Theme 3: New South Mini-Series D

Module 4

Rise of Birmingham: Railroads, City/Economic Base-Building, Southern Entrepreneurship and Hegemonic North

In this “Rise of Birmingham” module I delve into the role railroads played, as an industry sector, in developing the economic base of a developing urban area. Railroads are the Gilded/Redeemer Age’s driving industry sector. Think of it as internet technology today. Railroad is the cluster that beget other clusters–a function we attribute to what I call a “platform sector/technology”.

Like all “platform” technologies, a nexus of sectors and industries are created, spun off, and piggy-back alongside the driver technology. Platform technologies are themselves an infrastructure and require infrastructure. These platform technologies can form, shape/configure, or are instrumental to economic base and economic growth. They exhibit a profit life cycle as all sectors do, but like a reserve currency they often have extraordinary resilience, until they encounter a disruptive platform technology or a major change in environmental factors, war for instance. Working with and dealing with Platform technologies are required of any economic developer–and they are fundamental to MED in that they are constant and fundamental triggers of change in the economic base. Platform technologies by definition are powerful and yield externalities, inequalities, and in general disruption which can generate CD reaction. That these Platform Technologies are politically powerful and can affect, disrupt, bring down, and give rise to S&L policy system, which generate ED outputs, is yet another dimension that makes it necessary to focus on these key sectors. Knowing how the railroad platform technology played ED ball in an historical period can offer important insight on any contemporary period. History is not determinative, but it does, as they say, “rhyme”.

 

 

The lesson to be taken from the Texas and Pacific Case Study module was that the federal government would not play the South’s industrial/railroad sugar-daddy. That meant the question turned as to whether the South could diversify into industrial-urban modernity on its own, paying  its own way and relying on southern leadership and entrepreneurial skills, OR would it need to copy northern experience by importing northern capital and expertise in southern ventures–potentially risking the North could wind up in effective control of the commanding heights of southern finance, railroads and heavy industry.

The New South contingent bet the store they could find a way to fuse the two alternatives, that they could somehow control the beast that fed them. The rise of Birmingham Alabama, from an largely unsettled, undeveloped, isolated highland geography to the “Magic City”, “Pittsburgh of the South” serves as an excellent case study as to how that New South strategy/hope actually worked out in real life. The Birmingham case study also provides an opportunity to bring in railroads, entrepreneurism, southern city/economic base-building and witness its struggle with the galloping expansion of our northern Big City industrial/finance hegemony.

In these early 1870’s the New South’s chief leader was Kentucky’s Watterson. Watterson was not just a newspaper editor as our contemporary textbooks describe him. He was a multi-state political force, and arguably one of the chief drivers of what was to become the Redeemer coalition that created the Democratic Party-led Solid South. Watterson as we have seen, was a major force in the Scott Plan and the Compromise of 1877, and indirectly, he set in motion several important players in the rise of Birmingham. .

His determination that Kentucky, a highland, non-cotton border state essentially controlled by the Union for the entire Civil War (with few battles and no Reconstruction) could lead in the South’s drive to industrialize and recover. That demanded among other priorities a railroad system that connected Kentucky (the terminus being his home city of Louisville) with the rest of the South. So he “adopted” a young less than twenty-year old state-chartered railroad (1850), the Louisville and Nashville (L&N) as his vehicle. L&N financed its expansion through local subscriptions ($3 million), and was southern-led. That set up this extended case study.

In the paragraphs that follow we can see three independent factors that fused over the next 30-40 years: a railroad, the development of an iron and steel economic base, and the building of a (complex of) cities, centered around what was to become “Birmingham, Alabama”. In the background was the dilemma outlined above: whether the South could industrialize and urbanize, using northern capital, but still able to preserve southern control of decision-making so that the benefits of industrialization in particular would flow to the South, not to northern coffers. Consciously or not, the hope was the Birmingham could develop into the Pittsburgh of the South.

The L&N was an 1850’s railroad startup that at the onset of the Civil War possessed a mere 250 miles of track that in 1859 linked Louisville with Nashville Tennessee. While subject to many raids and some destruction, the L&N came out of the war in fairly good shape–as Kentucky was in Union hands the L&N transported Union goods and war produce and got paid in Union dollars. Nashville fell to Union control by 1862. As the Union army drove South, so did the L&N, reaching Memphis in 1863

At War’s end the L&N had sufficient financial capacity to start an expansion program and it commenced purchase of a series of smaller railroads. L&N’s chief rival, the Alabama and Chattanooga Railroad was attempting to attract iron ore shipments  from Louisville to Chattanooga.  The two intersected in Jones Valley northern Alabama. Concentrating on Tennessee and adjoining Alabama, L&N, had taken advantage of Reconstruction policy systems, secured a great number of city and state bond issuance’s to finance much of this expansion.

As it turns out, most of these defaulted, and L&N should be considered as a major “bad guy” in the scandals and political turmoil that resulted. The two competing railroads had been profligate, between them they amassed over $17 million of Alabama state debt (of a total of $25 million). With the arrival of the Redeemers this debt was highly controversial and its legality was questioned. The two railroads turned on their powerful lobbying apparatus, and eventually secured the election of George Houston, a former railroad lawyer and a director on L&N’s board, as the first Redeemer governor. The settlement of the debt issue was favorable to the railroads [] Woodward, the Origins of the New South, pp. 9-10. Railroads and Redeemer politics often overlapped very conveniently.

But bad guy notwithstanding, by 1872 L&N had extended deep into Alabama and was running a line to Montgomery–through the highland, mostly undeveloped northern Alabama counties. In so doing, it stumbled onto a mineral-rich undeveloped natural resource horde in the Jones Valley from which the L&N sensed opportunity galore. Its Superintendent, Albert Fink “foreseeing immense potentialities of the undeveloped mineral resources of northern Alabama, began soon after the war to make large investments in that region [to subsidize] numerous developments and encouraging the building of new towns. By 1876, L&N … owned about a half million acres of land in Central Alabama [] Woodward, the Origins of the New South, p. 8, pp. 126-7) (p. 126-7)

L&N, Elyton Land Company and Oxmoor Furnaces and the North-South Railroad

Looking at the cast of characters that came together around 1870 to found Birmingham, one wonders if it takes a village to found a village? [] Robin Sterling, “the Old Reliable”, Tales of Old Blount County Alabama, Lulu.com Publishing, March 2018, pp. 162-170. 

Alabama entrepreneurs Frank Gilmer and John Milner wanted the rail hub to be located in nearby central Alabama, not far-off Chattanooga. Their initial attempts to start a railroad were blocked by rivals and it was only in 1869 that they were able to start laying track. They ran out of dough sixty-six miles from Decatur AL.  North and South Railroad

 

Talk about North South RR, Frank Gilmer

 

In 1870, financed by a Montgomery banker, L&N set up the Elyton Land Company whose ostensible purpose was to found and populate a city in Jones Valley Jefferson County. The site chosen was at the intersection of two railroads (L&N and t hired as its President, James R. Powell, a former Yazoo plantation owner, just returned from living in Birmingham, England. He bought 360 shares in the Corporation and started to immediately raise $200,000 capital, platted streets, hired an engineer and laid out streets, parks and squares, marketed and, established a water utility, sold lots, and by 1873 got himself elected as mayor. Did I mention he got the state legislature in December 1871 to charter a city named Birmingham.

A tireless promoter, he publicized for residents and companies in the national press. In 1873 he got the Alabama Press Association to meet in Birmingham and pressed for it to hold its annual convention there. In 1874 he invited the New York Press Association to “come on down”; they didn’t. But making a lemon out of lemonade he organized and conducted a tour of eastern media, presenting to them the areas literally “shovel-ready” mining opportunities. He gave interviews, one of which was to a European columnist in which he asserted that “the fact is plain. Alabama is to be the iron manufacturing center of the habitable globe” [] Wikipedia: James Powell]. He also marketed incentives offered by the Elyton Land Company to those companies willing to start ventures in the city and adjoining areas–guess where these funds came from?

He also recruited a banker and founded a local bank. In 1873, as Mayor he waged a bitter referendum that awarded Birmingham, not Elyton as the county seat. His nickname, not surprisingly, was the “Duke of Birmingham”. But the 1870’s were a tough time to found a city. When the Panic set it, it was followed by a serious cholera epidemic (which prompted his water utility), and there were few takers for the incentives offered to relocate. Depopulation of this already-minuscule city resulted. Things looked desperate, but in 1878 a new set of players appeared.

The Encyclopedia Alabama asserts that “Birmingham owes its 1871 founding to the geological uniqueness of the Jones Valley, the only place on Earth where large deposits of the three raw materials needed to make iron–coal, iron ore, and limestone–existed close together” [] Encyclopedia Alabama “Birmingham Iron and Steel Companies”. That attracted entrepreneurs to the new-founded city and one of them was a very affluent, powerful and successful industrialist. Enter Daniel Pratt.

Pratt was born in New Hampshire (1799), he fit the mold of a hard-working, religious Yankee-Puritan, and he left home at age 20 and moved to Savannah, before he sensed opportunity and moved into Georgia’s cotton belt. He built plantation homes there for several years, married locally, he wandered into factory management, and in 1833 established his own Daniel Pratt Gin Company, making cotton gins in an undeveloped area he called Prattville (Pratt became mayor)–which quickly became a “company town” where his workers resided and lived.  Most were depressed yeoman farmers, but he also used slaves. The company evolved by the 1850’s into one of the South’s largest cotton gin manufacturers, and Pratt sold his gin worldwide, importing Sheffield steel to make his product. He has been called “Alabama’s First Industrialist”.

A powerful Whig, he established a party newspaper, he opposed succession, but served in Alabama’s Confederate legislature. He outfitted a cavalry unit and contributed to the war effort. After the War, he applied some of his considerable profits from the Pratt Cotton Gin factory into ventures in the Jones Valley. He purchased thousands of acres there, invested in railroad venture, the South and North Alabama railroad, which by good fortune was one of the two intersecting railroads at Birmingham. Working through his son-in-law Henry DeBardeleben they acquired controlling interest in the Red Mountain Iron and Coal Company (1872), and started rebuilding a furnace, destroyed in the War at Oxmoor. He died in 1873, leaving his interests and fortune to his daughter and DeBardeleben. At this juncture, DeBardeleben assumes Pratt’s mission and corporate leadership. By 1878 he had rebuilt operations at Oxmoor, and was ready to lead Birmingham’s take off launch. That take off launch has multiple moving parts, and the first is to bring L&N back into the Birmingham story.

Transformation of L&N

Before we bring L&N back into the Birmingham “picture”, let’s briefly review what had happened to it in the decade or so since we left it. First of all the L&N was never just another southern railroad, no matter how small it was previous to the Civil War. Its pre-1868 President, James Guthrie (Scots-Irish Ascendancy) was a charismatic and powerful spokesperson for the South and even a candidate for the 1860 Democratic presidency; he lost to Stephen Douglas. He was a plantation and slave owner who, however, was opposed to succession. He supported McClellan in the 1864 election–i.e. he remained with the Union. He was a U.S. Senator, Secretary of the Treasury under Buchanan and Pierce, and the first President of the University of Louisville. He was obviously a part-time President of L&N.

The point of all this is that L&N–which was a priority for Guthrie–borrowed from Guthrie’s charisma and leadership. It was always generally viewed as the quintessential southern railroad, and the leader of its interests and agenda. Widely-reported and monitored, its post-Civil War expansion caught the eye of lots of southerners and it became a key element in the emerging New South-Redeemer coalition. The expansion that he began continued after his death in 1869, and a new President C.C. Baldwin aggressively expanded consolidating existing rail lines, transferring their debt to L&N. Three major consolidations (1872, Clarksville, Memphis and Ohio RR; Nashville, Chattanooga and St Louis, 1880), along with multiple other secondary expansions doubled L&N’s trackage from 921 miles in 1873 to 1840 in 1880 [] Russell Wigginton, Louisville and National Railroad, Tennessee Encyclopedia https://tennesseeencyclopedia.net/entries/louisville-and-nashville-railroad/  Louisville and National Railroad, . When L&N formally reenters the Birmingham case study it is not only the South’s railroad of affection, it is one of the largest, and a powerful player in many state Redeemer politics.

Expansion and railroad-related venture capital investments came at a considerable cost to L&N in this period. The additional cost of playing in Redeemer politics (Alabama Governor Houston, for example) was also considerable. Debt levels required finding additional investment, and that was often linked to seats on the board of directors. Throughout the 1870’s L&N added a number of new investors, most northern financiers of some type, sufficient in number to change the character and decision-making of L&N. Although L&N had the image of as a leader in defending the downtrodden South, Woodward (and others) noted that during the decade ownership and control of L&N had passed to northern and European lenders represented on its Board. It’s Board by 1880 included,Thomas Fortune Ryan, Jacob Schiff, August Belmont–and a name the reader will recognize, Jay Gould [] Woodward, the Origins of the New South, p. 7.

New investment by 1880 had reduced “localized [i.e. southern] control and most financial decisions came down from financiers in New York. This change to ‘big city’ control, questionable expansion decisions and perceived financial incompetence by company president C. C. Baldwin led to downward spiral in the company’s reputation … along with the overall decline in [stock] price … from $99 in 1881 to $31 in 1882” prompted the termination of Baldwin and his replacement by a leader who in time acquired a statute almost equal to that of Guthrie, Milton Hannibal Smith–a southern par excellence. Smith ran L&N to his retirement in 1912. Smith’s dominance over L&N, his strategic management of the railroad, restored L&N as the perceived leader of southern railroads and a major player in the New South coalition.

This mini-case study within a case study is important for two reasons. First, L&N by almost any standard had become northern-owned, arguably as early as 1880. But it was southern “run” and operated. Its leadership and management were southern. As such L&N could constitute a legitimate success story for the New South strategy to copy northern industrialization, attract northern investment, and maintain control over the operation of the underlying asset so the South could derive benefit from the exchange.

Back to the Iron and Steel Industry

Then the Panic of 1873 hit and the L&N had some lean years in which it poured money into mines and foundries to develop ore and coal assets to ship. They also laid more track to connect it to Mobile, and eventually New Orleans. 

In the meantime, U.S. constructed steel mills and factories in satellite suburbs surrounding the facility. The metro area became “an instant city”. 

Birmingham was the outstanding example of northern and foreign investment in the southern iron industry. New England investors like Truman Aldrich and Daniel Pratt (Pratt Coal and Coke Company), the latter attributed to be the South’s counter to Andrew Carnegie. Working with some southern capital he consolidated a number of furnaces into the De Bardeleben Coal and Iron Company (1889) with seven coal and  seven iron mines, quarries, several railroads, and nine hundred coke ovens. In the lean 1890’s, however, De Bardeleben ran into hard times, and was eventually bought out by, guess who, J.P. Morgan. But during those twenty or so years between 1879 and mid-1890’s southern pig iron production increased by seventeen times and Carnegie was quoted as saying “the South is Pennsylvania’s most formidable industrial enemy” (Woodward, p. 127). Southern iron competed with northern iron in cost and quality as late as 1889.

Henry Plant’s “Plant System” reached Birmingham in 1887. In 1894-5, J. P. Morgan bought out both Gilmer & Milner’s A&TR Railroad and Henry Plant’s Rail System. ?????????

Locals called Birmingham “the Magic City”–although its potentially rich tax base lay outside the city limits and less than 4,000 lived in it in 1880. By 1900, Birmingham had grown to 38,000, but was still frustrated that its rich suburbs controlled the industrial nexus. So in that year, it fabricated “the Greater Birmingham Plan”, lobbied it successfully through the Alabama legislature, and annexed the offending suburbs. In 1910, Birmingham’s population exploded to nearly 133,000.