2 - The Golden Spike

Summary

This Chapter introduces the Railroad Era and the financial and regulatory changes spawned by Richard Trevithick’s steam-powered locomotive. In particular, railroads illustrate how technological innovations, like the steam engine and rail car, often require financial innovations to bring the new technology to market because not only is production of the product itself expensive, but it also requires enormous investments in infrastructure like the Transcontinental Railroad. For example, preferred stock was invented to make railroad financing more appealing to governmental investors, but it was quickly adopted for many different purposes. Although the idea of using public funds to purchase railroad stock was unpopular with legislatures in the beginning, constituents soon began to demand access to this preference and additional rights. Additionally, as the acrimony between Federalists and anti-federalists persisted throughout the era, another financial evolution was primed to take place–the abandonment of the gold standard. Federalization of the money system continued as the United States attempted to better control its economy by adopting the gold standard.