Something to Consider
How valuable were the railroads to American economic growth? Intuition tells us that they were extremely valuable. As Robert Fogel writes, describing the prevailing view in the middle of the 20th century, “it was the sine qua non of American economic growth, the prime force behind the western movement of agriculture, the rise of the corporation, the rapid growth of modern manufacturing industry, the regional location of trade, the pattern of urbanization, and the structure of interregional trade.” Roads would not be capable of moving large quantities of goods at remotely competitive rates until the interstate, and the canal, the initial capital intensive transportation technology in the US, was almost entirely replaced by railroads. It was responsible for a very large percentage of GDP, though how much could hardly be estimated; it may have also had a transformative impact on the nature of economic growth. Walter Rostow argued that it was a leading sector of the economy, which induced much of industrialization by itself through backwards linkages to other sectors.
It may then be surprising to you that Robert Fogel, one of the most prominent early economic historians, wrote to attack this conventional wisdom. These arguments can be found in the paper summary of his book, “Railroads and American Economic Growth”. In Fogel’s telling, the railroad was not, in aggregate, a substantial contributor to economic growth. Certainly it shaped where economic growth occurred, but we cannot assume that people would settle in the same way as the world in which there were railroads. Canals are quite capable of shipping bulk goods, and people would settle in places where canals were most suitable. Moreover, we cannot tell the degree by which railroads were superior to canals, only that it was better. As he writes, “one cannot … leap from data demonstrating the victory of the railroad over waterways … to the conclusion that the development of the railroad network … was a prerequisite for the rapid, continuous growth of the internal market. The only inference that one can safely draw is that railroads were producing the same (or a similar) service at a lower cost to the buyer.” (p. 166) Fogel wants to get some sense of the “social savings” involved in the change from canals and waterways to railroads. How much did we save? Some key assumptions are that the costs and benefits of railroads are constant. There are no railroads with much larger benefits than others, and the same with canals. It is also assumed that canals would have constant marginal costs, even as they increased greatly in number and size to replace the railroads. The unobserved parts of the supply curve are complete conjecture, but one may well question the realism of it. (As Jeffrey Williamson does in a review of the book).
