How Rails Saved a Seaport

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This was the situation confronting John W. Garrett when he became president of the Baltimore & Ohio in 1858. The railroads had suddenly emerged as the makers of cities. A continental treasure hunt was underway. The trans-Mississippi country was revealing its wealth to the miner, the farmer, and the cattleman, while factory chimneys darkened the skyline in eastern cities and Chicago was becoming the world’s hog butcher. There were new oil refineries along the Cuyahoga at Cleveland, new steel mills along the Monongahela at Pittsburgh. The men who extracted or produced or refined or processed America’s unbelievable abundance clamored for transportation to market, and in most cases this demand was supplied by the railroads.

The need was great, and the railroads were built too fast. Frequently overextended and overcapitalized, often suffering at the hands of stock speculators or construction companies, forced by top-heavy debt burdens into irresponsible rate-cutting and flagrant discrimination in favor of towns fortunately located or shippers offering large consignments, the roads brought injury as well as prosperity to farmers, investors, and cities in the struggle to meet expenses. Yet there were enormous profits to be made in railroading, whether by conscienceless manipulators or constructive managers, and the nation had its share of both. Large systems began to emerge. The big railroad executive had become a power in the land, in many instances guiding a corporation too large for the states to cope with in a period before federal regulation was effective, playing for high stakes in a game that had few rules, fewer umpires, and too many players.

It was no game for the squeamish or the hesitant. In pitting the B&O against its rivals to the northward—the Pennsylvania, the Erie, the New York Central--Garrett was moving in fast company. The New York Central in those days was guided first by hard-headed Erastus Corning, New York ironmaster and railroad promoter, and later by swaggering, shrewd, profane old Commodore Vanderbilt of Staten Island. The incisive Edgar Thomson and the handsome, ambitious Tom Scott, equally capable and equally aggressive, controlled the Pennsylvania. And the Erie was then becoming notorious as the Scarlet Woman of Wall Street under the guiding hands of pious little Daniel Drew and that most competent manipulator and wrecker of railroads, Jay Gould. These men, differing widely in character and personality, had this much in common: they wielded near-absolute power with a skill that bordered on recklessness, and they shared equal and substantial portions of the acquisitive instinct. That John Garrett could hold his own in such a group reveals a good deal about the strength and power of the B&O’s new president.

The trunk lines competed savagely for traffic, and the West in all its abundance could not offer enough to satisfy all four, especially when the Great Lakes, the Erie Canal, and the Mississippi River were still carrying freight cheaply and the Grand Trunk Railroad could offer yet another seaboard outlet by way of Montreal and Portland. Competition meant price-cutting, and during the periodic rate wars that broke out among the trunk lines in the Sixties and Seventies, it was possible to travel from Chicago to New York for ten or twelve dollars, while livestock occasionally went for a dollar a head. This was great for travelers and shippers, but ruinous for the railroads; and after some weeks or months of such rock-bottom rates there would be meetings at Saratoga or Niagara Falls or New York, attended by frock-coated railway presidents who smoked cigars around conference tables and hammered out agreements to maintain profitable rates.

Rate-making—which was one of the first problems Garrett had to face—was less spectacular than stock market raids in Wall Street or crack express trains thundering through sleepy villages at night, but it was the very heart and core of railroading, and in the robust days of the Gilded Age it was still considerably more of an art than a science. It was by all odds a complicated business. Rate agreements involved such items as distance, the threat of competing water routes, the need for prorating with connecting and feeder lines, the classification of freight, and so on. Even with the best of intentions, which among railroad executives of that day were often lacking, it was impossible to adhere to given rate levels when feeder lines continually demanded larger shares of prorated traffic and enthusiastic agents shaved prices independently in order to secure large consignments. Furthermore, simple economics prescribed that it was less costly to carry freight at a loss than not to carry it at all, a fact of life especially apparent to chronically bankrupt roads like the Erie, milked dry by the speculations of Jay Gould and hungry for any sort of revenue. So the agreements were invariably broken, to be remade and then broken again.

Garrett was able, during these periods of alternating wars and agreements, to win acceptance of the principle that rates to Baltimore should be lower than those to Philadelphia and New York by virtue of Baltimore’s shorter distance to the interior. This so-called differential system, which favored Baltimore, and to a lesser extent Philadelphia, over New York and Boston, was accepted by the northern trunk lines reluctantly and resented by New York merchants most vociferously; but Garrett insisted that the alternative to his differentials was no adherence by the B&O to any rate agreements, and the other lines conceded the point. Much freight thus found its way to Baltimore which would otherwise have sought a market in New York, and the port on the Chesapeake had reason to be grateful for the differential system.