Monday, April 11, 2011
The Nineteenth-Century Eclipse of Democratic Governance by Capitalism. Part II: Wartime Exploitation of Government by Lincoln and the Railroads
Posted by Find Insurance Online at 12:28 AMBy the time of Lincoln, the capitalists had amassed sufficient capital that they could literally write federal laws concerning them and exploit the government beyond their own statues for additional profits. In 1869, the first transcontinental railroad was completed. Brands notes that “the capitalists commanding the road recruited the institutions of government to share the risk and costs of construction.” (1) In other words, the capitalist investors (not the workers) get the rewards while the taxpayers take on the risk. Capitalism might thus be called convenience by another name. To be sure, a political ideology came into play that was highly conducive to this arrangement.
By the Civil War, “(a)mong the Republicans, support for a Pacific railroad fitted a general belief that government could benefit the American people by helping American business.” (2) This was an early version of what is good for GM is good for America. The fallacy in this assertion is that what is good to a part is necessarily good for the whole. For example, a part benefits from exclusion (e.g., not paying for externalities), which is not in the interest of the whole.
In any case, the fashioning of the first transcontinental railroad during the Civil War involved Lincoln, Stanford (the Governor of California and a partner of the Central Pacific Railroad),
and the two railroads in some shady dealing and related conflicts of interest. Generally speaking, the capitalist capture of democratic government can be expected to spin off various unethical twisters.
Funding by the U.S. Government for the railroad would entice California, which might have adopted a pro-Confederate independence otherwise, to remain in the union. (3) It was also not lost on Lincoln that the western republic had gold. Accordingly, the new party adopted into its platform the plank of government financial assistance in the undertaking. Brands reports that “Californians’ brave talk of self-sufficiency suddenly ceased when they heard the Republican offer.” (4) For the plank to be converted into legislation favorable to California, as well as to the railroads, the remnants of democracy had to be overcome in the Congress. This required “the concerted efforts of small armies of lobbyists.” (5) This experience gave capitalists a “way in” to the halls of the national government, which they could exploit in the future. In other words, the Republican policy involved a shift in government with respect to the influence of capitalists. American government would never be the same.
Specifically, Durant’s Union Pacific Railroad bribed members of Congress. Not to be outdone, Theodore Judah brought shares of the Central Pacific Railroad to Congress to disperse as he saw fit. (6) The result was the Pacific Railway Act of 1862, which was essentially written by the railroads even though they had vested interests in the project. (7) The federal government would offer the railroads loans financed by 30 year bonds held by the taxpayers and grants of land. If the project failed, the certificates would be worthless.
To be sure, private capital markets could not attract investors willing to risk large sums on such a long-term (and risky) payoff. (8) The interest of the U.S. Government in integrating the union such that new western states would not follow the example of the Confederacy made it worthwhile to make up for the shortfall in those markets. The problem is that the precedent risked giving capitalists access to the Treasury—a new source of food for the new feeding machines. It is not as though the cats would have one taste of the tuna only to never come back for more. Once on the scent of the government money, the capitalists would surely follow up in the halls of Congress. The case was the same in California.
Leland Stanford (the namesake of Stanford University) was elected governor of California without having to reduce his participation in the Central Pacific. His brother Philip distributed gold coins to voters. As if there were no conflict of interest between his office and his business interests, he got the California legislature to contribute $15 million to get the transcontinental railroad started on the California end. (9) In general, the capitalist capture of democratic government makes use of the public’s proclivity to ignore conflicts of interest. This continued to be the case for Governor Stanford.
In July 1864, the Pacific Railway Act of 1862 was amended so the U.S. Government would bear most of the risk (giving up first lein) and the railroads would get even more from the government. Even though the railroads had written the original act, only with the amended act did the capitalists find the railroad to be “a most attractive investment.” (10) It was no concern to them that in 1864 the U.S. Government was nearly bankrupt on account of the war. Nor did the sacrifices being made on the battlefields in the wilderness intimate to the capitalists that they too should sacrifice so the U.S. Government could add more resources to the war effort. The matter was one solely of risk and profit calculations—the railroads leveraging the government until the investment was sufficiently sweetened for enough potential investors to come on board. Duty, or ethics more generally, does not compute in business terms. Business ethicists would be wise to remember this.
In any case, the U.S. Government would pay the railroads $48,000 per mile in the mountains and $32,000 per mile on the flat land away in the desert. The self-written terms not be enough for the Central Pacific railroad, Governor Stanford used California’s geologists to claim flat land as mountainous. With a difficult election approaching, Lincoln overruled his own secretary of the Interior in favor of his railroad allies in California. (11) Lincoln himself had been a railroad lawyer. The preserver of the union was inadvertently making the task more difficult for the U.S. Government by bowing to the new capitalist might at the expense of his own government. In other words, he was willing to acquiesce in the defrauding of his own government even when it was fighting a rebellion. Such is the allure of capitalists at the expense of public governance in the name of democracy.
Lest this information on Lincoln be deemed as counter-productive by Lincoln fans, pointing out the president’s faults makes him “all the more beloved because they discourage us from turning him into a plaster saint. His greatness, without the flaws, would make him unapproachable and remote — a canonization made even more probable by his martyrdom.” (12) Made human, all too human in fact, Lincoln can stand for us as a marker on the trajectory of capitalism over democracy that occurred during the nineteenth century.
Speaking on the capitalist inroads in democratic government already by the end of the Civil War, Rep. Elihu Washburne, interestingly a Republican lawyer from Illinois and the chairman of the U.S. House Commerce Committee, said, “I have no faith in the noisy patriotism of shoddy contractors and none in the men who in these times of trial and tribulation through which the country is passing are scheming and plotting to fill their own pockets while the nation is verging toward bankruptcy. The sublime and unselfish patriotism of our people, . . . a people suffering, bleeding, dying for their country, is in magnificent contrast to the flaunting counterfeit everywhere to be seen.” (13) Worse still were those contractors who had paid gold coins to gain public office only to engage their government in the service of their capitalist ventures. Of the “flaunting counterfeits” who would avoid government office, the richest would become the robber barons of the Gilded Age. Government would be theirs for the taking, such that holding office would no longer be necessary.
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1. Henry W. Brands, American Colossus: The Triumph of Capitalism 1865-1900 (New York: Doubleday, 2010), p. 40.
2. Ibid., p. 42.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid., p. 44.
7. Ibid., 48.
8. Ibid., p. 45.
9. Ibid., p. 47.
10. Ibid., p. 49.
11. Ibid., p. 49.
12. Ross Baker, “Lincoln—Like All of Us—Had his Flaws,” USA Today, April 10, 2011 (on-line).
13. Congressional Globe, 38th Congress, 1st session. June 21, 1864, 3150-152. Quoted by Brands, American Collosus, p. 48.
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