With the end of the War of 1812, the United States turned its attention to problems within the country. One of the most important debates was over the role of the federal government in encouraging internal improvements. At first, states financed many projects, such as building roads and canals. This support was limited, however, to industrial states. Early attempts at interstate road construction failed in Congress because competing sectional interests made agreement difficult. While many canals were built, they alone could not accomplish the goal of linking East and West.

This 1893 map of Franklin County, Arkansas shows the typical "checkerboard" pattern of railroad land grants. The dark shaded areas were granted to the Little Rock & Fort Smith Railway Company.

Increasingly, however, legislators felt the need to bring the vast domains in the West closer to the markets and people in the East. The only means of transportation that could accomplish this was the railroad. However, the massive investment needed to build transcontinental rairoads was more than private rail companies were able or willing to do. Since they were privately financed, rail companies seldom began unprofitable projects -- they needed encouragement. Therefore, in the 1830s, railroad companies and others began attempts to convince legislators to support railroad expansion.

Political maneuvering and economic necessity thus combined to help pass the first of several land grant bills. These made government gifts of public land to the railroad companies in exchange for laying track in designated areas. In 1850, for example, the Illinois Central received a land grant of several million acres. Standard procedure was to distribute land by alternate sections along the proposed railroad line, one section going to the company and the next kept by the government. As land values increased, both the railroads and the government gained. Railroad companies then sold their newly profitable lots and used the proceeds to pay for materials and labor to continue their expansion.

In this way, railroad construction became interwoven with land sales, which provided much of the capital needed to finance future undertakings. Heavy advertising by the railroads in the United States and Western Europe encouraged land sales. Both immigration and westward migration were thus accelerated by railroad development.

With the passage of the Pacific Railway Bill during the Civil War, the Union Pacific Railway Company and Central Pacific were given millions of acres of land to complete a railroad all the way to the Pacific Ocean, one company starting at the West Coast and the other farther east. Both lines met at Promontory Point, Utah, in 1869, where the ceremonial "golden spike" was driven with a silver-plated hammer to commemorate the historic event.

Shortly after this, however, land grants ceased to be public policy, because many people had begun to question giving away so much land to private companies. Between 1850 and 1870, over 129 million acres -- seven percent of the continental United States -- had been ceded to 80 railroad companies. Most of that land was west of the Mississippi. The value of grants amounted to more than half a billion dollars, a total even greater than it seems today, since the dollar was worth much more then.*

And the historical judgment about the short and long term effects of this giveaway? Fortunes were made, many due to land sales alone, while others were created by profits made by railroad companies in their role as builders. As land became scarcer with population and industrial growth, the railroads controlled miles of valuable real estate, which they could sell when the price was right or hold until the price rose.

On the other hand, West and East were brought together, goods went to market more cheaply, federal shipping costs were cut even more, and jobs were opened up as a result of both railroad construction and the new settlements which had arisen.

*How does that half-billion figure compare to today's value? It is hard to determine, because the relative costs of things have changed so much. For example, in 1991 the wholesale cost of a bushel of wheat was $3.70, whereas in 1940 it was 87. Both of those figures are in current prices -- the prices of those times. In 1940 the average worker was paid about 73 for an hour of work.

Now -- look at how tricky figures can be! In 1870, a bushel of wheat cost $1.37 in current prices. Can we assume that a dollar was worth more in 1940 than it was in 1870? No, we can't: $1.37 was roughly the cost of a day of labor in 1870. Technological improvements vastly lowered the cost of producing food.

One rough comparison we can make is in terms of gross national product -- a measure of the total wealth output of the nation. The GNP in 1870 was approximately 6.7 billion dollars; in 1991 it was 5.6 trillion dollars. The value of the railroad land grants, then, was about. 13% of the country's GNP at the time.

That still does not give us this land's value today, however. We 'd have to look at where it is, and what the real estate market is like in those areas. One could say, though, that land along the railroads in the 1870s could be compared in value with land adjoining transportation routes today: along Interstate highways, or around airports.

Background Questions:

  1. Why did legislators feel that government should encourage railroads to extend their lines?
  2. What method was used to accomplish federal aid to railroad expansion?
  3. Describe how increasing land values helped the railroad companies.
  4. Why did land grants diminish after 1869?
  5. Evaluate the program of land grants to railroads.
  6. Should government encourage selected industries today? Give examples and reasons.

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