Despite all the support and solidarity, defeat for the workers was inevitable. It was not a propitious time for a national strike, given the recession and the importance with which the railroads, still the country’s largest business apart from agriculture, were regarded by politicians and industrialists. Both managers and politicians quickly set their faces against the union. The General Managers’ Association, representing the railroad company, pushed the federal government into action, and the president, Grover Cleveland, appointed Richard Olney as a special federal attorney to deal with the strike. Olney had experience in this respect. He had been the chief lawyer for the Chicago, Milwaukee & St. Paul Railroad, and as attorney general he had previously tried to prevent strikes through the use of the law. Now he instructed state district attorneys to issue injunctions against strikers on the basis that they were preventing the delivery of mail, which was a federal offense. It was a legal precedent, as such injunctions had not been used before, but it was not enough to break the strike. That required calling up 12,000 troops, who, together with the local states’ national guards, proved ruthless in combating the massed strikers and ensuring the trains kept running. It was not an easy process, nor a foregone conclusion. The strikers had considerable support and in several towns received favorable coverage from the local news papers, particularly in California, where even the San Francisco Examiner, owned by William Randolph Hearst, was sympathetic to their cause. Moreover, marshals sent in by the authorities were often reluctant to act against the strikers: “All over the West, the failure of marshals either to act or to act effectively and the peacefulness of the strikers frustrated railroad attorneys who wanted much more vigorous federal intervention.”25
Ultimately, Olney won, thanks to his readiness to exploit legislation: “Olney intervened not so much to enforce federal laws, or move the mail, or protect federal property, as to demonstrate the power of the government, its right to intervene and to break the strike.”26 Altogether, thirteen railroad workers were killed in fights with the men sent in by the federal government, and many more injured during a series of confrontations. Olney, however, was not satisfied, pursuing Debs and several other strikers through the courts for breaking the injunction and interfering with the mails. Along with several other strike leaders, Debs was sent to prison for six months, despite an impassioned defense from the renowned civil liberties lawyer Clarence Darrow. Imprisonment radicalized Debs, who became a Socialist, standing five times for president on that ticket, and receiving, incidentally, an impressive 6 percent of the vote in 1912 and 1920.
Many thousands of workers who took part in the 1894 strike were black listed and effectively barred from future employment on the railroads, as their service letters were written on stationery secretly carrying a watermark showing a swan with a broken neck. George Pullman himself paid a heavy price for the conflict. From being a much-feted entrepreneur, he spent the remainder of his life being hounded by supporters of the strikes. When he died just three years later, he was buried at night in a lead-lined coffin, and several tons of concrete were poured around it to prevent his body from being exhumed and desecrated by militants.
Although these strikes all resulted in defeat for the workers, they helped change the public’s attitude toward the railroad companies. As John Stover, writing about the 1877 events, explains, “The strike was broken, but the railroad workers and much of the general public could not help recalling the huge estate of the late Commodore [Vanderbilt] and the dividends still being paid by the Baltimore & Ohio, the New York Central and the Pennsylvania.”27 Indeed, the railroads and, crucially, the major owners were becoming increasingly unpopular. Although the more conservative elements of the public generally supported the railroads against the workers, they were very much the minority. Most people’s instinct was to support the little man against the corporation. As the railroads were experiencing their unprecedented boom, they were also accumulating enemies among various groups across the nation, and this mistrust of the railroad companies would ultimately prove very damaging to their interests. Although this change in attitude toward the railroads had various causes and was gradual in its development over the second half of the nineteenth century, the impetus behind it came from the change in the structure of the railroad companies themselves, as they grew larger and more powerful. Crucially, there was also a negative shift in the public’s perception of the men who owned and controlled them, who became known as the “robber barons.” Indeed, these characters, such as Vanderbilt, Daniel Drew, and Jay Gould, have been lurking in the shadows of the past couple of chapters in much the same way as they did in the boardrooms of the rail companies, but their role in changing public attitudes toward the railroads cannot be overestimated.
In the 1880s, the railroads were at the height of their pomp: tracks now spanned the full width of the United States and were generating more wealth and prosperity than ever before. As the railroads proliferated, their gradual consolidation eventually led to the creation of local monopolies. This process was already under way by the 1850s and gathered pace after the Civil War. For a generation or so from the late 1860s, railroad companies were the biggest corporations in the United States and indeed the world. However, the growing unpopularity of the railroads did not just spring from their monopoly position or their vast size, though they would have struggled to retain public support even if they had been entirely straight and honest in their dealings—and clearly they were not. Their underhanded methods were personified by the more famous of their leaders, the barons whose activity attracted widespread coverage in the press and stimulated the interest of the rather unfairly termed “muckrakers,” the journalists who investigated them. The barons attracted opprobrium for various aspects of their behavior, often but not always justified: speculation, purloining state funds, corrupt management, stock manipulation, exploiting monopolies, and, above all, taking advantage of the little man. Thus, during what was in many ways the “golden age” of the American railroads—a time of expanding and improving services—the attention of the American public was focused on what one commentator called the “rail rogues.”
The first of the barons to attract public attention was Daniel Drew, who was the leading power on the board of directors of the Erie, a railroad that always seemed to be one step away from financial collapse. It was built, as we have seen, to a high standard but with great difficulty, and the resulting huge legacy of debt led to the collapse of the original company in 1859, two years after Drew had joined, when it became unable to service the loans. It was then reorganized with Drew as company treasurer, becoming profitable, and he realized that there was a fortune to be made through manipulation of its share price. Drew had once been a cattle drover, taking stock to the New York market, and he learned an old trick to boost the price of the animals—making them drink a lot of water just before they were weighed. This was the origin of the term stock watering, and in company parlance it means artificially inflating the “price” of shares beyond the value of the assets they represent. It was the way that Drew now used his privileged position inside the company to good effect, a scam that would be taken up by numerous other railroad directors. As ever, the company was short of money, and in 1866, as he had done several times before, Drew, as treasurer, agreed to make a loan. As security against the huge sum of $3.5 million that he provided, Drew accepted new stock—which obviously diluted the holdings of existing shareholders—and bonds that could also be converted into stock. Then came the clever bit. The stock market was buoyant, and the price of Erie shares was rising. Drew started selling tranches of stock and then, suddenly, just as the price started to fall from its peak, he converted his bonds and flooded the market with the new shares before the market makers could react. From that one coup, he made around $3 million, which the lax rules of the day on share trading allowed him to get away with. It was entirely legal, but hardly principled.
Oddly, Drew, who came from a humble background and had difficulty reading, was a de
eply religious man and came across to those who met him as rather downbeat and pessimistic: “Shrewd and unscrupulous, he cultivated an appearance of sombre piety, looking, despite his stove-pipe hat, like a Puritan elder oppressed by the thought of Original Sin.”28 He endowed a theological college, but had no compunction making a fortune in the underhanded way that today would be called “insider trading.”
It was Drew’s rivalry with Vanderbilt that attracted the most attention, in particular their battle over the Erie. Drew was a natural “bear” in his stock dealings, always assuming that prices would fall, whereas Vanderbilt was the opposite, a “bull” who would seek to buy to make a profit. Oddly, both Vanderbilt and Drew had originally made money out of owning steam boats, but, for both, railroads would eventually prove far more lucrative. Cornelius Vanderbilt, known as the Commodore because of his shipping interests, came from a background as humble as Drew’s but had a rather grander vision, seeking to make huge sums out of the railroads by ensuring they gained a dominant position. Vanderbilt had made a fortune from his steamboat interests, notably owning the Staten Island ferry in New York, and later oceangoing ships, taking emigrants heading for California down to Panama.29
He had a long-standing dislike of railroads, which might have had its roots in the injury he received in the wreck on the Camden & Amboy in 1833 (mentioned in Chapter 3), but as the rail network expanded, it was clear that there was far more money to be made on the tracks than on the water. In the 1850s, he started moving his money from shipping to the railroads and joined the board of several railroad companies in which he had invested. It was not, though, in his makeup to be simply a dormant minority shareholder, and he soon sought to gain control of numerous railroads. His first targets were two minor railroads operating from New York, the New York & Harlem Railroad and the Hudson River Railroad. He bought substantial holdings in these railroads and soon gained total control of them, thanks to stock manipulation that enabled him to buy out the other shareholders on the cheap. He had his eye on bigger fish, however, as owning these minor railroads gave him the opportunity to gain control of the far bigger Central. Running from Buffalo in upstate New York, the Central did not have a terminus in New York, and its passengers had to endure the inconvenience of transferring onto ferries to get across the Hudson to Manhattan. However, in the winter, when the river was frozen, they used the New York & Harlem Railroad instead. The seasonal nature of this traffic did not please the Commodore, and in January 1867 he suddenly refused the Central access to his lines, essentially blocking off its route to New York. As a consequence, the share price of the Central plummeted, and Vanderbilt began buying its stock on the cheap. He quickly accumulated a large holding, and by the end of that year he was being asked by the leading shareholders of the Central to become president of the line, despite his role in the company’s troubles. There was an almost comic scene when, later, Vanderbilt was asked to justify his refusal to allow the Central onto his tracks to a New York City legislative committee hearing, and he claimed that he was playing whist at the time the trains were canceled. “I never allow anything to interfere with me when I am playing that game,” remarked the unflappable Vanderbilt.30
The Central was a cash cow, as New York was booming and it was the line of preference for both freight and people heading upstate. However, the Commodore liked monopolies and hated competition, and to establish total dominance over New York’s railroad system, he needed to take over the Erie. That ambition was to trigger the Erie War,31 the most infamous company battle in nineteenth-century US corporate history. Drew had been relatively inactive during the Civil War, but still indulged in a bizarre form of manipulation, buying stock just before the annual election of directors, and then selling it when his power was confirmed at the meeting with the help of his voting rights. However, his position came under threat when Vanderbilt, flush with money, accumulated enough Erie stock in 1867 to obtain a seat on the board. Vanderbilt and Drew had history. They had clashed numerous times over their respective steamship interests, and Vanderbilt had invariably gotten the better of the less talented, and, indeed, less combative, Drew. Not this time, however. Drew managed to ally himself with two men, Jay Gould and Jim Fisk, who were even better versed in the dark arts of stock manipulation and corrupt business practices than Drew himself and who had also started buying up shares in the company.
At the beginning of 1868, Vanderbilt increased the rate of his stock purchases but found that there seemed—mysteriously—to be ever more shares available. The reason for this was simple. The trio of Gould, Fisk, and Drew were printing large numbers of share certificates without authorization from the board. They did this through a complicated legal loophole that allowed them to issue stock on the basis of any other railroad they leased. They had gained control of an obscure and useless railroad company called the Buffalo, Bradford & Pittsburgh—which never reached either Buffalo or Pittsburgh, as it was just thirty miles long—in order to issue $2 million worth of stock. Vanderbilt eventually realized that he was being “hornswoggled,” as he put it, and resorted to the law, seeking arrest warrants for the three for cheating him out of his money.
Nothing is straightforward in this story, and that includes the judges who presided over the case. Since they were elected to their posts, these judges could easily be bought. Therefore, it was not difficult for Vanderbilt to find a judge to do his bidding, one George C. Barnard, who was prepared to fire injunctions “like bolts of lightning.”32 After further maneuvering by Drew, Fisk, and Gould, he issued arrest warrants for them, forcing them to flee outside his jurisdiction across the Hudson River to New Jersey, where they holed up in the Taylor Hotel in Jersey City with a large swath of the company’s files and a few million dollars of its cash and were protected by hired hands wielding everything from shotguns to knuckles. To counter Vanderbilt’s legal maneuvers, the trio began to obtain their own injunctions from friendly judges, and even reincorporated the company in New Jersey. With writs flying, and the action moving for a time to Albany, the seat of the New York State legislature, the three managed to hold off Vanderbilt with the help of politicians bought off with company cash. Even though at one point Gould was arrested for contempt of court, the three triumphed, fleecing Vanderbilt of $7 million, much of which was returned to him when peace eventually broke out between the warring parties. Vanderbilt had suddenly caved in, failing to oppose a bill in the state assembly that had effectively handed victory to the Drew-Gould faction. This suggests that a deal had been struck, as Drew, who oddly rather disliked confrontation, did not relish continuing the fight. Drew had been something of a reluctant coconspirator anyway. He resented being stuck in New Jersey and restricted to visiting his family in New York across the Hudson on Sundays, when arrest warrants did not apply.
Indeed, it was Drew who would be the ultimate loser. He was quickly discarded by the far more ruthless pair of Gould and Fisk, who, with yet more manipulation of the stock price, managed to cost him $1.5 million and consequently his seat on the board. The importance of this battle over the Erie was not so much the convoluted facts themselves, which were covered in great detail by the press of the day, but rather the impression that it created in the public mind. Together with the Crédit Mobilier scandal, which unfolded a few years later, the Erie War tarnished the image of the railroads.
Gould and Fisk, who quickly became president and vice president of the Erie, respectively, were not obvious bedfellows, given their contrasting personalities. Gould was, like Drew, a churchgoing man and cut a rather lonely and enigmatic figure. Of the railroad barons, Gould was probably the cleverest, but also the least principled, despite his strong Christianity, and was accused of causing several suicides as the result of his harsh behavior in business dealings. He was a retiring character who liked money but was also rather dissatisfied by its mere acquisition, and therefore his ultimate motives are very difficult to discern. Fisk, on the other hand, was a bon viveur, as witnessed by his growing corpulence, testimony to an
overfondness for good food, and scandalized New York with his all too public sexual adventures. His notoriety in New York society surprisingly made him quite popular with the Erie’s staff: “Many railroad employees regarded him as a heroic figure, probably little realizing that his only contribution was in draining the railroad’s coffers and picking the workers’ pockets.”33
The Great Railroad Revolution Page 32