New Levels of Capitalism: Finance

The rapidly growing industry required an extraordinary amount of capital for construction and operations. As railways expanded nationwide from the mid- to late 1800s, federal lands were surveyed and one tenth were set aside as land grants for railroad development. After the Civil War, state government subsidies began to be replaced by more substantial federal aid. Other major infusions of capital came from European sources, including German and British investors. The westward expansion of the railroad blazed the trail for transcontinental commerce in the second half of the 19th century. Entrepreneurs and capitalists like F. L. Ames, Jay Gould, J. P. Morgan, Cornelius Vanderbilt, and Henry Villard increasingly invested in the industry.

  • New York has appropriated the immense sum of near thirty millions . . . Pennsylvania counts her contributions to the rail roads and canals, not by millions, but by tens of millions.
  • Subscription agreement, Oregon Railway and Navigation Co., 1881. Henry Villard Business Papers, Baker Library Historical Collections.
  • List of pool members and record of the financial reorganization of the Kansas & Pacific Railroad, 1878. Henry Villard Business Papers, Baker Library Historical Collections, Harvard Business School.

Until World War I the railroads represented a highest percentage of listed stocks and bonds issued on the New York Stock Exchange. The stock market grew from a few shares in the 1830s to hundreds of thousands in 1850 to millions by the mid-1860s. Investors could follow railroad companies in periodicals and newspapers including The American Railroad Journal (established in 1832); the New York Times (1851); The Stockholder: Monitor of Finance and Industry (1862); The Commercial and Financial Chronicle (1865); and the Wall Street Journal (1889). Investment banking houses assisted railroads in selling stock and underwriting securities for the railroads, which like other rising industries, would come to depend on a system of credit and financial markets.21

  • Henry Villard. Portrait Photograph Collection, Baker Library Historical Collections.
  • Bain News Service. Jay Gould. Library of Congress, Prints and Photographs Division. LC-DIG-ggbain-03807
  • Cornelius Vanderbilt, 1794-1877.  Library of Congress, Prints and Photographs Division.  LC-USZ62-69657
  • Western Railroad stock certificate book, 1842-1844. Boston and Albany Railroad Co. Records, Baker Library Historical Collections.

As the railroads increased so did corruption, which took many forms: absconding with public funds, distributing unfunded stock certificates, inflating public stocks, padding construction costs, and accepting bribes for political favors.22 When financial markets collapsed, the railroads exercised their considerable political influence and the state forgave loans or renegotiated payments. Richard White maintains that “the railroads and the modern state were coproductions. . . . Congress and the courts created ways in which corporations could fail repeatedly and arise again.”23

  1. Petition to Western Rail Road Corporation for the Establishment of a Bank to Aid in Constructing Their Railroad. Senate No. 16. January 1836. Boston and Albany Collection, Baker Library Historical Collections, Harvard Business School.
  2. Richard White, Railroaded: The Transcontinentals and the Making of Modern America. New York: Norton and Company, 2011, p. xxv.
  3. Frank Dobbin, Forging Industrial Policy: The United States, Britain, and France in the Railway Age. New York: Cambridge University Press, 1994, p. 44.
  4. White, p. 517.