HoustonBusiness A Perspective on the Houston Economy FEDERAL RESERVE BANK OF DALLAS • HOUSTON BRANCH • NOVEMBER 2002 Houston in 1900 With Texas rivers mostly un- charted and none of them navi- Part 3. The Galveston–Houston Rivalry gable for any significant dis- tance, Houston’s location was strategically chosen at the most interior point in the state that could be served by water trans- By 1900, Galveston Galveston is located two portation on a year-round miles offshore on one of the basis. Houston was a river port, held a clear edge in many barrier islands along the accepting agricultural produce port facilities but Gulf of Mexico. Throughout its from the rich bottomlands history, the waters of Galveston along the Brazos and Colorado found itself at the Bay attracted Indians, pirates rivers and shipping it to Galves- and explorers and served the ton by barge or steamboat for terminus of a Gulf Coast as the best natural export from the state.1 Of all poorly developed rail harbor between New Orleans the exports leaving Texas and Vera Cruz. through Galveston before the network. Houston was After the Texas Revolution, Civil War, 80 percent would Michel B. Menard and a group have arrived in Galveston via the regional rail of investors gained title to 4,605 Houston and the Buffalo hub but could not acres of land on Galveston Bayou.2 Warehousing and ship- Island through a complicated ping became Galveston’s main demonstrate the logic set of financial transactions. commercial activity. They had a new town surveyed Initially, both cities earned of a second port and platted at this site, basing a profitable living off of geog- only 50 miles the layout on New York and raphy by providing noncom- Philadelphia street plans. The petitive transportation services. from Galveston. Galveston City Co. began sell- Over time, this cooperative ing lots in 1838, and the Texas relationship eroded as shallow- Legislature incorporated the draft steamships, railroads and city the following year. port improvements shifted the When Houston and Galves- balance of power from one city ton were founded, the economic to the other. Both Houston and roles played by the two cities Galveston aspired to greatness complemented each other. from their inception—the use of New York City as a model for transportation in the state— The problem with the Galveston streets, for example, that railroads would be the key Galveston plan was that it ran was not without forethought. to moving product from the against a strong national tide of In many ways, the two new state’s rich agricultural regions. transcontinental construction, cities were economic twins: The battle would ultimately and it was impossible to secure located 50 miles apart, settled turn on two questions: Should private financing for such a by Southerners, drawing on the the orientation of the rail system project. In the mid-1850s, the same agricultural wealth, built be north–south or east–west? Galveston plan evolved into a on transportation services and And should ownership of the proposal for state ownership of led mainly by members of the railroads be in state or corpo- the rail system. The Compromise commercial elite. rate hands? of 1850 had settled the dispute By the 1850s, the relation- The transcontinental plan between Texas and the United ship began to turn into a power- advocated by Houstonians— States over the Texas–New ful economic rivalry, for only the conventional program of Mexico boundary, paid the state one of the cities could possibly the times—sought an east–west debt and left $5 million in bonds achieve national or international system developed by private in state coffers. Just as corpo- status. Historians disagree on corporations with public subsi- rate interests wanted a share of whether Houston won the battle dies. This system would con- these funds for rail subsidies, and Galveston lost or whether verge on Houston, making the so did Lorenzo Sherwood, a geography and technical change city the center of the Texas rail Galvestonian who in the early ultimately made a Houston vic- network. Corporate railroad 1850s devised a plan to use tory inevitable. They do agree, promoters demanded govern- these surpluses to finance a however, that Galveston never ment subsidies, mostly in the 1,000-mile, state-owned rail recovered from the 1900 hurri- form of land grants and loans, network in Texas. cane, at least in terms of its arguing they were necessary to The plan was politically dream of becoming a major promote railroads in a region attractive in populist Texas, but metropolitan area (Figure 1). devoid of native capital and both the plan and Sherwood’s The hurricane made the logic lacking the population base nonconformist ways ultimately of an inland port on the Texas and industry needed to support proved unpopular with Galves- Gulf Coast clear to all. heavy rail traffic. ton’s leadership. Sherwood was This article tracks the Houston Galvestonians, in turn, driven from the Texas Legisla- –Galveston rivalry from its in- advocated a rail system fanning ture in 1856 for his abolitionist ception in the 1850s to its end at out from their city and running views, and a month later the the start of the 20th century. north to south. The initial legislature authorized a $6,000 The story is of interest as an advocate of this plan was loan, backed by the U.S. bonds, economic history of Houston. Galveston News editor Willard for every mile of railroad track But it also illustrates how geog- Richardson, a combative and laid in Texas. With this legis- raphy can build economies and persuasive person how changing transportation devoted to the technology can enhance or city and various Figure 1 erode a city’s competitive posi- Southern causes. Population of Galveston and Houston, 1860–1940 tion over time. The leadership The system’s Thousands of both cities sought to parlay advantage, he 400 geographic advantage in this argued, was that 350 Houston civic rivalry. it would keep Texas goods 300 Roots of the Rivalry within the state, 250 The first skirmish between whereas connec- 200 Houston and Galveston came tion to an east– in the 1850s, and it was fought west grid would 150 over the orientation of Texas divert Texas 100 railroads.3 Both cities recog- cotton to New 50 nized that the coming of the Orleans and St. Galveston rails would largely end river Louis. 0 1860 1870 1880 1890 1900 1910 1920 1930 1940 SOURCE: U.S. Census Bureau. 2 lation, plus a state subsidy The first railroad to reach and trading firms operated pri- authorized in 1854 of 16 sections the island was the Galveston, vate wharves. Led by Menard of land for each mile of track Houston and Henderson, char- and other key investors in the laid, the transcontinental plan tered in 1853 with initial sup- Galveston City Co., Galveston cleared its final obstacle. port from both Houston and Wharf Co. began buying and The decision was critical for Galveston. Both cities bought a consolidating wharves under Houston because the railroads token subscription of $300,000 common management. By 1859, provided a much-needed coun- in capital stock in 1855, but the 10 wharves and their associated terweight to Galveston’s advan- majority of the capital came warehouses and terminal facili- tages as a Gulf harbor. The first from European and Galveston ties had fallen under control of Texas railroad was the Buffalo investors. Construction began the wharf company, giving it a Bayou, Brazos and Colorado, on the mainland opposite the monopoly over the state’s most which opened in 1853 and island and reached the outskirts important export facilities. reached Houston in 1856. By of Houston in 1859. Initially, In 1867, the city sued the the time the Civil War began, freight moving from Houston wharf company over street Houston had captured the rail to the island was transferred by access to the wharves, having network along the Texas Gulf; ferryboat, but in 1860 a 10,000- already lost a previous battle of the 492 miles of track in foot trestle (the longest in the over public versus private Texas, 350 led to Houston.4 hemisphere at that time) con- ownership of the waterfront Galveston was slower to nected the island and mainland. itself. The resulting settlement take an active interest in rail- The Houston depot for the merged all the docks and rele- roads on the assumption that Galveston, Houston and Hen- vant waterfront facilities, includ- Galveston was Houston’s port derson was to be located at the ing streets, into the wharf com- and that what was good for corner of Main and McKinney. pany. In exchange for tighten- Houston was generally good But by the time the railroad ing the company’s monopoly for Galveston. For example, the arrived, the city fathers had grip, Galveston received undi- Houston and Texas Central rethought the value of a direct vided one-third ownership of Railway Co. added more than rail connection to the sea. Fear- the docks and a nonvoting any other line to Houston’s rail ing that cotton would simply voice on the company’s board presence, ultimately becoming flow straight through Houston of owners and directors. a major link in the Southern and on to Galveston without In 1869, brothers John and Pacific’s transcontinental sys- stopping, the City Council George Sealy, George Ball and tem. However, the railroad located the depot on the south John H. Hutchings purchased had originally been chartered side of Main Street, denying the the one railroad serving Galves- in 1848 by a Galvestonian, railroad any link to the Texas ton, the Galveston, Houston Ebenezer Allen, to run north and and Houston Central Railway.