History of the Louisville & Nashville Railroad

7 The Furies Uncaged: Depression and Expansion, 1872-79

7 The Furies Uncaged: Depression and Expansion, 1872-79 The penetration of northern Alabama, though it by no means stilled the critics of company policy, propelled the L & N down the road of territorial expansion. Success depended largely upon the management's ability to pursue its extension course while continuing to appease disquieted stockholders with regular dividends. But the Alabama commitment consumed capital voraciously, both for development purposes and for rehabilitating the two shoddily built roads. Like most pioneering projects, expenses multiplied quickly and returns trickled in slowly. In the best of times the situation would have created a serious financial crisis for the L & N. Unfortunately it proved to be the worst of times. In September of 1873, the failure of Jay Cooke & Company, a major banking house, triggered a financial panic. The prolonged Depression that followed severely deranged the economic environment. The strategy of territorial expansion had already drawn southern roads into fierce conflict before 1873. Only a steady growth of business could alleviate the financial burdens of restoration and expansion, the cost of which left even strong roads like the L & N little margin for withstanding adversity. Policy makers had presumed that their efforts would create some stability among the roads, but the economic contraction hit them like a thunderclap. Unable to survive the blow, weaker roads succumbed rapidly to default and receivership. The failure of so many roads aggravated an already bad situation. Rates declined steadily as the bankrupt roads, freed from payment on their 1 2 4 HISTORY OF THE LOUISVILLE & NASHVILLE RAILROAD debt, undercut their solvent competitors ruthlessly to get whatever traffic they could divert. More important, the large number of roads in foreclosure posed a formidable threat to the survivors in that they could be purchased cheaply by rival companies. And since many of the defaulted lines had themselves pursued expansion by acquiring securities in connecting roads, purchase of the parent road meant control over subsidiary lines as well. The availability of so many roads with poor earning capacity but strategic locations profoundly threatened the entire territorial concept. As a result, the old defensive fears reasserted themselves in earnest after 1873. Managers of solvent roads, though struggling to keep their own companies afloat, could not resist the temptation to snatch up foreclosed roads in order to prevent rivals from doing so. By the late 1870s a new race toward consolidation had begun. So intensely did the L & N feel these pressures that the company pursued this course unswervingly despite several major changes in its leadership. Years of the Locust The acquisition of the Alabama roads increased the total mileage operated by the L & N to 921. In his report for 1873 Newcomb reviewed with satisfaction the company's steady growth since the end of the war. Of all the projects recommended by Fink in 1866, only the Lebanon extension remained incomplete. In solemn language he lectured his stockholders upon the potential of the Alabama roads and, more broadly, upon the defensive nature of the company's expansion program. As an insight into the rationale of territorial strategy, his words merit close attention: With the completion of the South & North Alabama Railroad the Company has now practically carried out the policy which was inaugurated some seven years ago under the administration of the late Hon. James Guthrie . . . the importance of this enterprise [the Alabama roads] can not be overestimated; without it the Louisville & Nashville Railroad would be entirely dependent for its connections to the Southeast and Southwest upon other railroads, whose interests are not identified with ours, but are directly opposed to them. It would have been in the power of these companies to exclude us at any time from the business of the South, and make the property of this Company comparatively worthless. . . . The location of this line is such that this Company can never be excluded from the business of the Southeast and Southwest, from which it might have been cut off at any time at the pleasure of rival interests, which have been and which are still being built up.1 DEPRESSION AND EXPANSION, 1 8 7 2 - 7 9 1 2 5 In Newcomb's eyes the company had accomplished the basic goal of territorial strategy: it had defined a territory tributary to its lines and sealed it off from rival roads. If the territory could be protected from "invaders" and allowed to develop undisturbed, the company's prosperity was assured. Future expansion could be...