RAILROADS, FEDERAL LAND GRANTS TO (ISSUE)

Between 1850 and 1871 the United States government used a portion of the public domain (federally owned land) to assist and encourage the building of railroads. In all, during that twenty-one year period approximately 1.31 million acres of land were transferred to private ownership. This represented 9.5 percent of the public domain as it stood in 1850 (1.39 billion acres). The land was located in twenty-seven states, but the largest grants were made in California (11.5 million acres), Kansas (8.2 million acres), Minnesota (9.9 million acres), Montana (14.7 million acres), North Dakota (10.6 million acres), and Washington (9.5 million acres). Although the program began in 1850, most of the grants were made under the terms of the Pacific Railway Act of 1862. This law was in effect from 1862 to 1871 and its purpose was to encourage the construction of the transcontinental railroads.

The law provided that companies agreeing to undertake the construction of transcontinental railroad lines would be eligible for loans ranging from $16,000 to $48,000 per mile of track laid. The precise amount of the loan was determined by the difficulty of the terrain through which the construction passed. The government loaned a total of $64,623,512 to the transcontinental companies. These loans were for the most part paid back at six percent interest. The law also provided that a company could be given up to twenty sections (a section is a square mile) of land for every mile of track put down. This land would be granted in alternate sections (a kind of checkerboard pattern) within an area lying forty miles on either side of the proposed right of way. To qualify for the subsidies a company had to agree to actually build track or forfeit the grant, and carry mail, government passengers, and freight at reduced rates.

Most of the loans and land grants distributed under the Pacific Railway Act went to the first five companies that built transcontinental lines. These were: the Union Pacific, the Central Pacific, the Northern Pacific, the Southern Pacific, and the Santa Fe. They received a total of 130 million acres of land, with the largest single grant (of 44 million acres) going to the Northern Pacific line. The states added another 50 million acres of land grants. Local communities also subsidized railroad companies by giving them land for depots and rights of way and tax exemptions. The state governments granted a total of around 50 million acres of land. Whereas the federal and state land grant programs were designed to promote the building of trunk lines, these local subsidies were designed to facilitate the building of connecting lines. Even though not all lines were built in this way, the effect was to stimulate railroad building in general. Hence the national railroad system expanded from 9,000 miles in 1850 to 87,000 in 1885.

The total of public land grants given to the railroads by states and the federal government was about 180 million acres. At the time, the value of this land was about one dollar per acre, which was the average price realized by the government for sales in the land grant states during that period. Hence the total value of the land granted to these companies was approximately $180 million. Later, much of the land was sold by the railroad companies at an average price of $2.81 per acre. (Proximity to the rails increased the value of the land.) These sales offset a portion of the construction costs, which have been estimated at approximately $168 million.

Although these figures are immense and would appear to suggest that the American railroad system was built largely on the basis of government aid, this is actually not the case. In fact, only 18,738 miles of railroad line were built as a direct result of these land grants and loans. This figure represents only eight percent of the total railroad mileage built in the United States between 1860 and 1920. The government program was important because the building of these lines opened up the trans-Mississippi West and stimulated settlement, but most of the railroads were built by private enterprise—in some cases with state and local support.

Not everyone applauded the subsidies. For example, the land grant–loan system under the Pacific Railway Act was subjected to harsh criticism by reformers who argued that it represented a vast give–away of money and public property to assist businessmen who made vast fortunes. As a result, the program of federal aid was discontinued in 1871. However, the arguments of the reformers were not entirely correct. The loans were, for the most part, repaid and the railroad companies did not reap vast fortunes from the re–sale of their land grants. Moreover, the country benefited immensely from the rapid construction of the railroads, which produced a viable transportation system connecting all portions of this vast nation. The railroads literally bound the states together thus contributing significantly to national unity.

See also: Transcontinental Railroad

FURTHER READING

Chandler, Alfred D., Jr. The Railroads: The Nation's First Big Business; Sources and Readings. New York: Harcourt, Brace and World, 1965.

Henry, R. S. "The Railroad Landgrant Myth." Mississippi Valley Historical Review, September 1945.

Howard, Robert West. The Great Iron Trail: The Story of the First Transcontinental Railroad. New York: Putnam, 1962.

Riegel, Robert R. The Story of Western Railroads. Lincoln, NE: University of Nebraska Press, 1964.

Taylor, George R., and Irene D. Neu. The American Railroad Network, 1861–1890. Cambridge: Harvard University Press, 1956.

Winther, Oscar O. The Transportation Frontier: Trans-Mississippi West, 1865–1890. New York: Holt, Rinehart and Winston, 1964.