J. Edgar Thomson

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J. Edgar Thomson (1808-74) was an entrepreneur of 19th century America best known for his leadership of the Pennsylvania Railroad from its founding in 1852 to his death 1874, making it the largest business enterprise in the world and a world-class model for technological and managerial innovation.

Thomson's sober, technical, methodical, and non-ideological personality had an important influence on the Pennsylvania Railroad, which in the mid-19th century was on the technical cutting edge of rail development, while nonetheless reflecting Thomson's personality in its conservatism and its steady growth while avoiding financial risks. His Pennsylvania railroad was in his day the largest corporation in the world, with 6000 miles of track, and was famous for steady financial dividends and for high quality construction, constantly improving equipment, and innovation in how to manage a large complex organization.

Contents

Career

Thomson was born in Pennsylvania to a family with Quaker roots that had arrived in the colonial era. His father John Thomson was a leading civil engineer, who helped build the Delaware & Chesapeake Canal and the first experimental railroad in the United States. The son had little formal schooling, worked closely with his father from an early age, acquiring a sound foundation of engineering practice which he augmented by reading, observation, and experience. He made an inspection tour of the new railways of Britain in 1832. Through his father's influence he became a member of the state's engineer corps surveying routes for a rail line west from Philadelphia. He was soon made assistant engineer, and in 1830, when the line of the Camden & Amboy Railroad was located across the state of New Jersey, Thomson was placed in charge of an engineering division

Georgia

Thomson served 1834-47 as the chief engineer of the Georgia Railroad which was just being chartered to build a line from Augusta to Atlanta. The first train reached Atlanta in 1845, opening the city that soon became the railway hub of the Southeast. Thomson became nationally known for his expertise; his salary was $4000 in 1837.

Pennsylvania Railroad

The state of Pennsylvania had invested heavily in state-owned canals and short-line railroads. They were neither profitable nor efficient, and the state was falling behind its rivals. The Pennsylvania Railroad, incorporated in 1847, built a line across the mountains from Harrisburg to Pittsburgh to eliminate the inefficient Allegheny Portage Railroad and the slow-paced canals. The line would give Philadelphia a link to the fast-growing west, allowing it to compete with Baltimore (which had the Baltimore & Ohio) and New York City. The company appointed Thomson as chief engineer at a salary of $5000 a year. Thomson did a brilliant job. With unbounded energy he sought out the best routes, making allowances for grades and river crossings. He designed the famous "Horseshoe Curve" and built a road with practicable grades. The through line between Philadelphia and Pittsburgh opened for traffic in February 1854, and indeed made Philadelphia a major outlet for long-haul traffic from the west.

Thompson led a faction that ousted the incumbent board in 1852; Thomson now became president and turned his attention more toward finance than engineering. He repeatedly reorganized the company into more efficient subdivisions, and to better cost accounting, paying careful attention to the selection of vice presidents. His organizational model was widely imitated by other railroads, and set the standard for large American businesses[1] . In 1857 he finances the railroad's purchase of the entire system of state transportation works, consisting of 278 miles of canals and 117 miles of railroad, together with real estate and rail equipment. At a cost of $7.5 million the Pennsylvania now dominated the state and took control of most short-haul traffic from the many towns along its heavily populated route.

Expansion

Thomson now expanded to the west, into Ohio and parts beyond. In 1856 he arranged for the consolidation of several western lines into the Pittsburgh, Fort Wayne & Chicago Railway. It was formally leased to the Pennsylvania in 1869 and in 1870-71 the Pennsylvania Company, one of the first of the holding companies, was created to take over the properties west of Pittsburgh which were developing into large northwest and southwest systems

Needing a connection to the port of New York, Thomson in 1871 leased 456 miles of railroad and 65 miles of canals in New Jersey. By 1873 he had links to the South, Thomson then built up Philadelphia as a transatlantic port, creating the American Steamship Company in 1870 under the control of the Pennsylvania Railroad. Steel was becoming available at moderate cost, and Thomson contracted with Andrew Carnegie for steel to replace all the wooden railway bridges, and to replace iron tracks with stronger steel tracks. The result was heavier, faster, more efficient trains.

In 1860, the Pennsylvania represented only the main line from Philadelphia to Pittsburgh, with a few short branches. By 1869 it had expanded within Pennsylvania alone to nearly one thousand miles and also controlled lines northward to the shores of Lake Erie, through New York. In 1869 it purchased the Pittsburgh, Fort Wayne and Chicago line, giving it a connection with Chicago through Ohio and Indiana. In 1870 the Pennsylvania began to expand on the east also and obtained an entry into New York City by acquiring the United Railroad and Canal Company, which owned lines across New Jersey.

In 1871-72 the Pennsylvania expanded into the Midwest by astute purchases. It bought the Cleveland and Pittsburgh Railroad in 1871 as well as smaller lines in Ohio, merging them into the system. The most important acquisition during this period was the purchase of the Pittsburgh, Cincinnati, Chicago and St. Louis, with lines extending westward from Pittsburgh to St. Louis, with branches reaching southward to Cincinnati and northward to Chicago. This system included over 1400 miles of road, giving the Pennsylvania a second line to Chicago, a direct line to St. Louis, a second line to Cincinnati, and access to territory not previously tapped.

Technology

Besides expanding the system and putting it on a solid financial basis, Thomson made the Pennsylvania the technological leader of the industry. It took the lead in moving from wood to coal, and from iron to steel (in rails, bridges and cars). With Philadelphia emerging as the center of the locomotive industry, new innovations were offered first to the Pennsylvania, which embraced them.

Management

Thomson invented a new kind of management suitable for a large dispersed corporation with many functions. Specially, he devised a decentralized system based on geographical districts, as well as the the "line and staff" system that became synonymous with American management. Line executives handled people and hourly decisions on traffic, while staff executives handled finance and paperwork.

Analysis

As a conservative risk-adverse financier, Thomson avoided disaster during the panics of 1837, 1857, and 1873, while rival lines often went bankrupt. His Pennsylvania Railroad was worth about $400 million in the early 18703 (before the Panic of 1873 depressed values), with $25 million in traffic revenue and a profit of $8.6 million. It paid steady dividends year in and year out and was a favorite for cautious investors, while speculators who were so numerous in the postwar era looked elsewhere. Thomson had a vision of a transcontinental line, invested his own money in several ventures, and briefly in 1871 the Pennsylvania controlled the Union Pacific.

Chandler (1965) demonstrates that the large-scale problems of management became obvious in the middle of the 19th century with the rise of the great railroad systems, such as the Pennsylvania and the Baltimore and Ohio. New methods had to be invented for mobilizing, controlling, and apportioning capital, for operating a widely dispersed system, and for supervising thousands of specialized workmen spread over hundreds of miles. The railroads solved all these problems and became the model for all large businessed. The main innovators were three engineers, Benjamin H. Latrobe of the Baltimore and Ohio, Daniel C. McCallum of the Erie, and Thomson of the Pennsylvania. They devised the functional departments and first defined the lines of authority, responsibility, and communication with the concomitant separation of line and staff duties which have remained the principles of the modern American corporation.

Taciturn and not a glad-handler, Tomson was active in many civic projects. Andrew Carnegie was a great admirer and named his main company the J. Edgar Thomson Steel Company. Thomson married late and had no children, but did adopt a daughter. His fortune had shrunk by 3/4 to $1.3 million at his death; most of it was left to charity.

Further reading

  • Chandler, Alfred D., Jr. "The Railroads: Pioneers in Modern Corporate Management". Business History Review 1965 39(1): 16-40. in JSTOR
  • Ward, James Arthur. J. Edgar Thomson: master of the Pennsylvania‎ (1980) 265 pages
  • Ward, James A. "Power and Accountability on the Pennsylvania Railroad, 1846-1878." Business History Review 1975 49(1): 37-59. in JSTOR
  • Elliott, Alan R. "Edgar Thomson Led The Railroad Revolution," Investor's Business Daily July 30, 2009. online edition

External links

references

  1. Alfred D. Chandler, The visible hand (1977) online p. 105-9, 151
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