Northern Pacific 4 page brochure detailing its locomotives of past and (then) present. This is a photo of the Minnetonka, the NP's first locomotive. It was built by Smith & Porter in 1870 and is part of the Lake Superior Railroad Museum in Duluth, MN.WIKIPEDIA
Kim Sung-jae
The author is a business administration professor at Furman University and the author of “The Story of Tariffs” (2025).
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In May 1869, the final ceremony marking the completion of the United States' first transcontinental railroad took place at Promontory Summit in what was then the Utah Territory. When Leland Stanford, former governor of California and president of the Central Pacific Railroad, drove the ceremonial golden spike into the track, the news spread across the nation by telegraph.
It marked the moment when the two railroad lines championed by President Abraham Lincoln finally connected the eastern and western United States. For Americans emerging from the Civil War, the railroad symbolized not only technological achievement but also national reunification.
Travel between the Atlantic and Pacific coasts, which had taken six months by wagon, was reduced to about a week. Transportation costs fell sharply, accelerating development in the West and boosting economic growth.
The railroad's success soon sparked another investment boom. Wall Street poured capital into the Northern Pacific Railway, an ambitious 3,380-kilometer (2,100-mile) line linking Minnesota near the Great Lakes with Seattle on the Pacific coast.
Investment bank Jay Cooke & Company led the issuance of railroad bonds. At the height of the boom, annual U.S. railroad capital spending reached roughly 6 percent of gross domestic product. Jay Cooke arranged a $100 million bond issue, nearly 30 percent of the federal government's annual budget.
Yet while companies supplying railroad construction earned substantial profits, the railroad operators themselves struggled. The sparsely populated Pacific Northwest remained largely undeveloped. Tracks were laid, but passenger and freight demand stayed weak. Meanwhile, annual bond interest of 7.3 percent quickly drained cash reserves.
In September 1873, Jay Cooke suspended payments after running out of funds, triggering widespread bank and corporate failures. Railroad stocks lost nearly half their value within days. The crash spread to the broader economy, plunging the United States into a five-year depression and wiping out more than 60 percent of stock market value.
A century and a half later, Big Tech companies are investing hundreds of billions of dollars in AI infrastructure, equal to roughly 1.5 percent of GDP. Semiconductor makers and other suppliers are benefiting. Like the railroads, AI is expected to improve productivity by making industries more efficient, and the companies driving the investment still have ample liquidity.
The concern lies elsewhere. Despite enormous capital spending, revenue generated directly from AI services remains limited, and returns on investment have improved only slowly. If spending continues accelerating without matching profits, liquidity risks similar to those faced by the Northern Pacific could eventually emerge. Fear of underinvesting in AI should not trigger excessive spending with low returns and high risk.
Every new era arrives with the momentum of a speeding railroad. In the end, however, success is determined not by speed but by profitability.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
