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THE distionaries say a capitalist is a person who supplies capital. But the dictionaries are quite wrong. A real capitalist is a person who gets other people to supply capital, while he controls the enterprise and secures a large share of the profits. A typical and interesting illustration of this point is found in the history of the Northern Pacific Railroad.

Josiah Perham may be regarded as the father of Northern Paciﬁc. Mr. Perham was born in Maine and his ﬁrst business enterprise was the running of a country store. Having failed twice in comparatively moderate undertakings, he became deeply interested in the project to build a railroad from the Missouri River to the Pacific Coast, a project which then—in the fifties—was attracting much attention. Three rival routes were proposed—the northern, the middle and the southern—with strong sectional interests backing each.

attracting much attention. Three rival routes were proposed—the northern, the middle and It also provided that the subscribers should undertake the southern—with strong sectional interests backing each. to get an act from Congress granting a loan to the In 1862 Congress chose the middle route, chartering the Northern Paciﬁc and that they should contribute pro rata Union Paciﬁc Railway, but Mr. Perham was left out. He whatever funds it might seem judicious to spend in that then turned enthusiastically to the northern route. Thad connection. deus Stevens of Pennsylvania, the most powerful man in The subscribers, it will be noticed, were mostly promi Congress, befriended him. A hill chartering the Northern nent railroad men. It seems hardly likely, however, that Paciﬁc was passed by both Houses and signed by President their railroading talents were the chief consideration in selecting them. Indeed, E. V. Smalley, who wrote a very Lincoln in July, 1864. There was an important difference, however, between interesting history of the Northern Paciﬁc many years ago, the two charters. To aid in constructing the middle believes that they were selected because of their influence route, embracing the Union Paciﬁc, Central Paciﬁc, at Washington. This, of course, was strictly businesslike, Kansas Paciﬁc and three small branches, the Government since to raise capital was the great point, and Washington granted outright twenty-six million acres of public land seemed at that time decidedly the likeliest place to raise and a loan of sixty-four million dollars. The latter, of it. They did secure from Congress an amendment to the charter, giving the company a right to issue bonds that had course, vastly simpliﬁed the task of ﬁnancing the enter originally been denied; but they got no Government loan. prise. To the Northern Paciﬁc it gave only some forty six million acres of land, mostly in unsettled territory, Failing, after two years’ eﬁort, to extract capital from leaving the projectors entirely to their own resources so Congress, they turned, in 1869, to Jay Cooke, who was far as concerned the important item of cash. then by far the most eminent ﬁnancier in the country. The resources of Mr. Perham and associates proved Whatever may be thought about Mr. Cooke's ﬁnanciering inadequate. They tried a popular subscription and they there is no doubt that he was the greatest genius in adver tried to get a loan from Congress similar to that granted tising that the country had then produced. He had the Union Paciﬁc, but failed in both respects. In 1866, ﬂoated the later war loans of the Government by popular therefore, they retired, handing the charter over to a little subscription, and for that purpose had employed printers‘ group of enterprising New Englanders headed by J. Greg ink with a profusion and ingenuity unheard of. By news ory Smith. At that time Mr. Perham and associates had paper advertisements, pamphlets, posters, "reading invested in the enterprise one hundred and two thou matter" articles, and so on, he reached about everybody in sand dollars, all of which had been spent in organization the country who was able to read and had a dollar to expenses and in the attempts to raise capital at Washington, invest. Moreover, his prestige was high, for his bond and in the country at large. There was no money in the ﬂotations had been successful and the investors had treasury of the company. In taking over the charter Mr. proﬁted largely by the rise in Government securities Smith and his friends reimbursed the Perham crowd for following the close of the war. The promoters of Northern Paciﬁc wished to employ this expenditure, and this one hundred and two thousand dollars was the original investment of capital in the Cooke's prestige and grand publicity organization for the Northern Paciﬁc. purpose of attracting capital to their enterprise. Mr. Cooke carefully examined the project and ﬁnally struck a bargain with them. The contract provided that the The Beginnings of the Northern Paciﬁc Northern Paciﬁc should authorize an issue of bonds amounting to one hundred million dollars and bearing HE prime task was still to raise cash, and the new interest at the rate of seven and three-tenths per cent in ‘ owners of the charter addressed themselves to it in an gold. This was the rate paid by the Government on its ingenious manner. They enlisted the interest of William B. Ogden, president of the Chicago & Northwestern Rail last war loan when its credit was at a low ebb, and Mr. way; Robert Berdell, president of the Erie Railroad; Cooke insisted that the railroad bonds should be made William G. Fargo, vice-president of the New York Cen equally attractive to investors. The contract provided tral; D. N. Barney, B. P. Cheney and A. H. Barney, who that Cooke & Company should undertake to sell these bonds were engaged in the express business with Mr. Fargo; at par and should give the railroad company credit for them Edward Reilly, who is described as a friend of Thaddeus when sold at eighty-eight cents on the dollar. In other Stevens; G. W. Cass, president of the Pittsburgh, Fort words, Cooke's cash commission was to be twelve per cent; Wayne & Chicago Railway, and J. Edgar Thomson, but on every thousand dollars of bonds sold he was to president of the Pennsylvania Railroad. receive also a bonus of two hundred dollars in stock of the On the evening of January 10, 1867, at Mr. Ogden's railroad company. Thus if he sold the whole hundred residence, a compact was drawn up, which was signed by million of bonds he would receive twenty millions of stock the above gentlemen. This compact was afterward known as a bonus. But this was not quite all. The contract as the “Original Interests Agreement.” It provided that further provided that the twelve original interests should there should be twelve equal “original interests" and that be increased to twenty-four, the twelve new ones being

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mains

each subscriber to an interest should pay in eighty-ﬁve hundred dollars, thus making up the one hundred and two

thousand dollars that constituted the original investment.

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start the enterprise oﬁ as a going concern before offering

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assigned to Mr. Cooke.

The railroad company was to issue one hundred million dollars of stock. Deducting the twenty millions going to Cooke & Company as a bonus for selling the bonds there would remain eighty millions to be divided among the original interests, and as Mr. Cooke had half the original interests he would receive forty millions of this residue of the stock.

On its face this looks like a rather hard bargain; but it really was not inequitable. The enterprise couldn't go on unless somebody raised capi- tal. Without that the charter was mere waste paper. Mr. Cooke ap peared to be the only person in a position to raise capital. Naturally, therefore, he proposed to do the raising on his own terms.

Thus Mr. Cooke was enlisted; but to make the bonds attractive it was advisable that the actual building of the railroad should begin. So Mr. Cooke engaged to raise ﬁve millions of cash within thirty days in order to

the bonds to the public.

To that end he formed a pool or

syndicate of Philadelphia capitalists. As an inducement to buy at once ﬁve millions of the bonds at par Mr. Cooke sold his twelve original interests to the pool members at ﬁfty thousand dollars an interest. As Mr. Cooke paid the railroad company only eighty-eight cents on the dollar for the bonds and sold them to the pool members at par his immediate proﬁt on that account was six hundred thou sand dollars. As he paid nothing for his original inter csts and sold them to the pool members at ﬁfty thousand dollars apiece, he made a further immediate proﬁt of six hundred thousand dollars.

In short, Mr. Cooke came in

on the ground ﬂoor and the syndicate came in on the second story-—the loft, as usual, being reserved for the general public that was to supply most of the capital. J Jay Cooke's ﬂdvertising Campaign HE railroad company now had four million four hundred thousand dollars to begin building with and Mr. Cooke had a cash proﬁt of one million two hundred thousand dollars to begin selling the bonds with. He at once set his powerful publicity organization in motion.

Advertise

ments, circulars, maps were scattered far and wide. Prominent statesmen and soldiers gave signed statements eulogizing the undertaking and expressing faith in it. One incident will illustrate Mr. Cooke's genius as an advertiser. Various attempts to secure a loan from the Government

had met scathing opposition in Congress. The opposition dwelt upon the company's enormous grant of public land,

describing the fertility and vast future value of the lands, and denouncing the audacity of a company that, having

received this princely gift from the Government, now demanded more. Mr. Cooke made up a neat pamphlet of excerpts from these opposition speeches and sent it broad cast as an inducement to the public to buy bonds that were secured by mortgage upon said princely lands. It was a favorable time. The war was over; business was good; the Government, which had long been absorb ing all the spare cash in the country, was no longer a bor rower. Northern Paciﬁc bonds went like the proverbial hot cakes. Subscriptions poured in from all over the country—frequently representing the savings of thrifty and hopeful citizens in very modest circumstances.

Construction began in 1870 and in less than two years thirty million dollars was received under the Cooke con tract —the money of eleven thousand subscribers scattered from Maine to California. Inspirited by this golden ﬂood the management pushed construction with a lavish hand. Before the end of 1872 some four hundred and ﬁfty miles of road had been built from Brainerd, Minnesota, to Bismarck

on the Missouri River; the Oregon Navigation Company, operating steamboats on the rivers of that state, had been purchased and about a hundred miles of rail laid on the Paciﬁc end. But, alas, the golden ﬂood was not unlimited. Mr. Cooke's vigorous campaign rapidly absorbed the country's

loosechange. There had been great over-speculation and