State of Nature

By James Kwak

I’ve been reading a lot of books lately, some of which I’ve mentioned here: The Submerged State by Suzanne Mettler, Invisible Hands by Kim Phillips-Fein, The Wealth and Poverty of Nations (finally) by David Landes, Exorbitant Privilege by Barry Eichengreen, and a pile of books on the national debt and deficit politics. (Despite moonlighting as a blogger, I find books more satisfying than the constant stream of newspapers, magazines, and blogs.) But my favorite book I’ve read in a while is Railroaded: The Transcontinentals and the Making of Modern America, by the historian Richard White.*

For some people, most notably Rick Perry but also much of the conservative base, the late nineteenth century was the golden age: of the gold standard, no income tax, senators elected by state legislatures, and, most importantly, little to no government “regulation” of business. White shows what that world was really like.

The book focuses on the “transcontinentals”—railroads that began West of the Mississippi and ran to the Pacific. These railroads have often ben heralded as great achievements of entrepreneurial capitalism and the first modern corporations. Not so much, White argues.

First of all, the transcontinental railroads were a poor use of capital. There simply wasn’t enough transcontinental traffic to warrant any transcontinental railroads, let alone so many. Even in the late nineteenth century, it was cheaper to send goods by steamship (with an overland journey in Panama). The railroads only survive because the Pacific Mail was a “lazy and corrupt” company. The railroads bribed the steamship company by overpaying for capacity, and in return the Pacific Mail kept prices high enough so the railroads could “compete.”

So how did unnecessary, inefficient railroads get built? Because of government subsidies. In short, the federal government paid to build the railroads through massive financing subsidies and also gave them ample land grants. The trick to building a railroad was not knowing anything about railroads or even about business; it was having friends in Washington who could give you the right financing and land subsidies.

Even then, the railroads lost money. Not only was there insufficient demand for their services, but they were run by people who were generally incompetent. (For one thing, they didn’t even know their own costs of doing business.) Yet the people who owned the railroads made fabulous amounts of money (of which Stanford University is one symbol). The main way to do this was simple. The people who controlled a railroad (generally by putting up very little of their own money, thanks to the government subsidies) would also wholly own a construction company. They would cause the railroad to overpay the construction company to build the railroad—in effect transferring wealth from railroad stockholders and creditors into their own pockets. Another scheme was to buy up land along future railroad routes that only they knew to make an easy profit. Only slightly riskier were schemes to make money by using insider information to trade in securities of their own companies.

The railroads themselves also put the lie to the myth of the efficient, modern corporation. Executives had virtually no control over what went on in the field. Jobs were treated as a form of patronage, with rampant nepotism. Corruption existed on all levels, with station agents routinely pocketing a share of revenues. Competition failed to impose discipline: when one railroad lost traffic to another, it would simply overbuild in another place to compensate, leading to even more overcapacity. The only solution was cartels, but even those failed because the railroad heads were too incompetent to figure out a way to restrain their own behavior.

All along the way, you also see the other consequences of concentrated power, enormous wealth, and political protection. Railroads resisted installing automatic train couplers for decades, resulting in many unnecessary deaths. The railroads interfered in other markets by setting rates in a discriminatory fashion, influencing what crops farmers produced and determining which competitors won and lost. Through it all, you see rich people surrounded by circles of flatterers and yes-men who despise them behind their backs.

This is what the golden age of unregulated capitalism looked like. It’s also the world we’re heading towards: one where inefficient corporations run by incompetent bunglers make huge piles of money for a chosen few executives and owners by buying politicians (completely legally, thanks to Citizens United), shifting losses onto outsiders and imposing costs on the rest of society. If this sounds like hyperbole, just think about the financial crisis.

* I got a free copy from the publisher (which I read and then gave to Simon for Christmas).

64 responses to “State of Nature

  1. Though it’s likely you’ve already read it strongly recommend Howard Zinn’s A People’s History of the United States. It is an excellent read. it chronicles the egregious acts of the golden age of “American Entrepreneurialisim” in particular the railroads.

  2. Evocative of unregulated banking and the property boom in Ireland. Have we learned nothing or does greed prompt us to ignore the inevitable conseqences of such delinquency.

  3. Railroads were put into place first in the south and for economic purposes. Two miles on both sides of the railroads were devoted to the production and transportation of cotton. Next came the deer skins production and transportation. And finally, the tobacco and textiles industry benefited greatly from the RR. Once started, RR’s moved north to supply ice to wealthy southerners who had none, that lasted until about 1910 when machines took over ice production. People can tell you anything in books, and then there is what actually happened.
    I have no idea where Kwak was going with gvt subsidy line. It was all privately financed mostly by foreign gvts.

  4. Paul, could you repete that? I didn’t understand it the first time around.

  5. Corruption and fraud are never controlled by market forces. Only governments with strong laws that are enforced can curb corruption and fraud. But of course that takes political will and our system of money for politics means that the only political will is that which pleases the benefactor. Now that the people are locked out of the system because they can not afford lobbyists, the no longer matter.

    “The best democracy money can buy”

  6. Excuse me, you’ve just described crony capitalism, and now you are calling it “unregulated capitalism.” That’s ridiculous. It’s not capitalism at all.

  7. This is all omitting that railroads were the basis behind all modern military operations at the time- the ability to assemble, mass, feed, and transport total war scale armies was completely dependent on them. Rail-lines were everything in industrialized armed conflict from the late 1860s onwards. This was at least part of the motivation for stretching them across continents. And part of the reason governments subsidized their creation. Not investing in them was dangerous. Just ask the Russians after the Russo-Japanese War.

  8. unregulated capitalism eventually devolves into crony capitalism.

  9. @Paul Leahy, nothing needs to be learned, these lessons are all well known. Some apply the lessons better than others. You can tell who learned well by who ends up with the most money.

  10. Ian, I don’t know what your evidence is (I could just as easily say that unregulated capitalism eventually devolves into regulated capitalism), but Kwak says that from the beginning the railroads were given large government subsidies and land grants. How is that unregulated capitalism?

  11. “but also much of the conservative base, the late nineteenth century was the golden age”

    You have done a survey to determine this? While you can always find someone who believes…

  12. andrew hartman

    why can’t progressives and free market types agree on a simple proposition: we need a mix of public
    and private sector effort. the balance may be 60/40 or 50/50 or 40/60, but is still a balance. why
    all the polarization? it’s ridiculous.

  13. Correct Andrew, but the arrogance and hypocrisy of elders and wall street is what is causing the polarization. Their ball, their rules.

  14. Take a look at

    Railroads & Clearcuts:
    Legacy of Congress’s 1864 Northern Pacific Railroad Land Grant
    by Derrick Jensen and George Draffan with John Osborn

    http://www.landgrant.org/

    “This 200-page, fully-illustrated book describes the history and impacts of the forty million acres of public lands granted to the Northern Pacific Railroad. More than a century later, this natural resources empire is still controlled by the corporate heirs of the land grant railroads: Weyerhaeuser, Plum Creek Timber, and other timber, coal mining, and oil and gas corporations.”

  15. Has anyone read Network Nation? I’ve been waiting for an ebook edition to be offered, at half the $31.76 hardback price, since mid-2010 when I saw the author discussing it on BookTV. That program is available online here.

  16. History repeats itself, though each time she wears a slightly different shade. For the free market enthusiasts, Chris Sununu (son of John Sununu) from the ‘Live-free-or-die’ state of NH, is on the state’s Executive Council and just also happens to be co-owner of Waterville Valley ski resort, whose trails are entirely on state forest. The resort just got approval to add 2 more trails, also on state forest. I know this is chicken feed compared to the billion-dollar-bail-out of WSJ banks. I think the irony is just as acute. When the economic benefits go their way, it is public-private partnership; otherwise, it is anti-business government meddling.

  17. Consider that it was the railroads, that essentially ended the domination of the plains by the native americans, by allowing the army to move as needed. Without the railroads the settlement of the west would have been far slower. It should be noted BTW that only the main rail lines got subsidies and land grants only the UP and CP, and land grants went to the SP to Yuma from San Francisco, the ATSF accross Kansas, and via the Atlantic and Pacific from Albuquerque to Needles, As well as the Northern Pacific. The branch lines did not get land grants, actually the history of the time shows how businesses with high fixed costs can start a race to the bottom, and lead to a bubble (the 1893 depression was the end of the railroad bubble). 1/3 of the rails including the UP, ATSF and NP went into receivership at the time. Partly this was a result of being afraid of the competition building a line and taking your local traffic, so that you built it first. Now in addition the railroads either set up towns and made money off them (seel Dillion Mt for an example) or else looked for bribes from cities to locate there. (See Rival Rails and the story of Trinidad Co or Florence Co for examples of this).
    But I agree that one can see how free capitalism ends up costing the bond and stockholders of the companies and agree that it provides a template both of a bubble and how execs can screw it up badly.

  18. Kwak, you got a FREE copy of the book and then gave it to Simon as a Christmas gift?! It takes a lot of balls to admit to that level of cheapskatery (i just coined that word) in print.

  19. Then why didn’t an euntrepenuer start up his own steamship company and take away all the overpriced bussiness?

  20. railroads of yesterday = green jobs of today (Solyndra etc)

  21. The latest on the debt ceiling debacle:

    The Obama administration will ask Congress to increase federal borrowing authority by $1.2 trillion as the nation approaches the debt limit set by law, according to a Treasury Department official.
    The White House will send the request to Congress on Dec. 30, the day the debt is projected to rise to within $100 billion of the $15.194 trillion limit, the Treasury official told reporters today on condition of anonymity.
    Congress will be notified under the terms of a deal to raise the limit worked out on Aug. 2 after a more than two-month standoff between the administration and Republican lawmakers that was followed by a cut in the U.S. debt rating by Standard & Poor’s. The Budget Control Act of 2011 gives Congress 15 days to pass a joint resolution disapproving the increase in the limit. The president can veto such a measure.

  22. Bruce E. Woych

    Fascinating Hub and a cleaver entry point into the mixed histories of what comes to constitute an American heritage of sorted and assorted means (or lack thereof…). The power of the clockwork drawn into the service of industrial leverage, placed upon wheels of fortune and misfortune…to churn both power and opportunity into the human bondage system of capita; intensive expansion…to serve political ends that literally have no end…a saga of Gold Rush and Civil War in a Global network (Suez Canal and Panama Railway that was interconnecting its power and resource controls, even while revolution and civil wars were epidemic all over the globe and slavery, mass labor exploitation, and land claim titles were all in a whirlwind!
    Lineages made claim to power structures over territorial domains and resource rights, while the Railroads both transgressed and interconnected it all under crony capital alliances and consolidations …only to come under reclamations by litigation and Federal integrated powers that could be readily bought and sold by industrial finance. The Euro-American fusion of claim jumping appropriations were not precisely driven by capital only but was greatly fueled and facilitated by its ability to concentrate power through unfettered wealth. It was an era of global expansion and a driven frenzy for land and resources , labor, markets & capital with political position to sustain and expand, intensify and extend these factors inot systems of distribution and redistribution that would determine ever more control over the systemic interdependency by use of interconnected outreach…and the railroad was a great tool and weapon for it all. ( It is not incidental that political power descends into current American Politics through this very same heritage).

    Meanwhile, check this out:

    http://www.booknotes.org/Watch/155004-1/David+Haward+Bain.aspx

    Empire Express: Building the First Transcontinental Railroad

    Bain draws on his historical/political savvy and his ability to breathe life into history in this saga of the building of the transcontinental railroad…(an extensive interview, well beyond the quoted material here);

    (brief section excerpted from the interview):
    “Mr. BAIN: Say 1842 to 1873, 30 years, so it isn’t just one of those narrow stories about the railroad. It’s really a story about how America became what it is and so, by starting off in 1842, with Asa Whitney, the–the–the pioneer railroad promoter, I was able to take in all of the things that went on during his time and the years thereafter. So I’d be talking about issues like the Mexican War, for instance, the Civil War, the–the Plains Indian wars, the real beginning of the mercantile capitalist culture in–in America and the settlement patterns going westward. It was just a tremendously large story and it was all linked to the railroad.

    LAMB: How many American politicians made money off of the railroad?

    Mr. BAIN: How many did they catch?

    LAMB: How many did they catch?

    Mr. BAIN: They caught–they caught under 25 and it was–it was a much larger number than that. This was–this was a major scandal in Washington in 1872 and ’73 during the Grant re-election campaign. And Washington completely ground to a halt because of this. I mean, the railroad had become a major force in American politics by then and in American life, and American imagination was taken up with the adventures that were going on out West. And then suddenly to have that all come crashing down, to find out that–that major members of the Republican administration–senators, congressmen–they all had feet of clay and had been enriching themselves for years on this and it was–it was quite a comedown, quite a comedown.”
    ———————————————————————————————————————————-
    Now that….I would surmise….sounds more like the setting for today. Only today we are not confined to the limitations of the 19th century “State of Nature” that confined crooks and corruptions to non-computational limitations.

  23. Bruce E. Woych

    Empire Express: Building the First Transcontinental Railroad David Haward Bain (Author)

  24. So, according to James Kwak, the presence of “incompetent bunglers make huge piles of money for a chosen few executives and owners by buying politicians” is “unregulated capitalism”. Don´t we have a little contradiction in terms there?

    And also, for the umpteenth time, what has capital requirements for banks that steer bank lending excessively towards what is perceived as not risky, and away from what is perceived as risky, to do with unregulated capitalism?

  25. Owen Owens – give the post another read – it’s not about local and regional rail.

  26. Let me add a bit more, many of the projectors of these railroads (in particular Thomas Durant of the UP) did not think the railroad would pay at all. Rather they thought you make your money in the construction phase. (The Central Pacific Big 4 did so as well- Contract and Finance company). As it turned out 1871-1872 nearly did in both the UP and the CP Huntington was reduced to begging friends to avoid receivership. The UP lead to the Credit Molbiere scandal. Actually to be a board member of either of these railroads meant that often you had to finance the railroads floating debt (I.e. debt not in bonds but just borrowed from a bank). The NP (northern pacific) went broke in 1873 and started a depression as well when Jay Cookes financial house failed due to being over committed in the bonds of the NP. (Sounds like Bear and Lehman).
    If you read Maury Klein’s first book on the UP you find that the subsidy for pacific mail was a big deal. Note that the pacific mail folks also owned the first truly transcontinental railroad in the western hemisphere, the Panama railroad.
    It should also be noted that Durant had to almost pay some folks to buy the stock of the UP in 1865 as most saw it as a loosing proposition (but of course it was worse in 1864, when the question was would the US survive was at hand). So the idea of making your killing on the construction costs came about.

  27. I find it so funny that so many Americans believe business regulations came out of thin air, they came out of abuses from the past mostly. When they are in effect for decades the people and the reasons disappear with the passage of time and the move to repeal begins until the whole process starts over again.

  28. @andrew hartman

    Can you name me any progressives in the US who claim that free market forces SHOULD NOT be involved in our economy?

    Fact is, in the US there are 2 extremes. The right extreme is the libertarian “No government at all”. The more common right-wing position (the Republican one) is still an extreme “government is evil, but we still need it to kill brown people”, the common progressive position “free market enterprise, with government regulation where necessary”. There is no “Only government enterprise” position in the US left. Even Chomsky probably doesnt hold such a position.

    The fact is the media keeps trying to balance the left with the right, but the right is way way to the extreme. the current US left would have been considered the sensible center during the Reagan era, and holds exactly the position you advocate.

  29. Some of the commentators dont seem to grasp what James is saying. He is NOT claiming that those days were an era of unregulated free-market capitalism. He is showing what the days the Republicans aspire towards (claiming it was an era of unregulated capitalism) looked like.

    “For some people, most notably Rick Perry but also much of the conservative base, the late nineteenth century was the golden age: of the gold standard, no income tax, senators elected by state legislatures, and, most importantly, little to no government “regulation” of business.”

    His point is that a period and industry rife with government cronyism etc., is what current Republicans present as a golden age of unregulated capitalism. IOW, if we go in the direction the current crop of Republican candidates want, this is what we will get.

    Btw, what in the world IS unregulated capitalism? How does such a society maintain law and order outside of privately purchased force (i.e. a bunch of little kingdoms with kings, minus divine rights?)

  30. You call it free market capitalism but then talk about railroad subsidies. We have different ideas of what free market capitalism is. It sounds very similar to the crony capitalism of today. It’s nice to see that nearly 100 years of progressives has not changed anything.

  31. “Btw, what in the world IS unregulated capitalism?”

    An example, taken from the world of financial regulations.

    Unregulated though supervised capitalism, would be having regulators assuring that the general laws are followed, like stopping Madoff frauds, and taking precautions for when things do not turn out like markets would believe them to turn out.

    Unregulated capitalism is not, like now, creating all kind of incentives for banks to lend or invest where the bank regulators want them to, just because they feel that is safer. The consequence of that, as you can see, are all the murderous excessive exposures to what was previously, ex-ante, officially perceived as not risky, like the triple-As and the infallible sovereigns.

    Clearer still… in the world of unregulated capitalism, hedge-funds are rarely allowed to leverage more than 10 times and when they fail, losses are usually private, but in regulated capitalism, like the current one, banks are allowed to leverage over 60 times and losses are socialized.

  32. I don’t have give the post another read Joe, When the premise is wrong, I leave the room and start from the beginning, which was the 1830 RR in SC to do exactly what I said. Now if you want to chime in as to when the corruption started be my guest, but don’t ask me to reread, there are many miles between me and your insanity.

  33. Unregulated crapitalizm is when gvts/people leverage real tangible gold. The less gold they have, the more leverage they need, the more leverage they need, the more risk that is taken. The ponzi crashes down when they either run out of gold to leverage, so then its a hard 60 to 0 leverage, or when an soft enemy can produce more gold than them, and then the team does a sudden 180, and citizens lose confidence in their gvts or people, which then increase the risk that they take their crapital gains elsewhere.

  34. Frank Norris’ Octopus covers the corruption of late 19th century unregulated capitalism practiced by RR corps. up close and personal. Good read for any who may be interested.

  35. Very interesting indeed and a good read. I have linked to it today.

  36. Bruce E. Woych

    http://seekingalpha.com/article/316201-the-economic-and-political-center-cannot-hold

    Some interesting implications here in this article from Seeking Alpha’s John Mauldin. In the initial analysis the consensus seems to be that the European Union is Not Too Big To Fail (TBTF) and that it should gracefully break itself down to a more efficient level (see article for some interesting details in processing)

    Perhaps of greater interest to this article, Mauldin provides some mapped diagrams of pre-existing pipelines for gas & oil in a discussion concerning the economics of creating still another oil pipeline across the United States. This would transverse the railroading impact (with less promise for the future as diminishing returns are guaranteed from peak oil supplies…albeit not in relation to serving private profit interests which would be served exponentially in relation to the public cost/benefit ratios). The rush to profit seems to defy the impulse to conserve what …we all know…is growing more scarce every day…and more expensive. In fifty years time we may wish we had truly capped…and NOT traded peak oil reserves.

    It does occur to me that a “state of nature” is directly impacted by this more immediate and contemporaneous issue of pipeline economics. Perhaps what we truly do need is a network of public works creating an interstate grid of water redistribution and supply that would create a grid across the country and balance out natures inadvertent oversights in regional scarcity and overabundance…not to mention irrigation potentials, increased farmland variability, clean filtration across a standard water supply network to urban areas; and a systemic monitoring system from industrial pollutants.

  37. Bruce E. Woych

    “State of Nature”

    http://www.pbs.org/newshour/bb/environment/july-dec11/oilpipeline_08-29.html

    “A proposed pipeline would carry oil from Canadian tar sands fields to Texas refineries, but the project has sparked high-profile protests.”

    “The proposed Keystone X.L. pipeline would run 1,700 miles through Montana, South Dakota, Nebraska, Kansas and Oklahoma on its way to refineries in Texas. It’s projected to cost $7 billion and carry an estimated 800,000 barrels of oil a day. The plan has galvanized a growing opposition from those who fear it would increase greenhouse gas emissions, as well as the prospects of leaks and spills in environmentally sensitive areas.”
    ————————————————————————————————————————–
    “And the reason is that this is — this tar sands in Alberta is a big deal. It’s the second largest pool of carbon on Earth, after the oil fields of Saudi Arabia. Jim Hansen of NASA, who was arrested today, really the world’s foremost climate scientist, said — as he was speaking this morning, said, if we go ahead and begin tapping these unconventional energy sources, of which the tar sands are the biggest example, it is — and here I quote – “essentially game over for the climate.”
    ——————————————————————————————————————————
    “I understand his position. But my position is very simple. I’m for cheap, abundant, reliable energy, particularly now in the U.S., when we have over 45 million Americans on food stamps, we have more than nine million unemployed. The actually unemployed or underemployed is probably twice that number.

    We need cheap, abundant, reliable energy. And this project will in particular provide abundant and reliable energy. The tar — the oil sands in Canada have over 100 billion barrels of oil in them. And we need it…”
    ——————————————————————————————————————————
    “Alberta is a long way from anywhere. They have to have a pipeline to get it out.

    The one they’re trying to build west to the Pacific has been completely blocked for years by Indian tribes in Canada, who have a lot of legal power. The energy minister of Alberta said a couple of weeks ago, if we don’t get this Keystone pipeline, we’re going to be landlocked in oil.

    And that’s what we need. It’s not that we’re going to necessarily keep it in the ground forever by blocking this pipeline. But sooner or later, the world is going to come to its senses about climate change. And, therefore, preventing it for five or 10 years is a pretty good thing.”

    http://www.pbs.org/newshour/bb/environment/july-dec11/oilpipeline_08-29.html

    ———————————————————————————————————————————
    well folks …there you have it:
    Pipeline = Pro-curing more jobs and prosperity for the masses…hot dog! America at work! Another transcontinental project for posterity.
    Kwak’s railway model in new financial 21st century sheepskin………(or perhaps that’s a trojan….)

  38. FYI, and I love S. philly:

    Since November 8, there have been 8 different reports to the National Response Center coming out of the Sunoco Oil Refinery in South Philadelphia. The initial report stated that oil from an unknown source accumulated and discharged into the Schuylkill River. Subsequent reports state that absorbant booms and pads had been placed in the water to absorb the sheen. The booms were repositioned and then changed out and additional absorbant pads were deployed, and still the reports keep coming in. The latest report from yesterday states that a vac truck is onsite to aid in removal of oil.
    I lived in South Philly, 2.5 miles from where this oil is leaking into the Schuylkill River. I have 3 brothers who live exactly 1 mile away from the Sunoco Refinery. Thanks to the SkyTruth Alerts System, I can see exactly what’s happening in my old neighborhood, and I can see that Sunoco obviously has a problem at their South Philly refinery and they’re cleaning up the mess but it doesn’t sound like they’ve found the cause of the problem.
    I’ll keep monitoring the area with my daily alerts, and I’ll be letting my brothers know that swimming in the Schuylkill River down by Sunoco probably isn’t a great idea this holiday season.

  39. I have not read the book and it may be covered there but this post leaves out any discussion about the Great Northern. The only transcontinental to take no government subsidies and the only one to avoid bankruptcy.

    Mismanaged RR had significant Governemnt support allowing them to be started by the incompetent.

    VS

    Private RR started by people that acually wanted to make money running a RR.

    The first set turns out poorly the second far better.

    Conclusion of author, more Governemnt involvement is needed? Sound like an odd solution to the problem to anyone?

  40. Bruce E. Woych

    Threat of Keystone XL Pipeline to Ogallala Aquifer

  41. Ah yes, the era of the “rail-rogues”, as Ambrose Bierce called them. A story from that infamous time :

    Collis Huntington, a well-known railroad tycoon, had borrowed $75,000,000 from the federal government to finance the expansion of his line. But he was balking at paying the loan back and was even threatening to renege on it. So Bierce began relentlessly hounding him in his San Francisco Examiner column “Prattle”. And Bierce, a journalist in the old, by-gone tradition, could be persistent and nasty.

    One day, having had enough of Bierce’s badgering, Huntington confronted him. He thought he would be able to buy Bierce’s silence. “Mr. Bierce, what is your price?” asked Huntington. Replied Bierce: “Mr. Huntington, my price is 75 million dollars—payable to the US Treasury!”

    The rail-rogue relented and finally paid his debt—because one journalist of integrity did his job.

  42. The description offered up by White is easily verified by reading other historians such as Robert Wiebe. Moreover, his book – The Search for Order, 1977-1920 – covers much more than the railroad oligarchs. There was a high level of incoherence, incompetence, and injustice in much of business at that time. The chaos that ensued was responsible for the development and strength of the populist movement of the early 20th century.

    For another clear-eyed picture of how it worked out on frontier, I’d recommend Wallace Stegner’s Wolf Willow as well. Its a rich mix of childhood memories – Stegner grew up on the Canadian prairies – historical fact, and mesmerizing storytelling about the blizzard of 1888 and how it chased many cattleman of of those plains for good. His narrative draws a bright line between developments on the Canadian and US side of the borders. US cavalry raids across that border to capture and harass escaping native peoples led to the formation of the Canadian mounted police. Their mission was to keep the peace that the blue coats kept disrupting and to do it dressed in red so as to distinguish themselves from those troops.

    Stegner hammers home this important point: in contrast to the mounties, cavalry troops almost always got their marching orders from the local settlers. Just as now, the central government was besieged by those who hated getting any sort of directive from Washington. Those troops were their local militia as far as they were concerned, sent West to do the settler’s bidding. The resulting trajectory of white-native relations still bears the scars from those brutal encounters.

  43. So how did unnecessary, inefficient railroads get built? Because of government subsidies. In short, the federal government paid to build the railroads through massive financing subsidies and also gave them ample land grants.

    and

    This is what the golden age of unregulated capitalism looked like.

    Huh? This don’t make no sense.

  44. pg@bls.for.sabi.co.uk

    «I find it so funny that so many Americans believe business regulations came out of thin air, they came out of abuses from the past mostly. When they are in effect for decades the people and the reasons disappear with the passage of time and the move to repeal begins until the whole process starts over again.»

    Which reminds me of this ancient quote from J. K. Galbraith’s “The Great Crash 1929″, page 25:

    «Just as Republican orators for a generation after Appomattox made use of the bloody shirt, so for a generation Democrats have been warning that to elect Republicans is to invite another disaster like that of 1929.

    The defeat of the Democratic candidate in 1952 was widely attributed to the unfortunate appearance at the polls of too many youths who knew only by hearsay of the horrors of those days. It would be good to know whether, indeed, we shall some day have another 1929.»

    Guess what, with Gingrich’s “Contract ON America” and Real American’s insatiable greed for tax-free capital gains, …

  45. Markets are of course useful for guiding investment, production and resource allocation, etc but free market capitalism as practiced here in the US has become a cult. It has propagated a priestly, super-wealthy class and their well paid acolytes who inform a mega-narrative that arguably underlies an increasingly dystopic, totalitarian vision of civilization.

    The simple either or dichotomy of crony capitalism vs. unregulated free markets is misleading. Super concentrations of wealth are the result of whatever we care to call our particular strain of capitalism. Wealth has captured government and media and made significant inroads into rewriting the academic disciplines of history, science, economics etc. through endowments, think tanks and foundations that purport objectivity but instead are driven by preconceived ideology. Government regulation informed and directed by objective analysis is not possible as it is overruled by special interests who have occupied the seats of governance, regulation, research and inquiry.

  46. Not new, but here’s one to add to a reading list (for those who have a taste for it): The Levellers: The Putney Debates, collected and introduced in this Verso edition by Australian human rights lawyer Geoffrey Robertson. Quite amazing to read how democratically and egalitarian-minded many British republicans were in the 17th century. My one gripe about this edition is that it edits the originals for modern spelling and readability.

  47. Again about the Levellers: Hobbes was responding, in no small measure, to the chaos and blood of the English Civil War in Leviathan and his famous comments on the “State of Nature” as “nasty, brutish, and short.”

  48. Dan P is living in the world of today, and it seems that the damage done by the dot.com worshippers is equally as historically anti-COMMERCE as building a railroad…here’s the observation on YOU, Mr. Kwak, from the previous article’s comments section:

    “…Computers should have made the audit-trail easier to use; and its precision flawless. But in fact the bookkeeper’s audit trail has disappeared. The reason for this is simple. The microprocessor driven computer enabled millions of users to run one same software application. Venture capitalists saw the potential in this punctuated equilibrium, and hired mercenary programmers to create the gatekeeper-monopoly. Such software, therein, not our government, has legislated the rules of commerce, trade, and banking for the past thirty-plus years, by writing venture-capitalist rules into the software…”

    Next time, maybe an article about how much better the world would be in the alternate universe version – no railroads, just software…

  49. ah, to be able to write laws based on software programming…from NYT

    “….Thanks to a quirk in tax law, companies can claim a tax deduction in future years that is much bigger than the value of the stock options when they were granted to executives. This tax break will deprive the federal government of tens of billions of dollars in revenue over the next decade. And it is one of the many obscure provisions buried in the tax code that together enable most American companies to pay far less than the top corporate tax rate of 35 percent — in some cases, virtually nothing even in very profitable years.

    In Washington, where executive pay and taxes are highly charged issues, some critics in Congress have long sought to eliminate this tax benefit, saying it is bad policy to let companies claim such large deductions for stock options without having to make any cash outlay. Moreover, they say, the policy essentially forces taxpayers to subsidize executive pay, which has soared in recent decades. Those drawbacks have been magnified, they say, now that executives — and companies — are reaping inordinate benefits by taking advantage of once depressed stock prices….”

    Yup, grandma’s the problem….get rid of SS and Medicare/Medicaid….slave labor was so much simpler…

  50. A very interesting topic:

    Gold and Silver Confiscation
    by Alan Leishman
    Originally published November 08th, 2010
    F.D. Roosevelt’s, President of the USA, confiscation of gold and silver in the USA in 1933 is a relatively well known historical event.
    Partially banished from the history books, however, but well known to many Gold Bugs, through articles on the internet and historical texts, is the story of gold and silver confiscation in France in 1720 by the legendary John Law (baptised
    21 April 1671 – died 21 March 1729).
    There are several reference works on John Law, of which one of the older and best known ones is Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay first published in 1841. However some extremely interesting details on the gold and silver aspects are available in a more recent well researched book; Millionaire by Janet Gleeson published in 1999.
    John Law’s brilliant mathematical mind enabled him to be a successful gambler in his early days by calculating the odds, and often taking the bank in various forms of card games and dice. John Law, by Casimir Balthazar
    He was also way ahead of his European contemporaries in developing new theories on banking, involving the issue of paper money alongside the gold and silver coins which were the monetary systems of his epoch.
    Law, a Scot, eventually rose to become the Minister of Finance in France, appointed by the Regent Duc d’ Orléans, governing on behalf of the dauphin, later Louis XV, who inherited the throne as a young child.
    Law was also Founder and President of the Royal Bank and the Mississippi Company.
    The Bank issued paper money which was in competition with gold and silver coin… and therein lies the tale.
    This short essay has no intention of repeating the whole history of Law’s rise and fall from monetary stardom, which can be pursued in the above quoted works and elsewhere.
    The author’s aim here is to concentrate solely on the legal and other measures that Law took as Finance Minister of France around 1720 in order to try and save his monetary paper empire versus gold and silver.
    Law was very well aware that a loss of confidence in paper, (bank notes and shares in the Mississippi Company) would result in a flight to safety into gold and silver. The following sequence of events in 1719/20 is sourced from Janet Gleeson’s book, Millionaire referenced above.
    1. In Dec. 1719 the share price of the Mississippi Company, which had risen in a bubble from 150 to 10,000 Livres descended to 7,500.
    2. Law declared a dividend for shareholders of Livres 200 per share and the price recovered to 9,000.
    3. Future markets developed at 15,000 Livres, but Law refused credit to finance futures, whereupon the price fell. He then revoked his credit ban and the price recovered.4. Company sales offices were opened in Paris to try and curb “unregulated” sales and control the market.
    5. ”Primes”, equivalent to today’s options, were launched with leverage of 10 to 1.
    6. Investors sold shares in order to buy Primes, crashing the share price from 10,000 to 7,000 Livres.
    7. Physical silver and gold were draining from the bank’s coffers as investors, anticipating an end to the bubble, sold shares and cashed out into physical.
    8. By the end of 1720, some 500 million Livres in silver and gold had been taken out of the country to London and elsewhere.
    9. Inflation in France escalated and the price of land rose 400% in some areas. The price of staples rose with bread up 500% from 1 to 5 sous within a year.Law, although a free marketeer by philosophy, decided the time had come for swift and devastating intervention.
    Law passed an edict banning the export of silver and gold coins and bullion.
    The public turned to buying diamonds, gems and jewels, in order to escape paper (Livres and shares).
    The purchase and wearing of diamonds, pearls, and other jewels was then prohibited.
    The investors turned to buying silver and gold dishes, plates, and other similar objects.
    A ban was imposed on the production and sale of all silver and gold items except religious ones.
    Painting of Philippe d’Orléans as Regent of France; he stands with his mistress Marie-Thérèse de Parabère who poses as Minerva, goddess of Wisdom
    The prices of crosses and chalices soared, until their use was also banned.
    Law announced the Royal Bank was being taken over by the Mississippi Company at 9,000 Livres per share and closed down the company sales offices.
    The share price collapsed from 9,500 to 7,800 Livres.
    · On Feb 27th measures for ‘hoarders.’
    · Informers were rewarded for any hoarding information, which included the right for the government’s agents to search any private property for silver and gold.
    · Some 2 weeks later Law reversed his decision, re-opened the company sales offices and supported the sales price at 9,000 Livres. There was a rush to sell shares for paper Livres.
    · Law decided to fade out silver and gold coin by reducing their value to zero over several months – turning to a total paper monetary system.
    · Law had gone one step too far and his political support started to collapse.
    · A huge crime wave developed simultaneously as losses led to penury, hardship and hunger.
    · By May 1720 some 2.6 billion Livres banknotes had been printed.
    · Law decided to reduce the price of the shares from 9,000 to 5,000 Livres.
    · The value of Livre banknotes would also be reduced by 50%.
    · After 3 days of riots, Law resigned, and Orleans restored the value of the shares and banknotes to their previous levels.
    · A few days later the limits of owning gold and silver were lifted, but nobody had any left.
    · Only 2% of the money still circulating was in silver and gold.
    · Coins were rationed and vast public bonfires of paper shares and Livres bank notes were organized by the government to try and restore faith in paper, by demonstrating to the public that they were reducing the quantity in circulation, which needless to say did not work.
    · On the foreign exchange market a pound sterling rose from 39 Livres to 92 Livres in 6 months.
    · Finally vast quantities of copper coins were minted to replace the lack of coins in circulation.
    · Banks however opened only sporadically and to huge queues of people trying to exchange paper for gold and silver.
    Law went into exile and his fortunes ebbed and flowed for the rest of his life.
    The parallels with today’s global fiat monetary system, now arguably close to the verge of collapse in October 2010, are so amazing as to warrant this short essay as a heads-up, and to provide a template as to how events might play out in the next couple of years.
    The intention is to allow the readers to draw their own conclusions as to how they might or might not save themselves from a similar potential collapse in fiat paper monetary system.
    One can, of course, imagine that many of Law’s measures would not be acceptable in the 21st century, but a global monetary system collapse may well lead to surprises?
    History seldom repeats, but it often rhymes, to paraphrase the famous bonmot of Mark Twain.

  51. Bruce E. Woych

    http://richardbrenneman.wordpress.com/2011/12/30/fuel-politics-and-the-fate-of-the-ogallala-aquifer/#more-17479

    Fuel politics and the fate of the Ogallala Aquifer
    Posted on 2011 December 30 |

    “The Ogallala Aquifer is one of nature’s wonders, a vast [174,00 square miles] underground reservoir stretching from South Dakota on the north down to the farmlands of the West Texas panhandle on the south.” (nice map / chart included in this extensive article):

    http://richardbrenneman.wordpress.com/2011/12/30/fuel-politics-and-the-fate-of-the-ogallala-aquifer/#more-17479

    “Without the wells that tap its ancient depths, much of the Great Plains’ agriculture bounty would cease to exist, and cities dependent on its water would turn into ghost towns.”

    “Small wonder, then, that the announcement of plans to extend the Keystone XL oil pipeline over the aquifer to transport tar sands oil south from Canada generated considerable anxiety and galvanized political opposition that forced to Obama administration to call for a new Environmental Impact Report assessing the project’s potential harm to America’s grain belt.”

    “BP is a major tar sands player, and one focus of the Energy Biosciences Institute at UC Berkeley, bankrolled by half a billion BP bucks, is the creation of genetically modified microbes designed to transform bitumen into more easily processed fuel stock.”

    http://richardbrenneman.wordpress.com/2011/12/30/fuel-politics-and-the-fate-of-the-ogallala-aquifer/#more-17479

    Fuel politics and the fate of the Ogallala Aquifer
    Posted on 2011 December 30 |

  52. Generally speaking, as long as the pipeline doesn’t rupture [which by now might be possible], there is no danger of/to the elements below. The tar sands problem is that it is a road making oil, not a fuel oil, in a cash strapped country with too many roads to maintain and only the promise of growth to bail us out. All gvt mandates need to be reviewed with an efficiency factor rather than a money/jobs factor that has so many future consequences attached to them.

    Here is a starting point to determine if your family made too much war/greed money back in the day. Just about every occupation can be included. The last American hero made $100,000 in 1963, the honest way, he earned it.

    http://www.esquire.com/features/life-of-junior-johnson-tom-wolfe-0365

  53. Bruce E. Woych

    State of Nature…State of Markets; state of Reality…as Annie always says…”Follow the Money!”

    http://search.aol.com/aol/search?s_it=webmail-hawaii1-standardaol&q=fuel%20top%20U.S%20Export

    http://finance.yahoo.com/news/first-gas-other-fuels-top-200739135.html

    In a first, gas and other fuels are top US export……

    http://www.huffingtonpost.com/2011/12/31/united-states-gas-export_n_1177559.html

    NEW YORK — For the first time, the top export of the United States, the world’s biggest gas guzzler, is – wait for it – fuel.

    “Measured in dollars, the nation is on pace this year to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990. It will also be the first year in more than 60 that America has been a net exporter of these fuels.”

  54. Bruce E. Woych

    Bruce Lee_Be Water My Friend

  55. That’s correct Bruce, but just as Greece exported those same products, they needed a supply of crude to refine. Margins on credit being abused in Greece found the country unable to buy oil on credit, so they turned to Iran to supply the oil.
    At the end of Jan., stiff penalties are going to be imposed on any country doing business with Iran, Greece is bare bones right now and has started to shut down 2 refineries making those fuels more expensive to buy. We are in the same position exponentially and in the river of denile about it yet we make the rules that others are forced to follow. This should end like a no rimmed tire on fire goin down hill toward the bottom, should the straights be closed.

  56. Stephen Ambrose “Nothing like it in the world” and Dee Brown’s “Hear that Lonesome Whistle Blow” say pretty much the same thing about the railroads.

    The value of government is that it allows the people to do collectively what they cannot do individually. Without government, there would be no transportation infrastructure, no collective national defense.

    Unfortunately, corrupt people will use financial means to influence the government to subsidize the wrong things. Whether that is buying votes directly in Congress (the favorite method of railroad tycoons) or brainwash the public at large (we need to invade Iraq so we don’t have another World Trade Center attack, and Oh, by the way, we need to inflate the defense budget to the highest real dollar levels since WW2).

    I grew up a Kennedy/Johnson Democrat, but as I get older, the more Libertarian I get. Yes the government is the best vehicle to create transportation infrastructure, and defend the country, but we need watchdogs. If we had transparency in all things, we would not have had the financial crisis in 2008, corrupt railroads, military spending boondoggles like the F35, or ethanol subsidies.

    So, what I really worry about is the press becoming too cozy with the corrupt. How many reporters and media pundits are socially close to Wall Street Bankers? David Gregory, Maria Bartiroma, just about anybody on CNBC. Once the press becomes corrupted, we are lost in the wilderness.

  57. I totally agree, but then must ask how far can one walk into the forest of media and politics, and the answer is “Only half way, the other half, your commin out.” And there by we use our Moral Sense to guide us thru the woods of life.

  58. It’s always interesting and instructive to see Kwak skirt the wrongdoings of Democrats such as Larry Summers, Pelosi and Geithner. While “conservatives” have clearly indulged in wrongdoing, it would seem that this blog routinely absolves most Democrats. Although Kwak felt forced to comment on Corzine, it wasn’t his usual excoriating, nail them to the cross kind of blog.

    Interesting. Most interesting. Does Kwak need a job with these people?

  59. On mining gold in Alaska with John Paulson:

    http://www.goldpriceperounces.net/tag/billions-of-dollars/

  60. Diane Rehm interviewed Prof. White several months back and it sounded like a great read!

  61. Read this. Any cursory examination of history will prove this point. Tyrants and oligarchs repeatedly enter into criminal enterprises to control markets. Once the criminal acquire enough wealth, the bribe or payoff leadership for favoritism and shielding.

    When the favoritism and shielding is systemic – which is a recurring historical reality- tyranny ensues. The predatorclass grows wanton and obdurate, ruthlessly oppressing the poor and middleclass- insanity ensues – the predatorclass imagining they are safe in their opulent mansions disdain, dismiss, and disregard their fellow citizens – and brute “letthemeatcake” policies and obdurate, heartless, supremist activities. The desperate people grow angry and violent and there is revolution. The tyrants are brutally dethroned.

    We’ve seen this sad story repeat throughout human history. You’d think we’d learn.

    There will be s balancing and a reckoning – and there will be blood predatorclass biiiiiaaaatches!

  62. Nice post – this is a topic worth returning to.

  63. @Tony “…The predatorclass grows wanton and obdurate, ruthlessly oppressing the poor and middleclass- insanity ensues – the predatorclass imagining they are safe in their opulent mansions disdain, dismiss, and disregard their fellow citizens – and brute “letthemeatcake” policies and obdurate, heartless, supremist activities. The desperate people grow angry and violent and there is revolution. The tyrants are brutally dethroned….”.

    There WAS an official assessment by the military industrial complex that noted that the greatest threat to *homeland security* was the delusional and fraudulent economy of 700 trillion in *derivatives*….

    so it appears that it IS going to come down to who in the *military* seizes the POWER to designate who is the *enemy*….will it be a secret *eugenics* program…? USA has a glorious history of non-scientific *eugenics* – kill the healthy and sane because they are the biggest threat to the morally depraved 1%s with trillions of $$$$ in unearned wealth….

    So will the *enemy* be the Middle Class – again – those who PROVED that FREE people can make their lives less miserable through honest work – and that is WHY all evidence of their FREE lives need to be destroyed through fractional reserve banking….?

    THAT is the *history* that keeps getting repeated, imo….

    They’re always boxing with God, so to speak, while kissing the devil’s ass….

  64. I recommend reading “The Robber Barons” by Matthew Josephson, writen in 1934. A history of mind boggling corruption during the American industrial revolution…

    “..the halls of legislation were transformed into a mart where the price of votes was haggled over, and laws, made to order, were bought and sold” C F Adams 1873