The solutions the bankers imposed varied in form and effectiveness, but, in Carosso’s words, ‘in the short term they brought added prestige, influence and alleged huge profits to the investment houses that negotiated them’ – a foretaste of the mergers and acquisitions which have made bankers’ fortunes in the past twenty years. For by the end of the century American railroads had become just another business, unable to escape the laws which governed less exciting sectors.
Sir Samuel Morton Peto
To contemporaries Sir Samuel Morton Peto was seen as the very archetype of the railway contractor. In John Francis’s words, ‘to the railway contractor who has arisen with the railway power, this gentleman should be an example and a type. Born of that great middle class to which England owes so much of her grandeur, leaving school at an early age to serve an apprenticeship, it is to his honour that, determined to attain a practical knowledge of the work to which he was devoted, the future legislator handled the trowel of the mason, and worked with the chisel of the carpenter, with characteristic energy.’
Sir Samuel Morton Peto, the unluckiest of the great contractors.
Peto enjoyed a better start than Francis made out. He was indeed a first-class bricklayer, and did indeed start as an apprentice, but to his uncle, one of the biggest builders in England. In 1831, at the age of twenty-one, he inherited his uncle’s business and immediately showed his willingness to tackle the largest projects. In Francis’s words, he and his partner Thomas Grissell ‘devised Hungerford market and rebuilt the Houses of Parliament; they erected clubs and formed model prisons; contracted for theatres, built castles, and constructed docks of the most perfect character in the kingdom.’
In 1834 he spotted the potential of railways, dissolved his connection with his uncle’s building firm and became a railway contractor. As a builder based in the Thames Valley he was ideally placed to find business. From the very beginning his operations were marked with a boldness remarkable even in a confident age. In Francis’s words ‘he has been first and foremost in singly taking contracts at which companies would once have hesitated; and he has been one of the few who, holding a moral and physical sway over thousands, have not betrayed their trust.’
He refused to increase his profits through the infamous truck system, treated his navvies as human beings, ‘supplied them with books, and engaged for them teachers. He formed sick-clubs, introduced benefit societies, and taught them the use of savings banks. He built temporary cottages and let them at a proper price.’
By 1846 Grissell had become nervous of the risks Peto habitually undertook, and dissolved the partnership; so Peto took on Edward Betts, who had married his sister Ann. Grissell’s nervousness was understandable. Peto was involved in some seven hundred miles of construction in Britain alone, and, through the Eastern Counties Railway, was involved in large-scale development in East Anglia. As his son recorded, his father was used to crises: ‘I have never passed through such a crisis,’ he wrote in 1857, ‘I have now £200,000 owing to me, and get it I cannot; but I trust my way will be made clear without sacrifice; but it must be some time before the clouds clear away, and it has been anxious work – these things come perfectly unexpectedly, and are not to be guarded against in large affairs.’9
Peto had become a Member of Parliament in 1847. From a Dissenting background, a Baptist after his second marriage, he pushed for the rights of Dissenters, most publicly their right to be buried in Church of England graveyards.
His public fame and his baronetcy both derived from his success in building the railway from Balaclava to the Anglo-French lines above Sebastopol during the Crimean War. He suggested the idea to Lord Palmerston, and carried it through at no profit to himself after the army had made a mess of the line. He even resigned his seat in Parliament so as not to be accused of taking advantage of his position.
Despite his reputation, the general contemporary bitterness toward the whole contracting breed was reflected in Dr Thorne, where the author, Anthony Trollope, paints Peto – in the character of Sir Roger Scatcherd – in scathing terms. Scatcherd
was whilom a drunken stone-mason in Barchester … there had been a time when the government wanted the performance of some extraordinary piece of work, and Sir Roger Scatcherd had been the man to do it. There had been some extremely necessary bit of railway to be made in half the time that such work would properly demand, some speculation to be incurred requiring great means and courage as well, and Roger Scatcherd had been found to be the man for the time. He was then elevated for the moment to the dizzy pinnacle of a newspaper hero … He went up one day to court to kiss her Majesty’s hand, and came down to his grand new house at Box Hill, Sir Roger Scatcherd Bart.
In the twenty years after he entered Parliament Peto was one of the most prominent figures in public life. He provided the first crucial guarantee which led to the financing of the Great Exhibition and backed Joseph Paxton’s revolutionary Crystal Palace. His religious beliefs did not prevent him cutting a dashing figure. His son quoted an old engineer as remembering: ‘In those days there still survived the tradition of dandyism among men of distinction … I have often thought that the dignified, courtly presence of Mr Peto in those days, enhanced by his exquisitely-frilled shirt, diamond pin, and faultless coat with velvet facing, was a sort of index of the magnificent style and elevation of the whole manner of his firm and of their style – dignified, yet not extravagant.’
Inevitably he expanded his activities abroad. Already in the 1840s he was involved, with Thomas Brassey, in the ill-fated Grand Trunk Railway in Canada and, on his own, in the Great Southern railway from Buenos Aires. In the late 1850s he helped build the first railway in Algeria, observing that ‘the country wanted only a good railway system to enable her agricultural resources to be developed’. He made no fewer than fourteen journeys to Paris in connection with the railway and accompanied Napoleon III to the opening in Algiers.
By then he was a major international figure – the King of Denmark travelled from his castle to Copenhagen for the opening of the country’s first railway to save Peto’s time. He was treated with a similar respect in Portugal, where three barges accompanied him on the first stage of his return from Oporto. But his scruples prevented him getting the contract for the railway up the Douro to the Spanish frontier. As he wrote, ‘I find that since I was last here a French party has been intriguing and using money among the employees of the Board of Works.’ Peto refused to spend the £5,000 required to buy up the officials.
In 1865 he organised a Transatlantic trip for an influential group to inspect the Atlantic and Great Western. On his return, as well as publishing a book on the resources and prospects of America, he conceived a plan to link the Atlantic and Great Western with the whole of the East and the Mid-West. Peto was thus ‘one of the first entrepreneurs to consider the consolidation of a single system reaching from the Mississippi to the Atlantic seaboard that would transcend several state boundaries.’10
His downfall came the following year in the Overend Gurney crisis. Instead of demanding cash payment Peto had taken shares in the London Chatham & Dover Railway to enable it to complete its ill-fated extension to Blackfriars. He was caught up in the scandal, and was viciously pursued by the Daily Telegraph. Although everyone acknowledged that he was an honest victim of the crash it was a pitiless age. Peto felt obliged to resign his seat in Parliament and sell his new, specially built, town house in Kensington Palace Gardens.
His partner Betts retired to the country, while poor Peto exiled himself to Budapest for three years. He became a consultant, trying, unsuccessfully, to promote railways in Russia as well as Hungary. On his return he tried to launch a small mineral railway in Cornwall, failed, but lingered on, a forgotten figure, dying in obscurity in 1889.
Charles Francis Adams: the Patrician Fights Back
American railroads created their own elites. In doing so they displaced the groups which had run the United States since 1776. The process can be seen at its mos
t vivid in the career of Charles Francis Adams Jnr, grandson and great-grandson of presidents. Adams believed ‘that he could make a living by wedding railroads and reform.’11 As one of the three commissioners in Massachusetts he put into practice his firm belief that railroads could be controlled by voluntary agreements. But this gentlemanly, voluntaristic approach could not cope with the railroad industry – nor the characters of the men who dominated it.
Adams realised this when he served as deputy to Albert Fink of the Louisville & Nashville railroad, who headed a committee which tried to control national freight rates. Competition from new lines undermined the pool, and Adams concluded that Fink was ‘fighting the stars in their courses – laboring through organization to defeat in its workings the great law of the survival of the fittest.’ This experience converted him to the need for a legal system to control the railroads’ activities, a conclusion reached by Congress less than a decade later.
As a railroad manager, president of the troubled Union Pacific, Adams was not a success, for his patrician attitude prevented him appointing or inspiring efficient managers. Apart from his symbolic importance, his lasting fame derives from a single book, A Chapter of Erie, his account of the stormiest episode in the history of American railroad finance: the Erie scandal of 1869. Adams, a firm believer in ‘the eventual supremacy of an enlightened public opinion’, originally wrote the account for the North American Review and published an enlarged version as A Chapter of Erie later the same year. Adams was a contemporary who thoroughly understood the markets and the mentalities of the operators involved. His indignation at the comprehensive dishonesty of everyone concerned was conveyed in a springy prose which exposes, clearly and completely, an exceedingly murky and tangled story.
Part of its power derived from his closeness to the scene. In his autobiography he wrote, ‘I have known, and known tolerably well, a good many “successful” men – “big” financially – men famous during the last half century; and a less interesting crowd I do not care to encounter. Not one that I have ever known would I care to meet again, either in this world or the next; nor is one of them associated in my mind with the idea of humor, thought or refinement. A set of mere money-getters and traders; they were essentially unattractive and uninteresting.’*
His rather unappetising patrician disdain was diluted by his appreciation of the size of the characters involved, and an awareness that he, too, was touched with their sins of greed and opportunism. When Jim Fisk was murdered Adams reflected how ‘the damned rascal was a good friend to me but the state’s prison has been cheated of an inmate.’ And after taking a flyer in the Denver & Rio Grande he wrote that it was ‘a pure little gamble by the way, wholly reprehensible, but pleasant – if it wins’. Financially Adams was very shrewd, making several million dollars through systematic property speculation and development in Kansas City.
The Erie was originally founded in 1832 but it took nineteen years and several rescues for it ‘to reach Lake Erie from tidewater’. The ‘affair’ started when ‘Commodore’ Vanderbilt, already master of the New York Central, tried to buy the Erie and thus ‘make himself master in his own right of the great channels of communications which connect the city of New York with the interior of the continent, and to control them as his private property.’
Vanderbilt had already seized control of two of the approach roads, but his ‘pitiless energy which has seemed to have in it an element of fate’ brought him up against those equally pitiless operators, Messrs Fisk, Gould and Drew. While Vanderbilt was trying to buy control of Erie in the market his opponents were trying to thwart him by the endless creation of new stock and new bonds convertible into stock – a technique perfected by Daniel Drew as treasurer of the Erie.
Inevitably the dispute reached the state courts, with both sides controlling their own judges, who were elected officials.
Charles Francis Adams, railway boss – and investigative author.
Commodore William Henry Vanderbilt as the ‘Colossus of Railroads’.
‘When the ermine of the judge is flung into the kennel of party politics and becomes a part of the spoils of political victory, when by any chance partisanship, brutality and corruption become the qualities which specially recommend the successful aspirant to judicial honours, then the system described will be found to furnish peculiar facilities for the display of these characteristics.’
Vanderbilt won the first battles in the legal war:
‘The Drew party were enjoined in every direction. One magistrate had forbidden them to move, and another magistrate had ordered them not to stand still. If the Erie board held meetings and transacted business, it violated one injunction; if it abstained from doing so, it violated another. By the further conversion of bonds into stock, pains and penalties would be incurred at the hands of Judge Barnard; the refusal to convert would be an act of disobedience to Judge Gilbert.’
To escape from the jurisdiction of the New York courts the directors, ‘looking more like a frightened gang of thieves disturbed in the possession of their plunder than like the wealthy representatives of a great corporation’, simply took the ferry to New Jersey. But they did not forget their liquid assets. ‘One individual bore away with him in a hackney-coach bales containing six million dollars in greenbacks.’ From the safety of the Jersey shore they dumped millions of dollars of stock onto the market, so depressing the price that at one point Vanderbilt stood to lose $7 million.
The continuing legal skirmishings were overshadowed by both sides’ systematic bribery of the members of the New York state legislature in Albany. This splendid body of rogues promptly appointed a committee of investigation (a sure source of profit for the members). At first Vanderbilt had his own way, but Gould, escaping his not very vigilant bailiff, camped in Albany where ‘he assiduously cultivated a thorough understanding between himself and the legislature’. This ‘understanding’ later appeared as an extraordinary item of $1 million in the railroad’s balance sheet.
Within a few weeks Vanderbilt had had enough. ‘He could easily buy up the Erie Railway but he could not buy up the printing press’ used so liberally to provide his opponents with new shares. He did a deal, leaving Messrs Fisk and Gould in charge of a battered railroad. But the victorious conspirators then over-reached themselves. In conjunction with the Tweed gang, which dominated New York politics, they failed in a spectacular attempt to corner the gold market.
The whole episode confirmed Adams in the pessimism typical of his generation of his family. He feared that a future dictator would combine Vanderbilt’s ‘Caesarism’ and the ‘combination of the corporation and the hired proletariat’ represented by the Erie-Tweed ring. It was true that ‘evils ever work their own cure, but the cure for the evils of Roman civilization was worked out through ten centuries of barbarism.’
But, as so often happens, the tide was turning at the very moment that current trends were being projected into the distant future. Despite Adams’s gloom that the affair had not ‘led to any persistent effort at reform’, the Erie affair – and the almost contemporary Credit Mobilier scandal – did mark the high-water mark of institutionalised corruption. The history of the United States in the next half century was to be dominated by persistent attempts to control the abuses Adams had so vividly exposed. He was less of a failure than he liked to imagine.
* Their religious beliefs were more profound. When Mackenzie died Mann urged the whole country to pray for him.
* In which the company chairman systematically financed numerous important politicians and their staffs to obtain political favours.
† As a drover, he gave salt to his cattle as he led them across the Alleghenies: as a result they drank too much water, swelled in weight and thus in value. Soon the term came to be used when paper stocks were multiplied to the detriment of the original owners.
* This, and the following quotes come from ‘A Chapter of Erie’.
V
THE ECONOMY OF RAIL
Economist
s have always been fascinated by railways, which developed at much the same time as the ‘dismal science’ itself. Early in their joint lives the theory of imperfect competition was developed from observing the operations of those giant enterprises, the railway companies. But more recently academics have played a more questionable role in trying to understand the railways’ economic effects.
Since the 1950s a whole school, the so-called New Economic Historians, have queried the historic assumption that railways were of supreme economic importance, by measuring what they called the ‘social savings’ attributable to the railways. Using the available statistics (themselves not always complete, let alone reliable), they calculated the actual cost of the services the railways provided in a given year, and the hypothetical cost of the same services using the best transportation methods available if the railways had never been built. The difference between the two costs formed the ‘social savings’.
The result of their efforts has been a long and acrimonious series of arguments in the learned journals, which have distracted scholar power from more positive endeavours. To make matters worse, as Professor Douglas North pointed out,1 by its very nature New Economic History was ‘unteachable at undergraduate level because of its failure … to provide any integrated explanation of man’s economic past’.
The debate originated in the United States, in the attempt by R. W. Fogel2 to quantify the contribution made by the railways to American economic development and in doing so to counter the previous ‘progressive’ image of American history, in which each era is portrayed as an advance on its predecessors. More narrowly it was an echo of a general and increasing American disenchantment with the railways, an attempt to minimise their contemporary and historical role.
The World the Railways Made Page 13
