The last step has been the sale of part of the Pennsylvania holdings to the Union Pacific system. It appears that the former’s interest in the company was largely due to anxiety over the coal situation. Before 1895 rates on bituminous coal had been depressed and demoralized. Rebates had been freely given in spite of any agreements which could be arranged. Under these circumstances the Pennsylvania had determined to buy enough stock of the Chesapeake & Ohio, the Baltimore & Ohio, and the Norfolk & Western companies to control the policies of these roads, and, through stock ownership in the Reading by the Baltimore & Ohio, to influence that company also.[85] Unfortunately for the project public attention became concentrated on the coal industry at this time because of the discovery of certain flagrant abuses, and it seemed wise for the Pennsylvania to dispossess itself of a part of its stock.[86] The Union Pacific was in the market with large resources derived from its sale of Great Northern and Northern Pacific stock. It was out of the question for the Pennsylvania to sell its shares to a competitor, but there was less objection to a sale to Mr. Harriman, providing a reasonable portion should be retained. Accordingly, the Pennsylvania sold and the Union Pacific interests bought, in October, 1906, some $39,540,600 in Baltimore & Ohio common and preferred stock, being in the neighborhood of half of the former’s holdings. This is the present situation of the property. The Baltimore & Ohio is independent, in the sense that it is not controlled by any single interest, but large amounts of its stock are owned by its competitor, the Pennsylvania, and by its connection, the Harriman system. On the whole the alliance with these interests augurs well for the future of the company.[87] CHAPTER II ERIE Early history—Reorganization—Wall Street struggles—Financial difficulties—Second reorganization—Development of coal business —Extension to Chicago—Grant & Ward—Financial readjustment—New York, Pennsylvania & Ohio—Third reorganization—Later history. The New York & Erie Railroad was organized in 1833 in the hope of bringing to the southern tier of counties in New York State a prosperity equal to that which the Erie Canal had secured for the northern tier. It was to run from New York or some suitable point in its vicinity to Lake Erie. A six foot gauge was adopted, partly because the grades encountered were thought to require locomotives with more power than a narrower gauge could accommodate, and partly because it was wished to make the road independent of any connection which might lead trade away from the city of New York.[88]