Lecture10 - American Economic History ECN111B U.S....

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http://ucdavis.econclasses.org/ECN111B glbrinkley@ucdavis.edu American Economic History – ECN111B U.S. Railroads Lecture 10
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Railroads n Railroads are considered by most historians and economic historians to be the first “big business.” n Until the mid-1960s, railroads were thought to have been the single major cause/influence of economic development including the Industrial Revolution. n Robert Fogel and Albert Fishlow overturned the idea of the importance of railroads. n The hobbyist’s fascination with toy trains, may contribute to the popularity of the idea of the importance of railroads in economic development.
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Reasons Railroads were Important n Railroads linked the United States as a continent. n New forms of finance were created and a new role for government was established. n Government increased its intervention in the economy due to railroads. n Railroads had major impacts on economic growth.
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Railroad Construction n Most track was laid from population center to population center. n Government subsidies paid for much of the construction of railroads.
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n Joseph Schumpeter claimed that railroads built “ahead of demand” and pulled the economy West. n Railroads built excess capacity that was able to accommodate future economic development. n Railroads are infrastructure and in place before need arose. n This allows and encourages economic development. n Schumpeter’s “ahead of demand” theory was tested by A. Fishlow as follows: n ?PDV RR > Opportunity Cost n Fishlow’s test results did not support Schumpeter’s theory. n Schumpeter then argued that: n Externalities would not be captured by test. n
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Lecture10 - American Economic History ECN111B U.S....

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