The Subterranean Railway

by Christian Wolmar

  How he managed to gain control of this extensive network remains something of a mystery. His modus operandi was to borrow money – on dubious security – to obtain stock and gain control of companies, offering dividend guarantees which he would then have to pay out of capital – not a sustainable practice. He would then create holding and subsidiary companies, juggling the accounts in a way that ensured no one would be able to trace precisely what was happening, and then he would issue further ‘watered down’ shares to raise more money. While similar complex arrangements are made today by big businesses in order to avoid taxes and prevent scrutiny, the difference is that Yerkes frequently strayed onto the wrong side of the law. As a business biography of Yerkes puts it, ‘his bookkeeping methods and business tactics were so complicated that a clear account of how he captured control of Chicago’s street railways can scarcely be made’.3 The Dictionary of American Biography said his rail empire had become known as the ‘Chicago Traction Tangle, a network of construction companies, operating companies and holding companies, of interlocking directorships and friendly contracts, of financial manipulation and political corruption’.

  Financial opaqueness characterized all his empire-building, and some of his deals stretch credulity. He electrified the Chicago tramways by awarding the contract to a company he had incorporated the day before, and then charged the tramway more than $10.7m for work which should have cost $3m. He also made money out of property speculation around transport developments which he was carrying out, a method he appears to have attempted to use in London.

  In Chicago, he was also helped by the depth of the corruption of government, particularly at a local level. Between the end of the Civil War and the turn of the century, the USA was expanding rapidly and government, at all levels – federal, state and municipal – had a wide variety of favours at its disposal such as franchises for bus and tram networks or utilities. These could, generally, be bought by those businesses prepared to pay the price in bribes. Yerkes took full advantage of this system and used his dubious financial methods to gain control of a large chunk of the antiquated tramways in the windy city by the mid 1880s. Borrowing money from his former partners in Philadelphia, he acquired a majority shareholding in one of the three main tramways, the North Division, and a second, West Division, followed soon after.

  It would be simplistic to suggest that Yerkes’s motivation was simply to make money, though he accumulated enough to buy a mansion on Fifth Avenue in New York and fill it with old masters including a Rembrandt and luxurious furnishings such as a gold bed reputed to have belonged to the King of the Belgians (or mad King Otto of Bavaria according to a different account). He was also motivated by a desire to create transport networks for which he would be remembered. In fact, apart from the Tube, his most lasting memorial is the Yerkes Observatory at the University of Chicago, where he seems to have been the victim of the sort of sharp practices which were his trademark. A couple of canny academics approached him, suggesting that a large endowment would salvage his poor reputation in Chicago and they managed to persuade him into stumping up half a million dollars, leaking the news to the local papers before Yerkes could reconsider the offer.4 The Chicago Times was not impressed: ‘The astronomical beneficence of Mr. Yerkes does not excuse his street railway’s shortcomings any more than the educational liberality of Mr. Rockefeller justifies the methods of the Standard Oil Company.’ At least Yerkes can be grateful that his generosity bought him a measure of immortality, as the Observatory still bears his name whereas few Tube users today have heard of him.

  Yerkes consolidated and improved the tramways, replacing horses with electric power and bringing two abandoned tunnels under the Chicago river back into use. He disguised his substantial holdings through a complex system of nominees but the local press, which was generally hostile, pilloried him as the Mr Big of the local transport system whenever complaints were made. And there were lots of them. His trams were badly lit, dirty and unventilated, and services often ran infrequently and irregularly. They were awfully overcrowded in rush hours because there was insufficient stock, but Yerkes was unrepentant. His motto was ‘It is the straphanger that pays the dividend’, and his other favourite dictum for success in the tramway business was ‘Buy up old junk, fix it up a little and unload it upon other fellows.’5

  Yerkes was both clever and ruthless, using all available methods, legal and illegal, to see off competitors and maintain a monopoly. Bribery was simply routine and on occasion he used blackmail, reportedly sending women to compromise rivals and politicians. He was, predictably, a notorious womanizer himself, with a string of mistresses. Yerkes finally overstretched himself when he tried to obtain a 100-year franchise for his street tramways, his usual bribes to the local City Council and the Illinois state legislature proving insufficient even though they amounted to $1m. The arrangement, which astonishingly provided for no payment to the City, was passed by these two bodies but the governor vetoed the deal. When Yerkes tried again, this time for fifty-year deals, local people staged demonstrations against the plan, frightening the aldermen: ‘On the night the vote was taken in December 1898, mobs with guns and sticks paraded the streets and a hempen [hangman’s] noose was lowered from the gallery of the City Hall.’6 Tammany Hall politics was coming under greater scrutiny, even if it flourished in that most corrupt of cities for another couple of generations.

  Realizing that he could progress no further in the USA with his reputation ruined, Yerkes looked to Britain for what he saw as an untapped market. He sold out his Chicago interest for a sum variously estimated at $10m or $15m, but it is unclear whether any of that was left to invest in London given his propensity for extravagant spending – he had, for example, just bought another New York mansion for his favourite mistress.

  Yerkes visited London almost annually from 1889 and realized that its transport system needed expanding as it was the largest city in the world and growing with alacrity. Just after the sale of his Chicago business in 1899, Yerkes met with two Englishmen, Thomas Reeves and H. H. Montague Smith who were in search of funding for a new underground railway, the Charing Cross, Euston and Hampstead Railway which eventually would become the Charing Cross branch of the Northern Line. The line had been given Parliamentary approval six years previously but investors had been slow to come forward. The pair offered to sell the line’s charter to Yerkes for a mere $200,000 but of course, that also entailed the obligation to fulfil various contracts which the promoters had already signed, notably with Reeves’ own engineering firm. Yerkes persuaded Reeves to scrap the contract but, although quite keen on the plan, still hesitated. He despatched a sidekick, who went by the evocative name of DeLancey Louderback, to investigate the traffic situation in London and learnt that the roads were clogged and as trams were not allowed in the central area, there seemed enormous scope to make a profit on such an enterprise.

  In July 1900, Yerkes travelled to London. It was to be a fateful trip both for him and Londoners. A few days after arriving, on August 3, he was taken in a coach and horses along the route of the proposed railway. The thronging streets around Euston, and then the panoramic view of the capital and pastoral landscape to the north from Hampstead where, tortuously, the sun was shining, seemed to have persuaded Yerkes of the scheme’s viability. It was, in truth, the sheer density of the population and the size of London which persuaded him, according to his biographer: ‘Even in a mammoth city like Chicago, the population began to thin out quite dramatically some two miles from the urban center. But that was not the case in London. [Yerkes] later confessed “he had never ridden through five miles of people before in his life”. 7

  Later that same day, Yerkes met Robert (later to become Sir Robert) Perks, the lawyer for the Charing Cross Railway. It was to be the start of a fruitful collaboration between two men who, on the face of it, could not be more different but whose names, somewhat mispronounced, made for great rhyming headlines. Perks was a devout and upright Methodist whose main claim to po
sterity is that he raised the funds for the erection of Westminster Central Hall. A supporter of the temperance movement and portrayed by opponents as ‘humourless’ and ‘long faced’, he was in fact just the right man to partner Yerkes whose ambitions went far beyond the acquisition of one embryonic railway. Indeed, Yerkes boasted to a conversation reported by the rather startled H. H. Montague Smith, ‘a little bit of cheese didn’t satisfy him, he wanted the whole meal’8. And nearly got it.

  The amoral American financier and the moralizing English lawyer hit it off straight away. Perks, an MP in Lincolnshire, knew his way round the British establishment and had all the necessary contacts. It was therefore easy for him to help Yerkes acquire the Charing Cross Railway for the agreed $200,000 at the end of September 1900. Then Perks, a major shareholder in the District Railway, helped Yerkes acquire a majority share in the line in June 1901. Acquiring two other projects, which became the Bakerloo and the Piccadilly soon followed.

  Remarkably, all three of Yeakes’ new lines were to open their initial sections in a short period between March 1906 and June 1907, and it would take another sixty-one years for another deep tube line, the Victoria, to be dug under central London. Indeed, between 1903 and 1907, if one includes the Great Northern & City and the Angel to Euston extension of the City & South London, a staggering twenty-six and a half miles of tube railways were built under London. The construction of each of these railways is a complex and intertwined story of Parliamentary bills, heroic efforts to raise capital, opaque financial deals and amazing feats of engineering and construction, most of which passed off with remarkably few mishaps.

  The first of the three lines on which construction got under way was the embryonic Bakerloo, known originally as the Baker Street & Waterloo Railway, which had obtained an Act of Parliament in 1893 to run between the two stations in its name. There had been several previous incarnations of this idea because of the inconvenient location of Waterloo, the London & South Western Railway’s London terminal which, as we saw in Chapter 7, had already stimulated the construction of London’s second deep tube line, the Waterloo & City. As far back as 1865, a scheme to connect Waterloo with Whitehall using pneumatic power, near Scotland Yard, had obtained Parliamentary sanction and even been partly built. The plan collapsed as a result of a financial crisis but would probably not have been technically feasible in any case, given the problems encountered during construction of Brunel’s Thames tunnel. Another proposal, for a half-mile-long Charing Cross & Waterloo Electric Railway, was also sanctioned by Parliament. It was to have been a cut and cover railway, with a deep tube section under the Thames and a northern terminus near Trafalgar Square, but again lack of money, together with the untimely death of its electrical engineer, Sir William (Wilhelm) Siemens, in 1883, killed off the embryonic railway shortly after the start of construction.

  The Baker Street & Waterloo was a much more ambitious scheme since it was scheduled to be three miles long with several intermediate stations including Oxford Circus and Piccadilly Circus, which would become major hubs of the tube network. The main purpose of the railway was to create a link between north and south which, given all the concentration on east–west lines, had been rather forgotten. But the promoters also sold their project on the basis that the line would allow business people in the West End to go to Lord’s Cricket Ground in time to see the last hour’s play without leaving the office early. The Bill also specified that the railway could be used for carrying mail and small parcels as well as passengers.

  As usual, the developers failed to attract the necessary capital and the scheme remained dormant for a couple of years until a supposed white knight, the London & Globe Finance Corporation, came to the rescue in November 1897. The company was owned by Whitaker Wright, yet another of the disreputable businessmen with which the story of the Underground is so peppered. And like so many of them, Wright had both US and UK connections. He was an Englishman who had made his fortune in the USA by mine prospecting and returned to Britain to live in ‘mildly eccentric affluence’.9 He had created a small empire of diverse companies which were ‘characterized by the existence on their boards of various dignitaries of whom few, if any, took part in their activities’.10 He was passionate about all things subterranean: he built a huge estate at Lea Park in Surrey which included a vast lake and, beneath it, a smoking room reached by tunnels in the form of an underground conservatory so that his guests could watch fish or swimmers disporting themselves overhead. Another tunnel led to a large room under the artificial lake where tea could be taken.11

  Whether the Globe company ever had sufficient finance to complete the line is doubtful, but it became the main contractor as well as developer, and construction started in August 1898. The rather ingenious method used was to have the main worksite as a pontoon stretching far out into the Thames, from which shafts were sunk and spoil removed straight onto barges. The digging under the river had to be undertaken with the aid of compressed air to prevent water leaking in but occasionally some would escape, creating an enormous bubble that made a huge splash when it reached the surface. One such waterspout upset a boat involved in a race and the company had to pay damages to the owner. The Greathead shield method, which had now become standard, was used to dig out the two tunnels, but the line was expanding on paper almost as fast as underground through a succession of Acts of Parliament which granted extensions to Marylebone, then to Paddington, in the north and to Elephant & Castle in the south where the line could connect with a network of tramways.

  Substantial work on the tunnels had been completed, at a cost of £650,000,12 when, after eighteen months, the Globe’s funds ran out. Wright’s little empire of intertwined companies sustained heavy losses and collapsed as a result of financial irregularities which forced several into insolvency. When the problems spilled over into the railway project Wright desperately tried to talk up the value of the shares in the Baker Street & Waterloo, and even started buying up stock in the company to create a buoyant market, but to no avail. At the end of 1900, the London & Globe was declared bankrupt and most of the work on the line ceased. Suddenly, Wright found himself being pursued both by creditors and the criminal authorities. He attempted to flee, first to Paris and then to the USA, where he was unceremoniously put on a boat back to England. He was arrested on arrival and prosecuted for publishing false balance sheets and accounts. In January 1904 he was found guilty of defrauding investors to the tune of a staggering £5m and sentenced to seven years’ imprisonment. But the case was being heard in the Royal Courts of Justice, rather than the Old Bailey, and before he was taken to prison he was allowed to meet his advisers in a private room where he dropped dead, having swallowed a cyanide capsule. A revolver, clearly a back-up method of suicide, was found on his body.

  Yerkes managed to acquire the moribund line cheaply early in 1902. He merged it with the rest of his burgeoning empire of underground railways to create the Underground Electric Railways Company of London Limited (UERL), which was to run much of London’s transport network until the creation of London Transport in 1933. The UERL gained control of the other two big tube projects: the Great Northern, Piccadilly & Brompton Railway, the central section of the future Piccadilly Line; and the Charing Cross, Euston & Hampstead Railway, which would become the Charing Cross branch of the Northern; as well as the District Line. That left only the Central, the City & South London and the Metropolitan outside UERL control and before the start of the First World War the first two of these would be incorporated into the empire created by Yerkes.

  Having bought these virtual railways – in reality little more than planning permissions for putative lines without any source of finance – Yerkes set about raising the money to build them. He was astonishingly and rather inexplicably successful. He teamed up with the international family banking firm of Speyers, which had offices on both sides of the Atlantic – London, New York and Frankfurt – and was headed, in London, by Sir Edgar Speyer who agreed to help Yerkes raise £5m for
the construction of the tube lines. The precise arrangements, which involved the same kind of complex financial engineering that Yerkes had used in the USA, were unfathomable even to Sir Harry Haward, the financial comptroller of the London County Council, which kept a close eye on transport developments in the capital.13 Shares were sold in the USA, France, Germany and the Netherlands, as well as in the UK where, in general, people were sceptical about US financial methods which were generally thought to be dubious and, on occasion, corrupt. This was, indeed, a period in which large amounts of American capital were moving into Britain in a variety of industries as there were more opportunities for profitable investment than in the USA, but as one history puts it, ‘all this rustling of commercial paper was taken rather coolly in London’.14 Nevertheless, without US investors, the Tube network would have never been built. The London Stock Exchange had simply refused to invest in the various plans for tube lines which had been drawn up over the previous decade and, as we have seen, the Central only received funding thanks to US investors and the involvement of Establishment figures able to call on sources of ‘old money’.

  There is little doubt that Yerkes and Speyer really believed that, as Yerkes put it, the enterprise of building tube lines under London ‘cannot but be profitable’.15 Speyer, indeed, claimed later that he only agreed to help raise the money after the most careful scrutiny. But he also profited personally from the deal. Two of the Speyer companies, together with Yerkes’s old bankers in Boston, the Old Colony Trust, were to receive £250,000 each on the formation of the UERL, 15 per cent of the capital raised, and a considerable burden on the future profitability of the enterprise.