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.Cost accounting andstrategic planning helped administer huge organizational empires (Chandler1965, 1977).While the railroad s contribution to aggregate economicgrowth, especially by enabling wider and cheaper marketing, has beenwidely treated (Davis 1961; Goodrich 1960; Jenks 1944; Cochran 1955;Chandler 1965; Fishlow 1966; McClelland 1968; Lightner 1983), I empha-size the railroad s distinctive form of property.Chapter 6 will address thelegal aspects of corporate property, the rights, entitlements, and responsibil-ities enforced by the state.Here I want to analyze the institutional aspectsof the social relationships among important economic actors.To under-98 C H A P T E R F O U Rstand the historical role that the railroad played in the rise of major indus-trial corporations, it is necessary to explore its earlier relationship to indus-try, focusing on how railroads and industry operated in two distinct institu-tional environments and the kinds of relationships that connected them toeach other.Railroad property was institutionalized as corporate capital.Its growth,dynamics, and internal relationships were structured through the institu-tions of corporate capitalism.The class who owned it was the corporateclass segment.I use these terms rather than finance capitalism and financeclass segment because the financial dynamics were only one aspect of itsoperation.To be sure, the ability to issue corporate securities, mobilize re-sources from finance capital markets, expand through securities manipula-tion, and control enterprise by financial power all structured corporategrowth.But the financial system was but one component of the corporatesystem which, as I have stressed, was a system of property.The definition ofthe class segment thus is based on the entire system of property, not just theinstitutions that administered the flow of capital.14Although the financial dynamics were only one facet of the system ofcorporate capitalism, the institutions of finance were a critical componentdistinguishing corporate capital from other parts of the economy.Corpo-rate capital separated the paper representation of capital from the physicalobjects of capital and thereby redefined the meaning of ownership.Owner-ship became more fungible and alienable.Ownership could be parcellizedand sold without directly affecting management and operation, creating aform of profit distinct from company revenue and expenses.Although inentrepreneurial capitalism the paper deed was literally separate from theobjects producing commodities, ownership of the deed, except for silentpartners, granted the right to control production.Transferring the deedmeant transferring control of the plant.So there was a singular system ofproperty, with the physical plants and the ownership papers constitutingthe same social relationships.Finance capital is essentially a mercantilesystem in which securities stocks and bonds are traded like barrels ofbarley, pecks of peppers, or sacks of sugar.The marketing and trading ofsecurities take on a life of their own that is only loosely coupled to the dailyoperation of the physical facilities which the security-holders nominally own. As a consequence, firms capitalized as publicly traded corporationscould operate somewhat independently of revenue and could easily growand combine with relatively little cash capital.Although the institutions of finance made it possible to create wealthsomewhat independently of the underlying real property, that independencewas only relative.The operation of the broader economy set limits on cor-porate capital.Ultimately the railroad system depended on manufacturing,farming, and merchandizing.This section will describe how the railroads,organized as large corporations, both operated within the context of finan-cial institutions and were connected to the more basic means of production,R A I L R O A D S 99organizationally distinct from industry, commerce, and farming but depen-dent on them.When the continent was saturated with tracks and when thedepression of 1893 ended construction and speculation, the corporate classsegment merged with the growing industrial class segment.As discussed above, early railroads, before the system of finance capitalwas fully institutionalized, financed their construction from a variety ofsources that hoped to benefit from the availability of transportation.Stateand local governments (and later the federal government), merchants, farm-ers, and tradesmen contributed liberally to the early railroads, which,because they were quasi-government organizations, were financed in the in-stitutions that administered government debts the stock exchanges, invest-ment banks, and brokerage houses in New York and other large cities.Forexample, the Pennsylvania Railroad was initially financed primarily by thecity of Philadelphia in a six-month campaign to sell stock.This was at atime when stocks could be subscribed for as little as 10 percent paid in.Thecity financed its purchase by selling (with some difficulty) its own bonds onthe London markets.Few large investors became involved with railroadsuntil its technical superiority was proved in the late 1840s (Seavoy 1982).One of the first railroads built without any public support was the Cincin-nati, Hamilton & Dayton, a harbinger of later financing patterns, sellingone-fifth of its $800,000 stock in New York and securing the rest of itscapital from residents of Cincinnati and the contractors who built it(Scheiber 1969)
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