Abstract: Federal Bonds, Railroad Finance, and the American State of the Civil War Era

Evelyne Payen-Variéras


This paper looks at how U.S. government subsidies fit into the entrepreneurial strategy of the group of railroad promoters who built the Central Pacific Railroad. The modern debates on the respective functions of the state and the market in the economy did not make much sense to Collis P. Huntington and his associates. They also did not endorse the old tradition of mixed enterprise. They started the construction of the road two years before receiving their first installment of federal bonds. They relied first on personal, short-term loans, and they organized construction on a step-by-step basis, so that earnings on local traffic could be reinvested in construction contracts. Local government bonds supplemented these early resources. This strategy made sense as an effort to convince both congressmen and private financiers that a small group of Gold Rush merchants were bona fide entrepreneurs and not mere dreamers or speculators. Collis P. Huntington and his associates hoped first to gain access to Civil War financiers, and then to make sure that their U.S. Treasury bonds would not compete with the corporate bonds of the Central Pacific Company. Finally, they used their successive installments of federal bonds to gain more leverage in their negotiations with their many creditors both in the East and in California. The federal bonds not only helped them turn a local road into a much larger enterprise. Issues of corporate governance were also at stake. Thanks to federal subsidies, a group of Gold Rush merchants were able to expand their operations while keeping a close-knit partnership in control of their company. With this case study, I mean to suggest that the economic policies of the Civil War era did not merely reflect the exceptional circumstances of the Civil War or the peculiar conditions that obtained in the Far West. These policies were also shaped by an ethos of independent entrepreneurship that embodied a common ground between the political supporters of the Union and their business friends both in the East and in the West. Although independent enterprise was not understood exactly in the same terms in the East and in the West, the economic policies of the early Gilded Age bolstered close-knit partnerships and spurred competition in business and finance.