In “Martin Dressler,” Steven Millhauser depicts a magical world in which hotels stand for imaginative possibility: Within them, grand dreams, and disquieting illusions abound. Even in our world, hotels reflect wispy fantasies and tough realities. Set apart from mundane experience and hometown constraints, the hotel blends hospitality and commerce, democracy and exclusion.

The first functioning hotel, A.K. Sandoval-Strausz writes in “Hotel: An American History” (Yale University Press, 284 pages, $37.50), was Manhattan’s City Hotel on Lower Broadway, built in 1794. Earlier, travelers had to rely upon inns of uncertain and indifferent quality. Although at first the distinction was hazy, most inns were associated with taverns, while hotels, as they became known, were larger and more formal establishments whose main purpose was the renting out of rooms to travelers.

Hotels first appeared in recognizably modern form in 1820s America, thanks to growth directly linked to the expanding transportation system — better roads, railways, canals, and river travel — and by the Civil War, most cities of any size had several hotels competing for travelers. These businesses resulted from social and economic developments, including a vigorous economy, expanded mobility, trust in strangers, and a culture of public propriety. As the salesman became essential to the growth of American industry, hotels arose to meet their needs.

And yet, early American hotels didn’t merely answer the needs of a changing economy: In Mr. Sandoval-Strausz’s persuasive telling, the marketing of hospitality was crucial to their development. The late 19th century witnessed not only a burgeoning of hotels, but their differentiation: commercial, luxury, and resort hotels, railroad hotels, and flophouses.

Although the first section of “Hotel” presents a detailed historical account of the industry as an economic and architectural domain, Mr. Sandoval-Strausz’s mandate is broader: to demonstrate how institutional hospitality is integral to urban culture. The transformation of strangers into guests in the early 19th century permitted transients to be seen, for the first time, as respectable. A hotel is not merely a business, but a new kind of social sphere: a place where citizens gather, and that requires that they be managed and socialized. In fact, the division of hotels into types permits voluntary segregation by class and culture.

One wishes, however, for more extensive treatment of the culture within the hotel. Relying on archival information, Mr. Sandoval-Strausz cannot present much about how hotel rooms are used in practice, but the lived experience of being a guest — being “private in public” — wafts through the pages.

In hotels, power is made material, evident in such grand spaces as the lobbies of the Waldorf or Plaza. The hotel entrance, parlors, restaurants, and chambers are spaces in which certain actions are permitted and others prevented. Most dramatically, the hotel is a sexual sanctuary, providing guests the most private spaces of home — the bedroom and bath — but away from the gossipy control of family and neighbors.

The rise of hotels that catered to women and to families in the 19th century reflected a desire for morality and propriety in a society of men that was often not either. Most strikingly, the temperance hotel, which first appeared in the 1830s, responded to these challenges to conventional mores. Since liquor was the source of much profit, these hotels were frequently economically stressed. But their presence reflects a desire for virtue.

“Hotel” ends its discussion with that most obstinate American dilemma: race. African-Americans were never far from hotels, but almost always in the role of servants or laborers. Until recent years, hotels in most large cities were integrated spaces, but only inasmuch as one might describe a plantation as being integrated; allowing African-Americans to be guests was another matter.

Throughout the 19th and early 20th centuries, the intimacy of the hotel worked against integration, and issues of respectability created barriers (as they did for Jews in “restricted” hotels). A hotel that permitted blacks as guests was not likely to get many white customers, and few hotels in small towns or throughout the south were willing to take that risk. When in 1875 Congress passed a Civil Rights Act assuring that hotels would serve all guests, several hotels, including Baltimore’s Park Hotel, shuttered, and others became private boarding houses. The law was struck down eight years later, and changes to hotel culture, especially in the deep south, were hard-fought.

Indeed, hotel culture is linked to civil society. The architecture and location of hotels permit them to serve as community centers, and their pivotal role as meeting places connects localities to the nation. Further, because they welcome guests from around the nation and the world, hotels are cosmopolitan. At their best, hotels allow their guests to have it all, persuading tired travelers that life is suite. But their history reminds us that American life hasn’t always been so.

Mr. Fine is John Evans Professor of Sociology at Northwestern University, and the author of “Kitchens: The Culture of Restaurant Work.”