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Chapter 8

This webpage reproduces a chapter of
The Railroad Builders

John Moody

in the
Chronicles of America series,
Yale University Press,
New Haven, 1921

The text is in the public domain.

This page has been carefully proofread
and I believe it to be free of errors.
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Chapter 10
This site is not affiliated with the US Military Academy.

 p165  Chapter IX
The Growth of the Hill Lines

The States which form the northern border of the United States westward from the Great Lakes to the Pacific coast include an area several times larger than France and could contain ten Englands and still have room to spare. The distance from the head of the Great Lakes at Duluth to the Pacific coast in the State of Washington is greater than the distance from London to Petrograd or the distance from Paris to Constantinople, and three times the distance from Washington, D. C., to Chicago.

Fifty years ago these States, with the single exception of Wisconsin, were practically a wilderness in which only the Indian and buffalo gave evidences of life and activity. No railroads penetrated the forests or the mountain ranges. Far southward some progress in the march of civilization had been made; the Union Pacific had linked  p166 the West with the East before the eighth decade of the century began, and the Northern Pacific project was being painfully pushed through the intermediate tier of States during the seventies. But the material resources of the Great Northwest had still to be discovered.

When the Northern Pacific Railway failed in 1873, the crash involved a little railroad known as the St. Paul and Pacific, running out of St. Paul for a couple of hundred miles westward, with a branch to the north joining the Northern Pacific at Brainerd, Minnesota. The St. Paul and Pacific had been acquired in the interest of the Northern Pacific some years earlier but was now regarded as a property so worthless that its owners would be glad to get rid of it, if only they could find a purchaser rash enough to take it over.

During the three years following the panic of 1873 the crops of Minnesota were practically eaten up by the grasshoppers, and poverty reigned among the farmers. At that time a short, stocky man with long hair, one blind eye, and the reputation of being the greatest talker in town, kept a coal and wood store in St. Paul. His name was James J. Hill. For years he had been a familiar figure, sitting in his old chair in front of his store  p167 and discoursing on current events. This man was not only an interesting talker; he was a visionary, a dreamer — and one of his dreams was to buy the St. Paul and Pacific Railroad and to transform it into a real railway line. Nearly twenty years had passed since he had drifted in, an eighteen-year‑old Scotch-Irish boy from Ontario, and had begun work in a steamship office on the levee at St. Paul. Now, in 1876, he was thirty-eight years old and a town character. And the town felt that it had his measure. He had already tried a variety of occupations, and at this time was agent for lines of steamboats on the Mississippi and the Red River. Everybody knew him and liked him, but no one took him very seriously. The idea of his controlling the St. Paul and Pacific was even amusing.

Now the most promising part of the St. Paul and Pacific when it failed in 1873 was the line from St. Paul to Breckenridge on the Red River. Hill was the Mississippi steamboat agent at one end; at the other, an old Hudson Bay trader, Norman W. Kittson, ran two little old stern-wheel steamboats from Breckenridge to Winnipeg. A large part of the freight that Hill and Kittson handled was for the Hudson's Bay Company. It came up  p168 the Mississippi, went across on the St. Paul and Pacific to Breckenridge, and then down the Red River on Kittson's steamboats until it was received at Fort Garry, Winnipeg, by Donald Alexander Smith, then commissioner for the Hudson's Bay Company.

Smith, who became afterwards Lord Strathcona and High Commissioner for Canada in England, was a tall, lean, urbane Scotchman with a soft manner and a long red beard. In 1876 he was fifty-six years old, with a life of strange, wild adventure behind him. He had gone when little more than a boy to Labrador to take charge of a station of the Hudson's Bay Company. Among the northern Indians he stayed for thirteen years. In the sixties he was practically king over all the savage territory of the company along the waters entering Hudson Bay. By the seventies he was a man of means and he had some influence in the new Dominion of Canada.

It would be a great advantage to Smith to have a good railroad from St. Paul to Winnipeg as the Red River boats were frozen up in the winter and the service on the St. Paul and Pacific, under the receiver, was impossible. So Smith listened with favor to Hill's project of getting hold of the St.  p169 Paul and Pacific and making a real railroad out of it. And whenever Smith went to Montreal he talked the matter over with his cousin George Stephen — later Lord Mount Stephen — who was the head of the Bank of Montreal. In 1877 Stephen and Richard B. Angus, the general manager of the Bank, went to Chicago on business. While there, they had two weeks' time on their hands, and tossed a penny to decide whether to run down to St. Louis or up to St. Paul. The penny sent them to St. Paul. "I am glad of that," said Stephen; "it will give us a chance to see the prairies and look over that St. Paul and Pacific road that Donald Smith is always talking about."

When they arrived in St. Paul, James J. Hill took them over the line to Breckenridge. The country had been scoured by the grasshoppers and looked like the top of an old rusty stove. But Stephen was a broad-minded man, wise enough to know that the pest of grasshoppers could not last forever. He was greatly impressed with the ultimate possibilities of the soil and, under the hypnotic influence of Hill's eloquence, became quite enthusiastic over the scheme for getting hold of the railroad; but, as it would evidently involve millions, he didn't see how it could be done.

 p170  The road had originally been financed by bonds sold largely in Holland, and to do anything at all it was necessary to get in touch with these Dutch bondholders. In 1877 Stephen went over to Amsterdam and secured an option on the bonds at thirty cents on the dollar — less than the accrued interest which was due and unpaid on them. He then came back to America, conferred with John S. Kennedy at New York, who represented both death and American bondholders, and brought Kennedy into the combination.

In the spring of 1878 the St. Paul and Pacific was taken over. People still smiled at Hill and wondered how he had induced a hard-headed bank president like Stephen to put up the money. Nobody in St. Paul believed in the future of the road. Even the syndicate's attorneys, when offered a choice between taking $25,000 in cash or $500,000 of the new road's stock for their services, preferred the cash. Had they taken the stock and held it for thirty years, they would have had, in principal and interest, some $30,000,000.

To the surprise of everybody, including Hill and his friends, the grasshoppers suddenly disappeared in the early summer of 1877 and never came back. That summer saw the biggest wheat crop that  p171 had ever been harvested in Minnesota. "Hill's Folly," as it was afterwards called, with its thirty locomotives and few hundred cars, was feverish with success. Hill worked every possible source to get extra cars and went all the way to New York to buy a lot of discarded passenger coaches from the Harlem Railroad. By the end of the season it was evident to everybody that the St. Paul and Pacific was going to have a career and that "Jim" Hill's dream was coming true.

Immediately the fortunate owners began to plan for the future. They had acquired the road at an initial cost of only $280,000 in cash. In the following year they advanced money for the completion of the unfinished section, as necessary to obtain the benefit of a generous grant of land from the State. Then, in 1879, having acquired full possession of the property, and having several millions of dollars in profits, they issued bonds for further developments. This gave them sufficient basis to enlarge their scheme greatly, and in the formation of the St. Paul, Minneapolis and Manitoba Railroad, they created $15,000,000 of stock, which was divided equitably among Hill, Stephen, Angus, Smith, Kennedy, and Kittson. This stock was all "water," but the railroad prospered so  p172 extraordinarily in the succeeding few years that by 1882 the stock was worth $140 a share. And in 1883 they issued to themselves $10,000,000 of six per cent bonds for $1,000,000 — a further division of $9,000,000, coming out of nothing but good will, earning power, and future prospects.

The decade from 1880 to 1890 witnessed a steady growth of the system formed in 1879 under the name of the St. Paul, Minneapolis and Manitoba. The 600 odd miles which it embraced when Hill and his coterie made their big stock division had grown in 1890 to 2775 miles. It then consisted of a main line reaching from St. Paul and Minneapolis across Minnesota and the northern part of North Dakota, far into Montana, with a second main line from Duluth across Minnesota to a junction with the St. Paul line in North Dakota, besides numerous branches reaching points of importance in both these States.

But the development of the Hill properties had by no means reached its limit at this time. Hill's dream had been to construct a through line across the northern tier of States and Territories to the Pacific, and this plan had been constantly in his mind while he was building up the system in Manitoba. The original line running up into Manitoba  p173 and reaching Winnipeg was all very well as a start. It had paid so well that the original group of men had become millionaires almost overnight. But Hill meant to show the public that, after all, the early success was only an incident and merely a stepping-stone to the really great thing.

Practical railroad men everywhere ridiculed the idea of a railroad running across the far northern country, climbing mountain ranges, traversing hundreds of streams and extending for great stretches through absolutely wild and uninhabited regions. Especially did they deem it absurd to attempt such an undertaking without government aid, subsidies, or grants of land, pointing to the experience of such roads as the Union Pacific, Northern Pacific, and Santa Fé. All these had received financial assistance and large land grants, and yet all had gone through long periods of financial vicissitude before they had become profitable and stable enterprises.

But Hill was more farseeing than his critics. In 1889 the name of the company was changed to the Great Northern Railway, and under this title the extension to the coast was rapidly carried forward and was opened in the panic year of 1893. When all the other transcontinental lines went into  p174 bankruptcy, Hill's road not only kept out of the courts but actually earned and paid annual dividends of five per cent on its stock. The five years from 1896 to 1901 were years of uninterrupted prosperity for the Great Northern Railroad. Each year its credit rose; each year it grew to be more of a force in the Western railway situation. In these years the control of the property had somewhere changed and a few of the original promoters had died or had withdrawn. But Hill, Lord Strathcona, Lord Mount Stephen, and John S. Kennedy of the original group, all held their large interests, and Hill in particular had added to his holdings as the years had gone by.

The secret of Hill's striking success with his Western extension was the method by which the line was constructed. Hill had a theory that it was far better to go around mountains and avoid grades than to climb them or to bore through them; it was always better to find the route which would make long hauls easy and economical. He thus built his road with the idea of keeping down the operating costs and of showing a larger margin of profit than the others. From the very start the Great Northern was noted for its low ratio of operating expenses and its comparatively long trains  p175 and heavy trainloads. It was by this method that it really made its money.

By the year 1901 the Great Northern Railway absolutely controlled its own territory. But it was still handicapped by lack of an independent entrance into Chicago, as its eastern lines terminated at Duluth and St. Paul. At the western end also, the situation was unsatisfactory. It seemed important for the Great Northern to control a line of its own into Portland, Oregon, because the Northern Pacific Railroad, which, as we have seen, had been reorganized several years before by the Morgan interests, had been rapidly extending its lines in Oregon and Washington. Hill and his associates, therefore, had been quietly buying a substantial interest in the Northern Pacific property and thus, in the course of time, had come into closer relations with the Morgan group in New York. Soon afterward, under Hill's influence, the Northern Pacific began the construction of further extensions in Oregon and reached into territory that the Harriman interests in the Union Pacific Railroad had regarded as their own. This move created much friction between the Harriman and Hill groups, and in order to forestall danger Harriman in turn  p176 began quietly accumulating an interest in the Northern Pacific property by purchases in the open market.

The story of the battle royal between the Hill and Harriman interests will be told in a subsequent chapter. It is not necessary to repeat the history of the famous corner of 1901 nor of the compromise effected by the formation of the Northern Securities Company. The final result of this contest was the complete harmonizing of the Western railroad situation, so far as the Hill and the Harriman interests were concerned. In the succeeding years the Great Northern system penetrated to the heart of Manitoba and constructed lines through British Columbia to Nelson and Vancouver. It built other branches to Spokane, Washington, and Helena and Butte, Montana. Moreover by the discovery of extensive ore deposits on the line of the company in northern Minnesota and by subsequent purchases of other mines, the Great Northern acquired control of about sixty-five thousand acres and hundreds of millions of tons of iron ore. All the properties so controlled were leased on a very profitable basis to the United States Steel Corporation. The Great Northern Railroad itself did not retain control of the ore lands but,  p177 through a trustee­ship, gave a beneficial interest in them to its stockholders in the shape of a special dividend.

The profits under this lease promised to be very large in the course of time, but the Steel Corporation had the option to cancel after a five-year period, and in 1912, as the result of a United States Government suit for the dissolution of the Steel Corporation, the lease was canceled. Since that time the trustees of the ore lands have executed other leases, and the Great Northern ore certificates are bringing in a substantial return to their owners.

The three Hill lines — the Great Northern, the Northern Pacific, and the Chicago, Burlington and Quincy — have been unusually profitable. The great Northern and the Northern Pacific have steadily paid liberal dividends to their stockholders on increasing amounts of capital stock; and the Burlington, whose whole stock is owned by these two roads, has also handed over liberal profits year by year, at the same time accumulating an earned surplus of more than one hundred million dollars and spending an almost equal amount of profits on the improvement and maintenance of the property. The Burlington today controls the Colorado  p178 Southern, which extends southward from the Burlington lines in Wyoming, passing through Denver, Pueblo, Fort Worth, and other points southward to the Gulf.

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The New York Central, Santa Fé and Great Northern Railway Systems
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Page updated: 3 Aug 16