henry6I actually found John Knieling fascinating...if only because he urged one to think outside the box before the phrase became popular. His concept of unit trains was the one thing where he was on target but he also made one's mind wander through what could be done differently than the sameold.
I actually found John Knieling fascinating...if only because he urged one to think outside the box before the phrase became popular. His concept of unit trains was the one thing where he was on target but he also made one's mind wander through what could be done differently than the sameold.
Interesting phrase as one place where Knieling was spot on was advocating the use of containers for general freight. He was also on the right track about reducing tare weight, with the articulated "Fuel Foilers" and double-stack cars being an incremental approach to his ideal of the integral train.
I'll side with RWM with his comment on Knieling's mechanical ideas. As an example, Knieling proposed using a combined cycle gas turbine plant with single phase AC drive - the combined cycle turbine would have been too large and single phase AC is not a good choice for traction motors.
Another Knieling mistake was his criticism of traction alternators versus traction generators - completely missing the limitations of DC generators in high HP locomotives.
Summing up, Knieling had a lot of high level insight, but missed some of the details.
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Just a note on Mr. Kneiling. On another thread, a person who identified himself as his son, stated that his father passed away in 2000.
Were John writing today, he'd be a perfect candidate for a blog - - or this forum ! - which would probably be referred to more often than not as a "rant". It sure seems that his ghost or alter ego is in some of these posts, including some quite a bit above, and some long past threads.
Seeing what RWM has written about John above and over on the Coal Loading/Unloading thread, I think you had to take John with a grain - no, a big pinch of salt. He covered a lot of subjects, many of them not closely railroad-related, such as politics and governments. As to those, I "consider the source" when evaluating them, the same as I do for pronouncements by politicians, the pop culture crowd, and sports figures, etc. (among others) about subjects outside of their areas of acknowledged expertise.
I may start another thread on John, rather than lose that subject in and clutter up this one with that. If so, I'll post a link to it here as well.
- Paul North.
Well he was a professional iconoclast. I thought it was kind of gutsy for DPM to have him onboard poking at hornets’ nests every month. He was as controversial as the all-diesel issue.
....It would be nice to have functions in our world as dedicated and precise as Kneiling thought it could be. But that's not our world then, now and won't be.
Quentin
BucyrusI remember one thing that Kneiling was advocating. He wanted to reduce tare weight by the use of dedicated trainsets. That way each car could be made with a drawbar and center sill only as strong as needed for its dedicated position in the train. He thought it was wasteful to haul around all the extra tare weight in a train of loose cars where each one was designed to be first out in say a 200-car train. As a continuation of this thinking, he even wanted to distribute the traction motors more or less throughout the train rather than have them all pulling from the locomotive. The dedicated trainsets would handle everything in containers and be called land ships.
I remember one thing that Kneiling was advocating. He wanted to reduce tare weight by the use of dedicated trainsets. That way each car could be made with a drawbar and center sill only as strong as needed for its dedicated position in the train. He thought it was wasteful to haul around all the extra tare weight in a train of loose cars where each one was designed to be first out in say a 200-car train. As a continuation of this thinking, he even wanted to distribute the traction motors more or less throughout the train rather than have them all pulling from the locomotive. The dedicated trainsets would handle everything in containers and be called land ships.
To an extent that has happened with DPUs and aluminum-body cars, though not in the utopian sense that Mr. Kneiling advocated. In my opinion I do not think Mr. Kneiling sufficiently appreciated the realities of what railroad customers would actually agree to do, the great cost of eliminating the causes and effects of random events in the great outdoors, and the great importance of reliability, simplicity, and flexibility in railroading. His trainset would have been an all-or-nothing proposition that would have been 100% in service or 100% out of service for trivial causes like a bent grab iron. Mr. Kneiling's solutions were rarely incremental. To realize any one of them would require a radical reorganization of the railroad culture, regulatory environment, and ownership environment, as well as a radical reorganization of the shippers, the federal and state government, and U.S. society. But perhaps that's what he really wanted, and railroads were only a stalking horse. In any case, when you try to think through how to execute Mr. Kneiling's plans, one keeps peeling back more and more layers of the onion, and when one arrives at the core, the instruction is "Return to Go, July 4, 1776 and this time get it right you dunderheads! Now continue reading my instructions on how to run a perfect railroad system."
RWM
Paul_D_North_Jr RWM - Nice summary of Wellington, and the longer view of the business and its effects. Similarly - but not quite the same - John G. Kneiling used to write, "Look at the bottom line - somebody should !". Kneiling was more focused on operating costs and revenues, whereas Wellington is more on the capital expenditure side of matters. You're right, the Moffat example is the 3-ft. gauge Florence & Cripple Creek Railroad, which was described in The Giant's Ladder (not The Moffat Road as I posted earlier), at pgs. 60 & 62. Summarizing Boner's account: Moffat built the F&CC from 1891 to 1894 - 3 years to build about 25 miles as I scale it - in a race with the Colorado Midland to reach the then-newly discovered gold mines at Cripple Creek. The F&CC got there only 8 months before the CM's standard gauge line, but during those 8 months, the F&CC's monopoly more than paid the total cost of its construction. After the CM's line - which had a much shorter route to the smelters at Colorado Springs - got to Cripple Creek, the F&CC made no profit, and Moffat sold it to the CM in 1899. [emphasis added - PDN] You pointed out above that "he [Boner] misapplied it [the business case] to the Cripple Creek". Is that addressed in the Smith book you referenced (below), or is there something else to know or analyze that is not stated by Boner or Smith ? Thanks also for the reference to the Smith book - I'll have to get it through the Inter-Library Loan sometime. - Paul North.
RWM -
Nice summary of Wellington, and the longer view of the business and its effects. Similarly - but not quite the same - John G. Kneiling used to write, "Look at the bottom line - somebody should !". Kneiling was more focused on operating costs and revenues, whereas Wellington is more on the capital expenditure side of matters.
You're right, the Moffat example is the 3-ft. gauge Florence & Cripple Creek Railroad, which was described in The Giant's Ladder (not The Moffat Road as I posted earlier), at pgs. 60 & 62. Summarizing Boner's account:
Moffat built the F&CC from 1891 to 1894 - 3 years to build about 25 miles as I scale it - in a race with the Colorado Midland to reach the then-newly discovered gold mines at Cripple Creek. The F&CC got there only 8 months before the CM's standard gauge line, but during those 8 months, the F&CC's monopoly more than paid the total cost of its construction. After the CM's line - which had a much shorter route to the smelters at Colorado Springs - got to Cripple Creek, the F&CC made no profit, and Moffat sold it to the CM in 1899. [emphasis added - PDN]
You pointed out above that "he [Boner] misapplied it [the business case] to the Cripple Creek". Is that addressed in the Smith book you referenced (below), or is there something else to know or analyze that is not stated by Boner or Smith ?
Thanks also for the reference to the Smith book - I'll have to get it through the Inter-Library Loan sometime.
I disagree that Wellington only focused on the capital side. Read his book and see what you think. As for Kneiling, Morgan didn't call him a curmudgeon for nothing. I could never tell what Kneiling was focused on, but it wasn't useful for me.
The conventional wisdom on Moffat and the F&CC is that Moffat dared to build a line where more conservative and fearful men failed to act. That story was Moffat's story, the one he wanted people to believe. The reality is that Moffat used his position as president of the D&RG to negotiate a favorable interline traffic agreement for the F&CC, negotiated by himself as the D&RG and by himself as the F&CC, thus taking money out of the D&RG shareholders' pockets and putting it into his own. The D&RG would not entertain a connection with any other railroad, in effect awarding a sole-source contract to a company controlled by its own president. Nice work if you can get it. It was extremely lucrative for Moffat and his friends until competition appeared, the Colorado Springs & Cripple Creek District and the Midland Terminal, both with connections to Santa Fe and Colorado & Southern. At that moment, the F&CC, with the crummiest route and the highest operating costs, ceased to be a meaningful player.
Boner was correct that a lower-cost railroad put the F&CC out of business, but he had no idea why.
Railway Man Paul_D_North_Jr [snips] Another example was a railroad that was built by David Moffat to serve Leadville, Colorado, I believe, just a few months before another competing RR with a much better route got there and essentially put Moffat's line out of business by being able to charge less. During its brief existence, Moffat's line was able to make enough money to recover its costs. [I'm writing this from memory - my source is Harold A. Boner's The Moffat Road, and it's at home, not here. RWM, I recall from prior posts that you're familiar with mining and that area, so you may have a different view of this - I have no knowledge independent of Boner's recounting of it, so I'll understand if you disagree. But I'll try to provide the specifics in a later post.] [snips] Paul -- My earlier example of a logging railway is precisely what you're talking about for a temporary railway facility. All Wellington was arguing for is, "please, this is about money, not about curve geometry and big bridges, and by applying those lessons assiduously we perform a greater social good than just enriching ourselves at the expense of others." The example of David Moffat is Cripple Creek, Colorado, but while Boner was correct in that there is a business case for a low-cost-of-construction, short-term, high-profit railroad to a cost-no-object traffic source, he misapplied it to Cripple Creek and apparently had only a dim idea of Moffat's business methods. David Moffat was a shrewd investor of regional significance who made a great deal of money trafficking in the greed and ignorance of others, and was not ethically challenged by things such as jury tampering. See the book "A Mine to Make a Mine, Financing the Colorado Mining Industry, 1859-1902" by Joseph E. Smith. RWM
Paul_D_North_Jr [snips] Another example was a railroad that was built by David Moffat to serve Leadville, Colorado, I believe, just a few months before another competing RR with a much better route got there and essentially put Moffat's line out of business by being able to charge less. During its brief existence, Moffat's line was able to make enough money to recover its costs. [I'm writing this from memory - my source is Harold A. Boner's The Moffat Road, and it's at home, not here. RWM, I recall from prior posts that you're familiar with mining and that area, so you may have a different view of this - I have no knowledge independent of Boner's recounting of it, so I'll understand if you disagree. But I'll try to provide the specifics in a later post.] [snips]
Paul -- My earlier example of a logging railway is precisely what you're talking about for a temporary railway facility. All Wellington was arguing for is, "please, this is about money, not about curve geometry and big bridges, and by applying those lessons assiduously we perform a greater social good than just enriching ourselves at the expense of others."
The example of David Moffat is Cripple Creek, Colorado, but while Boner was correct in that there is a business case for a low-cost-of-construction, short-term, high-profit railroad to a cost-no-object traffic source, he misapplied it to Cripple Creek and apparently had only a dim idea of Moffat's business methods. David Moffat was a shrewd investor of regional significance who made a great deal of money trafficking in the greed and ignorance of others, and was not ethically challenged by things such as jury tampering. See the book "A Mine to Make a Mine, Financing the Colorado Mining Industry, 1859-1902" by Joseph E. Smith.
henry6 If there weren't a return on investment investors wouldn't invest...getting back more than you put in is what it is all about and I am all for it. Over the past 25 or so years, however, I believe investors have been, well, greedy and shorsighted. They have demanded huge and quick returns with very little concience to the future of the product, the company, and, horrors to horrors, the country. To send manufacturing jobs off shore has been good for the quick bottom line but has only yielded higher unemployment, downgrading of cities, and a dumbing of the American public. But we are told that they are more patriotic who invest than those who toil. Or question thier motives and the modus operndi! Thus I am niether Democrat or Rebublican but Cynical!
If there weren't a return on investment investors wouldn't invest...getting back more than you put in is what it is all about and I am all for it. Over the past 25 or so years, however, I believe investors have been, well, greedy and shorsighted. They have demanded huge and quick returns with very little concience to the future of the product, the company, and, horrors to horrors, the country. To send manufacturing jobs off shore has been good for the quick bottom line but has only yielded higher unemployment, downgrading of cities, and a dumbing of the American public. But we are told that they are more patriotic who invest than those who toil. Or question thier motives and the modus operndi! Thus I am niether Democrat or Rebublican but Cynical!
I think you are attributing to malice and greed what should be attributed to new transportation efficiencies and communication improvements. People haven't recently become more malicous and greedy, but transportation and communication certainly have improved.
Suggested Reading: "The Box, How the Shipping Container Made the World Smaller and the World Economy Bigger" by Marc Levinson.
Before containerships and modern communication it was impractical to have supply chains that stretched around the world. Now, it's possible to have an efficient, low cost, supply chain that runs from China to New Jersey. That's what has changed, not people.
Distribution channels (supply chains) will always, always, always, configure to the most efficient structure. If more value is received per unit of input ($$$) by manufacturing in China and shipping to the US as opposed to manufacturing in the US, that's the way things have to go. You can't stop it. It's like water running downhill. It's going to happen. We have to adjust to the technological change. We can't "uninvent" the containership or the internet.
The government could try to put high tariffs on imported goods as a protectionist measure. But that won't work. It never has. We can't wall off the US from the world economy. We'd all end up paying much more for things and become continually poorer as we had to pay more and more from our incomes for goods.
Transportation and communication technology developed and improved, reducing their costs. That's why goods come from China. Not because people just got greedy in the past 25 years.
greyhoundsI don't see any real evidence that people are more short sighted today than they were in 1909 or 1809. It's not like someone just discovered the time value of money in 1980.
I don't see any real evidence that people are more short sighted today than they were in 1909 or 1809. It's not like someone just discovered the time value of money in 1980.
One difference between 1980 and 1909 was the high rates set by the Fed in late 1979. There's a big difference in required payback time when interest rates are 12% versus 6%, IIRC the funds rate went above 18% for a short while.
henry6 You've got me into another round robin where no one gets off. You won't accpet my postulatons and answers and I don't accpet yours. Let's get back to trains.
You've got me into another round robin where no one gets off. You won't accpet my postulatons and answers and I don't accpet yours. Let's get back to trains.
I am just trying to understand the reasoning of your postulations. Otherwise, labeling corporations as greedy seems like a fad. Nobody can explain a fad.
henry6 Bucyrus ] It seems to me that if a company believes they can make more money by going offshore and it backfires on them, then it was a matter of bad business judgment or simply a business mistake. But you seem to be saying that they were greedy and thus wanted too much too fast. You also seem to be suggesting that private companies have some sort of civic duty to make the country collectively more well off even if it means that such companies will make less money in the process. But is it not good business sense to want your business to make as much money as it possibly can in as short of a time as possible? Should companies settle for less profit if by doing so, they can remain in the U.S. as a favor to the U.S. citizens who want jobs? Question: How has the fact that companies have moved offshore yielded a dumbing of the American public? There are many companies that move their production offshore with great success to their business. Would they be greedy and shortsighted just like the companies which were unsuccessful in going offshore? And one more question: What exactly is greed when it comes to business? How do you know when you cross the line? What is patriotism? If a business is considered a citizen of a country, uses the country and its people to prosper, then it should also have an obligation to support that country. The private citizens are expected to be "patriotic" so why shouldn't business "citizen". A business can, and should, make as much money in as short a time as possible. But at what cost? Destroying its home, not employing the people expected to buy the product, and not looking out for its own future as well as that as the community to which it operates are short sighted and greedy. You cross the line when neither your employees nor your neighbors have enough economic clout to keep you in business. Wouldn't a company that took less up front, took its time getting a return on its investment, keep that business going longer not for the employees or the country, but for itself; rather than running its course in a year or less, it might support the investor for 20 or 30 or even 50 years. That's what the old line Robber Barons did but not what today's Greed Barons do. Another factor of investors and small business people I have dealt with are those who use computer models to operate their business. They do not have any knowledge of their product or service, have no "feel" or talent for the business they are in, and quickly fail, often leaving creiditors hanging. Too many businesses that fail are not good for the economy either.
Bucyrus ] It seems to me that if a company believes they can make more money by going offshore and it backfires on them, then it was a matter of bad business judgment or simply a business mistake. But you seem to be saying that they were greedy and thus wanted too much too fast. You also seem to be suggesting that private companies have some sort of civic duty to make the country collectively more well off even if it means that such companies will make less money in the process. But is it not good business sense to want your business to make as much money as it possibly can in as short of a time as possible? Should companies settle for less profit if by doing so, they can remain in the U.S. as a favor to the U.S. citizens who want jobs? Question: How has the fact that companies have moved offshore yielded a dumbing of the American public? There are many companies that move their production offshore with great success to their business. Would they be greedy and shortsighted just like the companies which were unsuccessful in going offshore? And one more question: What exactly is greed when it comes to business? How do you know when you cross the line?
]
What is patriotism? If a business is considered a citizen of a country, uses the country and its people to prosper, then it should also have an obligation to support that country. The private citizens are expected to be "patriotic" so why shouldn't business "citizen". A business can, and should, make as much money in as short a time as possible. But at what cost? Destroying its home, not employing the people expected to buy the product, and not looking out for its own future as well as that as the community to which it operates are short sighted and greedy. You cross the line when neither your employees nor your neighbors have enough economic clout to keep you in business. Wouldn't a company that took less up front, took its time getting a return on its investment, keep that business going longer not for the employees or the country, but for itself; rather than running its course in a year or less, it might support the investor for 20 or 30 or even 50 years. That's what the old line Robber Barons did but not what today's Greed Barons do.
Another factor of investors and small business people I have dealt with are those who use computer models to operate their business. They do not have any knowledge of their product or service, have no "feel" or talent for the business they are in, and quickly fail, often leaving creiditors hanging. Too many businesses that fail are not good for the economy either.
When a company uses the country and its people to prosper, it fulfils its obligation by paying wages and taxes. Employing the people expected to buy the product is not part of the deal. Nor is forgoing profit so it can employ more people than needed. I have my idea of what patriotism is but when you frame it as an obligation to support the country, it sounds more like socialism than patriotism.
In a free market system, it seems to me that when a company tries as hard as it can to be make a profit, it is doing everything for the country that it can be expected. So, I am still not sure what you mean by greed as applied to business. I hear that charge every day but have yet to find anybody who can explain it. If a business is expected to make every dollar it possibly can, how can it do so when you impose all these unquantifiable social obligations on it.
It seems to me that if a company believes they can make more money by going offshore and it backfires on them, then it was a matter of bad business judgment or simply a business mistake. But you seem to be saying that they were greedy and thus wanted too much too fast. You also seem to be suggesting that private companies have some sort of civic duty to make the country collectively more well off even if it means that such companies will make less money in the process.
But is it not good business sense to want your business to make as much money as it possibly can in as short of a time as possible? Should companies settle for less profit if by doing so, they can remain in the U.S. as a favor to the U.S. citizens who want jobs?
Question: How has the fact that companies have moved offshore yielded a dumbing of the American public?
There are many companies that move their production offshore with great success to their business. Would they be greedy and shortsighted just like the companies which were unsuccessful in going offshore?
And one more question: What exactly is greed when it comes to business? How do you know when you cross the line?
henry6 But how much money was earned by moving freight and passengers between the building of the tunnel and its pruchase by Guilford? And why would the B&M have increased clearances to move higher and wider loads over the years? Again, contemporary investment and ROI thinking: if it ain't on paper in front of you it don't and didn't exist! I don't understand the thinking of some of you, I thought we are a country of entrapanures, big business, big ideas, big ventures! Returns of investments, yes, by all means. But not is such short sighted ways. Do you own house? If it was built in 1910 or 2000 what is the ROI? And where would you have lived if you hadn't bought the house and at what cost? Is the only ROI in the resale? No value given to the use?
But how much money was earned by moving freight and passengers between the building of the tunnel and its pruchase by Guilford? And why would the B&M have increased clearances to move higher and wider loads over the years? Again, contemporary investment and ROI thinking: if it ain't on paper in front of you it don't and didn't exist! I don't understand the thinking of some of you, I thought we are a country of entrapanures, big business, big ideas, big ventures! Returns of investments, yes, by all means. But not is such short sighted ways.
Do you own house? If it was built in 1910 or 2000 what is the ROI? And where would you have lived if you hadn't bought the house and at what cost? Is the only ROI in the resale? No value given to the use?
Acouple things I would like to point out: I don't feel that the importance of ROI is a new thing by any means. The company I work for was started in 1888. It was started for the same reason as every company-to make a profit. Every investment in the company since then has been to continue or to improve that process. Every profitable company operates that way. The pressure, and time-frame requirements to make that profit may have changed, but not the fundamental concept behind it. If you disagree with me, explain why you think I don't get it.
You seem to be putting a lot of this discussion into the perspective of everything being different and better in the *good old days*. I think you'll find, that everything that is good and bad in the business world today has been around forever.
Finally- My house was built in 1917. I purchased it in 1995, and paid it off in 2006. Because it now allows me to not pay $1500/month rent on a similar home, it is just like saving $1500/month. I'd say my ROI looks pretty good right about now.
Thanks to Chris / CopCarSS for my avatar.
I want to take a few minutes (and words) to reinforce the points made by RWM (and others) with regard to this topic - esp. the "location" and "alignment" issues - continuing with using my car as an example (as below) to hopefully illustrate it a little better:
What I didn't mention is the - note, important concept coming here - "alternatives analysis"* that should be engaged in whenever a significant expenditure or investment is being considered.
[* - finally remembered that "buzz phrase" from engineering school ! ]
In this context, to get to work to earn money, I could - and should - also be considering and analyzing using possible alternatives instead of or in addition to the $20,000 car, such as:
- a $10,000 motorcycle;
- a $30,000 pick-up truck;
- a $40,000 luxury SUV;
- a $1,000 bicycle;
- taking the bus instead (no rail line around here, unfortunately);
- tele-commuting via the Internet;
- selling the house and moving to where I could walk to work;
- quit the job, go live on the top of a mountain and grow organic vegetables (thanks to Prof. Walter P. Saukin, Jr. for that one !)
Obviously, with the initially less capital-intensive ("cheaper") ones, I could keep/ save that money and instead invest it - say, in the stock market (where it would have lost 35% of its value over the past year !) So maybe I really would have been better off with the convertible sports car after all . . . [I've been waiting all day to write that one !]
You get the picture, I'm sure, together with the likely pros and cons of each one - which will vary depending on whether its for here in the NorthEast US where I am now, or in a nice sunny warm spot like Florida, the price of gas, operating costs, how old I am, my physical and medical condition, etc., etc.
These are all broad, "big-picture" choices - the analogy to what RWM (and others) have referred to as the "location" decision - shoudl we build a railroad here at all, between which points, what traffic base is there, what geography, economic, and competitive hurdles will we face, etc., as well as how much money will it likely cost and what rate of return will be required to attract the necessary capital investment. For example, even the Alameda Corrdior project sold bonds to finance that improvement, which had a market-driven interest rate coupon attached to them.
In contrast, the choice of which specific car to buy for around $20,000 - a worthwhile investigation, to be sure, but not the same as the broader questions above - is more like the "alignment" question for a railroad. In other words, now that we've decided the fundamental question of the points between which we're going to build this railroad line, what's the best route to accomplish that, with due attention to all the details like bridges, tunnels, grades, connections, etc. - like the options or accessories on a car - or what RWM referred to as "down in the weeds". Important stuff, which can significantly affect the performance and enjoyment of the delivered car and whether it works really well or is a "lemon" - but not the same as those other questions.
What's really important here is the knowledge and keeping in mind that there are such differences in the engineering analysis - such as between "location" and "alignment" questions - and the wisdom to recognize them and address each and their respective alternatives appropriately in the specific circumstances.
Paul_D_North_Jr [snip] Instead of henry6's house example, I think that it's more like buying a new car for $20,000, using it for many years (say 10, as I tend to do), and then selling it for $500. Does that low disposition sale price mean that it was bad investment ? No, not at all. I got my use out of it - it was essential to have one to earn far more in income (roughly 50 times the car's annual cost, on average, to put it into perspective) - just as the B&M used the Hoosac Tunnel to earn far more in revenue on all the freight that it moved through the Tunnel to elsewhere. I budgeted for and made the payments on the usual 80 % loan for the several years as long as that lasted - so without a doubt the investment was recouped - and of course kept up on the operating costs, maintenance, insurance, registration, inspection, etc. So I would have been happy to give it away for $ 0, or to sell it to a collector or aficionado for $10,000 - that's an end-of-service-life market value question, not related to the return on investment or value of use during its economic life. However, if I'd had to sell it after 2 years for only $500 - big mistake and loss, no doubt about it. [snip]
Murphy Siding Consider me skeptical. Using the thought that RailwayMan put forth earlier, about whether investing the money in some part of the physical plant did more for the money than putting the money in a mason jar: The tunnel cost $21,000,000 to contruct way back when. That's equal to $462,000,000 in 1983 dollars. If the investors had put the $21,000,000 in the bank at 3%, they would have had $462,000,000 by 1983. In 1983, Guilford bought the whole railroad, including the tunnel, for $24,000,000. Did the tunnel project pay for itself?
The tunnel cost $21,000,000 to contruct way back when. That's equal to $462,000,000 in 1983 dollars. If the investors had put the $21,000,000 in the bank at 3%, they would have had $462,000,000 by 1983. In 1983, Guilford bought the whole railroad, including the tunnel, for $24,000,000. Did the tunnel project pay for itself?
I want to play with this a little more on the numbers only, [Enrico] "Fermi problem"-like, as follows:
Let's use $21 million for the Hoosac Tunnel's cost, in 1875 dollars (although I found a ref. that said $14 million, as noted above).
Let's also use 30 years (like the mortgage on your house) for capital recovery of 100% of that cost, using an "interest" rate (rate of return/ Return on Investment) of 6.00 %. That's a handy figure, because it results in a payment of $6.00 per month per $1,000 of principal for a 30-year term.
$6.00 per month per $1,000 of principal for a 30-year term x 1,000 would be $6,000 per month per $1 million principal, or for the $21 million principal here, x 21 = $126,000 cost per month for the tunnel.
Dividing by 30 days per month (avg.) = $4,200 tunnel cost per day.
Although we know that there were 100 trains per day by 1910, let's use 50 trains per day as an average to be on the safe/ low side. We'll also ignore, or assume that passenger trains contributed nothing towards this cost.
$4,200 tunnel cost per day / 50 trains per day = $84 tunnel cost per train.
Now, let's assume that each of these trains was fairly short - only about 60 cars - of which only half - or 30 cars - were loaded. So $84 tunnel cost per train / 30 loaded cars per train = $2.80 tunnel cost per carload.
Let's further assume that each loaded car had 40 tons. So $2.80 tunnel cost per carload / 40 tons per carload = $0.07, or 7 cents, per ton of payload.
Let's further assume that each carload was going 300 miles average, and that the average railroad freight rate at that time was $0.005 per ton-mile= 0.5 (1/2) cent per ton-mile. So for each ton to move 300 miles, the rail freight rate was 300 miles x 0.5 cents per mile = 150 cents, or $1.50, per ton of payload.
Against that $1.50 per ton of payload freight rate, the tunnel cost of 7 cents per ton or payload is 7/150 = 4.67 % of the total freight bill. Obviously, if the lower $14 million tunnel cost referenced above is correct instead, then the share of the freight rate that would have to be allocated towards the tunnel's cost would be proportionately less, down to about 3.1 % of the freight bill.
Oh yeah ! I had no idea when i started that this is where it would come out. Seat of the pants, sure, but yes, that Hoosac Tunnel could have well paid for itself in only 30 years, even on the basis of these very safe (low) assumptions.
Anyone should feel free to check and critique my math, logic, analysis, etc. If you don't like the values I've assumed or used, substitute your own - "YMMV", as the saying goes ("Your Mileage May Vary") - and let us know what you come up with instead.
Not part of this analysis is whether 6 % was or is a fair rate of return for such a risky venture, and whether there was or wasn't other more appropriate or remunerative ventures, investments, or even other railroad improvements - routes, tunnels, bypasses, etc. - into which the Commonwealth of Massachusetts and/or the B&M could have invested that amount of capital instead, and made out just as well or better. That's a topic for another time (thread or post), and from this far in the future, we may never know anyway. But without a doubt, the Hoosac Tunnel paid for itself, either to the railroad which operated through it, and/ or in benefits to the government and people that fronted the money in the hopes of greatly improving their rail access, communications, and transportation to and with the rest of the United States.
P.S. - As RWM noted quite a few posts earlier on this thread above, you can do a lot of this analysis with just a pencil and the back of an envelope, with a little common sense and knowledge of how things work and their relative proportions, etc. No calculus or computers here - I did most of it in my head, and just used a simple calculator to check my math and make sure I hadn't misplaced a decimal somewhere and wasn't off by an order of magnitude (factor of 10) someplace in this. - PDN.
Bucyrus Earning money has always been the objective of business, so I don’t understand your point about the difference between now and the robber baron era.
Earning money has always been the objective of business, so I don’t understand your point about the difference between now and the robber baron era.
Earning money by producing and selling a quality product is one thing. But by cutting costs products have become less valuable to the consumer. Too many times these investors have saved themselves out of business. I am thinking of two incidents whereby investors, anxious to save money, closed factories manufacturing their product moving the operation to another state or off shore. One, a canoe manufacturer, eventually began purchasing completed product from a company formed by former employees when they could not produce a saleable product of the same quality. Another, a high end stereo manufacture, purchased by investors, manufacturing process as moved off shore; quality and quantity sagged, along with sales so quickly that old plant was rebooted within months. In the broadcasting industry, huge corporations gather as many radio stations as they can in a single market, gets rid of 75% of the staffs. instead of making more money per market, the station groups actually bring in less than the sum total of each station had under seperate ownership. Money saved not equal to money lost. These investors have eliminated a lot of local jobs, reduced a lot of local spending which further reduced the number of other local jobs, take income out of local community further reducing local economy. Other industries have followed the same course in their own way. So how has the US strengthened itself? sustained or created a better quality of life? built an economy which will sustain itself now and in the future? Yes,earning money is the aim of being in business, but being short sighted in your ROI goals is self defeating for the investor, the consumer, and the country.
henry6 The way I interpret entrapenurial attitudes of the late 19th and early 20th Century is that, though so called Robber Barons, they worked at creating industry thus jobs thus communities thus US commercial strength. Today the investors' companies seek not to make productes or produce services but rather save money reducing US commercial strength via the elimination of products and services, quality of product, and jobs. Saving money is thier most important entrapanurial activity while the product be damned.
The way I interpret entrapenurial attitudes of the late 19th and early 20th Century is that, though so called Robber Barons, they worked at creating industry thus jobs thus communities thus US commercial strength. Today the investors' companies seek not to make productes or produce services but rather save money reducing US commercial strength via the elimination of products and services, quality of product, and jobs. Saving money is thier most important entrapanurial activity while the product be damned.
By “save” money, I assume you are including the earning of money because if they only wanted to save their money, they would not go into business in the first place. So if you are referring to earning money, I don’t see how you can do that while thinking the product be damned, as you say. Earning money has always been the objective of business, so I don’t understand your point about the difference between now and the robber baron era.
Murphy Siding henry6 If it hadn't been built (dug?) the Boston and Maine would never have been able to compete in the east-west traffic. [clip] Consider me skeptical. Using the thought that RailwayMan put forth earlier, about whether investing the money in some part of the physical plant did more for the money than putting the money in a mason jar: The tunnel cost $21,000,000 to contruct way back when. That's equal to $462,000,000 in 1983 dollars. If the investors had put the $21,000,000 in the bank at 3%, they would have had $462,000,000 by 1983. In 1983, Guilford bought the whole railroad, including the tunnel, for $24,000,000. Did the tunnel project pay for itself?
henry6 If it hadn't been built (dug?) the Boston and Maine would never have been able to compete in the east-west traffic. [clip]
Consider me skeptical. Using the thought that RailwayMan put forth earlier, about whether investing the money in some part of the physical plant did more for the money than putting the money in a mason jar:
To add a little to this, some Hoosac Tunnel facts (from When the Steam Railroads Electrified by William D. Middleton, Kalmbach Publishing, 1970-something, the chapter on "Taming the Tunnels"):
- Hoosac Tunnel cost $14 million (which is only a "scale" or size comment - doesn't take away from this debate). It took 22 years to build (not 25 as I posted earlier) - it's just about 5 miles long. Also, 195 men died in its construction.
- Hoosac is 600 feet lower than the Boston & Albany's crossing of the Berkshires further south, which give it a operating advantage. I can't recall the general elevations in this area with any confidence - probably in the 2,000 to 3,000 ft above Mean Sea Level range - but for any of those this would have reduced the elevation to be overcome by at least 20 %, and also avoided any need for that many more miles of additional line simply to dilute the ruling grade down to an acceptable level ("development" is the technical term) .
- By 1910 when it was electrified, it was handling over 100 trains a day on its double-track main line. That's pretty respectable in anybody's league, so I have to believe that it was earning its keep.
(This and following points are mine, not the book's): The B&A as a NYC subsidiary was "in fief" to NYC financial interests, which would not have sat well with the Boston commercial community - back then (as now), cities and regions also competed commercially. The Hoosac Tunnel gave the Boston crowd the power to be masters of their own fates in the late 1800s and early 1900s.
One thing not mentioned yet: The construction of the Hoosac Tunnel was financed by the Commonwealth of Massachusetts and various state agencies and commissions. To say it was a fiasco is an understatement - blown budgets, politics, defaulting contractors, delays and standstills, investigations, etc., etc. The most common book on it is titled "A Pinprick of Light". So consider it a good example of maybe why you don't want governments / politicians funding - or at least meddling in - big public works projects. By the way, I don't recall how the B&M then came to use it - did the state then essentially just give it to the railroad for $1 ? I don't recall that the RR had to purchase it for any amount, or that there were annual payments, rent, tolls, fees, etc. of any kind. I'll have to look that up sometime.
To be fair, some of that was inherent in the nature of the work - geotechnical exploration/ investigation hadn't been invented yet, so they had no idea of the most important factors - the underground conditions that were going to be encountered. Also, it was technically very ambitious - probably the reach of this project was beyond the grasp of the technology of the day, when they started - really, similar to the US committing to putting a man on the Moon by the end of the 1960s. If the tunnel promoters had known what they were going to encounter, they never would have undertaken it. The only thing that saved them is that the steam and compressed-air drills were invented, developed, and perfected during its construction, and that enabled most of the construction to be essentially done in like the last 4 or 5 years.
Finally, that the tunnel that cost $21 million (I'll stay with your figures) to build in the mid-1800s, which amount likely would have been worth $463 million by 1983, was a small portion of something else that was sold for $24 million in 1983, is not dispositive. As henry6 alludes to, the tunnel, as an economic entity (again, I don't recall how that investment cost was worked out between the state and the RR) - certainly recouped or justified its investment in the next half-century or so after it opened (1875 to the 1930s Depression), at 100 trains per day - although to stick with the theme of this thread, there may well have been other better investments and returns, railroad and otherwise - out there at the time. But, having paid for itself and been economically all used up, to dispose of the tunnel for a comparative pitttance in 1983 (108 years later) is not surprising to me, and not inconsistent with it being a worthwhile investment.
Instead of henry6's house example, I think that it's more like buying a new car for $20,000, using it for many years (say 10, as I tend to do), and then selling it for $500. Does that low disposition sale price mean that it was bad investment ? No, not at all. I got my use out of it - it was essential to have one to earn far more in income (roughly 50 times the car's annual cost, on average, to put it into perspective) - just as the B&M used the Hoosac Tunnel to earn far more in revenue on all the freight that it moved through the Tunnel to elsewhere. I budgeted for and made the payments on the usual 80 % loan for the several years as long as that lasted - so without a doubt the investment was recouped - and of course kept up on the operating costs, maintenance, insurance, registration, inspection, etc. So I would have been happy to give it away for $ 0, or to sell it to a collector or aficionado for $10,000 - that's an end-of-service-life market value question, not related to the return on investment or value of use during its economic life. However, if I'd had to sell it after 2 years for only $500 - big mistake and loss, no doubt about it. The parallel would be if the Hoosac Tunnel or the whole B&M had been sold after 10 years for the $24 million - again, that would appear to have not been worthwhile. But that's not the way it happened. The B&M got its use and money back out of the Tunnel over that 108 years as a ROI - would be intersting to see the actual figures, if they were ever broken out that way. That the Tunnel was worth only a fraction of the $24 million entire Guilford price in the crummy railroad business environment of the early 1980's is not inconsistent. (Compare with the DM&E story in the current March 2009 issue of Trains, which went the other way - what was it, $26 million investment in 1980-something to a $1.48 billion sale to CP last year ?)
Well, I didn't mean to write this much. Hope it is helpful.
P.S. to Murphy: No apology necessary for your questioning my Tom Clancy quote above. Looking back, I can see where it seems pretty random. And I liked your quote from the Army - it echoes what the wiser financial advisors say, to the effect that even putting your money under the mattress (= doing nothing) has risks - mainly erosion in purchasing power or real value due to inflation - which is very much the case today in view of current monetary actions and the developing fiscal events.
Projects with long term paybacks are regularly approved and funded. Think of the replacement for the Kate Shelley Bridge, the Transcon double tracking, or the CN's acquisistion of the EJ&E. The large up front sums spent on projects like this will be earned back many years in the future. The "It's all about next quarter's numbers" crap is just that, crap.
In the past there were risk takers such as Jim HIll who built the Great Northern. There were also the Blackstones. If you've never heard of Blackstone he was a long time head of the Chicago and Alton. A prosperous railroad in its day, the C&A made money by concentrating on short haul passenger and freight movements in its Chicago/St. Louis/Kansas City triangle. Blackstone avoided risk by refusing expansion or combination with other railroads. When the Santa Fe needed a route between Kansas City and Chicago it considered buying the C&A. Blackstone wasn't interested and the Santa Fe built its own line.
This all worked fine until they paved the roads. The short haul freight and passenger business went to those highways and the C&A became a railroad without a traffic base. It's all split up now with parts of it belonging to the CN, UP and KCS. As I've heard they say in the Army: "Anything you do can get you killed, including nothing."
What I'm saying is that your position is more ideology than reality. People still take economic risks that have paybacks too far in the future to be economically quantified with certainty. The MBA trade schools have certainly brought more analysis into decisions. That's generally a good thing. But no successful enterprise does what you say: "If you can't quantify it on paper, it doesn't exist". If they try that they'll stagnate and fail. They'll be weeded out and replaced by better managed firms. Which is the way capitalism is supposed to work. Unless, of course, they get a government bail out. That screws everything up.
henry6 If it hadn't been built (dug?) the Boston and Maine would never have been able to compete in the east-west traffic. It was decidedly built because there was no cheaper or more economical solution in the long or short run. Again, ROI is a contemporary investment term seeking a reason to drop dime and so it splits into a million pieces that pop back up into your hand within seconds! Before 1980 investment would be a thought process of determining if there would a profit could be gained within a time period of years instead of days. And there was no guarentee. Of course there was ROI, but it was expected over a longer period of time, not predicated on a computer model or simulation; and guarenteed to be guarenteed..
If it hadn't been built (dug?) the Boston and Maine would never have been able to compete in the east-west traffic. It was decidedly built because there was no cheaper or more economical solution in the long or short run. Again, ROI is a contemporary investment term seeking a reason to drop dime and so it splits into a million pieces that pop back up into your hand within seconds! Before 1980 investment would be a thought process of determining if there would a profit could be gained within a time period of years instead of days. And there was no guarentee. Of course there was ROI, but it was expected over a longer period of time, not predicated on a computer model or simulation; and guarenteed to be guarenteed..
Paul_D_North_Jr Murphy - I was responding to Crandell / selector's comments about human nature, which was engendered by other comments about political involvement in the railroad business, and the virtues (or lack thereof) of democracy as reflected in said involvements, which I believe was the subject of one of RWM's early posts (somewhat disgusted, I think is a fair characterization) on this thread. More recently, Railway Man and diningcar were having an interesting dialogue about the validity of economic forecasts for proposed railroads and the like, and I thought the quote was relevant as a caution to not get too carried away with believing your own predictions in the face of a whole lot of uncertainties. - Paul North.
Murphy - I was responding to Crandell / selector's comments about human nature, which was engendered by other comments about political involvement in the railroad business, and the virtues (or lack thereof) of democracy as reflected in said involvements, which I believe was the subject of one of RWM's early posts (somewhat disgusted, I think is a fair characterization) on this thread. More recently, Railway Man and diningcar were having an interesting dialogue about the validity of economic forecasts for proposed railroads and the like, and I thought the quote was relevant as a caution to not get too carried away with believing your own predictions in the face of a whole lot of uncertainties.
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