The Free Market 32, No. 1 (January 2014)
Although not related in quite the heroic terms it once was, the transcontinental railroads retain their place as one of the great alleged success stories of nineteenth-century America. According to the popular myths, the railroads, these great monuments to the ingenuity of American industrialists, united East and West by bringing together the economies of the West coast and the East coast, while setting the stage for the massive economic growth and national greatness that would occur in the United States during the early twentieth century.
And yet, few claims about the necessity or success of the transcontinental railroads are true. While none would argue that transcontinentals would become economically feasible in the private market at some point, during the 1860s, as the first transcontinentals took shape, there was no economic justification. This is why the first transcontinentals were all creatures, not of capitalism or the private markets, but of government. There simply were not enough people, capital, manufactured goods, or crops between Missouri and the West coast to support a private-sector railroad.
As creatures of government and of taxpayer-funded schemes to subsidize the railroads and their wealthy owners through cheap loans and outright subsidies, the railroads quickly became scandal-ridden, wasteful, and contemptuous of the public they were supposed to serve.
This less-than-virtuous reality behind the railroads provides an effective backdrop for high drama of course, and it is perhaps fitting that after a long period of neglect in popular culture, the transcontinentals have returned to the screen in the popular AMC series Hell on Wheels. While earlier renditions of the story of the railroads, such as John Ford’s 1924 silent epic The Iron Horsepresented the story as one of inevitable progress and the triumph of civilization over savagery, Hell on Wheels is not so fanciful.
Indeed, while The Iron Horse begins with numerous images of men gazing west over a picket fence, and Honest Abe philosophizing about the future of America, Hell on Wheels begins with a Confederate veteran, Cullen Bohannon, inflicting murderous revenge upon a Union soldier who butchered Bohannon’s family. Soon thereafter, the action switches to a posh Washington, D.C. hotel where a partially-fictionalized Thomas Durant, CEO of the Union Pacific, is cynically delivering a rousing speech to investors about the need to invest in America's destiny. We quickly learn that Durant has at least one Senator in his pocket, and that like the real Thomas Durant, this Durant has tricked the stockholders of the U.P. into paying him to construct their railroad through an auxiliary corporation known as Credit Mobilier.
In other words, Hell on Wheels wastes no time in making it quite clear that this is not the story of heroic entrepreneurs or industrialist visionaries. It is the story of con artists and thieves capitalizing on the expansionist ideology of a militarized and war-torn society.
Durant, wishing to extract as much money as he can from the federal government, chastises his workers for seeking to build the railroad efficiently, reminding them that “this undertaking is being subsidized by the enormous teat of the federal government” and that the railroad, which is being paid by the mile, should use a much longer route in order to take advantage of “this never-ending money-gushing nipple” that is the U.S. Treasury.
Because of its political provenance and its lack of participation in any functioning markets, the railroad exists forever on the brink of chaos and bankruptcy as Durant must manage politicians and stockholders to ensure that his corrupt show can go on.
It doesn’t take a Ph.D. in film studies to figure out that the railroad camp, known as Hell on Wheels, serves as a microcosm of the United States itself, and, appropriate to the analogy, Durant attempts to impose order on Hell on Wheels through a sociopathic, brutal, and central-planning-inclined character known as The Swede. Bemoaning the unpredictability of acting human beings, The Swede seeks comfort in his numerical calculations. “I can control numbers” he tells Bohannon, and the key to controlling people, we learn, is to employ what The Swede calls “immoral mathematics” to impose his will on others.
The Swede is eventually cast out by the private-sector entrepreneurs of the town, but in spite of later efforts to impose order and efficiency, Durant’s corruption and infighting among the politicians and Robber Barons endanger the entire enterprise by the beginning of the third season.
While the television show naturally takes liberties with its historical source material to heighten the drama, this overall image of the railroad’s lack of profitability and dependence on the political system is ultimately true to life.
For example, historian Richard White’s 2011 tome on the intercontinental railroads, Railroaded: The Transcontinentals and the Making of Modern America, exposes the near-utter disconnect between the railroads and the true geography of the markets in the mid-nineteenth century.
While it has been long-assumed that the West coast benefitted immensely from the intercontinentals that connected the West coast to eastern markets, in fact the overland railroads made little difference.
The West coast already had its own economy founded on exports to Europe and Asia, and Californians and Oregonians obtained all the goods they needed by sea. Indeed, for years after their completion, the railroads of the West coast were unable to effectively compete with the steamship operators (many of them also subsidized by Congress) that provided cheaper transportation of goods. Naturally then, this situation degenerated into a political competition between railroads and steamship companies seeking more favorable treatment from the federal government.
In general, however, the economy of the West coast turned to the more efficient and more competitive sea carriers. By the 1860s, the sea carriers were already taking advantage of well-developed trade with the Panama Railroad across Central America, completed in 1855, that was providing true transcontinental shipping at a much lower price over a much shorter overland route.
In spite of massive subsidies and free lands equal in size to New England, the lack of overland trade made it difficult for the railroads to turn a profit, and after a series of bankruptcies, bailouts and other schemes, railroad owners like Leland Stanford, Durant, and Jay Gould managed to make a lot of money manipulating federal largesse, but many others were ruined by the railroad’s bubble economy.
With the signing of the first bill to create the transcontinentals in 1862, it was already known that there was no economic justification for the railroads, which is why they were, according to White, “justified on the grounds of military necessity.” Lacking any privately funded entrepreneurs willing to build a road through more than a thousand miles of territory uninhabited by whites, the 1862 Railroad Act created the Union Pacific, making it the first federally-created corporation since the Bank of the United States. Legal and economic shenanigans ensued, and it would not be until the 1890s that anyone built a privately-funded railroad, the Great Northern Railway.
Although fictionalized, the chaos, drama, and political maneuvering of Hell on Wheels provides us some true insight into one of the great political boondoggles of the Gilded Age and how the taxpayers are exploited to produce grandiose and massively-expensive schemes in the name of national greatness. In the end, the railroads constituted a huge transfer of wealth from taxpayers, Indians, Mexicans, and more efficient enterprises who found themselves competing with these subsidized behemoths.
It was the same old story of using the state to socialize costs while privatizing profits. As one opposition Congressman declared in response to the Railroad Bill, the enterprise was “substantially a proposition to build this road ... on Government credit without making [the railroads] 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."
