Earlier this month, Americans celebrated the sesquicentennial of the completion of the transcontinental railroad, a feat of engineering that connected an expansive but growing country.
But there’s more to this story, and another transcontinental railroad that suggests government subsidies weren’t actually necessary.
The following is an excerpt from The Myth of the Robber Barons: A New Look at the Rise of Big Business in America by beloved professor and longtime YAF speaker Burt Folsom—
The story of the building of the transcontinental railroads makes for good reading. It has a sound plot: four railroads get charters and subsidies to build across the country. It has suspense: the Union Pacific and Central Pacific frantically race across plains and over mountains to complete the railroad. It has an all-star cast: U.S. Presidents, army generals, and political adventurers confront Indians on the warpath, politicians on the take, and thousands of Chinese and Irish workers. The story tells of the agony of defeat—Indian raids and winter storms—and the thrill of victory with the meeting of the Union and Central Pacific in Utah and the final hammering of the golden spike. Finally, there is celebrating as the story ends: Western Union telegraphs the event across the nation, and revelers sound the Liberty Bell from Independence Hall.
Over the years historians have told this story and described the drama, but they have often criticized the main actors and their exploits. The grab for federal subsidies seems to have led to greed and corruption; but—and this is the key point—most historians say there was no way to get the happy ending to the transcontinental story without federal aid. “Unless the government had been willing to build the transcontinental lines itself,” John Garraty typically asserts, “some system of subsidy was essential.”
But there is a nagging problem in this argument. While some of this rush for subsidies was still going on, James J. Hill was building a transcontinental from St. Paul to Seattle with no federal aid whatsoever. Also, Hill’s road was the best built, the least corrupt, the most popular, and the only transcontinental never to go bankrupt. It took longer to build than the others, but hill used this time to get the shortest route on the best grade with the least curvature. In doing so, he attracted settlement and trade by cutting costs for passengers and freight. Could it be that, in the long run, the subsidies may have corrupted railroad development and hindered economic growth? The transcontinental story is worth a more careful look. It may have a different ending if we move Hill from a cameo role to that of a leading actor.
The dream of a transcontinental had excited promoters and patriots ever since the Mexican War and the acquisition of California. Congress spent $150,000 during the 1850s surveying three possible routes from the Mississippi River to the west coast. In 1862, with the Southern Democrats out of the union, Congress hastily passed the Pacific Railroad Act. This act led to the creating of the Union Pacific, which would lay rails west from Omaha, and the Central Pacific, which would start in Sacramento and build east. Since congressmen wanted the road built quickly, they did two key things. First, they have each line twenty alternate sections of land for each mile of track completed. Second, they gave loans: $16,000 for each mile of track of flat prairie land, $32,000 per mile for hilly terrain, and $48,000 per mile in the mountains.
The UP and CP, then, would compete for government largess. The line that built the most miles would get the most cash and land. The land, of course, would be sold; and this way the railroad would be financed. In this arrangement, the incentive was for speed, not efficiency. The two lines spent little time choosing routes; they just laid track and cashed in.
The subsidies shaped the UP builders’ strategy in the following ways. They moved west from Omaha in 1865 along the Platte River. Since they were being paid by the mile, they sometimes built winding, circuitous roads to collect for more mileage. For construction they used cheap and light wrought iron rails, soon to be outmoded by Bessemer rails. And Thomas Durant, vice-president and general manager, stressed speed, not workmanship. “You are doing too much in masonry this year,” Durant told a staff member; “substitute tressel [sic] and wooden culverts for masonry wherever you can for the present.” Also, since trees were scarce on the plains, Durant and his chief engineer, Grenville Dodge, were hard pressed to make railroad ties, 2300 of which were needed to finish each mile of track. Sometimes they shipped in wood; other times they used the fragile cottonwood found in the Platte River Valley; often, though, they artfully solved their problem by passing it on to others. The UP simply paid top wages to tie-cutters and daily bonuses for ties received. Hordes of tie-cutters, therefore, invaded Nebraska, cut trees wherever they were found, and delivered freshly cut ties right up to the UP line. The UP leaders conveniently argued that, since most of Nebraska was unsurveyed, farmers in the way were therefore squatters and held no right to any trees on this “public land.” Some farmers used rifles to defend their land; and, in the wake of violence, even Durant discovered “that it was not good policy to take all the timber.”
The rush for subsidies caused other building problems, too. Nebraska winters were long and hard; but, since Dodge was in a hurry, he laid track on the ice and snow anyway. Naturally the line had to be rebuilt in the spring. What was worse, unanticipated spring flooding along the Loup Fork of the Platte River washed out rails, bridges, and telephone poles, doing at least $50,000 damage the first year. No wonder some observers estimated the actual building cost at almost three times what it should have been.
By pushing rail lines through unsettled land, the transcontinentals invited Indian attacks, which caused the loss of hundreds of lives and further ran up the cost of building. The Cheyenne and Sioux harassed the road throughout Nebraska and Wyoming: they stole horses, damaged track, and scalped workmen along the way. The government paid the costs of sending extra troops along the line to help protect it. But when they left, the graders, tie-setters, track-layers, and bolters often had to work in teams with half of them standing guard and the other half working. In some cases, such as the Plum Creek massacre in Nebraska, the UP attorney admitted his line was negligent: it had sent workingmen into areas known to be frequented by hostile Indians.
As the UP and CP entered Utah in 1869, the competition became fiercer and more costly. Both sides graded lines that paralleled each other and both claimed subsidies for this mileage. As they approached each other the workers on the UP, mostly Irish, assaulted those on the CP, mostly Chinese. In a series of attacks and counterattacks, with boulders and gunpowder, many lives were lost and much track was destroyed. Both sides involved Presidents Johnson and Grand in this feuding. With the threat of a federal investigation looming, the two lines finally compromised on Promontory Point, Utah, as their meeting place. There they joined tracks on May 10, with hoopla, speeches, and the veneer of unity. After the celebration, however, both of the shoddily constructed lines had to be rebuilt and sometimes relocated, a task that UP didn’t finish until five years later. As Dodge said one week before the historic meeting, “I never saw so much needless waste in building railroads. Our own construction department has been inefficient.”
After the construction was completed, many were astonished at the costs of construction. The UP and CP, event with 44,000,000 acres of free land and over $61,000,000 in cash loans, were almost bankrupt. Two other circumstances helped to keep costs high. First, the costs of building a railroad, or anything else for that matter, were abnormally high after the Civil War. Capital and labor were scarce; also, even without the harsh winters and the Indians, it was costly to feed thousands of workmen who were sometimes hundreds of miles from a nearby town. Second, the officers of the Union and Central Pacific created their own supply companies and bought materials for their roads from these companies. The Up, for example, needed coal, so six of its officers created the Wyoming Coal and Mining Company. They mined coal for $2.00 per ton (later reduced to $1.10) and sold it to the UP for as high as $6.00 a ton. Even more significant, the Credit Mobilier, which was also run by UP officials, supplied iron and other materials to the UP at exorbitant prices. What they didn’t make running the railroad, they made selling to the railroad.
Many people then and now have pointed the accusing fingers at the UP with its Credit Mobilier and its wasteful building. But this misdirects the problem. If we look at the subsidies instead, we can see that they dictated the building strategy and dramatically shaped the outcome. Granted, the leaders of the UP were greedy and showed poor judgment. But the presence of free land and cash tempted them to rush west, then made them dependent on federal aid to survive.
Read more about James J. Hill and the intercontinental railroads plus Commodore Vanderbilt and the steamship industry, the Scrantons and America’s first iron rails, Charles Schwab and the steel industry, and John D. Rockefeller and the oil industry in The Myth of the Robber Barons.