No canal could meet the fierce slashing of rates which suddenly supervened on the rail lines. Since 1855, when the canal carried twice the traffic of all the trunk lines, until 1861-1862 when the rail and water lines were about even, the railroads had steadily gained in tonnage.[16] The turning point was reached in 1872 when the canal traffic actually began to decline. Between 1871 and 1876 the aggregate tonnage (both ways) on the New York canals fell away about half, spasmodically recovered during the great expansion of exports in 1879-1880, held constant for five years, and thereafter steadily dwindled away. As the accompanying diagram shows, the rise of railroad tonnage was rapid up to 1873. Thereafter for several years during the actual panic, despite the railroad wars and low rates, no great change occurred. But by 1876, eighty-three per cent. of all-grain receipts at Atlantic ports came by rail; and over nine-tenths of all the commerce between East and West had left the water routes. At New York the three main railroads carried six times the traffic of all the state canals in 1880. After that time the canal barges were loaded only with coal, lime, sand, cement, and similar low-grade traffic. So that in the rapid expansion of business, which, as our diagram shows, occurred after 1878, the canal shared not at all. The disparity between east-and westbound tonnage was notably great. In 1870 this eastbound traffic was about three times as great as the tonnage west bound. In 1881 it was seven and one-half times as great, declining thereafter to a proportion of about 6.5 to 1 during the late nineties. This inequality, of course, whetted the appetite of the carriers for back loads to fill the westbound trains, and undoubtedly gave an impetus to rate disturbance. The rate wars led by the New York Central during 1881 were largely due to this fact.
As for water carriage elsewhere, the rivers soon followed the canals in steady decline of relative importance. On the southern streams, such as the Cumberland and Tennessee, the principal diversion to the railroads of traffic in foodstuffs south bound from the West, took place in the five years subsequent to 1866.[17] High-water mark in the Mississippi trade was reached in 1879, the year of the completion of the jetties for the improvement of navigation at the mouth of the river. A steady decline thereafter has ensued down to the present day. New Orleans had then only recently engaged in foreign trade in grain. Exports of wheat and flour (equivalent) had suddenly risen from less than 1,000,000 bushels in 1875 to over 12,000,000 bushels in 1880. At this time this came principally by river. It was nearly ten years later before the Illinois Central actively engaged in such export business. But when the railroads finally seized upon it, the river trade was doomed. The only exception to this decrease of inland water transportation occurred on the Great Lakes. The carriage of coal, iron ore, and lumber rapidly increased. Through the Detroit river, the tonnage grew from 9,000,000 in 1873 to 20,000,000 tons in 1880; and through the St. Mary's Canal from 403,000 in 1860 to 1,734,000 tons in 1880. Inasmuch as a fair proportion of this rapidly growing business was ultimately destined to reach the seaboard either as raw material or in the form of manufactures, this water traffic contributed to, rather than lessened the prosperity of the trunk lines operating east of the lakes.
The growing importance of railroads during the seventies was accompanied by collateral developments, which deserve mention in a general preliminary survey. The abuses of personal discrimination and favoritism, constantly recurring rate wars and disturbances, the financial scandals of construction companies and subsidiary corporations, the frauds perpetrated by unscrupulous financiers like Gould and Fiske, coupled with the arrogance of railroad managements, aroused widespread public hostility. This led to an insistent demand for public regulation and control. The Granger movement formed its open expression in the western states. The searching inquiries of the famous Hepburn Committee of the New York legislature in 1879 voiced it in the East. The Windom report of 1874 was called forth on behalf of the Federal government. The first railroad commission, that of Massachusetts in 1869, was soon followed by others all over the country. And a campaign of education was set under way which finally led to the Federal inquiries of the Cullom Committee of 1886 and the Federal Act to Regulate Commerce of the following year.
The decade of the eighties, so far as common carriers are concerned, was primarily characterized by new railroad construction. Over 70,000 miles of line were built in ten years,—a mileage just about equal to the total new construction for both the ten preceding and the ten following years combined. The movement culminated in 1882, and again in 1887, in two veritable crazes of promotion and speculative activity, unequalled before or since in our railroad history. The first was suddenly stopped by a short, sharp railroad panic in 1884. Jay Gould's operations in Union and Kansas Pacific set a pace for manipulation and fraud, which could have no other sequel. The second craze was doubtless in part restrained by the moral effect of the passage in 1887 of the Act to Regulate Commerce; although, viewed in a larger way, it was more directly due to the exhaustion both of the supply of capital and of confidence among investors. These two outbreaks of railroad promotion are deserving of further comment, both by reason of their extent and character. Prior to 1880, new railroads constructed had averaged a little over two thousand miles annually. The figures for 1881-1882, respectively, were 6,711 and 9,846 miles, rising finally to a total of 11,569 miles in 1882. This record has never been surpassed but once: when, four years later at the height of the second "boom," 12,983 miles of new line were laid down. A large part of this building was in the Far West and Southwest, these regions being now opened up as the upper Mississippi valley had been developed between 1868 and the panic of 1873. A second transcontinental route was opened in 1881, through the joining of the Southern Pacific and Atchison Topeka and Santa Fe roads at Deming and El Paso. Within two years thereafter two direct routes to connect the Southern Pacific system with New Orleans were completed. The Pacific Northwest was admitted to rail connection with the rest of the country in 1883-1884, by two significant events. The Northern Pacific road was then opened, and the Oregon Short line to connect the Columbia river basin with the Union Pacific system. The Great Northern road reached the Pacific slope in the year 1893, accompanied by the Canadian Pacific, constructed just over the border. This activity in far western railroad building was mainly due to the growth of the Pacific slope; but it was also favored by the successful competition of railways with the water routes round Cape Horn. It was estimated that as late as 1878, not over one quarter of the total tonnage moved into California went by rail. But the railroads then inaugurated a system of special contracts by which shippers who agreed to use the railroads exclusively, were given considerably reduced rates. By 1884 when the plan was discontinued, the percentage of tonnage carried to California by rail rose from twenty-five to between sixty and seventy-five percent. In the eastern states, the eighties was the period of speculative "parallelling" of existing lines of road, in order to dragoon the older lines into purchasing the new ones at extortionate prices. This was done under the guise of affording satisfaction to the popular outcry for competition as a means of reducing rates. Two notable instances were the building of the West Shore road, paralleling the New York Central; and of the Nickel Plate line which similarly ran for miles within a few rods of the Lake Shore across northern Ohio. The fact was that the prolonged period of depression during the seventies had brought about an accumulation of surplus capital awaiting investment. The rapid repayment of its debt by the United States government, also released a large supply of funds. General prosperity prevailed and prices were everywhere rising. This increase of prices, extending from commodities to all issues of stocks and bonds, reduced the rate of return upon investment for these new supplies of capital in all the older enterprises. The only alternative, in seeking for a liberal return on investments, was to risk it in new ventures. Speculation ran riot. All sorts of projects were eagerly taken up, and among these, new railroads were most important. They were freely built, far in advance of population in the West or of prospective needs for enlargement in the East, not so much sometimes to develop the country, as to enrich the promoters. That they ultimately served the public interest was not the main concern in too many instances. This was also the heyday of the fraudulent construction company, already so ably utilized by the builders of the Pacific roads.[18]
In short, speculation in every conceivable form ran riot in a way not repeated thereafter for nearly twenty years.
Aside from rampant speculation, American railroad history during the eighties must record various other economic events of importance. The city of New York and the New York Central Railroad were at the culmination of their relative importance in the export trade of the country. The volume of eastbound tonnage was enormous in the early eighties. In 1881, 2,500,000 tons of freight east bound were carried by the New York Central alone, a figure surpassed in only two years until 1896. Another event of importance was the general westward drift of population and agriculture. This was accompanied by a corresponding migration of manufactures inland from the Atlantic seaboard. The lines from the Central West to the South, such as the Illinois Central and the Cincinnati, New Orleans & Texas Pacific road, had formerly relied almost entirely upon the carriage of grain or flour and packing-house products from the farms of Ohio, Indiana, and Illinois to the cotton-raising South. During the latter half of the eighties they carried an ever increasing proportion of manufactured goods, such as boots and shoes, clothing, wooden ware, harnesses and groceries,—in fact everything denoted by the words general merchandise. More and more the supplies of grain, flour and packing-house products were being produced in Iowa, Nebraska, and Kansas, while larger quantities of general merchandise originated in the Middle West. The result was a need for new diagonal trunk lines from such points as Kansas City and Omaha into the lower Mississippi valley. The decline of Cincinnati as a great pork-packing centre dates from this time. Memphis and Vicksburg derived a new importance at the junction of such lines as the Kansas City, Memphis & Birmingham with the older Mississippi river roads. At about this time, in 1889, also, occurred the opening of the Gulf ports for the export of the surplus grain products of the territory west of the Mississippi. The significance of this for the eastern trunk lines did not appear until later; but the occurrence forms a part of that westward trend of population above mentioned. These years were all characterized by the increasing importance of long-distance through business, as distinguished from mere local trade. The markets of the country as a whole, the areas of commercial competition, were steadily expanding. Viewed in a large way, it was doubtless this economic phenomenon which at this time emphasized the need of centralized Federal control, instead of state regulation, if control there were to be. This found its expression in the passage by Congress of the Interstate Commerce Act of 1887.
A phenomenon of national importance was the rapid expansion of export trade in staple commodities, through New Orleans, Galveston and other Gulf ports. This began in 1889 when the Illinois Central first engaged in export business in grain. It soon assumed considerable proportions, with the growth of population and agriculture in the southwestern part of the United States; and, with the completion of the Panama Canal in 1913, will doubtless be even more notable in future. The opening of new railway connections with these Gulf ports about 1896 led to still further expansion of this trade. An immediate result was of course a decline in the relative importance of the great Atlantic seaports, particularly New York. A growing appreciation of this fact is accountable for the great interest in New York state in projects for enlarging the Erie Canal. A few figures, together with the diagram on the next page, illustrate the situation. A generation ago about nine-tenths of our exports of wheat and about seven-tenths of our exports of flour, went out through the port of New York. In 1899 less than one-half of our wheat and less than one-third of our flour was exported through the same city. The larger part of this loss ensued after 1896, with the opening of new lines to the Gulf ports as above mentioned. The New York Commerce Commission in its report for 1900 found that for 1899, while the nation's total foreign shipments of wheat was larger than at any time since 1892, New York actually exported twenty million bushels less than seven years earlier. Exports in 1900 were the smallest in her history, forming, that is to say, the lowest proportion of the total exports of the United States. They were actually about a million bushels of wheat less than went out through the two principal Gulf ports. An indirect result of this growth of New Orleans and Galveston was an intense competition between all the Atlantic trunk lines interested in the eastern seaports and the railroads tributary to the Gulf of Mexico. The part of the country most affected by this competition, of course, was that portion about equidistant from the two sea coasts. This rivalry led to rate wars on a scale not witnessed before since the trunk line struggles during the seventies. St. Louis, Kansas City and all the region thereabouts, enjoyed the benefit of ruinously low rates as a consequence,—an advantage not accorded to other parts of the country. One cannot doubt that this factor was most influential in encouraging the growth of their population and trade.
