But the real tug of war was to get the bill through the lower House. Fabulous stories were told of money which would be expended and the market quotations for votes never soared so high. Then, at the critical moment, Vanderbilt surrendered, made a secret deal with his foe, and withdrew his opposition to the bill. The anger of the disappointed grafters and vote-sellers knew no bounds, and they immediately set to work passing other bills which they felt would annoy or injure Vanderbilt, with the hope that he would still be induced to give them what they regarded as their rightful spoils.
The details of this settlement between Drew and Vanderbilt were not announced until some months afterward. By the terms agreed on Vanderbilt was relieved of 50,000 shares of Erie stock at 70, payable partly in cash and partly in bonds guaranteed by the Erie, and received $1,000,000 in cash for an option given the Erie Railroad to purchase his remaining 50,000 shares at 70 within four months, besides about $430,000 to compensate his friends who had worked so heroically for him. This total sum of nearly $5,000,000 no doubt represented part of the "slush fund" which Drew expected that the company would have to give up to the venal legislators, and it was therefore no hardship to hand it over to Vanderbilt instead.
As a part of the general settlement the Boston interests were relieved of their $5,000,000 of largely worthless bonds of the Boston, Hartford and Erie Railroad, for which they received $4,000,000 of Erie securities. Thus in all about $9,000,000 in cash or securities was drawn out of the Erie treasury in final settlement of this great stock market manipulation. And this does not include the pickings of Gould and Fisk and the smaller fry, of which there is no official record. But that these gentlemen did not go empty-handed there is not the shadow of a doubt!
The sensational stock-market deal between the Drew and Vanderbilt interests was but a truce, however, and did not settle the troubles of the Erie. Jay Gould was now becoming a dominating factor and in October of 1868 was chosen president. The various stock-market struggles that ensued from the ascendency of Jay Gould to the receivership of the Erie in 1875 is a long and intricate tale. Suffice it to say that the events were generally similar to those already recounted—stock-market corners, over-issues of bonds and stocks, injunctions, court orders, arrests, legislative bribes. Less than a week after his election Jay Gould frankly announced that the company had just issued $10,000,000 of convertible bonds and that a third of these had already been converted into stock. He further announced that the company now had $60,000,000 of common stock outstanding, whereas the public had understood that it was only $45,000,000.
During the few years that followed, the poor Erie was systematically looted. Millions were wasted in New York real-estate speculation, and the company's money was used in the erection of the Grand Opera House on Twenty-third Street, to which the executive offices of the Erie Railroad were moved. Finally the new ring, comprising as leading spirits Jay Gould and James Fisk, Jr., eliminated Daniel Drew and left him high and dry without a cent, through a new stock corner. About this time the road was financially on its last legs, and Jay Gould was appointed receiver. This started further litigation which dragged on for several years until, in 1874, Gould was turned out by General Daniel E. Sickles in combination with the English shareholders. The new interests, when they finally got control, elected an entirely new management and made H. J. Jewett, a practical railroad man, president. But the Erie was already bankrupt, and not much could be done toward saving the situation. In May, 1875, the road confessed inability to meet its obligations, and Jewett was appointed receiver.
It was three years from the date of the receivership before the Erie property was taken out of the hands of the courts. In April, 1878, a new company, the New York, Lake Erie and Western Railroad, took over the property; Jewett was elected its president, and a new chapter in the history of the property began.
Had the reorganization of the Erie been drastic enough, the road might not so soon have fallen into financial difficulties again, for it owned valuable coal lands in Eastern Pennsylvania and rapidly increased its earnings in this region. Moreover the extension of the system westward should have increased its earning capacity. Up to this time the Erie had no Chicago connection and was at an obvious disadvantage compared with its competitors. It improved this situation in 1881 by acquiring the New York, Pennsylvania and Ohio, and the franchise of the Chicago and Atlantic Railway. Two years later it obtained control of the Cincinnati, Hamilton and Dayton and found itself in a position in which it could compete for through traffic with the Pennsylvania and the New York Central.
But in carrying through these extensive plans, the Erie again became involved in financial difficulties; the sensational Grant and Ward failure in Wall Street in 1884 was a severe blow to the company's credit, as this firm was at that time doing important financing for the Erie. The English security holders stepped to the front again, demanded President Jewett's resignation, and elected John King in his stead.
In 1885 and 1886 a financial readjustment took place, but the company continued to carry the bulk of the heavy load of obligations which had been created during the years of the Drew and Gould managements. It was surely an evidence of the inherent worth of the property that during the half dozen or more years following, the Erie succeeded in struggling along in the face of all its financial and other handicaps and at the same time showed substantial growth in the volume of its business. The company was kept above water until 1893 without again appealing to the courts; but by that time the indebtedness had once more mounted, and in July of that year Erie receivers were appointed for the fourth time in its history.
The name of Pierpont Morgan is closely identified with the story of the railroad during this latest reorganization period. Morgan's firm came to the front in 1894, with the powerful backing of the large English interests, and proposed a plan which involved heavy sacrifices by many of the security holders but which was designed to insure the permanent future of the property. The plan was vigorously opposed, however, by Edward H. Harriman, August Belmont, and other powerful interests, and it was not until August, 1896, that a final compromise was effected and a reorganization was carried through. But at last the Erie was taken out of receivership, and an entirely new company, intelligently designed and having ample working capital for future development, was formed with E. B. Thomas at its head. This new president, like Daniel Willard of the Baltimore and Ohio and many of the modern railroad leaders, was a practical railroad man who had worked up from the ranks and who had no large financial interest or banking connections to divert his attention from the real business of management. Under Thomas, who remained at the head of affairs from 1896 to 1900, the Erie made substantial progress. The system was solidified and its territory was more uniformly and systematically developed. In 1898, the Erie secured control of the New York, Susquehanna and Western system, gaining thereby an important branch to Wilkesbarre; and in 1901 it purchased jointly with the Lehigh Valley Railroad the stock of the Pennsylvania Coal Company of which the Erie later became sole owner. The real achievement of the Thomas administration was the development of the property as a heavy carrier of anthracite coal. On the financial side during this period the credit of the House of Morgan, intelligent administration, and modern methods did much to improve the reputation of the Erie and enable it to live down its bad inheritance.