Louis, a second line to Cincinnati, and access to territory not previously tapped. Technology Besides expanding the system and putting it on a solid financial basis, Thomson made the Pennsylvania the technological leader of the industry. It took the lead in changing its engines to run on coal rather than wood burning, and from iron to steel (in constructing rails, bridges and cars). With Philadelphia emerging as the center of the locomotive industry, new innovations were offered first to the Pennsylvania Railroad, which embraced them. Management Thomson developed a new kind of management suitable for a large dispersed corporation with many functions, partly based on the work of Daniel McCallum. Specicifically, he devised a decentralized system based on geographical districts, as well as the staff and line system that became synonymous with American management. Line executives handled people and hourly operational decisions on traffic, while staff executives handled finance and paperwork. Business As a conservative, risk-averse financier, Thomson avoided disaster during the panics of 1837, 1857, and 1873, while rival lines often went bankrupt. His Pennsylvania Railroad was worth about $400 million in the early 1870s (before the Panic of 1873 depressed values), with $25 million in traffic revenue and a profit of $8.6 million. It paid steady dividends year in and year out and was a favorite for cautious investors. The speculators who were so numerous in the post-Civil War era looked elsewhere. Thomson had a vision of a transcontinental line, invested his own money in several ventures, and briefly in 1871 the Pennsylvania controlled the Union Pacific. Chandler (1965) demonstrates that the large-scale problems of management became obvious in the middle of the 19th century with the rise of the great railroad systems, such as the Pennsylvania and the Baltimore and Ohio. New methods had to be invented for mobilizing, controlling, and apportioning capital, for operating a widely dispersed system, and for supervising thousands of specialized workmen spread over hundreds of miles. The railroads solved all these problems and became the model for all large businesses. The main innovators were three engineers, Benjamin H. Latrobe of the Baltimore and Ohio, Daniel C. McCallum of the Erie, and Thomson of the Pennsylvania. They devised the functional departments and first defined the lines of authority, responsibility, and communication, together with the concomitant separation of line and staff duties which have remained the principles of the modern American corporation. Taciturn and