Book Reviews - Summer 2011

The Inside Track

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How those dim-witted robber barons built the railroads

By Mark Hertsgaard

June 3, 2011


 

Railroaded: The Transcontinentals and the Making of Modern America, by Richard White, Norton, 660 pp., $35
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Railroaded is not an easy book to read, but it tells an important story aptly summarized by its clever title. Richard White, a Parkman Prize–winning historian at Stanford, recounts the development of railroads during the latter half of the 19th century in the American West, where greedy, reckless bankers and clueless (or worse) federal regulators combined to produce a devastating financial collapse. The parallels with 21st-century America, he writes, are nothing short of “stunning.”

The notion that railroads—and specifically transcontinental railroads—not only transformed North America after the Civil War but also helped to create the modern corporate world is nothing new. But White, who helped pioneer the field of environmental history, notes that they also brought about physical changes, as natural ecosystems and human settlement patterns alike were reconfigured, often through violence:

If a western Rip Van Winkle had fallen asleep in 1869 and awakened in 1896, he would not have recognized the lands that the railroads had touched. Bison had yielded to cattle; mountains had been blasted and bored. Great swaths of land that had once whispered grass now screamed corn and wheat. Nation-states had conquered Indian peoples, slaughtering some of them and confining and controlling most of them. Population had increased across much of this vast region, and there were growing cities along its edges. A land that had once run largely north-south now ran mainly east-west.

No less convulsive or consequential were the changes the transcontinental railroads wrought on the political economy of North America. White never forgets that Canada and Mexico were similarly transformed by the transcontinentals, but the bulk of the book concentrates on the United States. The companies that built railroads were among the first corporations, White writes, noting that “in North America the word corporation would, until relatively late in the century, remain virtually synonymous with transportation companies—particularly railroads.” What set a corporation apart from lesser business enterprises, such as textile mills, were the enormous amount of capital and the complexity of management that corporations required. Those that built and operated transcontinental railroads (as opposed to those behind regional railroads in the Midwest or Northeast) shared a third trait as well: a near-absolute dependence on Washington. The federal government not only made available the vast swaths of land through which the transcontinentals would travel, it also supplied much of the capital that financed their construction and operation. Free-market rhetoric notwithstanding, corporations from their earliest days in the United States were utterly reliant on the public purse, not to mention the state’s military might.

The men running the transcontinentals were nothing if not shameless about securing Washington’s aid. Bribery was a common tool. Members of Congress sometimes received cash, but more often their bribes came in the form of shares in the railroad companies—stock that grew more valuable when officials made the “right” decisions.

Again, it is no secret that railroad bosses and other robber barons employed all manner of skullduggery to gain advantage during the Gilded Age; Mark Twain and other contemporary novelists, not to mention subsequent generations of historians, have already covered this ground. But White faults these conventional narratives. Whether emanating from the Right or the Left, he argues, most accounts have embraced the Gilded Age’s own assumption—drawn from the then-fresh theory of evolution—that the dominant figures in any given setting are, by definition, the fittest.

Nonsense, replies White, whose opinion of most of the men behind the transcontinental railroads is amusingly low. Of Henry Villard, a German-born financier who became one of the presidents of the Northern Pacific Railway and soon drove it into bankruptcy, White writes, “Like so many of his railroad contemporaries, Villard mixed greed with heedless optimism and thought the result was vision.” Leland Stanford, one of four so-called “Associates” who ran the Central Pacific Railroad, is an object of particular derision, with Stanford’s partners providing White’s sharpest barbs. Letters and memoranda written by the other three—Collis P. Huntington, Mark Hopkins, and Charles Crocker—offer, White claims, “a chronicle of amazement, dismay and irritation at his greed, laziness, ignorance and ineptitude.”

Not only were most railroad barons not that bright, White argues, they also failed repeatedly as businessmen—failed so resoundingly, in fact, that they had to be rescued time and again by the federal government they had taken such pains to corrupt. The pattern was visible early in the railroads’ development. Before the Civil War was half over, President Lincoln had signed the Pacific Railroad Act of 1862. Aiming to secure the West and especially its great prize—California—for the Union, the act authorized federal loans of $50 million and ample land grants to entice capitalists to build a transcontinental railroad. The Associates of the Central Pacific promptly began bribing members of Congress to sweeten the deal, as did Thomas Durant, head of their chief competitor, the Union Pacific. Congress duly passed the Pacific Railway Act of 1864, which doubled the loans and land grants made available.

Much of the land granted to the transcontinentals, both then and later, was simply stolen from Native American tribes. White recounts how, in 1889, “the government made the Sioux an offer they could not refuse: sell . . . or we will take it anyway.”

The Associates and other railroad men had two rules for doing business: don’t risk your own money, and employ as much insider dealing as possible. Thus the capital to finance the transcontinentals came first from the government and later from private bondholders. Both were cheated by the railroad men, who subcontracted out the construction of the railroads to companies they secretly owned—companies that charged double the actual costs of construction. Then, when Congress threatened to investigate, the company’s books magically got lost.

The only check on such audacious criminality was the press, whose exposés led to congressional hearings in 1873. Implicated in the scandal were not just congressmen—including future president James Garfield, who beat the charges and went on to win reelection—but the Speaker of the House and the vice president. Yet aside from censures of two congressmen, not a single official was punished, further fueling public outrage.

More troublesome for the railroads, however, was the effect on their financial backers. The German banks that had been supplying much of the transcontinentals’ capital grew suspicious. When they declined to cover a shortfall in operating revenues, and the U.S. Treasury Department did the same, railroads began to fail at an alarming rate, bringing down with them huge numbers of industrial and agricultural producers, including half of all U.S. iron foundries.

The Great Panic of 1873 revealed that transcontinentals relied on what amounted to a Ponzi scheme. Railroads were built with borrowed money. In theory, the loans would be repaid by the revenues earned from transporting passengers and goods. But the traffic was almost never large enough to yield sufficient revenues. To maintain operations—and to keep money flowing into their pockets—the men running the transcontinentals borrowed yet more money to build yet more track, giving investors the impression of success. The system worked as long as investors kept supplying more and more capital; once they wised up, it was game over.

Making money from transcontinental railroads required a mastery not of commerce but of finance: the shifting around of paper whose true value was difficult to know, in no small part because that value was deliberately disguised. Does that sound familiar to anyone who recalls the financial collapse of 2008? What’s more, again like a Ponzi scheme, the initial recipients of the transcontinental loans profited enormously even after the scheme went bust, because the losses were absorbed by the taxpayers. As one congressional critic pointed out, the transcontinentals wanted their railroads to be built “on Government credit without making them the property of the Government when built. If there be profit, the corporations may take it; if there be loss, the Government must bear it.”

Because of the unholy alliance between unscrupulous railroad men, gullible investors, and enabling governmental officials, White argues, transcontinental railroads were built much sooner and in many more places than was good for the nation, its economy, its people, and its environment. Of course the railroads brought many benefits as well, he acknowledges, but these were outweighed by the terrible social costs.

The many villainies White relates in Railroaded are darkly entertaining, but the book would pack more punch if it were more sleekly told. Like many writers capable of turning a pretty phrase, White has a tendency to go on . . . and on. Many passages should have been cut or at least radically condensed, if only to make the remaining material stand out more.

Nevertheless, readers who persevere are rewarded by a fascinating question that White poses, which resounds again in our own era. His investigation of 19th-century railroads, he confesses, has “led me into a deeper mystery of modernity: how so many powerful and influential people are so ignorant and do so many things so badly and yet the world still goes on.” White does not answer this question (who can?), but it seems well worth pondering as our daily lives become more and more dependent on the decisions of distant elites who have given every appearance of not being as smart as they think they are.


Mark Hertsgaard is the environmental correspondent for The Nation and the author of six books, including, most recently, Hot: Living Through the Next Fifty Years on Earth.


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