Principles of Operation
There are three principles relating to the operation of these railroad properties which the author feels that he can attribute with some confidence to Huntington and his friends. The first of these was that the Southern Pacific enterprise should remain under the associates’ control and free from eastern entanglements. The second was that railroad monopoly in California was essential to a satisfactory railroad profit, and that the utmost possible profit should be exacted when monopoly power had been attained; and the third was that regulation by public bodies was in all respects objectionable, although public grants were considered to be legitimate sources of revenue.
Looked at in a comprehensive way, the history of the Southern Pacific may be said to have centered in the application of these principles to the solution of a series of problems, of which the final disposition of the Southern Pacific oil and timber lands was the last. These problems, to name them consecutively, included the construction of the original Central Pacific and Southern Pacific railroads; the establishment of these companies as going concerns with opportunity for prosperity and power; and the adoption by the associates of policies with respect to government regulation, with respect to rates, and with respect to relations with competing lines. They included also the negotiation of a plan of settlement with the federal government under which the financial assistance tendered to the companies in their younger days was repaid, and the railroad stood forth free of unusual responsibility and devoid of special privilege. At a later date the merger of the Southern Pacific with the Union Pacific represented an additional adventure, although one which was never part of Huntington’s plan; and still another episode, the oil and timber litigation just described, was concerned with a forced liquidation of interests of which Huntington had known and approved.
Two Eras in Company’s History
Grouped in a somewhat different way, but with the same essential point of view, the history of the Southern Pacific may be divided into two parts, the one ending and the other beginning in or about the year 1883. Before 1883, the Huntington group was primarily interested in construction from Sacramento to Ogden in order to obtain the benefit of the federal subsidy, and in construction in southern California, New Mexico, and Arizona, in order to prevent the building of an independent competing line. In this period, also, steps were taken to crush the competition of certain local enterprises in California. After 1883, or more accurately, after 1879, the attention of the associates was concentrated upon the establishment of their credit, the resistance to the threatened regulation by the state of their properties in California, and upon the competition of the newly created transcontinental railroad lines and the water routes from the Pacific to the Atlantic Coast. The second of these dangers led them into local politics, and the third resulted not only in a variety of agreements with competitors, but also caused the Southern Pacific to modify its rate structures and to subsidize potential competitors upon the sea. Still later came the necessity of repaying the loans which the Central Pacific had received from the federal government at the time of the construction of its road and the new relations with the Union Pacific under the Harriman régime. The oil and timber litigation, though falling within the second period, represented the closing up of grants received in the first.
In solving all the problems presented in the course of the Southern Pacific’s career, the associates followed consistently the three fundamental principles laid down in a preceding paragraph whenever the principles were applicable and the circumstances permitted of a deliberate choice. The only striking variation from them occurred when the Union Pacific was allowed to obtain a controlling interest in Southern Pacific stock—a transaction which occurred after Huntington’s death and one for which the associates were not responsible.
The Charge against Associates
The weakness in the position of the Huntington group lay in the fact that their insistence upon monopolistic control of railroads in the state of California and their resistance to government regulation, ran counter to public policies of a most fundamental kind. A further ground for incisive criticism is properly found in the methods which the associates adopted in their business and political campaigns. It is not sufficient to declare that Huntington and Stanford merely imitated practices which they found about them. There is reason to believe that the Southern Pacific associates lowered the standard of business ethics of their time. The reader who has examined the data submitted in preceding pages will need no specification of this charge. In finance, in politics, in questions of rates, and in their relations with public bodies, the associates were indifferent to standards of private and public conduct, which alone can bring trust and confidence into business relations. The great material achievements of the Huntington group were marred by the moral and spiritual defects of its members.
Public’s Present Favorable Attitude