Plain English with Derek Thompson - Plain History: How the Transcontinental Railroads Built the Modern World

Episode Date: August 20, 2025

Today’s pod is about the economic story of the moment. It’s about new technology that supporters claim will transform the U.S. economy, an infrastructure build-out unlike anything in living memory that demands enormous natural resources, fears that corporate giants are overbuilding something that can never return its investment, an uncomfortable closeness between corporations and the state, fears that oligarchs are screwing the public to generate unheard-of levels of private wealth. Just a small catch. This show isn’t about the present or AI in 2025. It’s about the railroads and the late 1800s. To be sure, everything I just said could plausibly be the introduction to a podcast about artificial intelligence. Last quarter, the growth of AI infrastructure spending—on chips, data centers, and electricity—exceeded the growth of consumer spending. The economic researcher and writer Paul Kedrosky has written that as a share of GDP, AI is consuming more than any new technology since the railroads in the late 1800s. There is no question that the transcontinentals transformed America. They populated the West; practically invented California; turned America into a coast-to-coast dual-ocean superpower; revolutionized finance; made possible the creation of a new kind of corporation; launched what the historian Alfred Chandler called the managerial revolution in American business; forged a new relationship between the state and private enterprise; minted a generation of plutocrats, from Jay Gould to Leland Stanford of Stanford University; galvanized the anti-monopoly movement; and completely reoriented the way Americans thought about time and space. “The transcontinentals ... came to epitomize progress, nationalism, and civilization itself,” the historian Richard White wrote in his epic history of the transcontinentals, 'Railroaded.' But he continued: “They created modernity as much by their failure as their success.” Today’s return guest is Richard White. Our acute subject is the transcontinental railroads and the 19th century. But our deeper subject is the nature of transformative technology and the messy business of building it. If you have questions, observations, or ideas for future episodes, email us at [e-mail]. Host: Derek Thompson Guest: Richard White Producer: Devon Baroldi Learn more about your ad choices. Visit podcastchoices.com/adchoices

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today's podcast is about the economic of the moment. It's about a new technology that supporters claim will transform the U.S. economy, and infrastructure build out unlike anything in living memory that demands enormous natural resources, fears that corporate giants are overbuilding something that can never return its investment, an uncomfortable closeness between corporations and the state, and fears that oligarchs are screwing the public to generate unheard levels of private wealth. Just a small catch. This show isn't about the present or artificial intelligence in 2025.

It's about the railroads and the late 1800s. To be sure, everything I just told you could plausibly be the introduction to a podcast about AI. Last year, the growth of artificial intelligence infrastructure spending, that is chips, data centers, electricity, exceeded the growth of consumer spending. The economic researcher and writer Paul Kodroski wrote that as a share of GDP, AI is now consuming more than any new technology since before the internet, before computer mainframes. In fact, you have to go all the way back to the second half of the 1800s to find something

that's exceeded the amount of infrastructure spending that has to go into this new technology. You have to go back to the construction of the transcontinental railroads. There is no question that the transcontinentals transformed America. They populated the West, practically invented California, turned America into a coast-to-coast dual ocean superpower, revolutionized finance made possible the creation of a new kind of corporation, launched with the historian Alfred Chandler called the managerial revolution in American business, forged a new relationship between the state and private enterprise, minted a generation of plutocrats from Jay Gould to Leland Stanford, of, yes, Stanford University, fame,

and galvanized the anti-monopoly movement, plus completely reorienting the way Americans thought about time and space. The railroads built America. Quote, the transcontinental railroads seemed to epitomize progress, nationalism, and civilization itself, end quote. The historian Richard White wrote in his epic history of the transcontinentals railroaded. But he continued, They created modernity as much by their failure

as their success. Indeed, White says the transcontinental companies built the technology that defined the 19th and early 20th centuries, but they were wasteful, corrupt enterprises that survived only through lavish government subsidies and insider fraud, leaving a legacy of bankruptcies

to depressions, environmental harm, financial crises, and social upheaval. Today's guest, return guest, is Richard White. Our acute subject is the transcontinental railroads and the 19th century. But our deeper subject here,

our deeper curiosity, is the nature of transformative technology itself and the messy business of building it. I'm Derek Thompson. This is Plain History. Richard White,

welcome back to the show. Glad to be here, Derek. I want to start, with the big picture before we tell the story of the Transcontinental Railroad chronologically. I will confess that it was my understanding of the Transcontinentals before reading your book, that this was a classic American success story, not just in the obvious way that we knit the country together, populated the West, made America to ocean superpower, but also I had read Alfred Chandler's classic, The Visible Hand, the Manageo Revolution and American Business,

where he argues that the railroad and the telegraph made possible the modern corporation, which was an impressive invention in its own right. Your book is a pretty direct wrecking ball, both to the proposition that the Transcontinental Railroad was an unqualified success and that we should see it as having invented the rational modern corporation. So let's take the big swing here before we tell the story. How are those classic stories wrong? Okay, well, why don't we take the story about the Transcontinental United America and being necessary for American development first? Transcontinental Railroad, the reason the government financed it was to keep California in the Union during the Civil War.

And the railroads get started in 1864 when the war is still going on. But the war is long over by the time the railroads are going to be completed in the late 1860s. So one of the things is the first goal didn't really work. The second thing was it's supposed to allow the nation to move goods across the continent more cheaply than they can do by shipping and going across Panama. In fact, eventually the Western Railroad, Union Pacific and the Southern Pacific, will buy up the Pacific Steamship Company in order to raise rates because they cannot compete with the steamship company moving goods across the country.

What the railroads are supposed to do is introduce this age of competition, of individual fulfillment of small farming. But in fact, what they do is they create large corporations, which managed to be both incredibly competitive and monopolistic at the same time. What they do is create monopolies which control what individual people can do. They control the economy in much of the West in ways that stop competition, that stop the ability of small entrepreneurs to prosper. And in the end, what they do is create, by the early 20,

century in oligopoly, which we have is a few corporations dominating transportation all over the West. So everything they were supposed to be, they failed to do. And the initial technology is such that because they do not keep the infrastructure up, the original roads, by and large, are going to be the famous description of the mistreeks of rust going across the continent. It's going to be a rebuilding by people like James Hill in the 1890s, early 20th century, where they have to reconstruct these roads. in a more modern form. So the railroads that come to the transportation, dominate transportation in the early 20th century,

in many ways, very different from the corporations in the 19th century. You said that the motivation for the transcontinental railroad begins in the Civil War. So let's go back to 1862, 1864, where Congress grants two corporations the right to build a transcontinental railroad. It grants these companies an enormous amount of land. It issues government bonds to finance the price.

These are the Pacific Railway Acts of 1862 and 1864. You call them, quote, the worst acts that money can buy, end quote. Two questions. One, why was the law such a waste of money? And two, how did this grant of free land and cheap money from the government establish the themes of the rail buildout throughout the second half of the 19th century? What they do is essentially have the government. government take on all the risk and guarantee the profits to private corporations.

They also will give the money to build these railroads to people who know nothing about railroads. One of the first calculations made by people who actually run railroads in the east is that there's no way in the world these roads are going to pay for themselves. There isn't the traffic for them. They're going to be immensely costly. And there's, even with the subsidies, they will back off. So the 1864 Act has to literally double the subsidies to get them to go.

And then they tracked a series of players who will get immensely rich from this, at least some of them will, but who still at the end of it still know nothing about running railroads. What they know about is getting subsidies, what they know about is getting loans, and what they know about is draining these corporations of profits while leaving the costs to the stockholders and bondholders. And they can do that because these railroads are also incredibly corrupt. I mean, they don't invent American corruption. It's much older than that, but they bring it into its modern form. They're the ones who create the lobby.

They're the ones who buy Congress, by and large. They're the ones who throughout this period will always be giving favors to what they call their friends, who are politicians, bankers, businessmen, who by and large will do them favors in return. And what they managed to do is create something. which has become common in American capitalism, which is a corporation which in and of itself takes losses, but which makes the people who run it immensely wealthy.

They never really bring in the profits they promise. And when they do get profitable, as I say, it's much later in a different kind of railroad. But the people who run them, the big four in the Central Pacific and Southern Pacific, Jay Gould and others, they will gain immense amounts of money. So what you're doing is passing out a public cost, which in the sense that they build railroads, are building railroads which turn out to be unnecessary.

In the way that they create opportunities, they're creating opportunities, which are opportunities for the railroads, not for the people who settle out there because of the railroads. And what they do is create an incredibly unstable economy. What people forget is the great crashes of 1873, again in the early 1880s and the 1890s, so that you have a boom-bust economy, which most of the bus begin with a railroad depression. And the transcontinentals are going to be central to those railroad depressions. There's three themes you've already put it in the table, and I'm just marking them for myself. One is corruption.

Two, is that you're very critical of the timing of the construction of those railroads. You write over and over in the book that if we simply started 20, 30 years later, this would have been a completely different picture. And so I want to get back to timing in a second. And finally, you mentioned the costs, not only to the economy, but also to the American populace. We're going to hit all of those basically in that order. But before we get a corruption, can we spend one little bit of time on how these railroads were financed? I mean, this took such an ungodly amount of money that they had to raise 160 years ago

before many of the instruments and technologies that we rely on today are raising funds for, let's say, artificial intelligence. between individual stockholders, the federal government, and international investors. Because as I understand it, there was a lot of European money that was flowing into the railroads. How were the railroad companies paying for all of the steel that they were laying in the world? The first general rule is that the people who ran these railroads, never, if they could possibly prevent it, use their own money. The railroads are built on other people's money. And what they have to do is borrow money. But the way they have a entry into this is that, as I said, those people who run successful

railroads in the East aren't going to touch this. So the federal government has to offer a series of guarantees. And the guarantees, basically, to simplify a little bit, are going to be, we will guarantee the bonds that you issue, that they're going to be the responsibility of the federal government, so that the bondholders are not going to lose if you go under. we will redeem those. Secondly, we're going to make it possible for you to redeem those bonds by giving you tremendous land grants, which you can then sell to settlers.

And those settlers will, by the money they pay for the land, allow you to pay us back, so we won't lose. And furthermore, the settlers aren't going to lose because what we're going to do in these land grants is make them a checkerboard, which means we're only going to give every other section. And we're going to double the price on the sections that we sell settlers. they'll have to pay twice as much, so we won't lose any money on the land grant. And neither will the settlers, because the reason they'll pay these prices,

is land next to a railroad is far more valuable. It becomes a sort of free lunch. It's this taxless finance, and no taxes are going to be necessary to do it. The detail, I could go into the details of how this begins to go south on them, but for now I'll just simply say, this turns out to be just another story when something seems too good to be true, it is too good to be true. the railroads find is that even with the government loans, they cannot afford to build. So what they have to do is be able to get other capital. Capital in the United States is scarce.

The United States is land rich. We've come out of the civil war. It's a heavily indebted nation. And the kind of capital that's going to be necessary to build these roads is simply unavailable to them. Even in New York, they're going to have to go to Europe. They're going to have to bring in heavy European finance, particularly. going to get a lot of it from Germany. They look to England. The Rothschilds look at this stuff and won't touch it. So what they do is they start a series of bond issues, which go around Jay Cook, who had been the leading financier who helps the union develop the Civil War. And what they realize is that everything out here, they will begin to issue bonds on. They'll issue bonds on their equipment. They'll issue bonds on their track. They'll issue bonds on the land grant from the

federal government, even though this is violating what they're supposed to do. They're not selling the land as the law demands. They're actually using it as collateral now for loans. So they'll issue bonds on that. Eventually, they'll issue bonds for future profits. They'll issue bonds on anything you can possibly imagine. And then they will try to float these bonds through New York bankers who will operate in Europe. Since nobody will touch them, these bonds are heavily discounted. So to get $100, you know, they issue a $100 bond, but they might get $75 or $80 on the bond. So already the debt is beginning to pile up all around. They become heavily, heavily indebted corporations existing on borrowed money.

The promise of the profits are always going to be in the future, and the promise of selling these lands. But selling the lands becomes very, very hard in places like Utah, Nevada, the Western Great Plains, where, in fact, once you get people out there, there's nothing for them to produce, and that begins to go down. And the way in which the railroads do produce, they do open up minerals, they do open up further east, more crops, but these crops glut the market. So the economy is now beginning to suffer from too much of virtually everything. They get abundance, but it's sort of like Disney's a sorcerer's apprentice.

Once Mickey Mouse starts this thing going, he can't turn it down until the whole thing will periodically crash, as I say. So what you've created is a mountain of debt, a monument to debt. And what the real genius of these guys is, is they realize that debt can give you immense profits as long as you're not the one responsible for the debt. So there's all kinds of corruption that goes on with this money going to goes internal transfers, which ends up in the pockets of the promoters, the stockholders and the bondholders are going to be left holding the bag when these railroads go bankrupt. and they do go bankrupt. Virtually all the transcontinentals go bankrupt, most of them more than once, some of them three times.

So what you create is a corporate structure built on debt, and the excuse for this in the United States is they admit the corruption, they admit the bankruptcy of the railroads, they admit that, in fact, they're not working very well right now, but they say, but at least we've got the railroads.

Nobody can take that away from us. And that's the problem. They've got the railroads, and it's going to take a long, long time before anybody can really figure out what to do with all the track they laid. And one of the things we're going to have to do in the early 20th century is abandoned much of that trackage because it was absolutely useless for the purposes for which it was like. It's amazing listening to you and also reading the book and thinking how in the world

did we create so many different kinds of problems with the transcontinental railroad and still somehow emerged in the early 20th century as the nation's largest superpower. It's like we made mistake after mistake after mistake and you. yet we ended up or we ended up. And that's a question that I'm just putting a pin in for the end. You said that the railroads were a monument to debt. They were also a monument to corruption. Immediately after the Pacific Railway Acts are passed, the land grants are handed out,

you get the most obscene schemes, railroad companies standing up sham construction firms where essentially they're charging $50 million for the building of a certain piece of road, but they're only building $25 million of rail, and they're pocketing the difference, right? They're using some of that extra money to buy off politicians to keep the money flowing. It's just an unbelievable Ponzi scheme. Let's talk about the most famous case of corruption from this era, the Credit Mobilié scandal during the Ulysses as Grant administration. What happened here?

And how does it typify the type of corruption that was just strewn throughout this space? Okay. What the Credit Mobility does is essentially created construction. And the construction company is going to be owned by insiders in the Union Pacific Railroad. And the Union Pacific Railroad is going to then give a contract to the Credit Moublier to build the tracks. And as you say, what they do is they allow them to do it at a huge profit. I mean, literally, these things would cost twice what they ordinarily would have. The profits are going to be financed by selling bonds and by the U.S. support of the market.

road by guaranteeing the bonds. So the money comes in through the bonds. The bonds go to pay for the tracks. The tracks are there, but half the cost now goes into the pockets of the Credit Mobblier. The danger in all of this, of course, is going to be that Congress, which is in charge of supervising this and which provided for the original bonds, if it was legitimately doing their job, would have said, whoa, what is going on here? Because this is hardly going to be unknown very, very quickly. But what you do is you incorporate Congress into the Credit Mobelier. You give them, in fact, chances to share in the profits.

So Congressmen become participants in the Credit Moblié. And eventually, this is going to be broken, in part by Charles Francis and Henry Adams, who write a book about it. And the scandal erupts. And what you find is a very typical American scandal. Everybody knows that many congressmen are involved in this. And everybody knows, and when somebody takes a bribe, somebody had to offer the bribe. But only two people are ever going to be convicted.

It's going to be two congressmen. Nobody's ever convicted for giving the bribes to go to them. Everybody else walks clear. And they become sort of sacrificial lambs, or rather than Judas goes better for this, to take the blame for what happened. So the result is going to be, this is how all of this borrowing money goes into creating a railroad, which is a real railroad, which is going to be built it literally two or three times the necessary cost, and which is going to be burdened with debt, and which the people

who, in fact, have managed this scheme are capable of walking away and leaving the burden on somebody else. That becomes a model for building Western railroads until the Great Northern. One of the most famous images of the railroad monopolies in the 19th century is an octopus bestriding the country and sucking up money from every corner. But it's great. You take on this octopus imagery quite directly. You say this gets something very importantly wrong. When we think of a single octopus bestriding the country, we think of some organized effort, perhaps among genius monopolists. These guys weren't geniuses. They were very good at using grants and using loans in order to build personal profits. But as managers of the railroads, they were often total duffices. I think you write,

quote, the actual octopus was a sadly conflicted monster. Those tentacles of steel were as likely to be slapping at each other or poking into the monster's own cyclopean eye as to be securing prey. It was like watching a group of fat men in an octopus suit, end quote. Let's fill that out a bit. How were these guys? And these are some of the most famous people of the 20th century, Jay Gould, Leeland Stanford, the eponymous Stanford of Sanford,

University. Why should we think of these men as Dufus? They're very good in the way that many Charlottans are very good at deceiving people out of their money. At least some of them were. What you have to remember is that in something like the Central Pacific and Southern Pacific Railroad, Combe Huntington was incredibly competent as a financier. His money was involved with three other people. who were not very competent at all, who were pretty much, especially Leland Stanford, to drag on the whole operation.

But what he was very good at is keeping the finances going, which is literally trying to stay one step ahead of the bankers, and he in 1893 nearly goes down. I mean, he's the last one that doesn't go down. The others very often do go down. But the other part of having a railroad is actually operating the railroad.

In 19th century corporations don't come out of nowhere. What they have to do is staff these things. and staffed them with experts. And one of the things that Chandler got wrong is he thought, in fact, these were being staffed by engineers, experts, people who knew how to run corporations. Part of his problem was he took the best run railroad in the United States, the Pennsylvania Railroad, and extrapolated out from that. But that's not how most railroads ran.

So what you have instead is a collection of relatives, hangar-ons, synchaphans, who pretty much get by by telling the people who run the railroads, what they want to hear. Charles Francis Adams, who is a huge proponent of the railroads in the 1860s, recognizes their corruption and is the only person, the only sort of railroad intellectual who actually runs the corporation, is astonished when he actually gets in charge of the Union Pacific. He says that the incompetence of the general management is exceeded belief. I mean, he will go on for years complaining as he comes into contact with these people. But what he didn't understand is they weren't that interested in running a profitable railroad.

That was not where the money came from. They were interested in draining the railroad, in financing it and getting money from the finances. So it's not until the late 19th century when these railroads are going to be reorganized when people like Hill and Harriman come in and really begin to turn them for the first time into modern corporations, that you're going to get competent organizations. Before that, what you get is chaos. building railroads, competing lines, running within a few miles of each other, bitter rate struggles, repeated bankruptcies, excessive corruption, all of these things just become chronic in the Western railroads.

I want to make sure we illuminate the human consequences of this chaos you're describing, the corruption, the bankruptcies, the overspending, the waste investments. Let's talk about it as the political consequences, the social consequences, and the economic consequences. So to quickly retrace politically, you've mentioned that we think of, or historians now recognize the railroads as being in some ways the invention of political lobbying. And that throughout the gilded age, the relationship between big corporations and the government is incredibly incestuous. It's more about dealmaking than it is about following some kind of, some constitutional set of rules or laws in the sky. on the social aspect, how did the construction of the transcontinental railroad change what life felt like for people, either in the middle of the country or out to the west?

What they will do is they are perfectly right that the railroad is going to change everything. Your ability to move people and goods changes dramatically from the 1860 through the 1890s. The mere building of the railroads is going to bring places closer to. together, bring places into competition, allow Americans the mobility which they had not ever seen before. It also is going to create real opportunities for people to open businesses. Without the railroads, farms in the places east of the 100th Meridian, which could support small farms on the basis of rainfall, are going to explode. And they cannot explode without having the railroads to carry their crops to market. The businesses to serve those farms, they're going to be opened up, too.

The problem's going to be that once you get these places open, they find out they become totally dependent on the railroads. And the railroads will control their destiny. What the railroads will charge you to carry crops, to supply your business, is going to determine whether you win or lose. And one of the things that people hate about the railroads is that they pick winners and losers. They can literally, you can start up a small business someplace in Nebraska. And you find that the railroad.

is giving preferential rates to your competitors some other place, you're out of business. You know, literally that they're picking who wins and who loses. Sometimes you get pathetic letters from, I remember a lumber dealer in Montana saying, okay, you win. I mean, there's no way that I can survive with the way you're arranging this market. Could you at least buy me out? No. They're going to, he's just, he's lost, he's done.

So these kinds of things help. The other kind of thing that happens is, is what works when places you could establish a farm in Kansas, Nebraska, east of the 100th Meridian. But as you move west to the 100th Meridian, you cannot establish farms. The rainfall is not going to be sufficient. What the railroad is going to promise you is that they're actually changing the climate. I mean, the first theory of climate change in the United States is rainfall. And this is boosted by the Western railroads, arguing that as the rails go west, as more farmers come,

the rain is going to increase, and the whole country is going to be arable. So there's this huge social cost because people go out there, the first drought hits and back they come. And this is real suffering. This is people suffering from hunger. These are families having to abandon years of work as they go east. So the social costs on all of this are going to be immense. On the economics, there are two huge panics during this railroad buildout, the panic of 1873 and the panic of 1893. I believe in our last conversation you told me I had to learn this, that recession, in the second half of the 19th century were called railroad depressions because of how critical the failures of the railroad bubble were to the ultimate recession that Americans experienced

overall. Why don't you just quickly tell me about the panics of 1873 and 1893 and just how this overbuilding actually did crash the economy? The panic of 1873 is going to go on from 1873 to 1879. It comes in the wake of the Credit Mobelier, which already has notified people that there's something rotten in this financial system. But it's really going to start with the bankruptcy of Jay Cook's Northern Pacific. And Jay Cook is the most trusted financier, as I said in America. He is the person who had helped finance the Civil War. People invests in the Northern Pacific largely because Jay Cook says it's a safe investment. He is an associate named Fawn Stock who writes these incredible letters to him saying,

What are you saying? This whole thing is built on nothing. We have been borrowed immense amounts of money, built relatively little line, and the lines we've built are into nowhere. We have nothing to carry. This is simply going to collapse. And Cook doesn't really believe it. He might believe it inside as a businessman, but he won't admit it. And when it comes crashing down, then all the debts that Northern Pacific has accrued get a call.

And it caused a banking panic in New York, which is going to reverberate back into Europe. And this whole thing becomes a range of dominoes. Everything begins to fall. And you go into a depression or less than to 1879. So that's the first one. And it comes out of Jay Cook in the Northern Pacific. The 1893 panic is going to be a more general railroad depression, but the basic causes are going to be the same.

You have some heavily leveraged railroads, deeply in debt, who are going on a building spree in places which cannot possibly, support the railroads being built into them. There simply is not enough traffic. They're competing with each other. They're cutting rates. And eventually, as they begin to go bankrupt, as the losers begin to go under, it then leads to the same thing, this calling in of debts, the bonds. And another general collapse will yield what in the 1890s is called the Great Depression, which was the Great Depression until the 1930s. So the financing of these railroads does have cost. I mean, the amazing thing to historians, but when I look at the whole range of American

history, it's not that amazing. The ability to wipe out the memory of American investors, it's like they get a lobotomy every five or six years. They just, that's behind us now. That's in the past. That's not going to happen again. We fixed all those problems, and it happens again. And that's the story of the Western Railroads in the late 19th century, just this incredible cycle of debt, default, recession, depression, and start all over again. One question that I had over and over in your book that you helpfully really put your finger on, and I think in the conclusion, is if the railroads were so terrible, why was the United States by 1900 not worse off? The way that you put it at one point is, quote, how when powerful people can on close examination seem so ignorant,

how when so much work is done stupidly, shoddly, haphazardly, and selfishly, how then can the modern world function at all? End quote. And I want to spend some time here to just talk about, you know, maybe this is a two-parter. Number one, a direct answer to the question of if the railroads were as corrupt as you're describing, as damaging to the U.S. economy, I mean, two recessions 20 years apart, plus a period of intense deflation throughout the 1870s and 1880s because farmers in the West were producing so much stuff in part because of the railroads that the prices for that stuff was falling and therefore they couldn't necessarily make the kind of money that they expected. If this technology was so calamitous to the final decade to the 19th century, how did America

emerge from the Second Industrial Revolution as the great superpowers? power of the world. What happens to the late 19th century is that there's a reaction to all of this. One of the things that's going to happen, and people forget this about the late 19th century, because they stress these things that you and I have been stressing, the incredible corruption, the incredible waste, just a massive incompetence. It's also going to be the great age of anti-monopoly. There is going to be a political protest which takes place in all political parties. Populists are anti-monoplas, the wing of the Democrats are anti-monoplas, the wing of the Republicans or any monopolists, who begin to demand reform and who begin to get reforms, which will begin to

restructure the railroad system. This is going to take time. I mean, the reason that all of these things happen so much is because the reforms take time, but any monopoly, which will then yield to something which is related but very different, progressivism, will, in fact, begin to bring about a rationalization and a regulation of the railroads. One of the reasons this can happen is that by the 1880s and the 1890s, with the creation of the Interstate Commerce Commission, which doesn't have much affected first, the railroads are begging to be regulated. The last thing in the world they want is this kind of insane competition overbuilding debt that if they're going to try the managers in charge as the older guard vanishes,

this is literally, as the popular saying goes, there's no way to run a railroad because that's no way that the railroads could be run. So you begin to get a political structure, of regulation, which will, in fact, not stop this great explosion of American ingenuity, but harness it and begin to make it useful. This is going to be coupled with kinds of financial reforms. It's going to be the government. It's also going to be bankers.

I mean, after a while, the Rothschilds would never get involved. J.P. Morgan will get involved, but J.P. Morgan's no fool. He realizes this whole thing is just nonsense. And so what they do is move from a model of this insane competition. and oligopoly into literally regulated monopolies. I mean, Morgan will finance the consolidation of these railroad systems. And he's not against the government regulating.

He wants the government to regulate him because he wants to have them as this kind of controlled profit. So one of the things you do get out of it in a very wasteful way, in a very slow way, in a way that could have been avoided many of its calamities, you do by the end of the 19th century have infrastructure which moves across the continent. And that brings the great American advantage into play.

The great American advantage, which we have over-competing economies, we have an incredible wealth of resources. We did nothing to create those resources, but we literally have with oil and copper, with agriculture and soil, and now the railroaders that can move these things effectively, we have advantages that nobody else in the world can match. So once by the early 20th century, you begin to get some sort of coherent regulation,

some sort of systematic financing, and you have an infrastructure which can begin to tap the real wealth of the continent. At that point, the United States does emerge and will continue throughout the 20th century to stand as a giant economic power, but it's going to be a power which until the end of the 20th century depends heavily on government regulation to make these things work. I want you to tell us about some of the more surprising implications of the build out of the transcontinental railroad system

because some of the obvious ones are it makes it easy to transport goods from California to the Atlantic. There's a wonderful book by James Glick called Time Travel, where he makes the point that the railroads invented or inspired the invention of the concept of time travel, that H.G. Wells' book, The Time Machine,

is really the first book that we have in the history of Western literature that is truly a book about traveling backward and forward in time. And it's Glick's theory that you needed a railroad and the construction of time zones in order to get people thinking about time and space in this new way. You talk in your own book about the politics of space, that the invention of the railroads gets people to think about moving through space as an economic activity that space costs money.

And therefore, to move a certain number of miles equals a source. certain amount of money. I wonder if there are other surprising psychological implications or consequences of the construction of the transcontinentals, because this truly does seem to be something that changes communication and transportation, things just so fundamental to human experience, in a really big way, notwithstanding the total clown show that's responsible for their construction. I would say to go back to time and space, that the way we think about the the world now we owe to the railroads. The way the internet seems to have said it's going to be collapsing time and space and the way the Marx talked about it. That's a railroad talk,

which is a real reality. When I, you know, I live in Los Angeles and when I talk about going someplace, I don't measure it in terms of space, in terms of distance. I measure it in terms of time. Things relatively far away from me from going in one direction can be relatively close. It's not going to take me much time to get there. Other things, like going to down. downtown Los Angeles, I are going over to UCLA, is going to take me a huge amount of time to get there. So what you have is that the way we think about space and we think about it in terms of time, that's a railroad creation. Spatial connections become temporal connections. How far away you can live from places, how close you have to live from places, which places can

serve markets at a distance. All of those things depend on the amount of time it takes to move things. and the cost of that movement. The railroads do all of those things. What the railroads also do is something which we don't think about it that often, but if you take the time the Transcontinental Railroad started in the 1860s, it had taken European Americans literally two and a half centuries to basically reach the Mississippi and a little beyond. They're going to span the rest of the continent

in less than a generation. And one of the things they do is that that allows them to incorporate the resources I've talked about, but it also has another side effect or direct effect. It enables a conquest of Native peoples. I mean, with the railroads, Native resistance literally crumbles. The whole system before of treaties, the ability of people to gradually adjust to the presence of Americans, all of that's gone. It's going to be over in a, in a point.

of an eye. So one of the things that happens here is that these epics of conquest come into play. And another one, which is very pertinent to today, is the relevance transformed the environment. They transform the environment both in terms of their own demands for energy and resources that they need, but also in the way that they will allow basic resource industries to take place all over the West, to begin to transform a system of production and also in their eyes, even to transform climate. So this idea that economic systems really begin to have massive environmental effects, that is very, very much a product and popular thinking of what the railroads do.

So once you start these things going, and this is true of any new technology, there are things you expect to happen, and very often you can overestimate those, but the interesting things are the things you never, ever consider. And those things often are the ones that are going to have even a larger play as time goes forward. I want to trace the story of the rise of Antsmonopoly in response to the railroads, to the rise of the progressive movement in the early 20th century. I think your book does a really admirable job of not making this some really clean David versus Goliath story, where Goliath is evil and corrupt and David is pure. The story is the story, the picture that you paint of, you know, knights of labor and all these anti-monopoly groups,

they're a mess too. They're a total mess. But out of that mess arises a political movement, progressivism, that combines anti-monopoly and new ways of organizing government power for the public good that I think does a lot of wonderful things for the United States in the late 19th century in early 20th century into, frankly, the New Deal. You know, Franklin D. Roosevelt in many ways, comes out of this progressive era tradition. Can you connect some dots here from the sort of the messy, chaotic, also sometimes clown show origins or the anti-monopoly movement in response to the railroads and the emergence of something more organized and successful by the early 20th century?

Yeah, I mean, I'll start with Knights of Labor. And the Knights of Labor are both one of the most idealistic labor unions that ever was created and one of the most inept labor unions that was ever created. I mean, it was hopelessly run. The strikes were noble, but usually ended in disastrous defeats. But what they're going for, I mean, it's a problem that Annie Monopoly faced, is they were trying to defend an older America, which they didn't realize it was already on the ropes. It's an America of individualism, individual producers, individual laborers, the Knights of Labor hates wage labor.

They fight against wage labor. But at the same time, they're not socialist, so they're not going to go to any sort of communitarian basis on it either. So what they end up doing is fighting nobly for an ideal which is not going to work. They really think, as much as any laissez-faire economists, that free competition between individuals is all you need it. they live in a world which sees that's not all you need, that this is going down and it's going down fast. So what Annie Monopoly strives for in its initial days is simply free competition, individual rights, individual producers, until by the 1890s, it begins to change. By the 1890s, it begins to be the sort of vanguard wing of anti-monopoly, which comes very close to being

monopoly. It comes out in the novel, Looking Backward. Looking Backward essentially could have been written by either John D. Rockefeller or the utopian socialist. It makes no difference because what they imagine is a world in which individualism is dead. Individualism is, was the problem to begin with. And what you have now is a planned and managed economy where everybody gets what they need. There's no competition. The whole thing is centrally imagined by the state. Then, in fact, what has happened to the economies has become one big corporation. Progressives don't go that far, But progressives and the Vanguard anti-monopolis can meet because they both agree that competition is not going to be able to solve this problem. What we need to do is allow these monopolies, which are much more efficient in some ways, to go on, but we're going to regulate them.

We're going to regulate them the way that until 1990s in California, they regulated public utilities. That it's going to be a regulated economy. We're going to take economies of scale. There's no defeating those. The economies of scale are real. to get much more abundance, which by keeping prices low, will be more widely distributed. And so this will be the new model for the economy. And so any monopoly, as it merges and defaults into progressivism, will, even though they're very different, become the way in which

the economy will be organized. And the railroads will partially accept this, because they themselves are going to be challenged by other forms of transportation. And they are going to be guaranteed by the way this regulation works a certain profit. I don't want us to end squarely and over-obviously on artificial intelligence and the current infrastructure build-out. But I do wonder, you know, you published this book just over a decade ago, is that right? Yeah. 2013, 2012. What are the lessons of railroaded that you consider to be most relatively timeless? What should we take from the story of the construction of the Transcontinental Railroad

that isn't a story about the panic of 1873, the panic of 1893, that isn't about credit mobilié or J. Gould and these corrupt financiers, but is a story about how economies of scale work, how new technologies sometimes are built? What are those more timeless lessons that you return to when you think about this enormous project? Yeah, and I confine my generalizations not to time-lose generalizations, the ones that apply probably to 19th, 20th, and 21st century America into American capitalism. And the kinds of things are, is that there are such a thing as transformative technologies.

Railroad was a transformative technology. Electricity was a transformative technology. But one of the things I've looked at in them is they are run by people who never under promise. They virtually always overestimate. the consequences of what they're doing, at least the consequences they predict. On the other hand,

they virtually always underestimate the ancillary costs of what they are doing. So this kind of thing happens over and over and over again. The second thing is that the people who hype these technologies, the people who control the companies that are seeking to master these technologies, very often do not understand these technologies themselves. That this is where you get this kind of mismanagement. they can over promise because literally they know what they want to promise to get financing and to get money and to get profits.

But they really have very little idea of what these technologies will do. And so this technology has always come out to be something of a black box. I mean, you open them up and all kinds of things pop out. Some of them are things you're anticipated. Many things are going to be things that you don't anticipate. You know, the third one is virtually always there are going to be bubbles because they take on this. belief, if you're going to change the world, if this is the secret to the changing world, everybody should get in on this, and people do get in on this. And the investment will flow into

these. The railroads were the American stock market and American financial market in the late 19th century. I mean, that's where the money went. It dwarfed everything else. And in that way, they invent American financial markets, and they invent the way that the bond market and the stock market will later work. But it means a relatively few corporations, that's why the panics can And so, a relatively few corporations can make the whole thing boom and then make the whole thing bust. And that, I think, has followed through again and again, you know, for a while that's under control in the 20th century.

But with the creation of the internet and high tech, I mean, that seems to me, those companies, the one pushing the AI boom today, very much parallel railroad corporations. The other thing is that there's a question of fixed costs. Once you bet on these economies, you suck a huge amount of capital in them. I mean, one of the things that the railroads is the road can't just be picked up and brought someplace else. There you have it. You've stuck with it now. And it's the same thing with AI.

We think of AI as something sort of ephemeral. Every time I open my computer, I get the note for my AI companion now. But the AI companion is really something which demands a huge amount of energy. which means that a huge amount of electricity is going to have to be produced from sources which are going to go to the farms which make AI work. We have to think about where that energy comes from

and what that energy will do. That is an enormous fixed cost, which is going to have a drain on other parts of the economy, and that we very often tend to sort of brush it off. Oh, we'll take care of that. Well, we didn't take care of it in many booms in the past. I mean, the electrical systems work and don't work, But that's another one where the fixed costs are going to be there.

And the other thing that happens in these is one I've mentioned, is virtually always these kinds of things, because the government does get behind it, tends to be public investment for private profit, that the government rarely comes out ahead on these things. It is the one who takes most of the risks. We think of capitalists as risk takers. Capitalists, the last thing they want is risk.

They want the government to bear the risk, and they will take the profits. And that I think is one of the things it's going to be happening in AI the way it happened in the railroads. And that the final thing is, if everybody's jumping in, whatever AI does and whatever is set up to do AI, we can bet we're going to have way too much of it. And so some of it is going to disappear at a loss to many of the people who invested in it. It is going to be a game of musical chairs. Somebody is going to be left standing at the end and are going to have all kinds of investments wiped out. That this is not going to be a game of musical chairs. That this is not

going to be an efficient investment, a huge amount of money is going to be going to, and we're going to be left with not only debt, but lost the opportunity costs. And those just seem to me to be general truths about how American economy has developed from the railroads down to the present day. I love the point about bubbles, and I love the point about the surprising ricochet effects of some of these technologies. On the bubble point, I find I sometimes ask, do you think artificial intelligence will be a transformative technology or a bubble. And I think the answer is clearly, yes. The railroads were a bubble

and they transformed America. Electricity had a bubble and it transformed America. The broadband buildout, the late 1990s, really 2000s, obviously a bubble, the dot-com bubble, and it transformed America. It seems very unlikely that AI will be the first transformative technology to not have some kind of enormous bubble effect. That's one conclusion I think is really important. And the other is I love thinking through the surprising ripple effects of these enormous stones that we drop into the pond. The idea that railroads transformed the stock market, the bond market, that they helped to design the modern corporation and inspire the beginning of the progressive era. I mean, those are a lot of changes far beyond the collapsing of time and space that I'm sure a lot of

the early railroad barons were promising when they were trying to stitch the country together. And I have to think that artificial intelligence is going to be the same. that if you look at all the promises that Elon or Sam Altman announced when they first decided to start Open AI, or you look at the promises of Jensen Wong and other AI leaders, those early promises might come true. But the ripples always surprise us. It's going to change things that we can't yet imagine because these technologies are so larval and they can often become something that we don't anticipate. Richard White, I really appreciate it. Again, I suppose I'm just going to bring you back on the show to talk about one of your books every six months.

months or so. So see you in six months. Thank you very much for doing this. Okay, Derek. I enjoy it. Thanks.