James J. Hill, 1916


born: 16 September 1838
died: 29 May 1916


Entrepreneurs and American Economic Growth

JAMES J. HILL

  1. Youth
    1. Born 16 September 1838 in Eramosa township, Ontario, Canada. He was given no middle initial at birth. At age 13, in 1851, he adopted the middle name of Jerome after Napoleon’s brother (Hill was a great admirer of Napoleon when he was young). Since it was a family tradition to always have a son named James, the family named him James even though he had an other brother named James who died shortly after birth in 1834.
    2. Hill only had 9 years of formal education but he made the most of it. He had to leave school after Christmas, 1852 when his Father died. He was fortunate to have spent 4 of those years at the Rockwood Academy (equivalent to a High School) under the tutelage of a Quaker minister and teacher William Wetherald. Hill, by the age of 14, was proficient in Algebra, Geometry, land surveying, and English – both spoken and written. Hill’s clear and elegant writing and his mathematical ability would be the key to the beginning of his business career.
    3. Hill’s first job was a clerk in a general store in 1853 at the age of 15. He learned double-entry bookkeeping and became very good at judging which farmers should get credit at the store and which should not.
    4. In 1856 at the age of 18 Hill leaves Canada for good. His brother Alex Hill was then 16 and old enough to take care of their widowed Mother. After traveling to New York City, Philadelphia, and Chicago, he arrived in St. Paul, Minnesota, on 21 July 1856.
  1. Early Business Career: 1856-1867
    1. Hill’s first job in St. Paul was with the Brunson, Lewis & White, agents for Dubuque Packet Company – a Steamboat comany. Hill worked on the levee by the Mississippi River as a bookkeeper. The job required good handwriting, arithmetic skills, and physical strength since extra hands were often needed to help load or unload cargo. His ability to write clear and concise business letters and to do his many varied tasks with little or no supervision, soon earns him great respect.
    2. By 1860 Hill is working for Borup & Champlin – wholesale grocers and forwarding and commission merchants. Hill handles freight transfers to and from wagons to Railroads and Steamboats. Consequently, he became very knowledgeable about all aspects of the freight and transportation businesses.
    3. During the winter months – when the Mississippi was frozen over – Hill began to work on his own account. He won bids to supply feed to horse at a local U.S. Fort and wood to steamboats and local railroads. This required frequent travel into the hinterlands of Minnesota that was crucial in his later career.
    4. {Aside – Hill volunteered in 1861 but was rejected and did not serve in the miliary during the Civil War because he only had sight in one eye. He lost the sight in his right eye at age 9, in 1847 in an accident with a bow and arrow. The Doctor was able to put his eyeball back in its socket but he had no vision in the eye. Nevertheless, he was very active locally in the Fire Department and local militia and was a very good shot with a rifle using his left eye.}
    5. In March, 1865 Hill goes into business for himself and is appointed the freight and passenger agent for the Northwest Packet Co. and the Milwaukee and Mississippi Railroad. In order to lower the costs of transferring freight from the boats to the trains Hill built a large all-weather warehouse beside the river at the dock level and ran railroad tracks through it. Cargo could then be easily transferred in any sort of weather. (The cargo was largely barrels of flour from the large millers at the Falls of St. Anthony just up the river from St. Paul.) In 1867 Hill gets deal to control the terminal facilities of the St. Paul & Pacific Railroad (which he was to later take over). And he expands his warehouse business even further. During the winter, Hill used his warehouse for baling hay rather than letting it stand empty.
    6. Hill was determined to guard and enhance his business reputation. The complexity of transportation during this period was such that shipments often got lost. Hill went to great lengths to trace lost shipments and was proud of the fact that he was never the weak link in the transportation chain. (Hill’s experience with this early creaky system is what made him so determined to run his railroads with a fierce efficiency later on in his career.)
    7. Hill also was very forward looking – he often did favors for other businessmen just for the goodwill and the betterment of the general business climate that it created. For example, during the winter months the flourmills worked continuously and Hill stored much of the flour in his warehouses. He convinced the Chicago grain merchants that everyone would gain if they advanced funds to the hard-pressed millers (who had no cash income during the winter months) against the flour already stored in his warehouses. Needless to say, actions such as these further enhanced his reputation for shrewdness and honesty and brought him much additional business.
    8. Summary: The early phase of Hill’s career shows the key qualities that were to make him so spectacularly successful later on. The first 3 are similar to those of Vanderbilt but Hill’s style was distinctly different: 1) hard working; 2) very competitive with an emphasis on quality service; 3) reliable – determined that he would never be the weak link; 4) the ability to master the details of a new business quickly; 5) leadership in the business community generally.
  1. Steamboats and Coal: 1867-1877
    1. By 1867 Hill could see that the era of independent transportation agents working with the Railroads was about over because the two worked at cross-purposes – for example, rebates. The independent agents wanted as much volume as possible and would fight for lower rates for their customers whereas the railroads wanted to keep the rates as close to those published as possible. Consequently, Hill, who by this time had a good understanding of the railroad business (even though he was not in the business yet – recall point (4) above in the summary!), decided to diversify his business interests. {Foresight!}
    2. Hill did a lot of business with fur traders from 1867-70 and this enabled him to build up a lot of customers in the Red River country – not just fur traders, but merchants and farmers as well. However, by 1870 the fur business was in decline since the unrestricted trapping and hunting was already dramatically reducing the number of buffalo and other fur bearing animals.
    3. In 1870 Hill enters the steamboat business on the Red River and in 1872 merges his business with Norman Kittson’s and the combination monopolizes the steamboat business.
    4. About the same time that Hill entered the Steamboat business he also branched out into the coal business. Hill had been in the wood fuel business for some time but could see that wood was not going to be a practical long-run fuel given the fact that northwest of St. Paul was very thinly wooded. {Aside – again we see his foresight – his ability to predict the course of a business that he mastered and thereby enabling him change course into a new business (or altering the form of the old) in time.} In the late 1850s and early 1860s Hill read everything he could get about coal – the geology, chemistry, economics, and transportation. At first, in his role of transportation agent, he arranged for the purchase and transportation of coal to the local gas plant. {Aside – coal was "cooked" to get the gas for illumination purposes.} In 1867 Hill makes his move and aggressively enters the coal business.
    5. By 1874 Hill’s coal business had expanded 5-fold and was mainly dealing in "hard" or Anthracite coal which was used in home heating. {Anthracite is close to pure carbon and does contain the impurities that are in bituminous coal. It burns with little smoke and is ideal for home heating.} Hill’s understanding of the transportation business and the rapidly changing nature of railroad economics in the mid-1870s enabled him to pressure the railroads for better rates. {Aside – He realized that the competition between the Truck lines was putting inexorable downward pressure on rates and that the better run railroads like the New York Central were going to rapidly upgrade their physical plant to gain more volume – steel rails, larger cars, more powerful locomotives. He became something of an expert in railroad rolling stock and badgered the railroad agents to load ever more coal in their cars.} In the summer months Hill used both Lake Steamers and the railroads to bring in and store large quantities of coal. Finally, in 1877 Hill helped found the Northwestern Fuel Co., an alliance of the heretofore rival anthracite coal suppliers. This made the Twin Cities one of the most important fuel distribution centers in the U.S. and the profits Hill made in the coal business eventually provided him much of the money he needed to enter the railroad business.
    6. During this period Hill was simultaneously in the Steamboat business, the fuel business, the general transportation business, he was drawn into the Banking business as the member of the Boards of several leading banks, and he still found time to grab any attractive business deal that came his way. Hill often bought assets of bankrupt businesses and resold them at good profits. One time he bought a bankrupt iron foundry and sold off the scrap metal. Another time he bought a saloon. He even became a dealer in apple cider when he thought that it would be profitable.
    7. SUMMARY: By 1877 Hill was 39 years old and his business style was well established. 1) Hard working; 2) very competitive with an emphasis on quality service; 3) very reliable and concerned with his customers – determined that he would never be the weak link in the transportation business – and in whatever business he was in, always acted as if a customer would come back to him for business; 4) the ability to master the details of a new business quickly; 5) leadership in the business community generally; 6) skilled business strategist (closely related to (4) – he used his foresight to change directions early before a market changed!).
  1. The Early Railroad Period: 1878 – 1882
    1. In the early 1870s Hill realized that a railroad into the Red River Valley would save settlers an entire year because they could arrive on their homesteads early enough to plant a cash crop of grain. With no railroad, they had to wait for the ice to melt on the Red River in order to travel by boat. Consequently, Hill studied the local railroads in great detail waiting for a chance to get into the business.
    2. During the Panic of 1873 the St. Paul & Pacific Railroad goes bankrupt and is placed in receivership. The financial situation of the SP&P was very complicated. Both common stock and bonds were used to finance the railroad at various times and the original railroad had had its assets transferred to a second company that in turn had issued bonds. These bonds had been purchased by a Dutch investor group. In addition, the State of Minnesota had given the SP&P a generous land grant expecting the railroad to complete its line to the Canadian border and the Legislature was threatening to cancel this valuable land grant. Finally, the legal status of the Dutch bondholders under Minnesota law was unclear.
    3. From 1874-1876 Hill gathered information on the legal, financial and legislative tangle in which the SP&S was involved. In the spring of 1877 Hill calculated that it would take about $5.6m to buy the SP&S and figured that the railroad and the land grants were worth at least $19.4m. In addition, Hill thought that he could greatly increase the operating efficiency of the railroad and annual earnings would be at least $600,000 to $800,000 per year.
    4. During 1877 Hill forms a group – later dubbed The Associates – consisting of himself, Norman Kittson, Donald Smith, and George Stephen. John S. Kennedy who was technically the trustee of the mortgages which the Dutch bondholders held, became the 5th Associate (a delicate balancing act of interests). Kennedy’s financial skills were of enormous value. He saw to it that the Dutch bondholders got their money back and that the railroad was transferred to proper management (which included himself) and was make solvent.
    5. The Associates make a deal with the Dutch bondholders in March of 1878. They now controlled the bonds. After that they had to:
      1. Complete the Branch Line from Melrose to Breckenridge and the main line from Crookston to the Canadian border by 31 December 1878 in order to retain the Minnesota land grants.
      2. Obtain control of the company – First Division of the St. Paul & Pacific – to which the SP&P property had been transferred by buying up a majority of its stock.
      3. Get the U.S. Court overseeing the bankruptcy to allow issuance of debentures to finance the required construction.
      4. Sign a "peace treaty" with the Northern Pacific allowing it trackage rights into St. Paul in exchange for the Northern Pacific not building a line up the west bank of the Red river and gaining control of the SP&P company stock which the NP had purchased in 1870. This problem was complicated by the fact that Minneapolis business leaders wanted their own railroad connection on the west bank of the Mississippi to St. Cloud/Sauk Rapids and they even had a charter for such a railroad. Complicating things further, the Northern Pacific tried for a time to get control of the line from the border to Winnipeg. Hill & Co. had "allies" on the NP board (which had been reorganized after its bankruptcy) who wanted to build West as rapidly as possible so as to retain the U.S. land grants rather than fighting with SP&P. {Hill’s weakness as a negotiator – he sometimes was too close to the problem and too emotionally involved and would get mad – more diplomatic business partners would have to step in and do the negotiating.}
      5. Get the U.S. Court to issue Decrees of Sale so that the foreclosure suits could be settled. The properties represented by the stocks and bonds that The Associates had gained control of were the subject of foreclosure suits under the various delinquent mortgages. This achieved in March and April of 1879.
    1. 23 May 1879 St. Paul, Minneapolis, & Manitoba Railway Co. formed with James J. Hill as general manager.
    2. Hill begins an aggressive campaign to upgrade the railroad.
      1. He switches from wood to coal for his locomotives.
      2. He follows scrap iron market like a hawk – when prices rise he ships old iron rails and uses the proceeds to lower the cost of replacing them with steel rails.
      3. He hauls immigrants North before winter is over at low rates and sells them homesteads from the Minnesota Land Grant at $2.50 to $5.00 an acre (many of the immigrants are from Norway and Sweden).
      4. He imported better strains of wheat from Russian that were more tolerant of the climate and provided them to the farmers. He tried – mostly unsuccessfully – to get the farmers to diversify into cattle raising by importing hardy strains of Scottish cattle and sheep and then loaning them cheaply to farmers for breeding purposes.
      5. At his Depots he sells cords of wood to farmers (Dakotas are largely tree-less!). This encourages farmers to take their wheat to the SPM&M.
      6. Builds the 51 mile railroad down west side of Mississippi River from St. Cloud to Minneapolis to both make the Minneapolis business leaders happy and to keep anyone else from building the line.
      7. Very conservative when it came to building branch lines. Hill felt that branch lines should only be built as a part of an overall plan and not just because the locals wanted them – even if, the locals were prepared to pay for themselves through local taxes. He was very wary of local subsidies unlike many other railroad men.
      8. He builds the Minnesota Transfer – a great freight year jointly owned by all the railroads to efficiently exchange traffic.
      9. He builds the Minneapolis Union Railway between Minneapolis and St. Paul and allows all railroads trackage rights to encourage the economic development of the whole Twin Cities area.
      10. He built the great Stone Arch Bridge across the Mississippi River.
    1. Hill was a very "hands-on" manager. He handled even the smallest details of the railroad. He was obsessed with getting the best right-of-way with the lowest grade and the fewest curves. Consequently, he went out on horseback or in his buckboard and personally scouted the routes.
    2. The railroad under Hill’s management prospered and so did The Associates. In May of 1880 the Associates had a balance of $278,000, by Nov. of 1885, $25,000,000.
    3. Indeed, Hill’s major "problem" was handling the tremendous profits the SPM&M was realizing under his leadership. Politicians and government generally regarded the net profits of a railroad as a tax levied upon the many for the benefit of a few stockholders. Reporting too much profit was an invitation for the politicians to legislatively lower passenger and/or freight rates. Consequently, Hill plowed much of his true profits into capital improvements that were charged to operating expense. The result of these "forced loans" was to create an even more efficient and well-built railroad that in turn directly increased its earning power. This earning power would clearly justify further issuance of stock but oftentimes the charter of the railroad had strict limits on how much stock could be issued!
    4. In 1881 Hill became a member of the syndicate that built the Canadian Pacific Railroad. He was largely responsible for its route West through the Rockies. Hill wanted the CPRR to go through the upper peninsula of Michigan and be, in effect, an extension of the SPM&M to the Pacific that would compete with the Northern Pacific. Canadian nationalism won the day and the CPRR was built wholly within Canada north of Lake Superior. Hill pulls out of the CPRR in 1883 and sells all of his stock. He is now convinced that he must build his own railroad to the Pacific to control his own destiny. The Northern Pacific reaches Seattle in 1883 and the CPRR is completed in 1885.
    5. SUMMARY: By 1882 Hill was 44 years old and his business style was well established. 1) Hard working; 2) very competitive with an emphasis on quality service; 3) very reliable and concerned with his customers; 4) the ability to master the details of a new business quickly; 5) leadership in the business community generally; 6) skilled business strategist; 7) built up the population around his railroad.
  1. Building the Great Northern: 1883 – 1893
    1. In 1883 Hill – who was made President of SPM&M in 1882 (but who had always been in charge in any event) – extends the railroad east to Devil’s Lake in present day North Dakota, 80 miles west of the Red River.
    2. Hill had long been interested in Montana and had traveled through the territory several times. In 1883-85 Hill and his partners bought a large amount of land in Great Falls. Hill thought the falls would be a valuable source of power and with the nearby coal and minerals he believed that there would be industrial development there.
    3. In 1885 Hill decides to build the SPM&M to Montana. In 1886 he begins construction of the Montana Central from Great Falls to Butte (rails laid in 1887) and builds the SPM&M to Minot, North Dakota. {Minot named for Henry D. Minot – Hill’s key subordinate – a very un-modest young man!}. Hill’s intent was to extend the SPM&M to Great Falls and thereby tap into the huge amount of mineral resources in Montana.
    4. In order to build across Montana Hill needed legislation from Congress giving him a right-of-way over Indian lands. Congress passed the bill but President Cleveland vetoed it in July, 1886. {The NP and UP worked against the passage of the bill for obvious reasons – they wanted no competition AND they enjoyed public subsidies to boot!} Hill was furious, as he was a prominent Democrat and a supporter of Cleveland and thought he had an understanding that the bill would be signed. Strangely, Cleveland then signed a virtually identical bill later that year clearing the way for the construction in 1887.
    5. Even before Cleveland’s final approval, in the fall of 1886 after the harvest was in, every available locomotive and every piece of rolling stock was used to carry the vast quantities of materials for the summer 1887 construction to Minot.
    6. During the summer of 1887 643 miles of steel track railroad was built from Minot, North Dakota, to Helena, Montana. The SPM&M reached Helena on 18 November 1887. That same summer the rails were laid on the Montana Central from Helena to Butte.
    7. Hill immediately set to work finding industries to locate along his new line. He managed to get the business of Anaconda Copper Company and a big copper refining plant is built in Great Falls.
    8. Hill had long been convinced shipping over the Great Lakes would expand. Ever forward-looking, he purchased large elevator facilities in West Superior, Wisconsin (across from Duluth) in 1886. He then had high quality steel hulled lake steamers built in 1887 and dock facilities in Buffalo, New York that same year. Hill now had an independent connection to Lake Superior and Lake Steamers to carry his traffic all the way to Buffalo. In addition, he built railroads to the southwest of Minneapolis-St. Paul. Hill’s plan was to tap as much of the grain crop as possible to his railroad system and send it to Superior. It would then go by lake steamer to Buffalo where it would get competitive rates to New York City because competition between the Erie Canal, New York Central railroad, and the Erie railroad. Hill could quote through rates to his customers all the way to New York City!
    9. In 1889 Hill decided that he had to build all the way to the Pacific Ocean. In order to control his own fate, Hill realized his system had to be a transcontinental. That way, it did not have to depend upon other railroads for traffic from the West Coast and the China-Japan trade. (In addition, he could tap into the traffic up and down the West Coast as well.)
    10. Hill said of his line through the Rockies and the Cascades that "What we want is the best possible line, shortest distance, lowest grades and least curvature that we can build. We do not care enough for Rocky Mountain scenery to spend a large sum of money developing it." (1890) Accordingly, he sent Major John F. Stevens out to find the legendary Marias Pass through the Rockies in Montana. Lewis and Clark had found the Pass in 1805 but no White man had been able to find it since. Stevens found it in December 1889 – only 5,216 feet (on the southern edge of Glacier National Park).
    11. The 900 mile stretch from Havre, Montana to Seattle, Washington, was completed on 6 January 1893 after some heroic feats of construction. (Huge bridge at Cut Bank, MT; switchback in Cascades until tunnel could be bored through Stevens Pass.) The entire railroad was built with no public money or land grants. Hill and his partners had to raise the capital themselves. This proved to be complicated since the other transcontinentals – who had gotten land grants – had such poor reputations with investors. Hill used a railroad charter granted by the 1856 Minnesota territorial legislature to build the railroad. He renamed the enterprise the Great Northern and leased the MSP&M to the GN. The charter allowed Hill to do almost anything he wanted in terms of building new lines or buying up old ones. {Aside – recall that corporate charters were pretty primitive before the Civil War – what Hill did was pretty common practice – we will see a similar episode – The Southland Improvement Company – when we talk about Rockefeller.} The bottom line is that this enable Hill and the other owners of the MSP&M to own the Great Northern as well as attract European investors.
  1. Triumph: 1893 – 1916
    1. The competition of Hill’s transcontinental in January 1893 came only 6 months before the great financial panic that summer that led to the worst depression since the depression of 1837-41. {Aside – The Depression of 1837-41 was probably the worst in American history – even worse that the Great Depression of the 1930s. The key difference is that the Depression of 1837-41 occurred when most of the population was still engaged in subsistence farming!} Hill, because of the conservative capitalization of his railroads and his philosophy of quality construction – low grades, fewer curves, shortest distance, steel rails, etc. – was in good financial condition going into the depression. But Hill, like every other major railroad, relied upon occasional term loans at fixed interest rates for his business and during the worst of the panic through August 1893 his treasurer had to scramble to raise the needed funds. {Aside: Banks were failing at such a rate that everyone wanted currency – not bank drafts, but currency since no one could be confident that a bank would be around to honor its drafts! As a consequence, the price "hard" money – National Bank Notes, Treasury notes, Greenbacks – and Gold climbed. "Hard" money and Gold flowed out of the major New York Banks into the regional banks because the regional banks were under assault. This only worsened the situation.}
    2. Hill responded to the crisis in his characteristic way.
      1. If he was to save his railroad system he had to make certain his customers were not dragged under by the financial panic. To help the farmers he pressured the elevator operators to lower their prices and arranged for credit for the elevator operators so they could buy the farmers’ wheat. He arranged for credit for the Lewisohn copper smelter in Great Falls so it could meet its payroll, and so on.
      2. He took strong measures to economize and cut expenses. The efficiency of the railroad along with the drop in the prices of both supplies and labor during the depression enabled Hill to reduce the cost of carrying a ton of freight by 13 percent in just one year – 1894-1895.
    1. As a consequence, the Great Northern made good money in 1894 and 1895. In contrast, the other transcontinentals – the Union Pacific, the Northern Pacific, and the Santa Fe – all went bankrupt and into receivership. Personally, from 1885 to 1890 Hill’s net worth increased from $7.7m to $9.6m and, despite the depression, it increased to $12m in 1895 and $19.4m in 1901.
    2. The depression came to an end in 1896 and by 1897 Hill – who plowed much of his true profit {Aside – recall the prevailing view of the time that "surplus" profits were a "tax" on the public} back into the GN -- had replaced all the major wooden bridges and trestles in his system with iron or granite. The efficiency of the GN was such that the cost of carrying a ton of freight one mile approached the incredibly low figure of ¼ cent. As a consequence, Hill’s influence spreads:
      1. His lieutenants went to other railroads and applied his principles making many other railroads operate more efficiently.
      2. He is asked to help reorganized the B&O railroad. When he was asked to participate he set a high ethical standard as his condition for participation. He insisted that the syndicate in charge of the reorganization do so in a constructive, long-run manner, and not seek to make a quick profit for themselves. He personally traveled the entire system and insisted that $20m be spent lowering grades, straightening curves, installing heavier steel rail, and upgrading the rolling stock. He later brokered an agreement with the PARR to prevent destructive rate wars. The consequence was a greatly improved B&O. Hill’s prestige rose accordingly.
    1. Acquiring the Northern Pacific and the Burlington: In 1895 Hill put together a group and tried to get control of the bankrupt Northern Pacific. He was unsuccessful initially, but with J. P. Morgan’s help he gains control of the Northern Pacific in November 1900. Although Hill could not formally merge the NP with the GN under Minnesota law, he could do so de facto through ownership of stock in both properties. {Aside – We will see this same approach when we talk about Rockefeller and The Standard Oil.} Hill and his associates controlled enough NP shares to control the board of directors and Hill then set out investing more and more of his own money in the NP until his personal stake rose to $10m by 1906.
      1. In the late 1890s Hill got his neighbor, Frederick Weyerhaeuser, interested in the northwest timber business and Hill now had some considerable east-bound traffic on the GN.
      2. He began diverting some of his "excess" profits from the GN to rebuilding and upgrading the NP.
      3. To bolster both the GN and NP, Hill wanted control of the Chicago, Burlington & Quincy railroad because of its line into Billings, Montana from Nebraska. The extensive network of Midwestern lines of the Burlington would allow the shipment of goods – especially lumber which was in short supply in the treeless prairie – directly from the Pacific Northwest to the Midwest in competition with the Union Pacific. Hill’s aim was to eventually buy a railroad into the southeast to connect the Burlington to the Gulf coast (which he did in 1908). Hill, with the backing of J. P. Morgan, buys the Burlington in mid-April 1901 and it becomes part of the Northern Pacific railroad.
      4. The Union Pacific had become, by default, a Northwest transcontinental in direct competition with the GN and NP. The Union Pacific was charged very high rates for through freight by the Central Pacific. The Central Pacific owners – the Big Four – also built the Southern Pacific which in turn controlled the California freight market. This forced the UP to build the Oregon Short Line from Granger, Wyoming to the Oregon-Idaho border where it joined the Oregon Railway & Navigation Co. line into Portland. (It had the best route of all the railroads – straight down the Columbia River Gorge.)
      5. The Union Pacific at this time was controlled by Edward H. Harriman {we will be talking about Harriman later in the course} a financier and railroad man who shared Hill’s general philosophy of how to run a railroad. Harriman wanted control of the Burlington himself, and failing total control, wanted an interest in the Burlington which Hill refused.
    1. The Northern Securities Company: Harriman, who was no shrinking violet, is determined to protect his interests so he quietly begins buying Northern Pacific stock with the aim of gaining control of the Burlington railroad. With the backing of William Rockefeller and his nearly bottomless millions in profits from the Standard Oil Company, Harriman and his broker, Jacob Schiff, were able to buy an aggregate majority of the common and preferred stock by 4 May 1901. But control of the NP really rested with the common shares and Harriman did not have a majority of those. Realizing this, he ordered Schiff to buy 40,000 more shares of common but Schiff – who was a religious man -- was in the Synagogue and could not execute the order immediately. In the meantime, Hill learned of Harriman’s activities and contacted J. P. Morgan who was in Europe on vacation. Morgan orders his men to buy everything they can get their hands on at any price.
      1. When the smoke cleared, Hill’s group had $42m of NP securities and Harriman’s group, $37m, with only $1m of securities held by outsiders.
      2. The consequence was serious chaos on Wall Street the likes of which had not been seen in many years. Many brokers had gone short on NP stock and there was none to be had at any price. This naked exercise of raw financial power on the part of some of the most important financiers and industrialists was widely criticized and all the parties soon realized that they had to call a truce. {Albro Martin writing about this episode says: "In agreeing to a truce, the Hill-Morgan and the Harriman-Schiff-Rockefeller forces realized that they had been about to bring the temple down on their own heads.}
      3. Hill and Morgan cooperate with Schiff to release enough stock to the "Shorts" to avert bankruptcy and a financial panic.
      4. On 6 September 1901 the Northern Securities Company was incorporated in New Jersey with a capitalization of $400,000,000. The Holding Company was formed to control the GN, NP, and Burlington. That same day, McKinley was shot in Buffalo, New York!
      5. Hill always claimed that the sole purpose of the Northern Securities Company "was to provide a safe place for the railroad securities which he and a few elderly associates of considerable wealth had accumulated, and which represented their lives’ work, which they did not want to see quickly torn down."
      6. But others did not see it that way – particularly President Theodore Roosevelt who goes after the Northern Securities Company in February, 1902.
      7. On 14 March 1904 by a 5-4 decision, the Northern Securities Company was ordered dissolved under the Sherman Anti-Trust Act of 1890 as an illegal combination in restraint of trade even though no damage had been shown.
    1. Since Hill and his group were the majority stockholders of the Northern Securities Company, when the Company was dissolved stock was issued pro-rata in the GN and NP making Hill and his group the majority stockholders of railroads. Harriman eventually sold out his interests by 1908 leaving Hill to run the three railroads.
    2. In his last acquisitions of 1906-1908, Hill acquires the Colorado and Southern lines into Galveston, Texas, and by 1910 the Burlington had more north-south traffic than east-west traffic! Hill also decides to protect his interests in the Northwest by building a railroad into Portland, Oregon from Spokane, Washington up the north side of the Columbia River Gorge – the Spokane, Portland & Seattle Railroad.
    3. By 1910 Hill was one of the most famous men in the U.S. and was worth $53m. Hill was a strong supporter of soil conservation and scientific farming. He traveled extensively throughout the upper Midwest and Northwest making hundreds of public speeches at countless county fairs encouraging farmers to adopt more advanced methods of farming. He published numerous articles on his views of farming and the worth of education and spoke out strongly on the punitive railroad laws passed before World War I.
    4. Hill was a strong supporter of Free Trade and lobbied hard for trade reciprocity with Canada. It passed Congress in 1911 only to be killed by the Canadians. {Aside – An incredibly stupid thing for Canadians to do – it was not until 1991 (??) that Free Trade between the U.S. and Canada was achieved.}
    5. Hill’s last major act was to help President Wilson arrange the Anglo-French loan of 1915 to assist the hard-pressed English and French. Hill insisted that none of the money could be used to buy munitions. The money must be spent to buy food, clothing, and provisions and that no sales commissions be paid to the bankers beyond an underwriting fee. Amounts subscribed outside New York must be left in the local banks until the goods were paid for locally. Even so, Hill took substantial flack from Minnesotans of German ancestry but he served his country well.
    6. Hill dies in St. Paul on 29 May 1916.
    7. Summary: Business Style. 1) Hard working; 2) very competitive with an emphasis on quality service; 3) very reliable and concerned with his customers; 4) the ability to master the details of a new business quickly; 5) leadership in the business community generally; 6) skilled business strategist; 7) built up the population around his railroad.


Below is a 1997 map of the Burlington Northern (GN, NP, and Burlington) Santa Fe. The BN was formed in 1970. What J.J. Hill wanted to do in 1901 was finally done legally 69 years later. For comparative purposes, a map of the Union Pacific/Southern Pacific is shown below the BNSF map.


Below is a 1997 map of the Union Pacific/Southern Pacific railroad. Note that the UP runs on the south side of the Columbia river along the original Oregon Railway & Navigation Co. line while the BNSF runs on the north side of the Columbia river on the Spokane, Portland & Seattle Railroad built by Hill in 1908.


Copyright © 1997 KPoole@ucsd.edu Keith T. Poole
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