Copyright © 2006, 2012 by Mark Strecker.
   By 1920, American railroads had fallen onto hard times, or at least harder than usual. Throughout their entire history, few of them had made much money, and those that did often found their funds stolen by unscrupulous owners. When Henry Ford bought his own railroad in that year, he confronted not only a stubborn industry unwilling to change its ways, but also one crippled by government overregulation. To understand his struggle to make his road a success, one must first have some knowledge of the American railroad industry’s history.
The Great Northern Railway in Washington State
Library of Congress
The Civil War transformed railroads into one of America’s biggest industries, helped along when President Abraham Lincoln signed a bill to make possible a transcontinental rail line, one that started with the Central Pacific Railroad and ended in California with the Union Pacific. After the war, four New York-based men—Jay Gould, Cornelius Vanderbilt, Jim Fisk and Daniel Drew—decided to take control of the Eastern railroads. They became known as “robber barons” because of their greedy ambitions and unethical and often illegal business dealings. Jay Gould made a living buying small, failing railroads that he combined with others into larger, successful ones. He then sold them off for a profit. If one of his recently sold railroads went bust, he or one of his agents bought it back at a deflated price. In 1865, while attempting to acquire the Erie Railroad, he became acquainted with its president, Daniel Drew, and they hatched all sort of nefarious plots to make money off the Erie.
   At the same time another New York businessman, “Commodore” Cornelius Vanderbilt, decided he wanted to get into the railroad business as well. He bought the New York and Harlem Railroad, the Hudson River Railroad, then the New York Central Railroad, the last of which he merged with the Hudson. When he set his sights on the Erie Railroad, he came into conflict with Gould and Drew.
   These two allied with financier Jim Fisk and fought Vanderbilt’s unwanted takeover attempt by printing and selling counterfeit Erie stock certificates. When Vanderbilt convinced a New York judge to have his three rivals arrested, they fled to Jersey City for safety. Tired of the fight, Vanderbilt contacted Drew and offered a settlement. If his three rivals would pay him a total of $4,550,000 in cash, stocks and bonds, he would abandon the matter and have the charges against them dropped. The three agreed. In 1872, the Erie went broke and Vanderbilt acquired it anyway. Drew declared bankruptcy, one of Fisk’s associates killed him, and Gould moved west to take control of the nearly bankrupt Union Pacific, which he revived. Vanderbilt continued to build his railroad empire until his death in January 1877, when his heirs took over.
   A second generation of railroad men made the machinations of the first Robber Barons look tame. James Pierpont Morgan, the financer who also started United States Steel and helped to organize General Electric, either outright bought his own railroads or helped to facilitate the consolidation of them for his business associates. By 1906, these manipulations brought the control of two-thirds of all American railroads (150,000 track-miles out of 228,000) under six owners, although most lines still ran under their own names.
   In 1895, two major railroads dominated Western America: the Northern Pacific Railway, owned by Morgan, and the Great Northern Railway, owned by James J. Hill. Hill thought if he and Morgan pooled their railroads together as one, they could stop competing with one another and instead focus on expanding control of the European and Asian goods crossing from the East to West Coasts. By connecting coastal ports, they could transport freight from one to the other at a low cost via their railroads, then sell it to outgoing merchant ships.
The First Steam Railroad Passenger Train in America
Library of Congress
   Morgan liked the idea, so he and Hill agreed to the combination, but the Minnesota Supreme Court stopped their plan because it violated that state’s law forbidding parallel railroads from merging. Morgan and Hill circumvented this by taking advantage of a new type of corporation, the holding company, now offered in New Jersey. From that state they founded Northern Securities. Through means that would make even the best stockbroker’s head spin, this company effectively took control of both the Northern Pacific and Great Northern Railways.
John Pierpont Morgan
Library of Congress
James Hill
Library of Congress
Jay Gould
Library of Congress
Cornelius Vanderbilt
Library of Congress