Economic Phoenix: How A. B. Hammond Used the Depression of 1893 and a Pair of Defunct Oregon Railroads to Build a Lumber Empire

Abstract

GREG GORDON Economic Phoenix How A.B. Hammond Used the Depression of1893and a Pair of DefunctOregon Railroads toBuild a LumberEmpire THEMOST SEVERE ECONOMIC depression of thenineteenthcentury, thePanic of 1893,affected thebusiness world much theway an understory fire acts upon a forest, leaving thebig trees unscathed while clearing out smaller and marginal players. Those with shallow roots and overextended financial commitments ? Henry Villard, for example ? toppled over, while men like JohnD. Rockefeller, JayGould, E.H. Harriman, and Andrew Carnegie profited from the reduced competition. Particularly hard hit by the Panic, dozens of overextended railroads owning one third of the nation's trackage fell into receivership. With operating expenses exceeding earnings by over half amillion dollars, theNorthern Pacific Railroad (NPRR) failed. James J. Hill and J.P. Morgan took advantage of the situation and bought controlling shares in the railroad. The condition of the otherMontana railroads built by local entrepreneurs Samuel Hauser, A.B. Hammond, and E.L. Bonner was worse than theNorthern Pacific's, with a total deficit forMontana branch lines of $525,000. All these lineswent into receivership as well.1 Vilified by the local press as "theMissoula Octopus," in 1893,Andrew B. Hammond controlled everymajor business inwestern Montana, including the First National Bank ofMissoula, theMissoula Water Works, theMis soula Street Railway, the Missoula Gazette, the Florence Hotel and downtown blocks, the Missoula Real Estate Association (land speculation and develop ment), the Bitterroot railroad, and the area's only flourmill. Hammond's Big Blackfoot Milling Company dominated the region's lumber industry.He even owned the cemetery. Underpinning itallwas theMissoula Mercantile Company (MMC), the largestwholesale and retailbusiness between St. Paul, OHQ vol. 109, no. 4 ? 2008 Oregon Historical Society Courtesy of theDixon Collection, Archivesand Special Collections,Mansfield Library, UniversityofMontana Many residents of western Montana resented A.B. Hammond's domination of theregions economyand politics. On October 28,1891, the Weekly Missoulian caricaturizedHammond as the"Missoula Octopus, that isundertaking to reach itsslimyarms over thecountyand strangle the lifeout of it."The following year, Hammond purchased thenewspaper. Minnesota, and Portland, Oregon, andMissoula County's largest employer, which critics often referred to as the "Missoula Mercantile Monopoly" or simply, "The Monopoly." Although fellow businessmen, including Marcus Daly and H?user, acknowledged Hammond's business acumen, his ruthless practices and brusque manner had won him few friends. In the 1889 election for town council, for example, he received one vote.2 Previous to 1893, the profits fromHammond's Montana enterprises were running $300,000 to $400,000 per year.Although he suffered a fortypercent loss in thePanic, the MMC and thebank were breaking even by the following year, and his lumber business was operating at a close margin. Hammond's Gordon,A.B. Hammond and Oregon Railroads 599 aversion tomining and cattle ventures, combined with his adroit handling of the banking crisis and the solid foundation of theMMC, allowed him toweather this greatest crisis of his career relatively undamaged. Finding his finances, credit rating, and business reputation still intact,Hammond enlarged his empire, but he was careful not to overextend his finances and used little of his own money.3 Inmany ways, 1893 marked the end of the era of thepioneer entrepreneur and the beginning of the rise of the corporate businessman. Alfred D. Chan dler, Jr.,traces the rise ofmodern corporations to the expanding railroad network, the development of national markets, technological innovations, the vertical integration of industry, and bureaucratic structure? all of which were predicated on railroads connecting the source of rawmaterials with urban markets. Prior to 1893,American investments were primarily in railroads, but with their financial collapse, a new economic order emerged from the ashes, themodern corporation designed around mass production, global markets, and government bureaucracy.4 Although he retained many nineteenth-century practices inhis businesses, Hammond readily adapted to the emerging industrial model. As Hammond shed old partnerships inMontana, he applied the new paradigm identified by Chandler to the development of theOregon coast, connecting the nascent lumber industry with national markets via railroads. HAMMOND REALIZED THAT Montana was, and would remain, a hin terland, subordinate to themetropolis that controlled capital investment. Portland and the Willamette Valley were, inmany ways, more established versions ofMissoula and the Bitterroot Valley, but on amuch...