BUILDING THE FIRST TRANSCONTINENTAL RAILROAD From the time when locomotives first set their immense wheels onto the frigid iron of parallel rails, Americans longed for a means of transportation which would connect the separate regions of California and the Eastern states. This need for connection, fueled by manifest destiny led to the building of the first transcontinental railroad. Expansion of the railroads would have been postponed indefinitely without the unfair support the government provided to the robber barons. This unfair support came in the form of excess land grants, exceptionally low interest rates on loans, and loopholes in the wording of the Pacific Railroad Act. These were due in part to bribery and the political power exercised by members of the Big Four and Union Pacific authorities. Although appropriate for this paper, the subject of Chinese workers will not be covered.
The government certainly turned their cheek on this matter and a whole paper alone could be devoted to this subject. In order to understand the numerous complexities of the issue at hand, one must first comprehend the position of the aptly named Big Four which was comprised of Collis Huntington, Mark Hopkins, Leland Stanford and Charles Crocker. These four were persuaded by Theodore Judah to put not just their heart and soul, but also their money into the construction of the railroad. Collis Huntington, the most despised member of the Big Four, also lived the longest. 2 Huntington was well known for his uncommon combination of thrift, patience, and determination. When he left for California, he had twelve hundred dollars in his pocket.
Upon landing, Huntington possessed nearly five thousand dollars, a true show of his business skills. Together with Huntington, Mark Hopkins owned a hardware store in Sacramento. This business was much more lucrative that actually minin for gold in the hills. This store was one of the most profitable and most well known in Sacramento. Hopkins finalized every decision made by the Central Pacific.
Leland Stanford was a people person. This skill originally helped him succeed in politics, but would eventually also help out in the railroad business. Stanford originally left for California after a disastrous fire in his law office. Stanford was frequently back east though. He had a tight-knit relationship with Abraham Lincoln. Historians point out this relationship most likely affected national policies regarding the West Coast, especially the railroad If anyone could be head of the work force, one would want it to be Charles Crocker.
Similar to Stanford, he excelled in people skills. Crocker was revered by all who worked under him. He once delivered the workers weekly pay personally, holding a bag of gold high in the air. Bringing these four men together was no simple task. Theodore Judah accomplished 3 this task with an intuitive sense of how the group would relate with one another. It was his dream to connect the established east with the still forming west.
Everyone in Sacramento thought old Ted Judah was crazy. It was he who personally mapped out the Sierras with just a horse and some paper. Judah found a route that made it possible to cross this area. He was excited to be included in the Big Five, but it wasnt to be. Judah wanted to build the road with honesty. As it turned out, the men he selected no longer fit this category.
The new Big Four bought out Judah for $100,000. Judah still wanted a railroad for himself. He took the money with him to New York, but on the way back, he died of Yellow Fever. With that, the Big Four could start their unconstitutional building of the transcontinental railroad. When combined, the Big Fours net worth did not total more than 1.5 million dollars. According to the Pacific Railroad Act, a full 40 miles of track needed to be in place before any government funding was to kick in.
This problem posed a difficulty for both the Union Railroad and Central Pacific Railroad. Most of the funding for the railroads came from the Pacific Railroad Act. President Pierce vehemently opposed the construction of a transcontinental railroad. Pierce believed that building with government funds was unconstitutional when the law was correctly interpreted. Railroad supporters were quick to realize that they would need to wait until conditions improved in the White House. Once Pierce was out of the way, an 4 act such as the one involving the Pacific Railroad could be passed with much greater ease.
Congress had the choice of building three wagon roads, or one of two proposed railroads. Congress tended to lean in favor of the railroad, but nothing could be voted on until the end of the Civil War. The Railroad Acts of 1862 and 1865 were completely unfair to people who wanted to build a railroad of their own. The financial aid supplied was absurd. Congress approved a thirty-year bond in the amount of six million dollars with six percent interest collected semiannually.
Union Pacific and Central Pacific received land grants of ten miles on either side of the road. This included the rights to all timber, and eventually all minerals within the free land. A conservative estimate put the value of one timbered acre at $300. With 500,000 acres, this totaled a value of $150 million.
1 In addition to the bonds, the government would pay anywhere from $16,000 to $48,000 per mile of track. The exclusive right to extend the railroad from Sacramento to San Francisco was given to Central Pacific. A topic that was to come up often in the building of the Union Pacific was the question of Indians. After all, it was their rightful land according to the treaties signed in previous years. The government was to give away land that was not theirs according to treaties agreed to on each side. The government simply ignored the fact that they were invading 5 other peoples property, basing their reasoning on manifest destiny.
Americans had the notion that G-d had given them the right to do whatever they pleased with the land that reached from the Atlantic, all the way to the Pacific. The Indians were not too pleased with the Iron Road that was making an appearance. In a letter to General Sherman, civil engineer Grenville Dodge made an ultimatum: Weve got to clean the Indian out or give up. The government may take its choice.
2 Dodge made it clear that the Indians, who were on land that they owned, were in the way of the railroad. The known way to clear out the Indians without physically killing them was to kill their sources of food, clothing, and everyday necessities. This was accomplished through mass killings of bison. The bison was the primary life source of the Indians. The government did not even try to set up discussions with the Indians to resolve the railroad matter. The government just killed off the bison without warning.
There was nothing the Indians could do to prevent such atrocities. The Railroad Act had a myriad of loopholes within itself. Behind the scenes manipulation of committeemen by Huntington is the most likely cause of these lapses. For instance, no place in the act states a deadline for completion of the road or repayment of the loans.
During debates over the act, the point of building local empires became a significant issue. Branch lines could possibly be using the Central Pacific as a screen for creating local empires with national money. 3 6 Jay Gould tried slipping a funding bill under congre nose that would let the railroad pay back the government on terms created by themselves. Huntington had an idea of his own where he would actually sell back granted government land to the government.
He would sell it back to them for $2.50 an acre. This money would add up to a monstrous amount and put a big dent in the debt of the railroads. While not even the most educated historian can say for certain what the railroad cost the government, estimates are in the mid one hundred millions of dollars. This cost provided for 2,307 miles of track.
Despite the enormous amounts of cash supplied by the government, money was still short. Stanford testified before the Pacific Railroad commission: By this time (October 1867), our means were very limited. Under acts of Congress, we had mortgaged the road and issued bonds one hundred miles in advance of construction it was doubtful if we could possibly go on. 4 Central Pacific Railroads advisor was Roscoe Conkling. He knew of the illegal operation of the railroads cash. He was quoted as saying: Stanford investigated and found the absence of precedent.
There were no rules that could govern between contractors they (Central Pacific) told Crocker to go on with the work without the regard to the terms of the contract and the directors would see him through. 5 In Burton W, Folsom's book Entrepreneurs Versus the State, he describes two varieties of entrepreneurs: political and market. Political entrepreneurs make money through subsidies, grants and other government involved resources. Market entrepreneurs 7 are almost exactly opposite. They make their money through improving their products, values and services, constantly lowering their price.
6 When examined from any angle, it is obvious that the transcontinental railroad was built from the political entrepreneurs perspective. Executive members of the railroads teamed up with congressmen who sought unearned praise. This would lead to more power for those involved. The congressmen happily handed the railroads substantial subsidies because once the road was built, Congress could take the glory for providing the means of building it. Both sides were happy. Unfortunately, this was not the Congressmen money to spend.
While it is true that they had the right to decide on how the money was to be spent, it was absolutely unconstitutional to spend the publics money in this way. The Constitution does state that Congress controls public land belonging to the U.S., but it also states that the government has no right to donate any of the public domain to the exclusion of others. This donation was not open to anyone who wanted it. In this situation, the government only gave land away to the Union Pacific and Central Pacific Railroads.
As it has already been discussed, the government paid the railroads by the mile. Thus, both companies built the most out of the way routes that were admissible. The longer the road was, the more money which could be collected. In the minds of the Big Four, the railroad was not going to profit most after its completion. It would prosper during 8 construction. In this style of thinking, Stanford hired California State geologist J.W. Whitney to survey the land.
Stanford asked him about where the foothills of the Sierra started, so he would know when to start charging the government extra money per mile. Whitney concluded that where the soil started to change color, the foothills began. While this may be the truth, the actual inclines did not start for another 24 miles. Lincoln trusted Stanfords conclusion on this matter. In effect, according to Charles Crocker, Heres a case where Abrahams faith has moved mountains. 7 The government effectively doled out an extra $748,000.
Perhaps the biggest consequence of building the road too fast was poor workmanship. Operating costs were extremely high because many miles of track were unfit for use starting from when they were first pounded into the earth. From the opening of the road, it was a financial disaster. Two other government railroads would eventually follow suit with what the Union Pacific and Central Pacific accomplished.
These two railroads headed straight towards debt from day one. History repeated itself in this way. Either Congress was incompetent, or they were being paid to be incompetent, because losing hundreds of millions of dollars is not an easy feat. While Congress was busy not paying attention to the mounting losses, they were ignoring the one way they could earn back their money.
If feeder lines were established, freight volume would rise. Feeder lines are junctions where a train could go off the line 9 for a few miles to a nearby sawmill or other industry, and haul their goods for them. If Congress was not busy accepting bribes, they could have been expanding the coverage of the railroad from just a straight line, to a full-fledged system. The reason for which Congress sat on their thumbs was the Big Four and the Union Pacific were not interested in efficient management. They were solely interested in political pull.
This left the companies wide open to fraud. Payoffs and sellouts were a common occurrence. In this case, Congre goal was not to serve in the best interest of the public, but instead the railroads. By the 1890's, the committee on the Pacific railroad had received notice that the railroad companies had placed their interests only in receiving subsidies, not creating and maintaining the road. This had been obvious all along, but nobody in Congress had said much in this regard. In the years previous scandal had emerged known as the Credit Mobilier Scandal.
Out of all of the under the table scandals and supposed secrets, the Credit Mobilier is the most well known. The primary stockholders of the Union Pacific knew their company needed to build 40 miles of track before government help kicked in. For this reason, they formed a company called the Credit Mobilier of America. This company was awarded building contracts by Union Pacific. In order to win support of Congress, Union Pacific illegally gifted shares of this company to influential powers on Capital Hill. This included the Vice Presidents of Ulysses S. Grant, Schuyler Colfax and Henry Wilson.
When this 10 scandal occurred in 1872 and 1873, there were considerably fewer members of Congress. The Senate was comprised of just 40 members and the House 174. This deal was advantageous for the Congressmen, for whenever they approved a subsidy, their stock would rise in price, earning them free money. This way, Congress was practically guaranteed to vote in favor of Union Pacific. Paid off Congressmen were effectively stealing from the government. All told, the government paid $173 million for an $83 million job.
This was excessive to the extreme. Thomas Durant, who set the company up, would charge the government $50,000 for a stretch of land that cost only $30,000. The extra money went straight into the pocket of stockholders; Durant and the Congressmen included. In total, Durant and other Union Pacific officials reaped over $23 million dollars in dividends. While the Union Pacific was involved in the Credit Mobilier Scandal, the Central Pacific was acting in inappropriate ways as well. The Big Four had never been considered the most honest people in the railroad business.
In 1862, current Governor Stanford heavily pushed legislation which authorized the state to issue bonds to be used to purchase stock in his own company, Central Pacific. This was not something any average person could do. If it were not for the powers of being Governor, Stanford would have never succeeded in deals such as this one. Another one of Stanfords plans was to float $12 million worth of bonds. Normally this would be all right. This case was 11 different however.
Instead of the railroad paying the interest on these bonds, the state chipped in all of the money. Contrary to a number of history books and news articles, the time surrounding the building of the transcontinental railroad was one of great uneasiness. The building wasnt a glory filled experience, especially for the over 2,000 workers who died. This period of time was one in which the Constitution was interpreted to be advantageous for both sides.
Bribery was commonplace in the one location where it hurt Americans the most, Congress. Their duty of serving the public was not accomplished in the period after the Civil War. While it is true that the expansion of the railroad was of extreme importance to the public, funding for it could have been conducted in a much different manner. If the government had taken its time establishing cities on the route to California, the transcontinental railroad would not have been such a financial disaster from the start. It is uncertain what routes would have been taken without the unfair support of the Central Pacific and Union Pacific given by the government. It is possible that a route similar to James J. Hills Great Northern line would have been taken.
Hill learned from the mistakes of the government supported railroads. He took his time establishing cities on his route, guaranteeing success to his line, even in depression years. Without unfair government support, the joining of two separate regions of the United States would have taken more time, more planning, and taken part in fewer scandalous 12 activities. The results of this railroad would have produced a much greater milestone; a near flawless line of speeding locomotives that a country could take pride in knowing their tax dollars were hard at work fighting criminals, not supplying the robber-barons with unneeded luxuries.