Economic History Association
The Role of the Railroads in United States Economic Growth
Author(s): Paul H. Cootner
Source: The Journal of Economic History, Vol. 23, No. 4 (Dec., 1963), pp. 477-521
Published by: Cambridge University Press on behalf of the Economic History Association
Stable URL: http://www.jstor.org/stable/2116211
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The Role of the Railroads in United States
Economic Growth
I
THE railroadsplayedan importantrole in the economichistory
of the United States. It was an epic role, involving enterprise
on a grandscale, evokingheated passions,and rich in anecdote and
drama.
With this kind of backgroundit is perhaps inevitable that the
railroadsshould have been ascribed a critical, active, aggressive
role in the United States economic development.On the one hand,
we have the Schumpeterian'schema in which railroadinnovation
played a critical initiating role in both the Juglar cycles and the
Kondratieffby the magnitude of the direct investment involved
and by the reverberatingeffect on related industries.On the other
hand, we have the theory of economic developmentwhich stresses
the role of railroadsand the related complex of social overhead
capital as a preconditionof rapid growth. Other historians have
stressedthe importanceof the railroadsin fashioningsuch important
auxiliariesof economic growth as capital markets, corporate organization,technical education, etc.
In this paper, I will take a skeptical, somewhat debunking,attitude toward the railroads'role as an initiatorof economic growth.
The findings of the research reported here offer no quarrel with
the idea that the railroadswere vital to the patternof United States
economic development: to do so would be both foolhardy and
wrong. Without the cheap land transportationthat railroadsprovided, the United States-and more particularlythe trans-Appalachian region-would have found it more difficult to utilize the
economies of specialization that were so important to both the
level of per capita income and its rate of growth in the nineteenth
century. What I do find is that United States economic history is
better understoodin the world-widecontext of shifting demandfor
final goods and services which from time to time fell on products
which could be produced efficientlyin this country. The explana1
Joseph Schumpeter, Business Cycles (two vols.; New York: McGraw-Hill, 1939).
477
478
Paul H. Cootner
tion of output in the profitableindustriesrequired large inputs of
railwaytechnology.These productsmight have been producedelsewhere, but given railway technology the spurts of railroadinvestment were the effect ratherthan the cause of United Stateseconomic
growth.
In stating skepticalviews, there is always a considerablerisk of
overstatingone's position and anotherrisk of being misunderstood.
In Section II, I will try to state succinctly the bare bones of the
conceptualmodel which underliesthis research,in order to reduce
this risk.
In Section III, I present in outline the empirical evidence for
the conclusionsdrawn from a larger and broaderstudy of the railroads in the United States. In Section IV, I present some observations about railroad development which cast some light on the
innovationaland social overhead capital theories of economic development.Finally, in SectionV, I give some largely impressionistic
measures of the secondary impact of the railroads on other industries.
II
The model of economic development I present here is classical
in spirit but dynamicin execution.It startswith the basic assumption that economicwants exceed the resourcesavailablefor meeting
them and that the economylargely rationsthose resourcesby using
the price system to guide the activities of a large number of individual decision-makers.The price system sets up, in effect, a
schedule of prioritieswhich channel labor and capital into appropriate lines. This model is very simple and, as such, has little of
the richness and color of the real world. This should not be taken
to imply that I believe that the world is as stark and determinist
as my abstractreasoningwill make it seem, but rather that I find
it possible, by this device, to see all of nineteenth-centuryrailroad
investmentin certain of its relationsto the economy, a task which
would be impossibleif I felt compelledto describesuch investment
in fine detail. In economic history, explicit economic models are so
rare that the insight furnishedby the simplestof models makesthe
effort involved in developing more complicatedtheories economically unsound.
We start with a simple neoclassicalworld characterizedby free
competition,rational individuals, and perfect certainty, unmarked
The Role of the Railroads
479
by nonpecuniaryexternaleconomies,and with neitherpsychological
nor technologicalobstacles to perfect mobility of resources.These
assumptions are sufficient to guarantee that resources will flow
into their (Pareto) optimaluses. In such an economy, a large number of self-interestedindividualsobserve the behaviorof thousands
of individualprices and take actions which insure an amount and
distribution of production which cannot, in a certain sense, be
improvedupon. Such an economy would be, at every measurable
instant, in perfect equilibrium.This does not mean that such a
world would not change. If a newborn child were to bring at its
birtha demandfor milk or diapers,therewould be a virtualincrease
in the (relative) prices of those items and resources would be
instantly shifted from some less profitable use. In this world of
fantasy,however,the adjustmentprocesswould be too fast to notice.
In the real world, adjustmentstake time; and in this paper, this
time-consumingpropertyof economicchange will play an important
role. There are numerousreasonswhy such sluggishnessmay exist.
First, there are technologicalreasons: Specialized physical capital
cannot leave an industryany faster than it wears out, and construction of new pieces of capital equipmenttakes time, frequentlylong
periods of time. Second, in the real world the outcome of decisions
made today depends on events which take place in the future. If
people do not have perfect foresight, they are likely to have difficulty distinguishing between permanent and ephemeral changes
in economic variables.In such a world, they may not react at all
until a change persists for "several periods" or may react only
partiallyat first and fully "after a while." In particular,they may
be uncertain about the future because the correctness of their
decision depends upon the speed and accuracy of similar interdependent decisions by thousandsof others: the decision to build
a railroadinto a thinly-settledarea would be typical of a decision
such as this. One of the ways in which people may react to uncertainty is to wait for a bigger profit opportunityto develop than
would be necessarywith perfect knowledge:in such an event, their
response to price signals may be even more delayed, beyond the
time required for the formation of expectations. Third, the production functions of importanteconomic activities may be marked
by strong economies of scale. In a world of perfect certainty, this
is not a troublesomephenomenon.In such an event, the price of a
good may have to rise above its long-termequilibriumlevel until
480
Paul H. Cootner
the size of the marketincreasessufficientlyto permit lower prices.
Without such certainty, however, industrieswhich consume products subject to such scale economies may incorrectlyproject the
high currentcost of the purchaseditems and expand insufficiently.
Conversely, industries which compete with products subject to
such economies may overestimate the profitabilityof investment
and overexpand.
A final factor which might interfere with the optimality of resource use would be the absence of free competition,but we will
not be concernedwith that factor in this paper. This might seem
odd in a discussion of an industry commonly consideredto be a
prime example of naturalmonopoly,but while such considerations
were frequentlyimportantin railroadoperationthey played a relatively minorrole in the decisionsto build railroads.It is these latter
decisionswhich will largely occupy us in this paper. The imperfections of the economy I visualize are imperfectionsof technology or
of foresight. I will largely ignore the possibility of irrationality
(action motivated by noneconomicfactors), not because I think
they do not exist, but rather because the events in which I am
interestedcan be explainedwithout them.
Given these lags in economicadjustmentin an otherwiseclassical
model, the economy at any point of time will be almost surely
out of equilibrium.At the same time, I will assumethat the parameters of the adjustment equations were such as to make the
economy a stable one, so that at every point of time the dynamic
forces in the economy were making adjustmentsdesigned to bring
it to equilibriumand that, eventually at least, these adjustments
would have the desiredeffect. Under these circumstances,the flow
of investmentresourceswill shift from time to time in the direction
of that sector of the economy that is farthest below its equilibrium
level: that is, the sector that is most profitable.Given these impedimentsto swift economicadjustment,the dedicationof resources
to expandingproductionof some goods will lead to the neglect of
other sectors. Only at a later date, once this investment has been
completed, will these other sectors, in turn, attract capital. In this
model, it is this shifting pattern of investment,based on the economy'sclumsyreactionto continuouschangesin demandand supply,
that marksthe nineteenth-centuryworld economy.
This model will form the basis of the following pages. In this
form it is simple and general enough; yet I will use it, together
The Role of the Railroads
481
with the empiricalmaterial of the succeeding sections, to support
the following conclusions,which are at variancewith some current
thinkingabout the nineteenth-centuryrailroadindustry.
(1) There is little supportfor the innovationaltheory of business
cycles either as stated by J. A. Schumpeter2or as modified by L.
Jenks.3
(2) There is similarlylittle support for Schumpeter'stheory of
entrepreneurship.
(3) There is little justificationfor arguing that the railroads
played a special dynamic role in United States economic development in the nineteenth century. In particular,the idea that railroads and other "social overhead capital" are a prerequisite for
sense cannot
rapideconomic developmentin the Rosenstein-Rodan4
be supported.
(4) The "building"cycles found by economic historiansin both
United States and Britisheconomic series before 1880 are different
from one another in phase and are both explicable by a common
process of shifting investing opportunities,but it is an often misunderstoodrole. In particular,the phenomenausually cited as the
railroads'contributionsto our growth are typically evidences of its
resources drain and arise from a peculiarly uneconomic view of
history.
The evidence supportingthese argumentswill be sketched out
in the following pages. Since, like most historicalevidence, it rests
on a monumentalcollection of minutiaeand space is at a premium,
the bulk of the detailed evidence cannot be cited here, but may be
found in my dissertation.5I will discuss points 1 through 4 in
Section IV and the last point in Section V.
III
One of the deepest problems in appraisingthe meaningfulness
of theories of invention and innovation is the developing of a
precise and noncirculardefinition of terms. It is hard enough to
2
Schumpeter, Business Cycles.
3 Leland Jenks, "Railroads as an Economic Force in American Development,"
JOURNAL OF ECONOMIC HISTORY, IV, No. 1 (May 1944), 1-20.
4 Paul Rosenstein-Rodan, "Notes on the Theory of the Big Push," Center for
InternationalStudies. (Unpublished.)
5 Paul H. Cootner, "TransportInnovation and Economic Development: The Case
of the U. S. Steam Railroad, 1826-1886." (Unpublished Ph. D. thesis, M. I. T., 1953.)
482
Paul H. Cootner
distinguish between various definitionsof invention: (1) the discovery of the physical principles; (2) the engineering of all the
components; (3) the construction of a technologically operable
model; (4) the constructionof an economicallyfeasible model. It
is still harderto be precise about the term innovation.
To illustrate these difficulties,I will start with a little technological history. The railroad is really a joint invention: (1) the
use of steam land locomotionon (2) rails constructedto diminish
the resistance to movement. The latter invention was the first to
take place. Rails were used as early as the sixteenth century to
carry bulk products from Balkan mines and had been used extensively in the eighteenth century in Britainfor similarpurposes.
As early as 1818, RobertStephensonhad made substantiallycorrect
tests of the reductionin friction resultingfrom the use of rails and
wheels of the kind then possible to construct of iron (Table 1,
following).
The inventionof the locomotivehas a shorterhistory, but a long
one nevertheless.Steam engines had, of course, been available for
some time previous, but to make steam land locomotion possible
required three additional technical breakthroughs.Leaving aside
the isolated examplesof inventive foresightthat play no role in the
continuity of locomotive development, the first significantitem in
the process was RichardTrevithick'sfirst locomotive,built in 1801,
followed by anotherthat was actually used in commercialhaulage
in 1803. Both the locomotive design and the date are significant.
JamesWatt had been grantedpatent right to all condensingengines,
which was extended to the year 1800. Since Watt himself chose not
to extend his interests into the locomotive arena, invention in this
line was fruitless until the patents expired.Watt also was strongly
opposed to the use of high-pressuresteam in engines, on grounds
of safety. While boats, which required less power, could operate
without the greater power and efficiency of such engines, land
locomotion could not. This was Trevithick'scontributionto locomotive development, although Oliver Evans had independently,
and slightly earlier, developed that type of engine in Americafor
other uses.
Even Trevithick'sengine could not produce enough power to be
economically useful until the development of the multitubular
boiler, but that development took place in 1815. All through this
period, inventors were developing locomotives which were suc-
The Role of the Railroads
483
cessful at haulage, if not economy. Stephensondevoted himself to
locomotive development almost continuously after he completed
his first working locomotive. The last major technical obstacle to
land locomotionfell in 1820 when the direct connection between
piston and driving wheel was developed, drasticallyreducing the
number of necessary parts as well as the weight. By 1820, all of
these essential characteristicswere in practicaluse, and yet it was
not until five years later chat the first commerciallocomotive was
built; and not until 1829 was Stephensoncredited with combining
these inventionsinto a successfullocomotivealong modernlines.
What went on in the interimwas, not any earthshakingtechnical
development,but the slow steady improvementin the economy of
railroad construction and operation that comes with continuous
redesign, aided by the increasing costs of some alternativetechniques and by the decreasingcosts of some of the inputs into the
locomotive. In the 1820's, British bar iron and copper prices fell
by 40 and 25 per cent respectively,effecting importantreductions
in the cost of locomotives and of rails alike. In addition, capital
became steadily more plentiful: interest rates fell steadily (25 per
cent for the yield on consols) and share prices rose by a similar
percentage.6
Finally, to understandthe lag in railroaduse, we must understand something about the economicsof the competition.Table 1
shows the basic technical situationwith regard to canal, rail, and
roadhaulage.Based solely on the energy outlay requiredin hauling
TABLE 1
STEPHENSON'S 1818 ESTIMATE OF FORCE REQUIRED
TO OVERCOME FRICTION
Pounds of Pull per Ton
Iron wheels on iron rails
Gravel road
Pavement highway
Canal (at 2 miles per hour)
(at 10 miles per hour)
12
141
33
1.25
50
Source: Nicholas Wood, Practical Treatise on Railroads, 1st American from 2nd
English edition (Philadelphia, 1832). By 1831, Wood estimated the necessary force on iron rails was only eight pounds per ton.
6 Arthur Gayer, W. W. Rostow, and A. J. Schwartz, Growth and Fluctuations in
the British Economy, 1790-1850 (two vols.; Oxford: The University Press, 1953),
p. 1028.
484
Paul H. Cootner
goods, railroadswere superiorto all forms of transportexcept slow
canal boats, but much of the bulk trafficcould well affordto move
slowly and cheaply on canals instead of more swiftly and at higher
cost by rail.
The railroadfell between turnpikes and canals in capital cost
and operatingcost. On heavily-traveledroutes, the lower operating
costs of canals usually outweighed the lower capital costs. In comparisonsof rails with turnpikes,the higher operatingcosts of roads
usually was offset by the higher capital costs of the railroad.Only
in cases where heavy trafficoccurredtogether with rugged terrain
were rails preferred over canals. In such cases, canal capital excosts, while rail capital
penses rose sharply,due to increasedblockage
costs could be independentof gradient.7Furthermore,on a railway,
operationdown a grade offsetssome of the added expense of uphill
operation,while on a canal, total rise and fall means added expense.
As a result, the early railways were used almost exclusively for
haulingcoal from mines located on hills where the heavy haul was
downhill. In particular,early widespreaduse of rails was discouraged by the high price of iron for both rails and wheels. In the
competitionbetween horses and locomotivesfor hauling goods on
rails, English locomotives,at least, benefited by the steadily rising
costs of procuring and handling the horses, which were in their
own way very labor-intensive.
Even with the steady, gradualimprovementin the economics of
producingrail transport,the impetusto the eventual integrationof
the railroadinvention into United States economic life came primarilyfromdemand.Even with the cost reduction,the development
of the firstrailroadwould have come even later than it did without
the rapid developmentof three basic types of demandwhich could
not be satisfiedby existing forms of transportation.Two of these
demandsarose out of the rapid growth in United States urbanization.8With cities growing in size, it was becoming much harderto
meet their demands for lumber for house fuel and construction.
The nearestand best woodlandshad been chopped down, and the
expandingdemandshad to call upon more distantand less desirable
7 It is usually profitable to incur additional construction expense to avoid heavy
grades in building through hilly country but, unlike the case of canals, it is not
mandatory.
8 From 1820 to 1830, the United States urban population grew 63 per cent as
opposed to only one half that rate in the previous decade, when the major economic
forces were spurring agricultural growth.
The Role of the Railroads
485
sources. This increasing pressure on wood resources led to an increased utilization of anthracite coal, most deposits of which were
convenient to major urban areas. Production of hard coal multiplied
sixty times in the 1820's, rising from 1 to 27 per cent of total coal
production.9 The early twenties had already been marked by a
considerable expansion of coal mining,'0 and with this expansion
the relative price of coal fell 40 per cent between 1820 and 1825.
Most of this production increase had been made economical by the
construction of an extensive series of canals from cities and rivers
to the foot of the eastern Appalachian Mountain slopes. The geological processes which created anthracite had, however, folded
the terrain into ridges enclosed by mountains. Since water seeks
its own level, each foot of rise or fall traversed by canal required
blockage, and the water supply for such canals was frequently
sparse or irregular as altitude rose. As a result, the trip from mine
to canal head was of necessity a land route." In this kind of transportation, the canal was too costly to build, and on a road the
operating costs were too high. Only the railroad could furnish bulk
transport at a reasonable rate in this terrain.
The other major demand created by cities was for passenger
traffic between them. In this arena, it was impossible for canals to
compete. They were cheap, but only at very slow speeds. If traffic
tried to go fast, it created turbulence which required tremendous
power to overcome and which damaged the canal banks. In addition, canals frequently covered very circuitous routes, to avoid
increasing the costs of construction. Roads were fully as direct as
rails; but almost from the start road travel was slower than railroads and probably not quite as comfortable, though neither technique could brag about comfort. By the late 1830's, locomotives
could travel at 60 miles per hour in races, and while normal operating speeds were much lower (15 to 25 miles per hour), the railroad
had a distinct advantage.
9 Howard Eavenson, The First Century and a Quarter of the American Coal
Industry (Baltimore: The Waverly Press, 1942).
10 It should be noted that exactly the same kind of coal boom was occurring in
England and was the most importantforce in early British railway development. It is
no accident that both Trevithick and Stephenson were deeply involved in the
British coal industry. See Frederick Kay, Pioneers in British Industry (London:
Rockliff, 1952).
11 For example, the Delaware and Hudson Canal averaged a rise and fall of nine
feet per mile. On the connecting railroad that was constructed from canal head to
mines, the average was one hundred feet per mile. See Kay, ibid.
486
Paul H. Cootner
The other main incentive for the earliest railroadswas of quite
another sort-mercantile competition among cities. In the North,
the building of the Erie Canal-probablythe most significantsingle
investment in nineteenth-centuryUnited States history-was foreshadowing New York'scoming predominancein trade with the
region. The Mohawk-GeneseeValley region was
trans-Appalachian
becoming of primaryimportancein the United States grain trade,
and althoughOhio was still importingwheat, farsightedmerchants
could see that cheap canal rates would give New Yorka majorgrip
on trade with the rich transmountainlands.
Until the constructionof the Canal, commercialactivity in that
region was concentrated along the Ohio River, so that the bulk
productsof the area could be shipped south to market by water.
On higher-valuedimport goods, however, Philadelphiaand Baltimore had dominatedthe overlandtrade. This commercethreatened
by the Erie Canal, Philadelphiarespondedby a canal system of its
own, using rails and stationaryengines to link the canals where the
terraincould not be crossedby the water route. Baltimore,however,
conceived the idea of a railroadto connect that city to the Ohio
River.In 1826, New Yorkpassed Baltimoreas the leading flourmarket. The Baltimore& Ohio Railroadwas charteredon February28,
1827.Given the terrain,the railroadwas much morereasonablethan
Pennsylvania'scanal,althoughit shouldbe rememberedthat if Pennsylvania'sgamble had worked, Philadelphiawould have benefited
from a bulk trade with the West that Baltimorecould not be expected to get by rail. On the other hand, Baltimore'smerchants
could not have been blind to the fact that in building toward the
mountains, the B. & 0. would initially tap the rich MarylandPennsylvaniawheat fields,which were at that time the main source
of United States wheat.
In similar fashion, Charlestonwas losing its dominance in the
cotton trade, as the center of cotton productionmoved southwestward over the Piedmont.Cotton moved to market by land, to the
fall line, and then by river to the sea. As productionmoved west,
the Savannah River system was draining trade to its namesake
port. For years, Charlestonmerchantstalked about building a canal
to Augustato interceptthis trade,but the idea founderedon South
Carolina'ssandy soil which would not hold the canal in its banks.
In 1827, the Charlestonand Hamburgwas chartered.
The strikingthing about all of these railroadsis that they did not
The Role of the Railroads
487
truly compete with canal or turnpikealternatives.In each case, the
railroadwas built because there was no alternative.The railroad
was not an immediateand overwhelmingimprovementover existing
techniques. Rather, it was a marginalimprovementin transportation that was utilized as demand and costs warranted.
A stage had been reached in which it was acknowledged by advanced
thinkers that there were some routes over which railways could profitably be
constructed but it was difficult ... to secure means to build new lines which
were not intended to be used mainly as substitutes for the portages, or connecting lines between water courses, of primitive Indian and colonial overland movements.'2
They were not overwhelminglysuccessful.The coal railroadswere
generally profitable but not extravagantlyso. The Mohawk and
Hudson did a good business; but the Charleston and Baltimore
roads,despite extensive subsidy, yielded only small profits,and the
B. & 0. had to be satisfiedwith building only a small local fraction
of its planned mileage.
Even among this first wave of incorporations,all of the major
lessons of invention and innovation leap out at us. The technical
developmentof the railroadis a continuousprocess and only very
gradually,under diverse forces, did railways become economical.
From the beginning-yes, even before the beginning-substantial
groups of business opinion stood ready to adopt it. Colonel John
Stevens advocated the building of a railroad instead of the Erie
Canal as early as 1812, an advocacywhich was closer to folly than
to the foresightsome historianshave attached to it. The Charleston
merchantstalked about a railroad as early as 1822. Philadelphia
merchantsin 1825 financeda trip by WilliamStricklandto England
to bring back a locomotiveand informationabout railway developments in that country. The B. & 0. was certainly magnificentin
conception,designedto stretchacrossthe mountainsat a time when
no public carrierroad had yet been built. Nor was all this idle
chatter. Marylandand Baltimorereserved half of the initial issue
of B. & 0. stock and found it necessaryto ration the remainderto
Baltimore merchants who subscribed for more than the total
amount. If raising capital became more difficultas time went on,
it was less attributableto investor timidity than it was to unim12 John L. Ringwalt, The Development of TransportationSystems in the United
States (Philadelphia: J. Ringwalt, 1888).
488
Paul H. Cootner
pressive economicresults. It is only the grossestreinterpretationof
history to ascribe stodginess to merchants who felt it unwise to
invest in the B. & 0. in 1830, or in the Ohio railroadsthat were
chartered in 1832. With any reasonable allowance for imperfect
foresight, the history of railroadsin the 1830's is that profitable
railroadsfound funds available at market rates and that unprofitable roads required, and frequently found, either governmentaid
or financingby merchantswho expected to benefit from economies
externalto the railway.
Even after the initial innovation,the pattern of railroadinvestment followed the pattern of shifting economic incentives rather
than wholesale imitation of the initiators.The first railroadswere
all incorporatedwithin a period of two years centered in 1828.
After that, active interest did indeed seem to await the results of
these initial ventures, although poor business conditions in 1829
and 1830 must have had much to do with the slowdown. When
interest revived in 1831 and 1832, its locus shifted considerably.
The expansionof anthraciteproductionin the previousdecade had
satisfied the demand for new coal-miningcapacity, especially in
view of a decline in lumber prices that raised the relative cost of
coal 23 per cent. No new roadswere sponsoredby cities competing
for commerce. Instead, almost all the roads were chartered and
built to carrypassengerand generalfreight traffic.They connected
the urban locations along the heavily-traveledUnited States trade
routes. They were short lines with very limited and immediate
objectivesthat show in names like New Yorkand Harlem, Boston
and Lowell, Boston and Providence, Camden and Amboy, Philadelphia, Wilmington and Baltimore, etc. They were all privately
financed, largely by local merchants and industrialists,although
some New England capital financed roads in the Middle Atlantic
states. They all developedtrafficvery rapidly (in many cases drawing generalfreight from competingcanals) and were mostly profitable. This pattern is even more strikingif we look at roads which
were chartered,but not built. In 1831 and 1832, twelve railroads
were incorporatedin Ohio, indicating that imagination, at least,
was not the restrainingforce in transmontanerailway building. Of
these prospects,only one had produced a railroadby the end of
the decade.'3 Despite the railroad'smodernity, the importantre13 Caroline MacGill, History of Transportation in the United States to 1860
(Washington: Carnegie Institute of Washington, 1917), p. 678.
The Role of the Railroads
489
quirement of Ohio agriculture was bulk transport,and for that
purposecanalswere much better suited to Ohio'sterrainthan were
railroads.Throughoutthe 1830's, Ohio built more miles of canal
than of railroad.The capital markethad a way of restrainingthe
overeager.The economicsof Ohio farminghad been improvedby
the Erie Canal;but there was no shortageof the region'sproducts,
and immigrationwas at a slow, though rising, pace. Under these
conditions,railroadswere a luxury.
On the other hand, things were soon to be changed with a
vengeance, stimulatedby three factors: (1) pressureagainst existing world raw-cotton-producingcapacity, (2) continued urbanization along the Atlantic Coast, and (3) soil exhaustionin the wheat
lands of the coastal states. Of these, the first is probably most
important.When normal trade was restored after the Napoleonic
Wars, European cotton demand had stimulated a tremendous
southernland boom and settlershad poured into the frontierstates
of the South. By the time the boom was over, United States cotton
productionhad soared,and prices of that staple had droppedwell
over 50 per cent.14Not only had productionrisen,but the expansion
into thinly settled areas sharply increased the elasticity of cotton
supply. It was relatively easy to expand the land under cultivation
or to increase the intensivityof cultivation. Furthermore,a similar
increase in settlement along the Ohio River, together with an
improvementin steam navigation on the Mississippi River, had
increasedand cheapened food supplies to the South, so that more
land could be shifted from food to cotton in the South itself. As
a result of these pressures, the price of cotton fell almost continuouslythroughthe 1820's,another25 per cent below 1823 levels
by 1830.1'
This decline in cotton prices and shift in productionhad encouraged Charleston'srailroadventure, but with that lone exception
it discouraged all other railroad building. But now in the early
1830's,things began to change. Steadily increasingtextile production made increasing demands upon raw cotton producers and,
finally, the elasticity of productionwas declining. For one thing,
the utilizationof land in the settled areaswas almostcomplete, and
cotton's steady drain on the fertility of the soil was resulting in
14 Lewis C. Gray, History of Agriculture in the Southern United States (two vols.;
Washington: Carnegie Institutionsof Washington, 1933), p. 1016.
15 Ibid.
490
Paul H. Cootner
lower yields in some areas. In 1832, the New Orleans cotton price
rose 11 per cent; in 1833, 12 per cent; in 1834, over 35 per cent;
and land sales in the Gulf states soared and production shifted
westward once more.'6
The prosperity of the South had an immediate impact on farmers
in the Ohio River valley as the demand for foodstuffs quickened.
The settlers had to be fed, and it was easier and cheaper to supply
their needs by floating flour and pork and beef down the Ohio and
Mississippi than it was to import from New York and Pennsylvania.
The importance of southern demand for western products in these
early years has been often underestimated, largely because the
export outlets for these products became so dominant in later years.
At this time, however, it was of critical importance to the Ohio
River basin, since only high-price manufacturers such as whiskey,
wool, and tobacco, and easily transported goods such as live cattle,
could move to the East over the mountains.
Southern demand was not the only factor in western prosperity.
Not only was Cincinnati shipping more agricultural products, but
both it and the Ohio shore of Lake Erie were benefiting from developments in the populous Northeast. The steady growth of industry,
commerce, and population in the eastern states was both increasing
the demand for flour and bidding away land resources from the
production of wheat. Not only did cities and roads themselves
encroach upon agricultural land, but as population became more
dense, land was shifted from staples to dairy products, cattle
feeding, and vegetable crops. Poor agricultural practices led to soil
exhaustion, and in the mid-thirties the wheat crops in New York
and Pennsylvania were repeatedly damaged. Finally, the completion of the Erie Canal had opened a market for wheat in northern
Ohio, which could not ship economically to the Ohio River, and
migration had begun in increasing amounts. When wheat prices
on the seaboard rose over 15 per cent between 1830 and 1832, the
tide began to swell. Also, in the latter year, canals were completed
linking Lake Erie and the Ohio River. In 1833, land sales were
4,000,000 acres; in 1835, New York wheat prices were 20 per cent
higher and land sales had grown to 20,000,000 acres.
This change in economic conditions shows up in railroad construc16 Walter B. Smith and Arthur H. Cole, Fluctuations in American Business, 17901860 (Cambridge: Harvard University Press, 1935), p. 195.
The Role of the Railroads
491
tion. Railroads were built in Georgia, Alabama, Mississippi, Louisiana, Michigan, Indiana, Illinois, and Kentucky for the first time.
Ohio's lone road got substantial companionship, and further mileage
was added in the Carolinas. As the boom widened, lumber, which
was in inelastic supply, soared in price and encouraged further
expansion of the coal roads. The B. & O., which had been stagnant
for several years, started building again toward the Ohio River.
None of these roads can in any way be considered a cause of the
westward expansion. The western roads all served as feeders to the
nearest navigable waterway. They served as "substitutes for the
old wagon trains to the Lakes." In Ohio, which had built the most
mileage of any western state, there was an equally great mileage
of canals. The same pattern was followed in the western cotton
belt, although in South Carolina and Georgia, some railroads were
built as through routes from the coast to the Piedmont.
It is clear, in retrospect, that the huge westward push was overdone, and agriculture suffered mightily in the years that followed.
The railroads played only a minor role, however, in the overexpansion. The pattern of the westward movement was much like that of
two decades earlier. Cotton has a relatively high value per pound,
and after harvest the slaves were an ample transportation labor
force: transport costs played a small role in marketing it.17 Even in
the case of wheat, the railroads played a minor role compared to
bulk transport by canal and river. The railroads were more important in carrying the West's imports and immigration, but it is
hard to believe that this was an important factor in the westward
movement, especially compared to the effects of the Erie and Ohio
Canals. From the point of view of construction, they had still less
effect. In 1834, a year of falling prices, 214 miles of road were
completed-almost all in the seaboard states, and not much more
construction than in 1832. It was not until 1836 that this record
was topped. In 1837, almost 350 miles were finished, and prices
began falling after February. Completions made a new record in
1838, again in 1840, and yet again in 1841. All three of these latter
years were depressed ones. Even allowing for the fact that expenditures frequently precede completions, the bulk of the outlays
for the 2,100 miles of road completed in the 1838-1842 period must
have come after the 1837 peak in business conditions, and this was
17
Gray, History of Agriculture.
492
Paul H. Cootner
more mileage than was completed by the end of 1838. This construction did more to lighten the depth of the depression than to
cause it, although this delayed construction may have played a
role as large as that of Nicholas Biddle in the false recovery of 1839.
The real villain in this piece is not hard to find. Bidwell and
Falconer'8 estimate that it took four years from the time an immigrant arrived in the Ohio area until he could grow enough wheat
to sell on the open market. The results are plain in the wheat-trade
figures. Although there was a steady stream of migration into the
Lake Region after the opening of the Erie Canal, the region was
probably a net importer of wheat until 1835, and the cessation of
importing in that year is as much a result of a poor crop in New
York as of large production in the region. The surpluses grown by
the early immigrants were consumed by those that followed. As a
result, wheat and meat prices in the Lake states were much higher,
relative to prices in consuming markets, than could be maintained
once the region became an exporter. Thus, between 1830 and 1835
prices rose by 10 cents more on the Lake shore than in New York
(Lake prices averaged 83 cents) despite the fact that price levels
were rising and that no technical changes in transportation had
occurred.'9 In both years, prices were too high to justify shipment
to the Atlantic Coast. As a result, it is safe to say that on the average
in the 1830's the western price was between 15 and 20 per cent
higher than it would have been had the New York price less transportation costs prevailed on the Lake, as it had to once Ohio
became a net wheat exporter. When one takes into account, in
addition to the overstatement of the lake price relative to New
York, the effect of the prosperity on the New York price, one
realizes that farmers making investment plans based conservatively
on ten-year average prices were bound to expand production by
more than optimal amounts. Optimistic farmers who used current
prices would have overexpanded still more.
In the South, similar-though not as extreme-circumstances led
to similar overproduction. In the cotton states as well as in the
North, moving into an unsettled area followed by planting of a
marketable crop was a long process that encouraged overproduction.
The South had two advantages, however. For one thing, the ex18 Percy W. Bidwell and John I. Falconer, History of Agriculture in the Northern
United States (Washington: The Carnegie Institute of Washington, 1925), p. 512.
19 Ibid.
The Role of the Railroads
493
pansionof cotton productiondid not itself requireheavy inputs of
cotton, as grainproductionrequiredgrain.For another,cotton was
less costly (as a percentage of farm price) to transportand was
easier to store, so it was harder for localized shortages to arise.
Although the cotton expansionwas of more critical importanceto
the United States economy in this period, the New Orleanscotton
price movementswere much more restrainedthan Lake Erie wheat
prices, and in fact peaked as early as 1835.20Furthermore,by 18351837, annual cotton production was 50 per cent higher than in
1830-1842. While we have no annual wheat-productionfigures,
wheat exports declined steadily from 1830 to 1837; in the latter
year, the United States became a net wheat importer.It was not
until after 1838that the effect of expansionin wheat productionwas
felt in exports.
In both West and South, however, agriculturalproduction had
been overstimulated,and prices fell sharplyonce the boom ended.
All reports indicate that the agriculturaldepression was long and
bitter;so bitter,in fact, that Schumpeter21uses its severityto explain
the lack of follow-throughin United States railroad construction
forecast by his theory at a time when the English railway mania
was at its peak intensity. Thus, we find that in the United States,
railroadconstructionin the years 1843-1847averaged268 miles per
year, 47 per cent less than the preceding five years, while in the
United Kingdom between the same periods, constructionrose 40
per cent.
While this speculationthat the severity of the depressionwas an
obstacle to innovationsis compatible with the business annals of
the period, it badly obscuresthe more complex economicprocesses
that were at work. It will be rememberedthat my chronicleof the
railway boom in 1834-1841said little about the railway history of
the seaboard states, particularlythe parts east of the mountains,
primarilybecause there was little to say. The price system had been
clearly signaling the need for an increased flow of resources into
primaryproduction,by offering a greater return to investment in
those areas.The responseof capital had been large and fast, drawing not only on Americanincome but on the credit resources of
20 On Lake Erie, wheat prices rose 130 per cent from 1830 to 1837. In New
Orleans, the cotton price rise was 80 per cent from trough to peak.
21 Schumpeter, Business Cycles (cited in n.1).
494
Paul H. Cootner
Europe as well. This dominant trend of investment continued
through the thirties; even after the depressionbegan, there were
railroads and canals to finish, farms to equip, ports, ships, and
rolling stock to providefor shipping the surplusesto market.Later,
as the depressiondeepened, capitalinvestmentslowed substantially,
emphasizedby the withdrawalof Britishcapital.
When recoverybegan, capital turned to those industriesthat had
been relatively neglected in the thirties. In some cases, there was
need for capital in those manufacturingindustries that processed
the raw-materialsurplusesproduced in the previous decade. For
example,cheap cotton meant more profitabletextile production,at
lower prices that stimulated demand. The neglect of textile-mill
capacitymeant that demandincreasesresulted in firm cotton goods
prices, but the raw-materialprices were held down by an elastic
supply of cotton productionand by excess stocks. The same was
true of flour mills, meat packing, wool textiles, whiskey, etc.22
Between 1836 and 1843, the prices of "imported"goods at Cincinnati rose 60 per cent, relative to "export"goods. A similar but
smallershift tookplace at New Orleans.The price of cotton sheeting
fell only 10 per cent, while raw cotton fell to one third of its
1836 price.23Even in industrieswhich did not process agricultural
raw materials,neglect created pressureagainstcapacity. The transportation of the agriculturalinputs required iron wheels for new
rolling stock, and heavierrail trafficcreated a demandfor re-laying
track on most of the United States railroads. The continuing
shortageof lumber aided demand for iron as well.
Much the same demands took place in England and led to an
upsurge in railway construction to cater to new iron mills and
textile factories:the great railwayboom of the forties. Actually,the
United States patternwas precisely that of Britain-the only difference was that in Americathese activities were a smallerfraction of
the total economy. Just as the coal boom of the 1820's stimulated
almostsimultaneousinitiationof railwaybuilding in both countries,
a commonbase of industrialexpansionstimulateda boom in similar
sectors of both countries in the forties. It should also be pointed
out that one of the reasonsthat the "railwaymania"looms so large
22 Thomas S. Berry, Western Prices Before 1861 (Cambridge: Harvard University
Press, 1943), p. 645.
23 Arthur H. Cole, Wholesale Commodity Prices in the United States, 1700-1861
(2 vols.; Cambridge: HarvardUniversity Press, 1938).
The Role of the Railroads
495
in British construction series is that their railway construction
stagnated in the agriculture-oriented 1830's. If we look at construction in Massachusetts, Connecticut, Rhode Island, New Hampshire, New York, New Jersey, and eastern Pennsylvania,24 we find
a railway boom similar in scale to that in the United Kingdom
and for the same purpose. Annual reports of such New England
railways as the Fitchburg and Worcester and the Vermont and
Massachusetts stressed the suitability of waterpower sites along
their routes for textile mills, and the freight breakdowns show the
importance of cotton inward and manufactures outward. Passenger
traffic is important on almost all the roads of the period. There are
no grandiose plans of building to the impoverished West: just short
lines with a ready traffic. Similarly in New Jersey and Pennsylvania,
iron and passenger traffic dominate the railroad picture. In all these
cases, private domestic capital was eager to finance the roadsusually the funds of manufacturers or merchants who expected to
reap the benefit; and most of the roads proved profitable. Furthermore, since these railroads tapped a heavy current traffic rather
than a hoped-for one, more capital was spent on them. The average
cost per mile of road was much higher on the new roads.
Even beyond the mountains, construction did not cease. Many
short feeder routes were constructed to canals or lake ports in Ohio
and to rail heads in some southern states. This was mostly "tidying
up" investment, which opened no new lands to exploitation but
facilitated the marketing of raw materials. Without any major new
railway projects in the area, Chicago's wheat and flour "exports,"
which had been 78 bushels in 1838, rose to 587,000 bushels in 1841
and reached almost 3,000,000 in 1848.25 The western states as
a whole shipped only 1,000,000 bushels (wheat and flour equivalent) through the Erie Canal in 1835; 7,500,000 in 1841; and
8,600,000 in 1848.26 Railroad construction in the 1840's was more
the effect of this outpouring than the stimulus for it.
24 Henry V. Poor, History of the Railroads and Canals of the United States of
America (Vol. I [no more published]; New York: J. H. Schultz and Company, 1860),
p. 612.
25 The most important transport project in the area was not a railway at all,
but the Illinois Canal. See U. S. Congress, 32d Cong., 2d Sess. (1853), H. R. Doc.
136, On the Trade and Commerce of the British North American Colonies and
Upon the Trade of the Great Lakes and Rivers, submitted by Israel D. Andrews.
26 About another million bushels were exported to Canada. See Andrews report,
ibid.
496
Paul H. Cootner
Undoubtedly,one of the reasonsfor the neglect of the forties in
Americanrailroadhistory is found in the implicit models of economic growth and innovation used by many historians. Viewed
from either a nationalisticor a retrospectivevantage point, United
States economic development meant the move into the western
lands. Innovation was always for the best, and its progress was
made possible by the wearing down of the opposition of timid
forces. From that point of view, railroads would be built first
where they were a "surething,"in the developed East, and gradually would move westwardas fast as men of visioncould overcome
fearful opposition. As we have seen, however, the tide ran from
East to West and back again. There is some evidence that a similar
took place after the westward push of the fifties,
"retrogression"
but the Civil War obscuresthe data.27
By the mid-1840's,just as the manufacturingboom was reaching
its peak, the stage was being set once more for a shift in the
directionof investment.America'smost importantproduct, cotton,
had fallen, underthe joint stimulusof large crops and slackdemand,
to a low price of 5.7 cents a pound for the 1844 crop. But the
expansionof the textile industry in the United States and Britain
began to have its effect on cotton demand.Three years later, a still
larger crop was sold for 7.0 cents a pound as the textile boom
continued. In 1849, prices fell once more, but the appetite of
English mills was so great that total export revenues increased 18
per cent. By 1849, exports were almost twice the 1847 level, and
prices were rising again.
In pre-Civil War America, an expansion of cotton demand at
firm prices was more than enough to stimulate a full-scale prosperity,
but in the mid-forties other factors were also at work. In 1842,
England had taken a long step toward free trade by lowering duties
27 These shifting regional investment incentives are reflected in contemporaneous
stock price quotations. See Smith and Cole, Fluctuations, cited in n.16. For example,
the New England railroad stock prices were rising to record highs in the 1840's,
while the roads which were associated with the development of western expansion
plunged in the early forties and recovered only partially in the later prosperity.Then,
as the westward movement renewed after 1848, the New England stocks fell while
central Atlantic and western roads soared.
When the boom of the fifties collapsed, western railroad stock prices collapsed
with it, but eastern railroad stocks climbed steadily. This, too, is not solely a war
phenomenon. Just as England and the eastern United States shared a railway boom
in the 1840's, we find that British railway mileage completed in the 1860's exceeded
that of the 1850's. Here again is evidence against the idea of innovation smoothly
wiping out competition as its superiority gradually sinks in.
The Role of the Railroads
497
on meat and meat products and on grain; and partly as a result,
United States exports of such products quadrupled in volume terms,
though at falling prices. In 1846, the British went the rest of the
way, repealing all tariffs on grain and meat products (except for
cheese). The effect on the United States grain trade was immediate,
as can be seen in Table 2.28 This time the expansion of exports took
place at firm prices, as the huge British demands, coupled with
growing United States urban consumption, pressed against available
supplies, particularly in the European famine year of 1847.29
TABLE 2
UNITED STATES EXPORTS OF SELECTED FOODSTUFFS
(IN MILLIONS OF UNITS)
(ANNUAL AVERAGES)
1841
1846-1850
1851-1855
1856-1860f
1861
Total
Wheat and
Flour
(Bushels)
6.5
10.8
18.5
17.6
United Kingdom Only
All Grain
Wheat and PorkHam,
and Flour
Beef
Bacon
Flour
(Bushels)
(Pounds)
(Pounds)
(Bushels)
1.3
4.2
5.7
.3
15.4
12.8
37.3
6.4
12.2
13.9
35.1
15.8
14.1
36.9
10.4
28.8
70.7
12.5
43.2
The impact of these changes on United States railroads was almost
immediate. These huge shipments from the West for export immediately pointed up a bottleneck in the transport system-the Erie
Canal. Since that artery was closed in the winter, the huge shipments had to be made in the seven warmer months. When the
volume of shipments soared in 1847, the freight charge on a barrel
of flour from Buffalo to Albany by Canal rose to $1.12 from a charge
of 45 cents prior to repeal of the Corn Laws. Neither the volume of
traffic nor the rate ever got that high again, as the railroads leapt
into the breach. The bulk of the new shipments was in meats and
flour, for which the railroads could better compete with slow water
transport. In 1847, the Erie and the Pennsylvania Railroads completed their financing arrangements; the B. & 0. secured capital
28 J. Potter, "Atlantic Economy, 1815-60: The U. S. A. and the Industrial Revolution in Britain,"in Studies in the Industrial Revolution, L. S. Presnell, ed. (London:
University of London, The Athlone Press, 1960).
29 The need for expansion of grain "capacity" must have been accentuated by
three successive wheat crop failures in the Lake Michigan area; see Bidwell and
Falconer, History of Agriculture, p. 220 (cited in n.18) and Andrews report, H. R.
Doc. 136, pp. 21 ff. (cited in n.25).
498
Paul H. Cootner
from Baring Brothers in 1848, and the Hudson River began building
to meet the N. Y. Central at Albany. The N. Y. Central itself had
been formed in 1847 to combine under one management the line
of track which paralleled the Erie Canal.80In the South, analogous
roads began linking the Midwest to the cotton regions and the
coast.8'
It is a tribute to the volume of settlement in the 1830's and to the
renewed construction of rail-gathering lines, that the large expansion of wheat exports in the late 1840's took place without any
substantial rise in prices save for the famine year 1847. For example,
the January 1852 price of wheat in Philadelphia was the same as
in January 1845. As income and population grew, however, there
was an increasing domestic demand for meat and dairy products
and, indirectly, for the corn to feed the livestock. This demand
undoubtedly grew as the trunk line rail heads reached closer to the
Ohio River, since meat products were well suited, by value-weight
ratios and perishability, for rail transport. Beef, pork, and livestock
rose in price and competed for land use, particularly since most
of the western wheat production was taking place on land ideally
suited for corn-in the center of the present Corn Belt. The result
was a sharp shift in production away from wheat to corn and meat.82
By 1852, the shift from wheat production, together with steadily
increasing demand, began to have its effect on prices. During 1852,
Philadelphia and Cincinnati wheat prices rose 28 per cent, followed
by a similar rise in both 1853 and 1854. The rise in wheat, together
with high prices for other agricultural products, produced a tremendous rise in land sales and a corresponding boom in railway
construction into the unsettled areas of the West. The land rush
had been on in the South since 1846, but until wheat prices started
to rise in 1852, the boom had not spread to the Midwest.83 It was
at this time that the rush of railway construction began to link the
MacGill, History of Transportation (cited in n.13).
The Atlanta and LaGrange was chartered in 1847; the Western and Atlantic,
and the Southwestern, started building in 1848; and the Mobile and Ohio, and the
Alabama and Tennessee roads were chartered in the latter year. See Ulrich B.
Phillips, History of Transportation in the Eastern Cotton Belt (New York: Macmillan, 1913), p. 405.
32 The figures given in Table 3 for Chicago are more striking than those for
arrivals at Buffalo because of crop failures, but both sets of data show the effect of
the same forces. See p. 93 of Andrews report (cited in n.25).
33 See Smith and Cole, Fluctuations (cited in n.16).
30
31
The Role of the Railroads
499
trunklines with Chicago and St. Louis and to fan out from those
two centers to the land still farther west.
Agriculturewas not the only profitablesector.This was the period
of developmentfor Michigancopperand the beginningof the huge
Lake iron-ore-miningventures. The new prairiesto be developed
lacked the abundantwood cover which markedthe more easterly
farm lands and necessitateda huge demandfor lumberfrom Michigan's forests.34But it was northern wheat and southern cotton
which accounted for the bulk of the railway building. Again, the
expansion of immigrationcreated its own demand for feedstuffs
and had its immediate impact on prices.85By the spring of 1855,
Cincinnatiwheat prices were four times the 1852 level. In the next
four monthsthey fell 50 per cent. Althoughthey partiallyrecovered
before the end of the year, the back of the boom was broken.Land
sales plummetedalmost as fast as they had risen. A sharp increase
in 1856 wheat exportsto England to replace Russiangrain imports
cut off by the CrimeanWar maintainedprosperityuntil 1857, but
when depression came, it was all the worse. Wheat was again
overproduced.Cotton, on the other hand, which sufferedless from
these price distortions,remainedhigh in price until the War."6
It was in the 1850'sthat the railroadsfirst began to revolutionize
United Statestradepatterns.In 1857,for the firsttime, the two New
York trunk railways carried a larger tonnage of freight than the
Erie Canal, though still less than all the New York canals combined.87In 1858, at least 50 per cent of the flourand 25 per cent of
the wheat sent East traveled at least part way by train.88 Of
34 In 1848, lumber receipts at Chicago were 60,000,000 board feet. In 1856, they
were 450,000,000. See Homer Hoyt, One Hundred Years of Land Values in Chicago
(Chicago: University of Chicago Press, 1933), p. 85.
35 The response of production to settlement was much faster in the 1850's than
in the 1830's. This is quite likely due to the lack of tree cover, which reduced the
time required for clearing land. It is interesting to note that the first settlers in the
Midwest in the 1830's thought that land without trees was infertile and avoided it.
See Bidwell and Falconer, History of Agriculture. As evidence of the distortion, note
that in 1855, Cincinnati flour prices actually exceeded those in New Orleans and
New York. See Berry, Western Prices (cited in n.22).
36 Cotton, in a way, benefited from the Crimean War. United Kingdom cotton
consumption fell during that War, holding prices down in the prosperity but raising
them to high levels when the War ended as the United States depression was
beginning.
37 U. S. Congress (1874), Select Committee on TransportationRoutes to Seaboard,
Report.
38 Computed from data in the Tenth Census of the United States (1880),
Agriculture, Vol. CLI, and from New York State, Auditor of the Canal Dept., Annual
Paul H. Cootner
500
TABLE
3
CHICAGO SHIPMENTS BY LAKE
(IN THOUSANDS OF UNITS)
-
Year
Wheat
and
Flour
(Bushels)
1842
1844
1846
600
920
1585
Corn
(Bushels)
Beef
and
Pork
(Barrels)
Bacon
and
Lard
(Barrels)
2
97
281
16
15
31
1847
2122
67
49
1848
2363
550
54
1849
1850
1851
2166
1085
752
645
262
3221
66
67
73
Wool
(Pounds)
186
412
500
1535
1634
3520
520
914
1087
Not available.
Source: Andrews report (cited in n.25), pp. 218-19.
Chicago's shipments in 1858, $21,000,000 went by lake, $60,000,000
by railroad, and $1,000,000 by canal.39The incidence of the railroad
was uneven, however. Virtually all the wheat went east by water,
but 20 per cent of Chicago's flour, 70 per cent of packing-house
products, and all of the livestock went by rail. Even less of corn
and coarse grains was shipped by rail. The railroad was more
important the farther the terminal was from the Lakes, the more
perishable the product, and the higher its value-weight ratio. For
instance, in 1848-1852, Cincinnati shipped over 96 per cent of its
flour down the Ohio River; in 1857-1860, only 16 per cent went
that way.40 Most of the shift was due to railroad shipments east,
although it should be remembered that the growth of farming on
the Missouri River was causing St. Louis to usurp Cincinnati's trade
with the South. By the end of the fifties, New Orleans was no longer
an export port for western products; only foods for coastwise and
local consumption went downriver, a development that turned out
to be quite important when the War began.
To keep the importance of this shift in trade in proper perspective, we should note that the value of United States wheat and flour
exports in 1860 was only 10 per cent of that of raw cotton, and
less than the total of tobacco and meat exports. The United
Report, 1871 (Albany, 1872), pp. 220-23. It is probably an underestimate, but it
is close to the correct figure.
39 Bidwell and Falconer, History of Agriculture.
40 Berry, Western Prices.
The Role of the Railroads
501
States exported only 8 per cent of its wheat crop. The percentage increase in the cotton crop from 1850 to 1860 was greater
than that of the wheat crop, despite the much smaller railway
mileage built in the South. The main significance of the railway
for United States economic growth in the 1850s was that it enabled
this country to expand its population and production at a lesser
cost than would otherwise have been the case, rather than that it
was the driving force of United States economic growth.
As the grain-producing areas of the country settled into depression in the late fifties, the rest of the country was buoyed by investment which had been postponed by the surge of investment into
agriculture. From 1848 to 1854, United States rail consumption
had soared from less than 50,000 tons to 390,000 tons; but because
capital was not easily induced into manufacturing at this time, the
bulk of these rails were imported. As the westward movement
slowed, interest shifted back to iron. United States rail production
doubled from 1854 to 1860, growing especially fast in the transAppalachian area, which was sheltered from British competition
by both a tariff and the long freight haul across the mountains.
Iron-ore production zoomed in both New Jersey and the Lake
Superior area.4'
In 1860, for the first time since 1848, iron production reached a
new peak. Flour milling expanded tremendously to accommodate
the West's capacity for flour production42 and Chicago was in the
midst of a meat-packing boom which raised it to first place above
Cincinnati in that field.43 In the midst of the "depression" after
1857, United States anthracite coal production soared 34 per cent,44
the beginnings of the American oil industry were being laid in
Pennsylvania,45and American copper output rose 50 per cent, the
United States becoming an exporter for the first time. Eastern railroad stocks held firm in the general panic. The War impeded many
of the lines of growth, as manpower was called into battle, supplies
of cotton were cut off, and trade was disrupted.
What railroads were built, however, were much like those that
41 U. S. Geological Survey, Mineral Resources of the United States, 1882 (Washington: Government Printing Office, 1883).
42 Charles B. Kuhlmann, The Development of the Flour-Milling Industry in the
United States (Boston: Houghton Mifflin Company, 1929), p. 346.
43 Berry, Western Prices.
44 Eavenson, American Coal Industry (cited in n.9).
45 U. S. Geological Survey, Mineral Resources (see n.41).
502
Paul H. Cootner
had been built in the 1840's.Railroadswere built to the ore mines,
to coal mines, and to link the two kinds of mines with the Lakes.
Shortstretchesof road were built in Ohio and the East to eliminate
transportationbottlenecks caused by the big new trafficwith the
Midwest. In 1858, Ohio, which was no longer anywhere near the
frontier, opened 756 miles of such road-38 per cent of the total
mileage opened in that year. Once again, railroadconstructionhad
shifted eastward.Althoughthe Civil War, by making other investments more profitable, sharply reduced United States railway
construction,such roads as were constructedcontinued along precisely the same lines that were indicated in the late 1850's.
When the War ended, the westwardexpansionbegan again, on a
massive scale, as if to make up for opportunitieswhich had arisen
in the War, but which could not be taken advantageof. As we shall
see in SectionV, it was in the midst of this expansionthat railroads
called on the greatest fraction of national economic resources. It
was, of course, the transcontinentalroads that caught the imagination of the legislatureand the populace. But the constructionthat
really left its mark on the Americaneconomy was the first major
expansion into the United States Wheat Belt. With its southern
marketcut off by the War, the United States had exportedalmost
30 per cent of its wheat crop in the peak postwaryears (from less
than 10 per cent in 1860); but with the end of hostilities, southernersand new immigrantscompeted for supplies. In 1867, a little
over 5 per cent of a much largercrop was exported.Perhapsequally
importantwas the continuingerosionof wheat acreagearisingfrom
conversionof midwestern (Ohio, Indiana, Michigan, and Illinois)
wheat lands to the corn-livestock-dairycomplex, as transportation
improvedand urbanmarketsdeveloped close at hand. Old iron-ore
deposits in the East were being exhausted,forcing United States
industry to look increasingly to the Lake Superiorranges. More
lumber was needed from Minnesota and Michigan forests. From
less than 600 miles of road built in one of the Civil War years,
constructionrose to almost 7,500 miles in 1872.
Like all the others which preceeded it, the expansionwas overdone. Railroadmileage opened west of the Mississippipeaked in
1870, actually rising little after 1869. Without substantial new
construction,the roads then underway continued to draw immigrantswestwardand to permit increasesin the productionof corn,
wheat, coal, and iron ore. As wartime shortages were eliminated
The Role of the Railroads
503
and raw materialprices fell, manufacturingpicked up and exports
rose. Concomitantly,the common stocks of trans-Mississippirailroads began to fall, and those of eastern roads to rise. By 1870, 20
per cent of the wheat crop went overseas. As coal and iron ore
became more plentiful, United States iron production soared 47
per cent in a single year (1872). Raw cotton consumptionrose
28 per cent in 1871 and 12 per cent more the following year.
Frickey'sindex of manufacturingoutput rose 20 per cent in 1872.
Much of the increase in output in 1872 must have gone into
inventories,for demand fell off the next year and then there was
little recovery until 1877-one of America's worst depressions.
Nevertheless,the availabilityof raw materialsand the expansionof
opportunitiesin manufacturinginvestmentpersisted,once recovery
resumed. Under those circumstances,recovery meant additional
needs for transportationbetween the newly developed sources of
raw materials, the factories that used them, and the final consumers.When recoveryof railroadconstructioncame it was again
of the intensive variety. Except for the completion of the transcontinentalroads, there was no building outside the limits of previous construction.Instead, short feeder lines stretched out into
territoryaroundthe trunklines. Heavily-traveledlines were double
tracked and laid with heavier rail. While new mileage additions
rose from2,300 miles in 1877 to 9,850 miles in 1881, double tracking
rose from 500 miles in the formeryear to 5,000 miles in the latter.
In a period with 25 per cent less migration, wheat acreage rose
14,000,000acres from 1873 to 1880, against only 9,000,000 in the
previous seven years of westward movement. A similar pattern
appearedin corn acreage.
With readilyavailableraw materialsat cheap prices,the intensive
boom was one of manufacturing'sfinest hours. From 1878 (when
manufacturingproductionfirst surpassedits 1872 peak) to 1882,
Frickey'sindex rose 53 per cent, or over 11 per cent per annum.
The Middle Atlantic states once again experienceda sharp revival
of construction.Birmingham'ssteel industrydates from this period,
as does that of Illinois. Manufacturingwas shifting into the states
that were scarcely settled at the railroad'sbirth, and new lines
were built to accommodatethem.
IV
In J. A. Schumpeter'sschema, business cycles arise out of the
disturbanceof economicequilibriumby a change in the production
504
Paul H. Cootner
function which suddenly makes substantial investment in some
majornew product very profitable.This opportunityis graspedby
some entrepreneursmore quickly than by most, but as the success
of the farsightedbusinessmenbecomes obvious, investment swells.
Given the elasticity of the credit system, the stimulationthat the
innovationgives to investment in related areas, and other institutional phenomena,the expansionis always overdone and leads to
overinvestmentwhich is followed by depressionand then recovery
until anotherinnovationspurs yet another cycle.
Inevitably,this capsule descriptionof Schumpeter'stwo-volume
work is incomplete, but it does contain the core of his argument.
In particular,it focuses on the points that are critical to the arguments I wish to raise, though it plays down others which are less
critical. For example, Schumpeteralso uses the concept of a very
long, or Kondratieffcycle, which I cannot discuss in this paper.
The critical question I wish to raise at this juncture concerns the
role of innovationin initiating a cycle.
I want to stressthat I am restrictingmyself to this particularand
narrowaspect of Schumpeter'sgrandtheory of businesscycles. The
reason for this stress is that Schumpeter'stheory has been interpreted and reinterpreteduntil in the minds of many economic historiansit is assumedto mean somethingquite differentand broader
than the actual content of the books. It would, indeed, perhapsbe
better for the progressof scholarshipif Schumpeter'sname were not
brought into the matter at all, except for the fact that his name is
so intimately connected with the word innovation.At any rate, I
would like to make clear that what I am talking about is the dual
question: (1) Did technologicalinnovation (in particular,railroad
innovation) play a critical role in stimulating a major business
cycle? and (2) Did the timely exampleof successfulentrepreneurs
play such a criticalrole? I will later widen the discussionto include
some nontechnologicalinnovation, but I will avoid including as
innovationevery investmentthat was not identicalin time and place
with some other investment.
It is clear, I think, from what has gone before that I find no
evidence anywhere in the process of railroaddevelopmentof anything that would constitute a technical jump great enough to generate an exogenous railroad boom, the reverberationsof which
might cause a business cycle to develop. The railroadsexperienced
constant technical improvement-larger locomotives, bigger and
The Role of the Railroads
505
better designed rails, better brakes, substitutionof coal for wood
as fuel, etc.-but there is no record of either discontinuouschange
or some particularpoint where gradualchange was suddenly converted into economic profit. Despite later reinterpretation,it is
clearly this kind of technologicalchange that Schumpeterthought
of as initiating cycles. What the record shows-as clearly as historical records ever show anything-is that it was demand factors
that stimulatedthe building of the railroadsratherthan the reverse.
The railroadswere one of many means to a variety of ends, and
as the ends shifted, so did railroad construction.Partly because
railroads were steadily improved and partly because American economic development gradually filled up the land masses
which could be reached by cheap water routes, successivebusiness
cycles were markedby increasingrailroadinvestment.The process
is not, however, one in which the railwaysare continuallybreaking
into new uses from which they had been barredby either ignorance
or conservatism.Instead,we see them built in the East as passenger
and generalfreight lines, then neglected in that role when interest
shifts to the West, only to be revived again. Then we see them aid
in the westwardsurge, only to become quiescent in the forties; and
we see them lead new expansionsof the frontierin the fifties and in
the 1867-1875period only to stop once more in the sixties and the
1875-1883period. It is demand ratherthan supply which seems to
dominaterailroadhistory;and the demands, as we will see in the
next section, are internationalin scope.48
Even if we stretch the scope of innovationto include ideas and
organizationas well as engineering and materials, there is little
ground for crediting innovation with a major role in the cyclical
pattern of the nineteenth-centuryUnited States. Even if, contrary
to the evidence presented here, we credit Jenks' belief that the
concept of the trans-Appalachianrailroadas a critical innovation
in the 1840'swas responsiblefor the boom of the fifties, we have
no satisfactoryexplanationfor the sectional nature of the construction of the forties.It is in the post-CivilWar boom that the railroads
really reach full maturity in their impact on the United States
46 Of course, what was "demand" for the railroad industry was usually "supply"
for its customers; i.e., the need for transportationto new potential sources of raw
materials. Also, unless these demands for transportationservices had been supplied,
this whole discussion would be pointless. The point is that the disequilibrium was
created primarily by a shift in the demand curve for transport services, rather than
by a shift in the supply curve.
506
Paul H. Cootner
economy (see Section V) and there again, innovation has little
to do with the investment. To be sure, those years were marked
by the introduction of what was to become the most important
railroad innovation since Stephenson-but the steel rail was produced in only negligible quantities until after the major construction
boom was over. Furthermore, while the steel rail (and wheel and
firebox) were all introduced only gradually, the pattern of adoption
is more clearly a function of relative price than of conservatism
or ignorance.
The absence of any clear technological or managerial railroad
innovation capable of being held responsible for any of the investment booms of the nineteenth century is easier to demonstrate
than is the role of entrepreneurship in such cycles. All that I can
say with any degree of certainty is that if emulation was an important force in the railroad construction cycles of the nineteenth
century, it does not emerge with any clarity from a study of the
timing of construction, either from contemporary chronicles or from
more recent business histories. In most cases, railroads were planned
and discussed and financing sought in legislatures or in banking
houses long before construction actually began, but the event that
turned plans into action was economic rather than emulatory. Railroads were being built in considerable numbers in the East in the
early 1830's, when twelve railroads were chartered in Ohio. One
of those railroads was even completed at that time. Either the
emulatory spirit was deficient in Ohio in that decade, or it extended
only to planning or-as is more likely-investors simply could not
see the profit opportunities clearly enough to risk their capital.
Perhaps more striking is the case of the renewal of trunk-line
construction to the West in 1847-1848, after a lapse of many years.
Since this construction marked the beginning of the railroad construction boom of the 1850's, it is more central to the question of
the origin of business cycles. All of the trunk lines had been proposed long before the B. & 0. had started building, two decades
earlier; the Erie had started in the thirties; the main line of the
N. Y. Central had been built under eight managements at the same
time. The Pennsylvania, though it had not built any mileage previously, faced similar problems. Yet in each case the funds were
raised in 1847-1848. Despite this lumping of investment, there is
little evidence in company histories or outside annals that this
sudden renewal of building was due to anything other than the
The Role of the Railroads
507
revelation,through the huge grain exports of 1847, that the Erie
Canal could not handle the prospective flow of commerce from
the West. Investors were frequently wrong in their evaluation of
the economicprospectsfor any given road, but they did need some
reasonable hope of profits to risk their funds. During the early
forties, such hopes did not lie in roads to the depressedagricultural
regions of the West.
Finally, the relative lack of constructionduring the Civil War
and the surge of constructionthat followed were so clearly linked
to the demands of the war economy and to their cessation that
there is no real issue of entrepeneurialleadership.
In the frameworkI have presented here, the railroadsfollowed
shifting demandsfor final products in this country.As I have also
hinted, this pattern in the United States was not independent of
economic developmentselsewhere in the world. We have already
mentioned the relative strength of railway constructionin Britain
in the 1820'sand the 1840's,and its relative weaknessin the 1830's.
In the same fashion, we find that Britishrailwaysopened less mileage in the fifties than in the forties but that new mileage rose again
in the followingdecade. Actually,the alternationcontinuesthroughout the century and holds, not only for railways, but for housing
construction and domestic investment in general. Each country
seems to alternatebetween domestic investment surges and either
foreign investment (United Kingdom) or repayment of foreign
debt (United States). Furthermore,while both countriesshare the
broad swings in prices in the century-rising to about 1815, falling
to the mid-forties,risingto about 1870,falling to 1896-Britishprices
rise more than those of the United States in the cycles I have
associated with manufacturing,and Americanprices rise more in
the cycles I have associatedwith primaryproduction(Table 4).
The most importantaspect of these cycles is that they are not
simply national but what I call sectoral. When the United States
experiencesa coal and iron and textile boom in the mid-1820's,we
find evidenceof an analogousspurtof investmentin the corresponding United States industries.The relative stagnationof railway constructionin the United Kingdomin the thirties is also experienced
by France, and the frenzied constructionin the forties is commonto
those two countriesand to New England.The westwardpush in the
United States in the 1850's is accompaniedby similar building in
508
Paul H. Cootner
Canada,Russia,and India; and in later such booms, Argentinaand
Australiajoin in.
If this conceptionis correct,then the degree to which any given
country reflects any one of these cycles should depend upon its
national commodity "mix."For example, when the United States
is primarily a raw-material-producingcountry it should mainly
reflect the "raw-materialcycle" behavior even though one industrialized section (say, New England) behaves quite differently.If
this is true, then we should find that as the balance between industrial and nonindustrialsectors gradually shifts, there should be a
correspondingshift in the cyclical pattern. Such a change of pattern is quite strikingin the United States building cycle, inducing
two authorsto deny that there was such a cycle at all in the United
TABLE
4
COMPARATIVEECONOMIC STATISTICS
UNITED KINGDOM-UNITED STATES
Price Rise During Upswing
Railway Mileage Opened
(United Kingdom as percentage (United Kingdom as percentage
Period Inclusive
of United States)
of United States)
1821-1830
1831-1842
1843-1848
1849-1858
1859-1866
1867-1876
424
46
173
16
36
7
240
67
90
83
?a
?a
a Comparisonsare rendered difficult by the United States paper currency standard
from 1862 to 1879. In terms of domestic prices, the United States index rises faster
than the British in 1859 to 1866 and slower than the British after the War. For
currency fluctuation in this period, see W. Mitchell, Gold, Prices and Wages (Berkeley: University of California Press, 1908), pp. 266-71. In prices corrected for such
fluctuation, the U. S. and British indexes continue the alternation suggested in the
text.
Sources: For column 1, 1821-1842, "U. K. Railway Mileage," in B. R. Mitchell,
Abstract of British Historical Statistics (Cambridge [Engi.]: The University
Press, 1962). For 1842-1876, "Great Britain's Railway Mileage," ibid.
United States railway mileage is from U. S. Bureau of the Census, Historical
Statistics of the United States, Colonial Times to 1957 (Washington: Government Printing Office, 1960).
For column 2, 1821-1858, "U. K. Wholesale Prices," from Mitchell, Abstract (above), pp. 471-72. For United States, Census, Historical Statistics
(above), p. 119. In general, the upswing in each country is from the low
annual average to the high annual average during the period. In the 18211830 period, however, United States prices rose only from 1824 to 1825,
while United Kingdom prices rose from 1822 to 1825, so the numerator
for that entry is the United Kingdom price rise only from 1824 to 1825.
The Role of the Railroads
509
States between 1885 and World War I.47 After 1914, world economic
history has been subject to too many disruptions for any clear
patterns to emerge, but there is little, if any, difference between
the main patterns of investment in the United States and in the
United Kingdom in that period.
This is not the place for a detailed theoretical explanation. Such
an explanation is attempted in my "Social Overhead Capital and
Economic Growth."48For our purposes, it is sufficient to expand a
bit on the model sketched in Section II. That model pictured an
economy subject to almost continuous disequilibrium due to a
series of lags in signaling, recognizing, and implementing the need
for investment programs. To explain this rough alternation that I
observe in the railroad history of the nineteenth century requires
only a mechanism for explaining the tendency for agricultural investment to predominate in one cycle and for industrial investment
to predominate in the next.
I think that the key to the mechanism lies in the fact that (at
least in the nineteenth century) when raw material pressed against
capacity, the cheapest way to expand production was by production
on previously uncultivated "land." Perhaps inevitably, but at least
with nineteenth-century transport technology, expansion on to uncultivated (or unmined) land required tremendous capital inputs
compared to immediate output.49Even more important, it was difficult, if not impossible, to expand agricultural output in this way
by marginal amounts. This latter problem, plus the fact that the
whole process-building transportation, settling farmers, and clearing land-was lengthy, made it very difficult to expand production
by precisely the right amount. Since prices remained remunerative
even after the optimum amount of investment had been undertaken, it was natural that the result would be overinvestment, particularly when-as in the case of wheat-the commodity in short
supply was an important input into investment to expand its own
47 Miles M. Colean and Robinson Newcomb, Stabilizing Construction:Record and
Potential (New York: McGraw-Hill, 1952), p. 340.
48 To be published in Proceedings of the InternationalEconomic Association Conference on "Take Off into Sustained Economic Growth."
49 On the tendency of the overall steam railroad capital-output ratio to decline
after 1880, see Melville Ulmer, Capital in Transportation,Communicationand Public
Utilities (Princeton: Princeton University Press, 1960). This tendency is probably
at least partially the result of the slowing rate of new investment, so that expanding
utilization of older lines was not diluted as much by new extensive roads.
510
Paul H. Cootner
production capacity. Given this overexpansion,it was relatively
easy to expand productionfor a long time thereafterby filling in
the interstices of the primary expansion.Short feeder lines could
be built quickly and at relatively small cost, yielding prompt increases in output. The main outlays for schools, stores, townsites,
roads, and terminalshad all been made before, making it easier
to lure new migrants without massive profits.
To make adventurous frontier expansion economically attractive,
it was necessary to make it profitable enough to overcome the
tremendous inherent risks-railways dared not build until assured
that settlers were sure to come, settlers dared not come until transport was assured. Given the decentralized adjustment mechanisms
of a price economy, no one wished to invest until he thought he saw
profits which were large enough to compensate for the uncertainty
of dependence upon thousands or even millions of other decisionmakers, or profits for others (say settlers) which were large enough
to insure, in his opinion, that these others would do what they
must do if his investment were to be profitable. Under these
circumstances, government aid was often useful in coaxing the
reluctant. Once this expansion began, however, the uncertainties
dissolved, and the large profits which could be made if .
..
, now
seemed so very close at hand. Then also, purely temporary scarcities associated with the investment process itself made short-run
profits even more attractive, and it would be folly to assume that
no one made the error of projecting these temporary profits into
the future. Particularly important was the fact that once the westward push became assured, once these opportunities jelled, they
were so profitable that they usurped investment from all sectors
of the economy.
Because the manufacturing sector was relatively ignored during
the extensive expansion, there would in any event have been opportunities for investment once the westward expansion halted. This
was even more true when the new lands gushed forth enormous
quantities of cheap inputs for the factories. These investments were
each small compared to the huge railroad projects; they took only
a short time to complete and almost immediately produced at or
near capacity. Under these circumstances, there was relatively little
overproduction, at least not on the scale of the extensive expansions.
There was almost no federal aid in what I call, for want of a
better name, "manufacturing expansions"; and rather than attribute
The Role of the Railroads
511
these respites from federal and state grants to a "revulsionfrom
internal improvements,"it seems more accurate to point out that
in this kind of investment,the consequencesof private investment
were more immediateand more easily forecast and calculated.
It may be worthwhile to emphasize that this is an abstract
hypothesis,not a workingmodel of reality.What I am talkingabout
is the broadstrokesof an economicprocess,not the detail. It would
be, for example, folly to expect that when Ohio agricultureprospered in the 1830's,local manufacturing,construction,and services
did not share the prosperity,or that when the factories of Massachusetts and Pennsylvaniawere expandingin the forties, the urban
population did not eat more food or build railroad lines where
necessary to get it. In internationaltrade, the concept of dividing
an economy into an internationaland a "domestic"sector is well
established,the domestic sector including goods which, because of
transport costs, did not move in internationaltrade. Much the
same principle applies in nineteenth-centuryUnited States interregional trade, and the existence of these "local"industriesblurs
the precise lines of our model.
It may be worthwhileto make a few brief observationsabout the
implication for economic development of what has gone before.
The railroadsare part of a group of facilities sometimes lumped
under the phrase "socialoverhead capital."As the term suggests,
these facilities-transportation, power, communication-are conceived of as "overhead,"plant and equipment which are essential
to industrial production though not specifically producing final
products.
Some writers50have conceived of "social overhead capital" as
playing a special role in economic development-as being a prerequisite to rapid economic growth; and that the "take off" into
such growth could not take place without a stock of such equipment. I think it is clear from what has gone before, although it is
that I see
discussedmore explicitly in "SocialOverheadCapital,"51'
no special role in the economic developmentprocess which can be
ascribedto the railroads.They were important-yes; but they were
no more importantthan wheat or cotton or iron. They were a part
of the complexprocess of economichistory, nothing more.
50 Rosenstein-Rodan,"Theory of the Big Push" (cited in n.4).
51 See n.48.
512
Paul H. Cootner
V
Nineteenth-century America was a country of tight labor supplies and scarce capital. It grew as fast as it did largely because
of its plentiful supply of natural resources-fertile land and abundant minerals. The ineluctable feature of natural resources-particularly agricultural land-is that it is widely dispersed, and because of that much of the land had to be far from the sea that
served as the cheapest of all transport media. When we consider
that most natural resource products have low value-weight ratios
and that, in the United States, these goods were partially cut off
from the sea by a mountain range, it is clear that the successful
development of the United States economy was not assured from
the vantage point of 1825.
Against this background, it is clear that the development of
relatively cheap land transport was of critical importance to the
rapid development with which we are familiar. It is, however, a
far cry from this position to the argument that the railroad was a
positive stimulus to United States economic development. Like all
goods in a price economy, it was produced because its economic
benefits exceeded its economic costs. It does not follow that if its
benefits were not required, the resources it consumed would not
have been used to greater benefit elsewhere. In this section, we
will examine in a tentative way the balance of benefits and costs
imposed on the United States economy by the railroads.
To put the problem into perspective, it is useful to consider the
relative importance to the United States economy of the railroads
and of the two major internal waterways-the Great Lakes and the
Mississippi River system. Reaching as they did into the heart of
the agricultural countryside, these waterways (together with the
Erie Canal) carried more of the wheat and corn crops to the
urbanized West throughout the nineteenth century than did the
railroad network. As late as 1860, the Erie Canal carried more
traffic to the East than did all four of the trunk lines together, although the railroads dominated in carrying such products as flour
and livestock. Even in the case of such goods as corn, flour, pork,
and beef, large amounts were shipped down the Mississippi to
New Orleans for reshipment to the Northeast rather than directly
by rail. Had these waterways not been in existence, the railroads
might have been built on a large scale earlier than they were, but
The Role of the Railroads
513
it is clear that United States economic growthwould have been the
worse for it. It should be rememberedthat the high value-weight
productsfor which the railroadswere preferredcould, if required,
travel by water; but the bulk products could probably not have
been marketedby rail at anywhere near the then currentprices.
If we imagine the United States to have been the only source
of the goods producedin the Midwest, so that there is no question
of demandshifting to other countries,the lack of railroadtransport
would have slowed but not halted the expansionof the area. Once
beyond the Appalachians,there were no overwhelmingobstacles
to canal transport.Certainlyas late as 1850, it is hard to imagine
much of an impedimentto trans-Appalachiandevelopmentresulting from the unavailabilityof the railroad.The feeder railroadsthat
had been built beyond the mountainscould have been canals, at
capital costs of the same magnitude and at lower operatingcosts.
Canals would, however, probably have taken a little longer to
build and would have supplied slower transportwhich might have
discouraged passenger travel, increased inventory requirements
and concomitantcapital costs of carryingthem, and increased the
costs of shipping semiperishables.Many of the same arguments
apply to constructionsouth of the Mason-Dixonline. It was the
coastal states which would have suffered most from the higher
costs of anthracitecoal, lumber, iron ore, and reduced availability
of waterpower sites in the New England hills. Cities other than
New Yorkand New Orleanswould have been at an even greater
commercialdisadvantagethan they were, since even more trade
would have been channeled down the Mississippiand through the
Erie Canal.62
After 1850, the differences between things as they were and
things as they might have been would have widened, and the
effects are more conjectural.Undoubtedly,United States economic
developmentwould have been much slower. It was in this period
that the railroadsbegan to have a really importanteffect on such
development.But we must always rememberthat not all the effects
of the railroadcan be credited to the plus side of the economic
52 In 1852, the tonnage of freight carried by rail was estimated at less than 20 per
cent of that carried on canals and in the coastal trade. See George R. Taylor, The
TransportationRevolution, 1815-1860 (New York: Rinehart and Company, 1951),
p. 174. In 1849, railway revenues were only 7 per cent of an estimate of total expenditures on transportation and communication, in Robert F. Martin, National
Income in the United States, 1799-1938 (New York: NICB, 1939), p. 146.
514
Paul H. Cootner
development.The true measureof the net benefit of the railroads
is the difference between national product with and without the
railroads, adjusted for the increased volume of inputs in the
economy with railroads.This is impossible to measure with any
accuracy,but it is not in the least correctto count all expenditures
on railways as the proper measure of the railroads'contribution
to United States growth.
I draw this picture because it helps to interpretthe data I now
present,which indicate the drainon United States resourcescaused
by the railways.This drainis undoubtedlyoverbalancedby benefits,
but it shouldbe clear that the railroads'-say-iron and steel requirements were a drain and not a stimulus to economic development.
Unless we are convinced that the United States would have suffered from deficient demand,large investmentoutlays on railroads
are a cost, not a positive factor, in economic development. The
stimulus lies in the transportationimprovements I outlined in
SectionIII.
The impact of the railways on the economy is easier to assess
now that we have the estimates of gross national product that
RobertGallmanhas made here. Gallman'sdata, togetherwith those
of Ulmer58and Kuznets54permit us to sketch a broad picture of the
TABLE 5
THE RAILROADS' SHARE OF GNP INVESTMENT
Periods
1842-1851
1852-1861
1872-1881
1882-1891
1892-1901
GNP
(Current Prices)
(1)
2.12
3.92
8.4
11.8
15.0
Railroad
Investment
Railroad
(Current Prices)
Investment
(2)
(Percentage of GNP)
.023
.085
.208
.246
.185
1.1
2.2
2.5
2.1
1.2
Sources: Column 1: 1842-1851, average of Gallman's figures for 1844 and 1849.
1852-1861, average of Gallman'sfigures for 1854 and 1859.
Column 2: 1842-1861, calculated from cost of construction estimates
for 1842, 1850, and 1860. The 1842 estimate is derived by multiplying
Poor's mileage in operation by $25,000. The 1850 and 1860 figures are
from the Tenth Census of the United States.
Column 3: Column 2 divided by Column 1.
63
64
Ulmer, Capital in Transportation(cited in n.49).
Kuznets' results as given in U. S. Department of Commerce, Historical Statistics
The Role of the Railroads
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Paul H. Cootner
role of the railroadin the nation's economy, even though future
students will probablywant to make furtheradjustmentsalong the
lines of Fishlow's paper.55 Table 5 shows the share of railroad investment in GNP and Table 6 gives some scattered data on the
relation of railroad output to GNP.
In view of the crudity of some of the underlying estimates, only
the most general comments are very meaningful. Railroad investment was never a very large element in GNP and it did not reach
its peak importance until after the Civil War. The same conclusions
hold for revenues. If we use the sum of output and investment as
an upper limit of the railway's use of resources (ignoring the doublecounting resulting from the railway transportation element of investment costs), we have more evidence for a peak in the railways'
direct impact in the 1870's. Use of the railways grew much more
rapidly than investment: in the 1830's, annual revenues averaged
one half of annual investment; in the 1840's, the two figures drew
about even; and in the fifties, annual revenues exceeded annual
investment by 20 per cent. By the 1870's, revenues were two and
one quarter times annual investment.
We get a picture of greater and earlier importance for the railroads if we compare railroad investment to gross capital formation
(Table 7). If we ignore capital formation and production which
took place outside the market place, we find that the peak impact
of the railroad on United States investment came in the 1850's. This
discrepancy between the impact on GNP and that on investment
derives mainly from the very sharp increase in the proportion of
GNP invested after the Civil War. It does indicate that the railroads played a very important part in gross investment, at a time
when such outlays were yet to assume the importance they later
achieved. Because of the increasing fraction of GNP saved, this
is the only measure which suggests that the main railroad impact
fell before the Civil War.
The bulk of the investment expenditure on the railroads, particularly in the pre-Civil War years, must have been labor costs.56 In
of the United States, Colonial Times to 1957 (Washington: Government Printing
Office, 1960), p. 143.
55 Albert Fishlow, "Technological Change in the Railroad Sector, 1840-1910."
Paper delivered at the National Bureau of Economic Research Conference on Income
and Wealth, September5, 1963. To be published.
56 Ulmer estimates 40 per cent labor costs in road investment, based on 1929,
1935, and 1945 data. It was almost surely much more, a decade earlier.
The Role of the Railroads
TABLE
517
7
RAILROAD INVESTMENT AND GROSS CAPITAL FORMATION
(1)
Periods
1842-1851
1852-1861
1862-1871
1872-1881
1882-1891
1892-1901
(3)
Railroad
Railroad
Gross Capital
Investment
Investment
Formation
(Percentage of
GCF 11)
(Current Prices) (Percentage of GCF)
.210
.517
1.73
2.45
3.45
(2)
11
16
8
16
12
10
5
Sources: Column 1: 1842-1861, Gallman (see Sources, Table 5). For 1872-1901,
U. S. Census, Historical Statistics. Column 2 is the second column of Table
5 divided by the first column of this table. Column 3 is the third column
of Table 5 divided by the third column of Table 3 in Gallman. That table
in Gallman gives the ratio of gross capital formation (including noncommercial improvements in farm land) to gross national product (including
home manufactures) in 1860 prices. I have assumed that the same ratio
holds in current prices.
the 1850's, the average value of iron rails consumed in the United
States per year was only about 20 per cent of construction expenditure, and some substantial fraction of this was properly chargeable
to maintenance and wear. By far the greatest part of rolling stock
was produced at home, but well over half of the rail consumption
was imported. These two items must have accounted for the bulk
of capital goods purchased, so that the indirect effect of the railroad construction on domestic industry before the War must have
been small. After the War, a much greater fraction of construction
expenditures consisted of domestic capital goods production. This,
plus the much greater importance of rail transportation after the
War, supports our hypothesis that the major impact of the railroads
did not come until forty years after the innovation itself.
There is support for this view in some of the estimates of the
impact of the railroads on specific industries. Table 8 summarizes
the effect of rail consumption on United States iron production.
The United States did not produce more than half of its rail consumption until the late 1850's. Total rail consumption clearly did
not reach its peak percentage of total pig-iron production until the
1870's, although the precise year is in doubt because some of the
assumptions in Table 8 are only approximately valid. Allowance for
waste metal would increase the proportion that rails bear to total
Paul H. Cootner
518
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The Role of the Railroads
519
iron production, but a ton of steel used something less than a ton
of pig iron because of scrap inputs. The share of United States iron
production going into rails is increasingly overstated after 1870,
but that fact does not affect the conclusion that the peak proportionate iron use came after the War. (The peak individual year is
1871, but 1881 is a close second.) Table 8 makes no allowance for
other iron and steel uses, such as locomotives, wheels, bridges, etc.
In the 1860 fiscal year, the Census estimated total "railroad iron"
production at 235,000 tons, about 30,000 of which were in railroad
wheels. Since output rose faster than investment throughout the
nineteenth century, and an increasing proportion of locomotive
fireboxes was converted from copper to steel after the War, the
total production of United States iron for railroad uses "other than
rails" must have been proportionately greater after the War than
is indicated by Table 8. The total figure must have been close to
50 per cent in 1871 and 1881.57
The railroads played an even bigger role in the steam-engine
industry. In 1838, there were 350 locomotives in operation, and 271
of them had been produced domestically. Together, they accounted
for 7 per cent of total United States steam horsepower. By 1849,
locomotives accounted for 35 per cent of steam horsepower, and by
1859 the percentage was 60 per cent. Since railroad engines were
smaller in size than most engines, they constituted an even bigger
share of the number of engines (Table 9). The striking part of the
railroads' impact on the making of engines was, not only the importance of the demand, but the extent to which-unlike the iron
and steel industry-it met that demand by domestic production
which soon led to a thriving export business. The unimportance of
British competition after 1840 is largely the result of differences in
capital endowment. Because capital was cheaper and traffic heavier
in England, English locomotives were heavy and expensive and
suited for operation on excellent roadbeds. In the United States,
traffic was light and could not justify carefully graded straight roads
or large capital outlay for equipment. American railway builders
showed more ingenuity in locomotive mechanical construction and
more daring in the use of high-pressure steam for power plants.
Since United States roads were more like those of other countries
building railroads, many engines were exported.
57 James M. Swank, History of the Manufactureof Iron in All Ages (Philadelphia:
J. M. Swank, 1892), p. 526.
Paul H. Cootner
520
TABLE 9
RAILROADS' ROLE IN THE MARKET FOR HORSEPOWER
Years
1838
Railroad
Horsepower
as Per Cent
of all
Steam Power
Increasesin
Railroad
Horsepower
as Per Cent
of Increasesin
SteamPower
Railroadsas
Per Cent of all
InanimatePower
Railroadas
Per Cent of
all Power
7a
19
4
1849
35
40
12
74
1859
60
21
52
1869
73
66
27
62
1879
67
66
36
62
68
1889
67
32
1899
50
54
32
a The 1838 figure is from U. S. Congress, 25th Cong., 3d Sess. (1838) H. R. Doc.
21, Report on Steam Engines in the United States.
Source: Carroll R. Daugherty, "An Index of the Installation of Machinery in the
United States Since 1850," Harvard Business Review, VI (Apr. 1928),
278-92. The horsepower of sailing ships is not included in any of these
figures. Column 2 refers to changes over the previous decade.
In Section III, we indicated at many points the role played by
the railroads in coal transportation. The importance of railroads as
a coal consumer is harder to gauge. The railroads consumed negligible amounts of coal for train fuel before 1850. Until some roads
began to switch to copper fireboxes in the fifties, coal had too
devastating an effect on the iron to warrant its use even where it
was cheapest. Even by 1860, the use of coal was largely confined
to eastern railroads which were faced by the high cost of lumber
relative to coal and which had sufficient traffic to warrant
the greater capital outlays. It was not until the availability of
cheap steel, after 1870, that coal consumption increased sharply.
Our first reasonable estimate of railroad coal consumption comes
from the Tenth Census. An incomplete tabulation of consumption
in the railroad fiscal years ending in 1880 gives 9,500,000 tons, which
is about 13 per cent of Eavenson's58estimate of coal production. If
all roads had been included, the total would have been between 15
and 20 per cent. Since the bulk of this coal consumption must have
developed during the decade, the railroads must have played an
even greater role in the expansion in coal production in the decade.
Adding the indirect use of coal through the iron and steel industry
58
American Coal Industry (cited in n.9).
The Role of the Railroads
521
would have increasedthe effect on coal demand,but the entire rawiron and steel industryused much less than did the railroads'9and
the railroadsaccountedfor only a fraction of iron demand.
Once we go beyond iron, horsepowerand coal, quantitativeestimates of railway resourceuse are virtually impossible,and even if
they were not they would add little to our knowledge of the railroads' impact on the economy. There were subtle impacts on
finance60and on commerce and technology6' that could fill a con-
cisely written book. Some of these other effects are discussed in
monograph62from which this research is mainly drawn. But the
extent of that impact merely underlines the main point of this
paper: the railroad,heroic as it seemed to contemporariesand to
historiansalike, is best viewed as a part and parcel of the whole
complexscheme of economiclife.
PAULH. CooTNER, MassachusettsInstitute of Technology
59 Coal consumption per ton of pig iron was about two tons. Coke consumption
was about 1.25 tons per ton, and coal use was about 1.6 tons per ton of coke
produced. This implies a figure of 6.5 million tons of coal used in pig-iron production. Assuming another ton of coal for each ton of steel brings the total to about
7.5 million tons. Rail production must have accounted for about 3.3 million tons
of coal.
60 Louis C. Hunter, "Financial Problems of the Early Pittsburgh Iron Manufacturers," Journal of Economic and Business History, II (May 1930), 52044.
61 Hunter, "The Influence of the Market on Technique in the Iron Industry,"
Journal of Economic and Business History, I (Feb. 1929), 241-81.
62 Unpublished thesis as cited in n.5.