Chapters on the History of the Southern Pacific

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Title: Chapters on the History of the Southern Pacific

Author: Stuart Daggett

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*** START OF THE PROJECT GUTENBERG EBOOK CHAPTERS ON THE HISTORY OF THE SOUTHERN PACIFIC ***

[Illustration: “The Golden Gate”]

CHAPTERS ON THE HISTORY

OF THE

SOUTHERN PACIFIC

STUART DAGGETT, PH.D.

Professor of Railway Economics and Dean of the
College of Commerce, University of California;
Author of “Railroad Reorganization”

[Illustration: LOGO]

NEW YORK
THE RONALD PRESS COMPANY
1922

PREFACE

So far as the author knows there is no published study which discusses
in detail the important business problems connected with the history
of the Southern Pacific Railroad lines. Most of the books which
contain references to the Southern Pacific or to the Central Pacific
limit themselves to a few chapters upon the romantic aspects of their
construction. The few works which treat of the later period confine
themselves chiefly to particular episodes in Southern Pacific history,
often with the deliberate attempt to discredit the railroad company.
The truth is that most writers upon the Southern Pacific have relied
upon the reports of the United States Pacific Railway Commission or on
Bancroft’s “History of California,” and very few have done original
work from source material.

Yet the usable material dealing with the subject of Pacific railroads
is abundant. The Southern Pacific has left a broad trail in California.
The record of its doings is to be found in court reports; in state,
city, and federal records; in the public testimony, or still better,
in the private letters of owners or managers of company enterprises;
in the reports of the company itself and of its engineers or other
representatives; in pamphlets without number; in files of newspapers.
It is true that much of the data is partisan and unreliable as to
details. Yet a partisan statement is serviceable if one knows it to be
partisan, and, if one has reliable information with which to check the
unreliable, the extent of partisan exaggeration in a given case becomes
itself a fact of no insignificant importance.

Most of the documents used in the following pages have been consulted
in one or another of three large collections: that of the Bancroft
Library of the University of California; that of the Hopkins’ Railway
Library of Stanford University; and that of the State Library at
Sacramento. Use has also been made of data in the office of the
Secretary of State of California and of the State Railroad Commission.
In certain cases the manuscript has been submitted to officials of
the Southern Pacific Company for their comment, or to shippers or
business men who were believed to be well-informed. The work has been
more or less actively in progress over a period of eight years so that
there has been more than usual opportunity for checking, comparison of
views, and the testing of material. It is the author’s hope that he has
at least examined all the significant classes of information on the
particular subjects which he has discussed. With a subject so extensive
it is rarely, if ever, possible to reach all the fugitive literature,
or to consult all the living men from whom opinions or scraps of
information might be obtained. The most that can be said is that there
has been a diligent search, with good facilities, through a number of
years.

The conclusions which the writer has himself reached with respect
to the political and business activities of the Southern Pacific in
California, he has explained in the book at length and will not now
repeat. There is claimed for them no more conclusiveness than the facts
presented in each particular case may justify, although the conclusions
are free from conscious bias, and the author’s own interests are
engaged on neither side.

Acknowledgment is hereby made of the courtesies extended by the
libraries of Berkeley, Palo Alto, and Sacramento, and of the patient
attention which individuals have given to particular portions of the
book.

STUART DAGGETT

Berkeley, California,
February 1, 1922.

CONTENTS

CHAPTER PAGE

I INCEPTION OF THE PROJECT 3

II RESOURCES FOR CONSTRUCTION—STATE AND LOCAL AID 21

III FEDERAL LAND GRANTS AND SUBSIDIES 45

IV PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES 65

V THE SEARCH FOR A TERMINAL 83

VI ACQUISITION OF THE CALIFORNIA PACIFIC 104

VII BUILDING OF THE SOUTHERN PACIFIC 119

VIII ORGANIZATION OF THE CENTRAL PACIFIC-SOUTHERN
PACIFIC SYSTEM FROM 1870 TO 1893 140

IX THE CASE OF DAVID D. COLTON 154

X FINANCIAL DIFFICULTIES FROM 1870 TO 1879 169

XI THE RAILROAD COMMISSION OF 1880 TO 1883 181

XII THE SOUTHERN PACIFIC AND POLITICS 199

XIII WATER COMPETITION 222

XIV THE RATE SYSTEM OF THE CENTRAL PACIFIC 237

XV LOCAL RATES IN CALIFORNIA 257

XVI THE TRANSCONTINENTAL TARIFF 275

XVII THE TRAFFIC ASSOCIATION OF CALIFORNIA 293

XVIII THE SAN FRANCISCO AND SAN JOAQUIN VALLEY
RAILWAY 317

XIX OPERATING CHARACTERISTICS OF THE SOUTHERN PACIFIC
LINES 347

XX THE THURMAN ACT 370

XXI FINAL SETTLEMENT OF THE CENTRAL PACIFIC INDEBTEDNESS
TO THE GOVERNMENT 395

XXII THE SOUTHERN PACIFIC MERGER CASES 425

XXIII OIL AND TIMBER LAND LITIGATION 441

XXIV FINAL REMARKS 454

ILLUSTRATIONS

PAGE

“The Golden Gate” (_Frontispiece_)

Theodore Dehone Judah (opposite) 6

Sketch of train on the Sacramento Valley Railroad 1860 ” 10

Leland Stanford ” 16

Henry P. Coon ” 32

Chas. Crocker ” 66

Summit Valley, Emigrant Mountain and Railroad Pass ” 72

Summit tunnel before completion—Sierra Nevada Mountains ” 80

Map of Oakland and Brooklyn 93

Boundaries of Railroad Tide-Land Grant, as proposed in 1868 96

Map of California Pacific Railroad 106

Map showing northern end of the San Francisco and San José
Railroad in 1862 121

Proposed route of the Southern Pacific Railroad, January 3, 1867 124

View south from over the San Fernando tunnel—Southern Pacific
Railroad (opposite) 128

David D. Colton ” 160

Mark Hopkins ” 176

George Stoneman ” 192

C. P. Huntington ” 208

Chart showing rates on second-class freight and on grain in the
Sacramento Valley, 1876 260

Chart showing rates on miscellaneous commodities in the San
Joaquin Valley, 1892 261

Diagram showing adjustment of freight rates between San Francisco
and Stockton, 1916 266

Diagram showing adjustment of freight rates between San Francisco,
Santa Rosa, and Sebastopol, 1916 268

Diagram showing adjustment of freight rates between Los Angeles
and points north and east of Los Angeles, 1916 269

Map showing the line of the San Francisco and San Joaquin Valley
Railway, together with portions of the systems of the Southern
Pacific and of the Atchison, Topeka and Santa Fé, 1898 325

Map showing mileage owned in 1913 by the Central Pacific Railway
and the Southern Pacific Railroad (opposite) 432

CHAPTERS ON THE HISTORY

OF THE

SOUTHERN PACIFIC

CHAPTER I

INCEPTION OF THE PROJECT

Significance of the History

The history of the Southern Pacific and the railroad companies
connected with it affords one of the many examples in American economic
life of a great industrial organization built up from small beginnings
within the lifetime of one group of men. It is a story full of the
interest which attaches to constructive achievement in any line. When
we remember that as late as 1870 there was no railroad west of the
Mississippi-Missouri River except the Northern, Union, Kansas, and
Central Pacific railroads, which possessed a mileage as great as 300
miles, and when we recall that in 1860 the total railroad mileage of
the states in this same territory amounted to only 6,000 miles, we are
able to form some idea of the successful energy which created a system
of 861 miles of railroad in the course of six and one-half years,
across an unsettled country, in the face of obstacles due to climate,
altitude, and distance from centers of traffic and of finance.

The history of the Southern Pacific is significant, however, for still
other reasons than because it illustrates what men can do in spite of
serious difficulties. The company’s record is important to the student
of transportation problems because there is embodied in it much of the
experience of the Pacific Coast with respect to railroad construction,
railroad finance, railroad rate-making, and the relation of railroad
corporations to the public at large, as represented by local, state,
and national governments. What the Pacific Coast, and what in
particular the state of California know, first hand, of the habits and
policies of railroad corporations, is mainly derived from contact with
the Southern Pacific Railroad and its auxiliary companies.

The narrative that follows is offered as a contribution from the far
western portion of the United States which may help to explain the
attitude of that section toward transportation matters; as well as an
account of some phases of the earlier development of a railroad system
which is now one of the most powerful in all the country, whether we
compare this system with the railroads of the East or with those of the
West.

The Southern Pacific system today embraces lines from Ogden and New
Orleans on the east, to Portland, San Francisco, and Los Angeles on the
west. The part of the system first built, however, and at all times the
most important part of it, is that section reaching from a few miles
west of Ogden, Utah, to the cities of Sacramento and San Francisco.
This portion of the larger system was built and is owned by the Central
Pacific Railroad Company.[1] It is therefore to the circumstances
attending the construction of this portion of the line that attention
will first be directed.

Early Activities of Theodore Dehone Judah

The promoter of the Central Pacific Railroad was a young engineer named
Theodore Dehone Judah. Judah was born in Bridgeport, Connecticut. He
obtained his first experience in railroad building on the Troy and
Schenectady Railroad in New York. Later he built a railroad down the
gorge of the Niagara River to Lewiston, served as resident engineer
on the Erie Canal, and in 1854 had charge of the Buffalo and New
York Railroad then building to connect with the Erie. This was a
responsible position for a man with so brief a period of training.
When Judah came to California in 1854 he was only twenty-eight years
of age. He was soon to make it evident, however, that he possessed
more than respectable engineering ability, while he also displayed a
capacity for sustained enthusiasm in connection with the project for
a transcontinental railroad which eventually overcame all obstacles
and resulted in the formulation of definite and successful plans for a
transcontinental line.[2]

Judah began work in California as engineer of the Sacramento Valley
Railroad. He left the service of the company, however, before the
road was finished to Folsom. Subsequently he made a survey for a
railroad from Sacramento to Benicia, and also one for a short branch
on the California Central Railroad. Still later he was employed by
the trustee of the Sacramento Valley Railroad, J. Mora Moss, and the
superintendent, J. P. Robinson, to explore the Sierra Nevada Mountains
for wagon road routes north of the south fork of the American River,
and at the same time to act as agent for the Sacramento Valley Railroad
in soliciting freight.

Details of Judah’s activities between 1854 and 1860 are difficult to
obtain. We know that he visited Washington in order to procure the
passage of a bill making grants of land to California for railroad
purposes. In 1859 he was the delegate from Sacramento to the Pacific
Railroad Convention, where he urged the importance of a thorough
survey before any decision should be made regarding the route of a
transcontinental railroad. When the convention adjourned he was sent to
Washington at his own expense to urge the passage of a bill such as
the convention favored. He returned in 1860 without having accomplished
his purpose, but convinced that Congress was in favor of granting
federal aid to a railroad to California from the East, and that it
would act when more important matters had been disposed of.[3]

Discovery of Transcontinental Route

It was after Judah’s return from Washington in 1860 that he undertook
the explorations for the Sacramento Valley Railroad to which reference
has been made. Doubtless while engaged on this work he visited Dutch
Flat, and doubtless also his enthusiasm for a transcontinental railroad
became generally known. Judah was no mountaineer, but he could readily
profit by the knowledge of men acquainted with the country. Such a man
he found in Daniel W. Strong, a druggist at Dutch Flat, who accompanied
him on his explorations. We have Strong’s statement that he himself
conceived the idea that immigrant travel could be diverted through the
Dutch Flat country by the construction of a railroad, and that he hired
assistants, made a reconnaissance, and found a continuous divide over
which he thought a road could pass. Knowing that Mr. Judah was trying
to find a pass over the mountains, he wrote to him, and Judah came from
Sacramento to Dutch Flat. Strong says that he showed Judah the route he
had discovered, and that Judah thought well of it.[4]

[Illustration: Theodore Dehone Judah]

Such is Strong’s testimony given years afterwards, when the Central
Pacific had proved a success, and it was a distinction to have been
connected with it. It is possible that Strong overestimated his
contribution to the work. Yet the essential fact is that Judah was in
the mountains in August, 1860, and that he or Strong, or both of them
hit upon a route which Judah pronounced practicable. One may hazard
the guess that Strong pointed out a pass and Judah tested it with
instruments.[5] Mrs. Judah repeats the story as she heard it:

It was in the drug store of Dr. Strong at Dutch Flat that the first
profile was marked out from notes taken by them (Judah and Strong).
Judah could not sleep or rest after they got into town and the store,
till he had stretched his paper on the counter and made his figures
thereon. Then, turning to Dr. Strong, [he] said for the first time,
“Doctor, I shall make my survey over this, the Donner Pass, or Dutch
Flat route, above every other.”[6]

Appeal for Funds

Judah drew up articles of association for a company late in 1860, and
endeavored to get subscriptions for stock, but without much success.
Meanwhile, the publication in the newspapers of information relating
to the Dutch Flat route cost him his position with the Sacramento
Valley Railroad, for the trustee of the company, J. Mora Moss, took the
position that the information acquired by Judah while an employee of
the Sacramento Valley belonged to the railroad company, and should not
have been published without its consent. It is said that Judah was very
indignant, but to no avail.[7]

By October or November, 1860, the record thus shows that Judah had
satisfied himself of the existence of a railroad route across the
Sierras, and that he was intensely interested in having this railroad
built. He was not personally a man of capital, although not entirely
without means, and success in transforming his bare project into an
actual operating line depended entirely upon the financial support
which he could obtain. In November, accordingly, we find Judah
endeavoring to give wide circulation to the results of his discoveries.

Under date of November 1, 1860, a circular letter was issued directing
the attention of the public to “some newly discovered facts with
reference to the route of the Pacific Railroad through California.”
This letter asserted that a practicable line had been discovered “from
the city of Sacramento upon the divide between Bear River and North
Fork of the American, via Illinois Town and Dutch Flat, through Lake
Pass on the Truckee River, which gives nearly a direct line to Washoe,
with maximum grades of 100 feet per mile.” The estimated length of
line in California was 115 miles. It was said that if the Pacific
Railroad bill then pending in Congress should be passed, providing an
appropriation of $13,000 per mile from the navigable waters of the
Sacramento River to the base of the Sierra Nevadas; thence $24,000
per mile to the summit; thence an additional $3,000 per mile for
each degree of longitude crossed until the 109th degree was reached,
the entire road could be graded without appeal to private investors,
leaving only the iron, rolling stock, etc., to be provided from private
means. The projected railroad might connect with the Sacramento Valley
Railroad at Folsom, or with the California Central Railroad at Lincoln.
Subscriptions were asked to an amount of $1,000 per mile for 115 miles,
with 10 per cent paid in, to allow the organization of a company under
the state law; and it was promised that the money subscribed would be
used to make a thorough, practical railroad survey.[8]

In a letter dated the previous day, and addressed to John C. Burck,
member of Congress from California, Judah added a few details:

We go out of Summit Valley through what I call Lake Pass, while
Fremont’s route, or the old Emigrant road, goes over Truckee Pass,
which is about 700 feet higher, and a few miles off my route. We
strike the foot of Truckee Lake, or the cabins of the Donner party,
nine miles from the summit, and from there it is an easy grade down
the Truckee River, descending about 40 feet per mile, over a smooth
country. The elevation of the pass is 6,690 feet. There are two other
passes leading out of Summit Valley, which I had not time to explore,
but either of them are practicable, although a little higher. This
route is at least 150 miles shorter than the Beckwourth route; crosses
the state at the narrowest point, and is on a direct line to the
Washoe mines. I will undertake to build a railroad over this route in
two years, for $70,000 per mile, from Sacramento City to the state
line or Washoe. Thus the question of crossing the Sierra Nevada, I
consider solved.

After the tentative organization of his proposed railroad, and
the publication of the news of his discoveries in the newspapers,
Judah went to San Francisco. He managed to get in touch with some
capitalists, but was unable to secure their support. If Congress did
not pass a Pacific Railroad bill, they said, no railroad could be
built; if a bill was passed, the road still could not be completed for
ten or twenty years. They had other interests, and were disinclined to
consider a scheme of this sort, however technically feasible. If we may
believe the newspapers of the time, no inconsiderable reason for the
reluctance of the men approached was the provision of the constitution
of California making stockholders liable for their proportion of all
the debts and liabilities of any company in which they held stock.[9]

Sacramento Meetings

When he failed to secure support in San Francisco, Judah went to
Sacramento. The city of the plains, as it was then affectionately
called by its inhabitants, was less wealthy than San Francisco, but for
that very reason might be expected to take an interest in a project
which promised her, for some years at least, a position of relative
advantage with respect to the trade of the interior. The leading
newspaper in that city, the _Sacramento Union_, could be counted on to
support any plausible Pacific railroad scheme for political reasons.
The citizens had further the advantage of first-hand experience with
the workings of the Sacramento Valley Railroad, which had been opened
from Sacramento to Folsom in 1856, and was still the only railroad in
the state.

It does not, however, appear that these various factors stirred the
people of Sacramento to any extraordinary enthusiasm over Judah’s
scheme, or that they regarded him in any other light than that of an
engineer with a risky plan, which it was very desirable to have someone
other than themselves finance. Judah, however, called a meeting at a
local hotel, and people came. He told them he had made twenty-three
barometrical reconnaissances over the Sierras, and had found a line.
He needed money to carry the project further, in particular to make
a thorough instrumental survey, and he asked them what they would
subscribe. Nobody subscribed very much. Huntington says that some gave
a barrel of flour, and some a sack of potatoes. Still, the additional
subscriptions necessary to the legal organization of Judah’s company
probably amounted to as much as $56,500[10] on the 115 miles of line
contemplated, and small miscellaneous offerings were not likely to
carry the promoter very far.

Collis P. Huntington

It is at this juncture that we first hear the names of Collis P.
Huntington, Leland Stanford, Charles Crocker, and Mark Hopkins, all
prosperous business men in Sacramento. Huntington and Hopkins ran
one of the largest hardware stores in the town. Stanford and Crocker
were merchants, and in addition, Stanford had dabbled in California
politics to the extent of becoming a candidate for the position of
state treasurer in 1857 and for that of governor in 1859, getting badly
beaten on both occasions. It is difficult, even at this late date,
to estimate the qualities of the four men with confidence. Beyond
question, Huntington had the greatest genius for business of the four.
Born in Connecticut, and self-supporting from the age of fourteen, he
was a trader _par excellence_. In his youth he peddled watch findings
from New York to the Missouri River. Later, it is related of him that
he started for California with a capital of $1,200, which he increased
to $4,000 during an enforced stay of three months on the Isthmus of
Panama. He was cool, calculating, unscrupulous, a tireless worker,
and a man with few interests outside of work. Enterprise for the
public good interested him little. He had few friends, and some of
these he lost in later years. Narrow in his sympathies, vindictive,
sometimes untruthful, sarcastic, and domineering, he gained his success
through the keenness of his mind and the energy and persistence of his
character, and also through qualities of courage and imagination which
were not absent from his business plans.

[Illustration: Sketch of train on the Sacramento Valley Railroad,
1860]

Leland Stanford

Stanford was a New York lawyer, who had practiced four years in
Wisconsin between 1848 and 1852, and had emigrated to California in the
last-named year to seek his fortunes in that state. Stanford came to
California poor as the proverbial church mouse. Bassett, who was later
his secretary, and who was likely to know the facts, says that two of
Stanford’s brothers set him up in business in El Dorado County, near
Latrobe, with a stock of miners’ supplies. Here Stanford remained a
while, in partnership with a man named Smith. Stanford and Smith were
said to have done a good business. They thought they were making money
until they found that the San Francisco firm with which they dealt was
charging them interest on unpaid balances; whereupon they promptly
closed up, retiring with their debts paid, but with very little cash.

From El Dorado County Stanford went to Michigan Bluffs, in Placer
County, still trading, and in 1855 he moved to Sacramento to take over
the business which his brothers had established there. Presumably his
operations in Michigan Bluffs had provided him with a little capital.
What was quite as much to the point, he had made a number of friends
in the mining district, and it is not unreasonable to suppose that his
attention had been directed toward politics. In 1857 and 1859, as has
been mentioned, he ran for office, but without success. About this time
a prospector in the vicinity of Auburn struck a rich pocket of decayed
quartz. He knew Stanford, and put his name down for an interest in the
claim. From this mine Stanford is reported to have cleaned up about
$60,000, a sum which put him in comparatively easy circumstances. In
1861 Stanford ran again for the office of governor, and this time was
elected on the Republican ticket. He cannot be said to have yet shown
any talent for statesmanship, but he was known as a staunch Union man
and a faithful Republican, and he had a local popularity besides, which
could be trusted to bring in some votes. After his term of office as
governor, Stanford held no political position until 1885, when he
was elected United States senator in place of A. A. Sargent. This
office he retained until his death. He appears at one time to have had
aspirations towards the presidency of the United States, though his
candidacy could hardly have been considered seriously. Certainly he
served with distinction neither as governor nor as senator.

Stanford’s most marked traits were tenacity of purpose, and a certain
rude energy in execution. His associates credited him with great
solidity of judgment. Like Huntington, he was unscrupulous in the
methods which he employed to reach his ends, but, unlike him, he showed
ambition if not capacity outside of the business field. In private
life, Stanford was distinguished by his love of horses, and by his
donations to the university founded in memory of his son. One must hold
him inferior to Huntington in business affairs, vain and extravagant.
Yet not only his political influence, but the virile power of the man,
the attitude of mind which once led an enemy to say of him that “no she
lion defending her whelps or a bear her cubs, will make a more savage
fight than will Mr. Stanford in defense of his material interests,”
were invaluable to the transcontinental railroad project in the years
of its development.[11]

Crocker and Hopkins

The other two members of the quartette may be dismissed with fewer
words. Charles Crocker had no more education than Huntington. He
had been peddler, iron maker, gold miner, and trader. In 1855 he
was alderman of the city of Sacramento. First and last, his strong
point was the handling of men. It was Crocker who drove the work of
construction, roaring up and down the line, as he put it, like a mad
bull. In deciding the larger problems of policy which arose later,
there is no evidence that he had an important part. Indeed, Crocker
endeavored to sell his holdings to his associates in 1871, and only
continued in the organization because the others proved unable to buy
him out.[12]

Last of all, we have to mention Mark Hopkins, the “inside man.” Hopkins
died in 1878, so that his connection with railroad work lasted only
fourteen years, and during part of this time he was ill. Less is known
of him than of any of his associates. He was the man of detail, the
careful scrutinizer of contracts. He was Huntington’s partner in the
hardware business for twenty-four years, and yet in all that time,
according to Huntington, he never bought or sold as much as $10,000
worth of goods.[13] That is to say, he was no trader. Bancroft speaks
of him as the balance wheel in the business. We hear of him later as
objecting to personal indorsements by the partners of Central Pacific
notes. Mr. Crocker once said of him that he was a long-headed man
without much executive ability but a wonderfully good man for an
executive officer to counsel with. Possibly such a man played a useful
part in the Central Pacific organization.

Survey Financed

Huntington, Stanford, Hopkins, and Crocker knew each other as merchants
will. Crocker and Stanford may also have met in a political way. The
four of them seem to have been friends, at least as early as 1860.
Now it appears that Huntington and Crocker, and possibly Stanford and
Hopkins also, attended one of Judah’s meetings in Sacramento, and were
somewhat impressed by his statements. This was the second stage in the
Central Pacific enterprise, when the promoter was in the presence of
capitalists, and was seeking to convince them that a probability of
profit lay in his plans. Huntington says that he spoke to Judah after
the public meeting, and that Judah came to his house the following
evening. He adds that subsequently he, Huntington, talked with Hopkins
and Stanford, and persuaded them to join him in contributing the money
necessary to finance an instrumental survey across the mountains. Other
persons who agreed to share in the expense were Charles Marsh, James
Peel, L. A. Booth, and Judah himself—each assuming one-seventh of the
cost.[14] Charles Crocker was brought in a little later.

The attitude of all these men was of course cautious. Judah had caught
their attention, but as yet they would not commit themselves very far.
The survey might cost them fifteen or twenty thousand dollars apiece,
and they might never go further with the scheme. They thought they
could build a railroad if anyone could, and there might be money in
it, yet they knew that even to finance surveys involved considerable
risk.[15]

Likelihood of Government Aid

Although we have no direct evidence to this effect, it seems very
probable that the chance of profit to be secured in building a
transcontinental railroad under government auspices stood out more
prominently in the eyes of Huntington and his friends than any
consideration of the ultimate earnings of the railroad, once it should
have been built. What should two dry goods merchants and two dealers
in hardware, who knew nothing first hand about railroad operation,
have cared about the administration of a railroad 800 miles long?
If they wanted interest on an investment, why money commanded 2 per
cent a month in Sacramento itself. Only the prospect of still greater
gains was likely to attract a speculative trader like Huntington, and
the source of such profit could be found only in construction of the
road. If this was the real inducement, and if the likelihood of a
government subsidy was kept in mind from the first, it was fortunate
for Mr. Judah that, owing to his familiarity with conditions both
at Washington and in California, he was in a position to inform his
prospective clients of the likelihood of government aid no less fully
and authoritatively than he could advise them concerning routes over
the Sierras.

Indeed it was only on the question of government assistance that
Judah could supply business men of Sacramento with information of a
definite sort. He really knew little about the probable cost of a
transcontinental line. In his original report of November, 1860, he had
declared that the Central Pacific could be built for an appropriation
ranging from $30,000 to $72,000 per mile, varying with the difficulty
of the ground; but this was an estimate based on a very cursory
examination of the line, and could pretend to no exactness. Possibly
he was influenced by the fact that the Sacramento Valley Railroad had
been contracted for in 1854 at $45,000 per mile, payable 44 per cent
in capital stock of the company, 39 per cent in 10 per cent bonds, and
17 per cent in cash. This was equivalent to perhaps $33,000 in cash.
The contract price in this case did not include, however, the cost
of right-of-way, depot grounds, and engineering expenses, for which
additional stock was reserved.[16] Only one year later, when the first
instrumental survey of the Central Pacific was completed, Judah was
forced to change his estimate to $88,428 per mile for the first 140
miles of that railroad, including 51 miles estimated at $1,000,000 per
mile or above. Even these figures were later revised.

Estimating Probable Earnings

Nor was Judah’s information about probable earnings a great deal
more trustworthy than that relating to probable costs. There are
various ways of estimating the earnings which a new railroad is
likely to secure—yet all of them may give curious results when
applied to territory which has never enjoyed the benefits of any rail
transportation at all, as was substantially the case with California
before the Civil War. In general, engineers in California had to reckon
with the facts that the population of the state was small; that it
had only three cities of importance—San Francisco, Sacramento, and
Stockton; that there was but one important business, mining; and that a
dense traffic could accordingly be expected only in the distant future
after the development of the country served. As a practical expedient
most engineers in California who desired elaborate data had some more
or less careful count made of the business moving over their projected
route by pack train, wagon train, stage, or boat, and then made the
broad assumption that this same volume, or this volume increased
by an assumed factor, would move over a railroad during its early
years. Such was the nature of the estimate made by the incorporators
of the Sacramento Valley Railroad in 1853,[17] of the Stockton and
Copperopolis in 1862,[18] of the Placerville and Sacramento Valley
Railroad in 1863,[19] and of the North Pacific Coast in 1873.[20] Judah
had no greater facilities than other engineers of the time, and in his
own estimates followed the prevailing custom.[21]

[Illustration: Leland Stanford]

Estimates of this nature were not accurate, and it was unreasonable to
suppose that they should be accurate. Judah in 1862 put the probable
gross receipts of the Central Pacific on the first 160 miles out of
Sacramento at $4,654,240, or $29,089 per mile. Mr. Montague, who
succeeded him, estimated the annual receipts as far as Dutch Flat at
$27,209 per mile and for the whole road, as far as Nevada Territory, he
named the figures of $5,456,050, or $34,100 per mile. These were very
optimistic figures. As a matter of fact, the earnings of the Central
Pacific never much exceeded $14,000 a mile, and during the early
period, up to 1870, were as often below $10,000 a mile as they were
above it. If it had not been for an operating ratio which in 1866 and
1867 touched the extraordinary figure of 23 per cent, and which did not
reach 50 per cent until 1877, the owners of this road could scarcely
have kept it out of receivers’ hands, so great was the miscalculation.

Organization of Company

We may assume, then, that Huntington and his friends went into the
Central Pacific project as a speculation from which they hoped to
retire with a profit derived largely from construction paid for out of
government funds. Adopting this assumption, the next steps in advancing
the enterprise may be briefly described. The meetings in Sacramento
which have been mentioned took place in the winter of 1860-61. No
progress in surveys could be made at that time, while the Sierra passes
were covered with snow. In April, however, a meeting of subscribers
to the stock of the Central Pacific Railroad was held in Sacramento,
and on the 28th of June, 1861, a company was organized under the
general law of the state, to be known as the Central Pacific Railroad
of California. The capital of this corporation was set at $8,500,000,
divided into shares of $100 each. The railroad contemplated was to
run from Sacramento to the eastern boundary of California, over an
estimated distance of 115 miles. Huntington, Hopkins, Stanford, and
Crocker subscribed to 150 shares each, as did James Bailey and Theodore
Judah. Charles Marsh took 50 shares, and other parties varying, but
lesser amounts, to a total of 1,245 shares, or more than the $1,000
per mile required by the law. Leland Stanford, Charles Crocker, James
Bailey, Theodore D. Judah, L. A. Booth, C. P. Huntington, Mark Hopkins,
D. W. Strong, and Charles Marsh were the first directors.

Instrumental Survey Made

As soon as the season permitted, Judah was sent back into the
mountains, and in October, 1861, the directors had before them the
substance of his second report, this time based on an instrumental
survey. Judah now thought that a railroad from Sacramento to the state
line would cost $12,380,000, or $88,428 per mile. He did not push his
surveys beyond the point at which he reached the Truckee River, but
from his general knowledge of the country he estimated that the 451
miles between Lassen’s Meadows and Salt Lake could be built for $45,000
per mile, and that the whole road of 733 miles could be constructed for
$41,415,000, or an average of $56,500 per mile.[22]

In every way this second report was a more careful piece of work
than the one which had preceded it. The new route differed from that
recommended in November, 1860, mainly in that it ran from Sacramento
through Lincoln and Centralia instead of through Folsom, and also in
the greater detail of its location. The principal characteristics of
the line were two: (1) that it followed a nearly continuous ridge from
Lincoln to the summit of the mountains, and (2) that east of the summit
the road wound down the side of the mountain to Lake Truckee, following
the Truckee River from the lake in the direction of Humbolt Sink, and
entirely avoiding the second summit of the Sierras and the crossing of
the Washoe Mountains.

This is substantially the line of the Central Pacific today. The
maximum grade which Judah allowed himself was 105 feet to the mile.
Judah did not at this time re-examine alternative routes via Georgetown
and via Henness Pass, which he had considered and rejected the previous
fall. Nor did he refer to the line via Beckwourth’s Pass, the present
route of the Western Pacific, which he later admitted to be easier in
grade, if longer in distance, or to the possibility of a route directly
east from Folsom via Placerville around the south end of Lake Tahoe. It
is probable, however, that these two last-named routes were familiar to
him in a general way, as considerable quantities of freight consigned
to the Nevada mines were already moving over them.

Emphasis should be laid upon Judah’s survey of October, 1861, because
the continuance of the Sacramento capitalists in the enterprise
depended upon its favorable outcome. After it was completed Huntington
and his friends became, on the whole and except during certain
intervals of weakness, inclined to see the project through even at
the risk of their personal fortunes, provided reasonable government
assistance could be secured. It was with this understanding that Judah
went back to Washington in 1861 to procure the passage of needed
legislation, and it was in this spirit that a formal beginning of
construction upon the Central Pacific was made at Sacramento on January
8, 1863.

CHAPTER II

RESOURCES FOR CONSTRUCTION—STATE AND LOCAL AID

Source of Funds

Some years after the Central Pacific and Western Pacific railroads were
completed, Leland Stanford laid before a committee chosen by Congress
the following memorandum showing the receipts of these two roads from
all sources up to December 31, 1869:

MEMORANDUM SHOWING THE RECEIPTS OF THE CENTRAL AND WESTERN PACIFIC
RAILROADS FROM ALL SOURCES TO DECEMBER 31, 1869

Approximate
Par Sum
Source of Funds Value Realized

United States bonds issued to Central and
Western Pacific $27,855,680 $20,735,000
Central and Western Pacific first mortgage
bonds 27,855,560 20,750,000
Central Pacific convertible bonds 1,483,000 830,000
Central Pacific state aid bonds 1,500,000 980,000
City and County bonds:
San Francisco to Central Pacific 400,000 300,000
Sacramento to Central Pacific 300,000 190,000
Placer County to Central Pacific 250,000 160,000
San Francisco to Western Pacific 250,000 175,000
San Joaquin County to Western Pacific 250,000 125,000
Santa Clara County to Western Pacific 150,000 100,000
Land sales, balance Central Pacific 107,000
Profit and loss balance, January 1, 1870 1,610,000
———————— ———————————
Total $46,062,000
Company owed Contract and Finance Company 1,827,000
———————————
Grand total $47,889,000

We have in the foregoing table a summation of the resources on which
Judah and the Huntington group were able to draw in order to build a
transcontinental road. It will be noticed that there is no mention
in the table of the personal fortunes of the associates, unless the
contribution of these gentlemen appears in the profit and loss balance,
or in the debt to the Contract and Finance Company—none of the
earnings of the railroad during construction, and none of the proceeds
of the sale of Central Pacific capital stock. Under these categories
some slight addition to Stanford’s list must probably be made, though
the importance of the addition will not be great.

Collectively the fortunes of the associates, while considerable, were
not sufficient to cover more than the preliminary expenses of the work.
Judah had but little capital, while, according to Huntington’s own
statement some years later, the combined assets of Stanford, Crocker,
and the firm of Huntington and Hopkins, amounted to something like
$1,000,000 when the construction of the Central Pacific was begun.[23]
Other estimates put the figure at $160,000,[24] or even as low as
$109,000.[25] We do not know, as a matter of fact, how much property
the associates possessed, but we do know that it was slight compared
with the undertaking which they had in hand.

Earnings and Stock Issues

Probably, indeed, the earnings of the Central Pacific Railroad during
construction were more important than the contributions of the
partners. Between 1863 and 1869, according to the calculations of the
United States Pacific Railway Commission, the gross earnings of the
Central Pacific amounted to $10,807,508.76, its operating expenses
to $4,700,625.56, and its net earnings to $6,106,884.20. The surplus
after the deduction of interest and taxes for this period amounted to
$2,427,533.80.[26] Most of these earnings came from local business,
although an attempt was made to provide facilities for through travel
before 1869, by arranging stage accommodation for stretches not yet
covered by rails.

If we add three or four million dollars to the receipts listed in
Stanford’s table, we shall have made liberal allowance for railroad
earnings and partnership contributions up to 1869. This allowance
would not be materially increased if account were taken of sales of
Central Pacific stock. The authorized stock issue of the Central
Pacific Railroad in 1862 was $8,500,000. In 1864 this was raised
to $20,000,000, and in 1868 it was made $100,000,000. In spite of
these large issues, the evidence is perfectly clear that there were
substantially no cash subscriptions to Central Pacific stock, nor any
market for this stock when issued. It is on record, for example, that
one M. D. Boruck opened an office at the corner of Bush and Montgomery
streets in San Francisco on behalf of the company, and kept it open,
off and on, for about twenty-two days in November and December, 1862,
and in February, 1863. He secured three subscriptions to an aggregate
of twelve or fifteen shares.[27]

We know also that Crocker went personally to Virginia City to sell
stock, but without success. He says of this experience:

They wanted to know what I expected the road would earn. I said I did
not know, though it would earn good interest on the money invested,
especially to those who went in at bed rock. “Well,” they said, “do
you think it will make 2 per cent a month?” “No,” said I, “I do not.”
“Well,” they answered, “we can get 2 per cent a month for our money
here,” and they would not think of going into a speculation that would
not promise that at once.[28]

Stanford says that he bought 2,300 shares of Central Pacific at
ten cents on the dollar at one time, in order to accommodate a
stockholder,[29] and it appears that Charles and A. B. Crocker
transferred their stock to Huntington, Hopkins, and Stanford in 1873,
for $13 a share.[30] No attempt to sell Central Pacific stock generally
was made until 1873, and it was not listed on the Stock Exchange until
1874.[31]

Bond Sales

As a matter of fact, there was no sale at the beginning even for
Central Pacific mortgage bonds. Huntington went to New York to get
these securities started among the moneyed men there, and after a while
he had some small success. But D. O. Mills gave it as his deliberate
judgment on a later occasion that there was the greatest difficulty in
securing loans on the bonds the Central Pacific had to offer—including
government, county, convertible, state aid, and first mortgage
bonds—to as much as 75 per cent of the face value of the issues.[32]
Iron for the first 50 miles out of Sacramento was delivered to the
associates only after they had given their own personal obligations
secured by deposit of the company’s bonds. An agreement was entered
into, besides, that Huntington and his friends would be responsible,
as individuals, for ten years, for the payment of interest on these
bonds.[33]

After 1864 conditions improved somewhat, and first mortgage bonds were
disposed of at about 75, while convertible and state aid bonds brought
56 and 65 respectively.[34] Yet at the time when the construction of
the Central Pacific Railroad was finished the private property of every
one of the directors of the company was mortgaged up to the limit of
all his individual credit would possibly allow and bear. The notes of
the four associates were outstanding everywhere, many of them bearing
interest rates as high as from 10 to 12 per cent, and the statement is
made that Leland Stanford alone upon one occasion had his account at
the bank overdrawn to the extent of $1,300,000.[35]

The consideration of possible Central Pacific Railroad receipts, other
than those derived from government aid and perhaps from the sale of
the company’s first mortgage bonds, brings us back to Stanford’s list
as containing substantially all the assets upon which the promoters of
the Central Pacific were able to rely. Almost half of these assets were
derived directly from political bodies of one type or another, and the
value of the remainder of those assets was dependent for the most part
upon the security which was afforded by the government donations made
to the company.

State and Local Grants

Let us now consider with more care the circumstances under which
the local and federal authorities extended such generous aid to the
transcontinental project, and the extent and quality of the aid given.
We may begin with the state and local grants, and in order to assist
the reader, a portion of the table which was printed on page 21 will
be set forth again at this point in slightly changed form. As thus
presented the table is as follows:

AID DERIVED BY CENTRAL AND WESTERN PACIFIC RAILROADS FROM STATE AND
LOCAL GOVERNMENTS IN CALIFORNIA

Approximate
Par Sum
Source of Aid Value Realized

Aid by Cities:
San Francisco, donation to Central
Pacific $400,000 $300,000
Sacramento, subscription to Central
Pacific 300,000 190,000
San Francisco, donation to Western
Pacific 250,000 175,000

Aid by Counties:
Placer County, subscription to Central
Pacific 250,000 160,000
San Joaquin County, subscription to Western
Pacific 250,000 125,000
Santa Clara County, subscription to Western
Pacific 150,000 100,000

Aid by State:
Assumption of interest for twenty years on
$1,500,000 7 per cent bonds.

Arguments for Local Aid

Aid from local political bodies was considered legitimate in the early
sixties, and was extended freely to a great number of corporations.
Voters were told that the construction of railroads increased land
values. Until transportation should be improved, it was argued,
agriculture could make but little progress, because the products of
agriculture could not be brought to market. The mining interest was
depressed in 1870, and in partial explanation publicists pointed out
that freight charges to the mines ranged from $50 to $180 a ton. Nor
was even more precise calculation lacking. An advocate of subsidies in
1870 stated:

It costs for passage to San Francisco from Visalia $25 and consumes
generally a day and a half. By rail the trip could be made in eight
hours, at a cost of $10, thus saving $15 and nearly a day in time.
If on the average, each adult makes one visit per annum to the upper
country, and taking 1,300, the number of registered voters, as the
adult population, it costs every passenger for the round trip $50 in
cash and three days in time—excess over railway fare, $30; board for
two extra days, $4; value of time at $2 per day, $4; total excess,
$38; total loss to 1,300 passengers, $49,400. I contend, therefore,
that the people of Tulare County are now actually paying, in addition
to the loss or inconvenience resulting from isolation from market,
the sum of $77,780 per annum, for the privilege of being without a
railroad.

There was little that was novel in this sort of argument, or in the
further contention that the increase of the tax roll of the counties,
due to railroad construction, would yield a revenue more than
sufficient to cover the taxes incident to the granting of a subsidy.
Better transportation meant wider markets, denser population, higher
values. Increasing values and volume of sales meant larger profits,
higher wages, lower prices, and generally growing prosperity. These
things were matters of reasonable anticipation, so that hard-headed
business men had quite as much ground as usually underlies business
action to approve of even a considerable pledge of state and county
property in order to hasten the building of a railroad system. It could
not be known whether or not railways would be constructed without
subsidies. As we look at the situation today it seems probable that
this would have been done, and that railroad building would not even
have been greatly delayed. The risk in waiting was, however, great,
and the difficulties of a conservative policy were enhanced by the
competition of towns, each seeking priority of railroad connection.

Playing Towns Against Each Other

There is evidence that the promoters of the Central Pacific were
perfectly aware of the possibilities of securing local subsidies by
playing one California town against another. Huntington wrote David D.
Colton in 1871 that the company ought to get a large amount of land and
other good things from parties having interests along the line between
Spadra and San Gregorio Pass, if it would build them a railroad on
which to get out.[36] T. G. Phelps, president of the Southern Pacific,
speaking in the same vein, told Colonel Baker, of Tulare, that it was
his private opinion that if that county would donate $100,000 to the
company, it would run its road through the town of Visalia. We also
know that pressure was brought to bear upon the city of Stockton, to
induce that city to grant a right-of-way, as well as other privileges,
to the Western Pacific,[37] and it is notorious that the fears of San
Francisco were played upon in order to obtain terminal facilities on
San Francisco Bay.

How this policy appeared from the point of view of the opponents of the
Central Pacific, may be gathered from a description offered by a member
of the Constitutional Convention of 1878:

They start out their railway track and survey their line near a
thriving village. They go to the most prominent citizens of that
village and say, “If you will give us so many thousand dollars we will
run through here; if you do not we will run by,” and in every instance
where the subsidy was not granted, that course was taken, and the
effect was just as they said, to kill off the little town. Here was
the town of Paradise, in Stanislaus County; because they did not get
what they wanted, they established another town 4 miles from there.
In every instance where they were refused a subsidy, in money, unless
their terms were acceded to, they have established a depot near to the
place, and always have frozen them out. As stated by the gentleman
from Los Angeles, General Howard, they have blackmailed Los Angeles
County $230,000 as a condition of doing that which the law compelled
them to do.

County Stock Subscriptions

Perhaps the earliest California statute in aid of railway construction
was the act approved May 1, 1852, granting to the United States a
right-of-way through the state for the purpose of constructing a
railway from the Atlantic to the Pacific oceans.[38] In 1857 the
supervisors of Yuba County were authorized to submit to the electors
of that county a proposal to subscribe $200,000 to a railroad between
Marysville and Benicia.[39] And during the following two years the
San Francisco and Marysville Railroad not only received a land
grant,[40] but secured an enactment, making it the duty of the Board
of Supervisors of Sutter County to submit to popular vote the question
of a $50,000 subscription to its capital stock,[41] and the duty of
the supervisors of Solano and Yolo counties to call elections in those
counties with similar intent.[42] No subscriptions were made under
these acts.

It seems to have been the intention of the legislature to treat the
Central Pacific and the Western Pacific railroads after the same
general fashion as other railroads had been treated—that is to say,
to allow counties and cities interested to subscribe freely to their
stock. By virtue of an act dated April 16, 1859, any county could so
subscribe up to 5 per cent of its assessment roll when popular approval
had been secured.[43] This was not, however, enough. Between March 21,
1863, and April 4, 1864, the legislature passed eight acts granting
special concessions to the Central Pacific and to the Western Pacific.
Mr. Stanford had become governor of the state in January, 1862, and
this legislation had of course his cordial approval.

In March, 1863, the supervisors of San Joaquin County were authorized
to hold a popular election on the question of subscribing $250,000 to
the capital stock of the Western Pacific.[44] In April, Placer County
was authorized to consider a subscription of equal amount to the stock
of the Central Pacific.[45] Next, Santa Clara County was authorized to
hold an election and to subscribe $150,000 to the Western Pacific, if
it so desired.[46] Sacramento received the same privilege in April,
to the extent of being permitted to take 3,000 shares of the Central
Pacific,[47] and was in addition allowed to give away rights-of-way
and certain rights of construction of considerable though indefinite
value;[48] while San Francisco was permitted to subscribe $400,000 to
the stock of the Western Pacific and $600,000 to that of the Central
Pacific, making $1,000,000 in all.[49]

Invariably subscriptions contemplated in the acts were to be made in
bonds running twenty or thirty years, and bearing 7 or 8 per cent
interest. Counties were to enjoy the usual privileges of stockholders,
but were protected by special clauses against the proportional
liability for debts of the corporation resting upon the ordinary
stockholder by virtue of state law. The proceeds of county bonds issued
in subscriptions were to be used for construction of the road, and it
was provided that at least an equal amount of other funds obtained
from stockholders was to be so used. It was thus the intention of the
legislature that funds for construction should not be entirely derived
from county subsidies.

Direct State Aid

In addition to the acts permitting county subscriptions, mention
should be made of two important acts by which the state granted direct
assistance. The first of these laws was dated April 25, 1863. It
authorized the comptroller of the state to draw warrants in favor of
the Central Pacific to the extent of $10,000 per mile, the warrants to
be issued when the first 20 miles, the second 20 miles, and the last 10
out of 50 miles were finished. These warrants were to bear 7 per cent
interest if not cashed, because of lack of money in the treasury to pay
them.[50]

The second act, dated April 4, 1864, repealed the act just quoted, and
proposed that the state government, instead of drawing warrants, should
assume interest on 1,500 of the company bonds, bearing 7 per cent, and
running for twenty years. This grant, like the earlier one, was made
on certain conditions, such as that the company should transport free
of charge public convicts going to the state prison, material for the
construction of the state capitol, troops, munitions of war, and the
like, that it should construct at least 20 miles of line annually,
and in the case of the Act of 1864, that it should deed over certain
granite quarries in Placer County.[51]

On the face of it this grant was illegal, because of clauses in the
state constitution which forbade the legislature to create liabilities
in excess of $300,000 without submitting the proposal to popular vote,
or to loan or give the credit of the state in any manner, in aid of any
individual, association, or corporation.[52] But it was sustained on
the theory that the act amounted to an appropriation in anticipation of
revenue, and so did not create a debt at all. Thus the company was able
to draw its first interest money in January, 1865.[53]

Opposition to Aid in San Francisco

The various acts just referred to were of course permissive, yet in
general the counties seemed very willing to give up to the limit of
their legal power. The two exceptions were the county of Placer and
the city and county of San Francisco. In Placer County there was a very
active campaign against the bonds, supported by newspapers such as the
_Placer Herald_ and the _Advocate_. The proposal for a bond issue was
carried, but only by a majority of 409 in a total vote of 3,810.[54]

In the case of San Francisco, the city delegation in the legislature
divided five to five on the proposal to authorize the city to
subscribe. When the law was finally passed, a long and interesting
struggle ensued. The first step after the passage of the act was to
hold an election in San Francisco in order to ascertain whether the
people would approve of a subscription to railroad bonds. This election
took place in May, 1863, and the necessary popular consent was secured.
There is reason to believe, however, that illegitimate means were
employed to carry the election. We have affidavits that Philip Stanford
went to the polls at San Francisco in a buggy, carrying a bag of money;
that the said Stanford put his hand frequently in the bag of money
and took money, some $20 pieces and some $5 pieces, to a considerable
amount therefrom, and scattered the said money among the voters at
the said polls, at the same time calling on them to vote in favor of
the said subscription. Another eyewitness confirmed this account,
adding that while the sum of money spent by the said Stanford was
considerable, he could not tell how much as the crowd around the buggy
of the said Stanford was so great. Still another testified to having
received a written order on Stanford and others for $20, in return for
which he and a man named Ross were to endeavor to influence voters at
the polls to vote for the subscription.[55]

These affidavits were later supported by the assertion of Hon. William
A. Piper, on the floor of the House of Representatives at Washington,
to the effect that he, Piper, was an eyewitness at the election, and
saw the brother of Leland Stanford openly going about the polling
places, scattering gold and silver to influence and buy votes for
the municipal subsidy. Statements of this sort are too detailed and
circumstantial to be brushed lightly aside.

[Illustration: Henry P. Coon]

Resort to Court

Whether or not the election of 1863 was tainted with corruption, as
soon as it was concluded, San Francisco became bound, on or about the
25th of May, 1863, to subscribe $600,000 and $400,000 to the stock of
the Central Pacific and Western Pacific railroads, respectively. The
fight against subscriptions, however, did not stop at this point. In
an attempt to prevent action, suit was brought by a man named W. N.
French against the Board of Supervisors, in the case known as “French
v. Teschemaker.” French was a resident of San Francisco and a taxpayer.
Teschemaker was a member of the Board of Supervisors. The suit alleged
certain irregularities in the city election, but rested mainly on the
contention that the act authorizing the city and county to subscribe
was void and of no effect, because it provided that the city and county
should not be liable for any of the debts or liabilities of either the
Central Pacific or the Western Pacific railroads beyond the amount
subscribed, and that this provision as to liability should be a part of
all contracts made by the companies for the construction and equipment
of their roads. According to counsel, this was an attempt to create an
exemption from the proportionate liability imposed on all stockholders
by the state constitution, and was not only void in itself, but its
lack of force invalidated the whole subscription, since it was not to
be supposed that the legislature would have passed the other clauses of
the act without the section in question.

On the 23d of May, 1863, Judge Sawyer of the Twelfth Judicial District
granted a temporary injunction. On appeal to the Supreme Court,
however, this injunction was overruled. The court said:

True, the legislature cannot exempt the city and county from
liability, but it can authorize the corporation to refuse to contract
with persons who do not waive the proportionate liability established
for their protection. How the individual liability of a stockholder
of a corporation can be a matter of public concern any more than the
liability of a copartner, we are unable to perceive, and we are not
aware that it has ever been claimed that the latter liability had its
foundation in public policy. It is merely a liability created by law,
as it might be by contract, and is intended only for the benefit of
those who may deal with corporations. It is but another fund to which
the creditor may look when the social fund has been exhausted, and
whether he chooses to look to it or not is a matter of no concern to
the public.... There being, then, only a question of private right
involved, there can be no question but that the party interested in
the enforcement of the right may contract to waive it.[56]

Compromise Plan

The opponents of municipal subscription now turned to the legislature,
and secured the passage of an act authorizing the Board of Supervisors
of San Francisco to compromise and to settle all claims upon the part
of the Western Pacific Railroad and the Central Pacific Railroad for
cash or other security, in place of bonds claimed by the companies,
provided the power to make such compromise should rest in the Board of
Supervisors only after and in case said board should be compelled by
final judgment of the Supreme Court to execute and deliver the bonds
specified in the act.[57]

Pursuant to this act of April 14, 1864, the Board of Supervisors
appointed a special committee from among their number to consider and
report a plan for a compromise. This action was taken on May 23, and
the mandamus requiring the supervisors to subscribe $600,000 to the
stock of the Central Pacific, which was essential to the adoption
of any compromise, was issued on June 7.[58] The committee met with
Stanford, reported back to the board, and on June 20 the board passed
order No. 582 providing that the city of San Francisco order, execute,
and deliver to the Central Pacific 400 bonds for $1,000 each, in full
discharge of all obligations on the part of the city and county to make
any subscription to the capital stock of said company.

Order No. 582 was duly approved by the mayor on June 21, and became
law on that day. On June 29 the acceptance of the Central Pacific was
signified to the board, in due form, and on June 27 the supervisors
appointed Messrs. Torrey, Bell, and Titcomb a committee to deliver to
the Central Pacific the 400 bonds, with interest coupons attached.
Nevertheless the mayor, Henry P. Coon, the auditor, Henry M. Hale, and
the treasurer of the city, Joseph S. Paxon, constituting the Pacific
Railroad Loan Fund Commissioners, refused to issue the bonds. The
result was a petition for a mandamus directed against these persons
individually, which developed into the case of People v. Coon.

Agreements in Mandamus Proceedings

The main legal points raised in this new litigation were three:

1. The conditions precedent to the issuance of the bonds under the act
of 1864 had not been fulfilled, said the petitioner, in that the board
of supervisors had not been compelled by final judgment of the Supreme
Court to execute and deliver the bonds.

2. The second contention was that the railroad company could not call
upon the supervisors to issue bonds on the city’s subscription unless
the railroad should call in from other subscribers the whole amount of
their respective subscriptions, or until, under the Act of 1863, a sum
at least equal to the amount of the bonds should have been expended on
the road from other sources. That either of these things had been done,
the defendants vigorously denied.

3. It was also declared by defendants that the Act of 1864 had
been misconstrued—that it did not relieve San Francisco from her
subscription, but simply authorized the city to liquidate that
subscription “in cash or other security” instead of in bonds. “We
claim,” said counsel, “that the act authorized no more than the
reduction of the amount of subscription and a change of the mode of
payment to cash or other security in place of bonds. It does not
authorize a donation of $400,000 or any other amount. In other words,
it authorizes a subscription for any amount less than $600,000, payable
in cash in place of bonds.”[59]

One has the feeling that at this stage of the proceedings, the first
and third of these propositions were not well taken. It was too plainly
the intention of the legislature to allow the city of San Francisco to
withdraw from its subscription for a consideration, to permit weight
to be given to technical points like these. On the other hand, it is
very doubtful if the railroad had at this time either called in from
other subscribers the whole amount of their respective subscriptions,
or had expended on the road from other sources a sum equal to the
amount of the bonds. The Supreme Court, however, did not make even this
concession, but promptly issued a mandamus against Coon, Hale, and
Paxon, commanding and requiring them to execute and deliver without
delay, to the Central Pacific Railroad of California, the 400 bonds
of the city and county of San Francisco, described in the ordinance
before referred to.[60]

Further Litigation

Upon the issue of this mandamus, Coon, Hale, and Paxon signed the 400
bonds. According to a subsequent complaint by the railroad, the bonds
so signed were presented by the president of the Board of Supervisors
to William Loewy, clerk of the city and county of San Francisco, at
a meeting at which a quorum of the supervisors was present. Loewy
refused or failed to countersign. On September 27, 1864, a regular
meeting of the supervisors was held, at which resolutions were
offered requesting Loewy to countersign the bonds, and providing for
the affixing of the seal of the city and county to the bonds when
countersigned. These resolutions failed of passage, and instead a
resolution was adopted requesting the clerk to deposit the 400 bonds
with the county treasurer, which he did forthwith. The treasurer then
refused to deliver the bonds to the railroad, and fresh proceedings
were instituted before the Supreme Court, this time asking for a writ
of peremptory mandamus commanding Loewy or his successor to obtain
possession of the bonds, and to countersign and assist in delivering
them to the Central Pacific; commanding the Board of Supervisors or
their successors to call a meeting of the board, to notify the clerk
of a time and place at which he might complete the countersigning in
the presence of a quorum of the board; to cause the seal of the city
and county to be affixed to the bonds; and to appoint a committee to
deliver the bonds to the Central Pacific; and commanding the members of
the Board of Supervisors who might be appointed such a committee, to
deliver the bonds to the Central Pacific. It was obviously hoped to tie
things down so that no further delay would be possible.

There seems to have been a split in the Board of Supervisors at
this time. Six of the twelve members made individual returns to the
complaint, and alleged that they had no part in the refusal to deliver
the bonds. The other six and the mayor voted to employ counsel and to
defend the suit.

Contentions of Defendants

The case came to a hearing January 7, 1865. In some respects the
defense now rested on new ground; in some new emphasis was given
matters previously brought forward.

The supervisors in January alleged that the election in San Francisco
held May 19, 1863, at which the electors of San Francisco had approved
the subscription to the stock of the Central Pacific, had been carried
by corruption and bribery. This assertion was given great prominence in
the answer of the supervisors, though less in briefs of counsel. Nine
instances were cited where A. P. Stanford had given sums ranging from
$5 to $40 apiece to electors, or had thrown handfuls of money among the
electors “and thereupon they scrambled among themselves for the same.”
It was urged that these bribes had had great influence upon the vote
and that the election was void. These facts had not been known to the
supervisors on June 20, 1864, when order No. 582 had been passed, and
defendants believed that knowledge of them would have prevented the
passage of the ordinance.

Besides this, the supervisors declared that the passage of ordinance
No. 582 had been procured by false and fraudulent representations by
the railroad company. More important, it was now contended that the
Act of 1863 was unconstitutional, in that the legislature was without
power to “impose on a municipal corporation of the state the burden
of exclusively building or aiding to build a work of general interest
to the state, which is in no sense a work of local interest to the
corporation on which the burden is imposed.”

It was pointed out that the Central Pacific was a work of general
interest to the Pacific Coast. It did not come within 100 miles of San
Francisco. It had received large subsidies from the federal government
on the ground that it was of national importance. Counsel declared that:

The true test of whether a tax can be exclusively laid on a municipal
corporation, is to be found in the purpose for which municipal
government is confined within local limits. Citizens living within
those limits are exposed to exclusive taxation because, and only
because, a peculiar benefit is conferred upon this locality. When the
benefit is shared in by the rest of the state, then a state tax is
levied, because the citizens of San Francisco received advantage, not
in their character as citizens of San Francisco, but as citizens of
the state. The state government is as much a benefit to San Francisco
as its own municipal government. Yet no one would contend that she
could be compelled to support the entire expenses of the former, or
that any other city should be compelled to contribute towards the
expenses of the latter.

City Compelled to Subscribe

These and other more technical objections were considered by the
Supreme Court and were swept aside in a decision rendered at the April
term of 1865. The court now held that the legislature had imposed
no burden on San Francisco by the Act of 1863, because under that
act the city got a consideration, namely, the company stock, for its
subscription. The court added:

Nor does it make any difference as to the validity of the compromise
whether the bonds were payable in instalments or in gross, nor whether
a legal assessment has been laid on the capital stock of the company,
for irrespective of the time the bonds under the Act of 1863 might
become due, the company held a claim against the city which was a
proper subject of and formed a good consideration for a compromise.[61]

This ended the case. It may perhaps be pertinently inquired why it
was, if the subscription required by the Act of 1863 imposed no burden
on the city of San Francisco as the Supreme Court said, that the city
could afford to give $400,000 to get rid of the obligation. Yet,
perhaps it would be fruitless to follow too closely the windings of the
judicial mind. Stanford later declared that the litigation had injured
the Central Pacific very much,[62] while E. H. Miller, secretary of
the company, estimated that the suit cost the Central Pacific not much
less than $100,000. Of the bonds issued, 315 were sold at $751.60
each, amounting to $236,754, while 85 were paid out at par for rolling
stock.[63]

Subscribing Counties Embarrassed

The reluctance of San Francisco to subscribe was not typical of the
general attitude toward the Central Pacific in 1865. But it became more
typical as the years went on. For this, there were several reasons.

In the first place, the state was much disappointed by the fact that
the completion of the Central Pacific did not inaugurate a period
of prosperity. The year 1870 was not a particularly good one in
California, and the panic of 1873, with the intense depression which
resulted, was soon to occur. Among the first effects of the two rail
connections with the East, was an influx of eastern manufactures,
unemployment, lower prices, and dissatisfaction. This in no way
meant that the construction of the Central Pacific had not benefited
California, but it gave evidence of a serious though temporary
maladjustment.

Moreover, the bonds which had been so lightly voted, proved a real
burden on the scanty population of the counties, which was in no
adequate way offset by increases in the assessment rolls. Indeed, the
railroads in early years were assessed at figures that were remarkably
low. In Placer County, for instance, the Central Pacific insisted
that its road should be assessed at $6,000 per mile, and succeeded in
carrying its point in 1865, 1866, and 1867. In 1868 the assessment was
raised to $12,000 per mile. The railroad protested, and when forced to
submit, increased the rate of freight to all points in Placer County
about 40 cents a ton.[64] Nor were taxes even on such modest valuations
easily collected. Between 1866 and 1887 railroad tax cases were almost
constantly before the courts. At times the Central Pacific refused to
pay any taxes at all, on the ground that it held a “federal franchise,”
and at other times it objected to the terms of the law or to the amount
of the assessment.[65] The result was to throw the local tax system
into complete confusion.

Experience of Placer County

Let us refer again to the experience of Placer County. In 1863 the
Central Pacific asked for a subscription of $250,000, promising to
add $9,000,000 to the taxable property of the county. The county tax
rate as fixed in February, 1863, for the following year, was 35 cents
on $100, and the assessed valuation of the county was $3,071,911.78,
yielding a revenue from county taxes of $10,751.69. The railroad
company issued an address while the matter of a subscription was under
consideration, pointing out that 8 per cent on a bond issue of $250,000
would amount to $20,000, while a tax rate of 35 cents on $9,000,000 of
increased valuation would yield $31,500, or a clear excess of $11,500,
to the county without considering the effect of the railroad in
increasing the valuation of real estate.

These were the results which voters were led to expect. What happened
was that the assessed valuation of the property of the Central Pacific
in Placer County was $6,000 per mile as late as 1870, when the county
sold its railroad stock; that the total railroad valuation was
therefore $553,500, and that the county tax rate rose from 35 cents
to $1.73½. Moreover, the railroad taxes for 1868 and 1869 were still
unsettled and in dispute in 1870 and remained so until 1873. The total
receipts of the county from all sources in 1869 were $127,492.54, of
which $46,499.66 were for the state. Against the $80,992.88 remaining,
the $20,000 of interest on the subsidy bonds was evidently a material
charge.

It was probably not true in general that the financial embarrassment
in which many of the counties of California were plunged late in the
sixties was due to the pressure of interest charges on bonds issued in
aid of railroad construction. The highest rates of taxation for county
purposes uncovered by the special legislative committee of 1868 which
investigated this matter, were $36.70 per $1,000 for Tuolumne County,
and $40 per $1,000 for Calaveras County, neither of which counties had
issued bonds in aid of railroads. Extravagance in assistance tendered
to railroads was only one of the financial sins of which the counties
had been guilty. Nevertheless the burden of outstanding indebtedness
for railroads was often severe on communities of declining industry and
population, and contributed to the later severe revulsion in popular
sentiment with regard to the desirability of local aid to railroad
enterprise.

Opposition by Other Transportation Interests

It is proper to mention at this point, also, as throwing light upon
popular sentiment, the opposition of the smaller transportation
interests of the state to the development of the Central Pacific
project. These interests included the stage companies, the express
companies, the toll roads, and the Pacific Mail Steamship Company. In
the aggregate their influence was considerable, and it was constantly
thrown against the granting of aid to the Central Pacific.

It is a curious commentary upon the effect of government subsidies,
that the Huntington-Stanford group brought part of this opposition upon
themselves by a deliberate refusal to buy up the Sacramento Valley
Railroad for the reason that it was cheaper to build at the expense
of the federal government from Sacramento to Auburn than to buy a
railroad already in active operation for most of the distance between
these points. In cold figures, it would have cost $400,000 to build a
new line out of Sacramento, and $285,000, according to Central Pacific
engineers, to put the Sacramento Valley Railroad in thoroughly good
physical condition. But under federal legislation, to be described in a
later chapter, only $250,000 out of the $400,000 would have to be paid
by the Central Pacific in cash, leaving a clear gain of $35,000 if the
policy of construction were pursued.[66]

The result of this decision was to cause the backers of the Sacramento
Valley project to denounce the Central Pacific enterprise as a
fraud.[67]

End of Local Subsidies

In the year 1868, a resolution was introduced into the California State
Senate urging the appointment of a committee to investigate the use of
moneys contributed by the state toward the construction of the Central
Pacific Railroad. This resolution was indefinitely postponed by a vote
of 18 to 17. The same year notices began to appear in the press, urging
the legislature to oppose further railroad-aid legislation. In 1869,
the _Sacramento Union_, while in favor of a grant to the Stockton
and Tulare Railroad, urged the counties to go slow and to secure an
amendment to the general railway law, reducing maximum transportation
charges to 10 cents per passenger per mile, and 15 cents per ton per
mile, before voting aid.

These were but symptoms of a profound dissatisfaction with the results
of railroad subsidies. In the fall of 1869 both political parties
pronounced against grants of state aid to railroads, but this could
not prevent the passage of the so-called “Five Per Cent Act” of 1870,
authorizing counties to subscribe to railroad stock up to 5 per cent
of their assessed valuation; although it did encourage Governor Haight
to veto two bills in March, 1870, the one authorizing the voters of
certain counties in the San Joaquin Valley to donate their bonds to
the San Joaquin Railroad Company at the rate of $6,000 per mile,[68]
and the other providing for the construction of a railroad by the
Southern Pacific through Monterey and San Luis Obispo counties, and
permitting the counties interested to grant aid. The governor took
the position that the proposed subsidies were not only unwise, but
that they were unconstitutional for the reason that a donation to a
private corporation was not a use of funds for a proper purpose.[69]
After a fight which attracted much popular attention, the vetoes of the
governor were sustained.

In 1871, Governor Haight was defeated for re-election by Newton Booth,
the Republican candidate. In the following year, however, the Five Per
Cent Act was repealed, and the period of local subsidies in California
came to an end.

CHAPTER III

FEDERAL LAND GRANTS AND SUBSIDIES

Government Aid Deemed Necessary

Serviceable as local subsidies were, there is no question that the
most important aid granted to the Central Pacific Railroad came from
Congress.[70] It was perfectly well understood on the Pacific Coast
that no transcontinental railroad could be built without the assistance
of the national government. This was the attitude of the California
legislature in 1852, when it instructed its senators in Congress, and
requested its representatives, to vote for an act providing for the
construction of a railway from the Missouri or Mississippi River to
the Pacific Ocean, the cost of which should be borne by the general
government.[71] It was also the position of the Railroad Convention
of 1853, which sat at San Francisco under the presidency of Governor
Bigler, and of that better advertised gathering known as the Pacific
Railroad Convention of 1859, the resolutions of which concerning routes
and state bond issues in aid of railroads gave rise to so much heated
discussion.[72]

Judah’s Activities in Washington

Not only was it the attitude of the Pacific Coast that federal aid
was necessary, but, still more important, Judah was able to advise
his associates that Congress looked with favor upon the plan. He was
convinced of this of his own personal knowledge, for he had been in
Washington both on his own account and as a delegate of the Convention
of 1859, and had reported to his constituents that only the pressure of
more important matters arising out of the Civil War prevented favorable
action upon the bill which they had sent him east to support. Upon this
information, indeed, much of the plans of the Huntington-Stanford group
was based.

Late in 1861, the Central Pacific Railroad sent Mr. Judah to Washington
to solicit whatever aid the federal government might be disposed to
give. We have in Judah’s report upon this visit, dated September
1, 1862, a very full account of his negotiations. Judah sailed for
the Atlantic states on October 10, 1861. During the trip he busied
himself in talking with Mr. Sargent, Congressional representative from
California, who was his fellow passenger, and in writing up the results
of the survey which he had made during the summer of 1861. On his
arrival in New York he completed this report, caused 1,000 copies of it
to be printed, and distributed the copies widely where he thought they
would do most good. Late in November, after conference with Senator
McDougal, of California, chairman of the Senate Pacific Railroad
Committee, he proceeded to Washington.

From the time of his arrival there to the following July, Judah was
engaged in energetic lobbying. His brief previous visits to the
capitol had acquainted him with the routine of business there, as well
as with the personalities of a considerable number of Congressmen.
He was aided, also, by the fact that Sargent, at the opening of the
session, was assigned to the Pacific Railroad Committee of the House,
and by the further circumstance that, with questionable propriety,
he, Judah—interested in the outcome of the pending legislation as he
was—was made clerk of a subcommittee of the House Committee on Pacific
Railroads and secretary of the Senate Pacific Railroad Committee, with
the privilege of the floor of the Senate and of the House, and charge
of all the papers of the Senate committee.

From this position of advantage Judah was able to watch the progress
of the Pacific Railroad bill which Mr. Sargent presently introduced,
and to guide it to a certain extent. We know that it was Judah who
procured the assent of the Kansas company mentioned in the bill to a
change which required its road to meet the Union Pacific at the 100th
meridian instead of at the 102d meridian. It was Judah also who secured
the passage of the amendment retaining for the Central Pacific the
timber on mineral land. Mineral lands were excepted from the lands
granted to the Pacific railroads, and Judah was afraid lest this clause
should deprive the Central Pacific of all benefit from a large part of
the lands nominally given it. It was probably Judah, also, though this
is less certain, who secured a change in the terms of the government
subsidy increasing the amount and altering the distribution so that the
largest payments were made for the road across the Sierras and not for
the section east of the California state line, where the difficulties
of construction were less. These were important matters, and Judah
should not have been permitted to urge them from the vantage point of
an official position.[73]

It is perhaps natural to ask whether there is any evidence of improper
methods used by the Central Pacific to obtain the passage of the
Pacific Railroad bill beyond that just referred to. The weight of the
record is in the negative. According to Stanford, Judah had $100,000
in Central Pacific stock at his disposal to cover his expenses in the
East. This stock was not worth much, and Judah did not use all of it.
Besides this, Judah made an agreement with Hon. S. A. McDougal and
Hon. T. G. Phelps, according to which he assigned to certain parties
representing the interests of the San Francisco and San José Railroad,
the rights, grants, and franchises of the Central Pacific for the
portion of road between Sacramento and San Francisco. This looks like
an attempt to quiet opposition in California, from which some of the
California delegation may have profited. There is no further evidence,
however, of any improper bargaining in connection with the passage
of the bill, and it is probable that no money was corruptly used. If
there had been, Campbell and Sargent would hardly have been naïve
enough to send a letter to Judah in behalf of sixty-three senators and
representatives, thanking him for his valuable assistance in aiding the
passage of the Pacific Railroad bill.

The Pacific Railroad Act

Let us now consider the terms of the federal legislation of 1862 and
1864. The Pacific Railroad Act in its first form was signed on July 1,
1862,[74] and accepted by the company by letter dated November 1.[75]
Bancroft says that the company was aware that the assistance offered
in this act was not sufficient. The subsidy alone would not build the
road, and capitalists would not subscribe on the security offered.
However this may be, Judah arranged for the purchase of locomotives,
cars, and railroad iron before he left the East, and took measures
also to secure early action by the President on the question of gauge,
and on the establishment of the western base of the Sierra Nevada
Mountains.[76]

In December, after Judah’s departure, a bill was introduced to amend
the Act of July, 1862. This measure passed the Senate but was not acted
upon by the House. A year and a half later, however, a new act was
passed by both houses, and became law on the 2d of July, 1864, amending
the Act of 1862, and materially increasing the aid which the Central
Pacific was to enjoy.[77] To all intents and purposes the Acts of 1862
and 1864 were one piece of legislation, and will be treated as such in
the analysis which follows.[78]

Grant of Right-of-Way

What now were the advantages secured to the Central Pacific by the
Acts of 1862 and 1864, and what were the obligations placed upon that
company? We will take up first the advantages, not necessarily in order
of importance.

The first concession which the Central Pacific received under this
legislation was the authority to complete its line from Sacramento to
the eastern boundary of the state of California and thence eastward 150
miles, provided that the Union Pacific had not by that time built west
to a connection with it. The company was also authorized to build west
and south from Sacramento to San Francisco, or to a point nearby. The
Act of 1862 had contained no limitation on construction eastward beyond
the reference to a Union Pacific connection. Huntington said later that
the restriction of 150 miles should not have been inserted in 1864. He
added, however:

I said to Mr. Union Pacific when I saw it, I would take that out
as soon as I wanted it out. In 1866 I went to Washington.... I saw
probably every member of Congress and the Senate except a few men who
were interested in the Union Pacific, or had a direct interest in the
Credit Mobilier.... We passed it through the Senate; I think we got
thirty-four against eight opposed to it. I took it over to the House
and old Thad Stevens attended to the bill for me, and it went through
the House with a vote, I think, of ninety-four for the bill and
thirty-three against it.[79]

Judah said of the clause as it stood in 1862, that it virtually
conceded to the company the right to construct at least one-half of the
line of the Pacific Railroad. He was positive that it would be found
advisable to undertake construction for about 300 miles easterly from
the state line of California.[80]

In addition to the authority to build, the Central Pacific was given a
free right-of-way 400 feet wide across all government lands, besides
necessary grounds for stations, machine shops, etc., with the privilege
of taking earth, stone, timber, and other materials from the public
lands adjacent to the line of said road for purposes of construction.

Land Grant

The company was also granted ten alternate sections per mile of public
land on each side of the railroad on the line thereof, and within the
limits of 20 miles on each side of the road. The government undertook
to extinguish Indian titles, but did not include in its grant mineral
lands except coal and iron lands, or lands sold, reserved, or otherwise
disposed of by the United States, or lands to which a pre-emption,
homestead, swamp-land, or other lawful claim might have attached at the
time the line of the road should have been definitely fixed. The grant
was thus not of a specified number of acres, and no compensation was
provided to the company for lands which might prove to be occupied;
but in order to prevent speculation and in a measure to safeguard the
company’s interests, it was provided that at any time after the passage
of the act, and before July 1, 1865, without waiting for definite
location of the road, the company might designate the general route and
file a map, whereupon the Secretary of the Interior should cause the
lands within 25 miles of said route to be withdrawn from pre-emption,
private entry, and sale. When any portion of the route should be
finally located, the Secretary of the Interior should cause the granted
lands to be surveyed and set off so far as might be necessary. As a
matter of fact, Judah filed his map and general designation before he
left Washington in 1862. Lands were to be conveyed to the company on
completion of stretches of 20 consecutive miles. A special clause,
never enforced, provided that all granted lands not sold or disposed
of by the company within three years after the entire road should have
been completed, should be subject to settlement and pre-emption like
other lands, at a price not exceeding $1.25 per acre to be paid to the
company.

Government Subsidy

In the way of a subsidy, Congress ordered the Secretary of the Treasury
to issue to the Central Pacific, United States 6 per cent 30-year
bonds, in amounts varying from $16,000 to $48,000 per mile. The
subsidy of $48,000 was granted for the 150 miles east of the western
base of the Sierra Nevada Mountains, this being the most mountainous
and difficult portion of the road. East of this section of line the
Central Pacific bond subsidy was to be $32,000 per mile, but west of
it, it was to be only $16,000 per mile. It was the understanding of the
company that these bonds were not redeemable by the government before
maturity, and that until that time the interest charges were to be
taken care of by the government. This last point was later the subject
of litigation in which the company’s contention was sustained.[81]
The subsidy offered by the government inured to the company on the
completion of sections of 20 consecutive miles over the greater part
of the road, except that bonds might be issued up to two-thirds of the
value of uncompleted work when the chief engineer of the company should
certify that a certain proportion of the work required to prepare the
road for its superstructure had been done.

Company’s Obligations

In return for these very considerable privileges, the demands made
upon the Central Pacific do not seem to have been excessive. First and
foremost, the company was required to build its road at the rate of
25 miles each year after filing its assent to the provisions of the
act, and to reach the state line within four years. The track upon
the entire line was to be of a uniform width, to be determined by the
President of the United States, so that, when completed, cars could be
run from the Missouri River to the Pacific Coast. The grades and curves
were not to exceed the maximum grades and curves of the Baltimore and
Ohio Railroad, and the whole line of railroad and branches, Union
Pacific and Central Pacific included, was to be operated and used for
all purposes of communication, travel, and transportation, so far
as the public and the government were concerned, as one connected,
continuous line.

In the second place, demand was made that the company should pay the
principal of the government bonds at maturity, and should meanwhile
make certain payments on account of principal and interest. The
following section taken from the Act of 1862 shows that there is no
basis for the contention sometimes made that the government originally
expected no repayment of its loan.

_And be it further enacted_ that the grants aforesaid are made upon
condition that said Company shall pay said bonds at maturity, and
shall keep said railroad and telegraph line in repair and use, and
shall at all times transmit dispatches over said telegraph line, and
transport mail, troops and munitions of war, supplies and public
stores upon said railroad for the Government, whenever required to do
so by any department thereof, and that the department shall at all
times have the preference in the use of the same for all the purposes
aforesaid (at fair and reasonable rates of compensation, not to exceed
the amounts paid by private parties for the same kind of service),
and all compensation for services rendered for the Government shall
be applied to the payment of said bonds and interest until the whole
amount is fully paid. Said Company may also pay the United States,
wholly or in part, in the same or other bonds, treasury notes, or
other evidences of debt against the United States, to be allowed at
par, and after said road is completed, until said bonds and interest
are paid, at least five per-centum of the net earnings of said road
shall also be annually applied to the payment hereof.[82]

In 1864 this section was changed by requiring only one-half of the
compensation for services rendered to the government to be applied to
the payment of bonds issued by the government in aid of construction,
but the declaration that the bonds should be paid was not altered. Not
only was this true, but the government demanded security for repayment.
In 1862 it declared that the issue of said bonds and delivery to the
company should _ipso facto_ constitute a first mortgage on the whole
line of the railroad and telegraph, together with the rolling stock,
fixtures, and property of every kind and description. In 1864 the
lien of the United States bonds was subordinated to that of a second
mortgage, but the idea of some security was preserved.

Third, the government reserved the right to reduce the rates of fare
upon the Central Pacific, as well as upon the other railroads provided
for in the Act of 1862, as unreasonable, when net earnings should
exceed 10 per cent upon cost, exclusive of the 5 per cent to be paid to
the United States.

Fourth and last, an annual report was asked for, which was to set forth
earnings, expenses, indebtedness, the amount of stock subscribed, a
description of the lines of road surveyed, and the names and residences
of the stockholders.

Amounts Granted

It is evident that these demands were very moderate indeed. Under
the provisions of the Acts of 1862 and 1864, the Central Pacific and
Western Pacific railroads received $27,855,680 in government bonds,
and 10,081,945.18 acres in public lands (up to June 30, 1920). From
the bonds the companies realized $20,735,000, or $24,092 per mile.
From the lands, the Central Pacific received, up to June 30, 1919, the
approximate sum of $17,430,000, about equally divided between receipts
from sales and receipts from other sources, including leases, stumpage,
timber, and miscellaneous. The expenses of the land department may be
estimated at $7,000,000, and the net return therefore was $10,000,000.
The yield of the bond subsidy not only exceeded the returns from the
granted lands, but the subsidy was ten times the aid received from
the state and counties put together, and of course many times the
contribution of the partners themselves. What was almost as important,
the grant of this federal assistance at once raised the company’s
credit, so that it could sell its own first mortgage bonds. The sale
of company bonds yielded $20,750,000, or a total of $41,485,000, for
government and company bonds together, directly attributable to federal
aid, and almost immediately available.

From the point of view of serviceability, the land grant referred
to in the Pacific Railroad legislation was much less important than
the subsidy in bonds. Government lands along the line of the Central
Pacific had no value until the road was completed, nor even then
until the slow process of settlement had filled up in a measure the
territory through which the railroad ran. Nor was the amount of the
grant so definite as to make it a satisfactory basis for credit,
although land grant bonds were sold in and after 1870. The theoretical
grant was twenty sections, of 12,800 acres to the mile. The grant did
not, however, follow the sinuosities in the track, so that in the
mountain sections it was quite possible for two miles of railroad to be
constructed and yet only one mile of land grant to be obtained.

Not only was this true, but the exceptions provided for in the
legislation were important. The records show that the saving clauses
in the statutes, coupled with the inaccessibility of some of the lands
within the nominal grants, and the differences between the actual
mileage of the railroad and the mileage upon which land was awarded,
reduced the area passing to the railroad by many hundred thousand
acres. In California the Central Pacific was entitled to a nominal
grant of 1,843,000 acres, at the rate of twenty sections per mile
for a mileage of 144 miles. At least 887,000 acres of this amount
were known to be lost to the grant as early as 1895, while the final
adjustment will scarcely secure for the company more than half the
amount originally expected. In Nevada the company’s losses approximated
one-ninth and in Utah one-quarter of the nominal grant. The losses on
the California and Oregon up to 1897 were 962,703 acres out of a total
grant of 3,266,729 acres, but in this case the law permitted the
company to select additional lands within “indemnity” limits.

Delays in Transferring Title

How far the government lands failed in providing the Central
Pacific with funds with which to build its road, however, can best
be understood when attention is paid to the delays incident to the
transfer of title. The general procedure in transferring title from the
government to the company was as follows:

Under the Act of 1864, the Central Pacific was entitled to receive its
lands upon completion of stretches of 20 consecutive miles in a fashion
acceptable to commissioners appointed by the President of the United
States. Upon acceptance by the government, the sections of land to
which the company was entitled were listed and mapped and sent to the
United States Land Office in the land district in which the land was
located. The lists were examined there by registrars and receivers, and
when declared cleared, the railroad company paid for the surveying,
selecting, and conveying. Upon the payment of the fees, the lists were
certified by the Surveyor-General of the state, and forwarded to the
General Land Office at Washington for further examination. If found
correct by the office in Washington, patents were issued. If there was
doubt, the questionable cases were held for further examination.

In all this procedure delays were frequent. The initiative in the
process of conveyance of land lay with the railroad company and not
with the government, so that failure to file lists with the local land
office or failure to pay into the United States Treasury the cost of
surveys of listed lands prevented progress in the distribution of the
grant. On the other hand, the slowness of the government in making
surveys hindered the railroad in its selections. Still another reason
for delay was the fact that within the mineral belt the Commissioner
of the General Land Office required the railroad to file affidavits
defining the mineral or non-mineral character of lands by 40-acre
tracts. This requirement arrested the selection and patenting of lands,
because the government survey did not subdivide tracts of 640 acres,
and there was no way of identifying any particular sixteenth section
of a tract. There were delays also in determining the title to lands
claimed by homesteaders and pre-emptors, and there were delays due to
the faulty organization of the Federal Land Office.

Land Office Responsible for Delays

Opponents of the Central Pacific freely charged that the company
refrained from patenting its land in order to avoid the payment of
taxes. This the company denied, pointing to the fact that the lands
listed to June 1, 1887, exceeded the lands patented by 622,612.54
acres, and that the cash deposited with the United States Land
Department to cover the cost of surveys exceeds the amount charged
against the company up to January 15, 1886, by $28,771.92.[83] Mr.
Stanford declared that it was the policy of the company to select its
lands and present lists as promptly as possible, in order that lands
might be disposed of to settlers, and it does appear that it was to
the advantage of the Central Pacific to secure title as quickly as it
could in the mineral belts, because the company was protected in its
possession of land, which later turned out to contain minerals, if at
the time of patenting no minerals had been discovered.

The evidence is clear enough that the delay in the patenting of lands
to the Central Pacific Railroad was due mainly to the inadequacy of
the staff in the General Land Office at Washington and not to the
policies of the railroad itself. This is shown by the wide disparity
between listings and patents. The excess of lands selected over lands
patented averaged 57,000 acres during the five years ending June 30,
1869. During the next five years the average excess was 64,000 acres,
and during the five years ending June 30, 1886, it rose to 248,000. In
1887, as has been pointed out, there was a difference of 622,612.54
acres between the amount of acres which had been listed and those
which had been passed to patent. Between 1887 and 1897, there was no
year in which the Central Pacific had less than 300,000 acres of land
listed and selected and the selections on file in the General Land
Office for land in California alone. Yet it is not so important to fix
responsibility in this matter, as to observe that the construction
of the Central Pacific was not aided to any material degree by the
lands offered to it under the legislation of 1862 and 1864. Up to
the beginning of 1870, the company had received only four patents,
totaling 144,386.63 acres,[84] which if sold at $2.50 per acre would
have brought it $360,966.57. As a matter of fact, less than this was
disposed of in the early years, and what was sold was on terms, not for
cash in hand. In the later period, land-grant bonds with a lien on the
land grant were sold to investors. The first issue of such bonds was,
however, in 1871.

The bearing of these conditions on the land-grant policy of the United
States is very plain. Congress was legislating in order to get a
transcontinental railroad built. Every form of assistance which could
be immediately transmuted into funds facilitated construction to the
full value of those funds. In contrast with this, assistance which
could be realized on only after a lapse of years, served not as an aid
to construction, but as a reward to promoters for having taken risks.
While to some extent the land grant to the Central Pacific may have
aided the sale of Central Pacific first mortgage bonds, in the main its
effect was to give a grossly excessive and unnecessary profit to a
few persons who held most of the stock of the company, without having
invested any considerable capital of their own. Such a policy needs
only to be understood to be condemned.

Fixing Western Base of Sierras

Both the subsidy and the land-grant clauses of the Acts of 1862
and 1864 were to receive interpretation by the courts. The subsidy
provisions will be discussed again in a later chapter, so that the
provisions designated to secure repayment of the government loan need
not be considered at this time. Mention may be made, however, of
President Lincoln’s action in fixing the western base of the Sierras at
the point where the line of the Central Pacific crossed Arcade Creek
in the Sacramento Valley, a location 7 miles east of Sacramento, in a
country which a casual observer would not be likely to call mountainous.

It is not at first sight evident why this point was chosen. The
junction of Arcade Creek and the Central Pacific Railroad happens to be
at about the edge of the alluvial plain of the Sacramento River, and so
is marked by a slight rising of the ground. The rise is not, however,
great. The beginning of the Sierra granite is at Rocklin, 22 miles
east of Sacramento, and this spot rather than the one selected has the
better right to be considered the real beginning of the mountains, so
far as any single point can be fixed. As a matter of fact, the advisers
of the President, who were in this instance the political authorities
of the state of California, made their recommendation on the strength
of what they conceived to be the purpose of the federal act rather
than on scientific grounds. Mr. Whitney, state geologist, told the
government that the intent of Congress was clearly to give a subsidy
of $48,000 per mile over the most mountainous section of the road. If,
therefore, he said, a distance of 150 miles measured east from the
point in the Sacramento Valley where the ascent commenced would clear
the most difficult and mountainous portion of the Sierra Nevadas and
reach the valley on the eastern slope, then it seemed reasonable that
the base of the Sierra Nevadas should be taken as beginning at that
point. He recommended the place where the line of the Central Pacific
crossed Arcade Creek as such a point.

The same place was selected by the Surveyor-General of the state of
California, on the principle that the two extremities of the 150
miles upon which the maximum subsidy was to be given should rest upon
corresponding grades, the one to the west, the other to the east of the
mountains. These two recommendations seem to have been controlling,
although the United States Surveyor-General for California suggested a
location further east, where the ascending grade of the Sierras became
plainly perceptible to the naked eye.[85] Since this interpretation of
the act increased the bond subsidy which the Central Pacific was to
receive, the company naturally made no objection.

Conditions of Land Grant

In regard to the land grant, the Land Office was called on for a great
many decisions after 1864, mostly in interpretation of the exemptions
carried in the federal legislation. The cases were not all brought by
or against the Central Pacific, but they nevertheless affected its
rights.

In general, the grant of land to the Central Pacific was held to be
an absolute unconditional present grant. The route not being at the
time determined, the grant was in the nature of a float, and the title
did not attach to any specific sections until they were capable of
identification. When once identified, however, the title attached to
specific sections as of the date of the grant, except in the case of
sections which were specifically reserved.[86] While the grant was
a present grant, it conveyed only land which was public land, that
is to say, portions of the public domain which were open to sale or
other disposition under general laws at the time the grant was made.
This definition did not include lands which became public subsequent
to the date of the grant, or lands reserved by competent authority for
any purpose or in any manner, whether or not the reservations were
mentioned in the granting act.[87]

It followed from the theory that the land grant was a present grant,
that a valid homestead entry existing at the date of the passage of
the Land Grant Act excepted the land covered from the area granted to
the railroad even though the entry were canceled prior to the definite
location of the railroad line.[88] The same effect was produced by an
uncanceled and unexpired pre-emption claim, or by any other valid claim
or reservation which was alive at the date of approval of the granting
act. In cases like these the cancellation of the claim restored the
land in question to the public domain, but did not operate to replace
it within the railroad grant.[89]

Yet, although the theory that the grant took effect as of the date of
the granting act was strictly applied against the railroad, the settler
enjoyed the protection of a milder rule laid down in the statute
itself. Section 7 of the Act of 1862 required the railroad company
to designate the general route of the road within a stated time, and
instructed the Secretary of the Interior thereupon to withdraw lands
within 15 miles (changed to 25 miles in 1864) of the route designated
from pre-emption, private entry, and sale; and Section 3 provided that
the land grant to the railroad should not include lands to which a
pre-emption or homestead claim might have attached at the time the
line of road was definitely fixed. Pre-emption or homestead claims
might therefore be established after the passage of the land-grant
statute, provided that this was done before the lands were withdrawn
from settlement.[90] Indeed, the Secretary of the Interior ruled that
settlement and occupation exempted land from the grant even though
the settler failed formally to assert his claim.[91] After the lands
embraced in the grant were withdrawn from pre-emption, private entry,
and sale, a settler could not secure acreage by subsequent occupation,
although he settled prior to the time when the Central Pacific acquired
actual title.

Losses Due to Spanish and Mexican Grants

A class of cases distinct from those of ordinary settlers arose in
connection with Spanish and Mexican grants. It appeared that when
California became a state, the Spanish and Mexican grants were both
indefinite and unrecorded, so that it was not known just what lands
were public domain and what lands were private. On March 3, 1861,
Congress passed an act creating a Board of Land Commissioners in
California, and provided that all persons claiming land in California
by virtue of any right or title derived from either the Spanish or
Mexican governments, should present the same to the board within two
years for adjudication, with privilege of appeal to the United States
courts.[92]

Following this act, many claims were presented. The United States
Supreme Court held that land within the boundaries of alleged Spanish
or Mexican lands which were _sub judice_ at the time the Secretary of
the Interior ordered the withdrawal of lands along the route of the
road, were not embraced in the land granted to the company. There were
many sections of California lands which were _sub judice_ on August
2, 1862, and this fact caused serious loss to the Central Pacific in
its grant in California. In addition to losses from the cause just
mentioned, the company suffered from the indefiniteness of the Spanish
and Mexican grants, and from the delay in determining the extent and
boundaries of the Spanish and Mexican claims.

Policy Toward Settlers

It was the policy of the company to invite settlers upon its lands
before the lands were patented, and then to select and apply for
patents on lands which settlers desired to buy.[93] Sometimes, indeed,
the company leased unpatented land to cattlemen at low rates, in spite
of its lack of title. Actual transfers were made by bargain and sale
deed warranting to the purchaser the entire title acquired by the
company from the federal government. The prices ranged from $2.50 to
$20 per acre, but little was sold at a price above $5. Usually land
covered with tall timber was held at $5, and that covered with pine at
$10. The actual cost to the purchaser was slightly greater, because
he was compelled to pay for the acknowledgment of three signatures to
the deed, and for the recording, amounting in all to perhaps $5.50
or $6. On the other hand, the company granted as much as five years’
credit, and through the practice of selling land seekers’ tickets
from San Francisco, Sacramento, San José, Lathrop, and Los Angeles to
points along the line of railroad, which were accepted as cash on the
purchaser’s first payment for his land, it practically furnished free
transportation for California terminals to the sections bought. This
last practice, at least, was in force on the Southern Pacific in 1880,
and presumably on the Central Pacific also.

All in all, the Central Pacific does not seem to have attempted to
withhold its lands from the market, and there is no evidence that the
settlement of the coast was retarded by the inability of prospective
settlers to get land. The price which the Central Pacific could exact
was held in check by the retention by the government of alternate
sections, while the large sums which the company spent for advertising
redounded to the advantage of the government as well as to that of the
railroad. To the general statement that the Central Pacific was not
unreasonably grasping in its capacity as landed proprietor, exception
must be made of its treatment of timber lands in the North, of which
mention will be made elsewhere.

The land-grant policy of the government was a mistake, but it was a
mistake because it unnecessarily enriched a few men by securing to them
an extravagant share in the unearned increment due to the development
of the state of California, without aiding them materially in the task
which the government most desired them to perform—not because the
grantees endeavored to build up landed estates or to discourage the
growth of population. Compared with the land grant, the bond subsidy
was distinctly the better policy.

CHAPTER IV

PROGRESS OF CONSTRUCTION—CONSTRUCTION COMPANIES

Commencement of Construction

The construction of the Central Pacific Railroad of California was
begun at Sacramento on the 8th of January, 1863. The day the work
started was rainy and calculated to damp the most cheerful of spirits.
There was, however, a brass band, banners, flags, speeches, and a
crowd standing on bundles of hay near the levee to keep its feet dry.
Two wagon-loads of earth were driven up before the platform on which
were gathered the dignitaries present, and Stanford, then governor
of California, seized a shovel and deposited the first earth for the
embankment. The enthusiastic Charles Crocker promptly called for nine
cheers. The sun smiled brightly, and everybody, for the moment at
least, felt happy that after so many years of dreaming, they now saw
with their own eyes the actual commencement of a Pacific railroad.[94]

It was fortunate that Mr. Crocker was enthusiastic, for the
difficulties which the Central Pacific had to overcome were serious.
The chief difficulties were as follows:

_Gradients._ Some reference has been made in the previous chapter to
the elevations which the Central Pacific had to surmount. The highest
point which the company had to reach was Summit Station, 105 miles from
Sacramento, at an altitude of 7,042 feet. Since Sacramento lay only 56
feet above sea level, to reach this point required an ascent of 6,986
feet in a distance of 105 miles, more or less, according as the route
chosen was longer or shorter. The company’s engineer said in 1864 that
if it had been possible to maintain a continuous ascending grade, the
maximum grade, from the foothills to the summit of the Sierras could
have been reduced to 80 feet per mile.

In the attempt to approach this ideal condition the Central Pacific
surveyed and resurveyed continuously until its rails were actually on
the ground. Barometrical reconnaissances were made in 1862 and 1863 on
lines via Downieville and Yuba Gap, and via Oroville and Beckwourth’s
Pass, in addition to the surveys via Georgetown, Dutch Flat, and
Henness Pass, to which earlier reference has been made (page 20).[95]
Location surveys reached Alta in 1863, the state line in 1866, and
Ogden in 1868.[96] After Mr. Judah’s death almost an entire relocation
of the line from the 31st to the 48th section was made in 1864 in
order to avoid tunneling, and to reduce cost,[97] and still later
it was found desirable to shift the whole route between Dutch Flat
and Emigrant Gap from the Bear River side of the ridge, up which the
Central Pacific was proceeding, to the American River side. This change
avoided some 20 miles of 116-foot grade, together with a great deal of
curvature.[98]

The final result of these various surveys was a line with maximum
grades of 116 feet to the mile. This does not compare unfavorably
with most of the transcontinental routes subsequently built. It is
interesting to observe, however, that the Central Pacific summit is
some 2,000 feet higher than the altitude of Beckwourth’s Pass, and
that the maximum grade of the Western Pacific Railway, built years
afterwards through that pass, is only 52.8 feet to the mile, or one per
cent. Neither Judah nor his immediate successors, therefore, discovered
the best route across the Central Sierras.

[Illustration]

_Temperature._ A second physical difficulty incident to mountain
construction was found in the mountain climate. The summer climate of
the Sierras is delightful, at least at altitudes of about 6,000 to
7,000 feet. At lower elevations the temperature is often uncomfortably
warm. But the winter climate is quite different. As early as August the
nights begin to get cold, the first snows come in November, while in
January the trails become impassable, and the high levels are unvisited
by man until the following year. The official record shows that the
greater part of the mountain construction on the Central Pacific
occurred between July, 1866, and July, 1868.

Mr. Stanford has testified that both the winter of 1866-67 and that of
1867-68 were unusually severe, and his engineers have dwelt in great
detail upon the consequent impediments to their work. Not only did the
frozen earth resist pick and shovel, but there were snow banks from
30 to 100 feet deep. It was necessary to remove this snow to permit
excavation, and to keep clear the space to be occupied by embankments
in order to prevent settling. When the summit was approached tunnels
had to be driven through the snow to the rock face. As the whole
working force could not be employed in the tunnels, the surplus labor,
with all its supplies, was hauled beyond the summit and put to work,
at great expense, in the cañons of the Truckee River. The first snow
sheds were built in the summer of 1867, and in the following years it
was decided to cover all the cuts and points where the road crossed
the paths of the great avalanches beyond the summit. The total length
of sheds and galleries built by the fall of 1869 was 37 miles, and the
cost was $2,000,000.[99]

In addition to the difficulties caused by snow, it must be remembered
that the frozen earth, though uncovered, was difficult to work.
Not only was it necessary to blast out material which could have
been cheaply moved at a more favorable time, but, when piled into
embankments, the ground settled in the spring as the frost was leaving,
and required constant attention.[100]

All the various obstacles raised by climate would have been minimized
if construction had proceeded more slowly. Indeed, Mr. Hood and Mr.
Strobridge, engineers in charge of construction, agreed that if the
Central Pacific had been built at less speed, and as such railways are
usually constructed, the expense would have been from 70 to 75 per
cent less than the actual cost. The saving would not have been due
altogether to the abandonment of winter construction, but this would
have been an important factor. The Central Pacific, however, preferred
speed to economy, in the hope of outstripping the Union Pacific in the
race for the business of Nevada, and for the subsidies and land grants
offered by Congress.

_Supplies._ A further obstacle in the way of successful construction
of the Central Pacific lay in the difficulty of getting supplies. Wood
and stone could be procured in the mountains, but iron, coal, and
manufactured articles of all sorts, including rails, locomotives, and
cars, were brought from Sacramento or from the East. Prices in general
were high, in part because of the war. The first ten locomotives
purchased by the Central Pacific Railway cost upwards of $191,000; the
second ten upwards of $215,000. Iron rails cost $91.70 per ton at the
mills. The price of powder increased from $2.25 to $6 during the period
of construction. The cost of food was exorbitant. Hay was worth $100 a
ton out upon the line, and oats about 14 or 15 cents a pound. Stanford
says he sold one potato for $2.50.[101]

In the cases cited, high cost of transportation often played an
important part in determining the final prices, and in general,
indeed, the expense of moving supplies was comparable with the initial
cost. Among many possible illustrations one may mention the fact that
shipments of rails via the Isthmus of Panama as late as 1868 cost, for
transportation alone, $51.97 per ton, making the total cost of the rail
delivered at Sacramento, $143.67, not including charges for transfer
from ships at San Francisco, nor for transportation up the Sacramento
River. Nor was this freight rate high when compared with the cost of
wagon hauls in the mountains, when material had to be transported away
from the finished track. Mr. Huntington tells of meeting some teams
with ties in the Wahsatch Mountains. He continues:

They had seven ties on that wagon. I asked where they were hauled
from, and they said from a certain canon. They said it took three days
to get a load up to the top of the Wahsatch Mountains and to get back
to their work. I asked them what they had a day for their teams, and
they said $10. This would make the cost of each tie more than $6. I
passed back that way in the night in January, and I saw a large fire
burning near the Wahsatch summit, and I stopped to look at it. They
had, I think, some twenty to twenty-five ties burning. They said it
was so fearfully cold they could not stand it without having a fire to
warm themselves.

Fortunately for the company, the cost of labor on the Central Pacific
and transcontinental lines does not seem to have been excessive. The
total number of men employed ranged from 1,200 in 1864, to 14,000 or
14,500 in 1867, when construction was at its height. White men, of whom
there were some 2,500 or 3,000 in 1867, received $35 a month and board
as common laborers, and from $3 to $5 a day as skilled mechanics. Most
of the track laborers, however, were Chinamen, who were paid $35 a
month, and boarded themselves.[102] These Chinamen proved reliable and
willing workers, and, because of his experience with them, it was with
distinct reluctance that Mr. Stanford in later years allied himself
with the friends of Chinese exclusion.[103]

Letting of Construction Contracts

Such obstacles as these made the task upon which the
Huntington-Stanford group had entered a formidable one indeed. Just how
the difficulties should be met, Mr. Huntington himself did not know.
Arrangements were first made with small contractors for the building of
stretches of road from Sacramento towards Newcastle. Charles Crocker
resigned his directorship in 1862 and took the first contract for 18
miles. Then Cyrus Collins and Brothers got a contract which they did
not complete, and other contracts were let to Turton, Knox and Ryan, C.
D. Bates, and S. D. Smith. Mr. Crocker says the people raised a hue and
cry saying that he was a favored contractor, so that the directors told
him that he could not have more than two miles of the road between the
18th and 30th sections.[104] He adds that the independent contractors
got to bidding against each other for laborers, and thus put up the
price. Huntington was told that the smaller contractors quarreled with
each other, and tried to “scoop” labor from each other;[105] while
Mr. Stanford says that the small contractors did not finish their
sections in consecutive order, that they did not hurry, and could not
be sufficiently controlled.[106]

At any rate, after the completion of section 29, no more contracts
were let to anyone except Charles Crocker and Company. According
to the associates, it was not so much a question of price as one
of organization and control. This may be true, or it may be that
the associates finally decided that it would be easier to make a
satisfactory profit out of government subsidies by doing the building
themselves, than by beating down subcontractors to the lowest possible
contract price. It should be noticed that the change in policy referred
to did not take place until 1864, when the federal Act of 1862 had been
passed and that of 1864 was imminent, and that the Central Pacific did
not select any single contractor, but gave all its work to Charles
Crocker, one of the original associates.

Contracts with Crocker

The first contract with Charles Crocker, covering sections 1 to 18,
provided for a lump sum payment of $400,000, of which $250,000 was to
be in cash, $100,000 in bonds of the company, and $50,000 in capital
stock. This was also the type of contract made with other contractors
up to section 30, although the amounts paid varied. At least one bill
for extras was allowed Mr. Crocker. Sections 30 and 31 were built by
Crocker, and after these were completed he was permitted to continue
without a written contract.

In June, 1865, Mr. Hopkins made a report to the president and directors
of the Central Pacific upon the general subject of contracts. In this
report Hopkins dwelt upon the necessity of rapid construction for the
purpose of capturing the passenger traffic between Sacramento and
Virginia City; and also in order to comply with the acts of Congress
and the state legislature, which required rapid construction of the
road. Persons of large capital, he said, seemed unwilling to bind
themselves to construct the road as rapidly as necessary. Charles
Crocker and Company, on the other hand, had pushed and were pushing
the work with extraordinary vigor and success, and had in all cases
complied with the orders and directions of the officers of the company.
He recommended, therefore, that arrangements be continued with that
firm, at rates specified in an accompanying resolution.[107] The
directors thereupon adopted this report, and resolved as follows:

_Resolved and ordered_ that Charles Crocker and Company be allowed
and paid for all work done and material furnished, or which may
hereafter be done and furnished, until the further order of the Board
of Directors, in the construction of the railroad of the Company, from
section 43 eastward, subject to and in accordance with the terms,
conditions and stipulations set forth in the contract with said
Charles Crocker and Company, dated September 19, 1863, except so far
as the same are modified or changed by this order, at the following
rates and prices, and in accordance with the following classification,
to-wit:

[Here are inserted the rates for clearing and grubbing, and excavation
in various kinds of rock, etc.]

The payments to be made monthly, according to the monthly estimates,
five-eighths thereof in gold coin, and the remaining three-eighths
in the capital stock of the Company, at the rate of two dollars of
capital stock for each one dollar of said three-eighths of said
estimate, with the privilege of paying said three-eighths in gold coin
in lieu of said stock, at the election of said Company, to be made at
the time of such payment.

[Illustration: Summit Valley. Altitude 6,960 feet. Emigrant Mountain
and Railroad Pass in the distance]

Payments in Cash and Stock

The essence of this arrangement was that Mr. Crocker was to go ahead
indefinitely and that he was to be paid not a given sum per mile,
but at a given rate of so much per unit for each class of work which
he might find it necessary to do. Payments were to be made in cash,
and also up to a certain per cent in stock, taken at a valuation of
50 cents on the dollar. Under date of April 16, 1866, Mr. Crocker
requested that stock be given him at a valuation of 30 cents on the
dollar, instead of 50 cents, and this was agreed to.[108]

The change from a 50-cent to a 30-cent valuation was made ostensibly
because Crocker and Company could not realize more than 30 cents on the
stock which they were receiving. As a matter of fact, Crocker could
not sell Central Pacific stock at any price, so that the alteration
of the contract merely increased his chance for a speculative gain,
to be realized after construction should have been completed. Mr.
Stanford has said that the directors did not care very much what the
prices were, so long as the work was done. Under the contract, the
Central Pacific Railroad itself, through Mr. Huntington, purchased
locomotives and cars for Crocker and Company, and charged for them at
cost.[109] Bonds were also sent from San Francisco to Huntington, but
it was Huntington’s impression that they were sold for the company,
not for the contractors. In any case, Huntington rendered an account
every month of what he had done, and Hopkins settled with the company
or with the contractors, as the case might be.[110] Describing the
situation at a later date, Crocker said, “It was decided that I should
go on immediately and see what I could do. I did go on until we got
tied up in suits and I had to stop. I could not get any money. They had
all the money I had, and all I could borrow. That was the time that I
would have been very glad to take a clean shirt, lose all I had, and
quit.”

The total payments made to Charles Crocker or to Charles Crocker
and Company, under the various arrangements just described, were as
follows:[111]

TOTAL AMOUNT PAID CHARLES CROCKER AND COMPANY ON HIS CONTRACT AND FOR
EXTRA WORK

Cash, or its equivalent, including material furnished
him $8,853,117.93
Bonds, taken at par 100,000.00
Stock, taken at 50 cents on the dollar 2,696,200.00
Stock, taken at 30 cents on the dollar 11,947,530.00
Stock, taken at par value 57,980.22
——————————————
Total $23,654,828.15
══════════════

If we take the cash payments at par and the bonds at 75, this would
make the tidy sum of $69,210 per mile on 129 miles. When we bear in
mind that Crocker accepted the contract for the first 18 miles out of
Sacramento at a price including a cash payment of only $13,800 per
mile, and that the arrangements with the small contractors who followed
him were distinctly less favorable, it is possible to say with some
confidence that the profits on the Crocker contracts were considerable.
Whatever they were, Mr. Crocker shared them with his associates by
depositing at a later date $14,000,000 in Central Pacific stock in the
treasury of the Contract and Finance Company, (discussed in the next
section) for the benefit of the stockholders of that organization.
Inasmuch as Stanford was one of the principal stockholders in the
Contract and Finance Company, his later categorical denial before the
United States Pacific Railway Commission that he had participated in
the profits of the Crocker contracts makes interesting reading.[112]

“Contract and Finance Company”

When the Central Pacific approached the state line of California in
the latter part of 1867, the associates told Mr. Crocker that they did
not think it best for him to go any further. They said they wanted
more capital—they wanted to engage heavy men in the enterprise.[113]
Crocker had not been successful in persuading capitalists to go in
with him, while it was believed that investors were deterred from
taking stock in the Central Pacific by reason of the liability which
would be thereby incurred under California law. Either Huntington or
Stanford—both claim the credit—conceived the idea that there would be
an advantage in organizing a corporation to undertake the construction
work. The subject was mentioned on the occasion of one of Huntington’s
visits to California, although the company was formed while Huntington
was in the East.[114] The name finally decided upon for the new
corporation was that of “Contract and Finance Company.” Articles of
association were filed in October, 1867. W. E. Brown, Theodore J.
Milliken, and B. R. Crocker attended to the details. Milliken was a
merchant in Sacramento, and the other two were connected with the
Central Pacific.

According to its articles of incorporation, the Contract and Finance
Company was formed for the purpose of engaging in and carrying on
the business of constructing, purchasing, leasing, selling, holding,
maintaining, operating, and repairing railroads, wagon and transit
roads, steamboats, vessels, telegraph lines, and rolling stock of
railroads; the purchasing, holding, hypothecating, and selling of bonds
and stocks issued by railroad and other companies or corporations;
the purchasing and using of iron and other materials for railroad and
telegraph lines; the borrowing and loaning of money; the conducting of
an express and stage business, and any and all other kinds of business
connected with or pertaining to railroads and telegraph lines; the
transportation of persons and property, on land and water; and the
purchasing, holding, leasing, and selling of real estate of all kinds.
The capital stock was set at $5,000,000.

Failure to Attract Outside Capital

It is the unanimous testimony of the associates that the real and
only reason for forming the Contract and Finance Company was that
outside capital might be induced to come in. Huntington says that when
the company was organized, he went with new energy to capitalists in
the East to induce them to take a share in the risks and profits of
construction. Yet from the point of view of attracting outside capital,
the Contract and Finance Company was a complete failure. William
and Commodore Garrison, of New York, A. A. Selover, Moses Taylor,
and William E. Dodge, among others, considered the matter, but all
concluded that the risk was too great. In California, Stanford applied
to D. O. Mills, W. C. Ralston, Haggin and Tevis, Michael Reese—in
short, to everybody whom he thought he might possibly induce to take
an interest—but in vain.[115] The result of the failure to secure
outside subscriptions to the Contract and Finance Company was that the
associates had to take up the stock of that company themselves. Crocker
was made president at an early date, and apparently took the bulk of
the stock in the first instance. Then, when it was evident that no
outside investors would come in, he put the stock back, and Stanford,
Hopkins, Huntington, and E. B. Crocker took equal shares with him—each
subscribing for 10,000 shares out of the 50,000 outstanding.[116] Later
a little stock was disposed of to outsiders, but when the Contract and
Finance Company got into the courts the associates bought this back.

Throughout the whole life of the Contract and Finance Company the
stockholders were the same men who held the bulk of the stock of the
Central Pacific Railroad. Contracts between the finance company and the
railroad company were therefore made by the associates in one capacity,
with themselves in another capacity, a situation unfortunately not
unique in the history of American railroad building. An unusual
feature of the arrangement, however, which was common to arrangements
with other construction companies formed by the associates, was that
the funds of the Contract and Finance Company, over and above the
sums received from the Central Pacific, were derived from loans to
the company by its stockholders and not from payments on the stock
subscribed. There is no evidence that Hopkins, Stanford, Huntington,
or either of the Crockers paid a cent in cash on their subscriptions.
Instead, they gave their notes. To provide the Contract and Finance
Company with funds, they deposited money, sometimes more and sometimes
less, paying interest on their notes, and receiving credit for interest
on their balances, each partner as a rule putting in all the funds
which he could spare, and having an individual account kept of his
transactions. The Contract and Finance Company was, therefore, always
heavily in debt, although the debt was owed to its own stockholders.
The advantages of this arrangement would seem to be two: first, that
it concealed effectively the profits which the company was making; and
second, that it did not limit any stockholder to a proportionate share
in the burdens and gains of the undertaking. If any of the associates
desired to participate more heavily than his friends, or less heavily,
he could do so. Such a privilege was probably not important before
1869, but it became so later.

Contracts with Construction Company

A word may now be said about the contracts which the Contract and
Finance Company secured. Under date of December 3, 1867, Mr. Stanford,
as president of the Central Pacific, reported to his directors that he
had made a contract for the construction and equipment of the railway
and telegraph line of the company lying east of the eastern boundary
of the line of California, and presented a draft of the contract,
which the directors approved.[117] Leland Stanford, E. B. Crocker,
Mark Hopkins, and E. H. Miller, Jr., were present and voted. Mr.
Miller explains that he did not understand at the time who the owners
of the Contract and Finance Company were, and that nothing was said
about it at the meeting. The contract provided that the Contract and
Finance Company should build the road of the Central Pacific from the
state line, eastward, 552 miles. It was to grade the road, build the
bridges, lay the track, build and complete a telegraph line, furnish
telegraph offices and instruments, furnish rails, ties, buildings,
roundhouses, turntables, and a specified number of engines and cars
and running material per mile. On its part, the Central Pacific agreed
to pay $86,000 per mile, half in cash and half in Central Pacific
stock, and in practice the Central Pacific provided the equipment
and the iron, charging them to the Contract and Finance Company at
cost. This statement relative to the terms of the contract with the
construction company is made on the strength of the recollections of
parties interested,[118] for the actual contract is one of the missing
documents characteristic of Central Pacific history. Stanford describes
the contract as an exhaustive one. That is to say, the Central Pacific
turned over all it had and the Contract and Finance Company built the
road and got the profits, if there were any.

The apparent advantages of an arrangement with a construction company
as compared with those of construction by the Central Pacific itself,
were those connected with specialization of the work. A company which
does nothing but construction and which does that all the time, may be
expected to have a force more highly trained in this particular grade
of work, and a more abundant supply of tools and material than an
organization which builds railroads only occasionally. The unfortunate
necessity of hiring men for each new job and discharging them at the
completion of the job is avoided. In the case of the Central Pacific
this advantage was somewhat illusory, it is true, for the reason that
the Contract and Finance Company on its first contract, whatever might
have been the fact later, could scarcely have had an advantage over the
railroad; and as for tools, the Contract and Finance Company had no
machine tools at all at the beginning, and had to rely on the railroad
not only for cars and engines to transport its men, but for equipment
for large construction of any sort. The real reason for using a
construction company in this case was a financial and not an operating
one.

Profits of Construction

Much has been said about the profits of the Contract and Finance
Company. Here, again, books are missing, having been packed into boxes
by the industrious Mark Hopkins in 1873, and never again produced.[119]
A man named John Miller, one-time secretary of the Contract and
Finance Company, and defaulter to the alleged extent of $900,000 at
a subsequent period, was in possession of transcripts from these
books, if we may believe his statement; but even these transcripts
disappeared, if indeed they ever existed.[120] We do not know,
therefore, how much construction cost the Contract and Finance Company,
and we cannot calculate with any accuracy the profit obtained.

It does appear that the work done by the Contract and Finance Company
cost the Central Pacific, in all $23,736,000 in cash and the same
amount in capital stock.[121] If we add to this $100,000 in cash
and $2,900,000 in bonds paid to the Union Pacific for the stretch
of land from Promontory Point to a point five miles west of Ogden,
and $1,072,874.79 for snowsheds and other extra work performed in
1870, we have a total of $51,544,874.79, of which $24,908,874.79 was
in cash. Taken in connection with the Crocker contracts, this makes
an aggregate of $33,761,992.72 in cash, $3,000,000 in bonds, and
$38,437,710.22 in stock. It was the judgment of the United States
Pacific Railway Commission that the total cost of building the 690
miles from Sacramento to Promontory Point, and of purchasing from
the Union Pacific 47½ miles of road from Promontory Point to the end
of the Central Pacific line, 5 miles west of Ogden, did not exceed
$36,000,000, and this included 9 miles built by small contractors, the
payment for which is not included in the figures just given.[122]

[Illustration: Summit tunnel (altitude 7,042 feet) before
completion—Sierra Nevada Mountains]

In a word, if the conclusions of the United States Pacific Railway
Commission are to be relied upon, and they were made by engineers
relatively soon after the completion of the road, the builders of
the Central Pacific were able to accomplish their contracts with the
cash and the proceeds of the company’s bonds that were turned over to
them, and to retain their Central Pacific stock as a clear profit. If
we compare this stock surplus with the probable cash investment in
the road, taking the shares at any reasonable valuation, say at $15
or $20 per share, the profit does not seem excessive. If we compare
it with the contributions of the associates, however, and this is the
more reasonable because the associates received the full benefit of
the difference between cost and receipts, it represents, on the most
conservative calculation, 500 or 600 per cent for an investment which
probably did not exceed $1,000,000, over a period of six years. To
this should be added the proceeds of the land grant and of the local
subsidies.

The federal government seems in these matters to have assumed the
major portion of the risk, and the associates seem to have derived
the profits. Nor is this point of view vitiated by the fact that the
federal government was ultimately repaid its loan in full, for the
reason that the repayment was not at the expense of the associates, but
was made possible by a credit arising out of the earnings of the road,
and represented merely a shifting of the burden of the debt due the
federal authorities to the communities along the line.

Besides the completion of the main line of the Central Pacific, the
Contract and Finance Company built a portion of the California and
Oregon Railroad, part of the Western Pacific, and the entire San
Joaquin Valley branch of the Central Pacific from Lathrop to Goshen.
The arrangements between the Contract and Finance Company and Central
Pacific for this work varied, but substantial additional profits were
secured. In 1874, the Contract and Finance Company was dissolved.
There is some dispute as to whether its assets were divided into
four or five parts, but both Stanford and Crocker have testified that
their dividend consisted of approximately $13,000,000 in Central
Pacific stock, at par.[123] At the same time the stockholders of
the construction company assumed its debts, amounting to perhaps
$1,600,000.[124]

CHAPTER V

THE SEARCH FOR A TERMINAL

Progress of Construction

Under its various construction contracts, the Central Pacific steadily
progressed, between 1863 and 1869, from Sacramento to a junction with
the Union Pacific near Ogden. The official statement of the progress of
construction is as follows:[125]

Broke ground at Sacramento January 8, 1863
Laid first rail October 27, 1863
Sacramento to Roseville (18 miles) Constructed in 1863

Road opened as follows:

To Newcastle 31 miles January, 1865
” Auburn 36 ” May 15, 1865
” Clipper Gap 42 ” June 10, 1865
” Colfax 54 ” September 4, 1865
” Secret Town 66 ” May 8, 1866
” Alta 78 ” July 10, 1866
” Cisco 94 ” November 9, 1866
” Summit 105 ” July, 1867
” State Line 278 ” January, 1868
” Reno 294 ” May, 1868
” Wadsworth 329 ” July, 1868
(362 miles constructed in 1868)

” Monument Point 667 ” April 15, 1869
” Ogden 743 ” May 10, 1869

Driving last spike, and opened
for business from Sacramento;
distance San Francisco to
Ogden, per time card 883 ” May 10, 1869

Relations with Western Pacific

It has already been noted that the line from Sacramento via Stockton
to San José was not part of the original plan, and that the rights,
grants, and franchises of the Central Pacific in it were assigned to
other parties in the course of the Congressional fight. The original
assignment of December 4, 1862, was to a group of men which included
Timothy Dane, the original projector, and president of the San
Francisco and San José Railroad, Charles McLoughlin, and A. H. Houston.
In 1864, the first assignees having waived their rights, the Central
Pacific Railroad made the same assignment to the Western Pacific
Railroad of California.[126] The Western Pacific Railroad in turn let
contracts for construction to Houston and McLoughlin, but by 1867,
McLoughlin had become involved in litigation regarding his contracts
and asked that all arrangements between himself and the Western Pacific
be canceled.[127]

This led the Western Pacific to enter into a contract with the Contract
and Finance Company, with the result that substantially all the stock
of the first-named corporation came into the hands of the Huntington
group. McLoughlin retained the federal land grant; the federal subsidy,
however, of $16,000 per mile, reverted to the Western Pacific as did
the local subsidies, and through it passed to the Contract and Finance
Company. The railroad from Sacramento to San José was opened September
15, 1869; on June 22, 1870, the Central Pacific and the Western Pacific
filed articles of consolidation.

Lack of Terminal Facilities

In September, 1869, the transcontinental railroad from Omaha to San
José was in working order. It would be an exaggeration to say that the
line was in good shape. There was little or no ballast, and a good rain
was said to make miles of the road-bed run like wet soap. Little had
been done to eliminate grades and curves, sleeping-car accommodation
at first was insufficient, the journey speed from Sacramento to Ogden
was only 19 miles an hour, while schedules were not always adhered to.
Cars were heated by stoves, and passengers disembarked for their meals.
But in a measure these were conditions to be expected at the start,
and interfered only in a minor degree with the interest and excitement
of a transcontinental trip. The great fact was that a railroad existed
which could be used, and over which relatively direct, rapid, and cheap
communication with the East could be secured.

The greatest weakness of the Central Pacific Railroad in 1869 lay in
its lack of terminal facilities on San Francisco Bay. When the company
decided to begin work at Sacramento, its reasonable expectation had
been that a railroad under one management would be built from that
city around the southern end of San Francisco Bay to the city of San
Francisco. The Central Pacific was willing to forego the advantage of
this construction itself in order to gain friends, and did it the more
willingly because this stretch of line was likely to be unprofitable
by reason of steamship competition on the bay and on the Sacramento
River. These conditions changed, however, when the Contract and Finance
Company took over the construction of the railroad from Sacramento to
San José. The Central Pacific interest then obtained a connection of
its own with Niles near Oakland, and it was thus led to consider the
question of terminals on the eastern side of San Francisco Bay.

The easiest part of San Francisco Bay for the Western Pacific Railroad
to reach was undoubtedly the shore south of Oakland or Alameda. It
would probably have been possible to build from Stockton to Richmond,
as the Santa Fé did later, or to develop Benicia or Port Costa, or even
to build a terminus on an island in the bay. Yet as compared with
these alternatives, the Oakland terminus had many advantages. It was
near to the Western Pacific main line; it was served by two railroads
which possessed valuable franchises that could be bought at not too
great expense; and, most important of all, the conditions under which
the water-front at Oakland was held were favorable to the acquisition
of the necessary terminal facilities.

Oakland Water-Front

The situation at Oakland was briefly as follows: The first army of
settlers in the city had been squatters on a portion of the Peralta
grant. Among these had been Horace W. Carpentier, Edson Adams, and A.
J. Moon. In 1852 the state legislature had incorporated the town of
Oakland, had fixed its boundary, and had granted to it the land lying
between high tide and ship channel along the whole of its water-front,
with a view to facilitating the construction of walls and other
improvements.[128] There were 75 to 100 inhabitants in Oakland at
this time, with half a dozen residences, two hotels, a wharf, and two
warehouses. There were no streets—only cattle trails.[129]

As soon as incorporated, the town held an election, and chose Adams,
Moon, Carpentier, and two others as trustees. Mr. Carpentier did not
qualify or serve. On May 17 and 18, 1852, the board of trustees made
two important grants: In the first place, it gave to Horace Carpentier
for the period of thirty-seven years, the exclusive right to construct
wharves, piers, and docks at any point within the corporate limits of
Oakland, with the right of collecting wharfage and dockage; and in the
second place, it sold, granted, and released to the said Carpentier
all the town title in the land lying within the limits of the town of
Oakland between high tide and ship channel.

In return for this grant Carpentier agreed to build three wharves
and a schoolhouse, and to pay to the town 2 per cent of his wharfage
receipts—certainly a modest recompense. Mr. Marier, president of
the board of trustees, later testified that Carpentier told him when
the deed was signed that he would be willing at any time to reconvey
the property to the town on being reimbursed for the moneys he had
expended; and this was also the recollection of others.[130] But the
understanding, if any existed, never could be enforced,[131] so that
Carpentier was firmly established in his control of the tide-lands of
the city of Oakland, and in spite of petitions, riots, and litigation,
sat unshaken in 1867 when the Central Pacific became interested in the
matter.[132]

Oakland Water Front Company

Sometime prior to 1867 Carpentier had several talks with Leland
Stanford, and endeavored to persuade him to build north from Niles
across the Ravenswood cut-off. In the fall of 1867, Carpentier and
Stanford talked again, and Stanford came to entertain the idea as a
matter of reasonable negotiation. John P. Felton was engaged by the
city of Oakland to look into its rights. Carpentier says that he
offered the railroad one-half of his water-front if it would make
his property its terminus. He says that this mode of adjustment was
acquiesced in by Mayor Merritt and Mr. Felton, and that about the end
of the year (1867), it came to be understood between them and Governor
Stanford and himself that something should be done on approximately
this basis.[133] Judge E. B. Crocker, however, attorney for the Central
Pacific, asked that outstanding disputes regarding the water-front be
first settled. The legislature was soon to be in session, and it was
urged that all should act together in trying to get an authorization
for the settlement of difficulties.

This was done.[134] On the 27th of March, 1868, as a part of a
series of compromise arrangements, the Oakland Water Front Company
was incorporated. The subscribers and original directors were H. W.
Carpentier, president; Samuel Merritt, vice-president; Lloyd Tevis,
secretary; Leland Stanford, treasurer; E. R. Carpentier and J. B.
Felton. Mr. Tevis and H. W. Carpentier were in the same year directors
of the Southern Pacific Railroad Company. The Oakland Water Front
Company was capitalized for $5,000,000, and the stock was divided into
50,000 shares. Of these shares H. W. Carpentier subscribed for 23,000,
or 46 per cent; Stanford for 17,500, or 35 per cent; and Felton for
4,999, or 10 per cent. Lloyd Tevis took 2,500 shares, E. R. Carpentier
2,000 shares, and Samuel Merritt 1 share.

On March 31, Mr. Carpentier deeded to the new corporation all the
water-front of the city of Oakland, that is to say, all the lands,
and the lands covered with water lying between high tide and ship
channel, being the water-front lands described in and granted in the
act of incorporation of May 4, 1852. He excepted from this deed only
that water-front lying between the middle of Washington Street and the
middle of Franklin Street and extending southerly to a line parallel
with First Street. By Section 2 of an agreement made the following day,
the Oakland Water Front Company agreed to deed this last-named area to
the city of Oakland.[135]

Cession of Land by Water Front Company

On April 1, 1868, two further agreements were signed. One, styled an
indenture, was between the Oakland Water Front Company, the Western
Pacific Railroad Company, Carpentier, Felton, and Stanford. Under this
indenture, and in consideration of the deed of March 31, the Oakland
Water Front Company declared that it held the property conveyed to it
subject to covenants which were particularly set forth as follows:

The Western Pacific Railroad agreed to select within three months 500
acres from the property conveyed by the deed of March 31, including
not more than one-half mile of frontage on ship channel, together with
not to exceed two strips of land over the remainder of the premises
from high-water mark to the parcels selected. The strips running from
high-water mark were each to be not more than 100 feet wide at grade.

The Oakland Water Front Company agreed to convey to the Western Pacific
Railroad the 500 acres selected, and to grant an exclusive right-of-way
over the hundred-foot strips. It undertook, moreover, to sell no
land west of the 500 acres, provided that these were located out to
a westerly water-front of 24 feet depth of water at low tide, and to
place no obstructions in front of them, or to do anything to obstruct
the free approach of vessels to the parcels.

The Water Front Company further agreed to convey to the city of Oakland
on demand “so much of the premises as [lay] between the middle of
Franklin Street and the easterly line of Webster Street, and extending
out to a line parallel with First Street, and two hundred feet
southerly of the present wharf at the foot of Broadway,” with the right
of wharfage, dockage, and tolls thereon, and to designate and dedicate
as a navigable water course for public use, the channel of San Antonio
Creek, from ship channel to the town of San Antonio, to a width of not
less than 200 feet over the shallow water at the bar, and 300 feet wide
above that place.

The Water Front Company, in the third place, undertook to convey 25,000
shares of its stock to Carpentier, 5,000 shares to Felton, and 20,000
shares to Stanford.

Finally, the Water Front Company authorized the city of Oakland, or
other parties, to construct a dam above the Oakland bridge, across the
estuary, so as to keep the land above submerged to high-tide mark, for
the use of the owners of the adjoining lands, and of the public.

The second paper, also signed on April 1, was an agreement between
the Western Pacific Railroad Company, Leland Stanford, and the Water
Front Company. By it the railroad agreed to construct or to purchase
within eighteen months and to complete a railroad from its main line,
then at Niles, to and connecting with the parcels of land described in
the indenture of the same date, together with the necessary buildings
and structures for a freight and passenger depot on the premises. The
railroad agreed to expend in new work within three years $500,000. The
railroad company agreed that in construction across the estuary between
Oakland proper and Brooklyn it would leave a space for forty feet free
for the passage of vessels.[136]

Attitude of City

Up to this point the city had not entered into any contracts. On
April 1, however, the city council passed an ordinance ratifying and
confirming the grants made under the early ordinances of 1852 and
1853, and the conveyance by Mr. Marier as president of the board of
trustees, and granted, sold, and conveyed to the said Carpentier in
fee simple forever, the city water-front, that is to say, the lands
lying between high tide and ship channel. This ordinance further
provided that Carpentier should convey to the Oakland Water Front
Company the property and franchises conveyed at that time by the city
to him, to be used in accordance with the terms and stipulations of the
contract between the Oakland Water Front Company, the Western Pacific
Railroad Company, and other parties. On the following day the council
passed still another ordinance reciting that inasmuch as the terms and
stipulations previously provided had been complied with by Carpentier,
the grant was finally settled upon him.[137]

The result of these somewhat complicated negotiations was that the
Central Pacific acquired 500 acres of water-front property in Oakland,
with a frontage of one-half mile on ship channel, merely as a reward
for coming to the city. In addition, Mr. Stanford, acting presumably on
behalf of his associates, received 40 per cent of the capital stock of
the Oakland Water Front Company, which on its part owned substantially
all of the water-front remaining. The city attorney, who was supposed
to represent the interests of the city, was rewarded with 10 per cent
of the stock of the Oakland Water Front Company, and the position of
director. The mayor of the city, Mr. Merritt, was made vice-president
of the same corporation, although the extent of his personal interest
in it is not known. He seems to have held only qualifying shares.[138]

In subsequent years the relations between the city of Oakland and the
Oakland Water Front Company were repeatedly subjects of most bitter
controversy. Extravagant as had been the consideration of the grant to
the Central Pacific for coming to Oakland, this matter was less serious
than the circumstance that the control of the remaining water-front by
the Central Pacific through the Oakland Water Front Company appeared
to make it impossible for any rival transportation company to gain
a footing in the city. The city long endeavored to free itself from
this monopoly. It contended at one time that Carpentier had secured
the election of his own agents to the board of trustees which had made
his grant, and that in any case Carpentier had agreed to reconvey
the property to the city. Neither statement could be proved. On the
contrary, in 1897 the Supreme Court of California definitely pronounced
the compromise of 1868 binding upon the municipality, although it
interpreted the words “ship channel” to mean the low-tide line and not
a depth of three fathoms at low tide as had at first been supposed.[139]

Water-Front Monopoly Broken

Ten years later the title of the Oakland Water Front Company was
again questioned in a case brought by the Western Pacific Railroad
Company. By this time two jetties had been built by the United States
government extending the lines of San Antonio Creek westward to deep
water. As a result of the deposit of material taken out of the channel
of the estuary and placed north of the northern training wall, and of
additional deposits from dredging operations conducted by the Central
Pacific and by private parties, the line of low tide had been moved
appreciably out into the bay. Under the general rule that accretions
belong to the proprietors of riparian lands, the Southern Pacific, as
successor to the Oakland Water Front Company, asserted title up to
the limit of the new line of low tide. This claim the federal court
denied. The limit of the railroad company’s property was declared to
be the low-tide line of 1852, extending first northwesterly and then
northeasterly from the mouth of the San Antonio estuary at Sand Point
as indicated in the map on page 93.[140]

[Illustration: Map of Oakland and Brooklyn, showing location of Central
Pacific terminals, 1871]

This at one stroke transformed the Southern Pacific’s holding from
a water-front to an interior location, by making it clear that the
title to the substantial area between the bulkhead line of the city
of Oakland and the low-water mark of 1852 lay in the city and not in
private hands. The city had indeed given away its water-front as it
existed in 1852, but the creation of a new water-front during the
following years relieved it of the effects of its negligence. It thus
appears that the alienation of the water-front of Oakland in 1868 did
not permanently vest in the Central Pacific interest control of the
tide-lands to which the compromise of that year referred. For the time
being, however, the company secured a well-nigh complete monopoly. Not
only had it convenient access to tide-water for its own trains, but
it was able for many years to keep other railroads from obtaining a
similar advantage. Up to this point, however, no arrangement had been
completed for a terminus on the San Francisco side of San Francisco Bay.

Proposed Grant of San Francisco Water-Front

In order to establish the Central Pacific with complete adequacy, the
associates accordingly now turned to the western side of San Francisco
Bay and took steps to provide terminal facilities in the city of San
Francisco itself. Possibly this was because they had acquired or were
about to acquire a controlling interest in the San Francisco and San
José Railroad; possibly it was due to Carpentier’s influence, or
perhaps it was merely a recognition of the advantages of a terminal
location in San Francisco.

Unlike Oakland, the city of San Francisco had never received title
to all its tide-lands from the state, and application had to be made
to the legislature at Sacramento, direct. Early in 1868 the Senate
Committee on Commerce and Navigation, of the state legislature,
reported a bill granting to the Western Pacific Railroad Company and
to the Southern Pacific Railroad Company, submerged and tide-lands in
the Bay of San Francisco, from the foot of Channel Street to Point
San Bruno, with the right to extend the railroads of said companies
or construct branches thereof, and to purchase other railroads, and
use the same for the purpose of reaching the place or places on said
premises selected as termini for said railroads, and to maintain and
operate the same by steam or other power from the present lines of said
railroads to the said termini on said premises, and with all necessary
and proper depots, side-tracks, etc.

The boundaries of this extraordinary grant are indicated on the map on
page 96.[141]

The total length from the foot of Channel Street to Point San Bruno was
a little over 8 miles. The maximum breadth was approximately 2½ miles,
and the area was estimated by opponents of the scheme to be not less
than 6,620 acres. The value of such a water-front on the principal city
of the Pacific Coast was to be measured in millions of dollars, and its
importance to the Huntington interests was not limited to a money value
alone. The possession of the San Francisco water-front south of Channel
Street meant the occupation of the only part of the city at which a
first-class railroad could reach tide-water. The reason for this is
that all railroads must come into the city of San Francisco from the
south or the southwest on account of the shape of the peninsula, and
no railroad can conceivably be allowed to cross the main thoroughfare.
Market Street, or to penetrate the thinly settled residential districts
in the north.

[Illustration: Boundaries of Railroad Tide-Land Grant, as proposed in
1868.]

The bill provided that the Central Pacific, Western Pacific, Southern
Pacific, and the San Francisco and San José railroads, which were
the proposed grantees, should pay the fair market cash value of the
submerged lands at the time of the passage of the act, being not less
than $100 per acre for the lands lying north of Point Avisadero. But
it was also provided that the surplus over $100 due for the land north
of Point Avisadero might be spent in reclamation and improvement of
the premises, and the companies were to receive patents if within five
years not less than $1,000,000, in addition to such surplus, had been
spent in this way. In plain English, the tide-lands were to be sold for
$100 an acre, but in the case of some of them the beneficiaries might
be required to spend additional amounts in improvements. The Senate
committee defended its recommendation by saying that it was desirable
to have the water-front improved, and that this was the way to have the
thing done. It expected that the railroads would build a sea-wall; and
observed that this wall, water-front, and docks would be subject to the
control of the state harbor commissioners. How a rival railroad in the
future would get access to the docks, it did not say.[142]

Scheme Opposed

Generally speaking, arrangements for the alienation of city water-front
property into private hands are to be looked upon with suspicion
unless extensive powers of control are reserved by state or city, and
unless there is provision for the reversion of the property, including
improvements, to the public at the end of a stipulated time not too
far removed, on conditions and in a manner clearly stated. In the
particular case in hand there were no such safe-guards to the public
interest, except a general reservation of jurisdiction and control
over the water-front by the State Board of Harbor Commissioners, and
a provision that the grantees should charge no tolls or wharfage on
the water-front sold to them. This was not enough. It was therefore
fortunate under the circumstances that the improvident nature of the
proposed contract was understood and its defects given full publicity
by the San Francisco press. The _San Francisco Bulletin_ commented as
follows:

The scheme is an outrageous one. A proposition to sell to the Railroad
Companies at a reasonable price, so much of the southern water-front
as would be actually necessary for depots, warehouses, workshops,
etc., might be considered favorably, but a proposal to give to what
is or will be virtually a single corporation two-thirds of the
frontage of a city destined to be the second in America, is utterly
indefensible ... this immense property will be worth eventually as
much as the Pacific Railroad itself.[143]

The _Alta_ said:

If the parties who have so modestly presented their humble petition
for this concession had gone one step farther, and asked for a grant
of the whole State of California—all its tide and marsh lands—the
control of all its rivers, bays and inlets, we do not know that the
public amazement would have been any greater.[144]

Even the conservative _San Francisco Times_ suggested that it would
be well for the railroad companies to submit detailed estimates of
the land needed for terminals and the uses to which this land was to
be put,[145] while it refrained from commenting on the _Bulletin’s_
assertions that it was the intent of the railroads to locate their
terminus well south of the city of San Francisco to the great profit of
parties from Sacramento who were buying lands around Hunter’s Point.

Another Plan Substituted

Whether or not this last accusation was well founded, the opposition of
the city grew so intense that the legislature did not dare to carry
out its original plan.[146] Instead, the Southern Pacific and Western
Pacific were offered each 150 acres, to be located by the companies
within specified limits south of Channel Street, and still later the
amount was reduced to 30 acres apiece, and a donation was substituted
for a sale. So amended, the act became law on March 30, 1868. It
granted and donated to the Southern Pacific Railroad Company and to
the Western Pacific Railroad Company for a terminus in the city of San
Francisco, to each of said companies, 30 acres, exclusive of streets,
basements, public squares, and docks. The land was to be selected by
the railroad companies within ninety days, but it was to lie south of
Channel Street, and outside of the Red-Line water-front of Mission
Bay, and was not to extend beyond 24 feet of water at low tide, nor to
within 300 feet of the line which should be selected by the tide-land
commissioners as the permanent water line of the front of the city. A
200-foot right-of-way was given to the companies to provide access to
their tide-lands. The lands were to be located and $100,000 spent upon
them by each of the grantees within thirty months, or the grant would
revert to the state.[147]

Compared with their original projects, the Act of 1868 represented a
considerable check to the plans of Mr. Stanford and his friends. Yet
the grant in San Francisco was important, and, added to what had been
secured in Oakland, provided satisfactorily for the Central Pacific’s
transportation needs.

In 1871 the San Francisco supervisors granted to the Southern Pacific
and Central Pacific railroads rights on various streets in the city in
order that they might reach and enjoy their lands and depot grounds in
Mission Bay. Late in the same year Stanford indicated his willingness
to make Mission Bay the main terminus of both the Central Pacific and
Southern Pacific, in consideration of a subsidy of $3,000,000 and of
alterations in the terms of the Mission Bay grant so as to make it more
acceptable. Nothing came of these last negotiations, nor of somewhat
similar proposals made in 1872 by a citizens’ committee engaged in
fighting the Goat Island scheme (see below) and submitted to popular
vote. In 1873-74, however, the city granted Stanford additional though
minor franchises, enabling him to run trains on certain city streets.

Proposed Occupation of Goat Island

It will be readily understood that feeling ran high both in Oakland and
San Francisco while the railroad negotiations for terminal facilities
were going on. Nor was the public excitement allayed by the attempt of
the Huntington group to occupy Goat Island, which occurred at the same
time. Goat Island, formerly known as “Yerba Buena” Island, is a small
body of land lying about midway between San Francisco and Oakland.
Reference to the inset accompanying the map of Oakland will show its
exact location. It is obvious enough why the Central Pacific wanted
the use of this island and of the mud flats lying directly north.
It is just as obvious why, in the absence of regulation, the public
should have objected to its exclusive occupation by any single railroad
company. Yet, in March, 1868, one day after the action granting to the
Central Pacific and to the Southern Pacific 60 acres of tide-lands in
San Francisco, the state legislature granted to the Terminal Central
Pacific Railroad Company—a corporation controlled by the associates—a
defined area not to exceed 150 acres of the submerged shoal lands north
of the island, with the right to reclaim these lands for railroad
depot and commercial purposes, and to connect them by a bridge with
the Oakland, Alameda, and Contra Costa shores. The company agreed to
pay the fair appraised value of the lands into the state treasury, and
to put into operation within four years a first-class rail and ferry
communication between the city of San Francisco, the premises conveyed
to it, Oakland and Vallejo.[148]

Two years later the time for the completion of the promised road was
extended, and a railway to the Straits of Carquinez, opposite Vallejo,
was accepted as sufficient to fulfil the requirement of a line to the
town of Vallejo itself,[149] and in 1871 a still further extension of
time was given. The road which the Southern Pacific proposed to build
was probably that indicated in the notice of new construction filed at
Sacramento in March, 1867—that is to say, it was a line running from
Sacramento east of the Sacramento River past Freeport, crossing the
mouth of the San Joaquin River, and continuing west through Antioch and
over the hills to San Francisco Bay. Such a road could easily have been
brought to Carquinez Straits, but it could not have reached Vallejo.
The associates did not at this time intend to enter the territory west
of the Sacramento River.

Project Lapses

Following the vote of the California legislature, a bill was introduced
in Congress, providing for the grant to the Central Pacific Company
of the right to use Goat Island itself. This logical sequence to the
state legislation was opposed by the United States military authorities
and by the city of San Francisco. It appeared that residents of San
Francisco anticipated the permanent loss of a large part of the
transcontinental business if the Central Pacific should occupy Goat
Island. The _San Francisco Bulletin_ insisted that there was room
enough on the island and on the adjacent flat to accommodate all the
warehouses and large shipping, mercantile, and financial establishments
of a seaport of 500,000 inhabitants. It was stated that the advantages
of the location would draw the warehouses, that other firms would
follow, and that men who had business on the island would not live
in San Francisco, but would make their homes on the eastern side of
the Bay where land was cheaper, more level, and more fertile. These
statements were generally believed.

Nothing was done in 1869, 1870, or 1871 beyond the steps just
mentioned. In March, 1872, however, the San Francisco chamber of
commerce passed resolutions and prepared a memorial addressed to the
President and to Congress opposing the proposed grant, and a mass
meeting was held in San Francisco to make public protest. Following
this, conferences were held between a committee of citizens and the
president of the Central Pacific in the hope of arriving at some
general understanding relative to terminal facilities, and eventually
the whole Goat Island project lapsed.[150]

Purchase of Other Roads

By the middle of 1868 the Central Pacific had thus secured satisfactory
water-front facilities in both Oakland and San Francisco, amounting
in the case of the former city, through the Oakland Water Front
Company, to monopoly control. Needless to say, it had also abundant
accommodations at Sacramento. Through the Southern Pacific Railroad it
had also franchises in San Francisco, including the right to maintain
tracks in the vicinity of Third and Townsend Streets. Up to August,
1868, however, it does not seem to have made the connections between
its main line and Oakland that were necessary to enable its trains to
reach San Francisco Bay at all. In that month Stanford, Huntington,
Hopkins, and Crocker bought a majority of the stock of the San
Francisco and Oakland Railroad, and the following year they purchased
likewise the San Francisco and Alameda Railroad. The first-named
company had 2 or 3 miles of track eastward from Oakland’s point. The
Alameda company had about 16 to 18 miles. Both had valuable franchises,
and both owned ferry-boats and piers extending some distance into the
bay. In 1870 both of the companies were joined in the San Francisco,
Oakland and Alameda Railroad, and in the same year this company was
consolidated with the Central Pacific. By 1869 the gap between the end
of the San Francisco and Alameda Railroad and Niles had been filled,
and this in a real sense completed the transcontinental line.

CHAPTER VI

ACQUISITION OF THE CALIFORNIA PACIFIC

Tendency to Monopoly Control

The first intimation that the Central Pacific Railroad was on its way
to something like a monopoly control in the state of California is to
be found in the negotiations for terminals on San Francisco Bay. But
it was not long before more evidence came to light. Looking back with
the advantage of knowledge of the company’s later history, it seems
probable that the possibilities of monopoly control of the railway
business of California were present to the owners of the Central
Pacific as early as 1868. The task of securing such control was not,
after all, so very great. California had few railroads in the sixties,
and those which were in operation were small and unprosperous, and
could be cheaply acquired.

Besides this, the topography of the state lent itself to schemes of
conquest by a sharp separation of the interior valleys from each other
and from the coast. It was not necessary to occupy the whole country,
for an effective control over one valley could be maintained in spite
of the fact that an adjacent valley was in hostile hands. Nor was there
any public opinion in California at the time thoughtfully critical of
monopoly, as such. The country was new. Theories covering the relations
of large corporations to the consuming public had not been developed.
People hated monopolies because monopolies meant high prices; but the
very persons who were most likely to object to monopoly were also
likely to seek positions of advantage for themselves when possible.

Under conditions like these, Stanford, Huntington, Hopkins, and
Crocker were almost sure to attempt to dominate the railway system of
the state as soon as they determined to make their connection with it
more than temporary. This decision was made as the Central Pacific
approached Ogden in 1868 and 1869. Had the associates been able to
sell out before this time, it is likely that they would have done so.
Indeed, it is credibly reported that 80 per cent of the stock of the
Central Pacific was offered to D. O. Mills as late as 1873, for a price
of $20,000,000,[151] and this was probably the last of several offers
made to different parties.

The evidence seems to show, however, that by 1870 the Huntington group
were inclined to remain in the railroad business. Strategically, the
associates then occupied a very strong position. They possessed the
only railroad line from California to the East. They dominated the
Oakland water-front, and held important concessions in San Francisco.
Branch lines, like long tentacles, stretched from Roseville north to
Chico, on the way to the Oregon state line,[152] and from Lathrop south
to Modesto, to be extended to Goshen by August 1, 1872.[153] By 1869
the Sacramento Valley Railroad, with its extension to Placerville,
had been bought, and the California Central Railroad from Folsom
to Marysville was under Central Pacific control. Even the budding
project for a Southern Pacific Railroad had received the attention of
Stanford and his associates. Indeed, the only really weak spots in
the associates’ position were their failure fully to occupy the San
Joaquin Valley, and the fact that they did not control the short line
between Sacramento and San Francisco. We will, accordingly, consider
the situation and the policy of the Huntington group in these respects.

[Illustration: Map of California Railroad, about 1870.]

Competition of California Pacific

The most direct railroad route from Sacramento to San Francisco is by
way of Vallejo or Benicia, across the Straits of Carquinez, and along
the eastern shore of San Francisco Bay. In 1865, after the Central
Pacific had begun work in earnest, the California Pacific Railroad
Company was incorporated to occupy this route from Sacramento as far
as Vallejo. Contracts were let, though no material progress was made
for two years. In 1867 the work was taken up with fresh energy, and
in 1869 the road was finished between Vallejo and Sacramento, with
a branch from Davisville to Marysville. The newly built Napa Valley
Railroad from Adalanta, California, to Calistoga, was acquired at the
same time. In 1870 the system reported 163 miles of road, of which 22
miles consisted of a ferry connection from Vallejo to the city of San
Francisco.

It seems more probable that the California Pacific was originally
intended as a connection for the Central Pacific than that it was built
as a competitor with the larger road. This was satisfactory enough to
the Central Pacific so long as this company terminated at Sacramento.
But there is no manner of doubt that the California Pacific became a
formidable competitor to the Central Pacific when the latter acquired
its circuitous line to Oakland via Stockton. This was especially true
with respect to the passenger business. The distance from Sacramento to
San Francisco via Vallejo was 87 miles, via Stockton 137½ miles; the
time via Vallejo was 3½ hours, via Stockton 5 hours. It appears that
transcontinental passengers on Central Pacific trains often changed
cars at Sacramento, sacrificing the balance of their through ticket and
paying extra fare in order to save time.[154] Of the local passenger
business between Sacramento and San Francisco, the California Pacific
claimed three-fourths. How large a share of the freight went by the
shorter line does not appear, but it must have been considerable, for
Mr. Stubbs later estimated that the cost of operating the Benicia route
could not have been more than 50 per cent of the cost of operating the
Western Pacific,[155] and it is in evidence that the Central Pacific
sent most of its freight via Benicia as soon as it obtained control of
both lines.

It should be remembered also that in addition to its competition for
local business, the California Pacific had ambitious plans in other
directions. We know, for example, that it proposed an extension
eastward via Beckwourth’s Pass to a connection with the Union Pacific,
at or near Ogden. This line was to be built by the California Pacific
Railroad Eastern Extension Company, incorporated at Sacramento in
March, 1871, with a capital stock of $50,000,000.[156] Other reports
credited it with an intention to enter the San Joaquin Valley;[157]
while its influence in Sonoma, Marin and Napa counties was recognized.
In short, by 1870 the California Pacific was not only important in
respect to what it had actually accomplished, but it had in it the germ
of a railroad system in no way inferior to that of the Central Pacific
itself.

Rival’s Weakness

Unfortunately for the California Pacific, the company’s physical and
financial position in 1871 did not measure up to the magnitude of
its ambitions. Counsel for the Central Pacific in later years drew a
vivid picture of the condition of the railroad in 1867 which probably
contained more than a grain of truth. According to this account, the
right-of-way of the California Pacific was unfenced, its sidings were
few, and its stations were insufficient. The road-bed was almost
wholly unballasted, and inadequately supplied with ties. Embankments
were so narrow that the ends of the ties projected on both sides. The
slope of the cuts was insufficient and upon the Napa branch the rails
were fastened to the ties with wrought nails without heads which were
bent back over the flanges of the rails after being partly driven, in
order to hold the rails in position.[158]

On the other hand, in spite of the imperfect character of its
construction, the California Pacific had paid large prices to
contractors in its bonds and stock. In December, 1870, the company was
compelled to borrow money to meet the January interest of 1871. By the
following spring it was indebted to the extent of $8,450,000, of which
$1,200,000 was floating debt, and had to prepare to meet an annual
interest charge of $667,500. This was more than the company’s earnings
could stand.

In 1871 the Central Pacific, taking advantage of the weakness of its
rival, proceeded to the attack by arranging to construct a branch from
Sacramento, by way of Davisville, to Vallejo. In pursuance of this
arrangement it accumulated iron and ties, made surveys, and succeeded
in effecting a contract with an organization known as the Bridge
Company of the City of Sacramento, for the exclusive use of its bridge
for their new enterprise.[159] The California Pacific was already
suffering from the competition of river boats, and the construction of
the new road would have ruined it. The pressing nature of the danger
was appreciated by the managers of the road, and Milton S. Latham,
director and treasurer of the California Pacific, and agent for the
holders of three-fourths of the capital stock of that company, promptly
opened negotiations with the Central Pacific, through Collis P.
Huntington, for an adjustment of difficulties. This was precisely the
situation which the Central Pacific desired to bring about.

Control of California Pacific Acquired

The agreement that resulted from the conditions described may probably
be explained as an elaboration of the Central Pacific’s statement
to Mr. Latham that the company was willing to buy the California
Pacific but did not have the money. It took the form of the following
consecutive transactions:

By agreement dated July 13, 1871, between Latham, Leland Stanford,
and Mark Hopkins, Mr. Latham agreed to deliver 76,101 shares of the
California Pacific Railroad Company, to assign three-fourths of the
capital stock of the California Pacific Eastern Railroad Extension
Company to the other parties to the contract, and to stipulate that
the total indebtedness of the two companies named should not exceed
$8,421,000. In consideration of this delivery, Stanford and Hopkins
agreed to pay to Latham $1,579,000 in bonds of the California Pacific
Railroad Company.

On August 9, 1871, Mr. Latham presented, and the directors of the
California Pacific at a formal meeting approved, resolutions to the
effect that the sum of $1,600,000 was necessary for the purpose of
constructing and completing an additional track, and for strengthening
the California Pacific embankments across the tule lands. The directors
further voted that the money be borrowed, and the necessary bonds be
issued. President Jackson then stated to the board that a contract had
been made, and the execution of this contract was approved.

Under date of August 9, 1871, the California Pacific covenanted with
Stanford, Hopkins, and Huntington for the construction referred to in
the previous paragraph. The associates agreed

... to enlarge the embankment of the railroad of the said party of
the second part, where embankment is required, and erect and widen
the trestle work, where trestle work is required, from the bridge
across the Sacramento River to Davisville, in the county of Yolo,
in the State of California, and place thereon a good and sufficient
superstructure, consisting of timber and ties and iron railroad
thereon, so as to make an additional railroad track from said bridge
to said Davisville, fully equal to the present railroad on the present
embankment and to connect the same with proper switches with both the
main track to Vallejo, and the track to Marysville of the railroads
of the party of the second part. Said parties of the first part to
furnish all the material for the said additional railroad track, and
embankment, and trestle work, and to have the same completed and
ready for use on or before the first day of January, in the year one
thousand eight hundred and seventy-three.

In consideration of this construction, the California Pacific was to
pay the associates 1,600 second mortgage California Pacific bonds.

On August 19, 1871, the Huntington group, now controlling a majority
of the board of directors of the California Pacific, entered into an
agreement with the California Pacific under which the Central Pacific
undertook to pay the California Pacific $5,000 per month, to furnish
the equipment for passenger business, and to guarantee the interest on
1,600 second mortgage bonds, while the California Pacific in return
agreed to transport to or from San Francisco, passengers beginning or
ending their trips on the Central Pacific or connecting roads, and to
maintain its fare for other passengers at $4 between San Francisco and
Sacramento. On September 1, 1871, the Central Pacific took full control
of the California Pacific, and moved its offices from San Francisco to
Sacramento.[160]

Motives Behind Transactions

Two explanations of these transactions are possible. Counsel for the
Central Pacific, in 1886, maintained that the contracts fell into two
distinct classes or groups. The California Pacific, according to this
point of view, arranged for an additional track between Sacramento
Bridge and Davisville, and for still more important enlargement
in embankments and widening and erection of trestle work, by the
transfer to defendants of second mortgage bonds. These bonds, it was
alleged, though considerable in amount, had little value because of
the desperate financial condition of the California Pacific. In the
second place, the Central Pacific gave value to bonds which it held by
a guaranty, and used them to buy a controlling interest in California
Pacific stock. Of this, the minority stockholders of the corporation
had no right to complain.

Counsel on the other side maintained that the essential feature of the
whole transaction was the purchase of California Pacific stock, and
that the various contracts merely supplied a method of buying this
stock without paying for it. Starting, therefore, with the contract
of July 13, they pointed out that the defendants agreed to purchase
California Pacific stock from Latham with California Pacific bonds
which were not yet in existence, stipulating for full control of
the California Pacific before payment should be made, in order that
they might obtain the purchase price from that company. When Latham
announced that he was ready to deliver the stock, it became necessary
for the defendants to secure about $1,600,000 in California Pacific
bonds. These bonds could be legally issued only for new construction,
hence the contract for a second track from Sacramento to Davisville.
When issued, and in the hands of the defendants, it was necessary to
have the Central Pacific’s guaranty. For this the Central Pacific
required the California Pacific to enter into the traffic agreement
of August 19, obtaining thus a full _quid pro quo_. The result was
that the California Pacific furnished first the bonds and then a
consideration for the Central Pacific’s guaranty, which together served
to purchase the California Pacific stock.

Plausible Explanation

There were several circumstances which made this second version
plausible. It seems extraordinary, for one thing, that a company in
the straits to which the California Pacific was reduced should have
issued bonds for double-tracking 13 miles of road.[161] If it be
answered that the strengthening of the road against the immediate
danger of flood was the real reason for the issue, then it was still
extraordinary that the time limit for construction of the work should
be set as it was, eighteen months away, on January 1, 1873. As a matter
of fact, the section of the California Pacific across the tule lands
was washed away before the associates got around to strengthening it.
This made it impossible for Stanford, Huntington, and Hopkins, or
the Contract and Finance Company, to which they had assigned their
contract, to carry out the original agreement. Instead, Mr. Montague,
chief engineer of the California Pacific, reported to his board that
the cost of restoring the washed-out line would be equal to the cost
of carrying out the original contract, and the board, on November 15,
1872, authorized the substitution of this work for that agreed on in
the contract of August 9, 1871.

Owing to the subsequent destruction of the books of the C

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