The outbreak of the Civil War in 1861 broke the sectional impasse. The departure of Southern congressmen and senators opened the way for Northern representative to pass the necessary legislation to establish a transcontinental railroad in their section.
Thus far the railroad had advertised for white labor only, but white laborers had proven more interested in quick wealth than in railway work, so the Central Pacific turned to another source of labor: Chinese immigrants. Other California railroads had employed Chinese laborers since 1858. In February 1865, the C.P.’s head of
construction, Mark
Crocker, hired 50 Chinese laborers for a trial on the
railway.
They proved so successful that soon over 15,000 Chinese labored on the
Central Pacific’s payrolls. Four-fifths of all grading work
between Sacramento to the eventual terminus at Ogden was performed by
Chinese labor,
and by 1869 nine-tenths of the entire Central Pacific labor for was
Chinese.
Chinese workers were frugal, clean, sober—a rare quality in that day
and
age—and hard-working. They were also cheap and expendable.
The
Chinese worked more cheaply than white labor. Starting wages for
a Chinese laborer was $28 per month. Unlike white workers, he was
required to provide all his own food, utensils, and living quarters
(i.e.,
tent), and since it cost $0.75-1.00 per day to feed a white worker,
Chinese
laborers saved the Central Pacific a minimum of $5 million.
Chinese
lives were also cheaper than white when it came to performing dangerous
work on the line. The danger of blasting passes through granite,
snow-covered mountains—which could rain down death and destruction in
the form of
rock slides of avalanches at any time—resulted in the death of
thousands
of Chinese workers. Yet in spite of the invaluable contribution
of the Chinese workers to the construction of the Transcontinental
Railroad, the commemorative photograph taken at the official ceremony
did not include a single Chinese worker.The tycoons of the two railroads profited handsomely from their endeavors. A later congressional investigation revealed that of the $73 million paid to the Union Pacific, no more than $50 could be justified as true cost. The rest disappeared into the pockets of corporate directors . The corporate board of the Central Pacific—the so-called "Big Four" comprising Leland Stanford, Colis P. Huntington, Mark Hopkins, and Charles Crocker—did even better: they made at least $63 million and owned Central Pacific stock worth $100 million, as well as 9 million acres of land.
Ironically, the great railway had disastrous results for the Chinese. With the opening of the railway, new immigrants could cross the continent for only $40, and soon the West was flooded with immigrants. This surplus of labor resulted in lower wages for all. After the Crash of 1873, unemployment rose dramatically, and the Chinese provided a convenient scapegoat. In 1882, Congress passed the Chinese Exclusion Act barring further immigration of Chinese to the United States. Based solely on unfounded prejudice, the Act represented the first restriction ever placed on immigration in this country.
Because they spanned such great distances and managed so many employees and so much equipment, railroads often encountered problems of scale that few companies had faced before but that other industrial entrepreneurs soon had to address. Not surprisingly, businesses that came along later adopted solutions that railroads first developed.
Railroad companies required a much higher degree of coordination and long-range planning than most businesses up to that time. Earlier companies typically operated at a single location, but railroads functioned over long distances and in multiple sites of operation. They had to keep up numerous maintenance and repair facilities and maintain many stations to receive and discharge both freight and passengers. Financial transactions carried on over hundreds of miles by scores of employees required a centralized accounting office. One result was development of a company bureaucracy of clerks, accountants, managers, and agents. Railroads became training grounds for administrators, some of whom later entered other industries. Indeed, the experience of railroads was central in defining the subject of business administration when it began to be taught at the turn of the century.
Railroads required far more capital than most manufacturing concerns. In 1875 the largest steel furnaces in the world cost $741,000; at the same time, the Pennsylvania Railroad was capitalized at more $400 million. (One dollar in 1875 had the purchasing power of more than $14 today.) Even railroads that received large government subsidies required large amounts of private capital--and Congress gave out the last federal land grant in 1871. Private capital and support came from state and local governments underwrote the enormous railroad expansion of the 1880s. The railroads' huge appetite for capital made them the first American businesses to seek investors on a nationwide and international scale. Those who invested their money could choose either stocks or bonds. Sales of railroad stocks provided the major activity for the New York Stock Exchange through the second half of the nineteenth century.
Railroads faced higher fixed costs than most previous companies. These costs included commitments to bondholders and the expense of maintaining and protecting far-flung equipment and property. To pay their fixed costs and keep profits high, railroads tried to operate at full capacity whenever possible. Doing so, however, sometimes proved difficult. Where two or more lines competed for the same traffic, one might choose to cut rates in an effort to lure business from the other. But if the other company responded with cuts in its rates, neither stood to gain significantly more business, and both took in less income. Competition between railroad companies sometimes became so intense that no line could show a profit.
Some railroad operators chose to defuse such intense competition by forming a pool. In a pool, railroads agreed to divide existing business among themselves and not to compete on rates. The most famous was the Iowa Pool, made up of railroads running between Chicago and Omaha, across Iowa. Formed in 1870, the Iowa Pool operated until 1874, and some pooling continued until the mid-1880s. Few pools lasted long. Often one or more pool members tired of a restricted market share and broke the pool arrangement in an effort to expand, thereby setting off a new price war. When a pooling arrangement became known, it brought loud complaints from customers, who concluded they paid higher rates because of the pool.
To compete more effectively, railroads adjusted their rates to attract companies that did a great deal of shipping. Favored customers sometimes received a rebate. Large shipments sent over long distances cost the railroad company less per mile than small shipments over short distances, so companies developed rate structures for long hauls and short hauls. Thus the largest shippers, with the power to secure rebates and low rates, could ship more cheaply than small businesses or individual farmers. Railroad companies defended the differences on the basis of differences in costs, but small shippers who paid high prices saw themselves victims of discrimination.
Railroads viewed state and local governments as sources of valuable subsidies. At the same time, they constantly guarded against efforts by their customers to use government to restrict or regulate their enterprises--by outlawing rate discrimination, for example. Companies sometimes campaigned openly to secure the election of freindly representatives and senators and to defeat unfriendly candidates. They maintained well-organized operations to lobby public officials in Washington, D. C., and in state capitals. Most railroad companies issued free passes to public officials--a practice that reformers attacked as bribery. (Stories of railroad officials bribing politicians became commonplace after the Civil War. The Crédit Mobilier scandal touched some of the most influential members of Congress in the 1870s. We will discuss this at greater length in the lecture on politics in the Gilden Age.)
Hart's Illustrated Traveler's Map of the Central Pacific Railroad
(Note: this is a media-rich site and task a while to download)