Re-Assessing Tom Scott, the 'Railroad Prince'
A Paper for the Mid-America Conference on History
September 16 1995
Dr. T. Lloyd Benson and Trina Rossman
Re-Assessing Tom Scott, the 'Railroad Prince'
Of all the railroad titans of post-Civil War America, few were as powerful, and few are as little-known as our subject, Thomas A Scott of the Pennsylvania Railroad company. We begin with some examples of his low profile to underscore the points we will be making in this paper. For example: Although he had a large hand in the settlement of 1877 that ended Reconstruction and although he provided the financial backing for the railroad that runs through Charlotte, Greenville, and Atlanta, where Furman draws its student body, not one student we know has ever heard of him. Similarly, although he created major new business structures and was president of what was in its time the largest corporation in the world, our friends in business have never heard of him. And although his company contributed mightily to the growth of Philadelphia, Pittsburgh, Chicago, and Baltimore, among other cities, not one person we have met from any of those places has ever heard of him. Even among professional historians, Scott is relatively unknown. Textbooks that give full page treatments of Andrew Carnegie, for example, scarcely mention Scott, who was Carnegie's mentor and taught him how to invest. Similarly, works focused on this specific era leave Scott out. For example, Sean Dennis Cashman's survey of the Gilded Age, has just three references to Scott in more than two chapters on industry and the "robber barons," Albro Martin's recent history of American railroads, Railroads Triumphant, has just four brief references to Scott, and Alfred D. Chandler's Visible Hand just five brief references.
It is our contention that Tom Scott wanted things that way. Indeed, Scott's very anonymity may be proof of his success. It should be pointed out that many of the other railroad robber barons became famous through their financial bust-ups, collisions with regulators, or through exposés by muckraking journalists. Scott, on the other hand, covered his tracks well. Most of his papers have been either lost or destroyed, many by Scott himself. His own words survive only in the form of a few scattered speeches, letters, and in testimony to various legislative bodies. It was characteristic of the man that he used his influence to prevent the State of Pennsylvania from probating his will publicly.
Scott spent most of his life as an employee and officer of the Pennsylvania Railroad, starting in 1850 as a station agent, and working his way up through the various levels of Superintendent. By 1860, under the patronage of the Pennsylvania's president, J. Edgar Thomson, Scott had become one of the company's vice-presidents. When the Civil War broke out in 1861 he was elevated to the rank of Colonel and appointed as the assistant secretary of war for railroads and transportation. After a short time as assistant secretary he returned to the railroad, though he worked closely with the federal armies for the remainder of the war. Perhaps not coincidentally, the war also generated a traffic bonanza for the Pennsylvania Railroad. Not for the last time, critics accused Scott of misusing his official connections for the benefit of the company and his own pocket. His most important campaigns, however, were to come after the war.
Scott's claim to fame in the postwar period came from his role in the Pennsylvania's unrelenting program of railroad mergers and acquisitions. No individual in the late 1860s or early 1870s was more successful as an empire-builder than Scott. Driven by his own ambitions and pressure from competing railroads, Scott provoked the transformation of the Pennsylvania system from a state-bound route of slightly more than four hundred miles to the largest railroad system in the world, with branches or supporting lines in fifteen states and gross revenues amounting the one-eighth of the entire railroad industry's output. Even more importantly, he invented or applied a number of new business techniques to make the company's colossal economic power palatable to a monopoly-fearing nation.
As we have suggested, the historical enigma that is Tom Scott was the result of his calculated and generally successful strategy to keep his business out of the public eye. The task of ferreting out Scott's exact role in the Pennsylvania's expansion is complicated by the fact that until 1874 he was merely the company's vice president, serving under the Pennsylvania's legendary president, Edgar Thomson. How much of the growth came at Scott's initiative and how much came from Thomson cannot be precisely identified. The most recent scholarly appraisal emphasizes their close partnership and argues that Scott made few moves without Thomson's cooperation. Scott's contemporaries, however, placed responsibility for the expansion firmly in Scott's hands. The authors of one anti-Scott pamphlet, for example, were quite explicit about who had (in their opinion) over-extended the road. "It is alleged," they said, "that Col. Scott is chiefly entitled to whatever credit or blame attaches to the conduct of the 'foreign' policy of that company, as it may be styled, in leasing, purchasing, aiding and subsidizing connecting or tributary roads, and in dealing with the lines of rival or competing companies." Thomson's obituary in the U.S. Railroad and Mining Register suggests a similar conclusion. "In the last two or three years," the newspaper reported, "the life of John Edgar Thomson has been of no more importance to the great company and its many roads, than the life of a sleeping partner in a great commercial house is to the business prosperity of the house." Thomson, in their words, had been during this period "but nominal president" of the Pennsylvania. A week later the same newspaper credited Scott with the growth of not just the Pennsylvania, "but of the major part of the railway system of the country." Likewise, The Road, an industry newspaper, concluded that "though Mr. Thomson was its official head, Mr. Scott . . . was the motive power that propelled its machinery and pushed its conquests."
The most persuasive indicator of Scott's influence comes from the R.G. Dun credit records. Because the Dun records were intended to provide dispassionate assessments of credit worthiness, they are among the best tools we have for comparing the influence of business leaders. Surprisingly, these records are almost devoid of information on Scott. In fact, only two short reports on him have survived in the Dun Records. The first of these dates from August 1873, and deserves close attention:
Vice Presdt of the "Penna R R Co." + is considered the R R king of this country. . . . has millions of money at his command + exerts a greater corporative influence than any other man in the U.S. Is about 50 years old, family, self made man, Great ability + looked upon as the muscle + backbone of the "Penna R.R. + its tributaries while "Edgar Thompson" Prest. is the brain. Char. unimpeached. Integrity unquestioned. Habits gd. Tho. a gd liver. E.W. [Estimated worth] millions and gd. for contracts.
The passage cuts right to the heart of Scott's technique. How could a mere vice-president be the railroad king of the country? The answer is simple. By using the cloak of anonymity inherent in the vice-presidency, Scott could promote his pet initiatives while placing the responsibility on others---hence the statement about Scott being the "muscle and backbone" of the enterprise. Thomson himself described Scott as a "modest" man who always cleared everything with others. Said Thomson of Scott: "he never assumes responsibility or takes on himself official risks. He submits to the board, and has them act upon, all important matters." When the board was not in session, Thomson claimed that "he [meaning Scott] presents for my consideration, and has me pass upon, everything of interest to the Company." The newspaper The Road described this same camouflage style of Scott's in different terms. Said the editor: "His expansion was as second officer of the Pa. R.R. Co. under J. Edgar Thomson, where he plied his arts and gathered riches, behind a chief too indulgent to his subordinate." The import of these statements is clear: Scott preferred to operate behind the scenes where he could operate with a maximum of flexibility and attract a minimum of attention.
Scott's desire to keep a low profile, coupled with the Pennsylvania system's rapid expansion, led directly to his most important invention, the holding company. As first vice president, Scott's primary responsibility was to supervise the Company's interests west of Pittsburgh. "Provoked," in the words of a stockholder's report, "by the efforts of the other trunk lines to interfere with the country which your company thought belonged to them geographically," the Pennsylvania embarked on a complicated spree of leases, stock buyouts, loans, and construction projects involving at least fourteen separate companies. The result was an administrative and financial rat's nest of unparalleled size, and regional, if not national, implications. A measure of the importance the company placed in its Chicago connections is that Scott placed both John Sherman and Samuel Tilden on the board of the company's Pittsburgh, Fort Wayne, and Chicago Railway subsidiary. This was a system that demanded the best and most powerful friends to protect it.
Scott's ambitions were not limited to the west. As Assistant Secretary of War he had learned a great deal about both Southern railroads and the significance of a Washington, D.C. to the nation's transportation system. So in the late 1860s he began a campaign to create a southern feeder route for the Pennsylvania. The system he envisioned would stretch from Washington to the Mississippi River along the South's piedmont plateau, and would involve not only leases and stock buyouts, but also the construction of several hundred miles of new track in regions that were distant from existing population centers. Because the fourteen or so existing lines he planned to absorb were either state-chartered or state-financed it would also involve a massive lobbying effort at legislatures in Virginia, the Carolinas, Georgia, and Alabama. Here again the need for a unifying organization must have become apparent to Scott. As with the western lines, the southern system would involve a tangle of overlapping and even competing railroad lines. Moreover, Scott's ambitions provoked fears in among some, (especially in North Carolina) that their communities would become colonized by outside interests.
So in 1870 Scott's allies pushed through the Pennsylvania state legislature a series of bills creating the nation's first pure holding companies. Of these, the most important for our purposes are the Pennsylvania Company and the Southern Railway Security Company. Although we almost take the idea of a holding company for granted these days, in Scott's time it represented a significant elevation in the level of abstraction that corporations could attain. Unlike any business in the country before, these were enterprises that made nothing, produced nor sold any products, nor owned any physical property other than handfuls of paper stock certificates. What a great idea (at least from Scott's perspective.) Over and above the obvious administrative advantages this new type of organization provided, the new structure gave Scott and his associates another critical advantage: it was a very effective device for protecting their schemes against unwanted scrutiny. In the case of the Pennsylvania Company, there were no longer any quarrelsome human stockholders as owners, just a voiceless corporation and its capital. Likewise, in the case of the Southern Railway Security Company, the Pennsylvania Railroad's money was always available, but decision-making power remained concentrated in the hands of the Southern's board of directors. Although in theory both companies were to pursue the dictates of the stockholders, in practice the lines of communication were so indirect as to be meaningless. The company's leadership was also explicit in declaring that they had created these companies to shield themselves from public scrutiny. Here are the words of the Pennsylvania Railroad's 1870 annual report: "Sensible of the prejudice against large corporations since the failure of the United States Bank, the policy of this Company was first directed to the procuring of these connections by securing the organization of independent railway companies, and their construction by such pecuniary assistance as was required." Scott's holding companies preserved the public fiction of independence while centralizing the fact of his corporate control.
From 1870 to 1873 the technique worked splendidly. One of Scott's Southern Railway subordinates, for example, celebrated that his link in the railroad was "not only of great local value + importance, but also as a commanding and fruitful ligament in the organization of a great Piedmont, Atlantic thoroughfare." And it was likewise for the roads west of Pittsburgh. Looking back, a group of stockholders noted that (in their words) "this grand conception appealed both to sentiment and interest with almost irresistible power." Indeed, the progress of Scott's empire seemed so unstoppable that it is not surprising that he began to dream of a transcontinental system. In late 1870, when the Union Pacific began to unravel in the wake of the Credit Mobilier collapse, Scott and a powerful group of associates (including George Pullman and Andrew Carnegie) were instantly on the scene. Characteristically, Scott denied to the Pennsylvania's stockholders that the company was involved. A newspaper reporter's account of his official position is revealing: "Colonel Scott replied that the Pennsylvania Railroad Company did not own any interest in the Union Pacific Railroad, but was engaged in the extension of lines to Chicago, St. Louis, Louisville, and Cincinnati. We shall go to New Orleans and the Pacific, he said, whenever the interests of the stockholders request it, and not otherwise. (applause)." Within weeks he had become the Union Pacific's next president. Too swamped with work to give the road more than a fraction of his time, Scott served for exactly one year, cashed in his U.P. stocks for a huge profit, and watched as a rival financial group took over control of the road.
Meanwhile, Scott turned his attention to the transcontinental route of the hapless Texas and Pacific, which had been planned to run through Texas, Arizona, and New Mexico, and end up in San Diego, California. The route had been surveyed before the Civil War, and its backers were not shy in touting its many advantages. It would bring transportation to the Southwest's mining, livestock, and grain regions. It would ease military maneuvers in that area and make it easier on the troops to defend against Indian attacks. The grade was slight and there were no snow hazards so the line would be easier to build and maintain than the first, more northern transcontinental road. Evidently Scott found these arguments persuasive, despite the fact that the T&P was bankrupt. Shortly before leaving the Union Pacific, he bought the controlling interest in the Texas and Pacific by paying $150,000 to the road's receiver, with a promise to settle the business deals the road had with French bondholders. In February 1872, on top of his other responsibilities, Scott became the Texas and Pacific's new president.
For a season, then, Tom Scott was indeed the 'Railroad king" of America. By mid-1873 the last rails in the long-awaited connection between Richmond and Atlanta were being laid, traffic on the lines west of Pittsburgh was growing, and the company had secured access to New York through the purchase of the United Railroad Companies of New Jersey. Only the Texas and Pacific seemed to be struggling. Only about three hundred miles were completed and the company was still in debt, for which Scott had taken responsibility. In early summer he decided to travel to Europe to sell some of the Texas and Pacific bonds to help pay off about seven million dollars of debt. The Pennsylvania's board of directors sent Scott on his journey with a resolution enjoining him to get plenty of "rest and relaxation." Like Joseph Schumpeter's classic entrepreneur of theory, Scott had innovated outside and beyond the existing economic system and had garnered the resulting profits. While Scott "rested," in Europe, however, the system finally caught up with him.
Even before September, when the collapse of Jay Cooke & Co. precipitated the Panic of 1873, Scott's enterprises began to fall short in their obligations. In mid-August the Pennsylvania's board felt compelled to bail Scott out by swapping two million dollars of relatively valuable stock in its St. Louis branch for four million dollars of Scott's now shaky California and Texas Construction Company. A month later, with its line to Atlanta barely open, the Southern Railway Security Company ran short of cash. The firm's president, James Roosevelt, offered to sell the entire company to the Pennsylvania for two million dollars, far below its potential worth. A few weeks later the company was forced to charge this expense off to profit and loss. When the crash struck in late September, Scott hurriedly returned to the United States.
The crash left Scott in a personal and financial crisis. He approached protégé and friend, Andrew Carnegie and asked him to endorse the loans on the Texas and Pacific. Carnegie had warned him not to build the railroad with temporary loans and no capital. He refused to help Scott. Their friendship and partnership of twenty-one years standing ended immediately. Distressed by his situation, Scott presented the Pennsylvania Railroad Board of Directors with his resignation on November 8, 1873. The Board refused it and urged him to keep his office. Finally, Thomson, himself deeply involved in the financing of Scott's enterprises, rescued his vice president by endorsing the bonds of the Texas and Pacific Railroad. Here too, Scott damaged a close friendship. The Pennsylvania itself became so short of cash that it issued its November dividend in scrip. In February 1874 the Pennsylvania's stockholders responded by establishing a committee to investigate the company's recent management. Their report described Scott's Southern strategy an "illegitimate direction" for the company, condemned the financing of the Pennsylvania's expansion out of stock sales rather than profits, and called for strict limits to the company's further expansion. Legislative reaction was equally decisive. In 1874 the Pennsylvania legislature amended the state's constitution to forbid any special laws creating or amending corporations of the type Scott had created.
Thus, within the scope of the Pennsylvania system proper, Scott's wings had been clipped. Ironically, then Thomson died in late May, 1874, Scott was finally elevated to the presidency. With the effects of the panic still palpable and the stockholder's admonitions against speculation quite explicit, though, Scott's ability to operate within the company became drastically limited, even as his titular power increased. Given Scott's penchant for expansion in the past, this new conservatism marked an entirely new phase in his career. From 1874 until his retirement in 1880, Scott would devote his energies to protecting and regularizing his existing interests rather than promoting new enterprises. But it would not be wise to be misled by Scott's retrenchment. His adaptive strategies in this period demanded just as much experimentation as he had practiced before. In the process, Scott worked as hard as he could to blur the lines between public and private authority. His actions (as his contemporaries gladly pointed out) also expose him to be a man unhampered by any consistent economic philosophy other than to have others share in his experiments.
Scott's first priority was to save his Texas and Pacific project. With his old financial partners either dead or alienated, Scott returned to the largest alternative source of capital he could find: the United States government. Scott asked Congress to give him land grants of thirteen million acres and to guarantee the bonds of the line for 3,080 miles at $40,000 per mile. The land grants would be in Texas, Oklahoma, and New Mexico and would only be given if he could complete the line in a specific amount of time.. Meanwhile, Collis P. Huntington, president of the Southern Pacific Railroad, proposed to build a transcontinental line without the government subsidies. In December of 1875, Congress appointed the Pacific Railway Commission to decide among the projects.
Huntington promised to do the same job with no liability to the government and receive the land grants. He was linked to the Central Pacific, however, and critics feared a monopoly over westward transportation if he was allowed to build a railroad. Scott was determined not to let Huntington have the job, and cranked up his formidable lobbying machine to stop Huntington's bid . Scott's skills in this regard were notorious. No less than Wendell Phillips, according to one of Scott's severest critics, was reputed to have said that as Scott "trailed his garments across the country, the members of twenty legislatures trembled like dry leaves in a winter's wind." Although Scott favored the company of Northern Republicans such as Simon Cameron and Rutherford Hayes, he actively courted members of both parties. Southern Democrats in the states of Mississippi, Texas, Tennessee, Arkansas, Kentucky, and Louisiana openly supported his "Southern project." And Scott did not hesitate to pack the legislature with his own men. John Reilly, for example, who was the Superintendent of Transportation of the Pennsylvania Railroad at Altoona, resigned in December of 1875 to begin his term in the forty-fourth Congress as a representative from Pennsylvania's seventeenth district. The resignation was accepted by the Board of Directors with its "express appreciation of twenty-one years of service to Pennsylvania Railroad" and promised to welcome him back after his term expired so that "he may be again specially devoted to the advancement of the railroad interests of our country." In February of 1875 the Pennsylvania legislature instructed, by vote, Pennsylvania's senators and representatives to favor the Texas and Pacific Railroad bill. Scott supported Pennsylvania's own Samuel J. Randall for the speakership but Randall was defeated. Randall was appointed after all, however, following the death of Speaker Kerr. Randall did not forget the support Scott had given him during the election. Randall denied receiving help from Scott but appointed five Scott men to the Pacific Railway Commission. Lamar of Mississippi, commission chairman, with Throckmorton of Texas (former land commissioner of the Texas and Pacific Railroad), Atkins of Tennessee, Walker of Virginia, and Luttrell of California could all be counted upon by Scott. Scott, with the help of Jay Gould and Grenville Dodge sponsored George W. McCrary of Iowa to become Secretary of War. Not all of these men were necessarily bought by Scott, but may have genuinely thought the Texas and Pacific Railroad would benefit the South. Such is the case of L.Q.C. Lamar. The New York Times hoped that Lamar would realize that favoring the Texas and Pacific Railroad would make him guilty of scandal if only by association with Scott. Huntington realized the problems Scott's influence would create. In March of 1876 he wrote about the Commission saying it was "set up for Scott, and it has been a very difficult matter to switch a majority of the committee away from him."
Scott lost the first battle for the money and the right to build the Texas and Pacific Railroad in February 1875. Even though he had reduced his request to 2680 miles at $35,000 per mile, the House defeated his bill with a vote of 117 to 128. Although there had been much talk about scandal, Scott was back in 1876, hoping to win over Congress. He had lost some of his Southern support because many Southern communities realized that they would not actually profit from the Texas and Pacific Railroad. States in the deep South would never see the Texas and Pacific Railroad, save for a few branches that might link with it in Shreveport. Two weeks before the Congressional vote, Scott was in Washington doing his own lobbying. According to the New York Times, he occupied the Speaker's office and had his lobbyists drive members of Congress in to speak with him privately.
Scott and Grenville M. Dodge, former Chief Engineer of both the Union Pacific line and the Texas and Pacific and Scott's most influential lobbyist, focused on the subsidy's role in the upcoming presidential election. As early as June of 1876, Scott was rumored to be in support of Rutherford B. Hayes for the presidency. Samuel J. Tilden, the other presidential candidate, longtime friend of Scott, and Pennsylvania Railroad stockholder, became worried. To calm his fears, Scott telegraphed Tilden, reminding him of their friendship. Scott then met with Huntington in Philadelphia in late 1876 to talk about a possible compromise. On Christmas Day, the two men agreed to work together to get the Texas and Pacific Railroad bill passed in Congress. The plan probably gave Huntington rights to the Texas and Pacific Railroad as it reached California and left the eastern sections of the line under Scott and the Pennsylvania Railroad. It is rumored that Huntington distrusted Scott with such hatred that he gave orders to his assistant to knife Scott if the combination failed.
By early 1877 it was clear that Scott was in favor of Hayes receiving the disputed presidency. Boynton implied, but never actually promised, to the two men that Hayes would be willing to support the passage of the subsidy if he was elected. Hayes was riding from Columbus, Ohio to Washington, D.C. in Scott's private railway car when he heard the news of his election. The Scott-Huntington compromise dissolved after the election. Hayes waited before making a decisive move on the issue. In October, the time came. Huntington began building a bridge for the Southern Pacific across the Colorado River at Fort Yuma, Arizona, without government money. Scott started to build on the other side of the river, thinking that he would get McCrary's approval since Scott's lobby had helped place him in that office. McCrary ordered both men to halt the construction. Scott complied but Huntington continued to build and even began to carry passengers, freight and the mail, across the river. Huntington then traveled to Washington where he met with Hayes and McCrary. Although they were disturbed that Huntington had violated the directive, both Hayes and McCrary had to recognize that the road was in working order and doing business. Huntington was granted permission to continue building in Arizona and Scott lost his chance at receiving any further government subsidies. In 1880, Scott sold the Texas and Pacific Railroad to Jay Gould, who was able to work out a deal with the Southern Pacific and build the second transcontinental jointly. The defeat also led Scott to abandon his investments in the Southeast. Slightly more than a decade later Scott's old piedmont system would become the nucleus of the Southern Railway system fabricated by J. P. Morgan. For Scott, the bitterest irony was that Huntington's own wealth and influence had been built on the same kinds of government subsidies that he had prevented Scott from receiving.
Scott's strategy while fighting the Huntington interests in the west was to cooperate with rival lines in the Northeast. As the 1874 stockholder's investigation had pointed out, "the competition of the trunk lines from east to west has cut down prices and transportation and travel below the point of profit." The stockholders were explicit in calling for some means to end these seemingly suicidal price wars. Said their report: "it would certainly seem reasonable to expect that the able men in charge of our general railway system would not permit the mere question of rivalry to prevail any longer and prevent them from fixing paying rates." Scott followed up in July 1874 by announcing formal negotiations with his eastern competitors. The initiative for the agreement came from the Vanderbilt interests, who called for a meeting of trunk line presidents at Saratoga Springs, New York. With Scott's willing participation the group hammered out a working arrangement for pooling the traffic between Chicago and New York.
The trunk line association that grew out of this arrangement is familiar to historians. Scott's willingness to participate in it, however, deserves attention. After all, the move was in many ways contrary to the interests of both Scott and his own railroad. He could not have been pleased that the pooling arrangement gave a smaller share of the trunk line traffic than the company would have gained on its own. Worse, the pooling arrangement represented a significant blow to the Pennsylvania's corporate autonomy. In other ways, however, the pooling system gave Scott himself increased leverage and influence while (characteristically) passing responsibility off to others. By assuming regulatory power over shipping, Scott and the other trunk line leaders had taken on significant defacto governmental powers. For the remainder of the decade he would work vigorously to enforce the various pooling agreements.
That Scott took it upon his railroad to enforce the agreement is most clearly shown in the case of the Pennsylvania's rate wars with the Baltimore and Ohio Railroad. John W. Garrett, president of the Baltimore and Ohio Railroad, had collided with Scott regularly since the beginning of the Civil War.. When the war began the Baltimore and Ohio Railroad was the only railroad with a direct line to Washington, D.C. A truce between the two companies led to rate agreement shortly after the war, but this too ended with Garrett and Scott at odds. Perceiving the need for a competing road to Washington and seeing that such a link would be vital to his Southern ambitions, Scott began to build toward the capital in 1871. In that year he received permission from the Maryland legislature to extend the Baltimore and Potomac Railroad between Baltimore and Washington. This line was completed in 1873 Not long after, Congress granted him the authority to tunnel Capitol Hill and to construct a station in the heart of the city. When this line was coupled with its New Jersey leases, the Pennsylvania now controlled the only direct route from Washington to New York. The B. & O, naturally, was excluded.
While the other trunk lines were negotiating in Saratoga, Garrett was traveling in Europe. When he returned, the other presidents with him and asked him to join the agreement. He never actually signed it but instructed his vice-president King to adjust the Baltimore and Ohio Railroad rates and policies to agree with the new arrangement. A few weeks after signing on, though, newspapers began to report that the B. and O. was paying rebates to some of its western connections. Scott retaliated immediately. He denied the Baltimore and Ohio access to New York over the Pennsylvania's lines, and also began to lower his own rates to Baltimore. No penalty from a government regulatory body could have been more swift nor sure. Finally, Scott threatened to prevent the B. & O. from carrying its mail shipments to New York. For the next four months the two companies engaged in an all-out war.
The Pennsylvania and Baltimore and Ohio both suffered a great deal from the conflict. For its part, the Pennsylvania reported a loss in gross earnings of $444,667 and a $111,000 net decrease of profits for the four months ending on April 30, 1875. After four months, Scott announced that he was willing to allow an independent party to arbitrate an agreement to stop the rate wars. Hugh Jewett of the Erie Railroad offered to do the job. His business deals had placed him in the confidence of both men. He was the receiver of the Central Ohio Railroad which was leased by the Baltimore and Ohio. He was also a general counselor of some of the leased lines of the Pennsylvania Company. Scott accepted the offer but Jewett was refused by Garrett. Finally, in June of 1875, the two presidents came to an agreement. They decided that the Pennsylvania Railroad would propose the rates, which would be prorated according to geography. Both sides would open their freight and passenger traffic to all lines. The terminal charges in New York and Jersey City would be lowered. They also agreed to sell the other's tickets at their own offices. All other lines were expected to reduce their rates as well, which was essentially a return to the Saratoga agreements. Finally, any ticket agents who violated this agreement were to be fired immediately. The agreement was supposed to last for ten years and was controlled by two committees appointed by the two corporations' Boards of Directors.
In general, and apart from its war with the B & O, the Pennsylvania followed the pool's official rates quite closely during Scott's presidency. Comparison between pool share statistics and company minutes reveals only one exception---from December 1878 to July 1879, (a period which corresponded exactly to Scott's leave of absence from the presidency), The Pennsylvania engaged in a price-gouging spree that boosted its share of grain shipments from 13 percent to 37 percent of the total volume shipped east by pool members. Upon Scott's return, however, the price war ceased and the Pennsylvania returned to its accustomed share. Not until after Scott's death in 1881 did the company again leap so far out of the pool. In both aberrational periods, it should be noted, the railroad was being run by George B. Roberts, another protegé of Thomson's. Given the precarious state of Scott's other projects, adherence to the pool seems in retrospect to be a logical strategy. Moreover, as the war with Garrett shows, Scott found that he could advance his own interests behind the cover of the larger organization. His only philosophical concession to outside supervision came in the late 1870s when he called for the pools to be administered with the consultation of a federal commission and the various shipping interests. Echoing John C. Calhoun, Scott suggested that any Federal railroad legislation be approved only with what he called the "concurrent action of the legislatures of the several states." No more carefully-constructed mechanism for dividing responsibility and concentrating actual public power in the hands of the railroads could have been constructed by the famous South Carolinian.
The incident that best shows Scott's blurring of the line between public and private authority as well as his technique of deflected responsibility is the railroad strike of 1877. The Pennsylvania had survived the initial panic in 1873 and had continued to pay dividends ranging from five to ten percent to its stockholders until 1877. The road's laborers, however, were not so lucky. In December 1873 the directors declared a ten percent wage cut for all employees. In May 1877, the Directors of the Pennsylvania announced both a quarterly dividend and a second wage reduction of ten percent beginning on the first of June. As a gesture of fair play the cut was applied to all employees from the President down to workers who were making at least a dollar a day. Scott explained to Railway World that the cuts would prevent discharging large numbers of workers during such stressful times. Not only would this action save his workers their jobs, he suggested, but would also save the company an estimated $1,500,000. Less than a month later, the Pennsylvania Railroad Company announced a reduction in laborers' hours from ten to eight per day. The company also suspended thirty-five engineers and firemen with promises of reinstatement if work became available.
Not surprisingly the workers did not accept these reductions as well as had been expected by the Directors. One of Scott's basic principles of railroad management was to drive his men and equipment hard rather than hiring more. To keep traffic going, the company ordered crews to double the number of cars per engine from seventeen to thirty-four so that fewer men would be needed. Although "doubleheaders" saved money, they were extremely dangerous. Scott met with thirty labor representatives to discuss the reduction issue. He explained the company's desire to keep every man on the payroll and pointed to the fairness of a company-wide wage cut. He also assured them that the reductions would not result in "an iota of profit to the owners." This was a blatant lie, for Scott had every intention of keeping the stockholders' pockets lined with dividends. At the end of the meeting, Scott felt that the employees were in full agreement with the Board's decision and he assured the public that there was nothing to fear from the loyal Pennsylvania Railroad Company workers.
Scott had misjudged. On July 19, 1877, the workers at Pittsburgh, in the Western Division of the Pennsylvania Railroad, refused to run the trains. Many cited the double train policy as the reason; others complained about the wage cut. About five hundred people assembled at the yards to block the passage of any trains leaving and to intimidate those workers who had considered remaining at work. Over the next ten days, the laborers refused to work on any of the Pennsylvania's main lines or branches. The strike quickly spread to other railroads such as the Baltimore and Ohio and the New York Central lines. These workers had also suffered greatly in the depression and their wages were usually lower than those of the Pennsylvania. With the exception of a few passenger cars and the mails, there was little movement on any of the nation's trunk lines. In the annual report for 1877, Scott conceded that he had suspended traffic for ten days. The Pennsylvania Railroad lost two million dollars worth of real property and equipment , and three million dollars in lost business and freight damage.
Since the beginning of the strikes, many labor representatives claimed they had tried to contact Scott and discuss the issues of doubleheaders and wages. Scott refused each time. Indeed, he claimed not to have been contacted by any representatives nor to know what the laborers grievances were, save what had been published in the newspapers. The Pittsburgh Post, along with some of the city's leading citizens, publicly asked Scott to leave Philadelphia and submit to arbitration at Pittsburgh, but Scott refused. In spite of this he chose not to speak when it could have benefited him the most. This may have been the most costly mistake of his career. Had he traveled there intending to make a truce, the great damages the Pennsylvania Railroad suffered may have been avoided. Instead his stubbornness in this situation cost the company almost five million dollars. It seems unusual that a man who spent ten years in the Pittsburgh area, first as station agent in Duncansville and then as General Superintendent of the Western Division, would totally ignore their complaints. Perhaps as President he was too far above them to appreciate them any longer. He and the directors decided instead to take another course of action that would test the limits of public authority.
Rather than handling the conflict through direct negotiation, Scott sought to transfer the job of ending the strike to the state and national governments. On July 20 the Pennsylvania's counsel composed a letter to be sent under the signature of Pittsburgh Sheriff Hugh Fife to Pennsylvania's acting governor James W. Latta explaining that the violence was too severe for the Sheriff's men, and that the situation could only be remedied with the state militia. Latta quickly ordered the Pittsburgh militia to the scene, but warned that they may be sympathetic with the strikers. When the time came later to place blame on someone for the strikes and payment for damages, it fell upon the Sheriff of Allegheny County, not the Pennsylvania Railroad, because it was believed that he, rather than Scott, had asked for military assistance. This would be important in the later controversy surrounding shippers' and merchants' claims against the railroad for damages. Scott then turned to the White House for help, telegraphing Rutherford Hayes repeatedly for troops. Hayes ultimately sent reinforcements to several cities including Pittsburgh, Chicago, and St. Louis. By July 31, (in large measure due to this governmental pressure) the strikes had failed and workers began returning to their jobs.
On August 1, Scott explained that the company had always tried to consider (in his words) the "contentment and well-being of the men in its service of the greatest importance." He also went out of his way to praise the loyalty of those workers who had tried to protect company property. He did not, however, reward them with a wage increase. For its part, the Pennsylvania's board did declare zero dividends to the stockholders for the quarter, citing losses caused by damages and delays from "mob violence." Wages were not reinstated to their pre-1877 levels until March of 1880.
The end of the strike brought its own problems. Almost immediately, merchants began bringing damage claims from the strike to the Pennsylvania Railroad for reimbursement. In classic Scott fashion, however, the railroad claimed that riot laws required all money to be collected from Allegheny County and not the company. To secure its position, the company pointed to the letter from Fife to Latta. The company was not the party who had officially asked for assistance, therefore it was not responsible for any failure to suppress the mob, or any of the destruction that followed. Not only would Allegheny County have to settle all claims submitted by individual merchants and shippers, it would even have to pay claims from the Pennsylvania Railroad itself. Reluctant to combine their claims with a company they considered responsible for the destruction, and possibly fearing that they would never receive payment if partnered with the Pennsylvania, the shippers and merchants waited more than two years to make a settlement. Finally the shippers agreed to accept the company's proposal with the condition that reimbursement be guaranteed. Once again Scott and his company had diverted responsibility to others without conceding any loss of power.
Scott's attitude of the public's duty to the private sector was exhibited to its fullest during the 1877 crisis. In an article on the strike published in the North American Review, Scott charged that (in his words) "now, for the first time in American history, that an organized mob has learned its power to terrorize to law-abiding citizens of great communities." Scott even said that because there were so many levels of government, each of which had to exhaust their capabilities before calling on the next, "the present regulations all favor, unintentionally, the rioters and the mob." Worse, in his mind, some communities had actually cooperated with the strikers. To stop this threat, Scott called for strikers to be (in his words) "confronted by a thorough organization in the cities, States, and other communities, backed by the power of the federal government and an unmistakable public opinion." His plan called for federal soldiers to be permanently stationed in every major city, ready at a moment's notice to suppress labor protests. And should the state fail, Scott threatened to apply the same pressure he had put on Garrett and the B & O: Said Scott: "When the accumulations of labor are put are put in peril by lawlessness, capital may always protect itself by suspending the enterprises which give labor its value and insure its reward." The contrast with his multi-level scheme for rate regulation could not be more clear. Protect corporate needs instantly and directly, he suggests, but regulate for the public interest only through a variety of time-consuming boards and legislative hearings. Small wonder that Scott's contemporaries dubbed him with titles such as 'prince' and 'king.' Here was the prototype of the "economic royalism" New Dealers would condemn a half-century later.
The final years of Scott's presidency were anticlimactic. Suffering increasingly from an old injury that had left him partially paralyzed, he vacationed in Europe for a year in 1878. After a final eight months in the president's chair, Scott resigned in June 1880. A year later he was dead. His legacy, however, remains significant to this day. The great railroad systems he promoted are now among the strongest in the country. The holding company, a direct product of Scott's characteristic management style, has been a major device for business control ever since. And the reaction that Scott provoked should not be ignored either. It was directly because of Scott's ambitions that Congress ceased giving land grants to railroads. It was in reaction to the rate-pooling systems championed and enforced by Scott (though not created by him) that led to public demands for government regulation of the railroad industry. Scott, in short, was an industrial aristocrat of the grand old style, and his deeds deserve far more attention than they have been given in the past.
Return to Lloyd Benson's Home Page