by Douglas Messier
The Transcontinental Railroad would be the largest and most expensive infrastructure program in the history of the still-young American republic. And it would be the most difficult to accomplish, pushing men and machinery to their limits as they battled the terrain and the elements. It was a monumental engineering achievement for the 19th century.
The map above shows the extent of rail lines in 1860 and the enormous distance — more than 1,900 miles (3,058 km) — the Transcontinental Railroad would have to cover to reach the San Francisco Bay. The Union Pacific would lay tracks westward from Omaha in Nebraska Territory. The Central Pacific would begin working eastward from Sacramento, Calif. The Western Pacific Railroad Company was commissioned to build a connecting line from Sacramento to Oakland.
The Central Pacific Railroad spiked the first rail of the Transcontinental Railroad on Oct. 26, 1863. Construction on the eastern end of the railroad was delayed until after the Civil War ended. It was not until July 1865 that the Union Pacific began serious construction on the line.
Because California lacked a manufacturing base, almost everything needed for the railroad – tools, equipment, rail cars, steam engines, even laborers – had to be transported from the East. That meant sailing the heavy equipment around Cape Horn or to the Isthmus of Panama where it was transported overland to be loaded on ships at Pacific coast ports.
Finding and keeping workers was also a challenge. Many of the laborers shipped in from the East Coast abandoned the railroad to seek their fortunes in Nevada, where the Comstock Lode – a rich vein of silver – had been discovered in 1859. Others found they could make a better — and safer — living in agriculture.
The Central Pacific hired Chinese laborers who turned out to be hard working, responsible and – just as importantly – sober. They eventually made up 80 percent of the Central Pacific’s work force. The railroad saved money by paying them less than white workers and requiring them to pay for their lodging, food and tools.
The work was difficult and dangerous. The Central Pacific literally had to blast its way through the solid granite of the rugged Sierra Nevada Mountains. Workers risked life and limb and battled the elements to construct 15 tunnels and bridge immense gorges. It was slow, painstaking work; by the end of 1867, the Central Pacific had laid only 100 miles (160 km) of track. Work would speed up considerably once the crews made it out of the mountains.
The Union Pacific would have an easier time of it at the start, beginning work on the flat plains of Nebraska. Construction would become more complicated as the railroad moved further west.
Paying for the Railroad
The Union Pacific and Central Pacific were paid $16,000 ($254,732 in 2016 dollars) per mile for railroad constructed over an easy grade, $32,000 ($509,464 today) per mile for construction in the high plains, and $48,000 ($764,196 today) per mile for rail lines laid in the mountains. The companies were paid in government bonds they could resell to the public.
The federal government granted the railroads 400-foot (121-meter) right-of-ways along the track plus 10 square miles (25.9-square km) of land adjacent to the line for every mile of track they built. The companies sold bonds to the public based on the value of the land they held to finance the construction and operation of the railroad. They also sold the land to settlers who would populate the territory and provide business for the companies.
The land grants were given out in an alternating checkerboard pattern. For every 10-square mile grant of land the railroads received, the government retained 10-square mile tract to be sold off to settlers and land speculators. In total, federal and state land grants to the Union Pacific and Central Pacific railroads totaled just under 280 million square miles (725 million square km), an areas larger than the state of Texas.
So, those sounded like great terms, right? Well, yes and no. Some of the land was not suitable for settlement or farming. This was especially true for the Central Pacific, which had to build through the Sierra Nevada Mountains and across the Western deserts. It also took many years to properly survey the land and file deeds so they could be sold off, creating delays in being able to tap into this vital revenue source.
All that contributed to a larger problem faced by the railroads: although the companies could make money building the line, it would take some time to make a profit operating it. Initially, the railroads would be running trains over long distances that were not very heavily populated. Rail lines would have to be maintained, repaired and kept open during inclement weather.
There would also be an initial lack of feeder lines to provide connections to Denver, Salt Lake City and other communities that were sprouting up within the vast western territory. Until those were built, the full potential of the Transcontinental Railroad to carry freight and passengers would not be exploited.
Getting Creative With the Accounting
So, what do railroad barons do when facing the possibility of years of money losing operations? They get a little creative in the finance department. And, when I say creative, I mean criminal.
Enter Thomas C. Durant, a former Union general who had made a fortune smuggling Southern cotton through the lines during the Civil War. As the Union Pacific’s vice president, Durant effectively ran the railroad — the president was a figure head — and devised several schemes to extract the maximum possible value from the Transcontinental Railroad.
Paid by the number of track miles constructed, Durant ordered his engineers to build additional track laid out in giant oxbows shapes to inflate the company’s profits. As a result, the railroad only extended 40 miles (64.4 km) west of Omaha at the end of 1865 despite being built over very easy grade.
The per-mile payment arrangement provided the railroads more money depending upon the difficulty of the terrain. For the Union Pacific, that meant declaring that the high plains and the mountains began miles before they actually did. The railroad could double its money from $16,000 to $32,000 just by reclassifying easy grade to high plains. Moutain terrain netted $48,000.
The oxbows and the reclassified grades weren’t the worst scams. Rather than having the Union Pacific build the railroad, Durant created a separate company with the fancy name of Credit Mobilier of America and gave it contracts to build the line. Credit Mobilier would submit greatly inflated invoices to Union Pacific for work that it did. The Union Pacific then added which a management fee and passed the invoices on to the federal government for reimbursement.
Here’s the rub. Durant and other major Union Pacific shareholders controlled Credit Mobilier. In effect, they were paying themselves to build the railroad. To make sure nobody in Washington looked very closely at this arrangement, the company bribed the U.S. Vice President, Secretary of the Treasury, four Senators, the Speaker of the House and several representatives with cash and $9 million in discounted stock.
The new stockholders cleaned up. In 1868, the return on Credit Mobilier shares totaled 280 percent. Credit Mobilier paid out at least $23 million and possibly many millions more to its shareholders. Meanwhile, the Union Pacific was impoverished by this scheme, eventually ending up on the verge of bankruptcy.
The self-dealing wasn’t limited to the Union Pacific. The owners of the Central Pacific Railroad created the Contract and Finance Company that they controlled to build the railroad. As with Credit Mobilier, they were paying themselves to build the line, with healthy profit margins for themselves and other shareholders.
The Final Stretch
The end of the Civil War in 1865 freed up resources for the railroad, providing jobs for veterans of the conflict. However, it would take another four years to complete the railroad. Once the Central Pacific emerged out of the Sierra Nevada Mountains, it was able to lay track at a much higher rate. The two railroads raced toward as as-yet undetermined location where they would connect.
The linkup happened at Promontory Summit, a desolate stretch of Utah desert north of Salt Lake City. On May 10, 1869, Central Pacific Railroad President Leland Stanford drove in a ceremonial golden spike using a silver hammer before a crowd of railroad officials, workers and other dignitaries estimated as high as 3,000.
The news was relayed from coast to coast using the telegraph with a simple message: “DONE”. Celebrations erupted in cities and towns across the nation. Four years removed from a bloody war that reunited North and South, the nation was now connected from East to West. It was a monumental achievement for the growing nation.
Among those participating in the event was Hartwell Carver, the New York businessman and physician who has proposed a transcontinental railroad way back in 1832. He had spent decades advocating for the project. Now, 37 years later, his dream had become a reality.
When Carver passed away six years later in 1875, the Union Pacific Railroad erected a 54-foot tall monument over his grave in the Mount Hope Cemetery in Rochester, NY. The monument’s inscription reads:
“Dr. Carver was the father of the Pacific Railroad; with him originated the thought of connecting the Atlantic and Pacific Oceans by railroad.”
Totaling Up the Cost
In total, building the railroad had cost an estimated $124.5 million (about $2.3 billion in 2016 dollars). In 1880, a U.S. Interior Department auditor estimated the value of the land distributed to the railroads at $391.8 million ($9.9 billion today). A total of 1,912 miles (3,077 km) of track were laid.
The Transcontinental Railroad revolutionized travel. In 1865, a trip from New York to San Francisco took months and cost up to $1,000 ($15,921 in 2016 dollars). Five years later, travelers could make the same journey in seven days at a cost as low as $65 ($1,252 today).
People and freight flowed across the country, new lands were opened up for settlement and development, and new cities and town sprung up.Feeder lines soon connected the Transcontinental Railroad to cities and towns across the west. In 1880, the value of freight hauled by the Transcontinental Railroad totaled $50 million ($1.2 billion today).
The railroad was not beneficial to all. It was a disaster for native American tribes, who found themselves pushed off their lands by the flood of settlers the railroads brought. The settlers would later greatly resent the enormous control the railroads exerted over the West in the decades to come.
Credit Mobilier would explode into a scandal in 1872, three years after the Transcontinental Railroad was completed. It destroyed the reputations of many of the individuals involved and nearly bankrupted the Union Pacific Railroad. The scandal also stoked public cynicism about public and private corruption during what became known as the Gilded Age.
But, despite all the corruption and negative aspects, there is no arguing that the Transcontinental Railroad was one of the most successful infrastructure projects in American history – rivaled only by the Interstate Highway System built nearly a century later.
- Musk, Mars & the Iron Horse (Overview)
- Part I: A Vast, Howling Wilderness
- Part II: The Road to Promontory
- Part III: All Aboard Elon Musk’s Mars Express
Monday: All Aboard Elon Musk’s Mars Express: The billionaire has a dream of dying on Mars. But, can he really build a cosmic railroad to the Red Planet?