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Internal Improvements Reconsidered

Published online by Cambridge University Press:  03 February 2011

Carter Goodrich
Carter Goodrich
Affiliation:
University of Pittsburgh
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Extract

In a notable article published in 1955, Robert A. Lively analyzed the body of new writing on “the role of government in the antebellum economy.” In it he coined the term, “The American System,” to describe the characteristic pattern of “public support for business development” or government “partnership with enterprise.” The greater part of the literature covered dealt with the government promotion of canals and railroads, and he credited the writers with achieving “the rescue of the internal improvements movement from the political historian.” Another bench mark is provided by the appearance in 1969 of the fourth edition of Edward C. Kirkland's History of American Economic Life. The revision devotes attention to the new trends that have appeared in the writing of economic history since the first edition in 1932, and Kirkland declares that the one that interested him the most was “the increasing attention to the interrelationships between government and economic activity.” His chapter on “Internal Improvements and Domestic Commerce” makes full use of the research on the role of governments in the promotion of canals and railroads but ends with the judgment that recent writers have tended to overstate the supposed social gains and to disregard the traditional but still valid concern with the financial losses. Meanwhile, Albert Fishlow, in his admirable book, American Railroads and the Transformation of the Ante-Bellum Economy, had challenged the writers on the American System on a number of issues, including the commonly accepted theory that railroads were built ahead of demand. His critique is summarized in the following statement: “the recent useful destruction of the myth of ideological laissez faire must not give rise to the equally erroneous impression of all-embracing, and essential, public promotion.”

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Articles
Information
The Journal of Economic History , Volume 30 , Issue 2 , June 1970 , pp. 289 - 311
Copyright
Copyright © The Economic History Association 1970

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References

1 Lively, Robert A., “The American’ System, A Review Article,” Business History Review, XXIX (1955), 81–96, esp. pp. 81, 94, 95CrossRefGoogle Scholar. [Hereafter cited as “American System.”]

2 Kirkland, Edward C., A History of American Economic Life (4th ed.; New York: Appleton-Century-Crofts, 1969), esp. p. vii and ch. viGoogle Scholar. [Hereafter cited as History.]

3 Fishlow, Albert, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge: Harvard University Press, 1965), esp. p. 307Google Scholar. [Hereafter cited as American Railroads.]

4 The author has profited from suggestions made by Professor Stanley Engerman of the University of Rochester and Nuffield College and by associates in the University of Pittsburgh's Seminar in Comparative Economic History and in Columbia University's Seminar in Economics and History. Professor Irving Stone of the Bernard M. Baruch College of the City University of New York has provided unpublished material.

5 Goodrich, Carter, Government Promotion of American Canals and Railroads, 1800–1890 (New York: Columbia University Press, 1960) [hereafter cited as Government Promotion]Google Scholar. Goodrich, Carter, ed., Canals and American Economic Development (New York: Columbia University Press, 1961) [hereafter cited as Canals]Google Scholar, Goodrich, Carter, ed., The Government and the Economy (Indianapolis: Bobbs-Merrill Co., 1967)Google Scholar [hereafter cited as Government and Economy], Introduction and Part I.

6 Heath, Milton Sydney, Constructive Liberalism: The Role of the State in Economic Development in Georgia to 1860 (Cambridge: Harvard University Press, 1954)CrossRefGoogle Scholar, chs. x and xi and tables 25–26, pp. 369–70.

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13 Examples of the former category are Chandler, Alfred D. Jr., Henry Varnum Poor: Business Editor, Analyst, and Reformer (Cambridge: Harvard University Press, 1965)Google Scholar; Clark, Ira G., Then Came the Railroads: The Century from Steam to Diesel in the Southwest (Norman: University of Oklahoma Press, 1958)Google Scholar; Overton, Richard C., Burlington Route: A History of the Burlington Lines (New York: Knopf, 1965)Google Scholar; Johnson, Arthur M. and Supple, Barry E., Boston Capitalists and Western Railroads: A study in the Nineteenth-Century Railroad Investment Process (Cambridge: Harvard University Press, 1968)Google Scholar; Baughman, James P., Charles Morgan and the Development of Southern Transportation (Nashville: Vanderbilt University Press, 1968)Google Scholar.

Examples of the second category include Daniels, Jonathan, Prince of Carpetbaggers (Philadelphia: Lippincott, 1958)Google Scholar; Helmer, William F., O. & W.: The Long Life and Slow Death of the New York, Ontario & Western Ry. (Berkeley: Howell-North, 1959)Google Scholar; Due, John F. and Juris, Frances, Rails to the Ochoco Country: The City of Prineville Railway (San Marino: Golden West Books, 1969)Google Scholar.

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21 Mercer, Lloyd J., “Land Grants to American Railroads: Social Costs or Social Benefit?” Business History Review, XLIII (Summer 1969), 134–51CrossRefGoogle Scholar. Because of the interest suggested in the title of the article, Mercer separates out the part of the private gain attributable to the land grants. On this basis he estimates real rates of return on the Central Pacific to 1889 as follows: private rate without land grant, 12.0 percent; private rate with land grant, 14.1 percent; and social rate, 28.5 percent. The analysis does not attempt to isolate the effects of the large federal loan.

The first but not the second of these additional streams of benefits is recognized, though not calculated, in Fogel, The Union Pacific Railroad, p. 98.

22 Gallatin, Albert, “Report on Roads and Canals,” American State Papers, Miscellaneous, I (1807), 724–41Google Scholar. The greater part of the Report proper, though not its appendices, may be consulted in Government and Economy, pp. 5–42.

23 Goodrich, Canals, ch. v, esp. pp. 238–48. The same conception of total savings in transport cost, applying to railroad construction as a whole rather than to the contributions of government aid, is used in Fogel, Robert W., Railroads and American Economic Growth: Essays in Econometric History (Baltimore: Johns Hopkins University Press, 1964)Google Scholar.

24 Fishlow, American Railroads, p. 51.

25 North, Douglass C., “The State of Economic History,” American Economic Review, LV (1965), 80Google Scholar. Scheiber, Ohio Canal Era, Appendix 4, “A Note on the Problem of Estimating ‘Indirect Returns,’” esp. p. 393. See also Rubin's, Julius review of Fogel's Railroads, in Technology and Culture, VIII (1967), 228–34CrossRefGoogle Scholar.

26 Callender, Guy Stevens, “The Early Transportation and Banking Enterprises of the States in Relation to the Growth of Corporations,” Quarterly Journal of Economics, XVII (1902), 114Google Scholar. This was paradoxical in 1902, but in the 1860's Walter Bagehot had commented that there was less resistance to the activity of “the executive government” in the United States than in Great Britain. The English Constitution, cited in Blelloch, David, State and Society in a Developing World (London: Watts, 1969), p. 149Google Scholar.

27 Lively, “American System,” p. 81. Hartz, Louis, Economic Policy and Democratic Thought: Pennsylvania, 1776–1860 (Cambridge: Harvard University Press, 1954)Google Scholar. Oscar, and Handlin, Mary Flug, Commonwealth: A Study in the Role, of Government in the American Economy: Massachusetts, 1774–1861 (New York: New York University Press, 1947)Google Scholar.

28 Pierce, Harry H., The Railroads of New York: A Study of Government, Aid, 1826–1875 (Cambridge: Harvard University Press, 1955)Google Scholar.

29 Heath, Milton S., “Public Cooperation in Railroad Construction in the Southern United States to 1861” (unpublished dissertation, Harvard University, 1937)Google Scholar; “Public Railroad Construction and the Development of Private Enterprise in the South before 1861,” The Journal of Economic History, X (supplement, 1950), 40–53Google Scholar.

30 Cranmer, H. Jerome, “Canal Investment 1815–1860,” in Parker, William N., ed., Trends in the American Economy in the Nineteenth Century (Princeton: Princeton University Press, 1960), 547–64Google Scholar. Harvey H. Segal, in Canals, pp. 208–15.

31 Fishlow, American Railroads, pp. 192–95.

32 Decker, “The Great Speculation,” p. 267.

33 Heath, “Public Railroad Construction,” p. 49. Heath's statement refers only to the case of the previously-aided railroad, but the generalization seems to me to apply with equal force to the other case as well.

34 I have developed the point, suggesting analogies in other countries and in the twentieth century in the United States, in “State In, State Out: A Pattern of Development Policy,” Journal of Economic Issues, II (Dec. 1968), 365–83Google Scholar.

35 Goodrich, Government and Economy, p. xviii. See also Goodrich, Canals, p. 255.

36 Fishlow, American Railroads, pp. 307–10.

37 Cootner, Paul J., “Social Overhead Capital and Economic Growth,” in Rostow, W. W., ed., The Economics of Take-Off into Sustained Growth (New York: St. Martin's Press, 1963), p. 273Google Scholar. The passage quoted applies also to Argentina. The basic study is Cootner, “Transport Innovation and Economic Development: The Case of the U.S. Steam Railroads” (unpublished doctoral dissertation, Massachusetts Institute of Technology, 1953).

38 Kirkland, Edward C., Men, Cities and Transportation: A Study in New England History, 1820–1900 (Cambridge: Harvard University Press, 1948), I, 180Google Scholar.

39 Kirkland, History, pp. 168–70.

40 At least according to the Smith, Reverend Sydney: “I never meet a Pennsylvanian at a London dinner without feeling a disposition to seize and divide him; to allot a beaver to one sufferer and his coat to another.” The Times, London, November 4, 1843Google Scholar, quoted in McGrane, Reginald C., Foreign Bondholders and American State Debt (New York: Macmillan, 1935), pp. 59–60Google Scholar.

41 Pierce, Railroads, p. 53.

42 Fishlow, American Railroads, p. 308. Rostow, Walt W., Stages of Economic Growth (Cambridge, England: The University Press, 1960), p. 25Google Scholar; “The Pacific Railroad, 1869–1969: A Centennial Issue,” The American West, VI (1969), 4Google Scholar.

If Fishlow had chosen instead to attack my reference to “a railroad running from Chicago west across almost empty plains,” defense would have been more difficult. “American Development Policy: The Case of Internal Improvements,” Journal Of Economic History, XVI (1956), 451Google Scholar.

43 Schumpeter, Joseph A., Business Cycles (New York: McGraw-Hill, 1939), I, 238Google Scholar. Jenks, Leland Hamilton, “Railroads as a Force in American Development,” Journal Of Economic History, IV (1944), 1–20CrossRefGoogle Scholar, esp. p. 3.

44 Fishlow, American Railroads, p. 171. See also Foreword, p. viii.

45 Ibid., pp. 171–76.

46 Ibid., p. 165.

47 The Times, London, March 30, 1874. Quoted in Goodrich, Government Promotion, p. 10.

48 Fishlow, American Railroads, pp. 177–89.

49 Conrad, Alfred H. and Meyer, John P., “Economics of Slavery in the Ante-Bellum South,” Journal of Political Economy, LXVI (1958), 101Google Scholar.

50 Fishlow, American Railroads, p. 204, n.77.

51 Ibid., p. 307.

52 In reviewing American Railroads, Stuart Bruchey has already made the point that Fishlow, “underestimated the earlier need for governmental aid in traversing the Appalachian Barrier.” American Historical Review, LXXII (1967), 1097–98Google Scholar.

53 Fishlow, American Railroads, p. 6.

54 Goodrich, Government and Economy, p. xviii.

55 Kirkland, History, p. 145.

56 Roberts, Christopher, The Middlesex Canal, 1793–1860 (Cambridge: Harvard University Press, 1938)Google Scholar. The cost was $500,000. Ware, Caroline F., The Early Neto England Cotton Manufacture: A Study in Industrial Beginnings (Boston: Houghton Mifflin, 1931; New York: Russell & Russell, 1966)Google Scholar, Appendix A, p. 301. The corporation was the Belvidere Manufacturing Company.

57 This may help to explain the relatively slight reference to railroad aid in Cochran, Thomas C., Railroad Leaders, 1845–1890: The Business Mind in Action (Cambridge: Harvard University Press, 1953)Google Scholar, which Lively regarded as anomalous (“American System,” p. 89).

58 Compare Cootner's statement that “the amount of government aid to railroads built … in the industrial regions of the U.S. was negligible” (“Social Overhead,” p. 273).

59 Heath, “Public Railroad Construction,” p. 51.

60 Fishlow, American Railroads, pp. 193–95. Decker, “The Great Speculation,” pp. 365–68, Goodrich, Government Promotion, pp. 257–62.

61 Tocqueville, Alexis de, De la democratic en Amerique (Paris, 1835)Google Scholar, as translated and cited by Drescher, Seymour, Tocqueville and England (Cambridge: Harvard University Press, 1964), p. 75Google Scholar.

62 Fishlow, American Railroads, pp. 304, 306–11, viii. Hirschman, Albert O., The Strategy, of Economic Development (New Haven: Yale University Press, 1958)Google Scholar.

63 Tortella, Gabriel, “Banking and Industrialization in Spain, 1829–1874” (unpublished doctoral dissertation, University of Wisconsin, 1970)Google Scholar.

64 Fishlow, American Railroads, pp. 179–80.

65 Simon, Matthew, “The Pattern of New British Portfolio Investment,” in Hall, A. R., ed., The Export of Capital from Britain, 1870–1914 (London: Methuen, 1968)Google Scholar, first published in Adler, H. H., Capital Movements and Economic Development (London: Macmillan, 1957)Google Scholar; and “The Enterprise and Industrial Composition of New British Portfolio Investment, 1865–1914,” Journal of Development Studies, III (April 1967), 280–92, esp. pp. 266, 265, 263Google Scholar.

The table in the text is based on a calculation made at my request by Professor Irving Stone, who has the Simon materials in his charge. Private communication, Jan. 14, 1970.

Professor Simon used the term “mixed enterprise” for the second category of user listed. Since this phrase usually has a somewhat different meaning in the discussion of American internal improvements, the longer phrase has been substituted. In any case, it represents a lower bound for the amount of government-aided enterprise, since it includes only enterprises receiving aid in the particular form of guaranteed return. Thus “mixed enterprise” is reported as receiving no investment in the United States for 1865–1872, though presumably some of the companies were receiving land grants or other forms of assistance. The United States percentages for this sub-period are given as 83 percent private and 17 percent public.

With reference to the total of British overseas portfolio investment, Professor Simon points out that an increase in the proportion absorbed by private business firms was common to all the geographic categories considered. The same pattern does not appear to hold in the foreign investments of France, which was in 1914 the second greatest creditor nation. According to figures that can be read or calculated from Rondo Cameron's tables, investments in government securities made up 78 percent of the French total in 1816–1851 and only 52 percent in 1852–1881. In each of these periods investments were primarily in Europe. When the count can be picked up again, after an interval, for 1892–1913, there are two differences: A substantial part of the total is invested overseas, and the proportion of government securities has risen to 62 percent. However, in the final years 1909–1913, a time of particularly heavy investment, the governmental percentage is down to 49. Cameron, Rondo, France and the Economic Development of Europe, 1800–1914 (2d. rev. ed.; Chicago: Rand, McNally & Co., 1966)Google Scholar, Table 2, p. 65; Table 3, p. 67; Table 5, p. 295.

66 Thorner, Daniel, Investment in Empire: British Railway and Steam Shipping Enterprise in India (Philadelphia: University of Pennsylvania Press, 1950), ch. viiGoogle Scholar.

67 North Carolina Board of Internal Improvements, Annual Report, 1833, quoted in Goodrich, Government Promotion, p. 321, n.113.

68 Private communications, Sept. 24 and Nov. 4, 1969. The creation of such intermediary agencies as the International Finance Corporation and national Development Corporations represents a contemporary response to the problems of private borrowing in a remote capital market. Professor Engerman would also apply his second category to less extreme cases in which public rather than private investment is chosen simply because the public authority can borrow at a somewhat lower interest rate, that is, with less risk premium, than the private corporation.

69 Fishlow, American Railroads, p. 307, denning the relevant conditions as ‘long gestation periods, durability, indivisibility—that add up to low private rates of return.”