The Santiam Wagon Road Scam: Part 2

The Santiam Wagon Road was originally built in 1866 to collect tolls, but the road’s owners also convinced Congress to give them a huge land grant if they extended the road to the Idaho border. This made them eligible for 861,512 acres of federal land.

In 1871, they sold the wagon road (which, in the Cascade Mountains at least, was still producing toll revenue) and the land grant for $160,000 (about $4 million today) to two Californians, H.K.W. Clarke and Alexander Weill. Clarke paid $20,000 and Weill, acting as a representative of a French bank called Lazard-Freres, paid the other $140,000. The 18.5 cents per acre they paid sounds cheap but produced a good return for the previous owners, who had probably spent less than $30,000 building the road and got most or all of it back in tolls.

Clarke and Weill bought the company on the recommendation of Thomas Edenton Hogg, who was promoting a rail line from Yaquina Bay to Boise and who hoped the line could follow the route of the Willamette Valley wagon road. Clarke and Weill agreed to allow Hogg to act as a local land sales agent, but instead he used the land grant as collateral to borrow money to build his railroad, which he didn’t have the right to do.

Hogg completed his railroad as far as Idanha in the Cascade Mountains and then ran out of money. When Clarke and Weill sued Hogg for using their lands as collateral (which made selling land difficult as there was a lien against them), he disappeared for several years and it wasn’t until 1894 that they were able to clear up the title to the lands.

Sales were slow even after 1894. There was little market for the timberlands as wood was extremely abundant and Oregon timber was inaccessible to markets. Most of the grasslands were too dry for growing crops, and cattle ranchers were content to graze their livestock on federal lands, which at that time cost nothing. Most of the people who did buy some of the land ended up going broke trying to farm it and were unable to make their mortgage payments.

By 1910, the bank still owned almost 800,000 acres of the land grant. Payday finally came when a businessman from St. Paul, Minnesota, Watson Davidson, agreed to buy the Willamette Valley company for $6 million. It had taken 39 years from when the bank had bought the company from the original road builders, but that still represented an almost 10 percent annual rate of return on the bank’s 1871 investment.

Davidson, who called his new enterprise the Oregon & Western Colonization Company, represented a group of investors that included Louis Hill. Hill was the son of James J. Hill, who had built the Great Northern, Spokane, Portland & Seattle, and Oregon Trunk Railways. The Oregon Trunk had just arrived in Bend in 1910, crossing the wagon road near Smith’s Rock, and Davidson and Hill no doubt believed the railroad would lead to a land boom.

Land sales didn’t go as quick as Davidson hoped and most of his other partners sold out their shares to Hill and Davidson. This left Hill owning half the company and Davidson most of the other half. For Hill, the cost of this land was a small share of his wealth and he could afford to wait for its value to increase. Davidson, however, had his fortune on the line, putting a strain on their relationship as he wanted to take actions to increase sales and Hill didn’t seem to care.

Finally, Davidson suggested to Hill that they divide the lands in two and Hill asked him to make a suggested division. In 1917, Davidson brought him a proposal that essentially used Sisters as a dividing line. West of the divide was most of the timber, which hadn’t yet produced any revenue at all for the company. East of the river was most of the farmland, which had produced most of the revenue up to that point. Davidson gave Hill a choice of the timber lands or farmlands.

Louis ended up taking the western lands that had the smaller number of acres. In making this choice, Hill may have realized something that Davidson might not have known about the timber. According to Oregon & Western Colonization publications, the eastern half of the lands included 41,000 acres of timber land stocked with an estimated 320 million board feet of pine. The western half included 126,000 acres with about 650 million board feet of pine.

The western forests, however, also contained an estimated 4.9 billion board feet of what the publications described as “fir.” True fir was and largely still is considered a trash species. It isn’t as strong as pine, it isn’t as pretty as pine, and where pine wood gives off a wonderful odor, white fir in particular is known to loggers as “piss fir” because of its foul odor.

But the 4.9 billion board feet of timber in the western forests wasn’t really fir. Instead, it was Douglas-fir, a completely different species in a completely different genus. Structurally, Douglas-fir wood is stronger than pine. It isn’t quite as pretty as pine, but it does have a nice odor. As of 1910, Oregon timber landowners hadn’t yet figured out how to market Douglas-fir, often selling it as “Oregon pine.”

Davidson probably didn’t know the true value of what he considered to be the smaller half of the land grant. For that matter, Louis Hill may not have known either, but he was willing to wait until the market for timber became strong enough to provide him with a return.

The eastern lands continued to be sold by the Oregon & Western as buyers could be found. Farmlands went first, but the company had a difficult time interesting ranchers in the range lands that made up most of its holdings. It probably would have been forced to let the lands go for taxes as those ranchers felt free to run their livestock on federal lands. Davidson himself went bankrupt trying to keep the company going.

In 1934, however, Congress passed the Taylor Grazing Act, which set up a system requiring ranchers to pay fair market value for grazing livestock on the federal lands. This boosted the value of the lands owned by Oregon & Western, which sold nearly all of its remaining land by 1950. In the mid-1950s, the Oregon & Western Colonization Company sold its remaining assets, which were mainly some mineral and water rights, to a Washington man named Tony Fernandez. What is left of them is currently owned by his son, Daniel Fernandez.

Meanwhile, it took a few decades, but the share of the land grant claimed by Louis Hill turned out to be a bonanza for Hill and his descendants. That will be the subject of part 3 of this story.