The pace of bond sales slowed considerably as the war drew to an end, amid a general contraction in the market ascribed to expectations that the vigorous inflation of the war years would yield to deflation as the government tried to get its books back in shape. The greater threat to financial stability came with Abraham Lincoln’s assassination on April 14, 1865. Cooke ordered his agents to support the market the next day, a Saturday, through unlimited purchases of “all United States bonds thrown on the market,” pledging to cover any losses personally. The effort worked. As Cooke related in his memoirs, “it required the purchase of less than twenty millions in the space of seven or eight days to end the panic. . . . The spectacle was presented to the world of a nation with its credit unimpaired and its securities advancing in price while suffering from a terrible calamity.”
By the time the war ended Cooke was the most famous financier in the country. His services to the Union had earned him as much as $10 million. No one was ever sure of the total, but Cooke’s profits were sufficient to allow him to build a grand mansion of fifty-two rooms in the countryside just outside Philadelphia, which he christened Ogontz after the Wyandot chief who had carried him on his back so many years before, and to acquire Gibraltar Island in Lake Erie, just offshore from Sandusky, as a summer retreat. The firm of Jay Cooke & Co. won esteem as a paragon of financial stability, its founder reigning over the financial sector as an intimate of leading figures in business and government, including, after the election of 1868, President Ulysses S. Grant.
The promoters of the northern transcontinental road hankered after not only Jay Cooke’s money but his reputation. “The manner in which [the railroad’s securities] had been ‘hawked about’ in New York and elsewhere . . . had combined to give a taint to the whole concern,” one promoter observed. “It could only be made reputable by being taken up by new parties.” Cooke at first regarded the railroad men skeptically, once even reprimanding Henry for making commitments to them behind his back.
By fits and starts, however, the Northern Pacific wriggled into Cooke’s favor. The railroad men were looking for a savior, and in Jay Cooke they happened upon a man with a messianic self-image. “Like Moses and Washington and Lincoln and Grant,” he would write in his memoirs, “I have been—I firmly believe—God’s chosen instrument, especially in the financial work of saving the Union . . . and this condition of things was of God’s arrangement.”
Cooke had also become enthralled with the economic potential of the upper Midwest. In 1868 he visited the western end of Lake Superior. The land he saw was rich, though the physical settlements were decrepit. The old town of Superior, nestled against the Wisconsin state line, had declined to a population of three hundred after peaking at about eight hundred before the Civil War. The town had been founded by wealthy Southerners looking for “a watering place where they could be free to take their slaves with them,” having been excluded from Saratoga, New York; Newport, Rhode Island; and other resorts where slaves were not admitted. Duluth, its sister township on the Minnesota side, comprised six or seven dilapidated wooden shacks. “The appearance of the towns is ludicrous, zigzag, rude, etc., and half filled with Indians,” Jay Cooke wrote his brother Henry. But he compared their prospects favorably to those of his native town, Sandusky. To thrive, all they needed was a railroad.
The challenge beckoned irresistibly to both Cooke brothers. “If successful,” Henry wrote back, “it would be the grandest achievement of our lives.” Cooke & Co. signed on as the Northern’s financial agent, with an undertaking to interest “the capitalists of Europe” in its securities. But Jay was planning to plunge deeper. He was about to irrevocably tie his and his firm’s future to the Northern Pacific Railroad.
* * *
TO SELL THE Northern’s bonds Cooke reached out again to Sam Wilkeson, who was marinating in the boredom of a New York publishing house, selling subscription works such as the Reverend Henry Ward Beecher’s Life of Christ to rubes. Receiving a letter from Cooke asking if he would like to “increase his income,” Wilkeson promptly replied, “You bet.” He snapped into action, writing articles describing in great detail the amenities of Duluth and the riches ready to be drawn from the fecund soil of Minnesota and the western territories, despite never having visited the region. The first issue of bonds sold out so quickly, Henry Cooke complained to his brother, that none remained for him to scatter to members of Congress as bribes.
Contemplating deeper involvement with the Northern Pacific, Cooke sought a firsthand report of the railroad’s prospects. In June 1869 he assembled an expedition to traverse the territory. Its members included Wilkeson; William Milnor Roberts, an engineer who had done work for Cooke in the past; Thomas Hawley Canfield, who had been an employee of the Northern dating back to the time of Josiah Perham; and R. Bethell Claxton, an Episcopalian minister whose Philadelphia church enjoyed Cooke’s lavish patronage and whose task was to assess the spiritual character of the peoples of the Far West.
Cooke assumed the travelers would return with a positive report. Among their other duties, they were instructed to gin up enthusiasm for the project among the residents of the distant region while they were in the field. Reaching Walla Walla, Washington Territory, they hired the largest hall in town to address the residents. Canfield took the podium first, to “a perfect storm of applause,” according to an account in the local newspaper. He attacked Congress “for the niggardliness of its grants, as compared with the great and valuable favors bestowed upon the central road [that is, the Union Pacific and Central Pacific], and assured the people that the line would be built in spite of opposition.” Claxton followed with a charming speech in which he declared that he had come West “expecting to see icebergs and polar bears in a land of perpetual snow,” but now felt bound to report back that he had come upon “a tropical paradise.”
Writing to Cooke, Wilkeson spared no hyperbole. From Puget Sound he reported that “salmon are not caught here, they are pitchforked out of the streams.” He added, “Jay, we have got the biggest thing on earth. Our enterprise is an inexhaustible gold mine.”
Wilkeson dispatched breathless accounts of the expedition’s findings to eastern newspapers, typically under pseudonyms. One article, published under the name “Carleton,” described for readers of the Boston Journal “a region . . . which comes nearer the Garden of Eden than any other portion of the earth. . . . gentle swells, parks, groves, lawns, lakes, ponds, pellucid streams—a rare combination of beauty and fertility. . . . Think of it, young men; you who are measuring off tape for young ladies, shut up in a store through the long and wearisome hours, barely earning your living. Throw down the yardstick and come out here if you would be men.”
Few voices were raised against the torrent of marketing bombast. One naysayer was General W. B. Hazen, a Union Army veteran stationed in the Dakota Territory. Hazen warned would-be settlers about depictions of the region as “one uninterrupted field of fruitfulness,” since “the interests of the railroad companies that it should be considered valuable land, are measured exactly by the number of millions of dollars for which it can be hypothecated.” Hazen described the land beyond the Hundredth Meridian, which bisected the Dakota Territory and the states of Nebraska and Kansas, as “altogether sterile . . . a dry, broken, and barren country, with very little timber and, from lack of moisture, unfit for agriculture.”
Skepticism was heard inside the Northern Pacific company, too. John Russell Young, a journalist who had worked on the government bond campaign with Wilkeson and had also come back onto the Cooke payroll, knew his colleague well enough to be wary of his claims. He told Cooke: “I hear that Sam has found orange groves and monkeys in his route.” Cooke would have been wise to heed Young’s implicit warning about Wilkeson’s flights of descriptive fancy, for thanks to the implausible publicity, the Northwest region soon became known as “Jay Cooke’s banana belt.”
While beating the bushes for homegrown American capital, Cooke dispatched his partner William G.
Moorhead to Europe to sound out the Rothschild banking family about investing in the Northern Pacific. Moorhead reported back that he received a chilly reception from the Rothschild bank, which was still run by risk-averse elders. Cooke tried to strengthen his resolve by telling him, deceitfully, that the clamor for the bonds in America was thunderous—“I have hundreds of applications . . . I can get thousands to take hold at once. . . . I tell you I am busy night and day about this great matter.”
But Europe had had its fill of American railroad bonds, thanks to a surfeit of issues and to what Cooke’s partner Harris C. Fahnestock cautioned was “the bad odor” attached to other overpromised and underperforming Pacific railroads, including the Union Pacific.
Cooke dispatched a second mission under George B. Sargent, a former New York broker, who arrived in Europe in the spring of 1870 with letters of introduction from Baron von Gerolt, the Prussian ambassador to the United States, whom Cooke had wined and dined at Ogontz. By July 16, Sargent was on the verge of signing a deal with a British syndicate to sell $50 million of Northern Pacific bonds in the European market. The syndicate was to deposit the sum in gold to Cooke & Co.’s account three days hence. On July 19, however, France declared war on Prussia. With the start of the Franco-Prussian War, the European exchanges collapsed into panic and Sargent’s syndicate disappeared in a puff of smoke.
“I was stunned by the blow,” Cooke wrote later. French and Prussian investors “could no longer unite. . . . If rumors of war had kept off a week longer the papers would all have been signed.”
Cooke still found grounds for optimism. He sequestered Milnor Roberts at Ogontz to finish the report of the surveying expedition. As expected Roberts declared the railroad feasible, estimating that three years of construction would cost about $85 million. The project, he asserted, would benefit greatly from “emigration across the continent—the overflow of the redundant population of the Atlantic states and of Europe.”
Armed with Roberts’s say-so, Cooke announced the formation of a pool to raise the funds to launch construction of the Northern Pacific. Wilkeson wrote Cooke that upon hearing the announcement “I flung my hat to the ceiling.” The road “will plant civilization in the place of savagery,” he assured his patron, echoing Asa Whitney. “It will augment the national wealth beyond the dreams of the wildest economist.”
Cooke tried to guarantee himself a profit from the railroad by striking a hard bargain with the Northern Pacific’s Boston investors. The $100 million in loans he floated for the company carried a stiff interest rate of 7.3 percent, but of every $100 in face value, he kept a commission of $12 and advanced the railroad only $88. Experts who examined the deal with the hindsight of its ultimately dismal outcome detected the seeds of the Northern’s eventual downfall in its terms: “No extraordinary foresight was needed to see that a railroad could not be built through two thousand miles of absolute wilderness, and settle and develop the vacant country along its line fast enough to provide from its net earnings $7.30 interest per annum on $100 for every $88 expended upon it,” wrote the historian Eugene Smalley in 1883. “Bankruptcy was inevitable.”
Yet at first the railroad sailed atop a surging confidence in America’s manifest destiny. Cooke exploited this optimism for his sales campaign, along with a generous helping of graft. He distributed bonds among leading financiers, journalists, brokers, and politicians, including Vice President Schuyler Colfax. Wilkeson placed bonds in the hands of Horace Greeley and Henry Ward Beecher, the prominent abolitionist preacher whose works he had previously sold on subscription, “with some pleasing concessions to them as to the time and manner of paying their installments.” It was as if the Crédit Mobilier, in which Colfax had also invested, was again at large.
* * *
THE RAILROAD PROJECT did appear to deserve the hullabaloo, at first. Ground was broken on February 15, 1870. But this was mostly for public show, the ceremony being attended by more journalists than laborers. Anyone inspecting the photographs of the event had to notice that the dignitaries stood on a landscape encrusted in snow and that not a foot of the frozen earth had been broken by spades or pickaxes. The frigid weather meant that real construction could not begin for months; once it did, the crews immediately ran into marshy, boggy land and mosquitoes that attacked them in huge black clouds. From the start, embezzlement often left laborers without pay, food, or supplies.
Then there were the Indians. Asa Whitney’s confidence that the railroad would civilize the tribes was not shared by military men in Indian country. General Winfield Scott Hancock, a hero of Gettysburg now stationed in the Yellowstone valley of Montana, cautioned that pacifying the tribes would be difficult and expensive. “It is not seen that the construction of a railway into their country . . . will in any way tend immediately to diminish them,” he wrote Cooke, “but will most probably provoke their hostility . . . unless large subsidies be paid them to purchase peace. Our experience heretofore has not been favorable.”
Army soldiers escorted Cooke’s surveying teams as they made their way west toward the Yellowstone River. Through 1871 and the spring of 1872 the surveyors and their armed escorts worked largely unmolested, but they were jolted out of their complacency on August 14, 1872, when a surveying expedition on the Yellowstone was attacked by three hundred Indians under Sitting Bull and Crazy Horse, whose forces would prevail against US soldiers four years later at the Battle of the Little Bighorn. At the so-called Battle of Poker Flat the Indians were driven back at the cost of only a modest toll among the US soldiers, but the encounter sent an unnerving message back East, thanks to highly embellished accounts witnesses dispatched home to family members, which inevitably turned up in local newspapers. “Our force was wholly inadequate to pass down the Yellowstone Valley,” one surveyor wrote in a message published in the New York Times. “One morning the red rascals put four bullets into my tent, and four into my mess chest. . . . We held a council of war about two weeks later, and concluded to abandon the expedition.”
Cooke was learning, meanwhile, that American bankers had no more taste for Northern Pacific bonds than their European cousins. So much railroad capital was sloshing around Washington as graft that when Henry Cooke offered Northern Pacific securities to House Speaker James G. Blaine, who had emerged from the Crédit Mobilier scandal unscathed, Blaine responded by trying to foist bonds in a southern railroad scheme on him. (“Mr. Cooke resisted this pressing invitation,” reported Cooke’s official biographer, Ellis Oberholtzer.)
The Northern Pacific took heavy fire from newspapers hostile to Cooke, led by the Philadelphia Ledger, which was part-owned by Anthony Drexel, Cooke’s chief rival in Philadelphia’s financial community. The Ledger had been editorializing against congressional assistance to the Northern Pacific since 1869, at one point provoking an infuriated Cooke to write Drexel: “Do you think if I should start a newspaper, or rather own one, I would permit its editors and conductors to persistently and constantly misrepresent and injure the position of a neighbor and life-long friend?”
When a bill to provide the Northern with government financing was introduced in Congress in 1870, the Ledger intensified the attack. There had not been a time “since the celebrated South Sea Bubble when so much money was running into wild hazard,” the newspaper thundered. Cooke soon would have reason to suspect that Drexel was acting in concert with a new partner from New York: J. Pierpont Morgan.
Following the armistice ending the Franco-Prussian War in January 1871, Cooke made a third overture to European investors. In April he welcomed to Ogontz five Austrian and Dutch bankers intending to examine the route. After feting them at his estate he provided them with passage to Duluth by steamer under the leadership of Milnor Roberts. The delegates proved a sour bunch, most of their overheard remarks being “rather sneering,” Roberts advised Cooke. “They seem to have a notion that anyone they meet who praises anything has been hired to do it,” which may not have been far off the mark. Some of their reports upon returning home were so
negative that Cooke suspected their authors’ purpose was to extort money from him to suppress them.
Meanwhile, construction progress was anything but auspicious. Cooke was not a corrupt operator like Gould, Fisk, or the architects of the Crédit Mobilier, but he was managing the Northern Pacific at long range and his representatives in the field were every bit as venal and incompetent as their counterparts on other roads. They tolerated millions of dollars in cost overruns, in part because much of the excess went into their own pockets. The Northern’s president, J. Gregory Smith, a former governor of Vermont who had been installed by the Boston group, handed out management posts to cronies—when he devoted any attention to the railroad at all. Incompetently built tracks were sinking into bogs and laborers were going unpaid. As early as 1870, William L. Banning, a shareholder from Minnesota who observed the progress of the Northern at close hand, had sounded the alarm: “I tell you, Mr. Cooke, what you want is so far as is possible to strip the Northern Pacific enterprise of all this slime.” But it was not until the summer of 1872 that Cooke forced Smith’s resignation.
By then, Cooke’s partners had become frankly dismayed. “The present actual condition of the Northern Pacific, if it were understood by the public, would be fatal to the negotiation of its securities,” Fahnestock told him in June. He warned that the railroad’s problems were sullying the reputation of the entire firm. “Radical and immediate changes are necessary to save the company from ingloriously breaking down within the next year and involving us in discredit, if not in ruin.”
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