Practically all of the possible abuses or frauds described in the preceding pages under the caption of stock-watering are found combined in a single instance in recent years—the reorganization of the Chicago & Alton road by the late E. H. Harriman and his associates during the eight years following 1898. The case is an illuminating one; for it shows how an unscrupulous management may, at one and the same time, enormously enrich insiders at the expense of the investing public, and prejudice the interests of shippers, both by crippling the road physically and by creating the need of high rates for service in order to support the fraudulent capitalization.
—William Z. Ripley, Railroads: Finance and Organization
When Harriman joined the Union Pacific in 1897, he was an obscure banker whose only railroad connection was the Illinois Central. Three years later he stood on the threshold of a business empire that would catapult him into being the dominant figure in the transportation industry. While his achievement with the Union Pacific would have satisfied the ambitions of most men, it was for him merely a prelude to the foundation of an empire.
Like an alert scout, Harriman had struck a promising trail through the dark and tangled forest of the modern industrial system. He already understood the symbiotic relationship between the financial and rail industries and the ways in which each enriched the other. The more he learned about the essentials of modern railroading, the more he began to probe the riddle of its larger nexus of relationships. He had the ability to examine its character with the cold eye of a clinician, unfettered by conventional wisdom and without regard for political or social obstacles. Nor did financial considerations detain him; they were simply another technical problem to be solved.
At no time did the Union Pacific occupy Harriman's full attention. He remained in charge of the Illinois Central's finance committee and took the job seriously. Although this work took a backseat to the Union Pacific, it continued to influence his strategic thinking. Less than a year after taking charge of the Union Pacific, Harriman got involved in the reorganization of three major railroads: the Baltimore & Ohio, the Kansas City, Pittsburg & Gulf, and the