In 1862, President Abraham Lincoln signed the Pacific Railway Act into law. This culminated many years of debate over whether or not the federal government should subsidize construction of a transcontinental railroad. Since most opponents of such a venture were Southern Democrats who were no longer in Congress due to the Civil War, the Republicans passed the law with little opposition.
The Central Pacific and Union Pacific Lines
The legislation created two federally-subsidized companies: the Central Pacific and the Union Pacific Railroads. The Central Pacific was to begin laying railroad track at Sacramento, California and move east, and the Union Pacific was to begin at Omaha, Nebraska and move west. Eventually the two rail lines would link, and this line would link to the eastern rail networks, becoming the first transcontinental line.
To fund construction, the federal government supplied both companies with enormous amounts of land and money in the form of taxpayer-funded government bonds. To ensure that the grants would continue, Thomas Durant, chief lobbyist for government subsidies to the railroads, spent thousands of dollars distributing Union Pacific stock to politicians in exchange for votes.
Capitalizing on Government Generosity
Payments to the railroad companies were based on the terrain. The rates were $16,000 per mile for flat terrain, $32,000 per mile for hilly terrain, and $48,000 for mountainous terrain. Naturally executives sought roundabout routes over rougher terrain because that brought in more money, regardless of whether or not the routes were efficient or even safe. Also cheap supplies were often used to further increase the profit margin, even though that assured the need for future repairs to the shoddy workmanship.
Since the work was funded by the government, executives regularly stole from their own companies for personal gain. Union Pacific executives formed their own mining company and mined coal for two dollars per ton. Then they sold the coal to themselves for six dollars per ton and pocketed the profits. These types of schemes were repeated dozens of times, with the most notorious episode being the Credit Mobilier Construction Company scandal.
In addition railroad executives spent enormous amounts of time wining and dining politicians instead of managing their companies. Free railroad passes and stock were routinely distributed in exchange for political funding and favors. When the lines came close to linking, executives began building their tracks parallel to each other to avoid completion and the end of government financing. Congress finally intervened and ordered the linkage to be made at Promontory Point, Utah.
The Railroad’s Completion
On May 10, 1869, the golden spike was driven home and the transcontinental railroad was declared complete. This was one of the greatest engineering and construction efforts undertaken since the arrival of Europeans in America. In seven years, about 20,000 workers laid 1,775 miles of track, and coast-to-coast travel was reduced from six months to one week. In addition railroad executives had been given 23 million acres of land and $64 million in taxpayer-funded subsidies.
However despite the grand celebrations, the railroad line was not truly complete. The track had to be rebuilt and relocated in many places, and many upgrades were needed to repair bridges, rails, ties and road beds, and to clear mountain track of snow. The celebrations at Promontory Point overshadowed the inferior workmanship that the federal subsidies had inadvertently encouraged.
Private Versus Public Railroads
Many historians claim that the great transcontinental railroads could not have been built without government assistance. However the entire British railroad system was built with private funds. In addition the Great Northern Railroad, headed by James J. Hill, prospered as a transcontinental line and it was an exclusively private enterprise.
In response to cries of fraud and mismanagement during construction, Congress enacted more legislation that hindered railroad efficiency and prevented executives from making sound business decisions. Most federally-subsidized railroads went bankrupt because they were so mired in regulation and handicapped by the inherent inefficiencies of government-financed public works projects.
Sources
DiLorenzo, Thomas J.: How Capitalism Saved America (New York, NY: Three Rivers Press, 2004)
Woods Jr., Thomas E.: The Politically Incorrect Guide to American History (Washington, DC: Regnery Publishing Inc., 2004)
Walter Coffey - Walter Coffey is a freelance writer who resides in Houston, Texas. Walter has written several works of historical fiction and non-fiction, ...
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