Work train and construction equipment on the new Knoxville-Jellico line, 1902–1905.
The rationalization of the L & N’s growing interterritorial system reached an unforeseen climax in 1902 when the company passed abruptly into the hands of the Atlantic Coast Line. This loss of independence signalled an end to what might be called the L & N’s adolescent period. To be sure, further growth lay ahead and numerous problems remained unsolved, but the era of interterritorial expansion reached its logical conclusion and confirmed the emergence of a changed economic environment. The old competitive struggle between systems slowly gave way to rational policies of cooperation and mutual assistance. The energy and resources once expended upon the crushing of rivals turned increasingly toward resisting the encroachments of political and regulatory bodies. The appearance of new forms of competitors, such as pipelines and later trucks, diverted warring systems from their internecine conflicts. As the external threats to the railroads multiplied, internal disputes were mitigated and often reconciled. The Darwinian process of consolidation had rationalized expansion into huge systems and evolved managers who perceived its product as an industry with common problems and needs. Not surprisingly, this unity of interests was reinforced by the proliferation of external threats to the industry.
Despite every good intention, the L & N’s new administration in 1885 could not avoid pursuing a modified version of the interterritorial expansion practiced by its predecessors. Smith’s policy of developmental expansion helped prevent competitive clashes in large areas of local territory, but it could do nothing to alleviate the broader conflicts between systems scraping against one another’s boundaries. It was not just the entangled giants that produced friction but the presence of small independent lines as well. As noted in the previous chapter, every such road in a company’s territory offered some rival system a choice avenue of invasion. For that reason there developed after 1880 an escalated round of defensive expansion in which systems like the L & N tried to absorb or at least neutralize the most dangerous independents within its territory.
The public interpreted such acquisitions as evidence of the railroad’s desire to suppress competition. Such critics were only partly correct. It was not competition that bothered the large systems so much as instability. The small independent lines did not represent serious competitive threats; in fact they could usually be worked with harmoniously because they depended utterly upon the larger roads for connections. But their vulnerability to absorption by some rival system seeking access to the territory or by some ambitious promoter caused the smaller lines to be viewed as distinct threats to stability. By themselves they could do little, but as part of some larger system they might significantly alter the prevailing balance of power. They were in effect pawns in the great strategic game and so could not be neglected. In this context it is important to realize that their value to larger systems had nothing to do with either their earning capacity or their financial history. They were not prized for the virtues they possessed but for the damage they might inflict if they fell into the wrong hands. They might even be worthless derelicts, tentacles of rust with no hope of ever paying their way. If they paralleled part of the dominant system in their territory, the trackage might be abandoned soon after that system was acquired.
This situation created a strategic dilemma for railroad managers that defied rational solution. It meant that interterritorial expansion often proceeded along lines which involved not sound economic considerations but sheer defensive necessity. In fact it created a condition in which the two conflicted sharply. Even worse, it created a situation in which the managers found it impossible to discuss their real problems with the industry’s critics. Public officials and private interests alike displayed little sympathy for the railroads’ defensive argument. Viewing the issue as one of competition versus monopoly, they tended to condemn any consolidation that seemed to eliminate a competing road. To the railroad’s retort that such acquisitions insured survival and good service, the critics turned a deaf ear. They insisted upon maintaining competition among as many lines as possible, and they also demanded rate stability. As will be discussed later, few of the railroads’ detractors recognized the inherent contradiction in these two demands.
Aware of this complex dilemma, the L & N found no comfortable solution for it. Obviously large expenditures for new roads could only impede the new financial program, but even Schiff agreed that money spent on defense was well spent. Smith agreed with this maxim, though he sometimes chafed at the funds drained away from his developmental projects. The indecision wrought by the competing demands of developmental extension and interterritorial expansion was clearly mirrored by one ambivalent passage in Norton’s Annual Report in 1887:
The policy adopted by your management has been, not to make any unnecessary extensions, but to encourage and build up the local traffic. At the same time it has been found necessary to extend certain branches and to build new ones in the territory adjacent to your lines… .1
Unable to disavow the urgency of defensive expansion, the L & N added several important properties to its system until a string of bizarre financial maneuvers cost the company its own independence.
The new Ohio River Bridge at Henderson, a single-track 525-foot structure costing nearly $2,000,000 opened formally on August 5, 1885. Earlier, on July 13, a cheering crowd of 8,000 had been on hand to watch the first train cross the river. For the first time the L & N could boast an unbroken route between St. Louis and Nashville. Passengers leaving the latter city could reach St. Louis in twelve hours and Chicago in sixteen, a saving of nearly six hours. Nothing better symbolized the L & N’s growing importance as an interterritorial system. While orators on both sides of the Ohio rhapsodized upon the linking of once hostile shorelines, the L & N pondered less cosmic questions. Possession of the bridge gave the company a tactical advantage over rival systems, but that advantage would doubtless be challenged by lines seeking access to the bridge. If anything, the new symbol of progress would only intensify the competitive struggle in the region south of the Ohio.
Trouble arose first south of the river. A new road, the Ohio Valley Railroad, began construction in 1886 on a line from Evansville to Jackson, Tennessee. On December 1, 1887, the road opened from Henderson to Princeton, Kentucky, where it connected with Collis Huntington’s Chesapeake, Ohio & Southwestern. The latter road, running between Louisville and Memphis, was already a headache to the L & N. By utilizing its connections the Southwestern had begun to divert some pig-iron traffic from the Birmingham district. Smith had already caught the road’s traffic department at irregular billing methods. The Southwestern billed Birmingham iron as originating at Kuttawa and then consigned it to yards along the L & N’s line, allowing the latter road to do the switching. Beyond these practices the road was a constant disturber of rates and of course competed directly for Memphis and southwestern business.
For these reasons Smith feared a potential alliance between the Southwestern and the Ohio Valley. Both were struggling newcomers with weak financial underpinnings. By joining forces they could compete for the growing traffic between Evansville and all points west and southwest, including the region west of the Mobile & Ohio Railroad. “In addition,” Smith observed in a communication to the board, “they will become something of a competitor and a serious source of annoyance for traffic between the same territory and Birmingham, Montgomery, Selma and that entire territory.”2 Neither road was very powerful (the Southwestern was one of the most fragile links in Collis Huntington’s tenuous eastern system), but their very weakness might well induce them to savage rate-cutting in a desperate bid for business. One obvious possibility would be to eliminate their potential for mischief by acquiring control of both roads. The L & N didn’t really need either line, but it did need to be rid of them. In this sense the two roads bore the reputation of so many southern lines: weak ally but powerful enemy.
Smith persuaded the board to erase the threat by purchasing or leasing the Ohio Valley. Unfortunately the Ohio Valley’s negotiator, Captain S. S. Brown, declined the L & N’s offer. Instead he demanded access rights to Evansville over the Henderson Bridge and use of the L & N’s trackage between Henderson and Nashville. If the L & N acquiesced, Brown pledged that his road would build no extensions south of Princeton. If the L & N refused, he threatened to file suit for crossing privileges. That would create a ticklish situation. Technically the bridge belonged to the Henderson Bridge Company, the stock of which was all owned by the L & N. Smith doubted whether the company could win any suit barring another railroad from crossing privileges. He believed Brown’s pledge was sincere but also thought that any contest would lead the captain to punish the L & N for its obstinacy. Moreover, his word would not bind future administrations, and there remained the threat of an alliance with the Southwestern. He advised delay, arguing that “as a matter of course, it is poor policy to initiate any contest of this kind with almost a certainty of being defeated. In other words, it is not worth while to make a contest for the purpose of delaying them for two or three months.”3
The board followed this advice. On June 1, 1889, the Ohio Valley gained access to Evansville, but it built no southern extensions and its collaboration with the Southwestern remained sporadic. In March, 1891, the Southwestern tried to cement the relationship by acquiring 60 per cent of the Ohio Valley’s stock. The Southwestern agreed to guarantee principal and interest on the latter’s first mortgage bonds as part of the terms, but its failing financial health led to a forfeit of the arrangement and the Ohio Valley’s owners reclaimed their stock. The L & N’s attention then shifted to the obnoxious Southwestern itself. By 1892 Huntington’s entire eastern system was approaching bankruptcy. In October he sold one of its major components, the 807-mile Louisville, New Orleans & Texas, to the Illinois Central. Within a few months he was shopping for offers on the Southwestern as well.
By this time the financial climate was already deteriorating, but the L & N board could not resist so tempting an opportunity. Even the cautious Schiff succumbed to the siren’s song. He admitted frankly to an intimate that:
It seems quite ridiculous to discuss at this time the acquisition of new lines, and yet the proposal has much that is enticing about it… . The Chesapeake, Ohio & Southwestern will always remain an unpleasant and menacing neighbor, and in strong hands can do much harm.4
As late as September 29 Schiff approved the acquisition as a prudent step. With the board’s consent Smith worked out an involved agreement with the Illinois Central whereby the two companies would acquire the Southwestern jointly. The Central actually wanted only the stretch of trackage between Fulton, Kentucky, and Memphis to straighten its line. Since the Kentucky constitution prohibited any road from buying or leasing a parallel or competing road, the L & N was reluctant to purchase the Southwestern alone. After long and tedious negotiations Smith and Stuyvesant Fish, president of the Illinois Central, agreed to try an evasive maneuver. The Central would purchase the Southwestern with an issue of 4 per cent bonds, sell it to the L & N for $5,000,000 in the latter’s 5 per cent bonds, and then lease from the L & N the section it wanted.
On October 31 the board approved this arrangement by a 9–1 vote, with Schiff opposing only because he thought the price too steep and feared the L & N might have to assume control of an unreorganized property. Two weeks later he left the board just as legal complications engulfed the transaction. Huntington did not help matters by announcing that “This purchase gives [the L & N] everything in Kentucky east of the Tennessee River and west of Lexington, making a practical monopoly of extremely rich lands in a territory where it is extremely expensive to build railroads.”5 The state agreed with his view and promptly enjoined the contract as a violation of the state constitution. When the lower court upheld the suit and declared that the purchase was not authorized by the L & N’s charter, the Illinois Central took steps to acquire the Southwestern for itself.
Alarmed by this development, some officers of the L & N promptly filed suit against the Illinois Central without even informing the board. As the issue dissolved into a legal imbroglio, Belmont tried to hammer out an agreement with Fish. Though no longer on the board, Schiff warned that if the Central were compelled to assume ownership, it could play the road against the L & N with a vigor Huntington could never have matched. In bitterly ironical fashion this would create the very situation the L & N had hoped to avoid. Desperately it fought a losing battle. The Southwestern went into receivership in December, 1893. Six months later the court ruled in favor of the state. While the Illinois Central commenced buying up Southwestern securities, the L & N appealed the decision. The suit was delayed until June, 1895, when the court of appeals upheld the original decision. On a writ of error the company carried the case to the United States Supreme Court, which sustained the lower courts in April, 1896. The Illinois Central absorbed the Southwestern and in 1897 purchased the Ohio Valley as well. There would be no L & N monopoly in western Kentucky and Tennessee.
On another front the L & N met further frustration. When the aggressive Richmond Terminal gained control of the Central of Georgia system in 1888, it threatened to shut the L & N out of the entire territory south and east of Augusta. The L & N reached that city via the Georgia Railroad, leased jointly with the Central, but it had no reliable connections beyond that point. The most promising opportunity appeared to be the venerable South Carolina Railway, a 137-mile road between Augusta and Charleston. The road had wallowed in debt and insolvency throughout most of the postwar years, and went into receivership in October, 1889. Belmont concluded that the best approach would be an indirect one. A syndicate of L & N stockholders, acting as individuals, purchased about $1,247,441 in junior securities of the South Carolina and sold them to the L & N at cost. Litigation among the various security holders moved speedily toward a conclusion, and an early reorganization of the property was anticipated.
Then the Panic of 1893 intervened. Earnings on the South Carolina fell below their normally anemic level, the reorganization was delayed, and the L & N, largely at Schiff’s insistence, reconsidered its rash commitment. The original reorganization plan proposed an annual fixed charge of around $400,000. Under Depression circumstances Belmont and his board hesitated to accept any plan with an interest charge above $300,000 per year. Attempts at negotiation with the first mortgage bondholders proved fruitless. Declaring their terms too high, the L & N made one final offer to the bondholders, which was rejected, and then abandoned the effort in March, 1894. A month later the road was sold under foreclosure, and in May it was reorganized as the South Carolina & Georgia Railroad. By that time the Richmond Terminal itself had been reorganized into the Southern Railway Company and the Central of Georgia, cut loose from the Southern, was floundering in receivership. Still the L & N had no reliable connection beyond Augusta.
Elsewhere the L & N fared better against the Terminal. The lease of the strategic Western & Atlantic was due to expire in 1890. Since the L & N and Nashville, Chattanooga & St. Louis together had controlled 15 ⅛ of the twenty-three lease shares for some years, and since both depended entirely upon the Western for entrance into Atlanta, Smith considered it essential that the lease be retained. But there were problems. The L & N felt that it deserved the lease because of the large betterments expenditures it made on the Western. If it had to surrender the lease, the Western would be returned to the state in much better shape than the lessees received it twenty years earlier. This argument, however, would probably carry little weight in Georgia, where anti-railroad feeling was running high. The state legislature already had several antagonistic railroad bills pending, one of which was being fiercely opposed by all the Terminal systems.
The Terminal itself posed further complications. One of its systems, the East Tennessee, already possessed the only other road between Atlanta and Chattanooga. A second subsidiary system, the Central of Georgia, might well bid against the L & N for the Western lease. On paper the Central’s bid might be (and was) construed as a Terminal attempt to monopolize the Atlanta-Chattanooga route, but in fact the issue was much more complex. The Terminal itself was in serious financial trouble, and its three subsidiary systems were deeply antagonistic to one another. Representatives of all three systems sat on the Terminal board, which meant that every attempt at formulating policy was riddled with factional disputes. Distrusting the East Tennessee’s intentions, the Central’s sympathizers wanted their own line into Chattanooga. The Terminal president, John Inman, usually sided with the Central’s advocates; he also held a seat on the L & N board. It was possible, then, that Inman might be willing to allow the L & N to win the lease, especially since cries of monopoly had already been raised against the Terminal in Georgia. The Central might not object to that arrangement since it would at least maintain the status quo and keep the lease free of any possible East Tennessee control.
A period of complex intrigue and maneuvering ensued. Smith dispatched E. B. Stahlman, the third vice president, to Atlanta as special diplomat to lobby the L & N’s cause in the state legislature. His mission was successful, and by August 1889 Smith could report that:
As might have been anticipated from his unusual abilities and special qualifications, there has already been a marked change in the views of the legislature … and there now seems to be a probability that it … will adopt some basis providing for an adjustment.6
At the same time Stahlman assured the Terminal that the L & N was interested only in protecting its investment in the Georgia Railroad lease and its access to Atlanta. The leading Terminal figure on the Central board, Patrick Calhoun, feared that a competition between the L & N and Terminal for the lease would hurt both companies in the legislature and cause the state to stiffen its terms. Calhoun, a brilliant corporation lawyer, was working hard to shape the lease legislation. If the state added new restrictions to the lease, he wanted to reply that the Central would not make a bid under those conditions. But he could only do that if the L & N also agreed not to submit a bid.
Smith had never cared for the Georgia lease anyway, so he proposed that the L & N sell the Terminal its interest in both the Georgia and Western leases. Inman seemed interested, as did Pat Calhoun and Samuel Thomas, president of the East Tennessee. But when Inman later changed his mind, Smith shifted his ground and suggested that the L & N and Nashville sell their shares in the Western lease to the Central of Georgia at $20,000 a share. The Central would then obtain the new lease and transfer 15 ⅛ shares of it to the L & N at cost. Meanwhile Stahlman would continue to press the legislature for an adjustment on the betterments controversy. As Calhoun presented the offer to his board Smith asked the L & N directors three questions to cover every contingency: Would they approve his offer to Calhoun? Would they approve a joint lease? And would they approve sale of the Georgia lease to the Terminal? No quorum was present to vote, but five directors telegraphed their blanket approval to Smith.
While negotiations progressed, the Terminal’s internal situation worsened steadily. As the June 30, 1890, bidding deadline neared, Inman struck a new position. He was willing to split the lease but preferred that the L & N go it alone to avoid any appearance of monopoly. He offered to submit a bid so the lease would not fail but would add the stipulation that his bid be accepted only if there were no other bids. The L & N board agreed to these terms and informed him that, for tactical reasons, the Nashville would submit the bid by itself. On June 30 the Nashville offered a monthly rental of $35,001 for a 29-year lease, in contrast to Inman’s bid of $35,000 per month. In this manner the Nashville secured its route into Atlanta. A revealing change of attitude appeared among some southern railroad men. In 1887 rumors cropped up that the L & N was about to sell the Nashville system to the Terminal; by 1890 reports were circulating that Inman was trying to persuade the L & N to acquire the Terminal’s vast holdings. Nothing came of the stories. Inman left the L & N board in October, 1890, and steered the floundering Terminal down the road to bankruptcy.
A Terminal system inadvertently aided the L & N in another important acquisition, the 248-mile Kentucky Central. Chartered under that name in 1871, the Kentucky Central swept together several smaller companies of antebellum origins that were building lines between Covington and Lexington. Possessing a colorful but unprofitable past, the company made little headway until 1881, when Collis Huntington acquired it as an adjunct to his eastern system. Huntington extended the road to connect with the L & N’s Knoxville division north of Livingston, leased the L & N’s Richmond branch, and gained trackage rights from the L & N to Jellico, Tennessee, where connection was made with the East Tennessee. A branch road crossed the main stem at Paris, reaching Maysville to the northeast and Lexington to the southwest.
Like Huntington’s other eastern properties, the Kentucky Central seldom escaped deficits. It plunged into receivership in January, 1886, and was reorganized in May, 1887, as the Kentucky Central Railway Company. Huntington retained control but by 1890 Calvin Brice and Samuel Thomas, the two leading figures in the/East Tennessee and influential directors in the Richmond Terminal, were both on the board. When Huntington began disposing of his eastern lines, Brice offered in June, 1890, to buy the Kentucky Central’s stock at the attractive price of eighty-five cents on the dollar. Even so, Marcus E. Ingalls, president of Huntington’s Chesapeake & Ohio and the man with authority to determine the Kentucky Central’s fate, balked at selling to Brice. For one thing, Brice had demanded a 5 per cent commission on the transaction, which Ingalls flatly refused. For another, Ingalls disliked the East Tennessee because Brice had antagonized Huntington’s lines north of the Ohio River by trying to secure arrangements with the Cincinnati, Hamilton & Dayton to throw traffic over the Lake Erie & Western and other lines controlled by Brice and Thomas. While delaying Brice, Ingalls informed Smith of the situation, suggested that the Kentucky Central stock might be had for sixty cents a share, noted that the road possessed at least $1,000,000 worth of assets in its treasury, and offered the opinion that the Chesapeake & Ohio might be willing to lease the Maysville branch.
Smith jumped at the bait. He wanted the Kentucky Central because he had long desired a direct entrance into Cincinnati. The C. & O. had completed a magnificent bridge between Covington and Cincinnati late in 1888, which the L & N could use along with terminal facilities in both Covington and Cincinnati. He reported Ingalls’s observations to the board and promptly opened negotiations. On November 17 Smith tendered an offer to the board only to have it rejected as too expensive. A week later he reappeared with an offer to purchase at least two-thirds of the Kentucky Central’s stock at fifty cents a share and the board gave its assent. Smith signed the contract in December, and within six months the L & N acquired the entire capital stock of the Kentucky Central. The company now had its foot in the Cincinnati door as well as a solid route through hitherto untapped central Kentucky.7
By 1894 prevailing conditions were driving Smith into closer rapport with Samuel Spencer, president of the newly reorganized Southern Railway. The Depression had hit with full force, leaving most railroads little or no financial cushion. The future of the Southern was promising but uncharted. The House of Morgan’s reorganization had welded the loose Terminal properties into a powerful, unified system. It had also discarded several of the weakest lines and left the yet unreorganized Central of Georgia out of the new system. Spencer was still feeling his way about his new position and had not yet evolved a clear “foreign relations” policy. In particular he still lacked any broad understanding with the L & N over such issues as expansion, maintenance of rates, extension, and the proper stance to be adopted toward the various small independent lines in the region.
As the two most powerful systems in the South, the L & N and the Southern naturally dominated major policy questions among roads in their region. Since the two giants possessed contiguous territories, their relationship could well determine whether harmony or discord prevailed in much of the South. Both Smith and Spencer believed that cooperation between these systems was the only rational policy to pursue. Both also feared the potential of smaller independents to disturb rates or derange the competitive situation by selling out to some other system anxious to challenge the L & N or Southern.
The situation was roughly analagous to that existing after the Panic of 1873. The weaker roads, teetering continually upon bankruptcy, resorted to every device to obtain business. For them stability became secondary to survival. Hard-pressed promoters, unable to wring anything from their properties, searched for opportunities to unload their roads (built or unbuilt) upon larger and wealthier systems. In this familiar fashion the most worthless or derelict of lines could be dangerous to the L & N and the Southern and had to be watched closely. Neither Smith nor Spencer cared to saddle their own systems with such financially anemic roads, but neither could they afford to let ambitious rival systems gain a foothold in their territories. Once again Depression conditions rekindled the principle that defensive considerations outweighed short-term financial commitments. Weak allies could be suffered, at least for a time, but powerful enemies might significantly alter the competitive landscape for a long time to come.
After holding several preliminary discussions, Smith and Spencer arranged one of the most remarkable conferences in railroad history to resolve these issues. It was a summit meeting in every sense of the word: the two men convened in a railroad car at Kennesaw, Georgia, on October 28, 1894. The purpose of the conference was primarily to work out some concrete basis for a policy of cooperation between the two systems. This would involve a defining of their respective territories, an itemized listing of unattached roads in these territories, the position of both systems toward each of those roads, a statement on possible future areas of extension and expansion, and an outline of procedures for preventing any disturbance of rates or the competitive situation. Hopefully, agreement on these points would lead to a discussion of specific independent roads and what (if anything) should be done with them in accordance with the general principles reached earlier. In short, they sought to define their mutual realms and impose their combined jurisdiction upon every line within them. If successful, their efforts would not only bring peace to the realm, it would also fend off intruders.
Throughout the conference Smith took the initiative, probably because of his greater experience and familiarity with the overall southern railroad picture. Both agreed that the discussion would be confidential, and both accepted implicitly that the principle of close cooperation would govern their deliberations. Neither would take any actions after the conference without informing and consulting the other. The first problem concerned some definition of the competitive situation between the two lines. Prior to the meeting Smith had suggested that the Southern not acquire lines north of its Jellico-Harriman Junction-Chattanooga line in Tennessee, which meant that it could interchange traffic with all roads north of that line on equal terms. At Kennesaw, however, he conceded at once that this simple arrangement would not work, if only because the Southern was already deeply interested in several roads beyond the stipulated boundary. For that reason, he concluded, “we must proceed upon the supposition at least that the Southern Ry. will be a direct competitor with the L. & N. R.R. to and from various points on the Ohio and Mississippi Rivers.”8
On this basis Smith acknowledged the Southern’s investment in the Memphis & Charleston and Mobile & Birmingham roads and its deep interest in the so-called Erlanger roads: the Cincinnati Southern, the Alabama Great Southern, and the Louisville Southern. He also assumed the Southern would acquire the Knoxville, Cumberland Gap & Louisville. The L & N would not oppose absorption of the first two roads; it would not object to Southern possession of the K.C.G. & L. if Spencer would stay on the Knoxville side of the tunnel and not build extensions toward Louisville and Cincinnati; but Smith preferred to see the Erlanger roads go to the Cincinnati, Hamilton & Dayton or some other independent company. These roads comprised the main difficulty in defining the boundary between the two systems by means of the Chattanooga line. As Smith put it,
If you had no direct connection north or west of that point, [you would] naturally occupy a neutral position; that is, it would not be for your interest to exclude us from competing for traffic in the southeastern territory over lines controlled by you, or it would not be for your interest to decline to interchange traffic with us, while, if your own lines extending [sic] directly to the Ohio and Mississippi Rivers your interests will appear to be at least promoted by controlling the traffic to the end of your lines and from the end of your lines, while if the Erlanger system is controlled by an independent corporation, we would still be in a position to compete for traffic going to and from Chattanooga, south and southeast of Chattanooga, upon equal terms; nevertheless, I say I have assumed that you would probably control those properties and that you will control the roads now controlled and owned by the Central Railroad of Georgia.
Spencer admitted that the Southern would most likely absorb the Erlanger roads; in fact it already owned the Louisville Southern. Most likely it would also acquire the Memphis & Charleston and the K.C.G. & L., though the fate of the latter road was not yet certain. As to the Mobile & Birmingham, he declared that “so far as I can see, there is no possibility of its going into our system.” (He was correct for the moment: the Southern didn’t lease the road until 1899.)
That question resolved, Smith called attention to a handful of independent roads north of the south Tennessee boundary line: the Paducah, Tennessee & Alabama, Tennessee Midland, Nashville & Knoxville, Tennessee Central, Chesapeake & Nashville, Decatur, Chesapeake & New Orleans, and Birmingham, Sheffield & Tennessee River. “What do you think ought to be done with the properties?” he asked Spencer. “If they are to be allowed to fall where they belong, where should they go and in whose interests should they be controlled?” Spencer disclaimed much knowledge of the roads. The Southern had no use for them, and if consulted would be willing to give the L & N free rein in the territory. As a general policy Spencer proposed leaving Tennessee territory west of Nashville to the L & N. Between Nashville and Knoxville both companies would try to prevent new construction. Failing that, they would act jointly upon any plan involving new lines. South of the Memphis & Charleston, the L & N would agree to help the Southern deter fresh competition on the same terms.
Smith approved the policy of conference and concurrence prior to any action. He was particularly concerned that the Birmingham, Sheffield & Tennessee River, a 96-mile road between Sheffield and Parrish, Alabama, might be extended to Birmingham. The road was in receivership, but DeBardeleben had confided to Smith that attempts were being made to raise enough capital for the extension. Since the Kansas City, Memphis & Birmingham already provided stiff competition in the region, he was anxious to stifle any independent newcomers. A perfect solution would be for the Memphis & Charleston to buy the road, but Spencer demurred:
I do not want to imply any disposition upon our part to put money in any of these properties. We prefer not to do so unless we are forced to it. We must, if necessary, do the needful to protect existing interests. All that can be accomplished now is to reach, if possible, some general understanding, as to our mutual interests, and such divisions of territory as appears feasible, but without obligations on the part of either to buy any thing.
Catching Spencer’s drift, Smith nodded agreement. “I think both of us would be very glad,” he replied, “if we could feel assured that these miserable abortions would remain status quo.” But, he added quickly, they will not. All had enough money invested in them to compel an effort, sooner or later, to extend or complete the work.
Having disposed of Tennessee territory, Smith moved farther south. His analysis took on a lighter tone. He offered the Marietta & North Georgia to the Southern only to have Spencer respond wryly, “I will retire gracefully in your favor.” The road was left in limbo along with the East & West Alabama. “I overlooked another abortion down there,” Smith noted abruptly after conversation had passed on, “the Chattanooga Southern. I do not know who in the world wants it.” Spencer agreed even though the road paralleled two Southern lines and talked periodically of extending to Birmingham. Some outside promoter might sweep the East & West and the Chattanooga Southern into a system with some other roads, Smith opined, but the Kansas City, Memphis & Birmingham was in no mood to expand and the East & West’s owner, Eugene Kelly, was not likely to stir up trouble. “I imagine he is getting too old and conservative to throw away any more money there,” Smith reasoned, to which Spencer added, “He is more than conservative now.”
The Birmingham & Atlantic and Macon & Birmingham were dismissed as dead projects along with the Savannah, Americus & Montgomery. Smith preferred to see the Georgia, Southern & Florida controlled by the Central of Georgia. Spencer saw no objection to that arrangement, not so much to obtain the road’s business as to prevent it from demoralizing rates in a region of sparse traffic. Satisfied, Smith mentioned the Atlanta & Florida.
“The Atlanta & Florida I would decline to have anything to do with,” Spencer replied hastily.
“What is going to become of it?” Smith countered. “Let it eke out a miserable existence?”
“Yes. …”
Spencer took a different stance toward the Georgia, Midland & Gulf. It was struggling but fairly well built, did a small local business but could function as a feeder to the Central. Spencer wanted it controlled by the Central because it was the latter system’s only competing line going north from Columbus. Smith acquiesced. The Macon & Northern was even more of an irritant. It was included in the Central’s reorganization plan but on what Spencer considered outrageous terms. The bankers controlling it, Brown Brothers of Baltimore, also had an interest in the Seaboard Air Line, which connected with the Macon road. Brown was attempting to play one system against the other to get the highest price. The line could prove an annoying competitor, but Spencer thought Brown would come around. “If it is a question of who will get tired first,” he philosophized, “I have faith in the other fellow’s getting tired first.” Smith tried to interest him in another nearby road but Spencer replied jovially, “We do not want it unless you want to give it away with an endowment fund added, sufficient to take care of it for life.”
Then came a serious sticking point. Smith assumed that the Central would be willing to sell to the L & N its Port Royal & Augusta road and the Central’s half interest in the Georgia Railroad’s lease. This would insure the L & N’s connections beyond Augusta. Spencer agreed readily to the Port Royal but denied he had ever favored disposing of the Georgia lease. “Let the Georgia Railroad stand where it is,” he argued. The Port Royal would give the L & N what it had tried to secure by acquiring the South Carolina. Smith retorted that the South Carolina purchase presupposed getting hold of the entire Georgia lease. If the L & N could not secure that lease, it might not want any connection beyond Augusta.
There was, Smith observed, a serious problem on the Georgia. Hugh M. Comer, the Central’s receiver, seemed intent upon destroying the Georgia road. He made no improvements, kept it short of equipment, allowed it no capital account, and delayed new rails to the point of making the road unsafe. “He seems to have a most vicious spite against it,” Smith concluded, to the point where Comer even went out of his way to divert business from the Georgia. As a result Georgia stockholders were outraged, and ill feeling was mounting in the state against the Central. It could lead to court action by the Georgia’s stockholders, to unfriendly legislation, and to open hostility against the Southern and the L & N as well as the Central. “It would have a mollifying effect upon public opinion if that property were turned over to the Louisville & Nashville Railroad Co.”
Spencer wasn’t fully convinced. At heart the issue went back to the conference’s central problem: a clear division of territory between the two systems. As early as 1884 Smith had tried to get the Central to take the entire Georgia lease. More recently he had offered it to the Terminal along with the Western & Atlantic lease to separate clearly the territorial boundary. But the situation changed dramatically when the East Tennessee acquired the Cincinnati Southern and Alabama Great Southern prior to the Terminal’s bankruptcy. That insured interterritorial overlapping and competition, and prompted Smith to secure the Western & Atlantic. In these circumstances he felt the L & N had to look beyond Atlanta and Augusta.
Spencer reminded him that the Southern would control the Central just as the L & N controlled the Nashville, Chattanooga & St. Louis—by holding a majority of the stock. “We would not under present conditions … incorporate the management of the Central line into that of the Southern. I think it would involve issues in Georgia which would do us more harm than good.” Like the Nashville, the Central conducted its own traffic affairs and would therefore be as open to interchanging with the L & N as the Nashville was to the Southern. Even the Seaboard Air Line got some share of the Chattanooga business, and Spencer assumed that lines would remain open to all major parties even though occasional problems might arise. Smith was not so confident of the arrangement, but he saw clearly that his neat division of territory on a geographical basis was neither possible nor acceptable to Spencer. The meeting adjourned with that premise firmly established.
More than twenty years later Smith denied hotly that any division of territory had taken place or that any of the agreements upon the smaller roads were carried out. But the facts suggest otherwise. During the next few years the Southern acquired the Cincinnati Southern, Alabama Great Southern, Memphis & Charleston, K.C.G. & L., Birmingham, Sheffield & Tennessee River, Atlanta & Florida, Georgia, Southern & Florida, Georgia, Midland & Gulf, and even the Mobile & Birmingham. The reorganized Central of Georgia remained under Southern control until 1907. Virtually all of the roads disclaimed by both parties remained weak and independent.
The L & N likewise took steps to get what it wanted. In a related step the Nashville acquired the 18-mile Rome Railroad in 1894 shortly after the summit meeting. A year later Smith was still trying to persuade Belmont and the board to absorb certain key roads in Kentucky, Tennessee, Alabama, and Georgia. He urged the purchase of the Paducah, Tennessee & Alabama and the Tennessee Midland at once. The board approved leasing the two roads after acquiring them at foreclosure sale. However, since the 230-mile main stem of the combined roads between Paducah and Memphis paralleled the L & N, it was decided that the Nashville should lease the roads. One important Nashville stockholder, a man named Rogers, opposed the lease on the grounds that the Nashville could not afford it. During the contest that followed, the L & N emphasized that the acquisition was necessary to keep the two roads from falling into the hands of a rival system. After considerable delay the leases were approved in September 1896.
Earlier that year Smith felt impelled to review with Spencer the progress of events since the Kennesaw meeting. Borrowing a humorous metaphor used by an L & N attorney in some litigation, Smith alluded to Spencer as Cortez and himself as Pizarro in a dialogue over disposition of the New World’s spoils:
Pizarro : |
How shall we divide the New World? |
Cortez : |
I will take North America and you can have all of South America except , and neither of us will do anything to the Isthmus without notice to and cooperation of the other. |
Pizarro : |
While Patagonia is not a very large or important part of the world, yet, perhaps, it is as much as I can tote.9 |
After that less than gentle reminder Smith reviewed the transactions and strategic changes since their conference, itemizing the lines acquired by each system and those left, in his words, “to stew in their own fat.” He noted with satisfaction that most of them were still stewing and required no further action.
However, some new developments had taken place. The owners of the Kansas City, Memphis & Birmingham were reportedly interested in selling out. Did the Southern want it? The northern division of the L & N’s Cumberland & Ohio had been placed in receivership, and Smith would be delighted if Spencer took it off his hands. Otherwise, the L & N might well abandon it. Two minor roads, the Kentucky Midland and Richmond, Nicholasville, Irvine & Beattyville, had become irritants. The L & N didn’t want them, but Smith asked Spencer not to acquire them and to dissuade anyone else from becoming interested in them.
On one road, the Tennessee Central, a projected 232-mile road from Harriman Junction to Clarksville, Tennessee, the situation had changed radically. New investors had come into the project and it seemed likely that construction would go forward. Smith was especially annoyed that the maneuver was abetted by Nat Baxter, president of Tennessee Coal & Iron:
I was greatly disappointed to learn … that the T.C. & I.R.R. Co., and especially Mr. Ned Baxter, Jr., who had indorsed for Mr. Jere Baxter to the amount of $75,000, would under the arrangement be paid in full. As you know, I was very desirous that these parties should lose their investment. The relations of Mr. Nat Baxter, Jr., as president of the Tenn. C.I. & R.R. Co. to the Southern, N.C. & St. L., and L. & N. Rds. are such as to justify retaliation for actively aiding in the construction of a line intended to inflict serious injury upon the important interests that have done and are doing so much to promote the interests of the T.C.I. & R.R. Co.10
The scheme involved an arrangement with another budding road, known as the Crawford line, that would ultimately create a line between Nashville and Knoxville. Harriman was a strategic junction for a possible east-west route between Nashville and Knoxville and a north-south line from Chattanooga to Knoxville. Since both potential routes crossed and connected with the L & N and the Southern at several places, Smith wished to scuttle the project before larger interests got involved and upset the status quo entirely. At that time six lines reached Nashville and the L & N controlled every one of them. Smith could not tolerate any serious threat to that vital territory. He suggested that the L & N try to absorb part of the proposed road (much of which directly paralleled the Nashville), prevent any construction into Knoxville, and instead form a through line between Nashville and Knoxville jointly with the Southern. On a related matter, he renewed the pledge that neither the L & N nor the Southern would acquire the Marietta & North Georgia, a road between Knoxville and Marietta, Georgia, with trackage into Atlanta, without consent of the other.
Spencer agreed with many of Smith’s suggestions and picked up his conquistador metaphor:
Pizarro : |
Since our last conversation, the division of the New World between us has made some progress. |
Cortez : |
Yes; you seem to have acquired Patagonia, and I have secured a considerable part of North America which touched my former territory, but it seems to me you have acquired a considerable neck of the Isthmus which is the connecting link between us. Was it understood that connecting links which touched both of us should be a matter of consultation before acting or not?11 |
Spencer was referring to both the Memphis-Paducah line absorbed by the Nashville and the projected Nashville-Knoxville route, which remained a difficult sticking point to any understanding. Unable to suggest a specific remedy, he proposed a set of principles for Smith to confirm:
1.Neither system would acquire lines in the other’s territory; and lines touching or connecting with one system and not the other would be considered in the territory of only that one system.
2.Neither system would acquire lines allied by former ownership, lease, or otherwise, to the other system which were not controlled at the moment because of pending reorganization or any other reason.
3.Neither system would acquire lines touching both systems without prior consultation and, if possible, agreement.
4.Neither system would foster new construction in the other system’s territory; and when such questions arose, new work should proceed by agreement if possible.
Elsewhere Spencer confirmed Smith’s position. He was willing to leave the weak roads stewing in their own fat, “if any fat can be found in them,”12 and declined interest in the Kansas City, Memphis & Birmingham. He assured Smith that he would give the Tennessee Central no encouragement and would cooperate with the L & N if the project did get underway.
In response Smith accepted the declaration of principles and tied them to specific roads. Point one seemed to pertain only to the Crawford line and point four to the Tennessee Central. Point two covered the Cumberland & Ohio’s northern division, Memphis & Charleston, Mobile & Birmingham, Chattanooga, Rome & Columbus, and possibly the Macon & Northern. The third point applied to a host of lines. Smith felt obliged to observe that some of Spencer’s particular recommendations contradicted the general principles, but in most cases he found them satisfactory anyway. He disputed Spencer’s interpretation of arrangements for the K.C.G. & L. and expressed disappointment that the latter did not agree with the proposed solution for the Nashville-Knoxville headache. Smith admitted that he could wring no exact meaning from Spencer’s general principles to cover this problem. After lengthy analysis he renewed the proposition that the Southern simply agree to have nothing to do with the lines west of Harriman and leave the L & N free to acquire them.
In another letter he called Spencer’s attention to a related threat, the reviving Decatur, Chesapeake & New Orleans, which threatened to construct a road between Shelbyville, Tennessee, and Decatur, Alabama, in hopes of selling out to the eventual purchasers of the Memphis & Charleston. Here, too, the promoters obviously intended to play the L & N against the Southern. “This is another illustration,” Smith raged, “of the danger of permitting worthless properties in which capital has been invested and lost to lie about loose.”13 The principle was the same in both cases: promoters with a poor investment seeking some means of salvaging their losses or turning them into a windfall.
Spencer hastened to assure Smith that his principles were not intended to take precedence over specific cases already discussed. “Probably a broader and sufficient declaration of principles,” he added, “would be that neither of us would buy or promote lines which directly affect the interest or the territory of the other without consultation.”14 He relented on the Nashville-Knoxville issue and agreed to leave the lines west of Harriman to the L & N on the terms originally proposed by Smith. But he asked that Smith do likewise for lines east of Harriman, arguing that the completion of the Tennessee Central, even with new backing, was remote. Smith accepted these conditions but in November warned Spencer of new efforts by Tennessee Coal & Iron to encourage rival rail enterprises. “We may be assured,” he noted savagely, “that T.C.I. and R.R. Co., under its present management, will scheme, cooperate, and aid in every way in its power to secure the building of competing lines and the utilization of its various local roads, including track into Birmingham connecting with our Union Station tracks to that end.”15
Clearly all was not well within or without the territory. The attempt of Cortez and Pizarro to harmonize their interests and stabilize the region was partially successful, but the work required unflagging energy and attention. Moreover, the attempt led easily into charges of conspiracy and monopoly that were difficult to counter successfully. Whatever the merits of each individual case, the image of the giants squatting heavily upon the small enterprisers was a hard one to dispel. The inability to find an adequate solution for the “Isthmus” problem further aggravated the situation. Both Smith and Spencer found that the general principles bogged down quickly in the quagmire of complex particular cases. All their good intentions could not conjure up an appropriate settlement to every disagreement or a proper reconciliation of interests. Gradually their optimism waned, and by the turn of the century the two conquistadors were fast drifting apart. Their attempt to divide the New World neatly and equitably failed, not for want of attention, energy, or good faith but largely because they could not find satisfactory ways to implement their intentions.
The inability to secure permanent security of the territory through agreements with the Southern soon led the L & N to shore up its weak points and ferret out new opportunities. The Tennessee Central was stalled for the time being. By 1900 it had completed only thirty-three of its projected 351 miles, but Smith continued to watch the company’s every move with a jaundiced eye. In Alabama the L & N negotiated a new lease for the Nashville & Decatur in 1899, paying 7–5 Per cent annually on its stock instead of the previous 6 per cent rate. That same year it purchased jointly with the Southern a 28-mile subsidiary of Tennessee Coal & Iron known as the Birmingham Southern. Eight years later, however, the two systems returned all but eight miles of the road to the Tennessee Company. The unbuilt but troublesome Middle Tennessee & Alabama between Shelbyville and Decatur, about which Smith complained to Spencer, was acquired by the Nashville late in 1897. Three years later the L & N bought the 20-mile Birmingham, Selma & New Orleans, connecting Selma and Martin, Alabama, and soon extended it to Myrtlewood.
The Southeast posed a more complex problem. Conditions remained unsettled in two directions from Atlanta: northward toward Knoxville and southeast to Augusta and beyond. Unwilling to rely solely upon his tenuous agreement with Spencer, Smith pursued a cautiously aggressive course. In February, 1898, he managed to obtain the Central’s half of the Georgia Railroad lease by paying that hard-pressed company’s share of the rental. The Central promptly brought suit to regain its rights as co-lessee but lost the decision. Smith did not want sole possession of the lease (and its annual deficit) as much as he wanted to eliminate the Central’s negative attitude from the Georgia’s management. In August, 1899, the L & N sold half interest in the lease to the more reliable Atlantic Coast Line.
Not until March, 1902, did Smith act decisively to clarify the muddle centering around Knoxville by purchasing the Atlanta, Knoxville & Northern Railway. Incorporated in June, 1896, this road was the successor to the bankrupt Marietta & North Georgia, around which Smith and Spencer had treaded so carefully in their negotiations. Its acquisition by the L & N marked a significant and irrevocable departure from past policy. The stakes involved a central issue in the dialogue between Cortez and Pizarro: the traffic arrangements and territorial division for the crucial trade route between Cincinnati and Atlanta. Prior to 1902 the L & N and Southern had handled this traffic jointly via the through route consisting of the former’s old Lebanon extension and the latter’s Knoxville & Ohio branch of the East Tennessee. The connection of these two roads at Jellico, Tennessee, on the Kentucky-Tennessee line constituted a natural boundary between the two systems; that was the reason Smith pushed Spencer to accept it as a basis for a territorial settlement and agreement.
But the Southern’s control over the Cincinnati Southern drastically altered the situation. That road, the construction of which the L & N had fought so fiercely, gave the Southern its own through line from Knoxville to Cincinnati. Obviously Spencer preferred to give his own road the long haul rather than interchange business with the L & N at Jellico. Since the Cincinnati Southern paralleled the entire Lebanon expansion, Smith saw no choice but to create his own through line from Atlanta to Cincinnati. The result, of course, would be the very competition and duplication of service Smith and Spencer wanted so much to avoid. Nothing better illustrated the powerful impetus of interterritorial expansion even in circles where it was earnestly deplored.
The A.K. & N. suited Smith’s strategic aims well but it harbored severe physical handicaps. Originating in 1854 as the Ellijay Railroad, the Marietta & North Georgia extended only ninety-six miles from Marietta to the Georgia-North Carolina line by 1887. Built largely by convict labor, the line started as a narrow-gauge and added a third rail only in 1886. The road traversed rough mountain country rich with deposits of fine marble, but it found little other business. The company absorbed a branch line to Murphy, North Carolina, received authority to extend northward to Knoxville and southward to Atlanta, and reorganized as the Marietta & North Georgia Railway Company. In 1887 another company, the Knoxville Southern, was formed to build from Knoxville to a connection with the Marietta. The latter road added thirteen miles of track in 1889 make the connection, which took place in August, 1890. On November 25, 1890, both companies were consolidated into the Marietta & North Georgia. The new line penetrated the area near Copperhill, Tennessee, known as the Great Copper Basin.
Construction of the Knoxville Southern left much to be desired. Racing against time, the contractor, an Englishman named George R. Eager, utilized steep grades freely. East of Appalachia the route followed the gorge of the Hiwassee River for several miles. To reach the river the line from the south had to drop several hundred feet within only a few miles because of the road’s most formidable obstacle, Bald Mountain. Eager’s engineer solved the problem by using a W-shaped switchback across the mountain’s face. The device worked but allowed only three or four cars on the switchback at a time. At the time the Marietta scarcely needed any more capacity. It went into receivership in 1891 and remained there five years. A new company, the Atlanta, Knoxville & Northern, was organized in 1895 and took charge of the property.
As business increased and new rolling stock was added, the switch-back became an intolerable obstacle. In 1898 the A.K. & N. borrowed engineer T. A. Aber from the L & N and put him to work on the problem. Aber produced the celebrated Hiwassee Loop, an 8,000-foot loop between Appalachia and Farner. To reach the Hiwassee River gorge and achieve the drop of 426 feet in six miles between the two towns, Aber wound his loop completely around Bald Mountain so that it crossed under itself near the point where it first touched the mountain. The line then circled the mountain again but reached the river bank before completing the second loop and followed the Hiwassee for about fifteen miles. A train travelling the loop faced every point of the compass, and at one place two trains going in the same direction would be only sixty feet apart—vertically. At Tate Mountain the A.K. & N. also possessed a 15-degree double-reverse curve. This combination of tangled track earned it the sobriquet “Hook and Eye.”
After acquiring the A.K. & N., Smith organized a new company, the Knoxville, LaFollette & Jellico Railroad, to build the last seventy-five miles between Jellico and Knoxville. Here, too, construction was rugged going and often interrupted by earth slides. Not until 1905 was the work completed, whereupon the L & N could proudly boast its own through line from Cincinnati to Atlanta.
If the A.K. & N. purchase seemed to challenge the Southern, another major acquisition required joint action by the two systems. In 1902 an opportunity arose to acquire the 546-mile Chicago, Indianapolis & Louisville or Monon Railroad, a reorganization of the Louisville, New Albany & Chicago in which the L & N had once been interested. The L & N and Southern agreed in May to purchase about 87 per cent of the Monon’s stock by issuing $11,877,642 in joint 4 per cent bonds. The L & N board split over the decision as some directors argued that the company lacked any power to make such joint purchases. When the motion finally passed on May 14, three directors voted against it and Smith abstained. The acquisition marked an important departure for the L & N; except for the St. Louis & Southeastern the company possessed no other road north of the Ohio River. Smith opposed the notion of a northern invasion, and he had special reason to resent this particular venture. The new association with the Southern owed its impetus to a financial maneuver in which the L & N briefly joined the Southern in the stable of the House of Morgan.
Work train and construction equipment on the new Knoxville-Jellico line, 1902–1905.
Ironically, it was the L & N’s acquisition of the Jellico-Atlanta line that led to its abrupt change of ownership. To pay for this road the board on April 7, 1902, voted to increase the L & N’s capital stock from $55,000,000 to $60,000,000. This was actually the $5,000,000 authorized by the stockholders during the Depression but never issued. Earlier in the spring John W. “Bet-a-Million” Gates, a noted capitalist, promoter, and plunger, chanced to hear of the proposed sale from an L & N director. Sensing a potential windfall from this bit of information, Gates began to buy L & N stock heavily in anticipation of the new issue. He soon learned that Edwin Hawley, president of the Iowa Central, was also acquiring large blocks of L & N stock. In short order the two men joined forces and also agreed to act as agents for other interested parties.
Unaware of this market activity, the L & N board followed the usual procedure of offering the 50,000 new shares before actually listing them. The rules of the New York Exchange stipulated that new shares could not be listed and validated for thirty days after the application to list. On that ruling Gates and Hawley scored their coup. They bought virtually the entire new issue and demanded immediate delivery. The flustered L & N directors, who owned little L & N stock among them, found themselves technically short on the sale. Normally that would present no serious difficulty; they could simply enter the market and acquire the necessary shares. But the Gates-Hawley pool had managed a decent corner in L & N, and the directors could find little stock to buy or borrow. Their desperate bidding pushed the price of L & N sharply upward from about 105 to an April high of 133. On April 7 trading reached a high of 169,000 shares.
Surprised by the furor, Belmont apparently reacted slowly to the possibility that the foreign holders were losing control. For their part, Gates and Hawley suddenly found themselves in an unforeseen position: they owned or controlled 306,000 of the L & N’s 600,000 shares. Since a squeeze play or any other maneuver detrimental to the security could devastate them, the pool relented in their demand for immediate delivery of the stock. A curious impasse resulted. The L & N board no longer represented the majority holders and could do nothing. The Gates-Hawley pool had a tidy speculative profit in their grasp but could not collect it lest the stock plunge downward. Looking for short-term rewards, they found themselves in possession of a company they didn’t want. While they groped for a lucrative “out,” the press enjoyed a field day. The Atlanta Journal observed contemptuously that “We may not know which shell the L & N is under, but we know who’s working the shells and that’s enough for us!”16
Financial circles in general and the city of Louisville in particular buzzed excitedly over the probable fate of the L & N. It was known that J. P. Morgan disliked and distrusted Gates and was most unwilling to see him in possession of the L & N. Seeing an opportunity to impose a unique stability upon southern transportation, he resolved in mid-April to offer Gates 120 a share for 100,000 shares of his L & N stock, with option to take the remaining 206,000 shares at the same price before October 15. The Gates-Hawley combine jumped at the opportunity and exited with a profit of about $5,000,000. Morgan exercised the option and in October sold his L & N holdings to the Atlantic Coast Line, a holding company in southern roads centered around the so-called Plant system developed by Henry B. Plant. The L & N board ratified the transaction in curt, proforma fashion by passing a resolution, “That the Louisville & Nashville Railroad Company hereby assents to the purchase and the holding of a majority of its capital stock by the Atlantic Coast Line Railroad Company.”17
What did the change in ownership mean? On paper it seemed to mark the end of an era. In forty-three years the L & N had run the gamut from main stem to budding territorial road to sprawling interterritorial system to auxiliary company of an impersonal holding company. The L & N had long ceased to be controlled or even significantly influenced by the local communities that helped build it, and had long ceased to possess any meaningful sense of local identity. Now the company had lost its fiercely guarded independence as well. At long last the “gobbler” had become a “gobblee” and could no longer assume a position of leadership among southern roads. The inexorable drive toward consolidation had, in fitting Darwinian fashion, claimed the L & N at a time when many observers believed the company would be one of the region’s ruling systems once the smoke of amalgamation cleared.
And yet, what had the L & N actually lost? Smith retained the presidency. His administration remained intact, as did his proven set of policies. Belmont stayed on as chairman until July 9, 1903, when he gave way to Henry Walters, a Baltimore native who held the position until his death on November 30, 1931. Smith continued to be the guiding hand and displayed no less suspicion toward the financiers. Of Morgan’s action he observed that “Mr. Morgan’s idiosyncrasy is the creation of enormous combinations. He is in the position of a strong man in the circus, on his back, feet up, keeping an enormous cask revolving in the air, which sooner or later must come down.”18
But in fact the change in ownership meant no significant change in policy. The L & N would be operated by Smith as an independent system with little interference from the parent company. There would, of course, be closer cooperation with the Atlantic Coast Line (which touched the L & N at Montgomery and Chattahoochee, Florida) and the Morgan-dominated Southern, but policy would be influenced only in a broad, loose fashion.
In this sense a new era had emerged, one in which the control of a major system’s securities was no longer so relevant to its actual operations and policies. The separation of ownership from control was becoming complete among the major southern systems. Except for unusual cases, the old battles for ownership and dogfights over policy and strategy were slowly fading into oblivion. The giant systems created by these colorful embroilments were maturing into impersonal, routinized bureaucracies. Thus the L & N was devoured by the very definition of progress it had done so much to shape. The era of individual entrepreneurs, replete with pirates and promoters, vendettas and Machiavellian diplomacy, and strategic jousting that deserved the accolades given military campaigns, was ending. The future belonged to the administrators.