The federal government DID NOT subsidize the railroads as you say. The only thing that came close to it was during the era of carpetbagger rule in the South. The carpetbaggers did float a great many railroad bond schemes in which the bonds were guaranteed by the states. The schemes collapsed one after another. Most of them were total frauds. They build little or no railroad track. They did make the carpetbaggers millionaires.<quoted text>
It has been decades since I have been in school so what history I learned hasn't been from that!:)
You need to go back to school and learn how the government subsidized the railroads.
Most of the capital investment needed to build the railroad were got from selling government guaranteed bonds (granted per mile of completed track) to interested investors. The financial incentives and bonds would hopefully cover most of the initial capital investment needed to build the railroad. The bonds would be paid back by the sale of government granted land and prospective passenger and freight income. In addition to the railroad land grants which the railroads sold at low cost to pay back their government backed bonds (all were repaid) the 37th United States Congress passed the Homestead Acts which were several United States federal laws that sold an applicant 160 acres (65 ha) of unclaimed government owned land, typically called a "homestead", at low cost when the applicant did some prescribed work on it. There was now a strong and relatively low cost incentive for the settlement of the west which many thousands took advantage of. The railroads started new population growth and potential population growth induced many other railroads to be built and connected to the transcontinental railroad to serve communities and states off the original main track. http://en.wikipedia.org/wiki/First_Transconti...
I know, the awful government made the coal barons quit using child labor to sort coal and made the owners improve their mine safety.
The western railroads were built with private capital. That capital was raised by selling land. It worked this way: The government gave wilderness wasteland to the railroads. The railroad companies had to develop that land and make it accessible. Settlers bought the land and made it productive. Goods produced on the land then were shipped on the railroad, making it profitable.