Early Railroad financial problems

[envelope]

There were many different problems which was part of establishing the early railroads in finanancing and the economy at that time in the 1800s, basically in the 1880s.  All came to bear on the progress to get the railroads established and operational.

 

The first was Land Grants.

In some cases, they amounted to 21 million acres, similar in size to VT, MA, and CT combined.  Such "right of way" amounted to 10% in size to that of the State of Nebrasca.

 

Then there was an organization called "Credit Mobilier", basically a director's company.   The Credit Mobilier scandal involved the railroad overpaying the construction firms, which basically were owned by the same people who owned the railroad, and then passing on massive payments to investors, again, some of whom owned the railroads, as well as Congressmen.

 

In the case of Durant, he wanted the already surveyed routing changed, so as to reap more land grant acres.  That did not happen, but then everyone was trying to fattten their pockets.   Pricey gifts to the Chairman of Committees in Congress, bribery, fraud, embezzlements, shady deals, graft, and corruption was the "order of the day".  But in 1872, there was a burst in a gigantic scandal on the financial staus of investors, directors, etc.   But then, by then, most all had become wealthy.

 

The financial implications of the UP included, VP of the U.S. Schuyler Colfax, with rumors of bribery of future Presidential Candidate James Blaine, future President James Garfield, and President Ulysses Grant.  The scandal???   Only $50M of the government loans of $73M could be justified as true costs.  Hence the initiative creators of the Credit Mobilier, Oakes and Oliver Ames were censured by Congress.

 

The situation with the CPs President Collis Huntington had a "twist" in the investigation, escaping any penalty.  Coincidentally, 2 months prior to the investigation, all his records were burned in a fire which destroyed his business.  (sound familiar with the present day IRS scandal?)   But the NY SUN carried the articles as:  The Acme of Fraud - The Credit Mobilier Outdone - The Central Pacific Ring -and-

$211,299,328 Gobbled!

 

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But there was also the problems of the Angry Farmers.

Many a farmer of the mid-19th Century, attracted by quick profits as well as prospect of improved access to markets, mortgaged his land for money to buy stock in the building of a nearby railroad.  Then when the line was completed, it too often skinned him coming and going, charging unacceptable high freight rates both for crops shipped and goods bought.

 

Now many of the farmers were given acreage by the railroad with the promise of purchase of $2.50 or higher.   However, once the land was improved, that prices was increased to $25-35 an acre by the railroad's land agent.  Hundreds of people were evicted due to the clause "or higher" in the contract.

 

During the Depression of 1873, the Philadelphia and Reading Railroads, once acclaimed as the most profitable companies in the world, went bankrupt.  The MP, UP, and AT&SF all followed suit.  Similarily during that depression, 500 Banks and 15,000 Business folded as well.

 

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As a conclusion, this post does not conclude how any of these railroads or businesses recovered from such a collapse in the economy.   Many never did recover, but many of them eventially did find new financing from investors.

 

Hope you enjoy some of these facts from our past history.  

[Gwizz]

I enjoy your snippets .  Keep them coming.

 

One of the reasons I use James Hill so often in my maps was:  He didn't take land grants.  He may have been an Canadian.  I'm not sure.

 

He was buying and selling stock in RRs on both sides of the border.   He built a Continental RR and he treated most of his farmers fairly.

 

His good accolades out numbered the bad one I guess.