B&O saga has some lessons for today

March 17, 2002|By Jay Hancock

THEY DIDN'T have 28-year-old Wall Street analysts in 1827 to hype the initial public stock offering of the Baltimore and Ohio Railroad, but they didn't need any. They had the media.

"We have no doubt that the entire 15,000 shares will be subscribed on the first day," the American and Commercial Daily Advertiser reported of the B&O offering in March of that year. "Though it is far from being our wish to contribute in the least to any false excitement, we perceive the promptness with which the present plan has been adopted by all classes."

Especially the scribbling classes. Baltimore newspapers had a blast with the B&O's birth, delivering grandiose projections for the economic growth that would result, imagining the fear and jealousy of Philadelphia and New York and, of course, whipping up the public investors.

The American was wrong about the stock offering; it took a few days for the B&O's shares to become oversubscribed. But the newspaper and the other enthusiasts were right about almost everything else.

The Baltimore and Ohio, the nation's first railroad, whose stock issue was 175 years ago this month, outdid its own ballyhoo. The B&O chugged far into the 20th century and transformed Baltimore in ways that the shameless promoters of 1827 never imagined.

Through the railroad Baltimore expanded its markets 10-fold, transcending space and time to become the commercial capital of a fertile hinterland.

Other cities soon pursued their own rail projects, but many had bet their capital on canals and were slow to start. Baltimore held the "first mover" advantage so beloved by modern technology theorists, although Philadelphia did beat it by rail to the Ohio River. Also, none of its rivals was as close to the Midwestern breadbasket.

The Ohio crops and Appalachian coal hauled down Patapsco Valley rails fed and heated Baltimore in new comfort. Port volume soared. Ore and other raw materials from the interior sparked a manufacturing rush. The capital buildup from the brisk trade nourished new companies and turned Baltimore into a financial hub.

The city became the kind of supercharged commercial cluster that economists lecture about and chambers of commerce dream about but that occurs only rarely - in Silicon Valley or the Texas oil patch, for example.

Certainly Baltimore would have grown without the B&O appearing when and how it did. But if not for the ambitious men of 1827, today's city might seem more like Wilmington, Del., or Norfolk, Va.

The owners, directors, employees and customers of the B&O furnished much of the raw material for Baltimore's civic leadership (and vice versa) as well as the names on its maps.

Hopkins, Patterson, Carroll, Ellicott, Garrett and Brown are names associated with the early railroad. Pratt, Peabody, Walters and other great Baltimore philanthropists made their fortunes largely through the services of the B&O and the prosperity it fostered. For years, B&O stock anchored the Johns Hopkins University's endowment.

From the start, the B&O was a somewhat shady joint venture between government and business. The silver dollars that ended up in B&O President John W. Garrett's pockets were propelled by huge taxpayer subsidies, including company tax exemptions and the contribution of millions in capital from Baltimore and Maryland.

It was corporate welfare on a continental scale, sometimes rammed through the legislature before delegates had a clue what was happening, but it is difficult to argue that taxpayers got a bad deal in the end.

The larger lessons of the B&O, which was absorbed into the CSX system in the 1960s and 1970s, are three.

First, nothing charges up a local economy like big companies selling products - transportation services, software or mutual funds - to faraway masses.

Second, civic and commercial destinies are intertwined. Government and business are often at odds, but neither prospers without the other.

Third, sometimes technology lives up to the hoopla.

The Internet industry is suffering the same kind of slump that followed the first railroad boom: disillusion and bankruptcy preceded by exuberance and over-investment. But neither technology is less marvelous because of the financial cycle.

What's amazing about the hucksters of 1827 is how much they got right. No ground had been surveyed, no track laid. There was only one railroad worthy of the name in the world, a creaky, 25-mile job in England.

But Baltimoreans were able to imagine an artificial river that would drain a vast commercial watershed and deposit its rich contents on the edge of the Chesapeake.

"This avenue, once opened, the benefits must infinitely transcend those of a similar undertaking anywhere that we know of," the American opined on March 14. "It is bringing an empire to our doors."

And that, it turns out, was no hype.

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