Railroads Get Derailed?

The creation of a transcontinental railroad system in the mid-1800’s was a major engineering feat. It would also change the nation, drawing remote sections into closer contact - both commercially and culturally - with each other. The construction of this network was costly, and where much money is, much politics will soon follow. Historian Thomas Woods writes:

The transcontinental railroads in the latter half of the nineteenth century were typically built with substantial infusions of federal, state, and local government aid. This aid took two forms: loans and grants. The railroads sold the land to settlers for cash. In the process, they also created a market for their services. Those who lived near their railroad now had livelihoods that hinged on the railroad’s success, usually because they needed it to ship their freight.

Although the intention was good, the government’s intervention into the funding of the construction had unintended - and unfortunate - consequences. Government subsidies invariably distort normal market forces. For example, instead of connecting the various towns along the way in a straight line (the shortest distance between two points), construction companies paid by the mile could receive more money by building zig-zag or curving routes.

Cengage’s history textbook notes that “the Pacific Railroad Act granted land and loans to railroad companies to spur building a transcontinental railroad from Omaha to Sacramento. Under these laws, the U.S. government ultimately granted” huge amounts of land, and dollars paid by hard-working honest tax-paying citizens.

Starting in 1862, millions of acres, and lots of money, was handed out - sometimes in return for bribes, sometimes as a response to political pressure, and usually with little rhyme or reason.

But “despite waste, corruption, and exploitation,” something good ultimately, unwittingly, and unintentionally came of the federal fiasco: despite the fact that this money produced largely no direct results - the federally subsidized railroads performed worse than the others, and often went bankrupt - large amounts of land and cash were transferred out of the hands of the government (where these assets produced nothing useful) and into the hands of ordinary citizens for private ownership (where the land could be agriculturally useful, and where assets generally benefit communities).

In the end, the nation’s successful transcontinental railroads were either those built and financed with no government intervention and funding, or they were those which, built with government subsidies, had gone bankrupt, and were “turned around” after private owners rescued them from bankruptcy court.