From Invention to Industrial Growth

RAILROADS AND ROBBER BARONS

Earlier in the nineteenth century, the first transcontinental railroad and subsequent spur lines paved the way for rapid and explosive railway growth, as well as stimulated growth in the iron, wood, coal, and other related industries. The railroad industry quickly became the nation’s first “big business.” A powerful, inexpensive, and consistent form of transportation, railroads accelerated the development of virtually every other industry in the country. By 1890, railroad lines covered nearly every corner of the United States, bringing raw materials to industrial factories and finished goods to consumer markets. The amount of track grew from 35,000 miles at the end of the Civil War to over 200,000 miles by the close of the century. Inventions such as car couplers, air brakes, and Pullman passenger cars allowed the volume of both freight and people to increase steadily. From 1877 to 1890, both the amount of goods and the number of passengers traveling the rails tripled.

Financing for all of this growth came through a combination of private capital and government loans and grants. Federal and state loans of cash and land grants totaled $150 million and 185 million acres of public land, respectively. Railroads also listed their stocks and bonds on the New York Stock Exchange to attract investors from both within the United States and Europe. Individual investors consolidated their power as railroads merged and companies grew in size and power. These individuals became some of the wealthiest Americans the country had ever known. Midwest farmers, angry at large railroad owners for their exploitative business practices, came to refer to them as “robber barons,” as their business dealings were frequently shady and exploitative. Among their highly questionable tactics was the practice of differential shipping rates, in which larger business enterprises received discounted rates to transport their goods, as opposed to local producers and farmers whose higher rates essentially subsidized the discounts.

Jay Gould was perhaps the first prominent railroad magnate to be tarred with the “robber baron” brush. He bought older, smaller, rundown railroads, offered minimal improvements, and then capitalized on factory owners’ desires to ship their goods on this increasingly popular and more cost-efficient form of transportation. His work with the Erie Railroad was notorious among other investors, as he drove the company to near ruin in a failed attempt to attract foreign investors during a takeover attempt. His model worked better in the American West, where the railroads were still widely scattered across the country, forcing farmers and businesses to pay whatever prices Gould demanded in order to use his trains. In addition to owning the Union Pacific Railroad that helped to construct the original transcontinental railroad line, Gould came to control over ten thousand miles of track across the United States, accounting for 15 percent of all railroad transportation. When he died in 1892, Gould had a personal worth of over $100 million, although he was a deeply unpopular figure.

In contrast to Gould’s exploitative business model, which focused on financial profit more than on tangible industrial contributions, Commodore Cornelius Vanderbilt was a “robber baron” who truly cared about the success of his railroad enterprise and its positive impact on the American economy. Vanderbilt consolidated several smaller railroad lines, called trunk lines, to create the powerful New York Central Railroad Company, one of the largest corporations in the United States at the time (Figure). He later purchased stock in the major rail lines that would connect his company to Chicago, thus expanding his reach and power while simultaneously creating a railroad network to connect Chicago to New York City. This consolidation provided more efficient connections from Midwestern suppliers to eastern markets. It was through such consolidation that, by 1900, seven major railroad tycoons controlled over 70 percent of all operating lines. Vanderbilt’s personal wealth at his death (over $100 million in 1877), placed him among the top three wealthiest individuals in American history.

A Currier & Ives lithograph shows a cartoon of Cornelius Vanderbilt straddling two train engines labeled Hudson River R.R. and N.Y. Central R.R. while trying to convince a man on a train engine labeled Erie R.R. to join his company.
“The Great Race for the Western Stakes,” a Currier & Ives lithograph from 1870, depicts one of Cornelius Vanderbilt’s rare failed attempts at further consolidating his railroad empire, when he lost his 1866–1868 battle with James Fisk, Jay Gould, and Daniel Drew for control of the Erie Railway Company.
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