Billionaires, like little boys, have long liked to play with trains. With his latest purchase, Warren Buffett is on track to be today's Cornelius Vanderbilt.
The American railroad produced the nation's original corporate capitalists—the ones we call tycoons, moguls, or robber barons. The first and greatest was "Commodore" Cornelius Vanderbilt, who amassed the New York Central system between New York and Chicago in the 1860s and '70s. This week's purchase of Burlington Northern by Warren Buffett seems to make Mr. Buffett a worthy successor.
"It's an all-in wager on the economic future of the United States," Mr. Buffett said of his purchase. "I love these bets." So did Vanderbilt. And Mr. Buffett's wager is on a Vanderbiltian scale. His company, Berkshire Hathaway, is paying $26.3 billion in cash and stock for 77.4% of the enormous railroad. (It already owned the rest.) In the Information Age, this is a startling endorsement of the oldest of the old economy.
Nineteenth century railroads largely created the modern corporate economy. Led by Vanderbilt, they landscaped the playing field that Mr. Buffett now strides across. The tale of the two titans, then, is a tangled story rather than a mere contrast of then and now.
On Nov. 8, 1833, the 39-year-old Vanderbilt boarded a train. Railroads were new enough that this was notable in itself. The locomotive resembled an oversize barrel thrown on its side, with wheels and a smokestack. The three cars that trailed behind were modeled on stagecoaches, and looked nothing like the rectangular boxes of decades to come. The train pulled out of South Amboy, N.J., and chugged down the Camden & Amboy Railroad. It soon reached the terrifying speed of 25 miles per hour.
Then an axle broke, pitching the entire train down the embankment. Vanderbilt suffered a punctured lung, multiple fractures, and had the skin torn off his knees. He barely survived. But he did not let it color his feelings. Instead, he only grew more interested in this new business.
But what kind of business was it—public or private? The question shadows railroads to this day. The industry Mr. Buffett now enters endured a wave of government takeovers in the 20th century. Amtrak, a federal entity, monopolizes intercity passenger travel. This fraught meeting of public and private has been there from the beginning.
Take the line that nearly killed Vanderbilt, the Camden & Amboy. It was a privately owned corporation, but New Jersey had granted it special privileges—in particular, a state monopoly on railroads. At the time, the corporation was generally seen as a form of government intervention in the economy. In order to attract private investment in banks and transportation infrastructure, states chartered corporations with such benefits as limited liability and, as in this case, monopoly rights. That view of corporations had led Adam Smith to condemn them in "The Wealth of Nations" as a shackle on the invisible hand. Radical Jacksonians attacked them as an unjust grant of special privileges to already-wealthy investors....MORE