Railroads for Michigan

Chapter 2. The Railroads Come of Age, 1855–1875

47 A New Success By the middle of the nineteenth century the railroad was no longer a source of wonder or even a novelty. As more people rode trains, the railroad entered the flow of usual American life. This could not have been otherwise since no other form of land conveyance provided such speed, convenience, and affordability. There was no other technology on the horizon that matched it. Nor was it any longer so much a pioneering business. Railroads began to develop standardized methods of operations and types of equipment and, most important, had created an ideal method of financing. The design of trackwork and the mechanics of steam locomotives were no longer objects of experimentation. The basic design of rolling stock for passengers and freight was settled. Samuel F. B. Morse’s new telegraph was used first in intercity communications and was being applied to direct the movement of trains. Other technological advances were to come in the future, but the basic structures and designs were in place. New styles of corporate management were introduced, and new stock- and debt-financing techniques became common and were found valuable. By 1855 three railroads were built west into Chicago. The Pennsylvania Railroad was built from Philadelphia to Pittsburgh, and the Baltimore & Ohio was in operation to Wheeling, West Virginia. Tracks reached nearly every major city east of the Mississippi River. Twenty-five years of experience had shown that the most critical need in building a railroad was finding and luring in outside capital. The successful companies located needed financing, with most of it coming from New England and New York City, but often only after local capital had started but failed to complete the project. The promoters came to rely much more heavily on debt financing, which allowed them to reserve stock ownership partly to themselves and partly to use as an incentive gift to financiers. The panic of 1854 brought a modest CHAPTER TWO The Railroads Come of Age, 1855–1875 Chapter Two 48 slowdown in economic activity that was short-lived, but the ensuing panic of 1857 was the most severe in twenty years. This panic began with the failure of the Ohio Life Insurance & Trust Company in August 1857, and grew into a financial panic with an international reach. The earlier stimuli that followed the victory in the Mexican War in 1846 and the discovery of gold in California in 1849, and accompanied by an increasing population and westward expansion that came afterward, proved to be a frail defense against the financial stampede. The panic of 1857 caused a temporary slowdown in the enthusiasm for building railroads. Local banks began to demand the return of their deposits from New York City banks. To meet this demand the major banks began to call in and cancel loans, some of which had been made to stock market speculators. This led to a sharp drop in the prices of stocks generally, with railroads not at all exempt. In just months deposits at New York City banks dropped by a third, and loans went down by a quarter. Against this somber economic backdrop Michigan continued to grow. The state’s population rose from 507,000 in 1854 to 749,000 in 1860, a 50 percent increase. S O U R C E S Cochrane, Thomas C., and William Miller. The Age of Enterprise. Rev. ed. New York: Harper & Row,. 1961. Morison, Samuel Eliot. The Oxford History of the American People. New York: Oxford University Press, 1965. Land Grants to the Rescue When the state sold its two railroads in late 1846 only 271 miles of railroad line operated in Michigan. The Michigan Central extended from Detroit to Kalamazoo, the Michigan Southern’s main line extended from Monroe to Hillsdale and a branch ran from Lenawee Junction to Tecumseh, the Erie & Kalamazoo’s line ran from Toledo to Adrian, and the Detroit & Pontiac’s line ran between those points. Both the Michigan Central and the Michigan Southern had a legal requirement to finish building west to Lake Michigan. The pioneer road, the Erie & Kalamazoo, had charter authority to build farther west but was in no financial condition to do any more. Money, of course, was the problem. Both the MC and the MS Two Michigan maps of land grants made to railroads, 1857–71. Chapter Two 50 had to finish paying the state for their roads and also had to face the substantial costs of overhauling and upgrading tracks to meet the terms of their state...