Railroad building required immense amounts of labor and capital at a time when many other demands for these resources existed. Immigrants or (in the South) slaves did most of the heavy work. Raising the necessary money proved a more complex task.
Private investors supplied about three-quarters of the money invested in railroads before 1860, more than $800 million in the 1850s alone. Much of this capital came from local merchants and businessmen and from farmers along the proposed rights-of-way. Funds were easy to raise because subscribers seldom had to lay out the full price of their stock at one time; instead they were subject to periodic “calls” for a percentage of their commitment as construction progressed. If the road made money, much of the additional mileage could be paid for out of earnings from the first sections built.
But many railroads that failed to find enough investors sought public money. Towns, counties, and the states themselves lent money to railroads and invested in their stock. Special privileges, such as exemption from taxation and the right to condemn property, were often granted, and in a few cases states built and operated roads as public corporations.
As with earlier internal improvement proposals, federal financial aid to railroads was usually blocked in Congress by a combination of eastern and southern votes. But in 1850 a scheme for granting federal lands to the states to build a line from Lake Michigan to the Gulf of Mexico passed both houses. The main beneficiary was the Illinois Central Railroad, which received a 200-foot right-of-way and alternate strips of land along the track one mile wide and six miles deep, a total of almost 2.6 million acres. By mortgaging this land and by selling portions of it to farmers, the Illinois Central raised nearly all the $23.4 million it spent on construction. The success of this operation led to additional grants of almost 20 million acres in the 1850s, benefiting more than forty railroads. Far larger federal grants were made after the Civil War, when the transcontinental lines were built.
Frequently, the capitalists who promoted railroads were more concerned with making money out of the construction of the lines than with operating them.
Others in the business were unashamedly crooked and avidly took advantage of the public passion for railroads. Some officials issued stock to themselves without paying for it and then sold the shares to gullible investors. Others manipulated the books of their corporations and set up special construction companies and paid them exorbitant returns out of railroad assets. These practices did not become widespread until after the Civil War, but all of them first sprang up in the decades preceding the war. At the same time that the country was first developing a truly national economy, it was also producing its first really big-time crooks.
•••-[Read the Document Senate Report on the Railroads at Www. myhistorylab. com
World History
