Founding of the Leland Stanford Junior University

by George E. Crothers
Class of 1895

All income and receipts not necessary for her bare necessities were turned over to President David Starr Jordan to keep the University open and in operation as best he could. He succeeded in doing so by curtailing new appointments and reducing certain salaries ten percent, but the total faculty salary roll remained as before Stanford's death. This was rendered possible by the sudden fall in living expenses and smaller increase in students incident to the great panic, and to the fact that the total cost in salaries of the faculty per student was still second only to Columbia University with Harvard a close third.

In a conference with attorneys and bankers Mrs. Stanford was advised by all but her brother, Charles Lathrop, to close the University at least temporarily, but the latter said to her, "Jennie, you are not up against a wall yet. I advise you to keep the University open until you are." She followed his advice, which was in accord with her own strong desire.

The estate was in a precarious financial condition for many reasons. It was indebted to the Pacific Improvement Company* for overdrafts amounting to about a million and a half, for money withdrawn by Senator Stanford with the consent of his three associates to construct the University buildings, and there was a stockholder's liability of seven million dollars on account of Stanford's quarter ownership of the company, which was indebted to the extent of twenty-eight million dollars. The finances of the Southern Pacific Company, in common with those of every other Western railroad, were in a critical condition and did not improve greatly for seven years.

It happened by chance that my brother, Thomas Graham Crothers, a graduate of the first class at Stanford in 1892, was an executor of the estate of James G. Fair, which held nearly six million dollars in one bond issue guaranteed by the Southern Pacific Company. Being in close touch with other large San Francisco estates owning railroad bonds, he aided in securing their cooperation in withholding the presentation for payment of their bond coupons until the company indicated that it was ready to honor them together with interest thereon from their due date. This and other expedients prevented the complete loss of the equity of the stockholders in the Southern Pacific Company, while those of all their competitors were sacrificed in receivership, as they world have been unable to find new money to refinance the road in the face of a threatened suit by the [federal] government against the Stanford estate [for $15,237,000] and the other owners of the Central and Southern Pacific companies for their respective shares of the government loan made to the Central Pacific. John Garber, the leader of the San Francisco Bar, presented the case of the Stanford estate most ably and successfully in the Circuit Court of Appeals in San Francisco, and Joseph Choate presented it with equal ability and success in the Supreme Court, which decided unanimously against the government. The loan was eventually paid in full when due.

The winning of the government suit against the Stanford estate permitted the distribution to the University of two and a half million dollars in bonds by an agreement, dated April 29, 1896, between Mrs. Stanford and the Trustees, in liquidation of Stanford's bequest of that amount made to the Trustees for the support of the University. But the income from these bonds, which amounted to one hundred and twenty thousand dollars per year, or exactly the equivalent of the ten thousand dollars per month which the court had been allowing Mrs. Stanford as widow during administration, but which stopped upon distribution of the estate, fell far short of meeting the minimum expenses of maintaining the University, whose faculty salary roll, aside from the compensation of assistants, cost of equipment, and general expenses, was one hundred and fifty thousand dollars.

After paying the bequests to the University and Stanford's relatives, and receiving the balance of Stanford's estate on final distribution, Mrs. Stanford had in her own right about two million in bonds, of which one million bore only four percent interest, fragments of unproductive real estate in some fourteen different counties, 28,468.25 shares of the Southern Pacific Railroad (of California), and 284,780.50 shares of the capital stock of the Southern Pacific Company (of Kentucky), the latter being about a one-quarter interest of the entire capital stock issued at the time, a one-quarter interest in the Pacific Improvement Company, 13,218 shares of the capital stock of the Market Street Railway Company, 7,274 shares of the capital stock of the Oakland Water Front Company, and stock of little value in other companies. None of the stock received by her was upon a dividend-paying basis, and it required about all of Mrs. Stanford's income to make up the monthly deficit of the University, with the ever present fear that the assessment of the taxable stocks might force their sale at sacrifice prices.

* Editor's note: Clausen states in Stanford's Judge Crothers, "The Pacific Improvement Company had grown out of a joint bank account held by the 'Big Four' - Huntington, Hopkins, Stanford, and Crocker Until its incorporation shortly before Stanford's death, it was merely a partnership in form. If one member had a surplus of cash to his credit, this was shown on the books; if another wished to draw more than his proportionate share, he did so and was duly charged with the overdraft."