RAILROADS: Scarlet Woman of Wall Street

As the flag-decked railroad train chugged out of Piermont, N.Y. on May 14, 1851, old Daniel Webster settled down in a rocking chair in the middle of a flatcar, a jug of hard cider close at hand, “to enjoy the fine country.” Along with U.S. President Millard Fillmore and 298 others, Webster was making the inaugural run over the New York & Erie’s 446-mile track to Dunkirk, N.Y., on Lake Erie, thus linking the Great Lakes and the Atlantic Ocean for the first time. To Daniel Webster, the Erie was a “great work of art.”

Last week, in its annual report marking the centennial of the first run, the Erie showed how the work of art has mellowed with age. During 1950, the Erie hauled 42,339,984 tons of freight and 11,038,075 passengers, to earn $13,455,493, the third highest profit in its history. With defense production stepping up road traffic, Erie hoped to better its record this year.

Enter the Villain. By such good reports in recent years, the Erie, once “synonymous with bankruptcy, litigation, fraud and failure,” has lived down its reputation as the “Scarlet Woman of Wall Street.” The man who seduced the Erie was an ex-cattle drover named Daniel Drew, a director from 1853 to 1868. “Uncle Dan’l” made millions juggling Erie stock* on Wall Street, but never gave the common stockholders a nickel, giving rise to the saying: “Icicles will sprout in hell before Erie common pays a dividend.”

Drew was soon joined on the Erie board by Jay Gould and Jim Fisk, a slippery pair of Civil War profiteers and stock-market riggers. In 1866, the trio tangled with Commodore Cornelius Vanderbilt, who wanted to get control of the Erie because it competed with his New York Central, then pushing westward to Chicago. When Vanderbilt tried to buy up every Erie share on the market, the supply suddenly became endless. Reason: Jim Fisk had set up a press to turn out fake stock certificates. Vowed Fisk: “If this printing press don’t break down, I’ll be damned if I don’t give the old hog all he wants of Erie.”

When Commodore Vanderbilt, a smart railroad buccaneer himself, got a court injunction against the unholy three, they scooped $6,000,000 in cash out of the Erie treasury, scuttled across the Hudson to Jersey City. To keep Vanderbilt at bay, Fisk mounted three 12-lb. cannon on the docks outside the Erie’s transplanted headquarters, donned an admiral’s uniform to stage-dress his defiance. Meanwhile, foxy Jay Gould bribed the New York state legislature with $1,000,000 to legalize the fraudulent stock certificates.

Help at Last. This forced even doughty Commodore Vanderbilt to make peace. For $4,500,000 out of the Erie’s treasury, he agreed to leave Gould, Fisk and Drew in control of the road. Gould soon double-crossed Drew and ruined him; Jim Fisk was murdered by a rival for the hand of Actress Josie Mansfield. By the time Gould was ousted from the Erie presidency in 1872, he had looted the treasury and wrecked the Erie’s finances. Although it bravely extended its line to Chicago by 1875, it remained top-heavy with debt, repeatedly went bankrupt.

Not until after its fourth bankruptcy, in 1938, did the Erie begin to steam upgrade again, with Oldtime Railroadman Robert Eastman Woodruff,* 66, at the throttle. Woodruff, who had risen from section hand to president in 36 years with the Erie, bought new diesels for fast freight, streamlined the Erie’s creaky business methods, cleared $21.8 million in 1941. The next year, Erie directors cheerfully announced that “icicles have sprouted in hell.” They paid a 50¢ common dividend, their first in 69 years. Dividends have been declared every year since (1950’s payment: $1.75 a share).

Erie has spent $114 million on new equipment in the past ten years, now hauls a bigger percentage of freight with diesels than any other trunk line in the U.S. Its radio communications system, linking the engineer with the caboose and with wayside dispatchers, is the most elaborate in the U.S.; its accident rate is less than half the U.S. railroad average. Wall Street’s scarlet woman has become as correct and prudent as a Park Avenue dowager.

*He also made his cattle thirsty by letting them lick salt while driving them to market, then filled them up with water before weighing them for sale. From this practice came the financial term “watered stock.”

*No kin to Coca-Cola’s Robert Winship Woodruff.