Huntington’s answer is telling. Sixteen million dollars—albeit not all in cash—would have answered Huntington’s plea to get out of debt. But instead of jumping at the offer immediately, the fox tried to get as much cash out of the deal as possible, telling Hopkins afterward, “while I think the property worth much more, I should sell it if the pay is good, but I am fearful that he will fail in that.”
After Scott left to confer with his investors, Huntington was left to ponder a deal not made. More than a month later, Huntington was still urging Hopkins to “sell anything that we have that will bring money,” while assuring him, “I am doing all I can to close this trade with Scott for the sale of the So. P.”13
But as the year went on, Scott too began to suffer from a tightness of credit. The more time that went by, the less ability he had to consummate the Southern Pacific purchase even at his original offer. Cyrus K. Holliday and the Santa Fe interests might well have stepped into Scott’s shoes to negotiate on their own behalf, but their road was financially exhausted from the frenzy of its 1872 construction to reach the Colorado-Kansas line.
With no other suitors for the Southern Pacific, Huntington told Leland Stanford at the end of February that he had “made up my mind to get out of all active business” and encouraged Stanford to sell his own Central Pacific stock below par, if necessary—which it definitely was—and simply “retire and enjoy it.”
Meanwhile, lenders continued to hound Huntington. “I have never seen so blue a time for money here before,” he wrote in despair on March 8. “Something must be done, and that at once.” Two days later, Huntington wrote again. “You know,” he told Hopkins, “that when I have made up my mind to do a thing, dollars and cents have but little to do with it. I have got tired and am going to quit.”14
That statement—dollars and cents having little to do with it—concerned a possible sale of the Central Pacific, but it may well be read both ways. On the one hand, Huntington damned the dollars and pushed the construction, not just of his western railroads, but the Chesapeake and Ohio and other ventures in the East as well. But conversely, if he had indeed made up his mind to sell his western railroads, why had he tried to squeeze more ready cash out of Tom Scott? Even at the bottom, the builder in Huntington could not quit.
By the middle of March, it was getting too late to make a deal with anyone. Scott came to New York again, but it was to attend to his own finances and not to call on Huntington. “It looks a little as though he were playing us,” Huntington reported to Hopkins, “but his hands are very full.”
“If we do not trade with him [Scott],” Huntington bemoaned, “we must trade with someone, for we have to pay here, between this and the first of June, $1,033,903.23, a little over half of which is in gold, and this does not include what we owe F. & H. [Fisk and Hatch], which is, say, $1,700,000, all on call; and then come the bills for material, which is very considerable. So, you will see the necessity of doing something at once.”
By March 26, Huntington despaired that he had “been out today to borrow some money, and I could not get any.” Reluctantly, he acknowledged that Scott had been back in New York yet again without calling and that “he cannot do anything now.” Scott, too, was “a large borrower,” and the deal was off. But then things got worse.15
Two events shook the national economy during 1873 and rendered the tightness of credit that Huntington and Scott felt the norm throughout the country. The first was the infamous Crédit Mobilier scandal. There had been plenty of innuendo floated during the 1872 presidential campaign that numerous Republican members of Congress had accepted stock in the Union Pacific’s construction company under less than cash-on-the-barrelhead terms. Vice President Schuyler Colfax, long a proponent of a transcontinental railroad, was caught in the mess, as were two congressmen who would follow Grant to the White House: Rutherford B. Hayes and General Rosecrans’s ex-aide, James A. Garfield.
Congress did the usual and appointed a committee to investigate. While attention focused on the Union Pacific, Congress wanted to know how all railroads had used their government subsidies. In the course of the hearings, Collis P. Huntington was put on the stand and grilled about the operations of the Central Pacific’s own construction company, the Big Four–controlled Contract and Finance Company. His reception was far from friendly. “Why is it,” Huntington bristled to Hopkins as the California press added its criticisms, “that we have so many bitter enemies in California?”
Huntington was loath to open the Big Four’s books to outside eyes—what their profits were and how they applied them to their expanding empire was, in their minds, their private business. But he was also very nervous about showing the ownership of so vast a transportation network in the hands of only four men. For them, it really had been the sweetheart deal of the century.
Huntington had no choice but to appear before “these hellhounds,” as he characterized the congressional investigators. But that did not mean that he had to tell them much—“the truth, but nothing more,” as he put it.
The first to fall under the congressional inquisition was Republican congressman Oakes Ames of Massachusetts, one of the chief promoters of the Union Pacific. Ames and Congressman James Brooks, Democrat from New York, were offered up as the requisite scapegoats, Ames because he had sold Union Pacific stock to members of Congress at bargain prices and Brooks because he was one of the major purchasers. The House initially recommended their dismissal, but settled for a resolution of censure.
The Central Pacific, for which Huntington himself had done the bulk of the “stock promotion” and outright cash payments that Mark Hopkins listed on the books as “legal expenses,” was even more immune. Huntington and Hopkins produced a figure of what it had cost to build the Central Pacific. This figure was well in excess of the subsidies reported by the government and thus was offered as evidence that far from skimming the public trough, the associates had contributed considerable private capital to it.
By the time the committee put Huntington back on the stand in late July 1873 and asked to see the records of the Contract and Finance Company to corroborate his earlier testimony, Huntington was able to say with a straight face that they didn’t exist. Its work completed, the company was being dissolved, Huntington testified, and Mark Hopkins had burned the fifteen volumes of records in an effort to save space in the company’s cramped offices.16
The bottom line of the Crédit Mobilier scandal was that all railroad stocks and bonds were suspect, and it became very difficult to market them. What made their sale next to impossible was the collapse on September 18, 1873, of the banking firm of Jay Cooke and Company—the second major blow to railroads across the country.
The Cooke firm was heavily invested in railroads, but it had bet an inordinate amount of its cash on the unmarketable securities of the Northern Pacific Railroad, extending huge loans for the railroad’s construction west from Duluth, far in excess of the railroad’s ability to repay. When Cooke managers begged funds from other banks to stay liquid, their pleas were refused because Cooke had no remaining assets with which to secure them.
Feeling the credit tightening on the Santa Fe, Cyrus K. Holliday put his finger on the nub of the problem. Jay Cooke’s demise was the immediate cause of the panic, he told his wife, Mary, but “the remote cause was the widespread apprehension that if so strong a house as Jay Cooke’s should fail, how many others would be carried down with the crash!”
By the following day—one of many Black Fridays on Wall Street—news of Cooke’s insolvency triggered a domino effect of cash shortages. The ensuing panic of 1873 staggered postwar economic expansion and hit America’s railroads particularly hard. Most had used easy credit to push their expansion beyond any reasonable model of economic stability. When credit tightened or dried up, many roads found themselves unable to service their burgeoning debt.17
Among the casualties was Thomas A. Scott’s Atlantic and Pacific. Barely more than a paper railroad, the Atlantic and Pacific went in
to receivership, and Scott chose instead to save the Texas and Pacific. It was hardly knocking at the gates of Los Angeles, but it had constructed some track in Texas.
In a story related somewhat anecdotally by Grenville Dodge, Scott summoned his principal investors and asked whether they should “save the property or ourselves.” The unanimous answer was that they would “save the road and let the individuals go to the wall.” Thus, Scott and his associates assumed the Texas and Pacific’s entire debt in excess of $10 million, and the railroad remained afloat.18
For a time in the fall of 1873, it looked as if similar action by Huntington and his associates would not be enough to save their own railroads. They simply couldn’t do it; they were already mortgaged to the hilt. At the end of October, Huntington spent two days borrowing $48,150 to pay small notes that were due. No banking firm would consider the loan, so Huntington begged and borrowed from friends in amounts of about $5,000 each.
In return, Huntington pledged the only remaining collateral he had left: his personal guarantee. He made up the difference with $14,000 that belonged to Huntington-Hopkins Hardware and paid the last note with forty minutes to spare before it went to protest. “I would not go through another panic like this for all the railroads in the world,” he told Hopkins.19
Across the country, it was a similar story. Whether on Palmer’s Denver and Rio Grande or Holliday’s Atchison, Topeka and Santa Fe, construction slowed to a crawl or ground to a halt in the economic morass. But one thing was certain: No matter the dismal present, half a continent still remained to be won. The pause would be temporary. It would weed out the lightweights, and when the races renewed, the entire Southwest would be a contested empire.
Downstream from the Hanging Bridge, Denver and Rio Grande engine no. 206 pauses for the requisite photo; the locomotive with caboose suggests this may have been an excursion for photographer William Henry Jackson, who was frequently accorded special trains. (Colorado Historical Society, scan 20102192, W. H. Jackson Collection)
Part II
Contested
Empire
(1874–1889)
A railroad cannot stand still; it must either get or give business; it must make new combinations, open new territory, and secure new traffic.
—WILLIAM BARSTOW STRONG, ANNUAL REPORT OF THE ATCHISON, TOPEKA AND SANTA FE RAILROAD, 1884
8
Showdown at Yuma
Amidst the gloom of the panic of 1873, the Big Four’s treasurer announced some rather startling news. While Collis P. Huntington had been aggressively spending money, steady Mark Hopkins had been making it. Despite construction costs on many fronts and the national depression, the Central Pacific had begun to generate substantial profits.
In 1873 the Central Pacific and its branches earned gross revenues of $13.9 million and a resulting net income before bond interest of $8.3 million. After interest on the long-term bonds was paid, a handsome profit of almost $4.8 million remained. This surplus saved the Big Four, corporately as well as individually. Hopkins promptly declared the company’s first dividend of 3 percent, payable in hard currency and not speculative stocks or bonds.
Even Huntington was caught off guard by this timely payout. “The figures are large,” he confessed to Hopkins as bills, too, continued to rise, “but I have gotten used to large figures, and I have more faith that all will yet be well than I had one year ago …”1
• • •
By the summer of 1874, the Big Four and their expanding web of railroads roared out of the panic of 1873 full steam ahead. Back in Colorado, the Atchison, Topeka and Santa Fe and the Denver and Rio Grande were also stirring, and there was no time to lose. Earlier, Leland Stanford had visited the Southern Pacific railhead at Tres Pinos and pronounced the surrounding San Benito Valley sadly lacking in trade and requiring expensive construction. Because the railroad was required to lay 20 miles of track a year to maintain its land grant, Stanford recommended that the Southern Pacific simply skip over to Goshen in the more promising San Joaquin Valley and build the required miles south from there.
Goshen was the terminus of the San Joaquin Valley branch of the Central Pacific. That line cut off from the Western Pacific at Lathrop, just south of Stockton. It was a confusing mix of railroad names, but the ownership was quite simple. All were owned outright or otherwise controlled by Huntington, Stanford, Hopkins, and Crocker.
Once the panic of 1873 was weathered, the direct rail link to the Oakland waterfront provided a steady stream of men and materiel, as tracks were extended up the San Joaquin Valley at a frantic pace. (The San Joaquin River flows generally north between the Sierra Nevada and Coast Ranges, so going south is indeed up the valley.)2
The lure, however, was certainly not local traffic. There wasn’t much in the San Joaquin Valley either. Nor was the Big Four’s promise to the people of Los Angeles enough to drive them on. What led to this flurry of construction was the threat once again posed by Thomas A. Scott. Having gone “to the wall” to save the Texas and Pacific, Scott was determined to push it westward.
Scott’s original charter for the Texas and Pacific anticipated a direct route west along the 32nd parallel from El Paso to Yuma and on to San Diego. Closer inspection, however, showed that endless miles of blazing desert and rugged mountains lay between Yuma and San Diego. Scott asked Congress to approve a change in route that would avoid this terrain, skirt the depths of the Imperial Valley, and arrive in Los Angeles from the east via San Gorgonio Pass.
The problem, of course, was that this was the projected route of the Southern Pacific out of the Los Angeles Basin. When Scott met with Huntington and rather casually suggested that the Southern Pacific should join the Texas and Pacific at San Gorgonio Pass rather than the Colorado River at Yuma, as previously agreed, Huntington’s response was predictable.
If Rosecrans’s paper railroad with solely California ties had caught Huntington’s attention, Scott’s continuing bid for direct transcontinental access to the ports of Los Angeles and San Diego was a call to arms. No one knew what Pacific trade might develop in these sleepy little towns, but Huntington knew for certain that whatever the amount, it would pass through Southern California to the detriment of the San Francisco Bay waterfront that he and his associates controlled.
Huntington countered Scott with an offer to provide the Texas and Pacific access to Los Angeles and San Diego over the Southern Pacific’s rails from Yuma. Huntington made it quite clear to Scott that the Southern Pacific’s destination was Yuma and that Huntington would adamantly oppose Scott’s congressional request for any land grant change west of that point.
Characteristically, Scott stood his ground. With his own railhead still at Fort Worth, some 1,200 miles to the east, Scott replied that if this were the case, he and Huntington would be running competing lines not just between Yuma and San Gorgonio but all the way to San Francisco. That was the same thing that William Jackson Palmer had said to Judge Crocker in Scott’s behalf almost a decade earlier. Thus, the race to Yuma was on, and Huntington responded with all the resources at his command. 3
First Huntington had to make good on the Los Angeles vote—as well as collect his subsidies—and connect the Southern Pacific main line with the Los Angeles and San Pedro short line in the Los Angeles Basin. To do so required two marvels of railroad engineering.
The initial challenge was to get out of the San Joaquin Valley. Much of the construction up the valley had been across open country on gentle grades, but at its head at Caliente, the railroad was confronted with the wall of the Tehachapi Mountains. This range continued the Sierra Nevada Divide and blocked easy access between the San Joaquin Valley and the comparable flats of the Mojave Desert leading east to Needles.
The key to the divide, Tehachapi Pass, rose almost 3,000 feet above Caliente in only a few miles. William F. Hood, the Southern Pacific’s assistant chief engineer, took one look and knew that the only solution was plenty of curves and tunnels. So, upward from Caliente the line snaked along k
nobby, auburn-colored hills studded with piñons and junipers and through narrow, rocky canyons lined with scrub oaks and cottonwoods.
After more than 6 miles of track and six tunnels, Caliente was still plainly visible below, only one air mile away. Two more tunnels, 532 feet and 690 feet, respectively, were drilled by hand, blasted with dynamite, and cleared with shovels. Many of the workers were veteran Chinese laborers, some well seasoned from years of working for Charley Crocker on the Central Pacific.
Above Keene (the station there was later called Woodford), at 2,700 feet in elevation, the valley narrowed even more. Holding to a maximum grade of 2.2 percent, the roadbed crossed Tehachapi Creek and then recrossed it in the process of making a climbing semicircle loop. After a rising left curve, Hood lined up the roadbed on a short straightaway and called for tunnel no. 9. It was only 126 feet in length, but it was to be the centerpiece of what came next.
Once through the tunnel, the grade circled steadily left, ascending around a conical hill until it had made a complete 360-degree loop and passed over the track through tunnel no. 9. The design made for a hard-won elevation gain of 77 feet and set up the line for the second half of the climb to the Tehachapi summit.
Above the loop, eight more tunnels were constructed to reach the high point of the pass. It was 28 tortuous track miles from Caliente, almost 1.5 miles of which was through a total of seventeen tunnels. From the pass, construction continued down the relative ease of Cache Creek to the sagebrush flats of the town of Mojave, arriving there on August 8, 1876.
Rival Rails: The Race to Build America's Greatest Transcontinental Railroad Page 12