Falcon48 The land grants were shrewd business deals from which the government profited hansomely. Modern politicians could learn something from them.
This is the power of the false narrative, some poor history, and some bad economics.
Let me take the false narrative first, and the rest later. The underlying assumption is that the Federal Government would have realized no benefit from its Western lands, ever, without offering land grants to railroads to build where railroads otherwise lacked the financial incentive to build.
That's a false assumption. Privately financed railroads did eventually build West, and it is likely that the government would have benefited to any similar extent financially. This is particularly true since the Federal Government disposed of virtually none of its alternate section lands during the pioneering era of the transcontinental railroad construction and operations. It's simply false to assert that the Government made ANY money that it would not have made when building such railroads made economic sense because as a matter of fact, the Government didn't make any money in the time frame of reference.
The Upper Midwest was a good example of the process that the Poster suggests could not have happened. Illinois Central got substantial land grants, but the politics there quickly fell victim to the repeal of the Corn laws in Britain and the rapid industrialization in the United States which created natural markets for corn and wheat. The Upper Midwest was quickly covered by privately-financed railroads -- the Rock Island, the Burlington, the Alton and the Milwaukee Road, along with myriad smaller lines -- which permitted the development of highly efficient markets for the production, distribution, and sale of agricultural products; all without government intervention. Those three became among the strongest railroads in the United States and did not enter receivership at the time that the largest land grant railroads did.
[This is why, "Murphy Siding," I responded as I did. You remarked that RI, Q and MILW were all land grant railroads and went bankrupt. It's a history I am unfamiliar with. I simply have no idea what you meant, or may mean, in the context of the period 1873-1893].
Falcon48 I just want to make the point that, unlike modern Federal subsidy programs, the Federal government MADE money from the railroad land grants. It did this in two ways: (1) Federal railroad land grants were typically made in a "checkerboard" pattern. In other words, in one area, the railroad would receive a parcel of land on, say, the north side of the railroad, while the government retained the parcel on the south side. Then, as you went down the line, the railroad received a parcel on the south side, while the government retained the parcel on the north side, and so on down the line. The importance of this practice is that, after the railroad was built, the government sold its retained parcels. The money it received for these parcels typically exceeded the value of the entire strip (both the rail granted property and the retained property) had before the construction of the railroad. In other words, by making the land grants, which enabled construction of the railroad, the government increased the value of its retained parcels much more than the value of what it had given away. That's a nice deal for Uncle Sam.
(1) Federal railroad land grants were typically made in a "checkerboard" pattern. In other words, in one area, the railroad would receive a parcel of land on, say, the north side of the railroad, while the government retained the parcel on the south side. Then, as you went down the line, the railroad received a parcel on the south side, while the government retained the parcel on the north side, and so on down the line. The importance of this practice is that, after the railroad was built, the government sold its retained parcels. The money it received for these parcels typically exceeded the value of the entire strip (both the rail granted property and the retained property) had before the construction of the railroad. In other words, by making the land grants, which enabled construction of the railroad, the government increased the value of its retained parcels much more than the value of what it had given away. That's a nice deal for Uncle Sam.
Except that this is historically false. It is a false economic argument as well, but that's for later.
One of the "purposes" of railroad land grants was to address long-standing complaints of states and territories that the Federal Government was impeding development of local political jurisdictions by retaining ownership of land it had, uh, bought from the Indians. The land could not be taxed. The Federal Government's response was that, by transferring land to railroads, it was creating taxable property for state, territorial and local government.
Welllll, the "catch" was that nothing could be taxed until it was "proved," that is, when railroads did the surveys to identify their sections. They didn't do it. It couldn't be taxed until it was identified. There was no incentive to survey the lands. Of course, railroad policy was to delay "proving" as long as possible to avoid contributing any money to local development. The historical problem was that the Government could enjoy no benefits from any supposed increased value because it could not sell anything until the railroads had first "proved' their sections. It could not sell land. It could not sell timber. Mining claims were delayed. Grazing rights were in dispute. All of this delayed, rather than assisted, in the development of the West because it prevented the Government from putting lands on the market, or marketing resources such as timber, grazing, minerals and water, that it had previously been able to offer unhindered. It was a net loss for all of those lands.
"Nice deal."
Falcon48 The importance of this practice is that, after the railroad was built, the government sold its retained parcels. The money it received for these parcels typically exceeded the value of the entire strip (both the rail granted property and the retained property) had before the construction of the railroad.
As an example.The largest land grant was to the Northern Pacific Railway. The railroad land grants became an impediment to the valuation of government lands. As I have mentioned, Government land was set by law at $1.50 an acre.
But, in studies done, the NP rarely sold its land to promote development. In a homestead study area, during the 1880s, the NP sold lands at prices that ranged between 16 and 60 cents an acre. This essentially killed Government land sales. But, NP limited its sales primarily to insiders and speculators. This limited such sales. After that time, the Government Land Office, for instance, sold 14.8% of its lands available in the study area, while the Northern Pacific sold only 8.3%. This was through 1899. By 1908, the Government had sold 44% of its land open to homesteading, the NP had sold only 18.2% of its land grant lands in the study area (which was an agricultural area in Eastern Montana; most land grant lands were not sold).
During the five-year period ending in 1903, the NP sold its land for $1.35 per acre which, in essence, encouraged homesteaders to take NP land in preference to Government land. Only the severe limitation on NP's land sales allowed the Government to make sales at all. In essence, the railroads lowered the value of Government holdings by underpricing, for a forty year period, the price Congress permitted for the sale of Government lands. This slowed, rather than encouraged, development by impeding Government policy to develop homesteading.
At the same time, comparable areas sold adjacent to a non-land grant railroad, the Great Northern, showed that settlers were able to assemble more reasonable and efficient farmsteads taking into account topography, whereas this had been much less prevalent BECAUSE of the checkerboard pattern created around land grant railroads which generally resulted in one or the other (RR or GOV) land being unavailable at the time the farmstead was created -- and that was generally due to railroad policy of not selling. That is, the "checkerboard" of railroad land grants produced less efficient economic units when finally sold into private hands. That handicapped the economic development of the West.
And this begins to develop what I think is the obvious economic argument: the Government could not give away 40 million acres for free, and then think, as the Poster apparently believes, that "free land" would ever honor any economic incentive to develop a true market price but would, instead, glut the market with fire-sale prices DECREASING the value of the remaining Government land.
At the same time, as Government land sales developed the country, the NP was able to then turn around and utilize the resulting scarcity of cheap government land to sell at prices 3, 4 and up to 10 times what the government land had sold for.
And this goes to a basic economic principle and is why I am surprised to see an entirely make-believe argument here: the idea that putting millions of acres, units, anything, on an undeveloped market created great wealth rather than the expected economic effect of reducing the per-unit value. The fact that it is offered here to support the notion that the Government obtained some great wealth by offering its own competition for sales by providing millions of acres of free land is incomprehensible to me. It doesn't, it can't, it never will work that way.
BucyrusIf those land grants generated more return to the government than it cost them, then they absolutely were NOT a subsidy. Just because they were grants, does not mean they were subsidies.
If those land grants generated more return to the government than it cost them, then they absolutely were NOT a subsidy. Just because they were grants, does not mean they were subsidies.
Ignoring for the minute that there is a question on the table that the government made their money back at all (or rather, made it back in a timely manner)
I DEFY you to find a valid recognized definition of the word subsidy that agrees with what I quoted here.
Here are some definitions from the web:
a government grant used to save or stimulate a particular operation or whole industry sector.www.tuition.com.hk/geography/s.htm
Money given to producers to reduce costs hence the market price of a good or service.www.bized.co.uk/virtual/dc/resource/glos6.htm
a grant paid by a government to an enterprise that benefits the public; "a subsidy for research in artificial intelligence"wordnetweb.princeton.edu/perl/webwn
A subsidy (also known as a subvention) is a form of financial assistance paid to a business or economic sector. ...en.wikipedia.org/wiki/Subsidy
financial support or assistance, such as a grant; money granted by parliament to the British Crown en.wiktionary.org/wiki/subsidy
The LAND GRANTs whether they paid off or not, whether they were advisable or not (I'd argue that despite the abuse of the system that ultimately, the transcontinental railroads to California were a net benefit to the country in the end.) THEY WERE A SUBSIDY!
DeggestyAre you saying that none of these roads, except possibly the Manitoba, received grants? If so, you are mistaken. I do not know about the Manitoba myself, but all did, to one extent or another.
The quotidian fallacy of comprehension is mixing small amounts of one truth with large amounts of another and announcing that the large truth must therefore be false.
Virtually all railroads received "land grants" for their right-of-ways. That didn't make them land grant railroads. Many railroads received "incentive" grants from both state and federal sources, generally greased by payments to legislators. Small in comparison to the project size, that likewise did not make them "land grant railroads."
Railroads that existed purely because of massive land grants, and would not have otherwise existed at the time of their construction but for the artificial incentive of massive land grants and existed only because of them, qualify as "land grant railroads."
YoHo1975 Bucyrus If those land grants generated more return to the government than it cost them, then they absolutely were NOT a subsidy. Just because they were grants, does not mean they were subsidies. Ignoring for the minute that there is a question on the table that the government made their money back at all (or rather, made it back in a timely manner) I DEFY you to find a valid recognized definition of the word subsidy that agrees with what I quoted here.
Bucyrus If those land grants generated more return to the government than it cost them, then they absolutely were NOT a subsidy. Just because they were grants, does not mean they were subsidies.
I have already read several definitions of subsidy as we have been discussing it, and your protesting my last comments does lead me to give the definition some more thought. I guess that if a government grants anything of value to anyone, it amounts to a subsidy. So you are right that a land grant has to be a subsidy. However, one might question whether a land grant is really a grant if there are strings attached. I guess it depends on the value of the strings in relation to the size of the grant.
But what if the subsidy is paid back? In that case, the subsidy would be cancelled. The recipient would no longer be operating under the subsidy. If the subsidy were paid back, it would be accurate to say that the recipient is not subsidized after the payback. But, nevertheless, it would be accurate to say that the recipient had been subsidized, even if only for a moment.
So I conclude that the term, subsidy, although basically definable, is meaningless unless placed into the context of its actual specific application.
But why are we discussing subsidies here? I assume it goes back to your apparent contention that it is okay to subsidize HSR because government subsidizes nearly everything going all the way back to the land grants. However, as I mentioned in post #4, page #5 of this thread, comparing things that can be called subsidies often amounts to comparing apples to oranges. To get some degree of a meaningful comparison, we need the following criteria:
1) A definition of subsidy.
2) A measurement and quantification of the subsidy.
3) An explanation of who pays the subsidy and who benefits from it.
Also, to be clear, I never meant to imply that any specific subsidy was ongoing, only that at any given time for the past 150 years, the government was subsidizing the railroads for the benefit of the public.
There is a common misconception amongst the public that commuter or passenger trains are overly subsidized and thus somehow bad. That if the route was worth while, a subsidy wouldn't be needed. My contention is that that is obviously not true. Witness the entire history of transportation. By that logic, airlines are not useful or needed, Railroads of all types are not useful or needed, cars are not useful or needed.
In other words, the fact that the government will subsidize this rail line is not a proof the the rail line is of less value than any businesses it may displace. It only means that the immediate business of creating and running that railroad all other things excluded is not a viable private undertaking.
The health, and vigor of Wisconsin taken as a whole and the communities of Madison to Milwaukee inclusive specifically may very well see incredible benefits that are not tabulated in there narrow view of the financials of that section of railroad.
YoHo1975I agree that not all subsidies are equal. Also, to be clear, I never meant to imply that any specific subsidy was ongoing, only that at any given time for the past 150 years, the government was subsidizing the railroads for the benefit of the public. There is a common misconception amongst the public that commuter or passenger trains are overly subsidized and thus somehow bad. That if the route was worth while, a subsidy wouldn't be needed. My contention is that that is obviously not true. Witness the entire history of transportation. By that logic, airlines are not useful or needed, Railroads of all types are not useful or needed, cars are not useful or needed. In other words, the fact that the government will subsidize this rail line is not a proof the the rail line is of less value than any businesses it may displace. It only means that the immediate business of creating and running that railroad all other things excluded is not a viable private undertaking. The health, and vigor of Wisconsin taken as a whole and the communities of Madison to Milwaukee inclusive specifically may very well see incredible benefits that are not tabulated in there narrow view of the financials of that section of railroad.
I agree that the question of whether or not something needs to be subsidized is not a good measure of whether or not it is worthwhile. And I also agree that Madison/Milwaukee corridor may see benefit beyond just the obvious benefit of transportation. The only question is whether it is worth it to the rest of the country who must contribute to pay for the Madison/Milwaukee rail project.
It is not hard to benefit a small region with an improvement if the cost of doing so is spread out to the rest of the country. The problem is in extending the improvement to the entire country.
Another problem is that these transportation improvements are not just proposed on the basis of transportation need. The are actively pushed by advocacy groups with an interest in social engineering and changing our lifestyle. They are pushed by government in interest of expanding government.
HSR is always promoted as a way to give people another choice in transportation. But, ironically, the massive public spending by the many for the few on HSR undermines the choice of air and highway options. The promoters of HSR openly admit that the main point of HSR is to get people out of their cars and out of the sky and onto the rails to reduce CO2 emissions. If it were a matter of choice, they would not be on a mission to change peoples’ behavior.
I sometimes wonder if peoples’ love of trains blinds them to these social engineering and socialism aspects of public passenger rail. If they understood these issues, they would understand how some of us can love trains but reject HSR. Instead, they give evidence of misunderstanding this with their stated belief that if you oppose HSR, you must be a “train hater.”
Prior to the explosion of the automobile, not every family owned a horse and cart. Certainly many did, if only because we were more agrarian at that time, but people in cities used transportation services. Railroads, Streetcars, carriages for hire.
The problem with discussing social engineering is that its impossible to discuss it narrowly. The drive to own a car is tied to the social engineering of the federal highway system. Its also tied to the industrial revolution and the movement from the farm to the city. None of this is strictly speaking "Natural." Its all one form of social engineering or another.
We've been trained to want to own a car and have mobility. That's been socially engineered into the American psyche. If the government is trying to socially engineer a little of that out. Well, why is it worse now than it was then?
The answer is, to quote Yoda: It's no different. Only different in your mind.
ICLand Falcon48 The land grants were shrewd business deals from which the government profited hansomely. Modern politicians could learn something from them. This is the power of the false narrative, some poor history, and some bad economics. Let me take the false narrative first, and the rest later. The underlying assumption is that the Federal Government would have realized no benefit from its Western lands, ever, without offering land grants to railroads to build where railroads otherwise lacked the financial incentive to build. That's a false assumption. Privately financed railroads did eventually build West, and it is likely that the government would have benefited to any similar extent financially. This is particularly true since the Federal Government disposed of virtually none of its alternate section lands during the pioneering era of the transcontinental railroad construction and operations. It's simply false to assert that the Government made ANY money that it would not have made when building such railroads made economic sense because as a matter of fact, the Government didn't make any money in the time frame of reference. The Upper Midwest was a good example of the process that the Poster suggests could not have happened. Illinois Central got substantial land grants, but the politics there quickly fell victim to the repeal of the Corn laws in Britain and the rapid industrialization in the United States which created natural markets for corn and wheat. The Upper Midwest was quickly covered by privately-financed railroads -- the Rock Island, the Burlington, the Alton and the Milwaukee Road, along with myriad smaller lines -- which permitted the development of highly efficient markets for the production, distribution, and sale of agricultural products; all without government intervention. Those three became among the strongest railroads in the United States and did not enter receivership at the time that the largest land grant railroads did. [This is why, "Murphy Siding," I responded as I did. You remarked that RI, Q and MILW were all land grant railroads and went bankrupt. It's a history I am unfamiliar with. I simply have no idea what you meant, or may mean, in the context of the period 1873-1893].
The land grants to Illinois Central were very different from the later Federal land grants to the trancontinental roads. I agree the IC grants were likely unnecessary as events transpired. But the IC and the later roads in the midwest weren't building hundreds of miles of line across unproductive territory, as were the transcontinental roads. Also, the IC grants were not "checkerboard" - the granting gravernment entity (which I believe was the state) didn't retain anything that they could later sell once the railroad increased its value. The statement that "the Government didn't make any money in the time frame of reference" from the Federal land grants is also curious. Are you saying that the Government DIDN"T make money from the sale of the alternate sections they retained? If so, that is historically false. If, on the other hand, you are saying that the government didn't make its money during or shortly after construction of the railroad ("during the pioneering era of the transcontinental railroad construction and operations"), that's probably true, but irrelevant. The fact is that the property was sold within a reasonable amount of time after the grant.
The argument that transcontinental railroads would have been built without the land grants strikes me as Monday morning quarterbacking. The fact that some transcontinental lines were built without land grants AFTER the original transcontinental lines proves nothing. It's highly doubtful that the capital would have been available for an entirely private transcontinental venture until the land grant roads proved it was possible to build and operate such lines with some reasonalbe prospects of success (leaving aside some of their financial shenanigans).
One other point needs to be made. There were Federal government "land grants" and Federal government "right-of-way" grants. The land grants gave the recipient railroads land substantially in excess of what was required for the physical construction of the railroad. The railroad could then turn around and use that land to obtain financing for railroad construction. It's highly unlikely in this scenario that the railroad delayed actions which would have perfected its title, since they needed to do this to use the land to obtain financing. Right of way grants, on the other hand, merely gave the railroad a right of way (generally 200 ft in width) for construction of the railroad, generally based on a "map" filing, which didn't have to be carefully surveyed. The interest the railroad obtained in this case didn't include adjoining lands and was reversionary. In this case, there woudln't have been much urgency to determine exactly what property was involved.
I also note that none of the posters criticising my comments have mentioned to "free or reduced rate" conditions of the Federal transcontintental land grants, which gave the government cut rates through two world wars.
Falcon48The land grants to Illinois Central were very different from the later Federal land grants to the trancontinental roads. I agree the IC grants were likely unnecessary as events transpired. But the IC and the later roads in the midwest weren't building hundreds of miles of line across unproductive territory, as were the transcontinental roads.
The land grants to Illinois Central were very different from the later Federal land grants to the trancontinental roads. I agree the IC grants were likely unnecessary as events transpired. But the IC and the later roads in the midwest weren't building hundreds of miles of line across unproductive territory, as were the transcontinental roads.
Well, that's the point; IC's was an early grant, when politicians thought it was the only way to spur "development," i.e. bribes into their pockets.
The lesson was clear: let the market work and the government didn't need to build "hundreds of miles of line across unproductive territory."
There is a reason that territory is "productive" or "unproductive."
It's called economics.
ICLand Falcon48 The land grants to Illinois Central were very different from the later Federal land grants to the trancontinental roads. I agree the IC grants were likely unnecessary as events transpired. But the IC and the later roads in the midwest weren't building hundreds of miles of line across unproductive territory, as were the transcontinental roads. Well, that's the point; IC's was an early grant, when politicians thought it was the only way to spur "development," i.e. bribes into their pockets. The lesson was clear: let the market work and the government didn't need to build "hundreds of miles of line across unproductive territory." There is a reason that territory is "productive" or "unproductive." It's called economics.
Falcon48 The land grants to Illinois Central were very different from the later Federal land grants to the trancontinental roads. I agree the IC grants were likely unnecessary as events transpired. But the IC and the later roads in the midwest weren't building hundreds of miles of line across unproductive territory, as were the transcontinental roads.
But if you have a lot of territory that is unproductive, and it would become productive if you built railroads into it, why not build railroads into it in order to make it productive?
Falcon48 The statement that "the Government didn't make any money in the time frame of reference" from the Federal land grants is also curious. Are you saying that the Government DIDN"T make money from the sale of the alternate sections they retained? If so, that is historically false.
This misrepresents my remarks by transparently shifting the frame of reference. My point was, just as in the Midwest, when the time came, the Government could actually sell land. Since they got the land for free, your odd observation that I maintained they "didn't make money" is patently misleading. The ability to sell it was the problem, since 1) railroads undersold government land, 2) most government land remained unsold during the 30 years after the land grants were made 3) the government was delayed in selling its sections by railroad delays in proving, 4) the Government remains the largest landowner in those states in which it gave railroad land grants after 1862, 5) the alternate sections involved in land grant legislation that were sold were not sold, as you falsely alleged, at some elevated value since Congress expressly prohibited that result and 6) much of the interior Federal lands today, comprising National Forests and Taylor Grazing Act sections, were in fact the alternate land grant sections that were not, in fact, ever sold.
BucyrusBut if you have a lot of territory that is unproductive, and it would become productive if you built railroads into it, why not build railroads into it in order to make it productive?
Economics is a Zen art, that's why. You will produce exactly the opposite of what you intend to do.
Say you are the Burlington, and you have built up a productive and profitable railroad, hauling wheat from up and down the Midwest to Chicago. You look West, to Colorado, and it will cost you $40,000 a mile to build, and cost 20 cents more per bushel to haul the Colorado wheat to Chicago.
You already carry wheat at 70 cents a bushel; it costs you 60 cents, so you earn 14% on the transaction.
For the farmer, the wheat sells for $1.40. It costs the farmer in Burlington, Iowa 40 cents a bushel to produce. It costs the farmer in Colorado 50 cents to produce because his supplies are carried that much farther.
Assuming you charge him the same rate to ship, the farmer in Colorado isn't going to ship anything because it costs him $1.40 in production and shipping costs to ship to Chicago and he earns zero. The Farmer in Burlington is earning 30 cents a bushel so he's shipping.
You've got no traffic on that line out to Colorado. You're losing 100% on your investment. So, you cut your rate to enable the Colorado farmer to make some money. But, it's less than you charge the farmers who ship half the distance. And you reduced your overall net at the same time because it now costs you 80 cents to carry the wheat the extra distance. But, to give the Colorado farmer a profit, you can only charge him 70 cents a bushel, and his growing costs are 50 cents, for a total of a dollar; which gives him a 20 cent margin on his wheat. Still less than the farmer in Burlington, but at least it's profit.
The railroad on the other hand is now suffering a 10 cent loss per bushel that it carries. But, it is generating a cash flow on its investment; generally hoping that "times will change" and it can make a profit as the land "becomes more productive". And, of course, "Next Year," the prices will always go up; the eternal hope of the farmer and the railroad.
But, now it has introduced competition into the commodity market for wheat. Wheat no longer sells for $1.40, it is selling for $1.20 because THE RAILROAD COMPANY opened up falsley "productive" country. Now the Burlington farmer is only earning 10 cents a bushel. He starts to look at the railroad company as his biggest cost now that he's hurting. He organizes a Grange. The Colorado farmer is now earning nothing on his wheat, even though the railroad is already carrying it at a loss. He demands that the railroad lower its rates. He organizes a Grange. Congress acts to regulate "unfair rates."
There is no such thing as creating "productive territory" when a subsidy is required to build into it ahead of market demand.
THERE WAS NO MARKET DEMAND for the transcontinental land grant railroads. It created a regulatory disaster.
You can't "make it" productive if the market isn't there. And, if the market is there, it will be "productive" for railroads to build. You can't subsidize a happy ending because the underlying market is distorted by the effort. It can't make unproductive distances productive, but it can make formerly productive distances unproductive by injecting the railroad subsidy into the commodity markets that depended on it.
The Interstate Commerce Act of 1887 and the failure of the Land Grant Railroads in 1893 are the results of government subsidy efforts to create "productive" territory; wrecking, in the process, the US economy.
Or, as one poster seems to argue, "that's exactly what was intended and it worked perfectly."
ICLand,
I can see your point very clearly in the above explanation. So why did the government give land grants to the land grant transcontinental railroads? Was this just a mistake in economics, or were there other motivations? Did the railroads that accepted these land grants not realize that there would be no market for them in those new territories? Or did they have some other motive that over road that drawback?
When you say, “There is no such thing as creating "productive territory" when a subsidy is required to build into it ahead of market demand,” how would that analysis apply to the push for a national system of publicly funded HSR today?
I think Bucyrus has it right. In summary, two thoughts come to mind. One, markets can be created when and where none (or not much of one) existed before. Two, it appears from the history of the US from Illinois westward, that grants of land, etc. for the building of railroads was an important ingredient in our economic development. If the grants had not been made, I wonder how the history would have played out?
C&NW, CA&E, MILW, CGW and IC fan
BucyrusSo why did the government give land grants to the land grant transcontinental railroads? Was this just a mistake in economics, or were there other motivations? Did the railroads that accepted these land grants not realize that there would be no market for them in those new territories?
Remember, this was "Manifest Destiny." Economics was not so well understood. Most of the world's economies still responded to the "command of the king." Land Grant Railroads were America's first experience with the "command of Congress."
With a couple of exceptions, the "railroads that accepted land grants" were not real railroads. They were created specifically to intercept the largess of Congress, and siphon out as much money as possible before the tap was shut off or the funds ran out. They could have cared less about any actual markets.
ICLand BucyrusSo why did the government give land grants to the land grant transcontinental railroads? Was this just a mistake in economics, or were there other motivations? Did the railroads that accepted these land grants not realize that there would be no market for them in those new territories? Remember, this was "Manifest Destiny." Economics was not so well understood. Most of the world's economies still responded to the "command of the king." Land Grant Railroads were America's first experience with the "command of Congress." The "railroads that accepted land grants" were not real railroads. They were created specifically to intercept the largess of Congress, and siphon out as much money as possible before the tap was shut off or the funds ran out. They could have cared less about any actual markets.
The "railroads that accepted land grants" were not real railroads. They were created specifically to intercept the largess of Congress, and siphon out as much money as possible before the tap was shut off or the funds ran out. They could have cared less about any actual markets.
I can see the mechanics of that. What about this part of my last question:
BucyrusWhen you say, “There is no such thing as creating "productive territory" when a subsidy is required to build into it ahead of market demand,” how would that analysis apply to the push for a national system of publicly funded HSR today?
It's a different area, at least for me. I don't consider HSR "railroading," and so I leave my comfort zone to enter areas of social policy. I generally don't think that governments make good choices in general when it comes to spending other people's money for precisely that reason: it's other people's money so who cares? Kind of like Land Grant railroads, I suppose. But, it is a specialist's argument, pitting the economics of HSR against the costs of covering more and more countryside with asphalt. I don't know enough about the trade-offs to offer an educated opinion. One of my former colleagues was a consultant on the Shinkasen, the first of its kind, and he thought it was a great project, and I did too but that was from an engineering standpoint. Social costs and benefits are more in the political arena, for better or for worse.
First of all I misstated something, since I'm not as familiar with the IC land grants as the transcontinental grants. In doing some checking, the IC grants may well have been Federal "checkerboard" grants like the later transcontinental grants. That doesn't affect my main point, which is that the IC grants may well have been unnecessary to railroad development. After all, by the time the grants were made and the railroad was built, railroads were already building across Illinois without vast land grants (the Galena & Chicago Union for one). And the territory wasn't markedly different from territory east of Illinois where railroads had already penetrated.
Since your note and some of the other notes question my use of the word "productive", let me explain the context in which I was using it. The point I was making is that the risk posed by investment in a transcontinental road (particularly before any had been built) was significantly greater than the risk posed by a midwestern road. Once a midwestern road was built in the 19th century, it could normally be assumed that the territory would be settled and the traffic generated would support the railroad. That was not true of a transcontinental road, since it traversed hundreds of miles of territory (like deserts and mountains) which could not reasonably be expected to be settled and produce traffic for the railroad (even now, much of this territory is essentially barren from a railroad traffic point of view). The primary purpose of the railroad was to tie the west coast to the rest of the country. That vastly increased the investment risk, particularly for the "first" line. It's hard to know what would have happened without the transcontinental land grants, but I think it's likely that purely private investment would not have built transcontinental lines for many decades, if at all. The "first" transcontinental lines made it possible for the later promoters to make reasonable predictions about the financial prospects of private investment.
Falcon48 I also note that none of the posters criticising my comments have mentioned to "free or reduced rate" conditions of the Federal transcontintental land grants, which gave the government cut rates through two world wars.
Well, I am not a big fan of daisy-chain arguments that keep changing whatever the point may have been. However, this does underscore the earlier comments regarding the refusal of railroads to "prove" their land grant sections by surveying them, which in turn tied up government development of adjacent lands.
The Land Grant Acts required land grant railroads to transport government shipments at a 50 per cent reduction ... until they filed with the Secretary of the Interior releases to any claims for land grants.
The final deadline, for land grants dating back to 1850 and the latest in 1871, for filing such releases was September 17, 1941. You'd think that was enough time to file paperwork to get free land AND get out from under the government rate "burden." Indeed, they could have released those claims years earlier. Why didn't they?
In 1941, the Northern Pacific gave up claims to 4,500,000 acres, nearly 12% of its original grant. That was in addition to 5 million acres returned previously. Approximately 8,000,000 acres of total railroad land grants reverted to the Government in 1941 because of the failure of railroad companies to "prove" their land grants. This meant that over 16 million acres had been "tied" up and unavailable for development for nearly a century. A total of 48 million acres of failed land grants had been returned to the Government over the course of the "Land Grant" era out of 94 million acres granted. The majority of such grants had, in fact, been failures because the underlying principle of such grants was so faulty. And it raises questions about the theory that all of this activity was supposed to raise the "value" of such lands.
Now, that goes to that 50% "rate reduction." It seems like quite an incentive to file those land grant claims if the 50% were the burden that is claimed. I mean, really, the Company can get out from under that onerous burden simply by filing for millions of acres of free land?
And they didn't do it?
You tell me why.
ICLandRailroads that existed purely because of massive land grants, and would not have otherwise existed at the time of their construction but for the artificial incentive of massive land grants and existed only because of them, qualify as "land grant railroads."
Thank you for the definition.
Now to quote from an earlier post of yours: "Aside from two bankruptcies for the NP and one for the UP, ripping millions out of the US economy, and particularly when both simultaneously bankrupted in 1893 -- strictly a government land grant fiasco -- which precipitated the worst and longest financial depression up until 1933." How did the granting of land, in itself, cause the shaky financing of the railroads?
Johnny
I would consider it a great favor if you would explain the "Equalization Agreements" eagerly sought by non-land grant carriers to be able to carry Government freight at the 50% rate. Most railroads entered into these even as history's fuzzy memory offers that the railroads actually bound to offer the rates desperately wanted out of these agreements.As a for instance, Union Pacific and Southern Pacific were not bound by their charters to offer the 50% Government rate. The Northern Pacific was so bound.
So, for a boxcar of Government freight from Chicago to San Francisco, a normal routing might have been over the Rock Island to Council Bluffs, the Union Pacific to Ogden, Utah, and the Southern Pacific to San Francisco. This route is 2,273 miles long. Over that route, only a small portion of the Rock Island was subject to the requirement of the Government rate. The charge on a shipment would be 94.73 per cent of the rate on the equivalent commercial shipment.
So, to get the Government rate, the Government ships over the route which maximizes its rate benefit under the 50% Government rate obligation. This route is Chicago to La Salle, Illinois, via the Rock Island, then over the Illinois Central and the Chicago, St. Paul, Minneapolis and Omaha to St. Paul, the Northern Pacific to Portland, Oregon, and the Southern Pacific to San Francisco. This route adds up to 3,788 miles or 63 per cent longer than the "Overland" route over the Union Pacific. But, the Government gets a rate of 52.5% of the equivalent commercial rate over the longer route.
In dollars, the Overland Route would receive a commercial rate of $538 for the shipment. The Government would pay, over the longer Northern route, $507 compared to the $947 equivalent commercial rate.
So, the Government gets a "Government Rate" on this shipment, but over roads that are obligated to carry the freight, it will pay $507. This compares to the charge of $538 had the Government shipped at the purely commercial rate over the shorter route.
Does the Government actually get a 50% rate reduction? No, that is a sheer fallacy. Very little government freight went by direct route over an obligated land grant railroad. In order to get the rate, government shipments invariably went by circuitous routings to obtain the rate, but this was invariably NOT 50% of rate that would have been charged had the railroad simply shipped commercially in a commercially reasonable fashion.
This will illuminate why railroads such as the Great Northern, the Milwaukee, and the Union Pacific were so willing to enter into Equalization Agreements to accept the "Government Rate" even though not obligated legally to do so. It was good business for all of them because the rates received were not 50% of the commercial rates THEY charged, but rather 50% of the rate charged via a generally more circuitous routing.
In this case, the Union Pacific, under the Equalization Agreement, and given the small portion of the route segment that did provide a 50% rate, got the traffic at nearly 100% of its regular commercial rate; and since the traffic was "extra" traffic, it was icing on the cake and a very good business to do.
The "Government Rate" argument, by which the poor railroads labored under an unjust scheme is a false history; demonstrated by the fact virtually all railroads wanted the business because the method of calculating the Government Rate, in some cases, offered a higher theoretical rate than the railroad's own commercial rate.
DeggestyHow did the granting of land, in itself, cause the shaky financing of the railroads?
The Government created a "bubble" -- by creating assets designed to fill up a balance sheet that then afforded the sale of stocks and bonds based upon the tangible assets. And the numbers thrown around were huge; investors couldn't get enough. And since these weren't "real" railroad companies, merely construction companies building as fast as they could to get the government payments and cover as much ground as possible to get the land grants, not much thought went into building "real" railroads on the standards of the Burlington, Milwaukee, Rock Island, Pennsylvania, B&O.
And, so when they were done, they had poor lines with slow speeds, no business, and huge bond obligations. And then balance sheets hollowed out when lands proved unsellable, and "proving" failed to occur in a timely fashion. Then, the enormous suction of investment capital out of the rest of the US economy, rather than generating a return, suffered losses which caused a continuing period of deflation which was unparalleled in US history.
I don't know what else would describe "shaky financing."
If, as one poster suggests, they never would have been built but for the land grants, how can their shaky financing been due to anything but land grants?
ICLand Bucyrus When you say, “There is no such thing as creating "productive territory" when a subsidy is required to build into it ahead of market demand,” how would that analysis apply to the push for a national system of publicly funded HSR today? It's a different area, at least for me. I don't consider HSR "railroading," and so I leave my comfort zone to enter areas of social policy. I generally don't think that governments make good choices in general when it comes to spending other people's money for precisely that reason: it's other people's money so who cares? Kind of like Land Grant railroads, I suppose. But, it is a specialist's argument, pitting the economics of HSR against the costs of covering more and more countryside with asphalt. I don't know enough about the trade-offs to offer an educated opinion. One of my former colleagues was a consultant on the Shinkasen, the first of its kind, and he thought it was a great project, and I did too but that was from an engineering standpoint. Social costs and benefits are more in the political arena, for better or for worse.
Bucyrus When you say, “There is no such thing as creating "productive territory" when a subsidy is required to build into it ahead of market demand,” how would that analysis apply to the push for a national system of publicly funded HSR today?
I understand what you mean. I don’t regard HSR to be railroading either. But even if HSR is not a part of railroading, the proponents of HSR including the FRA have made it clear that they intend for HSR to share the existing private corridors of the class-1 freight railroads. They say this will be necessary because wherever HSR wants to go, the freight railroads already have the most appropriate corridors to get there.
In some cases, this corridor sharing may involve track sharing, but even where HSR will have its own dedicated track, the construction and operating complexities of adding HSR to the freight corridors will be enormous. And since adding HSR to the freight corridors will require improvements that will redound to the benefit of the freight railroads, there will have to be complex cost sharing agreements between the private freight railroads and the government. There may also be outright grants to the private railroads for some of upgrade work such as new bridges, elimination of grade crossings, etc. And like all government grants, there will be strings attached.
So, it seems to me that this will be quite analogous to the public/private partnership of the government land grants made to the pioneering railroads, and all the complexities and unintended market consequences that flowed from that partnership.
Bucyrus But even if HSR is not a part of railroading, the proponents of HSR including the FRA have made it clear that they intend for HSR to share the existing private corridors of the class-1 freight railroads. They say this will be necessary because wherever HSR wants to go, the freight railroads already have the most appropriate corridors to get there.
That's my short thought on the whole idea and it no doubt fully qualifies as a "short thought." I now feel guilty that someone may have wasted part of their remaining days on this Earth reading it.
ICLand DeggestyHow did the granting of land, in itself, cause the shaky financing of the railroads? The Government created a "bubble" -- by creating assets designed to fill up a balance sheet that then afforded the sale of stocks and bonds based upon the tangible assets. And the numbers thrown around were huge; investors couldn't get enough. And since these weren't "real" railroad companies, merely construction companies building as fast as they could to get the government payments and cover as much ground as possible to get the land grants, not much thought went into building "real" railroads on the standards of the Burlington, Milwaukee, Rock Island, Pennsylvania, B&O. And, so when they were done, they had poor lines with slow speeds, no business, and huge bond obligations. And then balance sheets hollowed out when lands proved unsellable, and "proving" failed to occur in a timely fashion. Then, the enormous suction of investment capital out of the rest of the US economy, rather than generating a return, suffered losses which caused a continuing period of deflation which was unparalleled in US history. I don't know what else would describe "shaky financing." If, as one poster suggests, they never would have been built but for the land grants, how can their shaky financing been due to anything but land grants?
No, it was the greed of the financiers and constructors who took irresponsible advantange of the land grants. The grants in themselves were neutral.
DeggestyOh, those EVIL land grants, forcing people to do things they should not have done. No, it was the greed of the financiers and constructors who took irresponsible advantange of the land grants. The grants in themselves were neutral.
They didn't "force" anybody to do anything.
They did exactly what you would expect when the Government hands out free assets to people who didn't earn it in the first place as part of that era's version of a "stimulus package."
Which part was irresponsible?
Please advise as to when handing out massive public subsidies and assets brought out the "responsible" people?
I'd like to read about that one.
ICLandThey did exactly what you would expect when the Government hands out free assets to people who didn't earn it in the first place as part of that era's version of a "stimulus package."
Not my city but my county (Washington County in eastern Minnesota)...it's interesting that the Minnesota Transportation Museum's operating tourist railroad is located in Osceola Wisconsin. They used to run trains across the St.Croix river in Stillwater MN but local people objected to the trains so they had to move across to the Wisconsin side.
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