The Beginnings Of The New York Central Railroad: A Study Of Men, Money And Materials
Date of Award
Doctor of Philosophy (PhD)
Harry H. Pierce
Growth and Development
The New York Central Railroad played a very important role in the economic development of New York State. Yet, the promoters of this great enterprise often experienced considerable difficulty in persuading the financial community to support the chartering and financing of this fine property.
Railroad building in New York during the late 1820s and 1830s was impeded somewhat by the spectacular success of the Erie Canal, by the restrictive legislation imposed on railroad operations by the state legislature and by the widespread belief that railroads could not compete successfully against great, natural waterways like the Hudson River. Nonetheless, by 1842, a series of short, independently operated roads connected Albany and Troy on the Hudson with Buffalo on Lake Erie. A decade later, they were consolidated to form one of the world's largest and most successful corporations.
The pioneer railroad lines were financed almost entirely by the proceeds from the sale of common stock. Mortgage bonds were never issued until after the company became a going concern. There was no shortage of venture capital in New York, at this time, but embryonic railroads were highly speculative enterprises and their promoters had to compete with other kinds of investment opportunities for available funds. The Auburn & Rochester had to run its line in a serpentine or zigzag fashion through the villages of Seneca Falls, Geneva, Vienna and Canandaigua to obtain sufficient subscriptions to build the road.
Of the original Central lines, four, the Tonawanda, the Auburn & Syracuse, the Schenectady & Troy and the Auburn & Rochester received state aid; one, the Mohawk & Hudson, was assisted by the city of Albany, and one, the Schenectady & Troy was municipally built and operated. With the exception of these public subsidies, all money spent for the construction of the New York Central came from private investors.
Most of the original shareholders were small merchants, farmers or professional people who lived in the area through which the road passed, but there were also a considerable number of well-to-do merchant capitalists who were engaged in foreign and domestic commerce. Foreign investors, with the exception of Benjamin Ingham from Palermo, Sicily, shied away from the securities of these short, parochially built lines. Funds from abroad entered the Central system chiefly as secondary rather than as primary capital. They helped to finance company improvements and company expansion, not original construction.
Perhaps 90 percent of the iron used in the building of the New York Central came from England or South Wales. Prior to 1844, there was not a mill in the United States capable of rolling a single foot of rail. Although it was common practice, at this time, for a railroad to pay for iron in stock or first mortgage bonds, the Central lines made payment for their purchases principally with credits furnished to company officials by merchant banking houses in London, England.
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Scanlon, Ann Marie, "The Beginnings Of The New York Central Railroad: A Study Of Men, Money And Materials" (1981). Social Science - Dissertations. 127.