Thursday, January 31, 2008

Access to Historian

From: "Douglas Schiller"

I’d like to interview an historian for Please contact me to discuss.

—Doug Schiller, CEO


Blogger CPRR Discussion Group said...

If you have any specific questions, please forward them by e-mail and we'll try to assist.

1/31/2008 9:57 AM  
Blogger CPRR Discussion Group said...

From: "Douglas Schiller"

I'm trying to compare the early efforts for transcontinental railroad with alternative energy.

I'm intrigued by Crazy Judah's story. It seems that there are parallels with today's world. Many then said it couldn't be done. There was a war. There were issues of foreign powers dominating the West. The Federal government couldn't get money because distracted by war effort.

I'm wondering if there were arguments from "economic skeptics" that the railroad would bankrupt US because too much investment and not enough return.

—Doug Schiller, CEO

1/31/2008 10:45 AM  
Anonymous Anonymous said...

There certainly were skeptics in San Francisco who believed, mistakenly, that the plan to build a transcontinental railroad over the Sierra Nevada mountains was a scam. The primary source for this is the San Francisco pamphlet, c. 1864, The Great Dutch Flat Swindle!! The City of San Francisco Demands Justice!! The Matter in Controversy, and the Present State of the Question. An Address to the Board of Supervisors, Officers, and People of San Francisco. (if you are able to obtain a copy, please share this with the CPRR Museum, as they don't yet have a copy).

However, by 1860, both political parties believed in the feasibility of the Pacific railroad:

"16. That a railroad to the Pacific ocean is imperatively demanded by the interests of the whole country; that the Federal Government ought to render immediate and efficient aid in its construction ..." Republican Party Platform 1860.

"4. Resolved, That one of the necessities of the age, in a military, commercial, and postal point of view, is speedy communications between the Atlantic and Pacific States; and the Democratic party pledge such Constitutional Government aid as will insure the construction of a Railroad to the Pacific coast, at the earliest practicable period." Democratic Party Platform 1860.

Building a transcontinental railroad, like developing alternative energy sources other than fossil fuels, are novel technologies that profoundly affect the economic development of their era. In both cases, the technologies are impossibly expensive and impractical, until scientific and engineering advances make them affordable and sensible. Governments, however, can create great harm by acting contrary to market forces.

The danger is that the environmental movement is so economically incompetent and scientifically illiterate that they will once again create a political disaster with tragic humanitarian consequences. When I read "Silent Spring" in the 1960's, I never would have guessed that Rachael Carson was wrong in thinking that DDT was toxic, and the result would be millions of unnecessary and easily avoidable deaths from Malaria due to a refusal use DDT for mosquito abatement where it is lifesaving. It is ironic that she got things so wrong that insect born diseases have also killed the bird populations that she wanted to protect, as a direct result of politicians failing to correct her error, as scientists would. Al Gore similarly hasn't noticed that the climate has continued to fluctuate as it naturally has for millenia and he seems on target to create an even bigger humanitarian disaster, with Bill Clinton incredibly advocating just yesterday that industrialized nations should "slow down their economies and cut back on greenhouse gas emissions." Acting on such irrational fears is not benign, as, for example, the residents of New Orleans experienced the result of environmentalists canceling the Lake Pontchartrain flood gate project, and as the 9/11 victims who were killed when the twin towers collapsed because the project engineers were forced to eliminate the safe and life saving asbestos fireproofing that was specified for the buildings.

Nobody can yet know if EEStor's ultracapacitors will work, if quantum dots will double the efficiency of solar cells, or if pebble bed nuclear reactors will be inexpensive and incapable of meltdown, etc., but it is easy to be confident that unless the political process intervenes, the rapid march of science and technology will in the coming decades make alternative energy sources sufficiently low cost that they will become preferred by the free market and will naturally replace more expensive fossil fuels. Just as with the transcontinental railroad (which had to be delayed from 1845 to 1863), until that time comes, prematurely adopting the technologies that are not yet ready would be a terrible mistake. Damaging the economy by the premature adoption of uneconomic alternate technologies by government fiat can have very bad consequences, including loss of life on a large scale. Some would argue that the transcontinental railroad was premature because it required government assisted financing (although there was no subsidy as many mistakenly believe) and that the subsequent railroad bankruptcies and panic of 1873 was the result.

2/01/2008 9:10 AM  
Anonymous dougschi said...

Thanks for that anonymous comment. All helpful.... I'm looking to speak to someone of authority I can quote for a story.

2/01/2008 10:37 AM  
Blogger CPRR Discussion Group said...

From: "Wendell Huffman"
Subject: Pacific RR = alternative energy

On one level there does not seem to be much basis for any analogy between the modern issue of developing alternative energy sources and the Pacific railroad, while on another level there may be something there.

With the Pacific railroad, the matter of technology was not particularly in question. Rather, it was a matter of determining just who, or what company, was going to control and profit from the already well developed and accepted railroad technology.

I think some of your assumptions are wrong. Yes, Judah was called "crazy" (or so we are told), but the implication is that he was over-obsessed with building the railroad, not that people doubted railroad technology could or would be extended across the continent. The doubt cast upon Judah's dreams had to do with organizing the capital to complete the project, and to some extend the particular route he was advocating after 1860.

The controversy was not between proponents and opponents, but among various groups of people to control construction and profit from the railroad. Needing title to federal land, they required government authorization, and competing with each other for that, they blocked the government from selecting any single party. The question of route was really a question of controlling the project. This is what delayed the project for fifteen or so years. Again, no one was suggesting an alternate technology.

The Civil War really didn't delay the railroad. Indeed, it solved the above-mentioned problem – by eliminating through voluntary secession a block which had previously sought control of the project. And, it made the railroad a matter of national importance by discouraging the future secession of the western states. The vast sums spent on the Civil War may actually have made the Pacific railroad seem less daunting merely by comparison.

I'm not sure what you presume foreign powers had to do with the Pacific railroad. The desire for possible routes for the railroad likely contributed to the eviction of a foreign power (Mexico) from the West, and it is possible that a foreign power (France) attempted to block the construction of the transcontinental railroad. In the 1850s, it was to London that American railroad promoters turned for capital. I'm not sure why they were able to find the capital in New York in the 1860s. Perhaps it was a consequence of the Gold Rush and the Comstock. Perhaps it was war profiteering. In any event, I don't see much role for foreign governments in the matter of the Pacific railroad.

One common misconception is that the federal government financed the Pacific railroad. It did not. What it did was to facilitate the financing of the railroad by private investors. The United States government allowed its name to be printed on bonds which were issued to the railroad companies, which in turn a) sold the bonds to investors and b) in 30 years repaid the investors. Essentially all the cash used in construction of the Pacific railroad came from individual investors in the free market. (There were some state and municipal bonds; some of these may have been issued as donations.) The only federal donation to the railroad was land – which was worthless without the railroad, and as it turned out for the Central Pacific, was nearly worthless with the railroad.

The federal government did run the risk of having to repay (or default on) the bonds if the railroads failed. In fact, the Central Pacific was unable to pay the bonds upon maturity. However, in the event, the government did not have to redeem those bonds as the CP essentially sold itself to the Southern Pacific in exchange for that company paying the liability. I do not know how the bonds were resolved by other companies involved in the Pacific railroad. But, only if such bonds were actually redeemed by the government upon maturation can one say that the government paid for the railroad(s). Other than presumably paying for the printing of the bonds and agreeing to give up some worthless land, the federal government didn't really do much to help the railroads.

It seems to me that the one place you may be able to draw an analogy between the modern contest among alternative energy systems and the Pacific railroad is in the relationship between mid-19th century railroad technology and alternative transport technologies. Railroads were not the only way to move things. There were also wagons and there were vessels. In fact, all three technologies competed in the market for transcontinental and global commerce. It was generally decided that marine technology would not serve the purpose desired in the US in the mid-19th century-that of providing an avenue among the various states entirely within the borders of the United States. However, it is worth noting that the investment market did have the option of financing marine-navigation projects in competition with the Pacific railroad, and in a sense that proved to be a good option as the opening of the Suez Canal almost simultaneously with the completion of the Pacific railroad certainly cut into the Oriental trade which the Pacific railroad hoped to carry.

But even between the two "overland" transport technologies-rail vs. road-there was some rivalry. And this rivalry took on political overtones as the Democrats embraced the development of a national wagon road, while the Whigs, and later Republicans, looked to the railroad. Interestingly, the only real government money invested in an overland project went to roads: in the 1850s with modest improvements to the national wagon road, and a century later in the freeways as the internal combustion engine changed the economic balance between railroads and "wagons."

In any event, it must be underscored that all three of these "competing" technologies – wagon, ship, and rail – were very well established by the 1850s. Very much unlike modern competing alternate energy systems, the technology competition in the 1850s was between systems with decades of development. Even the newest technology – rail – was merely a modification of the older wagon technology. While there were continual improvements – the application of steam, compressed air, telegraph – the project of connecting the two American coasts was not dependent upon anything which was undeveloped by the 1850s. Besides, the United States government did not choose among these rival technologies. If anything, all it did was choose among rival companies who sought to profit from the technology (i.e. in selecting routes and making mail contracts). In no case did proponents of any particular technology look beyond the free-investment market for start-up or R&D funding.


Wendell W. Huffman is the curator of history at the Nevada State Railroad Museum in Carson City.

2/01/2008 1:25 PM  
Blogger CPRR Discussion Group said...


Extending from Wendell's comments, a better place to look for comparative examples to the alternate energy technologes situation might be in the 1830s when railroad technology was first being developed in the US (and elsewhere). Initially it was viewed as extending shipping (including oceans, rivers and canals) and replacing wagon hauls on roads. Pretty soon, however, railroads began to compete with shipping – especially canal shipping, but also river and ocean. A new technology superceeding an older one. And while Federal support of railroad construction may have been minimal in that period, state and local support were certainly present.

Another side of the coin is that a viable alternative shipping method worked to keep shipping prices down. This competitive pricing is how a truly free market works, in the few instances where markets are truly free and competitive – and condition that companies will seek to avoid whenever they can because it so limits profits. When the Transcontinental Railroad was built, the shipping price to San Francisco was set by the price available by competing shipping. In the interior shipping influeced prices more indirectly – unless river shipping was also available as in, say, Sacramento. On an item shipped from the East Coast to, say, Reno, Nevada, the price charged would be equal to the price of shipment from the East to San Francisco, plus the price from San Francisco to Reno. The lack of a competitive alternative created monopoly, with prices accordingly. (Although note in this example that the price was still a good deal less than the price when goods were hauled by wagon over the mountains.)


Kyle K. Wyatt is Curator of History & Technology at the California State Railroad Museum in Sacramento.

2/02/2008 1:40 AM  
Blogger CPRR Discussion Group said...


I think that the comparison between the deployment of railroad technology and the deployment of alternative energy technology is more one of economics than of technology. The energy production industry is capital intensive, just like the railroad industry. The transcontinental railroads required enormous economic investment with little or no return on that investment during the multi-year effort required to complete and put them in service. Likewise the alternative energy industry requires enormous capital to build facilities which produce energy at a cost which is not as yet completive with current technologies. Investment in alternative energy technologies requires faith that energy prices will continue to rise to a point where the return on investment is rewarding. No one knows how long this will take. In the case of the first tar sands plants in Canada, that took about 10 years. The price rise is not under the control of the alternative energy technology investors, but rather in the hands of the current energy producers. That makes it very high risk.

The transcontinental railroads were built with entirely different economic incentives, i.e., to drastically reduce the time of transportation and the risk of loss which advantages would enormously increase the quantity of commerce providing the scale of operations which would dramatically reduce the cost leading to great returns on investment. Much higher incentives to invest with almost certainty of economic reward for the investors, provided they were patient enough to wait for their reward.

The bankers of yesteryear had the same investment criteria as those of today and they were not dummies. Consider the Bank of California which did not construct the Virginia & Truckee until it had vertically integrated the Comstock mining industry by gaining control of the wood supply, much of the ore supply, and almost all of the major milling facilities. It even had control of the quicksilver supply. The V&T was simply the transportation facility which glued this vertically integrated business together. Modern day economists reinvented vertical integration a couple of decades ago, with little or no acknowledgement that their predecessors had reinvented it a century earlier.

—Charlie Siebenthal

2/02/2008 12:10 PM  

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