The building of railroads required enormous amounts of capital. Because of America's laissez-faire approach to private enterprise, the government would not finance railroads directly. However, the granting of large tracts of land by the federal and state governments helped to finance the building of lines. The government recouped its investment because the land which was subsequently sold in the vicinity of railroads commanded much higher prices than land which had no access to a transportation system. Federal and state governments gave hundreds of millions of acres of land to the railroads in 19th-century, yet the investment probably profited all concerned.
Private investors also contributed capital, particularly when their communities stood to profit from the railroad. Long east-west rail lines usually required some public funding-loans, investments, and tax exemptions. Railroads profoundly affected farmers by opening new areas and giving them access to world markets. Location of the lines helped determine what land could be profitably cultivated. Railroad companies created farms by selling their land grants as farm sites. Prices for farm goods were high, but farm labor was scarce. Machinery appeared to ease the labor shortage. Steel plows and mechanical reapers reduced the labor and time required to plant and harvest.
Railroads also stimulated other kinds of economic activity. They influenced real estate values, spurred regional concentration of industry, increased the size of business units, and stimulated the growth of investment banking. Railroads also revolutionized business organization and management, and they sharply reduced freight and passenger rates. Finally, railroads revolutionized western agriculture; the center of wheat production moved westward.
World History
