Railroads and American economic growth

Economics

Railroads and American Economic Growth

It has been said by many that railroads substantially altered the course of economic growth in this country. This line of thought relies on the assertion that the economy of the nineteenth century lacked an effective alternative to the railroad and was not able to produce one. The primary consequences of the development of the railroad were its impact on the cost of transportation. If the cost of rail service had exceeded the cost of an equivalent but alternative service then railroads would not have been built and all of the resulting consequences would have never occurred.

The consequences included changes in the spatial distribution of economic activity and in the mix of final products. It also included the demand for inputs, such as manufactured goods and human skills.

In the study done in the article Railroads and American Economic Growth by Robert William Fogel, the investigation focuses on the primary effect that the railroads had on the distribution of agricultural products. It is discussed how there was an increase in production potential because of the availability of railroads for the transportation of the goods. The main concept that was used in the analysis was that of social saving. The social saving that is realized in a given year is the difference between the actual cost of shipping agricultural goods in that year that the alternative cost of shipping exactly the same set of goods between the same set of points.

For purposes of analysis social saving was divided into two parts for calculation. One part was that of interregional distribution. This began with the farm surpluses that were concentrated in the primary markets of the Midwest. Over 80% of the goods that were shipped came from these markets. The surpluses were transported to secondary markets located in the East and South. Upon arrival the goods were distributed to retailers in the surrounding areas or exported.

What this study determined was that no one single innovation was vital for economic growth during the nineteenth century. It has been said that that the railroad was this one such invention, but despite its dramatically rapid and massive growth it did not on its own make an overwhelming contribution to the production potential of the economy. The author believed that economic growth was a consequence of the knowledge that was acquired during the course of the scientific revolution that occurred during the seventeenth, eighteenth and nineteenth centuries. This knowledge provided a basis for the many innovations that were applied to economic processes. All of these developments in fact began before the birth of the railroad.

The author concludes that the railroad was a part rather than a condition for the Industrial Revolution. It emerged out of a widespread effort to apply scientific and technological knowledge to the improvement of products and the reduction of overall costs. The search for new methods was distinguished not only by the vigor with which it was pursued but also by the fact that it often produced more than one solution.