Too big to fail

Often unneeded, corrupt, and inept, Gilded Age railroad giants, fattened by federal subsidies, eventually fell and triggered depression

June 05, 2011|By Buzzy Jackson, Globe Correspondent

RAILROADED: The Transcontinentals and the Making of Modern America
By Richard White
Norton, 660 pp., illustrated, $35

“Overbuilt, prone to bankruptcy and receivership, wretchedly managed, politically corrupt, environmentally harmful, and financially wasteful, these corporations nonetheless helped create a world where private success often came from luck, fortunate timing, and state intervention. Profit arose more from financial markets and insider contracts than from … ’’ Can you fill in the blank here? “Financial products,’’ perhaps, à la Lehman Brothers? “Mortgage-backed securities,’’ as in the case of AIG? Or is this all about Enron and its fraudulent energy business? No, the final word in this sentence is “transportation.’’ We’re talking about the transcontinental railroads of the late 19th century.

Welcome to a scathing and wonderful new book about American business and its crimes more than 100 years ago: “Railroaded: The Transcontinentals and the Making of Modern America.’’ Stanford University professor Richard White, one of our country’s greatest historians, has written a book that will entertain and outrage readers with scenes of corporate greed and mismanagement and the federal bailouts that enabled them. Even as the railroads went bankrupt, their owners grew rich, all subsidized by the US government. Think of “Railroaded’’ as Michael Lewis’s “Liar’s Poker,’’ set in a Gilded Age just as fantastically sick as the bond-trading offices of Salomon Brothers in the freshly-deregulated 1980s.

White’s argument is simple yet surprising. It was not the success of the transcontinental railroads that transformed America; it was their failure. These railroads — which, incidentally, were not even transcontinental (they stopped at the Missouri River and let the existing railroads take over from there to the Atlantic) — were poorly conceived and often terribly run. When they failed — and almost all eventually did — they brought the entire economy down with them, as in the case of the Panic (and resulting multiyear depression) of 1873, which was, in White’s words, “Above all … a railroad depression.’’ The sources of their failure, incompetence and greed, were obscured from the public. The Central Pacific Railroad’s annual report for 1873 assured its investors that its prospects were “never brighter’’ even as it paid its debts with money earmarked for taxes and workers’ wages. White is straightforward in his assessment of the Central Pacific’s policy: “Everyone agreed to lie.’’