The construction of the railroad began on July 4, 1828. The venerable Charles Carroll of Carrollton, then more than ninety years old and the only surviving signer of the Declaration of Independence of fifty-two years before, said on this occasion, as he laid the first stone: "I consider this among the most important acts of my life, second only to my signing the Declaration of Independence." His vision was indeed prophetic.
It was determined that the first section of road constructed should extend to Ellicott's Mills, twelve miles distant, but, owing to delays in obtaining capital, the actual laying of the rails was not begun until the fall of 1829, and this first section was not opened for traffic until May 22, 1830. At first, experiments were made with sails for propelling the cars, but it was soon found that a more effective source of power was supplied by mules and horses. The Flying Dutchman, one of the cars devised to furnish motive power, provided for the horse or mule a treadmill which would revolve the wheels and make the distance of twelve miles in about an hour and a quarter. Steam locomotives at this time were in their infancy and, until the opening of the Liverpool and Manchester Railroad in this same year, they had attained a speed of only six miles an hour. Horses and mules, and even sail cars, made more rapid progress than did the earliest locomotive. In spite of these crude and primitive facilities for transportation, however, the traffic on the new railroad was of large volume from the beginning, and the company could not handle the amount of merchandise offered for transport in the first months.
Construction was now rapidly pushed ahead, and by 1832 the whole line had been opened to Point of Rocks, with a branch to Frederick, Maryland, making seventy-two miles in all. In 1831, steam locomotives were tested, and one of them, the York, was found capable of conveying fifteen tons at the rate of fifteen miles an hour on level portions of the road. This achievement was regarded as a great triumph, and in 1832 the directors of the road called attention to "the great increase in velocity" that had been obtained in this way.
From this time forward the expansion of the railroad proceeded with a certainty born of success. A branch was built to Washington and the main line was extended to Harper's Ferry. Beyond this point construction was slow because financial difficulties stood in the way, and it was not until after the panic of 1837 that further aggressive building began. But by 1842 the line was completed to Cumberland, Maryland, and by 1853, to Wheeling. Meanwhile, the branch from Cumberland to Parkersburg, Virginia, was built. The road now comprised a total system of more than five hundred miles and reached two points of importance on the Ohio River, one northward near the Pennsylvania-Ohio state line and one southward in the direction of Cincinnati. The Parkersburg extension was of great importance because it opened a through route to St. Louis, by means of the Cincinnati and Marietta Railroad—which was at this time completed from Cincinnati to Belpre, Ohio, opposite Parkersburg—and the Ohio and Mississippi, which extended more than three hundred miles from St. Louis to Cincinnati.
Times were not the best, however, and, although much traffic was developed, the immense cost of the extensions heavily burdened the Baltimore and Ohio Company, while the panic of 1857 seriously embarrassed its credit. Soon after this panic and before the company had begun to recover from its effects, John W. Garrett, one of the large stockholders in the road and son of a Baltimore banker, was elected to its presidency, and a new chapter in the history of the Baltimore and Ohio began. Almost immediately following Garrett's election, a remarkable change became apparent. Losses were turned into gains; deficits were converted into surpluses; and soon Garrett had gained the reputation of being the most remarkable and efficient railroad manager in the world. He seemed to be almost an Aladdin of railroad management for, even when he could not show increases in amount of business done, he reported greater profits by showing lower expenses. In those days the railroads did not furnish detailed reports of business to the stockholders or to the public. At the annual meetings it was customary for a president or the directors simply to announce, either orally or in a brief printed statement, the amount of gross business and profits for the year. No such thing as a balance sheet or detailed financial statement saw the light of day—practically everything was taken by the stockholders on faith. And great was their faith. When, therefore, Garrett announced large increases in profits in years when most railroads were standing still or were incurring losses, he was implicitly believed.
Under Garrett's management a new era of expansion almost immediately began; work was started on the long delayed branch to Pittsburgh and plans were laid for establishing a line of steamships from Baltimore to the leading European ports. But the Civil War, which bore heavily on the Baltimore and Ohio, interfered with these ambitious schemes. Early in 1861 the Confederates took possession of a large part of the line east of Cumberland; in the next four years important sections of the road were repeatedly destroyed and rebuilt, as they passed into the hands of the Federal or Confederate troops. The company, however, managed to get through without default in its securities, and, when peace was restored in 1865, the Baltimore and Ohio resumed its policy of aggressive expansion.
Before very long the road, with its connections constructed or purchased, reached the cities of Pittsburgh, Sandusky, and Chicago, and further strengthened its connections with Cincinnati and St. Louis. It acquired steamboats, grain elevators, and docks; it constructed hotels as mountain summer resorts; it built dry docks in Baltimore; and finally it proceeded to organize and operate an express company, a telegraph company, and a sleeping-car company. To carry out these ambitious plans the capital stock and debt were of course increased again and again, and in the course of these operations a large part of the new securities issued was sold to English investors. Notwithstanding these great increases in liabilities, the company continued to report large surpluses and to pay large dividends, generally ten per cent annually. In fact, this liberal rate was, with brief exceptions, paid right through the Civil War period, in spite of the fact that large parts of the line were frequently destroyed and traffic was often at a standstill. With such prosperity under such conditions Garrett's reputation as a railroad manager naturally suffered no eclipse.
In the course of the Civil War, as already noted, through traffic routes from New York to Chicago had been established, and in the succeeding years the consolidations of the great competing systems into trunk lines had taken place. The struggle of the Baltimore and Ohio for its share of Western business led to fierce rivalry with the Pennsylvania. This competition became so severe and intense that, in 1874, the Pennsylvania road refused to carry the Baltimore and Ohio cars over its line to New York on any terms whatever. Since this was the only way in which the Baltimore and Ohio could reach New York, the situation was a serious one. Garrett retaliated by making destructive reductions in passenger rates from Washington and Baltimore to Western points. The cuts were soon made on other roads and affected both freight and passengers. All the lines became involved. Passenger fares from Chicago to Baltimore and Washington were reduced from nineteen dollars to nine dollars, and those to New York and Boston from twenty-two to fifteen dollars. Still the fight continued, and before the end of 1875 it was possible to travel from Chicago to New York first class for twelve dollars and to ship grain to New York for as low a rate as twelve cents.
Despite the fact that competition had cut earnings almost to the point of extinction, the Baltimore and Ohio continued to report surprisingly good profits. The company borrowed additional funds from time to time but continued to pay the liberal ten per cent dividend until 1877, when it somewhat reduced the rate. These dividend payments indicated, however, a prosperity that was only apparent, and they did not greatly deceive the bankers, for the credit of the Baltimore and Ohio weakened from day to day. The fact is that the reports of operations inspired little public confidence; to the farseeing, there were danger signals ahead. Nevertheless the ten per cent dividends were resumed in 1879 and continued at this rate without interruption until 1886.
On the death of John W. Garrett in 1884, his son Robert, who succeeded him as president, continued the same policy of competition and aggression. With the object of gaining an entrance into Philadelphia and through that gateway of reaching New York, he started work on a branch from Baltimore to Philadelphia to meet, at the northern boundary of Maryland, the Baltimore and Philadelphia Railroad—a line which independent interests were then building through Delaware with the intention of obtaining an entrance into Philadelphia. The Pennsylvania interests strongly opposed Garrett's new project and many years before had gone so far, in their determination to block the Baltimore and Ohio from acquiring control of the Philadelphia, Wilmington and Baltimore Railroad, as to purchase that road themselves. Despite this opposition the Baltimore and Ohio went forward with their plans and secured an entry into Philadelphia by acquiring control of the Schuylkill East Side Railway, which was a short terminal road of great strategic value. North of Philadelphia the company arranged a traffic contract with the Philadelphia and Reading, whose lines extended to Bound Brook, New Jersey, and also with the Central Railroad of New Jersey beyond Bound Brook to Jersey City. Afterward, by purchasing the Staten Island Rapid Transit Company the Baltimore and Ohio acquired extensive terminals at tidewater on Staten Island and constructed a connection in New Jersey with the New Jersey Central. Thus, after many years of struggle and at heavy cost, the Baltimore and Ohio finally secured an entry into the New York district independently of the Pennsylvania Railroad.