STEEP AND CROOKED: THE MINING RAILROADS OF THE CANADIAN BORDER

 By Bill Laux

CHAPTER EIGHT

A CLASH OF CAPTAINS:

HILL, VAN HORNE, AND “THE ASSOCIATES”

James Jerome Hill, of St Paul, Minnesota and the Great Northern Railway, was at home on both sides of the border, and saw no reason why his railroads should not be as well.   In 1870, as a Canadian living in St Paul, he was asked by Canadian Parliamentary Secretary, Joseph Howe, to travel north to Fort Gary (near present Winnipeg) to report on the Riel Rebellion.   So isolated was the Manitoba territory from the rest of Canada by the trackless 800 miles of rocky wilderness north of Lake Superior, that St Paul was the nearest source of information, and the place through which travel to that remote region passed.

Hill traveled in March of that year by railroad, stagecoach and, dog sled over the snows.   On the trail  with his dogs, he encountered Donald Smith, of the Hudson’s Bay Company, returning from his own investigation of the rebellion.   Their campfire talk led them to agree that the Red River Valley, as both prime agricultural land, and as the surest route from St Paul to Fort Gary,. Manitoba, and the Canadian West, would some day support a very profitable railway.

In the following years Hill enlisted the support of Donald Smith and his equally wealthy cousin, George Stephen, of the Bank of Montreal, in getting control of the steamboat business on the Red River, the route to Winnipeg.   Their syndicate, “George Stephens and  Associates,” comprised Stephen and Smith, as the financiers, Norman Kittson, The Hudson’s Bay Company’s Minnesota agent,  operating the steamboat line, and Hill, their St Paul freight forwarder.    Once in control of steam navigation on the Red River, the Associates then went after the bankrupt  St Paul and Pacific Railroad which they intended to complete to the Red River and a connection with Kittson’s steamboats.

  It was the mephistophelean George Stephen who devised a way to buy the incomplete and bankrupt St Paul and Pacific Railroad from its Dutch bondholders with their own money.   The Dutchmen had invested $11 million in the railway to get its valuable land grant, and so far had received neither land nor a penny of interest.   George Stephen offered to take their bonds in exchange for bonds in a new railway company which the Associates would form.    The Associates were gambling that J.J., Hill could complete the railroad before the deadline, eight months away, and earn for them the huge land grant that went with it.    

  The new company’s worth, in five equal shares, was divided among Stephen, Smith, Hill and Kittson.     The concealed fifth share was kept by George Stephen who passed it clandestinely to New York banker J. S. Kennedy who had been the Dutchmen’s representative and who had, somewhat unethically,  persuaded them to accept  Stephen’s offer.   Stephen became president of the Associates’ new company, Smith became vice-president and Hill, the man on the ground, General Manager.  When the original bonds received from the Dutchmen could not pay their interest, the Associates foreclosed, and became instant owners of the bankrupt railway.    It was an extraordinary bargain; the Associates had put up but  $280,000 to acquire a railroad with assets of 11 million.    At once, Hill, with tremendous energy, pushed the railway to the Red River within the deadline, and the land grant was handed over.    Sale of those lands brought the Associates $13 million over the years, but more importantly, they now had a railway to the Red River and the exclusive steamboat transportation along its waters to Winnipeg.     The Associates, with this one coup, now controlled absolutely Canada’s only land transportation to its west.

The Associates renamed their railroad the St Paul, Minneapolis and Manitoba and capitalized it at $15 million.   The railroad and the steamboat company became  instantly profitable.   Stock was quickly bought up by the public and the proceeds were used  to pay off the construction debt. 

Through another of George Stephen’s manipulations, the Associates were able to buy back $11 million of the bonds they had given the Dutchmen for $1 million.    Hill, on Stephen’s instructions, refused to redeem the interest coupons on the bonds with the railway grant lands, alleging that the Dutchmen had violated the terms of the bond exchange agreement.   The bamboozled Dutchmen, who were primarily interested in land, sold out in disgust.  

The new Canadian government had been seeking a way to build the transcontinental railway which it had promised British Columbia and the rest of Canada from its inception.   The only syndicate sufficiently strong to undertake such a project was The Associates with George Stephen in charge.     

The Canadian government courted George Stephen.    But Stephen was wary.     Hill and Angus (of the bank of Montreal) pointed out to him that if some hostile syndicate, such as the NP or the Milwaukee built the Canadian transcontinental, their St P M &M would lose its international value and become but one more prairie granger line.   If George Stephen accepted the offer of substantial land grants and a cash subsidy the Canadian government was offering, Hill and Angus promised, they  would build the line.     Hill, Angus and Stephen at that time saw the Canadian transcontinental as a valuable feeder line to the St Paul and Manitoba and felt its only rational route would be to dip into the U.S. at Sault Ste Marie and run via their SPM&M to Canada at Emerson.    It would be madness, Hill thought to build a railroad across the Canadian Shield where no one lived and no agricultural land existed.  Thus, from its inception, The Canadian Pacific Railway was paradoxically conceived by its builders and owners as an international extension of their American railroad.     

George Stephen was more than naive in taking on the building of the Canadian Pacific.  As with the St Paul and Pacific, he would find the financing,  J.J. Hill would build the line, and they would all profit from the truly enormous land grant to be earned, in this case, 25 million acres.   But  the St Paul and Pacific had required but 87 miles of line to complete.   This time the distance  was 1900 miles, over unknown territory, and through two mountain ranges where no railroad passes had yet been  located.    George Stephen was able to wring concessions from the Canadian government: a monopoly on all rail transportation west from Winnipeg, and a further guarantee that the builders would own and run CPR forever.   With these, Stephen thought the thing could be done for $45 million, of which the Government would advance half.    It was an enormous and nearly disastrous underestimate.

Hill built the Associates’  SPM&M to the Canadian border at Emerson.   The Canadian Pacific built from there to Winnipeg.   George Stephen named J.J. Hill managing director of the CPR, and Hill moved to Winnipeg to direct the building of the line west to the Pacific.  He discovered at once that the CPR was a swamp of confusion, ineptitude, and graft.   In its first year,1881, it had spent $10 million and only built 130 miles of track.   The chief looters were former Confederate General, Thomas Lafayette Rossiter, and his superior, Alpheas B. Stickney, who later would become president of the Chicago Great Western.  The pair  were working an outrageous scam, selling privileged information as to the line’s location to land speculators.   The speculators could then buy up raw prairie land for $1.25 and acre and sell it as track-side locations a month later, for 50 times that amount.    Hill still had the Mantoba road to run; he desperately needed a supremely tough superintendent to clean out the deadwood and grafters in the CPR, and to drive its grading crews ahead at top speed.    

The man he hired was William Cornelius Van Horne, a hard-driving American whom he had met when Van Horne was resurrecting the Southern Minnesota line out of La Cross, Wisconsin.   Van Horne was exactly Jim Hill’s kind of man, one who eagerly sought every possible responsibility, and when given it, produced solid results.   Hill first offered Van Horne the presidency of his own St Paul, Minneapolis and Manitoba railroad.    When Van Horne laughed in his face at the proposal, Jim Hill knew that here was a man with enough self-confidence to take over the chaotic CPR whose current managers were more interested in organizing pheasant hunts and champagne parties than building track.   

Van Horne accepted, and brought along with him from the Milwaukee, Thomas Shaugnessy, to act as his purchasing agent.   The team of Van Horne and Shaugnessy, the blustering, belligerent “Terror of Flat Crib,” and the suave, meticulous Chief Clerk ingeniously stalling every creditor of the nearly insolvent line with exquisitely polite requests for more detailed invoices, completed the Canadian Pacific and successively held its presidency until 1918.

Van Horne at once took the CPR by its ears and shook it thoroughly, earning his title, “The Terror of Flat Crick.”    Van Horne’s arrival at any of the hundreds of end-of -track camps was described by R.K. Kernighan,

  “…when manager  Van Horne comes to town there is a shaking of bones… He is the Terror of Flat Crick… they are as frightened of him as they are of the old Nick himself.

“Yet Van Horne is calm and harmless looking.   So is a mule and so is a buzz saw.   You don’t know their inwardness till you go up and get the feel of them.   To see Van Horne get out of his car and go softly up the platform, you might think he was an evangelist on his way to preach temperance to the Mounted Police.   

“But you are soon undeceived.    If you are within hearing distance you will have more fun than you ever had in your life before.   He cuffs the first official he comes to just to get his hand in and leads the next one by the ear, and pointing eastward informs him that the walking is good as far as St  Paul.   To see the rest hunt their holes and commence scribbling for dear life is a terror.

“Van Horne wants to know.   He is that kind of man.   He wants to know why this was not done and why this was done. If the answers are not satisfactory there is a dark and bloody tragedy enacted right there.   During each act the all the characters are killed off and in the last scene the heavy villain is filled with dynamite, struck with a hammer, and by the time he has knocked a hole plumb through the sky, and the smoke has cleared away, Van Horne has discharged all the officials and hired them over at lower figures.”   

Hill was at first pleased with his choice; he had both found the man to terrorize  the CPR into order, and also very cleverly removed a dangerous rival from the competing Milwaukee Road which was by then invading what Hill considered  St Paul and Manitoba Road territory.

  Hill’s pleasure was not to last long.   As 1882 began, Van Horne had boasted that he would lay 500 miles of track that year, an unheard-of feat.  Moreover, he had ordered in advance, every tie, bridge timber, rail and keg of spikes for 500 miles of railroad.   His orders, filling 500 rail cars, choked Hill’s St Paul yards.  The Manitoba found itself unable to move its trains until Van Horne’s cars were removed.    Hill threatened to have his own men dump the cars where they stood.   Van Horne, choosing his own time, eventually sent his own men down to offload the cars and permit Mr. Hill to run his railroad.   But by the end of the year, Van Horne had laid an astonishing  548 miles of track, a record never bettered. 

Hill constantly complained to Van Horne that he was not sufficiently concerned

for the well-being of the Manitoba Road, for in Hill’s mind the Canadian Pacific was to make the Manitoba Road thrive.   But Van Horne had no intention of being the Associates’ pawn.    Almost from the beginning he became a thorough CPR man.   When the Canadian Pacific completed its line east from Winnipeg to Thunder Bay on Lake Superior, George Stephen promised a worried J.J. Hill that it would not be opened for another year so that their Manitoba Road would have all the haulage of CPR materials.   Van Horne, however, instructed his traffic officials to bring in materials via the Great Lakes and the Thunder Bay route, a considerable cost saving, but cutting the Manitoba line out of the traffic.     Hill protested Van Horne’s attitude, “…there is I know a feeling…of ill concealed hostility toward this company.” J.J. Hill had picked the one man thick-skinned enough to see the CPR through to the Pacific.   But he had failed to realize that  Van Horne was a man just like himself, stubborn, headstrong and supremely ambitious.   It was inevitable they would clash.    As well, Hill failed utterly to take into consideration that the Canadian Government, which was subsidizing the CPR construction by loans and grants,  would absolutely insist on an “All Canadian” route to the north of Lake Superior.    No matter that it made no economic sense, that it would not furnish a single carload of freight.  Canadian nationalism demanded it.    Canadian taxpayers would never permit their government to subsidize a railway through the United States. 

George Stephen and Associates were not going to be able to construct the Canadian Pacific as an extension of the St Paul, Minneapolis and Manitoba;  they were going to have to build an “All Canadian” route or forfeit government support.   Hill, his advice ignored, his protests unheeded, found his position on the Canadian Pacific board untenable.   He angrily resigned his position on May 3, 1883, and began selling his CAP stock.   In a note to Kennedy, the clandestine fifth Associate, on the following day,  Hill explained, “Mr. Van Horne… is inclined to take the view that the St Paul, Minneapolis and Manitoba are powerless to help themselves and must simply accept any situation that may be assigned to it by the Can Pac.”

Van Horne, seeing the CPR in a  wider perspective than J.J. Hill, realized that his line could never fulfill the destiny he saw for it as long as it operated as a feeder to the St Paul and Manitoba.   In an act that would render Hill an enemy forever, he declared the CPR’s independence by signing a preferential traffic agreement with the Northern Pacific, rather than with the Manitoba Road.  When  Hill discovered this, he sold his final 10,000 shares in the CPR in utter disgust, and became Van Horne’s implacable foe.    “I’ll get even with him if  I have to go to hell for it and shovel coal!”  Hill swore.

The position of George Stephen in all this is curious.   He was president of both the Canadian Pacific and of the St Paul, Minneapolis and Manitoba, now rival lines.   Van Horne’s disregard of Hill’s interests had to have the President’s sanction, yet Hill, mesmerized by the aristocratic presence of George Stephen, never blamed him for the rift.   

Stephen’s manipulations continued.   In 1886, with the Canadian Pacific completed, George Stephen and Donald Smith secretly bought control of the Minneapolis, St Paul and Salt Sate Marie (the So line), railroad, a line charted by Minneapolis millers to bring wheat from the Dakota prairies to the Minneapolis mills and carry their flour to the year round port of Salt Sate, Marie.   This line, a rival to both the CPR and the Manitoba Road, had been looked at by both Hill and Van Horne and rejected as  weak line, unfinished and no threat.   However, Stephen and Smith put $750,000 into it to complete it.   Once finished, they intended to sell it to either the CPR or to Hill, whichever would bid highest for it.   Hill discovered that the money had come from the bank of Montreal, and queried Stephen as to who was involved.   Stephen mendaciously denied that he or Smith had advanced the money.    With Hill still in the dark, Smith and Stephen went bargain hunting again, and bought the Duluth, South Shore and Atlantic, another line running from Duluth to Salt Sate Marie.   Their purpose was the same, to sell it to either the Manitoba or the CPR.    Hill began a savage rate war with both lines in an effort to drive them into bankruptcy.   But from some unknown source, money kept being poured into these competitors.   Eventually, Stephen had to confess to Hill that he and Donald Smith were behind the rival lines.   Hill then questioned Stephen’s anomalous position as President of both the CPR and the Manitoba.   In 1888 George Stephen sold the So line to the Canadian Pacific and resigned as CPR president.  His place was taken by Van Horne who began to pour money into the So, as a “defense” against the Manitoba line.

Hill responded with a campaign against the CPR, delaying his passenger trains so that travelers would not make their connections at Winnipeg, and on one pretext or another, blocking freight cars a the border, tying up the CPR line.

The anxiety Hill felt about the So line which paralleled the Manitoba on the south was doubled when in 1893, Van Horne bought the Duluth and Winnipeg for the CPR, a line, that would when completed,  parallel the Manitoba on the north.   This put Hill in vice, and Van Horne, it seemed to him, was twisting the handle.    For, if  Van Horne could complete the Duluth and Winnipeg north to the border, the CPR, using D&W and So tracks would have its own line into St Paul and connections to the Chicago roads.  Hill had to have the Duluth and Winnipeg, or he would be squeezed out of  the Canadian traffic.    Realizing at last that  the CPR was now never going to use his Manitoba road as an American connection, he changed the name of the St Paul, Minneapolis and Manitoba to the Great Northern, and encouraged by George Stephen, struck out for the Pacific Coast on his own. 

George Stephen had no intention of letting Van Horne destroy the Great Northern, which he could have done with the So and D&W.     Stephen now  began a treacherous campaign to get rid of Van Horne.   In 1897 he forced Van Horne out of the Presidency of the CPR, took over himself,and sold the D&W to Hill.   

George Stephen’s ambiguous position as President of the CPR from 1880 to 1888, and Chairman of the Board of the Manitoba Road from 1878 to 1886 gave him almost unlimited power to play with both lines for his own profit.   He played the deluded combatants,  Hill and Van Horne, shamelessly against each other, sliding adroitly from one camp to the other in his letters  to them.   Here he is to Van Horne on J.J. Hill,

“…he is the most ‘shame faced’ grown man I ever met, more like a very shy boy of 10 or 12 years than a full-grown man of 50.

“In dealing with him it is necessary to keep his odd ways in mind & to treat him rather as a spoilt child brimful of ridiculous suspicions of everybody he comes in contact with.”

Here he is to Thomas Shaugnessy on William Van Horne,

“It is quite evident that Sir William, either from failing health or from allowing other things to occupy his mind, is no longer able to give the affairs of the Company his undivided attention…  His actions gave me the impression that he felt like a man who knew he was in a mess and had not the usual courage to look his position in the face.”

Manipulated by the Machiavellian Stephen, the two former farm boys, Hill and Van Horne charged at one another like maddened bulls, creating a bitterly hostile relationship between the Great Northern and the CPR which was to last for their lifetimes.   Hill seems to have conceived the idea that by invading the CPR’s British Columbia territory with his profitless lines, he could trade them to the CPR for its So Lines in the U.S.   He made the offer in 1897 and was refused.   Rebuffed, he continued to build Canadian lines.   When, in 1906, the CPR acquired Dan Corbin’s Spokane International and trackage rights with the UP to Portland, Hill responded  with a threat to build a new Canadian transcontinental which would run from Winnipeg through Brandon, Regina, Calgary, Edmonton and the Peace River country.   

Near the end of his life, with his “Third Main Line” (the Vancouver, Victoria and Eastern route) in its final stages of construction, Hill made one more move to confound the CPR in British Columbia.   He conferred with the builders of the Grand Trunk Pacific who were building a  second Canadian transcontinental on the Edmonton to Prince Rupert route, about extending a link northward from his VV&E to link up with both the GTP and the Canadian Northern.  This link, if built, would have enmeshed the CPR in British Columbia, in a choking web of Hill lines. 

Hill died in 1916, but in his last years the GN board withdrew support for any further construction in Canada.    The defeat  of the Liberals killed the Free Trade policy which Hill has supported and counted on.    Without  Free Trade, the GN would always be at a disadvantage in Canada.   Hill’s son, Louis, taking over the Great Northern in his father’s last years, immediately stopped work on the VV&E and negotiated a joint trackage agreement with the CPR for that route.    It was never used.   Louis Hill and his successors began a slow withdrawal of the profitless GN lines from B.C.   Today only a hundred miles of ex-GN track remain in B.C., the steep and crooked line from the border to Nelson, the 12 mile arc into the Kettle Valley on the Republic line, and the route from the border at Blaine to the Vancouver terminal.