In what has been called “a typical manifestation of shifty American pragmatism,” a host of devices, ranging from the entirely legal to the distinctly dubious, were developed to fund the construction of railroads. State support for the construction of canals had been widespread, and therefore the pattern had already been set. The railroad companies, however, were given privileges through their charters that were far more favorable than those granted to any other corporations. Not only did they acquire rights over land through eminent domain, but they were also given unprecedented tax exemptions and money-raising opportunities. Freedom from taxation was the most obvious advantage, but railroad companies were also permitted to hold lotteries and create special banks to tap into the savings of even modestly affluent citizens. Crucially, too, many states granted monopolies that prevented rivals from building parallel lines. Although this idea was put forward as a way to prevent the inefficiency and waste of duplication, in practice it put the beneficiary in a very strong position to exploit both local businesses and people. Most notoriously, the Camden & Amboy, stretching across New Jersey, was given the monopoly for rail transportation over the whole of the state, described by one rail historian as “a very foolish action of the New Jersey legislature.”3
The spectrum of railroad funding covered a wide range of approaches, from state subsidy to wholly private financing. At the subsidized end of the spectrum was Pennsylvania, a state that adopted an interventionist role vis-à-vis its railroads—almost in the mold of a European government—unlike some of the other states, which adopted a more hands-off approach. Pennsylvania appointed an “internal improvements commission” that was originally established to oversee canal traffic but then played a key part in the state’s development of the railroads. The commission determined the route of all the early railroad lines in the state, sold the bonds to fund construction, and then oversaw the construction of the lines. According to historian Sarah H. Gordon, in the early days, “the state controlled such matters as the speed of the trains, tolls to be charged for the use of the track, safety considerations such as the need to enclose all lamp and lantern flames, and the order of priority of different types of trains using the track.”4
Support for the railroads was offered even by states in the Northeast, where—unlike in many midwestern and southern states—private capital was plentifully available. For example, in 1833 Massachusetts provided the bulk of the cost of constructing the Western Railroad, providing a vital link between two other railroads, with a $4 million loan and direct investment of $600,000. This kind of support was commonplace, but it often came at a price. The state lawmakers in New York, which loaned the Erie Railroad $3 million, forced the railroad to go through a sparsely populated region, the southern tier, along the border with Pennsylvania, hoping that it would stimulate economic growth there. New York was, in fact, a serial supporter of the railroads, and by 1846 had advanced $9 million to ten different railroad companies.
In the Midwest the perceived need for railroads, together with a lack of private capital, stimulated states—such as Michigan and Illinois—into building railroads themselves. In the absence of a developed banking sector, railroad promoters in these states did not have any access to capital, and therefore the state was the principal source of funds. In Michigan, even before the state was formally constituted, its lawmakers were agitating for building lines. After Michigan entered the Union in 1837, work started on three state railroads, but they lost money and were eventually privatized in 1846 on, inevitably, unfavorable terms for the state. Having spent $3.5 million on the construction of 150 miles of railroad, the State of Michigan sold the lines for half that sum to a group of Massachusetts and New York money investors.
Illinois, prompted by Stephen A. Douglas, later a senator, who, like many early promoters, was both forward looking and self-serving, drew up a grandiose plan envisaging the construction of 1,300 miles of line together with canals and turnpikes, all to be funded by the state. This was a remarkably ambitious scheme given that at the time, Illinois’s population consisted of a few thousand people living in villages and farms, with no settlement worthy of being called a city. Rather fortuitously, the plan was delayed by the financial panic of 1837, but nevertheless ended up costing the state a fortune. Railroad construction became a moneymaking venture for numerous state employees who found there were rich pickings to be had from setting themselves up as “surveyors,” “land buyers,” and “estimators” and thereby obtaining lucrative contracts from the state. Illinois thus found itself with a few miles of railroad but a big debt. By the late 1840s, however, much of the state’s plan for railroad construction had been completed by private companies. These privatizations were not without their critics. For example, Lorenzo Sherwood, a prominent Texas lawyer and politician, was furious about the takeover of lines by private corporations intent only on making a profit and argued that publicly owned railroads carried more tonnage at less cost. These sentiments would be echoed far more widely in later years, as mergers made the railroad companies more and more powerful.
In the South, the pattern of railroad development was very different, as lines were deliberately prevented from crossing state boundaries in order to ensure that each state could retain control of its own railroads. The South’s railroads were therefore mostly short and built to a lower standard than elsewhere. For the most part, they ran from cotton plantations to ports with little provision for passengers. Because of the lack of private capital, the southern states, according to one railroad historian, “lavished their funds on railroads in a positively shameless manner.”5 Some, such as Georgia, even raised money through lotteries. The states seemed to be always at hand to ensure key projects were realized. Whereas the pioneering Charleston & Hamburg was built with a minimum of state aid, a mere $100,000 loan, its branches required far more substantial support, amounting to several million dollars, from the State of South Carolina. As in the Midwest, the states of the South were not averse to building lines themselves if they were seen as economically vital. In the 1840s, the State of Georgia built the 137-mile Western & Atlantic Railroad between Atlanta and Chattanooga and ran it successfully, whereas in Virginia the state constructed a line through the Blue Ridge Mountains and leased it to the Virginia Central Railroad. Indeed, Virginia had a policy of taking 60 percent of the share capital of all railroads in its area, whereas Louisiana, adopting a similar policy, took only 20 percent. Even the pioneering Baltimore & Ohio had been dependent on government funds, having obtained money from both the State of Maryland and the City of Baltimore, and only in 1896 did the railroad become entirely controlled by private interests.
There was considerable public pressure on the federal administration to support at least some of the myriad of railroad schemes popping up in every state, but the government’s hands were tied by the Constitution, which seemed to preclude the provision of direct funding for improvements in the infrastructure. Even if, in apparent defiance of the Constitution, a bill seeking funding for a railroad project reached Congress, it was invariably blocked by the southern states, whose desire for transportation improvements was not strong enough to overcome their fears of interference from the North. Nevertheless, the strength of the public’s support for railroad expansion persuaded the federal government to devise various indirect means of providing help—if not straight cash—that did not transgress the law. Initially, many early railroads, including both the Baltimore & Ohio and the Charleston & Hamburg, benefited from having surveys carried out by army engineers. This was a valuable form of covert subsidy for the railroads, but given the lack of capital and the high cost of lines, further substantial federal assistance was needed. The obvious answer was land. In 1835, Congress endorsed the first railroad land grant, giving the Tallahassee Railroad Company in Florida the right-of-way thirty feet on each side of the line, as well as considerable amounts of timber and ten acres for a terminal. It was a modest start to what would be the key method of supporting railroads across the Wes
t, but it was not until the passage of the Land Grant Act of 1851 that the procedure was formalized and recognized as a vital component of railroad funding.
A rather more direct form of subsidy, the remission of duties on imported iron, also proved essential to the early railroads. When the railroad revolution took hold in the 1830s, America had not yet developed the capacity to produce iron on an industrial scale. As a result, the early American railroads relied on importing iron from Britain. In July 1832, Congress passed an act providing for the refund of all duties on iron used for building new lines, the first but by no means the last time that the railroad industry would receive preferential treatment from federal lawmakers. It was a generous deal worth several hundred thousand dollars to the larger railroad companies. Eventually, as American iron became available, its manufacturers pressed for repeal of the law, even though their produce remained more expensive than British iron until after the Civil War. Nevertheless, they succeeded in getting the law scrapped in 1843, by which time it had been worth $6 million to the railroads, a considerable sum given the relatively low costs of railroad construction.6
At the other end of the funding spectrum from the state-supported railroads, there were those railroads built entirely with private capital. The sponsors were usually local people, eager to connect with the neighboring town or facilitate the transportation of local produce or minerals to the coast. Even those with state support had to find local money to help bring about their dream, and invariably self-interest was a great motivator. The Baltimore businessmen who promoted the partly state-funded Baltimore & Ohio Railroad readily put their hands in their pockets to kick-start the scheme. So did the members of the Chamber of Commerce of Charleston, who hoped to take local trade away from their rivals in Savannah by building the Charleston & Hamburg, whereas in Boston the funds for the Boston & Lowell came largely from the cotton textile manufacturers of Lowell.
The key to successful promotion was the selling of the railroad, a task at which railroad sponsors became increasingly adept, given the need to persuade local people to invest. They stressed not only the physical advantages of the railroad, but also the much more exciting idea of opening up new frontiers, which dovetailed perfectly with the burgeoning optimism that was rapidly establishing itself at the heart of the national mood. Like all good marketing people, they instilled in the public’s mind the perception of a need where there had never been one before, one that only they could satisfy. The dream they sold was a simple one. The entertaining historian Stewart H. Holbrook captures the mood brilliantly in his account of a group of promoters trying to persuade the residents of a mythical town, “Brownsville,” of the need for a railroad to the neighboring settlement. A local notable would develop the notion that “what Brownsville needed if it were to share in America’s great destiny, was a steam railroad.” A meeting would be held, an application for a charter made, and the “virus of the fever” would begin to circulate, persuading the local citizenry of the importance of having a railroad. Then the hard sell to obtain funds would begin: “Some local practitioner of letters was engaged to write a splendid pamphlet outlining the opportunity offered in the stock of the Brownsville & Western Railroad. . . . [W]idows and old men, and guardians of fools and minors were told how a thousand dollars would not only help to make Brownsville a leading city of the nation, but would also return a multitude of rich dividends, now and forever.” The promoters would call upon publicists who wrote skillfully worded prospectuses and powerful orators who would give rousing speeches at the public meetings held to galvanize support. They even resorted to calling on the Almighty: “Needy pastors were hurriedly converted to steam, and they presently could see God’s hand on the throttle.”7
In fact, much of this effort was probably unnecessary. The American people needed little persuasion, as the growth of the nation and the spread of the iron road so patently went hand in hand. As it became clear that the railroad was an invention whose time had come, Americans began to define themselves in its terms. They liked the idea that the spread of the railroad needed a population of entrepreneurial and forward-looking people to make best use of such an important technological development: “Promoters used the steam engine as a metaphor for what they thought Americans were and what they were becoming. They frequently discussed parallels between the locomotive and national character, pointing out that both possessed youth, power, speed, single-mindedness, and bright prospects.”8
According to the promoters, there was no end to the improvements that railroads would bring about. They would liberate the city dwellers from the terrible housing conditions by allowing them to move into the countryside—the suburban sprawl that would be created by these very railroads had not yet begun—or at least to visit it for a day out to get away from the urban stench. Remarkably, as early as 1832, when hardly three hundred miles of rail had been laid across the United States, and Florida was hardly more than a mosquito-infested wasteland of swamps populated by the Creek and Seminole peoples, Charles Caldwell, a contemporary writer on railroad matters, envisaged that the new invention would soon be “enabling and inducing invalids, and people of feeble constitutions, to migrate from the south to the north, in summer, and from the north to the south, in winter.”9 These were prescient words indeed, though it would take a couple of generations and the efforts of the equally farsighted Henry Morrison Flagler before the dream of developing Florida’s east coast would be realized (see Chapter 8).
The railroad was seen as an answer to virtually all society’s ills, from poverty to illiteracy. Education would be improved through the spread of knowledge. People’s health, argued the prospectus for the Long Island Rail Road in 1834, would be improved because they would have easy access to the joys of sun, sand, and sea in the summer, thanks to the railroad. The railroads were seen as democratic, a way of improving the lives of all those who traveled on them: “Equality of opportunity as a national goal was everywhere in the air and accorded very neatly with Americans’ hopes for national unity.” The hope was that they could afford easy access to one and all. For example, as early as the mid-1830s, the Boston & Worcester Railroad in Massachusetts ran Fourth of July specials, carrying fifteen hundred passengers on four trains—not a bad figure at a time when many railroads transported only a few dozen passengers each day. The resulting intermingling of the classes would, it was argued, improve the manners of the poor, who would see the example of the genteel better off and seek to imitate them. In fact, when it came to the issue of class, the railroad proselytizers were treading a thin line. They knew that to have any hope of being profitable, the railroads needed to attract the masses, but they were aware, too, that the investors, particularly the richer ones, might not entirely welcome the notion of having to travel with the great unwashed. While some promoters actively stressed the democratic idea that the railroads offered the poor an unprecedented freedom to travel, others were more reticent and, instead, emphasized the advantages that the new invention could offer the more affluent traveler, suggesting, for example, that the rich might hitch their own carriages to the trains. In the main, though, “enthusiasts promised that their projects would go far to narrow the social and income gaps that tended to pit Americans against Americans.” The railroads were to be the great unifier, the building bricks of the Union: “Observers everywhere argued that the best antidote to political schism was the spread of common ideas; the continuation of the federal experiment was predicated upon the existence of a mass of like-thinking, but disputatious individuals with free and easy access to useful ideas and precepts.” Railroads, they maintained, were to be the catalyst for ensuring this could take place, creating the very notion of a “national” sense of identity, as otherwise knowledge, culture, and ideas would be confined to small areas based on the coastal towns. In a rather tautologous argument, the enthusiasts suggested that “the idea that railroads were a positive good and always in the nation’s interest was itself a powerful unifying force.”10
The c
ause and effect of the changes brought about by the railroad are hard to disentangle, and whether the railroads formed America’s character or vice versa is a classic chicken-and-egg conundrum. As James A. Ward notes, “The notion that railways were both physical manifestations of a new intellectual world and the means for making that world available to all citizens and, in the process, elevating the national character was one of the major reasons for the era’s optimism.” It was precisely the depth of this understanding between the public and the railroads that would heighten the sense of betrayal when that relationship soured so badly. Remarkably, it is evident that many of the early supporters, particularly the more affluent ones, were not investing in the railroads for immediate personal gain. They were driven by the genuinely altruistic motives of furthering the national, state, or municipal good, and any profit they could make was regarded as something of a bonus. Perhaps, more accurately, one could say they were taking a long view, realizing that they were likely to benefit from the general increase in prosperity that the railroads would bring about. More prosaically, there were numerous ways in which the building of a railroad could bring immediate benefit to local people, most significantly through the increase in land values that rose for several reasons after the arrival of the railroad. First, it became easier for farmers to send their produce to market as the cost of transportation and the time taken to deliver it were reduced. Agricultural land thus became more profitable to farm and accordingly more attractive—and expensive—to acquire. Second, the ease of connection between different locations afforded by the railroads encouraged people to settle in towns served by the railroads. This led to an increase in demand for land for housing and, later, for shops and light industry. And, third, this very process of growth stimulated further development. There seemed to be no downside. Everyone was a winner, not only local people but the local authorities, too, as their tax base was enhanced. Land that had hitherto been regarded as worthless—except, of course, by its original Native American inhabitants, from whom it was often simply stolen—became highly prized, offering as it did the possibility that it could earn rent for the landowner. The promise of rising land prices became a central tenet in the railroad promoters’ prospectuses: “The promoters were appealing to a deeply ingrained American image embedded in a belief in the primacy of land and of the men who owned and worked it. Land was the great national treasure and promoters’ promises to give remote land value, real value, for the first time, to enable enterprising individuals to reap the mineral, timber and crop harvests for their own good and for the welfare of the nation were simply practical steps towards strengthening national unity.”11
The Great Railroad Revolution Page 6