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Railroads and Wealth

Railroads and Wealth

Every technological advance of the Industrial Revolution brought opportunities for the creation of great wealth, but perhaps no form of technology was as profitable as the railroad. The completion of railways across continents was the key component in advancing the growth of industry in the nineteenth century. Railroads united the wide expanses of the Americas, the markets of Europe, and the wilds of Asia. For the first time in history, perishable foodstuffs could be transported swiftly and securely overland; merchandise of all kinds could be moved inexpensively from one end of a nation to another. The railroads not only created markets for goods but also were the chief spur for other heavy industries. The iron and steel industries grew to meet the need for high-quality rails and railroad cars, and the coal mining industry expanded in order to power the locomotive.

Great fortunes were made in the railroads, both honestly and dishonestly, by entrepreneurs and by schemers, by men with vision and by men without heart. Writer Malcolm Gladwell describes the era of railway building in the 1860’s and 1870’s as the greatest opportunity to amass vast wealth in the history of humankind. Likewise, J. Bradford DeLong, a professor of economics at the University of California at Berkeley, calculates that among the twenty-one industrialists known as “robber barons” in nineteenth century America—the nation’s first class of billionaires—thirteen made their fortunes from railroads. The railroad tycoons included the Big Four—Leland Stanford, Collis P. Huntington, Mark Hopkins, and Charles Crocker—as well as Jay Gould, Daniel Drew, James J. Hill, Edward H. Harriman, John Insley Blair, Anthony N. Brady, and Cornelius Vanderbilt. As a class, these men were admired and envied, but they were also hated by many for the sometimes scandalous manner in which they accumulated and spent their wealth. Canada also had its share of railroad barons in the nineteenth century, including Sir William Mackenzie, Sir Donald Mann, Sir Robert Gillespie Reid, Sir William Cornelius Van Horne, Sir Hugh Allan, and Donald Smith, first Baron Strathcona and Mount Royal.

On May 10, 1869, Leland Stanford hammered in the golden spike connecting the Central Pacific Railroad and the Union Pacific Railroad at Promontory Summit, Utah Territory. The installation of that spike completed a railroad that stretched from the East Coast to the West Coast of the United States. This transcontinental railroad would be the chief catalyst for the post-Civil War expansion of the Western United States. In Canada, Donald Smith, first baron Strathcona and Mount Royal, drove in the historic spike in Craigellachie, British Columbia, on November 7, 1885, uniting the two halves of the longest railroad in the world, stretching from one end of Canada to the other. The photograph of Smith driving in the Canadian Pacific Railway spike, surrounded by awe-struck railroad men, has been called the most famous photograph in Canadian history.


See Also

Great Lives from History: The Incredibly Wealthy

Donald Smith

by Howard Bromberg

Canadian fur trader, investor, and politician/statesman

Smith made his fortune from the Hudson’s Bay Company and by investing in railroads. Elevated to the British peerage as the first Baron Strathcona and Mount Royal, he was one of the leading philanthropists of the early twentieth century.

Sources of wealth: Trade; railroads; investments

Bequeathal of wealth: Children; charity

Early Life

Donald Alexander Smith was born in Forres, Scotland, a town of about 3,500 inhabitants in the Morayshire district of the Scottish Highlands. Forres was the historic home of the Scottish kings; it may well have been the site of the murder of King Duncan in the story that was the basis for William Shakespeare’s play Macbeth (pr. 1606, pb. 1623). Smith’s father, Alexander Smith, worked as a merchant, and his mother, Barbara Stuart Smith, was from the Grant clan of highlanders.

Donald Smith was his parents’ third child. He was educated at the Anderson Institution and the Forres Academy. At sixteen, he left school to apprentice with Robert Watson, the Forres town clerk. He also studied Scottish law from books.

First Ventures

Many of Canada’s early pioneers were Scottish. Donald Smith’s uncle, John Grant, became a trader and explorer in Canada, earning mention in author Washington Irving’s Astoria (1836). With the support of Grant, Donald Smith sailed to Quebec in 1838 to take a position at £20 a year with the Hudson’s Bay Company, one of the oldest joint-stock companies in the world, which was chartered in 1670. The company owned much of central Canada and dominated fur trading. For the next fifteen years, Smith worked at various Hudson’s Bay stations along the St. Lawrence River, examining furs and accounting for them in the company’s books. It was a difficult life, filled with mosquitoes, black flies, desolation, rivalry, danger, and the drudgery of handling furs and pelts.

On March 9, 1853, Smith married Isabella Hardisty. Her previous marriage was annulled, and her marriage to Smith took place under irregular circumstances, a lifelong source embarrassment for the couple. The following year, their only child, Margaret Charlotte, was born. In 1853, Smith was promoted to chief trader of Hudson’s Bay Labrador district. Traders were paid in shares of company stock, as well as salary, and Smith began to accumulate Hudson Bay’s stock. As chief trader, Smith managed the expansion of the company’s commerce into salmon fishing and the sale of salmon, sealskins, and seal oil to England. In 1862, Smith was appointed chief factor, which made him responsible for the financial side of the company’s business. As factor, Smith was entitled to about three-fifths of the share of the firm’s trade, or about £500 a year. As Smith rose in the company ranks, he helped negotiate the transfer of much of the firm’s land to the Canadian Confederation, created in 1867.

Mature Wealth

With the creation of the Canadian Dominion, Smith prominently entered upon the national stage as both a statesman and a businessman. From 1871 to 1880, he served in the Canadian parliament. His investments in railways began in 1873 with his purchase of depreciated bonds in the St. Paul, Minneapolis & Manitoba Railway. Eventually, he acquired one-fifth of the railway’s stock. With the dividends he received, he steadily acquired shares in dozens of other railroad companies, and this stock would constitute the largest part of his immense fortune. Smith became one of the leading investors in the Canadian Pacific Railway, and for this reason he participated in a ceremony on November 7, 1885, in which he drove in the last spike needed to complete Canada’s first transcontinental railroad. The ceremony was a moment of personal prestige for Smith and a triumph for the Canadian Dominion. The Canadian Pacific Railway was also a new source of wealth for Canada, as goods could now be shipped across the nation’s vast expanses. Canada would benefit economically, and Smith would expand his personal fortune.

Smith was reelected to the Canadian parliament in 1887, and he served until 1896. In that year, he was appointed a Canadian high commissioner, representing the dominion in London. From 1889 to 1914, he was the governor of the Hudson’s Bay Company, serving in effect as its chief operating officer. Having worked for the company for seventy years, accumulating shares of stock for most of that time, he had become the firm’s largest shareholder. With the steady increase in the stock’s value, Smith had amassed a fortune in his shares alone, and his wealth was multiplied many times over by his investments in railways and other ventures.

In 1897, he received one of his greatest honors when he was elevated to the British peerage as the first baron Strathcona and Mount Royal. (Strathcona is a Gaelic version of Glencoe, a town in the Scottish Highlands.) He was now a respected person in Scotland, Canada, and England. Smith owned houses at 53 Cadogan Square and 28 Grosvenor Square in London. He was a member of the prestigious Athenaeum Club in the city’s Pall Mall neighborhood. He also maintained homes in the English countryside, where he leased Knebworth Hall and owned Debden Hall in Essex. He owned the Silver Heights Estate in Manitoba, as well as a mansion on Dorchester Street in Montreal, which consisted of two adjoining residences and was filled with fine European paintings and Japanese antiques. In Scotland, he owned the Black Corries Estate in Glencoe, formerly belonging to the MacDonald Clan, and a mansion in the Scottish Hebrides.

Smith held shares in hundreds of Canadian and American railroads, insurance companies, hotels, manufacturing businesses, mining companies, and textile firms. He also owned shares in many newspapers, including the Manitoba Free Press, which he controlled for several years. He was the principal shareholder of the Bank of Montreal. He was the third-largest shareholder of the immensely wealthy but short-lived Northern Pacific Securities Company holding trust. He also owned thirty thousand of the one million common shares of the Anglo-Persian Oil Company, a firm he helped establish and for which he served as chairman in 1909. In addition to owning numerous Canadian and provincial bonds, Smith also held mortgages on hundreds of properties, for which he received interest of 5-7 percent annually. Smith also sat on numerous company boards of directors.

Smith’s wife Isabella died on November 12, 1913, and he died two months later on January 21, 1914. Upon his death, his estate was valued at $28,867,635 Canadian. Smith had established trusts for his daughter and other descendants. During his life and in his will he bequeathed large gifts to the Trafalgar Institute, the Young Men’s Christian Association (YMCA), King Edward’s Hospital, the Sheffield Scientific School, St. John’s College at Oxford University, the Royal Victoria College at McGill University, the Royal Victoria Hospital, Yale University, the University of Birmingham, and scholarships too numerous to mention. Smith also bequeathed funding for Lord Strathcona’s Horse, a cavalry regiment that he personally recruited and financed in order to assist the British military during the Boer War. Smith’s donations and bequests totaled £1,026,381, or $7,520,601 Canadian. This amount would exceed $1 billion in 2010 U.S. dollars, making Smith one of the leading philanthropists of the early twentieth century.

Legacy

Donald Smith initially made his fortune as a shareholder of Hudson’s Bay Company and then increased his wealth several times over with his investments in railroads and a host of other companies. His seventy years at he Hudson’s Bay Company are the longest tenure of any employee in the company’s history. Several parks, cities, streets, buildings, and schools are named for him in both Canada and the United Kingdom, and the winner of a curling tournament, in which Canada and Scotland participate, is awarded the Strathcona Cup. His charitable donations are another significant part of his legacy, and as a philanthropist, Smith had few peers.

Further Reading

1 

Braudel, Fernand. The Perspective of the World. Vol. 3 in Civilization and Capitalism: Fifteenth-Eighteenth Century. Translated by Sian Reynolds. Berkeley: University of California Press, 1992. Written by one of the most important economic historians of the twentieth century, this global yet in-depth social history discusses the importance of railroads to the world economy.

2 

Brown, Craig. Illustrated History of Canada. Toronto: Key Porter Books, 2007. Lavishly illustrated, with a photograph of Lord Strathcona driving in the transcontinental railway spike, which the author describes as the best-known photograph in Canadian history.

3 

Gladwell, Malcolm. Outliers: The Story of Success. New York: Little, Brown, 2008. Asserts that the 1860’s and 1870’s were the greatest moneymaking era in human history, with the greatest number of billionaires, because of the construction of the railroads.

4 

McDonald, Donna. Lord Strathcona: A Biography of Donald Alexander Smith. Toronto: Dundern Press, 2002. Thorough, intensively researched modern biography of Smith, with four valuable appendixes detailing his donations and bequests, shares and investments, the equivalent value of the pound and the Canadian dollar in the nineteenth century, and genealogical charts of the Smith family.

5 

Means, Howard. Money and Power: The History of Business. New York: John Wiley and Sons, 2001.This account of the pivotal moments in business history highlights the transformative power of the completion of the transcontinental railroads in the nineteenth century.

6 

Preston, William. Strathcona and the Making of Canada. New York: McBride, Nast, 1915. A muckraking attack, in which the author accuses Lord Strathcona of gaining his immense fortune through greed and political influence.

7 

Willson, Beckles. The Life of Lord Strathcona and Mount Royal. 2 vols. Boston: Houghton, Mifflin, 1915. An outdated biography, but it contains valuable reprints of much of Smith’s key correspondence.

Citation Types

Type
Format
MLA 9th
Bromberg, Howard. "Donald Smith." Great Lives from History: The Incredibly Wealthy, edited by Howard Bromberg, Salem Press, 2010. Salem Online, online.salempress.com/articleDetails.do?articleName=GLIW_1370369001370.
APA 7th
Bromberg, H. (2010). Donald Smith. In H. Bromberg (Ed.), Great Lives from History: The Incredibly Wealthy. Salem Press. online.salempress.com.
CMOS 17th
Bromberg, Howard. "Donald Smith." Edited by Howard Bromberg. Great Lives from History: The Incredibly Wealthy. Hackensack: Salem Press, 2010. Accessed October 22, 2025. online.salempress.com.