p94  Chapter 5
The Central Pacific Railroad Company

The Central Pacific Railroad of California was incorporated June 28, 1861, with James Bailey, Lucius A. Booth, Charles Crocker, Collis P. Huntington, Mark Hopkins, Theodore D. Judah, Charles Marsh, Leland Stanford, and D. W. Strong named as directors. The officers were Leland Stanford, president; C. P. Huntington, vice president; Mark Hopkins, treasurer; James Bailey, secretary; and Theodore Judah, chief engineer. All the directors were residents of Sacramento except Marsh, who lived in Nevada City, and Dr. Strong, who came from Dutch Flat. The directorate remained substantially the same throughout the building of the road.

The entire organization from start to finish was dominated by Stanford, Huntington, Hopkins, and Crocker. The other men were of small means compared to the Associates, and they were financially unable to undergo the stress of meeting the early  p95 demands for money. The situation might have been different had Judah lived, but his early death left the Big Four in complete possession of the company.

The Central Pacific Railroad Company was a corporation organized under the laws of California. Unlike the Union Pacific, which was created by acts of Congress, the Central Pacific was not troubled by government directors or by national politicians.

Although the Central Pacific was a California corporation, it came into contact with the government at Washington through the Laws of 1862 and 1864, which defined the land grants and the terms of the subsidy bonds to be given the road. One item in the Law of 1862 about which there has been much misinformation was the limitation on the length of the Central Pacific's line. The clause of the law covering the matter reads as follows:

It should be borne in mind that the Central Pacific had been organized over a year before the Act of 1862, and that the Union  p96 Pacific was organized by the Act itself. The Central Pacific was permitted to build to the Missouri River simply because the company created by the Act, the Union Pacific, was not then in existence.

The influence of the Union Pacific was exerted in Washington in the Act of 1864 to curtail the rights of the Central Pacific, and therefore that Act limited the Central Pacific to a point •150 miles east of the eastern border of California. Huntington merely remarked that when the time came, that obstacle would be removed. An Act of July 3, 1866, did indeed amend the Act of 1864 to permit the Central Pacific to build eastward until it met the Union Pacific. The failure to control the meeting place of the two roads led the companies to expend possibly $2,000,000 in useless grading on parallel and near-by locations, half of which had to be torn up.

The Pacific Railroad Act of 1862 was approved July 1, and on November 1 of that year the acceptance contract, as required by the Act, was signed. Construction started in a few days, and two months later, on January 8, 1863, the opening ceremonies were held on the levee at Sacramento. This work progressed slowly on account of lack of funds. No government aid was available until •forty miles of road had been completed. The projectors had to depend mostly on their own resources for money, and on the proceeds of the city and county bonds that were voted. The most important issue was in San Francisco, funds from which did not become available until a time when the amount was no longer of great importance.

It soon became evident that the provisions of the Act of 1862 were such that no money could be obtained and work would have to stop, which is just about what happened at Newcastle, •thirty-one miles from Sacramento. Thereupon both railroads united in pressing for more liberal terms, and these were granted by the amended Act of 1864, after which, and with the ending of the Civil War in the early months of 1865, funds at last became available and construction moved ahead.

 p97  Another obstacle that the company had to surmount was the unyielding opposition of large sections of the general public and what was of greater importance, the active opposition of certain interests that felt they were being injured by the building of the road. The builders of the Sacramento Valley Railroad, which was then financially on the down grade, spread reports that the Central Pacific could not be built. Freighting companies, seeing their business threatened by the cheaper transportation of the railroad, joined the wolf pack, as did the existing telegraph company, for the reasons that a rival telegraph line was to be constructed along the railroad line. Steamship companies, seeing their business to the eastern states threatened, were also in action in an effort to defeat the railroad.

The best example of the attacks is found in the pamphlet entitled, "The Dutch Flat Swindle," to which the author purposefully neglected to sign his name. It would be difficult to think of any derogatory statement that the author of the pamphlet failed to include in his work. The railroad was to end at Dutch Flat and was being built merely to serve the wagon road from that town over the mountains. Reputable engineers had stated that no railroad could ever be built over the lofty mountains because no such road ever had been built. Affidavits were presented stating that during the voting in San Francisco for a bond issue in aid of the railroad, Governor Stanford's brother had gone from ward to ward scattering $5 and $20 gold pieces and urging the voters to vote for the railroad. In passing, it might be said that there was probably a modicum of truth in the latter statement, because it was often expedient thus to persuade the intelligent and free electorate to vote right. Such methods were not confined to California nor to that period.

The great obstacle to the building of the railroad was the doubt in the minds of financial men generally regarding the possible success of the enterprise. The desert character of the •1,000 miles of country from western Nevada to central Nebraska was well known. There was little or no traffic in sight and there  p98 was a possibility that even with government aid the cost of the road would be so great that funds would not be available to complete the project. It would take years to complete the line and meanwhile only the Nevada mines offered a prospect of revenue, and mines were, at best, uncertain. Again, the Comstock mining boom was on and money commanded high rates of interest. At first the deterring effects of the Civil War also caused doubts, but in time that was removed and the nation was prepared to go ahead in rebuilding.

At the beginning, it was necessary for the Associates to raise money on their personal credit. All were men of moderate wealth, but their resources were often strained to the breaking point. To illustrate, testimony of bankers prominent in California affairs may be cited. Lloyd Tevis, a banker of San Francisco and president of Wells Fargo and Company, who was invited to take a share in the Contract and Finance Company, in answer to the question, "What was your view of the situation of the Central Pacific Railroad Company and the Contract and Finance Company at the time?" replied: "I looked at it as a business question. I thought it was liable to great embarrassment and I very much doubted their ability to carry out their contracts. I was apprehensive it would involve me."

He also stated: "I am aware of the fact that the capital of those gentlemen was very limited — I refer to their individual means — because they were borrowing money in the market all the time, and of anybody that would loan it to them. They applied to me, I might say, hundreds of times. I occasionally loaned them money, and assisted them in procuring money from others. I know the fact to be that they were exceedingly hard run at times, and I was apprehensive they would fail to procure money in time to meet their obligations."

Tevis also testified that interest rates in San Francisco ran from 2 per cent to 3½ per cent a month. Banks loaned at 1½ per cent or more a month.

Mr. D. O. Mills, for many years a banker in Sacramento and  p99 also president of the Bank of California in San Francisco, in answer to questions similar to those asked Tevis, stated that he had declined to come into their road, and gave his reasons:

"In the first place, doubtfulness of its success and the ability of the parties to carry it out, and in the second place, the giving up of an important business that it would involve if I went into the railroads.

"My understanding was that their wants were always pretty great during the construction of the road; that is, their wants for money.

"The difficulties were very great, and rendered their credit very poor. It was a constant struggle, and the sense of the community as well as my own, was against their being able to carry out the enterprise."

In connection with the need for money and the efforts to satisfy the demands of the construction, it may seem inconsistent with the known fact that after the passage of the Law of 1864 the first mortgage bonds of the company and the subsidy bonds of the railroad were salable. The explanation, which has never appeared in any discussion of the subject known to the writer, is found in the nature of the country passed through and the resulting cost of construction.

On the Union Pacific, the easy part of the construction came first. For •over 500 miles up the wide, flat valley of the Platte River and thence up Lodgepole Creek, the construction was the easiest on the line. The opposite was true on the Central Pacific. For •about twenty-two miles eastward from Sacramento the route lay over a flat rolling plain and then met the Sierra Nevada, foothills at first but growing steeper and more difficult as the road led to the summit.

The maximum rate per mile of the subsidy bonds was $48,000, for which the company received in cash about 75 per cent, as the bonds were merely currency bonds with interest payable in paper money. Actually the company received about $36,000 in gold for the subsidy bonds and the company bonds  p100 brought in about the same amount. There was thus available $72,000 per mile to pay the costs of railroad construction, where the cost was running from $100,000 to $150,000 per mile. It was this situation that caused the financial problem that the four builders had to solve. Bank loans and the sale of city and county bonds were the source of revenue that supplemented funds from government and company bonds, which in the end enabled the builders to complete the road across the mountains. Stanford testified before the 1887 Commission that when they finished the road over the mountains the company was $5,000,000 in debt, a statement that does not seem exaggerated in light of the fact that construction costs were so much greater than the money obtained from the sale of bonds. Once the mountains were passed, the government subsidy of $32,000 per mile, discounted to $24,000 per mile in gold, together with the company bonds, enabled the work to proceed without further financial complications.

From the difference in the rate of the subsidy bonds between the $16,000 per mile over the valley lands and the $48,000 per mile for the •150 miles of mountain construction, a situation arose that at that time and later caused a large amount of undeserved criticism of the builders.

The acts of Congress that granted the subsidy bonds left it to the President of the United States to determine the eastern base of the Rocky Mountains, toward which the Union Pacific was building, as well as the western base of the Sierra Nevada, where the Central Pacific started to climb. In the latter case that point could have been anywhere •from twenty to twenty-five miles from Sacramento. One of the granite outcrops of the Sierra Nevada was found at Rocklin, and this point was considered the base of the mountains as far as construction was concerned. That point was •twenty-two miles east of Sacramento. However, it was to the interest of the Central Pacific builders to have the base of the mountains placed as near Sacramento as possible, as there the subsidy per mile changed from $16,000 to $48,000.  p101 They therefore fixed on the crossing at Arcade Creek, a small stream •seven miles from Sacramento, and a number of geologists of good repute were found who testified that the alluvial valley changed to a mountain formation at that point. J. W. Whitney, the state geologist, E. F. Beale, United States surveyor general for California, and J. F. Houghton, state surveyor general, wrote letters, the first and last locating the base of the mountains at Arcade Creek and the second, approximately midway between Sacramento and Folsom.

With that evidence in front of him, the harassed Abraham Lincoln signed a paper fixing Arcade Creek as the beginning of the mountains. Geographically, this may have been true. From a construction standpoint it was incorrect, since there was no difference in the rolling plain for at least •fifteen miles farther. The result was that the builders were able to obtain $450,000 face value additional subsidy bonds, but as the mileage of subsidy bonds at that rate was limited by the law to •150 miles, it merely moved the 150‑mile section fifteen miles closer to Sacramento. Actually, it only increased the length of the desert section fifteen miles, and increased the sum obtained from the government $240,000, which in the end netted the builders less than $200,000. The money obtained by this method came at a time when the builders were in desperate need of cash and helped in pushing the road up the mountains. Out of this subterfuge has grown the legend of the deceitfulness of the builders, a legend that is still going the rounds.

The Construction Contracts

In 1863, California was a long distance from the eastern states. The Gold Rush of 1849 and the years that followed had spent itself, but California was still a mining state, with labor scarce and mostly undependable. The first decade of the great mining development on the Comstock at Virginia City and Gold Hill in Nevada was at its height, so that prospectors were searching the mountains of Nevada for more gold and silver mines. Some  p102 of the early California miners had gone back to farming, and for these reasons there was no labor group as it is now understood. This writer experienced the same difficulties in obtaining men for construction when mining excitement is in the air. Men would come to the construction camp dead broke and looking for work. Three weeks' work would provide them with a grub stake and away they would go, searching for that Eldorado that ever lures the prospector. Again it may be noted that the few short railroads that had been built in California before 1863 had not brought into being organized contracting firms, which later became a fixture of railroads in the West.

The first Central Pacific contract was given on December 26, 1862 to Charles Crocker, who had resigned from the directorate of the company two days before. The contract was for •eighteen miles of road and included the bridge over the American River. The contract was said to have been based on unit prices for various items. The work took from February, 1863, to October, 1864, to complete, and the payment was $50,000 in stock, $100,000 in bonds of the company, and the balance $250,000 in cash, total of $400,000.

Following the first Crocker contract, the plan of using small contractors was tried. Cyrus Collins and Brother were given the contract for sections 19 and 20, a section being substantially a mile in length. Following this, sections 21 to 24 were given to Truxton, Knox, and Ryan; sections 25 to 27 to C. D. Bates; sections 28 and 29 to S. B. Smith; and sections 30 and 31 to Charles Crocker. It was probably on the insistence of Judah at an earlier date that this method was tried. It resulted in the failure of Collins and Brother to complete their work, which Charles Crocker was forced to finish. Those contracts cost $183,155. Crocker received $11,600 in stock and $65,537.42 in cash.

The delay caused by the segregation of contracts showed that this method could not be followed, since beyond section 31, near Newcastle, the work grew heavier. It was followed by a  p103 third contract to Charles Crocker and Company for sections 32 to 43 that was extended, with or without a contract, to section 138, the California state line. The total payments included $8,227,980.53 cash and $14,657,696.68 in stock of the company, a total of $22,885,677.21. The rolling stock, railroad iron, and other equipment for the Crocker contracts was supplied directly by the company.

The final contract was awarded to the Contract and Finance Company in October, 1867, and under it the road was completed to Promontory, Utah. The Contract and Finance Company was made up of the four Associates. Under the contract was included not only the construction but the full equipment of the road. The company was to complete the road, build all depots, station houses, turntables, and roundhouses, and furnish all the equipment, such as cars, locomotives, machine shops, freight shops, machinery in the shops — in fact, everything necessary to the running of the road. The purchase and installation of rail, ties, and fittings were included. For this work the contracting company was paid $23,746,000 in cash and an equal amount in stock, for a total of $47,472,000. It was claimed by Secretary Miller that the reason for forming the Contract and Finance Company was to invite persons with capital to put their money into the work in order to make certain the completion of the road.

In addition to awarding the contracts mentioned, Stanford went to Salt Lake City when the race with the Union Pacific was well on and contracted with Brigham Young for work by the Mormons on an extension from Promontory eastward, with the expectation of keeping the rival road out of the Salt Lake Valley. There he expended $751,964 on rights of way and construction, much of which was wasted. The Union Pacific had spent an ever larger sum on grading work west of Promontory as far as Humboldt Wells. All of this was squandered, since it resulted in two parallel graded roads across •200 miles of desert, only one road of which was used.

 p104  After the junction of the roads, an arrangement was made by which the Central Pacific bought from the Union Pacific •forty-seven and one half miles of its completed road eastward from Promontory to within •five miles of Ogden, paying $1,502,000 in Central Pacific first-mortgage bonds and $1,338,000 in United States subsidy bonds, a total of $2,840,000 par value of bonds. On a discount basis of 75 per cent, the cash value of the bonds was $2,130,000, making the rate $45,000 per mile of railroad.

The Western Pacific Railroad

While this history is concerned with the building of the original Central Pacific Railroad from Sacramento to Ogden, the affairs of the Central Pacific Company were involved with other railroads that formed the first rail connection with San Francisco, a logical deep-water terminus of a transcontinental railroad. That connection was made by means of the Western Pacific Railroad, which should not be confused with the existing road of that name, and also by the San Francisco and San Jose Railroad.

To understand why this circuitous route was adopted, one must visualize the topography of the region between Sacramento and San Francisco. The modern road follows a very direct course, but in the decade of the sixties the physical obstacles were great. The river had to be crossed at Sacramento, where it was wide and deep, and subject to heavy floods that inundate the region as much as •ten miles westward. When Benicia was reached, it would have been necessary to find a way to cross Carquinez Strait. This strait, a mile in width, carries the combined water of the Sacramento and San Joaquin Rivers from the Valley of California, as well as the ebb and flow of the tidal estuary. In later years the railroad trains were transported across the strait by huge ferry boats, and it was not until 1930 that a bridge was built to take their place. When the Central Pacific was building, another crossing would have had to be made from Oakland, on the eastern shore of San Francisco Bay,  p105 to reach San Francisco. Therefore all of these difficulties were avoided by building south from Sacramento to Stockton and thence southwesterly over a low range of the coast mountains to San Jose, from which town the San Francisco and San Jose Railroad led north to San Francisco.

The San Francisco and San Jose Railroad, following the line of the early Spanish development of the country, was projected in the fifties, but it was not completed to San Jose, a distance of •some fifty miles, until 1864. At a still later date it was continued southward. By 1868 the Central Pacific group became interested in the San Francisco and San Jose Railroad, which had been built by the Central Pacific System. The location was mainly through a valley and no difficulties other than financial were encountered.

The Western Pacific Railroad, from Sacramento to San Jose, was a more ambitious project, initiated by the same San Francisco interests that controlled the San Francisco and San Jose. The original grant to the Central Pacific contemplated that the road would be built to a point on San Francisco Bay, but the Central Pacific transferred whatever right it had in the grant to the projectors of the Western Pacific. These rights included land grants and government subsidy. The Western Pacific was organized in 1862, and after an estimate of cost of $5,400,000 was made, the work was placed under contract. The road was located along fertile valley lands except where it crossed the low mountains between the San Joaquin and the Santa Clara Valleys, in which San Jose is located. The contractors proceeded with their work until 1867, when they found themselves unable to complete the road. After negotiations, the road became the property of the Contract and Finance Company, which completed the construction. The road was •123 miles in length, and together with the San Francisco and San Jose Railroad represented a distance of about •173 miles between Sacramento and San Francisco. From a point •five miles west of Ogden,  p106 Utah, to San Jose, California, the distance was •861 miles.

It was obvious even at that time that such a route was too circuitous to gain much traffic, so in September, 1868, the San Francisco Bay Railroad was organized by the Associates and built by the Contract and Finance Company. It was •twenty-six and one half miles in length, running from Oakland to Niles, on the Western Pacific. Entrance into San Francisco was obtained by ferries operated by two short railroad lines connecting with the ferries from the towns of Oakland and Alameda. All of these lines were consolidated with the Central Pacific in 1870.

These lines are mentioned because the statistics of the Central Pacific were given in the testimony before the 1887 Commission, together with those of the Western Pacific. When the line from Oakland to Niles was completed, the distance from Sacramento to San Francisco was reduced from •173 miles by way of San Jose, to •139 miles, which included the ferry distance across the Bay of San Francisco. Entrance into Sacramento was made over the tracks of the Sacramento Valley Railroad, making the length of the two railroads at that time •149½ miles. The roads are still operated as one system, a part of the Southern Pacific Company.

Costs

No official company information is still available that would show the costs of the Central Pacific to the contractors, who at one and the same time were officers of the railroad. The books of Charles Crocker and Company and those of the Contract and Finance Company were undoubtedly destroyed to remove all record of the contractors' costs. The investigation by the Congressional Commission in 1887 failed to disclose any data upon which the costs as thus defined could be determined.

The cost to the railroad company, however, is found in the testimony of Senator Stanford and in that of other officers of the company, especially in that of the secretary, Edward H. Miller, Jr. The statements carry practically to the end of 1869, although some of the funds included in this record was for work done in the succeeding year.

 p107  The final cost statement of Mr. Miller is as follows:

 p108  The above figures are given for what they are worth as indicating about what the construction costs were to the railroad company. It will be noted from the above table that many payments were made from bonds rated at seventy-five cents on the dollar, which apparently was pretty close to the discount at which the bonds were sold.

The Commission of 1887 employed an engineer to estimate what the Central Pacific alone had cost, taking into account all the facts then available, including, "All that appears in the evidence relating to the peculiar and difficult character of the work, to the excessive cost of building the road over the Sierra Nevadas, to the impediments offered by snow and stormy weather, to the unusual item of costs arising out of the construction of snow sheds, and to the increased cost resulting from the rapidity with which the work was carried on and the necessity of expensive and unusual transportation of all material required for the construction of the road."

The conclusion reached was that the road from Sacramento to Promontory, Utah, and the purchase from the Union Pacific Railroad Company of •forty-seven and one half miles, a total distance of •737½ miles, did not exceed $36,000,000. This may be roughly compared with the cost from the table prepared by Mr. Miller. The total there given is $50,344,740. Deducting the two items of the Western Pacific road of $3,355,420, leaves a cost of the Central Pacific alone of $46,989,320, or an average cost of $64,000 per mile.

The difference between the two statements of cost merely represents differences that can occur when entirely different bases are used in determining the result. Miller's statement was made from the books of the railroad company, with which he had been familiar from the first. The details from the original records of costs would merely repeat the story with the same result. The commission's estimate was made after more than twenty years had passed from the time when the road was built and the money spent. While the engineer who prepared the  p109 estimate may have labored in good faith, it must be recognized that no man can, by any stretch of the imagination, rebuild the actual circumstances under which the builders labored. Again, the commission sat with the fixed purpose of showing that the four men of the railroad company, by employing the device of the construction company, had robbed the railroad of large sums of money. The commission's adherence to this purpose detracts from the validity of its conclusions.

The subject was complicated further by the difference in money value at that time. Government bonds were currency bonds with interest and principal payable in paper money, which was subject to wide variation. At one point during the Civil War, paper dollars were worth only forty cents in terms of gold, with transactions on the Pacific Coast, a gold mining country, being made mainly in gold. After the close of the Civil War there were boom times, with the result that prices rose. Therefore labor costs and efficiency were considerably different in the decade of the sixties from what they were twenty years later. The meaning of the word "costs" depended entirely on the position of the estimator.

Financial

It remains to consider the means by which the necessary funds were obtained to carry out the work of construction. Senator Stanford gave the only statement of the major arrangements, which was supplemented by a statement by Mr. Miller. Combined, the statement is as follows, the record being dated January 1, 1870, and including the Central Pacific and Western Pacific:

 p110  Combined Statement

 p111  It will be noted from the above table that the floating debt and amounts due the Credit and Finance Company of $12,500,000 were not extinguished by the sales of the $10,039,120 of land bonds, which brought to the company $7,529,340. In round numbers, at the end of 1869 there remained a debt of $5,000,000 owing to the Contract and Finance Company. It also seemed that the contracting company owed the Associates $5,700,000 for money advanced, probably to form the capital of the company. The debt of the railroad company to the contracting company was apparently liquidated in 1871 by money obtained from the sale of the land grant bonds that were authorized in 1870. The railroad company had given the contracting company its notes, dated October, 1869, and May, 1870. To liquidate these notes, 8,953 land bonds were sold at a rate of $865 per bond, which represented a return of $7,744,345 of cash and a discount of $1,208,665. It may be assumed that substantially all of the return from the sales of these bonds was to pay for work on the railroad prior to January 1, 1870. The return is probably included in the item of $12,500,000 in the preceding table, together with other floating debts. The face value of these land bonds, $8,650,000, must be added to the total of other bonds of $70,333,360, making $78,983,360, which represents the face value of the bonded debt of the railroad as of January 1, 1870.

The $7,744,345º received from the land bonds thus sold must be added to the total receipts of $52,034,060 from the other bonds and stock, making the total $59,778,405. The sums realized from the sale of bonds were somewhat less, since there is included in the above amount direct land sales of $107,000, and profit and loss of $1,610,000. It should be noted that the issue of land bonds was for $10,000,000, the total sum realized was $8,643,661.82, and the discount was $1,356,338.18. These latter sales were made mostly from 1874 to 1878 and had nothing to do with the original railroad. They indicate the relatively high rates paid for money at that time, as the bonds bore 6 per cent interest.

 p112  These statements of bond issues and of the sums realized have been given to show the magnitude of the transactions that were necessary to build the Central Pacific and Western Pacific. However, the statements are not necessarily exact. The work of building the road did not cease when the last spike was driven at Promontory. Much work remained to be done all along the line, and in the next five years it was necessary to replace the iron rails with steel. A railroad is never finished, and as standards change, bridges must be rebuilt, ties removed, wooden trestles filled, new rolling stock added, and old, worn-out stock discarded. Only a general statement can be made, and from the cost and other figures given by the railroad officials it may be stated that the cost of the •860.66 miles of railroad from San Jose to Ogden was $58,000,000. Of this sum, the Central Pacific cost $52,000,000; and the Western Pacific, $6,000,000. The bonded debt attributed to this stage of the development was about $79,000,000, of which sum, a portion not known may have been devoted to other purposes, such as building the line from Niles to Oakland. The work of building feeder lines and absorbing other lines already constructed went on even while the main line was under construction, and to arrive at any exact figures of the cost to the railroad company from the general figures available is impossible.

The operation of completed portions of the line was an important element in furnishing money for the construction forces and in meeting the growing interest on the company bonds and borrowings. As soon as the road reached the junction with the line leading north at Roseville, passenger and freight trains operated. At Newcastle there was a long delay in construction, and so trains from Sacramento met stages that ran to the mining towns. The same was true at Colfax. At Dutch Flat, passengers and front were transferred to stages running over the mountains to Reno and the Comstock towns. At Cisco, where there was another long building delay, a similar arrangement was made.

Central Pacific passengers were met at Colfax, California, by stagecoaches bound for mining towns in the mountains.

 p113  The earnings and operating costs summarized by Miller for the Commission of 1873 are as follows, the figures being for gold coin:

Summary

The operation of the road thus furnished money that not only paid bond interest but also contributed a substantial amount of cash for paying construction costs. The profit and loss balance of $1,610,000 included in the table of available funds was without doubt made up of cash received from operations.

In 1862, when the road was organized, the capital stock was set at $8,500,000, the shares having at all times a par value of $100 a share. The California law required that the capital stock should equal in value any bonded debt incurred. As the work proceeded and the scope of the enterprise enlarged, it became evident that an increase in the capital was necessary, so in 1864 the capitalization was raised to $20,000,000. Later, in 1868, it was found that this amount was not sufficient and it was raised to $100,000,000.

The disposal of the stock during the period to January 1, 1870, together with issues to care for debts incurred, was as follows, the amounts being expressed at par value:

In his testimony before the Commission of 1887, Senator Stanford testified that the stock issue was about $54,000,000. That figure was reached by including stock issued on the construction of other roads as extensions to the Central Pacific, the account being carried forward from the above tabulation:

In considering only the Central and Western Pacific Railroads, the figure of $48,355,000 should be used, although it is uncertain for what construction the two payments were made to the Contract and Finance Company. The assumption is that it was for the branch roads mentioned.

It was freely admitted that the stock had little or no value when issued. In the first contracts Crocker rated the stock at fifty cents on the dollar, but this was soon reduced to thirty cents. Attempts were made, without success, to sell the stock, and the general opinion now is that it was worth only ten cents  p115 per share. When Crocker sold his holdings in the fall of 1871, the stock was rated at thirteen cents a share. Attempts of the Associates to sell out to San Francisco capitalists failed, so that when Crocker returned from Europe in 1873, he was forced toº take his stock back and resume his place in the directorate. At that time the $48,000,000 of stock was probably worth less than $5,000,000, with no one to purchase it. The stock in those days merely represented the chance for future profit, provided the railroad became a paying proposition. When on September 13, 1873, the first dividend on the stock was paid, the rate was 3 per cent. The one on April 1, 1875, was 6 per cent, after which the annual rate declined to 3 per cent. Including the dividend of January 15, 1884, the sum of $34,308,055 was paid, most of which went to the Associates. Naturally the stock rose in value, and much of that belonging to the Associates was sold. This constituted the major reward of the four men who built and financed the Central Pacific.

Even at the time the railroad was built, it was well known that the device of the construction companies made up of the railroad directors was a subterfuge. Its obvious purpose was to secure the stock as a bonus for the risk that the Associates took in the enterprise. The idea was for Crocker to make over the stock he received on his contracts to the Credit and Finance Company, and later when that company was dissolved, each of the Associates received his share of the stock, about $13,000,000 at face value. Whatever real return the stock made to the individuals is not known.

The same procedure was followed in the construction of the extensions of the Central Pacific, the absorption of other roads, and finally in the building of the Southern Pacific. To say that by this practice Stanford, Huntington, Hopkins, and Crocker became wealthy is something of an understatement. Nevertheless, it is equally true that the Associates built one of the great railroad systems of the West, which still operates to the great benefit of the region through which it runs.

 p116  Lands

The original Act of 1862 gave the company five 640‑acre sections on alternate sides of the railroad line. The Act of 1864 doubled the grant, making it twenty sections or 12,800 acres per mile, extending •ten miles on alternate sides of the line. Owing to the line's irregularities, the actual amount of land granted was less than the theoretical amount. In addition, mineral lands were excepted from the grant as well as all lands already preempted. Since the extent of mineral lands could not be determined in advance, there was some uncertainty about the total acreage. The amount of land remained indefinite until the actual route was determined by definite surveys. For these reasons, statements of the acreage allotted to the railroads varied from time to time.

In 1883, the Commissioner of Railroads, in reporting to the Secretary of the Interior, stated that the land grants were as follows:

The Western Pacific had disposed of its lands before its absorption by the Central Pacific. At the date of the report in 1883, the company had disposed of 780,879 acres. In fact, it was the policy of the company to dispose of its lands as rapidly as possible. The prices to settlers varied from $2.50 per acre up to $20 per acre, the latter figures being for land covered with timber. The benefit to the railroad came from traffic developed by the settlers rather than from the sale of the land  p117 itself, which was sold on very reasonable terms. The best land was in California, where about 1,000,000 acres were available after deductions. The Nevada and Utah lands were mostly desert. At the present time unsold land amounts to approximately 5,000,000 acres.

Everything considered, the land grant was of little direct assistance to the Central Pacific during construction, since the total sum available therefrom was only $107,000. Notwithstanding, the land grant was a big help in selling the company's first-mortgage bonds. Later, in 1871, a land-grant mortgage of $10,000,000 was executed, from which funds became available to pay off the floating debt.

Disposal of the lands would have moved more rapidly had the General Land Office been provided with sufficient personnel to make the surveys and to attend to the detailed work. However, unless the lands were under contract for sale, the company was in no hurry to patent the lands, because they then became taxable by the states. It took a lawsuit, together with a decision of the Supreme Court, to determine this liability.

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