[Illustration:
JAMES G. FAIR. ]
It is of interest to recall the fact that the original Comstock syndicate, most of whom derived such enormous wealth from the Comstock lode, was composed of Messrs. Mackay, Flood, O’Brien, Fair and Walker. Soon after these gentlemen became associated in their great enterprises, Walker sold out his share of one-fifth to Mackay, for a very small consideration, and this consequently gave that gentleman an interest of two-fifths, against the one-fifth share held by each of the three others in the firm, a fact which accounts for Mackay’s greater wealth. Walker, one of the original parties in interest, afterward not only lost in mining and other speculations the amount which Mackay had paid him for his share, but all his other means, and was, in fact, completely beggared, and died in an asylum for paupers. He had experienced dramatic vicissitudes of fortune. He ought to have been worth fully twenty millions of dollars. He died without a penny.
W. S. O’BRIEN.
W. S. O’Brien was associated with Mackay, Flood and Fair in developing mines on the Comstock, and died in 1878, enormously wealthy. He was born in New York, went to San Francisco in the early days of the gold excitement, and at first kept a liquor saloon with Flood. He gradually engaged in mining speculations, and ultimately met with such success that he died famous as one of the bonanza kings. It is an interesting circumstance that four Irishmen secured the lion’s share of the bonanza millions, and they were all born poor. The harp of Tara’s halls never was struck to so strange a roundelay as this.
JAMES G. FAIR.
James G. Fair is another of the bonanza kings who has had an interesting career. He was born Dec. 3d, 1831, near Belfast, Ireland. He came to this country with his parents in 1843 and settled in Illinois. He received a thorough business education in Chicago, and at the same time devoted considerable attention to scientific studies. On the breaking out of the gold fever in 1849 he removed to California, settling at Long’s Bar, Feather River, in that State. He mined on the Bar for some time without much success, and then turned his attention to quartz mining. Placer mining in those days was conducted in too primitive a fashion to suit a man of his mechanical ingenuity. Placer, by the way, is a term of Spanish origin, signifying a gravelly place where gold is found, especially by the side of a river or in the bed of a mountain torrent. In quartz mining, on the other hand, the metal is obtained by smelting after crushing the rock of which it forms a part. Mr. Fair engaged in quartz mining in Calaveras county, California, and later became superintendent of various quartz mines in other parts of the State. In 1855 he became superintendent of the Ophir, and four years later of the Hale & Norcross. In 1860 he removed to Nevada and became actively engaged in developing mines. In 1867 he formed a partnership with John W. Mackay, James C. Flood and Wm. S. O’Brien. The firm, at Mr. Fair’s suggestion, obtained control of the California and Sides mine, the White & Murphy, the Central Nos. 1 and 2, and the tract known as the Kinney ground, and it was in this rich field that the famous California and Consolidated Virginia mines were developed, the yield of which, under Mr. Fair’s superintendence, is estimated at about two hundred million dollars. He began speculative buying of real estate in San Francisco in 1858, and is now said to own seventy acres of land in different parts of that city, constituting in itself an enormous fortune. He was elected to the United States Senate as a Democrat to succeed the Hon. William Sharon, and took his seat in 1881, his term expiring March 3d, 1887. In person Mr. Fair is of about the medium height, of compact, solid build, has handsome features, and is a man who would be likely to attract attention anywhere. His fortune is estimated at from ten to twenty millions.
WILLIAM SHARON.
William Sharon was one of the remarkable men developed by the mining excitement in this country, one of the sagacious, self-reliant men who inevitably come to the front wherever they are found. He showed his mettle when the Bank of California was forced to suspend, and when a commercial pall hung over San Francisco. In the midst of the frenzied excitement he was one of the few who kept cool and never lost their courage. The wild excitement on the Stock Exchange of San Francisco was stopped at his suggestion that the sessions be indefinitely postponed. Then he called a meeting of the Bank of California directors and made a stirring appeal to them to stand by the bank in the hour of its misfortune, and rescue the business interests of the coast from the paralysis by which they were likely to be seized if they did not take a resolute stand, put their shoulders to the wheel and acquit themselves like men. He proposed that each subscribe liberally to put the bank again in operation, and set the example by a very large subscription—said to have been five million dollars. Others also subscribed liberally, and to the astonishment and joy of the city the bank again threw open its doors for business. He had some years prior to this become connected in business with the lamented Ralston.
William Sharon was born in Ohio, and early in life began the practice of law in Illinois. He went to San Francisco, and immediately engaged in the real estate business, and ultimately became a very large operator in lands, but failed, and in 1863 went to Nevada to take the agency of the Bank of California in Gold Hill and Virginia City. The bank had large loans out on mining property, and as the production of many of the mines had seriously declined, Ralston grew uneasy, and was greatly relieved when Sharon offered to become personally responsible for these loans on condition that the bank advance him a considerable sum to be used in contemplated mining developments, and allow him two years in which to meet the loans. The terms were accepted. Sharon ran new drifts here and there, and in four months, to Ralston’s amazement, paid all the loans, and placed on deposit three-quarters of a million to his own account. This feat drew general attention to him; he was consulted in large operations; he became a director in the great bank. He never forgot Ralston’s kindness to him. He assumed entire charge of the personal affairs of Ralston after his death, and settled on Mrs. Ralston nearly half a million of dollars. He finally entered politics, and represented California in the United States Senate. He was a conspicuous example of business acumen and surprising energy, as well as of becoming gratitude to the knightly Ralston, of whom he always said: “He was my benefactor.”
WM. C. RALSTON.
Wm. C. Ralston was one of the most notable, as he was one of the most remarkable, of all the financial giants of the Pacific Slope. He ascended the gilded summits of financial renown, and he fell into a shadowy valley of stern retribution and utter ruin. No man could be more popular, none could exhibit greater daring in his business enterprises. He was a New York boy, but drifted to the West, and became a clerk on a Mississippi steamboat, finally became Captain, and having amassed some money, he leaped into speculative waters, like another Leander, to swim the Hellespont of California finance. He became associated with Commodore Garrison and two others in the banking business in San Francisco about 1853. Finally he organized the Bank of California, and became first its Cashier and then its President. His rise was marvellous. At one time he was supposed to be worth $20,000,000 or more. He had a country seat at Belmont, in San Mateo county, that a king might have been proud to own, and here he entertained in royal fashion. Every celebrity that visited California was received with regal hospitality by this monetary prince of the golden State. But as the allied armies arrayed against Napoleon were often put to rout from being too much spread out, so this financial Titan, combining the genius and courage of many in one, was finally overthrown by adverse fortune, because his enterprises were too much spread out. He had too many projects on hand at one time. He lost heavily in mining and real estate speculations; he lost in manufacturing enterprises. Fate struck him suddenly as with the hammer of Thor. In one fearful storm of trouble all his misfortune descended upon him at once. All the waves and billows of adversity broke over him. He had no chance to recover himself. Birnam seemed all at once to come to his financial Dunsinane. An investigation of the affairs of the Bank of California was made by the directors of that institution. Their suspicions had been aroused that Ralston’s administration of its affairs was open to grave criticism. He attended the meeting of the directors, and was coldly requested to withdraw during the discussion. He who had been absolute in the great bank saw that his power was gone; he stood on the brink of a moral Niagara. He left the Directors to make the inevitable discovery that he had over-issued the stock of the bank some $6,000,000, and crazed with grief and despair, found a suicide’s death in the waters of the bay. He had over-issued the stock hoping and believing that success in some one of his numerous and gigantic enterprises would enable him to provide for it, but disaster stealing on him suddenly, like a thief in the night, frustrated any plan of restitution, and he paid for his fault with his life. He was a man about five feet seven inches in height, with a rather florid complexion, a full light brown beard and kindly brown eyes. He was once the idol of California, and his one great fault is almost swallowed up in the memory of his princely generosity, his hearty geniality, and his many other engaging traits.
JOHN P. JONES.
John P. Jones has had an eventful career. He has made and lost millions. He was worth at one time five or six millions. He lost very heavily in railroad enterprises in Southern California. He had been engaged in mining and had won a big heap of treasure, probably as much wealth as any one needs, or more, but with the restless ambition of one who would travel still higher up the glittering heights of financial fame he sought to emulate Huntington, Stanford and others and become a railroad magnate. It was a case of vaulting ambition o’erleaping itself and falling on the other side. He lost almost his entire fortune, but he has now regained his feet again and is once more wealthy. He profited by the revival of interest in mines and mining stocks in 1886, and secured, moreover, a considerable interest in the Alaska mine, in which D. O. Mills was interested. He bought stocks of once famous mines at low prices, and when the advance on the revival of public interest in mining shares took place he was a large gainer. John W. Mackay has within the last few years shown a disposition to lend him assistance in his endeavors to recover his former footing. John P. Jones is one of a number of Englishmen who have won financial celebrity in this country. He was born in Herefordshire, England, in 1830, and came to this country with his parents when only a year old, settling in Ohio. For a few years he attended school in Cleveland. In the early days of the gold excitement in California he emigrated to that State and engaged in farming and mining. He acquired a taste for politics. He represented his county in both houses of the State Assembly. In 1867 he went to Gold Hill, Nevada, and has ever since been engaged to a greater or less extent in developing the mineral resources of that State. In his earlier days he worked hard as a miner in one of the counties of California. He worked in placers and tunnels; he had many ups and down. He was daring and ambitious, and sometimes seemingly reckless. He spent a million dollars trying to develop some mines in Mono, California, and then gave up the attempt. At one time he controlled the Ophir, Savage and Crown Point mines on the Comstock lode; he owned large establishments for the manufacture of ice in Georgia, Louisiana and Texas and elsewhere; he made large purchases of land in California; he engaged in a multitude of ambitious enterprises. He had too many irons in the fire. Misfortune did not daunt him. Like the old hunter of tradition, his motto was, “Pick the flint and try it again.” He may yet become a financial power again. He has a certain readiness as a speaker; he is of large frame and not unpleasing aspect, and his taste for public debate and the excitements of the political arena have led him into contests for public honors which have been successful. He was elected as a Republican to the United States Senate in 1872, and has twice been elected, so that his term will not expire until 1891.
R. J. Baldwin has become widely known by the sobriquet of “lucky.” He is 59 years old and was born in Ohio. His father moved to Indiana and had a farm adjoining that of Schuyler Colfax. There he worked till he reached his twentieth year. He married in the following year and went to a small place in Indiana and kept a country store; he soon built canal boats to ply between Chicago and St. Louis. He went to Racine, Wisconsin, in 1850, and engaged in the grocery business with considerable success. He was keen at a bargain and always had an eye out for the main chance. His so-called “luck” was in reality business skill. He went to California in 1853, after purchasing a number of horses and wagons and an ample supply of merchandise. He found a good market for his goods in Salt Lake, making nearly four thousand dollars on the venture, and further on he sold his wagons and harness and made up a pack train over the mountains, and, arriving in San Francisco, sold his teams at good prices. His trip had been a complete success. He now went into the hotel business, and, after selling out twice to good advantage, he formed a partnership to engage in the brick trade, which, proving very successful mainly through his skill in drumming up business, he decided to go into it alone. He himself knew nothing about brick making, but he studied up the subject and eventually became an expert. He obtained remunerative contracts with the Government; he boarded his men and made for a time about fifteen hundred dollars a month. He finally sold out and went into the livery business. He made money and invested considerable in real estate. He sold out and went to Virginia City, Nevada, at the breaking out of the mining excitement there. At that point he started a lumber yard. He speculated in mines and met at times with great success, but once he was so badly worsted in this great game that he was compelled to mortgage all of his property; but the tide turned soon and became a flood of gold. He speculated in such mines as the Crown Point, Belcher, Consolidated Virginia, California and Ophir. He acquired at one time the controlling interest in the Ophir. He has speculated heavily in San Francisco real estate, and with marked success. He erected a building there that cost, with all its appurtenances, over three million dollars. Part of it is used as a theatre. He bought sixty thousand acres of land in Los Angeles county, and had practically a town of his own. He spent about half a million dollars improving this tract, more particularly his Santa Anita ranch of over fifteen thousand acres. His sagacity and industry, rather than mere “luck,” have won him his fortune of ten or fifteen million dollars.
WILLIAM H. STEWART.
William H. Stewart, another successful man of the Far West, who has twice represented Nevada in the United States Senate, was a New York boy, born in Wayne county in 1827. A good many New York boys have succeeded in the West. He went to California early in 1850. In the fall of that year, while prospecting, he discovered the Eureka placer diggings; he built saw mills, worked claims because disgusted with mining, went to Nevada City in the spring of 1852, and in December of that year was appointed District Attorney, was elected to that office in the following year, and in 1854 was appointed Attorney General, thereupon taking up his residence in San Francisco, where, by the way, he married a daughter of ex-Governor Foote, of Mississippi. Later he returned to Nevada City and established a very lucrative law practice, and remained in that county till the spring of 1860, when the furore over the Comstock mines induced him to go to Virginia City, Nevada. He thoroughly understood mining law, and soon had a large practice. The large sums which his legal talents brought him were invested in mines, and he became one of the leading operators on the Comstock lode. He invested half a million dollars in San Francisco real estate. He rendered important services to mining interests while in the United States Senate, in preventing the passage of a bill providing for the sale of all the mineral lands of the country at public auction, a measure which it was supposed would concentrate much of the mining property of the United States into the hands of the wealthy.
JAMES LICK.
James Lick, born in Pennsylvania in 1796, was one of the strange characters of California. He went there in 1847, after having been a manufacturer of pianos in this country and different parts of South America. He took $30,000 to San Francisco, which he invested in real estate, foreseeing that it was to become the great city of the Pacific Slope. He bought lots by the mile. His profits were enormous. He became one of the great millionaires of California. He set aside $2,000,000 in 1874, to be held by seven trustees, and to be devoted to certain public and charitable purposes. In 1875 he desired to make some changes in his schedule of gifts, and when the trustees expressed some doubts as to their legal right to give assent, at his request they resigned. The next year he died, and then followed a litigation by his son and other heirs, which was finally so adjusted as to leave a large sum to be devoted to various public and charitable projects. He left $60,000 to be devoted to a statue of Francis Scott Key, the author of the “Star Spangled Banner.” He was very eccentric, due, it is said, to an early disappointment in love. He sought the hand of a miller’s daughter, but was dismissed by the father, because young Lick did not own a mill. When he became enormously wealthy, James Lick built a large mill, and adorned it with mahogany and costly woods as a memorial of his youthful attachment. He seemed to derive almost childish pleasure in contemplating this splendid building, which would have so far outshone any that could ever have been owned by the man who had once spurned him for his poverty. The poor young men of one generation are often the millionaires of the next. One of the great monuments to his memory is the great Lick Observatory.
JOHN W. SHAW.
John W. Shaw, who made considerable money in mines and mining stocks, is one of the Western millionaires who reside in New York. He was a superintendent of mines, and speculated on his information. He was at one time prominently identified with the Eureka Consolidated mine. He is supposed to be worth $4,000,000 to $5,000,000, and is now President of the Hocking Valley Road. Messrs. Keene, Lent, Dewey, Harpending, Verdenal and other more or less successful men well known in California, live here. One of the distinguished lawyers of the West who have come here to establish a practice is ex-Governor Hoadly, of Ohio. Austin Corbin, though at one time a lawyer in Iowa, found his true field in New York, and Alfred Sully, after amassing some means in the same State, likewise found himself drawn to New York, and won unexpected success in finance here.
------------------------------------------------------------------------
CHAPTER XLIII.
RAILROAD INVESTMENTS.
VASTNESS OF OUR RAILROAD SYSTEM.—ITS COST.—FALL IN THE RATE OF INTEREST.—TENDENCY TO A FOUR PER CENT. RATE ON RAILROAD BONDS.—EFFECT OF THE CHANGE ON STOCKS.—PROSPECTIVE SPECULATION.—SOME SOCIAL INEQUITIES TO BE ADJUSTED THROUGH CHEAPER TRANSPORTATION.
There are, perhaps, few who distinctly realize the magnitude of the amount of capital invested in the railroads of the United States. The immense area over which our population is distributed necessitates a much greater length of railroad, as compared with inhabitants, than exists in any other nation. In 1884 we had, according to “Poor’s Manual of Railroads,” no less than 125,380 miles of road within the United States, which exceeds the entire mileage of Europe. This was required to provide for the travel and transportation of about 54,000,000 of population, while Great Britain, France, and Germany, with their combined population of 120,000,000, had in the same year about 60,000 miles, and Russia, with some 85,000,000 of people, had only about 19,000 miles.
It can hardly be a matter for boasting that we have found it necessary to provide such a disproportionate length of road to accommodate the wants of trade and travel; for the more capital we have to invest in the facilities for carriage the less we have for investment in the means for production, and the more we have to pay for transportation service the worse is our position for competing with other nations. This, undoubtedly, is a much more important factor than is generally allowed in the question of our ability to command a share in the world’s international commerce proportioned to the extent of our population.
The cost of our railroads, as indicated by the capitalization statements of the Companies in 1884, is represented by $3,669,116,000 in bonds and $3,762,016,000 of stock. As shown in another chapter on “Railroad Methods,” the actual cash outlay in construction and equipments is very much less than these figures; but the roads aim to earn an investment return on these enormously inflated amounts, and do so as far as they may be able.
Elsewhere in this volume I have shown how the effort to earn dividends upon hundreds of millions of fictitious railroad capital is imposing an unjust tax on the people, retarding the growth of national commerce and creating a distinct millionaire class not without danger to our political future; and I wish here to refer to one fact from which we may hope for some mitigation of this pernicious tendency.
Within recent years it has become very clear that a large permanent reduction has been effected in the rate of interest on fixed capital. Perhaps, the principal causes of this change has been (1) the high credit of the Government, represented by a 3 per cent. rate of interest on its loans; (2) diminution of the element of risk in our corporate enterprises; (3) the more developed and consolidated condition of our industry; and (4) the growth of the national earnings in a ratio disproportionate to the new undertakings inviting capital. To such an extent has the loanable resources of the country increased that, whereas ten to fifteen years ago we found it necessary to borrow in other countries a large portion of the money needed to build our railroads, we are now almost entirely independent of European lenders, and are beginning to invest in the construction of roads in Canada and Mexico.
Thus comes about the fact that, while the bulk of the new outstanding railroad bonds bear interest at 6 to 7 per cent., with exceptions at 5 and 8 per cent., there is no difficulty in now negotiating the mortgages of sound railroads at 4 per cent., and that may be safely regarded as the future rate for all meritorious loans. It is not difficult to see to what course of things this fact points. If new roads can be built on a 4 per cent. ratio of interest charges, then the new constructions on that basis and the gradual replacing of maturing loans at the same rate will very quickly establish a competition between roads thus situated and the large mass of companies burdened with the old high rate of interest that will bear very seriously on the latter. To a company with, say, $40,000,000 of bonded debt, it is a matter of a difference of $800,000 per year in fixed charges whether it pays 6 per cent. interest or 4 per cent. This difference will be so vital in cases of competition between high rate roads and low-rate ones, that it will leave no choice, with a very important proportion of our railroads, between facing financial embarrassment and taking immediate steps for readjusting their debts to the new and lower rate of interest. As an important proportion of the original bonds issued 25 to 30 years ago at 6, 7, and 8 per cent. rate by the older roads are now beginning to mature very rapidly, a large extent of high-rate debt will from this time forward be transmuted into 4 per cent. bonds, which will add force to the tendency here indicated.
Some important results must follow from this new drift in railroad investments. One of the effects would naturally be a diminution of the current high rate of premium on the old bonds, which has become, so adjusted as to yield, in most cases, a return of 4 to 4½ per cent. on the market value. Holders of this class of bonds will perceive that the companies cannot long sustain the burden of their present high rate of fixed charges, and will soon come to discount in advance the inevitable “scaling” of their bonds. When the railroads begin to feel the effects of competition with the low-rate companies, they will not be slow to adjust their finances to the new situation; neither will they be nice about their methods of effecting such adjustments; and the rights of creditors will be ruthlessly dealt with under the compulsion of foreclosure; and when this compulsory stage is reached, it will not be very long before a large proportion of the high-rate bonds is transmuted into long 4 per cent. obligations.
This very important transition, upon a such large mass of investments, is to be anticipated as one of the most conspicuous financial events of the comparatively near future. One of its first effects may be expected to appear in a certain tone of depression among investors, who will feel themselves impoverished through the fall in the market value of their bonds, and by the impending reduction of one-third in their income from this class of securities. The bondholders—and, indeed, investors generally—will be likely to reason that the reduction in the fixed charges of the roads will leave so much more available for the stockholders; and there would be this extent of warrant for such a conclusion, that, as the stock of a company usually about equals the amount of its bonds issues, any reduction in the rate of interest on the latter would be just so much per cent. saved towards the dividend on share capital. Under such circumstances, there would naturally be a marked increase in the demand for railroad stocks, and a large advance in their market value would in all probability result. To those who contemplate investing in railroad shares, this is a consideration which, it appears to me, should claim their consideration.
It would seem probable that, in the process of conversion here foreshadowed, there are the elements of an era of unusual speculative activity at a period not very remote. That speculative movement may be expected to consummate and finally adjust the change. Naturally, such an excitement would tend to produce a great inflation in the price of stocks (as distinguished from bonds); the final stroke of adjustment, however, would come ultimately through the construction of new competing roads, which would take out of the net earnings of the roads as much as had been saved by the reduction of interest on their debts, thus leaving the dividend resources where they stood before the change. The final issue of this transition, therefore, would be to give the public at large about the entire benefit of what the railroads saved by the amelioration of their debt charges.
The tendency I have here aimed to foreshadow is one that must largely tend to the public advantage. In other words, the railroads, having reduced by 30 to 40 per cent. their interest charges, will be in a position to perform their services for correspondingly lower charges. This will be an invaluable advantage to all our industries, and especially to such as have to deal with bulky products, a considerable portion of the costs of which consists of charges for transportation, and the working class, who constitute the bulk of our consumers, will be especially benefited.
In another chapter I have shown how the overcapitalization of our railroads has caused a false and unjust distribution of wealth, and burdened our industries with transportation charges which are a serious obstacle to our national progress. The tendency above delineated shows how seriously the natural laws governing the distribution of wealth provide an ultimate remedy for such violations of these laws. The railroad capitalists who have made their millions by providing railroads at such an inflated cost are now faced with the certain prospect of a loss of one-third of their income from their investments; and that deduction will have to be distributed among the community at large in the form of cheaper carriage.