secure a sufficient variety and quantity of freight to make systematic back-loading a certainty. Back-loading, together with a steady flow of freight large enough to insure the economical utilization of motive power and car capacity, results in a general economy of operation which makes rates that would bankrupt numerous other roads remunerative to the systems embraced in the Securities Company. Such a flow of freight had been developed on the basis of joint rate agreements with railways and agreements with steamship lines. The value of the railway properties concerned, as well as the continued prosperity of the commercial and industrial interests served by them, depended largely upon the permanency and security of the arrangements which had begun to crystallize with the turn of the century, and to which the opening of the Orient promised to bring still greater returns. However, joint rates may be withdrawn at any time, and it was thought too hazardous to build up a great business "extending across the continent and even across the ocean on the basis that tomorrow the rate might be changed or the party with whom we were working to reach the different points of production or consumption had some other interest or some greater interest elsewhere. It was necessary in doing this that we should have some reasonable expectation that we could control the permanency of the rate and that we would be able to reach the markets. In other words, if the man producing lumber on the coast, or cattle on the ranches, or ore in the mines, could not find a market for it and if we could not take it to a market that would enable him to sell his stuff for a profit, he would have to stop producing it. That was the line we worked upon, and that was the reason we felt called upon to put ourselves in a position where we could control access to the markets."12

11 See Appendix 2 for the first cargo list of the S. S. "Minnesota."

12 Hill, Testimony, 14: 670-671.

CHAPTER II.

IMMEDIATE CAUSES OF THE ORGANIZATION.

A glance at a railway map13 of the territory west of the Mississippi reveals the importance and strength of the Burlington system. West of the Missouri river it lies in the very lap of the Union Pacific, while east of that river it forms a great bridge, with its terminal pier in Chicago. The Northwestern, St. Paul and Burlington systems largely complement each other in the great manufacturing, agricultural and mineral regions of the greater northwest. In relation to the Great Northern and Northern Pacific, the Burlington is like the point and moldboard of a plow, the beam and handles of which are constituted by the former systems. The Burlington connects Chicago with St. Louis, Kansas City, Omaha, Denver, St. Paul and Minneapolis, and numerous smaller but important cities, which, taken collectively, represent the manufacture and sale of every staple commodity and the raw materials therefor.14

An alliance with a system possessing the tactical and physical advantages of the Burlington could not be otherwise than a source of strength and profit to the party making such an alliance.

For many years the Great Northern and Northern Pacific had been contemplating direct connection with Chicago. The usual alternatives of the construction of a new line or the lease or purchase of an existing one, presented themselves. The former would result in unnecessary duplication and waste; the latter only was deemed expedient. The improved

13 Good maps are found in 14: 969; 17: 814, 900; 19: 504-662. One of these is reproduced in Appendix 10 to this monograph.

14 A multitude of statements bearing upon the Burlington may be found in 3: 15; 11: 16-28; 14: 671-674, 685, 696; 16: 56-78; 17: 528, 536.

financial condition of the Northern Pacific and the dissolution of the voting trust planned for January 1, 1901, made the year 1900 propitious for the execution of the long cherished plans for an eastward extension. At least five different lines were within the range of possibility. These were: the Wisconsin Central; Chicago & Northwestern; Chicago, Milwaukee & St. Paul; Chicago, Burlington & Quincy; and the Chicago Great Western. To what extent each of these great lines figured as possibilities in the minds of the Great Northern and Northern Pacific, and the relative degrees of desirability which were attached to each by them, does not appear in the testimony, although the statement may be positively made that more than two of these railways were made the subject of correspondence and probably, also, of tentative solicitation.15

The preferences of J. J. Hill and J. P. Morgan, with respect to the particular line to be acquired as an eastward extension, do not appear to have coincided,16 when an extraneous factor appeared, which probably added the force of circumstances to Hill's preference. It appears that during the "fall of 1900 or early winter of 1901" the Union Pacific interests purchased in the market some $8,000,000 or $9,000,000 out of $108,000,000 or $109,000,000 of the Burlington stock.1 Much of the Burlington stock had been held for many years by people who had inherited it,18 and it was found impossible to secure control of the property through purchases in the open market. This episode in the stock-market hastened the completion of negotiations which probably had been begun before that time. The two northern transcontinental lines were not inclined to permit a rival interest to wrest from them this much coveted property without leaving a single stone unturned. The testimony does not show a direct causal connection between the attempt of the Union Pacific interests to purchase the Burlington in the open market and the negotiations of Hill for the same property, although more than mere coincidence probably existed. Negotiations were opened by Hill with the executive committee of the board of directors of

is Private correspondence.

16 Young, Brief, 11: 17. Morgan, Testimony, 17: 529.

17 Hill, Testimony, 16: 74-75.

18 Hill, Testimony, 16: 76.

the Burlington system about Christmas, 1900, or January 1, 1901. Prior to this date no negotiations had taken place. "The actual negotiations commenced about or after the middle of January, 1901."19 Early in March, 1901, E. H. Harriman and Jacob H. Schiff, acting for themselves, or for the Union Pacific, or for interests friendly to the Union Pacific, requested to be allowed to join with the Great Northern and Northern Pacific in the purchase of the Burlington.20 This request was refused. At that time the Union Pacific interests no longer owned the eight or nine millions of Burlington stock which had been purchased during the preceding fall or winter, but they now desired to secure a half interest in the final purchase. A month later the Burlington sale was consummated. The two northern roads had made the offer which the Burlington directors had specified beforehand as satisfactory to Hill, and nearly all the Burlington shareholders accepted it.21 The Great Northern and Northern Pacific each received one-half of the $108,000,000 of capital stock of the Burlington at $200 per share, payable in joint collateral four per cent, long time bonds of the two companies,22 for the payment of which the acquired 96.79 per cent. of the stock of the old Burlington Company, was pledged as collateral security.23 These two companies had now become joint owners of all the Burlington stock, and, as such, they had the right thereafter to exercise all the rights and privileges of shareholders, including the right to elect the board of directors. The purchase of the Burlington stock by the two companies in equal parts, it was thought, would serve each of them as well as if it were the sole owner of such stock, while such a purchase might have been beyond the financial means of either company by itself. "The evidence is therefore uncontradicted and conclusive that the Great Northern and Northern Pacific companies each purchased an equal number of shares of the Burlington stock as the best means and for the sole purpose of reaching the best

19 Hill, Testimony, 16: 57-58.

20 Hill, Testimony, 16: 77.

21 Various reports regarding the manner in which certain stockholders were induced to part with their stock are in circulation, but I have been unable to confirm them. 22 19:505-545, contains copies of the bond, etc.

23 Hill, Testimony, 16: 67; Beck, Argument, 2: 23-27.

2

markets for the products of the territory along the lines, and of securing connections which would furnish the largest amount of traffic for their respective roads, increase the trade and interchange of commodities between the regions traversed by the Burlington lines and their connections and the regions traversed or reached by the Great Northern and Northern Pacific lines, and by their connecting lines of shipping on the Pacific Ocean, and as the best if not the only means of furnishing an indispensable supply of fuel for their own use and for the inhabitants of the country traversed by their lines. These connections and the interchange of traffic thereby secured were deemed to be and are indispensable to the maintenance of their business, local as well as interstate, and to the development of the country served by their respective lines, and of like advantage to the Burlington lines and the country served by them, and strengthen each company in its competition with European carriers, for the trade and commerce of the Orient."24

During the very days when the Burlington transaction was being perfected, the men who had been refused what they regarded an equitable share in that purchase elaborated plans which were calculated to vanquish their enemies and elevate the Union Pacific interests to a position of supremacy in transcontinental traffic. These stirring events led a cosmopolitan editor to invent a parable of fishes in which the bass had swallowed the minnow, and the pike swallowed the bass. In this instance, however, the bass, armed with retirement fins, compelled the pike to spew him out.

The total outstanding capital stock of the Northern Pacific was $155,000,000 of which $80,000,000 was common and $75,000,000 preferred. During April and early in May, 1901, the Union Pacific interests acquired $78,000,000 of this stock,$41,000,000 preferred and $37,000,000 common-with the view of controlling the Northern Pacific railway, with its half interest in the Burlington system. Such a movement appears to have been anticipated. "It was a common story at one time."25 Individuals representing the Great Northern and

24 Young, Brief, 11: 21.

25 Morgan, Testimony, 17: 536.