Easy Chair — From the August 2014 issue

The Octopus and Its Grandchildren

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Leland Stanford, the railroad baron who founded the university in 1885, was one of the richest men this country has ever produced. Had his only child, Leland Jr., not contracted a fatal case of typhus on a grand shopping tour of Europe at fifteen, the railroad fortune would almost certainly have been left to him. Instead, his bereaved parents sought another legacy.

The father’s initial idea, as reported by the pastor of the Paris church where his son’s embalmed body briefly rested, was to create “a school or institution for civil and mechanical engineers on my grounds in Palo Alto.” Leland Stanford’s personal secretary recalled that he first proposed technical programs with practical purposes such as training skilled mechanics. Happily, the Stanfords’ project soon evolved into a scheme for a broader institution, a university that would admit women as well as men and teach the arts and sciences as well as engineering. (Nevertheless, the university has always had a strong technical and engineering component, even before Frederick Terman, a Stanford dean, encouraged his students Bill Hewlett and David Packard to go into business and started the school’s partnerships with technology firms at Stanford Research Park. Nowadays 17 percent of the university’s undergraduates and 38 percent of its graduate students specialize in engineering.)

The grieving parents toured great universities, hired faculty, and built on their 7,000-acre racehorse farm in Palo Alto dormitories, a grand church, a museum of their son’s antiquities, and a quadrangle of classrooms and offices. They deeded to the school 78,540 acres of California land (on which they and their son were later buried) and opened the place October 1, 1891, with 555 students and a promised endowment much larger than was Harvard’s at the time.

Less than two years later, Leland Sr. himself died suddenly, leaving Jane Stanford his principal heir and executor. She inherited a monumental battle as well. The Treasury was now seeking repayment from Stanford’s estate on $30 million in U.S. government bonds. Paying this debt would have undermined the school’s finances.

In the early 1860s, the federal government had given Stanford and his three railroad-building partners the right to sell bonds on which the government would pay interest to the bondholders; all they had to do in return — besides laying thousands of miles of track — was pay back the principal and simple interest within thirty years. To say this was a good deal is like saying the Pacific Ocean is a large pond: they got to own the railroad, the land underneath it that had been public land, the checkerboard of alternating parcels of land on either side of the railroad right-of-way (12,800 acres per mile of track), and all the profits therefrom — in other words, they got the chance to turn California itself into, essentially, a monopoly run for their benefit. They set about making a good deal even better by overpaying subcontractors that they happened to own, commissioning surveys that deemed flat land mountainous (high government construction subsidies), and buying votes to tip local, state, and federal administrations their way. One of the partners, Mark Hopkins, burned the books.

Stanford’s brother Philip is said to have gone around handing out five-dollar gold pieces to San Francisco voters during an 1863 referendum on railroad investment; Stanford himself was, conveniently, governor of California at the time, and so in 1863 California also gave $15 million in state bonds to the railroad. In The Big Four, a history of Stanford and his three business partners, Oscar Lewis wrote, “from the middle ’70s to 1910 the major share of the profit of virtually every business and industry on the Coast was diverted from its normal channel into the hands of the railroad and its controlling group.” Or, into the tentacles. There was no alternative to their transit networks, just as there is nowadays, for example, virtually no alternative to Google’s vast and spreading information networks.

Of the four who had profited so outrageously, only the monopoly’s wily finance man, Collis P. Huntington, was still living when the bonds came due. He went to war against timely repayment. It was a pitched and highly public battle that brought forth further public animosity toward the railroad empire. Jane Stanford also fought back against the government, which was demanding $15 million from her husband’s $20 million estate. She took the case to the Supreme Court and went to Washington, D.C., herself to ask President Grover Cleveland to intervene. He did, she won, and the rest is tech history.

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is a contributing editor of Harper’s Magazine. Her Easy Chair essay will appear in every other issue.

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