The receivership at once adopted a vigorous policy of improvement. The rolling stock had run down until it could not handle even ordinary business. While the company had been depleting its credit and paying out all its cash in dividends, the equipment had been going into the scrap heap. For two years the receivers made large expenditures on equipment and roadbed, borrowing money for this purpose; the result was that when, in 1898, the courts surrendered the property, it was in splendid condition to take advantage of the tide of commercial and industrial prosperity which was just then beginning to flow throughout the United States.
While the reorganization of the Baltimore and Ohio was not so drastic as that of many other systems which went through the courts during this period, it was thorough enough to meet the situation. The fixed charges were cut down radically and the stockholders were assessed in large amounts. In all, more than thirty-six million dollars was raised by assessments and the sale of new securities; the liabilities of the Company were greatly reduced; and its credit was promptly restored. Formerly the Baltimore and Ohio had been struggling under a burden of floating indebtedness, with so little money in its treasury that it could not even put a new coat of paint on the passenger cars and had to continue to use oil lamps to light some of its best trains. But now the floating debt was replaced by a large available cash capital, and as a result of the liberal policy followed by the receivers, the equipment and roadbed were brought fully up to the standards required for handling the traffic of the road both economically and effectively.
With the reorganization of 1898 finished, the Baltimore and Ohio Railroad entered a new period in its history. The strong, progressive interests which now took control concentrated their energies on developing traffic, increasing earnings, and rounding out the general system. They adopted careful measures for unifying the system by adding other lines and connections of value; they paid much attention to the improvement and development of terminals; and they spent many millions in acquiring and expanding the terminal properties of the company at Chicago, St. Louis, Philadelphia, and Baltimore.
The financial history of the Baltimore and Ohio since the close of the nineteenth century is interesting chiefly in connection with changes in the control of the property. After the reorganization a group of prominent financiers, including Marshall Field, Philip D. Armour, Norman B. Ream, and James J. Hill jointly purchased a large interest in the stock. But this purchase, while perhaps representing a dominating interest, did not involve actual control. Soon afterward, interests identified with the Pennsylvania Railroad began to appear in the Baltimore and Ohio, and before long the Pennsylvania had a strong representation on the board. As a consequence, the Baltimore and Ohio almost lost its individuality and for a time was popularly regarded practically as a subsidiary of its old rival line.
The purpose of the Pennsylvania in obtaining this ascendency over the Baltimore and Ohio was to regulate the soft coal traffic. Already it had acquired dominating interests in the Chesapeake and Ohio, the Norfolk and Western, and other soft coal properties. These purchases were merely manifestations of that "community of interest" policy which at this time led several large systems to acquire interests in competing lines. Several of the railroad leaders of that time, notably James J. Hill and Edward H. Harriman, believed that if these great systems actually owned large blocks of stock in each other's properties, this common association would ipso facto end the competition that, if continued, would ultimately ruin them all. The Supreme Court had decided that the "pooling" arrangements which had so long prevailed among great competing roads violated the Sherman Anti-Trust Act; and the American public, which now was cultivating a new interest in railroad problems, believed that the "community of interest" plan was merely a scheme to defeat the Interstate Commerce Act and the Sherman Act and to maintain secretly all the old railroad abuses. These inter-railroad purchases therefore became so unpopular that the Pennsylvania sold its Baltimore and Ohio stock. At this time Edward H. Harriman of the Union Pacific, who had at his disposal vast funds of the latter property which he had obtained by the settlement of the Great Northern and Northern Pacific deal, decided to acquire control of a system of roads in the East in order to establish a complete transcontinental line in the interest of the Union Pacific. It was the theory that such a purchase by the Union Pacific would not defy the law or outrage the popular conscience because the Union Pacific, unlike the Pennsylvania, did not compete with the Baltimore and Ohio, but was only a western extension of that system. Harriman in August, 1906, therefore purchased nearly all the Pennsylvania holdings in the old Garrett property and thus obtained virtual control.
At this same time the Baltimore and Ohio had been developing a "community of interest" plan on its own account. In the year 1903, it acquired a substantial stock interest in the newly reorganized Reading Company, which controlled the Philadelphia and Reading Railroad and the Philadelphia and Reading Coal and Iron Company. It did not obtain a majority interest but, with the Lake Shore and Michigan Southern Railroad of the New York Central system, it now controlled the Reading system. The Reading Company meanwhile had secured control of the Central Railroad of New Jersey, over the lines of which the Baltimore and Ohio reached New York City.
In the following years the Baltimore and Ohio property was still further rounded out by purchasing the Cincinnati, Hamilton and Dayton, a small system of doubtful value radiating through the State of Ohio and, by additional extensions, into the soft coal fields of West Virginia. New energy was put into the expansion and improvement of the southwestern lines to St. Louis, while the eastern terminal properties were still further improved.
The practical control of the Baltimore and Ohio remained in the hands of the Union Pacific interests until 1913. In that year, however, the Union Pacific liquidated its holdings by distributing them to its own individual stockholders in the shape of a special dividend. The Baltimore and Ohio thus became once more an independent property.
The story of the Baltimore and Ohio for the past decade has been mainly a record of a growing, well-managed, and efficient business. It is closely identified with the personality of its notable and efficient president, Daniel Willard, a conspicuous example of the modern type of railroad manager. In the earlier days of railroading, and especially in the long period which came to an end with the death of Harriman, the typical railroad president was usually a man of great wealth who had secured his position by owning a large financial interest in the property. The country was full of "Wall Street Railroad Generals." But in recent years the efficient railroad head has come more and more to be the practical railroad man who has risen from the ranks, who has no important personal financial interest in the property but who is paid an adequate salary to operate a system in a purely businesslike way. Notable examples of this modern type of railroad president are, besides Daniel Willard, Edward P. Ripley of the Atchison, Topeka and Santa, Fe, Benjamin F. Bush of the Missouri Pacific, and Fairfax Harrison of the Southern.
The efficient management of today is abundantly shown in the recent record of the Baltimore and Ohio. President Willard has been unmolested by financial interests and has been continuously backed up in his policies by the owners of the road. As a result the Baltimore and Ohio of the present decade has reached an enviable position as one of the great Eastern trunk lines, comparing well with other progressive properties like the Pennsylvania, the New York Central, the Southern, the Illinois Central, and the Louisville and Nashville. Millions have been poured into the property in the past fifteen years; its main lines have been largely rebuilt; its rolling stock is chiefly of the most modern types; and its terminals and structures are such as modern conditions demand.