How Railroads Changed American Businesses

On May 10, 1869, the tracks of the Union Pacific Railroad (extending from Omaha, Nebraska) and the Central Pacific Railroad (extending from the San Francisco Bay area) met in an obscure area of Utah Territory called Promontory Summit, after five years of arduous and often acrimonious construction.

A golden spike was driven to celebrate their joining.

For the first time the opposite ends of the nation had been linked and it was possible to reach distant California by rail. But this line betrayed an American peculiarity: A "transcontinental" railroad didn't really reach from coast to coast, but rather from the Missouri River to the West Coast. The trip required passage over two or three (sometimes more) lines to reach Omaha from New York; the new “transcontinental” line then ran from Omaha to California across only two companies, without requiring customers to change trains.

Still, a traveler could now get from New York to California in about seven days. The new connection also introduced more Americans to the splendors and vastness of the West, which most had never seen. And it opened the door to a frenzy of railroad construction in the West that, among other things, ultimately produced five more transcontinental lines. It also made possible a growing trade with the Far East.

By 1869, the railroads were already the biggest and most important industry in the country. They opened the West to settlement and development, created thousands of new towns and spurred many existing ones to grow. They regularized the flow of goods and people at greater speeds than ever before. Unlike steamboats they could go anywhere that rails could be laid and in any weather. They drastically lowered the cost of transportation, and their construction made them a huge market for other budding industries, notably iron and steel.

As the nation's first big businesses, railroad companies were pioneers in a host of fields including corporate organization, accounting practices, labor relations, competitive practices and government regulation. And they were the first businesses to raise significant capital through the issue of securities; railroad stocks and bonds dominated the stock market until the 20th century. To a large extent, the railroads created Wall Street.

But in the 1920s, the railroads began falling on hard times. Rail mileage had been drastically overbuilt in the late 19th century, and new competitors started appearing in the form of automobiles, trucks and airplanes, as well as old rivals like pipelines and barges. By the 1960s, railroads had become a sick industry on the brink of collapse. They no longer commanded the center stage of transportation, and fears were widespread that they would be nationalized, as they had been in many other countries.

The federal government did indeed have to provide a bailout to save the industry, but then a wondrous turnabout occurred. Gradually the railroads merged, dumped unprofitable lines, shed passenger traffic, adopted new technologies and transformed nearly every aspect of their operations. In a single generation the industry embraced more change than it had in the previous 50 years or so. Today it is dominated by four giant systems: CSX Corp. and Norfolk Southern Corp. east of the Mississippi River and Union Pacific Corp. and Burlington Northern Santa Fe LLC west of it.

By almost any measure the reborn railroads are healthier and more profitable than they have ever been. So raise a toast to the golden spike, the ceremony that launched some of the most profound changes in U.S. economic history.

(Maury Klein is a professor of history emeritus at the University of Rhode Island and the author of 16 books on American history. The opinions expressed are his own.)

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