Congress, it became clear that the remaining members of that body recognized the
potential danger in building such a road
through Confederate territory.
The members of the 37th Congress vigorously debated the details of their preferred route from Omaha to Sacramento,
the terms of land grants and financial support they would authorize and the nature
of government oversight of the project.
Finally, in May 1862, the House and Senate both passed the Pacific Railroad Act;
President Lincoln signed it the following
month. That bill was complicated, with
provisions describing federal land grants,
government loans and funds for mainte-
Railroads began spreading throughout the
country in the 1840s. In 1845, New York
merchant Asa Whitney presented Congress a plan for a transcontinental railroad,
i.e. one connecting the eastern railroad
terminuses at the Missouri River with the
Pacific Ocean. He described a private business enterprise, but requested Congress
sell his company 80 million acres of public
land for only $8 million. That same year,
James Gadsden, president of the South
Carolina Railroad Company, convinced a
convention of Southern railroad promoters to support a transcontinental route
from Memphis to San Diego by way of El
Paso. Other groups of promoters proposed
a northern route from the Great Lakes to
the Columbia River, and a central route
from St. Louis to San Francisco. For most
of the next 15 years, sectional rivalries and
financing issues tied up congressional legislators considering granting large areas of
federal land for the construction of only
one transcontinental railroad route.
In 1850, Congress first granted federal
land in Illinois, Alabama and Mississippi
for the construction of networks of railroads throughout those regions. Many
Southerners were averse to that land-grant
policy; moreover, those still championing
a southern transcontinental route began
squabbling over the Mississippi River port
city selected as the eastern terminus, thus
damaging their chances of obtaining congressional approval for their project. In
1855, Secretary of War Jefferson Davis
conducted a congressionally mandated
study of alternative transcontinental railroad routes. He concluded the southern
route from Fulton, Arkansas to San Pedro,
California was the shortest and most economical; most of the route lay over nearly
level ground, and its highest peak was less
than 6,000 feet compared to elevations as
high as 10,000 feet for the central route.
Backers of the other routes suspected
sectional favoritism; they were well aware
that the territory along a southern route
would be settled largely by Southern slaveholders intent on bringing that institution
to the West. Indeed, that same year the
Southern Commercial Convention meeting in Memphis stated that a southern rail
route to the Pacific would be indispensable to the slave-holding states’ prosperity.
When those Southern states seceded from
the Union and their representatives left
Museum of American Finance
The Pacific Railroad Acts
Senator John Sherman, proponent
of the National Bank Act.
nance to be granted to the Union Pacific
and Central Pacific Railroads. It required
both railroad companies to raise specific
amounts of capital from investors before
beginning construction, not an easy task
in the midst of a war. Both accomplished
that task, but it took time; the Central
Pacific was not able to break ground until
January 1863, and the Union Pacific had to
wait until December 1863.
Building a railroad over thousands of
miles of rough land proved to be a daunting
task. The directors and commissioners of
both railroads soon realized their organizations would need more funds than first
anticipated; throughout 1864 they lobbied
Congress for more government support.
The legislators responded favorably, since
they believed the Union needed a transcontinental railroad even more in 1864 than
70 Financial History | Spring/Summer 2011 | www.MoAF.org
it had in 1862. Both houses of Congress
approved bills calling for more government support; in July, President Lincoln
signed another Pacific Railroad Act. That
law approximately doubled the federal government’s contribution to the private businesses building the transcontinental railroad. More importantly, it cemented the
presence of that government in directing
the activities of a new type of private enterprise, one whose purpose might involve
a public good, but one that also sought to
make a profit for its own shareholders.
The National Banking Acts
In the first half of the 19th century, the
business of banking was loosely regulated;
each state was free to create its own rules
for opening and operating a bank. Most
states allowed [