers.<a name="FNanchor_347_347" id="FNanchor_347_347"></a><a href="#Footnote_347_347" class="fnanchor">[347]</a></p>
+
+<p class="p1">Huntington intended to develop the Occidental and Oriental
+Steamship Company as a permanent connection of the Central
+Pacific for Oriental business in competition with the Pacific
+Mail. At the time his decision was made he discussed with his
+associates the advisability of asking enough eastern lines to
+join with the Central Pacific to form a single transcontinental
+route from the Pacific to the Atlantic coasts for export and
+import traffic, but decided against this project because it would
+make enemies of the railroads which were not included, and
+because also the admission of partners would make it impossible
+for the Central Pacific to control by itself a majority of the
+shares of the Occidental and Oriental Company. Huntington’s
+letter to Colton on this matter is a model of sound reasoning
+on a large question of policy:</p>
+
+<p><span class="pagenum"><a name="Page_228" id="Page_228">[228]</a></span></p>
+
+<p class="pbq p1">I think very likely we could make out a through line. Very
+likely the Baltimore and Ohio would come in, and make up a
+line that would run to Omaha or Fort Kearney, passing through
+St. Louis and Chicago. But if this was done, very likely it
+would be difficult for us to control the steamship Company,
+and if we make up this line, leaving out the roads above mentioned,
+of course they would not expect any of the China business
+coming over our road, and then would they not be likely
+to work against us by allowing the Pacific Mail Steamship
+Company and any other companies to give bills of lading from
+China and Japan to Chicago, St. Louis, etc., over their roads,
+and to bring freight from those points to the sea coast here,
+to go by steamer and sail to California?... We cannot be too
+careful in starting this steamship line, for it is one of the things
+that if we go into, I have little doubt we shall hold it for years,
+and therefore the more reason why we should hold a majority
+of the stock of the company, as almost every road here is controlled
+by those that are always short or long of stock and endeavor
+to render everything bend to their particular wants.
+If short, they want to put the stock down, and if long they
+work for the reverse and we cannot afford to be in their
+power.<a name="FNanchor_348_348" id="FNanchor_348_348"></a><a href="#Footnote_348_348" class="fnanchor">[348]</a></p>
+
+<p class="pnb">Ownership of Shares</p>
+
+<p>Doubtless for financial reasons the policy here laid down
+was departed from sufficiently to allow the Union Pacific a
+half-interest in the new company. For their part, Stanford,
+Huntington, Hopkins, Crocker and Colton subscribed each
+to 10,000 shares of the stock of the Occidental and Oriental
+Steamship Company. The account was charged to the Western
+Development Company and was held by that company as an
+asset. The remaining 50,000 shares were owned by the Union
+Pacific, and Mr. Gould shared with the associates the management
+of the enterprise.<a name="FNanchor_349_349" id="FNanchor_349_349"></a><a href="#Footnote_349_349" class="fnanchor">[349]</a> It may be added that the Occidental
+and Oriental owned no steamers, but chartered the “Oceanic,”
+the “Belgic,” and the “Gaelic.” The “Oceanic” was a boat of<span class="pagenum"><a name="Page_229" id="Page_229">[229]</a></span>
+3,800 tons; the other ships were of 2,600 tons each.<a name="FNanchor_350_350" id="FNanchor_350_350"></a><a href="#Footnote_350_350" class="fnanchor">[350]</a> The
+first dividend was declared in July, 1878, and by 1881 the rate
+had been raised to 4 per cent. Mr. Stanford has testified that
+the company expected to lose $100,000 a year, but that its
+owners were pleasantly disappointed.<a name="FNanchor_351_351" id="FNanchor_351_351"></a><a href="#Footnote_351_351" class="fnanchor">[351]</a></p>
+
+<p class="pnb">Agreement with Pacific Mail</p>
+
+<p>There is evidence that as early as 1870 some agreement
+was entered into between the Huntington interests and the
+Pacific Mail Steamship Company, and that in 1871 a formal
+contract was concluded by these companies, defining their
+relation to each other. The terms of the contract of 1871 are
+not available, but a subsequent agreement, dated October 1,
+1872, contained the following principal provisions:</p>
+
+<p>The Pacific Mail Steamship Company agreed to provide
+every month three first-class steamers to sail from the port of
+New York for the Isthmus of Panama, with connecting
+steamers on the Pacific Ocean for the port of San Francisco.
+The company undertook to supply space in these steamers for
+an amount of freight not exceeding 14,700 tons annually.</p>
+
+<p>The steamship company accorded to the railroad company
+the exclusive right to fix the rates on freight of every description,
+moving from New York to San Francisco during the
+period of the agreement, provided that the rates should not
+exceed the rates then in force, nor in any event $160 first-class,
+$140 second-class, $90 third-class, and $60 fourth-class and
+special.</p>
+
+<p>Out of the gross receipts on the freight westbound the
+steamship company was first to draw $735,000, or at the rate
+of $50 per ton on 14,700 tons. If the amount of the freight
+handled should not equal 14,700 tons, or if that quantity of
+freight should be handled but the receipts therefrom should<span class="pagenum"><a name="Page_230" id="Page_230">[230]</a></span>
+not amount to $50 per ton, the railroad agreed to make up the
+difference, so that the receipts on the first 14,700 tons should
+always amount to $735,000. If, on the other hand, the steamship
+should collect thereon an average rate exceeding $50, the
+railroad was to be entitled to the surplus.</p>
+
+<p>In the event that through westbound freight exceeded in
+volume 14,700 tons, the gross earnings on the excess quantity
+were to be divided between steamship company and railroad
+company as follows: first, $30 per ton was to be taken by the
+steamship company; additional receipts up to $50 a ton were to
+be divided equally between steamship and railroad; and earnings
+over $50 were to go to the railroad.<a name="FNanchor_352_352" id="FNanchor_352_352"></a><a href="#Footnote_352_352" class="fnanchor">[352]</a></p>
+
+<p>The essential facts in this agreement were that the steamship
+company surrendered the power of fixing the westbound
+rates in return for a guarantee of $735,000 a year.</p>
+
+<p class="pnb">Later Contracts</p>
+
+<p>This feature was also characteristic of later agreements
+between the same parties, different as the details of the subsequent
+arrangements sometimes were. In 1879 the Union
+Pacific, Central Pacific, and Pacific Mail companies agreed that
+the last-named should set aside space for 600 tons of railroad
+freight in each of its steamers moving monthly between New
+York and San Francisco. The railroads were to exercise full
+authority over the through rates of the steamship company, and
+for their part were to guarantee that the earnings on the railroad
+freight shipped were not to be less than $48,000 monthly
+westbound, and $35,000 monthly eastbound. In case the earnings
+on the 600 tons or less of railroad freight which might
+be sent in each vessel exceeded the guaranteed minimum, the
+balance of freight money was to be paid over to the railroad,
+while the moneys received on all freight between New York
+and San Francisco and between San Francisco and New York<span class="pagenum"><a name="Page_231" id="Page_231">[231]</a></span>
+in excess of 600 tons for each vessel were to be equally divided
+between the railroad and the steamship company.<a name="FNanchor_353_353" id="FNanchor_353_353"></a><a href="#Footnote_353_353" class="fnanchor">[353]</a> An additional
+clause in this agreement bound the railroads to pay to
+the steamship company $5 for each passenger carried whose
+ticket was purchased at a point east of Ogdensburg, Suspension
+Bridge, Buffalo, Pittsburgh, and Wheeling, to a point west of
+Sacramento, and vice versa.</p>
+
+<p>An agreement dated June 1, 1885, between the Transcontinental
+Association and the Pacific Mail does not differ strikingly
+from that of 1879 just summarized, except that the
+payments per month were to be $85,000 for a two-way service,
+instead of $83,000, and that there was no passenger subsidy.
+Moreover, the right of the steamship company to fix rates for
+the use of its capacity above the 600 tons mentioned in the
+agreement was specifically reserved. The $85,000 payment in
+this year represented a reduction from the figure of $110,000
+contained in a contract dated March 4, 1880, and from one of
+$95,000 concluded in 1882. In 1887 the subsidy was set at
+$65,000, and in 1889, when still another arrangement between
+the Transcontinental Association and the Pacific Mail was
+signed, it was put at $75,000.<a name="FNanchor_354_354" id="FNanchor_354_354"></a><a href="#Footnote_354_354" class="fnanchor">[354]</a></p>
+
+<p>From a statement made to the United States Pacific Railway
+Commission, it appears that the aggregate earnings guaranteed
+by the railroads to the Pacific Mail Steamship Company from
+September 30, 1871, to March 21, 1886, were $11,227,939.27.
+This did not include Central or South American business. Of
+the guaranteed sum the steamship company earned $5,854,113.06,
+leaving $5,373,826.21 to be made up by the guarantors.
+The distribution of the burden among the railroads interested
+may be suggested by the fact that out of $146,170.29 which
+had to be paid during the three months from January to March,<span class="pagenum"><a name="Page_232" id="Page_232">[232]</a></span>
+1886, the Union Pacific paid $34,652.94, the Central Pacific
+$31,927.57, the Southern Pacific $30,172.79, the Santa Fé
+$15,086.11, the Galveston, Harrisburg and San Antonio
+$11,536.82, and seven other companies smaller sums.<a name="FNanchor_355_355" id="FNanchor_355_355"></a><a href="#Footnote_355_355" class="fnanchor">[355]</a></p>
+
+<p class="pnb">Change in Ocean Traffic</p>
+
+<p>The change which took place in the volume of water-borne
+commerce in and out of San Francisco coincident with the
+arrangements between the railroads and the Pacific Mail which
+have been described, is clearly indicated in the following
+table:<a name="FNanchor_356_356" id="FNanchor_356_356"></a><a href="#Footnote_356_356" class="fnanchor">[356]</a></p>
+
+<p class="pc1"><span class="smcap">Value of Commodities Shipped from New York to San
+Francisco and from San Francisco to New York
+via Panama each year from 1869 to 1884</span></p>
+
+<table id="t06" summary="t06">
+
+ <tr>
+ <td class="tdcl">Year ended<br />June 30</td>
+ <td class="tdcl">Shipped from New<br />York to San<br />Francisco</td>
+ <td class="tdcl">Shipped from San<br />Francisco to New<br />York</td>
+ <td class="tdcl">Total</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1869</td>
+ <td class="tdri">$50,015,994</td>
+ <td class="tdri">$20,186,035</td>
+ <td class="tdri">$70,202,029</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1870</td>
+ <td class="tdri">15,334,945</td>
+ <td class="tdri">3,259,310</td>
+ <td class="tdri">18,594,255</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1871</td>
+ <td class="tdri">9,391,607</td>
+ <td class="tdri">2,161,106</td>
+ <td class="tdri">11,552,713</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1872</td>
+ <td class="tdri">6,739,563</td>
+ <td class="tdri">3,086,874</td>
+ <td class="tdri">9,826,437</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1873</td>
+ <td class="tdri">3,042,617</td>
+ <td class="tdri">3,667,107</td>
+ <td class="tdri">6,709,724</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1874</td>
+ <td class="tdri">7,049,821</td>
+ <td class="tdri">1,752,653</td>
+ <td class="tdri">8,802,474</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1875</td>
+ <td class="tdri">6,057,202</td>
+ <td class="tdri">2,382,928</td>
+ <td class="tdri">8,440,130</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1876</td>
+ <td class="tdri">4,470,594</td>
+ <td class="tdri">1,983,261</td>
+ <td class="tdri">6,453,855</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1877</td>
+ <td class="tdri">3,398,864</td>
+ <td class="tdri">2,205,979</td>
+ <td class="tdri">5,604,843</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1878</td>
+ <td class="tdri">3,976,358</td>
+ <td class="tdri">3,211,245</td>
+ <td class="tdri">7,187,603</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1879</td>
+ <td class="tdri">2,781,065</td>
+ <td class="tdri">2,166,690</td>
+ <td class="tdri">4,947,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1880</td>
+ <td class="tdri">2,963,065</td>
+ <td class="tdri">2,865,237</td>
+ <td class="tdri">5,828,302</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1881</td>
+ <td class="tdri">815,893</td>
+ <td class="tdri">2,598,868</td>
+ <td class="tdri">3,414,761</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1882</td>
+ <td class="tdri">1,270,900</td>
+ <td class="tdri">3,153,902</td>
+ <td class="tdri">4,424,802</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1883</td>
+ <td class="tdri">1,192,912</td>
+ <td class="tdri">2,394,430</td>
+ <td class="tdri">3,587,342</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1884</td>
+ <td class="tdri">1,040,495</td>
+ <td class="tdri">1,264,682</td>
+ <td class="tdri">2,305,177</td>
+ </tr>
+
+</table>
+
+<p class="p1">If we compare the year 1869—probably the last in which
+the Pacific Mail and the Huntington interests were in active<span class="pagenum"><a name="Page_233" id="Page_233">[233]</a></span>
+competition—with the year 1884, it appears that the value of
+commodities shipped in and out of San Francisco via Panama
+during these years declined from about seventy to about two
+million dollars. Doubtless this falling off was not all due to
+agreements between rail and water carriers. For instance the
+sudden decline between 1869 and 1870 was occasioned in large
+part by the sudden diversion of bullion shipments from the
+water routes when the rail lines were opened, while passengers
+also rapidly deserted the water for the more speedy and comfortable
+rail service. Moreover, at a slightly later date the
+special contract system played its part in limiting shipments by
+sea. Yet it is not unfair to credit the arrangements between the
+Huntington group and the Pacific Mail with a considerable
+share of the reduction in water tonnage so desirable from the
+point of view of the land carriers.</p>
+
+<p class="pnb">Pacific Mail and Panama Railroad</p>
+
+<p>The difficulty in bringing about a substantial lessening of
+competition by agreement with a water carrier is found in the
+fact that the sea is free, so that new ships and new shipping
+companies can readily take the place of those that are withdrawn.
+The peculiar strength of the Pacific Mail in negotiating
+with the railroad company lay in the fact that it enjoyed
+for many years the exclusive privilege of through-billing
+freight between San Francisco and New York, including the
+privilege of quoting a through rate. From all other steamship
+companies the Panama Railroad exacted a local rate for hauling
+freight across the Isthmus.<a name="FNanchor_357_357" id="FNanchor_357_357"></a><a href="#Footnote_357_357" class="fnanchor">[357]</a> Inasmuch as this local rate
+was very high, it was impossible for a competing steamship
+company to handle through business at a profit. It was thus
+the railroad which determined whether competition by way of
+the Isthmus of Panama should succeed or fail. It may be<span class="pagenum"><a name="Page_234" id="Page_234">[234]</a></span>
+added that after the year 1893 the Panama Railroad assumed
+the responsibility not only of the rail haul across the Isthmus,
+but of the water connection between Colon and New York as
+well, thus becoming the preponderant partner in respect to
+length of route, as well as in respect to strategic position.</p>
+
+<p>In return for the exclusive right of through-billing, and
+of quoting through rates, as well as for its agreements not to
+operate vessels in the Pacific, the Panama Railroad was
+promised a certain division of the through rate, which was not
+to be less monthly than a stipulated minimum. The minimum
+varied, but always was a substantial part of the payment which
+the transcontinental railroads were making to the Pacific Mail.
+In 1878 the railroads guaranteed the Pacific Mail $90,000 a
+month, out of which the Panama Railroad received $75,000.
+When the Pacific Mail subsidy was lowered from $90,000 to
+$75,000, the amount guaranteed to the Panama Railroad fell
+off from $75,000 to $55,000.</p>
+
+<p>It is a matter of history also that during the years 1876 to
+1878, the Panama Railroad not only was a party to the elaborate
+traffic agreement with the Pacific Mail which has been
+described, but that it exercised for a time direct control of the
+steamship company by domination of its president and board
+of directors. This control was the outcome of a conflict between
+Jay Gould, then president of the Pacific Mail, and Trenor
+W. Park, of the Panama Railroad, which in 1875 resulted in
+the election of a board of directors satisfactory to the latter
+and in the choice of a new president.</p>
+
+<p>The lever which the railroad used at this time was the cancellation
+of its contract with the Pacific Mail, the organization
+of a company known as the Pacific Transit Company, the purchase
+of three old refitted warships, and the threat to engage
+in active competition. Mr. Park was asked if he would desist
+from his attack on the Pacific Mail if a neutral board of
+directors were elected. He consented to this, and was satisfied<span class="pagenum"><a name="Page_235" id="Page_235">[235]</a></span>
+by a board composed for the most part of Panama Railroad
+men. This was followed by the consolidation of the Pacific
+Mail and the Panama Transit Company, by the renewal
+of contracts between railroad and steamship, and finally in
+1878, by the execution of a bill of sale by the steamship to
+the railroad company for twenty-two steamers to secure
+a loan of $1,000,000 in Panama Railroad bonds for four
+years.<a name="FNanchor_358_358" id="FNanchor_358_358"></a><a href="#Footnote_358_358" class="fnanchor">[358]</a></p>
+
+<p class="pnb">Railroads’ Main Reliance</p>
+
+<p>It thus appears that during the first ten years after the
+completion of the Central Pacific, the interests of the Panama
+Railroad and those of the Pacific Mail were closely bound
+together, so that during this period an agreement with the
+former was sufficient to control the route over which both were
+operating. It was upon this fact that the transcontinental
+railroads chiefly relied. Nor was there any important change
+in the relations between the Panama Railroad and the Pacific
+Mail, or in those between the Pacific Mail and the transcontinental
+railroads during the following twelve years. Mr. Park’s
+control of the Pacific Mail proved only temporary, it is true,
+and the terms of the contracts between the parties changed from
+time to time; yet the principle of a guaranty of earnings to the
+Pacific Mail in return for the maintenance of rates was always
+adhered to, and the Panama Railroad always received the lion’s
+share of this guaranty for a division. The amount of the
+subsidy paid by the railroad has already been given. When
+in 1885 the Pacific Mail received $85,000 per month from the
+transcontinental lines, it paid over $70,000 to the Panama Railroad.
+When the Pacific Mail subsidy was reduced to $65,000
+in 1887, the payment to the Isthmian railroad likewise fell to
+$55,000. In 1881 the Panama Canal Company, a French corporation<span class="pagenum"><a name="Page_236" id="Page_236">[236]</a></span>
+under the direction of De Lesseps, purchased the
+Panama Railroad for $20,000,000; but this does not seem to
+have affected the relations between the last-named railroad and
+the Pacific Mail.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_237" id="Page_237">[237]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XIV</h2>
+
+<p class="pch">THE RATE SYSTEM OF THE CENTRAL PACIFIC</p>
+
+<p class="pnb">City and Country in California</p>
+
+<p>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, the Southern Pacific interests had other factors to
+consider, however, besides the presence of water competition—factors
+which can be understood only after a careful study of
+local conditions in the Far West.</p>
+
+<p>The state of California is characteristically a country of
+great distances, occupied by a relatively sparse and unequally
+distributed population. Its industry is primarily agricultural
+and mining. Although some manufactures have developed
+since 1870, such as foundries, woolen and sugar mills, glass,
+paper, cordage, powder, tobacco, tin, and hardware manufacturing
+concerns, yet even today the absence of adequate supplies
+of good coal, the smallness of the local market, and the distance
+from the great centers of population in the East hold manufactures
+within narrow limits. As explained in the previous
+chapter, the state is best fitted to produce and export products
+of the soil, and raw materials such as grain, fruit, wool, hides,
+and later wines, lumber, and oil. To this list should also be
+added salmon.</p>
+
+<p>In such an economy, the cities of California play the part
+of distributing agencies rather than that of centers of industry.<span class="pagenum"><a name="Page_238" id="Page_238">[238]</a></span>
+Such was the first function of Stockton, Sacramento, Los
+Angeles, and indeed of San Francisco itself, and the work of
+distribution still remains these cities’ principal means of support.
+Originally the chief profit of the northern towns came
+from supplying the mining population of the Sierras with supplies
+brought by sea from Europe or from the Atlantic Coast
+of the United States. The nature of California imports has
+somewhat changed since the early days; a larger commerce
+with the Orient and with the west coast of South America has
+developed, and a large part of the freight handled on the Pacific
+Coast now comes in by rail. This has multiplied the number
+of distributing points, and has to some degree built up the
+interior of the state. The character of the cities has not, however,
+changed and they remain as before—trading and consuming
+rather than producing centers.</p>
+
+<p class="pnb">Conflict of Interest</p>
+
+<p>It follows from this division of labor between town and
+country on the Pacific Coast, and from the rivalry of different
+cities in the distribution of finished goods, that striking
+divergencies in point of view have arisen, both between individual
+cities, and also between the city communities as a whole
+and the farming and manufacturing interests of the state.
+These differences have received free expression in the discussion
+of railroad rates. Inasmuch as the articles distributed by
+the towns are in large part imported goods, the cities as a group
+have demanded low westbound carload rates from eastern
+sources of supply. The larger centers of population, however,
+have opposed low rates on small consignments, because that
+tends to deprive them of a rehandling profit by promoting
+direct relations between the consumer and the eastern wholesale
+house. As compared with the cities, on the other hand,
+the farming interests have been relatively indifferent to the
+level of westbound rates, so long as they have enjoyed low<span class="pagenum"><a name="Page_239" id="Page_239">[239]</a></span>
+eastbound rates on the product of the farm and field; while the
+struggling manufacturers have resisted low rates westbound,
+because these have exposed them to the competition of eastern
+factories. The interests of the consumer have not until quite
+recent years been represented.</p>
+
+<p class="pnb">No Settled Rate Policy</p>
+
+<p>Owing to these persistent conflicts between various classes
+of shippers, public opinion in California has not been easily
+enlisted as a whole in support of any concrete proposals for the
+readjustment of railroad rates, although complaints from all
+sections have been numerous. There has been, on the contrary,
+a persistent series of appeals to the railroad, now to favor one
+set of interests, now to favor another—appeals which, when
+granted, often have resulted in gross discrimination, and which,
+when refused, have swelled the tide of protest against the
+transportation lines. The serious side of this situation in
+California is that the conflict of interest between buyers of
+transportation has exposed the railroad to temptations which
+it has had neither will nor ability to withstand. Where there
+is constant demand for favors there is likely to be discrimination
+unless the person or institution to which demand is made
+is fortified by a clear view of public policy and a sense of
+morality more than ordinarily acute.</p>
+
+<p>It is no secret that the Southern Pacific has had neither the
+one nor the other of these qualifications. For its part, it has
+acknowledged no duties other than those generally incumbent
+upon private business. It has insisted upon complete freedom
+to follow its own advantage. In a speech to the men in the
+railroad shops at Sacramento in September, 1873, Stanford
+explained his position by asking: “Does Governor Booth sell
+at the same per cent of profit his sugar, pork, beans, bacon,
+lard, candles, soap, spice, coffee, whiskey, brandy, and other
+articles? So with the mechanic, the manufacturer, the farmer,<span class="pagenum"><a name="Page_240" id="Page_240">[240]</a></span>
+and others. The market price governs. A farmer takes two
+and one-half cents for his grain as justly and as cheerfully as
+one and one-half cents, the cost of producing being the
+same.”<a name="FNanchor_359_359" id="FNanchor_359_359"></a><a href="#Footnote_359_359" class="fnanchor">[359]</a> “The Southern Pacific,” said Mr. William B. Curtis,
+of that company, in 1894, in the same strain, “sells transportation
+precisely as a merchant disposes of his wares, adjusting its
+tariff to conform to the situation with the object in view of
+inducing the largest amount of transportation at fair rates.”<a name="FNanchor_360_360" id="FNanchor_360_360"></a><a href="#Footnote_360_360" class="fnanchor">[360]</a></p>
+
+<p>This announced willingness to differentiate led in the course
+of time to the greatest variety of railroad rates in California,
+some rates being low, some high, some public, some secret.
+Generally speaking, indeed, rates were low where competition
+was present, and high where it was absent. The big man was
+favored over the little man, the shipper with an alternative
+route over the shipper confined to one railroad line. Some of
+the details of this interesting system will now be presented.</p>
+
+<p class="pnb">Separate Rate Classifications</p>
+
+<p>In discussing the adjustment of local charges in California,
+attention will be first directed to the absolute level of local
+railroad rates. Separate mention must be made of the local
+classifications and of the local rates.</p>
+
+<p>As late as 1877, each of the principal railroads in California
+had its own classification. These were far from being the same.
+Baled hops moved at one and one-half times first-class on the
+Central Pacific. On the Southern Pacific compressed hops
+took third-class. On the California Pacific pressed hops took
+double first-class. Liquors took one and one-half times first-class
+on the Central Pacific (in jars, owner’s risk); second-class
+on the Southern Pacific (in glass, packed, owner’s risk);
+double first-class on the California Pacific (in jars or glass);<span class="pagenum"><a name="Page_241" id="Page_241">[241]</a></span>
+first-class on the North Pacific Coast (in glass, packed, owner’s
+risk); and double first-class on the San Francisco and North
+Pacific (in glass or demijohns, owner’s risk). Window glass
+took first-class on the Central Pacific, one and one-half times
+first-class on the California Pacific, and fourth-class on the
+Southern Pacific if not over three feet long. Boiler flues
+moved first-class on the Central Pacific, third-class on the
+North Pacific Coast, and fourth-or fifth-class according as
+made of copper or brass, or of iron, on the Southern Pacific.<a name="FNanchor_361_361" id="FNanchor_361_361"></a><a href="#Footnote_361_361" class="fnanchor">[361]</a></p>
+
+<p>Generally speaking, however, the classifications were much
+less elaborate than they later became. A committee of the
+California Senate observed in 1893 that the theory of the
+local classification of the Southern Pacific was to simplify so
+far as possible. Hence that classification started out with the
+announcement, in effect, that all articles not named specifically
+therein would be charged for at merchandise rates. It then
+continued to indicate the exceptions, enumerating articles that
+were light, bulky, of excessive value, liable to damage, etc.,
+proceeding in this way along the same lines as the Western
+classification.<a name="FNanchor_362_362" id="FNanchor_362_362"></a><a href="#Footnote_362_362" class="fnanchor">[362]</a></p>
+
+<p>When the Santa Fé later built into southern California it
+brought in the Western classification, tariffs, rules, and conditions
+that governed its lines elsewhere, and applied the
+Southern Pacific schedules of merchandise rates to this classification.
+Since, however, the Southern Pacific had only one merchandise
+class, the Santa Fé applied the same rates to each of
+the first four classes of the Western classification in California.
+The result of this adjustment of tariff to the Western classification
+was to produce practically the same revenue as would have
+resulted from the local classification and merchandise rates
+of the Southern Pacific Company. In 1893 the Southern<span class="pagenum"><a name="Page_242" id="Page_242">[242]</a></span>
+Pacific itself substituted the Western classification for the one
+which it had been using.<a name="FNanchor_363_363" id="FNanchor_363_363"></a><a href="#Footnote_363_363" class="fnanchor">[363]</a></p>
+
+<p class="pnb">Local Rates</p>
+
+<p>Under the law the maximum rate which any California
+railroad could charge for the transportation of freight, was
+15 cents per ton per mile. In spite of the statement of Mr.
+Stanford to the contrary,<a name="FNanchor_364_364" id="FNanchor_364_364"></a><a href="#Footnote_364_364" class="fnanchor">[364]</a> the evidence is to the effect that this
+maximum was generally applied on short-haul local business as
+late as 1877 and perhaps afterwards. In some cases, the
+published rate was even greater than the maximum, though a
+note to the schedule provided that when the calculated rate
+exceeded the legal maximum, the latter would apply. The
+rates on the Central Pacific main line in 1866 were almost
+exactly 15 cents per ton per mile.</p>
+
+<p>The report of the California Board of Transportation
+Commissioners in 1877 showed that generally throughout the
+state first-class rates for short hauls ranged from 14 to 30
+cents per ton per mile. For the 10 miles from Lathrop to
+Stockton the tariff charge was $1.60 per ton, and for the 6
+miles from Pleasanton to Livermore, the rate was $1. The
+charge from Roseville Junction to Truckee, 102 miles, was
+$15.20. When river competition entered in, rates were
+markedly reduced. The charge from San Francisco to Stockton,
+92 miles, was $3.20 per ton, or 3½ cents per ton per mile;
+that from San Francisco to Sacramento, 140 miles, was $3.60,
+or 2⅗ cents per ton per mile. On the other hand, the rates of
+the California Pacific were somewhat higher than those of
+the other lines, except at competitive points.<a name="FNanchor_365_365" id="FNanchor_365_365"></a><a href="#Footnote_365_365" class="fnanchor">[365]</a></p>
+
+<p><span class="pagenum"><a name="Page_243" id="Page_243">[243]</a></span></p>
+
+<p>In later years the charges of the Southern Pacific naturally
+declined. Yet the rate on brick from San Francisco to
+Soledad in 1892 was 5½ cents per ton per mile on a haul of
+143 miles, and that to San Miguel, 64 miles farther on, was almost
+5 cents per ton per mile.<a name="FNanchor_366_366" id="FNanchor_366_366"></a><a href="#Footnote_366_366" class="fnanchor">[366]</a> The average receipts per ton
+per mile upon the Southern Pacific system were 2.04 cents per
+ton per mile for all freight as late as 1885, in spite of the large
+quantity of long distance through traffic. Plainly the average
+receipts on local business were much greater. There seems
+little doubt but that the local rates in California were always
+distinctly higher than in the eastern states, although they have
+been lowered in recent years. The reason was in the main the
+relatively slight density of traffic upon all except the trunk
+routes, as well as the higher cost of coal, and the successful
+control of competition to which the Southern Pacific attained.</p>
+
+<p class="pnb">Rate Discrimination</p>
+
+<p>Turning now from the absolute level of local rates to the
+question of the relations which those rates bore to each other,
+we come to the question of discrimination in California. Railroad
+discrimination may be personal, in which case it involves
+the quoting of different rates to different persons for the same
+or a similar service, or it may be local, as in instances where the
+interests of competing localities are concerned. Either kind of
+discrimination is of profound social importance, for, after all,
+it must be remembered that the significant question for the producing
+and distributing interests of a state is not how much
+they pay for transportation, but whether this amount, be it
+much or little, is less than is paid by their competitors. The
+remainder of the present chapter will be devoted to the discussion
+of personal discrimination; in the next chapter the topic of
+local discrimination will be considered.</p>
+
+<p><span class="pagenum"><a name="Page_244" id="Page_244">[244]</a></span></p>
+
+<p>The policy of granting special concessions in rates to
+special shippers was one which the Southern Pacific followed
+freely whenever it seemed likely to increase the profits of the
+company. There was never any disposition to apologize for
+this—it was known to be the practice of other roads as well,
+and the Southern Pacific accepted the system as a matter of
+course. The methods employed were various. One method
+was that of granting passes. Mr. Stubbs explained that passes
+were commonly issued in cases where shippers came to the Central
+Pacific and represented that they were offered transportation
+by the company’s competitors over such competitors’ lines.
+“They were our patrons,” said Mr. Stubbs, “shipping our way,
+and I may say that wherever we were satisfied that the statement
+was true, we generally met the case by giving a pass!”<a name="FNanchor_367_367" id="FNanchor_367_367"></a><a href="#Footnote_367_367" class="fnanchor">[367]</a></p>
+
+<p class="pnb">Sudden Tariff Changes</p>
+
+<p>In addition to granting passes, the Southern Pacific discriminated
+by changing open rates suddenly for the benefit of
+persons fortunate enough to be advised in advance. Mr. Stanford
+once explained that individual items in the company’s tariff
+were changed whenever by so doing the company could
+encourage business in any direction.<a name="FNanchor_368_368" id="FNanchor_368_368"></a><a href="#Footnote_368_368" class="fnanchor">[368]</a> Indeed, a tariff would
+scarcely be in force ten days before the necessity for changes
+would be apparent.<a name="FNanchor_369_369" id="FNanchor_369_369"></a><a href="#Footnote_369_369" class="fnanchor">[369]</a></p>
+
+<p>How this might work was shown in 1892, when complaint
+was made of discrimination in favor of the Standard Oil Company.
+It was then alleged that the Central Pacific was lowering
+oil rates from $1.25 per hundred pounds to 82½ or 90
+cents, when the Standard Oil desired to make shipments from
+eastern refining points to the Pacific Coast, the rates being
+subsequently raised when the shipments had been completed.<span class="pagenum"><a name="Page_245" id="Page_245">[245]</a></span>
+A letter to the vice-president of the Standard Oil Company,
+bearing upon an episode of this sort, written under date of
+December 4, 1888, got into the public press, and seems to
+establish the fact that transactions of this nature were going
+on. The letter follows and is self-explanatory.<a name="FNanchor_370_370" id="FNanchor_370_370"></a><a href="#Footnote_370_370" class="fnanchor">[370]</a></p>
+
+<div class="pbq">
+<p class="pr4 p1"><span class="smcap">San Francisco</span>, December 4, 1888</p>
+
+<p class="pni"><span class="smcap">W. H. Tilford</span>, Vice-President, Standard Oil Company,<br />
+26 Broadway, New York</p>
+
+<p class="pn1"><span class="smcap">Dear Sir</span>:</p>
+
+<p class="pcs">·················</p>
+
+<p>I herewith hand you copy of a letter I have just received from
+Mr. Sproule, Assistant General Freight Agent of the Southern Pacific
+Company, this city. This letter I interpret to mean the 90-cent rate
+is for us to stock up from time to time, and that the $1.25 rate will
+be in effect whenever we may desire. This $1.25 rate is what Mr.
+Sproule refers to in the latter portion of his letter, as my offer of 90
+cents to Mr. Stubbs was on condition that he has the rate of $1.25
+put into effect when we might ask him. This letter also reads as if
+the 90-cent rate and the $1 rate was to be put in effect January 1st.
+No doubt Mr. Stubbs was unaware that we were stocked up at the
+present rate of 82½.</p>
+
+<p>The Transcontinental Association adjourned at Chicago yesterday,
+and I understand that Mr. Stubbs is now on his way home. I
+will see him on his arrival here, and if Chairman Leeds of the
+Transcontinental Association has been notified to put the 90-cent rate
+in effect January 1st I will have the same corrected by wire and the
+$1.25 rate put in. As soon as Mr. Stubbs reaches home I will telegraph
+you whether it is intended that the 90-cent rate should be put
+in effect January 1st or the $1.25.</p>
+
+<p class="pr8">Yours truly,</p>
+<p class="pr6"><span class="smcap">E. A. Tilford</span></p></div>
+
+<p class="pnb">Relations with Standard Oil</p>
+
+<p>The fact that relations between the Southern Pacific and
+the Standard Oil Company were very close during the late<span class="pagenum"><a name="Page_246" id="Page_246">[246]</a></span>
+eighties and early nineties is well established, not only by the
+correspondence just referred to, but also by other available
+evidence. In June, 1892, to cite a small but interesting episode,
+the Union Pacific issued a circular applying a rate of
+78½ cents per hundred pounds on oil from Colorado points to
+the Pacific Coast. This rate had been in effect some years
+before, previous to the organization of the Western Traffic
+Association, under a rule which made Missouri River commodity
+rates a maximum on business originating west of the
+97th meridian. The rule in question had never been withdrawn,
+although it developed that the Southern Pacific had
+forgotten it, and believed that a rate of $1.60 applied.</p>
+
+<p>At this time the independent firm of Whittier, Fuller and
+Company was endeavoring to find a market for the products
+of its Colorado plant upon the Pacific Coast. In order to head
+off this anticipated competition, the Standard Oil representative
+in San Francisco took the matter up with the general traffic
+manager of the Southern Pacific, Mr. Gray. The latter at once
+wired to Mr. Munroe of the Union Pacific as follows:</p>
+
+<p class="pr4 p1"><span class="smcap">San Francisco</span>, June 10, 1892</p>
+
+<p class="pn"><span class="smcap">J. A. Munroe</span>,</p>
+
+<p>Omaha, Nebraska</p>
+
+<p>It is reported you are antagonizing Standard Oil Company in
+Colorado. I hope you will do nothing to affect our joint relation with
+that company with regard to Pacific Coast business. Have you
+observed the large tonnage you have lately been handling for them?
+I think it is so great you should be careful how you jeopardize your
+own interest in this direction.</p>
+
+<p class="pr8"><span class="smcap">R. Gray</span></p>
+
+<p class="p1">Under pressure from the Standard Oil, the Southern
+Pacific followed up this telegram by refusing to prorate on
+any basis lower than $1.60. As a result the objectionable
+circular was withdrawn.<a name="FNanchor_371_371" id="FNanchor_371_371"></a><a href="#Footnote_371_371" class="fnanchor">[371]</a></p>
+
+<p><span class="pagenum"><a name="Page_247" id="Page_247">[247]</a></span></p>
+
+<p class="pnb">Rate Rebates</p>
+
+<p>A third method of granting concessions to shippers whom
+the Central Pacific desired to favor, was that of the rebate.
+Rebates were usually granted in exchange for an undertaking
+by the shipper to send all his freight over the lines of the railroads
+by which the rebate was paid. Mr. Stubbs once explained
+to the United States Pacific Railway Commission that
+the granting of rebates was a regular practice, not only of the
+Central Pacific, but of all its connecting lines. He explained
+the mechanism of the operation as follows:</p>
+
+<p class="pbq p1">Suppose that you were a merchant, and I should go to you to
+make a contract for the rail lines—because all the lines were
+parties to it between New York and San Francisco. It was not
+a Central Pacific affair. You understand that all the lines between
+San Francisco and New York, probably embracing all the
+roads in the East, shared in this reduced rate that was given
+to the merchant in consideration of his exclusive patronage—I
+should go to you and make a contract, and should say that
+it is impossible for us, in billing, to bill this to you at the
+net rates. We will bill it at the full rates, and when you
+receive your goods at the depot you pay the full rates, and we
+will refund to you the difference between the agreed rate under
+the contract and the rates which you have paid. Of course
+that is an overcharge. We overcharged those goods above the
+price that you had previously agreed to pay for the transportation
+of them.<a name="FNanchor_372_372" id="FNanchor_372_372"></a><a href="#Footnote_372_372" class="fnanchor">[372]</a></p>
+
+<p class="p1">In the single year of 1884 the Central Pacific paid out
+$1,060,275.92 as refunds in behalf of itself and its connections.</p>
+
+<p class="pnb">Extent of Practice</p>
+
+<p>Evidence showing how radically published rates were reduced
+by the practice of rebating is to be found in the following
+testimony by G. W. Luce, now freight traffic manager of the
+Southern Pacific, and long connected with the traffic department<span class="pagenum"><a name="Page_248" id="Page_248">[248]</a></span>
+of that company. Speaking before the Interstate Commerce
+Commission of the period about 1887, Mr. Luce said:</p>
+
+<div class="pbq">
+<p class="p1">Just prior to that time I had in mind, there had been a very
+severe war in rates. I do not know whether that was the reason
+for the creation of this Commission or not, but the struggle
+had been very disastrous; two or three lines, I think, were very
+much crippled, going into the hands of receivers; and just before
+the act was passed, effective in April, 1887, I think, the
+lines got together and said, “Here, let us stop this foolishness;
+let us have some standard of rates and see what we can do on
+that basis. I believe the rates were made 50 per cent of the
+old tariff rate that had been used for two or three years. I
+presume the carriers thought that it would not be judicious to
+put their rates right up to standard 100 per cent, so they decided
+on a 50 per cent tariff.”</p>
+
+<p><span class="smcap">The Chairman.</span> You mean 50 per cent more than the published
+rate, or 50 per cent of the published rate?</p>
+
+<p><span class="smcap">Mr. Luce.</span> Of the published rate....</p>
+
+<p><span class="smcap">The Chairman.</span> That means your published rates, which
+your line had published up to that time in the eighties, were
+probably about twice that much?</p>
+
+<p><span class="smcap">Mr. Luce.</span> Yes, sir.</p>
+
+<p><span class="smcap">The Chairman.</span> And yet that was an effort to bring together
+a stability of rates, and to get more out of the traffic
+than you had been getting during this war, I suppose?</p>
+
+<p><span class="smcap">Mr. Luce.</span> Yes, sir.</p>
+
+<p><span class="smcap">The Chairman.</span> So that, as a matter of fact, prior to that,
+you had not been getting even as much as ... the 50 per cent
+basis?</p>
+
+<p><span class="smcap">Mr. Luce.</span> No, sir.</p>
+
+<p><span class="smcap">The Chairman.</span> It was a general departure from the so-called
+published rates of more than 50 per cent?</p>
+
+<p><span class="smcap">Mr. Luce.</span> Oh, yes.<a name="FNanchor_373_373" id="FNanchor_373_373"></a><a href="#Footnote_373_373" class="fnanchor">[373]</a></p></div>
+
+<p class="pnb">Concrete Instances</p>
+
+<p>The practice of quoting a lower rate to one person than to
+another in order to secure a specific shipment, or in consideration<span class="pagenum"><a name="Page_249" id="Page_249">[249]</a></span>
+of an agreement for exclusive patronage of the railroad
+which granted the rebate, was clearly a case of personal discrimination.
+A concrete case which is illustrative of the
+general policy with which we are concerned was brought to
+public notice in California in the year 1886, when the Central
+Pacific was charged with rebating large sums to two favored
+shippers named Friedlander and Reed. It appeared in fact that
+the railroad had paid $6,000 at one time to Friedlander for rent
+of a wharf at Vallejo, and 25 cents a ton on a shipment to a
+certain Mr. Reed at Knight’s, on business destined to Vallejo.
+These payments were explained by the company as follows:</p>
+
+<p>The Friedlander wharf vouchers were explained by showing
+that, in consideration of the rental of said wharf, Friedlander
+agreed to, and did, send the whole of his immense grain
+purchases on the Sacramento River, and at other competing
+points on the California Pacific, by rail instead of by steamer
+and sail; and when one remembers the enormous quantities of
+wheat and barley purchased by him, the “grain king of California,”
+there is no doubt that the contract was a source of
+much profit to the company. The Reed voucher for 25 cents
+per ton for loading wheat from his warehouse at Knight’s
+Landing, was fully explained by Reed himself. He had a
+warehouse at that point on the bank of the river, and water
+craft would take his grain at the same rate charged by the
+railroad company, loading and unloading the same at their
+own expense, while the railroad company required the shipper
+to do the loading. When asked to patronize the railroad, Reed
+told Mr. Towne, general manager, that he could have the grain
+carried by water at the same price that the Southern Pacific
+demanded, and that the steamers and schooners would do the
+loading without charge. In order to secure the business, Mr.
+Towne told Reed that if he would ship by rail, the company
+would allow him 25 cents per ton for loading, thus securing
+business for the road that would have been otherwise lost.</p>
+
+<p><span class="pagenum"><a name="Page_250" id="Page_250">[250]</a></span></p>
+
+<p class="pnb">“Special” Contract System</p>
+
+<p>In all probability the Reed and Friedlander cases were
+but two of a great many instances of similar favors granted to
+large shippers, and to shippers strategically placed on water
+lines in California. This is certainly implied in the testimony
+of Mr. Stubbs before the United States Pacific Railway Commission.
+Moreover, there is good independent evidence to the
+same effect in the available data concerning the “seasonal” or
+“special” contract system which became notorious in California
+in the late seventies and early eighties. The outlines of this
+last-named arrangement were as follows:</p>
+
+<p>As early as May, 1878, the Central Pacific Railroad offered
+to guarantee a maximum rate of $2 per hundred pounds upon
+all grease wool, eastbound, moving over its lines from San
+Francisco to New York. In consideration of this guaranty it
+required shippers to undertake to ship all wool which they sent
+to destinations east of the meridian of Omaha by way of the
+Central Pacific and such connecting lines as the Central Pacific
+Railroad Company might elect. In case of failure to live up
+to the agreement, the shipper bound himself to pay an additional
+rate of 75 cents per hundred pounds upon all shipments made
+or which might have been made by rail during the time of the
+contract. Before this arrangement was insisted on, shippers
+were accustomed to forward their finer wools by rail at the $2
+rate, but to send their low-grade wool by sea at a rate of 50
+cents per hundred pounds.<a name="FNanchor_374_374" id="FNanchor_374_374"></a><a href="#Footnote_374_374" class="fnanchor">[374]</a></p>
+
+<p>The system of special rates and exclusive contracts was
+not at first applied to westbound freight, nor to general merchandise,
+whether moving east or west. Late in July, 1878,
+however, notice was given of advances in westbound merchandise
+rates which in many instances amounted to as much as 100
+per cent, and at the same time a tender was made of rates
+below the published tariff to shippers who entered into special<span class="pagenum"><a name="Page_251" id="Page_251">[251]</a></span>
+contracts with the railroad for exclusive handling of their
+freight. The Central Pacific management placed the responsibility
+for the rate advance upon the Union Pacific, and gave
+publicity to a telegram of protest signed by Mr. Stanford.<a name="FNanchor_375_375" id="FNanchor_375_375"></a><a href="#Footnote_375_375" class="fnanchor">[375]</a>
+There is reason to believe, nevertheless, that the Central Pacific
+management was cognizant of the matter from the first, and it
+is certain that Mr. Stubbs, general traffic manager of the Central
+Pacific, warmly defended the system.</p>
+
+<p class="pnb">Terms of Contract</p>
+
+<p>Under the special contract plan, the railroad company
+agreed to charge not more than certain specified rates on
+articles named in the agreement shipped from New York, Pittsburgh,
+Cincinnati, and Chicago, and other points taking the
+same rates to the Pacific Coast. Rates on freight not specifically
+provided for were not to exceed those published in the
+general tariff. In case rival railroads cut rates, or in case competition
+by the Pacific Mail should become active, the shipper
+was to be protected. That is to say, it was declared to be the
+intent and purpose of the agreement to guarantee to the contracting
+merchant rates which should be as low as those
+charged and collected upon the same articles, between the same
+points, by any other all-rail route which might compete for the
+traffic of California at any time during the term of the contract.</p>
+
+<p>The carrier also agreed that in the event of active competition
+with the Pacific Mail for the traffic between New York
+and San Francisco, the rates charged by rail during the period
+of competition should not exceed those current on Pacific Mail
+vessels by more than certain named amounts, ranging from 50
+cents on goods taken at rates not exceeding $3.50, to $3 on
+goods taken at rates exceeding $6. This guaranty was not to
+be enforced at times when the rates of the Pacific Mail were
+subject to the control of the railroads.</p>
+
+<p><span class="pagenum"><a name="Page_252" id="Page_252">[252]</a></span></p>
+
+<p>In consideration of these assurances the shipper agreed to
+forward “by way of the railroads owned or operated by the
+contracting carriers and such other connecting railroads as
+might be designated from time to time, all goods, wares, and
+merchandise handled by the merchants entering into the agreement
+which might or should be purchased in or obtained from
+any point in the United States or Canada east of the meridian
+of Omaha, during the term of this contract, for sale or use on
+the Pacific Coast.”<a name="FNanchor_376_376" id="FNanchor_376_376"></a><a href="#Footnote_376_376" class="fnanchor">[376]</a></p>
+
+<p class="pnb">Rates under System</p>
+
+<p>It appears that at the beginning the same rates were quoted
+to all shippers signing the contract. That is to say, two rate
+sheets were published, one known as the “white list,” and the
+other as the “pink list.” The white list contained the open, or
+public rate; the pink list contained the contract rate. Contracts
+were made with individual shippers that if they would
+give to the railroad line all of their traffic for a year to the
+exclusion of ocean carriers, they would have a rebate down to
+the figure fixed in the pink list. Somewhat later, however,
+jobbers on the Pacific Coast were individually dealt with, and
+the rates began to vary.</p>
+
+<p>Mr. Stubbs says in describing this phase of the matter:</p>
+
+<p class="pbq p1">We tramped the streets here for a couple of months, explaining
+our ideas to the principal importers. By some we
+were met with cordiality and approval. Others were a little
+indifferent. Where a merchant liked the scheme, we would sit
+down with him, and, by examining his bills of lading by Cape
+Horn and his insurance policies, we would get an idea of the
+quantity he would ship by the several routes and the cost to
+him by the use of the several routes. We would then aim to
+make the rate so that upon the whole it would average about the<span class="pagenum"><a name="Page_253" id="Page_253">[253]</a></span>
+same. We would average the rate while he was using the three
+routes.</p>
+
+<p class="p1">Still later the railroads returned to the one-rate policy. To
+arrive at this rate they adopted a plan of “harmonization”;
+they averaged the rates upon various commodities which had
+been charged to various shippers and made a new schedule of
+rates, from which they varied as emergency might require or
+expediency advise, by the current method of rebating.<a name="FNanchor_377_377" id="FNanchor_377_377"></a><a href="#Footnote_377_377" class="fnanchor">[377]</a></p>
+
+<p class="pnb">Administration of Contracts</p>
+
+<p>The railroad company reserved from the beginning the
+option of way-billing the goods and collecting freights according
+to the printed rates, agreeing to return the difference on
+presentation of vouchers to the general freight agent of the
+Central Pacific at San Francisco after the lapse of a reasonable
+time for auditing and adjusting the bills. The carrier also always
+insisted on the privilege of examining the shipper’s books
+in case it suspected a violation of the agreement. In some
+respects, the wording and administration of the contracts became
+more stringent in the later years. J. T. Doyle, a well-informed
+San Francisco attorney, asserts that at the beginning
+merchants were merely forbidden to import goods otherwise
+than by rail. Following this the prohibition was extended to
+the handling or buying of goods imported by sea by other
+parties. Finally the boycott reached to the offending importers
+themselves, and firms signing the contracts were bound not
+to sell or deliver goods to anyone who was in the habit of
+importing otherwise than by rail.<a name="FNanchor_378_378" id="FNanchor_378_378"></a><a href="#Footnote_378_378" class="fnanchor">[378]</a></p>
+
+<p>Probably there was some difference in the treatment of
+different shippers in these matters. Mr. Hawley, a large importer
+of hardware, told a committee of the California legislature<span class="pagenum"><a name="Page_254" id="Page_254">[254]</a></span>
+in 1884 that he was at liberty to buy a great many things
+“to sort up with,” even goods sent via the Horn. On the other
+hand, there were a good many cancellations of contracts for
+alleged violations, and shippers lived in continual apprehension.</p>
+
+<p>Taken as a whole, the special contract system was an exchange
+of a rebate by the railroad for an agreement for exclusive
+patronage on the part of the shipper. Prior to 1878,
+bulky, low-grade articles moving between the Atlantic and the
+Pacific coasts usually went by sea. Rates were lower and saving
+in time not important. High-grade goods and freight requiring
+quick transportation went by rail. It was the idea of
+the railroad that if compelled to choose, Pacific Coast business
+men would prefer to import all their freight by rail rather
+than to bring it all in by water, and that this would substantially
+increase railroad revenues even though incidental concessions
+in rates had to be made.</p>
+
+<p class="pnb">Objections to Contract Plan</p>
+
+<p>This special contract plan was objectionable to shippers for
+three reasons. In the first place, it seemed likely to increase the
+rates which they would have to pay. Although the railroad
+undertook at the inception of the scheme to meet existing rates
+by water, at least to such an extent that the total expense to
+shippers who made special contracts with the railroads would
+not be increased, it needed no great prescience to foresee that
+the exclusion of water carriers from the business of the Pacific
+Coast would sooner or later bring about an increase in transcontinental
+rates. When special contracts were offered to
+merchants in Stockton, Los Angeles, Marysville, and Sacramento,
+San Francisco importers made the additional complaint
+that their natural advantages as residents in a seaport town
+were neutralized.</p>
+
+<p>In the second place, the administration of the plan required
+a supervision over the business of individual dealers which was<span class="pagenum"><a name="Page_255" id="Page_255">[255]</a></span>
+extremely distasteful. It was asserted that the railroads placed
+men on the wharves to take the marks of goods brought in by
+sea, that they followed up the drays to see where the goods
+went, and that they inspected the books of merchants to make
+sure that importers who had signed contracts had no dealings
+with firms who still patronized the shipping lines. Nor was
+this a casual abuse, but a necessary feature in the plan.</p>
+
+<p>Again, the system lent itself to discrimination. Mr. Stubbs
+insisted that contract rates were open to all shippers, large or
+small, who would sign the necessary papers, but it was not
+denied that the first arrangements were made with large
+dealers only,<a name="FNanchor_379_379" id="FNanchor_379_379"></a><a href="#Footnote_379_379" class="fnanchor">[379]</a> nor that during at least one period the whole
+scheme involved the abandonment of a published and open
+tariff in favor of a system of bargains in which each shipper’s
+rate was individually and secretly determined. Under such a
+plan it was inconceivable that discrimination should not develop.</p>
+
+<p>Ostensibly the offer of a special contract was one which
+shippers were free to accept or to reject as they saw fit. Practically,
+this was not so. If A took a contract and B did not,
+the latter’s ability to compete was seriously impaired. For B
+had to import some things by rail in any case, while the fact
+that less business in the aggregate reached the Pacific Coast
+by sea reduced the shipping facilities which B otherwise would
+have had at his command.<a name="FNanchor_380_380" id="FNanchor_380_380"></a><a href="#Footnote_380_380" class="fnanchor">[380]</a></p>
+
+<p><span class="pagenum"><a name="Page_256" id="Page_256">[256]</a></span></p>
+
+<p class="pnb">Transcontinental Traffic Stimulated</p>
+
+<p>Special contracts seem to have been a distinct success from
+the point of view of the western carriers. When they were
+introduced the percentage of transcontinental freight carried
+by the rail lines was small, probably not over 25 per cent of the
+whole. At the end of six years under the new system this
+percentage had risen to between 60 and 75 per cent.<a name="FNanchor_381_381" id="FNanchor_381_381"></a><a href="#Footnote_381_381" class="fnanchor">[381]</a> The
+change was certainly not entirely due to the policy of special
+contracts, but part of the change may be attributed to the plan.</p>
+
+<p>The policy was nevertheless given up in 1884 owing to the
+refusal of the eastern trunk lines to take any further part
+in it. According to Mr. Stubbs, the eastern companies believed
+that the advantage of the system hardly paid them
+for the confusion in their accounts incident to this method of
+conducting business. Moreover, there was legitimate apprehension
+lest the contracts provoke antagonistic legislation at
+Washington. Mr. Stubbs tried to argue the question, but without
+success.<a name="FNanchor_382_382" id="FNanchor_382_382"></a><a href="#Footnote_382_382" class="fnanchor">[382]</a></p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_257" id="Page_257">[257]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XV</h2>
+
+<p class="pch">LOCAL RATES IN CALIFORNIA</p>
+
+<p class="pnb">Charging What the Traffic Will Bear</p>
+
+<p>The general policy of the associates in dealing with problems
+of rate-making in which rival towns were interested, was
+the same as that which they adopted to meet differences in
+competitive power between different individuals. The tests
+applied were simple. What was the market to be reached? Had
+the community concerned an alternative route? Was there
+an alternative source of supply which limited the willingness of
+the community to pay freight? If so, was this second source
+of supply one served by the Central Pacific, or one which had
+the benefit of water communication, or possibly one which
+possessed a rival rail connection? To what extent should concession
+be made from the highest rate which could be charged,
+in order to promote the growth of business?<a name="FNanchor_383_383" id="FNanchor_383_383"></a><a href="#Footnote_383_383" class="fnanchor">[383]</a></p>
+
+<p>The standard of rate-making just described, which may be
+summed up as a policy of charging what the traffic would
+bear, was not peculiar to the Southern Pacific at the time<span class="pagenum"><a name="Page_258" id="Page_258">[258]</a></span>
+it was adopted, nor was it particularly repugnant to public opinion
+in California, taken as a whole. The error must not be made
+of ascribing to the western communities of the seventies and
+eighties a clear conception of the reasons of public policy which
+are properly urged today against the unlimited recognition in
+railway rate schedules of the competitive forces which still
+have free play in private business. Such ideas have slowly
+developed only during the last forty years.</p>
+
+<p class="pnb">Limited Encouragement of Business</p>
+
+<p>Nor was the policy of adapting rates to the ability of
+shippers to pay inconsistent with the rendering of important
+service to business men in California and elsewhere who were
+seeking to expand their sales. Only a few illustrations need
+be given of the promotion of business by rate adjustments,
+but they will serve as examples of many more about which information
+is on record.</p>
+
+<p>One case of this sort, which shows the willingness of the
+Southern Pacific management to respond to what they considered
+a reasonable request, had to do with the shipment of
+beer from a place known as Boca, in the state of Nevada,
+to San Francisco. It appears that a gentleman named Hess
+once conceived the idea of establishing a brewery at Boca. This
+town was 220 miles from San Francisco, and yet all of Mr.
+Hess’s beer had to find a market in the latter place, in competition
+with beer from Milwaukee and St. Louis. Mr. Stubbs,
+general traffic manager of the Central Pacific, welcomed the
+proposal to build a brewery in the West, and put in special
+rates to help shut out the eastern product. Every pound of
+brewery supplies, he reasoned, would have to go over the
+Central Pacific. It was all clear gain, like so much money
+picked up out of the ditch. In another case the Southern
+Pacific quoted special rates on sugar from San Francisco to the
+Missouri River, to enable the California Sugar Refining Company<span class="pagenum"><a name="Page_259" id="Page_259">[259]</a></span>
+and the American Sugar Refining Company to sell their
+sugar at the Missouri River in competition with sugar reaching
+New York by water and thence moving westward.<a name="FNanchor_384_384" id="FNanchor_384_384"></a><a href="#Footnote_384_384" class="fnanchor">[384]</a></p>
+
+<p>Still again, in 1884 an attempt was made to persuade the
+St. Louis-Kansas City lines to participate in a rate of 75 cents
+per hundred pounds on cast iron pipe from St. Louis to the
+Pacific Coast in order to encourage production in the Middle
+West in competition with that on the Atlantic seaboard.
+The matter of the 75-cent rate was taken up with J. W.
+Midgley, Trunk Line commissioner, who declined temporarily
+on December 24, 1884, on the ground that the rate would be
+a special one, and that there was an understanding that no
+special rates should be made prior to January 31 next ensuing,
+pending an anticipated agreement between the Transcontinental
+Association and its eastern connections.<a name="FNanchor_385_385" id="FNanchor_385_385"></a><a href="#Footnote_385_385" class="fnanchor">[385]</a></p>
+
+<p>In the instances which have been given, the impelling motive
+of the Southern Pacific was frankly to increase its profit by
+increasing the movement of freight over its line. Yet the
+shipper was also benefited because his interests were substantially
+identical with those of the railroad company, and he
+warmly welcomed the powerful support of the railroad lines.
+These cases are not unimportant. The enumeration of such
+isolated instances, however interesting as they may be, affords
+no very clear picture of the aggregate of local rate adjustments
+with which the Southern Pacific interests were concerned. For
+this purpose a more systematic survey of the rate system
+administered by the Southern Pacific is necessary, and to this
+attention is now directed.</p>
+
+<p class="pnb">Distance the Governing Factor</p>
+
+<p>The foundation of any system of railroad rates is the
+distance which commodities are carried. Generally speaking,<span class="pagenum"><a name="Page_260" id="Page_260">[260]</a></span>
+the Southern and Central Pacific railroads, like other companies
+in the United States and Europe, varied their local
+charges with the distance between point of origin and point of
+destination. To illustrate this point briefly, two charts are here
+presented.</p>
+
+<p class="vh"><a name="i291" id="i291">i291</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-291.jpg" width="400" height="587"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Chart showing rates on second-class freight and on grain in
+the Sacramento Valley, 1876.</p>
+</div></div>
+
+<p>The first chart depicts the rates on second-class freight<span class="pagenum"><a name="Page_261" id="Page_261">[261]</a></span>
+and those on grain in January, 1876, between Sacramento and
+points in the Sacramento Valley north of that city. Second-class
+freight at this time on the Southern Pacific included
+articles such as coal oil, agricultural implements, machinery,
+furniture, crated glassware, and wines and liquors. Freight of
+the description mentioned ordinarily moved north from the<span class="pagenum"><a name="Page_262" id="Page_262">[262]</a></span>
+city of Sacramento. Grain, on the contrary, moved south. It
+will be observed that rates on the lines of the Southern Pacific
+increased with considerable regularity as point of origin or
+destination proceeded north into the non-competitive territory
+around Tehama and Redding.</p>
+
+<p class="vh"><a name="i292" id="i292">i292</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-292.jpg" width="400" height="586"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Chart showing rates on miscellaneous commodities in the
+San Joaquin Valley, 1892.</p>
+</div></div>
+
+<p>The second chart displays rates between San Francisco and
+stations in the San Joaquin Valley as far south as Fowler,
+205 miles distant from point of origin. These rates are for the
+year 1892.</p>
+
+<p>Non-competitive rates in the San Joaquin Valley in 1892
+increased as distance grew greater, much as they had increased
+in the northern territory sixteen years before. The rates given
+are for a few commodities only, namely, agricultural implements,
+barbed wire, boots and shoes, coal, and grain; but these
+are typical of the construction of schedules on a much larger
+number of articles. The extent of the increase was relatively
+greater to points beyond Lathrop because of the effect of water
+competition on San Francisco Bay.</p>
+
+<p class="pnb">Grades and Traffic Density</p>
+
+<p>These two schedules illustrate a fact which could be readily
+proved by repeated examples, namely, that local rates in California
+were and are first based on the element of distance.
+Possibly such a fact might be assumed; yet in California, as
+elsewhere, the statement that railroad rates have varied with the
+distance traversed needs promptly to be qualified in order to be
+true. For, first of all, it was evident at the beginning that costs
+of transportation were not solely determined by distance, and
+that other considerations had to enter in. One of these other
+considerations was the matter of grades. Because of the conditions
+under which the Central Pacific was constructed, to say
+nothing of the extremely mountainous character of certain portions
+of the Central Pacific lines, differences in the rates per
+ton per mile between the valley and the mountain sections were<span class="pagenum"><a name="Page_263" id="Page_263">[263]</a></span>
+introduced by the company at the commencement of its
+history.</p>
+
+<p>A second characteristic of railway traffic which had a
+profound effect upon early railroad tariffs was the relative
+density of business. Mr. Stanford advanced the theory that
+the railroad should strive to secure a certain average earning
+per car; and in sections where business was light, as well as
+upon commodities which were bulky in proportion to their
+weight, a high average rate per hundred pounds was accordingly
+charged.</p>
+
+<p>Relative grades and relative density of traffic were not the
+only conditions relating to cost which influenced the varying
+level of transportation rates in California, but, apart from
+distance, they were perhaps the most important, and in any case
+they may be taken as illustrative of the group of circumstances
+to which they belong. In addition to the whole class of facts
+relating to cost, however, the Southern Pacific gave heed to
+matters of value of service in the fixing of its rates. Nothing
+will be said here of the principles of classification of freight,
+principles which have to do in part with the value of the
+service rendered; nor of individual differences between shippers,
+which have been alluded to in the preceding chapter in the
+discussion of personal discrimination. The effect of competition
+in distorting distance schedules in California will,
+however, be dealt with at some length.</p>
+
+<p class="pnb">Water Competition</p>
+
+<p>It has already been pointed out that the presence or absence
+of water competition has always been a most important factor
+in determining the relative adjustment of local rates in the state
+of California. This competition has been extremely pervasive.
+Although the scarcity of good harbors and the location of the
+Coast Range of mountains hinders access from the sea into the
+interior of California, yet, on the other hand, the ports of San<span class="pagenum"><a name="Page_264" id="Page_264">[264]</a></span>
+Diego, San Pedro, and San Francisco, and the long stretches
+of navigable water on the Sacramento and San Joaquin rivers
+have opened the possibilities of water shipment to a multitude
+of inland towns. Indeed, in 1883 General Manager Towne, of
+the Central Pacific, submitted to the State Railroad Commission
+a list of fifty-two points in California at which the Central
+Pacific and its leased lines met direct water competition. The
+water routes included San Francisco Bay and the Sacramento
+River and sloughs, Suisun Bay, Napa River, San Joaquin
+River, Feather River, the Pacific Ocean, Wilmington Bay, and
+the Colorado River. In addition, Mr. Towne enumerated
+eighty-two points where rates were affected by proximity to
+the competitive points previously mentioned.<a name="FNanchor_386_386" id="FNanchor_386_386"></a><a href="#Footnote_386_386" class="fnanchor">[386]</a> On the face of
+things, the extent of the water competition thus indicated was
+sufficient to warp almost beyond recognition the simple distance
+scale of tariffs which a railroad completely protected from
+competition would naturally apply.</p>
+
+<p class="pnb">Low Rates to Competitive Points</p>
+
+<p>An illustration of the effect of the water routes on local
+rates is found in the fact that the round trip fare from San
+Francisco to Sacramento by rail in 1878 was $3, while that to
+Woodland was $4.25.<a name="FNanchor_387_387" id="FNanchor_387_387"></a><a href="#Footnote_387_387" class="fnanchor">[387]</a> The <i>San Francisco Chronicle</i> declared
+in 1879 that, according to a recently published schedule, the
+movement charge for grain, potatoes, vegetables, and wool
+from Lathrop to Mojave was exactly the same as to Ravenna,
+Newhall, or Los Angeles. The first-named distance was 288
+miles, making the movement mileage rate 7.2 cents; the second-named
+distance was 337 miles and the rate per mile was 6.2
+cents; the third distance was 356 miles, the rate being only<span class="pagenum"><a name="Page_265" id="Page_265">[265]</a></span>
+5.8 cents; and the distance to Los Angeles was 388 miles, or
+a mileage rate of 5.4 cents. The truth of the statement of the
+<i>Chronicle</i> is established by data published by the State Commissioners
+of Transportation in 1877, which show the striking
+contrast that existed in 1877 between non-competitive rates in
+the interior valleys and rates to points which enjoyed the
+advantage of nearness to the water routes.</p>
+
+<p>Low water-compelled rates to Sacramento and to Los
+Angeles were in force as early as 1877. Yet this was only a
+beginning, and as time went on and the number of towns in
+California increased, the practice of recognizing the force of
+water competition was extended. Moreover, the Southern
+Pacific began to quote <i>lower</i> instead of merely equal rates to
+more distant points which enjoyed the advantage of nearness
+to a water location. Since the ability to make use of a competing
+railway afforded opportunities similar to those afforded by
+ability to use a water route, low rates were also extended to
+towns served by more than one railroad line. All this greatly
+complicated the rate situation in the state, gave rise to numerous
+complaints, and renders difficult the task of concise
+description.</p>
+
+<p class="pnb">Rates to Intermediate Points</p>
+
+<p>Official confirmation of the general correctness of the complaint
+of discrimination which reached the public press from
+time to time is found in a comprehensive investigation of railroad
+rates in California which the Railroad Commission of that
+state undertook as late as the year 1916. This inquiry was provoked
+by an application by the Southern Pacific, Santa Fé, and
+other railroads in California for relief from the clauses of the
+amended state constitution and of the California Public Utilities
+Act prohibiting greater charges to intermediate points
+than were collected on shipments to more distant points over
+the same line. Although the legal aspects of the case were<span class="pagenum"><a name="Page_266" id="Page_266">[266]</a></span>
+therefore the result of modern legislation, the facts brought out
+were typical of conditions of long standing.<a name="FNanchor_388_388" id="FNanchor_388_388"></a><a href="#Footnote_388_388" class="fnanchor">[388]</a></p>
+
+<p class="vh"><a name="i297" id="i297">i297</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-297.jpg" width="450" height="240"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc450">Diagram showing adjustment of freight rates between San Francisco
+and Stockton, 1916.</p>
+</div></div>
+
+<p>Exhibit No. 1 in the case in question referred to class rates
+in the San Joaquin Valley. It appeared that class rates between
+San Francisco, San José, Port Costa, Stockton, Sacramento,
+Marysville, and intermediate points to Los Angeles, were 60
+cents per hundred pounds first-class, and corresponding sums
+less for the lower classes. These rates were shown to be controlled
+by the class rate of the Pacific Coast Steamship Company,
+which quoted a through first-class rate of 52 cents,
+including wharfage and handling, between San Francisco and
+Los Angeles via San Pedro. On all-rail shipments down the
+valley, as well as on shipments over the coast rail route, however,
+water competition was not effective. The rate from San
+Francisco to Simi, 429 miles from San Francisco, was therefore
+80 cents, and that to Acton, 415 miles from San Francisco,
+was 83 cents, although shipments from San Francisco to Los
+Angeles passed through Simi and Acton on their way to Los<span class="pagenum"><a name="Page_267" id="Page_267">[267]</a></span>
+Angeles over the coast and San Joaquin Valley routes,
+respectively.</p>
+
+<p>A condition similar to that at Los Angeles and at points
+in the San Joaquin Valley was developed in connection with
+shipments from San Francisco to Stockton. The diagram on
+page 266 will show the relative position of these two towns as
+well as that of an intermediate place named Banta.</p>
+
+<p>The distance between San Francisco and Stockton was 91
+miles, and the first-class rate was 10 cents per hundred pounds.
+This rate was identical with the rate charged by boat lines
+operating on San Francisco Bay, and on the Sacramento and
+San Joaquin rivers. But although these boats touched at some
+intermediate points, their competition was not everywhere
+effective; so that the first-class rate from San Francisco to
+Banta, 74 miles, could be and was 17 cents, although freight
+from San Francisco passed through Banta on its way to
+Stockton.</p>
+
+<p class="pnb">Other Instances</p>
+
+<p>Still another illustration of the influence of water competition
+upon local rates in California may be drawn from the
+territory immediately north of San Francisco Bay. The towns
+involved in this adjustment were San Francisco, Sebastopol,
+and Santa Rosa, as shown in the diagram on page 268. The
+first-class rate from San Francisco to Sebastopol on the Northwestern
+Pacific was 23 cents. This rate was shown to be
+limited by the competition of a rail and water line, including a
+steamship haul from San Francisco to Petaluma and a haul
+over an electric railway from Petaluma to Sebastopol. The
+distance from San Francisco to Sebastopol over the Northwestern
+Pacific was 58.5 miles. The distances from San
+Francisco to the towns of Kenilworth and Santa Rosa, on the
+same railroad, were 45.7 and 52.5 miles, respectively. Shipments
+to Sebastopol passed through these places, but because<span class="pagenum"><a name="Page_268" id="Page_268">[268]</a></span>
+neither enjoyed the advantage of an alternative route, the first-class
+rate to Santa Rosa was 25 cents and that to Kenilworth
+28 cents—materially more than was charged for the longer
+haul to Sebastopol.</p>
+
+<p class="vh"><a name="i299" id="i299">i299</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-299.jpg" width="400" height="415"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Diagram showing adjustment of freight rates between San Francisco,
+Santa Rosa, and Sebastopol, 1916.</p>
+</div></div>
+
+<p>While instances of the extreme discrimination of a greater
+charge for a shorter than for a longer haul were shown in
+1916 to be usually the result of water competition, it has already
+been suggested that not all cases of discrimination were of this
+sort. A particularly striking case of unequal rates due to
+rail competition alone was brought out in the same proceedings<span class="pagenum"><a name="Page_269" id="Page_269">[269]</a></span>
+from which the preceding illustrations have been drawn, by the
+application of the Atchison, Topeka and Santa Fé Railway
+to continue lower rates from Los Angeles to Mojave, California,
+a distance of 212 miles, and to Lindsay, a distance of
+411 miles, than were charged to Kramer, an intermediate point
+174 miles from Los Angeles. The relative position of the
+points is shown in the diagram given above.</p>
+
+<p class="vh"><a name="i300" id="i300">i300</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-300.jpg" width="400" height="465"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Diagram showing adjustment of freight rates between Los Angeles
+and points north and east of Los Angeles, 1916.</p>
+</div></div>
+
+<p>In this case the rate to Mojave at the time application was<span class="pagenum"><a name="Page_270" id="Page_270">[270]</a></span>
+filed was 52 cents first-class, and that to Lindsay 70 cents,
+while the rate to Kramer was 78 cents. But at both Mojave
+and Lindsay, the Santa Fé had to meet the competition of the
+short Southern Pacific line, while at Kramer this competition
+was not effective.</p>
+
+<p class="pnb">Development of State Retarded</p>
+
+<p>The data which have been presented show that, while the
+system of local rates in California was based originally
+upon distance, it soon became profoundly modified by conditions
+of cost, and still more by the presence of competition at
+strategic points, and by the occasional necessity of reducing
+rates in order to stimulate the movement of freight. The
+charges for short hauls in the interior valleys where the
+Southern or Central Pacific possessed a monopoly were made
+high, because traffic was scant and because the railroad was
+able to exact a monopoly return. Rates were also regularly
+progressive under these conditions. In sharp contrast to the
+practice which obtained where the Southern Pacific was the
+only carrier, rates to points located upon the coast, on navigable
+rivers, or on competing railroad lines were relatively low and
+were often extremely irregular.</p>
+
+<p>It is generally difficult to criticize a system of rate-making
+upon <i>a priori</i> grounds because the test of such a system is to
+be found only in the form which it gives to the industrial life of
+the community to which it is applied. There is reason to
+believe, nevertheless, that the local rate structure created by the
+Southern Pacific gave an advantage to a few shippers and to a
+few towns which affected unfavorably the development of the
+state. This is the fundamental objection to any system of rates
+in which competitive influences are recognized to an unlimited
+extent.</p>
+
+<p>Without going further into the matter at this point, we
+will content ourselves with adding to our description of local<span class="pagenum"><a name="Page_271" id="Page_271">[271]</a></span>
+rates in California some observations upon the attitude of
+California shippers with respect to railroad charges.</p>
+
+<p class="pnb">Conflicting Claims of Cities</p>
+
+<p>The rates of the Southern Pacific and of the Central Pacific
+railroads were unpopular in California because they were
+believed to be too high. Beyond this, and when it came to
+questions of relative adjustments, each community looked at
+the relations of rates which interested it from the narrow viewpoint
+of its individual advantage. Indeed, when one reviews
+the course of the controversy between railroad and shipper in
+the state, it seems very clear that, apart from questions of excessive
+profit, the objections which California cities entertained
+toward the irregular and unequal rates charged by the Southern
+Pacific Company were only slightly based on considerations of
+general policy, but were, on the contrary, due to the feeling of
+various towns that their distributing areas were unfairly
+circumscribed by the manner in which railroad rates were
+arranged.</p>
+
+<p>One small piece of evidence to show that competition
+between rival towns or producing districts was the reason for
+some of the most bitter attacks upon the railroad, may be found
+in the complaint of the anti-monopolists of Tulare County in
+1885 that their fruits, which ought to have found a market in
+the southern parts of the state and in Arizona, were subjected
+to higher freight rates than were the fruits of Sacramento and
+of San José, points more than 200 miles to the north.<a name="FNanchor_389_389" id="FNanchor_389_389"></a><a href="#Footnote_389_389" class="fnanchor">[389]</a></p>
+
+<p>A few years earlier the merchants of Stockton insisted that
+the rates out of Stockton were extortionate as compared with
+the rates out of San Francisco. The distance from Lathrop to
+Stockton was said to be 10 miles, and the railroad rate per ton
+on wheat was $1.20, or 12 cents per mile. The distance from<span class="pagenum"><a name="Page_272" id="Page_272">[272]</a></span>
+Lathrop to San Francisco was 82 miles, or more than eight
+times the distance to Stockton, but the price per ton for wheat
+was only $2.50, or about one quarter the price per ton per mile
+in the first instance. The price per ton from Lodi to Stockton
+was $1.40, and to San Francisco $2.50; but whereas the last-named
+sum was less than twice the former, the distance from
+Lodi to San Francisco was eight times as great as the distance
+to Stockton.<a name="FNanchor_390_390" id="FNanchor_390_390"></a><a href="#Footnote_390_390" class="fnanchor">[390]</a></p>
+
+<p>In addition to their contention that mileage rates on shipments
+into Stockton compared unfavorably with rates on
+shipments into San Francisco, Stockton residents made the
+general charge that rates up the San Joaquin Valley were
+generally less than the rates down the valley. The rate from
+Stockton to Merced was said to be $6.80 per ton, but the rate
+from Merced to Stockton was $3.40. Stockton objected to
+forcing of the San Joaquin Valley to make San Francisco its
+market.<a name="FNanchor_391_391" id="FNanchor_391_391"></a><a href="#Footnote_391_391" class="fnanchor">[391]</a></p>
+
+<p class="pnb">Interstate Commerce Decision</p>
+
+<p>Complaints similar to those voiced by Stockton were registered
+by the people of Los Angeles. In the eyes of inhabitants
+of that city, the rates on northbound freight from Los
+Angeles consigned to the San Joaquin Valley were relatively
+higher than the rates from San Francisco south into that same
+valley. Yet, dissatisfied as Los Angeles was with the relation
+which her rates bore to those out of San Francisco, it seemed
+to other cities in the south that her position was on the whole
+more favorable than was that of her neighbors. In 1889 a
+dealer in the city of San Bernardino protested against being
+forced to pay a higher rate from eastern points than was
+charged the city of Los Angeles. He showed that the rate on
+agricultural implements from the Missouri River to San Bernardino<span class="pagenum"><a name="Page_273" id="Page_273">[273]</a></span>
+was $1.27 per hundred pounds while to Los Angeles it
+was $1.07. On stoves the rates were $1.19 and 99 cents, respectively,
+and on school furniture $1.55 and $1.35. This
+preference was alleged to be discriminative and illegal.<a name="FNanchor_392_392" id="FNanchor_392_392"></a><a href="#Footnote_392_392" class="fnanchor">[392]</a></p>
+
+<p>In a decision approving the discrimination against San
+Bernardino, the Interstate Commerce Commission in 1890
+remarked that originally southern California had been served
+from San Francisco direct; and that San Francisco jobbers
+had covered its territory. When the railroads reached Los
+Angeles they found it to their advantage to grant it low rates,
+not so much because it lay near the Pacific Ocean as because
+the interests of the Southern Pacific and especially of the
+Santa Fé demanded that some point in southern California
+should be given such a rate that merchandise from the East
+could be brought there all-rail and from that point be distributed.
+The fact that water competition was not the only
+influence which determined the Los Angeles rate from the
+eastern states was indeed shown later by the fact that the port
+of Los Angeles, San Pedro, did not receive a terminal rate
+until 1910, although Los Angeles itself had been given terminal
+privileges at least twenty years before.<a name="FNanchor_393_393" id="FNanchor_393_393"></a><a href="#Footnote_393_393" class="fnanchor">[393]</a></p>
+
+<p>Stockton, Los Angeles, and San Bernardino thus illustrate
+in their conflicting claims the constant effort of cities in California
+to extend the area over which they might distribute
+goods. Among other instances of dispute between California
+cities may be mentioned the demand of Santa Barbara in 1907
+to be made a Pacific Coast terminal,<a name="FNanchor_394_394" id="FNanchor_394_394"></a><a href="#Footnote_394_394" class="fnanchor">[394]</a> and the angry contentions
+of Santa Clara, San José, Marysville, Santa Rosa, and Fresno<span class="pagenum"><a name="Page_274" id="Page_274">[274]</a></span>
+in 1914 over the question of relative railroad rates from eastern
+points.<a name="FNanchor_395_395" id="FNanchor_395_395"></a><a href="#Footnote_395_395" class="fnanchor">[395]</a> The characteristics of the system of transcontinental
+rates which were involved in these complaints will be discussed
+in the following chapter.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_275" id="Page_275">[275]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XVI</h2>
+
+<p class="pch">THE TRANSCONTINENTAL TARIFF</p>
+
+<p class="pnb">Market and Railroad Competition</p>
+
+<p>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 separate group of railroad lines, to sell in a
+common area of consumption. Such competition occurred,
+for instance, when California oranges sold in the Mississippi
+Valley in competition with oranges from Florida, or when
+California lemons sold in the same territory in competition with
+Sicilian lemons imported at New Orleans or at New York.
+We have already seen that cities competed with each other
+within California itself, but this competition was less important
+within the state than it was in the case of hauls across the
+continent.</p>
+
+<p>It should be recalled that the Huntington interests possessed
+a virtual monopoly of local business, while the extent of the
+competition between carriers on through traffic may be briefly
+indicated by observing that the Central and Southern Pacific
+companies had direct relations with no less than six other
+transcontinental railroads, namely, the Union Pacific, completed
+in 1869; the Santa Fé, which reached the town of Deming
+and effected a connection with the Southern Pacific in
+1881; the Texas Pacific, built to El Paso in 1882; the
+Northern Pacific, opened from St. Paul to Portland in 1883;<span class="pagenum"><a name="Page_276" id="Page_276">[276]</a></span>
+the Canadian Pacific, completed in 1887; and the Great
+Northern, which was finished in 1893. None of these railroads
+reached San Francisco except the Santa Fé, which obtained an
+independent California connection in the late nineties. The
+Santa Fé entered Los Angeles, however, in 1885, and the
+Union Pacific enjoyed a connection with Portland through the
+Oregon Short Line and the Oregon Railway and Navigation
+Company as early as 1884. From Portland, Los Angeles, and
+Vancouver, freight could be distributed by water all up and
+down the Pacific Coast.<a name="FNanchor_396_396" id="FNanchor_396_396"></a><a href="#Footnote_396_396" class="fnanchor">[396]</a> Moreover, the competitive relations
+which Pacific Coast cities bore to each other made it necessary
+to keep their rates from the East on an approximate parity, and
+caused the Central Pacific to be affected by charges which were
+not on their face applicable to any point in which that company
+had an interest. There were combinations in respect to transcontinental
+railroad business from time to time, but none sufficient
+to control rates except for short periods.</p>
+
+<p class="pnb">Transcontinental Rate Adjustment</p>
+
+<p>These differences in conditions between state and interstate
+traffic doubtless influenced Mr. Huntington and his advisors
+when they came to establish what is known as the transcontinental
+rate adjustment. Yet any examination of the through
+rates charged by the Central Pacific will show that in their
+relation to each other, at least, these rates were built upon much
+the same principles as the local rates discussed in the previous
+chapter. There is no essential difference between a rate
+schedule which applies a lower rate between New York and San
+Francisco than it applies between New York and Denver,
+and one which provides a lower charge between San<span class="pagenum"><a name="Page_277" id="Page_277">[277]</a></span>
+Francisco and Los Angeles than between San Francisco and
+Bakersfield.</p>
+
+<p>The tendency in public discussion is to regard the transcontinental
+rate structure as different from all other structures.
+It is not different, either from the rate systems in force in some
+other parts of the country, such as the Southern classification
+territory, or from the general arrangement of rates in business
+local to California. The reason why transcontinental rates to
+Pacific terminals are low is that there is competition at terminal
+points. The reason why rates to intermediate stations are high
+is that competition is lacking at such places. The reason why
+local rates between San Francisco and Los Angeles are low is
+that shipments must be diverted from the water lines; while the
+rates from San Francisco to points in the upper San Joaquin
+Valley are high either because competition is absent or because
+it is less severe. Similar general causes in both cases produce
+similar results.</p>
+
+<p class="pnb">Rate Structure</p>
+
+<p>It is necessary to describe the transcontinental system at
+this point in order that the reader may have before him the
+outlines of the rate scheme for which the Huntington-Stanford
+group were in part responsible; but in view of the very general
+understanding which the public has of the system, the description
+will be brief. A summary account is as follows:</p>
+
+<p>The primary fact in transcontinental rate-making is that
+railroad rates between the Atlantic and the Pacific coasts of the
+United States were originally made, and have remained
+relatively low. The lowest rates quoted, however, have never
+until recently been available at all points in California, Oregon,
+and Washington, but only at certain selected cities. The towns
+to which low rates have been quoted under the transcontinental
+adjustment are called Pacific Coast terminals. Terminals, being
+mostly located on the seaboard, or within easy reach of it,<span class="pagenum"><a name="Page_278" id="Page_278">[278]</a></span>
+enjoy rates low enough to induce their residents to patronize
+the rail lines rather than the water lines around the Horn or
+the combined rail and water routes across the Isthmus of
+Panama and the Isthmus of Tehuantepec. This does not mean,
+of course, that rail rates to terminals have been as low as water
+rates, but it does mean that, all conditions of shipment, including
+speed, safety, and regularity, being taken into account, the
+advantages of shipment have been equalized. The rates to and
+from all terminals have been uniformly the same.</p>
+
+<p>A characteristic feature of the transcontinental rate system
+is that the rates to towns and cities in the vicinity of terminals
+are determined by the absence of water competition. Inasmuch
+as a shipper located at an inland point is obliged to send his
+goods to the seaboard before he can avail himself of the advantage
+of a water haul, it becomes possible to charge him a
+rate equal to the sum of the terminal rate and the local rate
+which he will have to pay without causing a diversion of his
+freight from the rail to the water lines. It is true that there is
+a certain limit to the total charge which can be demanded from
+such a shipper, due to the circumstance that at some figure the
+expense of a direct haul from the local point in question to the
+final destination of the goods upon a non-competitive mileage
+basis will be less than the combination upon the terminal, but
+this limit is effective only in the case of communities located a
+considerable distance to the east of the seaboard shipping
+point. One result of the application of this system to local
+points is that towns situated upon the direct line between eastern
+cities and Pacific terminals often pay higher rates than are
+charged upon freight passing through these places and carried
+possibly several hundred miles beyond to the coast terminals.
+Local communities so situated are known as “intermediate”
+towns.</p>
+
+<p>These three features of the transcontinental rate structure,
+namely, that rates between the Atlantic and the Pacific seaboards<span class="pagenum"><a name="Page_279" id="Page_279">[279]</a></span>
+are low, that the lowest rates are charged only to selected
+towns, and that rates to places other than terminals are made
+by combination upon the terminals, are the elements which have
+given character to this adjustment, and are therefore the points
+in it which are best known. To make a statement of the broad
+outlines of the plan complete, however, two other statements
+must be added.</p>
+
+<p class="pnb">Group System in the East</p>
+
+<p>The first additional characteristic of transcontinental rates
+is that on eastbound business, particularly in the case of the
+products of California agriculture, the same rates are applied
+from intermediate as from terminal points. This is to place
+the shipping communities of the state all upon an equal footing.
+The second feature has reference to conditions upon the eastern
+end of the transcontinental haul, rather than upon the western.
+In the eastern part of the country the system of terminal and
+intermediate rates is not applied upon transcontinental business.
+Instead, it has been customary to divide the area east
+of the Rocky Mountains into a series of great groups, now
+ten in number, and to quote to each of these groups rates which
+are either the same in all cases, or which increase as the distance
+grows greater.</p>
+
+<p>This failure to apply in the East the same principles which
+govern in the West has been doubtless due to the insistence of
+cities like Chicago that her rates be at least as low on shipments
+to and from the Pacific Coast as the rates which New York
+enjoys, as well as to the desire of railroads which begin at
+Chicago or the Mississippi-Missouri River to encourage the
+growth of business in the Middle West. Mr. Huntington was
+credited with the desire to establish rates from the Missouri
+River which should be lower than rates from New York, and
+the reasons which were in his mind may easily be imagined.
+Such rates were actually in effect between 1887 and 1894, but<span class="pagenum"><a name="Page_280" id="Page_280">[280]</a></span>
+the principle of graded charges was abandoned as a result of a
+rate war which broke out in 1894.<a name="FNanchor_397_397" id="FNanchor_397_397"></a><a href="#Footnote_397_397" class="fnanchor">[397]</a></p>
+
+<p class="pnb">Terminal Points</p>
+
+<p>This brief description of a complicated rate adjustment
+will show that in through as well as in local rate-making the
+Central Pacific management yielded to the unequal pressure of
+competition, and particularly of water competition, at different
+points. Generally speaking, the most important of all the
+forms of competition which the company had to meet was
+water competition. Common alike to local and to through
+transportation, this was important because it was difficult to
+control, because it operated on a low cost basis, because it
+offered transportation facilities to a very wide variety of classes
+of goods, and because its possibilities for expansion were
+indefinite.</p>
+
+<p>It is a mistake to believe that only low-grade commodities
+have been shipped by the water routes. While it is true that
+the principal movements by water are of the coarser freights,
+such as hardware, rails, pipe, sugar, hardwood lumber, and
+asphaltum, yet there has always been also a considerable transportation
+of higher grade articles, including cotton ducks and
+denims, beans, canned goods, and a large number of kinds of<span class="pagenum"><a name="Page_281" id="Page_281">[281]</a></span>
+general merchandise. Indeed, all the canned salmon and a very
+large percentage of the canned goods, together with two-thirds
+of the beans produced in California, originate near enough
+to the coast to reach tide-water at an expense not exceeding
+20 cents per hundred pounds. The Interstate Commerce Commission
+has remarked that almost every article which moves
+from the East to the Pacific Coast has been at times carried by
+the ocean,<a name="FNanchor_398_398" id="FNanchor_398_398"></a><a href="#Footnote_398_398" class="fnanchor">[398]</a> and the truth of this statement is generally conceded
+in discussions on the water business.</p>
+
+<p>It was the pervasive character of water competition, and the
+fact that such competition was felt upon the Pacific Coast and
+not at interior points, which originally established the position
+of the Pacific terminal.<a name="FNanchor_399_399" id="FNanchor_399_399"></a><a href="#Footnote_399_399" class="fnanchor">[399]</a> A terminal point, be it recalled, was,
+and is, under the transcontinental system, a place which enjoys
+rates low enough to attract traffic from the water to the railroad
+lines—a point also upon whose rates the rates to other
+points are based after the manner of the “basing point” system.
+San Francisco was a terminal. So was Stockton, Sacramento,
+Port Costa, Richmond, Oleum, Antioch, San José, Santa
+Clara, Los Angeles, and a considerable list of other towns. At
+the beginning the city of San Francisco received a lower rate
+than any other town because the competition of the water route
+between New York and San Francisco was most evident. Mr.
+Stanford, however, disclaimed responsibility for this limitation.
+His eastern connections, he said, were to blame. The Central
+Pacific was willing to be more liberal from the start, but the
+other lines would not join with it in establishing through rates,
+and insisted on their locals. For this reason goods originating
+at interior points were often hauled to San Francisco, and then
+back east, in part over the same line by which they had come.<a name="FNanchor_400_400" id="FNanchor_400_400"></a><a href="#Footnote_400_400" class="fnanchor">[400]</a><span class="pagenum"><a name="Page_282" id="Page_282">[282]</a></span>
+Such a condition was highly unsatisfactory to California
+towns other than San Francisco, yet by 1873 Sacramento,
+Marysville, and San José had been given terminal rates,<a name="FNanchor_401_401" id="FNanchor_401_401"></a><a href="#Footnote_401_401" class="fnanchor">[401]</a> and
+still later the list of terminal points was very greatly extended.
+In 1910 there were 152 terminal cities on the Pacific Coast, of
+which 97 were in California.<a name="FNanchor_402_402" id="FNanchor_402_402"></a><a href="#Footnote_402_402" class="fnanchor">[402]</a></p>
+
+<p class="pnb">Dissatisfaction with Rate System</p>
+
+<p>Owing to the peculiar intensity of competition at their
+doors, Pacific terminals therefore enjoyed exceptional advantages
+in rates as compared with their less favored neighbors.
+On the other hand, even the terminal cities expressed some
+dissatisfaction with the transcontinental adjustment. It
+appears, for instance, that the growth of great distributing
+centers was difficult under the scheme of rates which was
+applied. So long as terminals were few in number, a considerable
+concentration in business was possible. But when the
+terminals multiplied, the territory controlled by any single city
+became limited by the low rates accorded to the nearby
+terminal cities, and expansion in any one spot became difficult.
+This rendered the volume of business of the Pacific Coast
+jobbers comparatively small. In the case of the Business
+Men’s League of St. Louis v. the Atchison, Topeka and Santa
+Fé, already cited, the two eastern firms of most prominence in
+the proceedings were the Simmons Hardware Company, of
+St. Louis, and Hibbard, Spencer, Bartlett and Company, of
+Chicago. The former of these firms then did business in every
+part of the United States except New England, while the
+representatives of the latter testified that the operations of his
+house were limited only by the confines of the earth. Competition
+by concerns of this magnitude was difficult for California
+houses to meet, especially at times when the eastern<span class="pagenum"><a name="Page_283" id="Page_283">[283]</a></span>
+firms used the Pacific Coast as surplus territory in which they
+could afford to operate at a low margin of profit.</p>
+
+<p>Another ground for dissatisfaction on the part of the coast
+cities arose out of their belief that the system as applied, in
+spite of its recognition of the advantages of the Pacific Coast,
+still fell short of the real equities of the situation. It was insisted
+that San Francisco was improperly shut out from Denver,
+Cheyenne, Salt Lake City, and Ogden. The Southern
+Pacific was charged with carrying hats from New York by way
+of the Union and Central Pacific routes and then down the San
+Joaquin Valley to Yuma at a lower rate of freight than the San
+Francisco dealer could send the same goods from his city to
+the Colorado River.<a name="FNanchor_403_403" id="FNanchor_403_403"></a><a href="#Footnote_403_403" class="fnanchor">[403]</a> This same complaint was repeated by
+Mr. Leeds, of the San Francisco Traffic Association, in
+October, 1892, with the observation that if the same rate per
+mile were applied on eastbound traffic from San Francisco that
+was charged on westbound business from Chicago to Utah
+common points, then San Francisco would do the lion’s share
+of the Utah business instead of a mere 16 per cent.<a name="FNanchor_404_404" id="FNanchor_404_404"></a><a href="#Footnote_404_404" class="fnanchor">[404]</a></p>
+
+<p>There is no doubt that a good deal of dissatisfaction with
+the transcontinental system was felt first and last by shippers
+to and from the terminal cities. Yet, after all, the situation of
+these cities as a group was excellent. The communities which
+were really handicapped were the towns intermediate between
+the Pacific terminals and the East, towns which paid higher
+rates for less service than did the terminal cities, and which
+found that this condition not only increased the cost of living
+to their consumers, but prevented their merchants from enjoying
+a profitable distributing trade.</p>
+
+<p>It seems probable that the associates intended from the
+beginning to charge the mountain towns more on through
+hauls than was exacted from towns on the coast. Huntington
+relates a conversation which took place at Carson, Nevada, in<span class="pagenum"><a name="Page_284" id="Page_284">[284]</a></span>
+1861, between Stanford, Dr. Strong, Mr. Crocker, and himself,
+representing the railroad, and some twenty representative men
+of Nevada. The Nevada people observed that Huntington
+kept a pretty good hardware store, but that he was likely to
+leave it in the mountains if he started to build a railroad in
+Nevada. Huntington replied that he would look out for that,
+but, he continued, when the road was built he proposed to
+charge through rates which, while less than the Nevada people
+were paying for goods which then came to San Francisco by
+boat and were subsequently teamed across the mountains, would
+be materially greater than the rates to San Francisco. “We
+shall charge you for bringing back,” said he, “almost as much
+as we shall charge from New York.” After the road was
+built Huntington says he met one of these same men with
+whom he had talked in 1861. “Said I, ‘You recollect that
+talk we had in the Curry House in 1861?’ ‘Yes, oh yes.’ Well,
+we talked about that. He said, ‘You’ve got me there, Huntington.’
+‘Well,’ said I, ‘I said you would grumble. Now,’
+said I, ‘you shut up.’”<a name="FNanchor_405_405" id="FNanchor_405_405"></a><a href="#Footnote_405_405" class="fnanchor">[405]</a></p>
+
+<p class="pnb">Objections</p>
+
+<p>It is to be presumed that Mr. Huntington’s rejoinder was
+effective in the particular discussion which he relates. Yet the
+grievances of the interior towns found full and repeated expression
+after 1869, and indeed are still emphatically presented
+at the present day. The more fundamental criticisms of the
+transcontinental rate system are the following: The principal
+objection directed against the whole adjustment is that it leads
+to charges to intermediate points which are prima facie
+unreasonable. Speaking of the rates on iron and steel, a
+representative of the Traffic Bureau of Utah called the attention
+of the House Committee on Interstate and Foreign Commerce
+in 1918 to the fact that the rate on iron and steel articles<span class="pagenum"><a name="Page_285" id="Page_285">[285]</a></span>
+for export from Chicago territory to Pacific Coast terminals
+was 40 cents per hundred weight or 3.54 mills per ton per
+mile. He continued:</p>
+
+<p class="pbq p1">They take an identical carload of the same commodity, and
+when it is going to the Pacific Coast for domestic consumption
+the rate is 65 cents a hundred, or 5.76 mills per ton-mile.
+If they were to apply that rate at the Utah common points—the
+same 65-cent rate—it would pay 8.65 mills per ton-mile.
+But they say, “We cannot afford that; you must pay 10.84. We
+haul it for a man in Russia for 3.54, but that is only the out-of-pocket
+cost. We will make you a rate of 10.84, which is a
+lower rate than you are entitled to.</p>
+
+<p class="pbq">I think any article, whether it is transportation or anything
+else, that could be produced at some profit at a price of 3.54,
+when you pay 5.76 for it you are paying a handsome profit; and
+if you pay 8.65 for it you are paying an abnormal profit;
+and if you pay 10.84 for the same thing you are being outrageously
+imposed upon, which is what we are doing.”<a name="FNanchor_406_406" id="FNanchor_406_406"></a><a href="#Footnote_406_406" class="fnanchor">[406]</a></p>
+
+<p class="p1">The second objection of the interior cities is that the system
+of transcontinental rates limits the territory in which intermediate
+wholesale firms can do a distributing business; and the
+third ground of complaint, resulting from the other two, is
+that the policy of permitting low rail rates to the coast cities
+has the effect of building up large cities on the seaboard at the
+expense of the whole interior country.</p>
+
+<p class="pnb">Reply of Railroads</p>
+
+<p>In replying to these objections the coast towns take the
+position that they are not especially concerned with the rates to
+intermountain places, nor indeed with the rates which the
+railroads make from coast to coast, except in the sense that the
+greater the number of carriers which participate in transcontinental<span class="pagenum"><a name="Page_286" id="Page_286">[286]</a></span>
+business, the better the service is likely to be. Secure in
+the possession of adequate water connection, they do not expect
+to pay higher rates than they have paid in the past, whatever
+policy the railroads may adopt. They have no controversy with
+the intermediate territory, and only support the present adjustment
+because they conceive it to be for the best interests of the
+country as a whole.</p>
+
+<p>The burden of the defense therefore falls upon the railroads,
+and the railroads assert that the policy of quoting low
+rates to meet the force of water competition is necessary if the
+comparatively moderate rates to intermountain territory are to
+be continued. Unless—said Mr. Spence of the Southern Pacific,
+in his recent testimony before the House Committee on
+Interstate Commerce—the rail lines are permitted to make rates
+which will hold the through business, the terminal roads will
+lose all of the net revenue derived from the port rate upon what
+is a very large volume of traffic. The millions of dollars
+involved cannot be withdrawn from the net revenues of the
+railroads without impairing their efficiency and usefulness,
+while to compel the carriers to apply sea-compelled rates to all
+traffic would yield an inadequate revenue, because it would
+mean that the traffic as a whole would be carried at rates which
+were not sufficient to cover all the elements of cost, including
+fixed charges and other similar expenses.<a name="FNanchor_407_407" id="FNanchor_407_407"></a><a href="#Footnote_407_407" class="fnanchor">[407]</a></p>
+
+<p class="pnb">Further Comments</p>
+
+<p>The most casual description of any basing system such as
+the one which the railroads apply to transcontinental freight,
+suggests at once several matters in respect to which special
+defense and justification are required. One just cause of complaint
+arises out of the fact that the through rate to any point<span class="pagenum"><a name="Page_287" id="Page_287">[287]</a></span>
+except to a basing point is made up by the addition of two rates,
+each of which includes an allowance for the cost to the carrier
+of providing terminal facilities, or four terminals in all,
+whereas no actual shipment makes use of terminal facilities at
+more than two points, namely, the place of origin and the place
+of destination.</p>
+
+<p>A second cause for criticism of a basing system is due to
+the striking disregard of distance which is inherent in it.
+Shippers are not only apt to feel that for reasons of natural
+right rates for transportation should vary with the distance
+moved, but, as we have seen, they are usually quite incapable of
+being convinced that the costs of shorter hauls are not less
+than the costs of longer ones, so that for this reason also
+the nearer places should enjoy the lower rates. Again, and this
+also has been suggested in the preceding discussion, a basing
+system is attacked because it is said to centralize business
+unduly by forcing the distributing business into the control of
+a few localities such as the Pacific Coast terminals, to the
+exclusion of outlying cities which could handle it more cheaply
+and more conveniently under a proper adjustment of rates, by
+reason of their greater nearness both to centers of supply and
+of consumption.</p>
+
+<p>There is no question that the rate system upon the Pacific
+Coast made it difficult for intermediate and local towns to import
+supplies directly from the East and to distribute them
+through their own organization. This was not the result of the
+difference between terminal and local rates alone, but was the
+combined result of the practice of the transcontinental carriers
+with respect to rates and their practice with regard to carload
+shipments. That is to say, the carriers not only quoted generally
+lower rates, carload against carload, and small consignment
+against small consignment, to terminal cities than to
+intermediate or to interior towns, but they also granted many
+carload ratings to terminals which were altogether denied to<span class="pagenum"><a name="Page_288" id="Page_288">[288]</a></span>
+their interior competitors. In some cases this occasioned an
+extraordinary difference in the total charge.</p>
+
+<p>On the other hand, it should not be forgotten that to
+encourage distribution through Pacific Coast terminals was not
+necessarily to concentrate the whole business of distribution.
+The competition between the Pacific terminal and the eastern
+jobber was just as real as that between the Pacific terminal
+and the intermediate point. It is sometimes forgotten how
+active this eastern competition was. That it continually
+threatened the western distributor is shown by the fact that
+in spite of the advantages enjoyed by western terminals, 50 per
+cent of the jobbing business in the hardware trade in southern
+California was done in 1902 by houses east of the Missouri
+River, so that the Interstate Commerce Commission expressed
+the opinion that in the absence of some distinct advantage in
+the rate it would be very difficult for Pacific Coast dealers to
+hold their own.<a name="FNanchor_408_408" id="FNanchor_408_408"></a><a href="#Footnote_408_408" class="fnanchor">[408]</a> In central California the proportion of the
+jobbing business done by eastern firms ranged from 25 to 40
+per cent. Certainly no decentralization in business would have
+taken place had the California distributors been compelled to
+withdraw in favor of men in Chicago and St. Louis, nor would
+the aggregate cost of getting goods from producer to final consumer
+have been decreased.</p>
+
+<p class="pnb">Inconsistency</p>
+
+<p>It has been made clear in the discussion of transcontinental
+rates, that the transcontinental carriers as a group have not
+been consistent in applying the principles upon which they rely
+in justification of their charges. Not only have towns like
+Los Angeles been given terminal rates for reasons of general
+policy, but cities in the Mississippi Valley, upon the other end
+of the transcontinental haul, have been granted the same rates
+as New York on business to and from the Pacific Coast, in<span class="pagenum"><a name="Page_289" id="Page_289">[289]</a></span>
+order to place them on an equality with points on the Atlantic
+seaboard. As the Interstate Commerce Commission remarked
+when the matter was brought to its attention, there is no
+logical ground for recognizing the desire of Chicago to compete
+with New York, and for refusing to accord the same privilege
+to Denver.<a name="FNanchor_409_409" id="FNanchor_409_409"></a><a href="#Footnote_409_409" class="fnanchor">[409]</a> If market competition is to be recognized in one
+instance, it should be in another.</p>
+
+<p>It is a striking fact that when the commission was considering
+the question of transcontinental rates in 1910, it appeared
+that the great bulk of traffic destined to intermountain cities
+originated at Chicago or at points west. Thus out of 21,000,000
+pounds of carload freight moved from eastern territory to
+Reno, Nevada, during the year 1908, only 4,500,000 pounds
+originated east of Chicago, and of approximately 1,000,000
+pounds of less than carload freight concerning which data were
+available, only 10 per cent originated at the Atlantic Coast
+cities of New York, Boston, and Philadelphia. The commission
+found in the case in which these facts were brought out
+that taking traffic to Reno as a whole, 75 per cent of it had its
+source between Chicago and Denver.<a name="FNanchor_410_410" id="FNanchor_410_410"></a><a href="#Footnote_410_410" class="fnanchor">[410]</a> On this traffic, at least,
+the effect of water competition was slight, and yet it is upon
+the assumed presence of water competition that the transcontinental
+system primarily rests.</p>
+
+<p class="pnb">Not Responsive to Changed Conditions</p>
+
+<p>Nor have the transcontinental carriers been quick to recognize
+changes in conditions which, temporarily at least, have
+eliminated water competition from coast to coast. When the
+Panama Canal was opened, considerable apprehension was felt<span class="pagenum"><a name="Page_290" id="Page_290">[290]</a></span>
+by the carriers lest the new all-water route between the Pacific
+and the Atlantic seaboards should divert a substantial portion of
+the transcontinental traffic formerly handled by the railroads.
+On this ground the railroads applied to the Interstate Commerce
+Commission, and received permission not only to continue
+the practice of quoting higher rates to interior towns
+than were charged between eastern points and the Pacific
+Coast,<a name="FNanchor_411_411" id="FNanchor_411_411"></a><a href="#Footnote_411_411" class="fnanchor">[411]</a> but actually to increase the difference upon a selected
+list of eastbound articles.<a name="FNanchor_412_412" id="FNanchor_412_412"></a><a href="#Footnote_412_412" class="fnanchor">[412]</a> So much was directly in line with
+previous action and was to be expected.</p>
+
+<p>The carriers were not, however, so ready to recognize the
+interruption of canal traffic as they had been prepared to take
+notice of its beginning, and in spite of slides and war conditions
+which suspended water competition, it took an order of the
+Interstate Commerce Commission to secure an equality in the
+treatment of intermountain and seaboard cities to which the
+former in accordance with the fundamental theory of transcontinental
+rates were entitled under the new conditions.<a name="FNanchor_413_413" id="FNanchor_413_413"></a><a href="#Footnote_413_413" class="fnanchor">[413]</a></p>
+
+<p>In forming an opinion upon the rate system of the Central
+Pacific, however, too much weight must not be attached to
+inconsistencies in application so long as these are not altogether
+arbitrary, any more than to the demand of competing cities for
+their “fair share” of the business that is to be done. City
+ambitions are limitless, and impossible to reconcile. The question
+is not how to determine the territory within which a given
+city may be said to have a right to distribute its goods, but
+whether or not the rate system introduced by the Huntington
+group, all things considered, promotes the interests of the
+territory which is served better than some system that may be
+suggested.</p>
+
+<p><span class="pagenum"><a name="Page_291" id="Page_291">[291]</a></span></p>
+
+<p class="pnb">Basing Rate System Necessary</p>
+
+<p>It is the writer’s opinion that the transcontinental rate
+system has always had evident defects. In the first place, it has
+generally provided low rates to towns and it has quoted low
+rates on commodities which have no access to the water routes.
+In the absence of competition the distance principle should prevail.
+Second, it has often failed in the past to make concessions
+to the cost basis of rate-making, which would have removed
+complaint without altering the plan in principle, such concessions,
+for example, as the reduction of rates to interior points
+to something less than the sum of through and local rates to
+allow for the relatively small amount of terminal service rendered.
+And, finally, it has increased the amount of transportation
+incident to the distribution of a given amount of freight.
+While the assertion of cities without terminal privileges that
+they have the right to do a specified amount of business is to
+be received usually with skepticism, it does seem probable
+that the transcontinental railroads would have reduced the
+aggregate cost of distributing transcontinental freight had
+they encouraged more than they did the growth of the interior
+towns, provided that they had supported these towns
+both against Chicago and St. Louis and against the Pacific
+Coast.</p>
+
+<p>This same policy would have had the important advantage,
+from the railroad’s point of view, of developing industry at
+points which were not affected by every change in the rates of
+its competitors. The Central Pacific was not the first railroad
+in the country confronted with the problem of how to treat
+the non-competitive points upon its lines. Nor, unfortunately,
+was it the only railroad which adopted the drifting policy of
+quoting rates to hold the business, thus favoring the towns
+served also by its rivals in preference to towns more peculiarly
+its own, and through the stimulus given to such places, in the
+end creating a distribution of production which, of all possible<span class="pagenum"><a name="Page_292" id="Page_292">[292]</a></span>
+alternative distributions, was the one which rendered its hold
+upon the business of its territory the least secure.</p>
+
+<p>In spite of these defects, it is the writer’s judgment that
+some basing rate system, in its broad outlines similar to the
+transcontinental system actually applied, was necessary and desirable
+for the development of the West. The principal advantages
+of such an arrangement were that it gave to the Pacific
+Coast the benefits of competing rail and water routes as no distance
+system could have done, and that it enabled the railroads
+to fill their trains with traffic which paid them something over
+the out-of-pocket costs. It is clear that the interior cities were
+mistaken in supposing that this practice increased the rates
+which they had to pay. On the contrary, it reduced them.
+There is also reason to believe that the transcontinental rate
+system decentralized the distribution of goods, while it certainly
+afforded western buyers and producers in most instances the
+important advantage of access on equal terms to the markets of
+Chicago and of New York.</p>
+
+<p>There is little evidence that either Huntington, Stanford,
+Crocker, or Hopkins had an active part in moulding the local
+or the through rate structures of the Central and the Southern
+Pacific railroads. The work was probably done by the traffic
+experts whom they hired, of whom the chief was that very able
+individual, J. C. Stubbs. The contribution of the associates
+may be taken to have been a clear appreciation of the advantage
+of monopoly to railroad revenues, and the consistent support
+which they gave to the efforts of men who knew more about
+the subject of railroad rates than they did themselves.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_293" id="Page_293">[293]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XVII</h2>
+
+<p class="pch">THE TRAFFIC ASSOCIATION OF CALIFORNIA</p>
+
+<p class="pnb">Discontent</p>
+
+<p>The discussion of the transcontinental rate structure leads
+naturally to a consideration of a very serious controversy in
+which the Southern Pacific became engaged in 1891. This
+controversy arose as the result of an attempt by certain merchants
+of San Francisco to secure lower distributive rates in
+the interior California valleys. The official statement of the
+shippers’ side of the case in this lively conflict of the nineties
+has been compiled and published.<a name="FNanchor_414_414" id="FNanchor_414_414"></a><a href="#Footnote_414_414" class="fnanchor">[414]</a> No similar statement of
+the position of the railroad has come out, but the important
+facts are pretty well on record.</p>
+
+<p>There is no question that the political and commercial
+policies of the Southern Pacific had by 1890 engendered
+restlessness and discontent among the commercial classes on
+the Pacific Coast. It was believed that railroad rates from
+the East were high. It was thought that use of the water lines
+had been limited by the special contract system while that was
+in force, and that water competition had been affected subsequently
+by arrangements between the transcontinental lines and
+the Pacific Mail Steamship Company. The work of the State
+Railroad Commission had proved disappointing. In short, the
+situation was such that it needed only the pressure of the business
+depression of 1890 to 1897 to stir men to vigorous
+action.</p>
+
+<p><span class="pagenum"><a name="Page_294" id="Page_294">[294]</a></span></p>
+
+<p class="pnb">Coastwise Trade via Foreign Port</p>
+
+<p>The episode which is to be described began with an attempt
+on the part of certain San Francisco merchants to use British
+clippers for the importation of freight from New York, in
+spite of the fact that the right to engage in coastwise traffic
+was limited by statute to ships flying the American flag. It
+appears that in 1891 a consignment of nails was shipped from
+New York in a Belgian vessel to Antwerp, consigned to a
+commercial house there. At Antwerp the merchandise was
+discharged and landed, and from that city it was then shipped
+on a British vessel to Redondo, California, where it was
+entered at the customs house as a manufacture of the United
+States, entitled as an American product to free entry under
+American law. Nor was this the only case of the sort. In all,
+sixteen shipments were sent to California via European ports
+between October 16, 1891, and May 28, 1892.</p>
+
+<p>The obvious intent of the whole transaction was to evade
+the statute governing the movements of merchandise by water
+between United States ports, in order to effect a saving in
+freight estimated to amount to $4 a ton. In spite of the
+somewhat transparent nature of the business, the District
+Court of the United States for the Southern District of California
+and the Circuit Court of Appeals both held that the
+operation had been legally accomplished. According to these
+courts the law forbade a method, not a result, and unless goods
+were transported from one port of the United States to another
+port in a vessel belonging in whole or in part to foreign subjects,
+no penalty was incurred.<a name="FNanchor_415_415" id="FNanchor_415_415"></a><a href="#Footnote_415_415" class="fnanchor">[415]</a></p>
+
+<p>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<span class="pagenum"><a name="Page_295" id="Page_295">[295]</a></span>
+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.<a name="FNanchor_416_416" id="FNanchor_416_416"></a><a href="#Footnote_416_416" class="fnanchor">[416]</a> This
+ended the first phase of the revived competition of 1891.</p>
+
+<p class="pnb">Organization of Association</p>
+
+<p>The same month which saw the entrance of the 250 kegs
+of nails into the port of Redondo, saw also the establishment of
+the so-called Traffic Association in San Francisco. The Traffic
+Association was originally conceived as an organization of
+merchants of San Francisco for mutual protection, and for
+overcoming by united effort an alleged unjust discrimination
+against the business interests of the city. In fact the name
+first proposed for the new body was “Merchants’ Traffic
+Association,” and it was intended that the executive committee
+should be composed of eighteen members of the mercantile
+community. These details were, however, changed,<a name="FNanchor_417_417" id="FNanchor_417_417"></a><a href="#Footnote_417_417" class="fnanchor">[417]</a> the words
+“merchant” and “mercantile community” were left out, and
+when the association was finally organized on October 30,
+1891, the constitution and by-laws provided merely for the admittance
+of merchants, manufacturers, producers, and others
+interested in and favorable to its objects. Railroad employees
+or persons holding free passes over railroads were the only
+classes debarred. Subsequently an attempt was made to interest
+parties outside of San Francisco, but without large success.
+Characteristically the Traffic Association began and remained
+an association of San Francisco shippers for their own protection,
+particularly in the matter of transportation rates. Fifteen
+out of nineteen members of the first executive committee were
+representatives of San Francisco firms, and 97 per cent of the
+membership did business in that town. The first president was
+Mr. Stetson, of Holbrook, Merrill, and Stetson, and from<span class="pagenum"><a name="Page_296" id="Page_296">[296]</a></span>
+first to last the overwhelming proportion of the association
+funds came from San Francisco.</p>
+
+<p>The government of the Traffic Association was placed in
+the hands of an executive committee from which were to be
+selected the usual executive officers. All power was to be
+vested in the committee; that is to say, the executive committee
+was to have, in general, entire control and management of the
+affairs of the association, and in particular was to appoint a
+manager and other employees, who were to be relied on for the
+active work. By a special section the committee reserved the
+right to route all freight of members, should emergency require
+it and provided that the action was approved by at least
+ten members of the committee. Membership fees ranged from
+$60 to $150 per annum, payable quarterly in advance. Moreover,
+the constitution provided that any unusual work undertaken
+for the benefit of any particular line of trade, which
+entailed any unusual expenditure, should be charged pro rata
+to the firms or corporations most directly affected, and in accordance
+with the benefits derived. No membership was to be
+for a shorter period than two years.<a name="FNanchor_418_418" id="FNanchor_418_418"></a><a href="#Footnote_418_418" class="fnanchor">[418]</a></p>
+
+<p class="pnb">Functions</p>
+
+<p>Inasmuch as some controversy later occurred with respect
+to the proper purposes of the Traffic Association of California,
+it is necessary to be explicit regarding the functions which, at
+the beginning, it was expected that the association would perform.
+According to the statements of its promoters, the
+association was not formed to fight the Southern Pacific or
+any other individual railroad company. The assertion was
+repeatedly made, on the contrary, that the intent was, by organization,
+merely to enable the shippers of California to deal
+collectively with the railroads, instead of one by one as heretofore,<span class="pagenum"><a name="Page_297" id="Page_297">[297]</a></span>
+and so to secure a presentation of the shippers’ point of
+view which would carry weight by reason of the united
+sentiment behind it. In this way the shippers’ bargaining
+power would be improved without giving legitimate cause for
+offense to parties upon the other side, and without exposing
+individual complainants to retaliation.</p>
+
+<p>In the invitation to the mass meeting which took up the
+question of organization on the 17th of October in San
+Francisco, it was explained that merchants, producers, and
+shippers could accomplish nothing at that time because they
+were disorganized. By opposing a solid front to the railroad
+combine, it was said, a good deal could be accomplished.
+Further, it was declared that the railroad would not resist such
+a movement. J. B. Stetson, chairman of the mass meeting,
+stated:</p>
+
+<p class="pbq p1">Our object ... is to organize a Freight Bureau or Traffic
+Association or whatever it may be termed, whose purpose shall
+be for mutual protection and extension of the interests of San
+Francisco; for overcoming, by united effort, discriminations
+and inequalities against the interests of San Francisco; for
+representation in conferences upon matters of importance to
+the shipping public to and with railroad or transportation companies.
+Associations similar to the one we propose forming
+here are in existence in all the eastern cities, and great benefits
+have accrued from them, and will not fail to prove successful
+here. We do not meet here for the purpose of waging
+warfare or encouraging antagonisms between the shipping
+public and the railroads, or any transportation lines. We believe
+that the same theory would govern them as would govern
+ourselves as business men in the redress of any grievance of
+our customers. We believe that by united action we can present
+to the railroad and transportation companies views in reference
+to freights, classifications, etc., that will cause them to make
+changes that will be beneficial both to ourselves and to
+them.... I cannot too earnestly advise prudence and caution
+in the outset, for if this association is started properly, great<span class="pagenum"><a name="Page_298" id="Page_298">[298]</a></span>
+good will come from it and [it will] prove of lasting benefit to
+the commercial community.<a name="FNanchor_419_419" id="FNanchor_419_419"></a><a href="#Footnote_419_419" class="fnanchor">[419]</a></p>
+
+<p class="pnb">First Meeting</p>
+
+<p>The first public announcement that a traffic association was
+in process of organization was made late in September, 1891,
+at which time merchants were asked to pledge themselves to
+send representatives to a mass meeting of merchants, producers,
+and manufacturers to be held on October 17 in San Francisco.<a name="FNanchor_420_420" id="FNanchor_420_420"></a><a href="#Footnote_420_420" class="fnanchor">[420]</a>
+This mass meeting occurred as planned. There were speeches,
+discussion, and amendment of proposed resolutions, and the
+final indorsement of a plan for joint action. That is to say,
+it was declared to be the sense of those present that an organization
+be formed, that the management of it be entrusted to an
+executive committee and to the usual officers, and that revenue
+be derived from dues. Most of the program was cut and
+dried. Among the incidental but interesting features of the
+meeting, however, was an address by a gentleman from Fresno
+calling for the construction of another competing railroad, and
+the presentation of a communication from San Diego, suggesting
+that the Santa Fé be induced to extend its line to San Diego,
+and that provision be then made for connection by sea between
+that city and San Francisco.<a name="FNanchor_421_421" id="FNanchor_421_421"></a><a href="#Footnote_421_421" class="fnanchor">[421]</a></p>
+
+<p>The net result of the meeting of October 17 was to reveal
+an interest in the plan for a shippers’ organization which
+encouraged the promoters to go ahead, while at the same time
+the meeting provided the machinery which made further progress
+possible. From now on, matters moved rapidly. The
+executive committee was appointed, and its membership was
+made public on October 23;<a name="FNanchor_422_422" id="FNanchor_422_422"></a><a href="#Footnote_422_422" class="fnanchor">[422]</a> on October 30 a complete constitution<span class="pagenum"><a name="Page_299" id="Page_299">[299]</a></span>
+and set of by-laws was adopted by the association, and
+on November 2 a general call for members was issued.<a name="FNanchor_423_423" id="FNanchor_423_423"></a><a href="#Footnote_423_423" class="fnanchor">[423]</a></p>
+
+<p class="pnb">Interior Towns</p>
+
+<p>It was in securing members that the Traffic Association met
+with its first check—a check which consisted in the general
+refusal of residents of the country districts and of the interior
+towns to join with San Francisco in its fight against the railroads.
+It has already been pointed out that 97 per cent of the
+members of the association did business in San Francisco, and
+the check came in spite of a deliberate and persistent attempt
+by the Traffic Association to conciliate the interior. It was
+partly with the idea of gaining support from outside of San
+Francisco, for instance, that the mass meeting of October 17
+changed the name of the association from that of “Merchants’
+Traffic Association of San Francisco and the State of California”
+to the simpler “Traffic Association of California.”
+Another concession was the appointment of four outside
+members to the controlling executive committee—a proportion
+far exceeding either the relative outside membership or the
+funds contributed from that source. Still other attempts to
+gain support were made through meetings held in Fresno and
+San José at which the advantages of the Traffic Association
+idea were presented.<a name="FNanchor_424_424" id="FNanchor_424_424"></a><a href="#Footnote_424_424" class="fnanchor">[424]</a></p>
+
+<p class="pnb">Dissension</p>
+
+<p>There appears, however, to have been some difference of
+opinion within the Traffic Association itself with regard to<span class="pagenum"><a name="Page_300" id="Page_300">[300]</a></span>
+the best policy to be pursued toward the interior. The fundamental
+complaint of San Francisco was that her distributing
+territory was being curtailed. Isidor Jacobs said quite frankly
+that San Francisco jobbers believed at the time when the
+Traffic Association was formed that the jobbing interests of the
+city were in a bad way. It was claimed, and with reason, he
+said, that San Francisco had natural advantages, and that in
+recognition of these advantages railroad rates from eastern
+points to San Francisco should be sufficiently less than to
+interior points, to enable San Francisco jobbers to control the
+distribution even of eastern goods as far as many Nevada
+points on the east, and as far as Tucson, Arizona, on the
+south.<a name="FNanchor_425_425" id="FNanchor_425_425"></a><a href="#Footnote_425_425" class="fnanchor">[425]</a></p>
+
+<p>Ideas the same as those expressed by Mr. Jacobs appeared
+in a petition made public in December, 1892, and signed by
+over 150 firms in San Francisco, and in an address published at
+the same time which purported to be signed by 75 per cent
+of the membership of the Traffic Association.<a name="FNanchor_426_426" id="FNanchor_426_426"></a><a href="#Footnote_426_426" class="fnanchor">[426]</a></p>
+
+<p>Nor were there lacking specific complaints to the same
+general effect. A San Francisco merchant explained that he
+had a carload rate of $1.75 per hundredweight on goods which
+he imported from Chicago to San Francisco. The rate on a
+hundredweight of the same commodity from Chicago to Fresno
+was $2. The local rate from San Francisco to Fresno was
+nearly half the rate per hundredweight from Chicago to Fresno,
+being in fact 90 cents per hundredweight. The addition of the
+90 cents to the carload rate of $1.75 made it evident how small
+a chance he had to do a jobbing trade with the interior in these
+goods.<a name="FNanchor_427_427" id="FNanchor_427_427"></a><a href="#Footnote_427_427" class="fnanchor">[427]</a> Another San Francisco dealer, a grocer by trade, was
+reported as saying that he had been compelled to give up his
+grocery business because his customers could buy directly from<span class="pagenum"><a name="Page_301" id="Page_301">[301]</a></span>
+the East more cheaply than he could supply them. The same
+man asserted that his customers could save a cent and a half
+per pound on tobacco by dealing direct with Chicago.<a name="FNanchor_428_428" id="FNanchor_428_428"></a><a href="#Footnote_428_428" class="fnanchor">[428]</a></p>
+
+<p>It was unfortunate that dissension arose within the Traffic
+Association on so fundamental a point of policy as the proper
+attitude that should be taken toward interior towns, for the
+effect was, in spite of the best efforts of the men in control of
+association affairs, to deprive that body of the support of the
+interior. Moreover, opportunity was given to newspapers
+friendly to the railroads to attack the whole project as a selfish
+attempt on the part of San Francisco to improve her distributing
+position. The leading paper which took advantage of this
+opportunity was the <i>Sacramento Union</i>. This journal for a
+number of months denounced San Francisco as a city of
+hucksters, seeking a monopoly of the jobbing and wholesale
+trade of the Pacific Coast, not in the interest of the consumer,
+but in order to widen the margin between the cost of goods in
+which they dealt and the price at which these goods could be
+sold on the market. The charge was not fair, but the attitude
+of Mr. Jacobs and his friends embarrassed the Traffic Association
+in denying it.</p>
+
+<p class="pnb">Traffic Manager</p>
+
+<p>In spite of the unwillingness of the state as a whole to join
+in a campaign which appeared to be designed primarily in the
+interests of San Francisco, the promoters of the new movement
+proceeded systematically with their plans. On November
+18, 1891, the executive committee appointed a subcommittee to
+select a traffic manager for the association. Much depended
+on the choice, and the committee was fortunate in the man
+whom it secured, Joseph S. Leeds, of Ohio. Mr. Leeds was
+an individual of marked ability, with a valuable railroad experience<span class="pagenum"><a name="Page_302" id="Page_302">[302]</a></span>
+behind him. He had been telegraph operator, station
+agent, assistant general freight agent, general freight agent,
+and traffic manager on various eastern railroad systems, and at
+one time had held the position of chairman of the Transcontinental
+Association. He had been removed from his post of
+traffic manager of the Missouri Pacific some time before on
+a charge of rate-cutting, and might reasonably be believed to
+cherish some animosity toward the railroads which had once
+employed him. It may be added, as a fact of some importance
+to the future of the Traffic Association, that Mr. Leeds possessed
+qualities of energy and aggressiveness which unfitted
+him for a temporizing or conciliatory rôle. Under his leadership
+the association promptly became a fighting organization,
+and remained such until its demise. Mr. Leeds arrived in San
+Francisco on November 21, 1891, and at once entered upon
+his duties.<a name="FNanchor_429_429" id="FNanchor_429_429"></a><a href="#Footnote_429_429" class="fnanchor">[429]</a></p>
+
+<p class="pnb">Policy</p>
+
+<p>For some weeks after Mr. Leeds’ arrival, the policy which
+the Traffic Association should pursue remained unsettled. It
+will be recalled that the promoters of the association had
+originally contemplated a policy of harmonious co-operation
+with the railroad. This implied negotiation and exchange of
+views between shippers and railroad. Mr. Leeds, however,
+seems soon to have lost faith in such a method of procedure,
+if indeed he ever possessed faith to lose. He once remarked
+that no one ever got anything from a railroad just by asking
+for it. Moreover, the refusal of the executive committee of the
+association to push demands for preferential treatment of San
+Francisco as compared with other cities, removed from the
+field of negotiation a matter which called for readjustment of
+rates only, without reduction of railroad revenues, upon which<span class="pagenum"><a name="Page_303" id="Page_303">[303]</a></span>
+San Francisco and the Southern Pacific might possibly have
+agreed, and left only demands which the railroad was likely
+to fight with all its strength. Whatever the reason, no friendly
+approach to the Southern Pacific seems to have been made.</p>
+
+<p>The apparent methods of bringing pressure to bear upon
+the rail carriers, on the assumption that the plan of friendly
+negotiation was to be abandoned, were three: the first was that
+of appeal to the Railroad Commission of the state and ultimately
+to the state legislature; the second was the encouragement
+of water competition; and the third was the construction,
+or assistance in the construction, of a competing railroad, if
+not across the continent, yet at least to a junction with one of
+the existing roads, such as the Santa Fé or the Union Pacific.
+It must be admitted that no one of these resources looked
+particularly promising in 1891, but together they exhausted
+the field. To appeal to the Interstate Commerce Commission
+was not thought of, and in view of the limited authority and
+brief experience of that body it is not probable that an appeal
+would have produced important results.</p>
+
+<p class="pnb">“Merchants’ Shipping Association”</p>
+
+<p>In December, 1891, the report of the Nicaragua Canal
+Commission to the federal legislature gave the Traffic Association
+opportunity to collect signatures to a petition, and generally
+to indorse the project for the construction of an Isthmian
+canal. The first circular emanating from Mr. Leeds’ office,
+however, was dated January 6, 1892, and called the attention
+of shippers to a reduction in rates from San Francisco to Puget
+Sound points. This was followed later in the same month by
+a circular which attracted some attention, and which pointed
+out that shippers of freight had the legal right to designate
+the route over which their property should move from point
+of shipment to destination. It was recommended that all members
+of the Traffic Association route their freight in every<span class="pagenum"><a name="Page_304" id="Page_304">[304]</a></span>
+case where they were the owners of the property at point of
+shipment. Meanwhile, a force of clerks was set to work, and
+elaborate data relating to railroad expenses and railroad rates
+in California and elsewhere were compiled.</p>
+
+<p>The first aggressive step of the new association was taken
+early in 1892, when the executive committee directed the
+attention of members to the possibilities of water competition.
+This was done after a meeting of the executive committee in
+March, at which the committee voted that a line of clipper ships
+should be established between New York and San Francisco,
+and referred the preparation of plans for such a line to the
+president and manager of the association.<a name="FNanchor_430_430" id="FNanchor_430_430"></a><a href="#Footnote_430_430" class="fnanchor">[430]</a></p>
+
+<p>In response to the proposal of the Traffic Association, nine
+of the larger jobbing firms in San Francisco formed in May,
+1892, a so-called “Merchants’ Shipping Association.” It was
+the purpose of the new body to finance a line of clipper ships
+as proposed, and to cause it to be operated in free competition
+with the existing lines of William Dimond and Company, and
+Sutton and Beebe, concerns which, it was believed, were conducted
+in the interests of the Southern Pacific. This was too
+ambitious an undertaking for the Traffic Association to underwrite
+with its slender revenues of about $25,000 a year.</p>
+
+<p>Three months later, in August, the membership of the
+Shipping Association was largely increased, and a guaranty
+fund of from $85,000 to $100,000 was subscribed. At this
+time most of the leading wholesale firms of San Francisco
+joined. The Traffic Association lent its full moral support
+to the enterprise, and was reported to have contributed $10,000
+to the guaranty fund just mentioned. Actual operation of
+the ships was entrusted to J. W. Grace and Company as
+agents. While the exact arrangements between the Shipping
+Association and these agents have never been made public, the
+merchants appear to have undertaken to meet all deficits, and<span class="pagenum"><a name="Page_305" id="Page_305">[305]</a></span>
+to supply at least two-thirds of the freight. According to
+statements made at the time, Grace and Company were expected
+to find freight in the open market up to one-third of the
+capacity of their boats. Practical details of operation were
+left entirely in the agents’ hands.<a name="FNanchor_431_431" id="FNanchor_431_431"></a><a href="#Footnote_431_431" class="fnanchor">[431]</a></p>
+
+<p class="pnb">Effect of Competition</p>
+
+<p>Some hint of the attitude of the older transportation companies
+toward this new rivalry may be found in a circular
+issued by the Traffic Association under date of June 22, 1892.
+This circular, after referring to the new Grace line, and after
+speaking also of the Atlantic and Pacific Steamship Company,
+and of a new clipper line established by Balfour, Guthrie and
+Company, continues as follows:</p>
+
+<p class="pbq p1">It has already been given out by the old lines that these new
+competitors in the field will be short-lived, and that shippers
+who desert the old lines at this time will be remembered when
+the competitors are out of the way.</p>
+
+<p class="pbq">For your information we desire to state that the new lines
+have been thoroughly investigated by the Committee and we
+are satisfied as to the reliability and stability of the enterprise,
+and that with our support they are here to stay and deserving
+of our patronage.<a name="FNanchor_432_432" id="FNanchor_432_432"></a><a href="#Footnote_432_432" class="fnanchor">[432]</a></p>
+
+<p class="p1">In spite of the attempts of the older companies to crush
+the new adventure at its inception, the clipper ships thus
+established in 1892 with the support of the Traffic Association
+maintained an active competition with the railroad and older
+sailing lines over a period of more than a year. Short as this
+period was, there is no question that the effect upon water rates
+between San Francisco and New York was tremendous. The<span class="pagenum"><a name="Page_306" id="Page_306">[306]</a></span>
+former rates of the Sutton and Beebe and of the William
+Dimond and Company lines had been about $15 a ton. The
+rates charged by all lines during the summer of 1892 were from
+$3.50 to $6 a ton, a figure certainly below the cost of
+operation.<a name="FNanchor_433_433" id="FNanchor_433_433"></a><a href="#Footnote_433_433" class="fnanchor">[433]</a></p>
+
+<p>This reduction in rates, and the facility which merchants
+in San Francisco enjoyed in securing through bills of lading
+by sea and rail from San Francisco to points on the Missouri
+River by way of Cape Horn and New York, enabled shippers to
+reach the interior Mississippi Valley at a rate and with a
+convenience superior to that obtainable by rail. According to
+the <i>San Francisco Bulletin</i>, indeed, it was $2.15 a ton cheaper
+to send California canned goods from San Francisco to Kansas
+City by sea and rail than to ship them by rail direct. On westbound
+freight the results were the same. The rate on canned
+meats from Kansas City to New York was $9.40 per ton.
+The rate from New York to San Francisco by sea, after adding
+interest and insurance, did not exceed $15 per ton, making a
+total of about $25, which was $10 less per ton than the direct
+rail rate from Kansas City to San Francisco.<a name="FNanchor_434_434" id="FNanchor_434_434"></a><a href="#Footnote_434_434" class="fnanchor">[434]</a></p>
+
+<p>On heavy iron products the figures were quite as striking.
+The all-rail rate on a number of such products was $24 from
+Pittsburgh to San Francisco. From Pittsburgh to New York
+the rail rate on the same articles was $3 a ton. Adding to this
+$6 per ton for the clipper rate from New York to San Francisco,
+$1.25 per ton for insurance, and $2.50 per ton for interest,
+the total became $12.75, or $10.25 per ton less than the
+all-rail rate.<a name="FNanchor_435_435" id="FNanchor_435_435"></a><a href="#Footnote_435_435" class="fnanchor">[435]</a></p>
+
+<p>No wonder that the business of the water lines increased,
+and that railroad rates materially declined. Thus the rail rate
+on canned goods out of San Francisco, which had been $1 per<span class="pagenum"><a name="Page_307" id="Page_307">[307]</a></span>
+hundred pounds, was reduced to 75 cents to Chicago and to
+50 cents to New York. The rate on beans fell from $1.10 to
+75 and 50 cents to the same destinations. On wine, brandy,
+borax, and wool, rail rates declined from 25 to 35 per cent.<a name="FNanchor_436_436" id="FNanchor_436_436"></a><a href="#Footnote_436_436" class="fnanchor">[436]</a></p>
+
+<p>So far as the quantity of freight moving by water was concerned,
+it was estimated in August, 1892, that 42,000 tons of
+freight were on the way by sea to San Francisco from New
+York, and that 15,300 tons more were on the way via Cape
+Horn from Philadelphia. Twenty-four vessels were at sea or
+loading, bound from the Atlantic to the Pacific coast.<a name="FNanchor_437_437" id="FNanchor_437_437"></a><a href="#Footnote_437_437" class="fnanchor">[437]</a></p>
+
+<p class="pnb">Discontinuance of Pacific Mail Subsidy</p>
+
+<p>The work which fell to Mr. Leeds and to his associates
+upon the Traffic Association clipper ship committee in this
+struggle between the rail and the water lines, was largely that
+of propaganda. This meant interviews with shippers to impress
+upon them the importance of the contest which was being
+waged against the railroads and against the Southern Pacific
+in particular. It meant also the soliciting of subscriptions to
+the clipper ship guaranty fund. Mr. Leeds threw himself
+vigorously into the fight, and as the movement progressed he
+allowed his satisfaction to appear. He wrote the Merchants’
+Shipping Association in August, 1892:</p>
+
+<p class="pbq p1">I venture the prediction that if this movement is placed upon
+a permanent footing the Pacific Mail subsidy which has been
+assessed against the commerce of the coast for many years
+will be discontinued ... I predict that this will, if properly supported,
+prove the beginning of the end of commercial oppression
+for this city and this State. The doctrine of helping yourselves
+by every means you can command, holding fast to that which
+you have and reaching out for more, will prove the deliverance
+of San Francisco.<a name="FNanchor_438_438" id="FNanchor_438_438"></a><a href="#Footnote_438_438" class="fnanchor">[438]</a></p>
+
+<p><span class="pagenum"><a name="Page_308" id="Page_308">[308]</a></span></p>
+
+<p class="p1">It was doubtless a considerable satisfaction to Mr. Leeds
+and to members of the Traffic Association that the water competition
+so vigorously inaugurated by the Merchants’ Shipping
+Association was increased late in 1892 by the formation
+of an independent steamship line known as the North American
+Navigation Company. The foundation of this new company
+was not directly due to the Traffic Association, although the
+Association gave it what support it could. It was rather the
+result of the discontinuance of the railroad subsidy to the
+Pacific Mail, which actually took place in 1892, as Mr. Leeds
+anticipated, and to the consequent separation of the Pacific
+Mail and the Panama Railroad Company—a separation which
+assured to an independent steamship line upon the Pacific
+Ocean equal or even preferential treatment at the Isthmus of
+Panama. This meant that San Francisco shippers were no
+longer restricted to clipper ships and to the Cape Horn route,
+but could promote a shorter and speedier line with reasonable
+hope of success.</p>
+
+<p>In the year 1892 the transcontinental railroads determined
+to dissolve the transcontinental railroad association. The
+reasons alleged were the withdrawal of the Northern Pacific
+Railroad from the association, and the announcement by the
+Canadian Pacific of reduced rates to take effect September 10.
+The dissolution of the association meant the termination of
+the subsidy which the railroads had been paying to the Pacific
+Mail, and notice of cancellation was promptly given. The
+Pacific Mail was then paying to the Panama Railroad $55,000
+per month, an amount that was more than 70 per cent of the
+sum which it received from the association. In spite of the
+termination of its own relations with the transcontinental railroads,
+the Pacific Mail offered to continue the payment of a
+subsidy to the Panama Railroad, but the two companies proved
+unable to agree on terms. Mr. Stubbs later explained the break
+as follows:</p>
+
+<p><span class="pagenum"><a name="Page_309" id="Page_309">[309]</a></span></p>
+
+<p class="pbq p1">When the contract between the Panama Railroad Company
+and the Pacific Mail Company expired, they found it impossible
+to agree on terms for continuing the business. The transcontinental
+railroad companies had quarreled, and freight rates
+were demoralized. The Panama Railroad insisted on the
+former basis of traffic, and the Pacific Mail refused to go
+ahead on that understanding. Then there was some bad management,
+and the two companies began to throw mud. The
+trouble got into the courts, and finally it was called to the attention
+of Congress. The Panama road and the Pacific Mail consequently
+found themselves to be bitter enemies, and it didn’t
+seem that they could agree.<a name="FNanchor_439_439" id="FNanchor_439_439"></a><a href="#Footnote_439_439" class="fnanchor">[439]</a></p>
+
+<p class="pnb">Independent Steamship Line</p>
+
+<p>Now it appears that a San Francisco shipping firm, the
+Johnson-Locke Mercantile Company, which was participating
+in the anti-railroad fight in 1891 and 1892 to the extent
+of operating a line of steamships around the Horn, noticed
+telegraphic advices in the San Francisco newspapers announcing
+the termination of relations between the Pacific Mail and
+the Panama Railroad. Describing the episode, Mr. Johnson
+later said:</p>
+
+<p class="pbq p1">I felt this was our opportunity, and immediately wired
+General Newton, of the Panama Railroad, suggesting that, in
+view of their determination to throw open the Isthmus and put
+on a line of their own steamers from New York to Colon, I
+thought we could secure the co-operation of the merchants of
+San Francisco, in this movement; that we had some steamers
+we were running between San Francisco and New York via
+Cape Horn, and asking, in the event of our organizing a company
+here, if they would join this company in maintaining a
+through line from San Francisco to New York.<a name="FNanchor_440_440" id="FNanchor_440_440"></a><a href="#Footnote_440_440" class="fnanchor">[440]</a></p>
+
+<p class="p1">At this time the Panama Railroad was under the control
+of the official liquidator of the French Panama Canal Company.<span class="pagenum"><a name="Page_310" id="Page_310">[310]</a></span>
+The railroad had already decided to operate a line of
+steamships between New York and Colon, and it accepted
+readily Mr. Johnson’s offer from the West. Yet Johnson himself
+lacked capital—as his own statement admits. To raise the
+necessary capital a new company—the North American Navigation
+Company—was at once organized, and subscriptions
+were solicited from San Francisco business men. Not all those
+approached were enthusiastic. Some merchants were afraid
+of antagonizing the Southern Pacific, some had an interest in
+it. James G. Fair said: “I am holding some millions of
+dollars in Southern Pacific bonds. Do you want me to put my
+eggs in a basket, get on a fence and chuck stones at it?”<a name="FNanchor_441_441" id="FNanchor_441_441"></a><a href="#Footnote_441_441" class="fnanchor">[441]</a></p>
+
+<p>On the other hand, the promoters of the new company
+were able to make a strong plea based on the unsatisfactory
+conditions of water transportation in previous years. For
+the first time in fifteen years San Francisco shippers had a
+remedy in their own hands.</p>
+
+<p class="pbq p1">With the successful operation of this company, San Francisco
+need fear no excessive prohibitory rates from the Transcontinental
+or similar associations; the relief in transportation
+will be immediate and ample, which, together with sailing ships
+via Cape Horn, solves the immediate question of cheap transportation,
+freedom from excessive freights, and makes our city
+again the distributing point, instead of an isolated terminus of a
+long haul by rail.<a name="FNanchor_442_442" id="FNanchor_442_442"></a><a href="#Footnote_442_442" class="fnanchor">[442]</a></p>
+
+<p class="pnb">The Raising of Funds</p>
+
+<p>The original intention was to raise a fund of $100,000,
+and it appears that the Panama Railroad agreed to enter into
+a contract with the North American Navigation Company providing
+that sum were subscribed. When $80,000 had been
+promised, however, the promoters solicited the aid of the recently<span class="pagenum"><a name="Page_311" id="Page_311">[311]</a></span>
+formed Traffic Association, and upon its advice increased
+their capital to the sum of $200,000. As is frequently the
+case, in such campaigns no subscriptions were binding until
+the whole amount should have been subscribed. Before this
+point was reached the promoters nevertheless concluded their
+contract with the Panama Railroad. Perhaps they were over-optimistic,
+perhaps they felt that the chance of making such
+a contract should not be allowed to pass—at any rate they
+signed the contract and thereby agreed to dispatch steamers
+from San Francisco on fixed dates to connect with the rail line
+at the Isthmus. The text of the contract was not divulged,
+but the public was informed that it was to go into effect March
+8, 1893, and that it gave to the North American Navigation
+Company the exclusive right of through billing between
+New York and San Francisco by way of the Isthmus of
+Panama.<a name="FNanchor_443_443" id="FNanchor_443_443"></a><a href="#Footnote_443_443" class="fnanchor">[443]</a></p>
+
+<p>When the time came to dispatch the first vessel called for
+under this contract, the Navigation Company found itself in the
+uncomfortable position of a concern with important responsibilities
+and no money with which to meet them. Not a dollar
+of the capital stock had been paid in, and only $160,000 had
+been subscribed. Under these circumstances certain of the
+individuals most interested personally guaranteed the charter
+hire of the first boat, and the same was done for the second,
+and for the third, at intervals of twenty days. Before the time
+arrived for the departure of the fourth vessel, the entire $200,000
+asked for had been pledged. By December, 1893, this fund
+was exhausted, and $100,000 more was raised—not without
+difficulty, and with some feeling of discouragement on the part
+of the promoters.<a name="FNanchor_444_444" id="FNanchor_444_444"></a><a href="#Footnote_444_444" class="fnanchor">[444]</a> The additional subscription made possible
+the continuance of the service approximately till the 1st of
+May, 1894, or for a total period of a little over a year. There<span class="pagenum"><a name="Page_312" id="Page_312">[312]</a></span>
+is some evidence that the managers of the company desired a
+still further extension, but if an attempt of this sort was made,
+it met with no success.</p>
+
+<p>During the life of the North American Navigation Company
+five steamships were chartered: the St. Paul, Mexico,
+Keweenaw, Progreso, and Saturn. The “St. Paul” and the
+“Mexico” were small boats, with a net tonnage, respectively,
+of about 700 and 1,350 tons dead weight. The net tonnage of
+the “Keweenaw” was reported to be 2,004 tons, that of the
+“Progreso” and “Saturn” somewhat less.<a name="FNanchor_445_445" id="FNanchor_445_445"></a><a href="#Footnote_445_445" class="fnanchor">[445]</a> Some passengers
+were carried by the line, but not many. The Pacific Mail also
+operated five vessels with capacity carrying from 2,000 to
+2,500 tons. These were all small craft as compared with
+steamers of the present day. The original program, as has
+been said, called for a twenty-day interval between sailings,
+and the total estimated time consumed in shipment from San
+Francisco to New York was put at thirty-two days. It could
+scarcely have been expected that these ships could accommodate
+any large portion of the business of the Pacific Coast, nor
+indeed was there much chance for them to earn any considerable
+profit on the business which they did carry. The fact that
+so large a guaranty fund was insisted upon by the Panama
+Railroad before any exclusive through billing arrangement
+would be made, is evidence that a deficit was expected. As a
+matter of fact the total fund of $300,000 was used up before
+the fifteen months contemplated in the original agreement had
+entirely expired.</p>
+
+<p class="pnb">Drop in Railroad Rates</p>
+
+<p>The principal purpose of the North American Navigation
+Company was, beyond question, to compel a reduction in transcontinental
+rates by rail and water by demonstrating that the
+business men of San Francisco could establish an independent<span class="pagenum"><a name="Page_313" id="Page_313">[313]</a></span>
+connection of their own. This accounts for the enthusiasm
+with which the project was greeted in the community at large.
+The Navigation Company was looked upon as a kind of St.
+George tilting against the dragon of monopoly. The newspapers
+printed columns of description with pictures of the boats
+chartered by the new line, the promoters gave out interviews,
+and crowds gathered at the wharves to see the vessels leave.
+And it was by pointing to the rate reductions accomplished that
+the company subsequently justified itself.</p>
+
+<p>Mr. Leeds, manager of the Traffic Association, estimated
+that the 84,000 tons which he thought the new steamship line
+would handle, added to what the clipper ships were carrying,
+would leave about 250,000 tons for the railroads to transport
+from coast to coast. On this he expected to see a decline in
+rates of not less than 20 per cent. More exactly, he calculated
+that the saving to shippers due directly to the operation of the
+North American Navigation Company would amount to $660,000;
+that due to clipper ship competition would total $1,110,000;
+and that secured through a decline in railroad rates would
+be $1,248,000; or a total of $3,018,000.<a name="FNanchor_446_446" id="FNanchor_446_446"></a><a href="#Footnote_446_446" class="fnanchor">[446]</a> Captain Merry,
+president of the Navigation Company, declared when all was
+over that a saving of $3,500,000 had been made on Pacific
+Coast products shipped east during the life of the company,
+in addition to the saving of perhaps $1,500,000 on westbound
+freight.<a name="FNanchor_447_447" id="FNanchor_447_447"></a><a href="#Footnote_447_447" class="fnanchor">[447]</a></p>
+
+<p>Undoubtedly the operations of the Navigation Company
+intensified the rate war started by the clipper ships, and the
+reductions in transcontinental charges were considerable. According
+to Mr. Leeds the cuts on eastbound transcontinental
+freight, all-rail, on representative articles, by January, 1894,
+were as follows:<a name="FNanchor_448_448" id="FNanchor_448_448"></a><a href="#Footnote_448_448" class="fnanchor">[448]</a></p>
+
+<p><span class="pagenum"><a name="Page_314" id="Page_314">[314]</a></span></p>
+
+<p class="pc1"><span class="smcap">Reductions in Transcontinental Rail Rates to
+January, 1894</span></p>
+
+<table id="t07" summary="t07">
+
+ <tr>
+ <td class="tdcl">Article</td>
+ <td colspan="2" class="tdcl">Old Rate per<br />100 pounds</td>
+ <td colspan="3" class="tdcl">New Rate per<br />100 pounds</td>
+ <td colspan="2" class="tdcl">Reduction<br />per cent</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Beans</td>
+ <td class="tdt1">$</td>
+ <td class="tdri">1.10</td>
+ <td class="tdt2">$</td>
+ <td class="tdri">.50</td>
+ <td rowspan="4"> </td>
+ <td class="tdr">55</td>
+ <td rowspan="2"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Canned goods</td>
+ <td rowspan="7"> </td>
+ <td class="tdri">1.00</td>
+ <td rowspan="7"> </td>
+ <td class="tdri">.50</td>
+ <td class="tdr">50</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Barley</td>
+ <td class="tdri">.90</td>
+ <td class="tdri">.30</td>
+ <td class="tdr">66</td>
+ <td>⅔</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Dried fruits, raisins, and prunes (in boxes)</td>
+ <td class="tdri">1.40</td>
+ <td class="tdri">1.00</td>
+ <td class="tdr">28</td>
+ <td rowspan="5"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Wine</td>
+ <td class="tdri">1.50</td>
+ <td colspan="2" class="tdri1">.37½</td>
+ <td class="tdr">80</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Mustard seed</td>
+ <td class="tdri">1.10</td>
+ <td class="tdri">.30</td>
+ <td rowspan="3"> </td>
+ <td class="tdr">73</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Wool, in grease</td>
+ <td class="tdri">1.50</td>
+ <td class="tdri">.75</td>
+ <td class="tdr">50</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Wool, scoured</td>
+ <td class="tdri">2.50</td>
+ <td class="tdri">.75</td>
+ <td class="tdr">70</td>
+ </tr>
+
+</table>
+
+<p class="pnb">Uncertain Benefit</p>
+
+<p>On westbound freight it was estimated that the reductions
+amounted to at least 50 per cent. These estimates, however,
+do not distinguish between the results produced by the Navigation
+Company and those which were the consequence of the
+operation of the clipper ships—perhaps no separate estimate is
+possible or important. On the basis of the rates charged, the
+railroad admitted that it was losing money, at least so far as
+eastbound freight was concerned. It maintained, however,
+that it continued to make a profit on its westbound freight and
+on its local traffic.<a name="FNanchor_449_449" id="FNanchor_449_449"></a><a href="#Footnote_449_449" class="fnanchor">[449]</a> There was no question that the steamships
+and the Panama Railroad lost money, although they declared
+stoutly that they would meet any cuts which the railroads might
+make.<a name="FNanchor_450_450" id="FNanchor_450_450"></a><a href="#Footnote_450_450" class="fnanchor">[450]</a></p>
+
+<p>Whether the shippers benefited by the general demoralization
+in rates which occurred during the war is uncertain, as it
+always is under such circumstances. They certainly lost the
+$300,000 which they put into the North American Navigation
+Company, besides the guaranty fund subscribed by the Merchants<span class="pagenum"><a name="Page_315" id="Page_315">[315]</a></span>’
+Shipping Association. Moreover, they suffered from
+the competition of eastern jobbers during the hostilities, a competition
+which the railroads encouraged by reducing the differences
+between carload and less than carload rates, by the extension
+of the privilege of shipping in mixed carloads, and by
+reduction in westbound rates. On the other hand, they gained
+directly through lower rates, and indirectly by the demonstration
+that, to some extent at least, their access to eastern markets
+was not subject to railroad control.</p>
+
+<p class="pnb">New Transcontinental Tariff</p>
+
+<p>The North American Navigation Company operated only
+a little over a year, as has been said. Its vessels, however, were
+taken over by the Panama Railroad, and competition continued
+until the end of the year 1895. Not long after that, it seems,
+negotiations between the shippers and the railroads began.
+Representatives of the transcontinental lines upon the coast
+were instructed to mollify Pacific Coast shippers so far as
+possible, and the shippers in their turn seem to have been
+anxious to meet this advance. In 1897 a communication was
+addressed to the railways by the jobbing interests upon the
+Pacific Coast, stating in substance that rates ought to be readjusted
+in the interests of the coast jobbers; that more rigid
+inspection rules should be enforced preventing their competitors
+in the Middle West from obtaining fraudulent rates; and intimating
+that if this was done they would not object to an
+advance in rates and would find it to their interest to place
+shipments largely with the railroads.</p>
+
+<p>For the purpose of effecting some arrangement, a meeting
+of representatives of the transcontinental lines was held at Del
+Monte in the fall of that year. Representatives of the Pacific
+Coast jobbers and also of the jobbers of the Middle West were
+present. Both parties were heard separately and much discussion
+was had but no definite conclusion reached. The conference<span class="pagenum"><a name="Page_316" id="Page_316">[316]</a></span>
+adjourned to meet at Milwaukee the following spring.
+The final result was a new transcontinental tariff effective June
+25, 1898, which seems to have given reasonable satisfaction
+until attacked by representatives of the intermountain towns.<a name="FNanchor_451_451" id="FNanchor_451_451"></a><a href="#Footnote_451_451" class="fnanchor">[451]</a></p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_317" id="Page_317">[317]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XVIII</h2>
+
+<p class="pch">THE SAN FRANCISCO AND SAN JOAQUIN
+VALLEY RAILWAY</p>
+
+<p class="pnb">Attempt to Fix Maximum Rates</p>
+
+<p>Properly considered, the construction of the San Francisco
+and San Joaquin Valley Railway was the complement of the
+campaign for the encouragement of water competition which
+the Traffic Association waged between 1891 and 1897. The
+plans for the subsidizing of clipper ships and for the support
+of steamship service to and from Panama had from first to last
+one grave defect—they afforded no means of distributing from
+San Francisco the products which dealers might succeed in
+having brought in by sea. That is to say, while the consuming
+populations of San Francisco, Sacramento, and Stockton might
+benefit by securing their goods at lower cost because of the
+activity of water competition, these cities could not extend their
+markets unless the sum of the through rate from points of
+origin to terminal city and from terminal city to local point
+should be made lower than the direct rate from the Mississippi
+Valley or the Atlantic Coast to the smaller towns in California,
+Nevada, and New Mexico.</p>
+
+<p>Now the question of local rates differed from that of
+through rates, in that it dealt with a matter over which the
+state legislature and the State Railroad Commission appeared
+to have complete control. In 1892 the Traffic Association
+accordingly made a serious attempt to persuade the state legislature
+to undertake direct regulation of railroad rates in California,
+and to insert a provision for certain maximum rates
+in the constitution of the state which should affect a considerable
+reduction in the rates then charged. This attempt failed,<span class="pagenum"><a name="Page_318" id="Page_318">[318]</a></span>
+for reasons into which it is not necessary to go. There remained
+another method of influencing local rates, namely, the
+construction of a competing railroad which should lead from
+San Francisco Bay to the interior counties of the state, and to
+this alternative the San Francisco merchants turned in the year
+1893. The movement was important, and will be discussed at
+some length.</p>
+
+<p class="pnb">First Proposal for Competing Railroad</p>
+
+<p>The proposal that a competing railroad should be built from
+San Francisco Bay to the interior was not a new one in California
+in 1893. On the contrary, in February, 1892, President
+Stetson, of the Traffic Association, told a reporter that no less
+than nine propositions had been submitted to him as president
+of the organization, looking to give San Francisco a competing
+line of railroad. These were successors to still other plans prepared
+in earlier years. Most of the schemes proposed to Mr.
+Stetson involved the construction of lines out of San Francisco
+to a connection with the Santa Fé, but two or three of them
+contemplated construction from San Francisco across the Sierra
+Nevada Mountains to the termini of the Union Pacific or the
+Rio Grande Western. At the time, President Stetson replied
+that he was a merchant and had neither the time nor the money
+to build roads, although he added that San Francisco merchants
+desired more railroads and would under reasonable conditions
+and at the proper time furnish substantial encouragement to
+one or more feasible railway projects.<a name="FNanchor_452_452" id="FNanchor_452_452"></a><a href="#Footnote_452_452" class="fnanchor">[452]</a></p>
+
+<p>Soon after this, possibly at the suggestion of Mr. Leeds,
+steps were taken to investigate the possibilities of a line from
+San Francisco or Oakland to Stockton and thence eastward
+through Nevada and Utah to Salt Lake City. In May, 1892, a
+company was formed under the name of the San Francisco
+and Great Salt Lake Railroad Company, to build from San<span class="pagenum"><a name="Page_319" id="Page_319">[319]</a></span>
+Francisco to Stockton, with an initial capital of $2,000,000.
+This was the moment when the Traffic Association was vigorously
+pushing its plans for the encouragement of water competition,
+and when it was beginning the legislative campaign
+mentioned in a preceding paragraph. Little active support
+could therefore be expected from the San Francisco shippers,
+although the executive committee of the Traffic Association
+authorized Mr. Leeds to give the projectors of the San Francisco
+and Great Salt Lake the benefit of his advice, and the
+California League of Progress formally indorsed the
+enterprise.<a name="FNanchor_453_453" id="FNanchor_453_453"></a><a href="#Footnote_453_453" class="fnanchor">[453]</a></p>
+
+<p>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 patronize a purely local line when a
+through line was available, because a competitor with through
+facilities could afford them service which a local line could
+not.<a name="FNanchor_454_454" id="FNanchor_454_454"></a><a href="#Footnote_454_454" class="fnanchor">[454]</a> On the other hand, there were capitalists who expressed
+willingness to subscribe to the stock of a local system, but who
+would not put a cent into an overland line,<a name="FNanchor_455_455" id="FNanchor_455_455"></a><a href="#Footnote_455_455" class="fnanchor">[455]</a> and between the
+two parties the necessary subscriptions were not obtained. The
+project was finally withdrawn when the promoters failed to
+secure certain legislation which they thought necessary to make
+their plans a success.<a name="FNanchor_456_456" id="FNanchor_456_456"></a><a href="#Footnote_456_456" class="fnanchor">[456]</a></p>
+
+<p><span class="pagenum"><a name="Page_320" id="Page_320">[320]</a></span></p>
+
+<p class="pnb">Another Project</p>
+
+<p>Following the failure of the San Francisco and Great Salt
+Lake enterprise, plans for railroad construction in California
+made no progress for several months. It had now become evident,
+however, that the state legislature was not disposed to
+pass a maximum rate enactment, and that any reduction in the
+level of local rates in California must come either from the
+good-will of the Southern Pacific or from the construction of
+competing lines. Under these circumstances, plans for railroad
+construction were revived, this time under the direct leadership
+of the Traffic Association of California.</p>
+
+<p>Exactly when the Traffic Association took up the idea of
+promoting a competing railroad in the San Joaquin Valley
+cannot be stated with confidence. Newspaper reports indicate
+that the project was discussed at least as early as April, 1893.
+Whether or not a beginning was made in this month, it appears
+that by June, 1893, plans had progressed sufficiently to permit
+the publication of a prospectus, sent out with the approval of
+San Francisco shippers. This prospectus invited the citizens
+of San Francisco and of the state of California to subscribe to
+the capital stock of a railroad which should run from the city
+of Stockton to the head of the San Joaquin Valley, in Kern
+County, a distance of about 230 miles. The plan was said
+to be to secure as much money as possible in the city of San
+Francisco, and then to ask the people of the valley, from Stockton
+up, to add thereto a fair quota. Construction was to begin<span class="pagenum"><a name="Page_321" id="Page_321">[321]</a></span>
+at Stockton instead of at San Francisco, in order to save
+expense and in reliance upon the effect of water competition on
+San Francisco Bay—a competition which was expected to
+maintain a low level of rates between Stockton and its larger
+neighbor. The cost of a good road from Stockton to Bakersfield
+was estimated at something less than $20,000 per mile.</p>
+
+<p>Appealing particularly to San Francisco, the promoters of
+the new enterprise declared that a competing railroad was essential
+to that city’s prosperity. San Francisco amounted to
+no more than any other collection of people unless it used its
+facilities as a seaport. Facilities unused might just as well not
+exist. It had been a part of the policy of all the transcontinental
+roads for many years to neutralize this seaport by all
+the means at their command, including the practice of maintaining
+excessively high local rates between the sea and the
+interior. This condition must be remedied. The prospectus
+also explained that the new line would benefit the producer and
+the consumer in the interior as well as in the city of San
+Francisco.<a name="FNanchor_457_457" id="FNanchor_457_457"></a><a href="#Footnote_457_457" class="fnanchor">[457]</a></p>
+
+<p class="pnb">Lack of Financial Support</p>
+
+<p>Once the prospectus was out, the project for a local competing
+railroad was pushed with all the energy characteristic
+of Mr. Leeds and the Traffic Association. It received substantial
+support also from a portion of the San Francisco press.
+In order to test sentiment, a subcommittee of the executive
+committee of the Traffic Association started a canvass of the
+wealthy men of San Francisco, not to secure subscriptions, but
+to seek general assurances of co-operation. With one exception
+the citizens interviewed were reported to have promised
+to take stock in the road, and to have invited the committee to
+call again. Such an indication of unanimity was considered
+important.<a name="FNanchor_458_458" id="FNanchor_458_458"></a><a href="#Footnote_458_458" class="fnanchor">[458]</a> Not only did the moneyed men of San Francisco<span class="pagenum"><a name="Page_322" id="Page_322">[322]</a></span>
+encourage the enterprise at this time, but the newspapers
+printed accounts of the interest taken by men of small means.
+Mechanics and laborers were said to be coming to the offices
+of the Traffic Association, and offers to subscribe for small
+amounts of stock, payable in labor, were received.<a name="FNanchor_459_459" id="FNanchor_459_459"></a><a href="#Footnote_459_459" class="fnanchor">[459]</a> Yet there is
+some question about the warmth with which the original proposal
+for a competing line was received. Certainly the minimum
+amount necessary to be raised in order to make all
+subscriptions binding was small—$350,000—and the slowness
+with which this sum was approximated did not indicate enthusiasm.<a name="FNanchor_460_460" id="FNanchor_460_460"></a><a href="#Footnote_460_460" class="fnanchor">[460]</a>
+In the valley generally there were indications of
+interest, such as favorable newspaper notices, offers of rights-of-way
+for the new company, and resolutions of indorsement
+by boards of trade, and by meetings of citizens. But here, too,
+there were few subscriptions, and after the panic of 1893 the
+Traffic Association recognized that their initial attempt had
+failed.</p>
+
+<p class="pnb">Failure of Second Attempt</p>
+
+<p>The second campaign for subscriptions to the stock of the
+Valley road began about August, 1894, when the executive
+committee of the Traffic Association decided to renew its
+search for funds. It was now decided to call the new enterprise
+the San Francisco, Stockton and San Joaquin Valley Railway
+Company, and to define its route generally as between San
+Francisco, or some convenient point on the Bay of San Francisco,
+via Stockton and Fresno by a convenient and practicable
+route thereafter to be determined, to some point in Kern
+County. The minimum subscription was again set at $350,000,<span class="pagenum"><a name="Page_323" id="Page_323">[323]</a></span>
+and, as in the earlier project, a trust was devised to hold the
+stock of the company and to preserve its status as an independent
+carrier.<a name="FNanchor_461_461" id="FNanchor_461_461"></a><a href="#Footnote_461_461" class="fnanchor">[461]</a></p>
+
+<p>In October stock subscription books were thrown open to
+the public and some thousands of dollars of subscriptions received.
+Mr. Leeds went to Stockton to see what could be
+done there. In San Francisco, Mr. Van Sicklen, a member of
+the executive committee, endeavored to reach the business men
+of the town in a somewhat systematic fashion. Large subscriptions
+and small were invited, but once more small success
+was obtained. The members of the executive committee of the
+Traffic Association were busy men and disinclined to devote
+much time to personal campaigning, while, even had they done
+so, the chances of success were not good. The primary defect
+in the Traffic Association’s campaign lay in the fact that no
+man in the group of promoters interested in the new enterprise
+had sufficient prestige so to impress the public imagination
+as to lead investors to have confidence from the beginning that
+the projected railroad would be built. The composition of the
+Traffic Association was admirable for the purpose of encouraging
+water competition. It was as inadequate to the financing
+of a large railroad to be conducted without government support
+as it had been shown to be to the management of a political
+campaign.</p>
+
+<p>Nor was it unimportant that the organization was asking
+for a sum which on the face of it was insufficient to accomplish
+the purposes which were in mind. Nobody pretended that
+$350,000 would do more than permit of the organization of
+the San Francisco and San Joaquin Valley Railway. To build
+the line would cost ten times that sum or more. Indeed, the
+company was actually capitalized at $6,000,000, a not unreasonable
+figure under the circumstances. Thus a subscription to
+a fund of $350,000 merely committed the subscriber to an enterprise<span class="pagenum"><a name="Page_324" id="Page_324">[324]</a></span>
+which might involve him, if it was to be successful, in
+an additional large and undetermined expense, on the penalty
+of losing his original subscription if the additional sums were
+not forthcoming.</p>
+
+<p class="pnb">Final Success</p>
+
+<p>We have now seen that two attempts to secure support for
+a new independent railroad in the San Joaquin Valley failed
+between June, 1893, and the end of 1894. The third stage in
+the progress of the Valley road began with a meeting called by
+the Traffic Association on January 22, 1895, for the purpose
+of interesting the realty owners of San Francisco in the construction
+of a railroad. By this time the Traffic Association’s
+second campaign for subscriptions had failed as definitely as
+had its first. Only about one-half of the desired sum of $350,000
+was on hand. No more could be secured from the
+merchants of the city. There was little enthusiasm in San
+Francisco, and in the interior, cities like Fresno were becoming
+impatient and were turning to the south instead of to San
+Francisco for relief from the burden of high rates.<a name="FNanchor_462_462" id="FNanchor_462_462"></a><a href="#Footnote_462_462" class="fnanchor">[462]</a></p>
+
+<p>It was at this point and under these conditions that the
+management of the enterprise passed to new men and that a
+complete reorganization of its affairs occurred. In the main
+this change in control and in the policies of the projected
+Valley railroad was due to the energy of one man. Claus
+Spreckels, of San Francisco, the leading sugar refiner of the
+Pacific Coast, was not a member of the Traffic Association, and
+was not pledged to the support of the San Francisco and
+San Joaquin Valley Railway. He was, however, one of the
+speakers at the January meeting, and when the formal proceedings
+were over he came forward with an offer to subscribe
+$50,000 provided that the minimum amount to be raised were
+increased from $350,000 to $3,000,000 or to $5,000,000. On<span class="pagenum"><a name="Page_325" id="Page_325">[325]</a></span>
+Spreckel’s motion, moreover, the chairman was authorized to
+appoint a committee of twelve from among the property owners
+of the city to solicit subscriptions from holders of real estate.
+After the adoption of this motion the meeting adjourned.</p>
+
+<p class="vh"><a name="i356" id="i356">i356</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-356.jpg" width="400" height="387"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Map showing the line of the San Francisco and San Joaquin Valley Railway,
+together with portions of the systems of the Southern Pacific and
+of the Atchison, Topeka and Santa Fé, 1898.</p>
+</div></div>
+
+<p>The subscriptions in definite amounts received on Tuesday,
+January 22, 1895, did not much exceed $20,000. The committee
+of twelve met, however, on January 24 and Claus
+Spreckels was elected chairman. Soon after this, larger pledges
+began to appear. Spreckels himself now subscribed $500,000,<span class="pagenum"><a name="Page_326" id="Page_326">[326]</a></span>
+or ten times his initial offer, and at his instance, John D. and
+Adolph Spreckels, his sons, subscribed $100,000 apiece. From
+this one family, therefore, came twice the sum which the Traffic
+Association had tried in vain to raise from all of San
+Francisco. The whole complexion of the business changed as
+a result of this beginning. By January 30 over $1,200,000 was
+pledged. Subscriptions through February 2 amounted to
+$1,536,500, and on February 8 the $2,000,000 mark was
+reached. This so encouraged the committee that it immediately
+resolved that the sum of $4,000,000 should and must be obtained
+from the city of San Francisco, and that with the aid of
+the interior the competing line could be constructed on a cash
+basis. To this end every effort was to be turned.<a name="FNanchor_463_463" id="FNanchor_463_463"></a><a href="#Footnote_463_463" class="fnanchor">[463]</a></p>
+
+<p>It is very evident that the substantial wealth of the Spreckels
+group and the reputation for success which Claus Spreckels
+enjoyed, made a powerful impression both in San Francisco
+and in the San Joaquin Valley. The proposed railroad enterprise
+was the same as before, but the leadership was different.
+At the same time the amount of money necessary to be raised
+in the first instance was increased from $350,000 to $2,000,000.<a name="FNanchor_464_464" id="FNanchor_464_464"></a><a href="#Footnote_464_464" class="fnanchor">[464]</a>
+Large sums are sometimes easier to secure than small,
+for reasons both sentimental and practical, and it proved so in
+this case. Claus Spreckels said himself that he had never made
+a failure in his life, while with $2,000,000 in hand it seemed
+so unnecessary for anyone to fail that people hastened to share
+in the anticipated success.</p>
+
+<p class="pnb">Campaign for Stock Subscriptions</p>
+
+<p>As we look back upon the circumstances attending the construction
+of the San Francisco and San Joaquin Valley Railway,
+it is evident that after January, 1895, its managers played their
+cards with considerable shrewdness. Regarded as a direct profit-making<span class="pagenum"><a name="Page_327" id="Page_327">[327]</a></span>
+enterprise, the ability of the new company to earn dividends
+was questionable. It was all very well to dwell upon the
+fertility of the San Joaquin Valley, and to point out the large
+proportion of the revenues of the Southern Pacific derived
+from this source.<a name="FNanchor_465_465" id="FNanchor_465_465"></a><a href="#Footnote_465_465" class="fnanchor">[465]</a> Doubtless these conditions would count
+in the long run. Yet the fact remained that the new road was
+entering a not too highly developed territory already served by
+a through line of large capacity. It was expected to reduce
+rates, and was likely to be compelled to reduce them; and it
+was to do this while it was in the course of developing its own
+organization and establishing business relations with a new
+clientèle. Huntington said that he thought there was room in
+California for both the Southern Pacific and the new line. It
+required, he said, only a space of thirteen feet from the center
+of one track to the center of another, and there was lots of
+room in California. The projectors of the new road would
+have no trouble in finding room.<a name="FNanchor_466_466" id="FNanchor_466_466"></a><a href="#Footnote_466_466" class="fnanchor">[466]</a> But this remark was not
+meant to convey comfort to subscribers to the stock of the San
+Francisco and San Joaquin Valley Railway, and probably did
+not do so.</p>
+
+<p>What, then, were the conditions of success for the new
+road? They were: first, such a popular support as would
+minimize the cost of construction and maximize its business;
+and second, such an alliance with some other large railroad
+system as would give stability and permanency to its traffic relations.
+If the new company possessed these advantages it
+would probably be able to live and to render a useful service
+in distributing products brought to California and to San
+Francisco by sea; without them it was not likely to survive.</p>
+
+<p>It was in order to increase their popular support, and not
+alone for the sake of the money involved, that the promoters
+of the San Francisco and San Joaquin Valley Railway early<span class="pagenum"><a name="Page_328" id="Page_328">[328]</a></span>
+began a campaign for small subscriptions. Claus Spreckels
+took pains to say that while large subscriptions were all right
+and desirable, it would be the $20,000, $10,000, and $5,000
+stockholders who would control the property and its policy.<a name="FNanchor_467_467" id="FNanchor_467_467"></a><a href="#Footnote_467_467" class="fnanchor">[467]</a>
+In February, after the first arrangements had been made for
+reaching the larger business interests of the city, attention was
+paid to the offering of facilities for subscription to all classes
+of investors in San Francisco. Districts were mapped out and
+assigned to canvassers.<a name="FNanchor_468_468" id="FNanchor_468_468"></a><a href="#Footnote_468_468" class="fnanchor">[468]</a> The following month the <i>San Francisco
+Examiner</i>, which had taken a prominent part in the fight
+from the first, began to print subscription blanks in its daily
+issues. Arrangements were made by which persons might
+subscribe for fractions of shares by joining with their neighbors
+in share clubs. The <i>Examiner</i> offered a gold watch to
+the first person forming such a club, and when there was doubt
+as to priority, compromised by giving two watches. The formation
+of the first colored club was given special mention, as
+was the decision of a colored club in San Francisco to make one
+paid-up share in the San Francisco and San Joaquin Valley
+Railway a tug-of-war prize to be competed for at its annual
+games. The winning team was to constitute a share club, and
+was to choose a trustee from among its members.<a name="FNanchor_469_469" id="FNanchor_469_469"></a><a href="#Footnote_469_469" class="fnanchor">[469]</a></p>
+
+<p class="pnb">Appeal to Local Patriotism</p>
+
+<p>While devices such as these were perfectly ineffective as
+a means for raising large sums of money, they did give the
+new road valuable advertising, and helped to predispose the
+whole community in its favor. For the same reasons that
+actuated the promoters in their attempt to gain the support of
+investors of small means, the San Francisco committee also
+made appeals to the public which rested upon moral and patriotic<span class="pagenum"><a name="Page_329" id="Page_329">[329]</a></span>
+as well as upon financial grounds. Without going into this
+aspect of the matter at length, it may be said that there has
+probably never been a commercial enterprise launched on the
+Pacific Coast so advertised, and praised, and predicted about as
+was the project of the San Joaquin Valley Railway. Participation
+in the movement became a test of local patriotism. The
+railroad took the aspect not merely of a business expedient, to
+be considered solely from the point of view of monetary gain,
+but it also became an expression of the hopes of expansion entertained
+by a generation of business men, strengthened by the
+accumulated antagonism of years between the Southern Pacific
+Railroad and the shipping public.</p>
+
+<p>Nor was this feature of the campaign confined to San Francisco
+alone. The main interest from first to last was of course
+in San Francisco. Yet the valley towns also showed sympathy
+with the new development, rising at times to excitement as
+construction became imminent, and questions of route had to
+be determined. Here, it is true, there was more business and
+less sentiment. “What is the new road going to do for
+Oakland?” a man asked John D. Spreckels one day in the
+Palace Hotel. “It is too early to put that question,” replied
+Mr. Spreckels, “as it could only be answered by some
+theorist. The question is, What will Oakland do for the new
+road?”<a name="FNanchor_470_470" id="FNanchor_470_470"></a><a href="#Footnote_470_470" class="fnanchor">[470]</a></p>
+
+<p><span class="pagenum"><a name="Page_330" id="Page_330">[330]</a></span></p>
+
+<p>In spite of occasional skepticism, and here and there active
+opposition, the San Joaquin Valley received the new enterprise
+cordially. Among the Valley towns from which assurances of
+support were received may be mentioned Stockton, San José,
+Fresno, Madera, Modesto, Hanford, Merced, Visalia, Selma,
+and Bakersfield. Oakland also, though not properly in the
+Valley, manifested considerable interest in the work. Generally
+speaking, the directors of the San Francisco and San Joaquin
+Valley Railway asked local committees to select what in their
+judgment was the best route over which the railroad could pass.
+They then asked them to give rights-of-way, depot grounds, and
+terminal facilities, and to subscribe to all the stock that they
+could afford. It was announced that the railroad was being built
+on a business basis, and that it would go through the best
+country and where the greatest inducements were offered.<a name="FNanchor_471_471" id="FNanchor_471_471"></a><a href="#Footnote_471_471" class="fnanchor">[471]</a></p>
+
+<p>This did not seem unreasonable to the local communities,
+and the company’s requests were generally complied with. The
+principal reason for raising money under such an arrangement
+was to pay local property owners whose lands were taken for
+railroad purposes. There were no money subsidies, and no
+land grants except to the extent sufficient for the company’s
+actual needs. Yet, of course, even so relatively moderate a
+provision of local aid materially reduced the cost of construction
+which the railroad company had to meet.</p>
+
+<p class="pnb">Purchase of Road by Santa Fé</p>
+
+<p>Articles of association of the San Francisco and San
+Joaquin Valley Railway Company were filed at Sacramento
+in February, 1895, and construction was begun at Stockton<span class="pagenum"><a name="Page_331" id="Page_331">[331]</a></span>
+late in the same year. By the end of December, 26.1
+miles had been built, carrying the railroad to the Stanislaus
+River. During 1896 the track reached Fresno, and in 1897
+Bakersfield was attained. On June 30, 1898, the company
+reported a total mileage of 278.91 miles, including a branch to
+Visalia. It had at that time an authorized capital stock of
+$6,000,000, of which $2,464,480 was issued and paid in, a
+funded debt of $2,671,000, and current liabilities of $110,928.
+The bonds outstanding were mortgage securities bearing 5 per
+cent interest and maturing in 1940. In 1897 the company
+reported gross earnings of $209,133 (of which $178,494 were
+from freight), and operating expenses of $153,102, on an average
+operated mileage of 123.44 miles. For the year ending
+June 30, 1898, the earnings were $411,179 and the operating
+expenses $282,326, on a mileage, however, which was considerably
+greater. These were the only years for which statistics
+are available, for the company was purchased by the Santa
+Fé in December, 1898.</p>
+
+<p>The circumstance that the San Francisco and San Joaquin
+Valley Railway was purchased by the Atchison, Topeka and
+Santa Fé only a few months after the company had completed
+its road to Bakersfield, served as a dramatic illustration of
+the fact that alliance with some larger railroad system was
+considered by its promoters to be essential to the road’s success.
+There is no question but that this sale of the system came as
+a shock and a disappointment to many persons whose enthusiasm
+had been aroused by the proposal to build an independent
+railroad for the service of shippers in San Francisco
+and in the San Joaquin Valley. The high hopes of San Francisco
+merchants could scarcely be satisfied by anything short
+of a system permanently under the control of the commercial
+interests of that city. When the San Francisco press declared
+that San Francisco was preparing to reach out for the trade
+of all the western part of the American continent, and when<span class="pagenum"><a name="Page_332" id="Page_332">[332]</a></span>
+the Spreckels committee declared that the new road was to be
+a people’s road, owned by the people, and operated in the
+interests of the people,<a name="FNanchor_472_472" id="FNanchor_472_472"></a><a href="#Footnote_472_472" class="fnanchor">[472]</a> the implication clearly was that the
+ownership of the property was to remain in the hands of the
+original subscribers to the stock or in the hands of other persons
+of like character. Nor was the argument that the construction
+of the San Francisco and San Joaquin Valley Railway
+would prevent the diversion of eastern freight from San
+Francisco to distributing centers of the South,<a name="FNanchor_473_473" id="FNanchor_473_473"></a><a href="#Footnote_473_473" class="fnanchor">[473]</a> easily to be
+reconciled with the sale of the railroad to a company which,
+like the Santa Fé, had a terminus in Los Angeles.</p>
+
+<p class="pnb">Spreckels Interests</p>
+
+<p>There were, on the other hand, indications from the beginning
+that the Spreckels group did not intend to commit itself
+to the permanent management of a railroad system, but
+that they regarded connection with, and perhaps amalgamation
+between, the San Francisco and San Joaquin Valley and
+the Atchison, Topeka and Santa Fé as the natural culmination
+of the former road’s career. Like Stanford, Mark Hopkins,
+Huntington, and Crocker, Claus Spreckels, his sons, and the
+persons most intimately associated with them were not originally
+railroad men, and were not, when they began railroad
+construction, particularly interested in the railroad business as
+a business. They were therefore to be tempted to continue
+railroad management only by a chance for extraordinary profits—a
+chance which the San Francisco and San Joaquin Valley
+Railway did not offer. Looking at the matter from a business
+standpoint, it is not unreasonable to suppose that they saw
+that the best opportunity for withdrawing their capital from
+the valley speculation lay in negotiations with the Santa Fé.
+Of course this is surmise, and perhaps is mainly plausible as a<span class="pagenum"><a name="Page_333" id="Page_333">[333]</a></span>
+late interpretation of happenings which we know took place,
+but it has a certain reasonableness in view of all the facts.</p>
+
+<p>The concrete evidence that combination between the San
+Francisco and San Joaquin Valley and the Atchison, Topeka
+and Santa Fé was looked upon as a possibility from the first,
+is to be found in the provisions of the trust agreement entered
+into by subscribers to the San Francisco and San Joaquin
+Valley Railway stock, and in the negotiations between that railroad
+and the city of San Francisco and the state government of
+California, over what was known as the China Basin lease.</p>
+
+<p class="pnb">Trust Agreement</p>
+
+<p>Soon after the promoters of the San Francisco and San
+Joaquin Valley Railway had successfully organized their corporation,
+subscribers to the stock of the company were asked
+to enter into a certain trust agreement or pooling plan designed
+primarily to prevent the railroad from falling into the hands
+of the Southern Pacific. Briefly summarized, this plan contemplated
+the transfer of the stock of the company to seven
+(later nine) trustees. Individual stockholders so transferring
+their holdings were to receive trust certificates clothing them
+with the powers and privileges usual in such cases. The trustees
+on their part were to administer the railway for a period
+of ten years unless three-quarters of the certificate holders
+should request an earlier termination of the trust, or unless all
+of the subscribers should die.</p>
+
+<p>This administration was, however, subject to restrictions,
+of which two deserve special notice. In the first place, the
+trustees undertook to operate the railroad, when completed,
+on such a basis that the rates and fares charged should be the
+lowest rates and fares which would yield enough earnings to
+meet costs of operation, interest, and sinking fund requirements,
+and to pay a dividend not exceeding 6 per cent upon
+capital stock paid in. This clause was evidently intended to<span class="pagenum"><a name="Page_334" id="Page_334">[334]</a></span>
+reassure shippers who had been or might become interested in
+the new railroad. But besides this, the trustees agreed that
+they would not knowingly vote said stock “for the benefit or
+in the interest of any person or corporation or interest hostile
+to the interest of, or in business competition with the San
+Francisco and San Joaquin Valley Railway Company, or of
+or to or in favor of any party or parties or company or companies
+owning or controlling any parallel line of road to the
+detriment and injury of the corporation hereinbefore mentioned.”<a name="FNanchor_474_474" id="FNanchor_474_474"></a><a href="#Footnote_474_474" class="fnanchor">[474]</a></p>
+
+<p>To this clause there was later added another of the same
+import, to the effect that the San Francisco and San Joaquin
+Valley Railway should not be leased to, or consolidated with,
+any company which might own, control, manage, or operate
+any of the roads then existing in the San Joaquin Valley, and
+that neither the trustees nor their successors should have any
+power as stockholders to assent to any such consolidation or
+lease, or in any way to put the San Francisco and San
+Joaquin Valley Railway under the same management as that
+of any other railroad then existing in the San Joaquin
+Valley.<a name="FNanchor_475_475" id="FNanchor_475_475"></a><a href="#Footnote_475_475" class="fnanchor">[475]</a></p>
+
+<p>In so carefully worded a document as the trust agreement
+here under consideration, the prohibition of combination with
+competing railroads or with railroads then existing in the San
+Joaquin Valley had the force of an affirmative permission to
+the trustees to consolidate their property with that belonging
+to any company not in the prohibited class. As a practical
+matter this meant consolidation with the Santa Fé and with
+that railroad only, for the reason that there was no other system
+with which combination would have been significant. The
+trust agreement was approved at a meeting of stockholders
+held on April 5, 1895,<a name="FNanchor_476_476" id="FNanchor_476_476"></a><a href="#Footnote_476_476" class="fnanchor">[476]</a> and by the middle of the following<span class="pagenum"><a name="Page_335" id="Page_335">[335]</a></span>
+month holders of more than three-fourths of the stock had
+given written assent to the trust conditions.</p>
+
+<p>The fair inference from the terms of the trust agreement
+is that the promoters looked upon the union of the San Francisco
+and San Joaquin Railway and the Atchison, Topeka and
+Santa Fé as a proper and likely outcome of the construction of
+the former road. This same conclusion is strengthened by
+consideration of the China Basin lease, concerning which a
+few words may be said.</p>
+
+<p class="pnb">The China Basin Lease</p>
+
+<p>The China Basin lease related to a tract of land on the
+water-front between the foot of Third Street and the foot of
+Fourth Street in San Francisco. The San Francisco and San
+Joaquin Valley Railway needed a terminus in San Francisco
+even before it entered upon construction west of Stockton, because
+it wished to encourage the shipment of freight from San
+Francisco up the Sacramento River to the head of its rail line
+at Stockton. It also looked forward to the day when it should
+have a railroad of its own to Oakland or to some other point
+on San Francisco Bay, possibly to the city of San Francisco
+itself.</p>
+
+<p>According to the precedent set in the southern counties,
+the San Francisco and San Joaquin Valley should have applied
+to the city and county of San Francisco for terminal privileges.
+The piece of property which it desired, however, consisted
+of certain mud flats at China Basin, control over which
+had been specifically vested in the State Board of Harbor Commissioners
+by a law passed in 1878.<a name="FNanchor_477_477" id="FNanchor_477_477"></a><a href="#Footnote_477_477" class="fnanchor">[477]</a> Not only were the flats
+in question thus removed from the control of the city, but the
+State Board of Harbor Commissioners itself had apparently
+no authority to conclude binding leases of this area covering
+a substantial period of time, although it did have power to<span class="pagenum"><a name="Page_336" id="Page_336">[336]</a></span>
+grant temporary permits for the use of water-front property.
+Before any progress could be made, therefore, it was necessary
+to apply to the state legislature in order that the powers of
+the harbor commissioners might be enlarged, after which negotiations
+could be continued with the commissioners direct.</p>
+
+<p>As a first step toward obtaining a lease of the China Basin
+tract, Claus Spreckels went to Sacramento in March, 1895,
+accompanied by other directors of the San Francisco and San
+Joaquin Valley Railway. With characteristic emphasis he declared
+to members of the legislature that if the promoters of
+the new enterprise did not get the mud flats they might as
+well give up the road.<a name="FNanchor_478_478" id="FNanchor_478_478"></a><a href="#Footnote_478_478" class="fnanchor">[478]</a> No senator, he said, who voted against
+his bill could dare to face his constituents again. Senators who
+voted against the proposed amendment to the law voted to
+take the bread out of the mouth of the workingman’s child.
+They voted to keep the unemployed out of work, and they
+voted for their own damnation.<a name="FNanchor_479_479" id="FNanchor_479_479"></a><a href="#Footnote_479_479" class="fnanchor">[479]</a></p>
+
+<p class="pnb">Necessary Legislation Enacted</p>
+
+<p>There was little opposition in the assembly to giving the
+Spreckels group what it wanted. Principally the discussion
+was as to whether it was better to clothe the harbor commissioners
+in general terms with the power to lease water-front
+property,<a name="FNanchor_480_480" id="FNanchor_480_480"></a><a href="#Footnote_480_480" class="fnanchor">[480]</a> or whether the board should be authorized only
+to lease a described parcel to a specified group of persons.<a name="FNanchor_481_481" id="FNanchor_481_481"></a><a href="#Footnote_481_481" class="fnanchor">[481]</a>
+The fear was expressed in the course of the debate lest the tract
+desired by the San Francisco and San Joaquin Valley Railway
+might be leased to a corporation controlled by the Southern
+Pacific, and that other parcels might go the same way. On
+the other hand, it was pointed out that a provision for a lease<span class="pagenum"><a name="Page_337" id="Page_337">[337]</a></span>
+to specified parties might prove unconstitutional as an example
+of special legislation.</p>
+
+<p>In the end the “Gleaves” bill with the so-called “Powers”
+amendment passed the assembly by a vote of 60 to 9, and the
+senate by a narrower margin of 21 to 17. In its final form
+it authorized the State Board of Harbor Commissioners to
+lease any land belonging to the state which was required for
+terminal purposes, at a maximum rental of $1,000 a year. No
+land was to be leased for a longer period than fifty years, not
+more than 50 acres was to be leased to any one railroad, and
+no lease was to be assignable without the written consent of the
+commissioners. As a still further protection, it was provided
+that the beneficiary of the lease must be a railroad company.
+Such a company, moreover, must be incorporated within the
+state of California, and it might not be a corporation which,
+at the date of the passage of the act, had any terminal facilities
+in the city and county of San Francisco.<a name="FNanchor_482_482" id="FNanchor_482_482"></a><a href="#Footnote_482_482" class="fnanchor">[482]</a></p>
+
+<p class="pnb">Terms of Lease</p>
+
+<p>Armed with the legislative sanction, Mr. Spreckels undertook
+negotiations with the Board of Harbor Commissioners
+and with Mayor Sutro, of San Francisco, and Governor Budd,
+which lasted from the middle of March, 1895, to the second
+week in July. In its main outlines the lease finally agreed upon
+offered to the San Francisco and San Joaquin Valley Railway
+Company the use of a defined area of 24¼ acres more or less
+located near the foot of Fourth Street, San Francisco, and
+bounded upon the water side by the sea-wall and thoroughfare
+established by the legislature of 1878. In return for this considerable
+grant, the lessee agreed to reclaim the lands granted
+from the tide, to place tracks, warehouses, and freight sheds
+upon them; to pay a nominal rental of $1,000 a year; and in
+addition, to commence within six months, and to construct and<span class="pagenum"><a name="Page_338" id="Page_338">[338]</a></span>
+have in operation within ten years, not less than 50 miles in
+continuous railroad in addition to the mileage already constructed
+in 1895, one end of which was to be at some point
+on the Bay of San Francisco south of an east and west line
+drawn through Point Pinole.</p>
+
+<p>The improvement of the leased property and the undertaking
+of new construction were obviously the real considerations
+for the lease. For the rest the terms of the lease carried
+out the spirit of the Gleaves Act by providing that the lease
+should terminate and all rights under it should cease if the
+demised premises, or the lessee corporation, should ever, by
+or through any corporate act of the latter, become, during the
+period of the lease, subject directly or indirectly to the control
+or dominion of any person, company, or corporation having
+railway terminal facilities on the Bay of San Francisco. Likewise
+the lease was to terminate if the party of the second part
+(the railway) should enter into any combination, arrangement,
+pool, trust, or agreement with any railroad corporation, or
+individual, having railroad terminal facilities upon, or adjacent
+to, the water-front of the city of San Francisco, for the purpose
+of preventing or limiting competition in the business of
+carrying freight or passengers. This wording permitted merger
+or agreement between the San Francisco and San Joaquin
+Valley Railway and the Atchison, Topeka and Santa Fé Railway
+Company, but not between the former company and the Southern
+Pacific, and was quite evidently intended to have this effect.
+In accordance with the terms of the Gleaves Act, the lease was
+made non-assignable.<a name="FNanchor_483_483" id="FNanchor_483_483"></a><a href="#Footnote_483_483" class="fnanchor">[483]</a></p>
+
+<p><span class="pagenum"><a name="Page_339" id="Page_339">[339]</a></span></p>
+
+<p class="pnb">Reasons for Consolidation</p>
+
+<p>A very interesting statement issued in October, 1898, by a
+vice-president of the Valley road, Robert Watts, explains the
+development of the relations between the Santa Fé and the San
+Francisco and San Joaquin Valley Railway with what appears
+to have been considerable frankness. This statement is valuable
+enough to be quoted at length:</p>
+
+<div class="pbq">
+<p class="p1">I have said that the Santa Fé Railroad was not consulted
+upon the organization of the Valley Road. This is strictly true.
+But it is also true that shortly after we began work that discussions
+arose among ourselves and the public as to a probable connection
+with that road, but we were not organized with that
+object in view. Wherever we have gone in the San Joaquin
+Valley the people have asked us when we would connect with
+the Santa Fé road....</p>
+
+<p>For a little time we clung to the belief that we could make
+a traffic arrangement with the Santa Fé road, and from the
+day that we saw that connection with that road was inevitable
+we worked toward that end. We worked to keep the Valley
+Road in its original form, and give original stockholders a personal
+interest in the terminus of an overland line. But we
+found that our stockholders were not all actuated by the same
+sentiment that actuated the directors and trustees.</p>
+
+<p>When we began to negotiate with the Santa Fé people we
+found that some of our richest stockholders had sold their stock
+at 50 cents on the dollar; and when we talked traffic arrangement
+with the Santa Fé people they showed us that in that way
+the Southern Pacific people could quietly buy in a control of the
+stock and could then abrogate their traffic agreement at the conclusion
+of the trusteeship in less than seven years and leave
+them no better off than they were.</p>
+
+<p>It was only when we saw that there was absolutely no hope
+of making the overland connection without a sale of the stock
+and there was a possibility, if not a danger, that the Southern<span class="pagenum"><a name="Page_340" id="Page_340">[340]</a></span>
+Pacific Company might obtain control of the stock of the road
+that we decided to talk with our stockholders and we laid the
+whole matter before them and told them not to sell their stock
+at less than par and then the option was taken upon the stock
+and it will undoubtedly be closed.<a name="FNanchor_484_484" id="FNanchor_484_484"></a><a href="#Footnote_484_484" class="fnanchor">[484]</a></p></div>
+
+<p class="p1">This statement of Mr. Watts bears out the conclusion at
+which we had already arrived, namely, that the promoters of
+the Valley road appreciated from the first that they must connect
+their enterprise with some larger system in order to be
+permanently successful. At the same time the prominent mention
+of the Santa Fé Railroad in the statement, a railroad system
+which had neither rails in the San Joaquin Valley nor
+termini on San Francisco Bay, suggests why the promoters
+were willing to accept the restrictions imposed by the trust
+agreement of 1895 and by the China Basin lease.</p>
+
+<p class="pnb">Transfer of Control</p>
+
+<p>In the fall of 1898, the directors of the San Francisco and
+San Joaquin Valley Railway requested the holders of trust<span class="pagenum"><a name="Page_341" id="Page_341">[341]</a></span>
+certificates to deposit these certificates with the Union Trust
+Company of San Francisco, and to give an option for the purchase
+of them at par, valid for a period of three months. The
+prospective purchaser was not named, but the Santa Fé was
+understood to be the party interested. Certificate holders responded
+very generally to the request. Apprehensions were
+expressed by a number of shippers at this time, and also by
+some of the San Francisco newspapers, that the deposit of
+certificates under the conditions required meant an end of railroad
+competition in the San Joaquin Valley.<a name="FNanchor_485_485" id="FNanchor_485_485"></a><a href="#Footnote_485_485" class="fnanchor">[485]</a> The plan was
+nevertheless considered by the trustees of the San Francisco
+and San Joaquin Valley Railway and was approved by them,
+Mr. Ripley giving written and verbal assurances in behalf of
+the Santa Fé that the Valley road would be continued as a competing
+line.<a name="FNanchor_486_486" id="FNanchor_486_486"></a><a href="#Footnote_486_486" class="fnanchor">[486]</a> In due course the option was taken up and the
+expected transfer of control to the Santa Fé occurred.</p>
+
+<p>It may be observed, to conclude this part of the story, that
+when the Santa Fé began negotiations with the managers of
+the Valley road in April, 1898, its operated mileage ran from
+Chicago west to Mojave, Los Angeles, and San Diego (National
+City). It had no route over the Tehachapi Pass between
+Mojave and Bakersfield, and thus no way of reaching the San
+Joaquin Valley save by traffic arrangement with the Southern
+Pacific. The purchase of the San Francisco and San Joaquin
+Railway gave to the Santa Fé control over a system of 279
+miles, stretching from Stockton to Bakersfield, with a branch
+from Fresno through Visalia and Tulare, and an extension
+from Stockton to Point Richmond which, while not completed,
+was under way, and funds for the construction of which
+were in hand. Actual construction of the Stockton-Point
+Richmond line had begun in April, 1898. The work was continued<span class="pagenum"><a name="Page_342" id="Page_342">[342]</a></span>
+by the Santa Fé, and the road was opened for freight
+and passengers, respectively, in May and July, 1900. There
+was talk also of building across the 68-mile gap between Mojave
+and Bakersfield. Eventually, however, an amicable arrangement
+with the Southern Pacific was concluded in this
+territory under which the use of the Southern Pacific line
+across the mountains was thrown open to both companies.
+This finally admitted the Santa Fé to northern California.</p>
+
+<p class="pnb">Reduction of Grain Shipment Rates</p>
+
+<p>Did the building of the San Francisco and San Joaquin
+Valley Railway justify itself? From the financial point of
+view the answer is clearly in the negative. To say nothing of
+the energy spent in its development, investors in the stock of
+the railroad received no dividends. They therefore lost the
+use of the capital which they contributed for a period of three
+years. The principal of their investment they did, indeed, recover,
+but the interest upon it was gone. On the other hand,
+the enterprise was never regarded as likely to be a money-making
+affair in the narrow sense, and the financial point of
+view was not the chief one to be regarded. The real benefit
+expected from the construction of the Valley road was that
+which would come from a reduction in transportation charges
+between San Francisco and points in the San Joaquin Valley,
+and the success of the project was therefore to be measured
+primarily by the cuts in railroad rates for which it might be
+held responsible. We may consider the problem a moment
+from this point of view.</p>
+
+<p>The first reduction in rates which may be attributed to the
+Valley road occurred in June, 1896, when the new railroad
+published a schedule of charges on wheat and on burlap bags
+to Stockton from stations upon its line south of the last-named
+city. This schedule showed substantial reductions. On September
+15, 1895, the Southern Pacific rate from Ripon, a town<span class="pagenum"><a name="Page_343" id="Page_343">[343]</a></span>
+20 miles distant from Stockton, to Stockton was 95 cents per
+ton of 2,000 pounds. The Valley road in 1896 filed a rate of 80
+cents a ton from Escalon, 21 miles distant from Stockton upon
+its own line. The Southern Pacific rate for the 29 miles from
+Modesto to Stockton was $1.35 a ton. From Empire, the
+nearest station to Modesto upon the San Francisco and San
+Joaquin Valley, the new railroad put in a rate of $1.10. The
+rate from Merced was $1.85 over the Southern Pacific; it was
+now made $1.70 by the Valley road. In addition to these reductions
+in the rates to Stockton, the new company afforded
+shippers a sensible relief by abolishing the switching charge
+of 15 cents per ton which the Southern Pacific had been accustomed
+to demand on grain handled at that point.<a name="FNanchor_487_487" id="FNanchor_487_487"></a><a href="#Footnote_487_487" class="fnanchor">[487]</a></p>
+
+<p>As the Valley road extended itself to the south and added
+new stations at which it was prepared to receive business, the
+policy of rate-cutting was continued. In September, 1896, a
+wheat rate of $2.15 per ton was established from Fresno to
+Stockton, 20 cents less than the Southern Pacific charge.<a name="FNanchor_488_488" id="FNanchor_488_488"></a><a href="#Footnote_488_488" class="fnanchor">[488]</a>
+By 1898 the line had reached Bakersfield, and grain rates were
+put in from towns between Hanford and that city which were
+from 10 to 15 cents per ton less than the rates which the
+Southern Pacific was accustomed to exact.<a name="FNanchor_489_489" id="FNanchor_489_489"></a><a href="#Footnote_489_489" class="fnanchor">[489]</a> All the rates
+quoted were met by the Southern Pacific; moreover, word was
+sent to Mr. Moss, traffic manager of the San Francisco and
+San Joaquin Valley, that the Southern Pacific would continue
+to meet reductions as fast as they were made.</p>
+
+<p class="pnb">Merchandise Tariff</p>
+
+<p>The first merchandise tariff to be established by the new
+line was somewhat slower in appearing than the tariff on grain,
+because the formulation of it was a more complicated matter.
+Nevertheless, such a tariff was filed with the State Railroad<span class="pagenum"><a name="Page_344" id="Page_344">[344]</a></span>
+Commission on August 22, 1896. The new merchandise rates
+were based upon the Western classification, and were believed
+to represent reductions of from 10 to 50 per cent as compared
+with Southern Pacific rates before the competition of the Valley
+road had become effective. In the new schedule the first-class
+rate from Stockton to Merced was 31 cents per hundred
+pounds, or approximately .9 cents per ton per mile. On class
+five, the highest carload class, the rate was $4 per ton, or .6
+cents per ton per mile.<a name="FNanchor_490_490" id="FNanchor_490_490"></a><a href="#Footnote_490_490" class="fnanchor">[490]</a> As in the case of the grain rates, the
+publication of new merchandise schedules continued as the Valley
+road proceeded south. Thus when the company reached
+Bakersfield it put in a first-class rate of 83 cents per hundred
+pounds, a cut of 19 cents under the Southern Pacific tariff,
+with rates on other classes reduced to correspond.<a name="FNanchor_491_491" id="FNanchor_491_491"></a><a href="#Footnote_491_491" class="fnanchor">[491]</a></p>
+
+<p>In addition to grain and merchandise rates, the Valley road
+also quoted commodity rates. The rate on flour from Merced
+to San Francisco was set at $2.75 per ton, and that on potatoes
+and on lime at $1.85 per ton, as compared with rates of $4.20
+and $3.10 over Southern Pacific lines.<a name="FNanchor_492_492" id="FNanchor_492_492"></a><a href="#Footnote_492_492" class="fnanchor">[492]</a> Likewise passengers
+were carried from Stockton to Fresno and to intermediate
+points at a flat rate of 3 cents per mile. Later, the fare from
+San Francisco to Hanford was reduced from $7.30 to $4.65,
+that to Visalia from $7.40 to $5,<a name="FNanchor_493_493" id="FNanchor_493_493"></a><a href="#Footnote_493_493" class="fnanchor">[493]</a> and that to Bakersfield from
+$9.10 to $6.90.<a name="FNanchor_494_494" id="FNanchor_494_494"></a><a href="#Footnote_494_494" class="fnanchor">[494]</a></p>
+
+<p class="pnb">Relative Position of San Francisco Improved</p>
+
+<p>It should be added that the adjustment both of grain and
+of merchandise rates was such as to improve the relative position
+of San Francisco as compared with other cities, as well as
+to reduce directly the freight bills which she had to pay.
+Generally speaking, the grain rates between points in the San
+Joaquin Valley and San Francisco were made 50 cents per ton<span class="pagenum"><a name="Page_345" id="Page_345">[345]</a></span>
+higher than the rates to Stockton. This in itself represented
+a reduction of 50 cents under the Southern Pacific rates, inasmuch
+as the Southern Pacific had been accustomed to quote a
+rate to San Francisco which was $1 per ton higher than the
+rate to Stockton, in order to encourage shipments to Port
+Costa. The Southern Pacific rate to Port Costa, exceeded its
+rate to Stockton by only 50 cents, and was less than the Southern
+Pacific grain rate to San Francisco by the same amount.<a name="FNanchor_495_495" id="FNanchor_495_495"></a><a href="#Footnote_495_495" class="fnanchor">[495]</a></p>
+
+<p>The differentials in the case of merchandise southbound
+varied. On first-class the rate from San Francisco to valley
+points was 5 cents per hundred pounds higher than the rate
+from Stockton. On second-class the differential was 3 cents,
+and on third and fourth classes it was 2 cents per hundred
+pounds. Groceries and supplies for country stores generally
+fell in classes two, three, and four. These figures compared
+with Southern Pacific differentials of 5 cents on classes one
+and two, and 4 cents on classes three and four.<a name="FNanchor_496_496" id="FNanchor_496_496"></a><a href="#Footnote_496_496" class="fnanchor">[496]</a> Here again
+the relative position of San Francisco was improved, not unnaturally
+to the satisfaction of dealers in that city.</p>
+
+<p>It is clear from the facts set forth in the last few pages
+that the San Francisco and San Joaquin Valley Railway accomplished
+a considerable reduction in rates, at least for a
+time, in the San Joaquin Valley. When we bear in mind that
+this was the principal purpose for which the road was built,
+and when we recall that after all its promoters escaped without
+considerable financial sacrifice, it is hard to avoid the conclusion
+that the enterprise was justified, and may be considered
+to have been worth what it cost. The company did not fulfil
+the hopes of its projectors; it failed to maintain its independence,<span class="pagenum"><a name="Page_346" id="Page_346">[346]</a></span>
+and only for a few years served as an aggressive
+competitor of the system which San Francisco business men
+so cordially disliked. But it did do something to relieve the
+mercantile community, at no great expense to the persons who
+invested in it, or to the city which promoted it, and so, in a
+modest way the railroad may be considered a success.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_347" id="Page_347">[347]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XIX</h2>
+
+<p class="pch">OPERATING CHARACTERISTICS OF THE
+SOUTHERN PACIFIC LINES</p>
+
+<p class="pnb">Proprietary and Leased Properties</p>
+
+<p>Let us now leave the general questions of rates and competition
+in California, and return again to the more intimate
+history of Southern Pacific development, and particularly to
+the story of the later years. The present chapter describes the
+organization and operating characteristics of the Southern
+Pacific system after 1885; the chapters next following take up
+that all-important financial problem which faced the Central
+Pacific in the later nineties—the repayment of the government
+debt.</p>
+
+<p>A glance at the annual report of the Huntington lines shows
+that from the point of view of ownership the system, as early
+as 1885, was divided into two parts. The first of these was
+known as the “proprietary companies,” and included the Southern
+Pacific Railroad of California, the Southern Pacific Railroad
+of New Mexico, the Southern Pacific Railroad of Arizona,
+Morgan’s Louisiana and Texas Railroad and Steamship Company,
+the Louisiana and Western Railroad, the Texas and
+New Orleans Railroad, the Galveston, Harrisburg and San
+Antonio Railway, and the Northern Railway. The second was
+known as the “leased companies,” and its principal components
+were the Central Pacific Railroad, the California Pacific Railroad,
+and the Oregon and California Railroad.</p>
+
+<p>The difference between leased and proprietary lines was not
+in the operating relations between the two groups and the
+Southern Pacific Company, for as a matter of fact all were
+“leased lines” in this regard, but in the circumstance that the<span class="pagenum"><a name="Page_348" id="Page_348">[348]</a></span>
+Southern Pacific Company held substantially all the stock of
+the proprietary companies in its treasury as the result of the
+issue of its own stock in exchange; this was not true of the
+so-called leased companies. In December, 1896, the Southern
+Pacific reported 5,250 miles of proprietary lines, and 2,128
+miles of leased properties.<a name="FNanchor_497_497" id="FNanchor_497_497"></a><a href="#Footnote_497_497" class="fnanchor">[497]</a></p>
+
+<p>From the standpoint of operation the distinction between
+proprietary and leased lines was completely disregarded, and
+naturally so because, as has been said, both kinds of properties
+were operated after the same general fashion. Instead of being
+classed as proprietary or leased companies, the Southern Pacific
+lines were divided for operating purposes between the Pacific
+system including the mileage south of and including Portland,
+Oregon, and west of Ogden and El Paso, and the Atlantic system,
+including the railroads east of El Paso. In 1889 local
+legislation compelled the separate operation of the lines in
+Texas. In 1896 there were 4,966 miles of main line in the
+Pacific system, 1,967 miles in Texas, and 445 miles in
+Louisiana. Mention should also be made of over 3,500 miles
+of water routes, chiefly those connecting New Orleans and
+Morgan City with the West Indies and with New York.</p>
+
+<p class="pnb">Bigness of System</p>
+
+<p>The fact concerning Southern Pacific properties that seems
+to have most impressed observers was their sheer size. A
+company controlling 7,300 miles of railroad and 3,500 miles of
+water lines, and operating between Portland, New Orleans,
+and New York, was unusually large even to men accustomed<span class="pagenum"><a name="Page_349" id="Page_349">[349]</a></span>
+to the great eastern corporations which operated in the nineties.
+The railroad mileage of the Southern Pacific in 1896
+exceeded that of the Union Pacific by 2,600 miles, that of the
+Santa Fé by 940 miles, and that of the Northern Pacific by
+2,800 miles. Even the Pennsylvania Railroad operated only
+6,700 miles in 1896, including lines both east and west of
+Pittsburgh, while the reported mileage of the New York Central
+and Hudson River Railroad was but 2,395 miles in the same
+year.</p>
+
+<p>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, the great extent of the Southern Pacific system made
+its problems those of extensive rather than of intensive operation.
+Locomotive runs were longer on the Southern Pacific
+than elsewhere, and more attention was paid to questions of
+organization, particularly in later years.</p>
+
+<p>There were other features about the Southern Pacific lines,
+however, besides their length, which deserve at least a passing
+mention. The system enjoyed, for example, the advantage of
+a highly diversified traffic. The year 1900 was not exceptional
+in this regard, yet in 1900, 22 per cent of the freight carried
+by the Southern Pacific fell in the class of products of agriculture,
+17 per cent was manufactures, 15 per cent was products
+of the forest, 10 per cent products of mines, 8 per cent
+merchandise, and 4 per cent animal products. When we
+recall that in the same year 47 per cent of all the freight carried
+by the Pennsylvania Railroad Company consisted of anthracite
+and bituminous coal, and that nearly half of the freight<span class="pagenum"><a name="Page_350" id="Page_350">[350]</a></span>
+transported over the Chicago, Milwaukee and St. Paul Railroad
+consisted of products of agriculture and of the forest,
+we can understand the unusual position in which the Southern
+Pacific was placed.<a name="FNanchor_498_498" id="FNanchor_498_498"></a><a href="#Footnote_498_498" class="fnanchor">[498]</a></p>
+
+<p class="pnb">High Average Earnings</p>
+
+<p>Generally speaking, on a railroad system which handles a
+large traffic in manufactured goods, the average return per
+ton per mile will be large. This is particularly true when
+the company’s coal tonnage is of small proportions. In the case
+of the Southern Pacific, the effect of such a distribution of
+business was increased by the fact that the company possessed
+the well-nigh exclusive control of a large local business on the
+Pacific Coast, on which high rates could be charged. This was
+where the efforts of the associates to maintain a monopoly of
+rail transportation in California bore fruit. Eighty-two per
+cent in weight of the commercial freight handled in 1883 by
+the Central Pacific Railroad was classified as local, and almost
+two-thirds of this company’s earnings were derived from local
+business. Indeed, the local freight during the early years of
+operation exceeded expectations as much as the through freight
+fell behind what was thought would be its probable development.
+Prior to the construction of the Union and Central
+Pacific railroads, it was supposed that for many years the
+through business of the new lines would constitute by far their
+principal source of revenue. It was also supposed that the
+traffic of the companies would consist very largely in the transportation
+across the continent of the products of Asia in transit
+to the states situated east of the Mississippi River and to
+Europe. Both of these anticipations proved entirely mistaken.</p>
+
+<p>Partly, then, because of the character of the freight which
+it handled, and partly because of the fact that a large proportion<span class="pagenum"><a name="Page_351" id="Page_351">[351]</a></span>
+of its business was local, the average rate upon the
+Southern Pacific was very high. The average freight receipts
+of the Central Pacific in 1872 were 3.66 cents per ton per
+mile. While they declined in subsequent years, the figure was
+still 2.75 cents in 1878, and 2.14 cents in 1881. In 1878, while
+the Central Pacific was earning 2.75 cents per ton per mile,
+the Santa Fé received only 2.12 cents, the Union Pacific 2.27
+cents, the Chicago and Northwestern 1.72 cents, the Pennsylvania
+.92 cents, and the Lake Shore and Michigan Southern
+.73 cents.<a name="FNanchor_499_499" id="FNanchor_499_499"></a><a href="#Footnote_499_499" class="fnanchor">[499]</a> Fourteen years later, the average receipts on the
+entire Southern Pacific system were exactly twice the average
+receipts per ton per mile on the Illinois Central, and materially
+greater than those of most roads in other parts of the
+country.</p>
+
+<p>It is evident that the average earnings of the Southern
+Pacific system were superior to those of the other transcontinental
+railroads, to say nothing of such eastern properties as
+the Illinois Central and the Chicago and Northwestern. To
+break the force of the comparison, Mr. Huntington was wont
+to compare Southern Pacific figures with the averages reported
+by the Interstate Commerce Commission for the so-called
+Group X, which included the Pacific Coast. These statistics
+showed, for example, in 1894, that the average receipts per ton
+per mile of railroads in Group X were 1.343 cents, while those
+of the Southern Pacific (Pacific system) were 1.316 cents.
+Territorial averages, however, made up of returns from small
+companies and from large, from local and from through concerns,
+may reasonably be expected to be higher than averages
+which apply only to large systems. The Southern Pacific
+received more on the average than its competitors, and almost
+as much as the group in which it lay, in spite of the fact that
+it enjoyed a through business in which a great many of the
+small western lines had no share.</p>
+
+<p><span class="pagenum"><a name="Page_352" id="Page_352">[352]</a></span></p>
+
+<p class="pnb">Long Average Haul</p>
+
+<p>The influence of through business on the Southern Pacific
+lines was, on the whole, opposed to that of the local business.
+Not only was the through business highly competitive, but, as
+might be anticipated, it was characterized by an extremely
+long haul. Indeed, in the year 1895 the average length of haul
+on the through freight transported over the Pacific system of
+the Southern Pacific was 844 miles. The average haul of
+freight on the entire business of the company was 279 miles.
+During the same year the New York Central Railroad reported
+an average haul of 169 miles, and the Erie one of 156 miles.</p>
+
+<p>The reason for the extraordinary length of haul on the
+Southern Pacific lay in the fact that the company served a
+rich community far removed from eastern centers of population,
+yet relying to a considerable extent upon these centers
+both as a market for its produce and as a source for its supplies.
+Moreover, the commodities of California, such as fruit and
+lumber, wool, fish, and wine, and the imports through the
+port of San Francisco, such as tea, sugar, and silk, were sufficiently
+distinct in character from the typical products of the
+East to give something of the stability of international division
+of labor to the movements between the Pacific Coast and
+the eastern states. Much the same can be said of the transportation
+of manufactured goods westbound in view of the
+high price of labor in the West and the scarcity of coal.</p>
+
+<p>These matters have been considered in a preceding chapter.
+Their effect was to make it easy to secure a great many full
+cars, or even trainloads, and to reduce terminal expenses to
+a minimum. Inasmuch, however, as the raw products of California
+were heavier and took up more space than the manufactured
+goods received in exchange for them, a very considerable
+excess of eastbound tonnage often existed. In 1888,
+to take a year at random for purposes of illustration, the tons
+of through freight carried one mile eastward on the Pacific<span class="pagenum"><a name="Page_353" id="Page_353">[353]</a></span>
+system were reported as amounting to 335,330,035, while the
+through westbound freight amounted to only 232,682,578.
+This meant light loads and empty mileage on the westbound
+traffic. The difference would doubtless have been greater had
+it not been for the large westward moving company freight.
+Such a tendency called for constant effort on the part of the
+officials of the Southern Pacific to secure eastern manufactures
+for westbound transportation, and this effort in turn gave rise
+to friction between the railroad and the manufacturing interests
+upon the Pacific Coast.</p>
+
+<p>On the other hand, the tendency of the passenger traffic
+was in the direction of an excess of westbound business, because
+of the migration of permanent settlers to California. During
+the three years from 1888 to 1890, 328,892 through passengers
+were reported as moving westward on the Pacific system
+alone, and only 241,643 as moving eastward, or an excess of
+36 per cent in favor of the West. The excess of westbound
+passenger traffic during these three years reached the large
+total of 76,580,470 passengers, or more than the total eastbound
+movement in any one year of the period.</p>
+
+<p class="pnb">Earnings Density</p>
+
+<p>The greatest density of earnings on the Southern Pacific
+system was on properties such as the Central Pacific and the
+California Pacific, which together with the Northern Railway
+formed the main trunk line from San Francisco to the East.
+In 1895 the Central Pacific earned $9,537 per mile and the
+California Pacific $9,266, amounts which were far inferior
+to the results of the operation of railroads in thickly settled
+districts east of the Mississippi River, but which yet exceeded
+the returns on the Santa Fé, the Illinois Central, and even those
+reported on the western portions of such a railroad as the
+Baltimore and Ohio.</p>
+
+<p>Next to the California Pacific in the Southern Pacific system,<span class="pagenum"><a name="Page_354" id="Page_354">[354]</a></span>
+in respect to earnings, came, in 1895, the South Pacific
+Coast Railroad, with gross earnings of $8,000 per mile; the
+Southern Pacific railroads of New Mexico, California, and Arizona,
+with earnings ranging from $6,500 to $5,800; the Northern
+Railway with $5,177; and finally the Northern California
+and the Oregon and California Railroad companies, with earnings
+per mile of $2,600 and $2,400, respectively. The figures so
+far given all relate to the Pacific system. In general it may be
+said that the earnings of Atlantic system lines were slightly
+greater per mile than those of the western properties. This
+statement does not, however, hold good of all the Atlantic
+companies, nor, on the average, for the Texas roads, statistics
+for which are given separately.</p>
+
+<p class="pnb">Diversion of Traffic to El Paso Route</p>
+
+<p>Unquestionably there was a difference in interest between
+different parts of the Southern Pacific system, particularly between
+the Central Pacific or Ogden route, and the Southern
+Pacific or El Paso route. When the Southern Pacific was first
+completed to El Paso, the question was raised as to whether it
+would be the policy of the management of the whole system to
+divert all transcontinental freight via the southern route. In
+a letter to a bureau of the United States Treasury Department,
+Mr. Huntington observed that it would be necessary to continue
+to do a large part of the through business over the
+Central Pacific in order that that road might be enabled to meet
+its interest charges and the requirements of the government
+indebtedness. The point was evidently regarded as one which
+called for a decision as to policy. Mr. Huntington further
+pointed out that it would be injudicious for the Southern
+Pacific to push any advantage too strongly which it might
+have, lest it provoke retaliatory action by other lines.<a name="FNanchor_500_500" id="FNanchor_500_500"></a><a href="#Footnote_500_500" class="fnanchor">[500]</a></p>
+
+<p><span class="pagenum"><a name="Page_355" id="Page_355">[355]</a></span></p>
+
+<p>The early practice of the Southern Pacific did not, however,
+altogether accord with this counsel of moderation, and the
+company seems not only to have been very active, but actually
+to have succeeded in capturing as much as 90 per cent of the
+New York-San Francisco business; also, while it did not
+permanently retain so large a share of the through freight
+which moved by rail, it continued to carry the major portion of
+the westbound traffic from the Atlantic seaboard to California
+until perhaps the year 1887.<a name="FNanchor_501_501" id="FNanchor_501_501"></a><a href="#Footnote_501_501" class="fnanchor">[501]</a> Some of the freight which the
+Southern Pacific handled during this period was new business,
+but a considerable portion of it was taken from the Central
+Pacific.</p>
+
+<p>There is more or less evidence that it was the practice of
+the Southern Pacific management to lay special emphasis upon
+the advantages of the southern route, in the attempt to divert
+as much business as possible to what was known as a 100 per
+cent line. That shippers believed such a policy was being
+followed, is evident from statements which appeared in the
+public press. It was currently asserted, for instance, that
+ticket and traveling agents of the Southern Pacific all over the
+state of California were instructed to use their best endeavors
+to induce passengers to move by way of the southern line instead
+of by way of Ogden.<a name="FNanchor_502_502" id="FNanchor_502_502"></a><a href="#Footnote_502_502" class="fnanchor">[502]</a> It was claimed that better time
+was made over the Southern Pacific than over the Central
+Pacific, and that freight shipments were more easily traced.</p>
+
+<p>Speaking of westbound freight, a San Francisco merchant
+was quoted in 1896 as stating that the Southern Pacific
+delivered freight from New York to San Francisco in from
+twelve to twenty days. Should the freight not come to hand
+promptly, officials of the company were said to be exceedingly
+careful to discover the causes of the delay and to see that the
+goods were pushed forward as rapidly as possible. On the<span class="pagenum"><a name="Page_356" id="Page_356">[356]</a></span>
+other hand, if freight came via Chicago and Ogden, all the
+way from 18 to 28 days might be spent upon the journey,
+while information as to the causes of delay was difficult to
+obtain.<a name="FNanchor_503_503" id="FNanchor_503_503"></a><a href="#Footnote_503_503" class="fnanchor">[503]</a></p>
+
+<p class="pnb">Testimony of Employees and Officials</p>
+
+<p>One may readily concede that complaints of the character
+referred to are to be accepted only with reservations; yet
+there is later information which bears out the substance of the
+charges in convincing fashion. When the Southern Pacific
+system was attacked in 1914 as a combination in restraint of
+trade, a great many railroad employees were put upon the
+stand, and testimony was secured which related not only to
+current policy, but also to practices which had been followed
+by members of the Southern Pacific staff for a number of
+years in the past.</p>
+
+<p>It appears without substantial contradiction from the
+testimony in this case, that Southern Pacific, and even Central
+Pacific employees, solicited for the Sunset route before its
+combination with the Union Pacific in preference to the route
+via Ogden in order to obtain the long haul, even when the
+Sunset route was very roundabout. Mr. Connor, commercial
+agent of the Southern Pacific at Cincinnati from 1889 to
+1901, testified that his office had directed its exclusive time and
+attention to securing traffic from California points for the
+New Orleans gateway. Shipments moving via Ogden he
+regarded as lost and reported them accordingly.<a name="FNanchor_504_504" id="FNanchor_504_504"></a><a href="#Footnote_504_504" class="fnanchor">[504]</a> Mr. Sproule
+said that the same was true of the whole Central Freight
+Association territory, from Buffalo and Pittsburgh on the
+east, to Chicago and St. Louis on the west.<a name="FNanchor_505_505" id="FNanchor_505_505"></a><a href="#Footnote_505_505" class="fnanchor">[505]</a></p>
+
+<p>Mr. Spence, director of traffic of the Southern Pacific
+Company, admitted that effort was made to send business to<span class="pagenum"><a name="Page_357" id="Page_357">[357]</a></span>
+California via New Orleans when the point of origin was in
+territory east of a line drawn from Toledo through Indianapolis
+and Terre Haute to St. Louis.<a name="FNanchor_506_506" id="FNanchor_506_506"></a><a href="#Footnote_506_506" class="fnanchor">[506]</a> Mr. Lovett thought
+that Southern Pacific solicitors even in Chicago did not work
+against the solicitation of lines leading to New Orleans, though
+acting independently they would solicit business via Ogden.<a name="FNanchor_507_507" id="FNanchor_507_507"></a><a href="#Footnote_507_507" class="fnanchor">[507]</a>
+It is in the record, also, that Southern Pacific solicitors in 1914
+sought freight from the Atlantic seaboard to Oregon and
+Nevada through the New Orleans gateway,<a name="FNanchor_508_508" id="FNanchor_508_508"></a><a href="#Footnote_508_508" class="fnanchor">[508]</a> and that the
+great bulk of wool from western and central Nevada destined
+to the Atlantic seaboard actually moved west to Sacramento
+and then south and east over the Sunset line, instead of taking
+the direct route via Ogden.<a name="FNanchor_509_509" id="FNanchor_509_509"></a><a href="#Footnote_509_509" class="fnanchor">[509]</a></p>
+
+<p class="pnb">Complaints of Others</p>
+
+<p>This direct testimony of Southern Pacific employees is in
+harmony with repeated assertions made by persons outside of
+the organization, and seems to indicate that some discrimination
+against the Central Pacific and in favor of the Southern
+Pacific on transcontinental business was encouraged by those
+in control of the Southern Pacific Company’s affairs. As well
+informed a man as P. P. Shelby, traffic manager of the Union
+Pacific, declared in 1887 that he knew by conversation with
+shippers that the Central Pacific had diverted all the traffic they
+could control to the Sunset route ever since the Southern Pacific
+was completed, commencing in 1882. All kinds of merchandise
+had been diverted, especially such goods as canned fruits,
+canned fish, and wool. Asked whether the Union Pacific would
+carry 25 per cent more freight if the Central Pacific were separated
+from the Southern Pacific, Mr. Shelby qualified his statement<span class="pagenum"><a name="Page_358" id="Page_358">[358]</a></span>
+by saying that it was hard to answer the question. The
+Southern Pacific gave the Central Pacific a good deal of freight
+which that company would not have received were the two
+lines segregated. Had they been two independent lines, under
+independent management, the Southern Pacific would not have
+given the Central Pacific any freight at all.<a name="FNanchor_510_510" id="FNanchor_510_510"></a><a href="#Footnote_510_510" class="fnanchor">[510]</a></p>
+
+<p>Similar charges were made by representatives of interests
+such as those of the English stockholders of the Central Pacific,
+who asserted that Mr. Huntington wished to ruin the Central
+Pacific, and dwelt upon the advantages of bankruptcy to a
+company from which the United States government was about
+to attempt to collect a debt. Knowing as we do that the
+Huntington-Stanford group shifted the weight of their investments
+from the Central to the Southern Pacific in the eighties,
+there is of course ground for suspicion that the diversion of
+freight, to which the evidence that has been quoted refers, was
+part of a carefully thought-out plan, and that more than traffic
+matters were involved.</p>
+
+<p class="pnb">Real Reasons for Traffic Diversion</p>
+
+<p>Yet the truth of the matter probably is that while some
+diversion from the Central to the Southern route occurred, this
+diversion, although looked upon with equanimity by Mr. Huntington,
+was not part of an attack upon the Central Pacific, but
+may be explained by certain simple traffic considerations.
+There were at least two good reasons why an attempt should
+have been made to handle business from New York over the
+Southern Pacific rather than over the Central Pacific. The
+first reason was that it was more profitable for the Southern
+Pacific to take freight from New York by a route which it
+entirely controlled, than to divide the earnings on such business
+with the direct lines between New York and Ogden. The
+second reason was that the Southern Pacific could offer better<span class="pagenum"><a name="Page_359" id="Page_359">[359]</a></span>
+service on the Sunset route than over the Central Pacific because
+of the indifference of the lines east of Omaha. The Central
+Pacific business was done on a different classification from
+that in use in the East. Also, many classes of freight were
+taken at low rates because of water competition, so that the
+divisions accruing to eastern lines were very small, and their
+interest in the traffic correspondingly slight.</p>
+
+<p>Finally, to the eastern roads the whole business was unimportant
+compared with the volume of other kinds of goods
+which they were handling. The result was that Mr. Stubbs,
+of the Southern Pacific, complained very vigorously that
+eastern lines neglected transcontinental business. It took four
+to six days he said, to get freight through the city of Chicago,
+and often thirty to thirty-five days to transport it from Omaha
+to New York. Freight had to be way-billed three times via
+Ogden as compared with one billing via El Paso. In fact, in
+1885 and 1886 the trunk lines practically withdrew from the
+transcontinental business, and to this withdrawal should be
+attributed the large proportion of the traffic between San Francisco
+and New York which was handled by the Sunset route
+during these years.<a name="FNanchor_511_511" id="FNanchor_511_511"></a><a href="#Footnote_511_511" class="fnanchor">[511]</a></p>
+
+<p>These two reasons, of which one still has force, and the
+other was important for a number of years, are sufficient to
+account for most of the diversions complained of, and it is not
+necessary to attribute additional motives to the Huntington
+management.</p>
+
+<p>As a matter of fact, in spite of the traffic policy described,
+the gross earnings per mile of the Southern Pacific did not
+move very differently from those of the Central Pacific during
+the years from 1886 to 1895, when the data are distinguishable
+in the companies’ reports. The advances and recessions in
+volume of traffic were not identical for the two companies<span class="pagenum"><a name="Page_360" id="Page_360">[360]</a></span>
+during these years, nor did they occur at exactly the same times,
+but the figures seem to offer no support to the charge that the
+prosperity of either company was being sacrificed.</p>
+
+<p>It may also be observed that the policy of freight diversion
+was not confined to the period when the Central Pacific was
+negotiating with the government for the payment of its debt
+and with the English stockholders for the adjustment of their
+claims, nor to the years when the management of the Southern
+Pacific Company owned Southern Pacific shares and did not
+own a corresponding amount of the shares of the Central
+Pacific. In fact, as has been said, the policy of seeking to
+obtain the benefits of the long haul is still followed by the
+Southern Pacific Company, and its agents still take credit for
+sending freight all the way to New York by company lines,
+although the financial control of both the Southern and the
+Central Pacific has long been in one set of hands.</p>
+
+<p class="pnb">Traffic in Early Eighties</p>
+
+<p>Like other systems in the United States, the earnings of the
+Southern and Central Pacific railroads fluctuated considerably
+from year to year. It has been pointed out in a previous
+chapter that during the period from 1870 to 1879 the rapid
+extension of the Southern Pacific in the South West, and the
+temporarily unproductive character of the new mileage built,
+well-nigh caused the bankruptcy of the entire concern. The
+associates were then saved by the completion of the Southern
+Pacific main line to The Needles, and by an improvement in
+general stock market conditions which enabled them to sell
+securities in New York. In 1885 the Central Pacific retired the
+greater part of a floating debt of $12,873,946 by an issue of
+bonds, and for the first time in many years was freed from
+what had always been a pressing danger.</p>
+
+<p>In spite of this important relief, the years 1882, 1883, 1884,
+and 1885 were still years of considerable difficulty. Although<span class="pagenum"><a name="Page_361" id="Page_361">[361]</a></span>
+the mileage of the system now increased but slowly, the revenue
+per mile declined. Thus the Central Pacific earned $9,449 per
+mile of line in 1881, $8,437 in 1882, $8,253 in 1883, and $7,496
+in 1884. In three years gross earnings per mile dropped 21
+per cent. This decline was due to a number of causes. The
+Central Pacific suffered greatly, for one thing, from the falling
+off in the tonnage supplied by the Nevada mines. Roads like
+the Eureka and Palisade, the Nevada Central, the Nevada and
+California, and the Virginia and Truckee railroads, which were
+at one time lucrative feeders to the Central Pacific main line,
+all showed a considerable decline in earnings and business
+between 1875 and 1885 because of the failure of the mines.
+The freight received at Palisade, the terminus of the Eureka
+and Palisade Railroad, declined 74 per cent between 1875 and
+1888. The freight received at Battle Mountain, the terminus
+of the Nevada Central, fell off 78 per cent, while that arriving
+at Virginia City over the Virginia and Truckee Railroad
+dropped 86 per cent.</p>
+
+<p>It was estimated that the shrinkage of traffic between 1876
+and 1885 was not less than $2,000,000 per annum as compared
+with the period of highest prosperity of the Nevada country.
+The decrease was due in the first instance to the working out
+of the ore deposits, not only of the Comstock lode but of
+nearly all other camps within the states of Nevada and Utah
+west of Ogden which were tributary to the Central Pacific line.
+Following this, there was a large falling off in traffic, consisting
+of mining machinery and all kinds of supplies previously
+required by the miners at the mining camps, and also a large
+falling off in passenger travel as compared with the first and
+prosperous years of operation.<a name="FNanchor_512_512" id="FNanchor_512_512"></a><a href="#Footnote_512_512" class="fnanchor">[512]</a></p>
+
+<p>Besides the loss of the Nevada mining traffic in the late
+seventies and early eighties, the Central Pacific also had to<span class="pagenum"><a name="Page_362" id="Page_362">[362]</a></span>
+reckon with a certain loss of business by reason of the opening
+of transcontinental competing routes such as the Santa Fé in
+1881 and the Northern Pacific in 1883. In the early part of
+the period the decline in business seems to have been due
+mainly to local conditions; in 1884, however, as was to be expected,
+a serious decrease in the earnings from through business
+occurred.</p>
+
+<p class="pnb">Later Earnings</p>
+
+<p>As a contrast to the unsatisfactory character of the returns
+for the years 1883, 1884, and 1885, the reports of the
+companies show that, taking the Central Pacific-Southern
+Pacific system as a whole, the total earnings from 1885 to 1891
+steadily increased, both in the aggregate and per mile of line.
+If we compare the condition of the system in 1891 with its
+condition in 1885, we find a progress which may be summarized
+as follows:</p>
+
+<p class="pc1"><span class="smcap">Comparative Statement of Mileage, Capitalization,
+Earnings, and Expenses of the Southern
+Pacific System</span>, 1885,(*) 1886, and 1891</p>
+
+<table id="t08" summary="t08">
+
+ <tr>
+ <td class="tdcl">Item</td>
+ <td class="tdcl">1885</td>
+ <td class="tdcl">1886</td>
+ <td class="tdcl">1891</td>
+ </tr>
+
+ <tr>
+ <td>Mileage operated</td>
+ <td class="tdcl">4,698</td>
+ <td class="tdcl">4,847</td>
+ <td class="tdcl">6,376</td>
+ </tr>
+
+ <tr>
+ <td>Capital stock</td>
+ <td class="tdri">$171,036,160</td>
+ <td class="tdri">$198,668,170</td>
+ <td class="tdri">$264,375,066</td>
+ </tr>
+
+ <tr>
+ <td>Funded debt</td>
+ <td class="tdri">158,970,716</td>
+ <td class="tdri">181,041,680</td>
+ <td class="tdri">205,621,373</td>
+ </tr>
+
+ <tr>
+ <td>Gross earnings</td>
+ <td class="tdri">25,006,106</td>
+ <td class="tdri">31,797,882</td>
+ <td class="tdri">50,449,816</td>
+ </tr>
+
+ <tr>
+ <td>Operating expenses</td>
+ <td class="tdri">12,149,824</td>
+ <td class="tdri">18,514,656</td>
+ <td class="tdri">31,163,612</td>
+ </tr>
+
+ <tr>
+ <td>Net earnings</td>
+ <td class="tdri">12,856,282</td>
+ <td class="tdri">13,283,226</td>
+ <td class="tdri">19,286,214</td>
+ </tr>
+
+</table>
+
+<p class="pbqn">(*) The figures of earnings for 1885 represent the results of from nine to ten months’<br />
+operation only.</p>
+
+<p class="p1">This was a satisfactory showing. The total mileage operated
+by the Southern Pacific Company and by the Southern
+Pacific Railroad, Northern Division, increased between 1885
+and 1891 from 4,698 miles to 6,376 miles, not including the
+mileage of the steamship routes between New Orleans and
+Galveston and New York. The principal elements of new mileage<span class="pagenum"><a name="Page_363" id="Page_363">[363]</a></span>
+added were certain lines in Oregon, including the property
+of the Oregon and California Railroad from Portland to the
+California state line (650 miles); a second road down the
+San Joaquin Valley on the west bank of the river (190 miles);
+and additional construction on the Coast Division (150 miles).
+Comparatively little was added during these years to the Central
+Pacific main line, or to the properties east of El Paso.</p>
+
+<p>While the mileage operated thus increased by 1,678 miles,
+or 36 per cent, gross earnings became greater by the sum of
+$25,000,000, or approximately 100 per cent, and net earnings
+by $6,429,921, or about 50 per cent. This was accomplished
+with an increase in bonded indebtedness of only 30 per cent.
+The increase in stock outstanding was greater, it is true, than
+the increase in the funded debt, but the new stock issue did not
+increase the fixed charges of the road, and therefore in no way
+imperiled its solvency. In none of the figures cited are the
+so-called subsidy bonds issued by the United States government
+or the accrued interest upon the same included.</p>
+
+
+<p class="pnb">Decline Following 1893</p>
+
+<p>Unfortunately, the progress of the Southern Pacific toward
+prosperity, which was so considerable between 1885 and 1891,
+was interrupted by the difficult commercial and industrial years
+between 1891 and 1897. The effect of world-wide depression
+upon American railroads is apparent when we observe that in
+the eastern part of the United States the gross earnings of
+companies like the New York Central fell off during this period
+from $21,000 per mile in 1892 to $18,000 per mile in 1897.
+The Pennsylvania lines west of Pittsburgh earned $44,210,000
+in 1891 on a mileage of 3,502 miles. Six years later they
+hardly equaled this record on a mileage 500 miles greater.
+Even the protected system of the New York, New Haven and
+Hartford saw its gross earnings decline from $22,000 per
+mile in 1891 to $20,000 per mile in 1897.</p>
+
+<p><span class="pagenum"><a name="Page_364" id="Page_364">[364]</a></span></p>
+
+<p>It was scarcely to be expected that the relatively new system
+of the Southern Pacific would not suffer with the rest.
+The figures seem to show, however, that the Huntington lines
+suffered more than most eastern railroads from the depression
+in business following the panic of 1893. While it is true
+that the portion of the roads operated by the Southern Pacific
+Company which was known as the Atlantic system, comprising
+the lines east of El Paso, escaped with a decline of earnings
+from $7,700 per mile to $7,400, or only 43 per cent, the Pacific
+system, including the Central Pacific and the Southern
+Pacific Railroad of California, witnessed a decline in its returns
+from $8,000 per mile in 1891 to $6,400 per mile in
+1897, or a loss of from five to six times as much in gross,
+and a still greater relative decline in net, receipts.</p>
+
+<p>The following table shows the earnings and expenses of the
+Central Pacific Railroad per mile of road from 1885 to the
+reorganization of the company in 1898:</p>
+
+<p class="pc1"><span class="smcap">Operating Receipts and Expenses of the Central
+Pacific Railroad of California, 1885-98 per Mile
+of Road</span></p>
+
+<table id="t09" summary="t09">
+
+ <tr>
+ <td class="tdcl">Year</td>
+ <td class="tdcl">Gross Earnings</td>
+ <td class="tdcl">Operating Expenses</td>
+ <td class="tdcl">Net Earnings</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1885</td>
+ <td class="tdri">$ 8,383.26</td>
+ <td class="tdr3">$3,712.93</td>
+ <td class="tdr25">$4,670.33</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1886</td>
+ <td class="tdri">9,135.18</td>
+ <td class="tdr3">4,445.62</td>
+ <td class="tdr25">4,689.56</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1887</td>
+ <td class="tdri">10,092.27</td>
+ <td class="tdr3">5,394.48</td>
+ <td class="tdr25">4,697.79</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1888</td>
+ <td class="tdri">11,641.24</td>
+ <td class="tdr3">7,079.38</td>
+ <td class="tdr25">4,561.86</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1889</td>
+ <td class="tdri">11,416.92</td>
+ <td class="tdr3">7,178.13</td>
+ <td class="tdr25">4,238.79</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1890</td>
+ <td class="tdri">11,715.97</td>
+ <td class="tdr3">7,259.55</td>
+ <td class="tdr25">4,456.42</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1891</td>
+ <td class="tdri">12,224.76</td>
+ <td class="tdr3">6,771.95</td>
+ <td class="tdr25">5,452.81</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1892</td>
+ <td class="tdri">10,745.16</td>
+ <td class="tdr3">6,548.29</td>
+ <td class="tdr25">4,196.87</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1893</td>
+ <td class="tdri">10,488.89</td>
+ <td class="tdr3">6,267.71</td>
+ <td class="tdr25">4,221.18</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1894</td>
+ <td class="tdri">9,578.18</td>
+ <td class="tdr3">6,008.06</td>
+ <td class="tdr25">3,570.12</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1895</td>
+ <td class="tdri">9,534.31</td>
+ <td class="tdr3">5,990.94</td>
+ <td class="tdr25">3,543.37</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1896</td>
+ <td class="tdri">9,159.68</td>
+ <td class="tdr3">5,706.59</td>
+ <td class="tdr25">3,453.09</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1897</td>
+ <td class="tdrix">4,270.75(*)</td>
+ <td class="tdr2">2,715.62(*)</td>
+ <td class="tdr15">1,555.13(*)</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1898</td>
+ <td class="tdri">11,595.87</td>
+ <td class="tdr3">6,769.00</td>
+ <td class="tdr25">4,826.87</td>
+ </tr>
+
+</table>
+
+<p class="pbq">(*) Six months only.<br /></p>
+
+<p><span class="pagenum"><a name="Page_365" id="Page_365">[365]</a></span></p>
+
+<p class="p1">These figures show very clearly that the gross receipts of
+the Ogden route increased on the average per mile of road from
+1885 to 1891, but that they fell off largely and persistently
+from 1891 to 1897. Indeed, the net earnings per mile each year
+from 1894 to 1897 inclusive, were less than those for any of
+the nine preceding years.</p>
+
+<p class="pnb">Suspension of Central Pacific Dividends</p>
+
+<p>It seems very likely that this unusual falling off in the
+receipts of the Central Pacific Railroad Company is to be
+associated with the exceptionally disturbed traffic conditions
+on the Pacific Coast during the four or five years beginning
+in the latter part of 1891. These were the years when the
+Traffic Association of California was conducting its violent
+attack upon the Huntington interests. The period was also
+marked by the dissolution of the Transcontinental Association,
+and by the construction of the San Francisco and San Joaquin
+Valley Railroad. It was not to be expected that a campaign
+such as has been described in previous chapters would fail
+to have an influence upon the receipts of a company interested
+in business in, to, and from the state of California, so that a
+disproportionate decrease in Central Pacific earnings was not
+surprising. However this may be, the effect of the decline in
+earnings was to force the Central Pacific to stop the payment
+of dividends; and the cessation of dividends, together with
+other elements of uncertainty in the situation to which reference
+will be made, eventually caused the price of Central Pacific
+and of Southern Pacific stock to decline.<a name="FNanchor_513_513" id="FNanchor_513_513"></a><a href="#Footnote_513_513" class="fnanchor">[513]</a></p>
+
+<p><span class="pagenum"><a name="Page_366" id="Page_366">[366]</a></span></p>
+
+<p class="pnb">Dividend Policy</p>
+
+<p>In respect to dividends a word should be said here, enough
+at least to make clear that the whole dividend policy of the
+Central Pacific was a matter which provoked criticism, and
+that this criticism grew acute at the close of the period we are
+discussing. As a general matter it was charged that the Central
+Pacific had no business to pay any dividends at all while
+its indebtedness to the United States government remained
+uncanceled. It was further alleged, with more show of reason,
+that the dividends of the eighties were declared in order to
+assist the associates in disposing of Central Pacific stock in
+Europe, and not because there existed any surplus to which they
+could be properly and wisely charged. Finally, enemies of the
+company asserted, and showed ground for believing, that the
+dividends set forth in the annual reports of the Central
+Pacific to its stockholders did not represent all dividends
+actually declared; they asserted that, in addition, by special arrangement,
+considerable sums were paid out in unreported dividends,
+which may or may not have reached all holders of the
+stock.</p>
+
+<p>It appeared in this connection that a gentleman named<span class="pagenum"><a name="Page_367" id="Page_367">[367]</a></span>
+Sir Rivers Wilson had come to the United States in 1894 as
+a representative of English shareholders.<a name="FNanchor_514_514" id="FNanchor_514_514"></a><a href="#Footnote_514_514" class="fnanchor">[514]</a> Sir Rivers interviewed
+officers of the Central Pacific, inspected the property,
+and it was reported in the newspapers after his return to the
+East that he had arrived at a compromise with Mr. Huntington.
+The terms of the compromise were at first only vaguely
+understood, but the <i>London Economist</i>, in its issue of March
+23, 1895, declared specifically that Mr. Huntington had undertaken
+to pay 1 per cent per annum in the shape of dividends until
+satisfactory legislation had been obtained for the adjustment
+of the Central Pacific’s debt to the government, and that
+he had also agreed to pay 2 per cent per annum for two years
+after the debt question had been settled, during which time
+the shareholders would have opportunity to review their position
+and to consider effecting an arrangement of a more
+permanent character.</p>
+
+<p>Mr. Huntington’s attention was called to this statement of
+the <i>Economist</i>, but he made no denial of the facts stated.
+Three years later Mr. Huntington went further, and admitted
+that he had agreed with Sir Rivers Wilson to pay shareholders—all
+shareholders—an annual dividend of 1 per cent upon their
+stock.<a name="FNanchor_515_515" id="FNanchor_515_515"></a><a href="#Footnote_515_515" class="fnanchor">[515]</a> It was understood that the money for the secret Central
+Pacific dividends was loaned to the Central Pacific by the
+Southern Pacific, although this detail was not authoritatively
+established.</p>
+
+
+<p>Market Prices of Stock Shares</p>
+
+<p>Neither the Central Pacific nor the Southern Pacific were
+ever investment properties under the Huntington régime, in the
+sense that a stable return could be expected by holders of
+their stock, or even in the sense that the selling price of their<span class="pagenum"><a name="Page_368" id="Page_368">[368]</a></span>
+shares remained reasonably uniform or ever reached a quotation
+in the neighborhood of par. Central Pacific stock sold at
+34 in January, 1885. It rose to 51 in 1886, fluctuated principally
+between 26½ and 42 during the years from 1887 to 1892,
+and then proceeded to fall in value until in the spring of 1897
+it was quoted on the New York Stock Exchange at the nominal
+figure of 7⅛ per share. The stock was ordinarily not traded
+in to any extent probably because so much of it was held abroad.</p>
+
+<p>Southern Pacific stock was listed on the New York market
+in 1885, but as has been explained in a previous chapter, quotations
+on the shares were for several years artificial. In 1890
+the stock sold mostly between 25 and 35. It declined slightly
+during the latter part of 1890 and the early part of 1891, but
+from September, 1891, to August, 1892, most of the sales were
+between 35 and 40. Beginning in 1893 the price of Southern
+Pacific stock began to decline. In 1894 it reached 17½, in
+1895, 16¾; and in 1897 it touched the low point of 13½.
+After 1898 Central Pacific stock left the market, but Southern
+Pacific stock recovered to about 50 in the middle of 1901, at
+which approximate price 46 per cent of it was purchased by the
+Oregon Short Line.</p>
+
+<p>It is not without interest that the fluctuations in the quotations
+of the stock of the Central Pacific were quite as extreme
+between 1885 and 1890 as were those of the Southern Pacific
+shares, although one stock was occasionally a dividend payer
+and the other was not, and that the Central Pacific stock was
+quoted at a distinctly lower figure between 1894 and 1898 than
+was the stock of its apparently more speculative associate. The
+reason is not to be found in the different natures of the properties
+represented by the two stocks, nor in any difference in
+operating conditions. It was plainly due to the gradually
+approaching maturity of the debt which the Central Pacific
+owed to the United States government, and to the complete
+uncertainty as to the effect which government action might<span class="pagenum"><a name="Page_369" id="Page_369">[369]</a></span>
+have upon the solvency of the Central Pacific Railroad. So
+long as there seemed a possibility that the Central Pacific would
+be called upon to make good, in cash, an advance which by 1898
+would amount to nearly $60,000,000—a sum which few persons
+believed that the Central Pacific would be able to pay—the
+stock certificates of this company could have only a speculative
+value.</p>
+
+<p>The question of the best way to meet the huge obligation
+which had grown out of the assistance tendered to the Central
+Pacific Railroad by the federal government under the Pacific
+Railroad Acts of 1862 and 1864, was indeed the most important
+financial problem which the company had to solve after
+Mr. Stanford’s death. The two following chapters will be devoted
+to an exposition of the points involved in this transaction,
+and to a description of the solution finally reached in the year
+1898.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_370" id="Page_370">[370]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XX</h2>
+
+<p class="pch">THE THURMAN ACT</p>
+
+<p class="pnb">A Loan, Not a Subsidy</p>
+
+<p>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 which received them.
+Setting aside the fact that a loan at a critical moment may be
+almost as serviceable to the recipient as a gift, the evidence
+shows that the unquestionable purpose of Congress in 1862
+and 1864 was that principal and interest of the bonds should be
+met by the railroads for the benefit of which they were issued.
+It follows that this bond issue constituted an advance to the
+Central and Western Pacific railroads, not a gift; a loan, not a
+donation. It was the contention of Mr. Huntington, indeed,
+that the very name “subsidy” was a misnomer. He said:</p>
+
+<p class="pbq p1">The Central Pacific never got a subsidy; they got the loan
+of a small subsidy. The government loaned money at six per
+cent and they expected and did receive direct benefits from
+the time the road was built. It was not a subsidy in any way....
+A subsidy as I believe is where you give ... For instance
+if you will build a railroad I will give you $10,000 as a subsidy;
+as to being a loan of money it is no such thing. It is only a
+business negotiation.<a name="FNanchor_516_516" id="FNanchor_516_516"></a><a href="#Footnote_516_516" class="fnanchor">[516]</a></p>
+
+<p><span class="pagenum"><a name="Page_371" id="Page_371">[371]</a></span></p>
+
+<p class="p1">We must therefore recognize that the government advances
+to the Central Pacific did not constitute a subsidy in the ordinary
+meaning of that term. At the same time it should be observed
+that the Pacific railroads occupied a peculiarly
+advantageous position in respect to the loans which the government
+made to them. As will presently appear, although interest
+on this loan was charged, the companies were not obliged to
+pay a cent of this interest until the maturity of the bonds. This
+unusual concession was declared by the Supreme Court to be
+the necessary result of the absence of a precise stipulation to the
+contrary in the Acts of 1862 and 1864. The court said:</p>
+
+<p class="pbq p1">It is one thing to be required to pay principal and interest
+when the bonds have reached maturity, and a wholly different
+thing to be required to pay the interest every six months, and
+the principal at the end of thirty years. The obligations are
+so different, that they cannot both grow out of the words employed,
+and it is necessary to superadd other words in order to
+include the payment of semiannual interest as it falls due.<a name="FNanchor_517_517" id="FNanchor_517_517"></a><a href="#Footnote_517_517" class="fnanchor">[517]</a></p>
+
+<p class="pnb">Payment of Simple Interest at Maturity</p>
+
+<p>A second concession to the Pacific railroads was made when
+no interest on deferred interest payments was exacted. Ordinarily
+in such cases interest is compounded at intervals of six
+months. On a thirty-year loan of $27,855,680, issued under
+the conditions which characterized the subsidies to the Central
+and Western Pacific railroads, the difference between simple
+interest and interest compounded semiannually would be $113,974,300.
+That is to say, simple interest would amount to
+$50,140,224 at the end of thirty years, while compound interest
+would equal the materially greater sum of $164,114,524. Put
+another way, the value in January, 1865, of the right to receive
+the principal of the government loan increased by simple
+interest according to the terms and at the dates contemplated by<span class="pagenum"><a name="Page_372" id="Page_372">[372]</a></span>
+the Acts of 1862 and 1864, was only $13,000,000. This was
+the value of the monetary consideration which the federal government
+accepted from the Central and Western Pacific railroads.
+On the other hand, the value of the advance made by
+the government to the same railroads as of the same date was
+$23,000,000, or a difference of $10,000,000. This computation
+assumes that government bonds were sold at par, and that
+the current rate of interest was 6 per cent. The difference indicated
+would be reduced if government bonds were assumed to
+have sold for less than par, and it would be increased were a
+higher rate of interest than 6 per cent used in the calculation.
+Discussions of the Acts of 1862 and 1864 usually fail to make
+clear that the government demanded simple interest only on its
+loan, but as a matter of fact this was a feature of the contract
+which was of substantial value to the beneficiary.</p>
+
+<p class="pnb">Claims for Indemnity</p>
+
+<p>It was of course expected by Congress that the Pacific railroads
+would make adequate provisions during the life of the
+bonds to meet the interest and principal due at their maturity.
+Before discussing the disputes concerning the size and nature
+of the sinking funds which should have been erected, a few
+words may be said regarding certain equities to which the
+Stanford-Huntington group repeatedly alluded as constituting
+reasons for not paying the bonds at all. These equities may be
+briefly enumerated as follows:</p>
+
+<p>The first equity was said to have arisen out of the loss
+which it was claimed the Central Pacific had sustained through
+failure to sell the bonds received by it from the government at
+par. This loss was estimated at $7,120,074, a sum which was
+raised by accrued interest up to the time of the maturity of the
+bonds to the very considerable figure of $19,936,206. According
+to Stanford, the government loan netted the company only
+65 cents on the dollar. He said:</p>
+
+<p><span class="pagenum"><a name="Page_373" id="Page_373">[373]</a></span></p>
+
+<p class="pbq p1">Indeed, if the company had taken advantage of the time
+allowed by Congress for the completion of the road, they could
+not only have sold the government bonds at par, but could also
+have disposed of their own first mortgage bonds at their face
+value, which would have been a net gain, over and above what
+was actually received, of $7,120,074, the interest on which for
+thirty years would have been $12,816,132, which would make
+an aggregate saving on the government bonds and the bonds
+issued by the company, principal and interest in round numbers,
+of about $40,000,000.<a name="FNanchor_518_518" id="FNanchor_518_518"></a><a href="#Footnote_518_518" class="fnanchor">[518]</a></p>
+
+<p class="p1">In the second place the Central Pacific insisted that there
+should be credited to it a portion of the amount which the
+government saved in the transportation of government employees<span class="pagenum"><a name="Page_374" id="Page_374">[374]</a></span>
+and freight as a result of the rapid construction of its
+railroad. Under the terms of the Acts of 1862 and 1864, the
+Central Pacific and Union Pacific might have delayed completion
+of their road until July, 1876. As a matter of fact the
+through line from Sacramento to Ogden was opened in May,
+1869. The consequent saving to the government was estimated
+at $47,763,178, of which the Central Pacific proportion was
+set at $21,971,062. A similar calculation laid before the United
+States Pacific Railway Commission in 1886 reached the conclusion
+that the total saving to the government up to January
+1 of that year had reached the sum of $139,347,741 on the
+Union and Central Pacific combined. The basis for these
+estimates was found in a comparison of the rates which the
+government had paid for rail movement and the rates which
+it would have had to pay for ox team and mule team transportation.</p>
+
+<p>Still a third claim was based upon an alleged loss of business
+consequent upon government subsidies to other transcontinental
+roads. The loss of earnings to the two roads from
+this cause was set at $37,000,000, of which the Central Pacific
+share was put at 46 per cent, or $17,000,000. Stanford did not
+deny that the government had a right in its discretion to aid
+other lines of railroad, but he took the position that if Congress
+found it in the interest of the country to do something which<span class="pagenum"><a name="Page_375" id="Page_375">[375]</a></span>
+deprived the Central Pacific of the means of paying its
+debts, then it should compensate the Central Pacific for this
+action.<a name="FNanchor_519_519" id="FNanchor_519_519"></a><a href="#Footnote_519_519" class="fnanchor">[519]</a></p>
+
+<p class="pnb">No Basis for Claims</p>
+
+<p>These three principal claims for indemnity were set up by
+officials of the Southern Pacific at one time or another as
+complete offsets to the obligations laid upon the company by the
+Acts of 1862 and 1864. Among minor equities should be
+mentioned also an alleged loss to the Southern Pacific by reason
+of the government’s slowness in issuing patents to land.
+Another claim was based on a loss in respect to sinking fund
+investments of the company; and still another on the shipment
+of United States mails by other than bond-aided lines when the
+use of the latter was possible.</p>
+
+<p>There was no real reason, however, why the government
+should have reduced its claims against the Pacific companies
+because of any of the equities mentioned. The administration
+certainly gave no guaranty in 1864 that the subsidy bonds
+would sell at par. The government offered the bonds for what
+they were worth, and the companies accepted them on that
+basis. Nor did the government at any time agree to preserve
+a monopoly of transcontinental business for the Central route,
+or to send its own freight over the Central and Union Pacific
+railroads to any greater extent than might prove convenient.
+On these points the facts are perfectly clear. It would seem
+clear, also, that the government was under no obligation to
+share with the companies any saving which it had made by
+reason of the early construction of the transcontinental line.
+The companies had built more rapidly than had been expected,
+it is true, but the construction was pushed in their own interest,
+not in that of the government, and gave rise to no proper claim<span class="pagenum"><a name="Page_376" id="Page_376">[376]</a></span>
+against the latter. The other points in the companies’ contentions
+do not deserve special mention.</p>
+
+<p class="pnb">Sinking Fund Provisions</p>
+
+<p>We may now return to the question of the government
+debt and its repayment. The Laws of 1862 and 1864 contained
+two provisions intended to enforce the original stipulation that
+principal and interest of the subsidy bonds should be paid by
+the beneficiaries. These laws required that 5 per cent of the
+net earnings of the Central Pacific after the completion of the
+road,<a name="FNanchor_520_520" id="FNanchor_520_520"></a><a href="#Footnote_520_520" class="fnanchor">[520]</a> and second, that one-half of the compensation for services
+rendered to the government should be annually applied to
+the payment of interest and principal of the subsidy bonds until
+the whole amount was fully paid. It was then expected that
+these two sources of income would provide a fund sufficient
+to meet both principal and interest in full.<a name="FNanchor_521_521" id="FNanchor_521_521"></a><a href="#Footnote_521_521" class="fnanchor">[521]</a></p>
+
+<p>This expectation was not, however, fulfilled. On the contrary,
+it was already apparent in the seventies that the amount
+which the companies would be called upon to repay was mounting
+up much more rapidly than the credits designed to meet it.
+Six per cent interest upon $27,855,680 of bonds called for an
+annual interest of $1,671,340.80. From 1867 to October 31,
+1877, the one-half of transportation account for carrying mails,
+troops, supplies, etc., withheld by the government and credited
+to the Central Pacific sinking fund was only $1,423,555.74, or
+less than $200,000 a year.<a name="FNanchor_522_522" id="FNanchor_522_522"></a><a href="#Footnote_522_522" class="fnanchor">[522]</a> The 5 per cent of net earnings
+account averaged $331,481 from 1872 to 1876.<a name="FNanchor_523_523" id="FNanchor_523_523"></a><a href="#Footnote_523_523" class="fnanchor">[523]</a> The total
+annual payment by the Central and Western Pacific railroad<span class="pagenum"><a name="Page_377" id="Page_377">[377]</a></span>
+companies, therefore, approximated $530,000, leaving a deficit
+of over $1,100,000 a year. At this rate it was not unreasonable
+to suppose that the Central Pacific would be much more heavily
+in debt to the government at the maturity of the bonds than it
+was at the time of their original issue.</p>
+
+<p class="pnb">Right of “Set-Off”</p>
+
+<p>Alarmed at the probable failure of the sinking fund provisions,
+the Secretary of the Treasury, on advice of the Attorney-General,
+withheld from the Central Pacific Railroad <i>all</i> the
+compensation due it for services rendered to the government.
+The same action was taken with respect to the other bond-aided
+lines. This was clearly illegal, and Congress accordingly passed
+the Act of March 3, 1871, directing payment of the sums withheld.<a name="FNanchor_524_524" id="FNanchor_524_524"></a><a href="#Footnote_524_524" class="fnanchor">[524]</a>
+On passage of the Act of 1871, the Secretary of the
+Treasury began to pay to the Central Pacific and to the other
+bond-aided companies, the 50 per cent of compensation for services
+rendered to the government which the statutes required.
+Since, however, there seemed to be a legitimate difference of
+opinion as to whether the government should continue to pay
+money to companies already heavily in debt to it, Congress proceeded
+two years later to pass the Act of March 3, 1873, which,
+in effect, remitted the whole controversy to the court.</p>
+
+<p>The terms of the Act of 1873 were as follows:</p>
+
+<p class="pbq p1">That the Secretary of the Treasury is directed to withhold
+all payments to any railroad company and its assigns, on account
+of freights or transportation, over their respective roads,
+of any kind, to the amount of payments made by the United
+States for interest upon bonds of the United States issued to
+any such company, and which shall not have been reimbursed
+together with the five per cent. of net earnings due and unapplied
+as provided by law; and any such company may bring
+suit in the court of claims to recover the price of such freight
+and transportation; and in such suit the right of such company<span class="pagenum"><a name="Page_378" id="Page_378">[378]</a></span>
+to recover the same upon the law and the facts of the
+case shall be determined and also the rights of the United
+States upon the merits of all the points presented by it in
+answer thereto by them and either party to such suit may appeal
+to the Supreme Court; and both said courts shall give
+such cause or causes precedence of all other business.<a name="FNanchor_525_525" id="FNanchor_525_525"></a><a href="#Footnote_525_525" class="fnanchor">[525]</a></p>
+
+<p class="p1">The intent of Congress in 1873 was that, in order to make
+a case, the Secretary of the Treasury should withhold the sums
+demanded by the bond-aided railroads including the Central
+Pacific, that the companies should sue, and that the court should
+then decide. In pursuance of this idea, the Union Pacific
+promptly brought suit against the government in the Court of
+Claims to recover the amount due from the United States for
+transportation of government passengers and property after
+deducting one-half of the amount as required by law. A decision
+being rendered in favor of the company, the United
+States appealed to the Supreme Court, where the judgment was
+affirmed.</p>
+
+<p>The foundation of the government position was that the
+United States could legitimately offset the interest on subsidy
+bonds which it was paying currently against the sums due the
+bond-aided railroads for government transportation. The
+reply of the court was, first, that the general principles of
+“set-off” did not apply in the case at bar; and second, that the
+United States had no claim in any event because the law did not
+require the Union Pacific (and the same principles applied to
+other bond-aided railroads) to meet the interest charges on the
+government advances until the maturity of the bond.<a name="FNanchor_526_526" id="FNanchor_526_526"></a><a href="#Footnote_526_526" class="fnanchor">[526]</a> A later
+case added the ruling that the United States had in the matter
+only the right of a creditor growing out of contract, and could
+not fall back upon its sovereign rights in order to protect its
+financial claim.<a name="FNanchor_527_527" id="FNanchor_527_527"></a><a href="#Footnote_527_527" class="fnanchor">[527]</a></p>
+
+<p><span class="pagenum"><a name="Page_379" id="Page_379">[379]</a></span></p>
+
+<p>Not only did the Supreme Court decide completely in favor
+of the companies in the important matter of “set-off,” and in
+that relating to the date upon which the Pacific railroads became
+liable for the payment of accruing interest on the subsidy
+bonds, but it diminished also the sinking fund payments of the
+companies by holding that under existing legislation it was
+proper for the companies, in calculating net earnings, to deduct
+from gross earnings expenses incurred for enlarging and improving
+their property. The particular account involved was
+that of expenditure for station buildings, shops, and fixtures.
+Such expenditures are not ordinarily charged to operating expenses,
+and the court admitted that “theoretically” they should
+not be so charged. The practice was nevertheless justified on
+the ground of general policy, as likely to encourage a liberal
+application of earnings to improvements. The same decision
+also authorized the Central and the Union Pacific to deduct
+interest on first mortgage bonds from earnings before computing
+the 5 per cent of net earnings which was to be credited to
+the sinking fund. This ruling was defended as a legitimate
+consequence of the concession of priority to the first mortgage
+bonds.<a name="FNanchor_528_528" id="FNanchor_528_528"></a><a href="#Footnote_528_528" class="fnanchor">[528]</a></p>
+
+<p class="pnb">Need of Governmental Action</p>
+
+<p>While Congress was considering ways and means for enforcing
+some adequate provision for the eventual repayment of
+the government’s advance to the Pacific railroads, the Central
+Pacific declared dividends which amounted to no less than
+$18,453,670 in the five years from September 13, 1873, to
+October 1, 1877. In 1873, 3 per cent was declared; in 1874,
+5 per cent; in 1875, 10 per cent; and in 1876 and 1877, 8 per
+cent. To see earnings divided among a group of financiers who
+were believed to be already overpaid, while the unpaid interest
+on the government subsidy bonds piled up, was all the more<span class="pagenum"><a name="Page_380" id="Page_380">[380]</a></span>
+exasperating because of the apparent helplessness of Congress.
+Some action, however, was presently to be taken. In 1874 a
+bill was introduced in the Senate to alter and amend the Acts
+of 1862 and 1864 so as to safeguard the government equity.
+In 1876 Mr. Thurman, of Ohio, presented another bill, which
+was reintroduced in 1877, referred to the Committee on
+Judiciary, and ultimately reached the Senate in March, 1878.
+This bill ultimately became the Thurman Act of 1878.<a name="FNanchor_529_529" id="FNanchor_529_529"></a><a href="#Footnote_529_529" class="fnanchor">[529]</a></p>
+
+<p>The situation as it appeared in 1878 was succinctly presented
+by Mr. Thurman on the floor of the Senate. The government’s
+loan to the Central and Western Pacific amounted to
+$27,855,680. The interest upon that sum for thirty years
+would be $50,140,224, making a total of $77,995,904. The
+probable reimbursement from the 5 per cent of net earnings and
+the half of the transportation accounts would be about $15,000,000,
+leaving probably due at the maturity of the government
+loan, should the laws remain unchanged, the sum of $62,995,904,
+which, added to the amount that would probably be due
+from the Union Pacific, made an aggregate of $119,248,979.<a name="FNanchor_530_530" id="FNanchor_530_530"></a><a href="#Footnote_530_530" class="fnanchor">[530]</a>
+To this amount there was also to be added in estimating the
+payments which the Central Pacific, Western Pacific, and
+Union Pacific would be called upon to make in the late nineties,
+the amount of the first mortgage bonds of the three companies,
+the lien of which was prior to the lien of the subsidy bonds.</p>
+
+<p>It seemed manifest to Mr. Thurman in March, 1878, that
+the bare statement of the amount for which the government
+would be the creditor of the Pacific railroad companies ought
+to satisfy anyone that some step should be taken by Congress
+to secure the government from loss. This point of view was<span class="pagenum"><a name="Page_381" id="Page_381">[381]</a></span>
+not seriously contested. Objection to any action there was,
+indeed, but not based on any denial of the assertion that the
+security of the government was becoming impaired.</p>
+
+<p class="pnb">Thurman Bill</p>
+
+<p>On the basis of the admitted need, Mr. Thurman, in behalf
+of the Committee on the Judiciary of the United States Senate,
+made a series of concrete proposals. The essence of the Thurman
+plan was that the annual payments of the Pacific railroads
+for the eventual retirement of the government debt should be
+largely increased. It was contemplated that 5 per cent of the net
+earnings of these railroads, together with half of the sums due
+to the companies for government transportation, should continue
+to be applied to the retirement of the subsidy bonds. This
+annual appropriation Mr. Thurman estimated at $531,000. But
+it was now intended that in addition to this sum there should
+be retained by the government and credited to a sinking fund,
+the other half of the sums due to the companies for government
+transportation; proceeding still further, the Thurman bill provided
+that in case the whole of the government transportation
+accounts, added to the 5 per cent of net earnings, did not make
+a sum equal to 25 per cent of net earnings, then the Pacific railroads
+should pay into the sinking fund such sums not exceeding
+$1,200,000 for the Central Pacific and $850,000 for the
+Union Pacific, as would bring the companies’ payment up to
+25 per cent.</p>
+
+<p>Textually, the section of the Thurman bill relating to the
+Central Pacific sinking fund read as follows:</p>
+
+<p class="pbq p1">Sec. 4. That there shall be carried to the credit of the said
+fund, on the first day of February in each year, the one-half
+of the compensation for service hereinbefore named, rendered
+for the Government by said Central Pacific Railroad Company,
+not applied in liquidation of interest; and, in addition thereto,
+the said company shall, on said day in each year, pay into the<span class="pagenum"><a name="Page_382" id="Page_382">[382]</a></span>
+Treasury, to the credit of said sinking fund the sum of one
+million, two hundred thousand dollars, or so much thereof as
+shall be necessary to make the five per centum of the net earnings
+of its said road payable to the United States under said
+act of eighteen hundred and sixty-two, and the whole sum
+earned by it as compensation for service rendered for the
+United States, together with the sum by this section required
+to be paid, amount in the aggregate to twenty-five per cent of
+the whole net earnings of said railroad company, ascertained
+and defined as hereinbefore provided, for the year ending on
+the thirty-first day of December next preceding.<a name="FNanchor_531_531" id="FNanchor_531_531"></a><a href="#Footnote_531_531" class="fnanchor">[531]</a></p>
+
+<p class="p1">Mr. Thurman estimated the total payments which the Central
+Pacific would have to make under his bill at $1,900,000
+annually, or substantially more than the accruing 6 per cent on
+the subsidy loans.<a name="FNanchor_532_532" id="FNanchor_532_532"></a><a href="#Footnote_532_532" class="fnanchor">[532]</a> In case earnings should be insufficient to
+meet interest charges on underlying first mortgage bonds after
+the deduction of 25 per cent, the Secretary of the Treasury was
+authorized to remit as much of the 25 per cent as might be
+necessary to avoid default.</p>
+
+<p class="pnb">Disappointing Results</p>
+
+<p>From the point of view of the government, the clauses of
+the Thurman bill relating to the annual payments of the companies
+were of the first importance, because upon them depended
+the adequacy of the provision for the eventual cancellation of
+the government debt. As a matter of fact, the payments were
+less than Senator Thurman anticipated, because the earnings of
+the Pacific railroads proved disappointing. Instead of $1,900,000
+annually, the average contribution up to 1897 was only
+$629,690. In particular, the clauses requiring the companies
+to add to the sums earned from government transportation and
+that measured by 5 per cent of net earnings sufficient to bring
+the total up to 25 per cent of net earnings, were ineffective. In<span class="pagenum"><a name="Page_383" id="Page_383">[383]</a></span>
+but one year after 1883 was anything paid on this last account.
+Indeed, the earnings of the Central Pacific fell so low that the
+government transportation and 5 per cent accounts at times
+amounted to 50 per cent of net earnings without any addition
+from other sources.</p>
+
+<p>It was assumed by some speakers on the Thurman bill in
+the Senate, that under the proposed plan the total contribution
+of the Pacific railroads toward the reduction of the government
+debt was to be paid into a sinking fund. This was not,
+however, the case, as a careful reading of the statement already
+made will make clear. Instead, the payments which these railroads
+had been making under the Acts of 1862 and 1864 were
+to be continued, and were to be credited directly to the railroad
+debt as before. The money was to be held in the United States
+Treasury, and no interest was to be allowed upon it.<a name="FNanchor_533_533" id="FNanchor_533_533"></a><a href="#Footnote_533_533" class="fnanchor">[533]</a> It was
+only the balance, comprising the half of the payment due the
+companies for government transportation which they had received
+under the Act of 1864, and such additional payment, not
+exceeding $1,200,000 or $850,000 respectively, as would be
+necessary to bring the whole contribution of the companies
+under the proposed law up to 25 per cent of net earnings, which
+was credited to the sinking fund. The distinction is important,
+because the sums paid into the sinking fund earned compound
+interest, whereas the sums credited to bond and interest account
+earned no interest at all. That is to say, the contributions to the
+sinking fund were to be invested in government bonds, and the
+interest on these bonds was to be reinvested semiannually in the
+same security, but other payments merely gave rise to credits
+on the government books.</p>
+
+<p class="pnb">Sinking Fund Investments</p>
+
+<p>The mention of the sinking fund leads naturally, however,
+to a reference to the provisions of the Thurman bill relating to<span class="pagenum"><a name="Page_384" id="Page_384">[384]</a></span>
+sinking fund investments. Mr. Thurman proposed in 1878 that
+the sums credited to the Pacific railroads’ sinking funds be used
+to purchase United States bonds, preferably 5 per cent bonds
+because other outstanding issues were either insufficient in
+amount or had only a short time to run. Up to June 30, 1897,
+about $6,000,000 were available for such purchases. But this
+limitation of the field of investment seriously crippled the earning
+power of the fund by requiring the purchase of securities
+of classes which either bore low rates of interest or which commanded
+considerable premiums in the market. The average
+premium paid by the Central Pacific up to 1883 was approximately
+13 per cent.<a name="FNanchor_534_534" id="FNanchor_534_534"></a><a href="#Footnote_534_534" class="fnanchor">[534]</a> In 1891 the Commissioner of Railroads
+reported that between the date of the creation of the sinking
+fund in 1878 and the date of his report, on June 30, 1891, the
+government had bought bonds with a par value of $6,138,800
+for the Central Pacific, for which it had paid a premium of
+$1,110,409.62, or an average of 18 per cent. At times the
+premium paid had gone as high as 35 per cent,<a name="FNanchor_535_535" id="FNanchor_535_535"></a><a href="#Footnote_535_535" class="fnanchor">[535]</a> and in the
+earlier years the payments on account of premiums materially
+exceeded the earnings of the sinking fund in the way of interest.
+This excess disappeared, of course, as the fund grew larger,
+but the absolute amount of the premium continued to grow.</p>
+
+<p>The principal bonds in which the sinking funds were invested
+up to 1882 were the United States currency sixes, the
+5 per cent funded loan of 1881, and the 4 per cent funded loan
+of 1907. In 1881 the funded fives matured and were continued
+at 3½ per cent. In 1882 the Treasurer of the United States
+exchanged these bonds for a new 3 per cent issue. Inasmuch
+as the bonds which bore the higher interest rates all commanded
+a premium, the actual yield of the fund up to 1886 was only
+from 2½ to 3 per cent. This condition was recognized as disadvantageous
+by all concerned. The Commissioner of Railroads<span class="pagenum"><a name="Page_385" id="Page_385">[385]</a></span>
+declared in 1883 that it would require a century or more
+at the rate provided in the Thurman Act to accumulate a fund
+sufficient to discharge the railroad debt, with a strong probability
+that even then it could not be done.<a name="FNanchor_536_536" id="FNanchor_536_536"></a><a href="#Footnote_536_536" class="fnanchor">[536]</a> The Auditor of
+Railroads in 1879, the Secretary of the Treasury in 1881, and
+the Commissioner of Railroads, in various reports, all urged
+that the field for investment of the sinking funds be widened, at
+least to include the first mortgage bonds of the Pacific railroads.
+Since the lien of these bonds was prior to that of the sinking
+fund itself, it seemed appropriate to allow the Secretary of the
+Treasury to buy them with sinking fund money. The suggestion
+was adopted by Congress in 1887,<a name="FNanchor_537_537" id="FNanchor_537_537"></a><a href="#Footnote_537_537" class="fnanchor">[537]</a> with the result that interest
+on the funds placed in this new investment amounted to
+4.15 per cent. This was a substantial increase from the 2½
+or 3 per cent realized from government bonds, though still
+less than the 6 per cent carried by the subsidy bonds themselves.<a name="FNanchor_538_538" id="FNanchor_538_538"></a><a href="#Footnote_538_538" class="fnanchor">[538]</a></p>
+
+<p class="pnb">Passage of Bill</p>
+
+<p>The Thurman bill was carefully considered by the Senate
+before its enactment, and may fairly be said to embody the best
+judgment of Congress at the time of its enactment. The final
+vote in the Senate was taken on April 9, 1879. Forty Senators<span class="pagenum"><a name="Page_386" id="Page_386">[386]</a></span>
+voted for the bill, and twenty against it.<a name="FNanchor_539_539" id="FNanchor_539_539"></a><a href="#Footnote_539_539" class="fnanchor">[539]</a> If paired votes for
+and against the act be included, the vote was forty-four to
+twenty-six. Twenty-seven Democrats voted for the bill, and
+six against it. Yet in spite of this strong Democratic party
+support and the opposition of Senators Blaine and Conkling,
+nearly as many Republicans went on record for the bill as
+voted or were paired against it. In the House there were but
+two votes against the bill compared with 243 in favor of it.<a name="FNanchor_540_540" id="FNanchor_540_540"></a><a href="#Footnote_540_540" class="fnanchor">[540]</a></p>
+
+<p>In neither house was there marked party or sectional division.
+Doubtless the passage of the act was made easier by
+the general unpopularity of railroad enterprise in 1878, although
+adequate reasons for additional legislation undoubtedly
+existed. It was the period of the aftermath of the panic of
+1873—the epoch of Granger legislation and railroad control
+bills, of revelations regarding rebates and construction frauds.
+Sentiment ran strongly against great railroad corporations.
+Railroads still had stalwart supporters, but it is putting it mildly
+to say that the presumption in doubtful cases was against them.</p>
+
+<p class="pnb">Feeling of Railroad Men</p>
+
+<p>There is plenty of evidence, nevertheless, that railroad men
+felt very bitter that the Thurman bill should ever have been
+passed. Stanford declared that no act so destructive to private
+right had ever before been attempted in this country, and that
+only two examples of such atrocity could be found in English
+history; one being the suppression of the order of Templars
+in the time of Edward the Second, and the other, the suppression
+of the religious houses in the time of Henry the Eighth.
+Undoubtedly, also, the railroads were active in Congress in the<span class="pagenum"><a name="Page_387" id="Page_387">[387]</a></span>
+attempt to prevent the passage of the Thurman Act. The
+reader’s attention has already been directed in a previous chapter
+to correspondence relating to the Thurman bill which
+passed between Huntington and Colton in 1877 and 1878. It
+will be recalled that in January, 1878, Huntington wrote that
+matters did not look well at Washington. He thought, however,
+that the railroad would not be much hurt, although “the
+boys are very hungry, and it will cost considerably to be saved.”
+Some time before this, in May, 1877, Huntington wrote:</p>
+
+<p class="pbq p1">We must have friends in Congress from the West Coast,
+as it is very important. I think that we can kill the open highway,
+and get a fair sinking fund bill by which we can get time
+beyond the maturity of the bonds that the Government loaned
+us, to pay the indebtedness.<a name="FNanchor_541_541" id="FNanchor_541_541"></a><a href="#Footnote_541_541" class="fnanchor">[541]</a></p>
+
+<p class="pn1">Again, in November, Huntington said:</p>
+
+<p class="pbq p1">Some parties are making great efforts to pass a bill through
+Congress that will compel the Union Pacific and Central Pacific
+to pay large sums into a sinking fund, and I have some fears
+that such a bill will pass.... The temper of Congress is not
+good and I fear we may be hurt.<a name="FNanchor_542_542" id="FNanchor_542_542"></a><a href="#Footnote_542_542" class="fnanchor">[542]</a></p>
+
+<p class="p1">A letter from Colton dated March 5, 1878, reads:</p>
+
+<p class="pbq p1">By the telegraph this morning in the papers I see outline of
+Thurman’s Sinking Fund Bill, etc. It does seem as though
+the whole world, Courts and all, were determined to rob us.</p>
+
+<p class="pcs">·················</p>
+
+<p class="pbq">I know you are having a terrible struggle on that side, and
+think of you very often, but, Huntington, I see no way but to
+fight it out on these lines, and fight them inch by inch while we
+last; let’s look to paying our debts, incurring no more, and stand
+by the wreck to the last. We can at least die game.<a name="FNanchor_543_543" id="FNanchor_543_543"></a><a href="#Footnote_543_543" class="fnanchor">[543]</a></p>
+
+<p class="p1">When the Thurman bill passed the Senate, the correspondence
+took a still more gloomy turn. Huntington wrote Colton<span class="pagenum"><a name="Page_388" id="Page_388">[388]</a></span>
+on April 19, 1878, that in his judgment the House would follow
+the Senate’s lead. He had made some mistakes, of which
+the greatest was Gould’s going to Washington. Colton replied,
+on April 29:</p>
+
+<p class="pbq p1">We all agree with you that this Congress is simply a band
+of robbers. They were such a set of cowards they dare not
+go onto the highway and give the man they rob an even show
+with them, but went to Congress and did it through that channel.
+But Huntington, we will live to see many of these fellows
+come to grief. I trust the day will soon come that we can get
+in a shape that you can avoid going to Washington during a
+session of Congress. A few sessions like the present one and
+the last will wear you out....</p>
+
+<p class="pcs">·················</p>
+
+<p class="pbq">I think you will remember I wrote you once or twice that
+in my opinion Jay Gould would be a heavy load for us to carry
+in Washington or elsewhere, whenever we had connections with
+him that would affect our interests, on account of the general
+feeling against him. So I am not surprised to read what you say
+of him and the Funding bill, but it was a thing we could not
+help, as I understand it....</p>
+
+<p class="pcs">·················</p>
+
+<p class="pbq">I hope Congress will adjourn soon, and that you will be able
+to get out here as early as possible, for I want very much to
+see you again. There is much for us all to talk over and look
+after. I do not think you will find anyone to buy you out, nor
+do I want you to. I think we must stick to the wreck.<a name="FNanchor_544_544" id="FNanchor_544_544"></a><a href="#Footnote_544_544" class="fnanchor">[544]</a></p>
+
+<p><span class="pagenum"><a name="Page_389" id="Page_389">[389]</a></span></p>
+
+<p class="p1">Letters such as those quoted display the state of mind of
+the Central Pacific associates during the months when the
+Thurman bill was under discussion. It was perhaps natural
+that they should have opposed sinking fund legislation, for this
+cut into the surplus which the Central Pacific would otherwise
+have had for dividends, and depressed the price of the railroad’s
+securities. Nor, indeed, was it perfectly clear that the
+new legislation did not constitute a breach of the contract between
+the Pacific railroad companies and the government which
+could be deduced from the Acts of 1862 and 1864. The legislation
+in these acts had, it is true, reserved to subsequent
+Congresses the right of amendment and repeal, but it was
+uncertain, nevertheless, to what extent this right could properly
+be exercised. On this point a decision of the Supreme Court
+was had in 1878, upholding the constitutionality of the Thurman
+Law on broad grounds, but by a divided court.<a name="FNanchor_545_545" id="FNanchor_545_545"></a><a href="#Footnote_545_545" class="fnanchor">[545]</a></p>
+
+<p class="pnb">Charge Against Railroad</p>
+
+<p>The unfortunate fact about the Thurman Act, however,
+was not that it excited the anger of representatives of the railroad
+companies to which it applied, but that it proved a failure
+in its primary purpose of providing for the eventual retirement
+of the subsidy bonds. But before summarizing the workings
+of the law in this respect, a word may be said regarding
+certain disputes which occurred in the course of its administration.</p>
+
+<p>In February, 1881, Thomas French, Auditor of Railroads,
+made the charge that the Central Pacific was diverting business
+from the subsidized portions of its line to its leased properties
+in order to lessen the payments required under the Thurman<span class="pagenum"><a name="Page_390" id="Page_390">[390]</a></span>
+law. The basis for this charge, so far as reported, appeared
+to lie in the fact that the net earnings of the Central Pacific
+were decreasing, while those of the Union Pacific were going
+up. Mr. French suggested that the Pacific railroads be required
+to contribute up to 50 per cent of net earnings for retirement
+of the government debt, instead of up to 25 per cent as then
+required by the law.<a name="FNanchor_546_546" id="FNanchor_546_546"></a><a href="#Footnote_546_546" class="fnanchor">[546]</a></p>
+
+<p>Mr. French’s suggestion was not adopted, but the government
+subsequently advanced the claim that it had the right to
+retain all the compensation for service rendered to the government
+by the bond-aided companies without regard to the conditions
+of construction of particular sections of the road. The
+company took a different view of the matter, but in deference
+to an opinion of the Attorney-General on this point, the Secretary
+of the Treasury in 1884 withheld compensation on the
+entire mileage of the Pacific railroads pending an authoritative
+decision. The Supreme Court, however, ruled in favor
+of the companies,<a name="FNanchor_547_547" id="FNanchor_547_547"></a><a href="#Footnote_547_547" class="fnanchor">[547]</a> and the sums withheld had to be paid
+over.</p>
+
+<p>In subsequent years the earnings of the portions of the Central
+and Union Pacific which had received no bond subsidies
+were credited, in so far as they arose from government business,
+as a part of the 5 per cent of net earnings which these companies
+were required to apply to the eventual retirement of the
+government debt. This meant a considerable amount of bookkeeping,
+which was increased by other claims of the companies
+of which no detailed mention is here made. Indeed, when the
+final settlement was concluded between the Central Pacific and
+the government, credits to this one company were allowed by
+the United States to the amount of no less than
+$1,162,939.48.<a name="FNanchor_548_548" id="FNanchor_548_548"></a><a href="#Footnote_548_548" class="fnanchor">[548]</a></p>
+
+<p><span class="pagenum"><a name="Page_391" id="Page_391">[391]</a></span></p>
+
+<p class="pnb">Definition of Net Earnings</p>
+
+<p>In addition to the controversy over earnings on government
+transportation over non-bond-aided lines, there developed a
+second difference of opinion over the calculation of the net
+earnings of the Pacific railroads. It has already been observed
+that the Law of 1862, as interpreted by the Supreme Court,
+allowed the Pacific railroad companies to charge expenditures
+for additions and improvements to operating expenses, and
+thus to reduce their net earnings, upon the size of which the
+rate of provision for repayment of the government debt depended.
+The Central Pacific insisted that the same practice
+was legitimate under the Thurman law. But in this last-named
+legislation the wording of the clause relating to net earnings
+had been changed. In 1862 no definition of net earnings
+had been given. In 1878 it was provided that net earnings
+should be calculated “by deducting from the gross amount of
+their [the Pacific railroads’] earnings, respectively, the necessary
+expenses actually paid within the year in operating the
+same and keeping the same in a state of repair, and also the
+sums paid by them respectively within the year in discharge of
+interest on their first mortgage bonds.” This was deliberately
+intended as an amendment of the Act of 1862. As Mr. Thurman
+told the Senate, it was his intention to leave the question
+of the nature of the net earnings, so far as the past was concerned,
+for the decision of the Supreme Court without any
+retroactive legislation at all, but to define net earnings for the
+future.</p>
+
+<p>In spite of the apparently clear wording of the law, and the
+definite expression of the views of the Senate Committee on
+the Judiciary at the time the act was passed, the Central Pacific
+still maintained that it possessed the right to deduct expenditures
+for improvements and betterments from gross earnings,
+in the process of arriving at the figure of net earnings
+upon which its contributions toward the retirement of<span class="pagenum"><a name="Page_392" id="Page_392">[392]</a></span>
+government indebtedness were in part based. A decision of
+the Court of Claims and another by the Supreme Court of
+the United States were necessary before this position was
+abandoned.<a name="FNanchor_549_549" id="FNanchor_549_549"></a><a href="#Footnote_549_549" class="fnanchor">[549]</a></p>
+
+<p>Still other controversies arose between the Union Pacific
+and the United States government over earnings from the
+operation of the bridge across the Missouri River between
+Council Bluffs and Omaha, over receipts from the operation
+of Pullman cars, and over the payments by the Union and Central
+Pacific railroads to the Pacific Mail Steamship Company
+according to the terms of contracts described in a preceding
+chapter.<a name="FNanchor_550_550" id="FNanchor_550_550"></a><a href="#Footnote_550_550" class="fnanchor">[550]</a></p>
+
+<p class="pnb">Inadequacy of Law</p>
+
+<p>The persistent disputes between the government and the
+railroad companies over the proper interpretation of the Thurman
+law made the administration of the statute difficult. The
+primary defect of the act, however, lay in the fact that the
+contributions which it compelled the companies to make were
+too small to provide for the retirement of the subsidy bonds
+with interest at their maturity. How far the ultimate provision
+under the law fell short of a proper accumulation may be
+seen from the table given in the next paragraph, in which the
+debits and credits on account of the government loan to the
+Central and Western Pacific railroads are given as of June 30,
+1897, six months before the greater part of the subsidy bonds
+fell due.</p>
+
+<p>According to the Commissioner of Railroads, the account
+between the United States and the Central Pacific Railroad
+stood on the 30th of June, 1897, as follows:<a name="FNanchor_551_551" id="FNanchor_551_551"></a><a href="#Footnote_551_551" class="fnanchor">[551]</a></p>
+
+<p><span class="pagenum"><a name="Page_393" id="Page_393">[393]</a></span></p>
+
+<p class="pc1"><span class="smcap">Statement on the Government Loan to the Central
+and Western Pacific Railroads, as of June 30, 1897</span></p>
+
+
+<table id="t10" summary="t10">
+
+ <tr>
+ <td><i>Debits</i>:</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">Principal of subsidy bonds issued</td>
+ <td class="tdr">$27,855,680.00</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">Interest paid by the United States</td>
+ <td class="tdr">47,954,139.78</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdr">———————</td>
+ </tr>
+
+ <tr>
+ <td class="tdt5">Total debits</td>
+ <td class="tdr">$75,809,819.78</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdr">══════════</td>
+ </tr>
+
+ <tr>
+ <td><i>Credits</i>:</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">Applied to bond and interest account:</td>
+ </tr>
+
+ <tr>
+ <td class="tdt2">Transportation</td>
+ <td class="tdr">$7,977,535.66</td>
+ </tr>
+
+ <tr>
+ <td class="tdt2">Cash</td>
+ <td class="tdr">658,283.26</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1">Applied to sinking fund account:</td>
+ </tr>
+
+ <tr>
+ <td class="tdt2">Transportation</td>
+ <td class="tdr">5,027,848.71</td>
+ </tr>
+
+ <tr>
+ <td class="tdt2">Cash</td>
+ <td class="tdr">633,992.48</td>
+ </tr>
+
+ <tr>
+ <td class="tdt2">Proceeds of sinking fund investments</td>
+ <td class="tdr">1,683,127.38</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdr">———————</td>
+ </tr>
+
+ <tr>
+ <td class="tdt5">Total credits</td>
+ <td class="tdr">$15,980,787.49</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdr">══════════</td>
+ </tr>
+
+ <tr>
+ <td>Balance of debt, June 30, 1897</td>
+ <td class="tdr">$59,829,032.29</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Excess of interest paid by the United States over all credits</td>
+ <td class="tdr">$31,973,352.29</td>
+ </tr>
+
+</table>
+
+<p class="p1">The reasons for the inadequacy of the Thurman law were,
+first, the failure of the net earnings of the Pacific railroads to
+increase as rapidly as had been expected, and second, the meager
+results of the sinking fund accumulations. Net earnings were
+disappointing because of general business conditions, especially
+after 1893, and because of competition from other transcontinental
+railroads. The accumulation of the Central Pacific sinking
+funds proceeded at a slower rate than had been anticipated,
+for reasons already given. Up to June 30, 1897, the table
+shows that the total proceeds of sinking fund investments by
+the Central Pacific Railroad had amounted to only $1,683,127.28.
+When it is understood that this was less than a third
+of the sum which the moneys paid into the sinking fund would
+have earned if invested promptly and continuously at 6 per<span class="pagenum"><a name="Page_394" id="Page_394">[394]</a></span>
+cent, the loss which resulted from the purchase of government
+bonds becomes evident.</p>
+
+<p>After thirty years of contention and nineteen years of
+operation under the Thurman law, the accumulated reserve
+for the retirement of the subsidy bonds was less than $16,000,000,
+of which only $7,300,000 was the result of the Thurman
+sinking fund. On June 30, 1897, the United States had actually
+paid out in interest on its bonds issued in aid of the Central
+Pacific Railroad, $31,000,000 more than had been provided
+against both the interest and the principal of the debt. Except
+to the extent of $7,300,000, the problem remained substantially
+as it had been presented in 1878.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_395" id="Page_395">[395]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XXI</h2>
+
+<p class="pch">FINAL SETTLEMENT OF THE CENTRAL PACIFIC
+INDEBTEDNESS TO THE GOVERNMENT</p>
+
+<p class="pnb">Refunding Proposals</p>
+
+<p>It is the purpose of the present chapter to describe proposals
+for the settlement of the government’s claims against the Central
+Pacific Railroad which were made between 1878 and
+the date of maturity of the subsidy bonds, and to explain in
+some detail the adjustment finally arrived at in 1899.</p>
+
+<p>Soon after it became apparent that the Thurman law would
+not provide adequately for the retirement of the federal subsidy
+bonds at their maturity, agitation began for other and
+more stringent arrangements. As early as 1882, the Commissioner
+of Railroads suggested that the indebtedness of the
+Pacific railroads be changed from a running book account and
+that there be a settlement and actual delivery of interest-bearing
+bonds for the amount found to be due upon a convenient
+day, say July 1, 1883. On this day he proposed that the companies
+should deliver to the government 100 redemption bonds,
+each representing a hundredth part of the indebtedness. One
+bond was to fall due thereafter every six months, and interest
+was to accrue as before upon the unpaid bonds outstanding.<a name="FNanchor_552_552" id="FNanchor_552_552"></a><a href="#Footnote_552_552" class="fnanchor">[552]</a></p>
+
+<p>Five years later the United States Pacific Railway Commission,
+in an important report, recommended also that the
+net indebtedness of the Central Pacific Railroad Company be
+ascertained as of a certain date—this time as of July 1, 1888—and
+that arrangements be made to fund the amount so determined
+into new railroad fifty-year 3 per cent bonds, which
+should be made a lien upon all the property which the Central<span class="pagenum"><a name="Page_396" id="Page_396">[396]</a></span>
+Pacific owned or in which it had an interest.<a name="FNanchor_553_553" id="FNanchor_553_553"></a><a href="#Footnote_553_553" class="fnanchor">[553]</a> Congress was
+not ready, however, to refund the Pacific railroad debts upon
+the terms proposed either by the Commissioner of Railroads
+or by this special body of experts.</p>
+
+<p>The next official report was that issued by a select committee
+to which the United States Pacific Railway Commission
+report was referred. This committee report was known as the
+Frye-Davis report, from the names of the Senators who transmitted
+the sections dealing with the Union and Central Pacific
+railroads, respectively. The committee was instructed to, and
+did, personally examine the roads of the Union, Kansas, Central,
+and Western Pacific Railroad companies, together with
+that of the Central Branch Union Pacific. It further prepared
+a plan for refunding the Pacific railroad debt.</p>
+
+<p>So far as the Central Pacific was concerned, the committee
+proposed that the company should pay its debt in seventy-five
+years from date, with interest at 2 per cent. In view of the
+serious financial condition of the company, and the alleged
+necessity of building several bridges and some additional
+mileage in California, 1 per cent of the 2 per cent was to be
+capitalized for ten years. During the first ten years the company’s
+annual payment was thus to be from $600,000 to
+$650,000 per year; after that time it was to be about $1,400,000
+annually. The Frye-Davis committee therefore required a
+smaller payment and contemplated a longer extension of time
+than did the United States Pacific Railway Commission. Like
+its predecessor, it demanded from the Central Pacific, as security,
+a mortgage on all the roads and property of every name
+and description which the Central Pacific possessed, including
+a mortgage on the whole road from four miles west of Ogden
+to San José. This mortgage was to include the lease of the
+Central Pacific to the Southern Pacific, and there was now inserted<span class="pagenum"><a name="Page_397" id="Page_397">[397]</a></span>
+a provision that the rental paid by the latter should
+never be less than the sums that the bill called for from the
+Central Pacific, thus making the Southern Pacific in effect a
+guarantor of the arrangement.<a name="FNanchor_554_554" id="FNanchor_554_554"></a><a href="#Footnote_554_554" class="fnanchor">[554]</a></p>
+
+<p class="pnb">Further Reports</p>
+
+<p>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
+one-half of 1 per cent semiannually, for a period of ten years,
+commencing on the 1st of July, 1895. For the next period of
+ten years, three-quarters of 1 per cent was to be paid; for the
+next period 1 per cent; and so continuing that the railroad
+bonds, and therefore the principal of the debt, should be wiped
+out in fifty years. Meanwhile the railroads were to pay off
+their first mortgage bonds, leaving the new funding bonds a
+prior lien upon the property of the companies, including both
+the aided and the non-aided portions. Nothing was done with
+this report except to submit it.<a name="FNanchor_555_555" id="FNanchor_555_555"></a><a href="#Footnote_555_555" class="fnanchor">[555]</a></p>
+
+<p>As the period when the greater part of the subsidy bonds
+were to mature approached, committee reports upon the Pacific
+railway debts multiplied. On the 28th of January, the Committee
+on Pacific Railroads submitted a long discussion through
+Senator Brice, of Ohio. The committee was opposed to government
+operation and pessimistic about the results of a foreclosure
+sale. It recommended that the subsidy bonds be refunded<span class="pagenum"><a name="Page_398" id="Page_398">[398]</a></span>
+for such a period and at such a rate of interest as should
+enable the companies, under ordinary circumstances and business
+conditions, to meet the current interest and a portion of
+the principal of the debt each year.</p>
+
+<p class="pnb">Powers Bill</p>
+
+<p>On April 25, 1896, Mr. Powers, of Vermont, in behalf of
+the House Committee on Pacific Railroads, presented a bill and
+a report to accompany it. The House committee now definitely
+proposed that the Pacific railroad companies issue, and that
+the government accept, bonds equal in amount to the whole
+balance due the United States, and bearing interest at 2 per
+cent, payable semiannually. These bonds were to be secured
+by second mortgages, which were to embrace not only the subsidized
+parts of the Pacific railroads, but also all the other
+railroads, terminals, lands, and equipments belonging to the
+companies, to which the lien of the government did not then extend.
+It was provided that the companies should make annual
+payments on account of the principal of the bonds—smaller
+payments during the earlier, and larger payments during the
+later years—in such fashion that the debt would be repaid in
+about eighty-five years.</p>
+
+<p>In addition to providing the government with the additional
+security which came from extending the lien of its second
+mortgage bonds, the Powers bill required, as one of the terms
+of the settlement, that the lease of the Central Pacific Railroad
+to the Southern Pacific Company should be so modified as to
+require, first, that the Southern Pacific Company guarantee
+the full payment of the obligations imposed upon the Central
+Pacific by the new legislation so long as it should remain lessee
+of the property; and second, that if the Southern Pacific
+Company should consent to the termination of the lease before
+the maturity of all instalments payable under the act, it should
+in that event guarantee the payment by the Central Pacific of<span class="pagenum"><a name="Page_399" id="Page_399">[399]</a></span>
+all required payments. In case of any abrogation or termination
+of the lease, the principal of all bonds issued under the
+act was, at the option of the President of the United States,
+immediately to mature.<a name="FNanchor_556_556" id="FNanchor_556_556"></a><a href="#Footnote_556_556" class="fnanchor">[556]</a></p>
+
+<p>The Powers bill was debated in the House of Representatives
+from January 7 to January 11, 1897. It was supported
+by the friends of the railroad companies, doubtless because of
+the long period over which the railroad debt was to be extended
+and the low rates of interest on the refunding bonds. It was
+opposed by anti-railroad men, and by those who thought the
+bargain a bad one for the government from a business point
+of view, and it was finally defeated because Congress was
+unwilling to extend the government loan at 2 per cent for
+eighty-five years until more convinced of the necessity of compromise.<a name="FNanchor_557_557" id="FNanchor_557_557"></a><a href="#Footnote_557_557" class="fnanchor">[557]</a></p>
+
+<p class="pnb">Additional Schemes</p>
+
+<p>Four days after the submission of the Powers report and
+its accompanying bill, a report was presented to the Senate by
+Mr. Gear, of Iowa, which recommended the passage of a substantially
+identical statute.<a name="FNanchor_558_558" id="FNanchor_558_558"></a><a href="#Footnote_558_558" class="fnanchor">[558]</a> Nothing was done with this report,
+nor with a suggestion which Mr. Gear made in January
+that the whole matter be referred to a commission to be appointed
+for the purpose.</p>
+
+<p>The submission of the Gear report brings the account of
+the negotiations for the settlement of the Pacific railroads’ indebtedness
+down to the spring of 1897. Four Congressional<span class="pagenum"><a name="Page_400" id="Page_400">[400]</a></span>
+committees had reported up to this time. Of these, two had
+recommended that the subsidy bonds be refunded at the rate
+of 3 per cent for fifty years, and two that they be refunded at
+the rate of 2 per cent for seventy-five years or more. All four
+had proposed an improvement of the government’s security by
+extending the government lien to cover the non-aided portions
+of the Pacific railroads, and in addition to this the Reilly bill
+had provided that the government should secure a first lien
+upon the railroad property in question by paying off the underlying
+bonds.</p>
+
+<p>It would be possible to lengthen the list of suggestions for
+the repayment of the subsidy bonds which were made during
+the eighties and the nineties, by including schemes elaborated
+by other persons than members of Congress and presented in
+other ways than through formal reports of Congressional committees
+to the legislature. This will not be done to any great extent
+because of limitations of time and space. While, however,
+the greater part of outside comment upon various pending
+refunding bills must be omitted, it is important to remember
+that the discussion outside of Congress, especially during
+the nineties, was quite as active as that within, and that it was
+conducted with great bitterness of feeling and freedom of expression.
+Indeed, the extreme contentions on either side are
+quite inadequately set forth in the Congressional debates.</p>
+
+<p class="pnb">Railroad Proposals</p>
+
+<p>The general railroad position with respect to the repayment
+of the subsidy bonds was that the entire debt to the government
+should be remitted.<a name="FNanchor_559_559" id="FNanchor_559_559"></a><a href="#Footnote_559_559" class="fnanchor">[559]</a> Failing this, the companies contended
+that the government should satisfy its claim by taking
+back a portion of the railroad land grant. If the United States
+should be indisposed to resume the land grant, then Mr. Stanford
+suggested that the government should take up all the liens<span class="pagenum"><a name="Page_401" id="Page_401">[401]</a></span>
+on the Central Pacific Railroad prior to the subsidy bonds, and
+in lieu of them issue government bonds bearing interest at the
+rate of 2 per cent. The saving to the company, due to the reduction
+in the interest rate on first mortgage bonds from 6 to
+2 per cent, would enable it to pay off its indebtedness to the
+government, sufficient time being given and a moderate rate
+of interest allowed.<a name="FNanchor_560_560" id="FNanchor_560_560"></a><a href="#Footnote_560_560" class="fnanchor">[560]</a> In case even this settlement were rejected,
+it was proposed that the government refund the subsidy bonds
+by a new issue, running 100 or 125 years, and bearing interest
+at the rate of 2 per cent.<a name="FNanchor_561_561" id="FNanchor_561_561"></a><a href="#Footnote_561_561" class="fnanchor">[561]</a></p>
+
+<p>In opposition to the railroad proposals, western shippers,
+who represented the extreme anti-railroad sentiment, violently
+objected to a refunding bill of any description. It was the
+belief of California men that a refunding bill would simply
+saddle the railroad debt upon the shipping public. For the
+railroad would make the necessary annual payments for interest
+and sinking fund from the proceeds of rates, which would
+necessarily be paid by the shipper. As able a man as John T.
+Doyle, of San Francisco, maintained, moreover, that refunding
+was unnecessary, because it would be found that the assets
+of the Central Pacific would be adequate on foreclosure sale
+to meet both its first and its second mortgage obligations. In
+saying this, Mr. Doyle relied upon the ability of the government
+to hold directors of the Central Pacific personally liable
+for misappropriation of funds, as well as upon alleged illegalities
+in the issue of first mortgage bonds, and upon the
+chance that the courts would consider the San Francisco
+terminals of the Western Pacific, together with other miscellaneous
+property, subject to the lien of the government mortgage,
+although the property was not “bond-aided” in a narrow
+sense.<a name="FNanchor_562_562" id="FNanchor_562_562"></a><a href="#Footnote_562_562" class="fnanchor">[562]</a></p>
+
+<p><span class="pagenum"><a name="Page_402" id="Page_402">[402]</a></span></p>
+
+<p class="pnb">Pacific Coast Agitation</p>
+
+<p>As an example of the feeling in the West concerning the
+policy of refunding, particular reference may be made to expressions
+of opinion in the city of San Francisco. In May,
+1894, a mass meeting of citizens of San Francisco elected a
+committee of three to proceed to Washington and to oppose the
+funding of the debt of the Central Pacific Railroad to the
+United States. In a memorial addressed to the Senate and
+House of Representatives, and designed to oppose the Huntington
+scheme of a long-time extension of the subsidy bonds at a
+low rate of interest, this committee said:</p>
+
+<p class="pbq p1">In the name of the people of San Francisco, of California,
+and of the whole Pacific Coast, we protest against the acceptance
+by Congress of a plan which will keep more than
+$77,000,000 of the public’s money from being paid to the United
+States Treasury, and which will secure in their present wrongful
+possession of that sum, besides promoting their other selfish
+and unpatriotic schemes, men who have for thirty years been
+wrecking a railroad, defrauding the Government, corrupting
+public morals, plundering and oppressing the people, and violating
+every principle of business probity, of law, right, justice,
+and public policy.</p>
+
+<p class="p1">Another meeting, held in the Metropolitan Temple, in San
+Francisco, on June 19, 1894, called on the state conventions
+of both parties to introduce into their platform resolutions
+against the funding of the debt of the Central Pacific Railroad
+Company to the United States at the rate of 2 per cent
+per annum for one hundred years, at a rate of 4 per cent
+per annum for fifty years, or at any other percentage, or during
+any other period. Under the leadership of the eccentric
+Adolph Sutro, this meeting adopted an arraignment of the
+Southern Pacific which was almost inarticulate in its denunciation.
+It was charged that:</p>
+
+<p class="pbq p1">This monopoly has spread a black cloud over the surface
+of the State. It has manœuvred through a large number of<span class="pagenum"><a name="Page_403" id="Page_403">[403]</a></span>
+corporations, of which the Southern Pacific Company of Kentucky
+is now the center. It has seduced and drawn into its
+service many prominent men, whose Americanism and integrity
+were not equal to their brains. It has antagonized the people,
+minimized immigration, choked enterprise, and, in this unrelenting
+attack, has used the supposed representatives of the
+people in each department of the government, Municipal, State,
+and National. It has controlled legislation, executive action
+and the administration of justice. It has discriminated in
+freights and fares and, at every station on its many thousands
+of miles of railroad, maintained a Custom House of its own.</p>
+
+<p class="p1">This was followed on June 29 by a telegram, signed by
+Sutro and addressed to Grover Cleveland, advising the
+President that history would record him as the greatest
+benefactor of the American people if he would recommend the
+foreclosure of the mortgages on the Pacific railroads and the
+purchase of these railroads by the government at foreclosure
+sale. It was Sutro’s idea that the government should hold the
+transcontinental lines as a great national highway, and permit
+all American railroads to run their locomotives and cars over it
+under payment of tolls to be regulated by the Treasury Department.</p>
+
+<p>During the summer of 1894 the <i>San Francisco Examiner</i>
+circulated a petition against the Reilly funding bill, to which,
+by September 20, it was said that 194,663 names had been
+attached.<a name="FNanchor_563_563" id="FNanchor_563_563"></a><a href="#Footnote_563_563" class="fnanchor">[563]</a> In January, 1895, both the Colorado and the
+California legislatures adopted resolutions opposing the refunding.
+In California there was not a dissenting vote. The same
+month another mass meeting was held in San Francisco, and in
+December, 1895, still another one followed, with the result that
+a committee of fifty was appointed, and a recommendation
+sent to the national government.</p>
+
+<p>The San Francisco agitation in 1894 and 1895 was
+addressed to the comparatively moderate provisions of the<span class="pagenum"><a name="Page_404" id="Page_404">[404]</a></span>
+Reilly bill, proposing the refunding of the government debt for
+fifty years at 3 per cent. In 1896, when the more liberal Powers
+bill was under discussion, the agitation revived. At this time
+Mayor Sutro, of San Francisco, made an unsuccessful attempt
+to persuade the people of Kentucky to repeal the charter of the
+Southern Pacific Company. Although this particular move
+met with no success, a state anti-funding convention was held
+at the Metropolitan Temple in San Francisco on January 18,
+1896, a new committee was appointed, and a new memorial
+was framed.</p>
+
+<p>This memorial reiterated and reinforced most of the arguments
+presented in the memorial of the committee of fifty. It
+dwelt on the alleged frauds of the Central Pacific and Southern
+Pacific companies, the uncertainty as to the extent of the
+property of these corporations, and as to the validity of certain
+liens against them. The whole matter, the memorial urged,
+was distinctly one for judicial investigation. It urged that the
+government let foreclosure take its course. The Central Pacific
+should not be allowed to confirm possession of money it might
+have stolen. It was sound policy, the memorial agreed, to make
+sure that the company really had not enough to pay its debts,
+and to this end to see that transferred, withdrawn, and stolen
+assets were restored. Agitation along these same lines continued
+through 1896, and in January of the following year the
+legislature adopted a resolution opposing refunding and calling
+for foreclosure if necessary.<a name="FNanchor_564_564" id="FNanchor_564_564"></a><a href="#Footnote_564_564" class="fnanchor">[564]</a></p>
+
+<p class="pnb">Different Points of View</p>
+
+<p>The fundamental difference between the sentiment in
+Congress in 1897 and that on the Pacific Coast was that the
+legislature at Washington addressed itself to Pacific railroad
+legislation with the object of recovering as much of the government’s
+advances to the Pacific railroads as was possible under<span class="pagenum"><a name="Page_405" id="Page_405">[405]</a></span>
+the circumstances. The gains sought were primarily financial.
+In California, on the other hand, public sentiment was more
+concerned with railroad service and railroad rates than with
+finance. And this was a principal reason for the insistence
+upon foreclosure and the equanimity with which government
+operation was regarded. That the difference between the two
+points of view was not more fully appreciated was doubtless
+because the necessity of shaping its arguments so as to influence
+Congress led the Pacific Coast to talk in terms of finance,
+even when they thought in terms of monopoly. So much must
+be understood in order that the animus behind the San
+Francisco agitation may be clear.</p>
+
+<p>From the point of view of Congress, the weakness of the
+government’s position in 1897 lay in the fact that its debt
+was secured by a second mortgage, and a mortgage which
+covered, at that, only a portion of the road. There seems to
+have been substantial unanimity of opinion among official
+representatives of the government after 1882 and 1883, that the
+bond-aided parts of the Pacific railroads would not bring at a
+forced sale a sufficient price to cover both the first and the
+second mortgage liens upon them. In fact, it was believed that
+if the Pacific railroad property should be put up at foreclosure
+sale, no bidder would appear except the Huntington-Stanford
+interest, and perhaps the Union Pacific Railway. Under these
+circumstances the price obtained was sure to be low, and it was
+not unlikely that the result of the sale would be to leave the
+railroad in the hands of its original owners free from all
+obligations to the government. “These very men whom you
+are now scolding about,” said Mr. Powers, of Vermont, in
+1897, “the very men who own the terminals and own these
+connecting lines are the only ones who can safely bid on the
+property, and probably they will be the only bidders. They
+would get the property at their own figures.”<a name="FNanchor_565_565" id="FNanchor_565_565"></a><a href="#Footnote_565_565" class="fnanchor">[565]</a></p>
+
+<p><span class="pagenum"><a name="Page_406" id="Page_406">[406]</a></span></p>
+
+<p class="pnb">Stockholders’ Liability</p>
+
+<p>It is true that there were two possibilities that improved
+the government’s position slightly. The first was found in the
+suggestion that directors or stockholders of the Central Pacific
+might in some way be held individually responsible for the debts
+of the company. If this could be done, the great wealth of the
+Stanford-Huntington group made the resource a substantial
+asset. It was pointed out by anti-railroad men that the Central
+Pacific was a California corporation, and that under California
+law each stockholder of a railroad corporation was liable, in
+proportion to the stock owned and held by him, for all its debts
+and liabilities. Moreover, the directors of the Central Pacific
+were said to be liable as directors because of the diversion of
+Central Pacific funds to the payment of dividends at a time
+when the company owed the government and its first mortgage
+bondholders large sums which it was unable to pay. In
+addition the directors were charged with illegal use of Central
+Pacific money in the construction of the Southern Pacific Railroad.</p>
+
+<p>Unfortunately for the government, the United States
+Supreme Court squarely refused to entertain the notion that
+Central Pacific stockholders were individually liable for repayment
+of advances which the United States had made to that
+company. Individual liability depends upon express statutory
+prescription, and no word upon this point was to be found in
+the federal laws of 1862 and of 1864. While California railroad
+stockholders were undoubtedly personally liable to some
+degree for the debts of California corporations, yet the state
+law which established this liability was held not to apply to the
+debt due to the United States. The terms of liability as regards
+this debt were to be sought, according to the Supreme Court,
+in the Congressional enactment, and there only. It was said
+that any other ruling would not only lack solid legal foundation,
+but would have the unfortunate effect of imposing a heavier<span class="pagenum"><a name="Page_407" id="Page_407">[407]</a></span>
+burden upon stockholders of the Central Pacific than upon those
+of the Union Pacific.<a name="FNanchor_566_566" id="FNanchor_566_566"></a><a href="#Footnote_566_566" class="fnanchor">[566]</a></p>
+
+<p class="pnb">Lien of Subsidy Bonds</p>
+
+<p>A second possibility which might have strengthened the
+government’s claim that the lien of the subsidy bonds might be
+held to extend to the non-bond-aided portions of the Central
+Pacific as well as to those portions for the construction of
+which the government had given aid. This was also the contention
+of Mr. Doyle, of San Francisco. The point was of
+the highest importance, because if it were denied, the government
+possessed a mortgage upon only the trunk lines of the
+Pacific railroads. It had no interest in, and could by foreclosure
+secure no control over any branches, or over the
+principal terminals. On the Central Pacific it could acquire
+by judicial sale only 860 miles from a total of 1,360, and on the
+Union Pacific 1,532 miles from a total of 7,944. The bond-aided
+portions of the Central Pacific reached neither Oakland
+nor San Francisco.<a name="FNanchor_567_567" id="FNanchor_567_567"></a><a href="#Footnote_567_567" class="fnanchor">[567]</a></p>
+
+<p>In order to understand the relation of the subsidy bonds to
+the non-aided portions of the Central Pacific, it is necessary to
+refer for a moment to the terms of the Pacific railroad legislation.
+The clauses of the Act of 1862 which relate to the lien
+of the subsidy bonds of the Central Pacific were to be found in
+Section 5 of that law. They provided as follows, namely, that:</p>
+
+<p class="pbq p1">... the issue of said bonds and delivery to the company
+shall ipso facto constitute a first mortgage on the whole line of
+the railroad and telegraph, together with the rolling stock, fixtures
+and property of every kind and description, and in consideration
+of which said bonds may be issued; and on the
+refusal or failure of said company to redeem said bonds, or
+any part of them, when required so to do by the Secretary of<span class="pagenum"><a name="Page_408" id="Page_408">[408]</a></span>
+the Treasury, in accordance with the provisions of the act, the
+said road, with all the rights, functions, immunities, and appurtenances
+thereunto belonging, and also all lands granted to the
+said company by the United States, which, at the time of said
+default, shall remain in the ownership of the said company,
+may be taken possession of by the Secretary of the Treasury,
+for the use and benefit of the United States.<a name="FNanchor_568_568" id="FNanchor_568_568"></a><a href="#Footnote_568_568" class="fnanchor">[568]</a></p>
+
+<p class="p1">By the Act of July 2, 1864, the lien of the subsidy bonds
+was subordinated to that of first mortgage bonds which the
+company was then authorized to issue, but no other change in
+the underlying security was made.<a name="FNanchor_569_569" id="FNanchor_569_569"></a><a href="#Footnote_569_569" class="fnanchor">[569]</a></p>
+
+<p>The meaning of Section 5 of the Act of 1862, as amended,
+was considered by the United States Supreme Court in 1878
+in a case brought against the Kansas Pacific Railway to recover
+5 per cent of the net earnings of the Kansas Pacific, payment of
+which was required by Section 6 of the same act. In these
+matters the Kansas Pacific and the Central Pacific were subject
+to the same requirements. It appeared that the Kansas Pacific
+had received subsidy bonds for 393-15/16 miles of line, from
+the Missouri River to the hundredth meridian, but had actually
+constructed 637 miles, reaching as far west as Denver. The
+question arose as to whether the company was responsible to
+the government for 5 per cent of its net earnings on the whole
+mileage, or only for 5 per cent on 393-15/16 miles. Upon this
+point the Supreme Court ruled that “the subsidy bonds granted
+to the company, being granted only in respect to the original
+road, terminating at the hundredth meridian, are a lien on that
+portion only; and that the five per cent of the net earnings is
+only demandable on the net earnings of said portion.”<a name="FNanchor_570_570" id="FNanchor_570_570"></a><a href="#Footnote_570_570" class="fnanchor">[570]</a></p>
+
+<p class="pnb">Provision in Thurman Law</p>
+
+<p>The decision in the Kansas case clearly meant that the lien
+of the subsidy bonds authorized by the Act of 1862 did not<span class="pagenum"><a name="Page_409" id="Page_409">[409]</a></span>
+extend to the non-bond-aided portions of the Central Pacific
+or to similar sections of any of the other Pacific railroads. This
+appears to be a conclusive answer to the later government argument,
+so far as the Act of 1862 is concerned. The legislation
+of 1862 was, however, amended in 1878, as we have seen in the
+previous chapter. Section 9 of the Thurman law read as
+follows:</p>
+
+<p class="pbq p1">That all sums due to the United States from any of said
+companies respectively, whether payable presently or not, and
+all sums required to be paid to the United States or into the
+Treasury, or into said sinking fund under this act, or under the
+acts hereinbefore referred to, or otherwise, are hereby declared
+to be a lien upon all the property, estate, rights, and franchises
+of every description granted or conveyed by the United States
+to any of said companies respectively or jointly, and also upon
+all the estate and property, real, personal, and mixed, from
+whatever source derived, subject to any lawfully prior or paramount
+mortgage lien, or claim thereon.<a name="FNanchor_571_571" id="FNanchor_571_571"></a><a href="#Footnote_571_571" class="fnanchor">[571]</a></p>
+
+<p class="p1">A comparison of the Thurman law with the Act of 1862
+shows that the later law expressly extended the lien of the
+subsidy bonds to all Pacific railroad property “from whatever
+source derived,” instead of limiting the lien to property “in
+consideration of which said bonds may be issued.” It does
+not appear that this change was particularly considered in the
+debates on the Thurman bill. Mr. Thurman himself did not
+mention Section 9 in his opening address, and while members
+of the Senate discussed at length the power of Congress to
+alter, amend, or repeal the Act of 1862, they usually had in
+mind the sinking fund provisions of the Thurman law and not
+those relating to the lien of the subsidy bonds. The exception
+to this statement is to be found in a colloquy between Mr.
+Dawes, of Massachusetts, and Mr. Edmunds, of Vermont.
+Mr. Dawes called attention on April 3 to the sweeping nature<span class="pagenum"><a name="Page_410" id="Page_410">[410]</a></span>
+of the amendment contained in Section 9. He was of the
+opinion that in 1862 Congress never undertook to put a
+mortgage on anything except that which they granted to the
+railroad. Under the Thurman Act, however, he understood
+that all subsequently acquired property was also to be pledged,
+with the effect, Mr. Dawes added, that, among other results,
+all payment of dividends would become illegal.</p>
+
+<p>To this criticism Senator Edmunds replied that the Act of
+1862 already subjected all the property of the Pacific railroads
+to the lien of the subsidy bonds. It was the view of the
+Senator from Vermont that the words “in consideration of
+which said bonds may be issued” did not have the limiting
+effect in the Act of 1862 which Mr. Dawes ascribed to them,
+but rather that they conveyed the idea, with other words in
+the same clause, that the Secretary of the Treasury might from
+time to time issue bonds of the United States in consideration
+of the fact, which the law declared, that every particle of the
+property of the Pacific companies, real and personal, franchises,
+tolls, and everything else, were the security upon which the
+bonds were to be a lien.<a name="FNanchor_572_572" id="FNanchor_572_572"></a><a href="#Footnote_572_572" class="fnanchor">[572]</a> Subsequent discussion did not serve
+to clear up the differences in interpretation brought out in the
+Congressional debate, but the later decision of the Supreme
+Court showed that, in the principal matter at issue, Mr. Dawes
+was right.</p>
+
+<p>We may say with some confidence that the nature of the lien
+of the second mortgage subsidy bonds of the United States depended,
+under the Thurman Act, upon the power of Congress to
+alter, amend, and repeal the terms of the Acts of 1862 and 1864
+in respect to the security provided for the government loan.</p>
+
+<p class="pnb">Court Decisions</p>
+
+<p>Now on the question of the meaning of the “saving clause”
+in the Act of 1864, the courts had not in 1897, and still have<span class="pagenum"><a name="Page_411" id="Page_411">[411]</a></span>
+not, satisfactorily passed. That the clause did not authorize
+unlimited changes in the provisions of existing legislation was
+evident. The majority of the Supreme Court expressed the
+view in the sinking fund cases that the reserved power could
+not be used to undo what had already been done or to unmake
+contracts which had already been made, but that Congress could
+provide for what should be done in the future, and might even
+direct what preparation should be made for the due performance
+of contracts already entered into.<a name="FNanchor_573_573" id="FNanchor_573_573"></a><a href="#Footnote_573_573" class="fnanchor">[573]</a> Under this interpretation
+the Supreme Court upheld the clauses in the Thurman law
+which required the Pacific railroads to pay certain moneys into
+a sinking fund.</p>
+
+<p>The same court in 1895 decided that a federal act which
+required bond-aided railroads to operate their own telegraph
+lines was a legitimate amendment of the clause of the Act of
+1862 which authorized these companies to enter into agreements
+with specified private corporations for the rendering of
+telegraph service.<a name="FNanchor_574_574" id="FNanchor_574_574"></a><a href="#Footnote_574_574" class="fnanchor">[574]</a></p>
+
+<p>Again, in Menotti v. Dillon (1897), the court approved
+an amendment to the land-grant provisions of the Act of 1862
+designed to quiet litigation in land cases in California;<a name="FNanchor_575_575" id="FNanchor_575_575"></a><a href="#Footnote_575_575" class="fnanchor">[575]</a>
+and in Union Pacific v. Mason City and Fort Dodge, it
+sustained a law of 1871 which authorized the Union Pacific to
+issue bonds for the construction of a bridge across the Missouri
+River at Omaha, but required the company to permit the
+trains of all railroads terminating at the Missouri River at
+Omaha to use the new bridge up to a fair limit of its capacity
+and on payment of a reasonable compensation.<a name="FNanchor_576_576" id="FNanchor_576_576"></a><a href="#Footnote_576_576" class="fnanchor">[576]</a></p>
+
+<p>None of these cases, however, can fairly be taken as precedents
+for so radical an alteration in a bargain made as would<span class="pagenum"><a name="Page_412" id="Page_412">[412]</a></span>
+have been produced by an extension of the lien of the subsidy
+bonds to non-aided portions of the Pacific railroads. On this
+precise point the nearest approach to a decision is found in a
+dictum growing out of litigation under the Thurman law with
+respect to the proper handling of compensation for government
+services. As explained in the previous chapter, the government
+contended at one time that all compensation for services rendered
+to the government by the Central Pacific Railroad should
+be paid into a sinking fund for the eventual retirement of the
+subsidy bonds or should be applied in liquidation of interest on
+these bonds, whether these services were rendered on bond-aided
+or on non-bond-aided portions of the company’s lines.
+When this contention reached the Supreme Court it was rejected,
+on the ground that the Thurman Act, properly interpreted,
+applied only to the bond-aided lines.</p>
+
+<p>The court went on to remark, moreover, that the construction
+which the government here sought to place upon the law
+would not only render the second section of the Thurman
+Act a breach of faith on the part of the United States, but
+would make it an invasion of the constitutional rights of the
+railroad company.<a name="FNanchor_577_577" id="FNanchor_577_577"></a><a href="#Footnote_577_577" class="fnanchor">[577]</a> This indicates that the court would not
+have approved a law which clearly compelled the Central Pacific
+to turn over to the government the compensation for the transportation
+of government troops and supplies earned over sections
+of its lines which had not received a subsidy in government
+bonds. If this really represented the attitude of the court,
+then it seems still more unlikely that an attempt to extend the
+lien of subsidy bonds to these same non-bond-aided sections
+would have been sustained.</p>
+
+<p class="pnb">Critical Situation</p>
+
+<p>It is reasonable to suppose that the repeated discussion of
+refunding plans in Washington was due to the fact that Congress<span class="pagenum"><a name="Page_413" id="Page_413">[413]</a></span>
+was of the opinion that a rigid insistence by the government
+upon its legal rights would result in a minimum rather
+than a maximum recovery from the Pacific railroads. At the
+same time, the shrewder heads in the legislature were perhaps
+hopeful that results might be obtained by negotiation which
+could not be secured by legal proceedings. Hence the refusal
+to approve of any specific plan for the settlement of the debt.</p>
+
+<p>In the year 1897 the pending maturity of the United States
+subsidy bonds made the situation too critical for action to be
+much further delayed. On March 4, 1897, the 54th Congress
+and the second administration of President Cleveland came to
+an end, and the administration of President McKinley began.
+A special session of Congress, called by the new President, convened
+on March 15. During this session Mr. Gear introduced
+a bill for the appointment of a commission to settle the debt of
+the Central Pacific and Western Pacific railroads to the government.<a name="FNanchor_578_578" id="FNanchor_578_578"></a><a href="#Footnote_578_578" class="fnanchor">[578]</a>
+This bill failed to pass. In December, 1897, the first
+regular session of the 55th Congress convened. By this time
+the maturity of a large portion of the subsidy bonds was distant
+only a few weeks. That is to say, the bonds issued to the
+Central and Western Pacific railroads matured as follows:</p>
+
+<table id="tn01" summary="tn01">
+
+ <tr>
+ <td class="tdc">January</td>
+ <td class="tdr">16,</td>
+ <td>1895</td>
+ <td class="tdt5">$ 2,362,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td class="tdr">1,</td>
+ <td>1896</td>
+ <td class="tdt5">1,600,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td class="tdr">1,</td>
+ <td>1897</td>
+ <td class="tdt5">2,432,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td class="tdr">1,</td>
+ <td>1898</td>
+ <td class="tdt5">10,614,120</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">”</td>
+ <td class="tdr">1,</td>
+ <td>1899</td>
+ <td class="tdt5">10,847,560</td>
+ </tr>
+
+</table>
+
+<p class="p1">About $2,000,000 of these bonds were held in the sinking
+fund established by the Thurman Act. These had naturally
+been canceled as they fell due. On December 21, 1896, moreover,
+most of the remaining bonds held by the government in
+the Central Pacific sinking fund had been sold and the proceeds
+applied to maturing indebtedness.<a name="FNanchor_579_579" id="FNanchor_579_579"></a><a href="#Footnote_579_579" class="fnanchor">[579]</a></p>
+
+<p><span class="pagenum"><a name="Page_414" id="Page_414">[414]</a></span></p>
+
+<p>These resources, together with the credits in the Central
+Pacific bond and interest account, had covered the demands
+upon the company up to January 1, 1898. Meanwhile coupons
+on the first mortgage bonds had been regularly paid, and
+arrangements had been made with first mortgage bondholders
+to extend the maturity of each instalment until January 1, 1898,
+at which date first mortgage bonds of the Central Pacific Railroad
+Company to the amount of $25,883,000 were to mature.
+First mortgage bonds of the Western Pacific Railroad, aggregating
+$1,970,000, matured on July 1, 1899. It was evident
+that all available Central Pacific resources would be exhausted
+by the 1st of January, 1898.</p>
+
+<p class="pnb">Negotiations Initiated</p>
+
+<p>In the face of what amounted to a real crisis, involving not
+only the possibility of loss to the government, but also that of
+serious financial injury to private interests connected with the
+Pacific railroads, the initiative in seeking a compromise was
+now taken by the banking firm of James Speyer and Company,
+of New York, through which a large amount of Central Pacific
+securities had been marketed. Mr. Speyer felt responsibility in
+the matter because so many of his clients were involved. He
+later testified:</p>
+
+<p class="pbq p1">I think it naturally suggested itself to us as bankers, having
+sold such a large amount of securities and the company being
+threatened with bankruptcy, we naturally sat up nights thinking
+how we could save it, because these bonds were all out, all over
+Europe, and stock too; and we tried to find some means to
+work it out so that these people would not lose their money. So
+that I think that originally when this debt came nearer and
+nearer, when it got so that it became a threatening thing to the
+Central Pacific security holders, we naturally began to look
+around to see how we could stave off receivership and bankruptcy.<a name="FNanchor_580_580" id="FNanchor_580_580"></a><a href="#Footnote_580_580" class="fnanchor">[580]</a></p>
+
+<p><span class="pagenum"><a name="Page_415" id="Page_415">[415]</a></span></p>
+
+<p class="p1">There were also certain strategic considerations which had
+weight at this time. These affected the dominant interests in
+the Southern Pacific particularly. In spite of the apparently
+indifferent attitude of the Stanford-Huntington group, these
+gentlemen could not have been, and were not, blind to the fact
+that a receivership for the Central Pacific opened possibilities
+of disaster, not only for the Central Pacific itself, but also for
+the Southern Pacific, in which their main interest then lay.
+Such a receivership, if followed by a foreclosure sale, would
+have wiped out the last vestiges of the Stanford-Huntington
+stock holdings in the Central Pacific Railroad and would in
+all probability have eliminated also the lease of the Central
+Pacific to the Southern Pacific. This suggested the possibility
+of a severe competition for Pacific Coast business, from which
+the Southern Pacific could scarcely have escaped unscathed.
+The whole future control of the railroad systems of the South
+West was clearly at stake.</p>
+
+<p>It appears that Mr. Speyer took the matter up with Mr.
+Huntington,<a name="FNanchor_581_581" id="FNanchor_581_581"></a><a href="#Footnote_581_581" class="fnanchor">[581]</a> probably early in 1898. Mr. Huntington was
+receptive and the subject was then discussed with representatives
+of the government. At an early stage in the negotiations
+President McKinley was consulted. The matter was one
+deemed of great importance to the government; in fact, in
+January, 1898, the President directed the Attorney-General to
+give immediate attention to the Pacific railroad debts, to take
+every means necessary, and to spend as much money as should
+be needed in order to enforce the government’s lien.<a name="FNanchor_582_582" id="FNanchor_582_582"></a><a href="#Footnote_582_582" class="fnanchor">[582]</a> In later
+proceedings Mr. Griggs, the Attorney-General, and Mr. Gage,
+Secretary of the Treasury, took an active part. Mr. McKinley
+continued to follow the negotiations, and was about as well informed
+as any of the others as to how matters were getting on.
+Elihu Root was employed by the Attorney-General as special<span class="pagenum"><a name="Page_416" id="Page_416">[416]</a></span>
+counsel.<a name="FNanchor_583_583" id="FNanchor_583_583"></a><a href="#Footnote_583_583" class="fnanchor">[583]</a> In short, the administration responded cordially to
+the initiative of the railroad and banking group.</p>
+
+<p class="pnb">Government Commission</p>
+
+<p>While negotiations were going on, Congress passed the
+Act of July 7, 1897. This act appointed the Secretary of the
+Treasury, the Secretary of the Interior, and the Attorney-General
+a commission with full power to settle the indebtedness to
+the government growing out of the issue of bonds in aid of the
+Central Pacific and Western Pacific bond-aided railroads. The
+commission was required to submit any settlement made to the
+President for his approval, and it was forbidden to accept a
+less sum in settlement of the debt due the United States than
+the full amount of the principal and interest of the subsidy
+bonds. It was empowered to grant an extension of time for
+repayment not exceeding ten years, at a rate of interest not
+less than 3 per cent, and to accept such security as might seem
+expedient.<a name="FNanchor_584_584" id="FNanchor_584_584"></a><a href="#Footnote_584_584" class="fnanchor">[584]</a> So far as the commission was concerned, this was
+Mr. Gear’s proposal of the previous year.</p>
+
+<p>It seems probable that negotiations had already reached an
+advanced stage before the Act of July 7 was passed. Mr.
+Griggs was later of the impression that the act was drawn and
+passed to fit a tentative agreement which had already been
+made.<a name="FNanchor_585_585" id="FNanchor_585_585"></a><a href="#Footnote_585_585" class="fnanchor">[585]</a> If such were the case the willingness of Congress to
+entrust the matter to the executive branch of the government,
+after having once refused to do so, may be explained. Possibly,
+also, the fact that the Union Pacific had been sold at foreclosure
+on November 1, 1897, for $58,448,223.75, a sum
+sufficient to cover the full amount of both first and second
+mortgage bonds, had weight.<a name="FNanchor_586_586" id="FNanchor_586_586"></a><a href="#Footnote_586_586" class="fnanchor">[586]</a></p>
+
+<p><span class="pagenum"><a name="Page_417" id="Page_417">[417]</a></span></p>
+
+<p>The indebtedness of the Central and Western Pacific railroads
+to the United States government as of February 1, 1899,
+was $58,812,715.48. These figures were reached by adding
+thirty years’ interest at 6 per cent to the original loan of $27,855,680,
+and by deducting accumulated credits resulting either
+from the deposits in the sinking fund established by the Thurman
+law, or from the operation of the bond and interest account
+originating in the Acts of 1862 and 1864. Comparison of the
+figure of $58,812,715.48 with the slightly larger amount
+given in the previous chapter as of June 30, 1897, will show
+that during the intervening nineteen months the net amount of
+indebtedness had slightly decreased.</p>
+
+<p class="pnb">Plan of Settlement</p>
+
+<p>In view of the impending maturity of large quantities of
+subsidy bonds, the first essential point in the negotiations
+between Mr. Speyer and the government was necessarily that
+more time should be allowed the Central Pacific for the payment
+of its debt. It was agreed that at least certain portions
+might be extended for as long as ten years. Mr. Speyer was of
+the opinion that, given this extension, the Central Pacific could
+repay its debt in full—a striking contrast to the former statements
+of Central Pacific Railroad men. By paying the debt
+in full was meant paying with interest on all delayed balances.<a name="FNanchor_587_587" id="FNanchor_587_587"></a><a href="#Footnote_587_587" class="fnanchor">[587]</a></p>
+
+<p>In order to cover the matters just referred to, Mr. Speyer
+agreed in 1898 that the indebtedness of the Central Pacific to
+the government should be refunded into twenty notes of the
+railroad company, falling due one every six months, beginning
+August 1, 1899, and ending February 1, 1909. The notes were
+to carry interest at 3 per cent per annum, payable semiannually.
+Taken by itself, this offer was the most liberal that the railroad
+company had ever made. Yet it represented up to this point
+only a promise, without security. In order to provide security,<span class="pagenum"><a name="Page_418" id="Page_418">[418]</a></span>
+Mr. Speyer proposed an additional arrangement, in two
+parts.</p>
+
+<p>By the first part of the additional agreement, Speyer and
+Company undertook to purchase the four Central Pacific notes
+earliest in point of maturity, and to pay the face value thereof
+as soon as received from the government. This obligation of a
+reputable banking house to pay the substantial sum of $11,762,543.12
+was a valuable thing in itself, and materially increased
+the attractiveness of the whole plan from the government’s
+point of view. In consideration for its advance, Speyer and
+Company received new first mortgage bonds of the Central
+Pacific Railroad, of an issue presently to be described. By the
+second part of the same arrangement, each note remaining in
+the hands of the government was to be secured by deposit of
+first refunding 4 per cent gold bonds of the Central Pacific
+equal in amount to the face of the note.<a name="FNanchor_588_588" id="FNanchor_588_588"></a><a href="#Footnote_588_588" class="fnanchor">[588]</a></p>
+
+<p>It will, however, be asked how, in view of the outstanding
+capitalization of the Central Pacific, it was possible to offer
+a first mortgage security as collateral for the refunding notes.
+This was provided for by the further reorganization of the
+Central Pacific, and by the issue in particular of two new classes
+of bonds, of which the first was to be a 4 per cent, and the
+second a 3½ per cent issue, having a first and second mortgage
+lien, respectively, upon all property of which the Central Pacific
+was possessed.</p>
+
+<p class="pnb">Reorganization Proposal</p>
+
+<p>On February 1, 1899, the outstanding debt of the Central
+Pacific Railroad consisted of the following issues:</p>
+
+<table id="t11" summary="t11">
+
+ <tr>
+ <td class="tdti">Central Pacific Railroad of California, first mortgage bonds</td>
+ <td class="tdr">$25,881,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Western Pacific Railroad Company, first mortgage bonds</td>
+ <td class="tdr">2,735,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti"><span class="pagenum"><a name="Page_419" id="Page_419">[419]</a></span>Central Pacific Railroad Company (San Joaquin Valley branch), first mortgage bonds</td>
+ <td class="tdr">6,080,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Central Pacific Railroad Company, land bonds</td>
+ <td class="tdr">2,134,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Central Pacific Railroad Company, 50-year 6 per cent bonds</td>
+ <td class="tdr">56,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">Central Pacific Railroad Company, 50-year 5 per cent bonds</td>
+ <td class="tdr">10,245,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">California and Oregon Railroad Company, and
+Central Pacific Railroad Company, successor,
+first mortgage bonds</td>
+ <td class="tdr">10,340,000</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdr">—————</td>
+ </tr>
+
+ <tr>
+ <td class="tdt5">Total</td>
+ <td class="tdr">$57,471,000</td>
+ </tr>
+
+</table>
+
+<p class="p1">Under the proposed reorganization plan, the aggregate of
+$57,471,000 of securities listed was to be retired in exchange
+for $51,253,500 in new 4 per cent bonds, $13,695,000 in new
+3½ per cent bonds, and $1,987,383.70 in cash. Generally
+speaking, the outstanding first mortgage bonds were offered
+par in new fours, with a slight bonus in new 3½ per cents.
+Junior mortgages received 50 per cent in new fours, and from
+70 to 90 per cent in new 3½ per cent securities. After the
+retirement of outstanding first mortgages, the 4 per cent bond
+issue was then to be increased further by the amount necessary
+to provide the government with the collateral stipulated for in
+the negotiations. Thus the government was set on a par with
+outstanding first mortgage bondholders.</p>
+
+<p>Here, however, was a real difficulty. It was plain that
+while the old first mortgage bondholders might consent to the
+retirement of the issues which they held by exchange for new
+bonds, on the terms stated, they would yet hesitate to allow the
+inflation of the first mortgage issue by putting out $58,000,000
+first mortgage bonds over and above the amount of their holdings
+in order to satisfy a government claim hitherto secured
+only by a second mortgage lien. It must be remembered that
+the reorganization was a voluntary one, requiring for its success
+the free consent of all parties. Some additional considertion<span class="pagenum"><a name="Page_420" id="Page_420">[420]</a></span>
+had to be offered at this point in order to satisfy first
+mortgage bondholders. It was at this juncture that the
+Southern Pacific Company stepped in, with a guaranty on
+both the new 4 per cent and the new 3½ per cent issues. The
+additional security provided by this guaranty was without
+doubt an element contributing strongly to the successful carrying
+out of the proposed exchanges. At the same time the
+guaranty was received with favor by the government, because
+it increased the government’s security as well as that possessed
+by former bondholders.</p>
+
+<p>In subsequent years there was dispute as to how far the
+government relied on the Southern Pacific guaranty as an
+essential element in the security provided for the ultimate
+repayment of the government loan. Curiously enough, the
+fact of the guaranty was not mentioned in the original agreement
+of February 1, 1899, between the Central Pacific and the
+government, nor was it referred to in the report dated February
+15, 1899, which the commissioners appointed to settle the
+Central Pacific indebtedness made to Congress, nor in the
+clauses of the refunding mortgage itself. But the testimony
+of all concerned is that the guaranty was understood to be a
+vital part of the agreement, and Attorney-General Griggs later
+went so far as to say that the Central Pacific bonds without the
+guaranty would not have been acceptable.<a name="FNanchor_589_589" id="FNanchor_589_589"></a><a href="#Footnote_589_589" class="fnanchor">[589]</a> When the bonds
+to which the government was entitled were delivered to the
+United States Treasury Department, they had indorsed on them
+in proper form the guaranty of the Southern Pacific Company.</p>
+
+<p class="pnb">Treatment of Stockholders</p>
+
+<p>In addition to the promises for settlement of the government
+debt, mention should be made of the allowance made to
+Central Pacific stockholders in the reorganization plan, and of
+the provision for cash requirements.</p>
+
+<p><span class="pagenum"><a name="Page_421" id="Page_421">[421]</a></span></p>
+
+<p>Some provision for cash requirements is a necessary part
+of any reorganization plan. In the case of the Central Pacific
+and Western Pacific, the cash requirements consisted of $11,762,543.12,
+which were needed to take up the first four notes
+issued to the government, and of $9,657,556.88 for new
+equipment, improvements, and other purposes of the new company,
+including expenses, commissions, compensation, and
+similar items incident to the reorganization. Speyer and Company,
+it will be recalled, had agreed to purchase the first
+four maturing notes issued to the government. The inclusion
+of the amount paid for these notes as a cash requirement
+of the Central Pacific was due to the fact that the money
+paid by the bankers for this purpose was regarded merely as a
+loan by the bankers to the railroad company. In all, the sum
+which it was necessary to raise amounted to $21,420,100.
+This money was raised by the sale to Speyer and Company, on
+behalf of a syndicate, of portions of the new 4 per cent and
+3½ per cent issues aggregating $12,995,500, and by the issue
+of $12,000,000 of new preferred stock to the Southern Pacific
+in exchange for a like amount of that company’s 4 per cent
+bonds. In addition, the Southern Pacific agreed to take up
+$8,000,000 additional preferred stock of the Central Pacific, as
+issued, upon the same terms.</p>
+
+<p>As for the common stock of the Central Pacific Railroad,
+this was exchanged, dollar for dollar, for stock of the Central
+Pacific Railway Company (new corporation). Such an exchange
+was the best that stockholders could hope for. At the
+same time the Southern Pacific, here too, became a factor in the
+operation, by offering to issue its own stock, dollar for dollar,
+in exchange for the new stock of the Central Pacific Railway
+and to add thereto a bonus in the shape of Southern Pacific 4
+per cent bonds to the extent of 25 per cent of the new stock
+issue.</p>
+
+<p>Examination of the elaborate arrangements between the<span class="pagenum"><a name="Page_422" id="Page_422">[422]</a></span>
+Central Pacific, the government, and the Southern Pacific in
+1899 shows that the last-named company participated in the
+reorganization plan which has been described to the following
+extent:</p>
+
+<table id="t12" summary="t12">
+
+ <tr>
+ <td class="tdti">It became guarantor in respect of a bond issue
+(new 4 per cent first mortgage) of</td>
+ <td class="tdr">$100,000,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">It became guarantor in respect of a bond issue
+(new 3½ per cent second mortgage) of</td>
+ <td class="tdr">25,000,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">It issued its own bonds for the purchase of
+$12,000,000 of the preferred stock of the new
+company, in the amount of</td>
+ <td class="tdr">12,000,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">It agreed as and when required to purchase the
+remaining $8,000,000 of the preferred stock
+of the new company with bonds in the
+amount of</td>
+ <td class="tdr">8,000,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">It agreed to issue its bonds as part payment in
+the purchase of $67,275,500 of the common
+stock of the new Central Pacific Railway in
+the amount of</td>
+ <td class="tdr">16,819,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdti">It issued its own stock in partial payment for
+$67,275,500 of the common stock of the new
+Central Pacific Railway Company in the
+amount of</td>
+ <td class="tdr">67,275,500</td>
+ </tr>
+
+ <tr>
+ <td colspan="2" class="tdr">——————</td>
+ </tr>
+
+ <tr>
+ <td class="tdt2">Making a total of assumed liabilities of</td>
+ <td class="tdr">$229,094,500</td>
+ </tr>
+
+</table>
+
+<p class="p1">This was a very substantial contribution for any third
+party to make to the success of a Central Pacific reorganization
+plan. True, the Southern Pacific received Central Pacific stock
+for its cash advance, but the value of this stock at the time was
+slight. The real consideration which counted with the Southern
+Pacific was the control of the Central Pacific system.</p>
+
+<p class="pnb">Execution of Agreement</p>
+
+<p>In carrying out the proposed plan the commission named in
+the Act of July 7, 1897, reported to Congress under date of
+February 15, 1899, that an agreement had been reached, and<span class="pagenum"><a name="Page_423" id="Page_423">[423]</a></span>
+that the subsidy bonds were to be refunded into twenty notes of
+$2,940,635.78 each. On March 3, 1899, Congress authorized
+the Secretary of the Treasury to sell the first four notes in order
+that the agreement with Speyer and Company might be carried
+out.<a name="FNanchor_590_590" id="FNanchor_590_590"></a><a href="#Footnote_590_590" class="fnanchor">[590]</a> These notes were already in the Secretary’s hands.
+They were duly purchased by the bankers named on March 10
+of the same year. During the summer of 1899, the Central
+Pacific Railway was incorporated to succeed the former railroad
+company, and the various issues called for by the reorganization
+plan were put forth. On February 1, 1909, the
+last of the refunding notes matured and was duly paid. The
+divorce of the Central and Western Pacific companies from
+the government was complete.</p>
+
+<p>To anyone who has followed the long drawn-out discussions
+between the Central Pacific and the government, the speed
+with which the final settlement was made and the favorable
+terms which the government secured come as a distinct surprise.
+Not once during the twenty years following the passage of the
+Thurman Act had it been suggested that the Central Pacific
+could meet principal and interest of the government loan on
+condition only that it be granted an average extension of five
+years on its indebtedness with interest at 3 per cent on delayed
+payments. The result was properly regarded as a triumph for
+the administration.</p>
+
+<p>In a measure, also, the settlement justifies in a general way
+the entire policy of the administration with respect to the issue
+of subsidy bonds to the Central and Western Pacific Railroad
+companies. These subsidy bonds were issued originally for a
+well-considered purpose. The purpose was accomplished, and
+repayment of the loan was secured without important delay.
+From a business point of view the operation was therefore a
+distinct success. Doubtless there were disadvantages connected
+with the policy. Such were the many disputes between<span class="pagenum"><a name="Page_424" id="Page_424">[424]</a></span>
+railroad and government, which hampered the railroad in its
+later development, and occupied the time and energy of public
+men. Such, also, was the apparent consent which the government
+yielded to the permanent consolidation of the Central and
+Southern Pacific companies by its acceptance of the reorganization
+of 1899. The final price paid by the public was larger than
+is sometimes appreciated. But the final gain was also very
+large.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_425" id="Page_425">[425]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XXII</h2>
+
+<p class="pch">THE SOUTHERN PACIFIC MERGER CASES</p>
+
+<p class="pnb">New Era</p>
+
+<p>There is no question that the final separation of the finances
+of the Central Pacific from those of the United States government
+was a matter of very great importance to both parties.
+The direct result was to place the federal government outside
+the Central Pacific instead of inside it. Instead of holding the
+dual relation of creditor and regulating body, Congress now
+stood as regards the Central Pacific in the same position as with
+respect to every other railroad in the United States—without
+interest in the company’s internal finance, but free to act in the
+interests of the consuming, shipping, and investing public.
+This was an immense advantage, both from the point of view
+of the government and from that of the railroad itself.</p>
+
+<p>The Central Pacific reorganization of 1899, moreover, not
+only accomplished a desirable change in the external relations
+of the Huntington lines, but it also brought about a change in
+the relations between the Central Pacific Railroad and the
+Southern Pacific Company which was of considerable significance.
+It will be recalled that from 1885 to the time of the
+reorganization of the Central Pacific in 1899, these relations
+had rested upon a leasehold interest only. The insecurity of
+such a connection had been brought forcibly to the attention of
+the Southern Pacific management during the course of the
+reorganization proceedings. But as a result of the participation
+of the Southern Pacific in the reorganization which made
+possible the repayment of the government debt, that company
+became possessed of the ownership of the entire outstanding
+Central Pacific common and preferred stock. While such<span class="pagenum"><a name="Page_426" id="Page_426">[426]</a></span>
+ownership still lacked the completeness which would have
+followed the assumption of direct title to the Central Pacific
+road-bed and rolling stock, it was considered satisfactory, and
+certainly was an improvement from the Southern Pacific’s
+point of view over anything which had gone before.</p>
+
+<p>Separated from all financial connection with the government
+and with its parts joined together by the double tie of
+leasehold and stock control, the Central Pacific-Southern
+Pacific system, on the conclusion of the Central Pacific reorganization
+of 1899, entered upon a new era which contained
+possibilities of new policies, and of a sounder and more profitable
+development than it had yet known. There was, too, one
+additional circumstance which made it easy for the stockholders
+of the Southern Pacific in 1900 to embark upon new policies—namely,
+the death of Mr. Huntington. Of the original associates,
+Huntington was the last survivor. Mark Hopkins had
+died in 1878, Charles Crocker in 1888, and Stanford in 1893.
+For ten years, at least, Huntington had been the active manager
+of the Southern Pacific properties. Personally, he never owned
+so much as 50 per cent of the Southern Pacific stock outstanding,<a name="FNanchor_591_591" id="FNanchor_591_591"></a><a href="#Footnote_591_591" class="fnanchor">[591]</a>
+but by virtue of the support of the Crocker and the
+Hopkins interests, he exercised almost undisputed control.
+Huntington had reached the ripe age of seventy-nine years in
+1900, and his death was not unexpected. The effect was none
+the less great, however, for the passing of Mr. Huntington
+meant the removal of the last of the men to whom the integrity
+and independence of the Central and Southern Pacific companies
+were matters of personal pride.</p>
+
+<p class="pnb">Purchase of Control by Union Pacific</p>
+
+<p>It was the death of Mr. Huntington, to repeat, which now
+made possible a very important change in the relations which<span class="pagenum"><a name="Page_427" id="Page_427">[427]</a></span>
+the Central Pacific and the Union Pacific railroads bore to each
+other. While the Union and the Central Pacific roads both
+owed their existence to the same federal legislation, and while
+they had been close business associates for over thirty years
+by virtue of geographical necessity, both had uncompromisingly
+maintained their independence. Neither Jay Gould, who
+was long influential in Union Pacific affairs, nor Huntington
+himself, were men who cared to form part of organizations
+which they could not control. Moreover, Huntington distrusted
+Gould. He once wrote Colton that Gould had scared the
+Kansas Pacific people so that they had let him, Gould, get into
+bed with them. For his part, he did not intend to follow the
+Kansas Pacific example. Gould might frighten him so that he
+would leave the bed, but never so that he would share it. After
+Gould’s death in 1890, the same disinclination to combine
+persisted. The Huntington group was now powerful, and still
+unwilling to enter a combination which it could not control.
+The record shows that proposals were made. The Union
+Pacific, dependent upon the Central Pacific for direct connection
+with San Francisco, and fearful lest at Mr. Huntington’s
+death his Southern Pacific stock should fall into
+unfriendly hands, offered to purchase his shares, or, failing
+in this, to conclude a permanent alliance. To this offer Mr.
+Huntington remained indifferent.</p>
+
+<p>Huntington died, however, in August, 1900, leaving his
+Southern Pacific stock to his widow and nephew in the proportion
+of two-thirds and one-third, respectively; and both,
+as had been anticipated, proved willing to dispose of their
+holdings. Negotiations were carried to completion in February,
+1901. Four hundred and seventy-five thousand shares were
+purchased from the Huntingtons and from Edwin Hawley, the
+late financier’s most intimate business associate, while enough
+was secured from other parties through Kuhn, Loeb and Company
+to make an aggregate of 677,700 shares, at an average<span class="pagenum"><a name="Page_428" id="Page_428">[428]</a></span>
+price of 50.6146. Market quotations were then in the neighborhood
+of 45. On February 4, Kuhn, Loeb and Company
+engaged to deliver to the Union Pacific one month later 72,300
+additional shares at the same price, plus 4 per cent interest
+from February 11, bringing the company’s holdings up to
+750,000 shares.</p>
+
+<p>This, in Mr. Harriman’s opinion, was sufficient for control.
+A year or two later an attempt to force the Southern Pacific
+to pay in dividends earnings which its managers thought should
+be expended in improvements led the Union Pacific to acquire
+150,000 additional shares. In January, 1910, purchases were
+renewed for the last time, in view of pending legislation in
+Congress which promised to make the possession of an absolute
+majority of Southern Pacific stock desirable; but these
+purchases ceased after 74,000 shares had been obtained, and
+50,000 of these shares were subsequently sold. This concluded
+the episode. On June 30, 1911, the Union Pacific through the
+Oregon Short Line owned 1,266,500 shares of Southern
+Pacific common, or 46 per cent of all outstanding stock—sufficient
+to give undisputed control.</p>
+
+<p class="pnb">Harriman System</p>
+
+<p>This purchase by the Union Pacific of a controlling interest
+in the stock of the Southern Pacific, made the latter a partner
+in a railroad system of about 18,500 miles, stretching from
+Omaha, Kansas City, and New Orleans on the east, to Los
+Angeles, San Francisco, and Portland on the west, and, by
+means of the Morgan Steamship Line, reaching New York.
+In addition, the Union Pacific owned a majority of stock in the
+Pacific Mail Steamship Company, which carried freight and
+passengers from the Pacific Coast to the Orient and to Panama.
+Of the total mileage west of the Mississippi-Missouri River and
+south of the Northern Pacific Railroad, the Harriman management
+controlled 19 per cent. Finally, through stock ownership<span class="pagenum"><a name="Page_429" id="Page_429">[429]</a></span>
+in the Illinois Central, the Chicago and Alton, and other lines,
+and by contract with the San Pedro, Los Angeles, and Salt
+Lake, it possessed in varying degree influence over connecting
+and competing roads.</p>
+
+<p>Undoubtedly its association with the Union Pacific increased
+the prestige of the Southern Pacific Company at the
+time when the merger took place. The association involved,
+however, serious dangers, for it placed the credit and the earning
+power of the Southern Pacific at the disposal of Mr.
+Harriman for speculative projects in eastern fields, and also it
+ran counter to a national policy opposed to great accumulations
+of capital under single control which was presently to become
+clearly defined. It is true that public hostility toward big
+business seemed unimportant in 1901 when the Union Pacific
+and the Southern Pacific first combined, yet the attitude of the
+courts toward monopoly became a matter for serious consideration
+by the latter in 1911, ten years after the original merger
+had taken place, when the federal government attacked the
+Union Pacific-Southern Pacific consolidation as a combination
+in restraint of trade under the terms of the Sherman Anti-Trust
+Act of 1890. A brief discussion of the issues of this
+extremely important lawsuit is therefore necessary.</p>
+
+<p>There was perhaps some ground for conflicting views with
+respect to the motive which had induced the Harriman interests
+to seek control of the Southern Pacific. The obvious explanation
+of the operation was that the Union Pacific desired
+to increase its power in the South West. It was stoutly maintained
+by Mr. Kahn, of Kuhn, Loeb and Company, however,
+that the desire to control the Southern Pacific line from San
+Francisco to El Paso was not a motive in the transaction. The
+necessity of buying the Sunset route, he said, was considered
+an obstacle and a deterring feature. If a way could have been
+found to secure the Central Pacific alone, it would have been
+preferred at the time. The possible reduction of competition<span class="pagenum"><a name="Page_430" id="Page_430">[430]</a></span>
+was not even considered at any of the meetings of the executive
+committee at which the subject was brought up. Speaking of
+the Southern Pacific, Mr. Kahn declared:</p>
+
+<p class="pbq p1">We knew it would require a great deal of money to be spent
+on it, we knew it added thousands of miles to the burden of administration
+and management. We were very anxious that the
+Union Pacific should receive as much of the administrative
+ability and of the railroad genius of Mr. Harriman as it was
+possible for him to give it, and we were rather disinclined to
+put upon him any more burden than was necessary to the
+best development of the Union Pacific; and therefore we,
+individually, felt that if the Southern Pacific could be separated,
+keeping only the Central Pacific and the north and south lines
+in California, and getting rid of the southern part of the
+Southern Pacific, we would be getting rid of a nuisance.<a name="FNanchor_592_592" id="FNanchor_592_592"></a><a href="#Footnote_592_592" class="fnanchor">[592]</a></p>
+
+<p class="pnb">Arguments of Railroad Counsel</p>
+
+<p>The contention of the Union Pacific Railroad in 1911
+was that the consolidation of the Union Pacific and Southern
+Pacific properties was legal under the Sherman law irrespective
+of motive, because the two systems were not competing, and
+that the government was unable to interfere in any case because
+the consolidation took place through the means of a purchase
+of stock instead of by contract or agreement between the railroad
+corporations concerned. On this last point the railroad
+also argued that, as a matter of law, ownership by one railroad
+of another’s stock did not constitute control unless a clear
+majority was held. Control, said counsel, is a matter of power.
+A minority may direct the operation of a railroad because the
+majority has confidence in it, but this is lawful. The argument
+applied to the Southern Pacific case because it was known that<span class="pagenum"><a name="Page_431" id="Page_431">[431]</a></span>
+the Union Pacific possessed only a minority interest in the
+first-named company.</p>
+
+<p>Apart from this, counsel contended that a purchase of stock
+was a thing which the federal government could not control,
+for the reason that the acquisition or disposition of property
+was not commercial intercourse. “If any citizen should step
+into a broker’s office on Broadway, New York, buy some stock
+in the Pennsylvania Railroad, pay for it, put the certificates
+in his pocket, and walk out, would he, or the broker, or
+the broker’s principal, be engaged in commercial intercourse
+between nations and parts of nations?... Would a
+state corporation buying those certificates be in any different
+situation from an individual purchaser, if the State of
+its domicile had endowed it with corporate power to buy
+stock?”</p>
+
+<p>Moreover, to continue the argument, though purchases of
+stock were subject to federal law, they would violate no provisions
+of the Sherman Act. A purchase or sale is not a contract
+in restraint of trade, for a contract is executory, implying
+something yet to be done; while a sale is executed, completed
+when made and because it is made. Nor is a contract in restraint
+of trade necessarily unlawful. It must be undue, that is,
+not entered into with the legitimate purpose of reasonably forwarding
+personal interest and developing trade. The same may
+be said of an attempt to monopolize. Every act of competition
+tends to drive competitors out of business, but competition is
+legal, in the absence of fraud or duress. It follows that an individual
+may buy out a competitor, and then another competitor,
+and so on, and a corporation may do the same thing. “It is
+evident,” said Mr. Dunne’s brief, “fraudulent, intimidating,
+coercive, and other like wrongful and unlawful methods apart—that
+here we touch a fundamental principle of the freedom to
+buy and sell, of the legal right of the individual in respect to
+his own property.”</p>
+
+<p><span class="pagenum"><a name="Page_432" id="Page_432">[432]</a></span></p>
+
+<p class="pnb">Government’s Contention of Previous Competition</p>
+
+<p>The arguments of railroad counsel in defense of the Union
+Pacific-Southern Pacific merger rested predominantly, although
+not wholly, upon points of law such as have been
+mentioned. Fundamental as some of these were, the main
+interest in the case for the ordinary student will be found in
+the elaborate analysis of the competitive relations between the
+Southern Pacific and the Union Pacific which the government
+developed in the course of its argument. So far as the writer
+is aware, no record has ever been presented to any court in
+which the nature and extent of the competition between two
+great railroad systems has been so thoroughly discussed.</p>
+
+<p>In establishing the fact that competition had been active
+between the Southern Pacific and the Union Pacific before the
+merger of the two companies in 1901, the government insisted
+upon the fact that the Central and Southern Pacific managers
+had continuously diverted all the traffic which they could control
+to the Sunset route so long as they remained independent
+of Union Pacific dictation.<a name="FNanchor_593_593" id="FNanchor_593_593"></a><a href="#Footnote_593_593" class="fnanchor">[593]</a> The government examined no less
+than seventy witnesses—shippers, Southern Pacific employees
+and ex-employees, and representatives of independent railroad
+lines. Among those who testified were Mr. Hawley, for nineteen
+years eastern agent of the Southern Pacific and afterwards a
+financier of prominence; Messrs. Stubbs, Spence, and Munroe,
+of the traffic department of the Southern Pacific; Paul Morton,
+one-time vice-president of the Equitable Life Assurance Company;
+Mr. Jeffery, president of the Denver and Rio Grande; and
+Mr. Hannaford, in charge of traffic on the Northern Pacific.</p>
+
+<p>Substantially all these witnesses testified that traffic from
+the Atlantic seaboard could move to the Pacific Coast either via
+the Morgan Steamship Line to New Orleans and thence over
+the Sunset route of the Southern Pacific to San Francisco, or
+via the trunk lines and their connections to Omaha, thence over
+the Union Pacific to Ogden and over the Central Pacific to the
+coast. Although the Southern Pacific was interested in both
+of these routes, it secured all the revenues from freight moving
+via the Sunset route, and only 30.1 per cent of the total revenue
+from freight delivered to it by the Union Pacific at Ogden.
+In consequence, it used its best efforts to influence freight to
+travel by the southern line.</p>
+
+<p class="vh"><a name="i464" id="i464">i464</a></p>
+
+<div class="figcenter">
+ <img src="images/ill-464.jpg" width="400" height="498"
+ alt=""
+ title="" />
+ <div class="caption"><p class="pc400">Map showing mileage owned in 1913 by the Central Pacific Railway
+and the Southern Pacific Railroad.</p>
+</div></div>
+
+<p><span class="pagenum"><a name="Page_433" id="Page_433">[433]</a></span></p>
+
+<p>The government showed by the evidence of shippers that
+freight was actually solicited in competition between the two
+Pacific companies. The Southern Pacific, it appeared, took
+traffic at New York rates from as far west as Buffalo and
+Pittsburgh, not including those cities, and from as far south as
+Norfolk. Not only this, but the Union Pacific was not altogether
+restricted to the route via Ogden. By diverting freight
+at Granger and sending it north to Portland over the Oregon
+Short Line and the Oregon Railroad and Navigation Company,
+it could affect the transcontinental rate in two ways. In the
+first place, it was physically possible for traffic to move from
+Portland to San Francisco by boat; and in the second place, a
+slight reduction in the rate to Portland compelled a cut to every
+Pacific terminal point in order to maintain these different cities
+in the same relative position for the distribution of eastern
+goods. As Mr. Stubbs expressed it, “Let the rate be cut on the
+Great Northern, and it goes down to the Gulf of California.”</p>
+
+<p>Mention may also be made of the route via the Isthmus of
+Panama, in which the Southern Pacific had an interest by virtue
+of its control of a steamship line from San Francisco to Panama.
+The business was not large, but in so far as any moved
+this way it was in competition with the rail lines via Ogden.</p>
+
+<p class="pnb">Competition between Other Points</p>
+
+<p>In addition to competition between the Southern Pacific and
+the Union Pacific on business between the Pacific Coast and<span class="pagenum"><a name="Page_434" id="Page_434">[434]</a></span>
+points east of the Missouri River, the government succeeded in
+showing the existence of competition between the Atlantic seaboard
+and Colorado and Utah common points. A good many
+sheep wintered in the desert west of Salt Lake, and in the spring
+moved to the summer ranges in Idaho where they were sheared.
+The railroad near which the shearing took place secured the
+outbound wool, and for this reason the Union Pacific, Southern
+Pacific, and Rio Grande Western offered every attraction possible
+in order to influence the movement of the flocks. The
+Union Pacific for instance, at one time paid a head tax which
+Wyoming levied on all sheep brought into that state. The
+Oregon Short Line purchased salt on behalf of the sheep
+owners, carried it to Idaho, and collected the purchase price
+only when the salt was delivered. In the same way there was
+competition in respect to cattle and horses which wintered in
+southern Idaho and northern Nevada and moved east in the
+spring.</p>
+
+<p>In return for the wool, cattle, hides, etc., shipped east, there
+were brought in shipments of miscellaneous merchandise, dry
+goods, machinery, and the like. When the Union Pacific
+handled the business, the freight moved from New York to
+Norfolk or Newport News, thence by rail to Omaha and over
+the Union Pacific lines to destination. When the Southern
+Pacific took it, the freight went by Southern Pacific steamers to
+New Orleans or Galveston, and thence over railroads controlled
+by the company to Fort Worth, Texas, where it was given to
+connecting lines for delivery at destination. The rate was the
+same either way, but the rivalry between soliciting agencies was
+intense.</p>
+
+<p>Still again, there was competition between Portland and
+Utah and Colorado common points, including certain points in
+Nevada. Portland enjoys a fairly direct route over the Oregon
+Railroad and Navigation Company’s tracks to Huntington, and
+from there over the Oregon Short Line to Granger, a few miles<span class="pagenum"><a name="Page_435" id="Page_435">[435]</a></span>
+east of Ogden. The Southern Pacific runs south from Portland
+to Roseville, near Sacramento, and thence east through
+California, Nevada, and Utah to Ogden. The distance over the
+one route is 945.3 miles, and over the other 1,487.3 miles.
+The Roseville route has nearly twice the rise and fall of the
+route via Huntington, while the curvature also is greater. In a
+calculation made by Mr. Kruttschnitt, he estimated that the
+direct line haul was equivalent to 3,498 miles of straight level
+track, but that the haul via Roseville was equivalent to 6,164
+such miles. The evidence nevertheless showed that some
+business, especially lumber, had moved the long way round
+before 1901. Traffic had also moved via the Oregon Short
+Line and Central Pacific to points as far west of Ogden as
+Wells, Nevada. How much all this amounted to was not
+clearly shown—at best it was probably not a great deal. After
+the consolidation of the Union Pacific and Southern Pacific in
+1902, through rates with the Oregon Railroad and Navigation
+Company via the Shasta route were discontinued and competition
+ceased.</p>
+
+<p>Other kinds of competition included competition for traffic
+between San Francisco and Portland, between San Francisco
+and points in Montana and Idaho, and competition for Oriental
+traffic destined to points in the United States east of the Missouri
+River. In short, the voluminous evidence thus summarized
+showed that active competition had existed of almost
+every conceivable kind. There had been competition of parallel
+routes between the same termini, of parallel or roundabout
+routes between different termini, of roundabout routes
+entirely controlled by the competing lines, of the routes in
+which the Union Pacific and Southern Pacific were
+links only in chains of connecting and independent roads,
+and finally there had been competition in cases where one competitor
+had to rely upon the other for a greater or less proportion
+of the haul.</p>
+
+<p><span class="pagenum"><a name="Page_436" id="Page_436">[436]</a></span></p>
+
+<p class="pnb">Dissolution of Merger</p>
+
+<p>This demonstration that the Union Pacific and the Southern
+Pacific had competed with each other before the merger of
+1901, followed by easily secured evidence that the competition
+had ceased after the merger, was sufficient to persuade the
+Supreme Court to grant the government a decree, in spite of the
+protests of the defendant railroads.<a name="FNanchor_594_594" id="FNanchor_594_594"></a><a href="#Footnote_594_594" class="fnanchor">[594]</a> The effect upon the
+Southern Pacific was of course important. A drastic reorganization
+of the affairs of the company was called for in order
+to take the Southern Pacific out of the control of the Union
+Pacific and to re-establish the conditions of the Huntington
+régime. Such a reorganization presently occurred. While the
+details of this transaction are not of present significance, it may
+be said, in brief, that after several abortive attempts the Union
+Pacific disposed of all its Southern Pacific stock under a reorganization
+plan dated May, 1913, delivering some of this
+stock to the Pennsylvania Railroad in exchange for stocks of
+the Baltimore and Ohio Railroad, and selling the rest to the
+general public.<a name="FNanchor_595_595" id="FNanchor_595_595"></a><a href="#Footnote_595_595" class="fnanchor">[595]</a> Henceforth the rail lines of the Southern
+Pacific were not to reach east of New Orleans and of
+Ogden.</p>
+
+<p class="pnb">Attack on Control of Central Pacific</p>
+
+<p>When the United States Supreme Court declared that the
+Union and Southern Pacific systems must be separated, it
+merely restored the latter to a condition of independence. The
+United States Department of Justice was of opinion, however,
+that the logic of the decision went further than this, and,
+encouraged by its preliminary success, it took the dramatic
+step of attempting to separate the Southern Pacific and the<span class="pagenum"><a name="Page_437" id="Page_437">[437]</a></span>
+Central Pacific companies by the application of the same principles
+which had torn the Southern Pacific and the Union
+Pacific apart. The new suit was known as the United States
+v. Southern Pacific Company, and, like the old, was brought
+under the Sherman law.<a name="FNanchor_596_596" id="FNanchor_596_596"></a><a href="#Footnote_596_596" class="fnanchor">[596]</a></p>
+
+<p>The principal points in the case of the United States v. the
+Southern Pacific Company were as follows. A glance at the
+accompanying map will show that the Central Pacific Railroad,
+from Ogden to Sacramento, and the Western Pacific, from
+Sacramento to Oakland, were in practical effect but the western
+end of a route of which the Union Pacific formed the
+eastern part. So far as competition was concerned, all parts
+of the route were on a parity. If the Union Pacific competed
+with the Southern Pacific when it hauled eastern freight from
+Omaha to Ogden, the Central Pacific did likewise when it
+hauled the same freight from Ogden to Sacramento. If it
+would promote competition to place the Southern Pacific and
+the Union Pacific in separate hands, the same could be said of
+the Central Pacific and its southern neighbor. So much is
+reasonably clear even from a cursory examination of the
+facts.</p>
+
+<p>In at least two important respects, however, the relations
+between the Southern Pacific and the Central Pacific differed
+from those between the Southern Pacific and the Union Pacific.
+These points were emphasized in the briefs of counsel, and
+formed the basis of the companies’ defense. Unlike the Union
+Pacific, the Southern Pacific had obtained control of the stock
+of the Central Pacific at a time when and under circumstances
+in which the federal government was an interested party. If
+the details of the reorganization of 1898 are recalled, it will be
+remembered that the government then accepted notes in satisfaction<span class="pagenum"><a name="Page_438" id="Page_438">[438]</a></span>
+of its claims against the Central Pacific which were
+secured by mortgage bonds carrying a Southern Pacific guaranty.
+This guaranty, in turn, was offered by the guaranteeing
+company as one element in a series of transactions which included
+the acquisition of Central Pacific stock by the Southern
+Pacific in exchange for the latter’s own stock certificates. The
+implications of this episode were mentioned when the transaction
+was described. While it certainly gave no permission to
+the Southern Pacific to violate the Sherman or any other law
+as a consideration for assisting the Central Pacific to pay its
+debts, the government did lay itself open to the charge of having
+at one time approved and enjoyed the fruits of a transaction
+of which it later complained.</p>
+
+<p>The more important distinction between the later and the
+earlier merger cases in which the Southern Pacific was involved,
+lay in the circumstances that the combination of the
+Union Pacific and the Southern Pacific had been a recent matter,
+while the relations between the Central Pacific and the
+Southern Pacific had begun almost as soon as the latter corporation
+had been organized. In discussing the construction of the
+Southern Pacific, the remark has been made that the two enterprises
+were originally but different manifestations of the activities
+of a single group of men. The first statement in the brief
+of Mr. Herrin, chief counsel for the defense in the Central
+Pacific case, was similarly that: “This case does not involve any
+combination of competitive units, or any combination at all,
+for the Southern Pacific and Central Pacific lines were projected
+and built and have been operated since their organization
+as one property.”<a name="FNanchor_597_597" id="FNanchor_597_597"></a><a href="#Footnote_597_597" class="fnanchor">[597]</a> These two characterizations indicate a
+difference of considerable significance between the Union
+Pacific and the Central Pacific cases.</p>
+
+<p><span class="pagenum"><a name="Page_439" id="Page_439">[439]</a></span></p>
+
+<p class="pnb">Final Decision Doubtful</p>
+
+<p>It must be pointed out, nevertheless, that in spite of the
+long and close association between the Central and the Southern
+Pacific railroads, there were certain features in this controversy
+which made it difficult to forecast the final decision of the
+Supreme Court of the United States. Counsel for the railroad
+company in the Union Pacific case dwelt much upon legal
+technicalities. But in the Southern Pacific case the forms were
+all opposed to the company’s contentions. For one reason or
+another, doubtless largely for political effect, the associates had
+always scrupulously insisted upon the separate identity of the
+two companies concerned. The corporations had been made to
+appear to deal with each other at arm’s length, and there had
+even been much discussion of the relative profitableness to each
+of the contracts concluded between them.</p>
+
+<p>Nor was the matter one of form alone, as we have seen in
+earlier chapters of this study. While the construction of both
+roads was financed by the same parties, after 1880 the associates
+disposed of the greater part of their Central Pacific holdings.
+The Southern Pacific and the Central Pacific were still held
+together by lease relations, it is true, but they then became
+separate, not merely in organization but also in ownership. The
+separate ownership continued until 1899, when the new arrangements
+were made to undo which the government brought suit.
+It followed that counsel for the defendant railroads were in the
+position of defending a combination of legally distinct corporations,
+owned by different parties, with no connection between
+them save through the minority holdings of individual stockholders
+and through the very arrangements of which complaint
+was made. As an answer to this indictment, the circumstance
+that the same parties had found their profit in building each of
+the defendant lines could hardly be given weight, nor was the
+fact that the original consolidation antedated the Sherman law
+important.</p>
+
+<p><span class="pagenum"><a name="Page_440" id="Page_440">[440]</a></span></p>
+
+<p>The suit of the United States v. Southern Pacific Company
+was argued before the circuit judges of the Eighth Circuit sitting
+at St. Louis in December, 1915. The decision of a majority
+of this court was rendered in March, 1917, and was
+unfavorable to the government’s contention.<a name="FNanchor_598_598" id="FNanchor_598_598"></a><a href="#Footnote_598_598" class="fnanchor">[598]</a> The grounds of
+this opinion were not brought out with complete distinctness,
+but two judges held that there had never been a “natural and
+existing competition” in interstate commerce between the
+Southern Pacific and the Central Pacific. Nearly half of the
+text of the decision, moreover, was devoted to a description of
+the financial settlement of 1899, in which Congress appeared to
+have treated the control of the Central Pacific by the Southern
+Pacific as consistent with the statutes of the United States.
+Judge Carland dissented from the conclusions of his colleagues
+in a carefully prepared opinion. The case was appealed, and
+after full oral argument, was submitted to the Supreme Court
+on April 19, 1921. An early decision is expected. Meanwhile,
+the continued close relations between the Central Pacific and the
+Southern Pacific are approved by public sentiment upon the
+Pacific Coast, while the continuance for the present of common
+control of the two companies certainly avoids many practical
+difficulties.</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_441" id="Page_441">[441]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XXIII</h2>
+
+<p class="pch">OIL AND TIMBER LAND LITIGATION</p>
+
+<p class="pnb">Oil Land Ownership</p>
+
+<p>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 lands—mainly timber lands—granted
+to the Oregon and California Railroad in the North by
+federal legislation of 1866 and 1869. The Southern Pacific
+Company took part in both of these controversies as a principal
+interested party.</p>
+
+<p>The oil lands which until recently belonged to the Southern
+Pacific Railroad lay principally in the West San Joaquin fields
+in southern California. They covered an area of between 160,000
+and 170,000 acres. In 1917, a committee of the California
+State Council of Defense estimated that the Southern Pacific
+and its subsidiary companies controlled 26.4 per cent of the
+total output of the state, although much of the oil so controlled
+was not produced upon the company’s own land. The actual
+production of oil by the Southern Pacific Company in June,
+1918,<a name="FNanchor_599_599" id="FNanchor_599_599"></a><a href="#Footnote_599_599" class="fnanchor">[599]</a> was 49,679 barrels out of 282,672 barrels of production
+by all companies in the state, or a little less than 18 per cent.<a name="FNanchor_600_600" id="FNanchor_600_600"></a><a href="#Footnote_600_600" class="fnanchor">[600]</a>
+No later statistics of production by companies have been made
+public. In June, 1920, however, the Southern Pacific Land<span class="pagenum"><a name="Page_442" id="Page_442">[442]</a></span>
+Company owned 19.38 per cent of all the proven oil land in
+California, and in addition the Southern Pacific Company held
+a controlling interest in the Associated Oil Company, also a
+large producer.</p>
+
+<p>Unquestionably the Southern Pacific oil lands are valuable.
+A witness in one of the recent cases testified that he had told
+Mr. Huntington in 1893 that the railroad oil lands were worth
+more than the entire Southern Pacific Railroad, while it is common
+report that the value of the properties may run into the
+hundreds of millions of dollars. All this is, moreover, recent.
+The discovery of oil in large quantities was first made in southern
+California in the Kern River field, near Bakersfield, in the
+spring of 1899. This was followed by discoveries in the so-called
+McKittrick and Sunset fields, and by an oil boom of
+extraordinary proportions. In so far as the railroad owns oil
+lands, it has therefore recently secured an unearned increment
+which is not only of great size, but of a character entirely unanticipated
+by legislators of earlier days. This has given rise
+to controversy, in which the government has questioned the
+railroad title.</p>
+
+<p>The peculiarity of the oil land litigation, and the reason
+why the federal government is involved, is found in the fact
+that the railroad land is mostly land-grant land, lying within
+the limits laid down by the Act of 1866 from which the Southern
+Pacific Railroad took its life. It follows from this that
+the railroad title was affected by certain reservations in the
+land-grant legislation, such as that of exempting mineral lands
+from the operation of the grants. The government offered to
+convey certain land to the railroad free of charge when it
+undertook to stimulate railroad building in California, but it
+did not include mineral land in this offer, except coal land and
+iron land. Not only this, but the exception of mineral lands
+was repeated in the patents later issued by the Department of
+the Interior, and in such patents the words, “excluding and excepting<span class="pagenum"><a name="Page_443" id="Page_443">[443]</a></span>
+all mineral lands should any such be found in the tracts
+aforesaid,” were used, making the exemption apply to future
+discoveries as well as to discoveries occurring before the patents
+were issued. Evidently the legislature and the land office intended
+to limit the donations to the Southern Pacific by excluding
+unknown and immeasurable increments of value in so far
+as this might be done. Coal and iron were left, for the reason
+that these minerals were intimately connected with the construction
+and operation of the road.</p>
+
+<p class="pnb">Test Case</p>
+
+<p>In 1910, one Edmund Burke filed a bill in equity in the
+Circuit Court of the United States for the Southern District
+of California, in which he challenged the title of the railroad to
+oil lands in an area covering five sections in Fresno County,
+California. This was a test case. Disregarding minor points,
+the larger questions at issue were the following:</p>
+
+<p>The first question was as to whether or not oil was a mineral.
+The plaintiff said that it was a mineral, the defendant said
+that it was not. If oil was a mineral, then the railroad could not
+obtain title under the land-grant laws to land which was known
+to contain oil at the time the patent was applied for. If oil was
+not a mineral, there was no limitation. Now matters of definition
+always cause trouble. The word “mineral” is sometimes
+associated with metallic ores, a notion which would not include
+a resultant from the decomposition of organic matter such as
+California petroleum. Indeed, the Secretary of the Interior
+once held that the word “mineral” embraced only the more
+precious metals, such as gold, silver, cinnabar, etc., although on
+rehearing this view was rejected. Common usage includes
+more than the metallic ores, and the courts have considered as
+mineral such articles as clay, coal, and marble, and even deposits
+such as guano.<a name="FNanchor_601_601" id="FNanchor_601_601"></a><a href="#Footnote_601_601" class="fnanchor">[601]</a> When the matter was presented to it, the<span class="pagenum"><a name="Page_444" id="Page_444">[444]</a></span>
+United States Supreme Court followed common usage and held
+that petroleum was a mineral.<a name="FNanchor_602_602" id="FNanchor_602_602"></a><a href="#Footnote_602_602" class="fnanchor">[602]</a></p>
+
+<p>The second point had to do with the effect of a patent. It
+was shown that the Southern Pacific had received patents as
+early as 1892 to lands which ultimately proved to contain petroleum,
+and there was dispute as to whether this subsequent discovery
+invalidated title to property once patented. On this
+point, fortunately, the law was clear. Quoting the Supreme
+Court:</p>
+
+<p class="pbq p1">The settled course of decision ... has been that the character
+of land is a question for the Land Department, the same as
+the qualifications of the applicant and his performance of the
+acts upon which the right to receive the title depends, and
+... [that] when a patent issues it is to be taken upon a collateral
+attack, as affording conclusive evidence of the non-mineral
+character of the land and of the regularity of the acts
+and proceedings resulting in its issue, and upon a direct attack,
+as affording such presumptive evidence as to require
+plain and convincing proof to overcome it.</p>
+
+<p class="p1">The Supreme Court therefore held that the Southern Pacific
+was secure in its possession of lands to which it held patent,
+unless fraud could be shown, and this irrespective of any saving
+clause in the patent itself, and without regard to the nature of
+the investigation by which the Land Office had originally satisfied
+itself as to the character of the land.<a name="FNanchor_603_603" id="FNanchor_603_603"></a><a href="#Footnote_603_603" class="fnanchor">[603]</a></p>
+
+<p class="pnb">Elk Hills Suit</p>
+
+<p>The effect of the rulings of the Supreme Court in the test
+case of Burke v. Southern Pacific was not only to cause the
+dismissal of the pending suit, but to make it evident that the
+government must show fraud on the part of the railroad company
+before the company’s title could be disturbed. The holding<span class="pagenum"><a name="Page_445" id="Page_445">[445]</a></span>
+of the court that oil lands were mineral lands was, however,
+an important victory for the government. It was under these
+circumstances that the federal government instituted a fresh
+series of suits. Of these, one suit called in question the title
+of the Southern Pacific to some 6,109 acres of land in the Elk
+Hills region of southern California, held under a patent issued
+December 12, 1904. The other suits attacked the legality of the
+railroad’s possession of substantially all its remaining oil lands,
+obtained at various dates from 1892 to 1902. The value of
+the lands involved in the second proceedings was estimated by
+the government as in excess of $421,000,000. Counsel alleged
+that the company’s land agents, Messrs. Eberlein and Madden,
+had accompanied the lists, which they had submitted to the government
+for patenting, with affidavits stating that the lands
+were not mineral lands, although both agents knew at the time
+the patents were applied for that the lands in question contained
+oil. This charge, if substantiated, amounted to a showing of
+fraud. In both cases the government sought to show that the
+presence of oil upon the lands sought was a matter of common
+knowledge, and that there was reason to believe that the company
+was fully cognizant of the facts.</p>
+
+<p>Most of the sensational testimony taken in the oil land cases
+appeared in the so-called Elk Hills case. Mr. Eberlein here
+figured as the land agent for the Southern Pacific. Omitting
+again all relatively unimportant detail, it appeared that Mr.
+Eberlein had filed an affidavit with the Land Office in November,
+1903, in which he swore to two pertinent facts: first, that
+he had caused the lands for which the railroad applied to be
+carefully examined by the agents and employees of the company
+as to their mineral or agricultural character; and second, that
+to the best of his knowledge and belief, none of the lands returned
+in the list were mineral lands. These statements had
+been repeated in September, 1904, when a substitute list was
+filed.</p>
+
+<p><span class="pagenum"><a name="Page_446" id="Page_446">[446]</a></span></p>
+
+<p>In the face of these sworn assertions, the United States
+Supreme Court later found that Mr. Eberlein had not examined
+the lands in question, nor had he caused them to be examined by
+others. Indeed, Eberlein had even objected to the examination
+of the lands. He had protested verbally to Judge Cornish, vice-president
+of the Southern Pacific Company against examination,
+and to Mr. Markham, its general manager, and in 1908
+he had summed up his repeated objections by writing to the
+assistant land agent of the company as follows:</p>
+
+<p class="pbq p1">The examination of our S. P. lands not yet patented by our
+oil experts must be stopped as information that they may obtain
+or give as to mineral character prior to patent will forever
+prevent our getting title.... Mr. Dumble (the company’s
+geologist) and his men should not be furnished by us with any
+data whatever except as to <i>patented</i> lands. For reasons above
+given such information will be embarrassing to them and us
+and may make them witnesses against this company in mineral
+contests hereafter.<a name="FNanchor_604_604" id="FNanchor_604_604"></a><a href="#Footnote_604_604" class="fnanchor">[604]</a></p>
+
+<p class="p1">The most that can be said for such an epistle is that it
+indicated an anxiety to keep within the letter of the law.</p>
+
+<p class="pnb">Government Victory and Defeat</p>
+
+<p>Besides falsely swearing that he had made an examination
+of the lands involved in the Elk Hills case, Mr. Eberlein made
+the positive statement in his affidavit that none of the lands
+covered by his application were mineral lands, in so far as he
+was informed. Now in this matter it is clear that the evidence
+before Mr. Eberlein, such as it was, pointed to a mineral and
+not to a non-mineral content of the land in question. This
+evidence consisted primarily in the results of work of Southern
+Pacific geologists in the general region of which the Elk Hills
+were a part, and in the presence there of a certain number of<span class="pagenum"><a name="Page_447" id="Page_447">[447]</a></span>
+producing wells. It is on record that in 1902 the Southern
+Pacific withdrew from sale many of its patented lands which
+surrounded or were adjacent to the land in controversy “because
+they were in or near oil territory.” The following year
+the company decided to lease such of its lands as were considered
+valuable for oil purposes to a subsidiary company—the
+Kern Trading and Oil Company. The proposed lease was laid
+before Eberlein in August, 1904. He at once objected. In a
+letter to C. H. Markham, general manager of the Southern
+Pacific Company and second vice-president of the Southern
+Pacific Railroad Company, Eberlein set forth (September 10,
+1904) the reasons for his opposition in these words:</p>
+
+<p class="pbq p1">In addition to this there is a very urgent reason for delaying
+the execution of these papers. We have selected a large
+body of lands interspersed with the lands sought to be conveyed
+by this lease and which we have represented as non-mineral in
+character. Should the existence of this lease become known,
+it would go a long way toward establishing the mineral character
+of the lands referred to and which are still unpatented.<a name="FNanchor_605_605" id="FNanchor_605_605"></a><a href="#Footnote_605_605" class="fnanchor">[605]</a></p>
+
+<p class="p1">A similar letter addressed the week before to Judge Cornish
+in New York contained arguments of a similar nature. The
+protests were heeded, and the leases of lands in the McKittrick
+and Coalinga districts were held up. It was recognized, moreover,
+that the matter was a delicate one, and the papers relating
+to the proposed leases were placed in a special and private file
+separate from the general file of the land department of the
+railroad company. Summing up the evidence in the case, the
+United States Supreme Court later observed that the natural, if
+not the only, conclusion from the facts was that in pressing the
+selection the officers of the railroad company were not acting
+in good faith, but were attempting to obtain the patent by representing
+that the lands (covered by the Elk Hills litigation)<span class="pagenum"><a name="Page_448" id="Page_448">[448]</a></span>
+were not mineral when they believed the fact was otherwise.<a name="FNanchor_606_606" id="FNanchor_606_606"></a><a href="#Footnote_606_606" class="fnanchor">[606]</a>
+The decree of the United States Supreme Court requiring the
+cancellation of the railroad patents to the 6,000 acres of land
+in the Elk Hills district was given on November 17, 1919.</p>
+
+<p>Three months before this Supreme Court decision, Judge
+Bledsoe, in the District Court for the Southern District of
+California, dismissed a suit challenging title to some 165,000
+acres of land in the oil territory on the west side of the San
+Joaquin Valley.<a name="FNanchor_607_607" id="FNanchor_607_607"></a><a href="#Footnote_607_607" class="fnanchor">[607]</a> This suit represented a consolidation of the
+oil land suits other than those included in the Elk Hills case.
+Perhaps 156,000 of the acres under litigation were claimed by
+the railroad. Cases are seldom alike, and the Bledsoe case differed
+from the Elk Hills controversy in several important details.
+In this case, for example, it appeared that the railroad had
+sold lands in the disputed territory at agricultural prices—a
+policy which it presumably would not have followed had it believed
+that these lands had mineral value. There was also lacking
+much of the direct evidence which had helped to demonstrate
+the fact that Mr. Eberlein had distorted the truth in his
+representations to the government. On the other hand, the refusal
+of Judge Bledsoe to believe that men like the general manager
+of the Southern Pacific, its land agent, and its vice-president
+would lend themselves to fraud, is less impressive after a
+perusal of the Elk Hills material. The government has announced
+that it will not appeal from Judge Bledsoe’s ruling—a
+decision which, on the face of things, appears to be a mistake.</p>
+
+<p class="pnb">Sale of Oil Lands</p>
+
+<p>The most recent development in connection with the Southern
+Pacific oil lands is associated with the organization of the
+Pacific Oil Company. The formation of this company was<span class="pagenum"><a name="Page_449" id="Page_449">[449]</a></span>
+announced in March, 1921. It purchased from the Southern
+Pacific Land Company, for the sum of $43,750,000, about
+259,000 acres of lands in California, most of which were
+proven oil lands, and 200,690 shares (50.48 per cent) of the
+capital stock of the Associated Oil Company. This was the
+whole of the Southern Pacific interest in the oil fields. The
+Southern Pacific Company provided the funds for the purchase
+by subscribing to 3,500,000 shares of the Pacific Oil Company
+at $15 per share, but the railroad disposed of its newly acquired
+shares by extending to holders of its own stock the right to
+purchase Pacific Oil stock at $15 per share, one share of stock
+of the new company for each share of the Southern Pacific
+Company stock so held. This transaction will transfer the
+ownership of the railroad oil lands from the Southern Pacific
+Company to the stockholders of that company as fast as the
+subscription rights are taken up. Commenting on the plan for
+the separation of the oil and railroad properties, President
+Sproule observed that the plan was simply responsive to the
+spirit of the times. It seems likely, however, that it will have
+the additional result of preventing further action tending to
+disturb the railroad title. The president of the Pacific Oil
+Company is Mr. Shoup and its directors are men of influence
+in the East.<a name="FNanchor_608_608" id="FNanchor_608_608"></a><a href="#Footnote_608_608" class="fnanchor">[608]</a></p>
+
+<p class="pnb">Timber Land Grant</p>
+
+<p>This summary discussion of the oil land litigation in California
+brings us to the last of the great cases with which the
+Southern Pacific has, in recent years, been concerned, namely,
+to the dispute between the federal government and the Oregon
+and California Railroad over the administration of timber
+lands in Oregon. By the Act of July 25, 1866,<a name="FNanchor_609_609" id="FNanchor_609_609"></a><a href="#Footnote_609_609" class="fnanchor">[609]</a> Congress<span class="pagenum"><a name="Page_450" id="Page_450">[450]</a></span>
+authorized the California and Oregon Railroad to build a railroad
+and telegraph line in the state of California from a point
+on the Central Pacific in the Sacramento Valley to the northern
+boundry of the state. The same act empowered “such
+company, organized under the laws of Oregon, as that state
+should designate,” to construct a railroad from Portland, Oregon,
+to a junction with the California and Oregon upon the
+Oregon-California boundary line. The legislature granted to
+the company mentioned a right-of-way, and in addition ten
+alternate sections of public land on each side of its track.</p>
+
+<p>At the time Congress acted, there was no company in
+Oregon in condition to become the beneficiary of the grant.
+In 1867, however, the Oregon Central Railroad Company of
+Salem was incorporated, and the following year this railroad
+received the needed legislative designation. It appears that
+there was some dispute between the Oregon Central of Salem
+and another organization known simply as the Oregon Central
+Railroad Company, and that the doubt as to which of these two
+was entitled to receive the granted lands in Oregon delayed the
+filing of the necessary formal assent to the terms of the Congressional
+Act of 1866. In 1869, therefore, Congress extended
+the time for the filing of the required assent.<a name="FNanchor_610_610" id="FNanchor_610_610"></a><a href="#Footnote_610_610" class="fnanchor">[610]</a></p>
+
+<p>At the time this privilege was accorded, however, Congress
+introduced an important limitation to its previous action, by
+providing that the lands granted by the Act of 1866 should be
+sold to actual settlers only, in quantities not greater than 160
+acres to one purchaser, and for a price not exceeding $2.50 per
+acre. So amended, the Act of 1866 was accepted by the Oregon
+Central, and on March 16, 1870, the rights acquired were assigned
+to the Oregon and California Railroad. In 1887, the
+Oregon and California was absorbed by the Southern Pacific.</p>
+
+<p>As a result of the legislation described, the Oregon and
+California Railroad Company received a total grant estimated<span class="pagenum"><a name="Page_451" id="Page_451">[451]</a></span>
+at 3,821,902 acres, which it held subject to the requirement that
+it should dispose of the property to actual settlers, in small lots,
+at prices not exceeding $2.50 per acre. Now the simple facts
+with regard to the company’s administration of this estate are
+that it did not limit the price which it charged to $2.50 per acre,
+that it took no pains to ascertain whether or not, purchasers of
+its lands were actual settlers, and that it sold in whatever quantities
+were convenient from the point of view of revenue. Between
+1894 and 1903, to take the period when the company
+neglected its obligations most grossly, there were sales at prices
+ranging from $5 to $40 an acre, and in amounts which in one
+instance reached the figure of 45,000 acres to a single purchaser.
+Out of 820,000 acres sold during this period, approximately
+370,000 were sold to 38 purchasers in quantities
+exceeding 2,000 acres to each purchaser, and at prices higher
+than $2.50. These sales, according to the Supreme Court,
+were to persons other than actual settlers, and for other purposes
+than settlement. On January 1, 1903, the company
+reached the climax of its disobedience to law by withdrawing all
+of its lands from sale and refusing to accept offers for any of
+them, asserting that they were timber lands and unsuitable for
+settlement. In 1911 there were 2,360,492.81 acres unsold, of
+which 2,075,616.45 had been patented. Only a comparatively
+small part of the grant, that is to say, had been disposed of.</p>
+
+<p class="pnb">Land Rebought by Government</p>
+
+<p>It is somewhat amazing that so clear a violation of the
+terms under which the Oregon and California held its land
+grant should have passed unchallenged. Nor can the obstinacy
+of the company’s defense fail to excite surprise. When the
+Attorney-General of the United States sought to have the
+Oregon and California grant declared forfeit<a name="FNanchor_611_611" id="FNanchor_611_611"></a><a href="#Footnote_611_611" class="fnanchor">[611]</a> because of the<span class="pagenum"><a name="Page_452" id="Page_452">[452]</a></span>
+company’s disregard of the terms of the law, it proved necessary
+to litigate for eight years, to take seventeen volumes of
+testimony, to consider 2,500 pages of briefs, and to obtain three
+court decisions and the enactment of a new law before the matter
+could be finally set at rest. It is unnecessary to go into the
+elaborate record, or the arguments by which counsel sought to
+demonstrate that the restrictive provisions of the Act of 1869
+were beyond the power of Congress to enact, or to discuss the
+contentions that breaches of the law had been condoned and
+that the covenants were not in any case enforceable. The case
+was considered by the Circuit Court of the United States for
+the District of Oregon in 1911,<a name="FNanchor_612_612" id="FNanchor_612_612"></a><a href="#Footnote_612_612" class="fnanchor">[612]</a> and by the Supreme Court of
+the United States in 1915.<a name="FNanchor_613_613" id="FNanchor_613_613"></a><a href="#Footnote_613_613" class="fnanchor">[613]</a> Both courts pronounced the restriction
+on the alienation of Oregon and California lands binding.</p>
+
+<p>The controversy was at last settled by a new Act of June
+9, 1916, in which Congress resumed possession of the unsold
+lands appertaining to the grant, while appropriating the sum
+of $2.50 an acre for these lands as a payment to the railroad
+company.<a name="FNanchor_614_614" id="FNanchor_614_614"></a><a href="#Footnote_614_614" class="fnanchor">[614]</a></p>
+
+<p>Under the terms of the act, the Secretary of the Interior
+was directed to ascertain the exact number of acres of land
+patented to the railroad company, and the number of acres of
+unpatented land which the company was entitled to receive in
+the future according to the original grants. The Secretary was
+then to calculate the value of all this land at $2.50 per acre,
+and to pay over the amount so ascertained to the railroad company
+from time to time from the proceeds of future sales of the
+lands or of the timber upon it, after deducting from the valuation
+the amounts already received by the railroad and by its
+predecessors in interest. The intent was clearly to allow to<span class="pagenum"><a name="Page_453" id="Page_453">[453]</a></span>
+the railroad $2.50 per acre of the original grant, no more and
+no less, taking full account of the sums already received by
+the company. The constitutionality of the law was later upheld
+by the Supreme Court.<a name="FNanchor_615_615" id="FNanchor_615_615"></a><a href="#Footnote_615_615" class="fnanchor">[615]</a></p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_454" id="Page_454">[454]</a></span></p>
+
+<div class="break">
+
+<h2 class="p4">CHAPTER XXIV</h2>
+
+<p class="pch">FINAL REMARKS</p>
+
+<p class="pnb">Character of Associates</p>
+
+<p>It is to be regretted that the oil, land, and timber litigation
+of recent years has once more presented the Southern Pacific
+in the light of a corporation more heedful of its own financial
+interests than of the requirements of public policy or of a
+high ethical code. In all fairness to the company, it should be
+said that this controversy does not truly represent its attitude
+at the present time. Stanford and Huntington are dead, and
+their properties are in other hands. The great railroad system
+which they left, controlled by leaders who are responsive to
+new policies, is in general no longer a profit-making device in
+the hands of a small group of men, but instead is a powerful
+machine for the promotion of industry and commerce on the
+Pacific Coast.</p>
+
+<p>Our narrative will now close with a few words of summary
+and conclusion.</p>
+
+<p>The purpose of the writer in presenting the story of the
+Southern Pacific has been to throw light upon the problems
+encountered by the most important railroad upon the Pacific
+Coast, and to characterize and interpret the policies adopted
+by that railroad and by the men who governed it.</p>
+
+<p>The writer’s view with regard to the so-called Southern
+Pacific associates, Stanford, Huntington, Mark Hopkins, and
+Crocker, is that they were rough, vigorous, and grasping men,
+tenacious of rights to property once acquired, kind-hearted
+within the circle of their families and intimate friends, but
+narrow in vision, uneducated, and inexpert in the details of
+railroad operation, and uninformed in all that related to questions<span class="pagenum"><a name="Page_455" id="Page_455">[455]</a></span>
+of public policy. Huntington alone, while rough and selfish
+as the others, showed important constructive capacity in
+the railroad field. The strength of the associates lay in their
+courage and persistence, in their loyalty to each other in business
+matters, in their readiness to attract and to support able
+men whose views did not differ too greatly from their own,
+and in a native shrewdness which, in Huntington at least,
+reached to a superlative degree.</p>
+
+<p class="pnb">Achievements of Group</p>
+
+<p>The reputation of the Huntington group rests upon the
+fact that within fifty years they built up an organization operating
+11,152 miles of lines and earning an operating revenue
+in a single year of no less than $282,000,000. A statement
+like this is quickly made. The significance of it comes home,
+however, only to those who understand the difficulties of
+successful management of great corporations and who appreciate
+the multitude of decisions as to policy which must have
+been, on the whole, soundly made, at least from the point
+of view of the corporation itself, in order to achieve such a
+success.</p>
+
+<p>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 were not able to handle themselves. The credit for
+general direction and support of the policies adopted, however,
+belongs to the associates even in these matters, when credit is
+due, just as responsibility for errors properly falls upon
+them.</p>
+
+<p><span class="pagenum"><a name="Page_456" id="Page_456">[456]</a></span></p>
+
+<p class="pnb">Principles of Operation</p>
+
+<p>There are three principles relating to the operation of these
+railroad properties which the author feels that he can attribute
+with some confidence to Huntington and his friends. The first
+of these was that the Southern Pacific enterprise should remain
+under the associates’ control and free from eastern entanglements.
+The second was that railroad monopoly in California
+was essential to a satisfactory railroad profit, and that the
+utmost possible profit should be exacted when monopoly
+power had been attained; and the third was that regulation by
+public bodies was in all respects objectionable, although public
+grants were considered to be legitimate sources of revenue.</p>
+
+<p>Looked at in a comprehensive way, the history of the
+Southern Pacific may be said to have centered in the application
+of these principles to the solution of a series of problems,
+of which the final disposition of the Southern Pacific oil and
+timber lands was the last. These problems, to name them consecutively,
+included the construction of the original Central
+Pacific and Southern Pacific railroads; the establishment of
+these companies as going concerns with opportunity for prosperity
+and power; and the adoption by the associates of policies
+with respect to government regulation, with respect to rates,
+and with respect to relations with competing lines. They included
+also the negotiation of a plan of settlement with the
+federal government under which the financial assistance tendered
+to the companies in their younger days was repaid, and
+the railroad stood forth free of unusual responsibility and devoid
+of special privilege. At a later date the merger of the
+Southern Pacific with the Union Pacific represented an
+additional adventure, although one which was never part of
+Huntington’s plan; and still another episode, the oil and timber
+litigation just described, was concerned with a forced liquidation
+of interests of which Huntington had known and approved.</p>
+
+<p><span class="pagenum"><a name="Page_457" id="Page_457">[457]</a></span></p>
+
+<p class="pnb">Two Eras in Company’s History</p>
+
+<p>Grouped in a somewhat different way, but with the same
+essential point of view, the history of the Southern Pacific may
+be divided into two parts, the one ending and the other beginning
+in or about the year 1883. Before 1883, the Huntington
+group was primarily interested in construction from Sacramento
+to Ogden in order to obtain the benefit of the federal
+subsidy, and in construction in southern California, New
+Mexico, and Arizona, in order to prevent the building of an
+independent competing line. In this period, also, steps were
+taken to crush the competition of certain local enterprises in
+California. After 1883, or more accurately, after 1879, the
+attention of the associates was concentrated upon the establishment
+of their credit, the resistance to the threatened regulation
+by the state of their properties in California, and upon the
+competition of the newly created transcontinental railroad
+lines and the water routes from the Pacific to the Atlantic
+Coast. The second of these dangers led them into local politics,
+and the third resulted not only in a variety of agreements with
+competitors, but also caused the Southern Pacific to modify
+its rate structures and to subsidize potential competitors upon
+the sea. Still later came the necessity of repaying the loans
+which the Central Pacific had received from the federal government
+at the time of the construction of its road and the new
+relations with the Union Pacific under the Harriman régime.
+The oil and timber litigation, though falling within the second
+period, represented the closing up of grants received in the first.</p>
+
+<p>In solving all the problems presented in the course of the
+Southern Pacific’s career, the associates followed consistently
+the three fundamental principles laid down in a preceding paragraph
+whenever the principles were applicable and the circumstances
+permitted of a deliberate choice. The only striking
+variation from them occurred when the Union Pacific was
+allowed to obtain a controlling interest in Southern Pacific<span class="pagenum"><a name="Page_458" id="Page_458">[458]</a></span>
+stock—a transaction which occurred after Huntington’s death
+and one for which the associates were not responsible.</p>
+
+<p class="pnb">The Charge against Associates</p>
+
+<p>The weakness in the position of the Huntington group
+lay in the fact that their insistence upon monopolistic control
+of railroads in the state of California and their resistance to
+government regulation, ran counter to public policies of a most
+fundamental kind. A further ground for incisive criticism is
+properly found in the methods which the associates adopted in
+their business and political campaigns. It is not sufficient to
+declare that Huntington and Stanford merely imitated practices
+which they found about them. There is reason to believe that
+the Southern Pacific associates lowered the standard of business
+ethics of their time. The reader who has examined the
+data submitted in preceding pages will need no specification of
+this charge. In finance, in politics, in questions of rates, and
+in their relations with public bodies, the associates were indifferent
+to standards of private and public conduct, which alone
+can bring trust and confidence into business relations. The
+great material achievements of the Huntington group were
+marred by the moral and spiritual defects of its members.</p>
+
+<p class="pnb">Public’s Present Favorable Attitude</p>
+
+<p>This narrative closes without consideration of the part
+which the Southern Pacific played in the war of 1914-1918,
+and without detailed analysis of the present position of the
+company or of its prospects for the future. As a matter of
+fact, the tendency today is for individual systems to be assimilated
+into the national railroad net through governmental regulation
+of rates, of wages, and of many details of operation, so
+that elaborate discussion of the affairs of single companies has
+lost much of the interest which it once possessed. The future
+of the Southern Pacific will depend more on the outcome of<span class="pagenum"><a name="Page_459" id="Page_459">[459]</a></span>
+national policies with respect to the support and control of railroads
+in all parts of the country, than it will on the success of
+the strategy of any group of railroad men.</p>
+
+<p>For good or bad the pioneer days are over. Public opinion
+in California is now well disposed toward the Southern Pacific
+in marked contrast to the attitude of earlier days. Probably
+the change is in part due to the efficiency of the technical staff
+of the company and to the excellence of its service as compared
+with other roads. Probably also the recent enforced separation
+of the Union Pacific and the Southern Pacific has on the whole
+strengthened the latter by relieving it of the unpopularity which
+would have followed long-continued outside control, while the
+completeness of public authority over rates through state and
+federal commissions has removed still another cause of discontent.
+In spite of past errors the Southern Pacific now looks
+forward to a long and prosperous career and to a popularity
+properly the result of the loyal and efficient service of a great
+body of official employees.
+</p>
+
+<hr class="chap" />
+
+</div>
+
+<p><span class="pagenum"><a name="Page_460" id="Page_460">[460]</a></span></p>
+
+<p class="vh">pag</p>
+
+<p><span class="pagenum"><a name="Page_461" id="Page_461">[461]</a></span></p>
+
+<div class="sum">
+
+<h2 class="p4">INDEX</h2>
+
+<p class="pnind">A</p>
+
+<p class="pni">Adams, Edson, <a href="#Page_86">86</a></p>
+
+<p class="pni">Agricultural products, <a href="#Page_349">349</a></p>
+
+<p class="pni">Alcade, <a href="#Page_141">141</a></p>
+
+<p class="pni">Amador branch, <a href="#Page_143">143</a></p>
+
+<p class="pni">Antioch, <a href="#Page_224">224</a></p>
+
+<p class="pni">Associated Oil Company, <a href="#Page_449">449</a></p>
+
+<p class="pni">Atchison, Topeka and Santa Fé Railroad, <a href="#Page_241">241</a>, <a href="#Page_275">275</a>;<span class="vh"><a name="atchi" id="atchi"></a></span></p>
+<p class="pnii">acquires San Francisco and San Joaquin Valley Railroad, <a href="#Page_331">331</a>, <a href="#Page_339">339-342</a></p>
+
+<p class="pni">Atlantic and Pacific Company, <a href="#Page_226">226</a></p>
+
+<p class="pni">Atlantic and Pacific Railroad, <a href="#Page_122">122</a>, <a href="#Page_125">125</a></p>
+
+<p class="pni">Atlantic and Pacific Steamship Company, <a href="#Page_305">305</a></p>
+
+<p class="pnind">B</p>
+
+<p class="pni">Baker, Col., of Tulare, <a href="#Page_28">28</a></p>
+
+<p class="pni">Bakersfield, oil fields, <a href="#Page_442">442</a></p>
+
+<p class="pni">Balfour, Guthrie and Company, <a href="#Page_305">305</a></p>
+
+<p class="pni">Bankruptcy, threat of, <a href="#Page_415">415</a></p>
+
+<p class="pni">Banning, Phineas, <a href="#Page_127">127</a></p>
+
+<p class="pni">Bassett, J. M., <a href="#Page_214">214</a></p>
+
+<p class="pni">Battle Mountain, <a href="#Page_361">361</a></p>
+
+<p class="pni">Bear River, <a href="#Page_8">8</a></p>
+
+<p class="pni">Beerstecher, Mr., member, State Railroad Board, 1880-1883, <a href="#Page_189">189-198</a></p>
+
+<p class="pni">Benicia, <a href="#Page_107">107</a>, <a href="#Page_141">141</a>, <a href="#Page_224">224</a></p>
+
+<p class="pni">Board of Land Commissioners in California, <a href="#Page_62">62</a></p>
+
+<p class="pni">Bonds, California Pacific Railroad Company, <a href="#Page_110">110-118</a>;</p>
+<p class="pnii">Central Pacific Railroad, <a href="#Page_418">418</a>;</p>
+<p class="pnii">United States subsidy, <a href="#Page_51">51-56</a>;</p>
+<p class="pnii">lien on, <a href="#Page_407">407-410</a>;</p>
+<p class="pnii">payment and refunding of, <a href="#Page_371">371-424</a>;</p>
+<p class="pnii">payment of interest at maturity, <a href="#Page_371">371</a>;</p>
+<p class="pnii">settlement of indebtedness, <a href="#Page_416">416-424</a>;</p>
+<p class="pnii">sinking fund provision, <a href="#Page_376">376</a>, <a href="#Page_383">383</a></p>
+
+<p class="pni">Booth, L. A., <a href="#Page_15">15</a>, <a href="#Page_19">19</a></p>
+
+<p class="pni">Brice, Senator, <a href="#Page_397">397</a></p>
+
+<p class="pni">Brown, Mr., <a href="#Page_147">147</a></p>
+
+<p class="pni">Brown, Harvey S., <a href="#Page_188">188</a></p>
+
+<p class="pni">Brown, W. E., <a href="#Page_75">75</a></p>
+
+<p class="pni">Burch, John C., Congressman from California, <a href="#Page_8">8</a></p>
+
+<p class="pni">Burke v. Southern Pacific, <a href="#Page_443">443</a></p>
+
+<p class="pni">Business depression of 1891-1897, <a href="#Page_363">363</a></p>
+
+<p class="pni">Business Men’s League v. Atchison, Topeka and Santa Fé, <a href="#Page_281">281</a>, <a href="#Page_282">282</a></p>
+
+<p class="pnind">C</p>
+
+<p class="pni">California, aids Central Pacific Railroad, <a href="#Page_25">25-44</a>;</p>
+<p class="pnii">“Five Per Cent Act,” of 1870, <a href="#Page_44">44</a>;</p>
+<p class="pnii">industrial conditions, <a href="#Page_237">237</a>;</p>
+<p class="pnii">Judah’s work in, <a href="#Page_5">5</a>;</p>
+<p class="pnii">Spanish and Mexican grants, <a href="#Page_62">62</a></p>
+
+<p class="pni">California and Oregon Railroad, <a href="#Page_81">81</a>, <a href="#Page_140">140</a>, <a href="#Page_152">152</a>, <a href="#Page_363">363</a>, <a href="#Page_450">450</a></p>
+
+<p class="pni">California League of Progress, <a href="#Page_319">319</a></p>
+
+<p class="pni">California Pacific Eastern Railroad Extension Company, <a href="#Page_110">110</a></p>
+
+<p class="pni">California Pacific Railroad Company, acquired by Central Pacific, <a href="#Page_104">104-118</a>;</p>
+<p class="pnii">alleged mismanagement of, <a href="#Page_116">116</a>;</p>
+<p class="pnii">bonds of, <a href="#Page_111">111</a>;</p>
+<p class="pnii">competition of, <a href="#Page_107">107</a>;</p>
+<p class="pnii">growth of, 1871-1877, <a href="#Page_141">141</a>;</p>
+<p class="pnii">lease, <a href="#Page_143">143</a>;</p>
+<p class="pnii">shares, <a href="#Page_112">112</a></p>
+
+<p class="pni">California Southern Railroad, <a href="#Page_123">123</a></p>
+
+<p><span class="pagenum"><a name="Page_462" id="Page_462">[462]</a></span></p><p class="pni">California State Board of Transportation Commissioners, <a href="#Page_181">181-198</a>, <a href="#Page_242">242</a>, <a href="#Page_335">335</a></p>
+
+<p class="pni">California Steam Navigation Company, <a href="#Page_224">224</a></p>
+
+<p class="pni">Calistoga, <a href="#Page_141">141</a></p>
+
+<p class="pni">Canadian Pacific Railroad, <a href="#Page_276">276</a>, <a href="#Page_308">308</a></p>
+
+<p class="pni">Cape Horn route to San Francisco, <a href="#Page_225">225</a>, <a href="#Page_306">306</a></p>
+
+<p class="pni">Capital (See “Finance”)</p>
+
+<p class="pni">Carpentier, E. R., <a href="#Page_88">88</a></p>
+
+<p class="pni">Carpentier, H. W., <a href="#Page_86">86</a>, <a href="#Page_88">88</a>, <a href="#Page_89">89</a>, <a href="#Page_90">90</a></p>
+
+<p class="pni">Carr, William, <a href="#Page_204">204</a></p>
+
+<p class="pni">Casserly, Eugene, <a href="#Page_213">213</a></p>
+
+<p class="pni">Central Pacific Railroad Company, <a href="#Page_4">4</a>;</p>
+<p class="pnii">Acts of 1862 and 1864, <a href="#Page_49">49-64</a>;</p>
+<p class="pnii">acquires California Pacific Railroad, <a href="#Page_104">104-118</a>;</p>
+<p class="pnii">acquires California Steam Navigation Company, <a href="#Page_224">224</a>;</p>
+<p class="pnii">bond issues, <a href="#Page_24">24</a>, <a href="#Page_51">51-56</a>, <a href="#Page_370">370-424</a>;</p>
+<p class="pnii">capital of, <a href="#Page_22">22</a>;</p>
+<p class="pnii">consolidation with Western Pacific Railroad, <a href="#Page_84">84</a>;</p>
+<p class="pnii">construction of, 1863-1869, <a href="#Page_65">65-83</a>;</p>
+<p class="pnii">ceremonies attending inauguration of work, <a href="#Page_65">65</a>;</p>
+<p class="pnii">contracts for, <a href="#Page_70">70</a>;</p>
+<p class="pnii">cost estimated, <a href="#Page_16">16</a>;</p>
+<p class="pnii">financing of, <a href="#Page_75">75-82</a>;</p>
+<p class="pnii">gradients, <a href="#Page_65">65</a>;</p>
+<p class="pnii">supplies for, <a href="#Page_68">68</a>;</p>
+<p class="pnii">temperature of climate, <a href="#Page_67">67</a>;</p>
+<p class="pnii">contract with California Pacific, <a href="#Page_112">112</a>;</p>
+<p class="pnii">discriminations against charged, <a href="#Page_357">357</a>;</p>
+<p class="pnii">dividends, <a href="#Page_365">365</a>, <a href="#Page_374">374</a>;</p>
+<p class="pnii">earnings, <a href="#Page_16">16</a>, <a href="#Page_22">22</a>, <a href="#Page_169">169</a>, <a href="#Page_361">361</a>;</p>
+<p class="pnii">expenses, legal and general, <a href="#Page_213">213</a>;</p>
+<p class="pnii">finances, 1870-1879, <a href="#Page_169">169-180</a>;</p>
+<p class="pnii">financing of California survey, <a href="#Page_14">14</a>;</p>
+<p class="pnii">government aid by California, <a href="#Page_25">25-44</a>;</p>
+<p class="pnii">government aid expected, <a href="#Page_15">15</a>;</p>
+<p class="pnii">government debt, <a href="#Page_370">370-424</a>;</p>
+<p class="pnii">in 1877, <a href="#Page_140">140</a>;</p>
+<p class="pnii">incorporation, 1899, <a href="#Page_421">421</a>, <a href="#Page_423">423</a>;</p>
+<p class="pnii">Judah’s second survey for, <a href="#Page_19">19</a>;</p>
+<p class="pnii">Judah’s work for, <a href="#Page_4">4-10</a>;</p>
+<p class="pnii">land grants, <a href="#Page_50">50-64</a>;</p>
+<p class="pnii">leases, <a href="#Page_142">142</a>, <a href="#Page_153">153</a>;</p>
+<p class="pnii">litigation with San Francisco, <a href="#Page_31">31-40</a>;</p>
+<p class="pnii">monopoly control by, <a href="#Page_104">104</a>;</p>
+<p class="pnii">Oakland water-front acquired, <a href="#Page_85">85-94</a>;</p>
+<p class="pnii">organization, 1861, <a href="#Page_18">18</a>;</p>
+<p class="pnii">rates, <a href="#Page_237">237-256</a>;</p>
+<p class="pnii">receipts to December, 1869, <a href="#Page_21">21</a>;</p>
+<p class="pnii">refuses to buy Sacramento Valley railroad, <a href="#Page_43">43</a>;</p>
+<p class="pnii">reorganization plan, 1899, <a href="#Page_418">418</a>;</p>
+<p class="pnii">San Francisco water-front acquired, <a href="#Page_94">94-103</a>;</p>
+<p class="pnii">stockholders, <a href="#Page_146">146-149</a>;</p>
+<p class="pnii">stock issues, 1863-1869, <a href="#Page_23">23</a>;</p>
+<p class="pnii">county subscriptions, <a href="#Page_29">29</a>;</p>
+<p class="pnii">subsidies demanded from towns, <a href="#Page_28">28</a>;</p>
+<p class="pnii">surveys, <a href="#Page_66">66</a>;</p>
+<p class="pnii">terminal facilities in 1869, <a href="#Page_85">85</a>;</p>
+<p class="pnii">transcontinental line finished, <a href="#Page_84">84</a></p>
+
+<p class="pni">Centralia, <a href="#Page_19">19</a></p>
+
+<p class="pni">Chesapeake and Ohio Railroad, <a href="#Page_149">149</a></p>
+
+<p class="pni">Chico, <a href="#Page_224">224</a></p>
+
+<p class="pni">China Basin, <a href="#Page_335">335-338</a></p>
+
+<p class="pni">Chinese labor, <a href="#Page_70">70</a></p>
+
+<p class="pni">Cleveland, Grover, <a href="#Page_403">403</a></p>
+
+<p class="pni">Clipper ships, <a href="#Page_225">225</a>, <a href="#Page_303">303-316</a></p>
+
+<p class="pni">Cohen, A. A., <a href="#Page_174">174</a></p>
+
+<p class="pni">Colon, Panama, <a href="#Page_234">234</a></p>
+
+<p class="pni">Colorado River, <a href="#Page_140">140</a></p>
+
+<p class="pni">Colton, David D., <a href="#Page_28">28</a>, <a href="#Page_133">133</a>, <a href="#Page_154">154-168</a>, <a href="#Page_175">175</a>, <a href="#Page_184">184</a>, <a href="#Page_201">201</a>, <a href="#Page_202">202</a>, <a href="#Page_204">204-217</a>, <a href="#Page_387">387</a></p>
+
+<p class="pni">Colton, Mrs. David B., <a href="#Page_164">164-168</a></p>
+
+<p class="pni">Colusa, <a href="#Page_223">223</a>, <a href="#Page_224">224</a></p>
+
+<p class="pni">Commissioner of railroads (See “Railroad Commissions”)</p>
+
+<p class="pni">Competition, effect of, on rates, <a href="#Page_263">263</a>, <a href="#Page_280">280</a>;</p>
+<p class="pnii">foreign ships, <a href="#Page_294">294</a>;</p>
+<p class="pnii">proposal for competing railroad, <a href="#Page_318">318</a>;</p>
+<p class="pnii">restraint of trade, accusations of, <a href="#Page_356">356</a>, <a href="#Page_429">429-440</a>;</p>
+<p class="pnii">San Joaquin project, <a href="#Page_320">320</a>;</p>
+<p class="pnii">transcontinental, <a href="#Page_275">275</a>;</p>
+<p class="pnii">water, <a href="#Page_222">222-236</a>, <a href="#Page_303">303-316</a></p>
+
+<p class="pni">Cone, J. S., member of State Railroad Board, 1880-1883, <a href="#Page_189">189-198</a></p>
+
+<p class="pni">Congress (See <a href="#legis">“Legislation”</a>)</p>
+
+<p class="pni">Connor, Mr., commercial agent, <a href="#Page_356">356</a></p>
+
+<p class="pni">Consolidation, Union Pacific and Southern Pacific, <a href="#Page_425">425-440</a></p>
+
+<p class="pni">Constitutional convention, California 1879, <a href="#Page_184">184-187</a></p>
+
+<p class="pni">Contract and Finance Company, <a href="#Page_75">75-82</a>;</p>
+<p><span class="pagenum"><a name="Page_463" id="Page_463">[463]</a></span></p><p class="pnii">builds railroad from Sacramento to Dansville, <a href="#Page_113">113</a>;</p>
+<p class="pnii">construction of Southern Pacific, <a href="#Page_132">132</a></p>
+
+<p class="pni">Contracts, construction of Central Pacific, <a href="#Page_70">70-82</a>;</p>
+<p class="pnii">rates, <a href="#Page_250">250-255</a></p>
+
+<p class="pni">Coon, Henry P., Mayor of San Francisco, <a href="#Page_35">35</a></p>
+
+<p class="pni">Cornish, Judge, <a href="#Page_446">446</a>, <a href="#Page_447">447</a></p>
+
+<p class="pni">County stock subscriptions, <a href="#Page_28">28</a>, <a href="#Page_29">29</a></p>
+
+<p class="pni">Crocker, Charles, <a href="#Page_13">13</a>, <a href="#Page_19">19</a>, <a href="#Page_22">22</a>, <a href="#Page_65">65</a>, <a href="#Page_70">70</a>, <a href="#Page_145">145</a>, <a href="#Page_170">170</a>, <a href="#Page_284">284</a>;</p>
+<p class="pnii">contracts for construction, <a href="#Page_70">70-75</a>;</p>
+<p class="pnii">director, Southern Pacific Railroad, <a href="#Page_123">123</a>;</p>
+<p class="pnii">President Contract and Finance Company, <a href="#Page_77">77</a>;</p>
+<p class="pnii">relations with David D. Colton, <a href="#Page_154">154-168</a>;</p>
+<p class="pnii">shares of, <a href="#Page_146">146-149</a></p>
+
+<p class="pni">Crocker, E. B., Judge, <a href="#Page_88">88</a></p>
+
+<p class="pni">Curtis, William B., <a href="#Page_240">240</a></p>
+
+<p class="pnind">D</p>
+
+<p class="pni">Dane, Timothy, <a href="#Page_84">84</a></p>
+
+<p class="pni">Davisville, <a href="#Page_112">112</a>, <a href="#Page_141">141</a></p>
+
+<p class="pni">Dawes, Mr., <a href="#Page_409">409</a></p>
+
+<p class="pni">Debts (See “Government aid”)</p>
+
+<p class="pni">Dimond, William and Company, <a href="#Page_304">304</a>, <a href="#Page_306">306</a></p>
+
+<p class="pni">Dividends, payment of, <a href="#Page_171">171</a>, <a href="#Page_374">374</a>;</p>
+<p class="pnii">policy, <a href="#Page_366">366</a>;</p>
+<p class="pnii">suspension of, <a href="#Page_365">365</a></p>
+
+<p class="pni">Donahue, Peter, <a href="#Page_123">123</a></p>
+
+<p class="pni">Doyle, John T., <a href="#Page_216">216</a>, <a href="#Page_401">401</a>, <a href="#Page_407">407</a></p>
+
+<p class="pni">Dutch Flat, <a href="#Page_6">6</a>, <a href="#Page_7">7</a>, <a href="#Page_8">8</a></p>
+
+<p class="pnind">E</p>
+
+<p class="pni">Earnings, Central Pacific, <a href="#Page_16">16</a>, <a href="#Page_22">22</a>, <a href="#Page_169">169</a>, <a href="#Page_361">361</a>, <a href="#Page_364">364</a>;</p>
+<p class="pnii">charges by Auditor of Railroads, <a href="#Page_389">389</a>;</p>
+<p class="pnii">net earnings defined, <a href="#Page_391">391</a>;</p>
+<p class="pnii">Southern Pacific, <a href="#Page_347">347-369</a></p>
+
+<p class="pni">Eberlein, land agent, <a href="#Page_445">445-448</a></p>
+
+<p class="pni">Edmonds, Senator, <a href="#Page_409">409</a></p>
+
+<p class="pni">El Paso route, <a href="#Page_354">354</a></p>
+
+<p class="pni">Election of 1863, <a href="#Page_32">32</a>, <a href="#Page_33">33</a>, <a href="#Page_38">38</a></p>
+
+<p class="pni">Elk Hills title suit, <a href="#Page_445">445</a></p>
+
+<p class="pni">Eureka and Palisade Railroad, <a href="#Page_361">361</a></p>
+
+<p class="pnind">F</p>
+
+<p class="pni">Fair, James G., <a href="#Page_310">310</a></p>
+
+<p class="pni">Farming, <a href="#Page_237">237</a></p>
+
+<p class="pni">Felton, John P., <a href="#Page_87">87</a>, <a href="#Page_88">88</a>, <a href="#Page_89">89</a>, <a href="#Page_90">90</a></p>
+
+<p class="pni">Finance, construction work, Central Pacific, <a href="#Page_71">71-82</a>;</p>
+<p class="pnii">Southern Pacific, <a href="#Page_136">136-139</a>;</p>
+<p class="pnii">early years, <a href="#Page_360">360</a>;</p>
+<p class="pnii">federal aid, <a href="#Page_42">42-64</a>;</p>
+<p class="pnii">survey, <a href="#Page_14">14</a>;</p>
+<p class="pnii">inability to get capital, <a href="#Page_170">170</a>;</p>
+<p class="pnii">notes, 1878, <a href="#Page_176">176</a>;</p>
+<p class="pnii">organization of company, <a href="#Page_18">18</a>;</p>
+<p class="pnii">repayment of government debt, <a href="#Page_370">370-424</a>;</p>
+<p class="pnii">San Francisco and San Joaquin Valley Railroad, <a href="#Page_322">322</a>;</p>
+<p class="pnii">short-term borrowing, <a href="#Page_174">174</a>;</p>
+<p class="pnii">state and local aid, <a href="#Page_21">21-41</a></p>
+
+<p class="pni">“Five Per Cent Act,” of 1870, <a href="#Page_44">44</a></p>
+
+<p class="pni">Flower, Roswell P., <a href="#Page_177">177</a></p>
+
+<p class="pni">Folsom, <a href="#Page_8">8</a>, <a href="#Page_10">10</a>, <a href="#Page_19">19</a></p>
+
+<p class="pni">Franchot, General, <a href="#Page_204">204</a>, <a href="#Page_213">213</a></p>
+
+<p class="pni">Freight traffic, <a href="#Page_353">353</a>;</p>
+<p class="pnii">rates, <a href="#Page_191">191</a>, <a href="#Page_349">349</a></p>
+
+<p class="pni">Fremont’s route, <a href="#Page_9">9</a></p>
+
+<p class="pni">French, Thomas, <a href="#Page_89">89</a></p>
+
+<p class="pni">French v. Teschemaker, <a href="#Page_33">33</a></p>
+
+<p class="pni">Friedlander and Reed, <a href="#Page_249">249</a></p>
+
+<p class="pni">Frye-Davis report, <a href="#Page_396">396</a></p>
+
+<p class="pnind">G</p>
+
+<p class="pni">Gage, L. J., Secretary, U. S. Treasury, <a href="#Page_415">415</a></p>
+
+<p class="pni">Gage, Stephen T., <a href="#Page_204">204</a>, <a href="#Page_209">209</a>, <a href="#Page_210">210</a></p>
+
+<p class="pni">Galveston, Harrisburg and San Antonio Railway, <a href="#Page_149">149</a></p>
+
+<p class="pni">Gates, I. E., <a href="#Page_213">213</a></p>
+
+<p class="pni">Gear, Congressman, bill for refunding of debt, <a href="#Page_399">399</a>, <a href="#Page_416">416</a></p>
+
+<p class="pni">General Land Office, <a href="#Page_57">57-59</a></p>
+
+<p class="pni">Gerke, Mr., <a href="#Page_195">195-197</a></p>
+
+<p class="pni">Gilroy, <a href="#Page_141">141</a></p>
+
+<p><span class="pagenum"><a name="Page_464" id="Page_464">[464]</a></span></p><p class="pni">Gleaves Act, <a href="#Page_338">338</a></p>
+
+<p class="pni">Goat Island, <a href="#Page_100">100</a>, <a href="#Page_101">101</a></p>
+
+<p class="pni">Goodall and Perkins, <a href="#Page_226">226</a></p>
+
+<p class="pni">Gordon, Senator from Georgia, <a href="#Page_203">203</a></p>
+
+<p class="pni">Goshen, <a href="#Page_119">119</a>, <a href="#Page_126">126</a>, <a href="#Page_127">127</a>, <a href="#Page_140">140</a></p>
+
+<p class="pni">Gould, Jay, <a href="#Page_226">226</a>, <a href="#Page_234">234</a>, <a href="#Page_427">427</a></p>
+
+<p class="pni">Government aid, California, <a href="#Page_25">25-44</a>;</p>
+<p class="pnii">California laws, 1864, <a href="#Page_34">34</a>;</p>
+<p class="pnii">claim for indemnity, <a href="#Page_374">374</a>;</p>
+<p class="pnii">county stock subscriptions, <a href="#Page_29">29</a>;</p>
+<p class="pnii">federal, <a href="#Page_45">45-64</a>;</p>
+<p class="pnii">Judah’s proposals, <a href="#Page_15">15</a>;</p>
+<p class="pnii">opposition to in San Francisco, <a href="#Page_31">31</a>;</p>
+<p class="pnii">Pacific Railroad bill, 1860, <a href="#Page_8">8</a>;</p>
+<p class="pnii">repayment of debt, <a href="#Page_370">370-424</a>;</p>
+<p class="pnii">state aid, direct, <a href="#Page_30">30</a>;</p>
+<p class="pnii">United States bonds, <a href="#Page_51">51-56</a>, <a href="#Page_371">371</a></p>
+
+<p class="pni">Government, U. S., withholds payments, <a href="#Page_377">377</a></p>
+
+<p class="pni">Grace, J. W., and Company, <a href="#Page_304">304</a></p>
+
+<p class="pni">Grading of railroad, <a href="#Page_65">65</a></p>
+
+<p class="pni">Grain rates, <a href="#Page_342">342</a></p>
+
+<p class="pni">Gray, R., <a href="#Page_246">246</a></p>
+
+<p class="pni">Great Northern Railroad, <a href="#Page_276">276</a></p>
+
+<p class="pni">Griggs, U. S. Attorney-General, <a href="#Page_415">415</a>, <a href="#Page_416">416</a></p>
+
+<p class="pnind">H</p>
+
+<p class="pni">Haight, H. H., <a href="#Page_216">216</a></p>
+
+<p class="pni">Hale, Henry M., auditor of San Francisco, <a href="#Page_35">35</a></p>
+
+<p class="pni">Hammond, President, California Pacific Railroad, <a href="#Page_115">115</a>;</p>
+<p class="pnii">Vice-President, California Pacific Railroad, <a href="#Page_114">114</a>, <a href="#Page_115">115</a></p>
+
+<p class="pni">Hannaford, Mr., <a href="#Page_432">432</a></p>
+
+<p class="pni">Harriman, E. H., <a href="#Page_428">428</a></p>
+
+<p class="pni">Harriman system, <a href="#Page_428">428</a></p>
+
+<p class="pni">Hawley, Edwin, <a href="#Page_253">253</a>, <a href="#Page_427">427</a>, <a href="#Page_432">432</a></p>
+
+<p class="pni">Hess, Mr., of Boca, <a href="#Page_258">258</a></p>
+
+<p class="pni">Hibbard, Spencer, Bartlett and Company, <a href="#Page_282">282</a></p>
+
+<p class="pni">Hood, engineer, <a href="#Page_68">68</a></p>
+
+<p class="pni">Hopkins, Mark, <a href="#Page_22">22</a>;</p>
+<p class="pnii">agreement with California Pacific Railroad <a href="#Page_110">110</a>;</p>
+<p class="pnii">biography, <a href="#Page_14">14</a>;</p>
+<p class="pnii">death of, <a href="#Page_133">133</a>;</p>
+<p class="pnii">director, Southern Pacific Railroad, <a href="#Page_123">123</a>;</p>
+<p class="pnii">finances Judah, <a href="#Page_14">14</a>;</p>
+<p class="pnii">general agent, California Pacific Railroad, <a href="#Page_115">115</a>;</p>
+<p class="pnii">report on construction, <a href="#Page_72">72</a>;</p>
+<p class="pnii">shareholder of Central Pacific Railroad, <a href="#Page_19">19</a>;</p>
+<p class="pnii">shares of, <a href="#Page_147">147</a></p>
+
+<p class="pni">Hopkins, Moses, treasurer, California Pacific Railroad, <a href="#Page_115">115</a></p>
+
+<p class="pni">Hopkins, Timothy, <a href="#Page_145">145</a></p>
+
+<p class="pni">Houston, H. A., <a href="#Page_84">84</a></p>
+
+<p class="pni">Howard, General, <a href="#Page_216">216</a></p>
+
+<p class="pni">Huntington, Collis P., <a href="#Page_22">22</a>, <a href="#Page_28">28</a>, <a href="#Page_69">69</a>, <a href="#Page_73">73</a>, <a href="#Page_144">144</a>, <a href="#Page_145">145</a>, <a href="#Page_279">279</a>, <a href="#Page_283">283</a>, <a href="#Page_327">327</a>, <a href="#Page_351">351</a>, <a href="#Page_354">354</a>, <a href="#Page_357">357</a>, <a href="#Page_367">367</a>, <a href="#Page_370">370</a>, <a href="#Page_415">415</a>;</p>
+<p class="pnii">acquires control of California Pacific Railroad, <a href="#Page_109">109-118</a>;</p>
+<p class="pnii">against state regulation, <a href="#Page_200">200</a>;</p>
+<p class="pnii">biography, <a href="#Page_10">10</a>;</p>
+<p class="pnii">death of, <a href="#Page_426">426</a>;</p>
+<p class="pnii">director, Southern Pacific Railroad, <a href="#Page_123">123</a>;</p>
+<p class="pnii">estate of, <a href="#Page_427">427</a>;</p>
+<p class="pnii">finances T. D. Judah, <a href="#Page_14">14</a>;</p>
+<p class="pnii">lobbying methods, <a href="#Page_203">203-221</a>;</p>
+<p class="pnii">negotiates purchase of California Pacific Railroad, <a href="#Page_109">109-118</a>;</p>
+<p class="pnii">organizes Contract and Finance Company, <a href="#Page_75">75</a>;</p>
+<p class="pnii">organizes Occidental and Oriental Steamship Company, <a href="#Page_227">227</a>;</p>
+<p class="pnii">policies, <a href="#Page_426">426</a>;</p>
+<p class="pnii">President of Southern Pacific, <a href="#Page_218">218</a>;</p>
+<p class="pnii">relations with Colton, <a href="#Page_154">154-168</a>;</p>
+<p class="pnii">shareholder of Central Pacific Railroad, <a href="#Page_19">19</a>;</p>
+<p class="pnii">shares of, <a href="#Page_146">146-149</a>;</p>
+<p class="pnii">submits annual report of Southern Pacific, <a href="#Page_123">123</a>;</p>
+<p class="pnii">Thurman bill, <a href="#Page_387">387</a>;</p>
+<p class="pnii">valuation of oil land, <a href="#Page_442">442</a></p>
+
+<p class="pni">Huron, <a href="#Page_141">141</a>, <a href="#Page_179">179</a></p>
+
+<p class="pni">Hyde, Mr., <a href="#Page_129">129</a></p>
+
+<p class="pnind">I</p>
+
+<p class="pni">Illinois Town, <a href="#Page_8">8</a></p>
+
+<p class="pni">Interest, on government bonds, <a href="#Page_371">371</a></p>
+
+<p class="pnind">J</p>
+
+<p class="pni">Jackson, Mr., <a href="#Page_147">147</a></p>
+
+<p><span class="pagenum"><a name="Page_465" id="Page_465">[465]</a></span></p><p class="pni">Jacobs, Isidor, <a href="#Page_300">300</a>, <a href="#Page_301">301</a></p>
+
+<p class="pni">Jeffery, President, Denver and Rio Grande Railroad, <a href="#Page_432">432</a></p>
+
+<p class="pni">Johnson-Locke Mercantile Company, <a href="#Page_309">309</a></p>
+
+<p class="pni">Jones, John P., Senator from Nevada, <a href="#Page_128">128</a></p>
+
+<p class="pni">Judah, Theodore Dehone, <a href="#Page_4">4-10</a>;</p>
+<p class="pnii">estimates construction cost of Central Pacific, <a href="#Page_16">16</a>;</p>
+<p class="pnii">financed by Huntington and others, <a href="#Page_14">14</a>;</p>
+<p class="pnii">organizes Central Pacific Railroad, <a href="#Page_18">18</a>;</p>
+<p class="pnii">solicits federal aid, <a href="#Page_46">46-48</a></p>
+
+<p class="pnind">K</p>
+
+<p class="pni">Kahn, Otto H., <a href="#Page_429">429</a>, <a href="#Page_430">430</a></p>
+
+<p class="pni">Kansas Pacific Railway, <a href="#Page_408">408</a></p>
+
+<p class="pni">Kasson, Mr., <a href="#Page_203">203</a></p>
+
+<p class="pni">Kearney, Dennis, <a href="#Page_184">184</a></p>
+
+<p class="pni">Kern county, <a href="#Page_127">127</a></p>
+
+<p class="pni">Kern Trading and Oil Company, <a href="#Page_447">447</a></p>
+
+<p class="pni">Knight’s Landing, <a href="#Page_224">224</a></p>
+
+<p class="pni">Kuhn, Loeb and Company, <a href="#Page_428">428</a>, <a href="#Page_429">429</a></p>
+
+<p class="pnind">L</p>
+
+<p class="pni">Labor, cost of, on construction of Central Pacific, <a href="#Page_67">67</a></p>
+
+<p class="pni">Lake Pass on the Truckee River, <a href="#Page_8">8</a></p>
+
+<p class="pni">Land, rebought by federal government, <a href="#Page_451">451</a></p>
+
+<p class="pni">Land grants, <a href="#Page_50">50-64</a>;</p>
+<p class="pnii">company policies toward settlers, <a href="#Page_63">63</a>;</p>
+<p class="pnii">transfer of title, <a href="#Page_56">56-59</a></p>
+
+<p class="pni">Lassen’s Meadows, <a href="#Page_19">19</a></p>
+
+<p class="pni">Latham, Milton, General Manager, California Pacific Railroad Company, <a href="#Page_109">109</a>, <a href="#Page_110">110</a>, <a href="#Page_112">112</a>, <a href="#Page_114">114</a>, <a href="#Page_117">117</a></p>
+
+<p class="pni">Lathrop to Goshen route, <a href="#Page_119">119</a>, <a href="#Page_140">140</a></p>
+
+<p class="pni">Lawler, Judge, <a href="#Page_189">189</a></p>
+
+<p class="pni">Leases, <a href="#Page_142">142</a>, <a href="#Page_153">153</a>, <a href="#Page_335">335-338</a></p>
+
+<p class="pni">Leeds, Joseph S., <a href="#Page_283">283</a>, <a href="#Page_301">301</a>, <a href="#Page_302">302</a>, <a href="#Page_303">303</a>, <a href="#Page_307">307</a>, <a href="#Page_308">308</a>, <a href="#Page_313">313</a>, <a href="#Page_318">318-323</a></p>
+
+<p class="pni">Legislation, Act of March 3, 1873, <a href="#Page_377">377</a>;<span class="vh"><a name="legis" id="legis"></a></span></p>
+<p class="pnii">Act of 1880, <a href="#Page_187">187</a>;</p>
+<p class="pnii">“Five Per Cent” Act of 1870, <a href="#Page_44">44</a>;</p>
+<p class="pnii">Gleaves Act, <a href="#Page_338">338</a>;</p>
+<p class="pnii">influencing of, <a href="#Page_199">199-221</a>;</p>
+<p class="pnii">O’Connor bill, <a href="#Page_183">183</a>;</p>
+<p class="pnii">Pacific Railroad bill, <a href="#Page_8">8</a>, <a href="#Page_47">47-64</a>;</p>
+<p class="pnii">railroad control bill, <a href="#Page_184">184-187</a>;</p>
+<p class="pnii">state constitutional provisions, 1879, <a href="#Page_184">184-187</a>;</p>
+<p class="pnii">Thurman Act, <a href="#Page_380">380-394</a></p>
+
+<p class="pni">Lien on subsidy bonds, <a href="#Page_407">407-410</a></p>
+
+<p class="pni">Lincoln, Abraham, <a href="#Page_8">8</a>, <a href="#Page_19">19</a></p>
+
+<p class="pni">Litigation, oil and timber lands, <a href="#Page_441">441-453</a>;</p>
+<p class="pnii">U. S. v. Union Pacific and Southern Pacific, <a href="#Page_425">425-440</a></p>
+
+<p class="pni">Loans, short-term, <a href="#Page_174">174</a></p>
+
+<p class="pni">Lobbying, <a href="#Page_203">203-221</a></p>
+
+<p class="pni">Loewy, William, clerk of the city of San Francisco, <a href="#Page_37">37</a></p>
+
+<p class="pni">London Economist, <a href="#Page_367">367</a></p>
+
+<p class="pni">Long hauls, <a href="#Page_352">352</a></p>
+
+<p class="pni">Los Angeles, <a href="#Page_140">140</a>, <a href="#Page_141">141</a>;</p>
+<p class="pnii">grants rights, <a href="#Page_128">128</a>;</p>
+<p class="pnii">in 1870, <a href="#Page_127">127</a></p>
+
+<p class="pni">Los Angeles and Independence Railroad, <a href="#Page_128">128</a></p>
+
+<p class="pni">Los Angeles and San Pedro Railroad, <a href="#Page_127">127</a></p>
+
+<p class="pni">Los Angeles to Yuma route, <a href="#Page_125">125</a></p>
+
+<p class="pni">Lovett, Mr., <a href="#Page_357">357</a></p>
+
+<p class="pni">Luce, G. W., <a href="#Page_247">247</a></p>
+
+<p class="pnind">M</p>
+
+<p class="pni">McDougal, Senator, <a href="#Page_46">46</a>, <a href="#Page_48">48</a></p>
+
+<p class="pni">McFarland, Mr., <a href="#Page_185">185</a></p>
+
+<p class="pni">McKinley, William, President, <a href="#Page_415">415</a></p>
+
+<p class="pni">McLoughlin, Charles, <a href="#Page_84">84</a></p>
+
+<p class="pni">Manufactures, <a href="#Page_237">237</a></p>
+
+<p class="pni">Marier, Mr., of Oakland, <a href="#Page_90">90</a></p>
+
+<p class="pni">Markham, C. H., <a href="#Page_446">446</a>, <a href="#Page_447">447</a></p>
+
+<p class="pni">Marsh, Charles, finances Judah, <a href="#Page_15">15</a>;</p>
+<p class="pnii">shareholder of Central Pacific Railroad, <a href="#Page_19">19</a></p>
+
+<p class="pni">Martinez, <a href="#Page_141">141</a>, <a href="#Page_319">319</a></p>
+
+<p><span class="pagenum"><a name="Page_466" id="Page_466">[466]</a></span></p><p class="pni">Marysville, <a href="#Page_29">29</a>, <a href="#Page_141">141</a></p>
+
+<p class="pni">Mayne, Charles, <a href="#Page_123">123</a></p>
+
+<p class="pni">Meeting of associates in New York, <a href="#Page_149">149</a></p>
+
+<p class="pni">Merchants’ Shipping Association, <a href="#Page_304">304</a></p>
+
+<p class="pni">Merger, Southern Pacific and Union Pacific, <a href="#Page_425">425-440</a></p>
+
+<p class="pni">Merritt, Samuel, <a href="#Page_87">87</a>, <a href="#Page_88">88</a>, <a href="#Page_91">91</a></p>
+
+<p class="pni">Mexican Coast Steamship Company, <a href="#Page_226">226</a></p>
+
+<p class="pni">Mexican lands in California, <a href="#Page_62">62</a></p>
+
+<p class="pni">Midgley, J. W., <a href="#Page_259">259</a></p>
+
+<p class="pni">Mileage, <a href="#Page_348">348</a></p>
+
+<p class="pni">Miller, John, secretary, Contract and Finance Company, <a href="#Page_80">80</a></p>
+
+<p class="pni">Milliken, Theodore J., <a href="#Page_75">75</a></p>
+
+<p class="pni">Mills, D. O., <a href="#Page_105">105</a>, <a href="#Page_172">172</a></p>
+
+<p class="pni">Milton, <a href="#Page_141">141</a></p>
+
+<p class="pni">Mojave, <a href="#Page_140">140</a></p>
+
+<p class="pni">Montague, chief engineer, California Pacific Railroads, <a href="#Page_113">113</a></p>
+
+<p class="pni">Moon, A. J., <a href="#Page_86">86</a></p>
+
+<p class="pni">Morton, Paul, <a href="#Page_432">432</a></p>
+
+<p class="pni">Moss, J. Mora, <a href="#Page_5">5</a>, <a href="#Page_7">7</a></p>
+
+<p class="pni">Munroe, J. A., <a href="#Page_246">246</a>, <a href="#Page_432">432</a></p>
+
+<p class="pnind">N</p>
+
+<p class="pni">Napa, <a href="#Page_224">224</a></p>
+
+<p class="pni">Napa Valley Railroad, <a href="#Page_107">107</a></p>
+
+<p class="pni">Navigation lines, <a href="#Page_222">222-236</a></p>
+
+<p class="pni">Needles, the, <a href="#Page_140">140</a>, <a href="#Page_180">180</a>, <a href="#Page_360">360</a></p>
+
+<p class="pni">Nevada, influencing legislation in, <a href="#Page_210">210</a></p>
+
+<p class="pni">Nevada and California Railroad, <a href="#Page_361">361</a></p>
+
+<p class="pni">Nevada Central Railroad, <a href="#Page_361">361</a></p>
+
+<p class="pni">New York Stock Exchange, Central Pacific stock listed, <a href="#Page_171">171</a></p>
+
+<p class="pni">Newmark, Harris, <a href="#Page_129">129</a>, <a href="#Page_130">130</a></p>
+
+<p class="pni">Nicaragua Canal Commission, <a href="#Page_303">303</a></p>
+
+<p class="pni">North American Navigation Company, <a href="#Page_308">308</a>, <a href="#Page_310">310-316</a></p>
+
+<p class="pni">North Fork, <a href="#Page_8">8</a></p>
+
+<p class="pni">Northern Division of the Southern Pacific, <a href="#Page_141">141</a>, <a href="#Page_144">144</a></p>
+
+<p class="pni">Northern Pacific Railroad, <a href="#Page_275">275</a>, <a href="#Page_308">308</a></p>
+
+<p class="pni">Northern Railroad, <a href="#Page_141">141</a>;</p>
+<p class="pnii">lease, <a href="#Page_142">142</a></p>
+
+<p class="pnind">O</p>
+
+<p class="pni">Oakdale, <a href="#Page_141">141</a></p>
+
+<p class="pni">Oakland, <a href="#Page_140">140</a>, <a href="#Page_141">141</a>;</p>
+<p class="pnii">terminal at, <a href="#Page_85">85-94</a></p>
+
+<p class="pni">Oakland Water Front Company, <a href="#Page_87">87-94</a></p>
+
+<p class="pni">Occidental and Oriental Steamship Company, <a href="#Page_227">227-229</a></p>
+
+<p class="pni">O’Connor bill of 1876, <a href="#Page_183">183</a></p>
+
+<p class="pni">Ogden, <a href="#Page_4">4</a>, <a href="#Page_140">140</a>, <a href="#Page_354">354</a></p>
+
+<p class="pni">Oil land, litigation over, <a href="#Page_441">441-453</a></p>
+
+<p class="pni">Oil rates, <a href="#Page_246">246</a></p>
+
+<p class="pni">Operating, Southern Pacific, <a href="#Page_347">347-369</a></p>
+
+<p class="pni">Oregon (See also “California and Oregon Railroad”); connection with, <a href="#Page_152">152</a>, <a href="#Page_276">276</a></p>
+
+<p class="pni">Oregon Central Railroad Company, <a href="#Page_450">450</a></p>
+
+<p class="pni">Oregon Short Line, <a href="#Page_276">276</a></p>
+
+<p class="pni">Orient, trade with, <a href="#Page_227">227</a></p>
+
+<p class="pnind">P</p>
+
+<p class="pni">Pacheco, <a href="#Page_224">224</a></p>
+
+<p class="pni">Pacific Improvement Company, <a href="#Page_133">133-135</a></p>
+
+<p class="pni">Pacific Mail Steamship Company, <a href="#Page_225">225-308</a>;</p>
+<p class="pnii">agreement with, <a href="#Page_229">229-232</a>;</p>
+<p class="pnii">arrangements with Panama Railroad, <a href="#Page_233">233-236</a>, <a href="#Page_309">309</a></p>
+
+<p class="pni">Pacific Oil Company, <a href="#Page_448">448</a></p>
+
+<p class="pni">Pacific Railroad bill, <a href="#Page_8">8</a>, <a href="#Page_47">47</a>, <a href="#Page_48">48-64</a></p>
+
+<p class="pni">Pacific steamships, <a href="#Page_225">225-236</a></p>
+
+<p class="pni">Palisade, <a href="#Page_361">361</a></p>
+
+<p class="pni">Panama, <a href="#Page_227">227-236</a></p>
+
+<p class="pni">Panama Canal, <a href="#Page_289">289</a></p>
+
+<p class="pni">Panama, Isthmus of, <a href="#Page_309">309-312</a></p>
+
+<p class="pni">Panama Railroad, <a href="#Page_233">233-236</a>, <a href="#Page_309">309</a>, <a href="#Page_310">310</a></p>
+
+<p class="pni">Park, Trenor W., <a href="#Page_226">226</a>, <a href="#Page_234">234</a></p>
+
+<p class="pni">Paxon, Joseph S., Treasurer of San Francisco, <a href="#Page_35">35</a></p>
+
+<p><span class="pagenum"><a name="Page_467" id="Page_467">[467]</a></span></p><p class="pni">Peel, James, finances Judah, <a href="#Page_15">15</a></p>
+
+<p class="pni">People v. Coon, <a href="#Page_35">35</a></p>
+
+<p class="pni">Peters, <a href="#Page_141">141</a></p>
+
+<p class="pni">Phelps, T. G., <a href="#Page_28">28</a>, <a href="#Page_48">48</a></p>
+
+<p class="pni">Pierce, T. W., <a href="#Page_149">149</a></p>
+
+<p class="pni">Piper, William A., <a href="#Page_32">32</a>, <a href="#Page_216">216</a></p>
+
+<p class="pni">Placer county, subscriptions to stock, <a href="#Page_41">41</a></p>
+
+<p class="pni">Placerville and Sacramento Valley Railroad, <a href="#Page_17">17</a>;<span class="vh"><a name="place" id="place"></a></span></p>
+<p class="pnii">Judah’s work for, <a href="#Page_4">4-10</a>;</p>
+<p class="pnii">refusal of Central Pacific to buy, <a href="#Page_43">43</a>;</p>
+<p class="pnii">Sacramento to Shingle Springs, <a href="#Page_141">141</a></p>
+
+<p class="pni">Political methods, <a href="#Page_199">199-221</a></p>
+
+<p class="pni">Population, southern California in 1876, <a href="#Page_170">170</a></p>
+
+<p class="pni">Portland, Ore., <a href="#Page_276">276</a></p>
+
+<p class="pni">Powers, Congressman, bill for refunding of debt, <a href="#Page_398">398</a></p>
+
+<p class="pni">Prince, John D., <a href="#Page_177">177</a></p>
+
+<p class="pni">Probst, Daniel, <a href="#Page_177">177</a></p>
+
+<p class="pnind">R</p>
+
+<p class="pni">Railroad Commission, United States Pacific, <a href="#Page_80">80</a>, <a href="#Page_152">152</a>, <a href="#Page_209">209</a>, <a href="#Page_210">210</a>;</p>
+<p class="pnii">report of commissioner on repayment of government debts, <a href="#Page_395">395</a>;</p>
+<p class="pnii">State Board of Transportation, <a href="#Page_181">181-198</a>, <a href="#Page_242">242</a></p>
+
+<p class="pni">Rates, as affected by industrial conditions, <a href="#Page_238">238</a>;</p>
+<p class="pnii">charging what the traffic will bear, <a href="#Page_257">257</a>;</p>
+<p class="pnii">classifications, <a href="#Page_240">240</a>;</p>
+<p class="pnii">competing railroad to cut, <a href="#Page_318">318</a>;</p>
+<p class="pnii">competition of steamship lines, <a href="#Page_303">303-316</a>;</p>
+<p class="pnii">contract system, <a href="#Page_250">250-255</a>;</p>
+<p class="pnii">controversy with Traffic Association, <a href="#Page_293">293-316</a>;</p>
+<p class="pnii">discrimination, <a href="#Page_243">243</a>;</p>
+<p class="pnii">dissatisfaction with, <a href="#Page_282">282</a>;</p>
+<p class="pnii">effect of water competition on, <a href="#Page_263">263</a>, <a href="#Page_280">280</a>;</p>
+<p class="pnii">favoring of interests, <a href="#Page_239">239</a>;</p>
+<p class="pnii">local, <a href="#Page_242">242</a>, <a href="#Page_257">257-274</a>;</p>
+<p class="pnii">rebates, <a href="#Page_247">247</a>;</p>
+<p class="pnii">San Francisco and San Joaquin Valley Railroad, <a href="#Page_342">342</a>;</p>
+<p class="pnii">State Board adopts new schedule, 1880, <a href="#Page_191">191-194</a>;</p>
+<p class="pnii">state regulation over local, <a href="#Page_317">317</a>;</p>
+<p class="pnii">transcontinental, <a href="#Page_275">275-292</a></p>
+
+<p class="pni">Reagan, Judge, <a href="#Page_189">189</a></p>
+
+<p class="pni">Red Bluff, <a href="#Page_224">224</a></p>
+
+<p class="pni">Redding, <a href="#Page_141">141</a></p>
+
+<p class="pni">Reese, Michael, <a href="#Page_117">117</a></p>
+
+<p class="pni">Reilly, James, report on refunding of debt, <a href="#Page_397">397</a></p>
+
+<p class="pni">Reorganization plan, <a href="#Page_418">418-424</a>, <a href="#Page_436">436</a></p>
+
+<p class="pni">Restraint of trade, government action, 1911, <a href="#Page_429">429</a>;</p>
+<p class="pnii">testimony in regard, <a href="#Page_356">356</a></p>
+
+<p class="pni">River traffic, <a href="#Page_223">223</a></p>
+
+<p class="pni">Robinson, J. P., <a href="#Page_5">5</a></p>
+
+<p class="pni">Rocky Mountain Coal and Iron Company, <a href="#Page_158">158</a>, <a href="#Page_161">161</a>, <a href="#Page_162">162</a></p>
+
+<p class="pni">Root, Elihu, <a href="#Page_415">415</a></p>
+
+<p class="pni">Roseville, <a href="#Page_141">141</a></p>
+
+<p class="pni">Routes, Dutch Flat, <a href="#Page_6">6</a>;</p>
+<p class="pnii">Judah’s second report, 1861, <a href="#Page_19">19</a></p>
+
+<p class="pnind">S</p>
+
+<p class="pni">Sacramento, Judah, T. D., in, <a href="#Page_9">9</a>;</p>
+<p class="pnii">rates, <a href="#Page_317">317</a>;</p>
+<p class="pnii">route to Benicia route, <a href="#Page_5">5</a>;</p>
+<p class="pnii">route to San Francisco route, <a href="#Page_107">107</a>;</p>
+<p class="pnii">route to San Francisco via Benicia, finished, <a href="#Page_141">141</a>;</p>
+<p class="pnii">route to San José, <a href="#Page_84">84</a>, <a href="#Page_140">140</a>;</p>
+<p class="pnii">route to Shingle Springs, <a href="#Page_141">141</a>;</p>
+<p class="pnii">route to Ogden, <a href="#Page_140">140</a>;</p>
+<p class="pnii">route to Washoe, <a href="#Page_8">8</a></p>
+
+<p class="pni">Sacramento River bridge to Davisville, <a href="#Page_111">111</a>, <a href="#Page_112">112</a></p>
+
+<p class="pni">Sacramento Union, <a href="#Page_215">215</a></p>
+
+<p class="pni">Sacramento Valley Railroad (See <a href="#place">“Placerville and Sacramento Valley Railroad”</a>)</p>
+
+<p class="pni">Salinas Valley, <a href="#Page_141">141</a></p>
+
+<p class="pni">Salt Lake, contemplated railroad to, <a href="#Page_318">318</a></p>
+
+<p class="pni">San Benito Valley, <a href="#Page_125">125</a></p>
+
+<p class="pni">San Diego, <a href="#Page_127">127</a>, <a href="#Page_223">223</a></p>
+
+<p><span class="pagenum"><a name="Page_468" id="Page_468">[468]</a></span></p><p class="pni">San Fernando tunnel, <a href="#Page_131">131</a></p>
+
+<p class="pni">San Francisco, <a href="#Page_140">140</a>, <a href="#Page_223">223</a>, <a href="#Page_321">321</a>;</p>
+<p class="pnii">meeting at, to object to refunding bill, <a href="#Page_402">402</a>;</p>
+<p class="pnii">opposes to government aid, <a href="#Page_31">31-40</a>;</p>
+<p class="pnii">port of, <a href="#Page_223">223</a>;</p>
+<p class="pnii">rates, <a href="#Page_281">281</a>, <a href="#Page_317">317</a>;</p>
+<p class="pnii">terminal facilities in, in 1869, <a href="#Page_85">85</a>;</p>
+<p class="pnii">water-front grants, <a href="#Page_94">94-103</a></p>
+
+<p class="pni">San Francisco and Great Salt Lake Railroad Company, <a href="#Page_318">318</a></p>
+
+<p class="pni">San Francisco and Marysville Railroad, <a href="#Page_29">29</a></p>
+
+<p class="pni">San Francisco, Oakland and Alameda Railroad, purchased by Huntington and associates, <a href="#Page_103">103</a>, <a href="#Page_140">140</a></p>
+
+<p class="pni">San Francisco and San Joaquin Valley Railroad, <a href="#Page_44">44</a>, <a href="#Page_81">81</a>, <a href="#Page_140">140</a>, <a href="#Page_317">317-346</a>;<span class="vh"><a name="sanfr" id="sanfr"></a></span></p>
+<p class="pnii">China Basin lease, <a href="#Page_335">335-338</a></p>
+
+<p class="pni">San Francisco and San José Railroad, <a href="#Page_48">48</a>, <a href="#Page_84">84</a>, <a href="#Page_120">120</a>, <a href="#Page_121">121</a>, <a href="#Page_123">123</a></p>
+
+<p class="pni">San Francisco to Great Salt Lake, <a href="#Page_318">318</a>;</p>
+<p class="pnii">to Soledad, <a href="#Page_141">141</a></p>
+
+<p class="pni">San Francisco Bulletin, <a href="#Page_98">98</a>, <a href="#Page_101">101</a>, <a href="#Page_182">182</a>, <a href="#Page_306">306</a></p>
+
+<p class="pni">San Francisco Chronicle, <a href="#Page_215">215</a>, <a href="#Page_219">219</a>, <a href="#Page_264">264</a></p>
+
+<p class="pni">San Francisco Examiner, <a href="#Page_328">328</a>, <a href="#Page_403">403</a></p>
+
+<p class="pni">San Francisco Stock Exchange, Central Pacific stock listed, <a href="#Page_171">171</a></p>
+
+<p class="pni">San Francisco Times, <a href="#Page_98">98</a></p>
+
+<p class="pni">San Joaquin Valley, <a href="#Page_119">119</a>, <a href="#Page_140">140</a></p>
+
+<p class="pni">San Joaquin Valley Railroad (See <a href="#sanfr">“San Francisco and San Joaquin Valley Railroad”</a>)</p>
+
+<p class="pni">San José, <a href="#Page_141">141</a></p>
+
+<p class="pni">San Pablo and Tulare Railroad, <a href="#Page_141">141</a></p>
+
+<p class="pni">San Pedro, <a href="#Page_223">223</a></p>
+
+<p class="pni">Santa Ana, in 1870, <a href="#Page_127">127</a></p>
+
+<p class="pni">Santa Clara and Pajaro Valley Railroad, <a href="#Page_123">123</a></p>
+
+<p class="pni">Santa Fé Railroad (See <a href="#atchi">“Atchison, Topeka and Santa Fé Railroad”</a>)</p>
+
+<p class="pni">Sargent, Congressman, <a href="#Page_46">46</a>, <a href="#Page_47">47</a></p>
+
+<p class="pni">Scott, Tom, <a href="#Page_202">202</a>, <a href="#Page_208">208</a></p>
+
+<p class="pni">Securities, advertised, <a href="#Page_172">172</a>;</p>
+<p class="pnii">first sale of, <a href="#Page_177">177</a>;</p>
+<p class="pnii">market for, <a href="#Page_171">171</a></p>
+
+<p class="pni">Shelby, P. P., <a href="#Page_357">357</a></p>
+
+<p class="pni">Shingle Springs, <a href="#Page_141">141</a></p>
+
+<p class="pni">Shipping statistics, New York to San Francisco, 1869-1884, <a href="#Page_232">232</a></p>
+
+<p class="pni">Ships, British vs. American, <a href="#Page_294">294</a></p>
+
+<p class="pni">Sierra Nevada Mountains, surveys of, <a href="#Page_5">5</a>, <a href="#Page_59">59</a></p>
+
+<p class="pni">Simmons Hardware Company, <a href="#Page_282">282</a></p>
+
+<p class="pni">Sinking funds, bond provisions, <a href="#Page_376">376</a>, <a href="#Page_383">383</a>;</p>
+<p class="pnii">court decisions, <a href="#Page_410">410</a></p>
+
+<p class="pni">Smith, Mr., Treasurer of the Southern Pacific, <a href="#Page_163">163</a></p>
+
+<p class="pni">Snow sheds, <a href="#Page_67">67</a></p>
+
+<p class="pni">Soledad, <a href="#Page_141">141</a>, <a href="#Page_179">179</a></p>
+
+<p class="pni">Southern Development Company, <a href="#Page_135">135</a></p>
+
+<p class="pni">Southern Pacific Company of Kentucky, <a href="#Page_150">150</a></p>
+
+<p class="pni">Southern Pacific Railroad acquires Los Angeles and San Pedro Railroad, <a href="#Page_128">128</a>;</p>
+<p class="pnii">bonds of, <a href="#Page_370">370-424</a>;</p>
+<p class="pnii">construction of, companies organized to build, <a href="#Page_132">132-136</a>;</p>
+<p class="pnii">early routes, <a href="#Page_125">125-128</a>;</p>
+<p class="pnii">controlled by Stanford and associates, <a href="#Page_122">122</a>;</p>
+<p class="pnii">earnings, <a href="#Page_347">347-369</a>;</p>
+<p class="pnii">El Paso route, <a href="#Page_354">354</a>;</p>
+<p class="pnii">in 1877, <a href="#Page_140">140</a>;</p>
+<p class="pnii">incorporated, <a href="#Page_120">120-123</a>;</p>
+<p class="pnii">grant by Los Angeles, <a href="#Page_128">128</a>;</p>
+<p class="pnii">growth of, 1871-1878, <a href="#Page_141">141</a>;</p>
+<p class="pnii">leases of, <a href="#Page_143">143-153</a>;</p>
+<p class="pnii">northern division, <a href="#Page_141">141</a>, <a href="#Page_144">144</a>;</p>
+<p class="pnii">operating characteristics, <a href="#Page_347">347-369</a>;</p>
+<p class="pnii">reorganization plan, 1884, <a href="#Page_149">149</a>, 1913, <a href="#Page_436">436</a>;</p>
+<p class="pnii">rivalry feared by Stanford, <a href="#Page_119">119</a>;</p>
+<p class="pnii">route, <a href="#Page_123">123</a>;</p>
+<p class="pnii">traffic diversion charged, <a href="#Page_356">356</a>;</p>
+<p class="pnii">Union Pacific gains control of, <a href="#Page_428">428</a></p>
+
+<p class="pni">Spanish lands in California, <a href="#Page_62">62</a></p>
+
+<p class="pni">Spence, Mr., <a href="#Page_286">286</a>, <a href="#Page_356">356</a>, <a href="#Page_432">432</a></p>
+
+<p class="pni">Speyer, James, and Company, contract to sell securities, <a href="#Page_147">147</a>, <a href="#Page_177">177-180</a>, <a href="#Page_414">414</a>, <a href="#Page_417">417</a></p>
+
+<p class="pni">Spreckels, Adolph, <a href="#Page_326">326</a></p>
+
+<p class="pni">Spreckels, Claus, <a href="#Page_324">324-328</a>, <a href="#Page_332">332</a>, <a href="#Page_336">336</a></p>
+
+<p><span class="pagenum"><a name="Page_469" id="Page_469">[469]</a></span></p><p class="pni">Spreckels, John D., <a href="#Page_326">326</a>, <a href="#Page_329">329</a></p>
+
+<p class="pni">Sproule, Mr., <a href="#Page_356">356</a></p>
+
+<p class="pni">Standard Oil Company, <a href="#Page_245">245</a></p>
+
+<p class="pni">Stanford, Leland, <a href="#Page_22">22</a>, <a href="#Page_64">64</a>, <a href="#Page_145">145</a>, <a href="#Page_284">284</a>;</p>
+<p class="pnii">acquires control California Pacific Railroad, <a href="#Page_109">109-118</a>;</p>
+<p class="pnii">against state regulation, <a href="#Page_199">199</a>;</p>
+<p class="pnii">agreement with California Pacific Railroad, <a href="#Page_110">110</a>;</p>
+<p class="pnii">biography, <a href="#Page_11">11</a>;</p>
+<p class="pnii">claim against federal government, <a href="#Page_374">374</a>;</p>
+<p class="pnii">director, Southern Pacific Railroad, <a href="#Page_123">123</a>;</p>
+<p class="pnii">finances T. D. Judah, <a href="#Page_14">14</a>;</p>
+<p class="pnii">lobbying methods, <a href="#Page_204">204-221</a>;</p>
+<p class="pnii">Oakland Water Front Company, <a href="#Page_87">87</a>, <a href="#Page_89">89</a>, <a href="#Page_90">90</a>, <a href="#Page_91">91</a>;</p>
+<p class="pnii">objects to freight rates of 1880, <a href="#Page_192">192</a>;</p>
+<p class="pnii">on rates, <a href="#Page_239">239</a>;</p>
+<p class="pnii">organizes Contract and Finance Company, <a href="#Page_75">75</a>;</p>
+<p class="pnii">resigns presidency of Southern Pacific, <a href="#Page_218">218</a>;</p>
+<p class="pnii">senator from California, <a href="#Page_218">218</a>;</p>
+<p class="pnii">shareholder of Central Pacific Railroad, <a href="#Page_19">19</a>;</p>
+<p class="pnii">shares of, <a href="#Page_146">146-149</a>;</p>
+<p class="pnii">statement regarding Southern Pacific, <a href="#Page_122">122</a>;</p>
+<p class="pnii">Thurman bill, <a href="#Page_385">385</a></p>
+
+<p class="pni">Stanford, Philip, <a href="#Page_32">32</a></p>
+
+<p class="pni">State aid, <a href="#Page_30">30</a></p>
+
+<p class="pni">State boards (see under names of states, California, Utah, etc.)</p>
+
+<p class="pni">State regulation, arguments against, <a href="#Page_199">199</a>;</p>
+<p class="pnii">local control, <a href="#Page_317">317</a>;</p>
+<p class="pnii">railroad commission, 1880-1883, <a href="#Page_181">181-198</a></p>
+
+<p class="pni">Steinman, Mr., <a href="#Page_189">189</a></p>
+
+<p class="pni">Stetson, J. B., President, Traffic Association, <a href="#Page_295">295</a>, <a href="#Page_297">297</a>, <a href="#Page_318">318</a>, <a href="#Page_359">359</a></p>
+
+<p class="pni">Stock, Central Pacific Railroad, 1863-1869, <a href="#Page_23">23</a>;</p>
+<p class="pnii">county subscriptions, <a href="#Page_29">29</a>;</p>
+<p class="pnii">California Pacific Railroad Company, <a href="#Page_109">109-118</a>;</p>
+<p class="pnii">prices of, <a href="#Page_365">365-369</a></p>
+
+<p class="pni">Stock exchange listings, <a href="#Page_171">171</a></p>
+
+<p class="pni">Stockholders, <a href="#Page_142">142</a>, <a href="#Page_146">146-149</a>;</p>
+<p class="pnii">English, <a href="#Page_367">367</a>;</p>
+<p class="pnii">liability of, <a href="#Page_406">406</a>;</p>
+<p class="pnii">under reorganization plan, <a href="#Page_420">420</a></p>
+
+<p class="pni">Stockton, <a href="#Page_17">17</a>, <a href="#Page_107">107</a>, <a href="#Page_140">140</a>, <a href="#Page_141">141</a>, <a href="#Page_223">223</a>, <a href="#Page_224">224</a>, <a href="#Page_272">272</a>, <a href="#Page_317">317</a>, <a href="#Page_320">320</a></p>
+
+<p class="pni">Stockton and Copperopolis Railroad, <a href="#Page_17">17</a>, <a href="#Page_141">141</a>, <a href="#Page_143">143</a></p>
+
+<p class="pni">Stockton and Tulare Railroad, <a href="#Page_44">44</a></p>
+
+<p class="pni">Stockton and Visalia Railroad, <a href="#Page_141">141</a></p>
+
+<p class="pni">Stockton Independent, <a href="#Page_182">182</a></p>
+
+<p class="pni">Stoneman, George B., member, State Railroad Board, 1880-1883, <a href="#Page_189">189-198</a></p>
+
+<p class="pni">Strobridge, engineer, <a href="#Page_68">68</a></p>
+
+<p class="pni">Strong, Daniel W., <a href="#Page_6">6</a>, <a href="#Page_284">284</a></p>
+
+<p class="pni">Stubbs, J. C., General Traffic Manager, <a href="#Page_244">244</a>, <a href="#Page_249">249</a>, <a href="#Page_250">250</a>, <a href="#Page_252">252</a>, <a href="#Page_253">253</a>, <a href="#Page_255">255</a>, <a href="#Page_256">256</a>, <a href="#Page_258">258</a>, <a href="#Page_292">292</a>, <a href="#Page_432">432</a></p>
+
+<p class="pni">Subsidies (See “Government aid”)</p>
+
+<p class="pni">Summit Station, <a href="#Page_65">65</a></p>
+
+<p class="pni">Supplies, for construction of Central Pacific, <a href="#Page_68">68</a></p>
+
+<p class="pni">Sutro, Adolph, <a href="#Page_402">402</a></p>
+
+<p class="pni">Sutton and Beebe, <a href="#Page_304">304</a>, <a href="#Page_306">306</a></p>
+
+<p class="pnind">T</p>
+
+<p class="pni">Taylor, General, <a href="#Page_203">203</a></p>
+
+<p class="pni">Tehama, <a href="#Page_141">141</a></p>
+
+<p class="pni">Temperature, affecting construction, <a href="#Page_67">67</a></p>
+
+<p class="pni">Terminal Central Pacific Railroad Company, <a href="#Page_100">100</a></p>
+
+<p class="pni">Terminals, China Basin lease, <a href="#Page_335">335-338</a>;</p>
+<p class="pnii">facilities in 1869, <a href="#Page_85">85</a>;</p>
+<p class="pnii">Oakland, <a href="#Page_85">85-94</a>;</p>
+<p class="pnii">rates, <a href="#Page_281">281</a>;</p>
+<p class="pnii">San Francisco, <a href="#Page_94">94-103</a></p>
+
+<p class="pni">Tevis, Lloyd, <a href="#Page_88">88</a>, <a href="#Page_123">123</a>, <a href="#Page_162">162</a>, <a href="#Page_167">167</a></p>
+
+<p class="pni">Texas Pacific Railroad, <a href="#Page_125">125</a>, <a href="#Page_275">275</a></p>
+
+<p class="pni">Thayer, S. H., <a href="#Page_172">172</a>, <a href="#Page_173">173</a></p>
+
+<p class="pni">Thurman act, <a href="#Page_380">380-394</a>, <a href="#Page_408">408</a></p>
+
+<p class="pni">Tilford, A. E., <a href="#Page_245">245</a></p>
+
+<p class="pni">Tilford, W. H., <a href="#Page_245">245</a></p>
+
+<p class="pni">Timber land, litigation over, <a href="#Page_441">441-453</a></p>
+
+<p class="pni">Towne, Mr., general superintendent, <a href="#Page_115">115</a>, <a href="#Page_144">144</a>, <a href="#Page_249">249</a>, <a href="#Page_264">264</a></p>
+
+<p class="pni">Tracy, <a href="#Page_141">141</a></p>
+
+<p class="pni">Traffic, operating characteristics, <a href="#Page_347">347-369</a>;</p>
+<p class="pnii">rates, <a href="#Page_237">237-274</a>;</p>
+<p class="pnii">transcontinental, <a href="#Page_275">275-292</a>;</p>
+
+<p><span class="pagenum"><a name="Page_470" id="Page_470">[470]</a></span></p><p class="pnii">Traffic Association of California, rate war, <a href="#Page_293">293-316</a>, <a href="#Page_318">318-323</a>, <a href="#Page_365">365</a></p>
+
+<p class="pni">Traffic Bureau of Utah, <a href="#Page_284">284</a></p>
+
+<p class="pni">Tres Pinos, <a href="#Page_126">126</a>, <a href="#Page_141">141</a>, <a href="#Page_179">179</a></p>
+
+<p class="pni">Truckee River, <a href="#Page_8">8</a>, <a href="#Page_9">9</a>, <a href="#Page_19">19</a></p>
+
+<p class="pni">Tulare, <a href="#Page_141">141</a></p>
+
+<p class="pni">Tuttle, Mr., <a href="#Page_194">194</a></p>
+
+<p class="pnind">U</p>
+
+<p class="pni">Union Pacific Railroad Company, <a href="#Page_49">49</a>, <a href="#Page_230">230</a>, <a href="#Page_275">275</a>;</p>
+<p class="pnii">gains control of Southern Pacific, <a href="#Page_428">428</a>;</p>
+<p class="pnii">reorganization, 1913, <a href="#Page_436">436</a></p>
+
+<p class="pni">United States v. Kansas Pacific Railway Company, <a href="#Page_408">408</a></p>
+
+<p class="pni">United States v. Southern Pacific, <a href="#Page_444">444-448</a></p>
+
+<p class="pni">United States Pacific Railway Commission, <a href="#Page_80">80</a>, <a href="#Page_152">152</a>, <a href="#Page_209">209</a>, <a href="#Page_210">210</a></p>
+
+<p class="pnind">V</p>
+
+<p class="pni">Vallejo, <a href="#Page_107">107</a>, <a href="#Page_141">141</a>, <a href="#Page_224">224</a></p>
+
+<p class="pni">Vancouver, <a href="#Page_276">276</a></p>
+
+<p class="pni">Vanderbilt, Cornelius, <a href="#Page_226">226</a></p>
+
+<p class="pni">Van Sicklen, Mr., <a href="#Page_323">323</a></p>
+
+<p class="pni">Virginia and Truckee Railroad, <a href="#Page_361">361</a></p>
+
+<p class="pni">Virginia City, <a href="#Page_361">361</a></p>
+
+<p class="pni">Visalia, <a href="#Page_141">141</a></p>
+
+<p class="pni">Votes, purchasing of, <a href="#Page_209">209</a></p>
+
+<p class="pnind">W</p>
+
+<p class="pni">Washoe, <a href="#Page_8">8</a>, <a href="#Page_9">9</a></p>
+
+<p class="pni">Water routes to California, <a href="#Page_222">222-236</a>, <a href="#Page_263">263</a>, <a href="#Page_303">303-316</a></p>
+
+<p class="pni">Western Development Company, <a href="#Page_132">132</a>;</p>
+<p class="pnii">Colton interests in, <a href="#Page_157">157</a>, <a href="#Page_158">158</a>, <a href="#Page_159">159</a>, <a href="#Page_165">165</a>;</p>
+<p class="pnii">contract with Speyer, <a href="#Page_178">178</a>;</p>
+<p class="pnii">dividends, <a href="#Page_160">160</a></p>
+
+<p class="pni">Western Pacific Railroad, consolidation with Central Pacific Railroad, <a href="#Page_84">84</a>, <a href="#Page_140">140</a>;</p>
+<p class="pnii">constructed by Contract and Finance Company, <a href="#Page_81">81</a>;</p>
+<p class="pnii">litigation with San Francisco, <a href="#Page_31">31-40</a>;</p>
+<p class="pnii">receipts to December, 1869, <a href="#Page_21">21</a></p>
+
+<p class="pni">Whittier, Fuller and Company, <a href="#Page_246">246</a></p>
+
+<p class="pni">“Willamette,” steamer, <a href="#Page_224">224</a></p>
+
+<p class="pni">Wilmington, <a href="#Page_141">141</a></p>
+
+<p class="pni">Wilson, Mr., real estate transaction by, <a href="#Page_195">195-197</a></p>
+
+<p class="pni">Wilson, Sir Rivers, <a href="#Page_367">367</a></p>
+
+<p class="pni">Wilson, S. M., <a href="#Page_164">164</a></p>
+
+<p class="pni">Woodland to Tehama route, <a href="#Page_141">141</a></p>
+
+<p class="pnind">Y</p>
+
+<p class="pni">Yuma, <a href="#Page_140">140</a></p>
+
+</div>
+
+<div class="sum">
+
+<h2 class="p4">FOOTNOTES:</h2>
+
+<div class="footnotes">
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_1_1" id="Footnote_1_1"></a><a href="#FNanchor_1_1"><span class="label">[1]</span></a></span>
+The statement in the text is sufficiently accurate as a preliminary generalization. As
+will appear later, the road between Sacramento and Oakland was not built by the Central
+Pacific, but by certain other companies of which the Western Pacific and the California
+Pacific were the most important. It may also be important for some purposes to observe
+that the Southern Pacific system enters Ogden over Union Pacific tracks, and New Orleans
+over the tracks of the Illinois Central Railroad Company.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_2_2" id="Footnote_2_2"></a><a href="#FNanchor_2_2"><span class="label">[2]</span></a></span>
+On the early history of the Central Pacific, see a document printed by order of the
+Nevada Senate, entitled “Evidence concerning projected railways across the Sierra Nevada
+Mountains from Pacific tide-water in California, etc., procured by the Committee on Railroads
+of the First Nevada Legislature” (Carson City, 1865). This document contains
+several valuable reports and some interesting testimony.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_3_3" id="Footnote_3_3"></a><a href="#FNanchor_3_3"><span class="label">[3]</span></a></span>
+Judah’s report of his mission to Washington as a delegate of the Pacific Railroad
+Convention is printed in full in the <i>Sacramento Union</i> for July 25, 1860.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_4_4" id="Footnote_4_4"></a><a href="#FNanchor_4_4"><span class="label">[4]</span></a></span>
+Testimony taken by the United States Pacific Railway Commission, appointed under
+an Act of Congress approved March 3, 1887, entitled, “An act authorizing an investigation
+of the books, accounts, and methods of railroads which have received aid from the United
+States, and other purposes.” (50th Congress, 1st Session, Senate Executive Document No.
+51, pp. 2838-39, testimony D. W. Strong.) Hereafter referred to as United States Pacific
+Railway Commission.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_5_5" id="Footnote_5_5"></a><a href="#FNanchor_5_5"><span class="label">[5]</span></a></span>
+The expenses of this preliminary investigation were provided by small subscribers
+around Dutch Flat. A paper dated at Dutch Flat, June 26, 1860, contains 47 names, including
+that of D. W. Strong. No subscription was for over $15, and only nine were for as
+much as $10 apiece. (United States Pacific Railway Commission, p. 2959.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_6_6" id="Footnote_6_6"></a><a href="#FNanchor_6_6"><span class="label">[6]</span></a></span>
+Judah manuscript, letter of Mrs. Anne Judah.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_7_7" id="Footnote_7_7"></a><a href="#FNanchor_7_7"><span class="label">[7]</span></a></span>
+Evidence concerning projected railways across the Sierra Nevada Mountains, <i>sup
+cit.</i>, testimony L. L. Robinson.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_8_8" id="Footnote_8_8"></a><a href="#FNanchor_8_8"><span class="label">[8]</span></a></span>
+United States Pacific Railway Commission, pp. 2960-61, testimony D. W.
+Strong.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_9_9" id="Footnote_9_9"></a><a href="#FNanchor_9_9"><span class="label">[9]</span></a></span>
+<i>Sacramento Union</i>, January 9 and 10, 1861.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_10_10" id="Footnote_10_10"></a><a href="#FNanchor_10_10"><span class="label">[10]</span></a></span>
+<i>Sacramento Union</i>, January 4, 1861.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_11_11" id="Footnote_11_11"></a><a href="#FNanchor_11_11"><span class="label">[11]</span></a></span>
+Stanford’s election to the United States Senate was resented by Huntington, and led
+eventually to an open breach between the two men. It is not improbable, however, that
+Stanford’s friends, and not Stanford himself, were responsible for the latter’s candidacy. It
+would not have been difficult to persuade a man of Stanford’s temperament that he was
+performing a public service in allowing his name to be used.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_12_12" id="Footnote_12_12"></a><a href="#FNanchor_12_12"><span class="label">[12]</span></a></span>
+Crocker said of his own personal appearance during the sixties: “While I was building
+the road, I weighed nearly all the time 264-5 pounds; at one time, in China, I weighed
+about 274 pounds; the Chinaman who weighed me called me a 4-<i>picul</i> man—a ‘<i>picul</i>’ being
+66⅔ pounds.... While I was building the road, I weighed the first year, 244, which
+increased to 265, and when I finished the work, was weighing that. I am 5 feet 10¾ inches
+tall.” (Crocker manuscript, p. 63.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_13_13" id="Footnote_13_13"></a><a href="#FNanchor_13_13"><span class="label">[13]</span></a></span>
+Huntington manuscript, p. 36. The Bancroft Library of the University of California
+possesses notes of interviews with a number of men prominent in California history collected
+by H. H. Bancroft or his representatives. In some cases these notes are very full and informing.
+They will be referred to in the present volume as “Huntington manuscript,”
+“Crocker manuscript,” etc. See also Redding, “Sketch of the Life of Mark Hopkins”
+(San Francisco, 1881).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_14_14" id="Footnote_14_14"></a><a href="#FNanchor_14_14"><span class="label">[14]</span></a></span>
+Huntington manuscript, pp. 9-10.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_15_15" id="Footnote_15_15"></a><a href="#FNanchor_15_15"><span class="label">[15]</span></a></span>
+Crocker manuscript, pp. 28-29. See also Hittell, “History of California,” Vol. 4.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_16_16" id="Footnote_16_16"></a><a href="#FNanchor_16_16"><span class="label">[16]</span></a></span>
+Report of a committee of the board of directors, Sacramento Valley Railroad Company,
+August 7, 1855.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_17_17" id="Footnote_17_17"></a><a href="#FNanchor_17_17"><span class="label">[17]</span></a></span>
+Articles of association and by-laws of the Sacramento Valley Railroad Company,
+together with an estimate of the gross receipts of the road when in operation, New York,
+1853.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_18_18" id="Footnote_18_18"></a><a href="#FNanchor_18_18"><span class="label">[18]</span></a></span>
+Engineer’s report of a preliminary survey of the Stockton and Copperopolis Railroad
+with estimates of cost and traffic, October, 1862.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_19_19" id="Footnote_19_19"></a><a href="#FNanchor_19_19"><span class="label">[19]</span></a></span>
+Report of the chief engineer on the survey, cost of construction, and estimated
+revenue of the Placerville and Sacramento Valley Railroad of California, San Francisco,
+1863.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_20_20" id="Footnote_20_20"></a><a href="#FNanchor_20_20"><span class="label">[20]</span></a></span>
+Report of President Moore to stockholders, 1873.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_21_21" id="Footnote_21_21"></a><a href="#FNanchor_21_21"><span class="label">[21]</span></a></span>
+Report of the chief engineer on the preliminary survey, cost of construction, and estimated
+revenue of the Central Pacific Railroad of California, etc., October 22, 1862; report
+of Acting Chief Engineer Montague, October 8, 1864. Reprinted in “Evidence concerning
+projected railways across the Sierra Nevada Mountains,” <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_22_22" id="Footnote_22_22"></a><a href="#FNanchor_22_22"><span class="label">[22]</span></a></span>
+Report of the chief engineer on the preliminary survey, cost of construction, etc.,
+October 22, 1862 (October 1, 1861), <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_23_23" id="Footnote_23_23"></a><a href="#FNanchor_23_23"><span class="label">[23]</span></a></span>
+United States Pacific Railway Commission, p. 3774, testimony C. P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_24_24" id="Footnote_24_24"></a><a href="#FNanchor_24_24"><span class="label">[24]</span></a></span>
+Complaint of Samuel Brannan, June 21, 1870. Filed in the case of Brannan v. Central
+Pacific Railroad, in the District Court of the Fifteenth Judicial District of the State of
+California.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_25_25" id="Footnote_25_25"></a><a href="#FNanchor_25_25"><span class="label">[25]</span></a></span>
+Bancroft, “History of California,” Vol. 7. p. 545, note. The assessed value of the
+associates’ property in Sacramento County in 1861 was $118,035.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_26_26" id="Footnote_26_26"></a><a href="#FNanchor_26_26"><span class="label">[26]</span></a></span>
+United States Pacific Railway Commission Report, p. 87.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_27_27" id="Footnote_27_27"></a><a href="#FNanchor_27_27"><span class="label">[27]</span></a></span>
+United States Pacific Railway Commission, p. 3421, testimony M. D. Boruck.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_28_28" id="Footnote_28_28"></a><a href="#FNanchor_28_28"><span class="label">[28]</span></a></span>
+Crocker manuscript, p. 32.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_29_29" id="Footnote_29_29"></a><a href="#FNanchor_29_29"><span class="label">[29]</span></a></span>
+United States Pacific Railway Commission, pp. 2630-31, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_30_30" id="Footnote_30_30"></a><a href="#FNanchor_30_30"><span class="label">[30]</span></a></span>
+<i>Ibid.</i>, p. 2652. testimony Leland Stanford. Stanford and his associates bought stock
+in 1871 for which they paid $400 or $500 a share, but Stanford says that this was to quiet
+litigation which he described as blackmail.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_31_31" id="Footnote_31_31"></a><a href="#FNanchor_31_31"><span class="label">[31]</span></a></span>
+Ellen M. Colton v. Leland Stanford <i>et al.</i>, in the Superior Court of the State of California
+in and for the County of Sonoma, 1883. Hereafter referred to as “Colton case.”
+The record in this proceeding contains much valuable information relative to the history of
+the Southern Pacific and the activities of the Huntington-Stanford group.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_32_32" id="Footnote_32_32"></a><a href="#FNanchor_32_32"><span class="label">[32]</span></a></span>
+United States Pacific Railway Commission, p. 3493, testimony D. O. Mills.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_33_33" id="Footnote_33_33"></a><a href="#FNanchor_33_33"><span class="label">[33]</span></a></span>
+Crocker manuscript, pp. 29-30.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_34_34" id="Footnote_34_34"></a><a href="#FNanchor_34_34"><span class="label">[34]</span></a></span>
+United States Pacific Railway Commission, p. 2731, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_35_35" id="Footnote_35_35"></a><a href="#FNanchor_35_35"><span class="label">[35]</span></a></span>
+<i>Ibid.</i>, p. 2399, testimony A. Cohen; p. 2767, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_36_36" id="Footnote_36_36"></a><a href="#FNanchor_36_36"><span class="label">[36]</span></a></span>
+Colton case, pp. 948-49, Huntington to Colton, October 8, 1874.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_37_37" id="Footnote_37_37"></a><a href="#FNanchor_37_37"><span class="label">[37]</span></a></span>
+Tinkham, “History of Stockton,” p. 356; <i>San Francisco Chronicle</i>, June 13, 1874.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_38_38" id="Footnote_38_38"></a><a href="#FNanchor_38_38"><span class="label">[38]</span></a></span>
+Laws of California, 1852, Ch. 77.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_39_39" id="Footnote_39_39"></a><a href="#FNanchor_39_39"><span class="label">[39]</span></a></span>
+<i>Ibid.</i>, 1857, Ch. 243.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_40_40" id="Footnote_40_40"></a><a href="#FNanchor_40_40"><span class="label">[40]</span></a></span>
+<i>Ibid.</i>, 1858, Ch. 300.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_41_41" id="Footnote_41_41"></a><a href="#FNanchor_41_41"><span class="label">[41]</span></a></span>
+<i>Ibid.</i>, 1859, Ch. 241.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_42_42" id="Footnote_42_42"></a><a href="#FNanchor_42_42"><span class="label">[42]</span></a></span>
+<i>Ibid.</i>, 1859, Ch. 263, 264.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_43_43" id="Footnote_43_43"></a><a href="#FNanchor_43_43"><span class="label">[43]</span></a></span>
+<i>Ibid.</i>, 1859, Ch. 262.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_44_44" id="Footnote_44_44"></a><a href="#FNanchor_44_44"><span class="label">[44]</span></a></span>
+Laws of California, 1863, Ch. 77</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_45_45" id="Footnote_45_45"></a><a href="#FNanchor_45_45"><span class="label">[45]</span></a></span>
+<i>Ibid.</i>, 1863, Ch. 125.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_46_46" id="Footnote_46_46"></a><a href="#FNanchor_46_46"><span class="label">[46]</span></a></span>
+<i>Ibid.</i>, 1863, Ch. 207.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_47_47" id="Footnote_47_47"></a><a href="#FNanchor_47_47"><span class="label">[47]</span></a></span>
+<i>Ibid.</i>, 1863, Ch. 310.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_48_48" id="Footnote_48_48"></a><a href="#FNanchor_48_48"><span class="label">[48]</span></a></span>
+<i>Ibid.</i>, 1863, Ch. 209. The value of these privileges has been estimated at $200,000.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_49_49" id="Footnote_49_49"></a><a href="#FNanchor_49_49"><span class="label">[49]</span></a></span>
+<i>Ibid.</i>, 1863, Ch. 291.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_50_50" id="Footnote_50_50"></a><a href="#FNanchor_50_50"><span class="label">[50]</span></a></span>
+<i>Ibid.</i>, 1863, Ch. 314.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_51_51" id="Footnote_51_51"></a><a href="#FNanchor_51_51"><span class="label">[51]</span></a></span>
+<i>Ibid.</i>, 1864, Ch. 320. Twenty years later the quarries were still undelivered.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_52_52" id="Footnote_52_52"></a><a href="#FNanchor_52_52"><span class="label">[52]</span></a></span>
+Constitution of the State of California, Arts. VIII, XI, Sec. 10.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_53_53" id="Footnote_53_53"></a><a href="#FNanchor_53_53"><span class="label">[53]</span></a></span>
+People v. Pacheco, 27 Cal., 176 (1865).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_54_54" id="Footnote_54_54"></a><a href="#FNanchor_54_54"><span class="label">[54]</span></a></span>
+Angel. “History of Placer County,” 1882, p. 280.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_55_55" id="Footnote_55_55"></a><a href="#FNanchor_55_55"><span class="label">[55]</span></a></span>
+“The Great Dutch Flat Swindle!—An address to the Board of Supervisors, Officers
+and People of San Francisco,” 1864.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_56_56" id="Footnote_56_56"></a><a href="#FNanchor_56_56"><span class="label">[56]</span></a></span>
+French v. Teschemaker, 24 Cal. 518 (1864).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_57_57" id="Footnote_57_57"></a><a href="#FNanchor_57_57"><span class="label">[57]</span></a></span>
+Laws of California, 1864, Ch. 344.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_58_58" id="Footnote_58_58"></a><a href="#FNanchor_58_58"><span class="label">[58]</span></a></span>
+California Supreme Court Records, Vol. 38, case of People v. Coon.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_59_59" id="Footnote_59_59"></a><a href="#FNanchor_59_59"><span class="label">[59]</span></a></span>
+California Supreme Court Records, Vol. 38, p. 98, <i>sup. cit.</i></p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_60_60" id="Footnote_60_60"></a><a href="#FNanchor_60_60"><span class="label">[60]</span></a></span>
+People v. Coon, 25 Cal. 635 (1864).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_61_61" id="Footnote_61_61"></a><a href="#FNanchor_61_61"><span class="label">[61]</span></a></span>
+People v. Supervisors, 27 Cal. 655 (1865).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_62_62" id="Footnote_62_62"></a><a href="#FNanchor_62_62"><span class="label">[62]</span></a></span>
+United States Pacific Railway Commission, pp. 3610-11, testimony Leland Stanford.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_63_63" id="Footnote_63_63"></a><a href="#FNanchor_63_63"><span class="label">[63]</span></a></span>
+<i>Ibid.</i>, p. 3464, testimony E. H. Miller.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_64_64" id="Footnote_64_64"></a><a href="#FNanchor_64_64"><span class="label">[64]</span></a></span>
+Angel, “History of Placer County,” pp. 158-65.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_65_65" id="Footnote_65_65"></a><a href="#FNanchor_65_65"><span class="label">[65]</span></a></span>
+Fankhauser, “Financial History of California,” p. 299 <i>ff.</i></p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_66_66" id="Footnote_66_66"></a><a href="#FNanchor_66_66"><span class="label">[66]</span></a></span>
+Report of the chief engineer upon recent surveys, progress of construction, and an
+approximate estimate of cost of first division of 50 miles of the Central Pacific Railroad of
+California, July 1, 1863.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_67_67" id="Footnote_67_67"></a><a href="#FNanchor_67_67"><span class="label">[67]</span></a></span>
+Letter of L. L. Robinson, chief engineer, to Chas. A. Sumner and Henry Epstein,
+Chairmen Committees on Railroads, Legislature of Nevada, Sacramento, February 3, 1865.
+Printed in a pamphlet entitled “Evidence concerning projected railways across the Sierra
+Nevada Mountains,” <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_68_68" id="Footnote_68_68"></a><a href="#FNanchor_68_68"><span class="label">[68]</span></a></span>
+Stanislaus, Merced, Fresno, Tulare, and Kern counties. In Kern County the bond
+issue was limited to $480,000 and in Stanislaus to $180,000.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_69_69" id="Footnote_69_69"></a><a href="#FNanchor_69_69"><span class="label">[69]</span></a></span>
+Letters of Governor Haight, on the constitutional power of the legislature to authorize
+cities and counties to donate bonds to railroad corporations, Sacramento, 1870.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_70_70" id="Footnote_70_70"></a><a href="#FNanchor_70_70"><span class="label">[70]</span></a></span>
+Persons who desire details of the controversies in Congress prior to the outbreak of
+the Civil War may consult Haney, “Congressional History of Railways,” or Davis “History
+of the Union Pacific.”</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_71_71" id="Footnote_71_71"></a><a href="#FNanchor_71_71"><span class="label">[71]</span></a></span>
+Laws of California, 1852, p. 276. See also resolutions passed May 17, 1853 (Laws of
+1853, p. 315); May 13, 1854 (Laws of 1854, p. 224); February 25, 1854 (Laws of 1854, p. 227);
+March 19, 1857 (Laws of 1854, p. 370); April 1, 1859 (Laws of 1859, p. 390); April 15, 1859
+(Laws of 1859, p. 394). In 1859 the legislature adopted a memorial to the same general effect
+(Laws of 1859, p. 395).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_72_72" id="Footnote_72_72"></a><a href="#FNanchor_72_72"><span class="label">[72]</span></a></span>
+The proceedings of the Pacific Railroad Convention of 1859 were published in the <i>San
+Francisco Alta</i>, September 21-26, 1859, and in a special supplement of the same paper. See
+also <i>The Pacific</i>, October 6, 1859, and other California papers. The convention was attended
+by delegates from Oregon and Washington. It thought that the Pacific Railroad should
+run from the city of San Francisco through the counties of San Mateo, Santa Clara, and
+Alameda, to the city of Stockton, thence over the Sierras by a central route. It favored also
+a branch to Puget Sound. Resolutions were adopted contemplating an issue of $15,000,000
+in bonds by the state of California to cover the cost of railroads within that state, and an
+issue of an unspecified amount, presumably $5,000,000 by the state of Oregon. In February,
+1860, an adjourned meeting of the same convention was held at Sacramento. Considerable
+opposition developed at this meeting to the proposal to bond the state for
+The vote taken at San Francisco was reconsidered, and a new resolution
+passed, recommending state aid to a transcontinental railroad to the extent of not more
+than $15,000,000, but proposing that security be taken for the advances made so that the
+sum should not become a state charge. In other words, this idea of a loan was substituted
+for that of a donation. (<i>Sacramento Union</i>, February 7-11, 1860.)</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_73_73" id="Footnote_73_73"></a><a href="#FNanchor_73_73"><span class="label">[73]</span></a></span>
+Report of the chief engineer of the Central Pacific Railroad Company of California,
+on his operations in the Atlantic states, Sacramento, 1862. It should be added that Huntington
+himself was in Washington while the Act of 1864 was being debated. Cornelius Cole,
+one time senator from California, says of Huntington’s activity at this time: “During the
+pendency of this legislation [Act of 1864], C. P. Huntington spent much of his time in Washington.
+Many of the amendments were suggested by him, and it gave me much satisfaction
+to forward his views. In former years in Sacramento we had been in close political fellowship,
+besides ... I had been associated with him and others in the organization of the
+Central Pacific Railroad Company....” (Cornelius Cole, Memoirs, pp. 179-80.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_74_74" id="Footnote_74_74"></a><a href="#FNanchor_74_74"><span class="label">[74]</span></a></span>
+12 United States Statutes 489 (1862).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_75_75" id="Footnote_75_75"></a><a href="#FNanchor_75_75"><span class="label">[75]</span></a></span>
+United States v. Southern Pacific Co., Record, pp. 1654-57.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_76_76" id="Footnote_76_76"></a><a href="#FNanchor_76_76"><span class="label">[76]</span></a></span>
+Report of chief engineer, Central Pacific Railroad of California, on his operations in
+the Atlantic states, 1862.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_77_77" id="Footnote_77_77"></a><a href="#FNanchor_77_77"><span class="label">[77]</span></a></span>
+13 United States Statutes 356 (1864).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_78_78" id="Footnote_78_78"></a><a href="#FNanchor_78_78"><span class="label">[78]</span></a></span>
+For a full digest of the Acts of 1862 and 1864, and for an account of the Congressional
+history involved, the reader is referred to Haney, “A Congressional History of Railways.”
+Senator A. A. Sargent asserted in 1878 that he, Sargent, wrote the acts himself. (45th Congress,
+2d Session, Congressional Record, Vol. 7. p. 2024.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_79_79" id="Footnote_79_79"></a><a href="#FNanchor_79_79"><span class="label">[79]</span></a></span>
+Huntington manuscript, pp. 78-79. The act referred to appears in 14 United States
+Statutes 78-79.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_80_80" id="Footnote_80_80"></a><a href="#FNanchor_80_80"><span class="label">[80]</span></a></span>
+Report of the chief engineer on the preliminary survey of the Central Pacific Railroad,
+etc., October 22, 1862.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_81_81" id="Footnote_81_81"></a><a href="#FNanchor_81_81"><span class="label">[81]</span></a></span>
+United States v. Union Pacific, 91 U. S. 72 (1875).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_82_82" id="Footnote_82_82"></a><a href="#FNanchor_82_82"><span class="label">[82]</span></a></span>
+12 United States Statutes 489 (1862), Sec. 6.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_83_83" id="Footnote_83_83"></a><a href="#FNanchor_83_83"><span class="label">[83]</span></a></span>
+United States Pacific Railway Commission, p. 2562, testimony W. H. Mills.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_84_84" id="Footnote_84_84"></a><a href="#FNanchor_84_84"><span class="label">[84]</span></a></span>
+The Western Pacific had received in addition two patents conveying 27,505.93 acres,
+but these lands were assigned by the Central Pacific to outside parties.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_85_85" id="Footnote_85_85"></a><a href="#FNanchor_85_85"><span class="label">[85]</span></a></span>
+United States Pacific Railway Commission, pp. 3569-70.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_86_86" id="Footnote_86_86"></a><a href="#FNanchor_86_86"><span class="label">[86]</span></a></span>
+United States v. Southern Pacific Railroad Co., 146 U. S. 570, 593 (1892).</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_87_87" id="Footnote_87_87"></a><a href="#FNanchor_87_87"><span class="label">[87]</span></a></span>
+Newhall v. Sanger, 92 U. S. 761 (1875).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_88_88" id="Footnote_88_88"></a><a href="#FNanchor_88_88"><span class="label">[88]</span></a></span>
+Kansas Pacific v. Dunmeyer, 113 U. S. 629 (1885).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_89_89" id="Footnote_89_89"></a><a href="#FNanchor_89_89"><span class="label">[89]</span></a></span>
+Hastings and D. R. Co. v. Whitney, 132 U. S. 357 (1889); Whitney v. Taylor, 158
+U. S. 85, 92 (1895); Bardon v. Northern Pacific, 145 U. S. 535 (1892).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_90_90" id="Footnote_90_90"></a><a href="#FNanchor_90_90"><span class="label">[90]</span></a></span>
+Menotti v. Dillon. 167 U. S. 703 (1897).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_91_91" id="Footnote_91_91"></a><a href="#FNanchor_91_91"><span class="label">[91]</span></a></span>
+Central Pacific Railroad case, 3 L. D. 264.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_92_92" id="Footnote_92_92"></a><a href="#FNanchor_92_92"><span class="label">[92]</span></a></span>
+9 United States Statutes 631 (1851).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_93_93" id="Footnote_93_93"></a><a href="#FNanchor_93_93"><span class="label">[93]</span></a></span>
+United States Pacific Railway Commission, p. 2412, testimony W. H. Mills.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_94_94" id="Footnote_94_94"></a><a href="#FNanchor_94_94"><span class="label">[94]</span></a></span>
+1863 to 1913 “An Account of the Ceremonies Attending the Inauguration of the Work
+of Construction of the Central Pacific.” Interesting details of the course of construction of
+the Central and Union Pacific railroads are given in Carter, “When Railroads Were New,”
+and in Sabin, “Building the Pacific Railway.”</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_95_95" id="Footnote_95_95"></a><a href="#FNanchor_95_95"><span class="label">[95]</span></a></span>
+Report of the chief engineer upon recent surveys of the Central Pacific Railroad of
+California, July, 1863.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_96_96" id="Footnote_96_96"></a><a href="#FNanchor_96_96"><span class="label">[96]</span></a></span>
+<i>Ibid.</i>, December, 1865, and July, 1869.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_97_97" id="Footnote_97_97"></a><a href="#FNanchor_97_97"><span class="label">[97]</span></a></span>
+<i>Ibid.</i>, October 8, 1864.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_98_98" id="Footnote_98_98"></a><a href="#FNanchor_98_98"><span class="label">[98]</span></a></span>
+<i>Ibid.</i>, December, 1863.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_99_99" id="Footnote_99_99"></a><a href="#FNanchor_99_99"><span class="label">[99]</span></a></span>
+United States Pacific Railway Commission, pp. 2581-82, testimony Arthur Brown,
+superintendent of bridges and buildings.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_100_100" id="Footnote_100_100"></a><a href="#FNanchor_100_100"><span class="label">[100]</span></a></span>
+United States Pacific Railway Commission, p. 2579, statement William Hood; pp.
+2580-81, 3150, statement J. H. Strobridge; pp. 2576-77, statement L. M. Clement; p.
+3055, testimony E. H. Miller; pp. 2581-82, statement Arthur Brown.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_101_101" id="Footnote_101_101"></a><a href="#FNanchor_101_101"><span class="label">[101]</span></a></span>
+United States Pacific Railway Commission, p. 2523, testimony Leland Stanford. On
+the other hand, there were abundant supplies of timber along the line, and the price of
+machinery declined after the war.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_102_102" id="Footnote_102_102"></a><a href="#FNanchor_102_102"><span class="label">[102]</span></a></span>
+United States Pacific Railway Commission, pp. 3139-41, testimony J. H. Strobridge.
+The following table is prepared from Mr. Strobridge’s testimony:</p>
+
+<p class="pfcc"><span class="smcap">Number of Men Employed in Central Pacific Construction,
+1864-69, and Rate of Pay</span></p>
+
+<table id="tf01" summary="tf01">
+
+ <tr>
+ <td class="tdcl">Year</td>
+ <td class="tdcl">Number of<br />Chinamen</td>
+ <td class="tdcl">Rate of pay</td>
+ <td class="tdcl">Number of<br />White Men</td>
+ <td class="tdcl">Rate of pay</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1864</td>
+ <td class="tdcl">Very few</td>
+ <td> </td>
+ <td class="tdfr4">1,200</td>
+ <td class="tdcl">$ 30 a month</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1865</td>
+ <td class="tdfr4">7,000</td>
+ <td class="tdcl">$ 30 a month</td>
+ <td class="tdfr4">2,500</td>
+ <td class="tdcl"><span class="vh">—</span>30 ”<span class="vh">—</span>”<span class="vh">——</span></td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1866</td>
+ <td class="tdfr4">11,000</td>
+ <td class="tdcl"><span class="vh">—</span>30 ”<span class="vh">—</span>”<span class="vh">——</span></td>
+ <td class="tdr">2,500–3,000</td>
+ <td class="tdcl"><span class="vh">—</span>30 ”<span class="vh">—</span>”<span class="vh">——</span></td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1867</td>
+ <td class="tdfr4">11,000</td>
+ <td class="tdcl"><span class="vh">—</span>30 ”<span class="vh">—</span>”<span class="vh">——</span></td>
+ <td class="tdr">2,500–3,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1868</td>
+ <td class="tdr">5,000–6,000</td>
+ <td rowspan="2"> </td>
+ <td class="tdr">2,000–3,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1869</td>
+ <td class="tdfr4">5,000</td>
+ <td class="tdr">1,500–1,600</td>
+ </tr>
+
+</table>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_103_103" id="Footnote_103_103"></a><a href="#FNanchor_103_103"><span class="label">[103]</span></a></span>
+Huntington was always openly in favor of unrestricted Chinese immigration. He
+said that exclusion deprived the United States of tractable and cheap labor, which was
+needed to build up the desert places of the country. He believed the fanatical hostility to
+the Chinese was limited to California, where, he asserted, the Irish Catholics swung the
+balance of power. (<i>San Francisco Examiner</i>, January 4, 1889.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_104_104" id="Footnote_104_104"></a><a href="#FNanchor_104_104"><span class="label">[104]</span></a></span>
+United States Pacific Railway Commission, p. 3642, testimony Charles Crocker. A
+letter from Mr. Judah to Dr. Strong, dated July 10, 1863, suggests that it was Judah’s influence
+which prevented Crocker from building sections 19 to 30. Judah wrote: “I have had a
+big row and fight on the contract question, and although I had to fight alone, carried my
+point and prevented a certain gentleman from becoming a further contractor on the Central
+Pacific Railroad at present.” (<i>Ibid.</i>, p. 2966, testimony Strong.) This was probably only
+one of a number of differences of opinion between the Stanford-Huntington group and the
+original promoters of the Central Pacific, led by Judah. It was only after Judah’s death
+that the first-named interests were able to dominate the situation completely.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_105_105" id="Footnote_105_105"></a><a href="#FNanchor_105_105"><span class="label">[105]</span></a></span>
+United States Pacific Railway Commission, p. 3769, testimony Collis P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_106_106" id="Footnote_106_106"></a><a href="#FNanchor_106_106"><span class="label">[106]</span></a></span>
+<i>Ibid.</i>, pp. 2621-26, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_107_107" id="Footnote_107_107"></a><a href="#FNanchor_107_107"><span class="label">[107]</span></a></span>
+United States Pacific Railway Commission, p. 3048, testimony E. H. Miller. For a
+general discussion of the relative advisability of construction by contract as opposed to
+construction by the Central Pacific itself, see an earlier report by Stanford, Hopkins, and
+Miller. (<i>Ibid.</i>, pp. 3045-46.) This report made the point that the letting of contracts to a
+responsible contractor would raise the credit of the railroad.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_108_108" id="Footnote_108_108"></a><a href="#FNanchor_108_108"><span class="label">[108]</span></a></span>
+United States Pacific Railway Commission, p. 3436.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_109_109" id="Footnote_109_109"></a><a href="#FNanchor_109_109"><span class="label">[109]</span></a></span>
+<i>Ibid.</i>, p. 3157, testimony J. H. Strobridge.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_110_110" id="Footnote_110_110"></a><a href="#FNanchor_110_110"><span class="label">[110]</span></a></span>
+The actual cost of the whole work to the Central Pacific depended upon Mr. Crocker’s
+reports upon the work which he did. There is no evidence that the company exercised any
+supervision over these reports, although it was to the advantage of the construction company
+to describe as much of the work as possible as heavy; but on the other hand, Mr. Crocker’s
+engineers testified that Crocker never attempted to influence them in their estimates.
+(United States Pacific Railway Commission, p. 3207, testimony L. Clement.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_111_111" id="Footnote_111_111"></a><a href="#FNanchor_111_111"><span class="label">[111]</span></a></span>
+United States Pacific Railway Commission, p. 3511, testimony Richard F. Stevens.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_112_112" id="Footnote_112_112"></a><a href="#FNanchor_112_112"><span class="label">[112]</span></a></span>
+United States Pacific Railway Commission, p. 2636, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_113_113" id="Footnote_113_113"></a><a href="#FNanchor_113_113"><span class="label">[113]</span></a></span>
+<i>Ibid.</i>, p. 3661, testimony Charles Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_114_114" id="Footnote_114_114"></a><a href="#FNanchor_114_114"><span class="label">[114]</span></a></span>
+Colton case, pp. 266-68, deposition of Collis P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_115_115" id="Footnote_115_115"></a><a href="#FNanchor_115_115"><span class="label">[115]</span></a></span>
+United States Pacific Railway Commission, p. 2640, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_116_116" id="Footnote_116_116"></a><a href="#FNanchor_116_116"><span class="label">[116]</span></a></span>
+<i>Ibid.</i>, p. 3661, testimony Charles Crocker; p. 2637, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_117_117" id="Footnote_117_117"></a><a href="#FNanchor_117_117"><span class="label">[117]</span></a></span>
+United States Pacific Railway Commission, pp. 3436-37.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_118_118" id="Footnote_118_118"></a><a href="#FNanchor_118_118"><span class="label">[118]</span></a></span>
+United States Pacific Railway Commission, p. 2897, testimony W. E. Brown; p. 3062,
+testimony E. H. Miller; pp. 3511-20, testimony R. F. Stevens.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_119_119" id="Footnote_119_119"></a><a href="#FNanchor_119_119"><span class="label">[119]</span></a></span>
+United States Railway Commission, pp. 2712-17, testimony D. Z. Yost.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_120_120" id="Footnote_120_120"></a><a href="#FNanchor_120_120"><span class="label">[120]</span></a></span>
+<i>Ibid.</i>, pp. 2875-92, testimony John Miller; pp. 3028-33, testimony N. Greene Curtis.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_121_121" id="Footnote_121_121"></a><a href="#FNanchor_121_121"><span class="label">[121]</span></a></span>
+There is some evidence that $6,000,000 of this cash was not strictly cash, but took the
+form of notes of the Central Pacific Railroad which were ultimately settled in land-grant
+bonds at $86.50. (United States Pacific Railway Commission Report, p. 75.) Mr. Crocker
+says that the interest on a portion of these bonds paid his expenses on a trip to Europe.
+(<i>Ibid.</i>, p. 3668, testimony Charles Crocker.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_122_122" id="Footnote_122_122"></a><a href="#FNanchor_122_122"><span class="label">[122]</span></a></span>
+United States Pacific Railway Commission Report, pp. 74-75.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_123_123" id="Footnote_123_123"></a><a href="#FNanchor_123_123"><span class="label">[123]</span></a></span>
+United States Pacific Railway Commission, pp. 2655-56, testimony Leland Stanford;
+p. 3668, testimony Charles Crocker. Mr. Huntington said in 1873 that he thought his dividend
+amounted to about $1,000,000, but in 1887 he admitted that he had earlier mistaken
+the facts. (<i>Ibid.</i>, pp. 4026-28, testimony C. P. Huntington.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_124_124" id="Footnote_124_124"></a><a href="#FNanchor_124_124"><span class="label">[124]</span></a></span>
+United States Pacific Railway Commission, pp. 2977-88, testimony W. E. Brown.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_125_125" id="Footnote_125_125"></a><a href="#FNanchor_125_125"><span class="label">[125]</span></a></span>
+An Account of the Ceremonies Attending the Inauguration of the Work
+of Constructing the Central Pacific. <i>Scribner’s Magazine</i> for August, 1892, contains an
+article describing the completion of the Central Pacific and also a reproduction of the well-known
+painting, “The Joining of the Central and Union Pacific” (“The Last Spike”).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_126_126" id="Footnote_126_126"></a><a href="#FNanchor_126_126"><span class="label">[126]</span></a></span>
+The indenture making this assignment, dated October 31, 1864, is printed in full in
+the appendix to the journals of the Senate and Assembly of the 20th Session of the Legislature
+of the State of California, Vol. 6 (1874), No. 2. pp. 27-29. It covers not only the right
+to build and operate a railroad between Sacramento and San José, but also “all the rights,
+grants, donations, rights-of-way, loan of the credit of the Government of the United States,
+or the bonds thereof.”</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_127_127" id="Footnote_127_127"></a><a href="#FNanchor_127_127"><span class="label">[127]</span></a></span>
+United States Pacific Railway Commission, p. 2785, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_128_128" id="Footnote_128_128"></a><a href="#FNanchor_128_128"><span class="label">[128]</span></a></span>
+Laws of California, 1852, Ch. 107.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_129_129" id="Footnote_129_129"></a><a href="#FNanchor_129_129"><span class="label">[129]</span></a></span>
+City of Oakland v. Oakland Water Front Company, transcript of testimony, p. 649,
+deposition Horace W. Carpentier; p. 1755, testimony A. J. Moon.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_130_130" id="Footnote_130_130"></a><a href="#FNanchor_130_130"><span class="label">[130]</span></a></span>
+City of Oakland v. Oakland Water Front Company, transcript of testimony, pp. 704-5,
+deposition Horace W. Carpentier; Wood, “History of Alameda County”; <i>San Francisco
+Examiner</i>, June 26, 1892, July 3, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_131_131" id="Footnote_131_131"></a><a href="#FNanchor_131_131"><span class="label">[131]</span></a></span>
+Moon, one of the trustees who approved the grant, was afterwards taken into Carpentier’s
+employ. Adams, another trustee, secured the property now known as the “Adams
+Wharf” to the east of the narrow-gauge bridge.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_132_132" id="Footnote_132_132"></a><a href="#FNanchor_132_132"><span class="label">[132]</span></a></span>
+City of Oakland v. Carpentier, 13 Cal. 540 (1859); 21 Cal. 642 (1863). The Oakland
+ordinances were ratified and confirmed by act of the California legislature passed May 15,
+1861. (Laws of California, 1861, Ch. 377.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_133_133" id="Footnote_133_133"></a><a href="#FNanchor_133_133"><span class="label">[133]</span></a></span>
+City of Oakland v. Oakland Water Front Company, transcript on appeal, pp. 652-54,
+deposition Horace W. Carpentier.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_134_134" id="Footnote_134_134"></a><a href="#FNanchor_134_134"><span class="label">[134]</span></a></span>
+Laws of California, 1868, Ch. 230.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_135_135" id="Footnote_135_135"></a><a href="#FNanchor_135_135"><span class="label">[135]</span></a></span>
+City of Oakland v. Oakland Water Front Company, transcript of testimony,
+<i>sup. cit.</i> pp. 976-80.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_136_136" id="Footnote_136_136"></a><a href="#FNanchor_136_136"><span class="label">[136]</span></a></span>
+City of Oakland v. Oakland Water Front Company, transcript of testimony, pp.
+657-64, deposition Horace W. Carpentier.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_137_137" id="Footnote_137_137"></a><a href="#FNanchor_137_137"><span class="label">[137]</span></a></span>
+See the Ordinance of the City of Oakland, No. 302 (April 2, 1868). An excellent account
+of these transactions is given in an unpublished manuscript in the University of California
+Library, prepared by Stephen S. Barrows, one-time student in the University of
+California. It is of some interest to observe that among the direct beneficiaries of the
+agreements cited were Messrs. Carpentier, Felton, and Merritt, all three at one time or other
+mayors of Oakland. Mr. Merritt was mayor at the time ordinances Nos. 300, 301, and 302
+were passed. The compromise described was effected under authority of an act of the
+California legislature dated March 21, 1868.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_138_138" id="Footnote_138_138"></a><a href="#FNanchor_138_138"><span class="label">[138]</span></a></span>
+By ordinance passed August 31, 1867, the Oakland City Council voted to pay Mr.
+Felton a fee equal to 15 per cent of all the property recovered by the city in the water-front
+litigation. (Transcript of testimony, <i>sup. cit.</i> p. 759.) Mr. Merritt was subsequently accused
+of having promoted the settlement between the city of Oakland and the Oakland
+Water Front Company in order to derive a pecuniary profit for himself. In 1869 the city
+council of Oakland authorized the appointment of a committee of three to ascertain by what
+title Mr. Merritt held certain water-front property near the foot of Broadway in Oakland.
+On report of the committee the council exonerated Mr. Merritt. (<i>Ibid.</i>, pp. 1406-7,
+1410-21.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_139_139" id="Footnote_139_139"></a><a href="#FNanchor_139_139"><span class="label">[139]</span></a></span>
+City of Oakland v. Oakland Water Front Company, 118 Cal. 160 (1897).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_140_140" id="Footnote_140_140"></a><a href="#FNanchor_140_140"><span class="label">[140]</span></a></span>
+Western Pacific Railway Company v. Southern Pacific Company, 151 Fed. 376
+(1907). The court also pointed out in the decision that although the low-tide line was projected
+across the mouth of the estuary for the purpose of determining the boundary of Oakland,
+this should not be done in ascertaining the limit of the railroad grant.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_141_141" id="Footnote_141_141"></a><a href="#FNanchor_141_141"><span class="label">[141]</span></a></span>
+The boundaries are set forth in the <i>San Francisco Times</i> of March 7, 1868. As later
+amended and confined to the area north of Point Avisadero, they are described in the <i>Daily
+Alta</i> of March 14, 1868.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_142_142" id="Footnote_142_142"></a><a href="#FNanchor_142_142"><span class="label">[142]</span></a></span>
+Appendix to journals of Senate and Assembly of the California Legislature, 17th
+Session, Vol. 3, 1868.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_143_143" id="Footnote_143_143"></a><a href="#FNanchor_143_143"><span class="label">[143]</span></a></span>
+<i>San Francisco Bulletin</i>, March 7, 1868.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_144_144" id="Footnote_144_144"></a><a href="#FNanchor_144_144"><span class="label">[144]</span></a></span>
+<i>Daily Alta California</i>, March 10, 1868.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_145_145" id="Footnote_145_145"></a><a href="#FNanchor_145_145"><span class="label">[145]</span></a></span>
+<i>San Francisco Times</i>, March 13, 1868.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_146_146" id="Footnote_146_146"></a><a href="#FNanchor_146_146"><span class="label">[146]</span></a></span>
+See resolutions of a meeting of San Francisco business men in March, 1868, recommending
+that the legislature grant 150 acres each to the Central Pacific and Southern Pacific;
+and the admission of the Southern Pacific that it could get along with 250 acres.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_147_147" id="Footnote_147_147"></a><a href="#FNanchor_147_147"><span class="label">[147]</span></a></span>
+Laws of California, 1867-68, Ch. 543.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_148_148" id="Footnote_148_148"></a><a href="#FNanchor_148_148"><span class="label">[148]</span></a></span>
+Laws of California, 1867-68, Ch. 386. A lively account of the circumstances attending
+the passage of the Goat Island bill through the legislature was published by an old newspaper
+man, Sam Leake by name, in the <i>San Francisco Bulletin</i>, March 17 and 19, 1917.
+There is, however, no way of verifying this story, and it cannot be accepted on Mr. Leake’s
+authority alone.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_149_149" id="Footnote_149_149"></a><a href="#FNanchor_149_149"><span class="label">[149]</span></a></span>
+Laws of California, 1869-70, Ch. 381.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_150_150" id="Footnote_150_150"></a><a href="#FNanchor_150_150"><span class="label">[150]</span></a></span>
+Mr. Stanford has asserted that the whole trouble was caused by six gentlemen, three
+of whom had interests near Ravenswood, where it was thought that the Central Pacific might
+cross, and three of whom had interests in Sausalito. He says he was informed by a member
+of Congress that he could have had necessary legislation in Congress for $10,000. This
+refers to the campaign of 1875-76. (United States Pacific Railway Commission, pp. 3170-71,
+testimony Leland Stanford.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_151_151" id="Footnote_151_151"></a><a href="#FNanchor_151_151"><span class="label">[151]</span></a></span>
+United States Pacific Railway Commission, pp. 3496-3500, testimony D. O.
+Mills.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_152_152" id="Footnote_152_152"></a><a href="#FNanchor_152_152"><span class="label">[152]</span></a></span>
+The California and Oregon Railroad Company was subsidized by Congress by Act of
+July 25, 1866, to build from a point on the Central Pacific Railroad to the Oregon boundary,
+where it was to meet a railroad coming south from Portland. Tracks reached Chico, July
+2, 1870. In 1870, the California and Oregon was consolidated with the Central Pacific. In
+1872 it reached Redding, and on October 5, 1887, the state line. The federal legislation
+relating to the California and Oregon Railroad is notable for the liberality of the land grant
+made.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_153_153" id="Footnote_153_153"></a><a href="#FNanchor_153_153"><span class="label">[153]</span></a></span>
+This branch was known as the San Joaquin Valley Railroad. The company bearing
+this name was incorporated in 1868. Stanford, Huntington, Hopkins, Charles, and E. B.
+Crocker were directors. In 1870 it was consolidated with the Central Pacific. Stanford
+declared in 1887 that the trunk lines up the San Joaquin and Sacramento valleys were the
+most important factors in the Central Pacific’s local business.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_154_154" id="Footnote_154_154"></a><a href="#FNanchor_154_154"><span class="label">[154]</span></a></span>
+United States Pacific Railway Commission, pp. 3628-29, testimony J. P. Jackson;
+p. 3613, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_155_155" id="Footnote_155_155"></a><a href="#FNanchor_155_155"><span class="label">[155]</span></a></span>
+United States Pacific Railway Commission, pp. 3366-67, testimony J. C. Stubbs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_156_156" id="Footnote_156_156"></a><a href="#FNanchor_156_156"><span class="label">[156]</span></a></span>
+<i>Ibid.</i>, pp. 3628-29, testimony J. C. Jackson.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_157_157" id="Footnote_157_157"></a><a href="#FNanchor_157_157"><span class="label">[157]</span></a></span>
+<i>San Francisco Bulletin</i>, November 29, 1869.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_158_158" id="Footnote_158_158"></a><a href="#FNanchor_158_158"><span class="label">[158]</span></a></span>
+Main v. Central Pacific, argument of Harvey S. Brown, of counsel for the defendants,
+1886.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_159_159" id="Footnote_159_159"></a><a href="#FNanchor_159_159"><span class="label">[159]</span></a></span>
+<i>San Francisco Chronicle</i>, August 16, 1874, statement Milton S. Latham. This was
+the bridge over which the California Pacific was entering Sacramento.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_160_160" id="Footnote_160_160"></a><a href="#FNanchor_160_160"><span class="label">[160]</span></a></span>
+Main v. Central Pacific. Statement of facts. The closing argument of L. E. Chittenden,
+of counsel for plaintiffs, 1886. See also <i>San Francisco Chronicle</i>, August 16, 1874,
+statement of Milton S. Latham.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_161_161" id="Footnote_161_161"></a><a href="#FNanchor_161_161"><span class="label">[161]</span></a></span>
+Opponents of the Central Pacific described the transaction in 1886 as follows: “Huntington,
+the incarnation of this hostility, whose name was an inspiration of personal aversion,
+entered the state on the 24th of June; and the suggestion is, that the Court shall believe that
+under these circumstances, the directors of the California Pacific loaded their staggering
+trust with a new debt of $1,600,000, on which interest should commence at once, to pay for a
+second track, not to be finished until about two years, at the small end of their railroad where
+there was no need of it, at a point where it was doubtful if one track would stand—and contracted
+with their hereditary enemies to do it—all without the remotest reference to any
+purchase of, or intended future control of the corporation!”</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_162_162" id="Footnote_162_162"></a><a href="#FNanchor_162_162"><span class="label">[162]</span></a></span>
+Colton case, pp. 3214-15.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_163_163" id="Footnote_163_163"></a><a href="#FNanchor_163_163"><span class="label">[163]</span></a></span>
+<i>San Francisco Chronicle</i>, August 16, 1874. According to A. A. Cohen, a San Francisco
+lawyer one time in the employ of the Central Pacific and intimately acquainted with
+its policies, Stanford told Latham that he, Stanford, was extremely sorry that the Reese suit
+had been commenced, and that it would not have been if he had known anything at all about
+it. Cohen, however, made public the following letter, written by Stanford the day before
+the suit was brought, which puts an altogether different face upon the matter. Stanford
+wrote as follows:</p>
+
+<div class="fnq">
+<p class="pfr4">“July 24th, 1874.</p>
+<p class="pfn4"><span class="smcap">Dear Cohen</span>:</p>
+<p class="pfc4">Regret on your own account that you are so ill. Send Mr. Yost over particularly to report,
+and carry this message. Michael Reese is willing to commence suit as stockholder.
+Please transfer to him 150 shares of your stock in the California Pacific. Hoping to hear
+a more favorable account of your health, I remain,</p>
+<p class="pfr8">Yours truly,</p>
+<p class="pfr4"><span class="smcap">Stanford</span>.”</p></div>
+
+<p class="pfc4 p1">The inference from this letter is, of course, that the Reese suit was brought at Stanford’s
+own instance.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_164_164" id="Footnote_164_164"></a><a href="#FNanchor_164_164"><span class="label">[164]</span></a></span>
+United States Pacific Railway Commission, pp. 3936-42, testimony L. E. Chittenden.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_165_165" id="Footnote_165_165"></a><a href="#FNanchor_165_165"><span class="label">[165]</span></a></span>
+United States Pacific Railway Commission, p. 3614, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_166_166" id="Footnote_166_166"></a><a href="#FNanchor_166_166"><span class="label">[166]</span></a></span>
+On December 2, 1865. United States v. Southern Pacific, transcript of testimony,
+p. 1284. Hereafter referred to as “United States v. Southern Pacific.” This company was
+organized under the general California statute relating to incorporations approved May 20,
+1861.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_167_167" id="Footnote_167_167"></a><a href="#FNanchor_167_167"><span class="label">[167]</span></a></span>
+14 United States Statutes 292 (1866). An act granting lands to aid in the construction
+of railroad and telegraph line from the states of Missouri and Arkansas to the Pacific
+Ocean. The provisions of this act were promptly accepted by the Southern Pacific. See
+United States v. Southern Pacific, pp. 1672-73.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_168_168" id="Footnote_168_168"></a><a href="#FNanchor_168_168"><span class="label">[168]</span></a></span>
+15 United States Statutes 187 (1868).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_169_169" id="Footnote_169_169"></a><a href="#FNanchor_169_169"><span class="label">[169]</span></a></span>
+<i>San Francisco Bulletin</i>, March 14, 1868.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_170_170" id="Footnote_170_170"></a><a href="#FNanchor_170_170"><span class="label">[170]</span></a></span>
+United States v. Southern Pacific, Defendant’s Exhibit No. 23. Neither Huntington
+nor Stanford signed the articles of association of 1870 as holders of stock of the consolidating
+companies. This may merely mean, however, that the stock of these companies was placed
+under other names for purposes of convenience.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_171_171" id="Footnote_171_171"></a><a href="#FNanchor_171_171"><span class="label">[171]</span></a></span>
+The change of route was authorized by Congressional resolution, dated June 28, 1870
+(16 United States Statutes 382 [1870].) It should be observed that the so-called Mussel
+Slough “massacre” resulted from a dispute over the ownership of land south of Hanford,
+Tulare County, which lay along the line of railroad as designated in 1867, but not along that
+proposed in 1865. It appears that a number of persons settled upon and improved tracts
+near Hanford before the railroad applied for patent to land in this vicinity, but after the
+Southern Pacific had filed the map showing its intended route with the Commissioner of the
+General Land Office in 1867, and after lands along this route had been withdrawn.</p>
+
+<p class="pfc4">When the railroad secured title it offered to sell this occupied land to the parties who
+had settled upon it, but at prices which were much above those current for unimproved farm
+land. That is to say, the railroad asked from $11 to $35 an acre, instead of the customary
+$2.50 to $5 an acre. The settlers understood from this that the company was trying to
+make them pay for improvements which they themselves had made, and resorted to active
+opposition. In 1876 the settlers petitioned Congress to restore a portion of the land grant
+in question to the public domain, on the ground that no railroad had ever been constructed
+along it.</p>
+
+<p class="pfc4">In 1881 the railroad attempted to take forcible possession of two pieces of the disputed
+land. There was resistance, and in the shooting which followed, eight men were killed, including
+six settlers. This was the “massacre.” There seems to be no question but that the
+railroad possessed legal title to the Tulare County property. The weakness of its position
+lay in the fact that it was attempting to build a railroad in one place and to secure a land
+grant in another—a procedure never contemplated by Congress, and one not unlikely to
+lead to hostile legislation. Eventually the railroad title was sustained, and the land sold by
+the company, though at reduced prices.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_172_172" id="Footnote_172_172"></a><a href="#FNanchor_172_172"><span class="label">[172]</span></a></span>
+16 United States Statutes 573 (1871).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_173_173" id="Footnote_173_173"></a><a href="#FNanchor_173_173"><span class="label">[173]</span></a></span>
+See on this matter Colton case, p. 1621, Crocker to Colton, February 12, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_174_174" id="Footnote_174_174"></a><a href="#FNanchor_174_174"><span class="label">[174]</span></a></span>
+Guinn, “A History of California,” pp. 254, 276.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_175_175" id="Footnote_175_175"></a><a href="#FNanchor_175_175"><span class="label">[175]</span></a></span>
+Ninth Census of the United States, 1870.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_176_176" id="Footnote_176_176"></a><a href="#FNanchor_176_176"><span class="label">[176]</span></a></span>
+Newmark, “Sixty Years in Southern California.” The Los Angeles and San Pedro
+was built to Wilmington only in 1869. It was not extended to San Pedro until 1881.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_177_177" id="Footnote_177_177"></a><a href="#FNanchor_177_177"><span class="label">[177]</span></a></span>
+Ranchers near Los Angeles feared lest the construction of the railroad would do away
+with horses and the demand for barley.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_178_178" id="Footnote_178_178"></a><a href="#FNanchor_178_178"><span class="label">[178]</span></a></span>
+“Illustrated History of Los Angeles County” (Chicago, 1889), p. 136.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_179_179" id="Footnote_179_179"></a><a href="#FNanchor_179_179"><span class="label">[179]</span></a></span>
+Newmark, “Sixty Years in Southern California,” pp. 496-97.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_180_180" id="Footnote_180_180"></a><a href="#FNanchor_180_180"><span class="label">[180]</span></a></span>
+Articles of incorporation are printed in Colton case, pp. 5475-77, testimony F. S.
+Douty. See also <i>ibid.</i>, pp. 2993-95, testimony Reynolds. The material and accounts for
+repairs possessed by the Contract and Finance Company were turned over to the Western
+Development Company at this time at a valuation of $431,530.53.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_181_181" id="Footnote_181_181"></a><a href="#FNanchor_181_181"><span class="label">[181]</span></a></span>
+Colton case, pp. 362-65, 7806-22, testimony F. S. Douty. The actual payments
+were, as the result of certain adjustments, slightly less.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_182_182" id="Footnote_182_182"></a><a href="#FNanchor_182_182"><span class="label">[182]</span></a></span>
+United Slates Railway Commission, p. 2701, testimony F. S. Douty.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_183_183" id="Footnote_183_183"></a><a href="#FNanchor_183_183"><span class="label">[183]</span></a></span>
+United States v. Southern Pacific, pp. 553-55, testimony Redington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_184_184" id="Footnote_184_184"></a><a href="#FNanchor_184_184"><span class="label">[184]</span></a></span>
+<i>Ibid.</i>, pp. 533-35, testimony Luckett.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_185_185" id="Footnote_185_185"></a><a href="#FNanchor_185_185"><span class="label">[185]</span></a></span>
+Colton case, p. 7637, Colton to Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_186_186" id="Footnote_186_186"></a><a href="#FNanchor_186_186"><span class="label">[186]</span></a></span>
+Colton case, pp. 231-32, testimony F. S. Douty; United States Pacific Railway
+Commission, pp. 3626—27, testimony F. S. Douty.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_187_187" id="Footnote_187_187"></a><a href="#FNanchor_187_187"><span class="label">[187]</span></a></span>
+United States Pacific Railway Commission, p. 2832, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_188_188" id="Footnote_188_188"></a><a href="#FNanchor_188_188"><span class="label">[188]</span></a></span>
+United States Pacific Railway Commission, p. 2994, testimony C. F. Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_189_189" id="Footnote_189_189"></a><a href="#FNanchor_189_189"><span class="label">[189]</span></a></span>
+Colton case, pp. 7646-54, 1586.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_190_190" id="Footnote_190_190"></a><a href="#FNanchor_190_190"><span class="label">[190]</span></a></span>
+<i>Ibid.</i>, pp. 9669-73, testimony Charles Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_191_191" id="Footnote_191_191"></a><a href="#FNanchor_191_191"><span class="label">[191]</span></a></span>
+<i>San Francisco Examiner</i>, October 8, 1889.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_192_192" id="Footnote_192_192"></a><a href="#FNanchor_192_192"><span class="label">[192]</span></a></span>
+Jay Gould once testified that Huntington had offered an interest in the Southern
+Pacific to himself and his Union Pacific associates, and that they had offered to take an interest,
+provided that Huntington would cut the Southern Pacific bonds outstanding from
+$40,000 to $25,000 per mile, and throw the stock in. Gould thought that $25,000 per mile
+was all that the road had cost. (Colton case, deposition Jay Gould, pp. 8, 23-24.)</p>
+
+<p class="pfc4">It should be observed that a great deal of the mileage now owned by the Southern Pacific
+Railroad was not originally built by that company, but by or for small separate companies,
+most of them organized by the Huntington group, which were later consolidated with the
+parent corporation. The complete list of these consolidations is as follows:</p>
+
+<p class="pfc4">October 12, 1870. Consolidation of the Southern Pacific Railroad Company, the San
+Francisco and San José Railroad Company, the Santa Clara and Pajaro Valley Railroad
+Company, and the California Southern Railroad Company.</p>
+
+<p class="pfc4">August 19, 1873. Consolidation of the Southern Pacific Railroad Company and the
+Southern Pacific Branch Railroad Company.</p>
+
+<p class="pfc4">December 18, 1874. Consolidation of the Southern Pacific Railroad Company and the
+Los Angeles and San Pedro Railroad Company.</p>
+
+<p class="pfc4">May 14, 1888. Consolidation of the Southern Pacific Railroad Company, the San José
+and Almaden Railroad Company, the Pajaro and Santa Cruz Railroad Company, the
+Monterey Railroad Company, the Monterey Extension Railroad Company, the Southern
+Pacific Branch Railway Company, the San Pablo and Tulare Railroad Company, the San
+Pablo and Tulare Extension Railroad Company, the San Ramon Valley Railroad Company,
+the Stockton and Copperopolis Railroad Company, the Stockton and Tulare Railroad Company,
+the San Joaquin Valley and Yosemite Railroad Company, the Los Angeles and San
+Diego Railroad Company, the Los Angeles and Independence Railroad Company, the Long
+Beach, Whittier and Los Angeles County Railroad Company, the Long Beach Railroad Company,
+the Southern Pacific Railroad Extension Company, and the Ramona and San
+Bernardino Railroad Company.</p>
+
+<p class="pfc4">April 13,1898. Consolidation of the Southern Pacific Railroad Company, the Northern
+Railway Company, the Northern California Railway Company, and the California Pacific
+Railroad Company.</p>
+
+<p class="pfc4">March 7, 1902. Consolidation of the Southern Pacific Railroad Company (of California),
+the Southern Pacific Railroad Company (of Arizona), and the Southern Pacific
+Railroad Company of New Mexico.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_193_193" id="Footnote_193_193"></a><a href="#FNanchor_193_193"><span class="label">[193]</span></a></span>
+Colton case, pp. 1522-24, 1529.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_194_194" id="Footnote_194_194"></a><a href="#FNanchor_194_194"><span class="label">[194]</span></a></span>
+United States Pacific Railway Commission, pp. 2791-92, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_195_195" id="Footnote_195_195"></a><a href="#FNanchor_195_195"><span class="label">[195]</span></a></span>
+Colton case, pp. 1524-29.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_196_196" id="Footnote_196_196"></a><a href="#FNanchor_196_196"><span class="label">[196]</span></a></span>
+<i>Ibid.</i>, pp. 1510-13.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_197_197" id="Footnote_197_197"></a><a href="#FNanchor_197_197"><span class="label">[197]</span></a></span>
+United States Pacific Railway Commission, p. 3445, testimony E. H. Miller, Jr.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_198_198" id="Footnote_198_198"></a><a href="#FNanchor_198_198"><span class="label">[198]</span></a></span>
+For terms of leases see especially United States Pacific Railway Commission, pp.
+3443-53, testimony of E. H. Miller. Jr.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_199_199" id="Footnote_199_199"></a><a href="#FNanchor_199_199"><span class="label">[199]</span></a></span>
+United States v. Southern Pacific, p. 708, testimony Julius Kruttschnitt. This was
+a case brought in 1915 before the District Court of the United States for the District of Utah
+in order to compel the separation of the Central Pacific from the Southern Pacific railroad.
+The suit was brought under the Anti-Trust Law of 1890, and in the course of the testimony
+the history of the Southern Pacific was very fully brought out.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_200_200" id="Footnote_200_200"></a><a href="#FNanchor_200_200"><span class="label">[200]</span></a></span>
+Colton case, pp. 814-26.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_201_201" id="Footnote_201_201"></a><a href="#FNanchor_201_201"><span class="label">[201]</span></a></span>
+Colton case, pp. 1643-44, Huntington to Colton, May 28, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_202_202" id="Footnote_202_202"></a><a href="#FNanchor_202_202"><span class="label">[202]</span></a></span>
+<i>Ibid.</i>, pp. 1615-16, Huntington to Colton, December 10, 1874.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_203_203" id="Footnote_203_203"></a><a href="#FNanchor_203_203"><span class="label">[203]</span></a></span>
+United States v. Southern Pacific, p. 655, testimony Timothy Hopkins.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_204_204" id="Footnote_204_204"></a><a href="#FNanchor_204_204"><span class="label">[204]</span></a></span>
+United States v. Southern Pacific, pp. 1191-96, testimony James Speyer.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_205_205" id="Footnote_205_205"></a><a href="#FNanchor_205_205"><span class="label">[205]</span></a></span>
+<i>Ibid.</i>, pp. 613-18, testimony George T. Klink.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_206_206" id="Footnote_206_206"></a><a href="#FNanchor_206_206"><span class="label">[206]</span></a></span>
+<i>Ibid.</i>, p. 645, testimony George R. Jackson.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_207_207" id="Footnote_207_207"></a><a href="#FNanchor_207_207"><span class="label">[207]</span></a></span>
+<i>Ibid.</i>, p. 1695, Defendant’s Exhibit No. 21.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_208_208" id="Footnote_208_208"></a><a href="#FNanchor_208_208"><span class="label">[208]</span></a></span>
+<i>Ibid.</i>, p. 871, inventory of Charles Crocker estate, filed July 12, 1889.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_209_209" id="Footnote_209_209"></a><a href="#FNanchor_209_209"><span class="label">[209]</span></a></span>
+United States Pacific Railway Commission, p. 2657, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_210_210" id="Footnote_210_210"></a><a href="#FNanchor_210_210"><span class="label">[210]</span></a></span>
+United States v. Southern Pacific, pp. 615, 645, testimony George T. Klink.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_211_211" id="Footnote_211_211"></a><a href="#FNanchor_211_211"><span class="label">[211]</span></a></span>
+United States v. Southern Pacific, p. 666, testimony Timothy Hopkins.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_212_212" id="Footnote_212_212"></a><a href="#FNanchor_212_212"><span class="label">[212]</span></a></span>
+United States v. Southern Pacific, pp. 1688-1702, Defendant’s
+Exhibit No. 21.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_213_213" id="Footnote_213_213"></a><a href="#FNanchor_213_213"><span class="label">[213]</span></a></span>
+United States v. Southern Pacific, pp. 621-22, testimony George T. Klink. It has
+been suggested that Huntington had the charter of the Southern Pacific Company taken
+out in Kentucky, in order to enable the company to conduct its suits in California in the
+federal and not in the state courts.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_214_214" id="Footnote_214_214"></a><a href="#FNanchor_214_214"><span class="label">[214]</span></a></span>
+J. M. Bassett said of the action of Kentucky in granting a charter to the Southern
+Pacific Company, that it amounted to granting a letter of marque to that company on the
+condition that it make no reprisals in Kentucky. He argued that the lease of the Central
+Pacific was defective because its duration was to be greater than the life of the Central Pacific
+under its articles of incorporation, because the liability of Southern Pacific stockholders
+was not unlimited as in the case of California corporations, and because the rule of comity
+under which foreign corporations operated in California could not be expected to apply to a
+corporation which was forbidden to do business in the state of its nativity. None of these
+objections, however, proved to have any practical importance.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_215_215" id="Footnote_215_215"></a><a href="#FNanchor_215_215"><span class="label">[215]</span></a></span>
+United States Pacific Railway Commission, pp. 2812-13, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_216_216" id="Footnote_216_216"></a><a href="#FNanchor_216_216"><span class="label">[216]</span></a></span>
+The following table shows the result of operation under the lease for each year from
+1885 to 1893:</p>
+
+<p class="pfcc"><span class="smcap">Net Profits and Rentals Central Pacific Railroad, 1885-93</span></p>
+
+<table id="tf02" summary="tf02">
+
+ <tr>
+ <td class="tdcl">Period</td>
+ <td class="tdcl">Net Profits<br />Central Pacific<br />Railroad Company</td>
+ <td class="tdcl">Rental Paid to<br />Central Pacific<br />Railroad Company</td>
+ <td class="tdcl">Excess of<br />Rental over<br />Net Profit</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">April to December, 1885</td>
+ <td class="tdr2l">$1,482,033</td>
+ <td class="tdr2l">$1,482,033</td>
+ <td class="tdr2l">..........</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1886</td>
+ <td class="tdr2">1,324,998</td>
+ <td class="tdr2">1,324,998</td>
+ <td class="tdr2">..........</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1887</td>
+ <td class="tdr2">1,086,733</td>
+ <td class="tdr2">1,200,000</td>
+ <td class="tdr2">$113,267</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1888</td>
+ <td class="tdr2">962,830</td>
+ <td class="tdr2">1,360,000</td>
+ <td class="tdr2">397,170</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1889</td>
+ <td class="tdr2">1,035,418</td>
+ <td class="tdr2">1,360,000</td>
+ <td class="tdr2">324,582</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1890</td>
+ <td class="tdr2">999,223</td>
+ <td class="tdr2">1,360,000</td>
+ <td class="tdr2">360,777</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1891</td>
+ <td class="tdr2">2,144,425</td>
+ <td class="tdr2">2,144,425</td>
+ <td class="tdr2">...........</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1892</td>
+ <td class="tdr2">861,874</td>
+ <td class="tdr2">1,360,000</td>
+ <td class="tdr2">498,127</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1893</td>
+ <td class="tdr2">784,717</td>
+ <td class="tdr2">1,360,000</td>
+ <td class="tdr2">575,283</td>
+ </tr>
+
+ <tr>
+ <td> </td>
+ <td class="tdr2">—————</td>
+ <td class="tdr2">—————</td>
+ <td class="tdr2">—————</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">Totals</td>
+ <td class="tdr2">$10,682,251</td>
+ <td class="tdr2">$12,951,456</td>
+ <td class="tdr2">$2,269,206</td>
+ </tr>
+
+ <tr>
+ <td> </td>
+ <td class="tdr2">═══════</td>
+ <td class="tdr2">═══════</td>
+ <td class="tdr2">═══════</td>
+ </tr>
+
+</table>
+
+<p class="pfc4">Brice Report, 53d Congress, 3d Session, January 28, 1895 (Senate Report, No. 830,
+Serial No. 3288).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_217_217" id="Footnote_217_217"></a><a href="#FNanchor_217_217"><span class="label">[217]</span></a></span>
+Colton case, pp. 8839-42, testimony Charles Crocker. A discussion of the relations
+between Colton and the Huntington group which differs from that given in the text is presented
+in Russell, “Stories of the Great Railroads,” 1914.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_218_218" id="Footnote_218_218"></a><a href="#FNanchor_218_218"><span class="label">[218]</span></a></span>
+Colton case, pp. 2446-50, testimony Mrs. Colton.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_219_219" id="Footnote_219_219"></a><a href="#FNanchor_219_219"><span class="label">[219]</span></a></span>
+<i>Ibid.</i>, pp. 172-73, deposition C. P. Huntington.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_220_220" id="Footnote_220_220"></a><a href="#FNanchor_220_220"><span class="label">[220]</span></a></span>
+Colton case, pp. 5872-74. See also Colton manuscript, pp. 36-40. It was stipulated
+that either party might cancel the agreement at any time within two years, upon which
+stock and promissory note were to be mutually returned, and the parties placed in the same
+position relative to each other as before the agreement was made.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_221_221" id="Footnote_221_221"></a><a href="#FNanchor_221_221"><span class="label">[221]</span></a></span>
+Colton case, pp. 7018-19.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_222_222" id="Footnote_222_222"></a><a href="#FNanchor_222_222"><span class="label">[222]</span></a></span>
+<i>Ibid.</i>, p. 6529, testimony H. K. White.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_223_223" id="Footnote_223_223"></a><a href="#FNanchor_223_223"><span class="label">[223]</span></a></span>
+Colton case, p. 8869, testimony Charles Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_224_224" id="Footnote_224_224"></a><a href="#FNanchor_224_224"><span class="label">[224]</span></a></span>
+<i>Ibid</i>., pp. 1058, 1064-66, testimony E. H. Miller, Jr.; p. 8957, testimony Charles
+Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_225_225" id="Footnote_225_225"></a><a href="#FNanchor_225_225"><span class="label">[225]</span></a></span>
+Colton case, pp. 2711-12, 478-81, testimony F. S. Douty.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_226_226" id="Footnote_226_226"></a><a href="#FNanchor_226_226"><span class="label">[226]</span></a></span>
+Newell Beeman, superintendent of the Rocky Mountain Coal and Iron Company,
+says that Colton knew nothing about the practical working of the mine. (Colton case, pp.
+3849-50, testimony Newell Beeman.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_227_227" id="Footnote_227_227"></a><a href="#FNanchor_227_227"><span class="label">[227]</span></a></span>
+Colton case, pp. 7612-13, Colton to Huntington, January 31, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_228_228" id="Footnote_228_228"></a><a href="#FNanchor_228_228"><span class="label">[228]</span></a></span>
+Colton case, p. 8915, testimony Charles Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_229_229" id="Footnote_229_229"></a><a href="#FNanchor_229_229"><span class="label">[229]</span></a></span>
+United States Pacific Railway Commission, p. 3255, testimony F. S. Douty; Colton
+case, pp. 423-24, testimony F. S. Douty.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_230_230" id="Footnote_230_230"></a><a href="#FNanchor_230_230"><span class="label">[230]</span></a></span>
+Colton case, pp. 8883, 8887, testimony Charles Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_231_231" id="Footnote_231_231"></a><a href="#FNanchor_231_231"><span class="label">[231]</span></a></span>
+Colton case, pp. 8881-82, testimony Charles Crocker; pp. 36-37, deposition C. P.
+Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_232_232" id="Footnote_232_232"></a><a href="#FNanchor_232_232"><span class="label">[232]</span></a></span>
+Colton case, pp. 2335-46, testimony Gunn; pp. 3127-29, 3227, testimony W. G.
+Fullerton.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_233_233" id="Footnote_233_233"></a><a href="#FNanchor_233_233"><span class="label">[233]</span></a></span>
+Colton case, pp. 7187-92, testimony Madden; pp. 7217-24, testimony N. T. Smith.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_234_234" id="Footnote_234_234"></a><a href="#FNanchor_234_234"><span class="label">[234]</span></a></span>
+Colton case, pp. 2436-39, Huntington to Mrs. Colton, November 15, 1878, and
+November 21, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_235_235" id="Footnote_235_235"></a><a href="#FNanchor_235_235"><span class="label">[235]</span></a></span>
+<i>Ibid.</i>, pp. 2485-92, testimony Mrs. Colton; pp. 8892-99; testimony Charles Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_236_236" id="Footnote_236_236"></a><a href="#FNanchor_236_236"><span class="label">[236]</span></a></span>
+Colton case, pp. 16-32, deposition S. N. Wilson.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_237_237" id="Footnote_237_237"></a><a href="#FNanchor_237_237"><span class="label">[237]</span></a></span>
+Colton case, pp. 8931-32, testimony Charles Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_238_238" id="Footnote_238_238"></a><a href="#FNanchor_238_238"><span class="label">[238]</span></a></span>
+In the case of the Central Pacific claims, the qualification “so far as known at the
+time” was introduced.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_239_239" id="Footnote_239_239"></a><a href="#FNanchor_239_239"><span class="label">[239]</span></a></span>
+Colton case, pp. 2815-16, testimony Mrs. Colton; pp. 8943-44, testimony Charles
+Crocker.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_240_240" id="Footnote_240_240"></a><a href="#FNanchor_240_240"><span class="label">[240]</span></a></span>
+Crocker manuscript, pp. 40-41.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_241_241" id="Footnote_241_241"></a><a href="#FNanchor_241_241"><span class="label">[241]</span></a></span>
+Colton case, p. 248, testimony Douty; United States Pacific Railway Commission,
+p. 3494, testimony D. O. Mills.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_242_242" id="Footnote_242_242"></a><a href="#FNanchor_242_242"><span class="label">[242]</span></a></span>
+Colton case, p. 1662, Huntington to Colton, May 1, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_243_243" id="Footnote_243_243"></a><a href="#FNanchor_243_243"><span class="label">[243]</span></a></span>
+<i>Ibid.</i>, pp. 1720-31, Huntington to Colton, June 24, 1875; pp. 1743-45, Huntington to
+Colton, December 4, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_244_244" id="Footnote_244_244"></a><a href="#FNanchor_244_244"><span class="label">[244]</span></a></span>
+<i>Ibid.</i>, miscellaneous depositions, p. 41, depositions S. H. Thayer.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_245_245" id="Footnote_245_245"></a><a href="#FNanchor_245_245"><span class="label">[245]</span></a></span>
+Colton case, p. 33, deposition D. O. Mills.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_246_246" id="Footnote_246_246"></a><a href="#FNanchor_246_246"><span class="label">[246]</span></a></span>
+<i>Ibid.</i>, p. 45, deposition S. H. Thayer.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_247_247" id="Footnote_247_247"></a><a href="#FNanchor_247_247"><span class="label">[247]</span></a></span>
+Colton case, pp. 1684-85, Huntington to Colton, November 13, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_248_248" id="Footnote_248_248"></a><a href="#FNanchor_248_248"><span class="label">[248]</span></a></span>
+<i>Ibid.</i>, pp. 1747-48, Huntington to Colton, December 20, 1876.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_249_249" id="Footnote_249_249"></a><a href="#FNanchor_249_249"><span class="label">[249]</span></a></span>
+Colton case, pp. 1746-47, Huntington to Colton, December 8, 1870.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_250_250" id="Footnote_250_250"></a><a href="#FNanchor_250_250"><span class="label">[250]</span></a></span>
+<i>Ibid.</i>, pp. 1768-70, Huntington to Colton, May 6, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_251_251" id="Footnote_251_251"></a><a href="#FNanchor_251_251"><span class="label">[251]</span></a></span>
+<i>Ibid.</i>, pp. 1772-73, Huntington to Colton, May 9, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_252_252" id="Footnote_252_252"></a><a href="#FNanchor_252_252"><span class="label">[252]</span></a></span>
+<i>Ibid.</i>, pp. 7517-18, Colton to Huntington, August 24, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_253_253" id="Footnote_253_253"></a><a href="#FNanchor_253_253"><span class="label">[253]</span></a></span>
+<i>Ibid.</i>, p. 7523, Colton to Huntington, September 28, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_254_254" id="Footnote_254_254"></a><a href="#FNanchor_254_254"><span class="label">[254]</span></a></span>
+Colton case, pp. 7625-26, Colton to Huntington, March 13, 1878.</p>
+
+<p class="pfc4">It is extraordinary that a man in Colton’s position with his intimate knowledge of the
+precarious condition of Central Pacific finance should have allowed that railroad to declare
+a 4 per cent dividend in October, 1877, great though his personal necessities may have been.
+This was, however, done. In reply to a letter from Huntington criticizing this action, Colton
+later wrote:</p>
+
+<p class="pfc4">“I never had the least intimation of objecting to the dividend until some time after it
+was declared. Governor Stanford informed me that you had telegraphed him, advising
+relative to this October dividend. We discussed it some time afterward in the Board meeting
+and found the whole matter of dividend had been written up in the books, and had gone
+so far before it had been brought before the Board that it was considered best to let the
+matter stand as it was.... I did not give the matter any attention outside of the Board
+meeting, for I felt it was a matter that Governor Stanford was personally attending to.</p>
+
+<p class="pfc4">“I do not, however, see the matter in just the light you do, and think so few will know
+of it that it cannot hurt us in Washington, for if you who are one of the largest stockholders,
+have not found it out, I do not see much show for outsiders. That there were ample surplus
+earnings to declare it there is no doubt. So it was a question of policy.... I
+would think in a business way the Government would be glad to see us doing well and
+prosperous, and evincing ability to pay dividends and <i>all</i> of our <i>debts</i>.” (Colton case, pp.
+7533-34, Colton to Huntington, November 24, 1877.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_255_255" id="Footnote_255_255"></a><a href="#FNanchor_255_255"><span class="label">[255]</span></a></span>
+Colton case, pp. 7608-14, Colton to Huntington, January 31, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_256_256" id="Footnote_256_256"></a><a href="#FNanchor_256_256"><span class="label">[256]</span></a></span>
+In 1885 the Central Pacific directors authorized the issue of $10,000,000 in bonds to
+pay off the floating debt. (United States Pacific Railway Commission, p. 3019, testimony
+C. F. Crocker.) There is some reason to suspect that Stanford was individually embarrassed
+in 1878, as a result of the financial stringency in California. Huntington telegraphed
+Colton in September of that year to let him know Stanford’s financial condition as near as
+he could ascertain it, and proposed to have the Western Development Company assume
+Stanford’s indebtedness, taking Southern Pacific bonds from Stanford in exchange, at 65.
+Colton replied that the Western Development Company would have to take about
+$3,000,000 in Southern Pacific bonds under such an arrangement to cover Stanford’s obligations.
+The French bank in San Francisco had just closed its doors, and he, Colton, was
+anxious about Stanford’s collaterals. He thought that Stanford had $800,000 of United
+States bonds in that institution. Michael Reese’s executors were calling for money. It
+does not appear what conclusion was finally reached.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_257_257" id="Footnote_257_257"></a><a href="#FNanchor_257_257"><span class="label">[257]</span></a></span>
+Colton case, pp. 704-705.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_258_258" id="Footnote_258_258"></a><a href="#FNanchor_258_258"><span class="label">[258]</span></a></span>
+Colton case, p. 112, deposition J. D. Probst.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_259_259" id="Footnote_259_259"></a><a href="#FNanchor_259_259"><span class="label">[259]</span></a></span>
+<i>Ibid.</i>, pp. 146-47, deposition A. L. Thompson.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_260_260" id="Footnote_260_260"></a><a href="#FNanchor_260_260"><span class="label">[260]</span></a></span>
+Laws of California, 1875-76, Ch. 515. For a readable account of the history of the California
+Railroad Commission up to 1895, see Moffet, “The Railroad Commission of California—A
+Study in Irresponsible Government,” (Annals of the American Academy of Political
+and Social Science, March, 1895).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_261_261" id="Footnote_261_261"></a><a href="#FNanchor_261_261"><span class="label">[261]</span></a></span>
+Report of the Board of Commissioners of Transportation to the Legislature of the
+State of California, December, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_262_262" id="Footnote_262_262"></a><a href="#FNanchor_262_262"><span class="label">[262]</span></a></span>
+Laws of California, 1877-78, Ch. 641.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_263_263" id="Footnote_263_263"></a><a href="#FNanchor_263_263"><span class="label">[263]</span></a></span>
+Laws of California, 1877-78, Ch. 490.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_264_264" id="Footnote_264_264"></a><a href="#FNanchor_264_264"><span class="label">[264]</span></a></span>
+Colton case, p. 7646, Colton to Huntington, May 23, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_265_265" id="Footnote_265_265"></a><a href="#FNanchor_265_265"><span class="label">[265]</span></a></span>
+Laws of California, 1880, Ch. 59. Under the view that a clause in the Constitution
+merely amounted to a mandate to the legislature, an enactment such as that of 1880 was
+obviously necessary. It should be said, however, that in later years this conception has
+somewhat changed, and constitutional provisions have been held to be self-executing. This
+was not the case in 1870. (McMurray, “Some Tendencies in Constitution Making,” in
+<i>California Law Review</i>, March, 1914.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_266_266" id="Footnote_266_266"></a><a href="#FNanchor_266_266"><span class="label">[266]</span></a></span>
+City and County of San Francisco v. L. Stanford, Charles Crocker, <i>et al</i>, argument in
+the Circuit Court of the United States, 9th Circuit, District of California.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_267_267" id="Footnote_267_267"></a><a href="#FNanchor_267_267"><span class="label">[267]</span></a></span>
+The <i>Visalia Delta</i> said of Stoneman, with unconscious humor: “France has her
+Napoleon; Italy her Garibaldi; America her Washington; Ireland her O’Connell; and the
+state of California her Stoneman.”</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_268_268" id="Footnote_268_268"></a><a href="#FNanchor_268_268"><span class="label">[268]</span></a></span>
+Arguments and statements before the Committee on Commerce, House of Representatives,
+47th Congress, 1st Session, 1882, House Misc. Doc. 55, p. 262, Serial No. 2047.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_269_269" id="Footnote_269_269"></a><a href="#FNanchor_269_269"><span class="label">[269]</span></a></span>
+Report of the Committee on Corporations, 1883, testimony W. R. Andros, secretary
+to the commission (in appendix to journals of the Senate and Assembly of the Legislature
+of California, 25th Session, 1883).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_270_270" id="Footnote_270_270"></a><a href="#FNanchor_270_270"><span class="label">[270]</span></a></span>
+Report of the Committee on Corporations, 1883, p. 48, testimony C. J. Beerstecher.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_271_271" id="Footnote_271_271"></a><a href="#FNanchor_271_271"><span class="label">[271]</span></a></span>
+This schedule was prepared under the direction of Stoneman and was approved by
+Beerstecher on the understanding that the railroad companies were to be asked to show
+cause why it should not be adopted. (Report of the Committee on Corporations, 1883,
+testimony C. J. Beerstecher.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_272_272" id="Footnote_272_272"></a><a href="#FNanchor_272_272"><span class="label">[272]</span></a></span>
+<i>Ibid.</i>, p. 11, testimony G. B. Stoneman. Mr. Cone says that the freight schedule
+was not fully prepared till March, 1881.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_273_273" id="Footnote_273_273"></a><a href="#FNanchor_273_273"><span class="label">[273]</span></a></span>
+<i>Ibid.</i>, testimony J. S. Cone.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_274_274" id="Footnote_274_274"></a><a href="#FNanchor_274_274"><span class="label">[274]</span></a></span>
+Report of the Committee on Corporations, 1883, testimony C. J. Beerstecher.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_275_275" id="Footnote_275_275"></a><a href="#FNanchor_275_275"><span class="label">[275]</span></a></span>
+When Beerstecher came up for re-election in 1882, the opposition press asserted
+that a railroad official handed every employee of the railroad in Beerstecher’s district a
+Republican ticket with Beerstecher’s name printed on it, with orders to vote it. (<i>Mussel
+Slough Delta</i>, May 12, 1882.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_276_276" id="Footnote_276_276"></a><a href="#FNanchor_276_276"><span class="label">[276]</span></a></span>
+Report of the Committee on Corporations, 1883, testimony J. S. Cone.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_277_277" id="Footnote_277_277"></a><a href="#FNanchor_277_277"><span class="label">[277]</span></a></span>
+Letter to Senate Committee on Corporations, California Legislature, January 22,
+1874; <i>San Francisco Chronicle</i>, January 23, 1874.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_278_278" id="Footnote_278_278"></a><a href="#FNanchor_278_278"><span class="label">[278]</span></a></span>
+Testimony before Senate Committee on Corporations, February 16, 1874 (in appendix
+to journals of Senate and Assembly, 20th Session California Legislature, Vol. 4); <i>San
+Francisco Chronicle</i>, February 17, 1874.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_279_279" id="Footnote_279_279"></a><a href="#FNanchor_279_279"><span class="label">[279]</span></a></span>
+Letter to Committee of the New York Chamber of Commerce, January 20, 1881.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_280_280" id="Footnote_280_280"></a><a href="#FNanchor_280_280"><span class="label">[280]</span></a></span>
+The following interview with Charles Crocker, reported in the <i>Placerville Democrat</i>
+for March 3, 1883, suggests how the doctrine described in the text was concretely applied:</p>
+
+<p class="pfc4">“A gentleman of Placerville called upon Mr. Charles Crocker, of the railroad company, in
+San Francisco last Saturday, to ascertain just what we might calculate upon in reference to
+the extension of the railroad from Shingle Springs to Placerville. He reports that Mr.
+Crocker conversed freely on the subject, and with an appearance of perfect candor. He said
+emphatically that his company would not build or extend any branch roads under existing
+conditions as to uncertainty of action by the Railroad Commission, and the apparent state
+of public opinion as manifested in the Legislature and portions of the public press. He
+says that if the Commission intends to make sweeping reductions on the branch roads, such
+action would make these roads valueless, and he is not disposed to build roads to be thus
+destroyed. In answer to a direct question, with a full understanding that it was to be reported
+to our people, he said that if the Robinson suit were settled, and the position of the
+Commission ascertained as disposed to non-interference with the branch roads, his company
+was anxious to and would immediately extend the road to this place.”</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_281_281" id="Footnote_281_281"></a><a href="#FNanchor_281_281"><span class="label">[281]</span></a></span>
+Colton case, pp. 1717-19, Huntington to Colton, April 27, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_282_282" id="Footnote_282_282"></a><a href="#FNanchor_282_282"><span class="label">[282]</span></a></span>
+<i>Ibid.</i>, p. 1754, Huntington to Colton, January 22, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_283_283" id="Footnote_283_283"></a><a href="#FNanchor_283_283"><span class="label">[283]</span></a></span>
+<i>Ibid.</i>, p. 1814, Huntington to Colton, December 7, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_284_284" id="Footnote_284_284"></a><a href="#FNanchor_284_284"><span class="label">[284]</span></a></span>
+<i>Ibid.</i>, pp. 1684-85, Huntington to Colton, November 13, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_285_285" id="Footnote_285_285"></a><a href="#FNanchor_285_285"><span class="label">[285]</span></a></span>
+Cotton case, pp. 1642-43, Huntington to Colton, April 26, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_286_286" id="Footnote_286_286"></a><a href="#FNanchor_286_286"><span class="label">[286]</span></a></span>
+<i>Ibid.</i>, pp. 1676-77, Huntington to Colton, October 19, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_287_287" id="Footnote_287_287"></a><a href="#FNanchor_287_287"><span class="label">[287]</span></a></span>
+<i>Ibid.</i>, pp. 1624-25, Crocker to Colton, February 8, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_288_288" id="Footnote_288_288"></a><a href="#FNanchor_288_288"><span class="label">[288]</span></a></span>
+Tom Scott was president of the Pennsylvania Railroad at one time and an active
+opponent of Huntington before Congress.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_289_289" id="Footnote_289_289"></a><a href="#FNanchor_289_289"><span class="label">[289]</span></a></span>
+Cotton case, p. 1735, Huntington to Colton, July 26, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_290_290" id="Footnote_290_290"></a><a href="#FNanchor_290_290"><span class="label">[290]</span></a></span>
+<i>Ibid.</i>, pp. 1736-37, Huntington to Colton, August 7, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_291_291" id="Footnote_291_291"></a><a href="#FNanchor_291_291"><span class="label">[291]</span></a></span>
+<i>Ibid.</i>, pp. 1756-58, Huntington to Colton, March 7, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_292_292" id="Footnote_292_292"></a><a href="#FNanchor_292_292"><span class="label">[292]</span></a></span>
+<i>Ibid.</i>, pp. 1763-65, Huntington to Colton, March 31, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_293_293" id="Footnote_293_293"></a><a href="#FNanchor_293_293"><span class="label">[293]</span></a></span>
+<i>Ibid.</i>, pp. 1776-77, Huntington to Colton, May 15, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_294_294" id="Footnote_294_294"></a><a href="#FNanchor_294_294"><span class="label">[294]</span></a></span>
+Huntington manuscript, p. 17.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_295_295" id="Footnote_295_295"></a><a href="#FNanchor_295_295"><span class="label">[295]</span></a></span>
+Colton case, pp. 1622-23, Huntington to Colton, March 3, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_296_296" id="Footnote_296_296"></a><a href="#FNanchor_296_296"><span class="label">[296]</span></a></span>
+Colton case, p. 1728, Huntington to Colton, June 21, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_297_297" id="Footnote_297_297"></a><a href="#FNanchor_297_297"><span class="label">[297]</span></a></span>
+<i>Ibid.</i>, pp. 1731-32, Huntington to Colton, July 16, 1876.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_298_298" id="Footnote_298_298"></a><a href="#FNanchor_298_298"><span class="label">[298]</span></a></span>
+<i>Ibid.</i>, p. 7669, Huntington to Colton, August 1, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_299_299" id="Footnote_299_299"></a><a href="#FNanchor_299_299"><span class="label">[299]</span></a></span>
+Colton case, p. 1756, Huntington to Colton, March 7, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_300_300" id="Footnote_300_300"></a><a href="#FNanchor_300_300"><span class="label">[300]</span></a></span>
+<i>Ibid.</i>, p. 1758, Huntington to Colton, March 14, 1877; pp. 1812-13, Huntington to
+Colton, December 5, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_301_301" id="Footnote_301_301"></a><a href="#FNanchor_301_301"><span class="label">[301]</span></a></span>
+<i>Ibid.</i>, pp. 7776-77, Huntington to Colton, January 11, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_302_302" id="Footnote_302_302"></a><a href="#FNanchor_302_302"><span class="label">[302]</span></a></span>
+<i>Ibid.</i>, pp. 1847-48, Huntington to Colton, February 9, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_303_303" id="Footnote_303_303"></a><a href="#FNanchor_303_303"><span class="label">[303]</span></a></span>
+<i>Ibid.</i>, p. 1833, Huntington to Colton, New York, June 15, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_304_304" id="Footnote_304_304"></a><a href="#FNanchor_304_304"><span class="label">[304]</span></a></span>
+Colton case, pp. 833-34, Huntington to Colton, New York, June 20, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_305_305" id="Footnote_305_305"></a><a href="#FNanchor_305_305"><span class="label">[305]</span></a></span>
+<i>Ibid.</i>, p. 1822, Huntington to Colton, New York, April 19, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_306_306" id="Footnote_306_306"></a><a href="#FNanchor_306_306"><span class="label">[306]</span></a></span>
+<i>Ibid.</i>, pp., 1823-24, Huntington to Colton, New York, April 23, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_307_307" id="Footnote_307_307"></a><a href="#FNanchor_307_307"><span class="label">[307]</span></a></span>
+Colton case, pp. 1828-29, Huntington to Colton, New York, May 24, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_308_308" id="Footnote_308_308"></a><a href="#FNanchor_308_308"><span class="label">[308]</span></a></span>
+Colton case, pp. 1673-74, Huntington to Colton, October 9, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_309_309" id="Footnote_309_309"></a><a href="#FNanchor_309_309"><span class="label">[309]</span></a></span>
+<i>Ibid.</i>, pp. 1679-81, Huntington to Colton, October 29, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_310_310" id="Footnote_310_310"></a><a href="#FNanchor_310_310"><span class="label">[310]</span></a></span>
+<i>Ibid.</i>, pp. 1669-70, Huntington to Colton, September 27, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_311_311" id="Footnote_311_311"></a><a href="#FNanchor_311_311"><span class="label">[311]</span></a></span>
+United States Pacific Railway Commission, p. 3276, testimony S. T. Gage.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_312_312" id="Footnote_312_312"></a><a href="#FNanchor_312_312"><span class="label">[312]</span></a></span>
+<i>Ibid.</i>, pp. 3287-88, testimony S. T. Gage.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_313_313" id="Footnote_313_313"></a><a href="#FNanchor_313_313"><span class="label">[313]</span></a></span>
+<i>Ibid.</i>, pp. 4174-75, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_314_314" id="Footnote_314_314"></a><a href="#FNanchor_314_314"><span class="label">[314]</span></a></span>
+Huntington manuscript, p. 80.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_315_315" id="Footnote_315_315"></a><a href="#FNanchor_315_315"><span class="label">[315]</span></a></span>
+Colton Case, pp. 1802-3, Huntington to Colton, November 9, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_316_316" id="Footnote_316_316"></a><a href="#FNanchor_316_316"><span class="label">[316]</span></a></span>
+<i>Ibid.</i>, pp. 1843-45, Huntington to Colton, January 28, 1878. J. M. Bassett declared
+that Huntington paid out $1,700,000 to prevent Scott from securing a subsidy for the
+Atlantic and Pacific Railroad.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_317_317" id="Footnote_317_317"></a><a href="#FNanchor_317_317"><span class="label">[317]</span></a></span>
+<i>Ibid.</i>, p. 1840, Huntington to Colton, January 12, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_318_318" id="Footnote_318_318"></a><a href="#FNanchor_318_318"><span class="label">[318]</span></a></span>
+Colton case, p. 1803, Huntington to Colton, November 15, 1877.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_319_319" id="Footnote_319_319"></a><a href="#FNanchor_319_319"><span class="label">[319]</span></a></span>
+<i>Ibid.</i>, pp. 1700-1, Huntington to Colton, January 14, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_320_320" id="Footnote_320_320"></a><a href="#FNanchor_320_320"><span class="label">[320]</span></a></span>
+<i>Ibid.</i>, pp. 1712-13, Huntington to Colton, March 23, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_321_321" id="Footnote_321_321"></a><a href="#FNanchor_321_321"><span class="label">[321]</span></a></span>
+United States Pacific Railway Commission, p. 3738, testimony C. P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_322_322" id="Footnote_322_322"></a><a href="#FNanchor_322_322"><span class="label">[322]</span></a></span>
+United States Pacific Railway Commission, pp. 35-36, testimony C. P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_323_323" id="Footnote_323_323"></a><a href="#FNanchor_323_323"><span class="label">[323]</span></a></span>
+<i>Ibid.</i>, p. 3869, testimony I. E. Gates.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_324_324" id="Footnote_324_324"></a><a href="#FNanchor_324_324"><span class="label">[324]</span></a></span>
+<i>Ibid.</i>, p. 3697, testimony C. P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_325_325" id="Footnote_325_325"></a><a href="#FNanchor_325_325"><span class="label">[325]</span></a></span>
+<i>Ibid.</i>, pp. 2995-99, testimony C. F. Crocker; p. 3200, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_326_326" id="Footnote_326_326"></a><a href="#FNanchor_326_326"><span class="label">[326]</span></a></span>
+<i>Ibid.</i>, pp. 4174-75, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_327_327" id="Footnote_327_327"></a><a href="#FNanchor_327_327"><span class="label">[327]</span></a></span>
+Most of the so-called “Dear Pard letters” from which the above is taken, appeared
+in the <i>San Francisco Daily Report</i> after November, 1892. In the majority of cases the letters
+were printed in the Saturday edition. The correspondence continued with varying frequency
+until Bassett’s death in 1903. It was credited with a considerable share in preventing
+the refunding of the Central Pacific indebtedness to the United States government on
+terms favorable to the corporation, and Bassett himself believed that his “exposures” had
+seriously injured Southern Pacific credit in the financial markets.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_328_328" id="Footnote_328_328"></a><a href="#FNanchor_328_328"><span class="label">[328]</span></a></span>
+Colton case, p. 1661, Huntington to Colton, May 1, 1875.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_329_329" id="Footnote_329_329"></a><a href="#FNanchor_329_329"><span class="label">[329]</span></a></span>
+United States Pacific Railway Commission, p. 3721, testimony C. P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_330_330" id="Footnote_330_330"></a><a href="#FNanchor_330_330"><span class="label">[330]</span></a></span>
+Colton case, pp. 1726-27, Huntington to Colton, June 7, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_331_331" id="Footnote_331_331"></a><a href="#FNanchor_331_331"><span class="label">[331]</span></a></span>
+<i>Ibid.</i>, pp. 1740-41, Huntington to Colton, November 11, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_332_332" id="Footnote_332_332"></a><a href="#FNanchor_332_332"><span class="label">[332]</span></a></span>
+<i>Ibid.</i>, pp. 1765-66, Huntington to Colton, April 3, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_333_333" id="Footnote_333_333"></a><a href="#FNanchor_333_333"><span class="label">[333]</span></a></span>
+It has also been asserted that the failure of Mr. and Mrs. Stanford to attend one of
+the Huntington weddings was sharply resented by Mr. Huntington. J. M. Bassett, at one
+time secretary to Mr. Stanford, says that the latter came to regard Huntington as an individual
+of shady characteristics, and was not inclined to trust him further than he could
+throw Trinity Church up the side of Mt. Shasta. For his part, Huntington spoke of Stanford
+as a “blanked old fool.” (<i>San Francisco Daily Report</i>, July 21, 1894.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_334_334" id="Footnote_334_334"></a><a href="#FNanchor_334_334"><span class="label">[334]</span></a></span>
+<i>San Francisco Examiner</i>, April 10, 1890.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_335_335" id="Footnote_335_335"></a><a href="#FNanchor_335_335"><span class="label">[335]</span></a></span>
+<i>San Francisco Examiner</i>, April 10, 1890.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_336_336" id="Footnote_336_336"></a><a href="#FNanchor_336_336"><span class="label">[336]</span></a></span>
+<i>Ibid.</i>, April 13, 1890; April 18, 1890.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_337_337" id="Footnote_337_337"></a><a href="#FNanchor_337_337"><span class="label">[337]</span></a></span>
+United States Pacific Railway Commission, pp. 3697-98, testimony C. P. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_338_338" id="Footnote_338_338"></a><a href="#FNanchor_338_338"><span class="label">[338]</span></a></span>
+Colton case, p. 1729, Huntington to Colton, June 24, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_339_339" id="Footnote_339_339"></a><a href="#FNanchor_339_339"><span class="label">[339]</span></a></span>
+Report of the chief engineer upon the preliminary survey, revenue, and cost of construction
+of the San Francisco and Sacramento Railroad, 1856.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_340_340" id="Footnote_340_340"></a><a href="#FNanchor_340_340"><span class="label">[340]</span></a></span>
+Biennial Report of the Commissioner of Transportation of the State of California for
+the years ending December 31, 1877 and 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_341_341" id="Footnote_341_341"></a><a href="#FNanchor_341_341"><span class="label">[341]</span></a></span>
+Hittell, “The Commerce and Industries of the Pacific Coast of North America,” 1882,
+Ch. XI; Sheppard. “F. F. Low, Ninth Governor of California” (in University of California
+<i>Chronicle</i>, April, 1917); <i>San Francisco Argonaut</i>, June 22, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_342_342" id="Footnote_342_342"></a><a href="#FNanchor_342_342"><span class="label">[342]</span></a></span>
+<i>Sacramento Union</i>, December 19, 1860.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_343_343" id="Footnote_343_343"></a><a href="#FNanchor_343_343"><span class="label">[343]</span></a></span>
+In 1869 a committee of the California legislature estimated the volume of California
+products annually arriving at and exported from the port of San Francisco as follows (in
+appendix to journal of Senate and Assembly, 18th session, California Legislature, Vol 2):</p>
+
+<table id="tf03" summary="tf03">
+
+ <tr>
+ <td class="tdcl">Products</td>
+ <td colspan="2" class="tdclw">Annual Receipts</td>
+ <td colspan="2" class="tdclw">Annual Exports</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Wheat</td>
+ <td class="tdrl">225,000</td>
+ <td class="tdll">tons</td>
+ <td class="tdrl">200,000</td>
+ <td class="tdll">tons</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Barley</td>
+ <td class="tdrl">30,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">10,000</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Oats</td>
+ <td class="tdrl">15,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">2,500</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Corn</td>
+ <td class="tdrl">5,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">1,000</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Hay</td>
+ <td class="tdrl">40,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">1,000</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Potatoes</td>
+ <td class="tdrl">37,500</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">10,000</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Beans</td>
+ <td class="tdrl">3,600</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">1,000</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Hops and broom corn</td>
+ <td class="tdrl">3,600</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">1,000</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Beets, carrots, tomatoes, parsnips, peas, cabbages, melons, squashes, etc.</td>
+ <td class="tdrl">40,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">500</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Butter and cheese</td>
+ <td class="tdrl">10,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">500</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Brandy and wine</td>
+ <td class="tdrl">6,000,000</td>
+ <td class="tdll">gals.</td>
+ <td class="tdrl">4,000,000</td>
+ <td class="tdll">gals.</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Fruits, dried and fresh</td>
+ <td class="tdrl">20,000</td>
+ <td class="tdll">tons</td>
+ <td class="tdrl">500</td>
+ <td class="tdll">tons</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Beef, mutton, and pork</td>
+ <td class="tdrl">6,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">.........</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Poultry and eggs</td>
+ <td class="tdrl">12,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">.........</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Wool</td>
+ <td class="tdrl">7,500</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">4,000</td>
+ <td class="tdll1">”</td>
+ </tr>
+
+ <tr>
+ <td class="tdi">Hides</td>
+ <td class="tdrl">168,000</td>
+ <td class="tdll1">”</td>
+ <td class="tdrl">one-half</td>
+ </tr>
+
+</table>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_344_344" id="Footnote_344_344"></a><a href="#FNanchor_344_344"><span class="label">[344]</span></a></span>
+Hittell, “Commerce and Industries on the Pacific Coast,” Ch. 11.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_345_345" id="Footnote_345_345"></a><a href="#FNanchor_345_345"><span class="label">[345]</span></a></span>
+Hittell, “Commerce and Industries on the Pacific Coast,” Ch. 11.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_346_346" id="Footnote_346_346"></a><a href="#FNanchor_346_346"><span class="label">[346]</span></a></span>
+United States Pacific Railway Commission, p. 2924, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_347_347" id="Footnote_347_347"></a><a href="#FNanchor_347_347"><span class="label">[347]</span></a></span>
+Colton case, pp. 981-83.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_348_348" id="Footnote_348_348"></a><a href="#FNanchor_348_348"><span class="label">[348]</span></a></span>
+Colton case, pp. 981-83, Huntington to Colton, November 9, 1874.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_349_349" id="Footnote_349_349"></a><a href="#FNanchor_349_349"><span class="label">[349]</span></a></span>
+<i>Ibid.</i>, pp. 466, 495-96, testimony F. S. Douty.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_350_350" id="Footnote_350_350"></a><a href="#FNanchor_350_350"><span class="label">[350]</span></a></span>
+Hittell, “Commerce and Industries of the Pacific Coast,” Ch. 11.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_351_351" id="Footnote_351_351"></a><a href="#FNanchor_351_351"><span class="label">[351]</span></a></span>
+United States Pacific Railway Commission, p. 2924, testimony Leland Stanford.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_352_352" id="Footnote_352_352"></a><a href="#FNanchor_352_352"><span class="label">[352]</span></a></span>
+United States v. Union Pacific Railroad, pp. 3316-20.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_353_353" id="Footnote_353_353"></a><a href="#FNanchor_353_353"><span class="label">[353]</span></a></span>
+Message from the President of the United States to the House of Representatives
+transmitting copies of contracts and leases entered into by the Southern Pacific Company,
+etc., February 4, 1886. 49th Congress, 1st Session, House Exec. Doc. No. 60, Serial No.
+2398.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_354_354" id="Footnote_354_354"></a><a href="#FNanchor_354_354"><span class="label">[354]</span></a></span>
+United States v. Union Pacific, pp. 3321-25.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_355_355" id="Footnote_355_355"></a><a href="#FNanchor_355_355"><span class="label">[355]</span></a></span>
+United States Pacific Railway Commission, pp. 4276-77.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_356_356" id="Footnote_356_356"></a><a href="#FNanchor_356_356"><span class="label">[356]</span></a></span>
+Report on the internal commerce of the United States, by Joseph Nimmo, Jr., Chief
+of the Bureau of Statistics, Treasury Department, 1884, Serial No. 2295.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_357_357" id="Footnote_357_357"></a><a href="#FNanchor_357_357"><span class="label">[357]</span></a></span>
+Exception should be made of the period between December 16, 1900, and June 11,
+1902, when there was no agreement between the Pacific Mail and the Panama Railroad.
+(United States v. Union Pacific, p. 2911, testimony Conner.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_358_358" id="Footnote_358_358"></a><a href="#FNanchor_358_358"><span class="label">[358]</span></a></span>
+Bancroft, “Chronicles of the Builders,” Vol. 5. Ch. 6; <i>San Francisco Chronicle</i>,
+November 10, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_359_359" id="Footnote_359_359"></a><a href="#FNanchor_359_359"><span class="label">[359]</span></a></span>
+<i>California Mail Bag</i>, August, 1874.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_360_360" id="Footnote_360_360"></a><a href="#FNanchor_360_360"><span class="label">[360]</span></a></span>
+<i>San Francisco Examiner</i>, May 1, 1894. Discrimination was easy because rates were
+not published. Freight schedules were considered to be for the information of employees
+and not for general publication.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_361_361" id="Footnote_361_361"></a><a href="#FNanchor_361_361"><span class="label">[361]</span></a></span>
+Report of California Commissioners of Transportation, 1877, table 1, pp. 34-38.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_362_362" id="Footnote_362_362"></a><a href="#FNanchor_362_362"><span class="label">[362]</span></a></span>
+Report of the Senate Committee on Constitutional Amendments, relative to constitutional
+amendment No. 8, abrogating provisions of constitution as to railroad commission (in
+appendix to journals of the Senate and Assembly of the Legislature of the State of California,
+30th Session, Vol. 8, 1893.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_363_363" id="Footnote_363_363"></a><a href="#FNanchor_363_363"><span class="label">[363]</span></a></span>
+<i>San Francisco Examiner</i>, October 27, 1893. Even in the case of through rates more
+than one classification was used. It appeared in a case brought before the Interstate Commerce
+Commission in 1887 that while the Western classification governed shipments from
+San Francisco to Denver, another classification, known as the Pacific Coast eastbound classification,
+was used in connection with freight moving from San Francisco to the Missouri
+River. (Martin v. Southern Pacific Company, 2 I. C. R. 1 [1888].)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_364_364" id="Footnote_364_364"></a><a href="#FNanchor_364_364"><span class="label">[364]</span></a></span>
+United States Pacific Railway Commission, pp. 2536-37, testimony Leland Stanford.</p>
+
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_365_365" id="Footnote_365_365"></a><a href="#FNanchor_365_365"><span class="label">[365]</span></a></span>
+Report of California Commissioners of Transportation, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_366_366" id="Footnote_366_366"></a><a href="#FNanchor_366_366"><span class="label">[366]</span></a></span>
+Statement of J. S. Leeds, submitted to the State Railroad Commission (<i>San Francisco
+Bulletin</i>, April 4, 1892).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_367_367" id="Footnote_367_367"></a><a href="#FNanchor_367_367"><span class="label">[367]</span></a></span>
+United States Pacific Railway Commission, p. 3344, testimony J. C. Stubbs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_368_368" id="Footnote_368_368"></a><a href="#FNanchor_368_368"><span class="label">[368]</span></a></span>
+Letter of Stanford to Committee of San Francisco Chamber of Commerce, December
+1, 1873.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_369_369" id="Footnote_369_369"></a><a href="#FNanchor_369_369"><span class="label">[369]</span></a></span>
+United States Pacific Railway Commission, pp. 3292-93, testimony J. C. Stubbs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_370_370" id="Footnote_370_370"></a><a href="#FNanchor_370_370"><span class="label">[370]</span></a></span>
+<i>San Francisco Examiner</i>, December 30, 1892, October 29, 1894; <i>San Francisco
+Bulletin</i>, January 31, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_371_371" id="Footnote_371_371"></a><a href="#FNanchor_371_371"><span class="label">[371]</span></a></span>
+<i>San Francisco Examiner</i>, October 30, 1894.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_372_372" id="Footnote_372_372"></a><a href="#FNanchor_372_372"><span class="label">[372]</span></a></span>
+United States Pacific Railway Commission, pp. 3299, 3300, testimony J. C. Stubbs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_373_373" id="Footnote_373_373"></a><a href="#FNanchor_373_373"><span class="label">[373]</span></a></span>
+Railroad Commission of Nevada v. Southern Pacific Company, 21, I. C. C. R. 329,
+349 (1911).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_374_374" id="Footnote_374_374"></a><a href="#FNanchor_374_374"><span class="label">[374]</span></a></span>
+A copy of this contract is printed in the <i>San Francisco Chronicle</i> of May 7, 1879.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_375_375" id="Footnote_375_375"></a><a href="#FNanchor_375_375"><span class="label">[375]</span></a></span>
+<i>San Francisco Call</i>, August 1, 1878.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_376_376" id="Footnote_376_376"></a><a href="#FNanchor_376_376"><span class="label">[376]</span></a></span>
+Report of the Committee on Corporations of the Assembly of California, 1883, <i>sup.
+cit.</i> See also testimony taken before the Senate Judiciary Committee of the legislature of
+California in considering Assembly Bill No. 10 concerning the Regulation of Railroads, 1884
+(in Appendix to the journals of the Senate and Assembly of the Legislature of the State of
+California, 25th Session, Extra).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_377_377" id="Footnote_377_377"></a><a href="#FNanchor_377_377"><span class="label">[377]</span></a></span>
+Railroad Commission of Nevada v. Southern Pacific Company, 21 I. C. C. R. 329,
+346 (1911).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_378_378" id="Footnote_378_378"></a><a href="#FNanchor_378_378"><span class="label">[378]</span></a></span>
+Letter written by John T. Doyle and printed in the <i>Nation</i>, December 8, 1881.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_379_379" id="Footnote_379_379"></a><a href="#FNanchor_379_379"><span class="label">[379]</span></a></span>
+United States Pacific Railway Commission, pp. 3333-34, 3358-59, testimony J. C.
+Stubbs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_380_380" id="Footnote_380_380"></a><a href="#FNanchor_380_380"><span class="label">[380]</span></a></span>
+The special contract system had the bad effect of repressing complaints from shippers.
+Mr. Overheiser, member of the State Grange, farmer, and resident of California since 1849,
+testified in 1884 before a committee of the California Senate as follows:</p>
+
+<p class="pfc4">“<i>Q.</i> Are you sufficiently acquainted with the commercial community of Stockton to
+know whether they have any reluctance in making complaint ... before any Court of
+justice, or in going before the Railroad Commissioners, or an investigating committee? <i>A.</i>
+All I know about it is the impressions I have drawn from what I have heard.</p>
+
+<p class="pfc4">“<i>Q.</i> To what effect? <i>A.</i> I would be very reluctant to come before this body and
+state what firm I belong to, or represent, for fear that the railroad might chastise me for it,
+or my firm.</p>
+
+<p class="pfc4">“<i>Q.</i> Is that opinion generally shared among the merchants? <i>A.</i> As I understand it,
+that is the general opinion.</p>
+
+<p class="pfc4">“<i>Q.</i> What do you mean by the word ‘chastise’? <i>A.</i> They might take our contracts
+away from us.”</p>
+
+<p class="pfc4">This testimony was corroborated by at least one well-established merchant in San Francisco,
+who declared before the same Senate committee that business men in San Francisco were
+afraid to testify against the railroad for fear that their contracts might be broken. (Testimony
+before the Senate Judiciary Committee of the Legislature on Assembly Bill No. 10, 1884.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_381_381" id="Footnote_381_381"></a><a href="#FNanchor_381_381"><span class="label">[381]</span></a></span>
+Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé Railroad, 9
+I. C. C. R. 318 (1902). The number of vessels with their tonnage which entered the port of
+San Francisco in the trade with the Atlantic ports of the United States by way of Cape Horn
+from 1867 to 1884 was as follows:</p>
+
+<table id="tf04" summary="tf04">
+
+ <tr>
+ <td class="tdcl">Year ended June 30</td>
+ <td class="tdcl">Number</td>
+ <td class="tdcl">Tonnage</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1867</td>
+ <td class="tdr25">103</td>
+ <td class="tdr5">110,721</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1868</td>
+ <td class="tdr25">119</td>
+ <td class="tdr5">124,504</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1869</td>
+ <td class="tdr25">139</td>
+ <td class="tdr5">153,784</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1870</td>
+ <td class="tdr25">111</td>
+ <td class="tdr5">126,726</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1871</td>
+ <td class="tdr25">53</td>
+ <td class="tdr5">66,289</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1872</td>
+ <td class="tdr25">63</td>
+ <td class="tdr5">70,956</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1873</td>
+ <td class="tdr25">87</td>
+ <td class="tdr5">104,586</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1874</td>
+ <td class="tdr25">62</td>
+ <td class="tdr5">83,248</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1875</td>
+ <td class="tdr25">75</td>
+ <td class="tdr5">110,071</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1876</td>
+ <td class="tdr25">88</td>
+ <td class="tdr5">124,793</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1877</td>
+ <td class="tdr25">86</td>
+ <td class="tdr5">124,746</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1878</td>
+ <td class="tdr25">68</td>
+ <td class="tdr5">104,544</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1879</td>
+ <td class="tdr25">57</td>
+ <td class="tdr5">92,683</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1880</td>
+ <td class="tdr25">53</td>
+ <td class="tdr5">86,332</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1881</td>
+ <td class="tdr25">55</td>
+ <td class="tdr5">89,097</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1882</td>
+ <td class="tdr25">67</td>
+ <td class="tdr5">104,157</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1883</td>
+ <td class="tdr25">71</td>
+ <td class="tdr5">118,494</td>
+ </tr>
+
+ <tr>
+ <td class="tdc">1884</td>
+ <td class="tdr25">48</td>
+ <td class="tdr5">84,196</td>
+ </tr>
+
+</table>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_382_382" id="Footnote_382_382"></a><a href="#FNanchor_382_382"><span class="label">[382]</span></a></span>
+Proceedings of the Transcontinental Association, 1885. The special contract system
+was strikingly similar to the system of “deferred rebates,” until recently in good repute
+among ocean steamship companies. The argument in defense of this last-named system
+shows how slowly an understanding of the advantages of equality in matters of transportation
+rates spreads in a community. It is the view of the writer that both the special contract
+and the deferred rebate systems were and are contrary, to sound public policy, whether applied
+on land or sea.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_383_383" id="Footnote_383_383"></a><a href="#FNanchor_383_383"><span class="label">[383]</span></a></span>
+A miner in Shasta County wrote to the <i>San Francisco Examiner</i> in 1893:</p>
+
+<p class="pfc4">“I will state some facts about the attempt that was made to ship ores from here. Up
+to 1887 little or no assorted gold ores had been shipped. It was so new an enterprise that
+it was not classified in freight rates of the railroad company. The company was asked to
+establish rates, which it did—at $50 per car from Redding to San Francisco. This was
+satisfactory to the miners. We commenced to ship, and in a few months were sending
+down over 100 tons per month and had hopes of building up a permanent business. All at
+once, without notice, the freight was increased to $73 per car, and in a short time it was
+again raised, this time to $95 per car, and lots of less than one car were raised from 48 cents
+to 76 cents per 100 pounds. I went to San Francisco to see why this was done, and after
+considerable trouble gained an audience with an official at Fourth and Townsend streets. I
+spoke to the official about the advance on ore freight rates. His reply was: ‘Why, you are
+sending down ore that would make a prince rich. We can’t pull high-grade ore on low-grade
+rates.’ I reminded him that it was billed at a valuation of $100 per ton and that the railroad
+company’s responsibility ended there, and that we wished rates on all grades of ore, as
+there were so many values we could not classify them.</p>
+
+<p class="pfc4">“Then he made me the proposition that there be no regular rates established, but to ship
+to the smelter for one month and then bring my returns and he would take out what he might
+think a recompense for pulling these values over the road. For cheek as a business proposition
+I think this stands pre-eminent. Of course it was rejected, and I was given rates as
+follows: Anderson, $71; Redding, $73 per car.” (<i>San Francisco Examiner</i>, May 8, 1893.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_384_384" id="Footnote_384_384"></a><a href="#FNanchor_384_384"><span class="label">[384]</span></a></span>
+United States Pacific Railway Commission, pp. 3319-20, testimony J. C. Stubbs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_385_385" id="Footnote_385_385"></a><a href="#FNanchor_385_385"><span class="label">[385]</span></a></span>
+Proceedings of the Transcontinental Railway Association, 1885, pp. 17-18.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_386_386" id="Footnote_386_386"></a><a href="#FNanchor_386_386"><span class="label">[386]</span></a></span>
+Letter to the State Railroad Commission, February 20, 1883.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_387_387" id="Footnote_387_387"></a><a href="#FNanchor_387_387"><span class="label">[387]</span></a></span>
+<i>San Francisco Chronicle</i>, August 25, 1879. It appears that the fare from San Francisco
+to Sacramento by steamer had been $5 in pre-railroad days. When the California
+Pacific commenced operations in 1869, the fare fell to $4, and when the Western Pacific was
+opened, a $3 rate was put in. As far back as the fifties, rates were still higher. (A. A.
+Cohen, Letter to the State Railroad Commission, 1883.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_388_388" id="Footnote_388_388"></a><a href="#FNanchor_388_388"><span class="label">[388]</span></a></span>
+Opinions and Orders of the Railroad Commission of California, 1916, Vol. 10,
+p. 354 ff.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_389_389" id="Footnote_389_389"></a><a href="#FNanchor_389_389"><span class="label">[389]</span></a></span>
+Declaration of Principles of the Anti-Monopoly Party of Tulare County (<i>Mussell
+Slough Delta</i>, February 24, 1882).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_390_390" id="Footnote_390_390"></a><a href="#FNanchor_390_390"><span class="label">[390]</span></a></span>
+<i>San Francisco Chronicle</i>, August 27, 1879.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_391_391" id="Footnote_391_391"></a><a href="#FNanchor_391_391"><span class="label">[391]</span></a></span>
+<i>Stockton Independent</i>, March 10, 1876.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_392_392" id="Footnote_392_392"></a><a href="#FNanchor_392_392"><span class="label">[392]</span></a></span>
+San Bernardino Board of Trade v. Atchison, Topeka and Santa Fé Railroad Company,
+3 I. C. C. R. 138 (1890). The Circuit Court for the Southern District of California refused
+to enforce the decree of the Interstate Commerce Commission in this case. (Interstate
+Commerce Commission v. Atchison, Topeka, and Santa Fé Railroad Company, 50
+Fed. 295 [1892].)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_393_393" id="Footnote_393_393"></a><a href="#FNanchor_393_393"><span class="label">[393]</span></a></span>
+Harbor City Wholesale Company of San Pedro, California, v. Southern Pacific
+Company, 19 I. C. C. R. 323 (1910).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_394_394" id="Footnote_394_394"></a><a href="#FNanchor_394_394"><span class="label">[394]</span></a></span>
+Commercial Club of Santa Barbara, California, v. Southern Pacific Company, 12
+I. C. C. R. 495 (1907).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_395_395" id="Footnote_395_395"></a><a href="#FNanchor_395_395"><span class="label">[395]</span></a></span>
+Santa Rosa Traffic Association v. Southern Pacific Company, 24 I. C. C. R. 46 (1912);
+29 I. C. C. R. 65 (1914); Transcontinental Commodity Rate to San José, Santa Clara and
+Marysville, California, 32 I. C. C. R. 449 (1914).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_396_396" id="Footnote_396_396"></a><a href="#FNanchor_396_396"><span class="label">[396]</span></a></span>
+In 1887 a steamer of the Pacific Coast Steamship Company left San Francisco weekly
+for Vancouver, where its freight was loaded upon cars of the Canadian Pacific Company and
+taken east across the mountains. The Canadian Pacific demanded, and in 1888 was conceded,
+the privilege of accepting freight from San Francisco to Chicago and points east at
+rates less than those charged by the other transcontinental lines. (Martin v. Southern
+Pacific Company, I. C. C. R. 1 [1888].)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_397_397" id="Footnote_397_397"></a><a href="#FNanchor_397_397"><span class="label">[397]</span></a></span>
+Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé Railway Company,
+9 I. C. C. R. 318 (1902).</p>
+
+<p class="pfc4">When the Interstate Commerce Act was passed in 1887 the transcontinental carriers
+agreed to grade eastbound rates back to the Pacific Coast. Under tariffs issued April 5,
+1887, Missouri River rates were applied for about 350 miles west of the river, from which
+point they gradually decreased to Denver. The Denver rates were applied from Denver to
+a point near Green River, over 300 miles west from Cheyenne. From Green River the
+rates again decreased gradually to the Pacific Coast. The tariff of April 5 was published in
+order to comply with Section 4 of the Interstate Commerce Law, and it was superseded by
+other tariffs in April and May, 1887, by permission of the Interstate Commerce Commission.
+(Martin v. Southern Pacific Company, 2 I. C. C. R. I [1888].)</p>
+
+<p class="pfc4">In later years transcontinental rates to interior points were not uniformly built by
+combination upon the terminals. In many cases, even in westbound rates, the terminal
+rates served as maxima beyond which intermediate rates were higher than to terminal points,
+but not by the full extent of the local back. Thus on the Central Pacific in 1902 the company
+named class rates to intermediate points which acted as maxima to all points, which
+meant that when the specified intermediate rate was less than the terminal plus the local
+back, the lower rate prevailed. Nor must the influence of the Interstate Commerce Commission
+in reducing intermediate rates be left out of account. Yet it was the conclusion of
+this same commission as late as 1902, that the point where the direct rate from the East was
+at least as high as the sum of the terminal rate and the local rate from terminal to intermediate
+destination, was on the average 300 miles east of the Pacific Coast, and in some instances
+several times that distance, a fact which is sufficient to characterize the system as a whole.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_398_398" id="Footnote_398_398"></a><a href="#FNanchor_398_398"><span class="label">[398]</span></a></span>
+Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé Railway Company,
+9 I. C. C. R. 318 (1902). See also Rates on Asphaltum, etc., 33 I. C. C. R. 480 (1915).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_399_399" id="Footnote_399_399"></a><a href="#FNanchor_399_399"><span class="label">[399]</span></a></span>
+In so far as there is rail competition between transcontinental carriers, this rivalry
+also is keenest upon the Pacific Coast, and weakest in the intermediate territory.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_400_400" id="Footnote_400_400"></a><a href="#FNanchor_400_400"><span class="label">[400]</span></a></span>
+Report of Senate Judiciary Committee on Assembly Bill No. 10, 1884, testimony
+C. S. Stevens.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_401_401" id="Footnote_401_401"></a><a href="#FNanchor_401_401"><span class="label">[401]</span></a></span>
+Letter of Stanford to a committee of the San Francisco Chamber of Commerce, 1873.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_402_402" id="Footnote_402_402"></a><a href="#FNanchor_402_402"><span class="label">[402]</span></a></span>
+Railroad Commission of Nevada v. Southern Pacific Company, 19 I.C.C.R. 238
+(1910).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_403_403" id="Footnote_403_403"></a><a href="#FNanchor_403_403"><span class="label">[403]</span></a></span>
+<i>San Francisco Bulletin</i>, March 26, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_404_404" id="Footnote_404_404"></a><a href="#FNanchor_404_404"><span class="label">[404]</span></a></span>
+<i>Ibid.</i>, October 12, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_405_405" id="Footnote_405_405"></a><a href="#FNanchor_405_405"><span class="label">[405]</span></a></span>
+Huntington manuscript, pp. 27-28.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_406_406" id="Footnote_406_406"></a><a href="#FNanchor_406_406"><span class="label">[406]</span></a></span>
+Hearings before the Committee on Interstate and Foreign Commerce of the House of
+Representatives on H. R. 9928 (55th Congress, 2d Session, March 26 to April 2, 1918, pp.
+84-85, testimony W. S. McCarthy).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_407_407" id="Footnote_407_407"></a><a href="#FNanchor_407_407"><span class="label">[407]</span></a></span>
+Hearings before House Committee on Interstate and Foreign Commerce, <i>sup. cit.</i>,
+pp. 170-71, testimony, L. J. Spence.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_408_408" id="Footnote_408_408"></a><a href="#FNanchor_408_408"><span class="label">[408]</span></a></span>
+Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé, <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_409_409" id="Footnote_409_409"></a><a href="#FNanchor_409_409"><span class="label">[409]</span></a></span>
+Kindel v. Atchison, Topeka and Santa Fé Railway. 8 I. C. C. R. 608 (1900). In its
+first exercise of authority under the amended long-and short-haul clause, the Interstate
+Commerce Commission of 1911 prescribed the extent to which rates from eastern points of
+origin at and west of the Atlantic seaboard to Reno and other points upon the main line of
+the Central Pacific might exceed the rates to Pacific Coast terminals. (Railroad Commission
+of Nevada v. Southern Pacific. 21 I. C. C. R. 329 [1911].) <i>Cf.</i> Commodity Rates to
+Pacific Coast Terminals, 32 I. C. C. R. 611 (1915).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_410_410" id="Footnote_410_410"></a><a href="#FNanchor_410_410"><span class="label">[410]</span></a></span>
+Railroad Commission of Nevada v. Southern Pacific Company, 19 I.C.C.R. 238
+(1910).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_411_411" id="Footnote_411_411"></a><a href="#FNanchor_411_411"><span class="label">[411]</span></a></span>
+Commodity Rates to Pacific Coast Terminals, 32 I. C. C. R. 611; 34 I. C. C. R. 13
+(1915).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_412_412" id="Footnote_412_412"></a><a href="#FNanchor_412_412"><span class="label">[412]</span></a></span>
+Daggett, “The Panama Canal and Transcontinental Rates,” (in <i>Journal of Political
+Economy</i>, December, 1915); Rates on Asphaltum, etc., <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_413_413" id="Footnote_413_413"></a><a href="#FNanchor_413_413"><span class="label">[413]</span></a></span>
+Reopening Fourth Section Applications, 40 I. C. C. R. 35 (1916); Transcontinental
+Rates, 46 I. C. C. R. 236 (1917). See also Skinner and Eddy Corporation v. United States,
+39 Supreme Court Report 375 (1919).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_414_414" id="Footnote_414_414"></a><a href="#FNanchor_414_414"><span class="label">[414]</span></a></span>
+Wheeler, “The Valley Road—A History of the Traffic Association of California, the
+League of Progress, the North American Navigation Company, the Merchants’ Shipping
+Association, and the San Francisco and San Joaquin Valley Railway” (San Francisco,
+1896). See also Walker, “Pioneers of Prosperity” (San Francisco, 1895).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_415_415" id="Footnote_415_415"></a><a href="#FNanchor_415_415"><span class="label">[415]</span></a></span>
+United States v. 250 Kegs of Nails, 52 Fed. 231 (1892); 61 Fed. 410 (1894). See also
+<i>San Francisco Bulletin</i>, November 19, 1891.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_416_416" id="Footnote_416_416"></a><a href="#FNanchor_416_416"><span class="label">[416]</span></a></span>
+27 United States Statutes 455 (1893). This bill was introduced by Senator Frye.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_417_417" id="Footnote_417_417"></a><a href="#FNanchor_417_417"><span class="label">[417]</span></a></span>
+Proceedings of the Merchants’ Convention (<i>San Francisco Bulletin</i>, October 19, 1891).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_418_418" id="Footnote_418_418"></a><a href="#FNanchor_418_418"><span class="label">[418]</span></a></span>
+The constitution of the Traffic Association is printed in full in the <i>San Francisco
+Bulletin</i>, November 4, 1891.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_419_419" id="Footnote_419_419"></a><a href="#FNanchor_419_419"><span class="label">[419]</span></a></span>
+<i>San Francisco Bulletin</i>, October 17, 1891.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_420_420" id="Footnote_420_420"></a><a href="#FNanchor_420_420"><span class="label">[420]</span></a></span>
+<i>San Francisco Examiner</i>, October 8, 1891.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_421_421" id="Footnote_421_421"></a><a href="#FNanchor_421_421"><span class="label">[421]</span></a></span>
+<i>San Francisco Bulletin</i>, October 17, 19, 1891; <i>San Francisco Chronicle</i>, October 18,
+1891.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_422_422" id="Footnote_422_422"></a><a href="#FNanchor_422_422"><span class="label">[422]</span></a></span>
+<i>San Francisco Chronicle</i>, October 24, 1891.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_423_423" id="Footnote_423_423"></a><a href="#FNanchor_423_423"><span class="label">[423]</span></a></span>
+<i>San Francisco Bulletin</i>, November 4, 1891.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_424_424" id="Footnote_424_424"></a><a href="#FNanchor_424_424"><span class="label">[424]</span></a></span>
+It was the position of the executive committee of the Traffic Association, and in this
+they were supported by the traffic expert whom they employed, that it would be exceedingly
+bad policy for San Francisco to antagonize the interior by endeavoring to secure special advantages
+for itself. (<i>San Francisco Chronicle</i>, December 10, 1892.)</p>
+
+<p class="pfc4">The Traffic Association was said to be, under its constitution and by-laws, a state institution,
+organized to promote the welfare of the whole state. The executive committee
+did not believe that San Francisco should be made the sole terminal even were this possible.
+The city would assume its proper and legitimate place not as the oppressor, but as the
+protector of every industry in the state, provided free competition and equally adjusted
+local rates could be secured. (<i>Ibid.</i>, December 18, 1892.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_425_425" id="Footnote_425_425"></a><a href="#FNanchor_425_425"><span class="label">[425]</span></a></span>
+<i>San Francisco Chronicle</i>, November 3, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_426_426" id="Footnote_426_426"></a><a href="#FNanchor_426_426"><span class="label">[426]</span></a></span>
+<i>Ibid.</i>, December 7, 1892. The reply of the executive committee of the Traffic Association
+to this address is printed in the <i>San Francisco Examiner</i>, December 18, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_427_427" id="Footnote_427_427"></a><a href="#FNanchor_427_427"><span class="label">[427]</span></a></span>
+<i>Sacramento Union</i>, April 4, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_428_428" id="Footnote_428_428"></a><a href="#FNanchor_428_428"><span class="label">[428]</span></a></span>
+<i>Ibid.</i>, May 13, 1892. San Francisco merchants declared that it was cheaper to send
+nails from San Francisco to Bakersfield via Los Angeles, water and rail, than to move them
+direct by rail over the floor of the San Joaquin Valley.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_429_429" id="Footnote_429_429"></a><a href="#FNanchor_429_429"><span class="label">[429]</span></a></span>
+<i>San Francisco Bulletin</i>, November 23, 1891. Mr. Leeds was given a two-year
+appointment, at a salary of $12,000 per annum.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_430_430" id="Footnote_430_430"></a><a href="#FNanchor_430_430"><span class="label">[430]</span></a></span>
+Walker, “Pioneers of Prosperity,” <i>sup. cit.</i>, p. 46.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_431_431" id="Footnote_431_431"></a><a href="#FNanchor_431_431"><span class="label">[431]</span></a></span>
+The Merchants’ Shipping Association continued in active operation until January 1,
+1894, when Grace and Company agreed to carry on the business on their own account. The
+first boat to arrive in San Francisco was the “Charles E. Moody,” of 1,915 tons. The next
+two were the “T. F. Oakes,” of 1,897 tons, and the “Emily Reed,” of 1,488 tons. Subsequently,
+still other vessels were added.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_432_432" id="Footnote_432_432"></a><a href="#FNanchor_432_432"><span class="label">[432]</span></a></span>
+<i>San Francisco Bulletin</i>, June 24, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_433_433" id="Footnote_433_433"></a><a href="#FNanchor_433_433"><span class="label">[433]</span></a></span>
+<i>San Francisco Chronicle</i>, August 6, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_434_434" id="Footnote_434_434"></a><a href="#FNanchor_434_434"><span class="label">[434]</span></a></span>
+<i>San Francisco Bulletin</i>, August 4, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_435_435" id="Footnote_435_435"></a><a href="#FNanchor_435_435"><span class="label">[435]</span></a></span>
+<i>San Francisco Examiner</i>, August 18, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_436_436" id="Footnote_436_436"></a><a href="#FNanchor_436_436"><span class="label">[436]</span></a></span>
+<i>San Francisco Bulletin</i>, January 5, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_437_437" id="Footnote_437_437"></a><a href="#FNanchor_437_437"><span class="label">[437]</span></a></span>
+Walker, “Pioneers of Prosperity,” <i>sup. cit.</i>, p. 173.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_438_438" id="Footnote_438_438"></a><a href="#FNanchor_438_438"><span class="label">[438]</span></a></span>
+<i>San Francisco Bulletin</i>, August 31, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_439_439" id="Footnote_439_439"></a><a href="#FNanchor_439_439"><span class="label">[439]</span></a></span>
+<i>San Francisco Examiner</i>, January 9, 1894. <i>Cf.</i> statement by General John Newton,
+president Panama Railroad Company, <i>ibid.</i>, November 29, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_440_440" id="Footnote_440_440"></a><a href="#FNanchor_440_440"><span class="label">[440]</span></a></span>
+Wheeler, “The Valley Road,” <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_441_441" id="Footnote_441_441"></a><a href="#FNanchor_441_441"><span class="label">[441]</span></a></span>
+Wheeler, “The Valley Road,” <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_442_442" id="Footnote_442_442"></a><a href="#FNanchor_442_442"><span class="label">[442]</span></a></span>
+<i>San Francisco Examiner</i>, January 21, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_443_443" id="Footnote_443_443"></a><a href="#FNanchor_443_443"><span class="label">[443]</span></a></span>
+<i>San Francisco Examiner</i>, February 28, March 5, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_444_444" id="Footnote_444_444"></a><a href="#FNanchor_444_444"><span class="label">[444]</span></a></span>
+<i>Ibid.</i>, December 20, 28, 30, 31, 1893, and January 3, 1894.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_445_445" id="Footnote_445_445"></a><a href="#FNanchor_445_445"><span class="label">[445]</span></a></span>
+<i>San Francisco Examiner</i>, April 1, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_446_446" id="Footnote_446_446"></a><a href="#FNanchor_446_446"><span class="label">[446]</span></a></span>
+<i>San Francisco Examiner</i>, March 19, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_447_447" id="Footnote_447_447"></a><a href="#FNanchor_447_447"><span class="label">[447]</span></a></span>
+Wheeler, “The Valley Road,” <i>sup. cit.</i>, pp. 32-33.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_448_448" id="Footnote_448_448"></a><a href="#FNanchor_448_448"><span class="label">[448]</span></a></span>
+<i>San Francisco Examiner</i>, January 10, 1894.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_449_449" id="Footnote_449_449"></a><a href="#FNanchor_449_449"><span class="label">[449]</span></a></span>
+<i>San Francisco Examiner</i>, September 21, 1893, statement by H. E. Huntington.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_450_450" id="Footnote_450_450"></a><a href="#FNanchor_450_450"><span class="label">[450]</span></a></span>
+<i>Ibid.</i>, April 25, 1893, statement by Agent Hinton of the Panama Railroad.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_451_451" id="Footnote_451_451"></a><a href="#FNanchor_451_451"><span class="label">[451]</span></a></span>
+Business Men’s League of St. Louis v. Atchison, Topeka and Santa Fé Railroad
+Company, 9 I.C.C.R. 318 (1902).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_452_452" id="Footnote_452_452"></a><a href="#FNanchor_452_452"><span class="label">[452]</span></a></span>
+<i>San Francisco Examiner</i>, February 4, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_453_453" id="Footnote_453_453"></a><a href="#FNanchor_453_453"><span class="label">[453]</span></a></span>
+<i>San Francisco Bulletin</i>, August 20, 23, 1892. The League of Progress was an organization
+composed of the younger business men in San Francisco in sympathy with the policies
+of the Traffic Association.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_454_454" id="Footnote_454_454"></a><a href="#FNanchor_454_454"><span class="label">[454]</span></a></span>
+<i>San Francisco Bulletin</i>, October 12, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_455_455" id="Footnote_455_455"></a><a href="#FNanchor_455_455"><span class="label">[455]</span></a></span>
+<i>San Francisco Examiner</i>, December 23, 1892.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_456_456" id="Footnote_456_456"></a><a href="#FNanchor_456_456"><span class="label">[456]</span></a></span>
+<i>Ibid.</i>, March 8, 1893. See also <i>ibid.</i>, March 4, 1893. With respect to the whole project
+Mr. Huntington said to a reporter:</p>
+
+<p class="pfc4">“As to building a railroad to Salt Lake, I certainly have no objection to other people
+doing it. I should very much dislike to do it myself. I do not believe it would be for the
+interest of San Francisco merchants to build it; hence I do not think it will be built. A good
+railroad from San Francisco to Salt Lake, with good terminals, as good a road as the Central
+Pacific, would cost at least $50,000,000. Of course, a road can be built for a much less sum,
+but such a road would not compete with the present line, for certainly the present rates are
+not as much as it would cost to haul the tonnage over a cheap line that could be built for
+much, if any, less than the figure named. When the Central Pacific Railroad was built I
+urged the moneyed men of San Francisco to take an interest with us on exactly the same
+basis as I and my associates hold our interests. But no one here would take an interest.
+If they would not take an interest then when every man, woman, and child in the State
+wanted a road so that they could go East and see the old folks at home, they would hardly
+be likely to take it now, with at least seven lines across the continent, charging rates of fare
+and freight very, very much less than they were when the first road was built, or than they
+expected these rates would be when the first road was inaugurated.” (<i>Ibid.</i>, September 20,
+1892.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_457_457" id="Footnote_457_457"></a><a href="#FNanchor_457_457"><span class="label">[457]</span></a></span>
+<i>San Francisco Bulletin</i>, June 22, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_458_458" id="Footnote_458_458"></a><a href="#FNanchor_458_458"><span class="label">[458]</span></a></span>
+<i>Ibid.</i>, July 17, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_459_459" id="Footnote_459_459"></a><a href="#FNanchor_459_459"><span class="label">[459]</span></a></span>
+<i>San Francisco Bulletin</i>, July 18, 1893.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_460_460" id="Footnote_460_460"></a><a href="#FNanchor_460_460"><span class="label">[460]</span></a></span>
+<i>Ibid.</i>, July 10, 1893. The stock was to be issued in the name of nine trustees, and was
+to be voted by these gentlemen. The trustees were to have the right to cause the consolidation
+of the proposed corporation with another company. Possibly the railroad project
+suffered somewhat from the fact that a plan existed for the construction of a ship canal up
+the San Joaquin Valley to Bakersfield. Fresno people were particularly interested in this
+scheme, which contemplated the connection of Fresno with the navigable part of the San
+Joaquin River at Crowe’s Landing, or some other convenient point. (<i>San Francisco
+Examiner</i>, June 3, June 5, 1894.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_461_461" id="Footnote_461_461"></a><a href="#FNanchor_461_461"><span class="label">[461]</span></a></span>
+<i>San Francisco Bulletin</i>, September 27, 1894.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_462_462" id="Footnote_462_462"></a><a href="#FNanchor_462_462"><span class="label">[462]</span></a></span>
+<i>San Francisco Examiner</i>, January 18, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_463_463" id="Footnote_463_463"></a><a href="#FNanchor_463_463"><span class="label">[463]</span></a></span>
+<i>San Francisco Examiner</i>, February 9, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_464_464" id="Footnote_464_464"></a><a href="#FNanchor_464_464"><span class="label">[464]</span></a></span>
+<i>Ibid.</i>, January 30, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_465_465" id="Footnote_465_465"></a><a href="#FNanchor_465_465"><span class="label">[465]</span></a></span>
+Statement of J. S. Leeds in the <i>San Francisco Bulletin</i>, October 1, 1894, and in the
+<i>San Francisco Examiner</i>, January 27, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_466_466" id="Footnote_466_466"></a><a href="#FNanchor_466_466"><span class="label">[466]</span></a></span>
+<i>San Francisco Examiner</i>, March 6, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_467_467" id="Footnote_467_467"></a><a href="#FNanchor_467_467"><span class="label">[467]</span></a></span>
+<i>San Francisco Examiner</i>, January 31, 1895. As a matter of fact, the bulk of the
+subscriptions came from a very few sources.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_468_468" id="Footnote_468_468"></a><a href="#FNanchor_468_468"><span class="label">[468]</span></a></span>
+<i>San Francisco Bulletin</i>, March 1, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_469_469" id="Footnote_469_469"></a><a href="#FNanchor_469_469"><span class="label">[469]</span></a></span>
+<i>San Francisco Examiner</i>, April 27, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_470_470" id="Footnote_470_470"></a><a href="#FNanchor_470_470"><span class="label">[470]</span></a></span>
+The question as to what the valley towns would do for the new enterprise was repeatedly
+asked, and received a reasonably satisfactory reply. Depot sites and rights-of-way
+were freely offered, and subscriptions to stock were talked about, if not often pledged in any
+binding way. The Spreckels group tried to encourage donations of all lands, and to play
+one town against another where this was possible. It refused to say, for example, whether
+the new road would begin at Stockton, as once proposed, or even whether the new route
+would not run through San José. Stockton organized a committee to present her claims.
+San José did the same. Mass meetings were held in both places, that in San José being
+marked by a procession, with transparencies and a band. Stockton merchants agreed to
+give to the San Francisco and San Joaquin Valley Railway rights-of-way 100 feet wide along
+the adopted survey for the railroad from the city of Stockton through San Joaquin County
+to the boundary line between San Joaquin and Stanislaus counties. They further agreed
+to convey to the railway company certain specified parcels of land in the city of Stockton, to
+aid the company in obtaining franchises and rights-of-way in Stockton, and to obtain subscriptions
+to the capital stock of the company to the amount of $100,000. (<i>San Francisco
+Examiner</i>, May 3, 1895.)</p>
+
+<p class="pfc4">The San José delegation which came to San Francisco in March said that $148,000 had
+already been secured for the new road in their district, that $200,000 was in sight, and that
+$300,000 in subscriptions could be obtained with a guaranty of shipments by the new route
+from the large fruit packers, business men, farmers, and horticulturists. They added that
+rights-of-way, 75 per cent of which would be free of cost to the company, and also terminal
+facilities in San José would be provided. (<i>Ibid.</i>, March 27, 1895.)</p>
+
+<p class="pfc4">It is of some interest to recall that when the decision was made in favor of Stockton, her
+representatives had difficulty in making their promises good. It was remarked at one time
+that apparently one of the things most needed to help on the era of progress in California
+was a number of judiciously selected funerals—presumably of opponents to the new
+developments.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_471_471" id="Footnote_471_471"></a><a href="#FNanchor_471_471"><span class="label">[471]</span></a></span>
+See address of Robert Watt at Bakersfield, <i>San Francisco Examiner</i>, April 29, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_472_472" id="Footnote_472_472"></a><a href="#FNanchor_472_472"><span class="label">[472]</span></a></span>
+<i>San Francisco Examiner</i>, January 30, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_473_473" id="Footnote_473_473"></a><a href="#FNanchor_473_473"><span class="label">[473]</span></a></span>
+Letter from the Spreckels’ Committee to San Francisco Bankers, <i>San Francisco
+Examiner</i>, February 3, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_474_474" id="Footnote_474_474"></a><a href="#FNanchor_474_474"><span class="label">[474]</span></a></span>
+<i>San Francisco Examiner</i>, March 26, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_475_475" id="Footnote_475_475"></a><a href="#FNanchor_475_475"><span class="label">[475]</span></a></span>
+<i>Ibid.</i>, April 6, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_476_476" id="Footnote_476_476"></a><a href="#FNanchor_476_476"><span class="label">[476]</span></a></span>
+<i>San Francisco Bulletin</i>, April 6, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_477_477" id="Footnote_477_477"></a><a href="#FNanchor_477_477"><span class="label">[477]</span></a></span>
+Laws of California, 1878, Ch. 219.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_478_478" id="Footnote_478_478"></a><a href="#FNanchor_478_478"><span class="label">[478]</span></a></span>
+<i>San Francisco Examiner</i>, March 9, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_479_479" id="Footnote_479_479"></a><a href="#FNanchor_479_479"><span class="label">[479]</span></a></span>
+<i>Ibid.</i>, March 11. 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_480_480" id="Footnote_480_480"></a><a href="#FNanchor_480_480"><span class="label">[480]</span></a></span>
+This was the proposal of Mr. Powers, of San Francisco. See Journal of the Assembly,
+31st Session, March 8, 1895, p. 904.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_481_481" id="Footnote_481_481"></a><a href="#FNanchor_481_481"><span class="label">[481]</span></a></span>
+Reid amendment, Journal of the Assembly, 31st Session, March 11, pp. 961-62.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_482_482" id="Footnote_482_482"></a><a href="#FNanchor_482_482"><span class="label">[482]</span></a></span>
+Laws of California, 1895, Ch. 171.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_483_483" id="Footnote_483_483"></a><a href="#FNanchor_483_483"><span class="label">[483]</span></a></span>
+Indenture dated July 8, 1895. The lease was to expire May 1, 1945. Five years
+after the lease was signed, however, the State Harbor Commission declared it terminated
+because of the failure of the railway company to make agreed improvements. A new indenture
+was then signed by the parties under date of November 21, 1900. By this document
+the state slightly increased the area leased to the railway company, and extended the
+term to December 1, 1950. For its part, the railway agreed to construct a definite length of
+sea-wall along the front of the leased property, and to spend $50,000 annually for six years
+on improvements. It is interesting to observe that while the new lease, like the old, was
+non-assignable, the restriction in the indenture of 1900 did not apply to any assignment or
+transfer that might occur at the expiration of the Valley company’s corporate life through
+foreclosure of its bonded indebtedness, nor to any sale, transfer, or assignment to the Atchison,
+Topeka and Santa Fé Railway Company. The Santa Fé road, successor to the San
+Francisco and San Joaquin Valley Railway, purchased additional property adjacent to and
+south of China Basin, but its terminals are still on the land leased from the state. This
+includes the company’s freight ferry lands, its freight houses, and most of its yard tracks
+in San Francisco. See on this matter the annual reports of the Atchison, Topeka and
+Santa Fé Railroad, and also the <i>San Francisco Examiner</i>, November 15, 1898.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_484_484" id="Footnote_484_484"></a><a href="#FNanchor_484_484"><span class="label">[484]</span></a></span>
+<i>San Francisco Examiner</i>, October 27, 1898. Another point of view with respect to
+the consolidation of the San Francisco and San Joaquin Valley Railway with the Santa
+Fé is presented by W. B. Storey, chief engineer and general superintendent of the Valley
+line from 1895 to 1900 and now president of the Santa Fé. Mr. Storey writes:</p>
+
+<p class="pfc4">“My views do not coincide with yours in regard to the reasons actuating the promoters
+of the railroad. Popular opinion in California believed that the domination of one railroad
+greatly retarded the progress of the state and it was the feeling that the prosperity of the
+state would be very greatly increased if competition could be provided. As a possible means
+of obtaining such competition resort was made to water competition and a steamship line
+was organized to handle freight via the Isthmus. This line was maintained until the money
+raised had been absorbed and it had been practically demonstrated that such a line could
+not pay. The public was, therefore, eager for any other competition that might present
+itself. It was the thought of the projectors that a local line should be built which might
+ultimately, if opportunity offered, become part of a transcontinental line. The Santa Fé,
+however, was not in a position to do anything, as it was at that time in a Receiver’s hands.
+It was, however, the nearest railroad and it, therefore, seemed wise in projecting a new road
+branching from San Francisco to so locate it that it could later become part of the Santa Fé
+if that road desired an entrance to San Francisco. Most of the people who subscribed did so
+with the idea of providing competition and not with the idea of making money out of the
+investment.... By the time the road reached Bakersfield it became evident to the
+Directors that the road could not successfully compete with the Southern Pacific, because
+while for the time the people in the valley were giving the road all the freight that came from
+San Francisco, they were not able to turn the freight coming from the east over the Valley
+Road, the Southern Pacific refusing to make joint rates. The consequence was that the
+Valley Road had to depend exclusively on local business, and it was felt that in time even
+this would drop off materially by reason of the competitive methods of the Southern Pacific.
+Mr. Spreckels expressed the case in the following manner: It was not possible for the Valley
+Road to exist unless it became a transcontinental road and California could not raise money
+enough to make it such. The Santa Fé, by an extension to Bakersfield, could make it a
+transcontinental road and offered to buy a controlling interest.”</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_485_485" id="Footnote_485_485"></a><a href="#FNanchor_485_485"><span class="label">[485]</span></a></span>
+See especially a letter written by John T. Doyle under date of September 29, 1898,
+and published in the <i>San Francisco Bulletin</i>, October 5, 1898. The whole matter was extensively
+discussed in the columns of the San Francisco press in October, 1898.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_486_486" id="Footnote_486_486"></a><a href="#FNanchor_486_486"><span class="label">[486]</span></a></span>
+<i>San Francisco Examiner</i>, October 27, 1898.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_487_487" id="Footnote_487_487"></a><a href="#FNanchor_487_487"><span class="label">[487]</span></a></span>
+Biennial Report of the Board of Railroad Commissioners of the State of California
+for the years 1895 and 1896.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_488_488" id="Footnote_488_488"></a><a href="#FNanchor_488_488"><span class="label">[488]</span></a></span>
+<i>San Francisco Examiner</i>, September 19, 1896.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_489_489" id="Footnote_489_489"></a><a href="#FNanchor_489_489"><span class="label">[489]</span></a></span>
+<i>Ibid.</i>, June 28, 1898.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_490_490" id="Footnote_490_490"></a><a href="#FNanchor_490_490"><span class="label">[490]</span></a></span>
+<i>San Francisco Examiner</i>, August 23, 1896.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_491_491" id="Footnote_491_491"></a><a href="#FNanchor_491_491"><span class="label">[491]</span></a></span>
+<i>Ibid.</i>, June 4, 1898.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_492_492" id="Footnote_492_492"></a><a href="#FNanchor_492_492"><span class="label">[492]</span></a></span>
+<i>Ibid.</i>, July 18, 1896.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_493_493" id="Footnote_493_493"></a><a href="#FNanchor_493_493"><span class="label">[493]</span></a></span>
+<i>Ibid.</i>, September 15, 1897.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_494_494" id="Footnote_494_494"></a><a href="#FNanchor_494_494"><span class="label">[494]</span></a></span>
+<i>Ibid.</i>, June 4, 1898.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_495_495" id="Footnote_495_495"></a><a href="#FNanchor_495_495"><span class="label">[495]</span></a></span>
+In order to make possible its low San Francisco rate, the San Francisco and San
+Joaquin Valley Railway concluded an arrangement with the California Navigation and
+Improvement Company by which the latter agreed to run two steamers a day each way between
+Stockton and San Francisco, and to handle all wheat shipments to Port Costa, Benicia,
+Vallejo, and San Francisco which were delivered to it by the Valley road. The same rate
+was to be charged from Stockton to all the points named. (<i>San Francisco Examiner</i>, July
+9, 1896.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_496_496" id="Footnote_496_496"></a><a href="#FNanchor_496_496"><span class="label">[496]</span></a></span>
+<i>Ibid.</i>, August 23, 1896.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_497_497" id="Footnote_497_497"></a><a href="#FNanchor_497_497"><span class="label">[497]</span></a></span>
+The relations between the Southern Pacific Company and the proprietary companies
+were governed by what was known as the “omnibus” lease, under which the Southern Pacific
+agreed to operate and to maintain the properties of the proprietary companies, to pay all
+fixed and other charges, including interest on bonds and floating debt, and to divide the surplus
+net profits between the parties to the agreement in stipulated proportions. In 1896
+the percentages for division of profits were as follows: Southern Pacific Railroad of California,
+44 per cent; Southern Pacific Railroad of Arizona, 10 per cent; Southern Pacific Railroad
+of New Mexico, 6 per cent; Louisiana Western Railroad Company, 7 per cent; Morgan’s
+Louisiana and Texas Railroad Company, 23 per cent; Southern Pacific Company, 10 per
+cent.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_498_498" id="Footnote_498_498"></a><a href="#FNanchor_498_498"><span class="label">[498]</span></a></span>
+In later years the lumber business of the Southern Pacific developed, but the coal
+business has always remained small.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_499_499" id="Footnote_499_499"></a><a href="#FNanchor_499_499"><span class="label">[499]</span></a></span>
+<i>Cf.</i> Annual Report of United States Commissioner of Railroads, 1883-84.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_500_500" id="Footnote_500_500"></a><a href="#FNanchor_500_500"><span class="label">[500]</span></a></span>
+Report on the Internal Commerce of the United States (Treasury Department, 1884),
+<i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_501_501" id="Footnote_501_501"></a><a href="#FNanchor_501_501"><span class="label">[501]</span></a></span>
+United States v. Southern Pacific, p. 155, testimony of Schumacher; p. 942, testimony
+of Chambers; pp. 1028-29. testimony of Spence.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_502_502" id="Footnote_502_502"></a><a href="#FNanchor_502_502"><span class="label">[502]</span></a></span>
+<i>San Francisco Examiner</i>, October 24, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_503_503" id="Footnote_503_503"></a><a href="#FNanchor_503_503"><span class="label">[503]</span></a></span>
+<i>San Francisco Examiner</i>, February 25, 1896.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_504_504" id="Footnote_504_504"></a><a href="#FNanchor_504_504"><span class="label">[504]</span></a></span>
+United States v. Southern Pacific, pp. 328, 338, testimony of Connor.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_505_505" id="Footnote_505_505"></a><a href="#FNanchor_505_505"><span class="label">[505]</span></a></span>
+<i>Ibid.</i>, p. 199, testimony of Sproule.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_506_506" id="Footnote_506_506"></a><a href="#FNanchor_506_506"><span class="label">[506]</span></a></span>
+<i>Ibid.</i>, p. 1034, testimony of Spence.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_507_507" id="Footnote_507_507"></a><a href="#FNanchor_507_507"><span class="label">[507]</span></a></span>
+<i>Ibid.</i>, p. 290, testimony of Lovett.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_508_508" id="Footnote_508_508"></a><a href="#FNanchor_508_508"><span class="label">[508]</span></a></span>
+<i>Ibid.</i>, p. 305, testimony of De Friest; p. 311, testimony of Johnson; p. 312, testimony
+of Hall.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_509_509" id="Footnote_509_509"></a><a href="#FNanchor_509_509"><span class="label">[509]</span></a></span>
+<i>Ibid.</i>, p. 219, testimony of Sproule; p. 152, testimony of Schumacher; p. 827, testimony
+of Kruttschnitt.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_510_510" id="Footnote_510_510"></a><a href="#FNanchor_510_510"><span class="label">[510]</span></a></span>
+United States Pacific Railway Commission, p. 2150, testimony of Shelby.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_511_511" id="Footnote_511_511"></a><a href="#FNanchor_511_511"><span class="label">[511]</span></a></span>
+United States Pacific Railway Commission, pp. 3304-6, 3362, testimony of Stubbs;
+pp. 3572-73, testimony of Gray.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_512_512" id="Footnote_512_512"></a><a href="#FNanchor_512_512"><span class="label">[512]</span></a></span>
+Frye-Davis Report (51st Congress, 1st Session, February 17, 1890, Senate Report
+No. 293, Serial No. 2703).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_513_513" id="Footnote_513_513"></a><a href="#FNanchor_513_513"><span class="label">[513]</span></a></span>
+The dividends declared by the Central Pacific Railroad Company from 1861 to 1898
+were as follows:</p>
+
+<table id="tf05" summary="tf05">
+
+ <tr>
+ <td class="tdcl">Year</td>
+ <td class="tdcl">Month</td>
+ <td class="tdcl">Per Cent</td>
+ <td class="tdcl">Amount</td>
+ </tr>
+
+ <tr>
+ <td class="tdtop"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1873</td>
+ <td class="tdt4">September</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">$1,628,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1874</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">5</td>
+ <td class="tdr4">2,713,775</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1875</td>
+ <td class="tdt4">April</td>
+ <td class="tdcl">4</td>
+ <td class="tdr4">2,171,020</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1875</td>
+ <td class="tdt4">October</td>
+ <td class="tdcl">6</td>
+ <td class="tdr4">3,256,530</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1876</td>
+ <td class="tdt4">April</td>
+ <td class="tdcl">4</td>
+ <td class="tdr4">2,171,020</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1876</td>
+ <td class="tdt4">October</td>
+ <td class="tdcl">4</td>
+ <td class="tdr4">2,171,020</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1877</td>
+ <td class="tdt4">April</td>
+ <td class="tdcl">4</td>
+ <td class="tdr4">2,171,020</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1877</td>
+ <td class="tdt4">October</td>
+ <td class="tdcl">4</td>
+ <td class="tdr4">2,171,020</td>
+ </tr>
+
+ <tr>
+ <td class="tdtop"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1880</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,628,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1880</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1881</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1881</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1882</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1882</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1883</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1883</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1884</td>
+ <td class="tdt4">January</td>
+ <td class="tdcl">3</td>
+ <td class="tdr4">1,778,265</td>
+ </tr>
+
+ <tr>
+ <td class="tdtop"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1888</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1888</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1889</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1889</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1890</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1890</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1891</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1891</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1892</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1892</td>
+ <td class="tdt4">August</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1893</td>
+ <td class="tdt4">February</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+ <tr>
+ <td class="tdcl">1893</td>
+ <td class="tdt4">September</td>
+ <td class="tdcl">1</td>
+ <td class="tdr4">672,755</td>
+ </tr>
+
+</table>
+
+<p class="pfc4 p1">There were no dividends declared between September, 1893, and the reorganization of
+the Central Pacific in 1899.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_514_514" id="Footnote_514_514"></a><a href="#FNanchor_514_514"><span class="label">[514]</span></a></span>
+<i>San Francisco Bulletin</i>, November 20, 1894. Sir Rivers Wilson was ex-controller of
+the British National Debt Office.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_515_515" id="Footnote_515_515"></a><a href="#FNanchor_515_515"><span class="label">[515]</span></a></span>
+Testimony of Mr. Huntington before the California Railroad Commission, <i>San
+Francisco Examiner</i>, May 14, 1898.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_516_516" id="Footnote_516_516"></a><a href="#FNanchor_516_516"><span class="label">[516]</span></a></span>
+Huntington Manuscript, p. 91. On the general subject of the Thurman Act, see
+Davis, “History of the Union Pacific Railway,” Ch. 4.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_517_517" id="Footnote_517_517"></a><a href="#FNanchor_517_517"><span class="label">[517]</span></a></span>
+United States v. Union Pacific Railroad, 91 U. S. 72, 86 (1875).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_518_518" id="Footnote_518_518"></a><a href="#FNanchor_518_518"><span class="label">[518]</span></a></span>
+United States Pacific Railway Commission, p. 2529, testimony Leland Stanford. In
+order that the reader may have full data concerning the issue of the Government subsidy
+bonds, the following table of amounts and dates of issue is presented:</p>
+
+<p class="pfcc"><span class="smcap">United States Six Per Cent Currency Bonds Issued to
+Central Pacific Railroad Company</span></p>
+
+<table id="tf06" summary="tf06">
+
+ <tr>
+ <td colspan="3" class="tdt2l">Date Issued</td>
+ <td colspan="3" class="tdt1l">Maturity<br />of Bonds</td>
+ <td colspan="3" class="tdtl">Interest<br />Commenced</td>
+ <td class="tdt1l">Amount</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">May</td>
+ <td class="tdrnar">12,</td>
+ <td class="tdr3">1865</td>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdr3">1895</td>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdr3">1865</td>
+ <td class="tdr1">$1,258,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Aug.</td>
+ <td class="tdrnar">14,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Aug.</td>
+ <td class="tdrnar">14,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">384,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">256,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Dec.</td>
+ <td class="tdrnar">11,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Nov.</td>
+ <td class="tdrnar">29,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">464,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Mar.</td>
+ <td class="tdrnar">6,</td>
+ <td class="tdr3">1866</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1896</td>
+ <td class="tdt">Mar.</td>
+ <td class="tdrnar">6,</td>
+ <td class="tdr3">1866</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">July</td>
+ <td class="tdrnar">10,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">July</td>
+ <td class="tdrnar">10,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">31,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">29,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">320,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">15,</td>
+ <td class="tdr3">1867</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1897</td>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">14,</td>
+ <td class="tdr3">1867</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">25,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">25,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">320,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Dec.</td>
+ <td class="tdrnar">12,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Dec.</td>
+ <td class="tdrnar">11,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,152,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdtop"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdt">June</td>
+ <td class="tdrnar">10,</td>
+ <td class="tdr3">1868</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1898</td>
+ <td class="tdt">June</td>
+ <td class="tdrnar">9,</td>
+ <td class="tdr3">1868</td>
+ <td class="tdr1">946,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">July</td>
+ <td class="tdrnar">11,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">July</td>
+ <td class="tdrnar">10,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">320,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Aug.</td>
+ <td class="tdrnar">5,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Aug.</td>
+ <td class="tdrnar">4,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">14,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">13,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,184,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Sep.</td>
+ <td class="tdrnar">12,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Sep.</td>
+ <td class="tdrnar">11,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,280,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">21,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">19,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,120,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">13,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">12,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,280,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">28,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">26,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Nov.</td>
+ <td class="tdrnar">5,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Nov.</td>
+ <td class="tdrnar">3,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">12,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">11,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Dec.</td>
+ <td class="tdrnar">5,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Dec.</td>
+ <td class="tdrnar">5,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">7,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">7,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">30,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">29,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdtop"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">15,</td>
+ <td class="tdr3">1869</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1899</td>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">13,</td>
+ <td class="tdr3">1869</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">29,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">28,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Feb.</td>
+ <td class="tdrnar">17,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Feb.</td>
+ <td class="tdrnar">17,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">640,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Mar.</td>
+ <td class="tdrnar">2,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">17,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,066,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">3,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Mar.</td>
+ <td class="tdrnar">2,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,333,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">May</td>
+ <td class="tdrnar">28,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">May</td>
+ <td class="tdrnar">27,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,786,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">July</td>
+ <td class="tdrnar">15,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">27,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,314,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">July</td>
+ <td class="tdrnar">15,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">268,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Dec.</td>
+ <td class="tdrnar">7,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">16,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,510,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">2,</td>
+ <td class="tdr3">1872</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1898</td>
+ <td class="tdt">Nov.</td>
+ <td class="tdrnar">28,</td>
+ <td class="tdr3">1868</td>
+ <td class="tdr1">4,120</td>
+ </tr>
+
+ <tr>
+ <td colspan="10" class="tdr1">—————</td>
+ </tr>
+
+ <tr>
+ <td colspan="9" class="tdt5">Total</td>
+ <td class="tdr1">$25,885,120</td>
+ </tr>
+
+ <tr>
+ <td class="tdtop"> </td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">24,</td>
+ <td class="tdr3">1867</td>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1897</td>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">26,</td>
+ <td class="tdr3">1867</td>
+ <td class="tdr1">320,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Sept.</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1869</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdr3">1899</td>
+ <td class="tdt">Sept.</td>
+ <td class="tdrnar">3,</td>
+ <td class="tdr3">1869</td>
+ <td class="tdr1">320,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">29,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Oct.</td>
+ <td class="tdrnar">28,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdr1">1,008,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">27,</td>
+ <td class="tdr3">1870</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt">Jan.</td>
+ <td class="tdrnar">22,</td>
+ <td class="tdr3">1870</td>
+ <td class="tdr1">322,000</td>
+ </tr>
+
+ <tr>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">8,</td>
+ <td class="tdr3">1872</td>
+ <td class="tdt05l">”</td>
+ <td class="tdrnar">1,</td>
+ <td class="tdt1l">”</td>
+ <td class="tdt1l">”</td>
+ <td class="tdrnar">22,</td>
+ <td class="tdr3">1872</td>
+ <td class="tdr1">560</td>
+ </tr>
+
+ <tr>
+ <td colspan="10" class="tdr1">—————</td>
+ </tr>
+
+ <tr>
+ <td colspan="9" class="tdt5">Total</td>
+ <td class="tdr1">$1,970,560</td>
+ </tr>
+
+</table>
+
+<p class="pfc4 p1">Undoubtedly many of the bonds listed were disposed of at a considerable discount.
+Subsidy bonds to the amount of $4,922,000 had been issued by the government to the
+Central Pacific by October 25, 1866, and had been sold for $3,546,478. The subsidy bonds
+(currency sixes) were listed on the New York Stock Exchange, but there were few, if any,
+sales until 1868. Not a single transaction in these bonds was recorded for the year 1867.
+In 1869, however, the bonds went above par, the average sale price for the year being 108⅛.
+(United States Pacific Railway Commission, pp. 4682-83.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_519_519" id="Footnote_519_519"></a><a href="#FNanchor_519_519"><span class="label">[519]</span></a></span>
+United States Pacific Railway Commission, p. 275, testimony Leland Stanford;
+Report, pp. 91-95.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_520_520" id="Footnote_520_520"></a><a href="#FNanchor_520_520"><span class="label">[520]</span></a></span>
+The Supreme Court later held that the Central Pacific and Union Pacific railroads
+were completed on the 6th of November, 1869, in the sense that the companies became
+liable to pay over 5 per cent of their net earnings from this date. (99 U. S. 402, 449 [1878].)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_521_521" id="Footnote_521_521"></a><a href="#FNanchor_521_521"><span class="label">[521]</span></a></span>
+The Central Pacific Railroad Company in equitable account with the United States.
+A review of the testimony and exhibits presented before the Pacific Railway Commission,
+appointed according to the Act of Congress, approved March 3, 1887, by Roscoe Conkling
+and William D. Shipman of Counsel for the Central Pacific R. R. Co., New York, 1887.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_522_522" id="Footnote_522_522"></a><a href="#FNanchor_522_522"><span class="label">[522]</span></a></span>
+Report of the Secretary of the Interior, 1877, p. xxviii.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_523_523" id="Footnote_523_523"></a><a href="#FNanchor_523_523"><span class="label">[523]</span></a></span>
+Report of Mr. Thurman from the Committee on the Judiciary (45th Congress, 2d
+Session, March 4, 1878, Senate Report No. 111, p. 8).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_524_524" id="Footnote_524_524"></a><a href="#FNanchor_524_524"><span class="label">[524]</span></a></span>
+16 United States Statutes 225 (1871).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_525_525" id="Footnote_525_525"></a><a href="#FNanchor_525_525"><span class="label">[525]</span></a></span>
+17 United States Statutes 485, 508 (1873).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_526_526" id="Footnote_526_526"></a><a href="#FNanchor_526_526"><span class="label">[526]</span></a></span>
+United States v. Union Pacific Railroad Company, 91 U. S. 72 (1875).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_527_527" id="Footnote_527_527"></a><a href="#FNanchor_527_527"><span class="label">[527]</span></a></span>
+<i>Ibid.</i>, 98 U. S. 569 (1878).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_528_528" id="Footnote_528_528"></a><a href="#FNanchor_528_528"><span class="label">[528]</span></a></span>
+Union Pacific Railroad Company v. United States, 99 U. S. 402 (1878).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_529_529" id="Footnote_529_529"></a><a href="#FNanchor_529_529"><span class="label">[529]</span></a></span>
+The Congressional history of the Thurman bill is as follows: Introduced, October 16,
+1877, and referred to the Senate Committee on Judiciary (45th Congress, 1st Session,
+Congressional Record, Vol. 6, p. 58); reported back from Committee March 4, 1878 (45th
+Congress, 2d Session, <i>ibid.</i>, Vol. 7, p. 1445); debated in Senate March 12 to April 9 (<i>ibid.</i>,
+pp. 1688-2384); passed by Senate April 9 (<i>ibid.</i>, pp. 2779-90); approved by President, May
+8 (<i>ibid.</i>, p. 3257).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_530_530" id="Footnote_530_530"></a><a href="#FNanchor_530_530"><span class="label">[530]</span></a></span>
+Speech of Senator Thurman of Ohio (45th Congress, 2d Session, March 12, 1878,
+Congressional Record, Vol. 7, p. 1690).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_531_531" id="Footnote_531_531"></a><a href="#FNanchor_531_531"><span class="label">[531]</span></a></span>
+20 United States Statutes 56 (1878).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_532_532" id="Footnote_532_532"></a><a href="#FNanchor_532_532"><span class="label">[532]</span></a></span>
+Report of Mr. Thurman from the Senate Committee on the Judiciary (45th Congress,
+2d Session, March 4, 1878, Senate Report No. 111, Serial No. 1789).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_533_533" id="Footnote_533_533"></a><a href="#FNanchor_533_533"><span class="label">[533]</span></a></span>
+Annual Report of the Commissioner of Railroads, 1882, p. 440.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_534_534" id="Footnote_534_534"></a><a href="#FNanchor_534_534"><span class="label">[534]</span></a></span>
+Annual Report of the Commissioner of Railroads, 1883.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_535_535" id="Footnote_535_535"></a><a href="#FNanchor_535_535"><span class="label">[535]</span></a></span>
+See also the Brice Report (53d Congress, 3d Session, Senate Report No. 830, p. 17,
+Serial No. 3288).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_536_536" id="Footnote_536_536"></a><a href="#FNanchor_536_536"><span class="label">[536]</span></a></span>
+Annual Report of the Commissioner of Railroads, 1883.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_537_537" id="Footnote_537_537"></a><a href="#FNanchor_537_537"><span class="label">[537]</span></a></span>
+24 United States Statutes 488 (1887).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_538_538" id="Footnote_538_538"></a><a href="#FNanchor_538_538"><span class="label">[538]</span></a></span>
+Annual Report of the Treasurer of the United States. 1887, p. 28.</p>
+
+<p class="pfc4">Owing to the protests of the Pacific railroad companies at the low rates of interest
+earned by the sinking funds, considerable amounts remained uninvested between 1882 and
+1886. The following table shows the cash uninvested in the Treasury to the credit of the
+Central Pacific Railroad Company for a series of years:</p>
+
+<table id="tfn01" summary="tfn01">
+
+ <tr>
+ <td class="tdr4">Date</td>
+ <td class="tdr3">Amount</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">June 30, 1882</td>
+ <td class="tdr2">$527,886.53</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">”<span class="vh">—</span>30, 1883</td>
+ <td class="tdr2">844,652.13</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">”<span class="vh">—</span>30, 1884</td>
+ <td class="tdr2">1,089,159.75</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">”<span class="vh">—</span>30, 1885</td>
+ <td class="tdr2">2,020,900.13</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">Dec. 31, 1886</td>
+ <td class="tdr2">2,345,984.21</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">”<span class="vh">—</span>31, 1887</td>
+ <td class="tdr2">76,905.49</td>
+ </tr>
+
+ <tr>
+ <td class="tdr2">June 30, 1889</td>
+ <td class="tdr2">2,766.14</td>
+ </tr>
+
+</table>
+
+<p class="pfc4">No interest was earned on these uninvested balances. After 1886, with the single exception
+of the year 1895, the uninvested portion of the sinking fund was negligible. (Annual
+Reports of the Commissioner of Railroads, 1882-89.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_539_539" id="Footnote_539_539"></a><a href="#FNanchor_539_539"><span class="label">[539]</span></a></span>
+20 United States Statutes 56 (1878). On June 19, 1878, another act established
+the office of an “Auditor of Railroad Accounts” with authority to prescribe reports from
+subsidized railroads west, north, or south of the Missouri River, to examine books, and to
+furnish information to various government departments as it might be required. (20
+United States Statutes 169, [1878].) Name changed to “Commissioner of Railroads” in
+1881. (21 United States Statutes 381, 409 [1881].)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_540_540" id="Footnote_540_540"></a><a href="#FNanchor_540_540"><span class="label">[540]</span></a></span>
+45th Congress, 2d Session, Congressional Record, pp. 2384, 2790. The House vote
+as given does not include pairs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_541_541" id="Footnote_541_541"></a><a href="#FNanchor_541_541"><span class="label">[541]</span></a></span>
+Colton case, p. 1770-71.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_542_542" id="Footnote_542_542"></a><a href="#FNanchor_542_542"><span class="label">[542]</span></a></span>
+<i>Ibid.</i>, p. 1802, November 9, 1877.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_543_543" id="Footnote_543_543"></a><a href="#FNanchor_543_543"><span class="label">[543]</span></a></span>
+<i>Ibid.</i>, argument of Hall McAllister, p. 248.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_544_544" id="Footnote_544_544"></a><a href="#FNanchor_544_544"><span class="label">[544]</span></a></span>
+Colton case, argument of Hall McAllister, p. 249. Huntington never forgave Congress
+for having passed the Thurman bill. Years afterward he inserted the following comments
+in an autobiographical statement which he gave to the California historian, H. H.
+Bancroft:</p>
+
+<p class="pfc4">“Senator Ransom voted for the Thurman bill. He came out and said ‘Mr. Huntington,
+I voted for that bill. I knew I was wrong.’ He said, ‘I ought not to have done it.’
+Said I, ‘Senator Ransom, I pity you.’ Said he, ‘What do you say?’ Said I, ‘Senator Ransom,
+I said and I repeat it for I do really pity you.’ I turned on my heel and left him. Now
+there are a great many men in just that kind of a way; they don’t dare to vote according
+to their convictions; they are afraid of what other people think of their acts....”</p>
+
+<p class="pcs"><span class="vh">———</span>·······</p>
+
+<p class="pfc4">“I know old Thurman well. He expected to be President of the United States by passing
+the Thurman Act, but he was not honored of course. I don’t believe he was in earnest.
+I don’t believe he thought the Act was proper. It was a false contract. There was no
+warrant in law or equity. He turned demagogue for political purposes; ... I think
+Thurman is a pretty good liar; lying was his best forte. He is an impressive speaker; he
+always seems to be so in earnest.” (Huntington manuscript, p. 24-25, 76-77.)</p>
+
+<p class="pfc4">It may throw some light upon the attitude of the Huntington group toward the Thurman
+Act to remember that the moneys in the sinking funds which the Central Pacific established
+for the retirement of its own mortgage securities were, at least in part, loaned to the
+Western Development Company, and used by this company in railroad building in southern
+California. This was, of course, an ideal arrangement from the point of view of Huntington
+and his friends.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_545_545" id="Footnote_545_545"></a><a href="#FNanchor_545_545"><span class="label">[545]</span></a></span>
+Sinking Fund Cases, 99 U. S. 700 (1878).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_546_546" id="Footnote_546_546"></a><a href="#FNanchor_546_546"><span class="label">[546]</span></a></span>
+Report of the Auditor of Railroad Accounts, 1881 (46th Congress, 3d Session, Exec.
+Doc. No. 87, Serial No. 1978). The same recommendation is contained in the Report of
+Commissioner of Railroads, 1894, p. 93.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_547_547" id="Footnote_547_547"></a><a href="#FNanchor_547_547"><span class="label">[547]</span></a></span>
+United States v. Central Pacific Railroad Company, 118 U. S. 235 (1886).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_548_548" id="Footnote_548_548"></a><a href="#FNanchor_548_548"><span class="label">[548]</span></a></span>
+56th Congress, 2d Session, Senate Document No. 227, Serial No. 4043.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_549_549" id="Footnote_549_549"></a><a href="#FNanchor_549_549"><span class="label">[549]</span></a></span>
+United States v. Central Pacific Railroad Company, 138 U. S. 84 (1891). See also
+Annual Report of the Commissioner of Railroads, 1883, p. 428 <i>ff.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_550_550" id="Footnote_550_550"></a><a href="#FNanchor_550_550"><span class="label">[550]</span></a></span>
+54th Congress, 2nd Session, January 11, 1897, Senate Document No. 52, Serial No. 3469.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_551_551" id="Footnote_551_551"></a><a href="#FNanchor_551_551"><span class="label">[551]</span></a></span>
+Annual Report of the Commissioner of Railroads, 1897.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_552_552" id="Footnote_552_552"></a><a href="#FNanchor_552_552"><span class="label">[552]</span></a></span>
+Annual Report of the Commissioner of Railroads, 1882, p. 440.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_553_553" id="Footnote_553_553"></a><a href="#FNanchor_553_553"><span class="label">[553]</span></a></span>
+United States Pacific Railway Commission Report, December 1, 1887 (50th Congress,
+1st Session, Senate Executive Documents No. 51, Serial No. 2505).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_554_554" id="Footnote_554_554"></a><a href="#FNanchor_554_554"><span class="label">[554]</span></a></span>
+Frye-Davis Report (51st Congress, 1st Session, February 17, 1890. Senate Report
+No. 293, Serial No. 2703). See also speech by Senator Frye, <i>ibid.</i>, Congressional Record,
+p. 1377 <i>ff</i>.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_555_555" id="Footnote_555_555"></a><a href="#FNanchor_555_555"><span class="label">[555]</span></a></span>
+Reilly Report (53d Congress, 2d Session, July 21, 1894. House Report No. 1290,
+Serial No. 3272).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_556_556" id="Footnote_556_556"></a><a href="#FNanchor_556_556"><span class="label">[556]</span></a></span>
+Powers Report (54th Congress, 1st Session, April 25, 1896. H. R. Report No. 1497.
+Serial No. 3462). The Powers bill also required the consent of the Southern Pacific to the
+appropriation for payment of Central Pacific indebtedness, of the sum of $2,409,818.20,
+which stood credited on the books of the United States Treasury to the Central Pacific for
+services on non-aided lines. The consent of the Southern Pacific was necessary for this
+appropriation because a considerable portion of the amount in question had been adjudged
+by the Court of Claims to be due to the Southern Pacific for the reason that the services for
+which the sums mentioned were credited had been in large part performed by that company.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_557_557" id="Footnote_557_557"></a><a href="#FNanchor_557_557"><span class="label">[557]</span></a></span>
+The Powers bill was finally defeated—yeas, 103; nays, 168; not voting, 84. (54th
+Congress, 2d Session, Congressional Record, p. 689.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_558_558" id="Footnote_558_558"></a><a href="#FNanchor_558_558"><span class="label">[558]</span></a></span>
+Gear Report, 1896 (54th Congress, 1st Session, May 1, 1896, Senate Report No. 778,
+Serial No. 3365; The House bill was numbered H. R. 8189; the Senate bill S. 2894).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_559_559" id="Footnote_559_559"></a><a href="#FNanchor_559_559"><span class="label">[559]</span></a></span>
+United States Pacific Railway Commission, pp. 3589-90, letter from A. N. Towne.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_560_560" id="Footnote_560_560"></a><a href="#FNanchor_560_560"><span class="label">[560]</span></a></span>
+Frye-Davis Report (51st Congress, 1st Session, February 17, 1890, Senate Report No.
+293, p. 76, Serial No. 2703).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_561_561" id="Footnote_561_561"></a><a href="#FNanchor_561_561"><span class="label">[561]</span></a></span>
+<i>San Francisco Examiner</i>, February 18 and March 15, 1890.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_562_562" id="Footnote_562_562"></a><a href="#FNanchor_562_562"><span class="label">[562]</span></a></span>
+Memorial of the committee of fifty appointed at the San Francisco mass meeting of
+December 7, 1895.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_563_563" id="Footnote_563_563"></a><a href="#FNanchor_563_563"><span class="label">[563]</span></a></span>
+<i>San Francisco Examiner</i>, September 21, 1894.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_564_564" id="Footnote_564_564"></a><a href="#FNanchor_564_564"><span class="label">[564]</span></a></span>
+Laws of California, 1897, p. 581. Joint Resolution, adopted January 8, 1897.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_565_565" id="Footnote_565_565"></a><a href="#FNanchor_565_565"><span class="label">[565]</span></a></span>
+54th Congress, 2d Session, January 7, 1897, Congressional Record, p. 559.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_566_566" id="Footnote_566_566"></a><a href="#FNanchor_566_566"><span class="label">[566]</span></a></span>
+United States v. Stanford, 161 U. S. 412 (1896). The United States sued the Stanford
+estate in this case for $15,237,000.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_567_567" id="Footnote_567_567"></a><a href="#FNanchor_567_567"><span class="label">[567]</span></a></span>
+See Annual Report of the Commissioner of Railroads, 1892, p. 141.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_568_568" id="Footnote_568_568"></a><a href="#FNanchor_568_568"><span class="label">[568]</span></a></span>
+12 United States Statutes 489 (1862).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_569_569" id="Footnote_569_569"></a><a href="#FNanchor_569_569"><span class="label">[569]</span></a></span>
+13 United States Statutes 356 (1864).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_570_570" id="Footnote_570_570"></a><a href="#FNanchor_570_570"><span class="label">[570]</span></a></span>
+United States v. Kansas Pacific Railway Company, 99 U. S. 455 (1878). See also
+United States v. Denver Pacific Railway Company, 99 U. S. 460 (1878).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_571_571" id="Footnote_571_571"></a><a href="#FNanchor_571_571"><span class="label">[571]</span></a></span>
+20 United States Statutes 56 (1878).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_572_572" id="Footnote_572_572"></a><a href="#FNanchor_572_572"><span class="label">[572]</span></a></span>
+45th Congress, 2d Session, April 3, 1878, Congressional Record, p. 2229.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_573_573" id="Footnote_573_573"></a><a href="#FNanchor_573_573"><span class="label">[573]</span></a></span>
+Sinking Fund Cases, 99 U. S. 700, 721.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_574_574" id="Footnote_574_574"></a><a href="#FNanchor_574_574"><span class="label">[574]</span></a></span>
+United States v. Union Pacific Railway Company and Western Union Telegraph
+Company, 160 U. S. 1 (1895).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_575_575" id="Footnote_575_575"></a><a href="#FNanchor_575_575"><span class="label">[575]</span></a></span>
+Menotti v. Dillon, 167 U. S. 703 (1897).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_576_576" id="Footnote_576_576"></a><a href="#FNanchor_576_576"><span class="label">[576]</span></a></span>
+Union Pacific Railroad Company v. Mason City and Fort Dodge Railroad Company,
+199 U. S. 160 (1905).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_577_577" id="Footnote_577_577"></a><a href="#FNanchor_577_577"><span class="label">[577]</span></a></span>
+United States v. Central Pacific Railroad Company, 118 U. S. 235 (1886).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_578_578" id="Footnote_578_578"></a><a href="#FNanchor_578_578"><span class="label">[578]</span></a></span>
+Gear Report, 1897, 55th Congress, 1st Session. April 8, 1897 (Senate Report No. 20,
+Serial No. 3569).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_579_579" id="Footnote_579_579"></a><a href="#FNanchor_579_579"><span class="label">[579]</span></a></span>
+Commercial and Financial Chronicle, Vol. 63, p. 1114.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_580_580" id="Footnote_580_580"></a><a href="#FNanchor_580_580"><span class="label">[580]</span></a></span>
+United States v. Southern Pacific Company, pp. 1200-1201, testimony James
+Speyer.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_581_581" id="Footnote_581_581"></a><a href="#FNanchor_581_581"><span class="label">[581]</span></a></span>
+United States v. Southern Pacific Company, p. 1201, testimony James Speyer.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_582_582" id="Footnote_582_582"></a><a href="#FNanchor_582_582"><span class="label">[582]</span></a></span>
+<i>Ibid.</i>, p. 993, testimony John W. Griggs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_583_583" id="Footnote_583_583"></a><a href="#FNanchor_583_583"><span class="label">[583]</span></a></span>
+United States v. Southern Pacific Company, p. 998, testimony John W. Griggs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_584_584" id="Footnote_584_584"></a><a href="#FNanchor_584_584"><span class="label">[584]</span></a></span>
+30 United States Statutes 652, 659 (1898).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_585_585" id="Footnote_585_585"></a><a href="#FNanchor_585_585"><span class="label">[585]</span></a></span>
+United States v. Southern Pacific Company, p. 994, testimony John W. Griggs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_586_586" id="Footnote_586_586"></a><a href="#FNanchor_586_586"><span class="label">[586]</span></a></span>
+See Report of Attorney-General, 1897, pp. vi-vii; 1898, p. xv. The legislation
+described was inserted in the Deficiency Appropriation bill on motion of Mr. Gear. The
+provision requiring full payment within ten years was added on motion of Mr. White, of
+California. (55th Congress, 2d Session, June 29, 1898, Congressional Record, pp. 6464-65.)</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_587_587" id="Footnote_587_587"></a><a href="#FNanchor_587_587"><span class="label">[587]</span></a></span>
+United States v. Southern Pacific Company, p. 1199, testimony James Speyer.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_588_588" id="Footnote_588_588"></a><a href="#FNanchor_588_588"><span class="label">[588]</span></a></span>
+The exact amount of 4 per cent bonds to be deposited as security was $58,820,000.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_589_589" id="Footnote_589_589"></a><a href="#FNanchor_589_589"><span class="label">[589]</span></a></span>
+United States v. Southern Pacific Company, p. 1000, testimony Griggs.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_590_590" id="Footnote_590_590"></a><a href="#FNanchor_590_590"><span class="label">[590]</span></a></span>
+30 United States Statutes 1214, 1245 (1899).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_591_591" id="Footnote_591_591"></a><a href="#FNanchor_591_591"><span class="label">[591]</span></a></span>
+At his death in August, 1900, Huntington owned 37½ per cent of the stock of the
+Southern Pacific Company.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_592_592" id="Footnote_592_592"></a><a href="#FNanchor_592_592"><span class="label">[592]</span></a></span>
+Full information with respect to the Union Pacific-Southern Pacific merger case is to
+be found in the record and briefs submitted to the Supreme Court. The testimony and
+exhibits in this case fill thirteen volumes, and constitute an important addition to the source
+material on railroad transportation. The case is discussed in detail in Daggett, “The Decision
+on the Union Pacific Merger,” in <i>Quarterly Journal of Economics</i>, February, 1913, and
+in another article by the same author, entitled “Later Developments in the Union Pacific
+Merger Case” (<i>ibid.</i>, August, 1914).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_593_593" id="Footnote_593_593"></a><a href="#FNanchor_593_593"><span class="label">[593]</span></a></span>
+This question of the diversion of business from the central route has been discussed
+in Chapter XX.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_594_594" id="Footnote_594_594"></a><a href="#FNanchor_594_594"><span class="label">[594]</span></a></span>
+United States v. Union Pacific Railroad Company, 226 U. S. 61, 470 (1912, 1913).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_595_595" id="Footnote_595_595"></a><a href="#FNanchor_595_595"><span class="label">[595]</span></a></span>
+Preferential subscription rights were given to Union Pacific and Oregon Short Line
+Railroad Company stockholders, on condition that these last-named individuals divest
+themselves of their ownership of Union Pacific and Oregon Short Line shares before actually
+receiving their Southern Pacific certificates. See Daggett, “Later Developments in the
+Union Pacific Merger Case,” <i>sup. cit.</i></p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_596_596" id="Footnote_596_596"></a><a href="#FNanchor_596_596"><span class="label">[596]</span></a></span>
+This was the second suit of the same nature. In July, 1894, Richard Olney, United
+States Attorney-General, filed a bill in the United States District Court at Los Angeles to
+dissolve the Southern Pacific combination. In 1894, as in 1915, it was charged that the consolidation
+of the Southern Pacific and the Central Pacific companies was illegal under the
+Sherman law. The Olney suit was later withdrawn.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_597_597" id="Footnote_597_597"></a><a href="#FNanchor_597_597"><span class="label">[597]</span></a></span>
+United States of America v. Southern Pacific Company. The record and briefs in the
+case of the United States v. the Southern Pacific are as extensive as those submitted in the
+Union Pacific merger case. No attempt will be made to give detailed references to accompany
+the summary account presented in the remainder of this chapter.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_598_598" id="Footnote_598_598"></a><a href="#FNanchor_598_598"><span class="label">[598]</span></a></span>
+United States v. Southern Pacific Company, 239 Fed. 998 (1917).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_599_599" id="Footnote_599_599"></a><a href="#FNanchor_599_599"><span class="label">[599]</span></a></span>
+Including the output of the Associated Oil Company.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_600_600" id="Footnote_600_600"></a><a href="#FNanchor_600_600"><span class="label">[600]</span></a></span>
+Third Annual Report of the State Oil and Gas Supervisor of California, 1917-18.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_601_601" id="Footnote_601_601"></a><a href="#FNanchor_601_601"><span class="label">[601]</span></a></span>
+For a full discussion of this and kindred subjects, see Lindley on Mines, ed. 3.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_602_602" id="Footnote_602_602"></a><a href="#FNanchor_602_602"><span class="label">[602]</span></a></span>
+Burke v. Southern Pacific, 234 U. S. 669 (1914).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_603_603" id="Footnote_603_603"></a><a href="#FNanchor_603_603"><span class="label">[603]</span></a></span>
+<i>Ibid.</i>, pp. 691-92. See also Roberts v. Southern Pacific Company, 186 Fed. 934
+(1911).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_604_604" id="Footnote_604_604"></a><a href="#FNanchor_604_604"><span class="label">[604]</span></a></span>
+Southern Pacific v. United States, in the United States Circuit Court of Appeals for
+the Ninth Circuit (Brief of United States, Appellee, pp. 364-65).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_605_605" id="Footnote_605_605"></a><a href="#FNanchor_605_605"><span class="label">[605]</span></a></span>
+<i>Ibid.</i>, p. 363.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_606_606" id="Footnote_606_606"></a><a href="#FNanchor_606_606"><span class="label">[606]</span></a></span>
+United States v. Southern Pacific Company, 251 U. S. 1 (1919). The decision of
+the Circuit Court of Appeals, which was favorable to the railroad, is reported in 249 Fed.
+785 (1918).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_607_607" id="Footnote_607_607"></a><a href="#FNanchor_607_607"><span class="label">[607]</span></a></span>
+United States v. Southern Pacific, 260 Fed. 511 (1919). See also <i>ibid.</i>, 225 Fed. 197
+(1915).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_608_608" id="Footnote_608_608"></a><a href="#FNanchor_608_608"><span class="label">[608]</span></a></span>
+The annual report of the Southern Pacific Company for the year ending December
+31, 1920, contained the statement that Southern Pacific Company stockholders or their
+assigns had purchased an aggregate of 3,414,604 shares of Pacific Oil Company stock, thus
+leaving 85,395 shares still in possession of the company.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_609_609" id="Footnote_609_609"></a><a href="#FNanchor_609_609"><span class="label">[609]</span></a></span>
+14 United States Statutes 239 (1866).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_610_610" id="Footnote_610_610"></a><a href="#FNanchor_610_610"><span class="label">[610]</span></a></span>
+16 United States Statutes 47 (1869).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_611_611" id="Footnote_611_611"></a><a href="#FNanchor_611_611"><span class="label">[611]</span></a></span>
+See Joint Resolution No. 18, 35 United States Statutes 571 (1908), instructing the
+Attorney-General to institute certain suits.</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_612_612" id="Footnote_612_612"></a><a href="#FNanchor_612_612"><span class="label">[612]</span></a></span>
+United States v. Oregon and California Railroad Company, 186 Fed. 861 (1911).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_613_613" id="Footnote_613_613"></a><a href="#FNanchor_613_613"><span class="label">[613]</span></a></span>
+Oregon and California Railroad Company v. United States, 238 U. S. 393 (1915).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_614_614" id="Footnote_614_614"></a><a href="#FNanchor_614_614"><span class="label">[614]</span></a></span>
+39 United States Statutes 218, Ch. 137 (1916).</p>
+
+<p class="pfn4"><span class="ln1"><a name="Footnote_615_615" id="Footnote_615_615"></a><a href="#FNanchor_615_615"><span class="label">[615]</span></a></span>
+Oregon and California Railroad Company v. United States, 243 U. S. 549 (1917).
+Suit was brought by the United States in 1917, in accordance with the law, seeking to offset
+against the compensation of $2.50 per acre due the company for the unsold lands, moneys
+received by the company, in excess of $2.50 per acre, by reason of past sales, leases, and
+otherwise, as well as taxes levied since the forfeiture decision and voluntarily paid by the
+federal government to the state of Oregon. This case was ready for trial in 1921
+and will probably be soon heard and decided.</p>
+
+</div></div>
+
+<div class="sum">
+
+<div class="transnote p4">
+
+<p class="pc large">TRANSCRIBER’S NOTES:</p>
+
+<p class="ptn">—Obvious print and punctuation errors were corrected.</p>
+
+<p class="ptn">—The transcriber of this project created the book cover image using the title page of the original book. The image is placed in the public domain.</p>
+</div></div>
+
+
+</div>
+
+
+
+
+
+
+
+<pre>
+
+
+
+
+
+End of the Project Gutenberg EBook of Chapters on the History of the
+Southern Pacific, by Stuart Daggett
+
+*** END OF THIS PROJECT GUTENBERG EBOOK CHAPTERS ON HISTORY OF SOUTHERN PACIFIC ***
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