Myth-busting take on the railroad industry
Review of Railroaded: The Transcontinentals and the Making of Modern America by Richard White
Richard White introduces his fascinating study with an unusual motive: what we have been told about railroads, he claims, is grossly inaccurate and, because the reasons for this are very interesting, he wants to explore them. Railroads were not, he says, harbingers of the future, our modern era. While they may have introduced technologies that revolutionized American life, they did not directly give birth to mature managerial capitalism, as is traditionally posited.
In fact, White contends, railroads largely did not even immediately benefit citizens, but came at unacceptable cost - a grotesque waste that burdened generations of Americans with financial detritus. Indeed, White wants to get us to question conventional economics and social science at the profoundest levels. The result, if challenging to follow, is an absolutely first-rate reading experience that only a great historian can provide.
White’s findings are unmistakably clear: Railroads were deeply dependent on governments to get going and then to financially survive. This was accomplished not by direct payment, but by a complex system of land grants, tax breaks, and, most important of all, outright bailouts.
What the railroads actually did was reshape our sense of time and space, not just by shortening distances, but in rendering life unstable, i.e. mired in bitter political and economic conflicts in the name of speculative opportunities and the acquisition of power.
Crucially, they were “not the harbingers of order, rationality, and effective large-scale organization”, but stubbornly unprofitable, indeed disasters of inefficiency and chaos. This flatly contradicts the conventional wisdom that railroads instilled hallmarks of mature managerial capitalism, that is, they did not promote or instill efficiency, planning, and centralized hierarchy under visionary leaders.
Moreover, governments were corrupted and influenced in their turn by the railroad magnates. This sparked the rise of the anti-monopolist opposition, which eventually failed to control the large corporations in formation but had a significant regulatory impact nonetheless.
In addition, the “octopus” entrepreneurs of the railroads were not ruthlessly competent and only vaguely knew what they were doing. In reality, they were men on the make who improvised, flagrantly enriched themselves even as their businesses failed, and had little concept of the consequences, impact and even the managerial requirements to run their corporations.
In other words, White concludes, Schumpeter’s “creative destruction” slogan is a glib, ridiculously Panglossian oversimplification of very complex events and trends. It was, White writes, “the triumph of the unfit, whose survival demanded the intervention of the state, which the corporations themselves corrupted.”
The consequences of their actions were extremely dire. Not only were many railroads unneeded (built far ahead of demand), but they led to a series of severe social and environmental upheavals. Creating the conditions for boom and bust cycles – railroads needed to create traffic in a desperate and ultimately unsuccessful attempt to cover their high fixed costs and debt burdens – they generated unsustainable surges in silver mining as well as cattle and wheat production, in the process breaking up Indian reservations in order to bring settlers to arid western regions that would later almost certainly fail. It was too much, too fast, in the wrong places. It completely reshaped the landscape with far less benefit that their propaganda would promote.
As White demonstrates, it was only their symbiotic development with the modern state that saved them. Most investors also fared poorly, corruption became endemic, yet the “entrepreneurs” became extraordinarily rich.
In spite of its populist racism and simplistic ideals, the anti-monopolist movement is one of the more interesting aspects of the book. Its proponents wanted, White explains, to force American businesses via regulation and political action to function like democracy was supposed to - to enable citizens of the republic to share in the prosperity. There is a great deal in the book about their strike actions, electoral campaigns, political violence, and ultimate inability to come up with a coherent ideological message that would unite them. Their ideas represented, in my opinion, one possible path that capitalism might have taken, perhaps culminating in an early welfare state and a more equitable and rational state-managed capitalism.
As White proves, reality stood in stark opposition to the claims of the economists of the era, the “marginalists”, who believed that the market would inevitably, indeed magically, result in optimal solutions so long as politicians did not meddle in private-sector affairs. The evidence, White asserts, in no way supports this ideology. Not only did railroads never achieve anything beyond momentary success in boom surges – they were normally “in either crisis or decline” – but they could never economically compete with the industry they were intended to replace, i.e., water transportation. While they opened up new geographical areas, the result was invariably wasteful, pushing the extraordinary financial burden of maintaining their infrastructure onto the next generation. Moreover, he argues, in extolling the impact of railroads without appraising their real costs, social science ignores too much, indeed it is one of their most essential failures.
In this light, classical economic science appears not just to be a theoretical construct imposed on events far more complex than acknowledged, but a misleading narrative that obscures deeper inconvenient truths to the present day – neoliberal economics is blatantly political while claiming to be apolitical science.
White’s most audacious assertion is that the historian must contemplate what alternatives might have resulted if things had been handled differently. The scenario he explores is one where demand rather than supply might have governed the development process. (The example of North and South Dakotas is key here: the formal led by demand with success, the latter by supply, hence failure.) Instead of boosters frantically trying to create demand for unneeded railroads – pushing farmers and miners into inappropriate landscapes, where they were often doomed to failure as they created gluts of wheat and silver, causing ruinous collapses in prices – development would have proceeded more slowly and in better measured ways. This might have given Native Americans more time to adjust as well as avoided environmental degradation and innumerable other disasters, such as the bankruptcies and human tragedies in unviable booster towns.
In academic terms, White’s take is significant and subtle. Instead of relying on what the entrepreneurs claimed about themselves in propagandistic annual reports and similar self-serving documents as found in standard accounts (e.g. in Chandler’s Visible Hand), White went much deeper into the archives, including their personal letters, congressional investigations, and local sources who provided witness to the events. This results not in a simple jeremiad against robber barons, but in a nuanced portrait of their motives, cluelessness, and uncanny ability to enrich themselves even as their corporations repeatedly and consistently floundered, only to be resurrected by the state they had corrupted.
As White demonstrates, the early modern state developed coeval with the industrial corporation; this is a profound revelation that added immensely to my understanding of the 19th century, on a par with Empire of Cotton by Sven Beckert.
This is not an easy book to read, no matter how fun the details and narratives are. I had to read it twice before I felt ready to review it. White’s book is chock full of challenging ideas and, I believe, a must-read for anyone interested in economic development, political science, and the 19th century. It is not for the casual reader, only for the seriously engaged. Recommended with the greatest enthusiasm.
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