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The Railroads: Pioneers in Modern Corporate Management

  • Alfred D. Chandler (a1)

Abstract

In coping with large-scale problems of management, the railroads had to devise new methods for mobilizing, controlling, and apportioning capital, for operating a widely dispersed plant, and for supervising thousands of specialized workers. In these activities, Professor Chandler argues, were created basic plans for the structural form of the modern American corporation.

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1 Poor, Henry V.'s “Railroad share list, including mileage, rolling stock, etc.” in American Railroad Journal, vol. 29, pp. 2425 (January 14, 1856).

2 Knowlton, Evelyn H., Pepperell's Progress: History of a Cotton Textile Company, 1844–1945 (Cambridge, Mass., 1948), p. 132.

3 Miller, Nathan, The Enterprise of a Free People: Aspects of Economic Development in New York State during the Canal Period, 1792–1838 (Ithaca, 1962), pp. 85, 109; Poor, Henry V., History of Railroads and Canals of the United States (New York, 1860), pp. 359362.

4 Hunter, Louis C., Steamboats on the Western Rivers: An Economic and Technological History (Cambridge, Mass., 1949), p. 308.

5 Poor, History of Railroads and Canals, pp. 163, 474, and his “Railroad share list” in the American Railroad Journal., and Report of the Investigating Committee of the Pennsylvania Railroad Appointed by Resolution of the Stockholders at the Annual Meeting Held March 10, 1874 (Philadelphia, 1874), p. 115.

6 Knowlton, Pepperell's Progress, p. 459.

7 Poor, History of Railroads and Canals, pp. 163, 287; Sixteenth Annual Report of the Board of Directors of the Pennsylvania Railroad Co. to the Shareholders, February 2, 1863 (Philadelphia, 1863), p. 20; and Twenty-Third Annual Report of the Board of Directors of the Pennsylvania Railroad Co. to the Stockholders, February 17, 1870 (Philadelphia, 1870), p. 8.

8 The largest steamboat line on the western rivers was one of six boats, and the expenses BUSINESS HISTORY REVIEW of an average western steamboat of 211 tons for a season of eight and a half months was $26,569. So that the total annual cost for the largest line would have rarely been over $175,000. Moreover, most lines were cooperative arrangements between different owners rather than centrally administered and financed corporations. Hunter, Steamboats, pp. 320–35, 361–63.

9 Knowlton, Pepperell's Progress, pp. 425–27; Mott, Edward H., Between the Ocean and the Lakes, the Story of the Erie (New York, 1899), p. 483; American Railroad Journal., vol. 29, p. 280 (May 3, 1856); Burgess, George H. and Kennedy, Miles C., Centennial History of the Pennsylvania Railroad Company (Philadelphia, 1949), p. 807. This figure did not include those employed by the Pennsylvania Company, that is, on the lines west of Pittsburgh and Erie. The payrolls on the Western Railroad (of Massachusetts) stood at $175,000 in 1850. Those for the Pennsylvania in 1854, the year the road was completed, for the Transportation Department alone were $1,067,142.44. Eighth Annual Report of the Directors of the Pennsylvania Rail Road Company to the Stockholders, February 5, 1855 (Philadelphia, 1855), p. 34.

10 Chandler, Alfred D. Jr., Henry Varnum Poor: Business Editor, Analyst, and Reformer (Cambridge, Mass., 1956), ch. 4, and pp. 129–44.

11 The comparison has been made between the Erie of 1855, as given in Mott, Between the Ocean and the Lakes, p. 483–84, and the descriptions of the earlier roads in Knight, J. and Latrobe, Benjamin H., Report Upon the Locomotives, and the Police and Management of Several of the Principal Rail Roads in the Northern and Middle States (Baltimore, 1838), and especially the sections on the Boston and Worcester (pp. 19–25) and the Boston and Providence (pp. 7–13) and Poor, History of Railroads (pp. 102–106). The Pennsylvania, for the same year (1855) had 100 passenger and baggage cars, close to 1,700 freight cars, 100 locomotives, and received a gross income of over $4,500,000, according to the Annual Report made at the annual meeting of the stockholders on Feb. 4, 1856.

12 Reports of the President and the Superintendent of the New York and Erie Railroad to the Stockholders for the Year Ending September 30, 1855 (New York, n.d.), p. 34.

13 Organization of the Service of the Baltimore & Ohio R. Road, under the Proposed New System of Management (Baltimore, 1847), p. 3. The new system was accepted by the Board on Feb. 10, 1847.

14 Laws and Ordinances Relating to the Baltimore and Ohio Rail-Road (Baltimore, 1834).

15 This and the following quotation are from the Twentieth Annual Report of the President and the Directors to the Stockholders of the Baltimore and Ohio Rail-Road Company (Baltimore, 1846), p. 13. Pages 11–14 of this report tell of the developments bringing the need for reorganization. Pages 15–23 describe the plans for building the line across the mountains.

16 The Twenty-First Annual Report of the President and the Directors to the Stockholders of the Baltimore and Ohio Rail-Road Company, Oct. 1, 1847 (Baltimore, 1847), pp. 60–61; The Twenty-Third Annual Report of the President and Directors to the Stockholders of the Baltimore and Ohio Rail-Road Company (Baltimore, 1849), p. 40; The Twenty-Fourth Annual Report of the President and Directors to the Stockholders of the Baltimore and Ohio Rail-Road Company (Baltimore, 1850), pp. 53–54; also Calhoun, Daniel C., The American Civil Engineer: Origin and Conflict (Cambridge, Mass., 1960), pp. 4950; and By-Laws of the Board of Directors [Adopted April and May, 1847] Together with the Charter of the Pennsylvania Railroad Company (Philadelphia, 1847), p. 7.

17 This and the four following quotations are from the Organization … of the Baltimore and Ohio Rail-Road, 1847.

18 Twentieth Annual. Report of the Baltimore and Ohio Rail-Road, 1846, p. 13.

19 This and the four following quotations are from the Organization … of the Baltimore and Ohio Rail-Road, 1847.

20 Possibly one reason for the change was that President McLane had no time for day-to-day operations. For the two previous years, he had been in England raising money for his road and also acting as United States Minister, in which capacity he helped to negotiate the Oregon Treaty. Dictionary of American Biography, vol. XII, p. 114.

21 Report of the Directors of the New York and Erie Railroad Company to the Stockholders, November, 1853 (2nd ed., New York, 1853), pp. 47–48.

22 Dictionary of American Biography, vol. XI, pp. 565–66. McCallum put his administrative talents to effective use during the Civil War, when he was commissioned “director and superintendent” of all the Union railroads necessary for the prosecution of the War.

23 This and the following two quotations are from Reports of the President and Superintendent of the New York and Erie Railroad, 1855, p. 35.

24 Ibid., p. 27.

25 This and the following quotation are from ibid., p. 40.

26 Ibid., p. 51.

27 Chandler, Poor, pp. 147–48.

28 Reports of the President and Superintendent of New York and Erie Railroad, 1855, p. 41. McCallum gives a full account of his reporting systems in this report, pp. 34–35, 51–54.

29 This and the following quotation are from ibid., p. 52.

30 Ibid., p. 53.

31 This and the following two quotations are from ibid., p. 79.

32 The revolution in accounting practices, procedures, and principles caused by the coming of the railroads with their heavy capital outlay and large constant costs is suggested in Littleton, A. C., Accounting Evolution to 1900 (New York, 1933), ch. 14, and Kirkland, Edward C., Men, Cities, and Transportation (2 vols., Cambridge, Mass., 1948), vol. I, pp. 336–14.

33 Quoted in Chandler, Poor, p. 147.

34 Ibid., pp. 148, 153, American Railroad Journal., vol. 29, p. 280 (May 3, 1856).

35 The 1852 organization plan more carefully defined financial and accounting procedures and placed internal accounts under the control of an “Auditor,” who remained part of the Transportation Department, reporting to the General Superintendent. The operating side of the Transportation Department had a new and somewhat intricate organization outlined hy Herman Haupt, who became Chief Engineer after Thomson became President. Haupt had visited the leading railroads in New York and New England “for the purpose of examining their systems of accounts, plans of organization, machinery and everything connected with the operation of a road.” Flower, Frank A. (ed.), Reminiscenses of General Herman Haupt (Milwaukee, 1901), p. xvii; Dictionary of American Biography, vol. VIII, pp. 400–401. The coming of the more systematic organization along the lines of the Baltimore & Ohio and the Erie waited until 1857.

36 Pennsylvania Railroad Company: Organization for Conducting the Business of the Road, Adopted December 26, 1857 (Philadelphia, 1858).

37 This and the three following quotations are from Organization of the Pennsylvania Rail Road, 1857. The quotations are from pp. 11, 7, 7, and 7–8, respectively. In 1857, there were only two Resident Engineers, each reporting to the General Superintendent. After 1863, there was a Resident Engineer for each of the three divisions. By-Laws and Organization for Conducting the Business of “The Pennsylvania Rail-Road Company,” as revised and approved by the Board of Directors, May 13, 1863 (Philadelphia, 1863), p. 14.

38 A line and staff distinction came, of course, only in the definition of the relationship of regional and functional officers. Thus the major Pennsylvania shops in Altoona were not included in any operating division and so their executives therefore reported directly to the Superintendent of Motive Power.

39 By-Laws and Organization for Conducting the Business of the Pennsylvania Rail Road Company, as approved by the Board of Directors, May 13, 1863, and revised February 7, 1866 (Philadelphia, 1866), p. 13; Organization of the Pennsylvania Rail Road, 1863, p. 14; also Jenks, Leland H., “Early History of a Railway Organization,” Business History Review, vol. XXXV (Summer, 1961), p. 168. Oversight and distribution of rolling stock included “the numbering, weight and record thereof; also the numbers, marks of identification, weight and records, and the procuring of releases from certain risks required from the owners of cars not the property of the Company.”

40 This and the following quotation are from By-Laws and Organization for Conducting the Business of the Pennsylvania Railroad Company, to take effect June 1, 1873 (Philadelphia, 1873), pp. 20, 25–26, respectively.

41 Reports and accompanying documents of the Illinois Central Railroad Company, made by order of the Stockholders at their Annual Meeting held at Chicago, March 19, 1856 (New York, 1856), p. 32, and the Illinois Central Railroad Company, A Report to Stockholders at the Annual Meeting in Chicago, March 17, 1858 [n.p., n.d.], p. 2–3. John B. Jervis, the Chief Engineer of the Michigan Southern, suggests his organization experience in his Railroad Property, a Treatise on the Construction and Management of Railways (New York, 1861), especially chs. 21 and 22. Jervis began by placing himself in charge of both the Maintenance of Way and Motive Power Departments. The Louisville and Nashville followed the same pattern when the engineer in charge of its construction, Albert Fink, became the head of both the road and machinery departments, Testimony of Albert Fink before U. S. Committee on Education and Labor, Sept. 17, 1883 (Washington, 1883), p. 3. The annual reports of the Michigan Central, which was a smaller road in mileage than the Michigan Southern, suggest that a “departmental” type of operating structure initially evolved.

42 The general acceptance of the divisional structure on American railroads by the end of the 1870's is indicated in Kirkman, Marshall M., Railway Revenue: A Treatise on the Organization of Railroads and the Collection of Railway Receipts (New York, 1879), pp. 7881.

43 Latrobe, the son of the architect of the Capitol in Washington, had training in mathematics and the law before joining the Baltimore & Ohio Railroad in 1831 at the age of 25 as a civil engineer, and by 1842, he had become Chief Engineer. Thomson began his career in 1827 at nineteen years of age on the surveying gang while laying down the line of the Philadelphia-Columbia Railroad in the Pennsylvania State System. In 1830, he had become an Assistant Engineer on the Eastern Division of the Camden and Amboy. After a brief visit to Europe, he took the post of the Chief Engineer of the Georgia Railroad, which, when completed, was the largest railroad in the United States. He remained on as General Superintendent until 1847, when he was asked to be Chief Engineer of the newly formed Pennsylvania Railroad, and he became its president in 1852. John B. Jervis had a comparable career. He began on the Erie Canal and then moved up the ladder by working on the Delaware and Hudson Canal, the Mohawk and Hudson Railway, the Schenectady and Saratoga Railroad, the Chemung Canal, the enlargement of the Erie Canal, the Croton Reservoir, the Hudson River Railroad, and the Michigan Southern. While acting as Chief Engineer, the latter helped build the Rock Island Railroad. As he pioneered in the development of the locomotive and other equipment, he might be considered to be a mechanical as well as civil engineer. McCallum was the self-taught son of a Scottish tailor, about whom little is known before his bridge-building and his work on the New York and Erie made him famous. For Jervis, Latrobe, McCallum, and McClellan, see Dictionary of American Biography, vol. X, pp. 59–61, vol. XI, pp. 25–26, 565, 581–82; for Thomson, see Wilson, William B., History of the Pennsylvania Railroad Company (2 vols., Philadelphia, 1899), vol. II, pp, 238–39.

44 The carrying out of the consolidation is described in detail in Stevens, Frank W., The Beginnings of the New York Central Railroad (New York, 1926), ch. 17.

45 Dictionary of American Biography, vol. XIX, p. 263.

46 Annual Report of the New York Central Railroad for Year Ending September 30, 1857 (Albany, 1857), p. 34.

47 Harlow, Alvin F., The Road of the Century (New York, 1947), p. 89.

48 Ibid., p. 96.

49 Jenks, “Early History of a Railway Organization,” pp. 163–79.

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