Free Research Paper on Railroads:
Influence of railroads on the US economy
Grancbner, Fite and White said following in their book “A History of the United States” about the contribution of the railroads to the American economy: «Railroads provided a fairly cheap, rapid and efficient means to transport raw materials and finished products from one place to another, without which the industrial revolution would have been impossible.» The impact of railroads on economy of US is very important and is discussed in many literature publications. This research will investigate how the topic is being presented in various sources.
The growth and expansion of railroads played a key role in the economic development of the nation. In the 1820s the first locomotive was invented by Stevens for New Jersey estate. Eight years later, Baltimore and Ohio were connected with the railroad for general transportation. Railroads were expanded to a total of 30,626 miles by 1860s. The main characteristic of the economic development of that time was the appearance of large-scale business enterprises. Railroads led to more settlements and migrations in the West. In addition, the construction of railroads established the foundation of many cities.
Grancbner, Fite and White said following in their book “A History of the United States” about the contribution of the railroads to the American economy: «Railroads provided a fairly cheap, rapid and efficient means to transport raw materials and finished products from one place to another, without which the industrial revolution would have been impossible.» The impact of railroads on economy of US is very important and is discussed in many publications. The goal of this research paper is to critically analyze the selected literature in which this very important topic is being discussed.
The first article I want to focus on is written by Paul Cootner «The Role of the Railroads in the United States Economic Growth» and first published in December 1963 in the Journal of Economic History. The author starts by stating the purpose of his writing: to take a skeptical attitude towards the railroads’ impact on the economic growth. The first argument he provides is that increased railroad construction was rather a result of economic growth than its cause. Then he provides three reasons why economic changes are time consuming and take long time.
Section III of the article starts with the definition of what is invention and talks about the creation of the first locomotives with the usage of Trevithick’s engines. Railroads were an innovation at that time which led to economic growth. I strongly disagree with the author that railroads had no influence on economy. Being an innovation, it already influenced economic development because it caused versatile changes in many fields: development of new transportation means such as trucks, increased number of product transportation. Of course, channel transportation was of equal importance, but along with railroads the amounts increased twice.
The author argues that railroad development was caused by three factors: increasing demand for wood and coal (the canals were too expensive to be built), passenger traffic demand between cities (canal transportation was cheap but very slow and uncomfortable to use), increased commercial activities and competition in the area of Ohio River.
This part of the article can be criticized because there is no evidence to support the statement made by the author. Of course, railways are the logical result of economic growth, but they also contributed to this growth. If railroad was not invented, the traffic between cities would not be so much intensive. The cheap price of railway transportation allowed more savings and people could invest their money into economy, thus promoting economic growth. The increased commercial activity in the area is also the result of railway creation, no the reason. If railroad was not created there would not be an increase in economy to the same extend as with railroads.
Soon railroads, argues the author, were used mostly for passenger transportation between cities and were financed by large merchants. In addition, railroads in the west were constructed only to feeder to the nearest waterway. Using economic examples, Cootner leads the reader to the point that in fact railroad played a minor role in the economic development at that time (1820s – 1840s) and the construction of water canals had much greater impact.
Channels did have an impact on economy; it is hard to deny this statement. However, the author underestimates the value and influence of railroads. One of the reasons for people to minimize the railroad usage could be the fear of this new type of transportation. Railroads appeared unexpectedly and developed very quickly. The channels were more usual for people because they were used to them. Even though the author used economic figures to support his opinion that railroads played minor role in economic development, his viewing is one-sided and many important factors are left outside.
The railroads were more convenient to use for transportation of products with short shelf life like meat and flour. The wheat from North and cotton from South accounted for the bulk of railway building. The impact on economy was revealed through price increases on these products. Only starting from 1857 railroads became preferred to canals. The wheat remained the key product for railway transportation. However, the author mentions that wheat exports accounted only for 10% of raw cotton and less than total of tobacco and meat exports. Thus, railroad construction influenced the population and production growth at lower cost, not economic growth.
In this part of the article, the author finally accepts that railroads had positive impact on economy. They were used for transportation of key products, thus railway was a key player on the market. Without railroad the market for products mentioned above would never develop to the point it did, thus economy would even decline.
The article also deals with the Schumpeterian ideas of innovation and productivity. The Schumpeterian innovation cycle is based on the notion that innovations are clustered and connected, leading to cycles. However, in contrast, real business cycle theory assumes many small random innovations that lead to an uneven path of economic growth but no cycles.
Schumpeterian technology transitions create a problem for productivity measurement because new technologies, like railroad at that time, are not perfect substitutes for earlier technologies, like channel transportation. However, as it will be discussed further in this research, railroads were an innovation that led to increased production in many industrial fields and to creation of new goods, thus the increase in economy is obvious.
Each innovation, such as railroads, incurs large adoption costs because they involve learning skills, implementing new forms of organization and developing complementary investments. However, it is not completely true with railroads. Only workers of the railroad had to learn new skills, and passengers did not participate in this process of learning. Yes, it is true that railroad development required additional investment. However, each new product or good involves some investment and risk associated with this investment. Railroads are not an exclusion of this rule.
The railroads’ construction just followed the shifting demand for final products in the United States. In 1820s there was a boom for iron and coal and textile – the result is expansion in railroad construction. However, there would never be an expansion in iron, coal, and textile industries if railroads were not constructed. Railroad industry consumed most of the iron and coal. The conclusion is that railroad industry did not just caused increase in other fields of economy, but caused an increased demand for some types of industrial products.
In 1850s there is westward push – number of railroads is increasing. The railroads were not constructed at large scale until proven profitable and the fact of westward migration was assured. During this economic expansion manufacturing field was not much considered and if railroads came up to be unprofitable investment, then funds could be redirected to this area of economy.
In addition, the author emphasizes that railroads are considered to be an overhead and he does not see the special role of railroads in the economic development process. Cootner compares the amounts of goods carried by key water channels and the whole railroad system at that period of time: railroads have carried much less, thus their importance is overestimated. This statement is not completely true, either. Of course, if to compare railroad and channel transportations at the beginning of railroad development, then it can be true that more goods were transported via water. However, few decades later railroad became more developed and modernized which made it a leader in transportation compared with water channels.
Moreover, railroads even created a drain on steel and iron; thus, became an expenditure rather than revenue. I strongly disagree with this opinion. Railroads consumed most of the steel and iron, it is a fact. However, it cannot be viewed as expenditure. The situation is opposite: railroads created demand for these products and helped steel and iron economy to develop. Because of this demand, steel industry began to look for new technologies to improve quality, hired more people reducing the unemployment. Increase of demand leads to increase in economy, not in the opposite direction as author argued.
This article by Cootner was criticized by many authors shortly after it appeared in the Journal. Harry Scheiber3 has written a discussion paper on this article. He argues that Cootner’s vision of railroads’ importance is one-sided and I completely agree with him. Cootner did not pay attention to entrepreneurial decisions, but limited his research on mileage and terms of shifting demand.
The competition among cities as a key element in railroad promotion is the issue raised by Cootner and supported by Scheiber. Hostile and harsh local state legislation on constructing railroad is also omitted in “The Role of the Railroads in the United States Economic Growth». The role of public aid in decisions to build a railroad is not even touched. Another influence on the speed of construction was intercompany investment. This evaluation of the article indicate that Paul Cootner did not pay attention, intentionally or not intentionally, to many factors which are critical in considering importance of railroads and there influence on economy.
“When the eastern railroads reached Lake Eirie and the Ohio River in the early fiftieth, and their promoters began looking for western connections, they found the roads in these states typically capital-starved, poorly equipped, and often uncompleted over projected routes”. This is how the situation was described by Taylor and Neu.
Another review of Cootner article was done by Matthew Simon6. He agrees with Scheiber that Cootner focused primary on the continuous variations in demand and supply. According to his words, the article poses the need for further research and analyses to prove the data proposed by Cootner. He (Cootner) strived to present his analysis as an alternative explanation of the behavior of railroad sector to the theory of innovation by Schumpeter. However, these two analyses are found to be mutually exclusive, which make his conclusions illogical.
Even though Cootner is skeptical about the positive influence of railroads on economy, he acknowledges that impact was in fact significant but it happened only forty years after the innovation of railroad transportation system. Moreover, his discussion of alternating waves of domestic and foreign in United States and Great Britain is less adequate, because these two countries had different economic development schemes and influence of railroads on economy is not even similar.
Dozens of local railroad systems began to appear by 1835. Even though each of these tracks went no more than few miles, the potential and influence of this type of transportation was finally realized. Different companies began to cooperate with one another to maximize the profits and minimize expenses. Such interaction between companies initiated the vogue, which continued through the nineteenth century. After the Civil War, the production of railroad systems fell dramatically, however, the usage of this kind of transportation increased.
I believe that the creation of monopolistic structure is also a positive influence of railroads. With the appearance of railroad and monopoly, people became more united in their struggle for better working conditions. Companies grew larger because railroad transportation was a developing and very perspective industry. Those who risked and invested into its development gained huge profits and invested money again into this or other related field of economy, thus creating a continuous rotation of money in economic structures.
The next article I want to discuss is named “Railroad Ties: The Rise and Fall of a Monopoly” written by Professor Carlton on November 30, 20018. In his writing, professor Carlton discusses the influence of railroad construction in the late nineteenth century, when it was at its highest point. He believes that railroads had positive impact on economy, and unlike Cootner, states that railway resulted in economic growth, not in opposite direction. I support this point of view.
The author gives attention to the fact that corporate leaders and government worked together to provide railroads with the land, resources and business through successful lobbying and beneficial interests. However, the focus of the paper is on the monopoly which aroused as an economic result of railroad expansion. At the beginning railroad corporations had no competitors, but soon the trucking industry emerged. Even though the railroads had huge both political and financial resources that they seemed to be in position to continue their dominance, the legislation was in favor of trucking, not railroads.
Following the above statement, I want to add, that the influence of railroads was not only the creation of monopolistic economic structure but also the development of other transportation means such as tucking. With the appearance of railroad, industrial leaders started to look for other innovation which could improve the transportation system. The railroad was a stimulus for this process which pushed aggressively the development of other industries.
From the appearance of railroads, the author continues, the government understood the commercial and social advantages of this type of transportation and aided construction with land grants, loans and purchase of rail securities. AS a result there was no federal regulation and railroad industry became monopolistic. The government favored railroad construction in the beginning, as mentioned above, however, the resistance grew considerably against the monopoly status. An example of such hostility became evident in 1870s and was called Granger movement.
The National Grange movement was so successful that it managed to influence state legislative affairs and reflected a considerable challenge to the two-party political structure. In 1887, the federal government passed the most important piece of legislation Act to Regulate Commerce. The number of forms of rate discrimination were prohibited by this act and provided the establishment of Interstate Commerce Commission. These organizations and legislation are indirect results of railroad expansion. But the economic outcomes are significant. There are only few authors who investigated this side of influence on government and economy.
Nevertheless, the article describes only one side, not capturing the whole picture of economic influence but rather the legislative outcomes and acts.
The next publication chosen for this research paper is a book “Railroads and American Economic Growth: Essays in Econometric History” by Robert Fogel published in 1964. By his work he proved that while still depending on the product of scholars, the nation can benefit from application of economic theory and econometrics. The major conclusion of the book is that the level of per capita income reached by 1 January 1890 could have been reached by 1 March if railroads had never been invented. On the other hand, he argues that there has never been an industry of the same importance as railroads. The author raised many issues concerning the influence of railway expansion on economy and his statements are not limited to his own opinion.
Fogel provides a detailed examination of the impact of railroads on the development of the iron industry. He revised the estimates of the consumption of railroads of pig iron to include the imports and recycled rails as well as the changes in the weight of rails. The contribution he made provided a better understanding of the industrial history of that time. His results are close to Cootner’s conclusion that railroads did not dominate the development of the iron industry. My personal opinion, as already mentioned above in this research paper, is that railroads consumed a significant amount of iron and contributed to its development.
The first two chapters he estimates the social savings from the distribution of agricultural products. He tries to simulate the situation as if there were no railroads in the world and investigates the concept of social savings (the difference between the real and counterfactual worlds). These two innovative studies are very important from the point of methodology; however, from the point of traditional economic history they are not so strong. It is impossible to predict what would happen without railroads in the world and their appearance is the logical result of innovative process. Earlier or later they would arise.
The book is the most thorough research of the railroad influence on economy which has ever been published. The author goes deeply in the details while investigating the results. For example, Fogel noted that the substitution of rail for water was more rapid in the interregional than in the interregional distribution of agricultural production. Fogel suggested that since the water transport was available for 75% of the land value and since the in the absence of railroads 75% of eh loss of land value in the states, and since all of the lost land could be used for production with only small addition to canal network, the difference in the value of arable land provides the measure of social savings.
In addition, he concludes that the direct loss of arable land from the absence of railroads amounted 2.1% of GNP. This is the real money which would have been lost without railroads. Thus, it is not very logical to deny the railroads’ influence on economy. The proof of this influence is the above estimated amount of money.
Further Fogel described the impact of railroad development on the economy of US from economic point of view providing a lot of analysis and studies of different scholars. Chris Davis is the author of the article “Railroads in Antebellum Richmond”11 investigates how railroads influenced the economy of Richmond area. He states that railroads were central in commercializing the region. Author starts from 1860s when railroad development was at its boom. Throughout the article the key idea is that railroads were a substantial element in the growth of commercialization.
Railroad was beneficial for Richmond in many aspects: rapid form of transportation, large commercial networks and increased economy. It provided access to new markets and increased agricultural production. To prove his point of view Davis uses following statistics: the Richmond and Danville railroads produced net revenue of approximately $256,000 in 1857. In 1851 the net revenue was only $33,000. The increase is approximately 7.8 times. However, he does not provide the sources of this information and probably the numbers are wrong and there must be some factors to influence them, but none are investigated in the article.
Moreover, the increase of tonnage of exports is used as another indicator of railroads’ influence on commercial growth. During the years between 1857 and 1859 Richmond and Danville railroad increased from 95,289 to 108,516. These numbers according to Davis are examples of how such improvement as railroads caused the increase in industry of the South. However, the numbers used to illustrate the economic growth can be caused by other factors not connected to railroads and Davis ignores other factors.
Further he states that both agriculture and manufacturing field were reliant on railway. If agriculture and manufacturing did not produce items, the railroad would suffer decrease in revenues. Therefore, both railroads and producers needed to coexist with each other in order to bring profit to economy of the city. Another issue discussed by Davis and not touched by other writers was the perception of railroad by citizens. They believed that railroads were causing too many injuries. However, after they realized that it was profitable they changed their opinion. It is hard to follow author in this point because he does not explain how fear of injury could be overcome by realization of profitability.
The increased agricultural production was an outcome of the commercialization of the Richmond city. Railroads made the process of developing commercial ties with North and West faster and were the source of the major profit. Thus Richmond became the center of commerce due to railroads. Nevertheless, it is hard to follow the author in his points and the statement he makes have no evidence and facts to support them.
In the conclusion of this research paper, I want to say that there are many other publications, which discuss the impact of railroads on the economy of US not mentioned in this paper. I have chosen to analyses those publications, which provide different insights on the issue, not only from one point of view. Cootner argued that railroads were an outcome of economic growth and had no influence on its further development. Professor Carlton discussed the influence of railroads not only on economy but also on legislature. Fogel used various economic models to illustrate the importance of railroads in economic growth in his book. Davis focused on the Richmond area to prove that influence of railroad construction was in fact beneficial for the economy.
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