Carte Blanche: Separation Of Train And State

Conceptual image of HSR Train traveling through Sacramento.

Conceptual image of HSR Train traveling through Sacramento.

California’s government-planned highspeed rail to nowhere is just an echo of the failed state-run railways throughout American history. Still incapable of reality is a simple highspeed rail from Chicago to St. Louis, even with $2 billion in federal funding. Like California’s attempt, projects like Florida’s SunRail, the Amtrak corporation, or government streetcars operate nearly every year of their existence at a loss. It should be obvious that they don’t simply pay for themselves to justify money from the state. Starry-eyed politicians still strive to build trains to satisfy their own dreams, as if other peoples’ property is their box of legos to play with. Delusional old railway sympathizers yearn for the past of trains being the dominant means of transportation in America as if taxpayers should have to finance artificial railway projects, bailing out nothing but their emotions. Radical leftists fantasize the abolition of airlines, replacing them with a fully sovietized highspeed rail project for the entire country. (Even though San Francisco to Los Angeles was a failure). Maybe it's important to note here that the science fiction train from The Hunger Games is in fact, fiction. With over a century of government control of America’s railways, politicians and their supporters show that they will never learn.

Railroads, in the words of Murray Rothbard, were America’s first big business, as well as one of the first to be conquered by the US government in the progressive era. During the late 19th and early 20th century, the Republican-controlled Congress enacted its statist agenda of land grants for large railroaders, as well as federal subsidies. The Federal Government granted nearly 200 million acres of land at the time, half of which went to just four well-connected businesses. Jay Cooke was a banker and owner of Northern Pacific railroad, and a crony capitalist, recieving 47 million acres from the government. Cooke, also called the “Tycoon”, is known for lobbying the government to grant him a monopoly on underwriting Civil War bonds, however, Jay Cooke & Co. crashed in the panic of 1873. Jay Cooke was then succeeded by J.P. Morgan, while at the same time a new wave of government price controls on railroads followed. Rebating was regulated in the attempt of large railroaders to extinguish competition from the smaller. As explained in The Progressive Era by Rothbard, this was government regulation to help railroaders form cartels. This was sold to the public as protection against “unfair pricing”.

The Interstate Commerce Act of 1887 completely outlawed railroad rebates, strengthening their cartelization. However, this did not yet satisfy the railroad giants at the time, as they consistently called for more regulation over the next few decades. Heads of these companies called for more federal regulation in their publications, like Chicago Railway Review and Commercial and Financial Chronicle. In the latter, Rothbard points out how vice president of the Erie Railroad bitterly criticized the traditional American allegiance to laissez-faire capitalism. On the contrary to mainstream history, dominant businesses have generally opposed laissez-faire and welcomed central control of their industry, as most did during the progressive era.

In an 1891 book, A.B. Stickney, president of the Minnesota & Northwestern Railroad wrote, “... it is too much to hope for any such protection to the rights of owners growing out of such [voluntary] agreements… Their alternative protection is the strong arm of the law. Let them name the rates, and let the law maintain and protect their integrity.” Railroads furthermore advocated for what they called “legalized pools”, which were really federally enforced cartels, or pools. During the Wilson administration, it was written to the president in a letter, “I am confident that you will do for the railroads of this country as much as you have already done for the banks” (Rothbard p. 89). This is a reference to the Federal Reserve creation for the interests of the banks. Finally, during WWI, the railroads were nationalized.

From 1930-1970, passenger trains declined in demand, with the rise of superior transportation. In 1940, New York subways were bought out by the city. Before this, when subways were most popular, they functioned fine with low fare prices. (Prices rose after the city took over). In 1971, the Amtrak, or National Railroad Passenger Corporation was created during the Nixon Administration, as a government-owned corporation. Amtrak continues to receive billions in federal funding, despite that it continues to operate at a loss every year. Over time, trains (especially passenger trains) have turned into an enterprise assumed to be the responsibility of government.

Since its creation, Amtrak has operated at a loss for all 47 years of its existence. Each year it receives more money from taxpayers to fuel its losses. The senior executive vice president of Amtrak, Stephen Gardner, tries to make good news out of the fact that 2018 yielded a smaller loss than the other 46 years writing, “Amtrak’s financial performance in the fiscal year 2018 was the best in its 47-year history. Amtrak generated record revenues and has carried more than 30 million customers for each of the past seven years. Its $168 million operating loss was its lowest ever, without adjustment for the more than 500 percent inflation since operations began in 1971, and a 53 percent reduction from just five years ago.” The reasons for Amtrak’s failure stem from the fact that it was created and is controlled by the state.

Unlike a private company, Amtrak has the ability to exist after making losses for 47 years, funding itself with taxpayers’ money. Not only does this siphon value out of the public, lowering everyone’s living standard, but it creates a moral hazard for the corporation. For Amtrak, it’s not only a factor that they can make a loss this year, but they know they can get away with it next year, and the year after that, and still be in business, creating little incentive for real profits. Regardless of a simple moral hazard though, every state-owned organization runs into the socialist calculation problem. Since governments are not acting in the interest of creating sustainable profits, they are not motivated to create value for consumers. Every individual is acting in the economy making subjective judgments of value, and these infinite value judgments order the economy in the way that it exists. No single individual can arbitrarily decide how the market “should be” or decide the subjective values of other individuals. By creating the Amtrak corporation, the government rose above the complex structure or individual choice and arbitrarily decided that a passenger train corporation “should” exist. It is by the socialist calculation problem that shows why all economic actions taken by governments are necessarily wrong. They have created an artificial business that otherwise would not exist in a free society. As long as it exists, the publics’ money will continue to fund non-productivity.

Issues like California’s highspeed rail can become popular in mainstream politics, but in reality, privatization is never offered as a real solution. The best libertarians can do in the present is to offer real solutions to problems. We know that dumping more deficit spending on Amtrak will not suddenly make it profitable, because the socialist calculation problem will still exist. It has already received $45 billion from taxpayers in its history. Congress would have to undo the problem and abolish the Amtrak Corporation. If state governments want to solve problems further, they should privatize their smaller train lines. There are many different methods of privatization, and it is important to remember that any instability caused by the transition is always the product of government taking over the industry in the first place, not the undoing of the problem. The Federal Government can outright sell shares of Amtrak back to the public. Shares would sell very low given 47 years in the red. However, some libertarians offer a more complicated method, arguing that governments do not have the right to sell property that was not justifiably theirs, to begin with. Amtrak was created via taxation, so according to this method, shares would be returned, not sold, to taxpayers that worked between 1971-present.

Now, since the corporation is not profitable, it would instantly lose value in the private sector, and possibly go bankrupt. This brings us to one of the most common arguments against the separation of train and state. In an article from The American Conservative titled “Don’t Railroad Amtrak”, William Lind and Glen Bottoms write, “These trains represent one of the good things from the past conservatives should work to conserve and expand: at present, passenger rail service in most of the country is a fraction of what it was 50 years ago.” This is the simplistic argument that the government should create passenger trains because otherwise less of them will exist. It is a true statement that passenger trains have declined in the free-market with the rise of more efficient transportation. This is how business changes with the rise of different technology and different subjective valuations of consumers. To uphold the accumulation of wealth in society, unprofitable businesses have to be allowed to liquidate, so the resources can be used for new production processes that improve the lives of consumers. The idea that passenger trains will decrease without Amtrak is a feature if that is the choice of consumers. Given that Amtrak is not profitable, the market is telling us that the resources would be more productive elsewhere.

This argument, that “otherwise it would not exist”, is as silly as saying governments cannot end anything, because otherwise, that particular “thing” would not exist. The government should start a floppy disk corporation because if they don’t, the floppy disk corporation will not exist. The government should build a mile wide red orb next to New York City because if they don’t, it won’t exist. The point is that this reasoning falls for a reductio ad absurdum and could justify anything the government wanted to do ever.

Unfortunately, statists will cling to the idea that there is a way to calculate benefit and value to society other than profit and loss, and many will learn absolutely nothing from the failure of California’s high-speed rail. No matter how many emotions we have to resist a changing economy, politicians will never be smarter than the market. There is no role for government in railways, and there is no need for a “train policy”. Trains should be separate from the state just like any other non-aggressive action.