Tuesday, November 16, 2010

Land Grant Railroads in Wisconsin, Part II

Addendum: I inexplicably left out the indispensble Law and Locomotives: The Impact of the Railroad in Wisconsin Law in the Nineteenth Century by Robert S. Hunt.

I have also added a photo of Byron Kilbourn's final resting place.


I recently posted Land Grant Railroads in Wisconsin, Part 1 that related some background & history of how the US used its vast public landholdings to provide indirect funding for some railroads. A couple of additional note before moving on. The land grant railroads were not as significant as I rather vaguely believed before doing this research. In Wisconsin, as of 1886 land-grant railroad lines constituted only about 20% of total track miles – 973.50 land-grant miles out of 4778 total miles. The total land grant mileage would not have increased in Wisconsin after that date.

The three routes funded by land grants for railroads all served the far northern reaches of the state, the Pinery. The southern part of the state, especially the southeast was already well-served by railroads and had far less need for the US grants. The northern interests strongly believed that the railroad would never reach its environs without the help of the US lands.

The following maps from Illinois suggest that the land grant for the Illinois Central line (from Cairo to Galena with a branch line from Centralia to Chicago) spurred the development of other feeder lines. And they are cool maps anyway.

From Railroads and the Making of America, http://railroads.unl.edu/views/item/landsales_IL?p=5

From Railroads and the Making of America, http://railroads.unl.edu/views/item/landsales_IL?p=5

I ended my prior with the ironic query: what could possibly go wrong?

And as some of you already know, the correct answer was "plenty". The land grants of 1856 led directly to the worst political scandal in the state history. The land grant scandal should be set against the background of how a previous private mode of funding Wisconsin railroads ended in a far greater disaster. 

The Farm Mortgage Debacle

The early 1850's were boom years for Wisconsin wheat farmers (yes, wheat). But the farmers wanted an easier way to get their crops to market than hauling them forty or fifty slow and laborious miles by cart. They wanted railroads to connect them to Chicago or Milwaukee. The railroads of the state were local affairs at the time. Neither the farmers nor the railroads had the capital to build the railroads. State aid was out because the state constitution forbid investment in works of internal improvement. Article VIII, Section 10 provided that "the state may never contract any debt for works of internal improvement, or be a party in carrying on such works." (This proviso has since been amended on several occasions.)

The farm mortgage scheme worked like this: The railroad swapped stock for mortgages on the farms. The farmer mortgaged the farm to pay for the stock. The stock was to yield 10% to the farmer, while the mortgage carried 8% interest. The 'extra' 2% owed to the farmer would be held back by the railroad to pay off the underlying principle. This was all swell, except it amounted to a bunch of poor farmers swapping paper with a bunch of undercapitalized railroads. In order to obtain actual money to build the railroads, the farm mortgages were sold by the railroads (often at a steep discount) to Eastern financial interests.

Local communities also issued local municipal bonds in support of the railroads.

The scheme worked well until the Panic of 1857 plunged the state's railroads into bankruptcy with the state's farmers immediately following (along with many others - see the "sidebar" below).


The Wisconsin Historical Society's Odd Wisconsin Archive contains this description of that depression.

The Panic of 1857 was felt especially hard in Wisconsin. LaCrosse, for example, had grown from a hamlet of six houses in 1851 to a town of 6,000 people in 1856 (a fact much touted by the mayor and other promoters). Homes, stores, sawmills, and businesses were sprouting enthusiastically when the Panic hit and employers and investors were unable to get their hands on cash. "Immediately all business operations were paralyzed," wrote a resident afterwards. "Much of the business had been done on credit which depended on outside parties for liquidation. Half a million dollars was owed to the lumbermen from parties down the river, principally. The lumbermen owed the farmers, merchants, banks, mechanics, and laborers, and could not pay."


The railroad farm mortgage debacle dominated Wisconsin politics for a decade as farmers and rural interests generally attempted to obtain state legislative relief from their debts. The legislature generally provided relief, but the state Supreme Court consistently overturned these laws.

An excellent source for the history of the railroad farm mortgages is Economic history of Wisconsin during the Civil War decade, by Frederick Merk. Available free on Google Books.

The Land Grant Scandal

The biggest scandal in the history of Wisconsin occurred surrounding the selection of the railroads to build the tracks authorized by the 1856 grants.

Thirteen senators and fifty-nine assemblymen, the Governor, and one Supreme Court Justice were implicated in a bribery scandal.

The excellent article by local attorney Joseph Ranney, Imperia in Imperiis: Law and Railroads in Wisconsin, 1847-1910 describes the scandal:

In 1856 Wisconsin received its first federal railroad land grant from Congress. The federal land grant system provided that when the state selected a railroad to develop a line along a route specified by Congress, that railroad would receive alternate sections of public land in a strip extending six miles along either side of the route. The land would be granted to the railroad in installments as the state certified that successive portions of the road were completed; in the meantime, the railroad could obtain financing on the strength of the grant.

A fierce struggle for the 1856 land grant took place between Byron Kilbourn's La Crosse & Milwaukee Railroad and several competing companies. The La Crosse & Milwaukee won, but shortly afterwards it came out that Kilbourn had engaged in wholesale bribery to win the grant. A special committee of the 1858 Legislature, chaired by Assemblyman James Knowlton of Janesville, discovered that Governor Coles Bashford had received $50,000 worth of La Crosse & Milwaukee stock; supreme court Justice Abram Smith had received $10,000 and other state officials and more than half the members of the 1857 Legislature had received lesser amounts of stock. The 1858 Legislature rescinded the La Crosse & Milwaukee grant and enacted stringent lobbying restrictions and reporting requirements for railroads, but the damage was done. Wisconsin's reputation was damaged throughout the United States, making it more difficult for state railroads to secure outside capital, and it was many years before the state was able to use the 1856 land grant effectively to finance its railroad system.
But as Ranney notes, "Despite the depression, the land grant scandal and the Legislature's failure to adequately control railroad chartering and financing, the demands of a growing economy and the sheer economic advantages of rail transport over rivers and plank roads kept Wisconsin's rail system growing."

You can visit Our Hero at the Forest Home Cemetery in Milwaukee.

Sources and suggested readings:

Many early volumes of the annual (later biennial) reports of the Railroad Commissioners of Wisconsin are available at Google Books, including the very first report of 1874 containing agreta deal of historical data. Tables with data on land grants, municipal railroad bonds, and farm mortgages start at page 401 of the PDF file. According to the report, 3795 farm mortgages were given in the amount of  $4,079,433.

Sanborn, John Bell. Congressional grants of land in aid of railways, Bulletin of the University of Wisconsin, (Economies, Political Science, and History Series, vol. 2, no. 3, pp. 263-392.) August 1899.

Ranney, Joseph A. Imperia in Imperiis: Law and Railroads in Wisconsin, 1847-1910, Wisconsin Lawyer Magazine.

Haney, Lewis Henry, A Congressional History of Railways in the United States, 1850-1887, Bulletin of the University of Wisconsin, , (Economies, Political Science, and History Series, vol. 6, no. 1, pp. 1-336.) January 1910. Available free on Google Books.

Bernd, John Muth, The La Crosse and Milwaukee railroad land grant, 1856, Wisconsin Magazine Of History. Volume: 30 /Issue: 2 (1946-1947)

Greiner, Gordon Oswald., Wisconsin national railroad land grants, Thesis (M.S.)--University of Wisconsin--Madison, 1935.

Economic history of Wisconsin during the Civil War decade, by Frederick Merk. Available free on Google Books.

Links can also be found through the UW's MadCat system.

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