ECONOMY Railroads, Robber Barons, and Unbridled Capitalism AP Images The term “robber baron” is many times used in history books to be synonymous with “unrestrained capitalist,” but such a definition is overly general and misleading.

by Bob Adelmann nor the statesman, but to these other ploit the working class, form anti-compet- young men of ’61, who soon figured itive trusts, and obtain the accumulation hen Matthew Josephson wrote as “massive interests moving ob- of personal wealth above all else. Muck- The Robber Barons in 1934, he scurely in the background” of wars. raker Ida Tarbell, author of the History of W tipped his hand as to his per- Hence these, rather than the military the Standard Oil Company , reinforced the sonal prejudice against the capitalists of captains or tribunes, are the subject idea that these soulless, industrialist Rob- the late 19th century: of this history. ber Barons were a destructive force and were willing to circumvent laws to accom- Besides the young men who marched His bias against the capitalists, who were plish their personal selfish ends. to [the Battle of] Bull Run, there were busy building the greatest industrial na- Some historians disagreed with this por- other young men of 1861 whose in- tion the world had ever seen, ingrati- trayal. Josephson added a foreword to his stinctive sense of history proved to ated his work with statist historians who book in 1962, complaining of the rise of be unerring. Loving not the paths of looked favorably on government inter- “revisionist historians” who were disput- glory they slunk away quickly, bent vention to “deliver us from these evils” ing his interpretation of history: upon business of their own. They and made Josephson’s attack required were warlike enough and pitiless yet reading in high schools and colleges for Of late years, however, a group of never risked their skin: they fought decades thereafter. academic historians have constituted without military rules or codes of The sobriquet “Robber Baron” has themselves what may be called a re- honor or any tactics or weapons fa- hence struck a pejorative chord in genera- visionist school, which reacts against miliar to men: they were the strange, tions of graduates of schools that continue [my] critical spirit of the 1930’s.... new mercenary soldiers of economic to teach that individuals such as Andrew To [these] revisionists of our history life. The plunder and trophies of vic- Carnegie, John D. Rockefeller, and J.P. our old-time moneylords “were not tory would go neither to the soldier Morgan used the capitalist system to ex- robber barons but architects of ma-

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terial progress,” and, in some wise, where the federal government’s au- budding entrepreneurs — the men of the “saviors” of our country. They have thority in interstate commerce should “class of ’61” as referred to by Josephson proposed rewriting parts of Ameri- end. Any reach for authority beyond — these advantages represented a once-in- ca’s history so that the image of the that envisioned by the men who a-lifetime opportunity. old-school capitalists should be re- wrote the Constitution should be con- The profit opportunities that railroads touched and restored, like rare pieces sidered unconstitutional. represented were apparent to politicians of antique furniture. The first real exertion of substan- and non-politicians alike, but federal gov- tial federal power under the inter- ernment involvement during this period The development of the railroad industry state commerce clause came with the was slowed by several factors, including in the 19th century provides a welcome advent of the railroads in the mid- the growing animosity between the agri- opportunity to investigate such charges 1800’s. The government assumed cultural southern states and the increas- and determine if, in fact, such “revision- complete dominion over the early ingly industrialized north. This animosity ism” is justified and necessary. railroads, going so far as to grant re- stemmed from the mercantilist efforts by gional railroad monopolies through northern states to institute high tariffs to The Birth of R ailroads Acts of Congress, as well as owning “protect” growing industries from for- During the Republic’s first 50 years, com- a large percentage of stock in various eign competition, which negatively im- merce was limited to the use of rivers, early railroad corporations. pacted southern states’ commerce abroad. canals, and roads. Two events, however, Another reason was the resistance to the changed the economic scene forever: the The usefulness of railroads soon became perceived abrogations of the Constitution expansion of the “general commerce” apparent after their invention in England by the North into southern states’ affairs, clause under Article I, Section 8 of the in the early 1800s. The South Carolina including the issue of abolition. Constitution by t he Supreme Court in Canal and Rail Road Company first used When federal legislation to build a 1824, and the development of steam loco- steam locomotives in December 1833, fol- transcontinental railroad was first intro- motives in England. lowed by the Baltimore and Ohio Railroad duced in 1845, it was successfully resisted In Gibbons v. Ogden , Chief Justice John (B&O) as the first common carrier, which by the southern states. However, the dis- Marshall decided that the phrase “The initiated passenger train service using such covery of gold in California in January Congress shall have Power … to regulate locomotives soon thereafter. of 1848 set off such an explosion that it Commerce … among the several states” Compared to roads, rivers, and canals, changed the question of federal govern- meant that the federal government was al- the advantages of rail transport were obvi- ment involvement in railroad construction lowed to regulate commerce wherever it ous: improved safety, year-round service, from “whether” the federal government took place, including within the borders shorter delivery times, and lower costs. To should get involved to “when, where, and of a state. Prior to this decision, it was accepted that the federal government had power over only interstate commerce. This decision extended the definition of interstate commerce and cemented the power of the federal government over the states when state laws conflicted. It was greeted with great enthusiasm at the time, as it clarified and simplified mat- ters greatly for those involved in such commerce among and between the states. This was going to have major implications after railroads became a reliable means of transportation because Justice Marshall’s decision in Gibbons was so vague that it allowed those favoring federal govern- ment intervention to involve the govern- ment intimately in the development of the railroad industry. At OriginalIntent.org, for instance, the author states:

There is little doubt that the com- merce clause … was to be used for Library of Congress little more than insuring what we Kings of industry: This is a lithograph called The Empire Builders . From the left, the men are James would call today, a “free trade zone.” J. Hill, railroads; Andrew Carnegie, steel; Cornelius Vanderbilt, shipping; John D. Rockefell er, oil; J. That limited role is quite rightfully Pierpont Morgan, finance; Jay Cooke, finance; and Jay Gould, finance and railroads.

26 THE NEW AMERICAN • JULY 19, 2010 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 ter- ritory larger than Germany. According to Norman Tutorow in his 1970 article in Southern California Quar- terly , “Stanford’s Responses to Competi- tion: Rhetoric Versus Reality,”

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 rail- AP Images road and shipping lines.... Stanford Lookout point: Two federal railroad commissioners sit on the pilot of this Central Pacific and his associates repeatedly entered locomotive to inspect newly built track. With the f ederal government offering land grants for into pooling arrangements to prevent every mile of transcontinental rail line built, much of the construction was shoddy. competition, bought out competi- tors, or forced rivals to agree not to how” such a railroad would be built. With success as a capitalist is his ability to compete. Stanford and his partners the original strictures on the commerce please the consumer, for in a capital- viewed laissez-faire as applicable clause largely removed, and the increas- ist society the consumer ultimately only to government controls, and not ing marginalization of the southern states calls the economic shots. By contrast, to … competition within the system. in their resistance to such unconstitutional a political entrepreneur succeeds pri- incursions, it was just a matter of time be- marily by influencing government to One of the ways the Big Four milked the fore the government got involved. subsidize his business or industry or system was by setting up their own coal Bills to initiate such construction were to enact legislation or regulation that company to sell coal to their railroad. That presented to Congress in 1860 and then harms his competitors. company mined coal for two dollars a ton, again in 1861. When the southern states but sold it to their railroad for six dollars a seceded from the union, thus removing The first clear attempt by political entre- ton, and pocketed the difference. In other their constitutional and economic chal- preneurs to “game” the system occurred words, the Big Four essentially stole from lenges to such an effort, a bill was ratified immediately after passage of the Pacific the government that was financing the rail- and signed into law by President Abraham Railway Act of 1862, when “The Big road — the railroad was just an intermedi- Lincoln in 1862. Four” were given control of the financ- ary involved in the theft. ing, construction, and operation of the The terminus of the Union Central Rail- Market-driven vs. Politically Driven Central Pacific Railroad. These were Le- road, also authorized by the Act of 1862, Although market-driven entrepreneurs land Stanford, Collis Huntington, Charles was determined in a politically expedient had been busy building small railroads, Crock, and Mark Hopkins. Each of the decision by President Abraham Lincoln. railroad robber barrons weren’t yet a part Big Four invested $1,500 in their newly In 1857, Thomas Durant, another political of the American scene. But their time was formed company, Central Pacific Rail- entrepreneur, hired Lincoln to represent at hand. Political entrepreneurs had been road, and, using 30-year, six-percent U.S. his M&M Railroad in a lawsuit brought busy behind the scenes readying them- Government Bonds, started selves for the coming explosion of oppor- building the railroad east tunity to “game” the system. from Sacramento. These The 1862 Pacific Railway Act initially Thomas DiLorenzo, in his book How bonds were issued at the granted the railroads 10 square miles of Capitalism Saved America , points out the rate of $16,000 per mile on distinctions between the groups: the plains west of the Sierra public land for every mile laid, but that Nevada Mountains, $32,000 grant was increased to 20 square miles in A pure market entrepreneur, or capi- per mile of track laid be- talist, succeeds financially by sell- tween the mountains, and 1864. By 1869, the two railroad companies ing a newer, better, or less expensive $48,000 per mile of track had been given 242,000 square miles, a product [or service] on the free mar- laid over the mountains. In ket without any government subsi- addition, the 1862 Act ini- territory larger than Germany. dies, direct or indirect. The key to his tially granted the railroads www.TheNewAmerican.com 27 ECONOMY

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.” As author Burton Folsom put it, Hill Pleasing the people: James J. Hill created the “had built the best railroad in America and most successful railroad had used it to beat subsidized rivals time in the country by focusing and again. He helped open the Northwest on customer service. to settlement.... He made a difference in His was the only major the way the world worked.... He was the railr oad that did not rely real hero in the drama of the American on corporate-government transcontinental railroads.” cronyism for profits. Folsom concluded his study with these Library of Congress words: by some steamboat operators. When the using his railroad — would succeed or If we seriously study entrepreneurs, Act of 1862 left the decision of the termi- fail along with him. His motto was: “We the state, and the rise of big business nus in the hands of the President, Lincoln have got to prosper with you or we have in the United States we will have to took the advice of his former client, and got to be poor with you.” Accordingly, he sacrifice the textbook morality play selected Omaha, Nebraska. encouraged his farmer-customers to en- of “greedy businessmen” fleecing the During this time, not all railroad mag- gage in crop rotation and diversification. public until they at last are stopped nates tried to “game” the system, howev- He provided free seed grain and even by the actions of the state. er. James J. Hill built the Great Northern cattle to his customers, and stockpiled Railroad, he said, “without any govern- firewood and other fuel near his train de- Current negotiations taking place in Wash- ment aid, even the right of way, through pots for the convenience of his customers. ington over “financial regulation” provide hundreds of miles of public lands, being He donated land that he purchased for his a perfect example of political entrepre- paid for in cash.” railroad to local towns for parks, schools, neurs successfully gaming the system. Hill got his start when he and several and churches. He even transported immi- There are more than 2,000 lobbyists pres- partners purchased a bankrupt Minnesota grants to help develop the land near his suring politicians to create a bill that won’t railroad that had been run by a well-known railroads, charging them only $10 if they impact banks and other financial institu- political entrepreneur, Jay Cooke. Cooke promised to build farms nearby. He spon- tions very severely. Matt Taibbi, writing was no railroad man, but received the sored contests for the best wheat crop or in Rolling Stone magazine, disclosed that Northern Pacific Railroad as a payoff for cattle, and developed “model farms” to politicians and lobbyists “tinkered with his efforts in helping to finance the Union educate his customers on the latest tech- amendments on all four fronts of the war during the war. Because of the disincen- nology and developments in agricultural [against Wall Street] just enough to keep tives created by subsidies and land grants science. Malone stated that Hill’s Great many of them from having any real teeth.” given on a per-mile basis, Cooke built his Northern Railroad was the “best con- He quotes one Democratic aide: “They’re railroad shoddily and ran it po orly, and by structed and most profitable of all the working [together] to come up with a bill 1873, the railroad was bankrupt. Biogra- world’s major railroads,” even as the rates that Wall Street can live with.” pher Michael Malone, author of James J. he charged fell steadily as he improved Josephson’s complaints that his history Hill , considered Cooke and his business efficiencies in running it. Said Hill: was being unfairly rewritten by authors associates to be “derelicts at best and such as DiLorenzo, Malone, and Folsom thieves at worst.” What we want is the best possible are simply not justified when accurate On the other hand, Hill learned the line, shortest distance, lowest grades and complete history is brought to light. railroad business and built his line care- and least curvature that we can build. Remember that political entrepreneurs be- fully and only as fast as could be justified We do not care enough about Rocky come wealthy at the taxpayers’ expense and by the growth of the markets he served. Mountain scenery to spend a large sum use the power of government to protect that Not only was he scrupulous in managing of money developing it.... A railroad is wealth, while free-market entrepreneurs be- costs, he well knew that his customers — successful in the proportion that its af- come wealthy only when they successfully farmers, miners, timber men, and others fairs are vigilantly looked after. meet their customers’ demands. n

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