Moving The Freight

In a free market, if the price of a commodity, such as sugar, drops substantially, the price of everything made with that commodity—candy, bakery products, soft drinks—will drop as well, and the effects of the new price will ripple through the economy. If the price of something used in every commodity plunges, however, a tidal wave of change may result and a new economic universe be created.

The collapse in the prices of transportation in the first half of the nineteenth century produced just such a fundamental transformation. Cheap transportation created an integrated, worldwide economy out of a myriad of local ones. Writing in the 1880s, the American economist Arthur T. Hadley noted that “two generations ago, the expense of cartage was such that wheat had to be consumed within two hundred miles of where it was grown. Today, the wheat of Dakota, the wheat of Russia, and the wheat of India come into direct competition. The supply at Odessa is an element in determining the price in Chicago.”

Before the Erie Canal was completed in 1825, it took three weeks to get a ton of wheat in Buffalo—worth only $40—to New York City, at a cost of fully $120. Once the canal opened, a ton of wheat could be shipped between the two points in eight days at a cost of $6—in other words, in one-third the time and at one-twentieth the cost. Little wonder that the canal contributed so powerfully to New York City’s explosive growth as a port.

But canals were expensive to build and maintain. They were suited only to flat and well-watered country. And they could not operate in winter. It was the railroad that brought cheap transportation to the whole world. As the railroad industry matured, the price of transportation dropped still more. Hadley noted that between 1850 and 1880 railroad rates “were reduced on an average to about one half their former figures, in spite of the advance in price of labor and of many articles of consumption.” Hadley, of course, was referring to the trunk routes, where competition among the railroads was fierce. Where a railroad had a monopoly, it charged what the traffic would bear, a fact that profoundly affected the politics of late-nineteenth-century America.