The B&O Railroad from Municipal Enterprise to Private Corporation—A Review of “Steam City”

Schley, David. Steam City: Railroads, Urban Space, and Corporate Capitalism in Nineteenth-Century Baltimore. Chicago: University of Chicago Press, 2020.

Reviewed by Matthew A. Crenson

The Baltimore and Ohio Railroad has disappeared. It descended into bankruptcy toward the end of the nineteenth century, with ownership passing from Baltimore to investors in Chicago and New York. Now, along with other defunct lines, its mortal remains lie within the 21,000 miles of CSX, a mega rail freight system that moves billions of tons from Florida to Ontario and west to Chicago and Memphis.

The B&O can fairly claim to be America’s first true railroad. Its industrial predecessors, short lines often powered by gravity, were designed to carry coal, pig iron, granite, or gunpowder. Powered by Peter Cooper’s steam engines, the B&O became the first to schedule the movement of passengers and freight across state lines. The goal, which took 25 years to realize, was to traverse the 300 miles from Baltimore to the Ohio River, which in turn flowed into the Mississippi, Missouri, and Arkansas rivers, the great “western waters” which served as shipping lanes for the heartland. Baltimore merchants believed that their city’s position as the westernmost port on the Eastern seaboard would enable them to monopolize the movement of agricultural produce from the Midwest to ports on the Atlantic and the Caribbean. But with the construction of the supremely successful Erie Canal, Baltimore lost that advantage to New York City. Baltimore now turned to a new technology, railroads—operable in winter and faster than canal boats—to regain the advantage.

The scale of the enterprise captured the attention of a nation. An Alabama newspaper predicted that the new railroad would make Baltimore “the greatest commercial city in the United States.” A Massachusetts paper declared, “a single city has set on foot an enterprise…worthy of an empire.” The enterprise was impressive not just as an audacious effort to use locomotive power to dominate a massive region, but also because the B&O represented a new order of economic organization. Railroads, as Alfred Chandler pointed out, were “pioneers in the management of modern business enterprise.” And the B&O was the pioneer among pioneers.

While much has been written about the B&O, including at least three book-length histories, David Schley’s Steam City proves that there was more ground to cover. His story not only shows how the B&O became the model of a modern corporation, but also how, in the process, it evolved into an aggressive predator, so dividend-obsessed that it ultimately failed. 

At its start, Schley observes, the railroad was a public enterprise intended to stimulate the city’s economy, not to generate profits of its own. Half of its founding capital came from the governments of Baltimore and Maryland and the rest from enthusiastic residents of the city who so over-subscribed the offering that shares had to be broken into fractions. While these local shareholders were undoubtedly hopeful that their investment would yield profits, they also expected that the successful railroad would contribute to Baltimore’s general prosperity. The B&O was an economic extension of the urban political system—a private corporation that belonged to the public. 

Baltimore and Ohio R.R. Passenger car, 1830. Balto Heinmiller, Prints and Photographs Division, Library of Congress.

The corporation’s life began in state and local politics, and its corporate evolution was also a political process. Capitalism, writes Schley, “appears to evolve less through an internal logic than through acts of political will that only later were enshrined as laws of trade or economic principles.” Schley details the political roots of modern capitalism along with the “understudied” role of the city itself. Capitalist decision-making transformed the city.  

The transformation began even before the tracks were laid beyond the city limits. Funds advanced by citizens, state and local government “constituted, from the start, a transfer of public wealth into the hands of an elite.” In no time, however, the public and the corporate elite were locked in combat. The fights started in the streets where wagons, carriages, and pedestrians were continually blocked by the movement of locomotives and rail cars. But when the B&O abandoned city streets for tunnels, cuts, ferries, and waterfront rail yards, the local economy took a turn for the worse, as local business lost their access points to a railroad which was becoming critical for moving freight. In its shift away from servicing local business, the B&O increasingly looked to “through traffic”—runs that began far from the city and ended far beyond. In penetrating much larger markets, what once had been the city’s own railroad, says Schley, was now a national enterprise.

At the same time the B&O, like a nation, assumed the authority to issue its own currency—“railroad notes”— backed by Baltimore City bonds. The company used its notes to pay its employees and local suppliers, and for a time the notes even became the city’s principal medium of exchange. But with the city bonds trading at less than face value, it became clear that they were a flimsy foundation for the B&O currency. For a time mass meetings were held to voice public confidence in the railroad currency, but within months the value of the notes collapsed. Additional borrowing and new stock issues were needed to allow the railroad to complete its connection to the Ohio River. Baltimoreans had long hoped that once agricultural produce from barges could be loaded onto rail freight cars, a new river of wealth would flow into their city. Instead, the B&O presented Baltimore with a request for a $5 million loan needed for track repairs and to double-track the main line so that trains could travel in both directions.

While burdening Baltimore with debt, the railroad proceeded to increase freight rates for cargoes bound for the city and to cut workers’ wages while increasing stock dividends. Some Baltimoreans continued to challenge the company’s increasingly “privatized understanding,” especially when rail workers called for municipal support for higher wages.

Baltimore & Ohio Railroad Company Headquarters Building, 2 North Charles Street, Baltimore, MD. (n.d.) Historic American Buildings Survey, Prints and Photographs Division, Library of Congress.

Schley clearly regards the B&O’s drift toward privatization as irreversible. The company’s elite stockholders launched an extended campaign to oust the municipal directors on the company’s board and establish themselves as the “legitimate owners” of the railroad. They then voted themselves an extra dividend to compensate for the years in which the company was investing revenues into construction rather than distributing profits.  

The Great Railroad Strike of 1877 may have marked the completion of Schley’s privatization process. The B&O firemen and engineers triggered the national work stoppage to protest a wage reduction that coincided with the dividend increase. The railroad demanded that state governors call out the National Guard, and eventually President Rutherford B. Hayes summoned federal troops to end the strike. The willingness of the governors and other public authorities to put down the strike validated what private shareholders had long insisted—that profit must take precedence over the pubic interest.

Baltimoreans paid several times over for their city’s railroad investments. The city’s government borrowed so much to finance the B&O and other lines that by 1840 interest payments had become the single largest item in the municipal budget. Expenditures for other public services, like schools, police protection, and sewers, suffered. So did local manufacturing. Baltimoreans invested so much in transportation that they had little left over for promoting industrial development. Baltimore oil refineries, fertilizer plants, canneries, and cigarette and cigar factories were all taken over by out-of-town investors. A local steel mill later employed over 30,000 residents of the metropolitan area, but it was not owned by Baltimoreans. The city had become a branch-office town.  

Schley has provided a detailed account of the B&O’s transformation from “an urban improvement to a private corporation.” It is sometimes a bit too detailed. In an effort to contribute to a much-told story, he occasionally risks losing his readers in overly detailed accounts of rate discrimination and rate wars. And his story omits one event that should stand out. In 1887 Congress passed the Interstate Commerce Act, the first step by public authority to rein in the abuses of railroads that acted too aggressively as private corporations. And there is one more thing about the B&O’s privatization that deserves more emphasis: in the end, the corporation failed as the need to pay dividends undermined sound management. 

Despite these shortcomings, David Schley has succeeded in presenting a detailed study highlighting the relationship of the urban to national economy. Based on impressive research, Steam City should command an audience beyond Baltimore notably serving as a cautionary tale about the costs and benefits of public/private partnerships.


Matthew Crenson is a Baltimore-born political scientist who received a BA from Johns Hopkins University in 1963 and earned his MA and PhD from the University of Chicago. He has been a faculty member at the Massachusetts Institute of Technology and, since 1969, in the Department of Political Science at Johns Hopkins University. Professor Crenson is the author or co-author of eight books, most recently Baltimore: A Political History (Johns Hopkins University Press, 2017). He is currently Academy Professor and Professor Emeritus at Hopkins.

Featured image (at top): Baltimore and Ohio Railroad map (1891). Wikimedia Commons.

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