Western farmers, too, had followed the railroads out west and were not happy with what they found. Back east, a dense tangle of major and minor roads yielded a relatively competitive market where the railroads and their prices shifted gradually. But out west, where much of the market was dominated by enormous government-backed roads that followed little prevailing market logic, prices and schedules were in a constant state of flux. Towns were being hurled across the West as rates and schedules changed.
In a particularly strong chapter titled “Spatial Politics,” White explains how farmers’ resentment of unstable market conditions throughout the West bred a new brand of anti-monopoly politics, best embodied in the Grange movement. As with many Gilded Age reformers, the Grange’s victories were limited at the time, but their ideas about regulation would become fixtures of the Progressive Era. The Interstate Commerce Commission, a key Grange victory, was toothless at the end of the 19th century, but it would be resurrected in the 20th as a powerful and overbearing regulator. The commission nearly smothered freight railroading to death until it was rescued in 1980 by the deregulatory Staggers Act, and regional passenger rail still toils under the oppressive rules of the Federal Railroad Administration, which inherited safety regulation from the ICC in 1966.
White makes Joseph Schumpeter and “creative destruction” recurring themes in Railroaded, but only to highlight how different the transcontinentals were from the Schumpeterian ideal. He contrasts Schumpeter’s concept of apolitical entrepreneurs, “unable to take care of [their] political class interest,” with the transcontinental railroad men, whose successes stemmed from their ability to obtain political favors. And in evaluating the economic effects of the transcontinental roads on the citizens who were supposedly benefiting from them, White finds a lot of destruction, but not of the creative kind: The transcontinentals succeeded in moving people, but it’s not clear that the kind of moving they did was at all economically or politically productive.
At the book’s end, White challenges the reader to envision an alternative history in which transcontinental railroads were not subsidized. The Dakotas are his natural experiment: South Dakota had no federal-land-grant roads, whereas North Dakota was served by both the Northern Pacific and the St. Paul, Minneapolis & Manitoba, which later became part of the Great Northern. Settlement in North Dakota was stretched over the length of the Northern Pacific’s route, while South Dakotans and their dense network of smaller, regional railroads were more concentrated in the fertile eastern part of the state. As White puts it, in South Dakota, “farmers paid less for land, settled the better lands more quickly, and avoided marginal arid lands.”
Transcontinental railroads weren’t the only state-favored monopolies in America, but they were the biggest. Eliminating federal railroad subsidies and land grants would not have freed the economy from boom-bust cycles, but it might have softened the blows and resulting political backlashes. And given the modern successes of densely populated nations in Europe and East Asia, it’s not at all clear that having a denser East Coast would have been such a bad thing.
As with all good history books, Railroaded is as much a lesson for the present as it is a story from the past. This passage, in particular, has enduring wisdom:
The Central Pacific and other transcontinental railroads, their bankers, and the syndicates together lured investors, who had first ventured into the financial markets during the Civil War, along the financial gangplank one small step at a time. Investors proceeded from government bonds to government-secured railroad bonds, to convertible bonds, to mortgage bonds vouched for by the same people who sold the government bonds, to a whole array of financial instruments, and from there, potentially, into the drink.
If this sounds familiar, that’s because it’s the vague outline of the theory, often expounded by libertarians and conservatives, that the recent housing bubble was induced by government interventions in the housing market. Politicians loosened lending standards through the market power of the quasi-private entities Fannie Mae and Freddie Mac, the argument goes, and people got mortgages who shouldn’t have gotten them. Looking back on how (relatively) unsubsidized companies such as the Great Northern got swept up in the subsidy-fueled transcontinental mania, it’s hard not to suspect that a similar domino effect was at play in both instances.
Like the railroad bubbles, our recent housing boom was a sprawl-based asset bubble. The transcontinentals sprawled westward, taking people away from the densely populated East and spreading them throughout the rest of the continent. The housing bubble sprawled on a metropolitan rather than continental scale. Sun Belt suburbs and exurbs accounted for much of the housing growth during the boom, as places such as Phoenix and the Inland Empire exploded in population. Prices in both cities and suburbs fell when the bubble burst, but urban markets are showing signs of recovery, while the ’burbs languish. Just as Richard White questioned whether the transcontinental booms were worth it, we should ask our own?
– Mr. Smith is a freelance journalist living in Washington, D.C., who writes about transportation and land-use policy at his blog, Market Urbanism.