Before introducing a friend to a distinguished stranger, it is advisable to give him some account of the person whose acquaintance he is about to make; and so, fellow-traveler, whom I introduce to the New York and Erie Railroad, it may be well to prefix here a brief sketch of the history and present condition of this, the Lion of Railways. True, he is yet in an unfinished state, but you will find that what there is of him is complete, and of wondrous organization and activity. His magnificent head and front repose in grandeur on the shores of the Hudson; his iron lungs puff vigorously among the Highland fastnesses of Rockland; his capacious maw fares sumptuously on the dairies of Orange and the game and cattle of Broome; his lumbar region is built upon the timber of Chemung, and the tuft of his royal extremity floats triumphantly on the waters of Lake Erie.
This exultant, characteristically American, description appeared in Harper's Guide-Book of the New York and Erie Railroad, published in 1851, soon after the opening of the main line of more than p65•four hundred and sixty miles from Piermont on the Hudson to Dunkirk on Lake Erie. That this railroad, which after nearly twenty years of struggle and of financial vicissitudes had finally linked the Great Lakes with the Atlantic coast, was looked upon as a property of wonderful character and limitless future is indicated in all the railroad literature of that time. Appleton's Illustrated Handbook of American Travel, published in 1857, devotes several pages to a description of this remarkable achievement in railroad extension and among other things says:
This great route claims a special admiration for the grandeur of the enterprise which conceived and executed it, for the vast contribution it has made to the facilities of travel, and for the multiplied and various landscape beauties which it has made so readily and pleasantly accessible. It traverses the southern portion of the Empire State in its entire length from east to west, passing through countless towns and villages, over many rivers, through rugged mountain passes now, and anon amidst broad and fertile valleys and plains. In addition it has many branches, connecting its stations with other routes in all directions, and opening new stores of pictorial pleasures. . . . An interesting feature of this road is its own telegraph, which runs by the side of the road and has its operator in nearly every station house. This telegraph has a double wire, enabling the company to transact the public, as well as their p66own private business. Daily trains leave for the west on this route, with connections by boat from the foot of Duane Street, morning, noon, and night.
The Erie Railroad system was foreshadowed in the time of Queen Anne, when the Colony of New York appropriated the sum of five hundred dollars to John Smith and other persons for the purpose of constructing a public road connecting the port of New York with the West in the vicinity of the Great Lakes. The appropriation was coupled with the condition that within two years the beneficiaries should have constructed a road wide enough for two carriages to pass, from Nyack on the Hudson River to Sterling Iron Works, a distance of •about thirty miles; and that they should cut away the limbs of trees over the track in order to allow the carriages to pass. In this way began the internal improvement system of the State of New York, which after the lapse of more than a century resulted in opening the Erie Canal and in projecting a railroad system connecting New York and the valley of the Hudson with Lake Erie.
After the opening of the Erie Canal in 1825, the Legislature of New York directed a survey of a state road which was to be constructed at public expense through the southern tier of counties from p67the Hudson River to Lake Erie. The unfavorable profile exhibited in the survey apparently caused the project to be abandoned. But the idea still held sway over the minds of many people; and the great benefits brought to the Mohawk Valley and surrounding country by the Erie Canal led the southern counties to demand a transportation route which would work similar wonders in that region. This growing sentiment finally persuaded the Legislature to charter in April, 1832, the New York and Erie Railroad Company, and to give it authority to construct a line and to regulate its own charges for transportation.
During the following summer a survey of the route was made by Colonel De Witt Clinton, Jr., and in 1834 a second survey was made of the whole of the proposed route. When the probable cost was estimated, many opponents arose who declaimed the undertaking was "chimerical, impractical, and useless." The road, they declared, could never be built and, if built, would never be used; the southern counties were mountainous, sterile, and worthless, and afforded no products requiring a market; and, in any case, these counties should find their natural outlet in the valley of the Mohawk. This antagonism was successfully opposed, p68however, and the construction of the road was begun in 1836.
The panic of 1837 interfered with the work, but in 1838 the state Legislature came forward with a construction loan of three million dollars, and the first section of line, extending from Piermont on the Hudson to Goshen, was put into operation in September, 1841. In the following year the company became financially embarrassed and was placed in the hands of receivers. This catastrophe delayed further progress for years, and it was not until 1846 that sufficient new capital was raised to go on with the work. The original estimate of the cost for building the entire line of •485 miles had been three million dollars, but already the road had cost over six millions and only a small portion had been finished. The final estimate now rose to fifteen millions, and, although some money was raised from time to time and new sections were built, there was no certainty that the entire road would ever be completed. Ultimately the State of New York canceled its claim against the property, new subscriptions of some millions were secured, and more money was raised by mortgaging the finished sections.
Finally, in 1851, after eighteen years of effort, p69the line was opened to Lake Erie. In addition there had been added various feeders or branches, giving the road an entry into Scranton, Pennsylvania, and into Geneva and Buffalo, New York. It had its terminus on Lake Erie at Dunkirk and its eastern terminus at Piermont, near Nyack on the Hudson, •about twenty-five miles by boat from New York City.
The financial condition of the Erie at this time manifested the beginning of that general policy of improvidence and recklessness which afterward, for nearly a generation and a half, made the company a speculative football in some of the most disreputable games of Wall Street stock-jobbers. For though the original estimate had been three millions and the highest estimate of the cost during construction had been fifteen million dollars, the company, in 1851, started its career with capital obligations of no less than twenty-six millions — a very large sum for those days.
The fact that these initial obligations constituted a heavy burden became apparent when the Erie began operations. They made necessary such high freight rates that shippers held indignation meetings and again and again made appeals for legislative relief. Although much money had been p70raised after 1849 for improvements, the condition of the Erie steadily grew worse. It soon became notorious for many accidents due to carelessness in running trains and to the breaking of the brittle iron rails.
But in spite of these drawbacks the business of the Erie grew. In 1852 it acquired the Ramapo and Paterson and the Paterson and Hudson River railroads and in this way it obtained a more direct connection with New York City. It changed the tracks of its new railroads to the •six-foot gage, which the Erie had adopted from the start and which it persisted in maintaining for many years despite the world-wide practice of establishing a standard width of •four feet eight and one-half inches.
The most conspicuous figure in the history of the Erie Railroad system in these early days was Daniel Drew. From 1851, when the main line was opened, until 1868, this man was a director and for the larger part of the time, treasurer. Born in 1797, he had driven cattle when a boy from his native town of Carmel in Putnam County to the New York City market and, for some years later, he had been proprietor of the Bull's Head Tavern. Shrewd, unscrupulous, illiterate, good-natured, and p71sometimes generous, he was in many ways unlike his great adversary in the railroad world, Commodore Vanderbilt. Drew affected a pious and sanctimonious attitude in all his dealings, while Vanderbilt had a more frank and open nature and usually made no pretensions to righteousness.
For many years following 1851, Drew, who owned or controlled nearly one-half the stock of the Erie, appeared to think that his office of treasurer carried with it the right to manipulate the stock of the road at any time it might help his pocketbook to do so. He frequently advanced money which the road could not obtain elsewhere, always taking full security and excessive commissions. This practice gave him the name of "speculative director," and by the time his great contests with Commodore Vanderbilt broke out, he was reputed to be worth many millions, most of which he had acquired by juggling in Wall Street with Erie securities.
The entire period in the affairs of the Erie system from the ascendency of Daniel Drew in 1851 to the end of the Civil War witnessed an endless succession of stock-market exploits both large and small. In the spring of 1866, however, Drew found an opportunity to achieve a real masterpiece in p72manipulation. The stock of the Erie road was then selling at about 95 and the company was in pressing need of funds. The treasurer came to the rescue as usual and made the necessary advances on adequate security. The company had in its treasury a considerable amount of unissued stock and had also the legal right to issue bonds to the extent of $3,000,000 which could be converted into stock. Drew took these bonds and the unissued stock as security for a loan of $3,500,000.
It so happened, naturally, that Drew was soon heavily short of Erie stock in Wall Street. The market was buoyant; speculation was rampant; and the outside public, the delight and prey of Wall Street gamblers, were as usual drawn in by the fascination of acquiring wealth without labor. All this time our friend, Daniel Drew, was quietly selling Erie stock and closing contracts for the future delivery of the certificates; and he was doing this at rising prices. As the days went by, his grave, desponding manner grew more and more apparent. Erie stock continued to rise. In the loan market its scarcity became greater hour by hour. The rumor began to spread that "Uncle Daniel" was cornered. His large obligations for future delivery must be met. Where was the Erie p73stock to come from? The stock continued to soar, and Treasurer Drew seemed to become more and more depressed.
Then the blow fell. Drew laid his hands on the collateral which he held for his loan to the Erie. In the twinkling of an eye his $3,000,000 in Erie bonds was converted into Erie stock, which he proceeded to dump in Wall Street. Erie quotations fell from 90 to 50. Every one at last realized the trap — but not before Daniel Drew had pocketed a few millions in profits.
By this time Drew had come to be looked upon as a stock operator to be both admired and feared, and this incident took its place in Wall Street history as a brilliant coup side by side with Vanderbilt's Harlem Railroad and other celebrated exploits. It was soon followed, however, by much more sensational events. We have seen that the portentous figure of Vanderbilt was just at this time looming up in the railroad world, and Vanderbilt had his own theory of the management and financing of railroads. It was inevitable that he should clash with Drew. He was a few years older than Drew, and the two men, as we have seen, had much in common. Both were well on in life before they had transferred their activities to p74steam railroads. When finally, in 1868, they crossed swords in connection with the two railroad systems extending through New York State, both were more than seventy years old and had been successful in the acquisition of millions by methods of their own invention. They were no doubt equally unscrupulous, but, while Drew was by nature a pessimist and "bearish," Vanderbilt, in the Wall Street vernacular, was always a "bull."
Having obtained control of the New York Central, the Hudson River and the Harlem railroads, Commodore Vanderbilt now decided in the summer of 1867 to go after the Erie, of which Drew was nominally in possession, although no one knew when he owned a majority of the stock or when he was temporarily short of it. Usually he loaded up as the annual election of officers approached and liquidated shortly thereafter. Besides Vanderbilt there was another interest at this time trying for the control of the Erie. This interest consisted of certain Wall Street speculators and certain Boston capitalists who proclaimed themselves railroad reformers. These so‑called reformers were as unscrupulous and crafty as either of the other men, and they really represented nothing but an attempt to raid the Erie treasury in the interest p75of a bankrupt New England corporation known as the Boston, Hartford and Erie Railroad. As was well said, the name of this latter road was "synonymous with bankruptcy, litigation, fraud, and failure."
The Erie Railroad control was always nominally for sale, and, as the annual election approached, a majority of stockholders stood ready to sell their votes to the highest bidder. Commodore Vanderbilt cleverly secured the coöperation of the "reformer" element, corralling their proxies, and thus he appeared to be in a position to oust the Drew interests without difficulty. On the Sunday preceding the election the Commodore saw Drew and amicably explained to him the trap he had laid, and showed him clearly that there was no way out of the situation. Upon this disclosure, Treasurer Drew at once faced about and agreed to join hands with Vanderbilt in giving the market for the stock the strong upward twist it had lacked before that hour. Jointly they would make so much money that neither side would lose anything. "Uncle Daniel" went away apparently satisfied and contented with the compromise.
But the Commodore had not finished. A few hours later he took the Boston adventurers into his confidence and explained that he proposed to p76continue Drew in the directorate. The Boston men were puzzled and confused by this sudden change of front. Later, all parties met at Drew's house, and Vanderbilt brought the Boston men to terms by proposing a plan to Drew whereby they would be entirely left out. This ruse succeeded and a written agreement to the advantage of all, but at the expense of the outside stockholders and of the general public, was then drawn up.
This, however, was only the beginning of the fight. Vanderbilt was now in the Erie as a joint owner, but he had stretched out his hands to control the road and he meant to succeed. In February of 1868, Frank Work, the single representative of Vanderbilt on the Erie board, applied for an injunction against Treasurer Drew and his brother directors to restrain them from the repayment of the $3,500,000 borrowed by the railroad from Drew in 1866, and to restrain Drew from taking legal steps toward compelling a settlement. Judge Barnard granted a temporary injunction, and two days later Vanderbilt's attorney petitioned for the removal from office of Treasurer Drew. The papers presented in the case exposed a new fountain of Erie stock which had up to that time been entirely overlooked.
p77 A recently enacted law of the State of New York — probably fathered by Drew — authorized any railroad company to create and issue its own stock in exchange for the stock of any other railroad under lease to it. Upon the basis of this law Drew and his close satellites had secretly secured ownership of a worthless piece of road connecting with the Erie and known as the Buffalo, Bradford and Pittsburgh. Then, as their personal needs in the stock-market or at elections demanded, they had supplied themselves with new Erie stock by leasing the worthless road to the Erie and then exchanging Erie stock for the worthless stock of the leased line. The cost of the line to Drew and his friends, as financiers, was about $250,000. They then issued, as proprietors, $2,000,000 in bonds of the road, payable to one of themselves as trustee. This person then shifted his character, became counsel for both sides, and Drew up a contract leasing the line to the Erie for 499 years, the Erie agreeing to guarantee the bonds in consideration. These men then reappeared as directors of the Erie and ratified the lease. After that it was a simple matter to divide the loot. The Erie was thus saddled with a $2,000,000 mortgage at seven per cent in addition to a further issue of capital stock.
p78 Following the first injunction another was now issued restraining Drew and the Erie board from making any further issues of stock, by conversion of bonds or otherwise, and also forbidding the Erie to guarantee any further issues of bonds. An additional injunction forbade Drew from having any transactions in Erie stock or fulfilling any contracts until he had returned to the treasury the shares involved in his loan transaction of 1866 and in the purchase of the worthless Buffalo, Bradford and Pittsburgh road.
Matters now looked forbidding for Treasurer Drew. Instead of being allowed to manufacture fresh Erie stock certificates at his own will, as had been his habit for fifteen years, he was to be cornered by a legal writ and forced to work his own ruin. But notwithstanding the apparently desperate situation it was quite evident that Drew's nerves were not seriously affected. Although he seemed rushing on destruction, he continued day after day to put out more short stock, all in the face of a steadily rising market. His plans, apparently, were carefully matured, and he said that if the Commodore wanted the stock of his road he would let him have all he wanted — at the proper price.
p79 As usual the Erie treasury was short of funds, and as usual "Uncle Daniel" stood ready to advance all the money required — that is, on proper security. There was but one kind of security to offer and that was convertible bonds. No stock could be issued by the company for less than par, but convertible bonds could be disposed of by the directors at any price. A secret meeting of the executive committee was held, at which it was voted to issue immediately and to offer for sale $10,000,000 in convertible bonds at 72½. Drew's broker at once became the purchaser of $5,000,000 worth. In ten minutes after the meeting had adjourned, the bonds had been issued, their conversion into stock demanded and made, and certificates for 50,000 shares of stock deposited in a broker's safe, subject to Drew's order.
A few days later came the injunction, and Erie stock began to soar in the markets, in response to which "Uncle Daniel," who had been industriously selling his many thousands of new shares, now determined to bring up the reserves and let the eager buyers have the other five millions; but before the bonds could be converted the injunction had been served. The date for the return of the writ was Tuesday the 10th of March; but the Erie p80ring needed less time than this and decided on Monday the 9th as the day to defeat the corner.
Saturday and Sunday were busy days for Drew and his friends. All his brokers had been enjoined, so a dummy was made the nominal purchaser of the bonds. This dummy then made his formal demand for the conversion of the bonds and was refused. All this was done upon affidavit, as it was the plan of Drew to get from some judge a writ of mandamus to compel the Erie Railroad to convert the bonds. The stock certificates for which they were to be exchanged were signed in blank and made ready for delivery.
Drew had agreed to sell 50,000 shares of stock at 80 to the firms of which Jay Gould and James Fisk, Jr., were members; they were also Erie directors. On Monday morning, the 9th of March, the certificates, filled out in the names of these firms, were handed by the secretary to an employee who was directed to carry them from the office of the company in West Street to the transfer clerk in Pine Street. The messenger left, but in a moment or two returned to report to the apparently amazed secretary that Fisk had met him outside the door, had taken the certificates away from him, and "had run away with them." It was true. The stock p81certificates had been "stolen" and were beyond the control of an injunction. The stock certificates next appeared in every part of Wall Street.
On the same day the Erie representatives applied to Judge Gilbert of Brooklyn for an injunction on the ground that certain persons, including Judge Barnard, had entered into a conspiracy to speculate in Erie stock and to use the process of the courts to aid the speculation. To the amazement of everybody, Judge Gilbert issued an injunction restraining all parties to all the other suits from further proceedings; in one paragraph ordering the Erie directors to continue in the discharge of their duties — in direct defiance of the injunction of one judge — and in the next paragraph forbidding the directors to desist in the conversion of bonds — in direct defiance of another judge. The Drew interests were now enjoined in every direction. One judge had forbidden them to move, and another judge had ordered them not to stand still.
It was a strategic position which Drew and his agents could not have improved upon, and while matters stood this way the 50,000 shares of Erie stock had been flung on the market. Vanderbilt, who was ignorant of this situation, bought the new stock as eagerly as the old. Then, when the p82facts came out, the quotations dropped with a thud. Uncle Daniel was victorious; the attempted corner had been a failure; and the Commodore was holding the bag.
Further dramatic events followed. The Erie directors learned that process for contempt had been issued and that their only chance of escape from jail lay in immediate flight. So, stuffing all that was worth while of the Erie Railroad into their pockets, they made off under cover of darkness to Jersey City. One man carried with him in a hackney coach over $6,000,000 in greenbacks. Two of the directors lingered and were arrested; but a majority collected at the Erie station in Jersey City and there, free from interference, went on with the transaction of business. Without disturbance they were able to count their expenses and divide the profits.
Vanderbilt was now loaded up with reams of Erie stock at high costs, and the load was a severe strain on him. He dared not sell for fear of causing a financial collapse. Drew had taken away about seven million dollars of his money and an artificial stringency had been created in Wall Street by this exodus of most of its available cash. But Vanderbilt weathered the storm and, as his generally p83optimistic attitude inspired confidence, the sky began to clear.
But this stock-market battle did not end the war. New injunctions flew in all directions. Osgood, son-in‑law of Vanderbilt, was appointed receiver of the 100,000 shares of illegally issued stock and was immediately enjoined from acting by another judge. Then Peter B. Sweeney, of the Tammany ring, was appointed in his stead without notice to the other side. There was nothing for a receiver to do, as every dollar he was to "receive" was known to be in New Jersey and beyond his reach. Nevertheless he was subsequently allowed a fee of $150,000 by Judge Barnard for his services!
While the legal battle was going on neither Drew nor Vanderbilt was idle. A plot was arranged for bringing the Erie directors over by force, but this failed. In the meanwhile the Erie directors persuaded the New Jersey Legislature to rush through a bill making the Erie Railway a New Jersey corporation. This move, however, was intended merely to meet an emergency. It was the intention of the Erie interests to do their real work with the Legislature at Albany. This was also the intention of the Vanderbilt interests. Consequently, during the subsequent session, the grafters in that body were p84wooed by both sides. When the Legislature convened, a bill was promptly introduced making legal the recent issue of Erie stock, regulating the power to issue convertible bonds, providing for the guaranty of the bonds of the Boston, Hartford and Erie, and forbidding the consolidation of the Central and the Erie under the control of Cornelius Vanderbilt. But evidently the Commodore's purse was open wider than "Uncle Daniel's," for this bill was defeated by a decisive vote.
Now Jay Gould appeared upon the scene. He left Jersey City with half a million of the Erie's money in his pocket and arrived in Albany immediately after the defeat of this bill. On his arrival he was arrested on a writ issued against him for contempt of court and was held in bail of half a million dollars for his appearance in New York a few days later. He appeared before Judge Barnard in New York and was put in the charge of a sheriff. But the sheriff was served with a writ of habeas corpus, and Gould was again brought before the court. Then in some mysterious way the hearing was deferred and Gould returned to Albany, taking the officer as a traveling companion.
After reaching his destination Gould became so ill that he could not return to New York, though p85he managed to go to the Capitol in a driving snowstorm. Here he became rapidly convalescent, as did also many members of the Legislature. Members, indeed, who had been too sick or too feeble to attend the legislative sessions during this cold winter suddenly found their health returning and flocked to Albany on the fastest trains. Gould stayed in Albany until April, and by this time a remarkable change had come over the mentality of a majority of the legislators. On the 13th of April a bill was presented in the Senate which met the approval of the Erie interests and which Judge Barnard afterwards designated as a bill for legalizing counterfeit money. This bill, which was passed after due debate, legalized the issues of Erie bonds and stocks which had been put out by Drew; it provided for the guaranty of the bonds of connecting roads as desired by Drew; and it forbade all possible contracts for consolidation or division of receipts between the Erie and the Vanderbilt roads, a provision also desired by Drew. In fact it was the same bill in different form that had been voted down so decisively a short time before.
But the real tug of war was to get the bill through the lower House. Fabulous stories were told of money which would be expended and the p86market quotations for votes never soared so high. Then, at the critical moment, Vanderbilt surrendered, made a secret deal with his foe, and withdrew his opposition to the bill. The anger of the disappointed grafters and vote-sellers knew no bounds, and they immediately set to work passing other bills which they felt would annoy or injure Vanderbilt, with the hope that he would still be induced to give them what they regarded as their rightful spoils.
The details of this settlement between Drew and Vanderbilt were not announced until some months afterward. By the terms agreed on Vanderbilt was relieved of 50,000 shares of Erie stock at 70, payable partly in cash and partly in bonds guaranteed by the Erie, and received $1,000,000 in cash for an option given the Erie Railroad to purchase his remaining 50,000 shares at 70 within four months, besides about $430,000 to compensate his friends who had worked so heroically for him. This total sum of nearly $5,000,000 no doubt represented part of the "slush fund" which Drew expected that the company would have to give up to the venal legislators, and it was therefore no hardship to hand it over to Vanderbilt instead.
As a part of the general settlement the Boston p87interests were relieved of their $5,000,000 of largely worthless bonds of the Boston, Hartford and Erie Railroad, for which they received $4,000,000 of Erie securities. Thus in all about $9,000,000 in cash or securities was drawn out of the Erie treasury in final settlement of this great stock-market manipulation. And this does not include the pickings of Gould and Fisk and the smaller fry, of which there is no official record. But that these gentlemen did not go empty-handed there is not the shadow of a doubt!
The sensational stock-market deal between the Drew and Vanderbilt interests was but a truce, however, and did not settle the troubles of the Erie. Jay Gould was now becoming a dominating factor and in October of 1868 was chosen president. The various stock-market struggles that ensued from the ascendency of Jay Gould to the receivership of the Erie in 1875 isº a long and intricate tale. Suffice it to say that the events were generally similar to those already recounted — stock-market corners, court orders, arrests, legislative bribes. Less than a week after his election Jay Gould frankly announced that the company had just issued p88$10,000,000 of convertible bonds and that a third of these had already been converted into stock. He further announced that the company now had $60,000,000 of common stock outstanding, whereas the public had understood that it was only $45,000,000.
During the few years that followed, the poor Erie was systematically looted. Millions were wasted in New York real-estate speculation, and the company's money was used in the erection of the Grand Opera House on Twenty-third Street, to which the executive offices of the Erie Railroad were moved. Finally the new ring, comprising as leading spirits Jay Gould and James Fisk, Jr., eliminated Daniel Drew and left him high and dry without a cent, through a new stock corner. About this time the road was financially on its last legs, and Jay Gould was appointed receiver. This started further litigation which dragged on for several years until, in 1874, Gould was turned out by General Daniel E. Sickles in combination with the English shareholders. The new interests, when they finally got control, elected an entirely new management and made H. J. Jewett, a practical railroad man, president. But the Erie was already bankrupt, and not much could be done toward p89saving the situation. In May, 1875, the road confessed inability to meet its obligations, and Jewett was appointed receiver.
It was three years from the date of the receivership before the Erie property was taken out of the hands of the courts. In April, 1878, a new company, the New York, Lake Erie and Western Railroad, took over the property; Jewett was elected its president, and a new chapter in the history of the property began.
Had the reorganization of the Erie been drastic enough, the road might not so soon have fallen into financial difficulties again, for it owned valuable coal lands in Eastern Pennsylvania and rapidly increased its earnings in this region. Moreover the extension of the system westward should have increased its earning capacity. Up to this time the Erie had no Chicago connection and was at an obvious disadvantage compared with its competitors. It improved this situation in 1881 by acquiring the New York, Pennsylvania and Ohio, and the franchise of the Chicago and Atlantic Railway. Two years later it obtained control of the Cincinnati, Hamilton and Dayton and found itself in a position in which it could compete for through traffic with the Pennsylvania and the New York Central.
p90 But in carrying through these extensive plans, the Erie again became involved in financial difficulties; the sensational Grant and Ward failure in Wall Street in 1884a was a severe blow to the company's credit, as this firm was at that time doing important financing for the Erie. The English security holders stepped to the front again, demanded President Jewett's resignation, and elected John King in his stead.
In 1885 and 1886 a financial readjustment took place, but the company continued to carry the bulk of the heavy load of obligations which had been created during the years of the Drew and Gould managements. It was surely an evidence of the inherent worth of the property that during the half dozen or more years following, the Erie succeeded in struggling along in the face of all its financial and other handicaps and at the same time showed substantial growth in the volume of its business. The company was kept above water until 1893 without again appealing to the courts; but by that time the indebtedness had once more mounted, and in July of that year Erie receivers were appointed for the fourth time in its history.
The name of Pierpont Morgan is closely identified with the story of the railroad during this latest p91reorganization period. Morgan's firm came to the front in 1894, with the powerful backing of the large English interests, and proposed a plan which involved heavy sacrifices by many of the security holders but which was designed to insure the permanent future of the property. The plan was vigorously opposed, however, by Edward H. Harriman, August Belmont, and other powerful interests, and it was not until August, 1896, that a final compromise was effected and a reorganization was carried through. But at last the Erie was taken out of receivership, and an entirely new company, intelligently designed and having ample working capital for future development, was formed with E. B. Thomas at its head. This new president, like Daniel Willard of the Baltimore and Ohio and many of the modern railroad leaders, was a practical railroad man who had worked up from the ranks and who had no large financial interest or banking connections to divert his attention from the real business of management. Under Thomas, who remained at the head of affairs from 1896 to 1900, the Erie made substantial progress. The system was solidified and its territory was more uniformly and systematically developed. In 1898, the Erie secured control of the New York, p92Susquehanna and Western system, gaining thereby an important branch to Wilkesbarre;º and in 1901 it purchased jointly with the Lehigh Valley Railroad the stock of the Pennsylvania Coal Company, of which the Erie later became sole owner. The real achievement of the Thomas administration was the development of the property as a heavy carrier of anthracite coal. On the financial side during this period the credit of the House of Morgan, intelligent administration, and modern methods did much to improve the reputation of the Erie and enable it to live down its bad inheritance.
In 1901 Frederick D. Underwood succeeded Thomas. Like his predecessor, Underwood represented the modern type of railroad president — a hard-working, eminently practical big business manager of great executive talent. Underwood's idea was to make the Erie a great freight-carrying system by developing its tonnage and its freight capacity in every way possible. Consequently he favored opening up the property more extensively in the soft coal fields of Ohio and Indiana, reconstructing roadbeds, laying extra tracks, and eliminating grades and curves.
The history of the Erie Railroad ever since 1901 has been a record of progress. During these years p93the system has been practically rebuilt. It now has a double track from New York to Chicago; it has extensive mileage in the soft coal regions of Ohio and Indiana, and its soft coal tonnage today far overtops its tonnage of anthracite coal; its train load averages far higher than that of the New York Central or of any other Eastern trunk lines except the Pennsylvania; its steep grades throughout New York State have been for the most part eliminated, and many short cuts for freight traffic have been built.
In carrying through these extensive developments in fifteen years the Erie has spent hundreds of millions of dollars. More money indeed has been used legitimately for improvement and development since the reorganization of 1896 than during the previous sixty years of its existence. Of course this outlay has meant that the Erie has had to create new mortgages and borrow many millions; but a large part of the expenditure for improvement has come directly from earnings. The Underwood administration has been conservative in paying dividends and the stockholders grumble. But the Erie is at last coming into its own. Instead of being a speculative football and a hopelessly bankrupt road, as it was for nearly forty years, it p94is now in the forefront of the great trunk lines of the eastern section of the United States. It is no longer, what it was called for many years, the "scarlet woman of Wall Street," but is a respectable member of the American railroad family.
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