Henry B Payne – The Indiana History Blog

The Cleveland Clique’s Elusive Grasp for Control of the Bee Line Railroad

See Part IV to learn how the Cleveland Clique leveraged on John Brough to solidify its control of the Bee Line and a route to St. Louis.

John Brough, Henry B. Payne — (L) John Brough, courtesy of the Ohio History Connection. (R) Henry B. Payne, courtesy of the Library of Congress.

With John Brough’s election to president of the Indianapolis and Bellefontiane Railroad [I&B] on June 30, 1853, the Cleveland Clique cemented its position as the Midwest’s dominant railway cabal. Brough’s dual roles, both there and as president of the Mississippi and Atlantic Railroad (about to initiate construction between Terre Haute and St. Louis), personified the Clique’s reach.

It was also a visible sign of president Henry B Payne’s effectiveness crafting and implementing the Cleveland, Columbus and Cincinnati Railroad’s [CC&C’s] growth strategy. Now his attention turned to commanding the Bee Line component railroads and a line to St. Louis, both physically and legally. But, the Cleveland Clique’s grasp for control of the Bee Line Railroad would be elusive at best.

Map of railroads between Indianapolis and Cleveland c1860, annotated to show component Bee Line railroads, and the Columbus, Piqua and Indiana railroad — Map of the Bee Line component lines: CC&C, B&I in red, I&B in blue; Columbus, Piqua and Indiana Railroad (CP&I) in brown, courtesy of Erin Greb Cartography.

Just prior to Brough’s promotion, the I&B’s Clique-influenced board had resolved to convert its 4’ 8½” ‘standard gauge’ track (lateral dimension between rails) to the 4’ 10” ‘Ohio gauge.’ By law, the Ohio legislature had mandated that all railroads chartered there must be constructed to this dimension. As a result both Ohio legs of the Bee Line, the Bellefontaine and Indiana [B&I] and CC&C, had been built to this dictated standard. The Indiana-chartered I&B’s non-conforming gauge, however, prevented uninterrupted service between Cleveland and Indianapolis.

The I&B moved carefully to implement its gauge-change resolution. This was because, in early 1852, former president Oliver H. Smith had come to terms on a through-line agreement with a rail line being built between Columbus OH and Union IN – the Columbus, Piqua and Indiana Railroad [CP&I]. When completed, this important link would provide a connection to lines extending toward Pittsburgh, and on to Philadelphia over one of the growing trunk line giants: the Pennsylvania Railroad.

image of Oliver H. Smith — Oliver H. Smith, courtesy of the Indiana Historical Society.

As part of through-line negotiations to coordinate schedules and share facilities, the CP&I had acceded to Smith’s demand that it petition Ohio’s legislature to build to the I&B’s ‘standard’ gauge. It soon received a legislative exemption and began building. However, the CP&I met financial headwinds almost immediately – most notably from the Pennsylvania Railroad, which failed to meet its guarantee commitment when the company defaulted on construction bonds. Unfortunately, following bankruptcy reorganization, the CP&I would not complete construction to Union until 1859.

From the I&B’s perspective, the CP&I’s financial problems and construction delays seemed insurmountable. In contrast, the temptation to avail itself of lucrative east-west business across the combination of Ohio gauge B&I and CC&C lines proved irresistible. Under cover of a finely crafted resolution to skirt its through-line agreement with the CP&I, the I&B board resolved to lay track using the Ohio gauge as “other circumstances and relations for the welfare of the Road may require.” Under this guise, by the summer of 1853, it had re-laid track between Union and Muncie to the “Ohio gauge”.

Given this developing situation, the CP&I felt compelled to act. It successfully sought a preliminary injunction to block further track/gauge conversion. The Bee Line was effectively stymied in its effort to achieve a uniform gauge run from Cleveland to Indianapolis. Although the I&B argued the 1852 through-line agreement was silent on the CP&I’s track conversion accord, Smith’s apparent sidebar pact proved compelling to the court. I&B president John Brough, backed by a new board replete with Clique members, was directed to move decisively to resolve the problem in late summer 1853. It proved to be a particularly costly settlement.

Together, all component roads of the Bee Line agreed to guarantee the CP&I’s performance on $400,000 of bonds issued to complete the road to Union. Beyond eventually finding themselves on the hook for this issue, the Bee Line roads would provide another, and then another tranche of funding by the time the CP&I limped into Union in 1859. At least the I&B could now finish its Ohio gauge track conversion between Muncie and Indianapolis. And, under terms of the settlement, the CP&I also re-laid its track to the Ohio gauge.

Winding up the CP&I lawsuit had been a prerequisite to inking a Cleveland Clique-initiated through-line agreement among all Bee Line component roads. The day after securing the CP&I settlement, the Bee Line’s through-line agreement was signed. There were two telling provisions that spoke to the different vantage point of the Cleveland Clique and Hoosier Partisans.

Map of midwestern railroads c1860, annotated to show Bee Line component railroads and intersecting rail lines to Pittsburgh — Map of the Bee Line component railroad: I&B, B&I in blue, CC&C in red; lines to Pittsburgh in brown: CP&I to S&I/P&S, O&P, courtesy of Erin Greb Cartography.

On the one hand, the agreement allowed the B&I and I&B to make “fair and eligible connections and business arrangements . . . to secure . . . their legitimate share of the business between the cities of Philadelphia, Pittsburgh and Indianapolis.” While this clause provided a degree of freedom for the Hoosier Partisans and their Ohio counterpart to step away from their CC&C overseer, the other clause was engineered to reign in these independently minded stepchildren: “The B&I and I&B shall be consolidated at the earliest practicable moment.”

As to the latter clause, it would be easier for the Cleveland Clique to do its bidding if the Hoosier Partisans’ influence was diluted in a newly constituted board. At the same time, combining the two lines could prevent the Partisans from cutting their own agreement with the CP&I to carry traffic back and forth to Columbus and toward Pittsburgh via Union – totally avoiding carriage over the B&I and CC&C. And there was also a second option to reach Pittsburgh, via the Ohio and Pennsylvania Railroad (O&P) – passing near the B&I’s eastern terminus at Galion OH. Still, at the time, the Clique’s consolidation mandate only served to draw the two smaller lines more closely together in their common struggle for independent decision-making. As unfolded for the Cleveland Clique, however, its consolidation directive would not be accomplished easily or quickly.

Squirming under the Clique’s dictate, and recognizing its strategic position as the funnel for rail traffic to and from Indianapolis to either Cleveland (and New York) or Pittsburgh (and Philadelphia), the I&B board served up its own subtle message. Essentially touting its option to bypass Cleveland through separate links to Pittsburgh, Hoosier Partisan David Kilgore proposed a name change “from and after the first day of February 1855. . . . The said Corporation shall be known by the name and style of the ‘Indianapolis, Pittsburgh and Cleveland Railroad Company’ [IP&C].” It was overwhelmingly adopted.

The name change really symbolized much more. The locally controlled and focused I&B railroad era was gone. The newly rechristened road would now test its wings as a regional player—hoping, like a teenager seeking freedom from parental control, to stand apart from the clearly parental CC&C.

Map of the proposed Mississippi and Atlantic Railroad route from excerpt of Map of the Bellefontaine and Indiana Railroad 1852 — Map of the proposed route of the Mississippi and Atlantic Railroad. Excerpt from “Map of the Bellefontaine and Indiana Railroad and connecting lines” (W. Milnor Roberts, Chief Engineer: 1852). Courtesy of the Library of Congress.

Separately, in 1854, John Brough was ramping up his Mississippi and Atlantic Railroad [M&A] – destined to link Terre Haute and St. Louis. After an arduous legal effort to validate its claim to an Illinois charter, the M&A had prevailed against Chicago and Mississippi River town political interests earlier in the year. However, it would soon be faced with another trumped-up legal challenge and a concerted public relations effort to undermine its viability and management capabilities. Such obstacles were having a detrimental effect on Wall Street investors.

In March 1854 a legal opinion by Abraham Lincoln’s Illinois law office asserted the illegality of the M&A’s corporate existence. Then, a New York newspaper article questioned Brough’s managerial track record at the Madison and Indianapolis Railroad. The investor community was beginning to shy away from the M&A.

Nonetheless, with short-term funding secured, Brough pressed on with the M&A’s building phase. He issued a marketing circular and let contracts for the whole line by May, announcing the line would be completed by the summer of 1856. Brough would spend an increasing amount of time on this effort as 1854 wound down.

By the beginning of 1855 it was becoming clear Brough had the M&A on his mind. At the very least, the M&A’s pivotal role in the Cleveland Clique’s Midwest control strategy virtually mandated Brough’s full-time attention. Rumblings of his imminent departure reached IP&C board members by early February. He resigned as IP&C president on February 15, noting “experience has demonstrated to me that in this event my entire time and attention will be required on that [M&A] line.”

image of Calvin Fletcher — Calvin Fletcher, courtesy of the Indiana Historical Society.

Former I&B director (1852-53) Calvin Fletcher, among Indianapolis’ most prominent civic and business leaders, was elected president in Brough’s stead. Reluctantly thrust into the role, Fletcher noted, upon hearing of his election: “I learned to my regret I was appointed President of the Bellefontaine R.R. Co.”

Fletcher’s reticence to assume the post was understandable, based on his close familiarity with the affairs of the I&B. “I fear their affairs are desperate . . . It needed my character & acquaintance to unravel the mischief of the finances. . . . The president Brouff [Brough] has no influence on the road. All employees eschew his authority & claim that the Superintendent is the man to look to & not the President. The road & its business is [sic] in great confusion.”

Even though Brough was dealing with M&A matters full time beginning in mid-February 1855, the concerted efforts of powerful Chicago and Mississippi River town political interests had swept away investor confidence. James F. D. Lanier, the M&A’s financier through the Wall Street firm that bore his name – Winslow, Lanier & Co. – decided to take desperate action.

On May 20th the M&A board, controlled by Lanier, demoted Brough to Vice President in favor of Chauncey Rose. Rose, founder of the Terre Haute and Richmond Railroad linking Indianapolis with Terre Haute, assumed the presidential mantle. In spite of his impeccable reputation as a railroad executive, Rose’s presence failed to sway the investor community.

John Brough would not live to see the Mississippi and Atlantic Railroad completed to St. Louis. And, more to the point, how would the Cleveland Clique view Brough as their pawn in its broader Midwest railroad control strategy?

Check back for Part VI to learn more about the Hoosier Partisans move for autonomy as the Cleveland Clique tightened its grip on the Bee Line Railroad.

Continue reading “The Cleveland Clique’s Elusive Grasp for Control of the Bee Line Railroad”

The Cleveland Clique’s Bee Line Railroad Control Strategy to St. Louis: John Brough

See Part III to learn about how the Bee Line and other Midwest railroads reset, and sought to accomplish, their goal – to reach St. Louis.

Bee Line railroads map, excerpt from Bellefontaine and Indiana 1852 Railroad Map

Proposed Mississippi and Atlantic Railroad route map, excerpt from 1852 Bellefontaine and Indiana Railroad Map — Top: Map of the Bee Line component railroads. Bottom: Map of the proposed route of the Mississippi and Atlantic Railroad (both excerpts from “Map of the Bellefontaine and Indiana Railroad and connecting lines,” 1852, courtesy of the Library of Congress).

With John Brough’s elevation to the presidency of the Bee Line’s Indianapolis and Bellefontaine Railroad [I&B] segment – between Indianapolis and Union – on June 30, 1853, the Cleveland Clique was understandably euphoric. Brough’s newly arranged presidential authority there and at the Mississippi and Atlantic Railroad [M&A], about to begin construction between Terre Haute and St. Louis, personified the Clique’s growing regional dominance. By all appearances they, through the Cleveland, Columbus and Cincinnati Railroad (CC&C) and president Henry B. Payne, would soon control the key Midwest rail corridor linking the East Coast and the West.

At the same time, the closer-to-home Bellefontaine and Indiana [B&I] – linking the I&B at Union with the Clique’s marquee railway, the CC&C, at Galion OH – had already found itself under the financial sway of the Cleveland band. Incredibly, the strategy to command a string of railroads tying St. Louis to the Eastern truck lines then breaching Ohio’s eastern boundary had been orchestrated by the CC&C’s Henry Payne in little more than two years.

image of John Brough, image of Henry B. Payne — (L) John Brough, courtesy of the Ohio History Connection. (R) Henry B. Payne, courtesy of the Library of Congress.

In the almost giddy atmosphere that prevailed following John Brough’s coronation, an impromptu trip was arranged. Why not visit Terre Haute, and the Illinois state line for that matter, and then travel in a single day from Terre Haute to Cleveland? It would underscore what the Clique had accomplished, provide an on-the-ground view of the new western terminus of the coordinated lines, and draw them closer to the independently minded stockholder/management team at the controls of the Terre Haute and Richmond Railroad [TH&R] – the only gap in the Clique’s string of pearls between Cleveland and St. Louis.

image of James H. Godman, image of Calvin Fletcher — (L) James H. Godman, courtesy of the Marion (Ohio) County Historical Society (R) Calvin Fletcher, courtesy of the Indiana Historical Society.

Members of the Cleveland Clique along with president James H. Godman of the B&I, newly minted I&B president John Brough as well as board member Calvin Fletcher and secretary Douglass Maguire boarded a special train destined for Terre Haute on July 1st. It had been less than twenty-four hours since the Clique’s I&B annual meeting coup. None of the original I&B Hoosier board members went along for the ride.

In one respect the trip was a success. They drank brandy and wine with Samuel Crawford, president of the TH&R, supped together and made it to a symbolic bridge spanning the Wabash—peering across wide stretches of western Indiana farmland toward Illinois. Truman P. Handy and William Case, board members of the Cleveland Clique’s cornerstone CC&C railroad, continued on to the Illinois line by horse and returned to Terre Haute by 3 a.m. Now they could boast of having made it from the Illinois line to Cleveland in a single day.

image of Truman P. Handy, image of William Case — (L) Truman P. Handy, Biographical Cyclopedia and Portrait Gallery of the State of Ohio, Vol 2. (Cincinnati: John C Yorston & Co, 1880). (R) William Case, courtesy of Cleveland Public Library.

A private train left Terre Haute before dawn on July 2nd. It ran at a blistering thirty miles per hour until hitting a cow near Belleville—knocking the engine and car off the track. It was a near-death experience, as Calvin Fletcher recounted. Still, they were in Indianapolis by 6:30 a.m.

Fletcher did not record whether they accomplished the lofty goal of making it to Cleveland that day, as he remained in Indianapolis. All the same, except for the lack of participation by original I&B board members, it had been a notable start to John Brough’s presidency – and provided a glimpse of the Clique’s mechanism for expansion. The Hoosier Partisan’s absence would prove to be a telling sign of issues looming ahead.

Two weeks later Calvin Fletcher was among a sizable number of Indiana business and political nobility who, along with their spouses, received an invitation from the Cleveland Clique. The request was to join them for an all-paid junket to Niagara Falls. “I had an invitation with our citizens, those of Lafayette, Crawfordsville, Terre Haute, Dayton, Cleveland, Bellefontaine &c…a number have an invitation here.”

image of Daniel Yandes, image of David Kilgore, image of Thomas A. Morris — (L) Daniel Yandes, courtesy of the Indiana Historical Society. (M) David Kilgore, author’s personal collection. (R) Thomas A. Morris, courtesy of the Indiana Historical Society.

Hoosier Partisans Alfred Harrison, Daniel Yandes and David Kilgore as well as ubiquitous Indiana railroad construction engineer and soon to be I&B board member Thomas A. Morris were among the throng. They all boarded a special train awaiting them in Indianapolis on the morning of July 20th. In his diary, Calvin Fletcher would capture both the spectacle of the excursion and the travails of travel during this era.

Map of railroads between Indianapolis to Niagara Falls, annotated to show 1853 excursion route. — Map of Cleveland Clique junket from Indianapolis to Niagara Falls, over the Indianapolis and Bellefontaine, Bellefontaine and Indiana (both in red), Cleveland, Columbus and Cincinnati (blue), by ship to Buffalo (orange dash), and rail to Niagara Falls (orange). Cities visited in colored rectangles. Courtesy of Erin Greb Cartogarphy.

The conductor to Union was none other than Fletcher’s recently hired son Stoughton Jr., who helped the party around a derailed freight train along the way. They arrived at Union about 10:30 a.m. Connection delays added to a tardiness that precluded the Hoosier contingent from stopping at Marion, Ohio, for a B&I board–arranged dinner. Instead, they raced on to Galion to connect with CC&C cars coming from Columbus. The crowd reached Cleveland at 7:30 p.m., only to find the boat hired to take the assembled masses to Buffalo had broken down.

image of Cleveland Railway Station and Docks, 1854 — Cleveland Railway Station and Docks, 1854. (James Harrison Kennedy, A History of the City of Cleveland: Its Settlement, Rise and Progress 1796-1896. Cleveland: Imperial Press, 1896.)

Because the politicians of Erie, Pennsylvania had made smooth rail travel between Cleveland and Buffalo nearly impossible during the early 1850s, going by this route was not a viable option. To force passengers and freight to overnight in Erie, city fathers had mandated different track ‘gauges’ (the lateral distance between iron rails) for railways entering/leaving the city from the east and west. The Erie “war of the gauges”, in combination with intentionally and poorly synchronized railroad schedules, wreaked havoc on passengers and shippers alike. Erie thrived on this senselessness until 1855, during which time near-riots by local merchants and warehouse workers nearly scuttled a move to finally synchronize schedules and re-lay rails to a uniform gauge.

It was midnight before more than 750 passengers stranded in Cleveland boarded a replacement vessel to Buffalo – arriving the next day at noon. There, a train of nearly fifteen cars met the ship and whisked its guests the final miles to Niagara Falls. They took in the falls and were awestruck by the engineering feat of the recently completed railway suspension bridge traversing the Niagara River. The revelers were then ferried behind the tumultuous sheets of water before dinner and a moonlit trip to Goat Island. The excursion lasted less than twenty-four hours. On the return boat trip to Cleveland the assembled guests lunched, ironically, at Erie, Pennsylvania.

image of Niagara Railway Suspension Bridge, c1876 — Postcard image of the Suspension Bridge across Niagara Falls circa 1876, courtesy of the Library of Congress.

That evening Cleveland’s mayor hosted what Fletcher referred to as a “soirée” of dinner, music, and speeches. He called it “a most splendid affair that I ever witnessed.” As might have been expected, newspaper editors and writers had been invited gratis. They clearly earned their passage by publishing effusive articles in the regional and national press.

The editor of the Indianapolis-based Locomotive gushed: “We have never taken an excursion with which we were so well pleased. Every arrangement was made in princely style for the accommodation of the invited guests; and everything free as air, from our railroad bills down to our omnibus bills, including hotels and everything necessary.” It had proved to be the most incredible public relations feat of its day.

Finally, on the return leg from Cleveland to Indianapolis, the B&I board hosted the earlier-deferred dinner party at Marion, Ohio. Toasts were exchanged, a “three cheers” shouted, and the Hoosiers were off to Union the next morning. There they waited an hour for connecting passengers coming from Cincinnati. Exhausted, the entourage supped at Muncie and finally arrived back in Indianapolis by 11 p.m.

Still, for the people of the era, it had been both an awe-inspiring event and a technological marvel. To the parochial Hoosier Partisans, it brought home the sobering reality that the Cleveland Clique outgunned them financially and politically. The sheer number of interconnected board, business, banking, and government relationships represented at the Cleveland festivities was astounding. And they had gathered with a single purpose: to focus their wide-ranging powers on dominating the Midwest rail corridor between Cleveland and St. Louis.

The I&B, basking in the afterglow of this landmark event, which drew investor attention to its pivotal role as a funnel for traffic from Ohio to Indianapolis, saw its stock and bond prices jump. Nonetheless, Calvin Fletcher decided to sell all but $5,000 of his stock in August. He found a ready market: “I distributed among my friends who seemed to want it & one demanded, as a matter of right as I had offered to others, that he should have a portion. The stock soon fell & it was fortunate I let it go.”

Fletcher’s unemotional view was sprinkled with a candid and ominous reality, however: “Brough the president has failed to establish his right to go through to St. Louis straight. This I think will effect [sic] the road materially.” And he was right.

Whatever the reason for the I&B’s price bounce, it did not reflect the financial or business reality with which John Brough and the Cleveland Clique were faced. Brough’s usefulness to the Cleveland Clique appeared, for the moment, to be in question.

Check back for Part V to learn more about how the Cleveland Clique turned their attention to binding the various component parts of the Bee Line together both physically and legally – to the irritation of the Hoosier Partisans.

Continue reading “The Cleveland Clique’s Bee Line Railroad Control Strategy to St. Louis: John Brough”

The Bee Line and Midwest Railroads reset their goals – to St. Louis: Gateway to the West!

See Part II to learn about the Bee Line’s financing dilemma – the loss of control to the Cleveland Clique and Wall Street.

Advertisement, California, Gold Rush, circa 1850 — Advertisement for ships to California during the Gold Rush, circa 1850.

Gold! In January 1848 gold was discovered at Sutter’s Mill in California. The Gold Rush had begun. And with it, the nation turned its gaze to the West.

image of John Brough — John Brough, courtesy of the Ohio History Connection.

The Bee Line and other Midwest railroads would also reset their goals – to reach Chicago or St. Louis: Gateway to the West. And for John Brough, president of the Madison and Indianapolis Railroad [M&I], the prospects were particularly tantalizing. While he had already begun to implement a strategy to extend the M&I’s control to the potentially lucrative Indianapolis and Bellefontiane Railroad [I&B] building toward the Ohio state line, the thought of constructing and controlling a line to St. Louis was pure gold.

Midwest Railroads Map, circa 1860, showing the Madison and Indianapolis [M&I], Terre Haute and Richmond [TH&R], and component roads of the Bee Line: Cleveland, Columbus and Cincinnati [CC&C]; Bellefontaine and Indiana [B&I]; Indianapolis and Bellefontaine [I&B], courtesy of Erin Greb Cartography.

A Cleveland Clique of connected businessmen, politicians and railroad investors had already struck gold of their own. The opening of the Midwest’s first regional railroad in 1851 between Cleveland and Columbus – the Cleveland, Columbus and Cincinnati Railroad [CC&C] – had proved to be successful beyond their most optimistic expectations. They began to consider expanding their reach, not by building, but by buying or controlling the purse strings of other roads headed west . . . to Cincinnati, Indianapolis . . . and St. Louis.

John Brough’s strategic and financial needs were more immediate, as the M&I’s business calculus began to wane. One of Brough’s peers on the Indianapolis Union Station’s Indianapolis Union Railway board, Chauncey Rose of Terre Haute, had already assembled a circle of businessmen from Indiana’s largest town west of Indianapolis. In 1847, along with Rose’s New York-based financier brother John, they had gathered the funds necessary to construct the first leg west from Indianapolis toward St. Louis: the Terre Haute and Richmond Rail Road [TH&R]. It would be renamed the Terre Haute and Indianapolis Railroad [TH&I] by 1865, to more accurately reflect its final route.

Importantly, the Rose brothers also insured the Terre Haute circle would retain substantial financial control in spite of tapping into the newly available public markets of Wall Street. They would control their own financial destiny, unlike nearly all other Midwest railroads, until well into the 1870s. On February 14, 1852 the first train completed the entire seventy-three mile trip to Indianapolis. The line proved to be the juggernaut for rail travel to St. Louis and the West via Indianapolis.

Railroads west from Indiana, including the Terre Haute and Richmond [TH&R], Ohio and Mississippi [O&M], Mississippi and Atlantic [M&A], and St. Louis, Alton and Terre Haute [StLA&TH], courtesy of Erin Greb Cartography.

Rose and Brough were running into obstacles, both political and economic, in organizing a rail line spanning the unpopulated expanse of Illinois to St. Louis. While Rose initially focused on indirect connections via Vincennes and the nearly complete Ohio and Mississippi Railroad [O&M] extending across the southern third of Indiana and Illinois, Brough had a different plan. He would leverage on an 1846 Illinois charter – then moribund – for a direct route between Terre Haute and St. Louis through the former state capital (1820-1840): Vandalia. In 1850 Brough teamed with Vandalia business and political leaders – as well as James F. D. Lanier’s Wall Street firm of Winslow, Lanier & Co. – to resurrect the charter as the Mississippi and Atlantic Railroad [M&A]. He soon became its president.

James F. D. Lanier, Sketch of the Life, 1877 — James F. D. Lanier. Sketch of the Life of J. F. D. Lanier (self published, 1877).

Brough’s venturesome efforts to reach St. Louis did not go unnoticed by the Cleveland Clique. It comported with the Clique’s and Henry B. Payne‘s (then president of the CC&C) vision for reaching and controlling lines to the West. And since Winslow, Lanier & Co. and the Cleveland Clique were already digging their financial talons into the two Bellefontaine lines that would soon carry the publicly-dubbed Bee Line moniker, the collective financial support for Brough’s effort was assured. Along with Brough’s M&I, the component Bee Line roads anted up several hundreds of thousands of dollars in spite of the tenuous financial footing of all except the CC&C – courtesy of the Clique’s urging and Lanier’s financial wizardry or skullduggery.

But Brough was having other problems. As the M&I revenue picture darkened, the I&B’s brightened. Now connected with the Bellefontaine and Indiana [B&I] and CC&C to reach Cleveland, the I&B’s passenger and freight revenue per mile spiked during the first year of through service in 1853. In addition, new traffic carried between Indianapolis and Cincinnati – via a connection at the increasingly critical junction town of Union – translated into booming business along the band of steel known as the I&B.

Oliver H. Smith, courtesy of the Indiana Historical Society.

Even before the I&B reached Union, however, the M&I was having trouble meeting its obligations under the five year operating contract the two had inked in 1850. The M&I’s inability to supply and maintain a sufficient number of locomotives and cars capable of handling the increasing traffic across the partially completed I&B was obvious. By the summer of 1852, I&B president Oliver H. Smith had initiated a series of discussions with Brough to recast the arrangement. Brough’s stance was adamant, as Smith reported: “They [M&I] claimed by resolve to run the whole Road for the time specified.” But Brough’s ego did not reflect the reality of his situation.

The Bellefontaine and Indiana’s “Sidney” Locomotive, built by Niles & Co., 1853 (rebuilt 1856), courtesy of New York Central System Historical Society.

At the same time, Smith approached the I&B board with specific proposals to purchase additional rolling stock and motive power equipment. He also proposed building machine shops, an engine house and depot buildings. Smith mapped out a game plan to finance the expansion. It would require selling stock and/or floating $150,000 of bonds on Wall Street. Board member Calvin Fletcher reflected the Hoosier Partisans’ growing concern about Smith: “It was doubted by myself & others whether the Embassader [sic] intended had the qualifications to act in the matter.” Newly dominant shareholders Daniel Yandes and Alfred Harrison would handle the funding question.

Things were coming to a head on many fronts. At the I&B board meeting in February 1853 a resolution was passed to terminate the M&I operating agreement effective May 1st,more than two years earlier than anticipated. The M&I and Brough were becoming an afterthought.

Then, in March, Oliver Smith challenged the I&B board to endorse his continued presidency. Given his intransigence on moving the Indianapolis depot closer to the new Union Station – for personal business reasons – Smith’s demand fell on deaf ears. Waxing eloquent, Calvin Fletcher penned a response on behalf of the Hoosier Partisans: “We have no doubt, from your standing in this country . . . that you can do for yourself and the country much better than to remain the President of the said Road.” Smith would resign the presidency on April 6th.

On hearing of the I&B’s bold move to terminate its operating contract with the M&I, Brough was beside himself. As May 1st arrived, Fletcher was concerned, noting “Did not sleep very well having been notified that the M&I would not permit the I&B to have possession & that they would defend with force & arms.” Fortunately, cooler heads prevailed during daylong meetings between Brough, Yandes, Harrison and Fletcher. The next day the operating contract was dissolved.

image of The Madison and Indianapolis Railroad [M&I] and involved roads: the Peru and Indianapolis Railroad [P&I], extending north from Indianapolis, and the Mississippi and Atlantic Railroad [M&A], extending west to St. Louis. Terre Haute and Richmond [TH&R] — The Madison and Indianapolis Railroad [M&I] and involved roads: the Peru and Indianapolis Railroad [P&I], extending north from Indianapolis, and the Mississippi and Atlantic Railroad [M&A], extending west to St. Louis. Terre Haute and Richmond [TH&R] also shown, courtesy of Erin Greb Cartography.

Adding insult to injury, Brough’s strategy to tighten the M&I’s grip on a second railroad heading north from Indianapolis – the Peru and Indianapolis [P&I] – was also in peril. While a combination with the M&I would be effected in 1853 as the Madison, Indianapolis and Peru Railroad, it unwound the next year. E. W. H. Ellis, president of the Peru and Indianapolis Railroad, lamented upon the dissolution of the combination: “It is to be regretted that, in the days of its [M&I’s] prosperity, the road, its rolling stock and machinery, were permitted to run down and that these heavy burdens are thrown upon the company.” The I&B was already wise to the M&I’s deficiencies.

Still, the prospect of Brough’s push to St. Louis seemed all but certain. Winslow, Lanier & Co. had successfully attracted adequate funds to begin letting construction contracts. The Mississippi and Atlantic Railroad [M&A] had overcome political obstacles thrown in its path by an alliance of Chicago and Mississippi River town interests. They much preferred a route to a smaller river town, on Illinois turf, just north of St. Louis. Much like Indiana’s push to establish Madison as its improbable center of commerce on the Ohio River, against all odds Illinois opted to create Alton as its alternative to St. Louis along the Mississippi River.

To the Cleveland Clique and CC&C president Henry B. Payne, Brough’s progress in establishing and constructing a direct line to St. Louis, in the form of the M&A, was a dream come true. Controlling this line as well as the Bee Line would solidify the Clique’s plan for the West. And, as his tenure at the M&I grew tenuous, Brough would find Payne’s forthcoming offer incredibly attractive.

To the shock of the Hoosier Partisans, Brough was elected president at the I&B’s annual meeting on June 30, 1853. He was now at the head of three roads simultaneously: the M&I, M&A and I&B. Fletcher’s observations on Brough’s election summed up the feelings of the Hoosier Partisans: “In order to carry out the design we had to take Mr. Brough as president who had acted for the Madison RR . . . where interest . . . adverse to the I&B created a hostility to him. But it was obvious that we had to forgo the objection & take him.” It was not an easy pill to swallow for the Hoosier Partisans.

While it may not have been obvious at that point, the Hoosier Partisans’ decision to accept funding from the CC&C and Winslow, Lanier & Co. – let alone seeking counsel from the Cleveland Clique – would be fraught with long-term consequences.

Check back for Part IV to learn more about the fate of the Mississippi and Atlantic Railroad, and the related destiny of John Brough with the Bee Line – under influence of the Cleveland Clique.

Continue reading “The Bee Line and Midwest Railroads reset their goals – to St. Louis: Gateway to the West!”

The Bee Line Railroad Financing Dilemma: Loss of Local Control

Indianapolis and Bellefontaine Railroad 1853 advertisement-schedule — Indianapolis & Bellefontaine RR train schedule, printed in Calvin Fletcher’s diary, courtesy of the Indiana Historical Society.

See Part I to learn about the origins of the Bee Line and the men who brought it to life.

The Bee Line Railroad almost never was. At the dawn of the Midwest railroad era Hoosiers were slow to embrace what became the technological marvel of the 19th century. Dependent on state funds or newly emerging Wall Street for cash, initial railroad financing prospects looked dim. Instead, canals were the preferred method of transportation in the mind of the public.

The State of Indiana began planning for a litany of “internal improvements” from its inception in 1816. In his 1827 message to the General Assembly, Governor James B. Ray (1825-1831) admonished the legislators, noting that railways could convey “equal burdens to any that can be transported on a Canal . . . and with double the velocity.” However, at the time, the legislature was not moved by his argument.

Indiana Governor James B Ray and Wall Street financier James F. D. Lanier — (L) Governor James B. Ray, courtesy of the Indiana Historical Society (R) James F. D. Lanier, Sketch of the Life of J. F. D. Lanier (self-published, 1877).

Finally, as interest in railroads began to percolate by 1832, legislators approved charters for eight – including the Madison, Indianapolis and Lafayette Rail-Road Company. Prominent among its board members was Madison banker James F. D. Lanier, destined to become the leading Wall Street financier of virtually all Midwest railroad era lines during the mania of the 1850s, including the Bee Line.

More than thirty Indiana railroads were chartered between 1832 and 1838. Nonetheless, attempts to lure private capital via stock subscriptions fizzled. Only a mile and a quarter of experimental track had been laid near Shelbyville by the end of the decade.

Madison and Indianapolis Rail Road 1850 Annual Report Cover — Annual Report Cover, Madison and Indianapolis Rail Road Company, 1850, courtesy of the Indiana State Library.

Indiana’s infatuation with canals was reflected in the Mammoth Internal Improvements Act of 1836, which appropriated one-sixth of the state’s wealth for the effort. Of eight state projects funded, only one was for a railroad – what became Indiana’s first: the Madison and Indianapolis Railroad [M&I].

Much of the debt to fund these efforts was taken up by the financial barons and financiers of Europe. Rolling mills and metal fabricators in the United Kingdom (UK) were then seeking new markets for their locomotive and rolled rail products. American manufacturers capable of producing such articles were only just beginning, as the Industrial Revolution reached its peak in Europe a full generation before doing so in the U.S. It became a mutually dependent relationship through the 1850s: English products for American dollars.

By the early 1840s Indiana’s failed internal improvements push had become obvious. The state called on Lanier to extricate it from near financial ruin. Before Lanier sailed to Europe in 1847 to negotiate Indiana’s financial exit plan, it had already jettisoned its canal and railroad holdings.

Beyond his success ensuring the state’s survival, Lanier returned from Europe with the confidence of the barons of Continental and English finance. Since the UK was America’s primary source for finished iron rails until the Civil War, the importance of such developed trust was pivotal. These relationships became the cornerstone of Lanier’s success as the Midwest’s preeminent member of Wall Street’s new financial sector: investment banking.

Wall Street Investment House floor circa 1865 — Wall Street Investment House, circa 1865.

As part of its privatizing move in 1842, the Indiana legislature had authorized the M&I to borrow money and issue bonds to complete the line to Indianapolis not later than 1848. In his role on the M&I’s reconstituted board, Lanier orchestrated placement of $50,000 (in 1845) and $100,000 (in 1846) of private bonds through the Wall Street firm which would soon bear his name: Winslow, Perkins & Co.

With funds in hand, the M&I finished the final fifty-six miles of track to Indianapolis by October 1847, at a cost of $628,000. Daniel Yandes, subsequently the Indianapolis and Bellefontaine Railroad’s primary stockholder, had won a bid to construct ten miles of the road. The whole task was finished nearly a year before its targeted completion date. In comparison, as a state-run company, it had taken seven years and over $1.5 million to lay the line’s first twenty-eight miles.

The M&I’s Wall Street firm of Winslow, Perkins & Co. began to weigh in on the railroad’s managerial approach after suffusing it with cash. It foretold the more active role financiers would take in operational decision-making of businesses they were funding. To that end, a new president arrived at the M&I in August 1848: John Brough of Ohio, whose life would revolve around the Bee Line railroad.

John Brough image — John Brough. Courtesy of the Ohio History Connection.

Brough had been a youthful and powerful member of Ohio’s legislature. As a freshman legislator at the age of 26, he chaired the Committee on Banks and Currency. Subsequently he was chosen the state’s auditor, a position he held until 1845. Brough had come to Madison, Indiana from Cincinnati, after a three year stint with his brother running the emerging Cincinnati Enquirer newspaper.

By the time Brough issued his first report to shareholders in January 1849, the newly christened Wall Street financial firm of Winslow, Lanier & Co. held more than $92,000 of M&I cash equivalents. Both Merssrs. Winslow and Lanier held positions on the board of directors.

Wall Street was fast becoming the financial clearinghouse for matching Eastern Seaboard and European investors with Midwest railroad securities. A new class of private bankers arose, backed by European firms, which began to serve as investment middlemen. These newly coined “investment bankers” evaluated the quality of securities, served as investment advisers to individuals with surplus capital, acted as financial agents for the railroads, and frequently took investment positions themselves. They also allocated investment capital among the many railroads seeking cash infusions.

Map of Midwest Railroads, with Madison and Indianapolis, Indianapolis and Bellefontaine, Bellefontaine and Indiana, and Cleveland, Columbus and Cincinnati railroads annotated in color — Map of Midwest Railroads, with the Madison and Indianapolis [M&I], and Bee Line component lines: Indianapolis and Bellefontaine [I&B], Bellefontaine and Indiana [B&I], and Cleveland, Columbus and Cincinnati [CC&C] annotated in color. Courtesy of Erin Greb Cartography.

Initially, Brough developed a strategy to build, invest in, or otherwise secure favorable operating agreements with a planned web of railroads radiating from Indianapolis. And invest he did. The M&I, Brough reasoned, would gather agricultural goods from the southern two-thirds of Indiana and funnel them via Indianapolis to Madison for transport on the Ohio River.

To assure its dominant position, Brough used his politically powerful board to block a railroad charter for a rail line headed from Indianapolis toward Cincinnati (Lawrenceburg). He also rejiggered timetables to prevent convenient connections over a newly chartered branch line extending toward Louisville (Jeffersonville) from Columbus, Indiana.

David Kilgore image — David Kilgore, from the author’s personal collection.

David Kilgore, director of the 1848-chartered Indianapolis and Bellefontaine Railroad [I&B] – first leg of the Bee Line extending from Indianapolis to the Ohio state line – noted Brough’s aggressive, anti-competitive tactics: “now they would put their feet upon the neck of competition . . . And why? . . . Rival interests are springing up at other points, and if they can be crippled, so much the better for this city [Indianapolis] and Madison.” It would not be long, however, before Brough would prove unable to stem the tide of competition.

Brough’s involvement planning Indianapolis’ Union Station in the early 1850s, with M&I’s investment in the Indianapolis Union Railway Company, yielded insights about the financial health and intentions of other lines terminating there. Unfortunately for him, in 1851 Indiana’s new constitution was adopted, including a mandate to craft general incorporation laws. No longer would special charters be required to form new railroads. It signaled the end of the M&I’s political agility to stifle competition.

Indianapolis Union Station image circa 1906 — Indianapolis Union Station, circa 1906, courtesy of the Indiana Historical Society.

As a result, Brough shifted strategies. He now sought to make two of the newborn and financially anemic lines dependent on the M&I. Brough would set his sights on the Indianapolis and Bellefontaine, building northeast from Indianapolis. It was already making plans to connect with roads angling to another key center of economic growth: Cleveland. And with the help of Lanier and his Wall Street firm, the lure would prove to be almost irresistible.

Cleveland Railway Station and Docks 1854 — Cleveland Railway Station and Docks, 1854 (James Harrison Kennedy, A History of the City of Cleveland: Its Settlement, Rise and Progress 1796-1896. Cleveland: Imperial Press, 1896).

To the surprise of investors, as well as the Indianapolis and Bellefontaine’s board, costs of funding construction and operation of the new railroad had been grossly underestimated. Without access to substantial credit facilities, motive power equipment, rolling stock, iron rails and operating personnel, the I&B was going nowhere. There to “help” was Brough and Winslow, Lanier & Co.

The M&I, as orchestrated by Brough, guaranteed newly issued I&B bonds that Lanier had floated. Now, it could purchase the M&I’s surplus iron rails, and lease its motive power and rolling stock equipment. The basis of the bargain was a lucrative five-year operating agreement, which commenced in 1850. The M&I would not only supply all personnel, but also collect and distribute ticket and freight receipts, paying itself from the proceeds it handled.

Whose railroad was it anyway? By the time the I&B started partial service between Indianapolis and Pendleton in 1851, the railroad was the Indianapolis and Bellefontaine in name only. It was all as Brough had planned.

image of Henry B Payne, president of Cleveland, Columbus and Cincinnati Railroad 1851-1854 — Henry B Payne, courtesy of the Library of Congress.

There was another important aspect of the new line’s financial health. By 1853, when the I&B commenced service all the way to Union, the dominant regional player – the Cleveland, Columbus and Cincinnati Railroad [CC&C] through its president Henry B. Payne – had loaned the I&B and its sister Bellefontaine and Indiana line in Ohio a combined sum of over $100,000.

Thus, no sooner had the smaller combined Bellefontaine lines, now known collectively as the Bee Line, begun full service than they began to lose a grasp on their own destiny. Pulling the financial strings were John Brough, James F. D. Lanier, and a Cleveland Clique of businessmen and bankers headed by Henry B. Payne, then at the controls of the CC&C. The resulting tug of war between the Cleveland Clique and Hoosier Partisans for control of the Bee Line would continue throughout the 1850s.

Map of the Madison and Indianapolis, Indianapolis and Bellefontaine, Mississippi and Atlantic, Terre Haute and Richmond railroads annotated — Map of the Madison and Indianapolis [M&I] and involved lines: Indianapolis and Bellefonatine [I&B] and Mississippi and Atlantic [M&A] annotated in color, as well as the Terre Haute and Richmond [TH&R]. Courtesy of Erin Greb Cartography.

But Henry Payne and the Cleveland Clique had other aspirations as well. Controlling rail lines all the way to St. Louis would cement its dominant role among Midwest railroads. And John Brough, recognizing the need for the M&I to control other railroads heading to more viable destinations, had – with the help of James Lanier – already turned his gaze to St. Louis.

Check back for Part III to learn more about John Brough and the Cleveland Clique’s pivotal play to reach St. Louis, as well as the resulting impact on the Bee Line and its Hoosier Partisans.

Continue reading “The Bee Line Railroad Financing Dilemma: Loss of Local Control”

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