HE
2,763
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relations
OF THF
Pacific R. R. Companies
TO THF
u. s. government.
V ' ,
relations
OF THE
PACIFIC R. R. COMPANIES
TO THE
U. S. Government
GROWING OUT OF BONDS ADVANCED IN AID OF
CONSTRUCTION.
Hon. James B. Reilly,
Chairman Committee on Pacific Railroads, House of
Représentatives, Washington, D. C.
Dear Sir :
I beg to submit herewith my views regarding the relations of the
Pacific Railroad Companies to the United States Government growr-
ing out of bonds advanced in aid of construction.
From the time when President Jefferson dispatched an expedi¬
tion overland, under Captains Lewis and Clark, to examine and
report upon the Northwest Territory, newly acquired by treaty, in
the early part of the century, down to the acquisition of California,
as a result of the war with Mexico, the only communication with the
Pacific was by voyage around Cape Horn. The commercial inter¬
course between the two sides of the continent was confined to the
exchange of a few furs and peltries by an occasional trading or whal¬
ing ship. The intervening territory between the advance outposts
of European settlement, on the East, and the fur traders and cattle
herding Missions of the West was known to consist for the most
case
see lb ill
nov 301915
2
part of desert plains and still more sterile mountain ranges, the more
fertile portions of which were occupied by warlike Indians, jealous
of the intrusion of the white man upon their domain, over which
then roamed vast herds of bison which served them for subsistence.
The transit across this belt of formidable country was limited to
an occasional armed exploring or emigrant party to the Oregon
Territory. Not until the discovery of gold in California was the
overland journey deemed practicable for purposes of migration, and
was then accompanied with grave perils from the elements as well
as the wild and treacherous Indians. The shorter route by sea
voyage and portage across the Isthmus was the reliance for the car¬
riage of passengers, mails and some light merchandise, all heavy
goods taking the Cape Horn route, a distance of seventeen thousand
miles.
Growth of the Pacific Railroad Project.
The moving of heavy burdens which theretofore had been prac¬
ticable only by the power of gravity, the wind, or the muscular force
of tamed animals, had in the meantime been undergoing a revolution
by the successful application of the steam engine to hauling loads
upon an improved roadway and vehicles adapted thereto. As might
be expected there were imaginative minds who speculatively began
to predict the wonders this new agent might perform. During this
period of the infancy of the railway, before it had established its
value for long distance transportation, and while the Erie Canal was
regarded as the culmination of our modern public improvements, Mr.
Asa Whitney, a merchant of New York, began the agitation for the
construction of a railway across the country from Lake Michigan to
the then Pacific possessions. The project was laid before Congress
with an appeal for national aid. In 1848—this was when the Cali¬
fornia gold fever had set in—a Committee of Congress, after con¬
sidering the subject, reported adversely, and reflected the average
sentiment of the country in characterizing it as eminently visionary,
impracticable and undeserving. In later years even, Col. Benton,
one of its advocates, and as he fondly hoped, one of its founders,
formally proposed a railway " where practicable," the gaps to be
supplied by animal power, after the South American method.
It was not until Congress had authorized a series of surveys to
be made between the western military frontier and the Pacific, that
the idea of a continuous railway took hold of the popular atten¬
tion. These reports made to Jefferson Davis, as Secretary of
War, constituted the sum of reliable information on the topic,
and these dealt with it merely from the engineering stand-
3
point, and as to its utility from a military, rather than from a
commercial, or economic, point of view. Senator Douglass
did much to popularize tlie road by Iiis earnest advocacy. The
opening of a line of mail riders, or "Pony Express," as it
was styled, was called into existence soon after, by the desire to an¬
ticipate the intelligence bj' steamships plying to the Isthmus ; then
came the Overland Telegraph line as an adjunct ; and finally, the
Overland Stage Coach, all distant steps in the evolution of the ulti¬
mate railway. For conveying the letter mails by these irregular
means, the Government paid from $300,000 to $1,750,000 per annum.
In addition to the troubles from hostile Indians, the Mormons had
made a lodgment about half way across the Continent, and it was
found necessary to establish military posts all along the route. To
supply these soldiers provisions, forage and ammunition were taken
in ox-teams, under escorts, at rates varying from twenty cents to
$2.00 per 100 pounds per mile.
Besides, the Government was the insurer of its own propert3T,
and was liable for the wagons and animals captured or destroyed ;
and though the payments on this ground are not segregable, they
are known to have been enormous. Neither agriculture, mining,
nor other peaceful industry, except trapping and hunting, could be
safely carried on (the product of which could be sent to the outer
world), from all that expanse of country situated between the 100th
meridan of longitude and Sierra Nevada Mountains, an area of
1,800 miles in length by one thousand miles in breadth, or nearly
one-half of the entire national landed domain.
Things were in this condition in 1861, when the outbreak of
civil war threatened a disruption of the political ties under which
the country had so long prospered. Conventions of both political
parties had meanwhile incorporated the Pacific Railroad into their
respective declarations of policy, and it was as nearly an unanimous
national demand as such measures ever become. In 1861 a bill had
been offered authorizing the construction of a railroad by a corpora¬
tion proposed to be formed by citizens of Vermont. It failed to se¬
cure the confidence of either House, and nothing came of it. The
Act of July, 1862, may therefore be regarded as the initiation of the
national support of the road to the Pacific, though, as it afterwards
proved, it was insufficient of itself, and but little was accomplished
under it.
The Beginning of the "Work.
Having formed one of a small group of associates who did ac¬
complish all that was done under it—nearly all of whom have
4
passed away, and the others of whom will unite in this expression—
and who embarked the first money, and built the first, most difficult
and costly portions of the Pacific Bail road, I may be permitted to
refer to its origin and subsequent history, as bearing upon the pend¬
ing controversy in relation to the debt.
As early as 1860, while the political crisis was impending which
led to such a momentous contest, I solicited some of my neighbors
of means, integrity and perseverance, to join with me in organizing
a company to build a road eastward across the Sierra Nevada
Mountains, and as much further as we could, to meet some company
that might be organized at the East to push a line westward, hoping
that the government would do something to aid in the great work.
In June, 1861, a State charter was obtained and reconnaissances
and instrumental surveys were begun under it. By January, 1863,
grading had been begun, in a modest way, corresponding to the re¬
sources of the stockholders. All supplies and machinery, however,
liad to be ordered more than twelve months beforehand, as it had to
be first manufactured, then shipped around Gape Horn to San Fran¬
cisco, a distance of 17,000 miles ; when freight rates were exceed¬
ingly heavy and insurance high. From San Francisco it had to be
reshipped in small sailing vessels to Sacramento, and thence it was
transported by cars, some of it nearly half way back across the
continent. The work to be encountered was of the most forbidding
character, involving the crossing of a wide river, liable to be sud¬
denly swollen by the descent of melting snows from the steep
mountain slopes ; and an ascent of over 7,000 feet to be overcome in
the first hundred miles from tide water. The Act of 1862 served,
however, only to show that so stupendous a task could not be suc¬
cessfully carried out unjiler its provisions, in the then critical state
of the national finances.
The disturbed condition of the country, the drift of the cur¬
rency away from a specie basis, and the greatly enhanced price
of labor and commodities, demonstrated that the so-called " sub¬
sidy " bonds, at their declining values would not half suffice to com¬
plete the road, even if they were donated ; while as a loan to be re¬
paid with interest, it was equivalent to borrowing at rates varying
from seven to twelve per cent, per annum.
How the "Munificent Aid" was Regarded.
It is customary with writers and speakers of limited knowledge of
the subject to refer to this transaction as a munificent and lavish
grant of lands and bonds by the government. To persons who never
5
built a railroad, 110 doubt the mention of these millions of acres
and millions of bonds sounds something like magnificent bounty.
To those, on the otber hand, who have experienced the difficulty
of hunting up and borrowing money to meet weekly or monthly
pay-rolls or supply-bills, they have a different significance.
No great work of engineering, any more than the mustering
and marching of an army, can be carried on without a large
margin of casualty, loss and waste. The building of the
Pacific Railroad at a time of more or less lawlessness, through
a wilderness affording neither food nor shelter for man or
beast, neither water nor fuel for engines, for the most part at
elevations from 4,000 to over 8,000 feet above sea level, where frosts
were liable at any season, was naturally an extreme illustration.
Cross-ties, which cost fifty cents each in the forests of Michigan,
after being hauled 1,500 miles at a further expense of $2 or more to
the summit of the Rocky Mountains, were burned in piles, to keep
the laborers and their armed escort from freezing. Snow galleries
erected on the Central Pacific in the Sierras for many miles, cost
from $25,000 to $150,000 per mile. As they were built to divert
the avalanches of snow which might otherwise have thrown trains
down the mountain sides as winds play with the leaves in autumn,
the material had to be heavy and the framework very strong, which
made many miles of the structure cost as much as the latter-named
sum ; and through all these years we have kept engines stationed at
the summit constantly fired up, with water cars attached, ready to
move at a moment's notice, Avhenever the telegraphic messages
from the track-walkers (all the time on duty in the sheds) made
it necessary to hasten to the fires that were frequently occuring.
Other instances might be enumerated of the fearfully costly nature
of the pioneer line. All this enormous expenditure now constitutes
a debt to be repaid, to be somehow repaid out of the tolls
levied on the passengers and freight carried over the road, and from
but a small fraction, too, of the whole transcontinental business.
No one familiar with the topography, except ourselves, expected
anything else than a failure ; and further applications for relief, oí¬
an ultimate transfer of the work to the governto be finished by
public officers, out of the public treasury, was JHffited in and out
of Congress. We were warned by our creditors of the danger of
such an outcome ; and, strange as it may now sound, more than
once the credit of the Central Pacific Railroad Company ivas saved
and protected by that of the individual directors ; and one of the
first issues of its bonds was negotiated with the written guaranty of
interest for a period of ten years by them and the firm of Huntington
& Hopkins.
6
No Alacrity to Invest at either End.
It is il part of familiar history that, great and valuable as the
franchises and aid of the Pacific Railroads are now regarded, it was
with extreme difficulty that, from among the wealthy incorporators
of the Union Pacific Company, and from others, subscriptions to the
stock to the amount of $100,000 could be obtained ; and even after
its organization, for two years the whole enterprise, with its land
grant and promises of subsidy bonds, was hawked about Wall
street, and could have been had outright for a trifling sum. The
writer of this spent much time amongst the capitalists of California
in endeavoring to persuade them to join in the enterprise; and also
in the cities of the East. He saw manv of the strongest financial
v O
men of New York and Boston and made persistent efforts to get
such men as Moses Taylor, William E. Dodge, Commodore Garrison
and Eugene Kelly, and very many others, to join him in the build¬
ing of the Central Pacific, but their replies all came to the same
result, aud they used these words : " Huntington, the risk is too
great and the profits, if any, are too remote. We cannot join you.''
Although then construed as a solemn contract with the United
States, one to be observed as faithfully by the one party as the
other, it was not tempting, Capitalists were shy of the undertaking
on its own merits. There was then no talk of invoking the sovereign
power to annul or impair contract rights, no interpretation such as
Congress has since sought to put upon the law : that its terms might
be varied, to the injury of the railroad company, without its consent.
Had such a doctrine been seriously raised then, or indeed at any
time during the construction, it would have been fatal to the project-
The California End promptly Begun and steadily Continued.
Nevertheless, we, at the California end, did proceed in good faith,
and with clue diligence, in the prosecution of the work. Notwith¬
standing the great disadvantages that have been mentioned, the com¬
pany had nearly completed the forty-mile section up the mountain
side before any U. S. bonds were issued. When the act of 1864
wras passed, po^Hning the mortgage feature of the government
advances in favorof an equal amount to be obtained from private
capitalists, the company was at such a distance from the seat of gov¬
ernment and encountered so manv obstacles, that it did not receive
the bonds earned until nearly a year later.
I recall these facts because it is sometimes intimated that the
government was over-reached in the original bargain ; that it ex¬
tended more aid than was necessary ; that the conditions of the act
ft/ '
7
have not been complied with by the companies ; while the govern¬
ment, has been lavishly liberal ; and other equally unfounded allega¬
tions. I may be pardoned also for saying that I felt no elation upon
embarking in the enterprise, and telegraphed my people on the
passage of the act, " We have drawn the elephant. Now let us see if
we can harness him up and utilize him," and there were repeated
occasions afterward when all of us would have been glad to sell out
at a sacrifice of money invested, if only a purchaser could have been
found who we could feel assured would carry 011 the work to com¬
pletion. On the other hand, the government made a master-stroke
of business policy, as the even sections of land retained by the gov¬
ernment became, after the road was built, worth many times what the
odd and even sections were without the road, for the good lands of
California were nearly all taken up by Spanish grants, and the lands
received were nearly all in the high, dry, waste lands of Nevada and
Utah.
The SrmiT of the Covenant.
Without enteriug into immaterial detail, the scheme of the
Pacific Railroad, so far as the national aid is concerned, may be
condensed thus : The project was for a line from some point on the
Missouri river to the Bay of San Francisco, a distance estimated at
about 2,000 miles. The aid bonds for the main line and branches
were limited to an average rate of about $25,000 per mile. The in¬
terest charge 011 the bonds for main line was about $3,300,000 per
annum. Alternate sections of land were granted ; but, except for a
short distance at either end, the lands were deemed of little value,
hardly worth the costs of survey ami patent. The bonds were an
absolute thirty year bond, bearing six per cent, in " any lawful
money." At the time they were the least prized of all the public
loans and in the eyes of many investors tliey were regarded as a
government asset—a sort of Companies' loan, the principal of which
was to be paid by them, or at least out of the money earned and
paid over to the government.
The great national loans, payable in coin, had already absorbed
the available capital of the country. The " currency " bonds were
looked ui)on with doubt ; they were transferable only by registra¬
tion, and the Comptroller further discriminated against them by de¬
ciding they were not receivable as security for banking currency.
8
How Has the Contract J3een Kept?
By the act of 1862, the road was to be completed by July 1,
1876, that is to say : fourteen years were allowed, of which only one-
half were consumed. It may be well to say here that the race be¬
tween the Union and Central Pacific was to obtain the control of the
great valleys of Utah, which when the roads reached there we found
had been very much over-estimated. This rapidity of construction
cost the railroad companies millions in excess of a. more leisurely
policy, and the government was the greatest gainer by the haste,
while it may fairly be claimed that the value of the bonds to the com¬
panies as aids to construction was lessened thereby. When the
act was passed they were worth about their face value in gold ;
before the road had been built they had declined to ninety cents in
currency, or about forty cents gold.
Though marketed at the best advantage the case admitted ; the
average obtained for the whole by the Central Pacific Company was
seventy cents gold, so that the $25,885.120 face value of bonds
* received, proved to be less than $18,000,000 in coin with which to
purchase labor and materials at the high prices prevailing at the
time. California was on a gold basis, and the supply of labor there
being limited, it commanded rates as high as those paid in currency
at the East. We paid gold for everything in California, including
the vast amounts paid for grading, ties, timber and all other things,
some of which cost the company as high as $2.22 in currency for one
dollar in gold.
By the Act of 1862, the whole of the earnings from goverment
transportation was to be withheld and applied to the debt.
In other words, the government as the principal beneficiary was to
apply the services as an offset against the debt and it was fully
expected at the time that the receipts for those services would
fully offset it. In addition it was to participate to the extent
of 5 per cent, in the net earnings of the company, applicable
to the principal of the debt, while the stockholders were at
liberty to divide the remaining surplus up to ten per centum
per annum. Under this act, however, it was found impossible to
proceed, as the government held the first mortgage. By the Act of
1864, this lien was postponed in favor of an equal amount of the
company bonds, which bv an oversight, were required to mature
within the same period of thirty years. In other wrords, twenty-five
thousand per mile in government bonds was found to be insufficient
and the company's issue as a second mortgage could not be sold ;
so that the government, to secure the road, yielded its priority and
9
allowed the company to come in and issue a first mortgage bond of
twenty-five thousand per mile average on the whole line of the road,
the government making its own mortgage a second lien. The
government bonds, of course, being good, it gave the company fifty
thousand dollars a mile with which to build the road.
Inadequate Compensation for Services.
Again, the Acts of 1862 and 1861 expressly declared that the rates
to be paid for transportation were to be "fair and reasonable, not to
exceed those paid by private parties for the same kind of service."
It must be borne in mind that the government had been paying for
its army transportation rates averaging from the Missouri River
west, about 40 cents per 100 pounds per mile, and on the side routes,
or from California, eastward, much higher rates.
This was a very limited, imperfect and unsatisfactory service.
One hundred times the weight of mail is now rapidly carried for less
than half the entire cost by the old method. The average rate of
freight on government supplies lias been reduced by competition
to less than two cents per ton per mile, or at about one-twenty-fifth
the rate paid prior to the building of the road.
It is instructive to note also that for the overland mail service,
while the two ends of the road were in progress, the compensation
was at the rate of $1,750,000 per annum, subject to proportionate
deductions for each fifty miles of distance covered by the rails. This
contract, made in 1865, which it was supposed might have ten years
to run, was terminated in less than half the time. Not only were
the railroad companies not allowed anything extra for this accelera¬
tion of so colossal a work, but they had their mail pay reduced, soon
after the completion, under an arbitrary act of Congress applicable
to the land grant railroads, which, for the most part, lay in the level
and alluvial floor of the Mississippi Valley (which roads should not
have cost one-fifth as much per mile as it did to construct the Cen¬
tral Pacific Road), from which the Pacific Railroads were, by fair
and explicit language, excepted. This injustice still prevails ; and
Congress, by straining the interpretation of its power of amendment
to the degree that it may vary or diminish the proffered compensa¬
tion, is getting the mails carried over the high ridges and barren
alkali plains of Nevada and Utah, where fuel is very expensive, water
is scarce, and the grades are heavy, for less rates than it pays in the
Atlantic Coast States !
10
No Credit Allowed for Sayings Effected.
A letter of the Quartern) aster-Gen eral of the Army, communicated
to the House of Representatives, on January 31, 1873, by the Secre¬
tary of War, gives a calculation of the saving to the government by
reason of the construction of the Pacific Railroad for a period of six
and a half years, during only half of which the road has been opened
throughout, as follows, namely :
" At this average rate, the estimated cost of transportation of the freight moved
by the Union Pacific Railroad, including express charges as shown above, during
the time commencing July, I860, and ending Januar}' 28, 1873, would be as follows :
Rate per 100 pounds per 100 miles, railroad rates.... $0 40|
Rate per 100 pounds per 100 miles, wagon rates 1 46
Actual cost of freight at railroad rates 1,896,589 57
Estimate of cost at wagon rates 6,837,088 32
Showing a total estimated cost for moving the troops and supplies
by stage and wagon of $9,850,134 67
Total actual cost by railroad 3,342,851 82
Estimated difference $6,507,282 85
Equivalent to about 66 per cent."
This computation does not take into account the loss of animals
and wagons, which had to be paid for by the government, or the
loss of time consumed by the army between the slow transportation
by ox teams and the rapid movement of railroad trains.
Were the computation to be made for the twenty-five years since
the opening of the through line, the contrast would be still more
startling, and would show a net saving to the Treasury of not less
than one hundred and fifty millions in all by the creation of these
railroad facilities. An instructive calculation by the Quartermaster-
General, shows the cost of a bushel of grain at the different posts
supplied from Independence, Mo. : $2.79 at Port Riley, $5.03 at Fort
Kearney, $9.41 at Fort Union, $9.26 at Fort Laramie, $10.05 at
Denver, and $17.00 at Salt Lake City. If further testimony on
this point were needed, it may be found in the reports of the
General of the Army.
The Fund from which Interest was mainly to be paid.
Now the aggregate expenditures for army and other transportation
between the Missouri river and the Pacific ocean, as shown, was over
$8,000,1'00 per annum. It was estimated the amount would rather
increase than diminish. This was only the amount charged up to
11
the transportation account, for no allowance was made for losses and
casualties. This was the fund from which it was expected interest
would be paid on the government bonds. The expenditure for army
and postal purposes was expected to defray the interest on the cost
of the road, and if it were saved to the treasury it was still better
for the nation. If the whole had been saved, as came very near
being the case, so far as the Indian service was concerned, it should
still have been available, so far as was requisite to pay interest on
both loans, which had created the road. These were the lights and
the reasonable expectations which governed the making and accept¬
ing of the original contract.
By great good fortune and the investment of other sums in
branches and feeders, steamer lines, etc., the earnings of the Central
Pacific road from other than government traffic, proved to be
sufficient to meet the interest on the prior liens ; but it was pro¬
vided that if the services rendered to the government failed to meet
the interest on the government bonds, then the interest was to run
to the maturity of the bonds and such interest was to be arranged
for at such maturity, as no one supposed the Company
would have the money to pay the bonds at maturity if any
considerable amount was uuprovided for currently by the
work done for the government. A more equitable policy would
have been either to allow full rates for the carriage of troops, sup¬
plies and mails ; or to have written off the deficiency of each year,
on the ground that it had been saved to the treasury. It cost the
United States one million dollars a year to maintain a regiment of
cavalry on the frontier, and about half that for a regiment of infantry.
As many as thirteen regiments have been engaged in this service at
one time. After the completion of the road less than one-quarter
the former force was abundant to maintain a better state of peace
and order. This immense economy is one the companies deserve
credit for effecting as well as for hastening it bjT at least seven years
of time, but it nowhere appears in the ledgers. On the contrary, the
bonds which without fault of theirs, but by their very energy and
merit, shrunk in their hands, were in part through their labors to
become debts, the burden of which was continually swelling.
National Encouragement to Rival Boads.
There was, indeed, no covenant wdth the government, that the
pioneer Pacific Railroad should occupy the territory between the
Missouri and the Pacific, to the exclusion of other roads, for no such
stipulation seemed to be necessary to the protection of either party.
12
It might be deemed contrary to public policy to tlius tie tbe bands
of the government, but it may still be contended, that the original
road should have a preference upon all government freights, and the
compensation therefor should be as liberal as the contract called for.
Such has not been the course pursued by the representatives of the
government. Naval stores for the Pacific have been shipped via
Cape Horn in preference to being sent with greater speed and con¬
venience by rail.
The work upon the first Pacific road along the 42d parallel, had
not more than fairly begun, when Congress began to discuss the
propriety of aiding two others, the Northern Pacific, along the 48th
parallel, and the Atlantic and Pacific, along the 37th parallel of lati¬
tude ; and soon after its completion a third rival—the Texas Pacific,
following the 3'2d parallel. True, aid bonds were not advanced to
these lines, but the aid in lands was double, and, as to the
two former, lay through a more fertile belt. The ex¬
periment having been demonstrated by the pioneers, the
assistance was more than equal to the bonds and lands granted
to the pioneer lines, even if they had been gifts not loans.
We can raise no complaint of this action by Congress, as an infrac¬
tion of our rights, but the above causes go far to explain why this
interest account has not been kept down, but allowed to run up
until it amounts to more than the principal.
Failuee of the Thukman Sinking Fund Plan.
It cannot be charged that the companies are in any way negligent
in the matter of providing for this emergency. In February, 1875,
Mr. Sidney Dillon, of the Union "Pacific Railroad Company, and
myself, for the Central Pacific, joined in a letter to the Secretary of
the Treasury, pointing out, that from the above and other causes>
then unforseen, the companies would not be enabled to meet this
indebtedness at maturity, unless by some wise provision of law.
This was duly referred to Congress, but for years no action was
taken upon it. We next offered to transfer back the lands of the
companies at a fair valuation, as a part payment of the debt, and to
set aside from the net earnings a fixed sum semi-annually, to con¬
tinue until the debt was discharged, which would have been in some¬
thing like thirty }?ears from the maturity of the subsidy bonds. I
am unable to see why this proposition should not have been satis¬
factory to the government at the time. It was certainly to be pre¬
ferred as a means of liquidating the debt to the action taken some
years later by the Thurman Act. The offer wras not accepted,
18
fortunately for the companies, as it would have been impossible for
them to comply with it with their present reduced revenues.
Unavoidable Misfortunes which Impaired its Debt-Paying
Capacity.
Among the causes over which neither party had control may be
mentioned some which are a common misfortune, and of which the
government, rather than the companies, might be looked to to
assume the greater share.
(1) The enhancement of prices during the period of construction,
which with the corresponding depreciation of the values of the aid
tendered, thereby doubled the cost and interest burden of the work.
This was due to the deviation from the coin standard by which the
value of all ordinary debts was lessened ;—necessary, perhaps, as a
war measure—but involving later a reverse process of appreciating the
burden of debts in the restoration of the currency to gold values.
It was the misfortune of the Pacific Railroad Companies to incur
this enormous debt at a time when paper ranged the lowest. Unless
by the intervention of some such catastrophe as a foreign war,
domestic rebellion, or widespread calamity, these currency ibonds
and the interest paid out for years in lawful money, must be paid in
gold. Equity would require that the settlement should be made on
the basis of the values received. The companies do not demand
this as a contract right ; they ask that its due weight be allowed in
arriving at any new adjustment.
The Example Followed by Neighboring Competing Nations.
(2) Since the days of Columbus the populous nations of Western
Europe have been searching for a shorter route to the Indies, as the
still more crowded nations of Eastern Asia are styled. Before his
time, as well as since, successive armies have pushed eastward by
land to the plains of Ilindoostan and Cathay, always to meet with
disaster, until England approached it by sea. Col. Benton in the
opening ceremonies of the line projected from the Mississippi River
to the Pacific said : " This is the way to India." About that time,
however, the canal across the Isthmus of Suez was agitated and by
the aid of the hoarded wealth of the French peasants, and the
favor and protection of their government, was begun about the
same time as the Pacific Railroad. It was opened soon after
it. This little water way changed the course of about half the
sea commerce of Western Europe, and our own tea ships reach
Atlantic , ports through it. Had its opening been postponed for a
14
generation there is reason to believe that the Asiatic commerce would
have enabled ns to meet the interest of these bonds at maturity ; or
liad the collision between European powers come which would close
it to commerce, then our opportunity would have arrived. As it
is we suffer both from foreign and domestic rivals by which the
people and the government gain what we lose.
(3.) This example of national aid to a railroad from ocean to
ocean on our own territory, which seems such a nightmare to some
does not have the same deterring effect upon the minds of other
governments. Great Britain lias guaranteed the interest upon
thousands of miles of railways in India and Australia in order
to bring her cheap wheat, cotton and fresh meats. On our
northern border the Canadian Government, with the help of the
mother country, foreseeing the contingency of a blockade of the
Suez Canal, granted an equal amount of lands and loaned a nearly
equal amount of capital at about half the rate of interest paid by
our Pacifie roads, to complete a line between the St. Lawrence and
Puget Sound at a time when materials and labor were at half the
rates we paid, which, so far as the seasons will permit its operation,
compete for the traffic crossing from ocean to ocean. This has been
supplemented under British government mail contract by fast steam¬
ships to China and Australia.
Notwithstanding the unbroken water route via Suez the Amer¬
ican Pacific roads have by special exertion been able to deliver the
Australian mails and a few passengers on less time and more agree¬
ably to the colonists. This item also may be expected to be di¬
verted to the British rival who can build and run roads, as well as
ships, upon money borrowed at three per cent, per annum, fortified
and fostered by the strong hand of the Imperial government. How
different is the treatment accorded to the United States Pacific
Bail road !
Even Mexico, with an impoverished treasury, aspires to have a
railway from the Gulf to the Pacific, with steam lines to China, not
for the purpose of keeping Indians under subjection (for from those,
I believe, she has had no trouble), but in order to develop her mines,
manufactures, agriculture and commerce.
Development of the Interior Silver-Bearing and Pasture
Lands.
(4) The effect of opening to the world the silver-bearing territory
of Colorado, Utah and Nevada has been a contribution to the
natural resources equal to the whole Pacific Bailroad debt. Mines
15
theretofore undiscovered, or unprofitable, were brought within the
limit of economical working. The introduction of the same methods
of extracting and transporting the precious ores of Mexico and
South America may have liad something to do with the decline in
the value of this metal as compared with gold. No matter what the
cause, a loss of 10 or 20 per cent, in its purchasing power is felt
largely by the railroad which carries it to market and returns the
commodities to the miners. The cessation of the Comstock mines
has diminished the earnings from which the Government debt must
be paid. If it is in the power or discretion of Congress to shape
any policy which will restore its value, it will do much to enable
the railroad companies to meet such engagements as they may
assume. Our burdens should be laid with due reference to this
fact.
The country served by this railroad line lying between, say, the
hundredth meridian and the Sierra Nevada range, is not worth much
for ordinary agriculture, but it has valuable deposits of precious
metals. The " mineral lands " being reserved and excepted from
the grant, the companies take no direct benefit from them. A large
aggregate of lands unsuited to ordinary farming could be picked out
from which the fiesh-meats of the Continent could be advantageously
raised.
These lands must always continue in about the same condition as
they are, as there is very little water in the vicinity of the line and
not enough to irrigate any considerable portion of them.
The lands should be surveyed and laid off in parcels adapted to
the supply and industrial use. This would promote a wider utility,
and enable the companies to dispose of the lands which now yield
neither revenue nor traffic.
The government and the railroad should unite in the sale so
that the odd and even sections could be sold together ; for these
extensive cattle ranches require large solid tracts of land, and I
think they must be utilized for such purposes, as I do not know of
any others that are practicable.
The Companies' Warnings and Offers ignored.
Some one may be tempted to inquire, at this point, " why
did not the company forbear paying dividends upon its stock,
and devote the money to this maturing government indebted¬
ness ? " The answer is ready and brief : " There would have
been no justice or fairness in doing so." Premising that no dividends
have, been paid for some years back, out of the 24 years the Central
16
Pacific Company has been operating its road, it has paid on its
capital stock less than three per cent, per annum. The stockholders
were entitled to so much. The United States charter contemplated
that they might even run up to ten per cent, per annum without in¬
terference. Would any body of business men, then or now, expect
private individuals to put their money and services into a railroad
enterprise for a quarter or half a century for the bare pleasure of
paying interest on its cost, without any return to themselves ? Not
certainly without the inducement of an improvement to their other
estates, which, in this case, inured to the government, not to the
stockholders ; or some hope of gain after the debts were paid.
But this is not our case. The government has not aided the
roads which earned these dividends, and it has no claim on them.
Of the 1,650 miles of road now controlled and operated by the Cen¬
tral Pacific only 860 were aided by subsidy bonds ; and not the
whole of it the travelled main line either. Will any one contend
that the earnings of these unaided lines should be applied to this
debt, which, by natural inference, was to have been earned by public
transportation ? As a matter of fact, the government has for some
years withheld the earnings due for service by those unaided roads,
so that, had the government performed its obligations under the
contract, there would have been more money which the stockholders
might rightfully divide. The services of these roads (over and
above the agreement) are being applied to the reduction of the debt.
More than once, prior to 1878, we offered to let one million
dollars per annum be taken from the net earnings for each of the
two companies and applied to the debt, and to make up the
deficiency, if there were any, provided Congress would simply allow
us the discount value of these anticipated payments. This, we now
find, would have been a heavy load to carry ; but the offer was made
in good faitli, and no doubt construed into an indication of our
ability to pay much more. The result is a shrinkage under the
Thurman Act on the part of this Company to half a million.
Had we been allowed to invest this amount at the best going
rates, upon good security, or what is equivalent, let the Treasury
allow us the same rate of interest as the money would have
earned in our hands, or as we were paying on the bonds, we
should, in the course of 30 years from its maturity, have
canceled principal and interest. We shall now require more than
triple that time to do so.
Neither the government, nor the first mortgagees, nor anybody
else can get more out of the road for this purpose than it can earn
over and above the expense of operation, maintenance, taxes and
17
first mortgage interest charge. The attempt to collect more must
mean heavier tolls, and these would drive away the local in¬
dustries to other roads, and so defeat the attempt. Enlightened
public policy dictates that, if the interest cannot be foregone
as an offset against the savings to the Treasury, the lowest rate
of interest is the most suitable to the task ; and in either case
the payment should be spread over a long period, so as to
give local settlements opportunity to take root and develop. No
matter what the power of Congress over these corporations ; or
their property, may ultimately be determined to be, it cannot add
to the earnings of the companies, nor accelerate the repayment—
that is a matter not amenable to statute regulation ; but I would
recommend the Central Pacific Railroad Company to accept any bill
that the Government may pass, the requirements of which, I think,
the company can meet out of the earnings of the road.
I have had printed, and annex herewith, a letter written some
time ago, as much of it is as applicable to the question to-day as it
was when written.
I am,
Yours respectfully,
C. P. HUNTINGTON,
First Vice-Pres. C. P. II. R. Co.
New York, January 28, 1895.
18
Dear Sir :
Will you permit me to present the following facts, which I hope every Sen¬
ator and member of the House will read ?
I wish to put myself right in the matter connected with the building of the
Central Pacific Railroad. I take all the responsibilities connected with the building
of that great work. Noue of the first board of directors came in except at my
personal request. I bought all the material and raised all the money other than
what was used to build the first thirty-three miles, which was in the main furnished
by the first board of directors. After that the money was nearly all borrowed.
The work was done when the material that went into it was, I think, higher
than at any other time in the history of our Government. We paid three times as
much for rails and locomotives as they are worth to-day, and about everything else
that went into the work was in the same proportion, and then there was 6 per cent.
Government, tax on top of those very high prices. All labor employed in the
construction of the road was paid in gold coin, and much that cost more than 100
per cent, premium. We let the first thirty-three miles to nine contractors. They
had much trouble in getting labor. They were bidding against each other, none
having large enough contracts to induce them to organize and bring labor into the
country. After the completion of the first thirty-three miles we let a large propor¬
tion of the work to Charles Crocker & Co., hoping that with the assistance of others
interested in the work he could get parties in with him; but those who were
invited to come in said they could not afford to take the risk of an unlimited
partnership.
Risks too Cviîeat—Profits too Remote.
We then organized the Contract and Finance Company to build the whole
road, and tried to induce almost every man in California of any considerable
means to take an interest in the contracting company ; but all refused, as those
who are now living will testify. I then made all the effort of which I was capable
to induce the capitalists of New York and Boston to take an interest with us in the
company. Quite a number considered it; but all at last gave the same reason for
refusing, and said : " Huntington, the risks are too great, and the profits, if there
should be any, too remote." We were, therefore, compelled to go on under the
terrible burden to the end ; using all the securities that we had to offer to our own
personal credit to complete the work, and when the road was completed, and for
years afterward, we could not have sold all that Ave liad received for the building
of the work for enough to pay the debt we bad incuried in its creation, I have
been at work for myself more than fifty-four years with an honesty of purpose, and,
I believe, an intelligent economy ; but in all tlie work that 1 have ever done, and in
all the money that I have ever made, none other has cost me the mental or physical
strain that the work done and the money made ou the Central Pacific Railroad has
cost me, and in all this work 1 can truly say that I have done no injustice to my
conscience or to my country, I made some money, which I was very glad to do,
but the making of it gave me no more pleasure than did the reflection that we were
giving employment to tens of thousands of workmen, and that the country at large
was getting much more out of the creation of the property than were the builders ;
for while the Government gave the railroad men ten alternate sections of land on
each side of the road, the sections that were retained by the Government were
made of very much more value because of the building of the road than the whole
of the land was without it, and even with the road the whole of the land was
worth very little,
19
The Railroad National Police.
Now, as to the bonds. When the acts of 1862 and 1864 were passed those who,
in the debates, opposed the legislation said that the Government would get nothing
for these advances except the 5 per cent, of the net earnings and the half of the
service that the company did for the Government, and the friends of the legislation
admitted it, and if the Government had received nothing more it would then have
builded better than it knew, for the roads were completed more than seven years
before the time allowed by the act. It had been costing the Government more than
seven millions a year to police, so to speak, the country between the Missouri
and Sacramento Rivers, along the line traversed by these roads, and the kind of
protection that that vast sum afforded could have been seen by the graves that
marked the line traversed by the emigrants and the bleaching bones of cattle and
horses that had died of starvation and from drinking the poisonous waters found
aloDg these alkali plains.
But, how different after the completion of the road ! Instead of occupying a
whole season on the weary march across the continent people can now cross in a
few days, surrounded by the comforts of home ; and the mails, for the transporta¬
tion of which about one-half the distance between the Missouri and Sacramento
rivers the Government had been paying $1,750,000, and are now carried the whole
distance for less than one-half the price, in less than one-quarter the time, and in
more than one hundred times the quantity. Iu all the company's transactions with
the Government, with reference to the construction of these roads, they have ful¬
filled every requirement of the statutes under which the roads were built.
Tite Government Volunta i-mi. v Weakens Its Own Security.
But before the road was completed the Government donated land to the
Northern Pacific of very much greater value—being much better in quality and
double the quantity—than the laud granted to the Central Pacific and the bonds
given to aid in the work. I had no interest in the Northern Pacific, but it was
beyond any doubt a wise thing for the sovereign power to do, as it opened up and
policed a very large extent of country that could have been in no way so economi¬
cally cared for. At the same time, the Government must bave known that it was
taking away a considerable portion of the security that it had for the advances made
to the pioneer line.
About this time, or a little latter, tlie Government made another grant of land,
as valuable as the Northern Pacific's, to another railroad—the Atlantic and Pacific—
running immediately south of the Central Pacific line. In doing this no doubt it
was governed by the same reasons that induced the grant to tlie Northern Pacific ;
but the Government must also have known that the doing of it, while beneficial to
the country as a whole, since it opened up and protected that vast area of high, dry
land in the center of the continent, yet tended to still further reduce the value of
the security it held for advances to the pioneer line.
Later still, the Congress of the United States passed the interstate commerce
act, which may have benefited some one, although I have not been able to learn
what, people or territory has in the least been benefited by it ; but it has destroyed
the ability of tlie overland companies to compete with the Canadian Pacific, as the
latter company is in no wise controlled by tlie act, and its road was built by the
help of subsidies from the Canadian and borne governments, which have made it,
possible for that company to make very low rates, so low that we cannot compete
with them ; for the law does not allow us to figure, as we should, simply ou train
expenses, doing the business on a small profit over these expenses, as it would force
all other rates down to these minimum rates that we had made to meet Canadian
20
competition, and, as every railroad man knows, that would soon run the companies
into bankruptcy.
A Constant Fight Against the Elements.
I wish to say here to every member of Congress that I believe no set of meu in
this country, or any other, have done so much in opening up their country as the
builders of the Central Pacific, for we have built roads across desert plains, over
three ranges of mountains, at immense expenditure in the original cost, and over
lines probably the most difficult to keep open of any lines in the world. Many
portions of the road lie in regions where no seasonable rains occur, but where
cloudbursts strike the road in thé most unlooked-for places and destroy it. On
other portions the road is exposed to the most fearful snowstorms every year that
are known anywhere in the whole country. Despite these almost insurmountable
obstacles, the projectors of the Central Pacific have kept the road open, without
regard to the expenses incurred, so as to accommodate the Government and also
the people who live along the line.
Among other works that we have done should be mentioned the Southern line,
traversing that dry, and much of the way, desert country lying just north of the Mexi.
can border and running almost to the mouth of the Rio Grande, on the Gulf of Mexico,
which has made it possible for the Government to police that country also, protect¬
ing the settlers against the Commanches, Apaches, and other wild Indian tribes,
and in short to make it possible to hold in check the turbulent elements along the
Mexican line, and at the same time to assist our sister republic to a very consider¬
able extent in doing the same on her side of the border.
Now, after working for many years—in the main, 1 will admit, for our own
personal benefit—it gives us much satisfaction to know that oui work has, while
redounding to our own advantage, immensely benefited the whole country as well
as the people living along the lines of our improvements.
The Bonds Nearly Due—The Government's Position.
The time is approaching when the bonds advanced by the Government will
become due. The non-payment of these will, of course, make it possible for the
Government to take possession, by paying the first mortgage bonds, of that part of
the Central Pacific Railroad aided by it and lying between Ogden and San Jose ;
but I hardly believe that such a course on the part of the Government would be for
its interest, as a road could be completed in this age of abundant labor and cheap
material at a much less cost than the amount of the first mortgage and the Govern¬
ment lien ; nor can I believe that it would desire to take possession even if it was for
its interest to do so, as it would disturb vested interests which are to a certain
extent connected with the above piece of road, and do injustice to the individuals
who built it. It has been said by some parties that a company that is not able to
pay a boud at maturity is bankrupt. That may be so ; but I think none of the
great railroads of this country have, to any considerable extent, paid off their first
mortgage bouds except by the issue of new ones by which to pay for them, and I
am quite sure the statistics of the oldest and ablest roads in the country will show
that their mortgages to-day are much larger than they were on the day of their
completion.
I think the case of the Central Pacific will prove no exception. Bonds must be
issued to pay bonds, and the most we can hope to gain is a reduction of the interest.
Many companies are now issuing bonds to run 100 years, and the bonds of one
company, the West Shore, which are very popular, have been issued to run 476
years. There are at present before Congress bills that have been drawn to meet
21
these circumstances or conditions, but which we think, considering ail that the road
has done in the direct interest of developing the country west of the Mississippi,
bear too heavily upon its resources and earning power. Yet for the sake of a final
settlement of these much discussed questions the company will accept a bill giving
an extension equal to something less than forty-four years.
What the Companies Will Agree to Do.
What, then, does the proposed legislation do ? It brings back to the Treasury
of the United States all the advances made by the Government to the Pacific roads,
and it gives to the Government, in addition, a larger interest on the money than the
Government itself would have to pay if it went into the market to borrow. The
Pacific railroads get the extension of time that is required as a matter of necessity.
This time is equal to an extension of a little less than forty-four years on the whole
amount of the debt, and this is as short a period as it would be at all safe for any of
the aided companies to agree to. Then, again, the money has to come mostly from
the people who live along the line; that is, from the local business, as the inter¬
state commerce law lias enabled the Canadian Pacific Railway Company to take
most of the through or overland business. I know that the Central Pacific Rail¬
road Company would carry out this agreement, paying currently every six months
the interest and some of the principal until the entire debt would be extinguished,
and the Government would have a security that would be many times as valuable
as it is to-day. I do not believe that any one who has examined this question, and
wishes to deal fairly by the companies, while looking after the best interests of the
Government, will say aught against this settlement.
This is, as I may say, about the only unfinished matter that I have, and I would
very much like to see the question decisively settled, so that I can say I have passed
the beginning of the end.
C. P. HUNTINGTON.
Washington. March 1.