45-855 Railroads, The First Big Business: Topic 4 Part 2
Railroads as Big Business (Cont.)
The Early Railroads
Earliest Steam Railroads
The first regularly scheduled public
steam train ran on the Stockton & Darlington Railroad in England on
27 September 1825. The first regularly scheduled public steam train to
run in the U.S. was in Charleston, South Carolina on 25 December 1830.
However, that August, the Tom Thumb made a 13 mile run from
Baltimore to Ellicotts Mills pulling a single car carrying the Directors
of the B&O. Almost a year later, on 9 August 1831 the
DeWitt Clinton pulled a train between Albany and Schenectady, New
York. In another landmark, the John Bull went into service on
the Camden & Amboy on 12 November 1831.
The Early Railroad Corporate Charters
Railroads were a unique form of "highway" and no one knew when
they first began as businesses how they were to so sharply diverge from
turnpikes and canals. When the B&O first opened for business anyone
was allowed to use the tracks for a fee. Wagons equipped with the proper
wheels and pulled by horses were used on the tracks. It soon became
obvious to everyone that this model was not going to work. Even with
occasional sidings, wagons met going in opposite directions and there was
nowhere to "pull over" as there was on a canal or on a turnpike.
It quickly became apparent that railroads had to both own the right-of-way
(the highway) and the rolling stock used on the highway.
Railroad corporate charters were granted by the States. In the
beginning, this required special legislation but later on general laws were
enacted that set up a formal administrative procedure to grant articles
of incorporation. The transcontinental "Pacific" railroads
were the only ones to receive charters from the Federal Government.
Recall that a Corporation is a fictitious person created
by law and endowed with many of the functions of a human being. Normally
a corporation is an aggregate of persons and has an existence independent
of its members. It may possess property and a treasury distinct from its
members, and debts due to or by the corporation are not debts
due to or by the individuals composing it. Corporations can sue and be
sued and they can be criminally prosecuted, fined, and dissolved by the
sovereign. In U.S. law the Supreme Court has extended portions of the
Bill of Rights to corporations (e.g., within limits, freedom of
The early railroad charters were very loosely written and gave
the corporation great leeway. The charters usually set the number of
directors, the amount of capital stock (this was oftentimes way out of
line with the size of the railroad), the borrowing authority (usually
very vague and subject to great abuse in the 19th Century),
annual reports, the description of the route along with the required
Most importantly, and the reason why railroads were very
unusual, the State would grant the railroad the power of eminent
domain (that superior dominion of the sovereign power over property
within the State which authorizes it to appropriate it for public use).
Without such power, the railroad could not construct its line over the best
possible route without being blackmailed by property owners. However, it
was a two edged sword as it made the railroads politically vulnerable to
those who lived along its right-of-way.
The Railroads Eclipse the Canals
By 1840 there was about 3000 miles of railroad trackage in the United
States almost the same mileage as the canals. By the Civil War about
$1.2B (1909 $$) had been invested in the railroads of which about 25 to
30 percent was government funds. By 1849 freight receipts exceeded
The Railroad Decade: 1850-1860
Between 1850 and 1860 22,500 miles (36,000 km) of railroad line
were built increasing the total mileage from 7,500 in 1850 to 30,000 in
1860 (in kilometers 12,000 and 52,000 respectively). Of the total built
in this decade, 10,000 miles (16,000 km) were built in the Midwest.
In 1849 Chicago only had one short line. By 1854 Chicago was
the leading rail center in the U.S. In 1856 a railroad bridge is built
across the Mississippi river at Rock Island between Iowa and Illinois
allowing the shipment of Midwestern grains directly to Chicago via
Before 1850 the great majority of the agricultural products
of the Mississippi valley went south through New Orleans (see above). By
1860 the railroads had largely taken over this traffic from the Mississippi
river and the western canals. By 1860 Illinois, Indiana, and Wisconsin
replace Pennsylvania, New York, and Ohio as the leading wheat growing
The railroads quickly become the dominant form of
For the first time in human history man is able to travel faster than a
galloping horse on land.
Open Year Around Railroads
could run in the rain, snow, ice and cold. Consequently, goods could be
shipped year around anywhere in the country so that businesses could now
run year around as well.
Less Transshipment Before the
railroads, getting a shipment of supplies for a dry goods business in
Cleveland, Ohio was a formidable task. The goods first had to be
purchased from wholesalers in New York City. Then transportation to
Cleveland had to be arranged. Typically this meant shipping the goods
up the Hudson River on a steamboat to the entrance of the Erie Canal.
The goods would then be transferred to a canal boat for shipment to
Buffalo. From Buffalo they would be transferred to another steamboat
for the trip across the lake to Cleveland. If the business was inland
from Cleveland, they the goods would have to be unloaded in Cleveland
and transferred to wagons for the journey inland. Arranging these
complicated shipments my example is a simple one was a job for
experts. Both James J. Hill and
John D. Rockefeller were
commission merchants early in their illustrious business
This is just another aspect of the previous point. Shippers could deal
with a single freight agent and arrange to ship their goods over
As the railroads grew ever larger, they captured an increasing
percentage of the freight business and their productivity grew by leaps
and bounds. In the 1830s freight rates were about $.075 per ton mile and
passenger rates were about $.05 per mile. By 1859 these rates had fallen
to $.0258 and $.0244 respectively. During this period the 8-wheel freight
car is introduced, rail weights increase from 13.5 pounds per foot to 59.5
pounds per foot (still iron rails steel rails began to be used
extensively in the 1870s), locomotives got larger, and overall, the
capital/output ratio goes form 10:1 to 5:1.
By 1860 on the eve of the Civil War rail passengers could
travel from St. Louis to Boston in 48 hours or from New York to Charleston,
South Carolina, in 62 hours.