lec_16 - ECN 111B: US Economic History since the ECN Civil...

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Lecture 16: Railroads and Economic Growth Lecture 16: Railroads and Economic Growth ECN 111B: US Economic History since the ECN 111B: US Economic History since the Civil War Civil War Winter 2010 Winter 2010
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Lecture 16 Outline Lecture 16 Outline Railroad expansion: some data The railroads’ main functions The net economic benefits of railroads Direct savings Social savings Monopoly and land grants Broader Benefits: The SOCIAL SAVINGS debate
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KEY Readings for Today’s KEY Readings for Today’s Lecture Lecture Essential Reading: Atack and Passell, Ch. 16 Walton and Rockoff Ch. 16
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Key Points Key Points Railroads long had the “axiom of indispensability” Railroads were the first “big businesses” and required new organizational techniques and layers of management. Careful accounting suggests that the “social savings” from railroads were between 4 and 15% of GDP This is not to say they were crucial to the industrialization of the US. Substitution is always possible & this makes only for 2-4 years of growth Still, the railroad considered on its own must have had a relatively large impact
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Railroads: Basics Railroads: Basics The Network was laid in stages beginning in 1830s Chicago is connected to East Coast by 1853 New York Central Investments are massive: 20 percent in 1870s, 15 % in 1880s, 7.5% up to 1920s Transcontinental link was made in May 1869 Rail gauges are compatible by 1880s
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Railroads: Basics Railroads: Basics Total factor productivity doubles between 1870 and 1910—2% growth Diminishing marginal returns? (it doubles 1840-1860) ½ of growth is from economies of scale More powerful locomotives and better ‘rolling stock’ (i.e., freight cars) Stronger steel rails and heavier loads Automatic couplers Air brakes = speed and safety
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Miles of track as a percentage of total ever constructed
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Building and Financing the Building and Financing the Railroads Railroads The rate of return on a railroad has 2 parts Private rate of return Social Rate of Return Private rates of return are calculated as net earnings/Total Cost Union Pacific private returns = 4.2% 1870, 12.6% in 1875 and 17.5% in 1879.
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lec_16 - ECN 111B: US Economic History since the ECN Civil...

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