Saving Communities

Bringing prosperity through freedom, equality, local autonomy and respect for the commons.

Private Railroads and Plunder

Even before the Civil War, American roads, canals and railroad rights of way were turned over to private corporations, following the English model. Most countries in continental Europe retained ownership of the rights of way, sometimes allowing private companies to maintain the rail and ballast on long-term leases as common carriers. Competing companies could run rolling stock under management of the leaseholding company. This arrangement made it easier to nationalize railroads in continental Europe than in England and the United States, where railroads hold right-of-way privileges in perpetuity. However, railroads became associated with plunder during and after the Civil War.

Exploiting the American dream

The "American dream" was (is?) to own land on which to live and work, as opposed to sharecropping on European manors or working for low wages in European sweatshops. However, as immigrants swarmed into America's port cities (particularly Boston, New York and Philadelphia), land prices quickly rose in those cities and wages quickly fell. This rise in land prices and fall in wages rippled throughout the economy. While there was plenty of land, it was rapidly being grabbed up by politically connected speculators. It was also inaccessible to most immigrants who lacked pioneering skills, and earning a living in pioneer communities was difficult without access to markets.

Republicans co-opting pro-labor parties

A number of new, radical political parties formed in opposition slavery particularly and to the exploitation of labor generally. The largest of these, the Free Soil Party, opposed the wholesale selling of government lands to speculators, advocating instead that it should be given out in small homestead grants to actual settlers [see left column]. Homesteading was viewed as a "relief valve" to take the pressure off of eastern laborers and thereby raise wages. These parties coalesced into the Republican Party, which incorporated most of the Free Soil Party's platform into its own platform. However, the Republican Party's 1856 platform [see left column], which included many other Free Soil planks, dropped those particular planks and instead advocated a transcontinental railroad to make homesteading easier and connect western lands to eastern markets.

Co-opting the Republicans

The call for a transcontinental railroad provided such an opportunity for plunder that it caused unscrupulous financiers to swarm the Republican Party. The demands of the Civil War made the government so dependent on financiers and industrialists that, by the time the war was over, this party of reformers was in the hands of interests it had opposed.

Scandal after scandal

The rush to build railroad empires was so great and the political influence of bankers and speculators so strong that the country was rocked by scandal after scandal, involving massive land grants and inflated subsidies, bribes and kickbacks to elected officials, price gouging of farmers, ranchers and settlers, rate wars designed to eliminate what little competition existed, and preferential rates for "connected" customers. John D. Rockefeller's oil empire was built by using his railroad power to see that competitors were overcharged.

"Railroading" the people

Railroad financiers were so aggressive in ramming bills through legislatures, running roughshod over local governments and seizing land through eminent domain that the verb "railroad" came to acquire an entirely new meaning. [see left column]

Early progressives take on the railroads

Henry George, who would become the most famous economic reformer of the 1880s, began his reformist career in San Francisco with the 1868 article "What the Railroad Will Bring Us," and Terence Powderly, as head of the Knights of Labor, would launch the US labor movement on a platform opposing land monopoly, railroad and telegraph monopolies, and banking privilege. George and Powderly are featured below in a front-cover cartoon for Judge Magazine, for taking on railroad monopolist Jay Gould.

In the above cartoon, while Jay Gould is admiring his monopolies and his smashed competition and Henry George looks on, Terence Powderly is poised to give him a good whacking with a cane labeled "Powderly's Speech."

The caption reads: CAUGHT NAPPING: "We are Knights of Labor because we believe that the thief who steals a dollar is no worse than the thief who steals a railroad... and that the law should reach out with a firm, unshaken hand and punish both criminals according to the magnitude of their guilt." - Powderly's Address

Railroad Plunder and Contract Patronage

In the grand era of political corruption, "patronage" meant contract and franchise patronage. The most lucrative franchises for New York's Tammany Hall bosses and their backers were streetcar franchises. Overcharging for crowded streetcars was so lucrative that the streetcar companies forced delays in construction of the New York subway system for more than a decade. Finally, after the Belmont Company had effectively taken over most of the city's streetcars, it engineered a deal where the city paid for the construction of the subway and then turned it over to Belmont to run for fifty years as a private monopoly. [McClure's]

Tammany Hall's first major contract was with the Pennsylvania Railroad to excavate the city and bring trains into Pennsylvania Station. [History of Tammany Hall]

Pennsylvania's major cities were even worse in some ways, because the city, state and national governments had all been under the same political party for over forty years and all backed by the same corporate interests, and all cooperating with one another. Like New York's Tammany Hall, Pennsylvania's machines were based on contract and franchise patronage, with railroads leading the way.

In the State ring are the great corporations, the Standard Oil Company, Cramp's Ship Yard, and the steel companies with the Pennsylvania Railroad at their head, and all the local transportation and other public utility companies following after. They get franchises, privileges, exemptions, etc.; they have helped finance Quay through deals; the Pennsylvania paid Martin, Quay said once, a large yearly salary; the Cramps get contracts to build United States ships, and for years have been begging for a subsidy on home-made ships. The officers, directors, and stockholders of these companies, with their friends, their bankers and their employees are of the organization. Better still, one of the local bosses of Philadelphia told me he could always give a worker a job with these companies, just as he could in a city department, or in the mint, or post office.... The traction companies, which bought their way from beginning to end by corruption, which have always been in the ring and whose financiers have usually shared in other big ring deals, adopted early the policy of bribing the people with" small blocks of stock." ["Philadelphia: Corrupt and Contented," by Lincoln Steffens]

Pittsburgh's experience was similar.

The railroads began the corruption of this city. There "always was some dishonesty" as the oldest public men I talked with said, but it was occasional and criminal till the first great corporation made it business-like and respectable. The municipality issued bonds to help the infant railroads to develop the city, and, as in so many American cities, the roads repudiated the debt and interest and went into politics. The Pennsylvania Railroad was in the system from the start, and as the other roads came in and found the city government bought up by those before them, they purchased their rights of way by outbribing the older roads, then joined the ring to acquire more rights for themselves and to keep belated rivals out....

The city paid in all sorts of rights and privileges, streets, bridges, etc., and in certain periods the business interests of the city were sacrificed to leave the Pennsylvania Road in exclusive control of a freight traffic it could not handle alone. ["Pittsburg: A City Ashamed" Steffens]

Mayor Magee and his partner, Flinn, were not content with giving plums to cronies. Rather, they took the best plums (including streetcar lines) for themselves.

Magee took the financial and corporate branch, turning the streets to his uses, delivering to himself franchises, and building and running railways. Flinn went in for public contracts for his firm, Booth & Flinn, Limited, and his branch boomed. Old streets were repaired, new ones laid out; whole districts were improved, parks made, and buildings erected. The improvement of their city went on at a great rate for years, with only one period of cessation, and the period of economy was when Magee was building so many traction lines that Booth & Flinn, Ltd., had all they could do with this work.

Magee did not steal franchises and sell them. His councils gave them to him. He and the busy Flinn took them, built railways which Magee sold and bought and financed and conducted, like any other man whose successful career is held up as an example for young men. His railways, combined into the Consolidated Traction Company, were capitalized at $30,000,000. The public debt of Pittsburg is about $18,000,000, and the profit on the railway building of Chris Magee would have wiped out the debt. "But you must remember," they say in the Pittsburg banks, "that Magee took risks and his profits are the just reward of enterprise."[ibid.]

This pattern of state and municipal corruption tied to private railroads and streetcars was repeated in state after state and city after city, but three other states, California, Minnesota and Ohio, are worth noting, not because they are the three worst, but because their stories are the most interesting and have the most bearing on current debates.

California

However, California actually is the worst state for railroad domination, and has been ever since massive land grants were given to promote the trans-continental railroad. Henry George's predictions in the article, "What the Railroad Will Bring Us", turned out to be accurate in every detail, except that railroad plunder was even worse than George had predicted. Instead of giving railroads to California, Congress gave California to the railroads.

Map of Congressional land grants to railroads as of 1875, prepared by the Secretary of the Interior.

Railroads have ruled California politics ever since. The Union Pacific Railroad still owns more California land than all of the state's home owners combined. California's Proposition 13, which curtailed the property tax, actually increased home owners' share of the tax burden by leading to other taxes on home owners while dramatically reducing taxes for the Union Pacific and other land-rich corporations.

Minnesota

Minnesota was the nexus for J. J. Hill's Great Northern Railway. Hill is ballyhooed by conservative libertarians as an example of free enterprise railroading for building the only transcontinental railroad that took no public money, got relatively few land grants, and never went bankrupt. However, he got his start buying earlier railroads which had gotten public money and large land grants, and which had gone bankrupt. (He bought them out of bankruptcy.) His railroad went transcontinental in 1893, after the country had been shocked by previous abuses and had turned decidedly anti-railroad. Hill employed a "swarm of lobbyists" in St. Paul, urging the state legislature not only to grant rights of way to his railroad, but to block rights of way to other railroads. He was also in partnership with J. P. Morgan, head of the notoriously corrupt Pennsylvania RR.

Whether credit belongs to Hill, to a change in national mood, or to the good sense of the people of Minnesota and their leaders, the story of the Great Northern at least shows that a transcontinental railroad could have been built within a reasonable time without the massive massive subsidies that went to the Union Pacific.

Ohio

Ohio is probably the most interesting state of all, due to Cleveland's "trolley wars" between two political giants who were also Cleveland's two largest trolley millionaires. Nowhere was the battle for against private streetcar franchises as notorious as it was in Cleveland.

Mark Hanna was the consummate salesman, negotiator and political operative. He dominated the Ohio state political machine as its recognized "boss" and became nationally famous for managing McKinley's successful Presidential campaign. Hanna raised unprecedented campaign funds by villainizing William Jennings Bryan and appealing to banking and other monopoly interests who feared Bryan's monetary reforms. Getting streetcar franchises for himself was consistent with Hanna's idea of politics for profit.

Tom Johnson, on the other hand, was an experienced streetcar superintendent and innovator with little interest in politics. He had invented the "Johnson Farebox," which became the national standard for streetcars for well over half a century. His other inventions included steel streetcar rails that greatly outlasted the iron rails everyone had been using, flush-laid tracks that were much easier for wagons to cross, a submerged-cable system for on-street cable cars, free transfers for users of multiple streetcars and buses, and, believe it or not, the first magnetic levitation system. (He sold his maglev patents to General Electric.)

After taking over a struggling line in Indianapolis, improving management and making it profitable, Johnson thought he could do well running streetcars in Cleveland, which "had eight different street railroad companies "owned by bankers, politicians, business and professional men who had been successful in various undertakings, but without a street railroad man in the entire list." Mark Hanna politically quashed Johnson's bid for a franchise to an unserved neighborhood in 1879, and taught the twenty-five-year-old Johnson the importance of political connections. Johnson bought out a troubled line in Cleveland and proceeded to battle with Hanna. Johnson and Hanna eventually emerged as the owners of Cleveland's only two remaining street railway companies, but Johnson held 60% of the business to Hanna's 40%. He eventually found allies in Hanna's partners, and consolidated everything into one company, with Hanna's influence greatly diminished. [My Story, Chapter 9] The Johnson Company had also acquired franchises in St. Louis, Detroit and other cities, and had built two steel mills and two company towns. Between franchise monopolies, patent monopolies and land speculation, Johnson had become one of America's youngest multi-millionaires.

This would have been just another contest between monopolists if Johnson had not read Social Problems and then Progress and Poverty, both by the reformer Henry George. George's writings convinced Johnson, his partner Arthur Moxham and his lawyer L. A. Russell that the Johnson Company's fortunes were based largely on the exploitation of privilege and greatly exceeded its contributions to society. Johnson became George's biggest financial backer and an outspoken advocate of land value tax and the municipal ownership of public utilities, including streetcar lines.

He then entered politics, as an "anti-monopoly monopolist," pointedly arguing against the privileges from which his own fortunes had derived. He served in Congress from 1891 through 1895, and sold his shares in Cleveland's consolidated streetcar company. Although he successfully municipalized the electric power company serving much of Cleveland, Hanna used his clout in the state legislature to prevent him from municipalizing the streetcar lines and from replacing property tax with land value tax.

People who follow US national politics today can get an idea of how different these two rivals were from modern figures who try to emulate them. Republican neocon operative Karl Rove has described Hanna as his personal role model, and Democratic congressman Dennis Kucinich has said the same of Tom Johnson.

Corruption and the Decline of American Rail Travel

There are many reasons why American rail travel deteriorated while European rail travel succeeded, including cheap American gasoline, the rise of the automobile, and inexpensive farmland ripe for suburbanization. However, the corruption and incompetence of private railroads played a role, as did the disconnect between the railroad's interest in higher freight rates and fares and the communities interest in cheap transportation.

Streetcar and bus lines also declined because they had been founded on land speculation. The line owners had acquired land that would be served by their lines, and sold lots to home, store and apartment owners at prices that reflected the value of the service. Once all the land was sold off, they had little incentive to maintain their vehicles. After acquiring monopoly franchises at prices well below their worth, they ultimately unloaded these franchises and their run-down, obsolete rolling stock at inflated prices.

Privatizing highways

During the Bush administration, financiers had convinced several distressed governments to "lease" public toll roads to them for as long as 75 years, with front-loaded payments to the governments. These payments give governments short-term budget relief in exchange for allowing the leaseholders to gouge citizens for a long, long time. The terrible lessons of private railroad franchises were lost when the questions of privatizing highways were discussed. There is also a strong argument that privatizing highways violates common-law rights to travel, but that argument has not prevailed. Fortunately, the Obama administration has been less willing to allow the privatization of interstate highways.

The future of public transportation

Forward-looking financiers, seeing the coming rise in gasoline prices and the inevitable resurgence of public transportation, are now talking about "privatizing" public transportation once again, encouraged by the desperate willingness of governments to accept any offers that could get them past the depression. Government officials who entertain privatization proposals are not gambling with the public trust, any more than a novice poker player is gambling when he sits down with professional card sharks.

If public transportation is to function properly, it must be placed completely under public control and funded from the land values it creates. Putting essential transit systems back under the control of plundering monopolies would be disastrous for the communities those systems would "serve."