October 15, 2011

"The War on the Northern Pacific"

From Harper's Weekly magazine on May 25, 1901, Volume XLV, No. 2318, comes this wonderful cartoon by W. A. Rogers and related article by Henry Loomis Nelson.  Many volumes of Harper's Weekly are available on google books, including this one (available here).  Click the images to enlarge.

cartoon by W. A. Roger

The War on the Northern Pacific
By Henry Loomis Nelson

There is much confusion of rumor, and consequently much confusion of thought, touching the recent struggle, perhaps not yet concluded, for the control of the Northern Pacific Railroad.  As a stock-jobbing operation, the facts are clear and pretty well understood.  During the week which ended on the 4th of May, the healthful week when the abounding wealth of the country and its rich promise of prosperity expressed themselves in the stock quotations of the Exchange, Northern Pacific, in the language of Wall Street, was "one of the most active stocks."  It had been selling below 80 a few weeks prior to the general rise in prices, and now it went bounding up towards 120.  Some one, or some combination, was buying it in large quantities, and there was an apparent change of ownership in hundreds of thousands of shares.  Monday, the 6th of May, saw a continuation of this buying, and there began what seemed to be, and was, a struggle for the possession of the road.  Stocks went in response to the eager demands for it, and finally Mr. Keene, seeing the effort that was being made, and knowing that prices must go up until the sellers begged for mercy, helped along the movement by becoming an auxiliary buyer.  When the stock broke, it had once reached, for a moment, the price of $1000 per share for the common stock of the road.  Thousands of shares had been sold which did not exist.  Money was borrowed at astonishing rates of interest, and small fortunes were paid for the loan of Northern Pacific stock.  Loss and ruin visited hundreds of rash speculators, but no so many as would have been caught under like conditions at any other moment in the history of the Stock Exchange.  Then the question rose as to who controlled the road.  The effort to buy it away from the control of J. Pierpont Morgan & Co. and Mr. Hill was made by Kuhn, Loer, & Co., Mr. Jacob Schiff being the active partner in the transaction, the firm representing the Union Pacific Railroad interest, at the head of which is Mr. Harriman.  Which of these parties controlled the road at the end of the contest is a question still unsettled.  The aggressive war was made upon the Morgan-Hill management, who still believe that they own and influence enough stock, as the stock account stands, to maintain themselves.  The others deny this, and assert that they possess a majority of the stock.  Mr. Hill neither bought nor sold a share during the excitement, and no one of his men who are of his party, and who are in his confidence, yielded to the temptation to part with a share of his stock while the high prices prevailed.  It may require the revelations of the natural annual meeting to determine the control of the property.

Leaving the stock-jobbers to their own devices, it will be interesting, as it is important, to obtain an understanding of the subject and cause of the struggle, and of the importance of the Northern Pacific Railroad, under its present management.  It is not necessary to go back into the ancient history of this great railroad; it is not many years ago when Mr. Hill became interested in it, and it is only from that time that it began to be a profit-making, dividend-paying property.  It is true that the ground for success had been broken, and it does not follow that criticism of former managers is intended by the statement that the success of the Northern Pacific Railroad is due to wise reorganization effected by Mr. Pierpont Morgan, and, afterwards, by the practical ability of Mr. Hill.

Who is Mr. J. J. Hill? He is not a figure known in Wall Street.  He is not a dealer in general securities.  He has never been inside the New York Stock Exchange.  When he buys stocks and bonds it is for the purpose of gaining the ownership of a property which he desires to own and manage as a business enterprise, and for the purpose of making money for himself and his fellow shareholders.  To those who are associated with him in the railroad business, he seems to be the greatest railroad manager of his times.  He began life in the West, forty-five years ago, as a clerk in a Mississippi River transportation business at St. Paul, and then went back into Canada, whence he came, and into the service of the Hudson Bay Company.  There he met Lord Strathcona, who had not yet earned his peerage, with whom he has been associated for thirty years.

Again he returned to Minnesota, and, at last, began the construction of the Manitoba railroad which ran into the Red River wheat country.  He was regarded as an intruder by the old Northern Pacific magnates, and he was not popular with them.  But he kept on building and operating his own road, until eventually it became the Great Northern Railroad.  It was built as a private enterprise.  It is the only transcontinental road constructed without a dollar of government money.  Its bonded debt is small.  It has never missed paying a dividend.  In the panic years, 1893, 1894, 1895, when railroad wrecks were tumbling all about, the Great Northern not only paid its dividends, but increased them.  Mr. Hill is a commanding personality who wins loyalty and devotion from his associates.  He is possessed of a warm imagination, restrained by a thorough knowledge of details.  He knows what his road costs, the cost of its operation, the cost of wear and tear.  Every dollar that his road earns belongs to the stockholders.  No one connected with his road, officially, makes money out of it from patents, or any of the devices by which some railroads are bled.  Mr Hill knows thoroughly the country through which his road passes, its products, its capability, its people, and their capacity.  He knows also the promise of each season, and his imagination walks into the future as sure-footed as it is permitted the imagination to do.

This is the business man, the practical man, who has built up the two great Northern transcontinental lines, and who, with Mr. Morgan, controlled them when the assault was made upon Northern Pacific.

It has been said that this assault was made because Mr. Morgan and Mr. Hill were trying to obtain possession of somebody else's property.  The answer to this, which is made by Mr. Hill, is interesting.  We leave out of consideration in  discussing this subject the attempt of the Northern Pacific to obtain control of St. Paul, because it aborted.  We will also leave out of consideration the upward movement in Union Pacific stocks, because it seems impossible to connect this with the Northern Pacific movement.  It was at first reported that the effort to buy the control of Northern Pacific was in response to and by way of revenge for an attempt to secure control of Union Pacific.  Mr. Hill denies that he or the Morgan house had any part of the purchase of Union Pacific.  In order to rest on solid ground, we must confine our consideration to the purchase of the control of the Chicago, Burlington, and Quincy Railroad as the moving cause of the attack on Northern Pacific.

The Burlington road competes with the Union Pacific road in the State of Nebraska, and runs on to Cheyenne and to Denver.  From Lincoln it sends a long spur up to the Northern Pacific at Billings.  It ends at no natural terminal, but at stations of other railroads.  It was, in a sense, a feeder to the Northern Pacific, for it reached southward, and through rich wheat and corn fields in the Mississippi Valley.  The Northern Pacific purchased service of it.  The Burlington managers were discontented with their position.  They wanted to go to the coast, and their desire was stimulated by an effort which was made by the Union Pacific interest to purchase the control of the Burlington.  This was before the Morgan and Hill interests made their successful attempt.  The Union Pacific people made their attempt in the open market, and failed.  The Burlington managers believed that this effort was hostile to their road; that it was intended to cripple it by "fencing it out" of Colorado and California, and by making it of less importance than it had been to the Northern Pacific.

Afterwards, Mr. Morgan and Mr. Hill announced that they would try to buy the control of Burlington.  There is no question as to their right to do this, and it is difficult to understand why any objection can be raised to any one's securing "someone else's property," provided that the some one else is treated fairly, consents, and is paid a fair price.  There was no secret about this proposed purchase.  Mr. Hill is authority for the statement that he informed Mr. Harriman of his purpose.  Whereupon Mr. Harrimon informed Mr. Hill that he would not succeed, because he (Mr. Harriman) had failed.  Mr. Hill took a course different from that which had been pursued by the Union Pacific people.  Instead of trying to buy the Burlington stock in the open market, he went to the management and acceded to their terms, the price to be paid for the Burlington stock being $200 a share.  Just before the bargain was concluded, Mr. Hill was told by Mr. Harriman or by Mr. Schiff, that he should not buy a control in Burlington, and that he should not even continue the negotiations, unless he agreed to give to the Union Pacific a third interest in the transaction.  This was refused, and the contract was concluded.  It is now a binding contract, and will be executed when the holders of two-thirds of the Burlington stock deposit it.  Those who conducted the negotiations with Mr. Hill confidently believe that they have this amount of stock.

There was no such objection to the sale to the Northern Pacific as that which existed to a sale to the Union Pacific.  It was in the interest of the latter to cripple the road which fed its competitor from the south.  Then, again, the law of Nebraska forbade the purchase of Burlington by the Union Pacific, because they are competing roads.  The Norhtern Pacific interest lies in the further development of Burlington.  Again, the interest of the two transcontinental roads will be served by the suppression of the plan to carry Burlington to the Pacific; nor does the purchase of Burlington by the Northern Pacific lay any additional burdens on Union Pacific or increase the competition against it.

It remains only to explain the future of those Great Northern properties, as it has been imagined by Mr. Hill, and which probably will be eventually carried out, whoever may control the Northern Pacific, for there is no question of Mr. Hill's ownership of the Great Northern, nor none of the cooperation of the Canadians.  Mr. Hill is building up a transportation route to Asia.  There are now in process of building at New London, Connecticut, the four largest freight-carrying steamships in the world.  They were contracted for by Mr. hill, and will sail to the East from Seattle, the terminal of the Great Northern, and one of the terminals of the Northern Pacific.  These steamers, somewhat shorter but deeper than the White Star's Celtic, are each to have a carrying capacity of 28,000 tons.  It is an interesting and important fact that the contract price for each of these steamers is $400,000 under the lowest bid that Mr. Hill received from Clyde ship-builders.

Now we see the range of Mr. Hill's imagination.  The Great Northern is to run to China.  Until that long-wished-for interoceanic canal is completed, it will furnish the most important American route to Asia.  With the Northern Pacific and the Burlington connections, the new route would make a transportation line probably the longest and richest in the world.  But its Southern connections it would traverse the cotton-fields and iron regions of South Carolina, Georgia, and Alabama.  It would penetrate and run through the richest wheat, corn, and lumber fields of the country, and the manufacturers of the Eastern States would seek it.  It would be in the same control as are the coal and iron regions of Pennsylvania and the Great Lakes.  Among its most important feeders would be the transportation system of the lakes.  It is a great conception, and the line is almost completed.  It is also a great thing to have attacked: but if Mr. Morgan and Mr. Hill are driven out of the control and management of these properties, we will know what the railroads and the country have lost.  We will know at least that the masterminds which have made possible and practicable such a design have been driven out.  But we cannot know by whom they are to be replaced, and it is idle, therefore, to speculate as to the future of the railroads or of Mr. Hill's design.

1 comment:

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