Railroads and the Rise of Big Business: Key Concepts and Innovations

Government land subsidies

Federal, state, and local governments granted land and loans to railroads to encourage expansion

Sale of stocks and bonds

Railroads raised enormous capital by selling bonds for fixed interest and stocks for dividends.

National distribution system

Railroads created the first nationwide system for shipping goods efficiently.

Large-scale corporate enterprise

Railroads pioneered massive corporations that became models for other industries.

Hierarchical management structure

Railroads divided operations into divisions with superintendents to improve efficiency.

Information management systems

Railroads developed systems to collect and analyze data on costs, profits, and operations.

Accounting innovations

Detailed accounting tracked expenses and profits, allowing accurate rate-setting.

Telegraph use

Railroads relied on the magnetic telegraph to coordinate nationwide operations.

Standardization

Railroads standardized track gauge, equipment, engines, and safety systems.

Time zones

Railroads created four U.S. time zones in 1883 to fix scheduling problems.

Cooperative billing

Railroads shipped cars across different lines at uniform nationwide rates.

Consolidation

Powerful railroad leaders absorbed smaller companies to form large integrated networks.

Robber barons

Some railroad leaders manipulated stock markets and engaged in corrupt practices.

Rate discrimination

Railroads charged different rates to different customers, favoring large shippers.

Rebates and kickbacks

Railroads secretly rewarded favored clients, undermining fair competition.

Interstate Commerce Act (1887)

Law created the ICC to regulate railroad practices and ban monopolistic activities.

Investment banker control

Bankers like J. P. Morgan reorganized failing railroads and centralized management.

Model for other industries

Railroad management, accounting, and distribution systems were adopted by steel, oil, and manufacturing businesses.