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NNAMDI AZIKIWE UNIVERSITY, AWKA

DEPARTMENT OF HISTORY AND INTERNATIONAL STUDIES

OKERE, IFEANYI AUGUSTINE

2006044707

ECONOMIC HISTORY OF USA SINCE THE 19TH CENTURY (HIS

342)
APPRAISE THE IMPACT OF RAILROADS ON THE ECONOMY OF THE
UNITED STATES DURING THE 19TH CENTURY.

LECTURER: DR. IGWE, UCHE

JUNE, 2009
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ABSTRACT
A historian cum poet once noted the importance of the
railroads to the American economy. Furthermore, the
historian wrote in lieu of the cliché “…go to the west with
the rail and grow up”, thus: “I see over my continent the
Pacific railroad surmounting every barrier, I see continual
trains of cars winding along the Platte carrying freight
and passengers, I hear the locomotives rushing and
roaring, and the shrill steam whistle, I hear the echoes
reverberate through the grandest scenery in the
world…” the paradigm shift of the American economy
into a fully industirialised one was not just as a result of
the railroad development of the 19th century but this had
a trans-linkage effect which tripped down to every facet
of the American economy ranging from the iron and
steel, meatpacking, communication, stock market and
even the personal life of the average American.
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Quoted words from Walt Whitman, Passage to India, 1871

INTRODUCTION: BACKGROUND TO TRANSPORTATION IN AMERICA

Transportation is regarded as a veritable means and a necessary pre-condition for
industrialization in any society. This view is reflected in the fact that within the
American society. This view is reflected in the fact that within the American society
in particular and industrialized nations in general, there existed a “Transportation
Revolution”.

Accordingly, Kemmerer and Jones notes, “The transportation revolution, which

made it possible to bring in raw material from afar and to distribute the finished
product over ever-widening market”1This Revolution in transportation helped to
stimulate other industries in the American economy; but there exists an argument
among scholars as to which of the various revolution in the American economy
occurred first. The plausible answer is the fact that all had a linking occurrence as
one necessarily lead to the growth in the other. Transport revolution in America
occurred in three forms; “firstly those involving more efficient use of water; second
those involving more efficient use of land route and third, those in air: the last no
coming until after the 1930s”2.Furthermore, Igwe examines and classified the
evolution of transportation in America. To this, he highlights the waterways and
later those that involved the use of land boats and much later as from the second
half the 19th century, the railroads began to play effective roles… 3.However
conceived, the railroads began to manifest in the USA in the 16th century; but this
forms were the primitive form of railroads in which, horse-drawn wagons were used
to carry heavy laden wagons carrying ore from mine shaft to barges from sinking
too deeply into muddy ruts.

With the myriad problems associated with horse-drawn wagon and with the
invention of steam engine in Britain by James Watt, the steam power ingenuity was
extended to the rail transport sector with George Stevenson’s invention of a steam
powered engine for a train in 1825. This fundamental invention heralded the era of
‘Modern railway’ in the world. By 1826, the Mohawk and Hudson had received a
charter to operate this ‘modern railway’, though mainly operated as passenger cars;
which were little more than stage coaches on iron wheels, the Mohawk and Hudson
started operating between Albany and Schenectady in 1831. Others include: the
Baltimore and Ohio railroad (mainly horse-driven), the Shalton and Hamburg
(locomotive-started operating Jan.1931). By the 1850s, Trunk lines began to appear
in the USA, these lines were mainly railroads which range within the Appalachian in
most cases. The development of rails continued to grow and even supplanted the
earlier forms of transportation in America -waterways, turnpikes. The 1840s
witnessed a growth in the railway system in America due to the fact that from that
year, the US stopped importing iron from Britain. This factor alongside the reduction
in the price of Bessemer produce steel in the 1870s, which reduced the price of
steel, further increased the amount of rails in America. A survey into these
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phenomena reflects that by 1860 there were about 31,000 miles of railroads
(mostly in the North), also by 1890s the US could account for well over 180,000
miles of tracks. The importance of railway was further demonstrated in the freight
business as well as passenger business in America, as it increased geometrically
during the half of the 19th century. This trend further reflected in the other sectors
of the American economy as railways “did not just stimulate the American economy
but changed it”4. The railways integrated the vast terrain of the continent acquired
by the various westward movements in the first half of the 19 th century; railways
further settled the hordes of immigrants who had entered America during the 1840s
and the first decade of the 20thcentury.

Besides these mentioned areas, the railways had other impact on the American
industrialization to which historians have agreed that railways formed the first ‘Big
Businesses’ in America.

IMPACT OF RAILROADS ON THE 19TH CENTURY UNITED STATES

ECONOMY
As noted earlier, the development of railroads in America had a wholesome effect
on the general economy of America. Particularly, the writer is poised to examine
these impacts juxtaposed with the general socio-economic changes in the America
economy in the 19th century.

EMPLOYMENT OPPURTUNITIES WERE AVIALED IN BY THE RAIL INDUSTRY

The development of railroad system in provided a
veritable platform for employment opportunities for the teaming population of the
US, as the industry required both skilled and unskilled labour to operate efficiently.
The various rail corporations which existed in America opened their doors open and
provided employment to millions of Americans in terms of labourers to build rail
tracks and professional executives for the running of the day-to-day operation of
these corporations. By the mid-19th century, when the railway system
had fully overtaken other means of transport, the industry accounted for about one
quarter of all employment in the US. In lieu of this, “by the end of the 19th century”,
a historian wrote, “more than a million workers tended the railway system…”5 to
which convened both freight and passengers to different parts of America. By
1880s, after the completion of the Trans-continental railroads, companies –e.g. the
Union Pacific and the South Pacific (Texas) – had to increase their human resource
to which provided jobs for Americans. Historians generally agree that the
completion of the Promontory point, Utah, on March 10, 1869, was mainly
constructed by two teams of labouers; one Chinese immigrants, the other Irish
immigrants, who linked their companies railroad –Union Pacific and Central Pacific
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respectively – at the Promontory Point. Furthermore, the stimulus with the railroad
industry gave to other industries like the telecommunication industry –telegram also
gave rise to the employment of numerous Americans who manned the
communication system along the railway track.

ATTRACTION OF FOREIGN CAPITAL

during the first decade of the 19th century, the railroad
transportation system witnessed a lot of challenges which slowed its growth. Among
these challenges was the availability of finance to undertake the herculean task of
railroad construction due to the geography of the American continent.
Consequently, the Rocky Mountains, canyons, rivers and other topography
challenges made it difficult to construct tracks. In order to solve this problem, the
government of US provided necessary pre-conditions which allowed foreign
investment into the railway industry. Among these pre-conditions were subsides,
grants, tax holidays, reduced tariff on imported raw materials necessary for railway
construction among other things. To further demonstrate its seriousness over
foreign and domestic capital investment,

…Congress…granted a 400-foot-right-of-way.
Plus 10 square miles of land for each mile of road
plus a first mortgage loan of $16,000 to $48,000
per mile, the amount varying with the harshness
of the terrain.6

The resultant effect of this overture attracted foreign as well as domestic investors
to invest money in the railroad industry to which caused an increase in it. With
regards to foreign investment, British financiers were mainly interested in the rail
industry as they invested in its companies, sold shares to these foreign investors to
acquire necessary capital for rail expansion. Perhaps one of the reasons why this
industry grew tremendously was because of the foreign capital investor it was able
to acquire.”In all; the federal grant helped build approximately 18,700 miles of
railroad or about 8% of total construction in the united state… [these] land grant
furnished an inducement for individuals pour millions of dollars into railroad
development…”

NEW CITIES AND EXPANSION OF EXISTING ONES

The railroad created a national economy out of what
had been a loosely linked network of local and regional economies; as trait
linked the various state market to one another. Particularly, towns with good
rail connections swelled into cities. Those which were already cities and had
further augmenting rails which made them bloom. The growth of modern
cities like Chicago, Columbus, and Indianapolis grow because of the vest rail
line which terminated there. Chicago, it is believed, owed its status as a
metropolis to its emergence as the railway hub linking the east to the west.
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The growth in cities was necessitated by the various ingenuous inventions in

the railway industry. First, the omnibuses – horse drawn streetcars on wheels
– had open new areas to settlement; furthermore commuter railroads
permitted the wealth to live in suburbs miles out of town. This form of rail
transport though had some pitfalls which hampered the rate of city growth.
But with the invention of an electric-powered steer car by Julian Sprague in
1887, mass movement began within the US. Railway tracks linked various
states better than the carnal/waterways of the 17th and 18th centuries and by
so doing hordes of immigrants could disperse unto the vast areas of the
continent. Railroads were an efficient means in settling the immigrants from
Europe into American continent and provided a means for transporting raw
materials from rural areas into major cities. Local farmers located in the
interiors, could also bring their freight which could be shipped for foreign
consumption.

SAVINGS VIA STOCKS, SHARES AND FINANCE SCHEME

The introduction of railroad with its attendant effect of
corporate business organization had an impact on the American economy by
proving a means of saving. The various companies which operated the
railroads sold shares via stock exchange to the general public in a bid to raise
capital for the construction of more rails. The American public generally
subscribed for shares and this provided a means of saving and investing in
the industry. At the end of every financial year, shareholders would be paid
dividends according to the number of shares bought. It should be noted
however, that certain companies engaged in certain activities which
defrauded both investors and the company. The Mobilier fraud scandal7 was
one of such which implicated some Republican congressmen. This observed,
the various companies due to the era of “Railroad Imperialism” failed to pay
investors as they had engaged in cut-throat competition, issued rebates,
constructed parallel lines and also engaged in rate wars. Besides these
shortcomings, mergers and trust/pools provided another means for capital
savings as companies like that of J.P Morgan’s brought smaller ones which
had capitalization problems. Between 1894 and 1898, Morgan helped more
than half a dozen important railroad lines out of financial troubles and forced
them to give over control to hand-picked trustees8. Capital savings via
investment allowed private individuals own large stocks in different
companies. Cornelius Vanderbilt, one of such, turned his vast railway
companies into a family investment as his son inherited this father’s stock
after his death.
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RAILWAY AS A SPUR TO OTHER INDUSTRIES

With the westward expansion of the US in the early
19 century, the movement had added a size three times the pre-19th century
th

US. This thus provided a vast area for the rail lines of the mid 19th century to
cover. The railway did not just cover the continent, but provided the
necessary link within the American economic system.
Firstly, with the advent of modern railway construction with iron,
this particularly spurred the growth of the iron industry in the US. After the
1840s when the US stopped importing iron from Britain, concert efforts were
made to develop the American iron industry. With this, Andrew Carnegie, a
Scottish immigrant in America had concentrated on the iron industry by 1865.
Within few years he had organized, or had stock in companies making iron
bridges, rails and locomotives9. Ten years later the largest steel mill was built
by him on the Monongahela River in Pennsylvania. The need for iron was a
proactive force which conditioned the growth of both the railroad and the
later industrialization in the USA. The ingenuity was later extended to the
steel industry, as a historian once wrote “…since steel rails lasted than iron
and once the Bessemer produced steel dropped in the 1870s, railroads began
to use harder and much durable metal”
Secondly, agricultural produce from farms
located within the interior of the US was spurred by the growing market
frontiers which the railroads had opened up. Western farmers had an
enormous demand to satisfy in the east as the rail lines provided the
necessary link between them. Agricultural area like Kansas was linked to the
growing market in the west via Denver, Pueblo and Santa Fe. Small farmers
had increased their cultivation in other to satisfy the excessive demand both
within and outside America. Thirdly, the
developments in the railway sector also boasted the Power sector as
alternative means to power these trains were sought for. Particularly, the
American states located in the east had sufficient coal deposits and other
natural minerals. The areas bordering Lake Superior in the North also had
abundant coal, iron ore, zinc etc. Consequently, the need for these resources
spurred miners and their families to settle in areas of the Rocky Mountains:
like Nevada, Montana and Colorado.
Finally, meat packing and telecommunication industries
also grew as a result of the railway development of the 19 th century. The
Americans were ingenuous to invent refrigerated freight cars in the 1870s as;

The key innovation was to place ice in

overhead bins that allowed cool air to drop
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while keeping the ice from touching the

meat (which discolored the meat and
made it spoil more rapidly).10

Cattle-raising, long an important industry in Texas, became even more

flourishing after the war, when enterprising men began to drive their Texas
longhorns north across the open public domain. Feeding as they went, the
cattle arrived at railway shipping points in Kansas, larger and fatter than
when started. Soon this “long drive” became a regular event and for
hundreds of kilometers, trails were dotted with herds of cattle moving
northward. Also railroad development spurred the telegraph industry as lines
were built alongside the different railroads to facilitate communication. This
dates back to the 1869 Promontory Point, where in other to keep the US
President abreast with developments, a line was constructed alongside the
first trans-continental railroad.

‘BIG BUSINESSES’ WITHIN THE RAIL INDUSTRY

The phrase “Big Businesses” made its
first appearance in print in 1905 in McClure’s Magazine. This was a phrase
used to identify the large corporations with multiple plants which began to do
business nationally. These firms did not just acquire more workers and
capital; they also adopted a new institutional structure. Against this
background, Maier opines,

The modern enterprise appeared first

among the railroads; its spread was linked
to revolutionary changes in the ways that
goods were distributed and produced. The
changes in distribution came first, as
wholesalers (who bought goods from
producers and sold them to retailers) took
advantage of the new speed of commerce
to build regional firms that could move and
sell goods quickly.11

Thus, railroad was the nation’s first big businesses and because of their size,
the physical distance they spanned and imperatives of coordination, they
faced managerial challenges that were unprecedented. In response, the rail
corporations replaced informal lines of authority with a formal vertical chain
of command that governed all divisions of enterprise; to a considerable
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degree, management was separated from ownership and managers

themselves became “quasi-professional”. In addition, railroads
institutionalized long-run planning and developed modern accounting
techniques which “when the first graduate programs in business
management appeared just before World War I, their programs relied
heavily on lessons learned from the railroads”12. Railroad kings such as
Collis P. Huntington, Leland Stanford and Cornelius Vanderbilt became
prominent.

CONCLUSION
Despite railroads had a considerable impact on the American economy in
the 19th and 20th centuries, there were also cases of “use and misuse of
railroads for railroad imperialism”.13 practices such as rebates, charging high
rates along short routes which different corporations had monopoly on and
lower rates were parallel lines existed, rate wars, and fraudulent actions of
not paying investors dividends. Some companies even used the land given
by the US government as collateral for loans. These practices led to the
unfavorable conditions within the railroad industry to which historians have
called “Railroad Imperialism” of the 19th and 20th centuries. The American
government had to solve these problems by enacting Granger Laws- laws
which required companies to fix “just, reasonable and uniform” rates. Also
the Inter-State Commerce Act of 1887 further tried to mitigate these
problems. Consequently, with the Supreme Court judgment in Munn v.
Illinois in 1877 provided that if: “…private property is devoted to a public
use, it is subject to public regulations”. Apart from this, capitalization
problems had adverse effect on the railway sector along with the discovery
of other efficient means of transportation in the 20th century; these
cumulatively led to the decline of private ownership of railroads in America.

These noted however, railroads had tremendous impact on the American

economy as it has been established above, and perhaps without them the
industrialization process might have been slow.
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END NOTES
1. Donald Kemmerer and Clyde Jones, American Economic History,
(New York: McGraw Hill, 1959) p.118

2. idem

3. Uche Igwe, “Economic History of USA since the 19th Century: The
19th century Transport Boom- the Special Role of Railways and its Impact
on the US Economy”(An unpublished Monograph) May, 2009

4. Pauline Maier, et al, A History of the United States: Inventing

America, Vol.2 (New York : W.W Norton and Company, 2003) p.570

5. Ibid. p.569

6. Donald Kemmerer and Clyde Jones, op cit. p.294

7. This was a scandal uncovered by the New York Sun in1872 as it exposed
the Union Pacific Company. Top political office holders like the then Vice-
President Schuyler Colfax and Congressman James A. Garfield, had used
their office to acquire shares in the Credit Mobilier Company -a subsidiary
of the Union Pacific Company.

8. Robert Divine, et al, America: The People and the Dream,

(California: Scott Foresman Publishers, 1994) p. 96

9. An Outline of American History, 1982 p.96

10. Pauline Maier, et al, op cit. p.570

11. Ibid p.574

12. Daniel Meinig, “Entrepreneurs and Business in America” in Huey

Long, The Shaping of America: An Economic Perspective in 500 years of
History, (New Haven: Yale University Press, 1998) p.651

13. Uche Igwe, op cit