CHAPTER I

BALTIMORE & OHIO Early history—Extension to Chicago—Trunk-line rate wars—Effect on the company—Extension to New York—Sale of bonds to pay off floating debt—Unsatisfactory traffic conditions—Receivership— Mr. Little’s report—Reorganization—Subsequent history. The Baltimore & Ohio Railroad was the first important railway company to be incorporated in the United States. It was designed to aid the city of Baltimore in securing the Western trade, and not only private citizens but the city of Baltimore and the state of Maryland early subscribed to its stock. When in the course of construction it became expedient to extend into Virginia, the city of Wheeling and the state of Virginia likewise subscribed, though the action of the latter was subsequently withdrawn.[1] As a result the funds required for first construction were obtained from the sale of stocks instead of bonds. In 1844, seventeen years after the granting of the charter, the annual report showed $7,000,000 in stock as against $985,000 in 6 per cent bonds; while in 1849, though the loans had been increased, they yet stood in the proportion of one to two.[2] On December 1, 1831, the first train was run over the line, then 72½ miles in length.[3] The early history of the road does not much concern us. It was one of steady growth, not through an unsettled territory, as with our Western roads, but through a country the industries of which were already established. Tracks led, not into prairies, but to populous cities; and the future of the company, once the initial difficulties should have been overcome, was at no time uncertain. Thus extension to Cumberland increased the gross receipts from $426,492 to $575,235, and that to Wheeling in 1853 likewise brought a great increase in traffic. The Civil War bore upon the Baltimore & Ohio heavily because of the peculiar location of its mileage. On May 28, 1861, possession was taken by the Confederates of more than one hundred miles of the main stem, embracing chiefly the region between the Point of Rocks and Cumberland.[4] Government protection was temporarily restored in 1862, but raids occurred until the end of the war. Each time the Confederates occupied the line they tore it up, and as soon as they retired the company hastened to make repairs. The road did not default. A portion of the track yielded a revenue from first to last, and presumably the Government paid generously for the transportation of its troops. It was after the Civil War that the real history of the road began. The key-note was competition;—competition of the fiercest sort between parallel lines from Chicago to the seaboard, intensified by the rivalry of the great seaboard cities, and involving traffic in both directions. The decade 1850–60 had seen the extension of Eastern roads to Western connections. In 1851 the Erie had reached Lake Erie; in 1853 the New York Central and Lake Shore, and in 1855 the Pennsylvania and Fort Wayne had opened continuous routes from the Atlantic to Chicago. In 1857 the Baltimore & Ohio had obtained connection with Cincinnati and St. Louis; and in 1858 the Grand Trunk had arrived at Sarnia on its way from Portland to Chicago. After the Civil War there was both consolidation and extension. The New York Central was united with the Hudson River, and the Pennsylvania leased the Pittsburgh, Fort Wayne & Chicago in 1869. The Baltimore & Ohio reached Chicago in 1874, and the lines which in April, 1880, were consolidated into the Chicago & Grand Trunk were completed between Port Huron and Chicago in February of that year. The completion of these through routes opened the way for very bitter competition. Five independent lines struggled for Chicago business, and all of them were prepared to cut rates deeply in order to test their rivals’ strength. In particular the Baltimore & Ohio was aggressive. “At the time of its [Chicago branch] opening,” said Mr. Blanchard before the Hepburn Committee, “it was heralded all over the Northwest as a ‘Relief for the Farmer,’ ‘the Grangers’ Friend,’ and all other sorts of headlines were put into the Chicago and Northwestern papers; and President Garrett’s public utterances, and those to his Board, were filled with enough statements to show what he intended to do.... I heard him [say] that upon the completion of his lines, like another Samson, he could pull down the temple of rates upon the heads of these other trunk lines.”[5] Under these circumstances a dispute between the Baltimore & Ohio and the Pennsylvania in 1874 over the former’s connection with New York had far-reaching consequences.[6] The Pennsylvania refused to carry Baltimore & Ohio cars over its line north from Philadelphia, and as a retaliatory measure the Baltimore & Ohio reduced passenger fares from Washington and Baltimore to Western points from 25 to 40 per cent.[7] The reduction in rates thus begun inaugurated the first of the great railroad wars. The cuts soon extended to east-bound passengers and to freight, and forced corresponding cuts on the Pennsylvania, the Lake Shore & Michigan Southern, the Michigan Central, the New York Central, and the Erie. Rates on fourth class and grain from Chicago to New York, which had been 60 cents per 100 pounds in December, 1873, and 40 cents in December, 1874, fell to 30 cents in March, 1875. Rates on special, or sixth class,[8] went as low as 12 cents from Baltimore and Philadelphia to Chicago. Passenger fares from Chicago to Baltimore and Washington were reduced from $19 to $9, to Philadelphia from $19 to $12, to New York from $22 to $15, and to Boston from $22 to $15. The New York Central and the Erie quoted fares from New York to Chicago of $18 and to St. Louis of $20, and the Baltimore & Ohio replied by a cut to $16.25 to Chicago. In April, 1875, the Baltimore & Ohio cut freight rates from Cumberland to Baltimore over 50 per cent on the four regular classes, and the Pennsylvania at once announced still greater reductions.[9] The effect of this warfare on railroad revenues was sufficiently serious to cause the Baltimore & Ohio to recede somewhat from its independent position and to enter into negotiations with the Pennsylvania;[10] but the terms of the resulting agreement proved unsatisfactory to the other trunk lines, and no general pacification was obtained. Late in 1875 rates nevertheless generally advanced, and in December a general agreement was concluded, followed by a general increase. This agreement was again hopelessly disrupted by the following April, when cuts in east-bound rates followed each other with rapidity. The published rates on grain, which had been 45 cents at the beginning of March, 1876, fell to 40 cents on March 7, 35 cents on April 13, 22½ cents on April 25, and 20 cents on May 5. In June rates on west-bound freight fell to 25 cents first class to Chicago, and 16 cents fourth and fifth class, actual rates going much lower; and it was possible to travel from New York to Chicago first class for $13.[11] Warfare between railroads became intensified by the competition between the cities which the railroads served, and by 1876 the question of relative rates to New York, Philadelphia, and Baltimore had grown to be of primary importance.[12] By an agreement in 1869 Baltimore had been given a differential on east-bound freight of 10 cents per 100 pounds, which had been reduced to 5 cents on grain in 1870. On west-bound freight Baltimore had enjoyed a differential in 1875 which had ranged from 10 cents on first class to 5 cents on special class freight, and Philadelphia one which had been 2 cents less except on first class, where the Philadelphia differential had been 3 cents less than that to Baltimore. A temporary agreement of March, 1876, had replaced these allowances by differentials of 13 per cent in favor of Baltimore and 10 per cent in favor of Philadelphia as against New York. This relation was fought over in the rate war of 1876. In December of that year another agreement was reached on the basis of equal rates from Western points to Europe on export traffic via all four competing seaboard cities, and reduced percentage differentials on local traffic to those cities; but this proved temporary, the subsequent advances in rates were not general, and final agreement was not secured until April,