The American Railroad Industry in the Nineteenth Century’s Postbellum Period Term Paper

Introduction

America during the last three decades of the nineteenth century witnessed unparalleled economic expansion, growth that encompassed agricultural, manufacturing, and transportation sectors. The gross national product (GNP), in constant dollars, almost quadrupled during the 1870-1900 period, while per capita real income (in constant dollars) increased approximately 80 percent [Poole, 1999].

The touchstone of this multiple expansion was the railroad industry—by the end of the century, the largest industrial employer in the nation. In 1870 total railroad mileage amounted to 45,000 miles of mainline track. By 1890, that figure had risen to 170,000 miles of trackage. Rolling stock figures are even more telling. “In 1876 (the first year when records were kept), there were 385,000 freight cars, 14,600 passenger cars, and 15,600 locomotives. In 1890 the numbers were 1,062,000 freight cars, 21,700 passenger cars, and 31,800 locomotives [Poole, 1999].” It was, of course, the increase in freight cars, effectively a yardstick of the expansion of the industrial economy, which points to the exponential increase in the nation’s manufacturing sector during the years in question. Nonetheless, the railroad industry had its detractors.

Farmers—still, collectively, the largest single occupational class—blamed falling commodity prices on the railroads that shipped the products, along with grain elevator companies and banks. The recommended ‘cure’ took the form of a combination of ‘cheap money (unlimited coinage of silver at a fixed ratio to gold) and greater regulation of the industry itself. In terms of partisan politics, this ‘us against them attitude—sometimes called prairie radicalism—was encapsulated in the People’s Party, the Populist movement.

This report examines those factors relating to the expansion of the rail net during the last years of the nineteenth century, the motivations of the men responsible for these developments, and popular perceptions of the industry and its prime movers.

Background

Railroads were the first modern industry in the sense that their development, construction, operation, and even maintenance were significantly independent of the communities they served. “Prior to the 1830s, when the first railroads were constructed, the largest businesses in the world were textile mills. However, even the largest of these mills could be viewed in a few hour’s walk. The physical scale of even a small railroad made it qualitatively different from all business organizations that preceded it [Poole, 1999].” Equally important, the manner in which railroads functioned magnified the importance of the logistic aspect of the industrial production-distribution process.¹

The railroad industry was at the ‘cutting edge’ of late-nineteenth-century technology. As such, it either established demand for industrial equipment that it did not produce (e.g., locomotives, freight cars) or indirectly encouraged reorientation of production and provision of services (e.g., the steel industry.² and telegraphy³Respectively). According to Field, “The 1880s were a big decade for the expansion of such MBE [modern business enterprise] intensive sub-sectors as steel, cigarettes, meatpacking, and petroleum refining. Use of this organizational form required the availability of the reliable railroad and telegraph service and was necessary for manufacturing to exploit economies dependent not just upon scale per se but on ensuring high levels of capacity utilization and rate of inventory turnover [April 2006].”

At the same time, agriculture—bound up with the natural cycle of plant growth—was less amenable to orienting its production to accommodate optimized railroad scheduling requirements. To a limited extent, this was ameliorated by the expansion of the grain elevator system.⁴ However, the more aggressive agrarian response was a demand for increased government regulation.⁵ At the same time, MBE industries, largely reliant on immigrant unskilled or semi-skilled labor, had little incentive to accommodate employee interests that conflicted with corporate goals.⁶ In the case of railroads, the outcome would be the bloodstained strikes of 1877 and 1894.

Railroad business practices in the late nineteenth century

There were a number of distinct, albeit related, fundamental business ideas and practices that defined railroad operations during the postbellum period.

The modern business enterprise (MBE)

Railroads were the first MBEs. “Modern business enterprises employ a multidivisional structure, depend on management information systems, and are run by a cadre of professional managers. Nineteenth-century MBEs used the telegraph to move information quickly, the typewriter to create and maintain administrative records, and the vertical file to store them. The linotype machine and innovations in making cheap paper from wood pulp spelled dramatic reductions in the cost of mass media, which were in turn increasingly utilized by department stores, mail-order houses, and manufacturers to stimulate demand for their products or services through advertising [Field, 2006, 19].” Also, under such conditions, relatively small start-up companies—ones that produced only a small line of finished goods—could find an adequate consumer base. “MBE made possible and in turn was technologically dependent on nationwide systems of telegraph communication and railroad transportation. You could not have MBE without the telegraph, and there was no rationale for it without the railroad [Field, 2006, 19].” Agricultural commodity production, of course, could never fully accommodate itself to such a logistic system.

Consolidation

Recurring financial crises (e.g., 1873, 1893) had a disparate impact on the railroad industry: smaller roads often went under financially, while the larger corporations were able to ride out the economic storm. “The dominant national trend in railroad management and finance from the 1880s on was consolidation. By purchase, lease, or trust arrangements, the larger systems absorbed smaller lines. The giants of railroad strategy and finance, such as the Big Four and New York’s Vanderbilt group, reached out far beyond the regions where they had begun so as to control railroad interests to which they might tie their older holdings [Van Ophem, 2003, 26].” While this likely increased efficiencies in product delivery,⁷ A factor certainly appreciated by urban manufacturers and dwellers, it certainly had the ancillary effect of increasing the social distance between rural farmers—who previously may have been on personally friendly terms with the owner-operator of an independent spur line—and the conglomerate organization that latterly assumed ownership.

Opposition to unionization

A number of occupation-oriented unions (e.g., Brotherhood of Locomotive Firemen, Brotherhood of Railway Brakemen, in 1873 and 1883, respectively) were organized during the post-Civil War years. The main goals of the brotherhoods were the promotion of the economic interests of their members. Their main tasks were negotiating wage and hour schedules, lines of promotions, and other issues. On the whole, the brotherhoods were not strike-minded but were ready to use this method to enforce demands they believed in [Van Ophem, 2003, 20].”

A number of railroads took advantage of the economic depression of the mid-1870s to both reduce wages and increase work output demands.⁸ “When company after the company started announcing wage cuts, a series of violent strikes by railroad workers in a dozen cities followed. These strikes shook the nation as no labor conflict had done before [Van Ophem, 2003, 21].” Strike outbreaks spread across the industrial belt, extending from Illinois to New York. Some were organized; others followed the ‘wildcat’ pattern—support for railroad men by workers in other industries (e.g., steel, rolling stock manufacture). In several states, governors responded to the unrest by calling out state militias, organizations composed of ill-trained men, in an era when modern approaches to crowd control and dispersal were yet unlearned. Several dozen people were killed during the period, the majority of them innocent bystanders. While the public appeared to have little sympathy for the strikers—after all, they were disrupting the flow of national business—there was nonetheless considerable disgust at the manner in which the labor dispute was being handled.⁹ Arguably, such corporate behavior laid the groundwork for the regulatory reform movement that would bear fruit in the first years of the 20^th century.

Popular perceptions of the railroad industry

Popular attitudes toward large institutions, public or private, is often a function of the specific interests of affected individuals. In times of prosperity, providers of public services are often considered benevolent agencies. In times of economic downturn, those same organizations may be perceived as contributing to or aggravating an already unpleasant situation. (The example of the 1877 rash of strikes described above is a case in point.) Publicly expressed farmer dissatisfaction during the post-Civil War period tracked with the depression in grain commodity prices. During the Grange movement period (ca. 1867-1887), wheat fluctuated between 30 and 58 cents per bushel [Poole, Graph P: ‘Corn Production’].

Following the 1893 financial panic,¹⁰ wheat fell to 20 cents per bushel, in a year in which over 250 million bushels were delivered to market [Poole, Graph P]. (During the earlier period, total production little more than half that of 1894.) “Farmers blamed the falling prices on the railroads, elevator companies, mortgage rates, trusts, and so on. Their cure for the deflation was the ‘free’ coinage of silver.¹¹… In fact, railroad rates fell faster than the overall price level throughout this period. Indeed, the number of bushels exchanged for the distance shipped was constant if not falling throughout the period. The railroads were not guilty of ‘gouging’ the farmers [Poole].”

As it happened, wheat prices slowly recovered over the next two decades. (This was inversely reflected in the draw-down of the fortunes of the Peoples’ Party, a radical agrarian movement that actually succeeded in electing a few members of Congress in 1894. The Populists, as they were called, favored unlimited coinage of silver, state ownership of grain elevators, and increased regulation of railroads. As economic conditions improved, these proposals drew concomitantly less popular support.¹²)

Final thoughts

It must be borne in mind that—despite financial panics, industrial working conditions that killed and maimed with appalling regularity, low returns for agricultural production, and labor strife that took dozens of lives—the last three decades of the nineteenth century were years of extraordinary economic expansion. “Per person, GNP provides a rough approximation of trends in income during the late nineteenth century, although these data do not speak directly to its distribution among groups. This macroeconomic evidence suggests that industrialization raised the standard of living for the majority of Americans. Life expectancy at birth lengthened significantly between 1870 and 1900 and registered a greater gain over the next twenty years, reflecting advances in the standard of living and investments in public health during the Gilded Age [Campbell, 1999].”

References

1. Campbell, B. C., Understanding economic change in the Gilded Age, Organization of American Historians, 1999
2. Chasson, G., Railroad competition and its management in the United States and Britain before 1914, Business and Economic History, Second series, Vol. 17, 1988, pp 190 et seq.
3. De Long, J. B., Late nineteenth century growth [address delivered before the Economic History Association], National Bureau of Economic Research, 1995
4. Field, A. J., U.S. economic growth in the Gilded Age, Analytical study, Santa Clara University/Department of Economics, 2006
5. Morser, E. J., Grassroots rebels: municipal power and railroad regulation in La Crosse, Wisconsin, 1883-1900, Business and Economic History, Vol. 3, 2005
6. Noyes, A. D., The panic of 1893, Forty Years of American Finance [New York: G. P. Putnam Sons, 1909], in Great Epochs in American History, Vol. IX, 2002
7. Poole, K. T., Railroads: the first big business [statistical data], University of California/San Diego, 1999
8. Railroads and the increase in fixed capital, George Mason University/Department of Economics [no date]
9. Van de Creek, D., The panic of 1873, Illinois during the Gilded Age, 2002
10. Van Ophem, M., The iron horse: the impact of the railroads on 19^th century American society, From Revolution to Reconstruction [an historical project of the Department of Humanities/University of Groningen (Netherlands)], 2003 [updated]

Footnotes

1. A comparison with river steamboats is instructive. While the steamboat was naturally restricted to navigable waters, it nonetheless had the flexibility to operate anywhere within those waters. By the same token, however, it was in competition with other steamboats on the same waters for the transportation trade. Thus, the logistic component was large—if not entirely—a function of the production cycle. Railroads were different. Single roads usually enjoyed what amounted to a monopoly on transportation services above the horse-drawn wagonload level. In practical terms, railroads were in a position to optimize their operations by encouraging producers to synchronize manufacturing processes to meet optimized railroad scheduling. (This almost invariably worked to the benefit of the manufacturer. Extremely reliable rail net operations translated into reductions in manufacturers’ inventory requirements: the railroad would deliver such material when actually needed.)
2. According to Poole, “In 1874, it was estimated that railroads required 150 tons of iron per mile (rails and rolling stock). During the Civil War, the Pennsylvania railroad installed some steel rails because of the wear and tore on its mountainous system. By 1880, 25-30 percent of railroad trackage was converted to steel rails, by 1890 80 percent, and by 1910 all trackage had been converted to steel. Andrew Carnegie was largely responsible for this changeover because of the innovative management of his iron and steel business. In 1873 steel rails cost $120 a ton, and by 1898 the price was down to $17 a ton. All his competitors were forced to copy his business methods, and the result was cheap, high-quality steel [1999].”
3. Aggregate annual telegraph messages rose between 1867 and 1893 along the same asymptotic curve as rail track mileage increased. Increasing reliance on telephone communications brought about a reduction in annual telegraph messages, starting in 1893. See Poole (1999), graphs J (‘Railroad Mileage’) and K (‘Telegraph Messages’) for details.
4. These, of course, were the great silo-type structures constructed adjacent to rail lines. To the extent that the farmer was dependent on elevators to store his grain and rail lines to transport it, he could find himself pretty much at the mercy of logistic providers, without the concomitant benefits that accrued to industrial producers. One ameliorating solution was increased government regulation, an approach that the railroad industry bitterly opposed.
5. This is discussed in some detail below.
6. The 1894 Pullman Car Company strike is a case in point. The unrest caused by the strike resulted in disruption of the mails, a federal offense. President Cleveland ordered federal troops to maintain order and secure delivery of the mails. This had the ultimate effect of breaking the strike, no doubt much to the delight of the Pullman Corporation. However, Cleveland was less than pleased with Pullman’s refusal to deal honestly with strikers. “A federal investigating commission appointed by President Cleveland denounced Pullman’s refusal to arbitrate the dispute after hearing testimony from railroad officials, strikers, union leaders, and public servants. The report urged compulsory arbitration as insurance against future railroad strikes. The commission concluded that ultimate responsibility ‘rests with the people themselves and with the government for not adequately controlling monopolies and corporations, and for failing to reasonably protect the rights of labor and redress its wrongs’ [Van Ophem, 2003].”
7. According to Campbell, “Lowering the costs of shipping permitted a reduction in the prices customers paid for food and durable items. In forging connections between production and distribution, railroads accelerated the trend toward localized manufacturing of products for sale over wide areas. The evolution of national markets stimulated new levels of competition. Three facts symbolized the railroad’s influence on the creation of national markets: the completion of the first transcontinental connection in 1869, the adoption of four standard time zones for the continental United States in 1883 (a cooperative railroad venture), and the agreement on the standardization of track width in 1886 [1999].”
8. This evidently resulted in an increase in employment-associated deaths and injuries. “Railroad work was one of the most dangerous jobs in America; over two hundred workers were being killed each year, and thirty thousand injured. In the eyes of the railroad companies, these accidents were ‘acts of God’ and should be ascribed to the carelessness of the workers [Van Ophem, 2003, 21].”
9. While it is speculative at best, there may be some correlation between the 1877 civil disturbances and the Supreme Court’s 1877 decision in the Granger Cases. (Grangers were farm organizations found primarily in the Midwest.) The Granger Cases grew out of rural dissatisfaction with railroad rate setting, preferring state regulation in lieu thereof. “In 1877, the Court ruled in favor of the states’ regulatory power and against the corporations. The Court held that railroads were no ordinary business. Drawing from an English common law doctrine that had long been in used in American law to justify giving railroads extraordinary privileges, the Court declared them to be businesses ‘affected with a public interest.’ As such, they ‘must submit to be controlled by the public for the common good.’ The Court further held that the fixing of rates was not a proper matter for judicial review, asserting that this function belonged only in the legislative branch [Van Ophem, 2003, 29].”
10. This was primarily a liquidity crisis, one in which the principal victims were financial houses and railroads. (It is sometimes called the ‘railroad panic.’) For example, “On February 20 [1893], the Philadelphia and Reading Railway Company, with a capital of forty million and a debt of more than $125,000,000, went into bankruptcy; on the 5^th of May, the National Cordage Company, with twenty million capital and ten million liabilities, followed suit. The management of both these enterprises had been marked by the rashest sort of speculation; both had been favorites on the speculation market [Noyes, 1909].” With the contraction of rail operations, there was a concurrent rippling effect through the rolling stock manufacturing sector. The crisis itself would not be resolved until recently developed gold strikes (e.g., the Yukon, South Africa) delivered their output to the financial markets.
11. This, of course, would have been an inflationary step. Silver was a glut on the market, given the enormous silver strikes in Nevada and Montana. Under a regime of ‘unlimited coinage,’ an ounce of silver—worth roughly 25 or 30 cents—would be valued at one dollar. This, following Gresham’s Law, in turn, would drive ‘gold’ dollars out of circulation. From the farmer’s perspective, this would be an excellent outcome. They constituted a national debtor class—in terms of the mortgage and cash advancements to cover annual production costs—and would be able to make repayments in ‘cheap’ dollars.
12. However, as is so often the case in American politics, these ideas—in one form or another—were co-opted by the major political parties.