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Appendix B

ECONOMIC RETURNS FROM TRANSPORTATION INVESTMENT: NINETEENTH CENTURY EXPERIENCES AND CONTEMPORARY ISSUES

by
Charles David Jacobson, Morgan, Angel & Associates

Views expressed here are not necessarily those of Morgan, Angel & Associates

This short bibliography represents a sample of some of the more important works in what is a vast economic and historical literature on nineteenth century transportation infrastructure. More recent scholarship on post World War II infrastructure development is not included.

Fishlow, Albert, American Railroads and the Transformation of the AnteBellum Economy (Cambridge: Harvard University Press, 1965

In this volume, Fishlow attempts to "quantify the social savings of the railroads and their impact through forward and backward linkages on the various branches of the economy…"1 Whereas Fogel’s Railroads and American Economic Development (published at about the same time) was concerned with whether US could have developed without the railroad, Fishlow asks "How much stimulus did the railroad afford to the economy of the United States and by what means?2" Fishlow identifies three major ways in which transportation innovation can be expected to benefit other areas of the economy:

1) Innovations have direct consequences in lower costs of carriage. When costs are lower, resources can be applied to other tasks.

2) Increased size of markets affects production decisions of manufacturers and farmers, by making possible greater specialization and ability to exploit economies of scale elsewhere.

5) Resource demands of building and operating transport systems can themselves stimulate other areas of economy. These in turn might create benefits elsewhere.

Fishlow concludes that before 1859 the direct advantages of the railroad were fairly modest because of the prior development of the canal and the steamboat. These innovations lowered transport costs far more than did the railroad in its turn. But even during this early period, Fishlow concludes railroad investment paid off in social terms.

"…railroad returns to capital, in the shape of net earnings and transport cost savings alone, fully justified the investment even before 1860. Fifteen percent per annum on the investment despite the arbitrary time horizon, and the limited calculation of returns is impressive. It is difficult to imagine the country doing much better than that in any reasonable alternative.3"

Fishlow concludes that railroad development played a role in stimulating agricultural expansion and specialization. Demands on the part of railroads themselves, Fishlow concludes, also played a role in disseminating industrial skills through out the economy and afforded stimulus to the development of iron and steel industry.4 However, these effects were limited.5 Nor did railroad development stimulate ante-bellum industrialization in the South despite hopes that it do so.

Overall, Fishlow concludes, railroads can not be said to have caused economic growth. Indeed the benefits of railroad development were so great in some cases only because other human and geographical and institutional conditions for growth were already present. Fishlow also concludes that government subsidy and competition amongst railroads themselves tended in some cases toward over-building and wasteful expenditure of resources.6

Fogel, Robert William Railroads and American Economic Growth: Essays in Econometric History (Baltimore: Johns Hopkins, 1964)

This is a controversial and influential book. Fogel evaluates the claim that railroads were essential to economic growth in the nineteenth century by setting forth a hypothetical world in which railroads do not exist. Fogel concludes that while railroad development and rates structures could determine the destinies of individual firms and even entire cities and regions, railroads were not indispensable to the economy of the United States during the nineteenth century. Other forms of transportation could and would have been developed more intensively in the absence of railroads. More broadly, Fogel asserts that economic growth can best be understood not as the product of any single kind of technology but of knowledge applied to development of multitude of innovations in a broad range of domains.

Emphasis on the multiplicity of opportunities does not mean that the particular nature of the solutions society selects are without significance. Cheap inland transportation was a necessary condition for economic growth. Satisfaction of this condition did not entail a specific form of transportation. The form by which the condition was in fact satisfied did effect, however, particular features of the observed growth process. In other words, the fact that the condition of cheap transportation was satisfied was satisfied by one innovation rather than another determined, not whether growth would take place, but which of many possible growth paths would be followed.7

Goodrich, Carter, Canals and American Economic Development (New York: Columbia University Press, 1961)

Goodrich's collection, first published in 1961, was the product of Columbia University's Graduate workshop on the Economic Development of the Industrial Countries. The aim of the workshop was to reexamine the economic history of developed industrial areas of the world in light of contemporary concerns with Third World development. The essays conclude that, overall, development of canals did make a significant contribution to economic growth in the United States. While the Erie Canal was a spectacular success, many other canals were almost certainly failures no matter how evaluated. Causes of failure included ill-conceived and poorly designed projects and railroad competition.

Hoy, Suellen and Michael C.. Robinson, Public Works History in the United States: A Guide to the Literature (Nashville, TN: American Association for State and Local History, 1982)

This annotated bibliography is an indispensable resource. The work does not cover railroads but contains a good selection of entries on the history of roads, streets, and highways in the United States.

Lee, Susan and Peter Passell, A New Economic View of American History (New York: W.W. Norton, 1979)

This textbook written for advanced undergraduates contains good overview on debates amongst economic historians concerning nineteenth century transportation and economic development. The book also contains extensive bibliographical material.

Rostow, Walter, The Stages of Economic Growth (Cambridge: Cambridge University Press, 1960).

Rostow suggests that largely because of demand for materials, railroads played a leading role in propelling industrial take-off in the United States during the 1840s. The book is largely important as a foil for subsequent scholars who found that elements of the chronology do not fit. Much industrial development took place in the United States, for example, before railroads were significant as either a source of demand for materials or as a form of transportation itself.

Rauch, James E., "Bureaucracy, Infrastructure, and Economic Growth: Evidence from U.S. Cities during the Progressive Era" American Economic Review Vol. 85, No. 4 September 199S.

On the basis of a regression analysis, Rauch finds that investment in road, water, and sewer systems in early twentieth century American cities was statistically correlated with growth in manufacturing employment.

Rose, Mark H. Interstate: Express Highway Politics, 1941-1956 (Lawrence: The Regents Press of Kansas, 1979)

This is a detailed historical account of the political maneuvering that culminated in passage of laws establishing the Interstate Highway System. Rose describes tensions amongst engineers concerned with moving the traffic, economic and regional interest groups, and those who viewed highways as means to realize broader planning and urban redevelopment objectives.

Scheiber, Harry N., The Ohio Canal Era: A Case Study of Government and the Economy, 1800-1861 (Athens: Ohio University Press, 1969)

This is a richly detailed account written by an historian of the development of a major system of canals in Ohio before the Civil War. The book contains much discussion of the effects of canal and later railroad development on patterns of trade. Scheiber finds that the Ohio and Erie Canal completed in 1827 was a "spectacular success" in its contribution to population growth and economic development in the region served. Population and land values increased, farmers enjoyed higher prices for grains and turned to commercial agriculture, and development of manufacturing was stimulated due to lower prices for raw materials and development of water powers from the canal itself. Canals completed in other parts of the state, Scheiber maintains, had similar effects.

ENDNOTES

1 Alexander Gerschenkron, "Foreword" in Albert Fishlow, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge, Mass, Harvard University Press, 1965) viii.
2 Albert Fishlow, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge, Mass, Harvard University Press, 1965) ix.
3 Albert Fishlow, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge, Mass, Harvard University Press, 1965) 301.
4 Albert Fishlow, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge, Mass, Harvard University Press, 1965) 302.
5 Albert Fishlow, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge, Mass, Harvard University Press, 1965) 303.
6 Albert Fishlow, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge, Mass, Harvard University Press, 1965) 310.
7 Robert William Fogel, Railroads and American Economic Growth Essays in Econometric History (Baltimore: Johns Hopkins, 1964) 237.

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