The Great Transcontinental Railroad Scam

This week marks the 140th anniversary of the completion of the nation’s first transcontinental railroad, the Union Pacific-Central Pacific, which famously linked up at Promontory Point, Utah on May 10, 1869 with the driving of the ceremonial golden spike. During the late 19th century, a total of five transcontinental lines were constructed to the West Coast, an amazing feat for the time period.

Most Americans have heard the story of these astonishing engineering exploits but not the real truth behind it. It is a tale of the utter failure of government subsidization of business but also the roaring success of unfettered capitalism, a part of the saga often ignored in history textbooks.

The first discussion of a transcontinental railroad began soon after the United States acquired California, during the Mexican War of 1846-1848. But with the ongoing struggle between North and South, a fight over constitutional principles as much as slavery, neither side could agree on anything concerning funding for a rail line or a path for its construction. However, with the secession of the conservative South, the federal government began financing a railway to the West Coast with passage of the Pacific Railroad Act in 1862.

To construct the first four lines, the government provided hundreds of millions of dollars in loans and freely granted over 150 million acres of land, an area nearly as large as the state of Texas, to various railroad corporations. Many historians and authors, including those charged with writing textbooks for college students, heap praise on the government’s role in providing the necessary capital for these Herculean endeavors.

Stephen Ambrose writes in his book, Nothing Like It In The World: The Men Who Built The Transcontinental Railroad, 1863-1869, that “Government aid…took many forms. Without it, the line could not have been built, quite possibly would not have been started.”

In The National Experience, major historians John M. Blum, Edmund S. Morgan, Willie Lee Rose, Arthur M. Schlesinger, Jr., Kenneth M. Stampp, and C. Van Woodward, note that “Since such huge sums were far more than private American investors could supply, promoters turned to foreign investors and to local, state, and federal governments.”

Alan Brinkley, in The Unfinished Nation: A Concise History of the American People, contends that “Subsidies from federal, state, and local governments (along with foreign loans and investments) were vital to this [railroad] expansion, which required far more capital than private entrepreneurs could raise by themselves.”

And finally, in a two-volume work, The Growth of the American Republic, authors Samuel Eliot Morison and Henry Steele Commager make a similar contention. Of the transcontinental lines the authors write: “Certainly very few of the western railroads could have been built by private capital alone without the generous aid from federal, state, and local governments.” This was possible because Washington took a new view of the Constitution, “having abandoned the embarrassing strict construction theories that bothered an earlier generation.” Such an assertion should come as no surprise, for the bias within this particular book should be readily apparent. Upon examining this work, one finds that a portrait of FDR graces the opening pages, which remains in later versions published years after the president’s death in 1945.

However, each of these statements might possess a certain degree of truth, if it were not for the impressive accomplishment of railroad titan James J. Hill. Hill built the fifth and final transcontinental line of the 19th century, the Great Northern, which ran from St. Paul, Minnesota to Seattle, Washington. Though it took longer, he constructed his line without any government aid whatsoever. None of these works discuss Hill, or his achievement, in any degree of detail.

Hill was a supreme capitalist and ran his railroad corporation as such. He did not rely on the government to supply him with capital or land. Burton W. Folsom, Jr., in a great little book, The Myth of the Robber Barons, quotes from a letter Hill wrote to one of his rivals. “Our own line in the north was built without any government aid, even the right of way, through hundreds of miles of public lands, being paid for in cash,” the conservative Hill wrote. He also disliked the fact that Congress granted millions in subsidies to his competitors, providing them with an unfair advantage. “The government should not furnish capital to these companies, in addition to their enormous land subsidies, to enable them to conduct their business in competition with enterprises that have received no aid from the public treasury.”

To get his railroad constructed, Hill decided to develop the frontier as he went along. He transported settlers and supplied them with grain, seed, and livestock, all to help them get started and to set the stage for the development of a capitalist economy in the west.

Of this Morison and Commager write that the “day of land grants and federal subsidies was past,” and “Hill saw that the Great Northern Railway…could reach the Pacific only by developing the country as it progressed.” The authors then quote Hill’s explanation of his plan for the Northwest: “We consider ourselves and the people along our lines as co-partners in the prosperity of the country we both occupy and the prosperity of the one should mean the prosperity of both, and their adversity will be quickly followed by ours.”

Though these authors might not admit it, they are actually acknowledging that capitalism worked! Their unintended praise of Hill’s capitalism continued: “Construction costs were low, the financial management was skillful and conservative, and the Great Northern was the one transcontinental line that managed to weather every financial crisis.”

Echoing a similar sentiment, authors Blum, Morgan, Rose, Schlesinger, Jr., Stampp, and Woodward write in The National Experience that “Built more carefully and solidly than its competitor, financed more soundly, and integrated more thoroughly in the economy of the region it served, Hill’s Great Northern was the only transcontinental railroad to pull through the Panic of 1893 and the depression that followed.”

Unlike the other lines, Hill chose the most economical routes, insisted on using only the very finest steel rails, not the cheaper iron, as well as the best timbers. His work was slower, but also less costly and much more efficient, for it was his money he was using, not someone else’s. It is for these reasons that his company survived every panic and depression, while the other lines all went bankrupt, a fact that many historians never bother to inform their students or readers. In fact, many textbooks never mention Hill at all.

However, there are historians and economists who will tell the absolute truth about Hill and his Great Northern. In addition to Folsom, Professor Thomas J. DiLorenzo, in his book How Capitalism Saved America, discusses the transcontinental lines in great detail, pointing out that not only did all the lines but Hill’s go bankrupt, most of them were rife with corruption, culminating in the Credit Mobilier scandal during Grant’s administration. These corrupt railroad corporations were actually bribing members of Congress to keep the government off their backs and continue the subsidies, giving out passes to ride the lines free of charge as well as company stock. Dozens of members of Congress, as well as Grant’s vice president, were tangled up in the scam.

Today, we find ourselves in a serious economic predicament, to which the government has chosen to heavily regulate the economy, engaging in everything from bailing out corporations to taking over businesses and banks. And with the new massive growth of government has also come new allegations of corruption. History teaches us that such massive government undertakings will always end up as a corrupt disaster. The building of the five 19th century transcontinental railroads provides ample proof that government intervention into the economy will eventually fail and the only success is pure, unbridled capitalism.


“All the indications are that this treasonable inflammation — secessionitis — keeps on making steady progress week by week,” wrote New York lawyer George Templeton Strong in January of 1861. One by one, Southern states began their trek out of the Union, rather than face the coming Lincoln administration, a new government Southerners believed would be destructive to their liberty.

As a Yankee, Strong had a decidedly negative view of secession, a notion still held by a surprising number of our citizens. But in reality secession is an integral part of the American political tradition.

Today, as our nation endures the most radical, leftist government in our history, thoughts of secession are again on the lips of some Americans, including a few well-known political leaders. Texas Governor Rick Perry recently alluded to secession as a possible solution to an out-of-control government in Washington. For his remarks, he has been slammed as an anti-American radical.

But when Northern liberals discussed secession in the days after Bush’s re-election victory in 2004, I don’t remember much talk on the left of how crazy, or treasonable, the idea was. Only when the South desires to leave are such a notions ridiculed or opposed with force. (Perhaps there is a good reason why the North desires to keep the South in the Union.)

Secession is not anti-American; it is one of the most American of responses to oppressive government. The United States of America was founded on secession, a disunion with the British Empire that is clearly enunciated in the Declaration of Independence.

Thomas Jefferson penned a great document espousing the rights of man but also proclaimed the rightness of the people to “dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them.”

When governments oppress the liberties of its citizens, “it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

The people have a “right” and a “duty,” Mr. Jefferson continued, “to throw off such Government, and to provide new Guards for their future security.” Americans endured “a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States.” Rather than live under a government they felt was tyrannical, early Americans seceded from the British Empire, declaring “That these united Colonies are, and of Right ought to be Free and Independent States, that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved.”

The same American spirit of independence found in the Declaration could also be found in most state ratification conventions, when they were asked to approve the new Constitution crafted by the Philadelphia Convention in 1787. Several states placed stipulations on their endorsement of the new compact. The powers given to the federal government were delegated, not surrendered permanently, and New York and Rhode Island made sure it was understood that the states could take them back if they were abused, declaring that “the powers of government may be reassumed by the people whensoever it shall become necessary to their happiness.” The Southern state of Virginia made a similar declaration in its act of ratification.

Under the United States of America, secession movements gathered serious momentum in the Northern states on several occasions. Many Northerners were upset with Jefferson’s election as President in 1800 and his purchase of Louisiana in 1803, to which they believed would eventually constitute a vast region for the spread of slavery. The North also vigorously opposed the War of 1812. In each of these cases, secession was seriously discussed and contemplated.

Facing these secession threats, President Jefferson did not threaten force, but recognized the right of individual states to leave the Union if they so chose. Speaking to the North, he stated in his Inaugural Address: “If there be any among us who would wish to dissolve this Union or to change its republican form, let them stand undisturbed as monuments of the safety with which error of opinion may be tolerated where reason is left free to combat it.”

After the purchase of Louisiana in 1803, President Jefferson wrote to John C. Breckinridge about the new territories and the new states which would soon be created. If New England preferred secession and a second confederacy, or should the new states beyond the Mississippi desire to be free from the Union, then it is their right, if that would make them happier. “God bless them both, & keep them in union, if it be for their good,” Jefferson wrote, “but separate them, if it is better.”

Northerners again seriously contemplated separating from the Union during the War of 1812, being upset with government policy, namely in regards to trade. During the winter of 1814-1815, Northern states held a convention in Harford, Connecticut to discuss the possibility of creating a Northern Confederacy. This was done right in the middle of a war with Britain that the United States was not winning. No vote on secession took place, but the convention did draft a report that upheld the notions of state sovereignty and state’s rights. But the anti-war fervor destroyed the Federalist party, located almost exclusively in the North.

These principles of secession were simply the common belief of the time period, political facts that everyone knew to be the obvious truth, even visiting foreigners. After touring the United States during the Jacksonian period, Alexis de Tocqueville wrote a famous book, Democracy In America, in 1835. In it he discussed the notion of secession in the United States. “The Union was formed by the voluntary agreement of the States; and these, in uniting together, have not forfeited their Nationality, nor have they been reduced to the condition of one and the same people. If one of the States chose to withdraw its name from the contract, it would be difficult to disprove its right of doing so, and the Federal Government would have no means of maintaining its claims directly, either by force or by right.” Again, Tocqueville was simply writing about what he had learned from everyday Americans.

The South made several secessionist threats throughout the Antebellum period and finally made good on those threats after Lincoln’s election in 1860. Many in the North were content to let them go. Horace Greeley, a Republican abolitionist, editorialized in his New York Tribune that according to the principles of Declaration of Independence, the South had every right to leave the Union. With political issues at a fever pitch, secession would “prevent the shedding of seas of human blood.” If Americans accepted those principles in 1776, asked the Tribune, then “we do not see why it would not justify the secession of Five Millions of Southrons from the Federal Union in 1861.” But Lincoln would not allow the South to determine for itself what kind of government it would live under.

Yet, amazingly, the federal government has recently backed secession movements around the globe, most notably the former republics of the old Soviet Union. Not only did our government support and even encourage those nations to break free, we have assured their independence with war guarantees. Russian has recently tried to take back Georgia with military force, which we condemned, and also has designs on re-taking Ukraine, which we have threatened to protect within NATO.  We do this, and profess to believe in self-determination, but deny the same principles to our own people!

Today, many on the Left, and surprisingly the Right, love to ridicule the principles of secession. Soon after Governor Perry’s comments, Bill Pascoe of CQ Politics wrote a column entitled “Note to the Governor of Texas: You Couldn’t Secede If You Wanted To.” Pascoe tackles the notion that Texas was given special treatment when it entered the Union in 1845 and has some special right to leave if it wants. However, he fails to mention that any state that enters the United States joins as a co-equal with the original thirteen and possesses all the same rights and privileges. But, even if the special circumstance were true, he writes, when Texas joined the Confederacy, took up arms against the United States, and lost the war, “any special dispensation went out the window.”

Furthermore, Pascoe quotes from a proclamation by President Andrew Johnson declaring an end to the war and end to secession, stating “it is the manifest determination of the American people that no State, of its own will, has a right or power to go out of or separate itself from, or be separated from the American Union; and that, therefore, each State ought to remain and constitute an integral part of the United States.”

Funny, I didn’t realize Andrew Johnson was given dictatorial powers but following Lincoln I guess we can see why he thought that! So, no matter how tyrannical Washington becomes, we must remain in the Union. Even if the federal government bans all guns, raises taxes to 95 percent, abolishes private property, seizes all businesses, enforces military conscription, listens to all phone calls, opens everyone’s mail, cancels talk radio, and places conservative “extremists” in concentration camps, we, as individual sovereign states, have no recourse, at least according to Bill Pascoe and his favorite president Andy Johnson!

Such ignorance and stupidity is understandable on the Left but its shocking when so-called conservatives like Pascoe have trouble grasping the simple truths within the Declaration.

A recent column by Ben Shapiro in Human Events supports this fact. While correctly pointing out that “the states, according to the founders, were duty-bound to resist action by the federal government superseding its allotted authority under the Constitution,” he goes on to state that Lincoln’s war on the South was “quick and right,” a conflict that “restored for all time the founding promises of the Declaration of Independence.” This is tortured logic! Lincoln ran roughshod over both the Declaration and the Constitution, holding the Union together at the point of a gun!

I wonder if Mr. Shapiro, who is an attorney in Los Angeles, or Mr. Pascoe, ever heard of the principle of self-determination of peoples? Our Founders certainly did and thank God for it or we would all be speaking the Queen’s English today!

But the question remains: should a state secede from the Union today? Though it has been suggested, this moment might not be the proper time to consider it. But we must never lose our founding principles and our cherished rights! Just because we “lost a war,” to use Pascoe’s words, does not mean the principles of the American Revolution died at Appomattox.

And even if Pascoe is correct, why would anyone join a union, enter into a contract, or any such agreement, that you could not get out of? As the great Austrian economist Ludwig von Mises wrote in 1919: “No people and no part of a people shall be held against its will in a political association that it does not want.”