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By 1886 the D&IR completed the Lake Division connecting Duluth and Two Harbors with passenger service that extended to Ely MN.

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By 1883 the Minnesota Iron Company had purchased all but four acres of Thomas Sextons land around Agate Bay.

Sexton leased his remaining four acres to merchants seeking to capitalize on the 600 man workforce arriving to build the Duluth & Iron Range Railroad. As with any frontier town of the day it was a largely male population.

The infamous four acre plot earned the nickname Whiskey Row, and was said to exist for the sole purpose of "relieving a man from his pay".

In the early years Two Harbors consisted of two separate communities called Agate Bay and Burlington.

The village of Burlington along Burlington Bay was platted in 1856, first incorporated on May 23, 1857; it had a post office that operated from 1856 until 1862.

The first residence constructed in Agate Bay was owned by Thomas Sexton (1854), he created a fourteen by sixteen foot shack.

The early settlers lived in primitive conditions, which was common for both the area and time. Diets often consisted of homegrown vegetables and animals that could be caught in the area (at that time there were many dense forests, so deer meat was not an abundant food source).

The village of Agate Bay was created with the construction camp as work on the new railroad began in 1883.

The village of Two Harbors was platted in 1885 but was not incorporated until 1888.

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