A cartoon weighs the costs of the Trans-Continental railroad against its future economic benefits.
Not unexpectedly this counter-factual, ‘what-if’, historical approach has now proved self-defeating. As David Lightner put it:
to demonstrate that many of the economic changes wrought by the railroad could have been achieved by other means does not alter the fact that railroads did what they did. No historian will ever again say that railroads were indispensable to American economic growth – in that narrow sense the Fogel theory is triumphant – but there is no reason for historians otherwise to alter their customary practice of assigning to the railroad a central role in any narrative account of American economic history.3
Moreover ‘social saving’ provides an inadequate measure of the railways’ impact. As Stanley Libergott pointed out, ‘a tiny percentage may be economically very significant. If … products were carried by magic carpet, at absolutely zero cost, the “social saving” would still compute to less than three per cent of national income. Similarly tiny numbers would describe the “social saving” from the coming of electricity, the automobile, hybrid corn, or anything else.’4 If, for example, the railways had ceased to carry any fish in 1865 the saving would have been less than 0.1 per cent, yet, as we see later the ‘fish traffic’ was part of a dietary revolution.
Focusing on ‘social saving’ overshadowed the railways’ indirect benefits. Economic progress, so often linked to railway construction, tended to be a self-justifying proposition of great but totally unquantifiable importance. For the Saint-Simonians in France, for Bismarck in Germany, for Count Witte in Russia, for Sun Yat-Sen in China, railways were a symbol of economic as well as political progress. The Tsar’s belief, expressed in his ‘railway ukaz’ of 1857, that ‘our fatherland, equipped by nature with abundant gifts, but divided by huge spaces, especially needs suitable communications’ did more than spur on the construction of thousands of miles of railways. A mere two years later the Minister of Finance, in urging the creation of a modern banking system, was looking for ‘the revival of industrial entrepreneurship … and the anticipated construction of railways’.
For their greatest stimulus was not measurable. Repeatedly the railways disproved pessimists’ fears the world over. In Eric Hobsbawm’s words, ‘even in the late 1840s intelligent and informed observers in Germany – on the eve of the industrial explosion in that country – could still assume, as they do today in undeveloped countries, that no conceivable industrialization could provide employment for the vast and growing “surplus population” of the poor’.5 Quite simply, railways lifted man’s economic horizons.
By definition the railway was an instrument of economic development, if only because of the enormous investment and industrial efforts required to build it. Moreover, notably unlike investment in roads, the railways had a continuing economic effect through the organisation required to operate them. The financing and construction of railways – and the equipment they used – formed one such effect: the need to manage such enterprises was another; while the opportunities they provided for new economic activity, both immediately and, rather separately, for generations after they were built, provided yet another stimulus. Many of the effects were unquantifiable. ‘It is precisely such effects as spin-offs to the training of labor and management, the diffusion of skills and technology between and within industries, economies of scale and the whole learning process inherent in economic development that cannot be captured within the conceptual folds of social saving.’6
Economists divide the effects of technical innovations like railways into what they term ‘forward’ and ‘backward’ linkages. Forward linkages measure the gains because the railways were faster, more convenient, cheaper than alternative means of transport. ‘Backward linkages’ measure the effects of the railways’ own demands for such commodities as coal and iron. But even this distinction does not cover all their economic and technical contributions.
Fogel minimised the railways’ technological contributions by affirming that their effects were confined to the railways themselves. He was clearly wrong. The techno-economic effects were both wide-ranging and lasted beyond the half-century when they were the technological advance guard. They helped to spur innovations generally associated with the second industrial revolution – harder and more durable steels, the increasing use of electricity, above all for motive power. Throughout the century only the railways’ alliance with the telegraph and the steamship provided means of communication adequate for modern methods of production. The telegraph’s poles marched alongside railway tracks the world over. The synergy between the two was obvious. The telegraph vastly increased the speed and frequency with which trains could run over a given line. But the railways’ needs also spread the telegraph far more quickly and universally than would otherwise have been possible.
Economically the figures for ‘social savings’ are often too vague to be meaningful – estimates for the railways’ contribution to Mexico’s economy vary between 25 and 39 per cent, figures which tell us nothing at all except that they were extremely important. The very existence of the railways had a continuing effect on economic development, yet ‘social savings’ are measured in a particular year soon after the railways were built and thus do not allow for their longer-term effects. They also ignore the growing importance of the transport sector, which doubled its share of Europe’s economic output in the course of the 19th century by encouraging not only new industries, but the new service of mass passenger travel. And the very efficiency of rail transport made its own contribution to economic growth, acting as what the economists call a ‘leading sector’ in economic development.
How the railroads got grain to market.
For new industries did not spring up ready-made immediately the tracks were laid. Even the most obvious effects were not immediate – it took fifteen years for the Silesians to replace British coal in the hearths of Berlin. Even by the social savers’ own measurements the percentages grew. Railways had contributed a mere 4.1 per cent to Britain’s economy in 1865: twenty-five years later the figure had risen to 11 per cent. In the United States the figures were 3.7 and 8.9 per cent, and in Belgium 2.5 and 4.5 per cent.*
Many of the consequences were part of more complicated socio-economic events. The great boost to American railroad construction in the late 1840s came from two forces which had nothing to do with that country: the repeal of the British Corn Laws in 1846, which greatly increased demand, combined with the Irish famine of 1846–47. Within two decades the Mid-West had become the breadbasket of the world. Its only competitor was Russia, which constructed a vast network of railways in the major grain-growing regions between 1860 and 1875.
But the Russian agricultural boom could be attributed to a totally separate factor – in this case the abolition of serfdom, beginning in 1858, which brought millions of former serfs into the money economy for the first time. By the end of the 1860s capitalism had penetrated the countryside through 6,500 rural fairs which ensured an effective exchange between agricultural and industrial products, both of which relied on the railways: as a result the value of agricultural production rose from 360 to 460 million roubles between 1860 and 1863.
In Russia, as elsewhere, unprecedentedly large concerns were indeed required to build and operate railways, but they provided as much, if not more, help to smaller entrepreneurs. The increasing ability to turn their produce into cash reduced the villagers’ dependence on the classic rural plague, the village usurer.
In place of the great Moscow or Kolomna merchant, the Nizhny Novgorod miller, the Moscow flax or hemp-factory owner, the large export wholesaler, and the old ‘flour dealers’, the railway stations now swarmed with a mass of small traders, exporters and commission merchants, all buying grain, hemp, hides, lard, sheepskin, down and bristles – in a word, everything bound for either the domestic or the foreign market. Operating with relatively little capital, aided by credit, with a small mark-up in price but with a
rapid turnover of capital, these petty commercial middlemen penetrated deep into the village, constantly drawing the rural area into the orbit of cash turnover.7
Railroad transport costs were a fifth of those by wagon. This ‘offered millions of farmers, thousands of small manufacturers, and dozens of giant trusts the opportunity to expand their sales (and profits) by moving into new markets. Some of these new markets were a hundred miles from their base. Others were located thousands of miles away in Europe and Asia … As a French commentator wrote, “each mile of railroad constructed in a new country is a kind of centrifugal pump, furnishing for exportation hundreds of tons of the products of such a country”.’8
In Victorian times, goods stations were just as important as passenger ones.
In already settled countries the railways usually based their forecasts on the passenger traffic between the towns and cities they served, not realising the amount of new freight traffic their very presence would generate – a scepticism shown by the often remarked inadequacy of goods yards. But the people who ran them soon realised that their very existence – linked to preferential freight rates – could attract an undreamt-of variety of new customers. They also underestimated the number of passengers wanting to use them – just as twentieth-century transport planners have often been overwhelmed by unforeseen surges in demand for new roads. In France, for instance, the ‘secondary effects’, not felt until the end of the century, included a dramatic increase in the numbers of provincials coming to Paris to shop, encouraged by cheap fares for family travel.
Even when railways were built primarily for political or military purposes their economic effects could be considerable. In Italy, where railway tariffs were designed to reduce their deficits rather than encourage traffic, the very existence of a complete railway network greatly boosted the country’s economic growth at the turn of the century, especially the development of the upper valley of the Po, and thus the port of Genoa. Moreover, numerous minor railways which did not face competition from sea-borne transport were both profitable and economically productive.
The strategic railways in Soviet Asia east of the Caspian provided an enormous boost to the production of cotton destined for western markets. Similarly in India the railways – some constructed to counteract the supposed threat from their Russian equivalents – proved crucial to economic development. The same applied in Senegal, where a line built to allow the French to police the country ‘allowed the rubber, the cereals and the peanuts from a rich hinterland to reach the Senegal river and to transport towards the interior manufactures produced on the coast, such as textiles, foodstuffs and machinery.’9
A railway’s financial viability was often irrelevant to its economic usefulness. ‘For eighty years the Grand Trunk Railway in Canada was subject to recurrent financial crises and was a failure as a commercial enterprise, [yet] the Railway made a significant contribution to the economic development of Canada.’10
How the railways destroyed the forests: a logging train in British Colombia, circa 1910.
In France, as elsewhere, railways reduced price discrepancies between two cities, or two regions, linked by rail. They completely eliminated the vast price differentials between South and North, the previously unconnected halves of the country. The effects could be international: the Paris markets, for example, acted as a clearing house for fruit and vegetables from all over the country, destined for export to Germany.
Railways transformed business habits, most obviously by obviating the need to invest so heavily in stocks and thus releasing cash for investment. In France the Nord railway from the coal mines of the north cut out the middlemen who had previously made their fortune buying and stocking during the summer, and then selling at enhanced prices during the winter months. In the United States ‘in pre-railroad days businessmen calculated in terms of months. Inventories were replenished by semi-annual trips to wholesale markets, credit terms were six to ten months or in some rural areas from crop to crop. During the northern winters commercial activity in the interior of the country slowed nearly to a halt.’11
Before the railways came transit times could drag into months in winter when canals and rivers froze and roads, especially in then-undeveloped countries like Spain, became impassable rivers of mud. The shippers soon learnt the lesson. ‘One night’s frost locked the [Erie] Canal so as to embargo five hundred canal boats, all loaded with western products bound for New York, the value of which is five million dollars, and which has to remain unmoved for four months. [But] not one solitary boat … moving West can be found caught in this commercial trap – it paying even the makers of stoves and heavy goods to move them west on railroads.’12
Even unfrozen rivers were unreliable. The Rhône was so crowded, its river-bed shifted so unpredictably, that it could take up to eighty days (more than twice the normal, leisurely month or so) to cover the four hundred miles between Lyon and the Mediterranean. Similarly iron ore from Lorraine was shipped to the Ruhr by rail because the River Moselle, a theoretically more direct route, was shallow and winding, unsuited to navigation by steam tugs and large barges. The only country where water-borne freight remained competitive was Japan, where coastal shipping retained its predominance. Elsewhere speed combined with security to ensure the railways’ supremacy, for that very security reduced the cost of insuring goods in transit.
River or canal transport could never be speeded up. Libergott showed that railways required virtually the same amount of force to move goods at 2½ or 10 miles an hour, while water’s inertia meant that merely increasing a barge’s speed by ½ mph to 3 mph doubled the force required. ‘Canal speeds were limited to 6 mph. If the boats went any faster their waves broke the mud wall of the canal; locomotive speeds increased year after year.’
Even so the railways were liberated from water only when they conquered obstacles, like the Appalachian mountains, impassable to canals. Originally, railways had been designed to be complementary to navigable waters, which, by implication, retained their supremacy. When the Stockton & Darlington was built, its rails carried London’s coal for only a fraction of its journey – it took forty years for rail coal to compete with the traditional ‘sea coal’. When the railway was built from Budapest to Pecs the Danube steamship company took a large shareholding and ensured that the coal traffic from Pecs remained water-borne. (In a similar spirit, the SNCF had a substantial stake in Air Inter, which provides most of France’s internal air services.)
But railways invariably cost less to build than canals: as early as 1833 the Belgians established that a railway would cost an eighth less to build than a canal, would carry freight a fifth cheaper, taking a single day rather than the ten required by water transport over the same route. Nevertheless, railways still had to compete with the mass of existing canals, as well as the watery routes Nature provided free in the form of rivers, lakes and seas.
Railways could make up for Nature’s deficiencies, most obviously by by-passing rapids. As early as 1824 the newspapers of ‘Lower Canada’ projected a railway round the rapids on the Richelieu River to improve transport between Montreal and New York, and for many years railways in Canada and New England were often conceived as links between two stretches of navigable water; between the sea and the Great Lakes, or the Niagara and the Detroit rivers.
More dramatic was the line by-passing the rapids on the Madeira and Mamore rivers in the depths of the Amazon forest, a railway which took thirty years to build, only for its raison d’être to disappear almost immediately with the collapse of the Brazilian rubber boom. A similar line, painfully constructed to avoid the Stanley Falls on the Congo, was crucial in unlocking that immense country’s riches.
But the savings had to justify the considerable expense involved, as the projectors of the Grand Trunk Railway found in trying, unsuccessfully, to divert traffic from Canadian ports to Portland in Maine. Moreover, in contrast to Europe, most of the traffic in the New World consisted of coal and wheat, basic products whose travel tim
es were not crucial, so water could often compete successfully with the more sophisticated, faster, but usually more expensive railways.
Railways often made it possible to exploit steamships more efficiently by maximising the mileage travelled by rail rather than sea. The long line down Italy to Brindisi, built to further the cause of Italian unity, provided a vital link in the British Imperial route to India. The opening of the rail link across the Andes in 1910 cut several days off the journey from Hamburg to Valparaiso on the West Coast – via rail to Genoa, followed by sixteen days steaming to Buenos Aires, then a further 36 hours for the 880 kilometres to Valparaiso.
In the United States the canals’ supporters (and the states which had funded them) naturally tried to prevent railways competing too ferociously. Indeed the New York legislature actually passed a law requiring that any railroad which passed within 30 miles of the Erie Canal pay the Canal Board the equivalent of the canal’s tolls. (This law was repealed only in 1851.)
Railways represented an obvious threat to canals and those who worked on them. A Chinese official warned blackly that ‘several tens of millions, who earn their living by holding the whip or grasping the tiller, will lose their jobs. If they don’t end up starving in the ditches, they will surely gather [as outlaws] in the forests.’13 Chinese nationalism ensured that opposition to railways was more highly developed than anywhere else, yet even those lines which, in theory, offered no advantage because of existing water routes, found enormous freight potential to exploit.
Well before the end of the century the navigable waters were reduced to playing a secondary role. Before the arrival of the railways the river pilots of the Mississippi transmuted their intimate knowledge of the ever-shifting waters of Ole Muddy into a lucrative monopoly – the Pilots Association, which forced newcomers to pay ever-increasing initiation fees. In Life on the Mississippi, Mark Twain wrote: ‘The organisation seemed indestructible. It was the tightest monopoly in the world. By the United States law, no man could become a pilot unless two duly licensed pilots signed his application; and now there was nobody outside of the association competent to sign.’ But the railroads first took the passengers and then the freight, removing the pilots’ monopoly.
The World the Railways Made Page 14