“The Golden Gate”

CHAPTERS ON THE HISTORY

OF THE

Southern Pacific

By

STUART DAGGETT, Ph.D.

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

NEW YORK

THE RONALD PRESS COMPANY

1922

Copyright, 1922, by
The Ronald Press Company

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

ILLUSTRATIONS

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]

[i014]

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.

[i020]

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]

[i028]

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

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

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.

[i046]

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.

[i082]

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.