Federal Government Assistance For The Building Of The Union Pacific Railway
by Don Strack
Originally completed as a research paper for English 101, Introduction to Expository Writing, University of Utah, March 1982. This was one of my first examples of writing, and I received an A- for the entire quarter. Scanned and digitized from the typed original.
The western United States contains some of the largest open areas in our country. The vast distances involved are so great that to describe them is best said by again quoting an often quoted phrase: "In the west, it takes an hour to drive to a town and a minute to drive through it." When this quote is heard it brings to mind long distances being traveled by car over a system of highways that we take for granted. But imagine a hundred and thirty years ago when there was nothing more than a few well traveled wagon trails to go from the Missouri River to the Pacific Coast, a trip which took anywhere from six months to a year to complete.
At this time, in the 1850's, California had just been allowed into the union as the thirty first state and was isolated from the rest of the nation by nearly two thousand miles of "barren desert". The only settlements of notable size were those around what is now Denver, Colorado and the Mormon settlements in the State of Deseret, that area that is now northern and central Utah. There was some fear that without more control by the national government California, with its newly discovered mineral riches, might secede into independence.
The dangers and difficulties of travel in this "barren desert" were great and indeed were experienced when the national government attempted to enforce its laws upon the Mormons after 1857 when it was feared that they might instigate an uprising. Traveling the overland route to California required a great deal of time and was even more hazardous than going by way of the sea/land/sea route of the Isthmus of Panama, a trip which consumed almost five weeks. When the "Forty-niners" were traveling to California seeking their fortunes in gold, the trip took all summer, from early May to mid September. In 1858 the length of time for the trip was shortened to about a month with the establishment of the Overland Stage Line. So, in the mid 1850's when Congress began serious debates for a Pacific Railway, the arguments in favor are easy to understand. The cross-country trip would then take only about two weeks by railroad. 
Congress appropriated $150,000 in 1853 to finance surveys and explorations that would find the most economical and practical routes for the construction of a railroad from the Missouri River to the Pacific Ocean.
The surveys were done by teams of Army Engineers and were made as follows:
"...the northernmost, along the forty fifth parallel; the next, along the forty second parallel; and further south, one along the thirty seventh parallel, one along the thirty-fifth parallel; and the southernmost, along the thirty second parallel."
The practicality of these routes was later proven when a railroad was built along three of the five routes mentioned. The northern one by the Northern Pacific (now the Burlington Northern); the central route across Kansas by the Union Pacific, the Missouri Pacific, and the Denver and Rio Grande Western lines; and the southern route by the Santa Fe and the Southern Pacific roads.)
The central route was the one chosen and it was decided that the Pacific Railroad would have to be a national undertaking for the benefit of the entire country. But the private sector of capital investment could not be expected to bear the financial risk of the building of the road by itself; it could only do so by receiving some form of governmental aid. At that time the government had a policy of making large grants of land to the railroads as an inducement for the construction of new lines.
A grant is best defined as an out right gift. And in the case of land grants for the railroads, the grants allowed them parcels of land which they could sell immediately upon completion of their lines, as an incentive for them to build those lines.
But in this case, the incentive of the early version of the land grant did not offer enough incentive for the capital investment needed to build the Pacific Railroad. For two very important reasons: first was the belief that the entire region between the Missouri River and the Pacific Ocean was nothing but a barren wasteland, therefore there might be no prospects for business along the line, except at its extreme ends; and second, it was understood that no matter which route was decided upon, that route would have to cross the Rocky Mountains, which it was believed would greatly increase the expense and engineering difficulties of building the road.
These problems were all addressed and solved to most everyone's satisfaction, in June 1862 with the passage of the act of Congress entitled: "An Act to aid in the Construction of a Railroad and Telegraph Line from the Missouri River to the Pacific Ocean, and to secure to the Government the Use of the same for Postal, Military and Other Purposes."-- generally called the Pacific Railroad Act of 1862.
This act provided for a land grant of ten alternating sections per mile, in a checkerboard pattern with five full sections on each side, for a distance ten miles on each side of the centerline of the track, giving a total width of twenty miles. In addition it provided that the Secretary of the Treasury was to issue bonds of the United States to the railroad companies in return for their successful completion of continuous connecting sections of track, each forty miles in length.
A bond is an instrument of finance by which the buyer purchases a bond, of some specified amount, at a discount and the seller promises to buy it back, after a set period of time, at the original specified amount. An example would be a thirty year $1,000 bond. The buyer might pay $800 for it and after thirty years the seller would buy it back for $800 plus $200 interest, for a total of the $1,000. The advantage is that the seller has the use of the $800 without having to worry about paying the interest on a continuous basis, as he would in the case of a dividend on shares of stock.
These United States Treasury bonds were to be issued to the railroad companies in three different amounts per mile of completed track. The first was at a rate of $16,000 per mile. This covered the area of easiest construction; the trackage built on the level plains. The second rate was $48,000 per mile and it covered the track that was to be built over the foothills of, and the track to be built through, the Rocky Mountains. This rate was higher because it was felt that this would be the most difficult portion of the road to construct. The area of the Great Basin, west of the Rocky Mountains, was to receive the third rate of $32,000 per mile because the construction in this area would be more difficult than the plains, but not as difficult as the construction through the mountains. These bonds were to be used by the railroad as collateral for construction loans, which in turn would be used by the railroad to pay for continued construction of its line, for which more bonds would be issued a process which would be repeated again and again until the railroad was completed. When the road was certified as being complete, the company would then be expected to set aside five percent of its net earnings so that there would be sufficient funds to retire the government bonds when they came due thirty years later. These government bonds were to constitute a first mortgage on the entire property of the railroad.
The Act of 1862 also provided for the federal charter for the organization of the Union Pacific Railroad Company.
The Union Pacific had some difficulties in getting sufficient investors, even with the generous government subsidies. Actual construction did not begin until late 1863 and was soon halted due to the company running out of money. The nation's investors apparently did not consider the venture to be a promising investment. To overcome the problem the directors of the Union Pacific went to Washington D. C. in the spring of 1864 to discuss possible solutions with the government. The result of these discussions was the passage, in July 1864, of an amendment to the Act of 1862.
The Act of 1864 provided for the increase of the land grant in the form of adding an additional ten mile strip of alternating sections of land outside of the one that had been provided by the Act of 1862. The resulting pattern was still in the form of a checkerboard, but the amount of land turned over to the railroad was doubled by making the land grant a strip of land twenty miles on each side of the track instead of a strip ten miles wide. Also in the act was a provision that made the government bonds in effect a second mortgage rather than a first one, as provided for in the Act of 1862. Making the government lien a second one allowed the railroads to seek private capital , which was now more easily attainable because the private investors could now get their desired first mortgage. The Act of 1864 also allowed that in order for the railroads to receive the government bonds, they need only complete their trackage in sections of twenty miles, rather than the forty miles allowed for in the previous act. In addition, the government decided to award two-thirds of the bonds upon completion of just the roadbed, before the actual application of the ties, rails, and other necessary improvements. The remaining one third was then issued upon actual completion of each section of the road. However, this provision was only to be used for the work being done between the eastern base of the Rocky Mountains and the western base of the Sierra Nevadas.
Thus the stage was set for the turning point in westward expansion. Prior to the May 1869 completion of the trans continental railroad, the area between the Missouri River and the Pacific Ocean was an almost totally undeveloped area. There were numerous economic impacts and changes due to the ease of transportation which the railroad provided. They included the stimulation of large scale farming in the states of California, Colorado and Utah. Even more notable was the rapid growth of the western fruit industry, to a large degree due to the invention of the railroad refrigerator car in 1875. The farmers and fruit growers increased their crops because they were assured of ready access to the great markets in the East. Another economic impact was that the low cost of transportation provided for lower costs in the processing of metals and other minerals, including the transportation of the raw materials from the mines to the smelters and the transportation of the finished products from the smelters to their respective markets.
The social impacts of the coming of the railroad were as great as the economic ones. It stimulated tourism, one of the first service industries in the nation. The location of the railroad was a large determining factor in the location of the cities and towns, and thus the distribution of the population in the west. It also sparked the flow of people into the region and probably accelerated the westward flow of settlers more than any other form of transportation.
In summary, the west would not be what it is today if it hadn't been for the coming of the railroad. The majority of western historians divide the development of the west into two basic categories: before the coming of the railroad and after the railroad. It would have taken far longer for the west to develop had not the railroads been built, and the railroads would not have been built if they hadn't been given the different forms of government aid, so that their builders could see potential for a reasonable (some say extraordinary) profit to be made.
Athearn, Robert G., Union Pacific Country. Lincoln, Nebraska: University of Nebraska Press, 1976
Decker, Leslie E., Railroads, Lands, and Politics: The Taxation of the Railroad Land Grants, 1864 1897. Providence, Rhode Island: Brown University Press, 1964
Myrick, David F., "Refinancing and Rebuilding the Central Pacific: 1899 1910" in The Golden Spike ed. David A. White. Salt Lake City, Utah: University of Utah Press, 1971
Nash, Gerald D., "Government and the Railroads: A Case Study in Cooperative Capitalism" in The Golden Spike, ed. David E. White. Salt Lake City, Utah: University of Utah Press, 1973
Sanborn, John Bell, Congressional Grants in Aid of Railways. Madison, Wisconsin: University of Wisconsin, August 1899
Trottman, Nelson, History of the Union Pacific. New York: Augustus M. Kelley, Publishers, 1966 (reprint, first published in 1923)
White, Henry Kirke, History of the Union Pacific Railway. Chicago: University of Chicago Press, 1895
 Nelson Trottman, History of the Union Pacific, A Financial and Economic Survey (New York: Agustus M. Kelley, Publishers, 1966) p.3
 Nelson Trottman, History of the Union Pacific, p.3
 Nelson Trottman, History of the Union Pacific, p.3
 Nelson Trottman, History of the Union Pacific, p.5
 Nelson Trottman, History of the Union Pacific, p.5, 6
 Nelson Trottman, History of the Union Pacific, pp.6,7
 Nelson Trottman, History of the Union Pacific, p.10
 Henry K. White, History of the Union Pacific Railway (Chicago: University of Chicago Press, 1895) p.15
 Robert G. Athearn, Union Pacific Country (Lincoln, Nebraska: University of Nebraska Press, 1976) p.334
 H. K. White, History of the Union Pacific Railway, p.101
 H. K. White, History of the Union Pacific Railway, p.17
 Nelson Trottman, History of the Union Pacific, p.17
 H. K. White, History of the Union Pacific Railway, p.19
 Gerald D. Nash, "Government and the Railroads: A Case Study on Cooperative Capitalism" in The Golden Spike, ed. David E. White (Salt Lake City, Utah: University of Utah Press, 1973) p.121
 Gerald D. Nash, Government and the Railroads, p.121
 Gerald D. Nash, Government and the Railroads, p.122