Information, Markets, and Corruption: Transcontinental Railroads in the Gilded Age

Richard White

The corrupt, like the poor, are supposedly always with us. Corruption is a species of fraud that involves violation of public or private trust. A covenant of some sort, either implied or explicit, is violated. Corruption involves betrayal, often of a third party. The corrupt buy or sell what was not supposed to be for sale—a vote, for example, or public property. They turn to personal advantage their legal status as trustees of persons or property. Or they grant only to a privileged few what is purportedly available to all or available only through open and fair competition, such as public information or access to political officeholders or charters or contracts. Or, for a price or for personal advantage, they make public what was pledged to be private, such as state secrets or confidential business information. In the Gilded Age, the corrupt explored new frontiers: they corrupted information, particularly financial information, on a scale never before possible.	1
The Founders feared the corruption of the American republic, as did the Jacksonians. Gilded Age reformers decried corruption. Today, plagued by financial scandals, we seem both fearful of corruption and resigned to it. We seem uncertain about whom it hurts and what difference it ultimately makes. The Republic seems perpetually corrupted, but instead of being outraged, we are not sure it matters. 1	2
Corruption, however, is not always the same; it has a history. The Gilded Age was a key moment in that history not just because the issue of corruption dominated politics but also because, as republicans from Thomas Jefferson through Andrew Jackson had feared, the rich, who now controlled corporations, used them to infiltrate the state and to turn parts of it to their own purposes. They also did something equally important: they moved to take control of the mass circulation of financial information in order to manipulate financial markets. Those markets, which were supposed to ensure the competition that would prevent the rise of economic units large enough to corrupt the Republic, proved to be themselves open to corruption. Even today, as the political scientist Susan Rose-Ackerman has written, the models of modern economists are "deeply embedded in a set of often unstated assumptions about human values, and many of the normative claims for the market are fundamentally dependent upon the assumption that economic actors will not break the law." But, as the misdeeds of Enron and other current financial scandals demonstrate, economic actors do break the law.2	3
Financial corruption provoked outrage and concern. "Our whole system rests upon the sanctity of fiduciary relations," Henry Adams and Charles Francis Adams Jr. wrote in Chapters of Erie. "Whoever betrays them, a director of a railroad no less than a member of Congress..., is the common enemy of every man, woman, and child who lives under representative government. The unscrupulous director is far less entitled to mercy than the ordinary gambler, combining as he does the character of a traitor with the acts of the thief."3	. . .