|Railroads, Robber Barons, and Unbridled Capitalism|| || |
|Written by Bob Adelmann|
| New American, 16 July 2010 00:00 |
When Matthew Josephson wrote The Robber Barons in 1934, he tipped his hand as to his personal prejudice against the capitalists of the late 19th century:
Besides the young men who marched to [the Battle of] Bull Run, there were other young men of 1861 whose instinctive sense of history proved to be unerring. Loving not the paths of glory they slunk away quickly, bent upon business of their own. They were warlike enough and pitiless yet never risked their skin: they fought without military rules or codes of honor or any tactics or weapons familiar to men: they were the strange, new mercenary soldiers of economic life. The plunder and trophies of victory would go neither to the soldier nor the statesman, but to these other young men of ’61, who soon figured as “massive interests moving obscurely in the background” of wars. Hence these, rather than the military captains or tribunes, are the subject of this history.
His bias against the capitalists, who were busy building the greatest industrial nation the world had ever seen, ingratiated his work with statist historians who looked favorably on government intervention to “deliver us from these evils” and made Josephson’s attack required reading in high schools and colleges for decades thereafter.
Of late years, however, a group of academic historians have constituted themselves what may be called a revisionist school, which reacts against [my] critical spirit of the 1930’s.... To [these] revisionists of our history our old-time moneylords “were not robber barons but architects of material progress,” and, in some wise, “saviors” of our country. They have proposed rewriting parts of America’s history so that the image of the old-school capitalists should be retouched and restored, like rare pieces of antique furniture.
The development of the railroad industry in the 19th century provides a welcome opportunity to investigate such charges and determine if, in fact, such “revisionism” is justified and necessary.
There is little doubt that the commerce clause … was to be used for little more than insuring what we would call today, a “free trade zone.” That limited role is quite rightfully where the federal government’s authority in interstate commerce should end. Any reach for authority beyond that envisioned by the men who wrote the Constitution should be considered unconstitutional.
The usefulness of railroads soon became apparent after their invention in England in the early 1800s. The South Carolina Canal and Rail Road Company first used steam locomotives in December 1833, followed by the Baltimore and Ohio Railroad (B&O) as the first common carrier, which initiated passenger train service using such locomotives soon thereafter.
A pure market entrepreneur, or capitalist, succeeds financially by selling a newer, better, or less expensive product [or service] on the free market without any government subsidies, direct or indirect. The key to his success as a capitalist is his ability to please the consumer, for in a capitalist society the consumer ultimately calls the economic shots. By contrast, a political entrepreneur succeeds primarily by influencing government to subsidize his business or industry or to enact legislation or regulation that harms his competitors.
The first clear attempt by political entrepreneurs to “game” the system occurred immediately after passage of the Pacific Railway Act of 1862, when “The Big Four” were given control of the financing, construction, and operation of the Central Pacific Railroad. These were Leland Stanford, Collis Huntington, Charles Crock, and Mark Hopkins. Each of the Big Four invested $1,500 in their newly formed company, Central Pacific Railroad, and, using 30-year, six-percent U.S. Government Bonds, started building the railroad east from Sacramento. These bonds were issued at the rate of $16,000 per mile on the plains west of the Sierra Nevada Mountains, $32,000 per mile of track laid between the mountains, and $48,000 per mile of track laid over the mountains. In addition, the 1862 Act initially granted the railroads 10 square miles of public land for every mile laid, but that grant was increased to 20 square miles in 1864. By the time the Union Pacific Railroad met the Central Pacific Railroad in Promontory Point in Utah in 1869, the two companies had been given 242,000 square miles, a territory larger than Germany.
Leland Stanford and the men who ran the CPRR paid lip-service to the idea of free competition, but in practice sought to dominate competing railroad and shipping lines.... Stanford and his associates repeatedly entered into pooling arrangements to prevent competition, bought out competitors, or forced rivals to agree not to compete. Stanford and his partners viewed laissez-faire as applicable only to government controls, and not to … competition within the system.
One of the ways the Big Four milked the system was by setting up their own coal company to sell coal to their railroad. That company mined coal for two dollars a ton, but sold it to their railroad for six dollars a ton, and pocketed the difference. In other words, the Big Four essentially stole from the government that was financing the railroad — the railroad was just an intermediary involved in the theft.
What we want is the best possible line, shortest distance, lowest grades and least curvature that we can build. We do not care enough about Rocky Mountain scenery to spend a large sum of money developing it.... A railroad is successful in the proportion that its affairs are vigilantly looked after.
The Panic of 1873 bankrupted most of the national railroads, but not Hill’s. In fact, his railroad was the only transcontinental railroad that never went bankrupt. Hill later stated that “the government should not furnish capital to these companies, in addition to their enormous land subsidies, to enable them to conduct their business in competition with enterprises [like mine] that have received no aid from the public treasury.”
If we seriously study entrepreneurs, the state, and the rise of big business in the United States we will have to sacrifice the textbook morality play of “greedy businessmen” fleecing the public until they at last are stopped by the actions of the state.
Current negotiations taking place in Washington over “financial regulation” provide a perfect example of political entrepreneurs successfully gaming the system. There are more than 2,000 lobbyists pressuring politicians to create a bill that won’t impact banks and other financial institutions very severely. Matt Taibbi, writing in Rolling Stone magazine, disclosed that politicians and lobbyists “tinkered with amendments on all four fronts of the war [against Wall Street] just enough to keep many of them from having any real teeth.” He quotes one Democratic aide: “They’re working [together] to come up with a bill that Wall Street can live with.”
— Photo: AP Images