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The idea of using rails for transportation was first conceived in the sixteenth century. The first railroads used wooden rails to guide horse-drawn wagons. In the eighteenth century, cast-iron wheels and rails were used in Europe and England, and by the nineteenth century, horses had been replaced by many steam-driven engines as the source of power. The first public railroad equipped for steam-powered engines was a twenty-mile track built in England in the 1820s.
In the United States, the first commercial steam-powered railroad service was provided in South Carolina. On December 25, 1830, the South Carolina Railroad pulled a short passenger train out of Charleston. Compared with the trains and lines in the early 2000s, the first trains were small and the lines were short. But the technology continued to improve, and railroads increased in number, size, and strength throughout the first half of the nineteenth century. In 1830 only 23 miles of rail existed in the United States. By the mid-1830s, more than 1,000 miles of railroad tracks had been laid, and by 1850 more than 9,000 miles of rails existed.
At first, most of the railroads were constructed in the eastern states. As the United States bought, acquired, and conquered land to the west of the colonies in the first half of the nineteenth century, many industrialists came to see the railroad as the perfect vehicle for access to the natural resources and growing markets of the West. The idea of a transcontinental railroad was born in the early 1840s. The discovery of gold in California in 1848 accelerated the plans, but the most important event that inspired the creation of a transcontinental railroad was the Civil War.
The federal government was eager to assume control over California to gain a strategic advantage over the Confederacy. Passage to California by rail was the best way to secure a link to the West. In May 1862 Congress passed the Pacific Railroad Act, 43 U.S.C.A. § 942-3, which granted public land to the Union Pacific Railroad for each mile of track that it laid from Nebraska to California. The land grants were designed to encourage private investment in the railroads. Shortly thereafter, the Central Pacific Railroad began to compete with the Union Pacific for government land grants.
The construction of a transcontinental rail system was an enormous task. It was difficult for the private sector to find the resources to fund such an endeavor, and it became apparent to all concerned that a railroad system that spanned the entire country would not be developed without some help from the government. From 1862 to 1871, the federal government granted more than 100 million acres of land to private railroad companies to promote the construction of railroads. As the country moved westward, construction increased. As construction increased, the need to move materials and goods increased, and this created a dependency on the railroads.
The railroads became the most important service in the country from the late nineteenth century through the first part of the twentieth century. They largely supplanted the use of canals and other waterways for shipping large loads because they were faster than watercraft, operated on more direct routes, and were capable of carrying larger loads. As the public dependency on railroads increased, the railroad business became extremely profitable. Railroad companies consolidated and integrated the rail lines but maintained a vast system connecting all of the continental United States.
In 1920 the Transportation Act, 40 U.S.C.A. § 316, allowed railroads to abandon certain routes that were not profitable. As the railroads consolidated, they were forced to cut costs by laying-off workers. Congress addressed the problem by freezing railroad employment levels for three years in the Emergency Railroad Transportation Act of 1933. Shortly thereafter, the Interstate Commerce Commission mandated protections for dismissed or displaced railroad workers. As of 2003, dismissed or laid-off railroad workers are entitled to compensation, fringe benefits, moving and housing expenses, and training for new employment.
The railroad boom of the late nineteenth century not only made moguls of railroad owners but also led to monopolies in other markets, such as the coal, iron, and steel markets. Large railroad companies were able to offer lower prices to buyers than could smaller companies. Unlike other producers, the railroads did not have to pay for shipping costs. The public outcry over these unfair trade practices, and the inability of states to deal with an essentially interstate problem, forced Congress to regulate the railroad industry. Around the same time, the existing railroad companies began to support regulation of railroad prices to keep rates from dropping due to increased competition within the railroad industry itself.Congress passed the sherman anti-trust act of 1890 (15 U.S.C.A. § 1 et seq.) to prevent monopolization and the unreasonable interference with the ordinary and usual competitive pricing or distribution system of the open market in interstate trade. In 1887 Congress passed the Interstate Commerce Act (24 Stat. 379), which established the Interstate Commerce Commission to regulate, in large part, the railroad industry. The commission was granted the power to set railroad rates. However, the Supreme Court struck down this grant of power, and the commission was relegated to an information-gathering agency. In 1906 Congress again granted to the Interstate Commerce Commission the power to set railroad service rates, and this grant of power survived Judicial Review (Delaware, Lackawanna, & Western Railroad Co. v. United States, 231 U.S. 363, 34 S. Ct. 65, 58 L. Ed. 269 ).
The Robber Barons
The U.S. railroad barons of the mid-to late-nineteenth century loomed over the nation's economy. Unfettered by rules and unrestrained by lawmakers and judges, the handful of railroad owners and executives could do virtually whatever they wanted. The vast fortunes they built and control they exercised not only helped to expand national frontiers but also ushered in the market controls that now limit the creation of trusts and monopolies.
The railroad barons were colorful men. Probably the most notorious was Jay Gould (1836–1892). A onetime tannery operator from New York with little education, Gould gained control of the Erie Railroad while still in his early thirties. His methods included a number of unlawful or unethical practices: issuing fraudulent stock, bribing legislators, starting price wars against competitors, betraying associates, using his newspaper to cause financial ruin, and manipulating the gold market. Gould even managed to dupe the U.S. Treasury, causing the 1869 Stock Market panic. At the time of his death, he was worth $77 million.
The barons were passionately monopolistic. As a director of the Union Pacific Railroad, Edward Henry Harriman (1849–1909) gobbled up western competitors until he controlled the entire Pacific Coast. But he could not out-gobble James J. Hill (1838–1916), the immensely successful Canadian immigrant whose Great Northern Railway linked the North to the West. Harriman's vicious stock battle with Hill led to a mutually satisfying truce: a short-lived Monopoly called the Northern Securities Company, which the U.S. Supreme Court dissolved in 1904.
The barons' heyday began to decline at the turn of the century with increasing public outrage over unpredictable ticket prices and fluctuations in the stock market tied to the railroads. Increasing federal pressure, through laws, regulation, and court orders, ended their reign. By 1907, when the Interstate Commerce Commission denounced Harriman and other financiers for trying to destroy rival railroads, the age of the "robber barons" was over.
Strom, Claire. 2003. Profiting from the Plains: The Great Northern Railway and Corporate Development of the American West. Seattle: Univ. of Washington Press.
Young, Earle B. 1999. Tracks to the Sea: Galveston and Western Railroad Development, 1866–1900. College Station: Texas A&M Univ. Press.
Another important concern about railroads was price discrimination in railroad service. Railroads are common carriers, which describes a transportation business that offers service to the general public. The rates charged by common carriers are regulated under the theory that their service has an effect on interstate commerce, which is within the regulatory power of the federal government under Article I, Section 8, Clause 3, of the U.S. Constitution. Under its power to regulate interstate commerce, Congress prevents rate discrimination on the public railways because rate discrimination is a patently unfair trade practice that has a detrimental effect on interstate commerce and the economic health of the country. For instance, a railroad cannot charge some customers one rate for shipping on the railroad and charge a subsidiary of the railroad company a lesser rate. Passenger trains also may not discriminate in rates or service because they offer carrier service to the general public.
Congress and the states have enacted numerous statutes and regulations to address the extraordinary number of issues presented by railroads. The subject matter of these statutes and administrative regulations ranges from safety regulations to local speed limits to rate controls. In 1966 Congress created the Federal Railroad Administration along with the Transportation Department to give special attention to railroad concerns.
The success of the railroad system was not without costs. Railroad work proved to be among the most dangerous occupations in existence. Freight car derailments, undependable brakes, and the challenging task of switching heavy, rolling cars from one track to another in railroad yards all took their toll on railroad workers. Approximately 3,500 railroad workers were killed each year between 1903 and 1907, and the death toll continued at approximately one a day for several years after that.
States began to enact safety measures to protect railroad employees, but the state laws varied and did not always provide protection for workers. In 1970 Congress passed the Federal Railroad Safety Act, 49 U.S.C.A. § 20101 et seq., to achieve uniformity in railroad safety regulations. The act provides for safety enforcement procedures, track safety standards, freight car safety standards, emergency order procedures, train-marking regulations, accident report procedures, locomotive safety and inspection standards, safety appliance standards, power brake and drawbar specifications, and regulations on signal systems and train control systems.
Railroad work is still a relatively taxing occupation, but it is nowhere near as dangerous as it once was. The quality of freight equipment has improved, and due to the creation of single-unit trains, freight cars do not have to be switched from track to track as often as they once were. Most railroad-related accidents and deaths now occur at grade crossings, where railroad tracks cross roadways.
Railroad labor, management, and executive unions have been responsible for many of the gains in railroad safety. Railroad unions were some of the first unions created, and they quickly evolved to be among the most powerful.
Under the law, railroads are a special form of transportation. Railroad companies must pay taxes on their land and pay for the maintenance of their rights of way. This is not the case for other transporters. Trucking companies do not have to pay their own separate taxes for roadways, and they do not have to pay to maintain them. Barge companies do not have to pay taxes on or maintain the waterways that they use, and airlines use airports and airways built in large part with public funds. Railroad companies must pay to build and maintain their tracks because they are for their exclusive use. However, railroad companies have received some assistance from government because railroads are important to the nation's economy and because they have needed it.
In the 1930s the trucking industry made technological strides that put it in direct competition with the railroads. Pneumatic tires were created to support heavier freights, hydraulic brakes were devised to safely increase the weight of a load, and a network of paved intercity highways provided easy access and direct routes. The market advantages of trucking became apparent immediately, and the golden age of railroading came to an end after World War II. Railroads abandoned thousands of miles of tracks and laid-off workers. The radical shift in transportation reshaped the map of the United States as small towns that depended on railroads for business turned into ghost towns.
The Regional Rail Reorganization Act of 1973 (45 U.S.C.A. §§ 701–797) consolidated the bankrupt northeastern railroads into a single railroad called ConRail, a for-profit corporation comprised of the bankrupt railroads. The consolidation resulted in some abandonments, but it eliminated duplicate mileage and helped save and maintain the most popular routes. In March 1997 ConRail was bought by CSX Corp. and Norfolk Southern Corp. It was to be divided between the two companies.
Congress gave railroad companies federal funds to upgrade the railroad system in the Railroad Revitalization and Regulatory Reform Act of 1976 (45 U.S.C.A. § 801 et seq.). This act also shortened the length of time that railroads had to wait before abandoning a track.
President jimmy carter proved to be a champion of railroad deregulation. Under Carter's watch, the Interstate Commerce Commission dropped the government controls on shipping rates for coal, eliminated regulations regarding the shipping of produce, and made it easier for railroads to abandon unprofitable lines. Congress topped off several years of railroad legislation with the Staggers Rail Act of 1980 (codified in scattered sections of titles 11, 45, and 49 of the U.S.C.A.). The Staggers Act eliminated government rate controls and made it still easier for railroads to abandon lines. Although the deregulation resulted in many layoffs, the changes lowered prices, made railroads more profitable, and allowed railroad companies to increase expenditures on safety measures.
The railroad system in the United States reached its peak in 1920, when approximately 272,000 miles of rails existed. As of 2003, less than 150,000 miles of rails exist. Railroads do not dominate the transportation market like they once did, but the railroad system has been pared down and stabilized. The rails remain necessary for large, bulky loads of heavy cargo. For personal transportation, the passenger service Amtrak was established in 1970 and subsidized by Congress to provide nationwide railroad passenger service at reduced rates. Amtrak and a few shorter, private lines offer passenger service in many parts of the country.
By the mid-1990s, Amtrak bordered on financial ruin. In 1997, the railroad was $83 million in debt and was becoming unable to pay its creditors. In November 1997, Congress approved the Amtrak Reform and Accountability Act of 1997, Pub. L. No. 105-134, 111 Stat. 2570, in an effort to save the company. The act released $5 billion in operating and capital expenses to the company each year through 2002. The goal of the legislation was for Amtrak to modernize the railroad's equipment and facilities in an effort to increase revenue and ridership.
Although funding under the statute was supposed to end in 2002, the company's financial shape worsened. By 2002, the railroad, which employs 24,000 people and runs 265 trains per day, was about $4 billion in debt, having lost $1.1 billion in 2001 alone. Congress approved short-term funding in February 2003, but many speculated that the company would have to stop services and possibly declare Bankruptcy. Amtrak's latest problems came at the same time that many of the nation's airlines had declared themselves close to declaring bankruptcy.
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Ballam, Deborah A. 1994. "The Evolution of the Government-Business Relationship in the United States: Colonial Times to Present." American Business Law Journal 31 (February).
MacDonald, James M., and Linda C. Cavalluzzo. 1996. "Railroad Deregulation: Pricing Reforms, Shipper Responses, and the Effect on Labor." Industrial and Labor Relations Review 50 (October).
Phillips, Theodore G. 1991. "Beyond 16 U.S.C. §1247(D): The Scope of Congress's Power to Preserve Railroad Rights-of-Way." Hastings Constitutional Law Quarterly 18 (summer).
Smolinsky, Paul. 1995. "Railroad Labor Law." George Washington Law Review 63 (June).
Wild, Steven R. 1995. "A History of Railroad Abandonments." Transportation Law Journal 23 (summer).