How railroads were financed- State government, European, private, public
Expansion of railroad driven by three forces:
a.) Mystic: national identity
a. The north and south had one railroad that would bring the two locations together
b. Manifest destiny to expand to the west
b.) Military
a. Civil war had shown how effective moving soldiers across the country was
b. Worries about Great Britain, Spanish and Native Americans (railroad can move men and equipment out)
c.) Monetary
a. Railroads were going to be profitable
Important question of economic historian: how did railroad builders get their capital?
a.) Private enterprise or with the help of the federal and state government? Or both?
a. Government support was seen as necessary
b. People thought profit would be enormous but the investment would be a lot and the profit, in the beginning, would be small
c. Railroad blocked because they couldn’t agree where the railroad would end
d. Railroad comes from two different directions and meet in the middle
e. Union Pacific and Central Pacific
f. Government agreed to give 10 sections of public land for each mile of track laid (land will be profitable) and agreed to give railroad money (made loans for every mile)
i. 1862- still not enough private investments ii. 1864- number of land grants and loans given out were doubled
g. Started off making railroads in California but it didn’t work out (tried Chinese immigrants to build the railroads-worked a lot better than Americans)
h. Size of the enterprises was large before the railroads, in New England the capital had 1,000 employees. Railroads had tens of thousands of employees
Transcontinental Railroads
Pacific Railway Act (1862) amended in 1864
1.) Union Pacific Railroad (1,086 miles of track)
2.) Central Pacific Railroad (689 miles of track)
Promontory Summit (May 19. 1869) Ogden, UT
How were the railroads financed?
1.) State governments
a. Tax exemptions
b. Stock
c. Built their own railroads land grants
d. Financial assistance
2.) Federal government
a. Land grants
3.) Private capital
a. J. Pierpont Morgan (1837-1913)
b. August Belmont & Company
4.) Foreign capital
Railroad stopped in Seattle than Tacoma
Identifications for Railroads Lecture #2
A.) Economic Effects of Transcontinental Railroads
a. In Europe: reduction of farms
b. In America: increased competiveness
i. Local monopolies were destroyed ii. New companies formed iii. Results of these new companies
1. Prices fell
2. Profits fell
3. Because prices fell, profits fell
B.) Unscrupulous Financial Practices
Credit Mobilier of America (1872)
a. Vice- President Schuyler Colfax (1823)-1885)
b. James A. Garfield (1831-1881)
Rate setting/rate discrimination
a. Short hauls (high prices)
b. Long hauls (low prices)
Price fixing
Albert Fink
a. Southern Railway and Steamship Association (1875)
b. Eastern Trunk Line Association (1879)
Jay Gould- railroad magnet, extremely rich and corrupt and made a lot of money; broke with the pool; broke from railroad cartels; went into competition with other railroads; reckless and profited from his recklessness
C.) State Regulation
National Grange of the Patrons of Husbandry (“The Grange”) (1867)
Railroads are discriminating (short hauls)
The Granger Movement (Granger cases)
1) Munn v. Illinois (1877) – critical distinction between State control and Federal control
a. State was charging more for a shorter haul
b. US Supreme Court found that Granger laws for interstate was unconstitutional-control of interstate commerce lies within the US not within the state
c. Corporations were people was added by a clerk than the Supreme Court
“businesses are clothed with a public interest”
2) Wabash, St. Louis, & Pacific Railway Co. v Illinous (1886)
3) Santa Clara v. Southern Pacific (1886)
D.) Federal Regulation- So much money that railroads are buying the Legislature
Act to Regulate Commerce (1887)- Passed by Congress (President Cleavland) Place all railroads under Federal; creates the ICC
Interstate Commerce
