Economic Impact of the Transcontinental RailroadBrandon Grinaker

Overview
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Ceremony showing the driving of the "Golden Spike" on May 10, 1869. (Courtesy National Archives)


On May 10, 1869 the Union Pacific Railroad and the Central Pacific met in Tremonton, Utah. The driving of the “Golden Spike” at Promontory Point was the crowning achievement of the explosive growth and westward expansion of the railroads in the United States immediately following the Civil War. The completion of the world’s first transcontinental railroad was considered one of the greatest technological feats and advances of the 19th century. It made the shipment of goods and persons possible from coast to coast without interruption available. Urban expansion in the West, specifically around the rail lines, was a by-product of the railroad, and it also made it possible for the vast West to be settled. No more were travelers required to take dangerous stagecoaches or travel by horse to go west. Instead, people and goods could travel over mountain passes, around and over rivers lakes and streams. The joining of America, economically, geographically and totally was complete.

Timeline
The telegraph message read simply: “DONE”. This was the message sent to Leland Stanford and other railroad executives on May 10, 1869 signifying that the transcontinental railroad was complete. This message and the driving of the final spike was the culmination of almost eight years of work by the Union Pacific, Central Pacific and the government.
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Map of the original route (courtesy neilpeterson.com)


Started in 1863 outside of Omaha, Nebraska, the railway connected to a terminus that was started in Sacramento, California (it was later expanded to the port city of San Francisco). The construction of the railroad was actually an Act passed by Abraham Lincoln in 1862, after decades of debate among lawmakers. Unfortunately construction did not begin until July 1865, three months after the visionary leader’s death (Union Pacific Railroad, 2010).

Construction productivity ebbed and flowed. In the end track layers were laying on average four miles per day, with a record of 12. However, the mountainous passes of the Rockies’ and Sierra Nevada’s made for slow going, at times taking up to six months for each pass.


Capital and Financing
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Leland Stanford, circa 1890. (Public Domain)


Much of the land for the construction of the railway was granted to the Union and Central Pacific, however there were huge capital outlays still needed to bring it to completion. Much of this capital was financed with bonds. The Union and Central Pacific both relied heavily on government subsidized bonds. The railroads would issue the bonds and get the financing, while the government would pay the interest. The bonds would then be repaid, with interest when they matured 30 years later (White, 2003).

Bonds alone, though, were not enough to finance the behemoth project. Financiers and investors such as Leland Stanford, Thomas Clark Durant and Charles Crocker each had a major stake in the project. In addition to the bond subsidies, the government also paid the railroads for each mile completed. These subsidies ranged from $16,000 per mile for easy-grade to $48,000 per mile over mountainous terrain (The Transcontinental Railroad, 2010).


Labor

Completion of the railway needed a very large and able labor pool. The labor pool was vastly different for the Union Pacific than it was for the Central Pacific.

Moving eastward from San Francisco the Central Pacific employed large numbers of Chinese immigrants. The Union Pacific relied heavily on Irish immigrants as they built towards the west. These two sources of labor contributed to the economic feasibility of the project. Both Chinese and Irish immigrants were comparatively cheap sources of labor, and many of them were new to the country. Having just arrived on American soil, they were eager to begin building a life, and readily accepted the grueling job. As the two railroads came closer to meeting up, however, labor started to become an issue. As workers became more and more organized and productive there were some rebellious incidents. These incidents, however, were fleeting, as a continuous supply of labor was readily available. Should workers act up, they could easily be replaced with new workers from as far away as the terminus of the line within a few days.


Urban Expansion

The westward movement of the railroads resulted in over 7000 new cities, towns and settlements. Most of these were simply water stops for the trains, however there were some cities that clearly benefited from the new line.

San Francisco became the chief port on the west coast. With the completion of the railroad running from Omaha to San Francisco exporting to other western cities and overseas became a chief business.

Denver and Salt Lake City, both sleepy towns on the frontier prior to the railroad, became large metropolitan areas as people migrated west. Both cities were very near the railroad, and many settlers stayed.

Other cities along the line were Reno, Sacramento, Cheyenne and Laramie all of which grew dramatically after the completion.


Economic Impact

The true economic impact of the railroad may never be known, but one thing is for certain: It was dramatic. The flow of goods over the line after the first full year of operation was around $50 million in 1869 dollars (Various, Transcontinental Railroad, 2010). Translated to 2009 dollars it would be close to $1 billion, with a much smaller settled population (Friedman, 2010). The Union Pacific realized a real return on investment of over 11%, while the Central Pacific was around 8% (Atack, 1994).

The urbanization of the west, along with predictable and efficient transportation made manufacturing a feasible operation. With large immigrant and natural labor pools the cities aforementioned began to prosper as any growing city would.

The line also opened up the entire west for eastern manufacturers to peddle their goods, leading to increased productivity. In addition ranchers and farmers in the west now had an opportunity to dramatically increase their market size to include the entire country. With the advent of refrigerated cars the beef industry in the west profited considerably from the line.

The social impact was enormous as well. The technological feat and joining of the east and the west was something that can’t be measured, but following the Civil War it no doubt gave Americans something to be proud of.


Conclusion

There is little doubt that the completion of the Transcontinental Railroad in 1869 had an enormous impact on the United States both economically and socially. Whether opening up the whole of the country for travel or for business the first line of its kind in the world was a truly great accomplishment. By unifying th east with the west it helped push America to become a world superpower.

References
Atack, J. a. (1994). A New Economic View of American History, 2e. New York, NY: W.W. Norton & Company.
Friedman, M. (2010). Inflation Calculator. Retrieved October 02, 2010, from The Inflation Calculator: http://www.westegg.com/inflation/
The Transcontinental Railroad. (2010). Retrieved October 01, 2010, from The Transcontinental Railroad: http://www.tcrr.com/
Union Pacific Railroad. (2010). A Nation Transformed. Retrieved October 1, 2010, from Uniting the States of Amerrica: http://www.uprr.com/aboutup/history/lincoln/nation_trans/index.shtml
Various. (2010, September 23). Leland Stanford. Retrieved September 24, 2010, from Wikipedia: http://www.wikipedia.org/leland_stanford
Various. (2010, September 4). Transcontinental Railroad. Retrieved September 24, 2010, from Wikipedia: http://en.wikipedia.org/wiki/Transcontinental_railroad
White, R. (2003). Information, Markets adn Corruption: Transcontinental Railroads in the Gilded Age. The Journal of American History , 90 (1), 19.