¹ Shannon, Fred A., “Comment on ‘The Railroad Land Grant Legend in American History Texts,’” Mississippi Valley Historical Review, XXXII (March, 1946), 574Google Scholar.

² U.S., Federal Coordinator of Transportation, Public Aids to Transportation, I (Washington, 1940), 42–43Google Scholar.

³ Cited in Henry, Robert S., “The Railroad Land Grant Legend in American History Texts,” Mississippi Valley Historical Review, XXXII (September, 1945), 186Google Scholar.

⁴ Ibid., 185–86.

⁵ See Public Aids to Transportation, II, 107–117.

⁶ For further discussion of this point, see Engerman, Stanley L., “Some Economic Issues Relating to Railroad Subsidies and the Evaluation of Land Grants,” Journal of Economic History, XXXII (June, 1972), 455–56Google Scholar.

⁷ The railroad firms included in the formation of these systems are listed in Appendix A of my unpublished monograph, “Railroad Land Grant Policy and the Land Grant Railroads.” The systems include subsidiary roads leased or operated by the parent railroad with the result that the revenues of the parent and subsidiary or component roads are available in total but not individually. The number of railroad firms involved in the formation of each system as defined here is: Central Pacific, 20; Union Pacific, 47; Texas and Pacific, 6; Atchison, Topeka and Santa Fe, 30; Northern Pacific, 36; Great Northern, 15; and Canadian Pacific, 24.

⁸ A case might be made for either comparison. It could be argued that in fact systems were the relevant investment project being aided rather than individual railroad firms which almost inevitably became a component in a system.

⁹ Details of the calculations and annual data are provided by system in Appendix C of my monograph, “The Land Grant Railroads.” The annual streams of net land-grant revenue are calculated through 1927 except for the Texas and Pacific (1887), Union Pacific (1889), and Canadian Pacific (1917), where the value of unsold land was reported earlier by the firms.

¹⁰ Appendix A of “The Land Grant Railroads” provides details of the calculations and the annual streams of investment expenditure by system. The estimates of investment expenditure are made for each system over the years approximating the original investment period for each system. By system this includes: 1863–1889 for the Central Pacific; 1864–1889 for the Union Pacific; 1872–1900 for the Texas and Pacific; 1869–1900 for the Atchison, Topeka and Santa Fe; 1870–1900 for the Northern Pacific; 1879–1900 for the Great Northern; and 1881–1900 for the Canadian Pacific.

¹¹ The nature of this problem with respect to financing and accounting techniques can be illustrated by an example. Through 1872 the California and Oregon Railroad was constructed by the Contract and Finance Company, a construction company operated and owned by the four promoters of the Central Pacific who also controlled the California and Oregon following its 1870 consolidation with the Central Pacific. The Contract and Finance Company was paid $20,000 in gold coin per mile plus $20,000 in bonds of the California and Oregon for construction of the railroad. Since there was no market for the bonds, their immediate value was zero. No real goods and services could be purchased for the construction of the railroad with the bonds. The estimated real resource cost of construction of this portion of the California and Oregon is $20,000 per mile while the book cost is $40,000 per mile. (The promoters did receive further profit by sale of the bonds in later years as a market developed and the bonds attained some value.) See U.S. Congress, Senate, Majority and Minority Reports and Testimony Taken by the United States Pacific Railway Commission, 50th. Cong., 1st Sess., Exec. Doc. No. 51, 8 Vols. (Washington, 1887–1888), 77, 81, 3521, and 3531Google Scholar.

¹² Poor, Henry V., Manual of the Railroads of the United States for 1900 (New York, 1900), pp. livffGoogle Scholar. Hereafter cited as Poor's Manual for the appropriate annual volume. The Interstate Commerce Commission estimate of original cost for the nation's railroads in 1915, when its series began, is only 8.8 per cent less than the corresponding book value. However, if all bonds were originally sold at par, total cost would be overstated by about 20 per cent and correspondingly more depending on the actual discount on bonds, according to Fishlow's, Albert “Productivity and Technological Change in the Railroad Sector, 1840–1910,” in Output, Employment and Productivity in the United States After 1800, National Bureau of Economic Research, Studies in Income and Wealth, Vol. XX (New York, 1966), 592Google Scholar.

¹³ Fishlow, “Productivity and Technological Change in the Railroad Sector, 1840–1910,” p. 591 points out that the neglect of this factor resulted in Ulmer's estimates of nineteenth century railroad capital being understated.

¹⁴ This, of course, means that the contribution of land grants (and other subsidies) to paying for the investment expenditure would be overstated as calculated here. To the extent that net land-grant revenue is overstated as noted earlier, the same result would occur.

¹⁵ The annual average earnings-price ratios of all common stock for the period 1871-1900 is taken from Cowles, Alfred, III and associates, Common Stock Indexes, 1871–1937 (Bloomington, Ind., 1938), 404Google Scholar.

¹⁶ All data for the United States systems here are converted to real terms using the Snyder-Tucker price index (1869 = 100), while the Michell wholesale price index (1900 = 100) from Taylor, K. W. and Michell, H., Statistical Contributions to Canadian Economic History (Toronto, 1931), p. 56Google Scholar is used for the Canadian Pacific. The standard approximation that R_r = R_m — ΔP_e/P is used to calculate the real rates where R_r is the real rate of interest, R_m is the money rate of interest, P is the price level and ΔP_e is the expected change in the price level. The actual change from one year to the next is used to represent ΔP_e.

¹⁷ Rates of discount lower than those used would raise the proportional contribution of the subsidies to investment expenditure in present value terms, while higher rates of discount would reduce the indicated contribution shown in percentage terms in Table 3.

¹⁸ Present values are computed for the year of initial construction here, but could be calculated for any year one chose without changing the proportional contribution of the subsidies to investment expenditure in present value terms, given a rate of discount.

¹⁹ The Great Northern's land grant was virtually a happenstance. Federal land grants ended with the act of March 3, 1871 in favor of the Texas and Pacific Railroad Company. The Great Northern system was an outgrowth of the St. Paul, Minneapolis and Manitoba Railroad formed May 23, 1879, considerably after the end of the land-grant era. The St. Paul, Minneapolis and Manitoba was initially formed out of the foreclosed St. Paul and Pacific Railroad, which by the act of March 3, 1857 had received a federal land grant. The unsold portion of that old grant passed to the new company and became the major part of the land grant of the Great Northern system. In 1880–1881, the St. Paul, Minneapolis and Manitoba acquired the charter of the Minneapolis and St. Cloud Railway Company, to which was attached a land grant from the state of Minnesota in the amount of ten sections per mile. This grant formed the remainder of the land grant of the Great Northern system. See Public Aids, II, 106-107 and Poor's Manual 1884, 748.

²⁰ Besides the loan subsidy discussed, a further subsidy was involved in the relegation of the federal loan to a second mortgage, which then allowed the firms to sell a like amount of their own first mortgage bonds. They obtained more funds at lower cost from the latter than would otherwise have been the case, both because they were a first rather than a second mortgage, and because the proceeds from the second mortgage greatly reduced the risk of failure due to an inability to obtain the resources for the entire project. The asset position of the borrower was much enhanced by the proceeds from the sale of the second mortgage, which carried a government guarantee. These same considerations apply to the constituent roads of the Union Pacific system which received the government loans.

²¹ Discussion and presentation of the annual estimates for the Central and Union Pacific systems is contained in Appendix I of “The Land Grant Railroads.”

²² These calculations of the value of the subsidy are gross of the reduced rate benefit accruing to the federal government (and therefore taxpayers) for the movement of federal government freight and passengers. While these were large in absolute size, most of this benefit was realized seventy to eighty years later (during World War II). Moreover, the land-grant rate reductions were given the government by non-land-grant railroads as well. A consideration of these benefits would not significantly change the conclusions based here on 1863 present values at a discount rate of 9.03 per cent.

²³ One authoritative source, Public Aids, II, 60, estimates the total loan subsidy for all railroad construction loans by the federal government as $48,000,000. About $64,000, 000 of such loans were made. The total current dollar loan subsidy estimated in this study is $72,000,000. Annual values are presented in Appendix I of “The Land Grant Railroads.”