Of all the peoples of the Earth none were more enraptured by the railroad than the Britons and the Yankees, an unsurprising assertion perhaps in view of their common ancestry. But what was for Britain a path to wealth and industrial power was for the United States no less than a necessity for survival. No country, be it a democratic republic or despotic tyranny,
no country can long remain intact when it cannot communicate with its extremities. The parallels with the American Revolution (and to other rebellions successful or otherwise) are numerous and have been expounded at greater length and depth than will be attempted here. Simply let us say that settlement beyond the barrier of the Appalachians would be slow and dangerous, and their markets dangerously separate from the Atlantic Coast, until the United States could develop rapid and reliable transportation to the interior.
The Erie Canal was a major step toward this goal and other canal projects flourished as investors lined up to lend their money to the cause. The interior of America was so vast and so rich that opening it to trade could be fabulously profitable… and, as investors learned to their sorrow, sometimes risky and expensive. Besides the vagaries of chance there was the looming mass of the Appalachian Mountains, which blocked the flat course desirable for the cheap and easy construction of canals. The development of railroads, and the use of steam-powered locomotives, was the answer to many a prayer.
Railroading in Britain was a scientific enterprise. Right-of-ways were fenced and guarded, grades were gentle, curves almost non-existent. Master engineers created state-of-the-art tunnels and bridges so that the rails could run unswerving as an arrow from city to city, and British railroads were justly famous world-wide for their speed, safety and efficient schedules.
Building a railroad in America was an adventure, in the sense that it was dangerous and dirty and peopled by desperate men. Much of the land had not been surveyed, even in the original Atlantic states, and there was no means to acquire the land needed for a right-of-way except to dicker with each individual land-owner along the route. America did not have the British advantage of hundreds of years of civilization to smooth the land, so railroad beds were forced to bridge countless streams, hack through forests and climb mountains. Too, American railroads suffered from scale: the mileage of track needed to connect the several states was many times more than that required to link every village and hamlet in Britain. America was also thinly populated compared to Britain, so the money-making connections were much greater distances apart with little in between of immediate economic value.
All this meant that a uniquely American approach to building railroads was needed. ‘Lay it down, hammer it up, get it running’ was the cry, and so they did. Rare were stone bridges and extensive tunnels, or even smooth, flat miles of track. Common instead were tight curves and steep grades, with rails hurtling into space over wooden bridges made of stringers and promises. Building cheaply meant a longer line could be rapidly opened and its profits used to maintain and improve the bed, which meant the road might last long enough to make repayment on the investment. But sharp curves and slipshod construction imposed a serious constraint on the type and size of locomotives that could be used. Bigger engines were usually longer and thus had to have shallow, gradual curves lest they derail, and small engines were usually slow, pulled less weight of cargo and thus were unprofitable.
In the late 1840’s an American railroad man solved the problem with an invention so profound and perfect it is still in use today on locomotives around the world. Ahead of the driver wheels – the ones connected to the steam pistons – he put four small wheels on a square platform and mounted it on a pivot underneath the nose of the engine. As the track curved the engine would be led ‘by the nose’ around the bend, and the use of four wheels on the ‘truck’ gave it stability even at high speeds. Almost overnight this system spread to almost every locomotive, allowing large engines to run at high speed over curvy, uneven track. Almost overnight, the American method of railroad construction was shown to be financially viable, and the mileage of track doubled – redoubled – until the United States had more miles of track than any other nation and bid fair to have more railroad miles than every other nation, combined.
4-4-0 ‘American’ style locomotive of the Great Southern RR, showing its four-wheeled pivoting truck under the front of the engine.
For the saga of the Great Southern see the link in my sig.
Of course, such massive investment was beyond the means of American capital. But everyone could see the vast profits in cattle, grain and timber – to mention but three – to be reaped from the American heartland. So financiers in Britain, France and elsewhere joined Americans in purchasing railroad stocks and bonds. The onset of the Crimean War made purchases of Russian grain impossible, but American wheat and corn could be quickly and cheaply railroaded from Iowa, Illinois, Indiana and Ohio to the Atlantic ports. Under this stimulus, railroad construction exploded. Unable to supply the iron and tools from domestic sources, capital flowed to Europe and Britain, feeding the expansion of iron and goods production there and underpinning a long, sustained economic boom.
With the end of the Crimean War and a return to previous patterns of commerce, the United States found itself over-built on rail capacity. The length and power of the economic boom had led many industries to over-invest in capacity, hence most commodities were over-supplied. Attempts to gain market share by cutting prices rebounded as credit contracted. Freely available only a short while before, the expense of the Crimean War absorbed much of the available credit in Europe. American banks were awash in stocks and bonds (chiefly railroad securities) with little cash reserve on hand. For most of 1857 the financial markets had been nervous and uncertain, a function of the over-supply of commodities, tightening credit and renewed competition from Russian agricultural products.
On Monday, August 24th of 1857, a small bank in Baltimore found itself the scene of a criminal investigation when it was discovered that a trusted employee had absconded with a substantial portion of the cash reserves. The news, spread by telegraph and newspaper, caused a small run on deposits in banks across the country as some nervous customers decided to repossess their money. On Wednesday, just as the scare was dying down, the New England Rope and Cordage Company of Andover, Massachusetts announced it was unable to continue in operation. NE Rope had long been a favorite investment of blue-blooded New Englanders; it was a fusty, conservative company with gilt-edged stock certificates that paid high dividends, but it had been unwilling to modernize and its lack of competitiveness was directly related to its collapsing bottom line. Anyone who had studied the company would have known it was losing money, but its reputation was so solid that its insolvency came as a severe shock. As the ripples spread outward, and as banks closed for lack of funds and credit evaporated, demand for goods and commodities temporarily collapsed. Shops and businesses began shutting their doors by the hundreds and financial men braced themselves for the pain of the contraction.
British banks had been removing funds deposited in American banks since the Crimean War, but the recent poor financial news had increased this from a trickle to a stream. The evidence of British lack of faith in the American market prompted mad scenes as depositors struggled to get their funds out of banks and investment houses, prompting even sound institutions to temporarily cease operations in hopes that cooler heads would prevail and the panic subside. Following suit the various exchanges of Wall Street also voluntarily shut down.
With so many hundreds of small, short-line railroads built in the previous decade on cheap European credit and dependent on good prices for freight for their operating capital it should come as no surprise that, as the dominos began to fall, railroads too began to topple. What once had been secure and profitable investments were turned overnight into piles of almost worthless paper, prompting investors to dump all of their American holdings whether sound or not. The imperturbable Pennsylvania Railroad announced it would miss a dividend for the first time in its history, and only the personal character and cash reserves of titans like Vanderbilt and Morrison allowed the New York Central to be saved from bankruptcy.
The sum of all this bad news was the worst depression of the American economy since the catastrophies of the last Jackson administration. Nor were the effects limited to the United States. British and European money had underwritten the vast expansion in American manufacturing and transportation infrastructure and helped the United States become a formidable economic power. The collapse of those investments and the concomitant economic damage in Britain and Europe brought home the lesson that the United States had become an important part of a global financial system. While Britain, France and to a lesser degree Prussia and the Netherlands might be the most important economies in Europe, in the future none would be able to ignore the effects of the American market.
Most investors expected the setbacks to be severe but short-lived; once the panic had subsided and business resumed, they reasoned, a prudent man would be able to pick up enormous quantities of securities and sound – if overextended – businesses at fire-sale prices. This analysis would undoubtedly have proven correct had other factors not come into play, namely the monetary supply and the loss of the steamship ‘Ohio’. Many banks and businesses had been holding on by their fingernails while awaiting the quarterly shipment of gold from California and Idaho. This specie would calm fears and allow banks to make payments to those depositors who were still nervous. Cruelly, the ‘Ohio’ was rammed by the steamship ‘Globe’ and sank just off the Perth Amboy light with more than $12 million in federal and private specie in her holds. Although much of the precious metal was later salvaged, the loss set off another round of bank and business closings and persuaded the Wall Street markets to again close for a week to recover their balance.
As noted, the wide-spread effects of the financial panic took most contemporary investors by surprise. A collapse of over-valued American railway securities was not expected to cause mills in Europe to close and, by that, drop the value of bales of cotton to almost nothing, but as noted above the American economy and financial markets were now large enough to exert considerable pressure on European markets. One innovative solution, rapidly copied in other commodities, was the creation of cotton ‘sinking fund’. First championed by the New York ‘Telegraph’ and initially paid for by Morrison, the syndicate bought up cotton when it was cheap, thus raising the price, preserved it in concrete warehouses and released it for higher prices when the market recovered. The financial gains were small but real, and the overall effect was to stabilize cotton prices in good times and bad.
The newly-elected administration of President Jesse Bright received a sizable amount of the blame for the depression, in particular from the Northern Democrats whose votes had provided the margin of victory in the last election. In the spring session of Congress the Democrats had used their waning strength in Congress to push through a reduction in the Protective Tariff. This was popular in the solidly Democratic South, which wanted to be able to purchase goods cheaply from abroad. It was deeply unpopular in the Northern Democratic strongholds of Maryland, New Jersey, Pennsylvania and New York as these states had become manufacturing centers. British goods were still cheaper and perceived to be of better quality than American wares, though the gaps were narrowing, and the Protective Tariff was seen as essential to the economic health of this Lower North region. Many newspaper editors there opined that the blame for the Panic of 1857 could be placed squarely on the reduction of the Protective Tariff.
Along with the reduction of the Protective Tariff, the first session of Congress debated and passed a series of measures that would have gladdened the heart of a Whig of times gone by. Proceeds from Federal lands were to be made available for the founding of state universities, and for the construction of the Pacific Railroad. The cost of purchasing land would be reduced for any family that wished to emigrate to the western territories, a measure that was designed to flood the vacant lands of the interior with settlers. The margin of victory was small for each, and the slave states voted almost in a bloc in opposition, but deals were made and each was shepherded to an affirmative vote. Delegations of Southern Congressmen then descended upon the White House threatening disunion, and President Bright dutifully vetoed each measure. Howls of ‘outrage’ and ‘betrayal’ ensued, and popular discontent was fueled white-hot by Theodore Judah’s pointed newspaper columns, in which he wrote that a Pacific railroad could have carried the ‘Ohio’ gold in one-tenth the time, at one-twentieth the cost, and remarked in a widely quoted quip that, ‘railroads do not sink’.
At the urging of the Secretaries of War and State a trade delegation was dispatched to Mexico. Experts in chemical production, mining and railroading were employed by American companies to exploit Mexican resources, for which those companies were well compensated. As President Bright was known to favor strong, peaceful ties with Mexico, and as a stronger Mexico was thought less likely to be a target for European expansion, American technical and financial assistance was liberally applied. In return the United States received hundreds of Prussian breech-loading needle guns, which were supposed to be a state secret but which had been supplied to a monarchist party. Needless to say these received the most meticulous scrutiny from Army officers and American gun manufacturers alike.
The Army was increased by the addition of two divisions of troops recruited from the tribes of Madagascar. Strengthened by a brigade of elite troops, these units were intended to be used for maintaining the peace and securing the seacoast of the giant island from the pirates of Zanzibar and Oman. But the unexpected mutiny of previously loyal Indian troops against British rule caused the new African units to be intermixed with infantry divisions recruited from the Creoles of Hispaniola as insurance against an uprising.
In New York the eccentric genius John Ericsson had accepted a contract from the Tsar of Russia for a new type of coast-defense ship. Intended to counter the sort of iron-plated floating battery the Royal Navy had employed against fortifications in the Crimea and in the Baltic, Ericsson’s design resembled nothing so much as an armor-plated raft topped by a rotating cylinder, from which emerged the muzzles of two large guns. It was fast, nimble and hard to hit, but the extremely low freeboard meant that waves would wash over it in anything but a very calm sea. Two ships were laid down to this radical design, but public feeling still ran high against Russia and it was decided not to allow the armored ships to be delivered to their navy. In its last act of the spring session Congress appropriated funds and the cash-strapped Russians agreed to sell. Named ‘Monitor’ and ‘Union’ these two prototypes were taken into the US Navy, and the ranks of the officer corps were soon split into pro- and anti-ironclad factions. When the economy descended into the Panic of 1857 in September the appropriated funds were not disbursed, leading Ericsson to sue for payment. The case would wend its way through the courts for years, embittering Ericsson against the Congress and, unfairly, against the Navy.
But it was to the Supreme Court that all eyes would soon turn. Against the backdrop of Bloody Kansas and a financial collapse, the President and other prominent men urged the justices to settle by decision what the Congress could not legislate. Taking up his pen, Chief Justice Roger Taney intended to use two cases before the Court to ‘annihilate, for all time,’ the legal arguments against the extension of slavery. As with so many other men, he had completely mistaken the temper of the times.