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The Pennsylvania Railroad, Volume I: Building an Empire, 1846-1917

Author(s):Churella, Albert J.
Reviewer(s):Nonnenmacher, Tomas

Published by EH.Net (July 2013)
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Albert J. Churella, The Pennsylvania Railroad, Volume I: Building an Empire, 1846-1917. Philadelphia: University of Pennsylvania Press, 2012. xviii + 945 pp. $75 (hardcover), ISBN: 978-0-8122-4348-2.

Reviewed for EH.Net by Tomas Nonnenmacher, Department of Economics, Allegheny College.

In an era when pundits worry about the ability of corporations to access the highest reaches of government and the minutiae of consumers? daily lives, it is instructive to go back in time and examine a corporation that was so powerful that, within its home state, it was referred to simply as ?The Company? and whose president similarly was referred to as ?The President.? That corporation, of course, was the Pennsylvania Railroad (PRR), at one time the largest corporation in the world, whose list of employees in 1919 would ?generate a document nearly the length of this book? (p. x). The book is enormous, and while it looks and feels like an encyclopedia, it is compelling reading throughout, providing, through the lens of the PRR, a history of internal transportation improvements in the United States, corporate leadership, labor relations, technological change, financial markets, pricing, network competition, and the evolving relationship between government and industry. This list is by no means comprehensive. The book has fifteen chapters that are in rough chronological order, but rather than cover the book chapter by chapter, I will focus on just a few of its main themes.

Albert Churella spends much of his energy examining the PRR’s top managers, telling stories about their careers, personalities, and contributions. He clearly favors some leaders, like Herman Haupt, Edgar Thomson, Thomas Scott, and Alexander Cassatt, while others, such as James McCrea, eighth president of the PRR, are only fleetingly mentioned. Even a book this big cannot be comprehensive in its coverage of the PRR?s development. Being president of the largest corporation in the world was not an easy task, and a strong constitution was required to last more than a couple of years. While Edgar Thomson served 22 years as president, other presidents served much shorter terms; most died in office or shortly after leaving it. One of the earliest decisions to be made concerning executive power was whether the PRR would be run in the interests of Philadelphia merchants or its more dispersed shareholders. This battle pitted the PRR?s first two presidents, Samuel Merrick and William Patterson, representing the interests of Philadelphia merchants, against Haupt and Thomson, representing the shareholders and exhibiting a proclivity towards engineering solutions and efficiency in construction and operation. Haupt and Thomson won, with Thomson rising to be the third president of the PRR, setting it on a path towards scientific management that would guide its decisions for decades.

Churella provides good detail on the evolving managerial structure of the PRR. In 1852, it was organized in four departments: Treasury, Auditor, Construction, and Transportation. In these early years, the organizational chart was a path dependent mix of duties for different divisions, and Thomson believed in tailoring the duties of employees to their specific skills. This organizational structure evolved into the line and staff structure, and later into a managerial machine that complemented and mimicked the machinery of the PRR. Indeed, when president George Brooke Roberts died in office, a reporter commented that, ?The well-regulated machinery of the great system will continue to move as heretofore, under the guidance of strong hands? (p. 556). By the turn of the twentieth century, the public?s faith in the PRR had as much to do with its history of strong management as with any individual at the top.

Political and economic power went hand in hand for the PRR, and a careful reader will find a fascinating story about how the regulators and the regulated jointly rose in power. The PRR?s predecessor, Pennsylvania?s Main Line of Public Works, was owned by the commonwealth, but private individuals owned and operated the canal boats and railroad cars. Politics entered the decisions of whether to build a canal or a railroad, where to build the canal, and who would get canal jobs. Nicholas Biddle and the United States Bank of Pennsylvania supplied capital to survey and build sections of the Main Line. With ?every element of [the canal network’s] construction and ongoing operation intensely politicized? and a poorly conceived ?hybrid canal and rail system,? the Main Line was doomed to failure. (p. 55) The Main Line?s rail replacement was initially envisioned as another public work, but a growing belief that ?public works were inherently tainted by patronage and inefficiency? and that ?the patronage system stifled individual initiative, draining promising young men of their talent and ambition and turning them into political hacks? was instrumental in creating the political climate in which a private enterprise could replace a public one (p. 182). The Commonwealth of Pennsylvania would not invest in the PRR directly, but nevertheless owned sections of the route between Philadelphia and Pittsburgh and shaped the PRR?s route, competition, and operation. Of course, who controlled whom was the important question, and the PRR became known for officers who “would stop at nothing in their efforts to manipulate the political process” (p. 212).

As the PRR grew, so too did the scale at which it interacted with the government. During the Civil War, the PRR was a central component of the North?s war efforts. Later, battles in Congress over subsidies to the Texas and Pacific were ultimately tied to the Compromise of 1877. The stress of that particular episode was so severe that it contributed to the deaths of two PRR presidents. Churella describes the Interstate Commerce Act of 1887 as initiating ?a century of inconsistent and often schizophrenic federal regulation of the railroads? (p. 545). The Elkins Act of 1900 was ?essentially drafted by PRR and Santa Fe attorneys? (p. 687), while the Hepburn Act of 1906 strengthened the Interstate Commerce Commission?s (ICC) ratemaking powers and ended the PRR?s investments in the coal industry. While a close personal relationship between the president of the PRR and the President of the United States (such as the one between Cassatt and Theodore Roosevelt) could help shape legislation and its implementation by the ICC, PRR executives realized that they needed to shape public opinion as part of their strategy to shape regulation. Ivy Lee, the PRR?s first public relations executive, stated that railroad managers were no longer ?running a private business, but have come to find they are … running a business over which the public itself has assumed complete supervision and control? (p. 683). Indeed, by 1910, ratemaking was a joint decision between federal regulators and the railroads.

One of the themes that Churella examines throughout the book is the competition among railroads and the process by which rates were set. Railroads were highly competitive on long haul shipments and monopolists on the short haul. While this economic insight is very useful in understanding pricing, the reality of how railroads manipulated their competitive environments was much more complicated. In its early years, the PRR faced competition from canals for carrying coal and agricultural products in the eastern part of the state. The PRR fought incursions from the south and north to connect these and other areas with competing canals and railroads. It was particularly successful in limiting the Baltimore and Ohio’s access to Pittsburgh, which remained reliant on the PRR for decades as its primary route east. In contrast, transportation from the oil fields of northwestern Pennsylvania was highly competitive. Attempts, like the South Improvement Company, to raise rates and divide up demand were short-lived and doomed to failure. The PRR was more successful in controlling pricing to the coal fields of West Virginia, going on a $110 million spending spree around the turn of the twentieth century to create a “community of interest,” (one of seven organized by J.P. Morgan and other bankers) by buying shares in the Baltimore & Ohio, the Chesapeake & Ohio, and the Norfolk & Western. Given increased competition and improved technology, long haul rates fell in the second half of the nineteenth century from 3 cents per ton-mile in 1855 to 0.473 cents in 1899 (p. 622). Attempts to stabilize rates in the early 1900s were successful, and by 1906, long haul rates rose to 6 cents per ton-mile.

The PRR was an early and successful leader in creating a secure network of connecting lines to points in the Midwest, usually by buying stock or guaranteeing the mortgages of its western connections. Over the years, competitors tried to enter into PRR’s territory by assembling larger competing networks. One example is George Gould’s attempt to assemble a transcontinental rail network. Churella presents the conflict between Gould and the PRR as a tale of strategic investments, secret agreements, political machinations, threatened legal actions, and collateral damage. For instance, in 1901, Cassatt ordered locomotives to pull Western Union (controlled by Gould) poles out of the ground next to the PRR’s right of way to make room for a competitor’s line. The description is thick and the action exciting.

For a book as long as this one, a bit more help in navigating the content would be useful. There are many good maps, but the reader has to flip through the book to locate them. A list of figures would be helpful. So too would a bibliography and chapter titles that were a bit more descriptive. For instance, the chapter titled ?System, 1889-1929,? actually covers technological change from the 1850s to the 1940s. The index is 19 pages long, but should be longer. When looking for specific terms, I found it more useful to type the word into Google books than use the index to find the page number. While the book is full of numbers, it fails to summarize any of them in a table. A table that reports miles of track, rates, revenues, profits, employment, dividends, or capitalization over the course of the PRR?s history would help the reader to contextualize Churella?s narrative. These, however, are minor complaints for such a monumental undertaking. This is a book that can serve as a reference for scholars, but reading it through from beginning to end is a productive and enjoyable romp through the history of “The Greatest Railway Company in the World.”

Tomas Nonnenmacher is a Professor of Economics at Allegheny College. His most recent article, ?Stability and Change on Henequen Haciendas in Revolutionary Yucat?n: Two Case Studies from the Henequen Zone? is coauthored with Shannan Mattiace and is forthcoming in Estudios Mexicanos/Mexican Studies. He is currently working on a project exploring entrepreneurship in the telegraph industry.

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Subject(s):Business History
Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII