Jay Cooke’s Gamble: The Northern Pacific Railroad, the Sioux, and the Panic of 1873

Published by EH.NET (July 2006)

M. John Lubetkin, Jay Cooke’s Gamble: The Northern Pacific Railroad, the Sioux, and the Panic of 1873. Norman, OK: University of Oklahoma Press, 2006. xviii + 380 pp. $30 (hardcover), ISBN: 0-8061-3740-1.

Reviewed for EH.NET by Ann Harper Fender, Department of Economics, Gettysburg College.

Lubetkin’s major contribution lies in his description, based on numerous primary sources, of the Northern Pacific Railroad’s surveys in the summers of 1871, 1872, and 1873 for its line through the Dakota/Montana territories. A prologue of several chapters provides a setting for the surveys by examining the history of the Northern Pacific Railroad and Jay Cooke’s involvement with it. Early chapters of the book also summarize Cooke’s life and business dealings, especially his selling of Civil War bonds, prior to his involvement with the Northern Pacific. Additional chapters include material on the history of North American European/Indian contact and an interesting technological history of surveying. An epilogue of sorts follows the chapters on the surveys. These chapters focus on the problems of the Northern Pacific, the downfall of Jay Cooke & Co., and the Panic of 1873 and ensuing depression. Along the way, Lubetkin introduces a large, colorful cast of characters, with impressive biographical material about each. He weaves together the unlikely components of his title. U.S. Grant, Sitting Bull, George Custer, Confederate general turned railroad surveyor Tom Rosser, various financial saints and villains, alcoholic generals, the geography of Minnesota and Dakota and Montana territories and their extreme weather are among the people and conditions in his story. A postscript briefly describes what happened to the book’s main characters after 1873; an appendix summarizes an eyewitness account of a post-blizzard rescue of an 1871 surveying party.

The story begins when Jay Cooke, casting about after 1865 for a way to use his bond sales expertise, became interested in Minnesota and virtually empty lands west of it. Simultaneously, the Northern Pacific Railroad, existing in name only, had fallen into the hands of Vermont businessman and politician, J.Gregory Smith, who needed cash and apparently thought he might get it through the proceeds of Northern Pacific bond sales. Smith, the clearest villain of the book, presided over the Vermont Central Railroad. Why anyone would think that a second transcontinental railroad was a good idea so soon after the completion of the first is a bit of a mystery (until one recalls the recent “dot.com” bust). Cooke was sufficiently cautious to send in 1870 an expeditionary group to examine the lands along a potential Northern Pacific route from Lake Superior to Puget Sound. That group reported rich soils, possible coal seams, and abundant timber along various parts of the route, which encouraged Cooke to raise money for the railroad. Additional interest was created by what was soon to become Yellowstone National Park and its potential tourism business. Federal land grants along the route gave the promise of funds to complete the line and enrich investors. One cautionary note arose with the unknown area between roughly Bismarck and the Yellowstone River. Nomadic Sioux tribes, having been compressed into this region, understandably did not want their hunting territory further decreased. Pressure from the Crow tribe to the south and from Metis to the north made incursions by settlers intolerable for the Sioux. Despite this Indian threat, the Northern Pacific proceeded, with lines being constructed from east and west. Simultaneously, surveyors were hired to mark the line in the unknown Yellowstone region. Because of the Sioux threat, military escorts accompanied the surveyors; the survey took three summers, partly because Indian attacks materialized. These surveying expeditions included many hundreds of men, wagons, and animals, and created substantial provisioning nightmares. Using his sources Lubetkin brings alive the expeditions and the problems that vexed them. Various Civil War veterans staffed the Dakota Territory military units; an ex-Confederate general was surveyor and then chief engineer for the Northern Pacific. Especially on the 1873 expedition, which included the colorful and self-promoting George Custer, newspapermen were included and made regular reports to eastern papers.

One of the author’s main contentions is that stories filed by these reporters and by Custer greatly exaggerated the Indian attacks, thereby scaring off potential NPRR bond purchasers. This in turn led to problems for the railroad and for Cooke and Co., which had committed substantial resources to it. Cooke’s New York partners, concerned that Cooke had over-committed to the railroad, took (perhaps duplicitous) actions that shut down Cooke’s banking houses and effectively put Cooke into personal bankruptcy. The failure of Jay Cooke & Co. strongly contributed to the Panic of 1873. These contentions along with the descriptions of the nefarious spending and contracting practices of Northern Pacific executives and the relationships between businessmen and politicians, are interesting business history, but without the numbers and detail that might test quantitatively the contentions. Although Lubetkin deserves high marks for pulling together these facets, it seems likely that macroeconomic conditions and slowing credit growth caused the panic and the downfall of Cooke. Lubetkin’s economic history is narrative rather than cliometric, historical rather than economic. Although not expressed as such, however, issues of network industries, economies of scale, principal-agent problems, public choice, and rent seeking fill his book.

Both the book’s “Preface” and the accompanying publisher’s brochure explain how Lubetkin, a retired cable television executive, came to write Jay Cooke’s Gamble and it is a story that gives hope to cynical college professors. The author, as an undergraduate at Union College in the 1950s, found in his fraternity house a book about the College’s class of 1868. He returned to the subject of that volume many years later to write a book. One class member was Edward Jordan, later a surveyor for the Northern Pacific. Lubetkin located Jordan’s journals and correspondence about the Yellowstone surveys. These led him to the research for his second book. Lubetkin writes with infectious enthusiasm. He provides considerable detail. His extensive bibliography includes an impressive array of primary sources; even his secondary sources tend to be from regional historical magazines that are not widely accessible. (He has contributed some of his primary sources to the U.S. Military History Institute in Carlisle, PA.) The book includes old photos of people and places, modern photos that Lubetkin has taken of locations pertinent to the story, and modern renditions of historical maps. The book seems exhaustively researched. Whether it includes the latest more narrowly academic sources on Jay Cooke and others active in railroads and finance circa 1873 I cannot address, but most of the biographies he cites are fairly old. If these are the latest, it seems likely that Lubetkin has opened, or perhaps reopened, a fruitful avenue of research. Certainly his book is informative on a wide array of topics and great fun to read.

Ann Harper Fender is professor of economics at Gettysburg College. Her last publication, “Experimental Economics,” appeared in the papers of a conference at the Varna Economics University, Bulgaria, and resulted from a Fulbright Fellowship in Bulgaria. She is currently working on a book about the fur trade based on Hudson’s Bay Company journals and is contemplating the economic similarities among the fur trade, nineteenth century railroads, and twentieth/first century telecommunications.