That railroads were political animals was the truth of The Octopus, even if the power Norris attributed to them did not necessarily always exist …. The Octopus raised questions that later critics of the Robber Baron school, dismayed by its exaggerations, largely dismissed. They threw the baby out with the bathwater. They did not spend much time on a central contention of the Robber Baron literature: that many entrepreneurial fortunes had as much to do with corruption of the political process as with success in selling transportation, and that such entrepreneurial success had long-term costs for society.

….  Leland Stanford was the president of the Central Pacific Railroad and its public face from its founding until his death…. In 1885 Stanford bought his way into the US Senate.

The above excerpts come from the book Railroaded, by Richard White. It is a fascinating read about America’s railroad men at the height of the Gilded Age. This was a time in American history in which politics and business were shamelessly linked to one another. Famous men such as Stanford, Crocker, Adams and Huntington were in the business of openly bribing legislators in order to protect their monopolies and suppress investigations into their insider dealings.

Stanford would later found a University – the Leland Stanford Junior University in Palo Alto California.

The book is a bit long – not even two days on the TAZARA was enough to finish it. But it is a fantastic read. It is also a lesson in development economics. Through corruption and control of government America’s Robber Barons managed to accumulate capital that would later on fuel development in other sectors of the economy. Having political control granted them the chance to reduce their political risk. By the time real democracy and the anti-monopoly crusade caught up with them the “damage” had been done. America had its railroads which enabled transcontinental trade in an age before the massive interstate highway system.

The big lesson here is that de jure rules oftentimes do not matter much for institutional development. It is the de facto balance of power (both political and economic) that does.

Eventually America had enough railroads competing against each other such that the ensuing interest alignment resulted in some railroad companies allying with anti-monopolists to “rat out” their competitors. And with that came proper regulation.

Railroaded is a book about big business, politics, human rights and the fallibility of even the greatest of men (very few women are mentioned in the book.) The men of the Gilded Age laid the groundwork for the American corporation and the American love of risk. Bankruptcies did not come with indelible stigmas. They were mere speed bumps. It was also an era in which Chinese, African Americans, and recent European immigrants were exploited for the sake of the bottom line. What mattered was how much could be squeezed from workers, the government and one’s business associates.

Add the book to your reading list if you care for economic and political history.