Harriman then sprang his surprise on Schiff. For some years he had been financially interested in the affairs of the Illinois Central. This property had at that time higher credit than any other American railroad; it had raised large sums of capital in Europe on as low a basis as three per cent, and on most of its bonds paid only three and one-half per cent interest. For nearly fifty years the property had been paying dividends with hardly an interruption, and altogether it had an enviable reputation as one of the soundest investments. Harriman's influence in the affairs of the company had been increasing quietly for years; the management had been left almost completely in his hands; and the directors were in effect largely his puppets, and a majority would do his bidding in almost anything he might propose.
Harriman now announced to Schiff that he intended to have the Union Pacific reorganized as an appendage of the Illinois Central. The necessary one hundred millions would be raised by a first mortgage on the entire Union Pacific lines at three per cent, and the mortgage would be guaranteed by the Illinois Central, while the latter company would receive a majority of the new Union Pacific stock in consideration for giving its guarantee.
Here was a poser for Schiff, who saw at once that if Harriman could use the Illinois Central credit in this way, he certainly could carry out his plan. Schiff soon found that Harriman would have no difficulty in using Illinois Central credit. The upshot of the matter was that the two men got together and jointly reorganized the Union Pacific. Harriman was made chairman of the Board of Directors, and Kuhn, Loeb and Company became the permanent bankers for the new railroad system.
Thus with one bound Harriman had leaped to the forefront in American railroad finance and by a bold act which was characteristic of the man. For Edward H. Harriman was not only a hardheaded, practical business builder who like Morgan thought in big figures, but he was also a bold plunger, which Morgan was not. Possessing a vivid imagination, he not only saw far into the future but he also planned far into that same future. Morgan was also a man of vision, but his vision did not carry him far beyond the present. The things Morgan saw best were those immediately before him, while the things that Harriman saw best were at a distance. Morgan's big plans of procedure were based on what he saw in a business way in the near future; he reorganized his railroads with the idea of making them pay their way as soon as possible and of showing a good return on the capital invested. He thought little of what might be the outcome a decade or two hence or of what combinations might later be worked on the chessboard as a result of his immediate moves. Morgan's mind was not philosophical; it was intensely practical.
While Morgan declined the proffered control of the Union Pacific on the theory that it was only a "streak of rust" running through a sparsely settled country and across an arid desert, Harriman dreamed of the great undeveloped West filling up with people during the following generation, of the empty plains being everywhere put under cultivation, and of the arid desert responding to the effects of irrigation on a large and comprehensive scale. He foresaw the wonderful future of the Pacific States—the opening up of natural resources in the mountains, the steady stream of men and women who would ultimately emigrate to this vast section from the East and from foreign lands and who would build up towns and great cities. At the same time, with that practical mind of his, Harriman calculated that the Union Pacific Railroad—situated in the heart of this huge area, having the most direct and shortest line to the Pacific, and with all traffic from the East converging over half a dozen feeder lines to Omaha and Kansas City—would haul enormous amounts of tonnage just as soon as the Western country revived from the depression under which it had been struggling for half a dozen years.
When Harriman took hold of the Union Pacific he had already determined to absorb the Oregon lines, with their tributaries running up into the Puget Sound country and to the Butte mining district; to get hold of the Southern Pacific properties at the earliest possible moment; and to link the Illinois Central in some way to the Union Pacific so that the latter would have its own independent outlets to Chicago and St. Louis. All these plans he ultimately accomplished, as well as many others, some of which his farseeing imagination may have conceived then.
While Harriman was able very promptly to carry through his first scheme and recapture the Oregon lines, which had been separately reorganized as a result of the receivership, he found it a far more difficult matter to secure a dominating interest in the great system of railroads controlled by Collis P. Huntington. Huntington was a hard man to deal with. Himself one of the practical railroad magnates of his time, he also had the gift of vision and undoubtedly foresaw that the ultimate result must be a consolidation of the properties; but he fully expected that his company would absorb the Union Pacific. Had it not been that during the panic period the Southern Pacific had heavy loads of its own to carry and that its credit was none too high, Huntington might then have attempted to gain control of the Union Pacific.
Events finally worked to the benefit of Harriman. When Collis P. Huntington died in 1900, it was in most people's minds only a question of time as to when the powerful Harriman interests would take over the Southern Pacific properties. Consequently there was no surprise when in 1901 announcement was made that the Union Pacific had purchased the holdings of the Huntington estate in the Southern Pacific Company and was therefore in virtual control.
By a master stroke the railroad situation in the West had been radically changed. The Huntington system comprehended many properties of large and growing value, which were now feeling the full benefit of the agricultural prosperity at that time spreading throughout the great Southwest. Aside from this prize, the Union Pacific acquired the main line to the Pacific coast which it had always coveted and thus added to its system over nine thousand miles of railroad and over four thousand miles of water lines, besides obtaining a grip on the railroad empire of this entire portion of the continent not to be readily loosened by competitors.
At the same time that Harriman was strengthening his position on the west and south, the Great Northern and Northern Pacific properties, both now operated under the definite control of James J. Hill, were following a policy of expansion fully as gigantic as that of the Union Pacific. The Great Northern lines operating from Duluth to the Pacific coast had become powerful elements in the Western railroad situation, and Hill had devised many plans for diverting to the north the through traffic coming from the central section of the continent. He had established on the Great Lakes a line of steamships running from Duluth to Buffalo, and was also operating on the Pacific Ocean steamship lines which gave him a connection with Japan, China, and other oriental countries.