James Jerome Hill

James Jerome Hill (September 16, 1838 – May 29, 1916) was a railroad entrepreneur and executive. His lines included the Great Northern Railway, the only privately funded transcontinental railway in the United States. It was also one of the few railways that did not go bankrupt in the Panic of 1893.

Life
Hill's father died when he was fourteen, so he dropped out of school to work in a grocery store for four dollars a month to help support his widowed mother. As a young adult he worked in the farming, shipping, steamship, fur-trading, and railroad industries. He learned the ways of business in these settings, saved his money, and eventually became an investor and manager of his own enterprises.

Building the Great Northern Railroad
Hill got his start in the railroad business when he and several partners purchased a bankrupted Minnesota railroad that had been run into the ground by the government-subsidized Northern Pacific (NP). The NP had been a patronage "reward" to financier Jay Cooke, who in the War Between the States had been one of the Union's leading financiers. But Cooke and his NP associates built recklessly; the government's subsidies and land grants were issued on a per-mile-of-track basis, so Cooke and his cohorts had strong incentives to build as quickly as possible, which only encouraged shoddy work. Consequently, by 1873 the NP developers had fallen into bankruptcy. The people of Minnesota and the Dakotas, where the railroad was being built, considered Cooke and his business associates to be "derelicts at best and thieves at worst," writes Hill biographer Michael P. Malone.

It took Hill and his business partners five years to complete the purchase of the railroad (the St. Paul, Minneapolis, and Manitoba), which would form the nucleus of a road that he would eventually build all the way to the Pacific (the Great Northern). He had nothing but contempt for Cooke and the NP for their shady practices and corruption, and he quickly demonstrated a genius for railroad construction. Under his direction, the workers began laying rails twice as quickly as the NP crews had, and even at that speed he built what everyone at the time considered to be the highest-quality line. Hill micromanaged every aspect of the work, even going so far as to spell workers so they could take much-needed coffee breaks. His efficiency extended into meticulous cost cutting. He passed his cost reductions on to his customers in the form of lower rates because he knew that the farmers, miners, timber interests, and others who used his rail services would succeed or fail along with him. His motto was: "We have got to prosper with you or we have got to be poor with you."

In keeping with his philosophy of encouraging the prosperity of the people residing in the vicinity of his railroad, Hill publicized his views on the importance of crop diversification to the farmers of the region. He didn't want them to become dependent on a single crop and therefore subject to the uncertainties of price fluctuation, as the southern cotton farmers were. Hill also provided free seed grain — and even cattle — to farmers who had suffered from drought and depression; stockpiled wood and other fuel near his train depots so farmers could stock up when returning from a delivery to his trains; and donated land to towns for parks, schools, and churches. He transported immigrants to the Great Plains for a mere ten dollars if they promised to farm near his railroad, and he sponsored contests for the beefiest livestock or the most abundant wheat. His "model farms" educated farmers on the latest developments in agricultural science. All of this generated goodwill with the local communities and was also good for business.

Hill's rates fell steadily, and when farmers began complaining about the lack of grain storage space, he instructed his company managers to build larger storage facilities near his rail depots. He refused to join in attempts at cartel price fixing and in fact "gloried in the role of rate-slasher and disrupter of pooling agreements," writes historian Burton Folsom.

In building his transcontinental railroad, from 1886 to 1893, Hill applied the same strategy that he had in building the St. Paul, Minneapolis, and Manitoba: careful building of the road combined with the economic cultivation of the nearby communities. He always built for durability and efficiency, not scenery, as was sometimes the case with the government-subsidized railroads. He did not skimp on building materials, having witnessed what harsh Midwest winters could do to his facilities and how foolish it was for the NP to have ignored this lesson.

Burton Folsom describes Hill's compulsion for excellence: Hill's quest for short routes, low grades, and few curvatures was an obsession. In 1889, Hill conquered the Rocky Mountains by finding the legendary Marias Pass. Lewis and Clark had described a low pass through the Rockies back in 1805; but later no one seemed to know whether it really existed or, if it did, where it was. Hill wanted the best gradient so much that he hired a man to spend months searching western Montana for this legendary pass. He did in fact find it, and the ecstatic Hill shortened his route by almost one hundred miles.

Hill's Great Northern was, consequently, the "best constructed and most profitable of all the world's major railroads," as Michael P. Malone points out. The Great Northern's efficiency and profitability were legendary, whereas the government-subsidized railroads, managed by a group of political entrepreneurs who focused more on acquiring subsidies than on building sound railroads, were inefficiently built and operated. Jay Cooke was not the only one whose government-subsidized railroad ended up in bankruptcy. In fact, Hill's Great Northern was the only transcontinental railroad that never went bankrupt.

Later activities
Hill continued to show how effective market entrepreneurs could be. Having completed the Great Northern, he then got into the steamship business in order to facilitate American exports to the Orient. As usual, he succeeded, increasing American exports to Japan sevenfold from 1896 to 1905. He continued to reduce his rail rates in order to make American exports profitable. Being an ardent free trader, Hill was a Democrat for most of his life, because the Republican Party since the time of Lincoln had been the main political force behind high protectionist tariffs. (He switched parties late in life when the Democratic Party abandoned its laissez-faire roots and became interventionist, but he considered the Republican Party to be merely the lesser of two evils.)

Recognizing a market in the American Midwest for timber from the Northwest, Hill convinced his next-door neighbor, Frederick Weyerhauser, to get into the timber business with him. He cut his freight charges from ninety to forty cents per hundred pounds, and he and Weyerhauser prospered by selling Northwest timber to other parts of the country.

Robber baron?
James J. Hill built the Great Northern Railroad "without any government aid, even the right of way, through hundreds of miles of public lands, being paid for in cash," as Hill himself stated.

By the summer of 1861, after the Battle of First Manassas, it was apparent to all that the War Between the States was going to be a long drawn-out campaign. Nevertheless, in 1862 Congress, with the southern Democrats gone, diverted millions of dollars from the war effort to begin building a subsidized railroad. The Pacific Railroad Act of 1862 created the Union Pacific (UP) and the Central Pacific (CP) railroads, the latter to commence building in Sacramento, California, and the former in Omaha, Nebraska. For each mile of track built Congress gave these companies a section of land — most of which would be sold — as well as a sizable loan: $16,000 per mile for track built on flat prairie land; $32,000 for hilly terrain; and $48,000 in the mountains. As was the case with Jay Cooke's Northern Pacific, these railroads tried to build as quickly and as cheaply as possible in order to take advantage of the governmental largesse.

Where James J. Hill would be obsessed with finding the shortest route for his railroad, these government-subsidized companies, knowing they were paid by the mile, "sometimes built winding, circuitous roads to collect for more mileage," as Burton Folsom recounts. Union Pacific vice president and general manager Thomas Durant "stressed speed, not workmanship," writes Folsom, which meant that he and his chief engineer, former Union Army general Grenville Dodge, often used whatever kind of wood was available for railroad ties, including fragile cottonwood. This, of course, is in stark contrast to James J. Hill's insistence on using only the best-quality materials, even if they were more expensive. Durant paid so many lumberjacks to cut trees for rails that farmers were forced to use rifles to defend their land from the subsidized railroad builders. Folsom continues:

Since Dodge was in a hurry, he laid track on the ice and snow…. Naturally, the line had to be rebuilt in the spring. What was worse, unanticipated spring flooding along the lower fork of the Platte River washed out rails, bridges, and telephone poles, doing at least $50,000 damage the first year. No wonder some observers estimated the actual building cost at almost three times what it should have been.

In 1869, after seven years of construction, the two subsidized railroads managed to meet up at Promontory Point, Utah, amidst much hoopla and celebration. What is not often mentioned, however, is that after the big celebration both of the lines had to be rebuilt and even relocated in places, a task that took five more years (into 1874).

The wasteful costs of construction were astonishing. The subsidized railroads routinely used more gunpowder blasting their way through mountains and forests on a single day than was used during the entire Battle of Gettysburg.

With so much tax money floating around, the executives of the CP and UP stole funds from their own companies in order to profit personally, something that would have been irrational for James J. Hill or any other private, market entrepreneur to do. For example, the UP managers created their own coal company, mining coal for two dollars per ton and selling it to themselves for six dollars per ton, pocketing the profits. This crooked scam was repeated in dozens of instances and would be exposed as the Crédit Mobilier scandal. (Crédit Mobilier was the name of one of the companies run by UP executives.)

Congress responded to the 1874 Crédit Mobilier scandal by enacting a blizzard of regulations on the UP and CP that would in the future make it impossible for them to operate with any semblance of efficiency. Because of the regulations, managers could not make quick decisions regarding leasing, borrowing money, building extensions of the rail lines, or any other day-to-day business decision. Each such decision literally required an act of Congress.

Political interference also meant that separate rail lines were required to be built to serve communities represented by influential members of Congress even if those lines were uneconomical. No business could possibly survive and earn a profit under such a scenario. The UP went bankrupt in 1893; the Great Northern, on the other hand, was still going strong. Not having accepted any government subsidies, James J. Hill was free to build and operate his railroad in a way that he deemed was most efficient and most profitable. He prospered while most of his subsidized competitors went bankrupt at one point or another.

Despite the quality services and reduced costs that Hill brought to Americans, he would be unfairly lumped in with the political entrepreneurs who were fleecing the taxpayers and consumers. The public eventually began complaining of the monopoly pricing and corruption that were inherent features of the government-created and -subsidized railroads.

The federal government responded to the complaints with the Interstate Commerce Act of 1887, which was supposed to ban rail rate discrimination, and later with the Hepburn Act of 1906 which made it illegal to charge different rates to different customers. What these two federal laws did was to outlaw Hill's price cutting by forcing railroads to charge everyone the same high rates.

This new round of government regulation benefited the government-subsidized railroads at Hill's expense, for he was the most vigorous price cutter. His trade to the Orient was severely damaged since he could no longer legally offer discounts on exports in order to induce American exporters to join with him in entering as foreign markets. He eventually got out of the steamship business altogether.

Links

 * James J. Hill Washington State History
 * James J. Hill and the Building of His Railroad Empire
 * Biography at the Dictionary of Canadian Biography Online
 * James J. Hill and the Building of the Stone Arch Bridge (video)
 * Biography: James J. Hill, PBS
 * J. J. Hill Dead In St. Paul Home At The Age of 77 (Obituary), The New York Times, May 1916
 * James J. Hill: Transforming the American Northwest by Daniel Oliver, July 2001