Interesting reading on Milwaukee Road Pacific Coast Extension.

Trains Magazine General Discussion
41

Since I have no idea where you “get your information,” I will try and keep this brief and adressed to your key, salient, point.

Your contention is false.

The Anaconda Company, the Milwaukee Road, and the Montana Power Company shared the same ownership. Start there.

The controlling owners of the Anaconda Company controlled the Milwaukee Road for 20 years prior to their acquisition of the ACM (Anaconda Copper Mining Co).

In the book, “Frenzied Finance, The Crime of the Amlgmated” (1907) by Thomas Lawson, Lawson noted, in detail, the animosity that H.H. Rogers, in particular, had for Financier J.P. Morgan, who was the key financier of… James J. Hill, and the GN and NP. Lawson examined Rogers’ actions in 1901, with the collapse of the Northern Securities Company, meant at that time to bring a truce in railroad competition and building, by constructing a general holding company to include the UP, GN, NP, and MILW. One of the handicaps was that all of Northern Pacific’s assets, including the vast Land Grants, were tied up by its 100 Year Bonds, that Morgan had been forced to issue in order to get the “otherwise worthless railroad” out of its 1893 Bankruptcy (it’s second one). James J. Hill had, however, gotten effective control of the NP at that time.

Hill was well known for exploiting any power he had to impose high freight rates. That was one reas

42

As a lengthy footnote to the ACM holdings and activities to which the Milwaukee, a sister company, was privy.

“The Anaconda Copper Mining Company Records consist of correspondence, court papers, financial and production records, legal documents, organizational records, subject files, and other materials for the company and many of its predecessor and subsidiary companies and departments. Among the major subgroups into which the collection is arranged are the General Office, the Big Blackfoot Milling Company, the Bitter Root Development Company, the Boston and Montana Consolidated Copper and Silver Mining Company, the Butte and Boston Consolidated Mining Company, the Colorado Smelting and Mining Company, the Diamond Coal and Coke Company, the Parrot Silver and Copper Company, the Reduction Department (Anaconda), the Trenton Mining and Development Company, the Tuttle Manufacturing and Supply Company, and the Washoe Copper Company. In addition, there are more than one hundred smaller subgroups (see Table of Contents). Unconnected with the primary mining, smelting and timber operations of the Company were several affiliated companies in the hotel and related fields; oil and gas development; water and townsite companies; and newspaper publishing. Subgroups for these include the Silver Bow Club, the Florence Hotel and the Montana Hotel; the West Dome Oil Company; the Anaconda Townsite Company and the Hamilton Water Company; and the Post Publishing Company and the Montana Free Press.”

An odd footnote is that the ACM had also bought up most of Montana’s influential newspapers, and ruthlessly controlled “the news” as it might reflect on the ACM, only finally selling its newspapers in 1959.

Best regards, Michael Sol

43

“Milwaukee went after “foreign freight” through the Ports of Seattle and Tacoma, and got most of that too.”

Can you please provide context?

44

The statement “I would appreciate that you pass this on to your father so that he may have it connection with the previous memo which you stated you had forwarded on to him.”

“Forwarded on” … for some reason, right? [:)]

My notes: “Sophisticated analysts saw strength in the Milwaukee’s position, among others, John D. Rockefeller, in addition to large stock purchases of a few years earlier, subscribed to $5 million in bonds in 1913.”

My source: Letter, Bertram Cutler to Kuhn, Loeb & Co., 4/10/1913. Purchases were also made on behalf of Mrs. Rockefeller, Cutler to Rockefeller, 1/29/1913. Rockefeller Family Archives, Record Group 2, Office of the Messrs. Rockefeller, Box 28, Folder 235, RAC.

ALL of the relevant sources will provide the path to the answer of John D Srs interest in Milwaukee Road stock.

Best regards, Michael Sol

45

The Japanese-Russian War of 1904 had all but eliminated foreign trade between America and Asia.

On May 12, 1908 the Company sent out maps and lists of new towns that could be reached, and that the line was now “open for business” on the completed sections. The pace of construction and expenditure was so great, that bond and stock sales could not keep up. Short-term loans were made from the Standard Oil Company itself,among other sources, to the Milwaukee. Business was already being lined up. On April 8, a contract was signed between the Osaka Mercantile Steamship Company, Limited for interchange of business. On May 28, 1908, the Board of Directors approved a contract with Osaka Shosen Kabushiki Kaisha Ltd for the operation of “a line of steamers between Seattle, Tacoma and Japan, China and other Oriental countries …”.

By 1909, the Milwaukee Road was the only American rail line with ANY “foreign freight” through Seattle and Tacoma, although “Maritime News” believed that such traffic might return to other lines at some point.

46

I did finally locate the full context of my original notes on this point.

"A study of sorts does exist from that time, however. John D. Rockefeller, who ordinarily avoided his brother William’s investments because of his distrust of William’s banker, James Stillman, took an interest in the St. Paul extension. His long-time financial adviser, Henry Cooper, went out and looked at the railroad property, examined the books, talked to the management, and reported back to John D. Rockefeller, Jr… Cooper was a highly experienced analyst; one upon whom both the elder and junior Rockefellers had long placed great trust. Cooper believed that the management of the St. Paul was well informed, and that Albert Earling, in particular, was “a distinctly high class man, and moreover one entirely trustworthy. His sole interest seems to be the welfare of his property.”

"Coo

47

If the MR did become a formidable competitor with its PCE, how did it lose its edge, later becoming an also-ran?

48

The loading of the question AND providing the answer, offers no room for error in the analysis does it? [:D]

You can reference the Professional Study that changed Trustee Stanley Hillman’s mind from “we think we might keep some lines running” to “It turns out that the Milwaukee Road is a relatively wealthy company,” to reading in Leon Levy’s interesting book, “The Mind of Wall Street” how Milwaukee Road stock became the most valuable such railroad stock in America, and made Levy, among others, a fabulously wealthy man.

The Professional Study that so shocked Trustee Hillman that he essentially stopped speaking to the officers whom he felt had misled him, got an ulcer, and then resigned, can be found in the “Milwaukee Road Strategic Planning Studies, Booz-Allen-Hamilton Consulting Study, May 2, 1979.”

Best regards, Michael Sol

49

Since that would clearly be “one persons point of view” – yours – can we file that under “bunk?” [}:)]

Best regards, Michael Sol

50

no, youth wants to know. The Olympian Hi was cut back well before its competitors. It got gateways with the BN merger which to me implies it was at a disadvantage prior to, not just afterward. Did regulatory mumbo jumbo through the decades weaken its ability to flourish vis a vis the others? Hardening of the arteries?

51

Well, then “youth” needs to look at the data, as well as the observations of the knowledgeable, experienced people who were virtually unanimous on the point. Because they were informed by the actual, relevant data.

Just to keep it short, one BN officer put it this way: “The Milwaukee was having the BN for lunch.”

The actual data:

Accumulated System Net Operating Income, 1976-1978, -$87,558,141.

Lines West Net Operting Income, 1976-1978, not including Miles City, +$22,183,364.

Lines West Net Operting Income, 1976-1978, including Miles City, +$44,487,394.

Accumulated System Net Operating Income, 1976-1978, without Lines West, west of Miles City, -$109,741,505.

Accumulated System Net Operating Income, 1976-1978, without Lines West, including Miles City in Lines West - $132,045,535.

If you have different numbers, I’d be happy to see what they are, and where they come from.

Best regards, Michael Sol

52

Hundreds of railroads have gone by the wayside …

For those of us who are not following this closely and/or don’t have much basis in Milwaukee Road history, what is so special about this story?

I understand that the Milwaukee Road had the ill-fated western expansion. But what is it about the MILW that spurs so much emotion and even active discord?

53

That is a good observation, and I agree that putting this into perspective would be helpful. My understanding is that leading up to the abandonment of the Pacific Extension, a widespread popular belief developed that building it was a colossal blunder by the company. This idea seems to have gained massive traction by repeating it over and over. Certainly not everyone agrees, and since abandonment of the Pacific Extension was a big event, a relatively large controversy surrounds the whole matter.

54

I guess there must be two camps even now:

a) Never shoulda done it and should have known better, and

b) Great idea, but got killed off by inevitable, but then unforeseeable, historical developments in the railroad industry.

55

I would say that your “a” and “b” items are both part of the camp that considers the PCE to have been a colossal blunder.

So “a” and “b” are one camp, and the other camp believes that supposed failure caused by the operational cost of the PCE is exaggerated, over simplified, and in many ways untrue. As I mentioned, much of the “PCE was a blunder” camp seems to present the case as almost a cliché that is just assumed to be true. I welcome hearing any analysis of this that goes deeper into the issues on both sides.

56

Probbably many factors LO. The subjective thought that MILW always had the most direct and fastest route, the memories of the Olympian Hiawatha traveling through the majestic northern Rockies, people who passionately worked for the MILW, railfans who don’t understand railroad economics 101, and believe every single rail line should exist just because. I’ll throw in this. People generally speaking do enjoy conspiracy theory, and drama as well.

The operational reality is that we had an overbuilt rail network. Quite a few lines were built for short term gain, with losses being passed onto investors. Look at all the booms and preceding bust we’ve had. Right now it’s EV’s. 20 years ago it was the .com boom and bust. The rails were no different back then. It should be no surprise we went from almost 270,000 miles of rail. To todays roughly 140,000 miles.

It appears during this time there was a weird dislike of the BN back then. Which I don’t quite understand. If it wasn’t for the 11 Western Gateways, MILW PCE would have been abandoned sooner than later in my opinion. MILW gained traffic at the expense of BN gateways. Not its own. traffic did grow on the Lines West. Yet it wasn’t enough to cover a massive deficit the MILW carried for most of its existence. Nor did it put a large dent in BN’s higher margin traffic.

57

The other question is that even if the PCE was making a good profit in its latter years, were the bonds required to build it still sapping the overall financial condition of the company? I don’t know, that’s why I’m asking.

58

Michael Sol:
Great to have you back. Missed you and the spirited conversations during the last 10 years.

It has been boring.

Ed

59

I suppose, then, there is no irony to posting a link to an uninformed diatribe on the Internet? [:D] However, to be “fully informed,” a larger number of Milwaukee Road business records are at the Barriger Library in St. Louis.

It is a very large collection, but a “must” for any serious historian of the Milwaukee Road.

"This extensive collection from the corporate archives of the Milwaukee Road (Chicago, Milwaukee, St. Paul & Pacific Railroad) was largely compiled in the later 1970s during that railroads effort to evaluate, reorganize, and focus transportation business on its Core areas. Much of the material in the collection was brought together by Milwaukee Road executives and accountants to inventory and value railroad holdings in advance of offering sections of the railroad for sale. The collection was donated to the library in the early 1990s.

"SCOPE: The collection comprises a wide variety of research material including: Board of Directors minutes from the companys inception; car and locomotive equipment records (in particular, AFE Authority for Expenditure records); records of subsidiaries, such as the Milwaukee Land Company; maps (notably, valuation maps of railroad-owned properties), plats and track charts; Law Department documents, and architectural and engineering plans for buildings, bridges and structures across the system from the Midwest to the Puget Sound. Also included, and forming a large part of the collection, are detailed consultant studies on the Milwaukee Road: its future profitability, traffic patterns, and financial worth. A selection of account and ledger books dating from the early 20th

60

That particular viewpoint comes from a single source, Max Lowenthal, and an important book he wrote in 1933 about the Milwaukee Road’s 1925 Bankruptcy, “The Investor Pays.”

Max Lowenthal is an interesting story all by himself, but that would require a substantial diversion … but one that would also explain “why he wrote the book.”

However, the key point that he made in his book was that the Pacific Extention cost $234 million to build, which was several times the costs estimated at the time the decision to build west was made.

Lowenthal summed up his opinion regarding that enormous expenditure as follows:

I had talked to Max Lowenthal about his book – just before he keeled over – and he had invited me to look through his voluminous research records, stored in a barn in Connecticut.

After I got the opportunity to go through his records, I was in for something of a shock. His research was meticulous. His conclusions wildly divergent from what his research actually said.

The source of his claim that the PCE was a “quarter of a billion dollar unprofitable railway,” tacked onto a “quarter of a billion dollar long-estblished and profitable railway” came from an internal Milwaukee Road study, done just prior to filing fo