CHAPTER © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9 Transportation and Market Growth

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Transportation  Around 1800, people and goods are transported by wagon, or downstream on crude boats.  This limits the ability of people to migrate westward, and severely limits the ability of farmers and producers to ship their products outside of local areas.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Flatboats

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Transportation Revolution  Between 1800 and 1860 there are a number of new transportation methods developed:  Canals  Steamships  Railroads  The improvements were so dramatic, that they are often described as a “Transportation Revolution”

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Reduction in Transportation Costs Turnpikes and road building Steamships Eliminate difference between upstream and downstream rates Railroads more important after Civil War

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Major Causes of Reduced Transportation Costs  Turnpikes   60% in New England  Canals  Erie Canal 1825  Northeast and Midwest  Steamships  First used widely in 1820  Rivers and Great Lakes

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Turnpikes ( )  Turnpikes were roads built by private companies  toll roads with spears or pikes used as gates

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Turnpikes ( )  Pennsylvania charters 86 companies that build 2000 miles of road.  By 1811, New York has 1500 miles of road.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Turnpikes  Plank Roads are built using wooden planks to deal with the problems of rain and mud.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Turnpikes ( )  Problems:  Too expensive for most merchants to ship freight long distances.  Eventually lose out to canals, and the iron horse (railroads)  Companies go out of business and roads are abandoned or taken over by the government.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Canals ( ) Shipping products in this time period is accomplished almost exclusively by boat. What about areas with no river or waterway? Canal building starts in 1815 with the Erie Canal. Some canals (such as the Erie) are very successful. Most lose money

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Canals ( ) Canal building starts in 1817 with the construction of the Erie Canal. The canal contained 36 locks and a total elevation differential of about 565 feet. It opened on October 26, Built to create a navigable water route from New York City to the Great Lakes.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Erie Canal

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Canals ( ) Following the success of the Erie Canal, there is a huge boom in Canal Building. Ultimately, most canals end up losing money. However, between almost $100 million is spent on canal building; 65%-75% by the government.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Principal Canals of the Antebellum Period, 1800–1860

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Canals ( ) Ultimately, canal building gives way to the railroad which is able to carry people and goods at much greater speed over wider areas.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Steamships  Prior to the steamship:  Goods and people traveled downstream on rafts and flatboats;  Goods traveled back upstream by horse or wagon.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Steamships  In 1807, Robert Fulton built the commercially successful steamboat in North America.  Running on steam power, the boat can travel upstream. This revolutionizes river travel.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. By the 1830s, steamships were the main method of transporting goods throughout the country’s waterways.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Results  Lower transportation costs  Increase volume of trade Wagon $.30$.15 Down River $.015$.005 Up River $.09$.01 Erie Canal $.015

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Railroads  Railroads are introduced in the 1830s

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Railroads  By 1840, there are nearly 3,000 miles of railroad  By 1860 there are nearly 30,000 miles of railroad connecting all states east of the Mississippi.  However, even after the Civil War, a much greater volume of goods is still transported by water.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Miles of Railroad in Operation, 1830–1860

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Railroads  Railroad technology is available in 1830, but used only on a small scale until the after the Civil War.  Why?  RR are more efficient in some places because they are not dependent on water  Large capital costs to create Railroad tracks  However, the marginal cost of moving goods on existing canals and rivers is low

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Reduction in Transportation Costs Water still cheaper than Railroads

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Productivity Change in Railroads, 1839–1859

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Economic Question: What is the role of the Government in providing transportation services? Are transportation services Public Goods?

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Role of the Government  Is Transportation a Public or Private Good?  Does it cost more for more people to use it?  (is it rival in consumption?)  Maybe, depends on number of users  Is the cost of excluding high? (is it excludable?)  Maybe  True for most roads and water ways  Not true for Steamships and Railroads

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. How Important is Federal Government Involvement in Building the Transportation Infrastructure in the 1800s?  Not important.  The Federal Government spends very little money on Canals, Railroads and Roads.  Jefferson asks Congress for Federal Funding for a highway improvement program in 1808  20 million over 10 years  It was vetoed, not implemented until 20th century

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Some involvement of state and local governments  Most of the transportation innovations of this period came from the private sector  some government help, mostly from state and local governments  Private sector is involved even with roads and canals which are closest to public goods.

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Funding Turnpikes and Roads  Rates of return for both Turnpike and Canal stock are low  Not surprising cost of excluding non-payers is high  Social rate of return is higher than private rate of return  increase in land values along route,  lower transport prices,  lower commodity prices,  value of time saved

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. How was problem solved?  Other ways to capture the gain  Increased land values along the route  Increased value of business in cities and town along the route- Local investors would benefit  Evidence that towns did put pressure on land and business owners to invest (reduce free rider problem)  State and local government investment  Not surprising that this was greater than federal investment

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Other effects (next chapter)  Increase in Urbanization  Increase in Land values  Increase in shipping distance, increases market size and increases incentives to move west.  Industrialization

© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Reduction in price Gap Cincinnati Wholesale Prices as a Percentage of Philadelphia, New York, and New Orleans Wholesale Prices, 1816–1860