The panic of 1837 interfered with the work, but in 1838 the state Legislature came forward with a construction loan of three million dollars, and the first section of line, extending from Piermont on the Hudson to Goshen, was put into operation in September, 1841. In the following year the company became financially embarrassed and was placed in the hands of receivers. This catastrophe delayed further progress for years, and it was not until 1846 that sufficient new capital was raised to go on with the work. The original estimate of the cost for building the entire line of 485 miles had been three million dollars, but already the road had cost over six millions and only a small portion had been finished. The final estimate now rose to fifteen millions, and, although some money was raised from time to time and new sections were built, there was no certainty that the entire road would ever be completed. Ultimately the State of New York canceled its claim against the property, new subscriptions of some millions were secured, and more money was raised by mortgaging the finished sections.
Finally, in 1851, after eighteen years of effort, the line was opened to Lake Erie. In addition there had been added various feeders or branches, giving the road an entry into Scranton, Pennsylvania, and into Geneva and Buffalo, New York. It had its terminus on Lake Erie at Dunkirk and its eastern terminus at Piermont, near Nyack on the Hudson, about twenty-five miles by boat from New York City.
The financial condition of the Erie at this time manifested the beginning of that general policy of improvidence and recklessness which afterward, for nearly a generation and a half, made the company a speculative football in some of the most disreputable games of Wall Street stock-jobbers. For though the original estimate had been three millions and the highest estimate of the cost during construction had been fifteen million dollars, the company, in 1851, started its career with capital obligations of no less than twenty-six millions—a very large sum for those days.
The fact that these initial obligations constituted a heavy burden became apparent when the Erie began operations. They made necessary such high freight rates that shippers held indignation meetings and again and again made appeals for legislative relief. Although much money had been raised after 1849 for improvements, the condition of the Erie steadily grew worse. It soon became notorious for many accidents due to carelessness in running trains and to the breaking of the brittle iron rails.
But in spite of these drawbacks the business of the Erie grew. In 1852 it acquired the Ramapo and Paterson and the Paterson and Hudson River railroads and in this way it obtained a more direct connection with New York City. It changed the tracks of its new railroads to the six-foot gage, which the Erie had adopted from the start and which it persisted in maintaining for many years despite the world-wide practice of establishing a standard width of four feet eight and one-half inches.
The most conspicuous figure in the history of the Erie Railroad system in these early days was Daniel Drew. From 1851, when the main line was opened, until 1868, this man was a director and, for the larger part of the time, treasurer. Born in 1797, he had driven cattle when a boy from his native town of Carmel in Putnam County to the New York City market and, for some years later, he had been proprietor of the Bull's Head Tavern. Shrewd, unscrupulous, illiterate, good-natured, and sometimes generous, he was in many ways unlike his great adversary in the railroad world, Commodore Vanderbilt. Drew affected a pious and sanctimonious attitude in all his dealings, while Vanderbilt had a more frank and open nature and usually made no pretensions to righteousness.
For many years following 1851, Drew, who owned or controlled nearly one-half the stock of the Erie, appeared to think that his office of treasurer carried with it the right to manipulate the stock of the road at any time it might help his pocketbook to do so. He frequently advanced money which the road could not obtain elsewhere, always taking full security and excessive commissions. This practice gave him the name of "speculative director," and by the time his great contests with Commodore Vanderbilt broke out, he was reputed to be worth many millions, most of which he had acquired by juggling in Wall Street with Erie securities.
The entire period in the affairs of the Erie system from the ascendancy of Daniel Drew in 1851 to the end of the Civil War witnessed an endless succession of stock-market exploits both large and small. In the spring of 1866, however, Drew found an opportunity to achieve a real masterpiece in manipulation. The stock of the Erie road was then selling at about 95 and the company was in pressing need of funds. The treasurer came to the rescue as usual and made the necessary advances on adequate security. The company had in its treasury a considerable amount of unissued stock and had also the legal right to issue bonds to the extent of $3,000,000 which could be converted into stock. Drew took these bonds and the unissued stock as security for a loan of $3,500,000.
It so happened, naturally, that Drew was soon heavily short of Erie stock in Wall Street. The market was buoyant; speculation was rampant; and the outside public, the delight and prey of Wall Street gamblers, were as usual drawn in by the fascination of acquiring wealth without labor. All this time our friend, Daniel Drew, was quietly selling Erie stock and closing contracts for the future delivery of the certificates; and he was doing this at rising prices. As the days went by, his grave, desponding manner grew more and more apparent. Erie stock continued to rise. In the loan market its scarcity became greater hour by hour. The rumor began to spread that "Uncle Daniel" was cornered. His large obligations for future delivery must be met. Where was the Erie stock to come from? The stock continued to soar, and Treasurer Drew seemed to become more and more depressed.
Then the blow fell. Drew laid his hands on the collateral which he held for his loan to the Erie. In the twinkling of an eye his $3,000,000 in Erie bonds was converted into Erie stock, which he proceeded to dump in Wall Street. Erie quotations fell from 90 to 50. Every one at last realized the trap—but not before Daniel Drew had pocketed a few millions in profits.