When I was young and vacationing in Cape Code, the Rails-to-Trails Conservancy were a major attraction at a local railroad and model railroad show. The movie they showed about abandoned rails inspired me to become a railroad historian by hobby. One thing that I did not understand about many of the Rails-to-Trails enthusiasts and activists is that they thought for sure their precious rail-trail would be a public bike and walking trail forever.
The Rails-to-Trails Conservancy recognizes the purpose of preserving these rail corridors for future use as rail corridors. The NIMBYs who don't recognize this are despicable people who seek only their own selfish desires to keep noisy trains out of their neighborhoods, and sadly many of these people do succeed when a rail corridor is denied re-activation.
One thing that is not really mentioned is the fact that many of the so-called NIMBYs are not really NIMBYs. They are the people who voluntarily converted a rail corridor to a trail and are having that trail taken from them and converted back to a rail corridor. This happens even though these people have invested uncountable hours and money into creating this trail that will be obliterated and turned back into a railroad. What of the people's volunteer efforts and raised funds for the trail?
The Crescent Trail here in Washington DC is one example of this.
schlimmYour comments about legislative corruption may or may not be true, but you present it as if it were a settled matter, without any evidence.
Your comments about legislative corruption may or may not be true, but you present it as if it were a settled matter, without any evidence.
I took the time to run a query through my search engine on published articles that contain the words: transcontinental, railroad, land grants, and corruption and came up with over 2,200 entries. There also appears to be a number of books published on exactly that topic and particularly in conjunction with the Union Pacific. This is to bring me up to date from what I remembered being taught, as a settled matter, well over 40 years ago. I reviewed four or five of the 2,200 professional journal entries and the matter does seem to still be settled.
However, I can see that, for a couple of posters, it is turning to "what they heard somewhere" being the ultimate definition of "well informed," and they must be it since they think they are.
I no doubt am not as well informed on this topic as I would perhaps like to be, and that goes for a lot of things that are, frankly, more interesting. So, in deference to what Mr. Lincoln "feared" as apparently becoming a new defining economic metric, and to those who are trying to turn this into a chest bumping contest, I will politely decline. I've spent too much time today looking things up only to be met with "oh yeah, what about ...?" retorts carrying the topic to some other topic. I can tell, this isn't a search for truth for some; this is a search for vindications of preconceived notions. Those are more important to some folks than anything else. However, there seems to be a considerable amount of good literature and research on the matter -- I found 30 linear feet on the shelf at the library on the matter today -- and that is no doubt the better reference of what was happening at the time than "what I heard," or the absorbed psychology of "Lincoln's fears" and I would encourage that avenue of education. It's undoubtedly a better approach for those truly interested than trying to mine accurate information out of an internet forum.
DeggestyButchKnouseAm I the only one whose heard the reason Lincoln approved the land grants for the original transcon was because he was afraid that California felt isolated from the rest of the country and perhaps they would take advantage of the chaos of the Civil War to become an indepent nation. Post Script: Butch, I had the impression that what you stated about the construction of the railroad to California was known by all who are well-informed about the construction. However, it does seem that this fact is not as well-known as I had thought.
ButchKnouseAm I the only one whose heard the reason Lincoln approved the land grants for the original transcon was because he was afraid that California felt isolated from the rest of the country and perhaps they would take advantage of the chaos of the Civil War to become an indepent nation.
I had noted "Manifest Destiny" early on as one of the driving forces of the land grant railroad effort. There were all sorts of motives. Motives had little to do with results.
However, my arguments were specific, and were pointing to the economic failure of the enterprise based on the economic results of building ahead of markets. And the markets could have given a d**** about what Lincoln was "afraid of"; and neither did the Bankruptcy courts.
Lincoln's opinion was interesting. It didn't change the economics of what actually happened.
ICLandThe Central Pacific Railroad and the Railroad Land Grant Controversy, Heywood Fleisig, The Journal of Economic History, Vol. 35, No. 3 (Sep., 1975), pp. 552-566:"My conclusion is obtained by showing that the rate of return excluding land grants was sufficient to have induced construction at a maximum rate of speed, implying that the entire land grant was an excessive subsidy -what a reasonable man might reasonably term a "giveaway.""
The Central Pacific Railroad and the Railroad Land Grant Controversy, Heywood Fleisig, The Journal of Economic History, Vol. 35, No. 3 (Sep., 1975), pp. 552-566:
"My conclusion is obtained by showing that the rate of return excluding land grants was sufficient to have induced construction at a maximum rate of speed, implying that the entire land grant was an excessive subsidy -what a reasonable man might reasonably term a "giveaway.""
The unanswered question from that retrospective conclusion is whether or not CP, UP, NP, etc would have even been chartered without the Land Grant incentives? The fact that the rate return without the grants was good was probably not evident to the owners prospectively. Your comments about legislative corruption may or may not be true, but you present it as if it were a settled matter, without any evidence.
C&NW, CA&E, MILW, CGW and IC fan
DeggestyPaul_D_North_JrA 'historical question', for whatever it will add to or subtract from ICLand's thesis above that land grants either caused or were an indicator of financial shenanigans by the involved railroads: Did the Central Pacific and/ or its successor, the Southern Pacific, ever go through the bankruptcy wringer from the time of the Golden Spike in 1869 to 1900 or so ?Thnak you, Paul, for pointing out that not everyone connected with the construction of railroads that benefitted greatly from land grants was avaricious. I have said what I have to say on the matter.
Paul_D_North_JrA 'historical question', for whatever it will add to or subtract from ICLand's thesis above that land grants either caused or were an indicator of financial shenanigans by the involved railroads: Did the Central Pacific and/ or its successor, the Southern Pacific, ever go through the bankruptcy wringer from the time of the Golden Spike in 1869 to 1900 or so ?
Thnak you, Paul, for pointing out that not everyone connected with the construction of railroads that benefitted greatly from land grants was avaricious. I have said what I have to say on the matter.
"The Central Pacific Railroad and the Railroad Land Grant Controversy," Heywood Fleisig, The Journal of Economic History, Vol. 35, No. 3 (Sep., 1975), pp. 552-566: "My conclusion is obtained by showing that the rate of return excluding land grants was sufficient to have induced construction at a maximum rate of speed, implying that the entire land grant was an excessive subsidy -what a reasonable man might reasonably term a "giveaway.""
The CP was one that would have made it without the subsidy. But what the heck, when the Government is just handing it out, why not be avaricious too!
ButchKnouseAm I the only one whose heard the reason Lincoln approved the land grants for the original transcon was because he was afraid that California felt isolated from the rest of the country and perhaps they would take advantage of the chaos of the Civil War to become an indepent nation. I also heard this about Canada's first transcon. There were those in British Columbia who wanted to go it alone as a country or join the United States.
I also heard this about Canada's first transcon. There were those in British Columbia who wanted to go it alone as a country or join the United States.
As to the construction of the CP, this is well-documented in Canadian history--the people in what we know as British Columbia felt that if they were to be a part of what we now know as Canada they must have better communication and transportation than was in existence before the railroad was built.
Johnny
A 'historical question', for whatever it will add to or subtract from ICLand's thesis above that land grants either caused or were an indicator of financial shenanigans by the involved railroads: Did the Central Pacific and/ or its successor, the Southern Pacific, ever go through the bankruptcy wringer from the time of the Golden Spike in 1869 to 1900 or so ?
Historical fact, in the same vein: The PRR was entirely privately / self-financed - and even bailed out the Commonwealth of Pennsylvania's money-losing investment in a lengthy cross-state predecessor canal and inclined-plane railroad operation - but the PRR never went through a bankruptcy. It was only after the PRR had been merged with the New York Central and New Haven into Penn Central that the then-largest corporate bankruptcy occurred . . .
Trivia, apropos of nothing important: Mount St. Helens was a land grant that was mostly still owned by Burlington Northern when it blew up in May 1980 . . .
- Paul North.
DeggestyICLandThey 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." So, you do acknowledge that it was the cupidity of the contractors and financiers, and not the grants themselves, that contributed to the panic. The grants were morally neutral; the contractors and financiers, in themselves, were culpable.
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."
So, you do acknowledge that it was the cupidity of the contractors and financiers, and not the grants themselves, that contributed to the panic. The grants were morally neutral; the contractors and financiers, in themselves, were culpable.
A rock is "morally neutral." A "land grant" however comes out of a legislative process. What's "morally neutral" about that? Are you suggesting all laws are "morally neutral"?
Land grants were ultimately created -- "granted" -- by people who accepted bribes to create them, to favor people who offered bribes. Land grants were corrupt at the outset. There was nothing "morally neutral" about any of it. They were created to be an instrument of corruption.
What's your point? That government projects handing out free money are inherently corruptible? Land grants prove it.
I think it takes a certain amount of moral naivete to suggest that a purely government device invented to transfer money and assets from public to private pockets on the most massive scale in American history, conceived in bribery, was somehow supposed to be the Virgin Mary of financial transactions and just got "messed up" along the way.
I am still waiting, though, for your explanation of why "responsible" people didn't flock to this project, and why they never seem to in huge government subsidy projects or a reference I can look up to an episode where that happened.
Am I the only one whose heard the reason Lincoln approved the land grants for the original transcon was because he was afraid that California felt isolated from the rest of the country and perhaps they would take advantage of the chaos of the Civil War to become an indepent nation.
Reality TV is to reality, what Professional Wrestling is to Professional Brain Surgery.
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.
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.
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.
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?
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?
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 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?
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.
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.
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.
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.
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.
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?
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.
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.
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.
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.
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?
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.
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.
I can see the mechanics of that. What about this part of my last question:
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.
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?
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?
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?
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?
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."
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.
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.
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