Following the successful completion of the Granite Rail-Road in 1826, Perkins secretly assembled a group of eight men to promote railroads over canals as Massachusetts’ response to the Erie Canal. While Massachusetts would be cautious in its initial adoption of the railroad:
“Unlike Maryland, Massachusetts had not secured her railway system by a compromise with a canal, a compromise which was to bring financial disaster. Nor had she made the mistake of rejecting the railroad for a state system of canals as did contemporary Pennsylvania. Nor were her railroads, like those of New York, merely auxiliaries or adjuncts to waterways, separate parts of an unco-ordinated whole. Massachusetts had prudently chosen the transportation method of the future. In the strategy of commerce her railroads ran toward the proper destinations and for the right reasons. She entered the new world of the railroad, not handicapped, but on superior terms.”
In 1828, Perkins and his associates, including John Bryant, William Sturges, Horatio H. Hunnewell, John E. Thayer, and Thomas Ward, had carefully crafted their “railraod scheme:’” a system of four relatively short railroads centered on Boston: Boston & Lowell, Boston & Maine, Boston & Providence, and the Boston & Worcester, that had not only made Boston the hub of the nation’s most extensive railway network at this time, but also had made this group of investors a good-sized fortune as they perfected a system of land speculation (buying the land where the tracks and stations would be built, but prior to announcing such plans), investing in government-backed railroad company bonds, typically at bankrupt rock-bottom prices, and arranging overly inflated construction contracts.
Nonetheless, it was the connection to the Erie Canal and to the interior, accessible via the Great Lakes, that was of paramount concern to Boston’s commercial interests. Because of the route’s length and the terrain it traversed, this route would take the longest period to construct, and incurred the greatest difficulty in securing initial commitments from investors. Therefore, its construction-and-management organization was divided into two companies. So as not to appear too risky to investors, the first of the two companies, the B&W was chartered in 1831 by its president, Nathan Hale, to extend only the first forty-four miles to Worcester. As was the case with the other three railroads, land speculation was inherently associated with the scheme. The land for the line’s Boston terminal had already been purchased by another cover company, the South Cove Corporation, that transferred the parcel to the B&W in exchange for a tidy profit. The B&W was completed in 1835, and permanently put to rest the fears that its capitalists harbored over the viability of the iron horse.
With the lack of capital in the United States, foreign capital was essential to the success of the scheme and one of Great Britain’s premiere banks, Baring Brothers had been retained to sell these companies’ bonds on commission. Baring’s connection with the Boston Concern had been established at least as far back as 1828, for they were the merchant bankers for both J. & T.H. Perkins’ and Bryant & Sturgis’ transactions in China and throughout the world. While exports carried to China seldom generated sufficient money to pay for tea and silks, specie had become too risky to ship directly to Canton. Following the end of the War of 1812, London’s bankers had allowed certain American traders with a limited base of capital, sufficient revolving credit to carry on a large volume of business, including opium smuggling. Among the numerous financial establishments in London, Baring Brothers and Company had been known as “The American House” since the 1770s, when co-founder Francis Baring was made the General Agent for the U.S. Government in London.
The economic collapse of 1825 had bankrupted Bryant & Sturgis’ former London banker, forcing them to seek a replacement. In 1826, Sturgis picked the husband of his cousin Lucretia, Joshua Bates of Weymouth, Massachusetts, who had earlier that year formed a partnership in London with John Baring, a grandson of Francis. In 1828, Bates and Baring had merged with Baring Brothers and Company, the same year that Perkins evidently had become a client of Baring Brothers. Both Perkins and Bryant & Sturgis quickly became the Baring’s favored agents in Canton, being privy to the banker’s financial reports and advice.
Following the merger, the newly-organized banking house decided to expand its American operations. This called for a full-time resident agent, and Bates, the American partner, suggested a long-time acquaintance from Boston, Thomas Wren Ward. Ward officially commenced his duties as the Baring’s agent on January 1, 1830, authorized to market the firm’s name and invest its financial resources as he judged prudent. As a member of the Massachusetts’ Board of Directors of Internal Improvement, it was logical for Ward to be interested in the construction of the State’s first three railroads. The intimate, longstanding relationship of Perkins and other wealthy Bostonians who were promoting the railroad, together with British capital, was crucial to the eventual realization of “the railroad scheme.” At this time, the United States had no industrial capacity for rolling iron rails (which remained the case until the end of the Civil War), therefore, the Bostonians, along with the rest of the country, had to rely on England to supply the needed tracks of iron. In March 1833, Ward assured the success of the Lowell, Providence, and Worcester lines by arranging the consignment of track and other necessary iron products from England through Baring Brothers.
Meanwhile, the British government In 1834, under mounting pressure from independent traders, had revoked the East India Company’s monopoly of the China trade, throwing the door open to any British merchant. With this increase in competition without a corresponding growth in demand, prices in general and the corresponding profitability of transactions in Canton, including opium, began a steady decline. Seeing the writing on the wall, the Boston Concern began to look for ways to diversify its investments, in anticipation of its inevitable pull-out from the China trade. Following the Panic of 1837, Massachusett’s state-guaranteed railroad projects, as did Illinois’ projects, went bankropt. The Boston Concern and their associates seized the chance to buy into Massachusetts’s railroads at rock bottom prices. Their first concern was to complete the railroad to Albany and the Erie Canal, so they took complete control over the second link in the line, the Western Rail-road, planned as the contunation of the B&W to the New York state line, and had completed it on October 9, 1841, when the first train made the run from Boston to Albany. This was possible because at the same time the Bostonians were building their line to the Massachusetts border, a chain of railroads, that had started with George Feathersonhaugh‘s Mohawk & Hudson, (see Chap. 2.1) had also been under construction in New York from Albany to Buffalo, paralleling the Erie Canal during this same period. (These roads would be consolidated in 1853 as the New York Central Railroad.)
Meanwhile, early in 1839 the Chinese government had decided to close down the opium trade once and for all. General Lin Zexu was sent to Canton and upon his arrival, he surrounded the foreign residences and trading houses with soldiers and armed boats, demanding that all opium be immediately turned over to him to be destroyed. With no alternative, the beleaguered merchants eventually surrendered their supplies of the drug. Once released, the British retreated to Macao and retaliated by boycotting all further trade with China, and waited for the British fleet to arrive and the outbeak of the First Opium War in June 1840. With the flow of opium stopped in 1839, William Sturgis, who was now investment manager for J. & T.H. Perkins’ manager John Cushing, had carefully started to shift the Boston Concern’s “China wealth” into the railroads that promised to open up the West, and eventually, to link Boston directly to the Pacific Coast, and once again to China.
The Western Rail-Road, the second leg of the route to Albany from Boston, meanwhile, had been chartered in March 1833, by the Board of Directors of the B.& W. with the help of people like Abbott Lawrence and textile manufacturers in western Massachusetts. Under the seemingly auspicious conditions of the near completion of the B. & W. and the start of the two roads in upstate New York, stock in the Western was offered for purchase in November 1834 by treasurer Josiah Quincy, Jr., with B. & W. stockowners to be given preference in the case of oversubscription. Immediate offers from rival New York City to buy the entire subscription were rejected with well-merited suspicion. New York, in turn, refused a counteroffer and eventually contributed nothing to support its competition’s scheme. Apparently, the 117 miles of the Western’s planned route (which was over two and a half times the length of the B. & W.) and the anticipated problems in crossing the Berkshires still sufficiently scared investors that the stock was not completely subscribed until January 1836. No one group of investors was confident in the project or financially able to bankroll the estimated $2 million cost, so the organizers were forced to rely on numerous small purchases of stock. Nonetheless, of the eventual 1,863 subscribers, a mere group of twenty men held over 11% of the stock. Among those who made the larger investments were the Lawrence brothers (200 shares), Perkins (100), and William Sturgis (50).
With all of the stock subscribed, the company started construction with Thomas Wales as president, William H. Swift as resident engineer, and a Board of Directors that included Quincy, Francis T. Jackson, and George Bliss of Springfield (remember this name). In addition to these men, the leaders of the Western included the following members of the original “railroad scheme:” Perkins, Hale, P.P.F. DeGrand, and Emory Washborn. Once again, they decided to pursue state funding to aid the project, as well as to line their own pockets. In contrast to the 1829 request, however, railroads were now known entities, and this time they were successful, with the State legislature agreeing to a $1 million loan in April 1836. Newly-elected Governor Everett, an original investor in the Western, had provided immeasurable support in getting the legislature to subscribe to the additional stock issue.
As with Chicago, where construction of the canal had just started, the Panic of 1837 also threatened the work on the Western, forcing the company to approach the legislature for another loan to continue construction. Luckily, the request had to be approved first by the Joint Select Committee, which was chaired by newly-elected Emory Washburn. On February 21, 1838, the legislature approved a loan in the form of $2.1 million worth of Massachusetts sterling bonds bearing 5%, which were to be issued to the company to buy iron rails in England, in return for a mortgage on the company’s assets. With the lack of capital in the United States, foreign capital was essential to the success of the scheme and the European investor preferred governmental-secured bonds to shares in a high-risk venture. The London investment banking firm of Baring Brothers was retained to sell the paper on commission. Considering how risky the project had been perceived by Boston’s conservative capitalists, and the number of American public bond issues that were in default following the Panic, why would England’s most prestigious house of finance even bother with such a questionable deal at the start of a depression?
In November 1842, the last link in the line to Buffalo was completed and Boston, along with Albany, was now in direct rail communication with the Great Lakes, with the trip from Boston to Buffalo taking less than two days. The relatively long period of time it took to make the 483-mile trip was not a result of the speed of the trains, but rather due to the eight times a passenger had to change trains along the route traveled by the nine independent companies. With a through railroad completed to Buffalo in late 1842, Boston could now be in better contact with the newly-opened West, especially with Chicago, for regular steamboat travel between Buffalo and Chicago had been in operation since July 1839, reducing the travel time of a round trip from twenty-two to sixteen days.
Adams, Russell B., Jr., The Boston Money Tree, New York, 1977.
Adler, Dorothy R. British Investment in American Railways, 1834-1898. Charlottesville: University of Virginia, 1970.
Andreas, Alfred T. History of Chicago, 3 vols. Chicago, 1884-1886. Reprint, New York: Arno Press, 1975.
Beebe, Lucius and Charles Clegg. Hear the Train Blow: A Pictorial Epic of America in the Railroad Age. New York, 1952.
Harlow, Alvin F. Steelways of New England. New York: Creative Age Press, 1946.
Harpster, Jack. A Biography of William B. Ogden. Carbondale: Southern Illinois University, 2009.
Hidy, Ralph W. The House of Baring in American Trade and Finance. Cambridge: Harvard University Press, 1949.
Johnson, Arthur and Barry E. Supple. Boston Capitalists and the Western Railroads. Cambridge: Harvard University Press, 1967.
Kirkland, Edward Chase. Men, Cities, and Transportation: A Study in New England History (1820-1900) – Volume I. Cambridge, 1948.
Pierce, Bessie Louis. A History of Chicago- I. New York: Knopf. 1940.
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