San José State University
Department of Economics
& Tornado Alley
Great Northern Railroad
James J. Hill
James J. Hill was a different breed from the others who built transcontinental railroads across the U.S. First of all he was from Canada. He was born in Ontario and lost his father at an early age. Hill supported his mother as soon as he could work. He worked in a grocery during his early youth. At seventeen he left Canada for St. Paul, Minnesota where he found work as a clerk in a transportation company. As he matured and accumulated savings he invested in shipping then steam ships and finally railroads.
There was a bankrupt railroad in the area, the St. Paul and Pacific Railroad. Hill and other Canadians purchased the bankrupt railroad from its bondholders with intentions of completing its track. There was only ten miles of track, not all connected, when Hill and his associates purchased it. The railroad had received subsidies but those were not sufficient to overcome the railroads mismanagement, or perhaps it was mismanaged because of the availability of the subsidies.
Hill and his group completed the St. Paul and Pacific line, which only extended into Minnesota, and they ran it profitably. Hill then decided to extend the railroad into North Dakota. He built carefully and promoted the agricultural development of the area his railroads served. This is in strong contrast to the history of the Union Pacific, the Central Pacific and Northern Pacific railroads which built to get the Federal sudsidy and loans. The Central Pacific and the Union Pacific got twenty square miles of land for each mile of track they built. In addition these railroads got Federal loans of $16,000 for each mile of track laid in flat praire land, $32,000 for a mile in hilly terrain and $48,000 for a mile of track in the mountains. If one of these subsidized railroads went broke the loans would not be repaid so the loans might be the same as an outright subsidy. As a result of these subsidies the subsidized railroad laid track with the reciept of the subsidy in mind. This meant that they sometimes took longer routes for the track rather than the more efficient routes. They also laid track under conditions such as in ice and snow that meant that it would have to be relaid in the future. That did not matter because the railroads wanted the subsidy now and would worry about the future later.
Hill did not operate this way. He and his survey crews searched diligently for the most efficient routes. And he was concerned about building for long run economy. He imported steel rails from Britain because they were of better quality than the American rails being manufactured at that time. The British rails were more expensive but Hill felt that the better quality more than justified the higher price.
Hill promoted the agricultural development of the areas his railroad served by doing such things as giving away livestock and seed grain to get the farmers started. He built branch lines to serve areas away from the main track.
The situation was quite different for the subsidized railroads. Congress was concerned about the repayment of the loans given to them so it passed legislation, The Thurman Act, which required the railroads to set aside 25% of their earnings for repaying the loans. Congress restricted the subsidized railroads from building branch lines because it feared the additional expense would jeopardize the repayment of the loans. The constraints placed on the railroads made it difficult for them to ever improve their earnings. They went broke and were reorganized and went broke again.
Hill's Great Northern Railroad did not go broke despite all of the impediments placed in its way by the political maneuvering of the subsidized lines. Hill tried to promote American exports to East Asia. For example, he encouraged Japanese textile factories to start using American cotton as well as cotton from India by giving them a large shipment to get them acquainted with its quality. His transshipments of cotton grew signficantly but in part because he gave the Japanese textile mills a lower rate on their cotton shipments than he gave his other customers.
The public dissatisfaction with the subsidized railroads led to the creation of the Interstate Commerce Commission (ICC) which then prohibited Hill from giving special rates to the Japanese textile mills for their shipments of American cotton. This component of Hill's Great Northern rail business was lost. Thus, while Hill did not receive the Federal subsidies of the other railroads he had to comply with the punishment that their inefficiencies brought down up on all railroads.
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