The Marshall Plan that Wasn’t: The Scott Plan and the Compromise of 1877

Redeemer Railroads

While Reconstruction policy systems attempted their entrepreneurial railroad schemes/initiatives, what would prove to be the Redeemer Coalition were ensconced in Washington DC”s 1870 deep swamp trying to build their own. This little known, and profoundly critical MED tale of  a southern transcontinental railroad was meant to be the foundation for what was to have been the South’s integration into the national economy. But turned out not to be. It is the missing part of my critique of Reconstruction–that it omitted any meaningful economic development component. One was attempted by the developing Redeemer Coalition, but it fell astray to Radical Republican and Democratic national politics/political strategies, the Credit-Mobilier Scandal, and behind-the-scene transcontinental railroad politics.

The failure of this attempt laid open to South to invasion by those who, in the Gilded Age, were to be called the “robber barons”. It is these robber barons who poured the foundation for future southern industrialization. The tale revolves around a railroad the reader has never heard about: the Texas and Pacific Railroad Company–what was to be a southern-owned transcontinental railroad to the Pacific. The 1862 federal legislation had opened the door for three transcontinental routes. The mid-nation route was the one completed in 1869–and the one involved in the Credit Mobilier scandal. The Texas and Pacific and the Scott Plan was intended as the southern transcontinental railroad venture. The failure of the Scott Plan deprived the South of a Reconstruction Marshall Plan-like federally-funded internal improvements program, the absence of which likely changed the course of our American ED history.

Alternative history or not, an awareness of the Scott Plan and its role in the Compromise of 1877 that ended southern Reconstruction not only serves as background to how Redeemers came to power, it also provides context for how non-southern forces were able to seize control of southern industrialization and render the South, at least in its own eyes, a colony of a northern hegemony. It also sheds light on the behind the scenes national politics that led to the Redeemer decision to create a unified Democratic Party Solid South. This tale is told in few places, the best of which is Woodward’s chapter “The Forked Road to Reunion“. Woodward is generally acknowledged as presenting the most lucid and useful assessment of this episode, although in recent years it has undergone some revisionist attack [] This module presents a simplified, nuts-and-bolts precis.


The Scott Plan

By 1871 a fledgling informal coalition of New South and Planters, working with southern Congressional representatives from former Confederate states that had been readmitted to the Union, commenced “lobbying” to secure federal subsidies intended to rebuild the South by installing developmental transportation infrastructure. Successful, Congress granted a federal charter to the Texas and Pacific Railroad Company as an eligible company to construct the southern transcontinental route whose terminus was to be San Diego. Texas, in the same year, chartered a railroad to construct a railroad from Marshall Texas to San Diego. In a series of complicated transactions, which lasted through March, 1872 the two corporations were merged and was formally ratified in a new charter by Congress in May 1872 (to be the Texas and Pacific Railroad Corporation). In the same year a gentleman named Thomas Scott became its President.

Who is this Thomas Scott? He is not only President of the Texas and Pacific, but also President of the Pennsylvania Railroad, the most wealth publicly-owned corporation not just in the USA, but the world. He also happened to own some 16 million acres of land in New Mexico, Arizona, and California. Thomas Scott, a man soon to be called a “robber baron” was among the most powerful in the United States.  Scott intended the Texas and Pacific to compete with the already operating transcontinental Union and Central Pacific Railroads.

The youthful pre-Redeemer coalition understood this, and determined on its merits that the South’s economic future was best-served by working with its former enemies, the North–and an alliance with western railroads and investors would not yield the industrialization side-benefits that came with working with our Big City northern hegemony. As early as 1872, the coalition cast its lot with Scott and his Texas and Pacific.

A cynic may say, the Texas and Pacific was little more than a subsidiary of the Pennsylvania Railroad, and that any forthcoming southern-route transcontinental railroad would, in effect, be northern-controlled. By this time, the Solid South Democratic Party’s realignment at the national level was becoming a reality. Unified within the Democratic Party former-Confederate states, a minority nationally, but constituted a cohesive bloc that could potentially impact Congressional policy-making. That the northern/Midwestern Democrats were less supportive of southern initiatives than an increasingly powerful moderate Republican Party wing that shared much of the New South vision complicated the picture considerably.

Construction commenced immediately in 1871. Texas and Pacific opened a line from Marshall to Dallas in 1873–another railroad was purchased which opened access to Memphis and El Pas– and by the end of 1873 a second line was opened to Texarkana.

And then things got interesting.

The ostensible reason things got interesting was the Panic of 1873 and the financial and banking collapse it caused. Scott and the Texas Pacific decided that to go forward they needed an actual federal subsidy.  Determined the federal government would play a financial role in transcontinental railroad construction as it had for the Union Pacific, Scott would not move forward until Congressional legislation was secured. To this end, Scott organized the other eastern railroads to join his coalition–they were also to be provided federal subsidies.

Opposed was a western conglomerate owned by the Big Four”, among whom included Leland Stanford (founder of Stanford University) and Collis Huntington–the owners of the Central Pacific a co-partner with Union Pacific which had successfully constructed the first east-west transcontinental railroad. The Big Four had earlier acquired another federally-chartered transcontinental, Southern Pacific Transportation Company (1866), and had already started their route from San Francisco, through San Diego to the eastern California border. In the beginning, the competition was seen as zero-sum, with one or the other to be designated and empowered with federal subsidies.

The embryonic Redeemer lobbing coalition, led by New South editor Henry Watterson, allied with Scott, as did nearly all southern chambers, and all but two southern states (Louisiana and Virginia) approved supportive resolutions. The National Grange endorsed Scott’s Plan; so did Jefferson Davis. The problem was the Panic, and the more and more poisoned atmosphere engendered by the Credit Mobilier scandal which nearly cost President Grant and the Republicans their successful 1872 reelection. The scandal deepened and persisted through the 1874 midterms–and popular reaction in the states threatened any future use of subsidies for railroads–the essence of the Scott Plan.

The Washington negotiations stalemated between these two powerful lobbies (p. 37) and their supporters. In November 1875, on the eve of the 1876 Presidential election, Scott organized a national railroad convention in St. Louis in which nearly 900 influential delegates (31 states), most of which came from the South, voiced their support for the Scott Plan’s approval in Congress. That plan offered “Justice for the South (p.35), and internally solidified the Planter and New South coalition as “Redeemers”. But the South had formally come together in support of its transcontinental railroad at the same time as its chief supporters, the moderate Republicans were attempting to nominate their candidate for President. Election politics in the post-Credit Mobilier atmosphere fractured the negotiations still further. Full-scale Congressional investigations of thirteen of its members, including the Vice-President and a senator named James Garfield–one of the negotiators of the Texas and Pacific legislation.

The 1876 election between Democrat Tilden (NY) and Republican Hayes (Ohio) yielded no electoral victory for either candidate, an electoral crisis ensued in which Congress would determine the winner.

Things really got interesting at this point.

Congress formed a committee to engineer a solution. In no time at all, the Texas and Pacific Scott Plan became the South’s bargaining tool as to how its Solid South Democrats would vote. In their willingness to negotiate with all parties, Republicans saw an opportunity. So did Scott and Huntington–they met in Philadelphia in December 1876 and negotiated a compromise between the two warring railroads. In their agreement, both railroads would get a federal subsidy, and they would meet half-way.

The House Committee, chaired by Garfield, duly approved the amended Scott Plan and voted it out.

The government was asked to guarantee for fifty years the annual payment of 5% interest on bonds of 1,187 miles of trunk line at $40,000 per mile, and a possible 1,378 miles of branch miles at $30,000 to $35,000 per mile. The annual interest came to $4,473,500 and the aggregate to {nearly $224 million] … ll profits went to the railroads [p. 38-9]

A Congressional free-for-all followed, which included a flurry of federal subsidies for southern internal improvements (for example Galveston harbor) which the Democrats voted down. Negotiations to produce an electoral majority became caught in this northern-southern, Democrat-Republican, brawl. The threat of a southern filibuster created the potential for a serious constitutional crisis. Negotiations became intense. In return for approval of the Scott Plan and what was later termed the Compromise of 1877 (better known at the time as the “Wormley Bargain) (p.44) The Compromise/Bargain ended southern Reconstruction and accepted the Scott Plan along with a commitment to an undetermined, but thought to be large, package of southern internal improvements.

Southern Democrats defected from their party and voted Republican–eventually resulting in the election of Hayes as President of the United States.

The contents of the “Wormley Bargain” were well-known and publicized at the time. President Hayes was publicly on-board, saying he favored the Scott bill …

“if that will bring southern support to the Administration to make it worth while”.

To the press he expressed himself [as being] “in very decided terms in favor of a system of internal improvements calculated to benefit and develop the South, and especially of such government aid as may be appropriate to secure the Texas and Pacific Railway” [p. 45]

President Hayes than traveled through the South endorsing the Redeemer policy systems that replaced the Reconstruction state governments. His alliance with southern Redeemer Democrats seemed complete. In Atlanta, in September 1877 he told an audience of African-American voters that “that their rights and interests would be safer” in the hands of the southern white man than in the care of the federal government [Woodward, p. 6]. The Redeemer Democratic wing had incredibly joined forces with the moderate wing of the Republican Party. He pulled federal troops out of the South, and Reconstruction governments immediately resigned in the two states remaining (Louisiana and South Carolina). Reconstruction was over.

But, guess what? Things really got interesting after that

During the fall of 1877, however, Hayes and the moderate wing, led by James Garfield, were repudiated by the Republican Party Congressional majority. Turning over the South to Democratic Redeemers was a bridge too far. The other major issue was the cost associated with the internal improvements pledge and funding the Scott Plan. The New York Tribune led the attack of northeastern “conservatives” by asking in its editorials “What will it cost?”. For all sorts of good and noble reasons, President Hayes backed away from the Scott Plan.

By December 1877, President Hayes stated he had “grave doubts” regarding the Texas and Pacific Bill and declared himself against “any more Credit Mobilier operations“. Almost simultaneously, Huntington broke his deal with Scott, and resumed construction on his end of the line–without federal subsidies, and with President Hayes’s public blessing. “The millennium of [federal] subsidies promised by the Redeemers [to southern voters] failed to materialize” [Woodward, p. 47.]. The South reentered into Recession and it stirred up an Agrarian-populist electorate who, if anything, demanded railroads be regulated.

By 1878 alliance of Redeemers with northern interests, railroads and the Republican Party was under attack from all sides. Pressure was on to break that alliance and instead join forces with westerners in a new third party, the Greenback or Independent Party. In the 1878 elections, Redeemers lost their near-monopoly over southern state policy systems–and their Whiggish New South agenda, including its alliance with eastern bankers, industrialists, and railroad interest was a center-point of controversy in southern state legislatures, Texas being one of them most seriously affected.

Railroad monopolies were seriously out of favor with the Greenback Party, and in 1880 six southern congressmen were elected by the Greenbacks who fielded, for a second time, a presidential candidate who secured 3.3% of the national vote–the most presidential votes the Greenback Party was to achieve in its three runs at the office. In that 1880 election the South’s New South wing, still led by Watterson sacrificed its alliance with Whig Republicans and mildly made its peace with Democrat President Cleveland but doubling down on its strategy to import northern-style capitalism, industrialization, railroads, and encouraging northern investments. But the very brief window of opportunity for large-scale federal subsidy, an 1877 southern internal improvements Marshall Plan was clearly shut. Accordingly, New South advocates adjusted their ED strategies to reflect the reality they were on their own, that the region would not benefit from a beneficent national government. We shall see how they evolved in our next module.

What about the Texas and Pacific? Lost in the Greenback-Agrarian Revolt, the southern transcontinental railroad faced stern headwinds in Texas and got no where with the Hayes Administration. Eventually the Texas and Pacific, now under Jay Gould, resumed its construction–although it was slow going through Texas. In 1879, financier Jay Gould joined with Scott and became President of the Texas and Pacific. Gould also became the dominant shareholder of its competitor, the Union Pacific. The Texas and Pacific did lay nearly 1,000 miles of track, but the State of Texas refused contracted subsidies because Texas and Pacific had exceeded its time of eligibility. The State sued successfully to recover a great deal of land transferred to the railroad. The cash-strapped railroad continued on.

Finally, the Texas and Pacific met up with Huntington’s Southern Pacific at Sierra Blanca Texas in 1881. In the same year another line connected Abilene Kansas to the system. The South from New Orleans to San Francisco had access to the West Coast through two semi-transcontinental railroads. Within a few years the Texas and Pacific entered into bankruptcy.