Railroad Industry

Without railroads, the U.S. Industrial Revolution (roughly the last twenty years of the nineteenth century, when the nation changed from an agricultural to an industrial economy) could never have happened. The railroad was the pioneer of big business, and it became an almost immediate symbol of industrialization in the United States. Every American, regardless of income or social class, could identify with the railroad. Since around 1860, the railroad was the center of the national market, transporting not only goods but also people and information. Restrictions on transportation that had existed prior to the American Civil War (1861–65), such as weather conditions and geographical distance, no longer factored into trade and commerce.

The railroad soon experienced a phenomenon that was new to U.S.commerce: large-scale competition. Although the railroad was considered one entity, it was actually made up of several companies and lines. As soon as a geographic region was served by more than one line, competition arose. The obvious solution was to offer the lowest fare.

Competition leads to corruption

It seemed to make sense to lower fares, but as soon as one railroad line did it, the others did, too. Railroads had numerous fixed costs just to keep the business going, so if fares were lowered, that money had to be found somewhere else, or profits decreased, and eventually the line would go bankrupt.

Some competitors reduced their prices secretly, negotiating with large shipping companies that could take their business elsewhere. The shipper would promise to work with just one particular railroad company, no matter how low the competitors' prices went, and in return, the railroad gave the shipper kickbacks in the form of money. This way, the railroad line was guaranteed a certain amount of business, and it had only to provide a rebate—often a percentage of the total bill—to the shipper. This was an unethical way to conduct business, but most railroads were guilty of such practices.

One unforeseen consequence of these kickbacks and competitive pricing schemes was a rapid decline in shipping rates. Near the end of the nineteenth century, rates got so low that railroads were claiming bankruptcy on a regular basis. In response, railroad managers developed pools to help competing railroads cooperate to share business. With pools in place, rates became fixed as competing railroads agreed they would not go below a specific price. The problem with this was that the railroad shipping rates got out of hand. Farmers and other businesses that relied on shipping protested against the astronomical rates demanded by the railroads. These protests, in turn, led to government regulatory commissions. This was the first time that the U.S. government had stepped in to limit the power of commerce.

Government to the rescue?

When state governments realized that the railroads were taking advantage of the public's need for their services, regulatory commissions were formed. These commissions publicized information about railroad operations on the theory that if the public knew how the railroads operated, citizens and business owners could make more informed choices.

Throughout the 1870s, many states attempted to regulate the power of the railroads. Hesitant to tread where federal government had never gone before, President Ulysses S. Grant (1822–1885; served 1869–77) and the U.S. Supreme Court rarely upheld the rulings of these state-level commissions. It was not until 1886 that the U.S. Supreme Court ruled that only Congress had the power to regulate commerce between the states. This ruling led to a national movement for federal regulation of interstate commerce.

In 1887, Congress passed the Interstate Commerce Act , which created the Interstate Commerce Commission (ICC), the first federal regulatory agency. The sole purpose of the commission was to address railroad abuses. The commission declared that shipping rates had to be “reasonable and just” and that the rates had to be publicly published. Kickbacks and secret rebates were made illegal, and price discrimination against small markets was outlawed.

The last of these provisions was the hardest to enforce. Railroads traditionally offered lower rates for longer hauls, a practice that worked against many farmers and smaller companies. The ICC had the authority to investigate such discriminatory tactics, but it became clear immediately that determining which prices were discriminatory would be difficult because the ICC had no specific measures or standards. Although the ICC was established with good intentions, it was not practically helpful to many who relied on the railroads to do business, who continued to be charged unfair rates.

Transcontinental railroad

In the 1850s, the plan to connect the eastern territories of the United States with those in the west via railroad was an idea many supported and just as many scoffed at. Thousands of miles separated the two regions, and the project would be so vast that the government would need to help financially.

Congress authorized a survey to determine all possible routes from the Atlantic Ocean to the Pacific Ocean. That report revealed two particularly favorable routes. In 1862, Congress decided that two companies should build the transcontinental railroad: the Central Pacific Company, which would build eastward, and the Union Pacific Railroad, which would build westward. The two lines would join midway. The government aided the railroads financially, which was necessary because private investors believed the project to be too risky an investment. The Central Pacific was funded by a special property tax in California in addition to federal assistance.

Construction of the railroad was backbreaking work. Each mile of track required 100 tons of steel rail, 2,500 ties, and 2 to 3 tons of metal pieces used to join individual track. Supplies were often delayed, making progress painstakingly slow at times.

Labor for the building of the railroad came from various sources, including veterans of the Civil War, freed slaves, and immigrants. Most of the immigrant workers were Irish; they were known for their willingness to take any work, no matter how low-paying, and they were accustomed

to hard physical labor, long hours, and difficult work conditions. (See Irish Immigration .) For various reasons, the Central Pacific faced a labor shortage, which it solved by hiring thousands of Chinese immigrants. (See Asian Immigration .)

The transcontinental railroad is considered the most astounding engineering feat of the nineteenth century. More than 1,700 miles of track were laid by men who labored for as little as $1 a day. Many lives were lost due to avalanches, attacks by Native Americans, heat, and accidents. In spite of setbacks and delays, crews managed to lay an average of 2 to 5 miles of track each day. By April 16, 1869, only 50 miles separated the two railroad companies. May 8 was the target date for the two lines of the railroad to meet. On May 9, the Union Pacific laid the final 2,500 feet of track, leaving just one rail length separating the tracks at Promontory Point, Utah . On May 10, 1869, an official from each company ceremoniously hammered in the final spikes. Champagne was served, and a telegraph was sent throughout the country with a simple announcement: “Done.” The Union Pacific had laid 1,086 miles of track from Nebraska , and the Central Pacific had built 690 miles from California.

Federal Land Grant Program

Before the final stake was pounded in connecting East with West, passengers and freight could go only as far as Kansas and Colorado . Although this itself was a major accomplishment, the lack of railroads in the West prohibited settlement on a large scale. The development of the Pacific Railroad changed that.

Now that the West had a railroad, immigrants could realize the American Dream of prosperity by leaving the East and heading West, where land was more plentiful. In the early 1800s, the government had begun giving grants (money that did not need to be repaid) to various groups, such as those who wanted to build homes in the West, before railroads made life on the prairies easier. As railroads were built, these grants were extended to provide the financing for railroad construction.

The plan was simple. The government decided the areas where it wanted people to settle, then gave that land to railroad companies that promised to build. The railroads then sold the land to settlers, most of them European immigrants, and used the money to pay for railroad construction. Figures released by the U.S. government in 1943 show that a total of 131,350,534 acres of land were granted to all railroads under the program. About 18,738 miles of railroad track were built using funds from the land grants, a figure that represents 8 percent of all U.S. railroad construction.

Historians' views of the land grant program are mixed. One of the requirements of the land grant program was that the railroads transport government troops and property at half the normal rate for passengers and freights. In 1945, a congressional committee determined that the government had received more than $900 million worth of transportation in return for lands worth just $126 million. Clearly, the government got the better end of the deal.

A lesser known aspect of the Federal Land Grant Program was the promotion of the West by the railroads themselves. U.S. railroad companies advertised their land to people in Europe, encouraging immigration , and then many railroads hired clergy and prominent businessmen to help influence those immigrants to come to the West. The railroads focused their efforts on immigrants from the non-English-speaking countries of northern Europe because it was commonly believed that they had better work ethics than others, and that they would work harder, complain less, and produce more. The railroads published promotional brochures and pamphlets in several languages. These advertisements promised wealth and success, often to a degree not possible even for the hardest of workers. But Europeans desperate to find security and comfort believed what they read, and they headed west by the thousands.

Between 1607 and 1870, 409 million acres of land in the West had been settled. The people who ventured west were mostly miners and ranchers. After the transcontinental railroad was built, between 1870 and 1900, 430 million acres were settled. Most of the settlers in this time period were farmers, both native-born and immigrant.

Although the railroads brought change in the form of hope to millions of settlers, it forced change in the form of devastation and desperation upon Native American tribes who had lived in the West for hundreds of years. The “Iron Horse,” as the steam train was known among Native Americans, was something to fear.