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Enter the Transcontinental Railroads sider this offer, Jay Gould and Sydney On April 4, 1876, the board of directors Dillon, still minority holders, absented of the Panama Railroad, with Trenor W. themselves. The others, seeing the comPark as president, met in New York to pany threatened at either terminal, determine vital matters of policy. The wavered for a while and finally voted to material condition of the company was the cast their lot with the Panama. worst since the railroad had been com- Remorselessly then the overland interpleted. The well-kept wharves left by the ests pursued their ends until in July, 1876, old management had been suffered to fall they had arranged a modus vivendi beinto decay. The seasoned superintendents tween their own transcontinental lines and had given place to raw and cheap men, the steamship company. By this first who were not equal to the exacting duties. agreement, space on each of the Pacific For a perilously long time no new rails Mail vessels was leased jointly by the had been laid, no bridges repaired; again Union and Central Pacific Railroads and and again freight rates on local traffic had $5 was paid for every overland passenger. been advanced in direct violation of the The condition attached was that the fundamental concession from New Gran- steamer line should make such prices on ada. The chaotic relations with the Pa- freights that high-class trade would be cific Mail left by the fall of Stockwell had thrown to the railroads, that they should become still further involved by the fact not fill to full capacity, and should run that a small organization, the Panama but a limited number of ships. An asTransit Company, fishing in these troubled sured revenue of $90,000 per month was waters, had secured an exclusive through the bait and one year only the duration of traffic arrangement for a year, shutting the agreement. So the first of the Pacific out all other lines from profitable Panama Mail compacts in restraint of trade was trade.
begun. Next year the subsidy was raised The outcome of the meeting was a to $100,000 per month and the transcontiformal offer made by the railroad to the nental interests were firmly in the saddle. Pacific Mail, of a joint rate, if it would In 1878, wittingly or unwittingly, the elect a governing board not interested in Panama Railroad was betrayed to them. the transcontinental railways. From the In a fifteen-year-contract with the Pacific critical directors' meeting called to con- Mail Steamship
Company and the Panama Railroad, the latter surrendered proposed channel, and whose consent by the the exclusive right to issue through bills terms of the original concession from New of lading across the Isthmus. Thus at Granada had to be secured before the length the circle toward which the over- canal could be built, was in an extraorland railroads had been working was com- dinary position of vantage. Here opened a pleted. They dominated the Pacific Mail, providential opportunity to secure imfixing its rates and regulating the carriage mediate and bounteous cash. For the of freight and passengers; the Pacific latter months of 1880 the French were Mail, in its turn, held the Panama Rail- obliged to transport their supplies at reguroad in the grip of an exclusive contract. lar local railroad rates. This proved so So with the only competitor safely tied up ruinous that they determined to buy the for fifteen years, Jay Gould and Collis P. railroad at any cost. The price was ruthHuntington rested upon their labors in the lessly adjusted to their necessity. For 68,year 1878 in the consciousness that theirs 534 out of 70,000 shares the French comwas the transportation business of the pany agreed to pay $18,094,000 in yearly West, safe from all assaults.
installments with six per cent interest. With the completion of the Central and This represented $250 a share, far above Southern Pacific Railroads by private and normal value. The old directors were to commendable enterprise spending lavishly control the road until the whole sum was the proceeds of government guaranteed or paid. In addition cash assets were resubsidized securities, there had come a tained by the former owners, amounting most crucial situation. The Panama route to about $1,700,000, much of which had in its fullest bloom of prosperity was on come from the French in the previous one side, on the other side was a highly year. All told, therefore, the vendors reacapitalized, hastily built, overland-rail- lized $20,000,000 or $282 on each share. way, running across a sparsely settled con- A dividend of 5214 per cent is shown by tinent, where the real support of local the records to have been declared in 1881. business had to await a generation of im- The French company was obliged to migration. The overland railway had to have American directors and to conduct depend for earnings on west-bound the railroad as a business investment for through business. The east-bound earn- the benefit of the minority stockholders. ings came in a higher proportion from It must placate the jealous patriotism of passengers. To pay the expenses of opera- the United States by keeping an American tion, maintenance and interest on bonds, face, and thus the road was run until 1885. to create the credit needed for branches Then began the pinch. That stream of and extensions fully to occupy their terri- fairy gold poured into the coffers of the tory, the transcontinental railways had to canal company, inexhaustible as it had have and hold a remunerative business. seemed, was shrinking alarmingly.
The Compagnie Universelle du Canal Interoceanique officers, though glowing accounts con
In 1879 the "International Congress tinued to be published daily in the comfor Surveys for an Interoceanic Canal" pany's bulletin, saw the approaching met at Paris under the presidency of débâcle. Their efforts were paralyzed by Ferdinand de Lesseps, hero of the Suez the deluge which they knew was coming. and foremost of the world's engineers. So the line began to fall upon evil days, The commission vote of seventy-eight to and its rolling stock and roadbed were
Its eight recommended a sea level canal at once again allowed to deteriorate. Panama.
earning power declined; there was no Then commenced the colossal tragedy surplus for dividends; everything was of the French. It opened in the masked slipping. In 1887 the first melancholy hostility of America, the abortive attempts crisis came. in France to form a company, the volte
A reorganization followed, in the canal face of the press and the financiers who company and the railroad. Among other had been opposing it, and advanced with dispositions, the latter system was changed pomp and pageantry to the inauguration and members representing the canal comof work in 1881.
pany were included in its directory. The The railway company, whose line paral- outgoing American board voted a twentyleled for nearly the whole distance the three per cent dividend in farewell. New
capital was secured and the last effort of sidy from the overland roads had the great unfortunate Frenchman to give amounted, in 1894, to over $18,000,000. to the world his second oceanic waterway The sum paid by the steamship company was inaugurated. This time the design to the Panama Railroad was roughly $12,was for a multi-locked high-level canal. 000,000, from 1887 to 1893. From all the In 1889 came the final collapse. Work coast north of Panama, the Pacific Mail had been begun on a canal to be completed and the overland railroads adjusted the in eight years at a cost of $127,600,000. amount of traffic to be allowed. They When the receiver assumed the wreck of arranged the Central American tariffs so the bankrupt company, two-fifths of the that it was as cheap to carry coffee around work had been done, ten years had elapsed through the Straits of Magellan. They and $253,000,000 had been spent. De Les- fixed American rates so that the transconseps retired a broken man. Investigations tinental lines favored already in the eletarnished the noblest names in France. ments of time and insurance could secure Thousands of people were ruined. The practically all the freight. crash was the most complete and the most Such details as the $12-a-ton rate to shameful of modern times.
Yokohama, 4,900 miles, and $18 to
Panama, 3,260 miles, speak more plainly The Railroad After the Debacle
than any comment. From San Francisco The ordeal through which the railroad to New York the fare was $90. From San had come crippled it beyond repair for Francisco to Panama, half way, the fare some time to come. It was in disorganiza- was $100. In order to prevent economiction and decay. The single track line, ally-minded persons from buying a ticket forty-eight miles long, had fallen to the to New York and saving ten per cent on last stages of dilapidation, twenty-four their jaunt to Panama, the company road engines, all obsolete, less than half in checked all baggage through to New York good repair; nineteen passenger cars; a and would not give it up at any point bemiscellany of freight cars and switch en- tween. Often vessels made their trips gines; various wooden buildings, from with unfilled holds at a time when the which a precarious revenue was raised, freight traffic overlard was at its highest. much jungle real estate and some wooden Ship after ship passed the port of San wharves at Colon completed the assets. Diego. Not one would stop to take a To this railroad was joined by a left- pound of freight, all must go to the railhanded marriage the steamer line of three road terminus. antiquated vessels owned and three others The Pacific Mail brought to the Isthchartered. Weighing down upon these re- mian Railroad no more in some years than sources was the $200,000 salary and thirteen thousand tons of San Francisco agency list, the $250,000 subsidy, the bond freight. Coffee was shipped to New York interest upon inflated capital and a nest via San Francisco, New Orleans and the of abuses in local management.
Morgan line, going several thousand miles In 1903, for instance, with only 4,633 out of the direct route in order to divert first-class paying passengers, there were freight to the Southern Pacific. transported 11,098 civilians and 6,601 The Panama Railroad stockholders troops who rode free. Bonds had been could not but realize the value of the issued to the value of $1,087,000 on ac- birthright they had sold in their time of count of the La Boca terminal and its need in 1893. On the expiration of the total cost set down at $2,148,303.69. The fifteen-year contract they attempted to pier, which, with some dredging, made up break away from the restricting alliance this item, had been contracted for at by announcing themselves ready to make $600,000.
any responsible It is small wonder that carrying such steamer lines. But the forces opposed Sisyphus loads the company was obliged were of the strongest and no scruple stood to wring from the commerce vouchsafed in their way. Application was made to it the uttermost farthing. The grip of the Attorney-General in New York State the transcontinental roads was always re- by the transcontinental interests to force lentlessly there, exercised through the a receivership and disfranchise the stock main feeder, the Pacific Mail, whose sub- on the ground that French control was contrary to the charter. An attempt to May 4, 1904, the possessions of the New arrange a contract with the Chilian Panama Canal Company were formally Steamship Line for the carriage of South transferred to the United States. The American freight was held up by an in- price was $40,000,000 to the French comjunction for three years on the basis of pany (of which $6,800,000 was allotted as the old agreement of the railway not to the pro rata value of the railroad) and interest itself in Pacific business. The at- $10,000,000 to the Republic of Panama. tempt to free the trade of the North Pa. The dominant member of the old Panama cific was fought with all the power of a Railroad group, who had helped for some monopoly intrenched in vested trade inter years to give an American face to the ests and the possession of docks and ter- French management, held the bag. The minal rights in every port along the coast. money was paid. At last the power had Their one fight for freedom was lost. come into the hands of the representatives
The officers of the railroad in 1895 of the American people to lift the incubus signed another exclusive pooling contract of the Isthmus. The dry rot of thirty with the Pacific Mail and handed the line years, the abuses of the old ownership, back into bondage. The situation was the coercions and discriminations were to cemented in the exclusive pooling contract be all swept aside under the rule of the deeding to the Pacific Mail the whole United States. Trained railway men were North Pacific. The freedom of the south sent down under injunctions to make the seas was also bartered, and two foreign dirt fly in the canal. A new era was to companies were given the right to fix open with America clearing the way to initial rates here. In 1900 a half-hearted the glorious freedom of commerce. attempt was made to break loose and adopt an open-door policy. But again
Governmental High Finance other interests were too strong. In 1902, It may seem ungenerous at this time to with an exclusive Pacific Mail contract, count the cost, but it is nevertheless interthe latest pool was entered into. This esting to figure the capital represented by was the railroad situation when the senti- the government investment and assumed ment in the United States, in favor of a obligations. First, there is the original Nicaragua Canal, began to be swung to- price of the property; $6,800,000 was the ward Panama.
portion of the sum paid the French which In January, 1902, the officers of the New was assigned to the railroad stock, or dePanama Canal Company offered to sell ducting the value of the steamers, $6,532,all their property and rights to the United 581; $84,300 was paid for the purchase at States government. In June the Presi- par of other shares, and for the final 270 dent was empowered by the Spooner Act shares $72,120 was paid to one of the old to enter into treaty with Colombia for the railway group. So much for the direct right to construct the Panama Canal. The primary expenditure. But there were outtreaty negotiated under this act was rati- standing four and one-half per cent bonds fied by the United States Senate, sent to to the value of $2,372,000. On all other Bogota and rejected in August. On No- moneys which the government borrows the vember 3, a revolution, fomented by per- usual interest is two per cent, so these sons interested in the New Panama Canal bonds actually represent for it an investCompany in New York and Paris, broke ment to the amount of
of $5,337,000. out. Things now began to move.
Furthermore, there must be returned On November 6 the United States recog- yearly, $225,000 to amortize and pay internized the independence of the Panama est on subsidy bonds, the aftermath of an Republic and forbade Colombia war ves- advance to an embarrassed Colombian dicsels to approach within fifty miles of Colon tator. This represents the interest on $11,or Panama. November 13 a French 250,000 at government rates. Nine years gentleman, whose reputation had suffered from the treaty date this subsidy annuity somewhat in the Panama affairs of an originating with the railway concession earlier epoch, was empowered by the becomes $250,000 or the interest of $12,mushroom republic to negotiate its treaty 500,000. Therefore, the business investof sale to the United States. In February ment of the United States in the railroad our Senate ratified this treaty and on proper is $23,276,001.
With such a condition as this confront- Who wrote the sophistic provision that ing them, a first duty of the American similar terms would be granted to any officials in charge was in some way to cut other regular lines and so eliminated the down the monstrously inflated capital of great competition-makers of the sea, the nearly half a million dollars a mile, to call ocean tramps? Was he, who drafted that in the money-draining bonds, which was provision, quite unacquainted with the possible at any time on payment of a utter unlikelihood of a regular line's premium of but half of one per cent over undertaking to wrest a share in Pacific the annual interest, and to put the whole commerce from a line intrenched in every matter on a solid and honest basis.
port and backed by the whole power of the Instead of retiring bonds the repre- Union Pacific system already in possession sentatives of the commonwealth issued of the desired privilege? Whether so or more bonds, $265,000, for repairs to two not, the naked fact remains that the of the company's steamers almost as soon United States government, far from reas the title was passed to the United leasing the shackles of the Panama route, States. One can not but ask why these continues in pooling contract with the “repairs" were not paid for out of the Harriman system. $560,000 distributed just previous to this So much for the North. With the South bond issue as an eight per cent dividend, Pacific situation there has been not even or why some of the money which went to a poor pretense of changing the status the five per cent dividend of the succeed- quo. Rather pathetic was the appeal by ing year's business was not used rather the ambassadors and envoys of seven than increase the government debt. But South and Central American governinstead, on top of this, still more bonds, ments that the bonds be lifted by the gov$628,000, sold as recently as November, ernment. Instance upon instance of ex1905, and the money loaned to the Isth- tortion and discrimination accomplished mian Canal Commission, then hastily pur- by the railroad's arrangements with the chased back from the banker who took South American lines was given by them them. A new dividend of $350,000 was and by others. It was further shown that returned to the national coffers in 1905. the foreign companies to whom the govSo the government, through this railroad, ernment has given, in a nicely expressed continues to pay twice its usual rate of language of the last report of the Isthmian interest on one of the most outrageously Canal Commission, “full authority to fix overcapitalized enterprises on this hemi. competitive rates low enough at points of sphere.
origin to secure business, an agreed perThe next obvious step in defense of centage of such through rates to accrue to American commerce was to abolish the this company," do in the present, as they freight pools with the Pacific Mail and the regularly have in the past, discriminate South American lines, if indeed they did against America in favor of Europe. not become null and void through their Take some of the instances cited by the violation of federal law, immediately upon South American representatives in their the assumption of sovereignty by the appeal to Secretary Taft: United States. Was this done? A letter notifying the Pacific Mail of the intention
The nitrate of Chili can not be brought via to abrogate the contract was not sent
Panama: The combined tariff rates between until the American Commission had been
the railroad company and the trust of the steam
ers of the Southern Pacific Coast fix a freight of in possession for seven full months and 47 shillings sterling a ton. That same nitrate the formal abrogation did not take place reaches New York by steamers via Magellan, for over a year after the government took paying 23 shillings a ton. control. And how much does this abroga- shillings sterling a ton, and 23 shillings sterling
The Peruvian sugar pays by the Isthmus 30 tion, so tardily executed, mean, and what a ton via Magellan. does it effect ?
The cocoa of Guayaquil, via Panama, pays The pooled percentage is still shared be- to Europe from 52 to 58 shillings sterling a tween the government railroad and the
ton and for New York 65 to 68 shillings sterling steamship companies. The initial carrier
a ton. yet fixes the rates so that the whole North
Coffee is exported from Central America to
Europe, via Magellan, cheaper than by way of Pacific is still tributary to the Pacific Mail. Panama.