The Railroad Penetrates The Pacific Northwest
By John Moody in 1919
To truly grasp the monumental shift that occurred in the vast Northwestern territory beyond the Mississippi and Missouri Rivers in the latter half of the 19th century, one must immerse themselves in accounts like Francis Parkman’s "The Oregon Trail." This enthralling narrative details the adventures of Parkman and his companions as they traversed the plains of Nebraska and navigated the mountain ranges of Wyoming, Montana, and Oregon during a summer expedition. The pages recount thrilling encounters with Native Americans, the pursuit of buffalo and other wildlife inhabiting the far West, and the arduous weeks spent crossing desolate deserts, where solitude reigned supreme. Ultimately, after enduring months of hardship, they arrived in the expansive Oregon country, a region teeming with natural resources, blessed with a favorable climate, and destined to become known as the Empire of the Northwest.
The vision of connecting this burgeoning region to the East spurred the United States Congress to action. In 1864, amidst the turmoil of the Civil War’s final throes, they chartered the Northern Pacific Railroad Company. This pivotal act aimed to penetrate and integrate this previously remote and largely untapped territory into the nation’s economic and social fabric. Simultaneously, surveyors charted the course for the Union Pacific route, with ground breaking commencing in December 1863 to link Omaha with the bustling port city of San Francisco.
Similar to the Union Pacific’s charter, the Northern Pacific Railroad’s charter included a significant land grant. From a contemporary perspective, these land grants may seem extraordinarily generous. However, it is crucial to consider the historical context. The development of the Western territories was still in its infancy, and the perceived value of granting millions of acres of public land to incentivize a risky railroad venture was significantly less than, say, granting exclusive rights to vast territories in South American republics to modern-day capitalists. Even the prospect of acquiring a virtual empire of fertile lands and dense forests often failed to entice investment in the untamed wilderness. This underscores the adage that capital is inherently risk-averse and shies away from pioneering endeavors. In 1864, the extensive land grants offered by Congress may not have appeared particularly alluring to those with capital to deploy.
Regardless of public sentiment, the Act of Congress on July 2, 1864, established the Northern Pacific Railroad and granted the company the authority to construct a line from a point on Lake Superior, either in Minnesota or Wisconsin, westward, north of the 45th parallel, to or near Portland, Oregon. The land grant stipulated that the company would receive forty alternate sections of public land for each mile of track laid within the Territories and twenty alternate sections within the States the railroad traversed.
The perilous nature of this undertaking becomes evident when one considers that no railroad had yet breached the formidable Rocky Mountains. The entire United States railroad system comprised less than 40,000 miles, with minimal mileage west of the Mississippi River. Less than a generation had passed since Parkman’s four-month trek from St. Louis to the mouth of the Columbia River. Between the established settlements along the Pacific coast and the region surrounding Chicago and St. Louis lay nearly a third of the continent – largely uninhabited, undeveloped, and unexplored. The ambitious project languished for several years until, in 1869, Jay Cooke and Company, a prominent Philadelphia firm, agreed to raise the necessary capital.
The subsequent years of the Northern Pacific’s history are inextricably linked to Jay Cooke, a prominent figure in the financial world of his time. Cooke possessed a commanding presence, boundless energy, remarkable resourcefulness, and a devoted following. His reputation stemmed from his successful financing of United States government loans during the Civil War. He embarked on raising over $100 million to realize the Northern Pacific enterprise. For a time, he achieved remarkable success, overseeing the construction of over 500 miles of the mainline towards the Pacific coast within three years.
However, the outbreak of the Franco-Prussian War and the resulting financial constraints abroad, coupled with the challenges of marketing bonds for an incomplete project and the lackluster performance of the completed sections, brought matters to a head. In September 1873, Jay Cooke and Company were forced to close their doors. The railroad‘s financial affairs were so intertwined with the banking firm that, despite strenuous efforts to salvage the railroad, its revenues proved insufficient. Consequently, in April 1874, General Lewis Cass was appointed as receiver.
The unfinished property continued to operate under court protection for several years, but a reorganization plan did not materialize until 1879. During the receivership, only limited additional mileage was added. The system did not penetrate the mountains and reach the Pacific coast until many years later. Following the new company’s acquisition in 1879, aggressive construction resumed, and for a while, it appeared that the project would soon be completed. However, by 1882, the company still needed to construct approximately 1,000 miles to complete its main line. Financial difficulties resurfaced, and the situation was only salvaged through the assistance of a syndicate and the Oregon and Transcontinental Company.
The formation of the Oregon and Transcontinental Company marked the beginning of Henry Villard’s era, a figure who dominated Northern Pacific affairs for years to come. Villard, who had long been involved in Western railroad ventures and gained prominence through his involvement with the Kansas and Pacific Railway, had previously established the Oregon Railway and Navigation Company, a combination of steamboat lines operating on the Willamette and Columbia Rivers in Oregon, along with an ocean line connecting Portland and San Francisco. A connecting railroad line, built to Walla Walla in southeastern Washington, extended into a portion of the territory planned for the Northern Pacific.
In 1880, an agreement was forged between the two companies, stipulating that the Oregon Railway and Navigation Company would construct a line eastward to meet the Northern Pacific line at the mouth of the Snake River, thereby sharing in the traffic. This arrangement would enable the Northern Pacific to operate its trains into Portland, eliminating the need to construct its own line to the city.
Despite this agreement, Villard harbored concerns that the Northern Pacific Company might ultimately decide to build its own line to Portland once it secured sufficient financing. To preempt this, he formed the Oregon and Transcontinental Company. This holding corporation swiftly acquired a controlling interest in the Northern Pacific Railroad through open market purchases and private acquisitions. Concurrently, Villard placed control of the Oregon Railroad and Navigation Company under the authority of the newly formed Transcontinental Company.
Villard thus gained control of the entire Northern Pacific system and, backed by the Deutsche Bank of Berlin and other German and Dutch investors, initiated an aggressive expansion and development strategy. The system’s business grew rapidly. The main line to the Pacific coast was now operational, and the entire system encompassed approximately 2,300 miles of track. However, Villard’s financial policies proved unsound, and he authorized dividends without justification. Consequently, the company soon found itself in financial straits.
As a result of financial losses in 1884, Villard was compelled to relinquish active control of the properties. However, in 1887, he regained control of the Northern Pacific with German capital. He successfully negotiated a lease of the Oregon Short Line, developed by the Union Pacific interests, which included a cross-country route from its main lines in Wyoming northward into Oregon and Washington. Simultaneously, the Transcontinental Company’s interest in the Oregon Railway and Navigation Company was linked to the Oregon Short Line Company. Nevertheless, these transactions left the Transcontinental Company in control of the situation, as it retained its majority ownership of Northern Pacific Railroad stock.
For the next few years, the Northern Pacific did not pursue a policy of rapid expansion. While other major lines, such as the Union Pacific, Rock Island, Santa Fe, Burlington, and North Western, expanded to keep pace with the rapid settlement of the West, the Northern Pacific remained content with its position as a single-track transcontinental route with few branches. Its sole significant acquisition was the Wisconsin Central Railroad, which provided the company with a line between St. Paul and Chicago and a valuable entrance into the latter city. It was anticipated that this addition would permanently secure the company’s financial stability. However, the overly generous policy of distributing virtually all surplus funds as dividends persisted, despite substantial increases in fixed charges.
In early 1892, rumors began circulating that the Northern Pacific’s financial position was not as secure as previously believed. Stockholders grew alarmed, and a committee formed to investigate the situation uncovered a dire state of affairs. As a consequence of the severe criticism leveled at Villard’s policies, steps were taken to remove him from control, but without success until June 1893. Two months later, receivers were appointed, who discovered that the company was insolvent and lacked the funds to meet its immediate obligations. Receivers were also appointed for most of the branch lines, including the Wisconsin Central system. Although leased to the Northern Pacific, the Oregon Short Line was tied to the Union Pacific through guarantees and was affected by the general collapse, but was later reorganized separately.
Effectively rehabilitating the Northern Pacific Railroad presented a formidable challenge. Its debt was immense, its roadbed and rolling stock had been neglected, and the recent financial crisis had severed its valuable feeders on the east and west – the Wisconsin Central and the Oregon properties – from its control. Furthermore, serious competition loomed on the horizon. James J. Hill had been quietly developing the Great Northern Railway for many years. He had financed this vast system conservatively, extended it through territories with low construction costs, and secured control of branches and feeders that might have fallen under the Northern Pacific’s control had that company been more prudent. Hill had consistently operated his railroad at a low cost, maintained its strong credit rating, and reported substantial profits and dividends even during periods of financial downturn. With such a formidable competitor, the Northern Pacific’s future appeared bleak.
Finally, in May 1895, Edward D. Adams, representing New York and Deutsche Bank of Berlin interests, proposed a plan for a practical merger with the Great Northern Railroad Company. Under this proposal, the existing stockholders and bondholders would make all the sacrifices and provide all the new capital, while the Great Northern would receive half of the new company’s stock in exchange for guaranteeing the new Northern Pacific bonds.
The situation mirrored that in New York State in 1868 when Commodore Vanderbilt acquired the Harlem and Hudson River railroads and forced the New York Central lines to accept his terms, establishing his reputation as a railroad magnate. James J. Hill had become a modern-day wizard, and the Northern Pacific’s only hope seemed to be to surrender the railroad to him and request him to replicate his success with the Great Northern – transforming it into a "gold mine."
However, this plan faced significant opposition and was ultimately abandoned. During the following year, a new plan, backed by both American and German interests, secured the strong cooperation and endorsement of J.P. Morgan and Company. This marked Morgan’s initial foray into Western railroad reorganization. In previous years, he had solidified his reputation as a reorganizer of Eastern railroad properties, successfully reorganizing or rehabilitating the Erie, the Reading, the Baltimore and Ohio, the Southern, and the Hocking Valley systems. However, he had avoided the far Western field. He had declined to reorganize the Union Pacific due to its sparsely populated territory and uncertain future, compounded by the United States Government’s partial control, which complicated any reorganization efforts.
The new plan for the Northern Pacific was implemented without regard for Hill’s interests. The old stockholders were heavily assessed, and all bondholders were forced to make concessions. The Wisconsin Central lines were completely divested and reorganized separately, while the Oregon lines were separated from the Northern Pacific and returned to the control of the new Union Pacific.
While the reorganized Northern Pacific, in 1898, came directly under Morgan’s control and was immediately considered a Morgan property, it did not remain exclusively so for long. Hill had previously maintained an independent position regarding banking alliances in promoting and developing the Great Northern system. However, he began to forge closer ties with the Morgans and acquired a substantial interest in the First National Bank of New York. This institution had long been associated with Morgan’s interests. Subsequently, the banking firm of J.P. Morgan and Company served as financial agents for the Great Northern on multiple occasions.
Shortly after the Northern Pacific’s reorganization, it became known that Hill had acquired a significant interest in the property. Over time, this interest grew substantially. Within a year or two, the Northern Pacific began to be classified as one of the Hill lines. The company embarked on a new chapter with substantial Hill representation on the board of directors and a managerial policy guided by Hill.
The most dramatic event in the modern Northern Pacific’s history was the infamous corner that occurred in the spring of 1901, stemming from a contest between the Hill and Harriman interests for control of the property. This event sent the price of Northern Pacific stock soaring to $1,000 a share and triggered a stock-market panic. The competition culminated in the formation of the Northern Securities Company, a corporation with $400 million in capital, designed as a holding company under the joint control of the Hill and Harriman interests to retain most Northern Pacific and Great Northern stocks.
The Hill interests, in conjunction with Morgan’s control of the Northern Pacific, had been quietly accumulating stock in the Chicago, Burlington, and Quincy Railroad. Harriman perceived this move as a serious threat to the Union Pacific, as the Burlington had already penetrated Union Pacific territory and might construct its own line parallel to the Union Pacific. Harriman began purchasing Northern Pacific stock on the open market, and combined with the efforts of the Hill and Morgan interests to maintain and strengthen their control, this precipitated the corner.
The Northern Securities Company aimed to harmonize all interests and maintain joint control of the Burlington property in the hands of Harriman and Hill. However, due to a lawsuit under the Sherman Antitrust Act, the combination was declared illegal, and the company was dissolved in 1904. Ultimately, the Northern Pacific, sharing joint control of the Burlington lines with the Great Northern, remained indisputably in the hands of the Hill-Morgan group. These three vast railroad systems, the Northern Pacific, the Great Northern, and the Chicago, Burlington, and Quincy, encompassing nearly 20,000 miles of track, have since been known as the Hill lines.
Since the tumultuous days of the Harriman-Hill contest, the history of the Northern Pacific system has reflected the population and economic growth of the great Northwest. The states it served have grown rapidly, with small cities evolving into major manufacturing and trade centers, and numerous smaller towns emerging. Natural resources of immense value have been developed. The Northern Pacific has experienced growth in earnings and profits, and its stock has become recognized as a high-quality investment. Despite new competition in both local and through traffic – notably from the St. Paul system’s extension through Northern Pacific territory to the Puget Sound region – James J. Hill’s superior modern business management, supported by the Morgan banking interests, has solidified the Northern Pacific’s position as one of America’s premier railroad systems.