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Wall Street History
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06/24/2005
The Transcontinental Railroad, Part II
Last week I wrote of Horace Greeley and his case for a
transcontinental railroad back in 1859. While it’s beyond the
scope of this column to tell the full story in any great fashion
(I’m staring at one book on the topic that is 800 pages, for
example), it’s important to lay out some facts for part II and then
in part III I’m going to have some fun with the weather workers
faced.
You’ll recall that President Abraham Lincoln signed a bill
incorporating the Union Pacific Railroad back in 1862 but work
on the transcontinental link didn’t commence in full until right
after the end of the Civil War. The Union Pacific (UP) was so
named, by the way, because the word “Union” was meant to
symbolize the Union would endure. UP was to start from Omaha
and work westward, while the Central Pacific Railroad (CP) was
to go eastward from Sacramento.
You can imagine the costs associated with building a railroad
across the country were huge and there was no way, in the case
of the UP, that it would have been able to raise funds in the
capital markets of that time. After all, who would invest in a
project that would traverse over 1,000 miles of unsettled land?
Or, with CP, what would be almost 700 miles over the Sierras.
So for the project to go through the federal government had to
step up and the building of the transcontinental railroad proved to
be the first massive government project. For starters the two
companies were granted right-of-way of 200 feet on each side on
public lands, plus, for each mile of track completed, title to 6,400
acres of land to be sold to settlers, alternating with land owned
by the federal government. [This was later doubled to 12,800
acres.]
In addition the UP and CP would receive $16,000 to $48,000 in
government bonds for each mile completed, depending on the
terrain. [$48,000 for track set down in the mountains, for
example.] Plus, the two could take out government loans to help
defray construction costs.
When it came to the building of the project, the Union Pacific set
up a construction company, owned by management, with the
name Credit Mobilier. The UP’s chief engineer, Peter Dey, had
originally estimated the cost per mile for the route west of
Omaha at $30,000, but when Credit Mobilier asked for $60,000,
Dey was ordered by UP president Thomas Durant to resubmit the
proposal with the new figure. Well it just so happens Peter Dey
had some morals and he resigned rather than be a party to fraud,
saying he had given up “the best position in my profession this
country has ever offered to any man.”
About 10,000 men worked on the two lines. Most were ex-
soldiers and Irishmen for UP, while the Chinese (“coolies”) were
prominent in the CP labor force. In the case of the latter,
following the Gold Rush of 1849 the Chinese population in
California exploded; from 7,500 in 1850 to 105,000 in 1880. In
his book “Empire Express,” author David Haward Bain explains
that the “peasants of Kwangtung traveling by junk to Hong
Kong, signed on for passage to San Francisco on credit against
future earnings in the mines, jamming like livestock in the holds
of sailing vessels for the two-month voyage ”
“The peasants of Kwangtung were indentured in California to
locally run Chinese district companies, signed on for up to five
years of labor at comparatively low wages until their tickets were
paid; they then filtered out into the streams and rivers of the
Sierra slope in search of gold.”
The Chinese were treated terribly in California and local
politicians “quickly discovered that promises to somehow
address the ‘yellow peril’ paid off at polling places. Notably,
Leland Stanford (a founder of the Central Pacific) had found it
profitable when running for governor; then, at his inauguration
he renewed his promise to aid the legislature in whatever
measure it took to halt immigration of ‘the dregs of Asia’ .”
Samuel Clemens commented on the Chinese after arriving out
west.
“Thye are a harmless race, when white men either let them alone
or treat them no worse than dogs; in fact, they are almost entirely
harmless anyhow, for they seldom think of resenting the vilest
insults of the cruelest injuries. They are quiet, peaceable,
tractable, free from drunkenness, and they are as industrious as
the day is long.” [“Empire Express”]
Then in 1865, word went out that the Central Pacific Railroad
needed 5,000 laborers immediately and the Chinese began to line
up. I relate the above because some of the themes apply to
today’s debates.
Back to the main topic, at times the rails were laid four per
minute. The labor was also incredibly dangerous and scores
were killed in accidents, though it’s estimated just as many died
in booze-fueled brawls back in camp. These were movable
encampments filled with peddlers, gamblers and prostitutes
dubbed “Hell-on-wheels.” Throw in water shortages, extreme
weather and more than a few Indian attacks and you can see that
working on the railroad was a bit challenging.
Both the Union Pacific and Central Pacific raced to complete
their links and collect their subsidies. The UP avoided the
Rockies by going through Evans Pass in Wyoming, while the CP
faced severe obstacles in traversing the Sierras just 75 miles from
Sacramento. Construction on both ends was so hasty much of it
was shoddy and had to be redone later. In the end the UP built
1,086 miles and the CP 689 as they met on May 10, 1869, at
Promontory Point, Utah, where California Governor Leland
Stanford drove the golden spike to signify completion.
The transcontinental railroad was critical to the development of
America. For starters it helped populate the plains and Far West.
It connected raw materials to factories and markets. The
railroads themselves were big users of iron, steel, and lumber so
they created new markets of their own.
Railroad expansion also boomed. In 1865 there were some
35,000 miles of track across the country, but by 1900 the figure
was 200,000. The railroads were the first big industry that Wall
Street capitalized on and it was the first to build out a
management bureaucracy.
Of course when you put Wall Street and the railroads together in
those days, you were also asking for trouble. The
aforementioned Credit Mobilier proved to be the source of the
greatest scandal of the 19th century. We’ll get into this in a few
weeks, but next time it’s all about the weather and massive
snowfalls.
Sources:
David Haward Bain, “Empire Express: Building the First
Transcontinental Railroad”
John Steele Gordon, “An Empire of Wealth”
George Brown Tindall and David E. Shi, “America: A Narrative
History”
Wall Street History will return July 1.
Brian Trumbore
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