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Crony Capitalism and the Transcontinental Railroads

March 10, 2014
historic steam train passes through the fieldsRyan McMaken writes in today's Mises Daily: 
In spite of massive subsidies and free lands equal in size to New England, the lack of overland trade made it difficult for the railroads to turn a profit, and after a series of bankruptcies, bailouts, and other schemes, railroad owners like Leland Stanford, Thomas Durant, and Jay Gould managed to make a lot of money manipulating federal largesse, but many others, including families and ranchers who followed the flood of money and capital west during the boom, but who found themselves as paupers on the western plains after the bust, were ruined by the railroad’s bubble economy. With the signing of the first bill to create the transcontinentals in 1862, it was already known that there was no economic justification for the railroads, which is why they were, according to White, “justified on the grounds of military necessity.” Lacking any privately funded-entrepreneurs willing to build a road through more than a thousand miles of territory uninhabited by whites, the 1862 Railroad Act created the Union Pacific, making it the first federally-created corporation since the Bank of the United States. Legal and economic shenanigans ensued, and it would not be until the 1890s that anyone built a privately-funded railroad, the Great Northern Railway.

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