Dakota Datebook: Jay Cooke and Company and the Bonanzas

September 18, 2018- When the Northern Pacific Railroad asked Jay Cooke’s banking company to be its financial agent in 1865, Cooke was leery of the offer. Northern Pacific needed help in funding construction and selling bonds, but this was a large undertaking, even for the Jay Cooke and Company, a firm that had financed the Union in the Civil War. The railroad was to be the largest enterprise in the country up to that time–larger even than the Erie Canal. Cooke declined the request, but when asked again in 1869, he had grown more optimistic of the opportunities he saw in the Northwest, and accepted. A contract in 1870, and construction of the railroad that would stretch from Lake Superior to the Pacific coast began Feb. 15, 1870.

The charter granted Northern Pacific was larger than any other railroad charter, and granted the Northern Pacific millions of acres of land. Cooke believed this land could be developed and sold at a good price and along with the stocks, which consisted of one million shares valued at $100 apiece, Cooke was sure the construction funds would be paid back in a short time. Cooke’s optimism slowly faded over the next three years, however, as directors of Northern Pacific recklessly spent their funds. Furthermore, neither settlers nor investors showed interest in the land, believing the soil too dry and seasons too severe for agriculture. Construction continued until June 3, 1873, when the Northern Pacific reached Bismarck. By then, the Jay Cooke and Company had accumulated $5 million in debt, and today in 1873, the company was forced to close its doors, setting off the nationwide financial panic of 1873 and paralyzing the banking system.

With its sole financial provider bankrupt, Northern Pacific construction halted and the company was left with millions of acres of land. To save itself, the Northern Pacific needed to increase interest in the land and sell it to get out of debt. The commissioner of Northern Pacific, James B. Power, was confident in the soil of the Red River Valley and proposed that the company develop a large farm and dramatize the fertility of the soil in the Valley. His movement intensified when he showed prospectors the productivity of a small farm on the Sheyenne River near Fargo. This was enough to persuade the Northern Pacific President, General George Cass to cash his bonds for land and establish the first bonanza farm in the Red River Valley with his partner Benjamin Cheney. The farm and crop was successful, and Power now had his farm to advertise in both the United States and in Europe.

Power’s plan worked in bringing individual farmers to the area, but also attracted big investors of Northern Pacific from the east. Though land could be purchased with cash or time payment, most was obtained by these bond holders who saw the only way to make back their money was through the bond-exchange program offered by Northern Pacific. Rather than cash in bonds for only 20 percent of the original value, large investors traded their bonds for large tracts of land, beginning the bonanza era in North Dakota. From 1875 to 1878, 70 percent of land sales were to stockholders and over 1 million acres of land went to just 40 persons. Most landholders remained in the east and ran the farms as a business, while hired management stayed on the farms and supervised operations. The bonanzas thrived for the next three decades before they were liquidated and sold to individual farmers. This was the end of a prosperous era for North Dakota– an era that had grown from the adversity of the Jay Cooke and Company in 1873.

“Dakota Datebook” is a radio series from Prairie Public in partnership with the State Historical Society of North Dakota and with funding from the North Dakota Humanities Council. See all the Dakota Datebooks at prairiepublic.org, or subscribe to the “Dakota Datebook” podcast.