Lessons from the Victorian Internet
By Jim Surber 

My last writing about government electronic espionage mentioned the telegraph, which by the 1870’s was under monopolistic control by Western Union. This company’s alliance with the Associated Press and the Republican Party played a major role in picking the winner of the hotly-contested 1876 Presidential election. 

This story of the telegraph is fascinating. Not just for the history, but for the lessons it can provide in current debates surrounding today’s information superhighway. 

In 1879, investor Charles A. Sumner sat at his desk pouring his frustrations onto paper with an ink pen. A business partner with the radical economist and journalist Henry George, he was completing the final passages of a book about what had happened to the telegraph, what some today call the “Victorian Internet.” 

"This glorious invention was vouchsafed to mankind," he wrote, "that we might salute and converse with one another respectively stationed at remote and isolated points for a nominal sum. But instead, a wicked monopoly has seized hold of this beneficent capacity and design, and made it tributary, by exorbitant tariffs, to a most miserly and despicable greed." 

Decoding his Victorian prose, it is obvious that he strongly felt that civilization had been cheated. Probably very true, and maybe one of the greatest single victims had been Sumner himself. 

Although the telegraph was pioneered by Morse in the 1840s, the innovation didn't really take off, financially speaking, until it partnered with the railroads, at which point it became the era's version of today’s internet. 

It was no secret or mystery why Western Union held a partisan allegiance. By the 1870s, the Party of Lincoln (Abe himself was a former railroad lawyer) had given away vast amounts of land for the construction of railroads and telegraphs. Almost 130 million acres (about seven percent of the continental United States) had been granted to only eighty companies. 

Under the Pacific Railroad Act of 1862, the federal government subsidized the construction of a coast-to-coast railroad system, and subsidized telegraph growth as well. But Congress provided virtually no regulation or oversight for the largesse. 

The result was the Credit Mobilier scandal, a scheme that bears some resemblance to the Enron debacle of 2001. 

Rather than license the construction of the Union Pacific railroad to an independent contractor, its Board of Directors farmed the work out to Credit Mobilier, a company that was, essentially, themselves. In turn, Credit billed vastly more than the actual cost of the project. To keep Congress quiet about the affair, the firm offered stock in itself to Representatives and Senators of any political persuasion at bargain basement prices. 

In this context, it should come as no surprise that the nation's telegraph system quickly fell into the hands of one of the most notorious financial schemers of the Gilded Age, Jay Gould. 

Gould had become infamous for his failed attempt to corner the nation’s gold supply which brought about the financial panic of 1869. Years later, with interests in scores of railroads, he concluded that “The telegraph and railroad systems go hand in hand,” but Western Union refused his overtures for an alliance. 

Armed with vast wealth and his own newspapers, Gould set out to conquer the telegraph with financial subterfuge and public opinion. After initiating a bear raid on Western Union to lower the price of its stock, he built several small telegraph firms and publicly denounced the company as an unscrupulous monopoly. 

In a few years, Gould had not only sold his competing telegraph companies to Western Union, but he had successfully pulled down the value of the company’s shares so that he could easily buy out the huge enterprise. With that came the longtime Western Union alliance with Associated Press. This was a criticism-proof information system that combined content creation with a national network, and created an environment where no competitors could emerge. 

The story now returns to Charles A. Sumner. 

Sumner’s partner Henry George tried to start a newspaper in San Francisco in 1879, but the AP refused to sell him a franchise. He relocated to Philadelphia to start another publication, but Western Union cut him off from the only telegraph cable. His and Sumner’s investments collapsed. 

It was 1910 before Congress declared both the telegraph and telephone to be common carriers, subject to regulation. 

Today, in debates about internet broadband policy, there are two perspectives at war with each other. One seeks some government regulation of the dominant industries and service providers of our time. The other seeks no regulation and believes the private sector should do as it sees fit. This camp continually presses for network neutrality on the Internet, and appeals to the Founding Fathers are very common. 

This story of the telegraph might seem far removed from contemporary debates about network management, file sharing and protocol discrimination. But questions remain as to what degree should Western Union have been allowed then—and ISPs allowed now—to pick winners and losers on our communications backbone? And on the other hand, at what point do government regulations grow so onerous that they discourage network investment and innovation? 

These are tough questions, but the huge problems of the Victorian Internet suggest that government overreach isn't the only thing to fear. In the 1870’s, laissez-faire "freedom for all" meant, in practice, the freedom for the head of Western Union to read your telegrams if he didn't like who you supported for President. It meant freedom for Associated Press to block all criticism of Western Union, and even to put potential critics and competitors out of business. And it meant freedom for a scoundrel to hijack the system at his leisure. 

If you think it is apples and oranges to compare the telegraph with the modern internet, consider the proposition that it was the telegraph that was far more significant.  Telegraphy was the first opportunity for man to communicate globally, and in real-time. This was a qualitative shift, while the change brought on by the modern Internet was merely a quantitative shift. 

By telegraph, Lincoln received Civil War battle reports virtually in real time. Compare this with the Battle of New Orleans that was fought over two weeks after the War of 1812 had ended with the signing of the Treaty of Ghent. 

In many ways, the uses of the telegraph in commercial, military, and social communication were just like modern uses of the internet.  Couples fell in love and even married over the wires, criminals were caught through the telegraph, et cetera. 

The unique culture that developed between telegraph operators also had some rather interesting similarities with the modern Internet. Both cultures made or make use of complex text coding and abbreviated language slang, both required network security experts, and both attracted criminals who used the networks to commit fraud, hack into private communications, and send unwanted messages. 

Yes, specific technologies and debates are different, but the similarities cannot be overlooked. Some things, like the telegraph and the banking system, always run amok without some regulation. It would be interesting what Charles A. Sumner would say today if he was told that internet neutrality (regulation) is bad and a "solution to a problem that hasn't happened yet."