Other People's Money, and How the Bankers Use It

by Louis Dembitz Brandeis

THE BURLINGTON

Such railroad combinations produce injury to the public far more serious than the heavy tax of bankers’ commissions and profits. For in nearly every case the absorption into a great system of a theretofore independent railroad has involved the loss of financial independence to some community, property or men, who thereby become subjects or satellites of the Money Trust. The passing of the Chicago, Burlington & Quincy, in 1901, to the Morgan associates, presents a striking example of this process.

After the Union Pacific acquired the Southern Pacific stock in 1901, it sought control, also, of the Chicago, Burlington & Quincy,—a most prosperous railroad, having then 7912 miles of line. The Great Northern and Northern Pacific recognized that Union Pacific control of the Burlington would exclude them from much of Illinois, Missouri, Wisconsin, Kansas, Nebraska, Iowa, and South Dakota. The two northern roads, which were already closely allied with each other and with J. P. Morgan & Co., thereupon purchased for $215,227,000, of their joint 4 per cent. bonds, nearly all of the $109,324,000 (par value) outstanding Burlington stock. A struggle with the Union Pacific ensued which yielded soon to “harmonious coöperation.” The Northern Securities Company was formed with $400,000,000 capital, thereby merging the Great Northern, the Northern Pacific and the Burlington, and joining the Harriman, Kuhn-Loeb, with the Morgan-Hill interests. Obviously neither the issue of $215,000,000 joint 4’s, nor the issue of the $400,000,000 Northern Securities stock supplied one dollar of funds for improvements of, or additions to, any of the four great railroad systems concerned in these “large transactions.” The sole effect of issuing $615,000,000 of securities was to transfer stock from one set of persons to another. And the resulting “harmonious coöperation” was soon interrupted by the government proceedings, which ended with the dissolution of the Northern Securities Company. But the evil done outlived the combination. The Burlington had passed forever from its independent Boston owners to the Morgan allies, who remain in control.

The Burlington—one of Boston’s finest achievements—was the creation of John M. Forbes. He was a builder; not a combiner, or banker, or wizard of finance. He was a simple, hard-working business man. He had been a merchant in China at a time when China’s trade was among America’s big business. He had been connected with shipping and with manufactures. He had the imagination of the great merchant; the patience and perseverance of the great manufacturer; the courage of the sea-farer; and the broad view of the statesman. Bold, but never reckless; scrupulously careful of other people’s money, he was ready, after due weighing of chances, to risk his own in enterprises promising success. He was in the best sense of the term, a great adventurer. Thus equipped, Mr. Forbes entered, in 1852, upon those railroad enterprises which later developed into the Chicago, Burlington & Quincy. Largely with his own money and that of friends who confided in him, he built these railroads and carried them through the panic of ’57, when the “great banking houses” of those days lacked courage to assume the burdens of a struggling ill-constructed line, staggering under financial difficulties.

Under his wise management, and that of the men whom he trained, the little Burlington became a great system. It was “built on honor,” and managed honorably. It weathered every other great financial crisis, as it did that of 1857. It reached maturity without a reorganization or the sacrifice of a single stockholder or bondholder.

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Investment bankers had no place on the Burlington Board of Directors; nor had the banker-practice, of being on both sides of a bargain. “I am unwilling,” said Mr. Forbes, early in his career, “to run the risk of having the imputation of buying from a company in which I am interested.” About twenty years later he made his greatest fight to rescue the Burlington from the control of certain contractor-directors, whom his biographer, Mr. Pearson, describes as “persons of integrity, who had conceived that in their twofold capacity as contractors and directors they were fully able to deal with themselves justly.” Mr. Forbes thought otherwise. The stockholders, whom he had aroused, sided with him and he won.

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Mr. Forbes was the pioneer among Boston railroad-builders. His example and his success inspired many others, for Boston was not lacking then in men who were builders, though some lacked his wisdom, and some his character. Her enterprise and capital constructed, in large part, the Union Pacific, the Atchison, the Mexican Central, the Wisconsin Central, and 24 other railroads in the West and South. One by one these western and southern railroads passed out of Boston control; the greater part of them into the control of the Morgan allies. Before the Burlington was surrendered, Boston had begun to lose her dominion, even, over the railroads of New England. In 1900 the Boston & Albany was leased to the New York Central,—a Morgan property; and a few years later, another Morgan railroad—the New Haven—acquired control of nearly every other transportation line in New England. Now nothing is left of Boston’s railroad dominion in the West and South, except the Eastern Kentucky Railroad—a line 36 miles long; and her control of the railroads of Massachusetts is limited to the Grafton & Upton with 19 miles of line and the Boston, Revere Beach & Lynn,—a passenger road 13 miles long.