A Tale of Two Railroads

The history of American railroads often highlights the first transcontinental system - the joining of the Union Pacific and the Central Pacific in 1869 in Utah. This achievement was marred by the corruption and waste brought into the enterprise by the government. Subsidies, grants, and loans - even if well intended - distorted market forces and offered temptation to those inclined toward bribery and dishonesty. Sadly, the line was so poorly built - federal incentives encouraged quick building, but not careful building - that sections of it were immediately closed and had to be re-assembled. Because of these, and other, outrageous costs, the line went bankrupt.

Learning from these mistakes, James J. Hill decided to build another transcontinental network, the Great Northern Railroad. He refused to take any federal subsidies, loans, or grants, and in so doing, ensured a well-constructed railroad which would be financially sustainable and relatively free from corruption. Hill had been born into a family that was not wealthy, and he understood the business principles of working one’s way up from the bottom. Historian Thomas Woods describes Hill’s enterprise:

Many people have supposed that the railroads could never have been built without government largesse. But this is untrue. For one thing, the entire English railway system was built with private funds. Second, the history of the Great Northern Railroad provides an outstanding example of a businessman who prospered without any government help: railroad magnate James J. Hill.

Government help is not what it seems: it is not help. The government’s attempt to “help” the first transcontinental system actually destroyed it. Even when the government has the best of intentions, its intervention into productive activity contaminates it with non-market forces. Sometimes, too, the government doesn’t have the best of intentions, when corrupt individuals inside the government can personally profit from government spending schemes. James J. Hill understood this:

Hill was the entrepreneurial genius behind the Great Northern, which stretched from St. Paul to Seattle - the same market in which Henry Villard, equipped with the help of the federal government, would fail with his Northern Pacific Railroad. Hill, who came from a very modest background, eventually joined a group of friends in purchasing the bankrupt line.

Villard’s Northern Pacific Railroad was another example of how to do everything wrong: he accepted subsidies, loans, and grants from the government. The line quickly went bankrupt. Because of the financial distortions it caused, it brought other businesses down with it. This is a type of ripple effect when non-market forces are introduced into the economy. Cengage’s history textbook explains:

Jay Cooke’s banking firm, fresh from its triumphant marketing of Union war bonds, took over the Northern Pacific in 1869. Cooke pyramided every conceivable kind of equity and loan financing to raise money to begin laying rails west from Duluth, Minnesota. Other investment firms did the same as a fever of speculative financing gripped the country. In September 1873, the pyramid of paper collapsed. Cooke’s firm was the first to go bankrupt. Like dominoes, thousands of banks and businesses also collapsed. Unemployment rose to 14 percent, and hard times set in.

Under the leadership of Jay Cooke, the Northern Pacific not only was contaminated by intervention from the U.S. government, but its market dynamics were also distorted by the Canadian government. (The only thing worse than one government trying to help is two governments trying to help.) After the Great Northern Railroad went bankrupt under Cooke’s leadership in 1873, it was purchased and resuscitated by Henry Villard, who sadly repeated Cooke’s mistakes, seeking help from the government in the form of subsidies, loans, and grants. Villard took the company into bankruptcy again in 1893. Finally, James J. Hill led a group of investors who bought the company and ran it successfully by avoiding any help from the government. Thomas Woods tells us that

Hill prospered. When most of the transcontinentals went bankrupt in the economic downturn of 1893, Hill both reduced his rates and turned a sizable profit. He went on to build steamships to carry American products to markets in Asia. It was a tremendous success at first, until it ran into the stupidity and destructiveness of the Hepburn Act of 1906, which regulated rail rates and gave teeth to the Interstate Commerce Commission.

Hill’s strategy was so successful that he caused large exports to Asia, creating momentum for the American economy. Finally, Congress intervened, giving regulatory power to the Interstate Commerce Commission, which successfully supported the Asian economies, causing large imports from Asia. Market regulation had the power to weaken the American economy and create a trade imbalance - our reliance on imports from Asia - a problem we still have.

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.

The Worst Attack?

What was the worst attack on America? There are many potential answers to this question: the British treatment of Boston during the American Revolution; the Japanese attack on Pearl Harbor; terrorist attacks on September 11, 2001. Part of answering the question would be defining the word 'worst'.

Perhaps the most devastating attack on the United States was the ratification of the sixteenth amendment in 1913. The allowed the government, for the first time in the nation's history, to levy income taxes. After 137 years, the government was now able to directly confiscate earnings of ordinary citizens.

Naturally, in order to be politically viable, the amendment had been introduced as something which wouldn't be used much or often, and which would only apply to a selected few of the "ultra-wealthy": as a Yale alumnus noted:

The tax code that started in 1913 as fourteen pages now exceeds sixty-seven thousand. An income tax that was promised to only apply to the wealthiest 1 percent in 1913 quickly grew to 5% in 1939 and then, following World War II, to almost 75% of all Americans. To soften the tax blow, the government did what it always does: it reframed the argument. When "War on Terror" was considered to be too aggressive it was changed to "overseas contingency operations," which is supposed to sound much friendlier. The same idea applied to our tax agency. The "Bureau of Internal Revenue" was renamed the "Internal Revenue Service" to, as the government puts it, "stress the service aspect of its work."

In a little over a century, the nation had left the vision of John Locke, who wrote that the government's responsibility to protect the property rights of citizens was second only to the government's task of protecting the lives of its citizens, and the nation had been subjected to a government which believed that its main mission was to confiscate the property of citizens and use it, not according to the will of the citizens, but the will of the government.

Progressivism: War is Opportunity

It may seem odd that self-styled ‘progressives’ are eager to see their nation engaged in war. Isn’t that opposed to the very sense of humaneness which progressivism allegedly espouses? Yet progressivists reliably seek war for their nations, and barring war, seek ‘the moral equivalent of war’ - as in ‘war on poverty’ or ‘war on drugs’ or ‘war on disease,’ etc.

To explain this paradox, it must be remembered that the goal of progressivism is social engineering — to take control over the individual’s life, and over the community’s life, and allow an aristocracy of experts to shape society, utterly apart from the will of the individual, or apart from the expression of the majority of voters.

Thus we see President Woodrow Wilson, and his Democrat party, eager to push America into World War One. The question isn’t whether or not it was the right thing to do; the question is why they did it. War gives the government the excuse to exert more control over society than would normally be tolerated: roused by a national cause, people submit to rationing, drafts, curfews, and limits on the freedom of speech.

The progressives, as Jonah Goldberg writes,

supported the war enthusiastically, even fanatically (the same goes for a great many American Socialists). And even those who were ambivalent about the war in Europe were giddy about what John Dewey called the “social possibilities of war.”

The war was valuable to progressives, not because they had any interest in finding justice for Europe, nor because they even cared which side of the war America would back, but rather because it would allow them to manipulate American society here at home, in the name of a war in a distant land. Progressives

ridiculed self-described pacifists who couldn’t recognize the “immense impetus to reorganization afforded by this war.”

Wilson explained that, although he was “an advocate of peace,” he saw that “there are some splendid things that come to a nation through the discipline of war.” Dewey recognized that the war would give an opportunity for the progressivists to force Americans

“to give up much of our economic freedom ... we shall have to lay by our good-natured individualism and march in step.” If the war went well, it would constrain “the individualistic tradition” and convince Americans of “the supremacy of public need over private possessions.”

America’s entry into World War One, in 1917, was motivated by opportunism: the progressivists in the Democrat party saw that, in the process of placing the nation onto a wartime footing, they would have chances to engage in social engineering on a grand scale. They didn’t care much about what was happening in Europe, or why; they knew that a war was a crisis, and a crisis is an opportunity for those who will exploit it.

Progressivism's European Roots

Progressivist policy makers, like President Woodrow Wilson, carefully studied their European predecessors.

Not all aspects of progressivist theory came from Europe. Some aspects were American: Wilson's racism, which he expressed in deterring African-Americans from applying to universities, and which caused him to segregate the previously integrated departments of the federal government, arose from the Democrat party in the United States, which had worked to enact "Jim Crow" laws, poll taxes, and literacy tests to keep Blacks from voting.

But other aspects of progressivism came from the other side of the Atlantic. As historian Jonah Goldberg writes,

No European statesman loomed larger in the minds and hearts of American progressives than Otto von Bismarck.

Bismarck had learned the basic dynamic of progressivism, which is that the people must feel that the state is the bestower of paternal benefits, so that they will tolerate the government's intrusion into their private, social, and family lives.

"Give the working-man the right to work as long as he is healthy; assure him care when he is sick; assure him maintenance when he is old," he had said to the civic leaders of his time. When 'the working-man' thus sees himself in the womb of the state, he will allow the state to regulate and tax, and will even serve the state to his own destruction.

But that was Bismarck in Europe; in America, these same principles were at the base of the progressivist movement, but took on a slightly different appearance.

Woodrow Wilson wrote that Bismarck's welfare state was an "admirable system ... the most studied and most nearly perfected" in the world.

Wilson studied, and copied, Bismarck, and made no secret about it.

"Wilson's faith that society could be bent to the will of social planners was formed" by his study of Bismarck, but his target was not Bismarck's Europe; Wilson wanted to shape American society, and in order to do so, he would have to ignore the will of the voters. There is no room in progressivism for John Locke's concept of 'majority rule,' but rather there is only a vision of an elite, an aristocracy, populated by experts, whose status allows them to ignore millions of ballots cast in free elections. This is Woodrow Wilson's progressivism.

The President and the Teacher

The progressivist movement which attempted to take over America in the early 1900's had a number of leaders and heros. They shared a vision of a country which turned over power to a strong central government, taking rights and choices away from individual citizens, with the rationalization that the experts employed by the regime knew much more, and much better, than ordinary people - about everything from nutrition to foreign policy, from economics to road traffic. The best thing for the people to do was accept the wisdom of rulers, and not get in the way of the plans which the government wanted to implement. Historian Jonah Golberg explains:

The totalitarian flavor of such a worldview should be obvious. Unlike classical liberalism, which saw the government as a necessary evil, or simply a benign but voluntary social contract for free men to enter into willingly, the belief that the entire society was one organic whole left no room for those who did not want to behave, let alone "evolve." Your home, your private thoughts, everything was part of the organic body politic, which the state was charged with redeeming.

Among the leading progressivists we find a President, Woodrow Wilson, and a teacher, John Dewey. Not accidentally, the president was a former teacher who had been active in academic policy-making, and the teacher was involved in using federal policy to control childhood development in a comprehensive way. The progressivists saw childhood as golden opportunity to shape social and political attitudes before individuals reached an age at which they might begin to express a right to self-determination.

Hence a phalanx of progressive reformers saw the home as the front line in the war to transform men into compliant social organs. Often the answer was to get children out of the home as quickly as possible. An archipelago of agencies, commissions, and bureaus sprang up overnight to take the place of the anti-organic, contra-evolutionary influences of the family. The home could no longer be seen as an island, separate and sovereign from the rest of society. John Dewey helped create kindergartens in America for precisely this purpose - to shape the apples before they fell from the trees - while at the other end of the educational process stood reformers like Wilson, who summarized the progressive attitude perfectly when, as president of Princeton, he told an audience, "Our problem is not merely to help the students to adjust themselves to world life ... [but] to make them as unlike their fathers as we can."

The progressivist movement, then, started the educational process earlier, by adding kindergarten, and changed the purpose of universities from education to indoctrination. The goal in all of this was to ensure that citizens did not develop their own views, but rather accepted whatever the regime imposed.

Progressivist Government Controls Citizens

In his quest for power, Woodrow Wilson explained progressivism: as President, Wilson wanted to control both society and individuals. Progressivism was the political theory which justified this attempt to take away freedom on a massive scale. Wilson was a 'social Darwinist' and saw the government as the ultimate expression of development. Instead of human societies striving to create ever more liberty for citizens, Wilson believed that true progress was power being taken away from individuals and being consolidated in the hands of the government. Historian Jonah Goldberg explains:

From this perspective, the ever-expanding power of the state was entirely natural. Wilson, along with the vast majority of progressive intellectuals, believed that the increase in state power was akin to an inevitable evolutionary process. Government "experimentation," the watchword of pragmatic liberals from Dewey and Wilson to FDR, was the social analogue to evolutionary adaptation. Constitutional democracy, as the founders understood it, was a momentary phase in this progression. Now it was time for the state to ascend to the next plateau. "Government," Wilson wrote approvingly in The State, "does now whatever experience permits or the times demand." Wilson was the first president to speak disparagingly of the Constitution.

For the progressivist movement, then, the goal was not freedom; the goal was a single, central government amassing ever more power to itself and controlling the details of both civic and personal life. They refused to place any limit on the authority of the regime. If government power was the goal, for Wilson and the progressivists, then 'rights' were the enemies:

Wilson reinforced such attitudes by attacking the very idea of natural and individual rights. If the original, authentic state was a dictatorial family, Wilson argued in the spirit of Darwin, what historical basis was there to believe in individual rights? "No doubt," he wrote, taking dead aim at the Declaration of Independence, "a lot of nonsense has been talked about the inalienable rights of the individual, and a great deal that was mere vague sentiment and pleasing speculation has been put forward as a fundamental principle." If a law couldn't be executed, it wasn't a real law, according to Wilson, and "abstract rights" were vexingly difficult to execute.

Wilson, taking office in 1913, was willing to discard both the Constitution and the Declaration of Independence - and with them, the rights and freedoms of ordinary citizens to make choices in their own lives. Why? The idea of the Democrat Party and the progressivists was that the government had the specialized knowledge of experts, and so the government should make important decisions, not the people.