Railroads and Competition
With builders rushing to share in the profits of the railroad boom, overbuilding occurred. Soon, there were too many rail lines in some parts of the country. Between Atlanta and St. Louis, for example, 20 different lines competed for business. There was not nearly enough rail traffic to keep all these lines busy.
Owners Look for New Ways to Make Profits Especially in the West, there were too few people—and therefore not enough paying customers—for the railroads to make a profit. Competition was fierce. Rate wars broke out as rival railroads slashed their fares to win customers. Usually, all the companies lost money as a result.
Often, railroads were forced to grant secret rebates, or discounts, to their biggest customers. The railroads preferred big customers for two reasons. First, big customers were more likely to pay their bills and keep being customers in the future. Second, it was less expensive to deal with a few big customers than many small customers.
Fewer customers meant less paperwork and simpler loading and unloading. Unfortunately, the practice of giving rebates hurt small shippers, such as farmers, who still had to pay the full price. It even drove many small companies out of business.
Railroad owners soon realized that cutthroat competition was hurting even their large lines. They looked for ways to end the competition. One method was pooling. In a pool, several railroad companies agreed to divide up the business in an area. They then fixed their prices at a high level.Farmers React to High Railroad Prices Railroad rebates and pools angered small farmers in the South and the West. Both practices kept shipping prices high for them. Indeed, rates were so high that at times farmers burned their crops for fuel rather than ship them to market.
Many farmers joined the Populist movement. Populists called for government regulation of rail rates. Some Populists even called for a government takeover of the railroads. Congress and several states passed laws regulating railroad companies. However, the laws did not end abuses. Railroad owners sometimes bribed officials to keep the laws from being enforced.
The Panic of 1893 In 1893, an economic panic hit the United States. The economy went through a drastic downsizing. About 15,000 businesses and 500 banks closed, leaving many American workers unemployed.
The railroads were both a cause and a victim of the economic downturn. Overbuilding in the 1860s meant that many railroad companies' finances were fragile—they were barely making money. In 1893, the Philadelphia and Reading Railroad went bankrupt, helping to start the panic. Many other leading railroads followed, including the Erie, the Northern Pacific, the Union Pacific, the Atchison, Topeka, and Santa Fe. Industries, like steel, and a wide variety of businesses that had come to depend on the railroad were hurt, as were businesses that depended on those businesses. Through a ripple effect, the whole economy suffered.
The economy would not recover for about four years. When it did, it was the railroad that once again provided the transportation the economy needed.Although railroads caused certain problems, they also made possible the rapid growth of industry after 1865. Building rail lines created thousands of jobs. Steelworkers turned millions of tons of iron into steel for tracks and engines. Lumberjacks cut down whole forests to supply wood for railroad ties. Miners sweated in dusty mine shafts digging coal to fuel railroad engines. The railroad companies themselves employed thousands of workers. They laid tracks, built trestles across rivers, carved tunnels through mountains, and built countless railroad stations.The large railroads also pioneered new ways of managing business. Rail companies created special departments for shipping and accounting and for servicing equipment. Expert managers headed each department, while chains of command ensured that the organization ran smoothly. Other big businesses soon copied these management techniques.Railroads opened every corner of the country to settlement and growth. They brought people together, especially in the West. New businesses sprang up, and towns sprouted where rail lines crossed. With rail lines in place, the United States was ready to become the greatest industrial nation the world had ever seen.
By reading this text answer this question Describe how railroads encouraged economic growth
Railroads encouraged economic growth in several ways. Firstly, they created thousands of jobs during their construction, including for steelworkers, lumberjacks, miners, and railroad workers. This provided employment opportunities for many people and boosted local economies.
Secondly, railroads facilitated the transportation of goods and people across the country, connecting different regions and allowing for the expansion of industry and trade. This made it easier for businesses to transport their products to markets and for people to travel for work or leisure.
Additionally, railroads played a crucial role in the development of new businesses and towns along their routes. Where rail lines were laid, new businesses sprang up, and towns were established, leading to increased economic activity and growth in those areas.
Overall, the expansion of railroads in the United States helped to stimulate economic growth by creating jobs, facilitating transportation and trade, and fostering the development of new businesses and communities.