When American was founded by Europeans everything was linked to the sea – inland lakes and great ports. As time moved on and the great industrial revolution started railways were brought to America. Have you ever wondered about their financing. Most of the time, we hear or read about how railroads opened up the country and they did – crossing the states from the Pacific to the Atlantic took 5 days rather than 3 to 6 months on the ships. The boats prior to the Panama Canal had to go around South America and then go north to Los Angles and San Francisco. In time and the discovery of gold in California and silver in Nevada brought a need for railroads. Prior to the discoveries, there was a wish to cross the country on a railroad or ride the rails.

If you jump to the great interstate building of highways after World War II, the interstate highways were built by government, although the work was often done by private companies. In the railroad age, the bulk of money was made and still is moving commodities such as grain, iron ore, coal, and the like. If your town did not get a railway connection, then it likely became a ghost town. If it did gain a railway connection, there was good change to enjoy the prosperity of the country.

In a book called The Railway Game by J. Lukasiewic published by McCelland and Steward. Toronto, Ontario, 1976. The question of how were railways financed answered. The book uses Canadian examples, however the same practices went on in every western country. The age of the railway could open up the country, but it was expensive. The easiest method to raise money was not on the stock market, but the bond market. If you buy a US Treasury bond, it is backed by the government and unless it goes bankrupt it will pay interest and principal on maturity. If a railroad goes to the bond market in Europe (that is where the money was at the start of the industrial age – later it shifted to New York), why would European investors buy bonds on railways going across the country? The reason Europeans bought railway bonds is the government passed legislation which would backstopped the railroads, after all politicians tied rowth of the economy to the railroad. The government guaranteed loans; guaranteed interest rates; direct issue of bonds to railways against mortgages; guaranteed share capital; gave the railways lands; gave the railways the revenue from the lands; gave the railways a monopoly in the area; much of the railway infrastructure was exempt from taxes; municipal governments did the same as national governments in order to get a stop.

If you were in the railway company business, it was very possible to be subsidized by cash and land grants; have guarantees from federal, state and municipal governments. If commodities were discovered and people actually came to farm, remember the plains were not populated by farmers in a day. If all worked well, the service contracts to run the railroad made the promoters wealthy, but the government was on the hook in case of bankruptcy. The public subsidies by governments gave 80 railroads more than 187 million acres. Grants from states added 50 million more acres. Texas gave away lands larger than New York state. Other states which gave away lands included Alabama, Florida, Illinois, Michigan, Mississippi and Wisconsin.

Linking to dividend paying stocks, in the railway age when railways were being built governments encouraged the railway to build and open up the country. In many ways this was a good thing, although for the average taxpayer, maybe not. As time went on, many of the railways consolidated and now they are only a few and are profitable. Was it a good idea for governments to give away so much to have railways built? is a different question, but the history of the country is business is often subsidized by governments. Ideally, governments do not have to take all the risks, however quality dividend stocks work like monopolies and that is a good thing for an investor for low risk.

There are more questions than answers, till the next time – to raising questions.