This letter of mine appears in today’s edition of the Washington Times:
Upset that Virginians’ taxes were not recently raised to construct more roads, State Delegate Brian J. Moran, Alexandria
and Fairfax Democrat, declares that "Government has an important role
to play in strengthening our infrastructure, developing our economy and
creating new jobs" ("Virginia’s transportation conundrum," Op-Ed,
Tuesday). Not so fast.
Infrastructure that we today naively suppose must be supplied by
government has in the past often been supplied by the private sector -
supplied so well, indeed, that these private-infrastructure projects
helped to spark the Industrial Revolution in 18th-century Britain. Harvard University historian David S. Landes explains:
"At the same time, the British were making major gains in land and
water transport. New turnpike roads and canals, intended primarily to
serve industry and mining, opened the way to valuable resources, linked
production to markets, facilitated the division of labor. Other
European countries were trying to do the same, but nowhere were these
improvements so widespread and effective as in Britain. For a simple
reason: nowhere else were roads and canals typically the work of
private enterprise, hence responsive to need (rather than to prestige
and military concerns) and profitable to users…. These roads (and
canals) hastened growth and specialization."
Donald J. Boudreaux
The quotation in my letter comes from David Landes’s splendid book The Wealth and Poverty of Nations (1998), pp. 214-215.
The 2002 book The Voluntary City — co-edited by my colleague (and Marginal Revolution‘s) Alex Tabarrok (along with David Beito and Peter Gordon) — offers further historical insight into how markets supply many collective goods.
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I'd recommend that a vistor to Britain see some of the canals and waterways.
The canals themselves and the boats that travel on them are often beautiful.
There are all manner of eccentric perculiarities built to deal with local problems. Near Salford a 46 mile long underground canal was built inside a coal mine to provide transportation for the coal. In cambridgeshire there are two artificial rivers on top of dykes. These were used to drain a boggy area called the great fen to make it agricultural land.
A purported reason that governments are in the best position to provide, e.g., roads is that alone have the power to take property by eminent domain. Governments can overcome the hold-out problem by forcibly requiring people to sell their land at a market price.
I suspect that this ability is necessary to build infrastructure, at least when land is not owned in large blocks, as it used to be in old England.
Suppose, for example, that I, as an entrepreneur, found a need for, say, a 100-mile long road between two cities. There are any number of different paths that can be taken between the two cities, but along any path, there are thousands of different landowners with whom I would have to negotiate.
To build my road, I would have to choose a path and negotiate with the owners along that path until I came across one that just absolutely refused, or would only go for some absurdly high price, far higher than the market value of his land. Then, I would have to backtrack, choose another path and start over.
With so many people in between, it is quite likely that I will not be able to find a path that works. Or, that path may exist, but it may take years for me to find it.
Going into the Command Centre of the Enemy? Showing Guvmint has no business even in basic infrastructure is proof that it has no right to exist, period?
New York City's first subway was built, and operated profitably, by a group of investors led by August Belmont in 1904.
It was so profitable the city's politicians wanted part of the action when it came time to add more lines. Therein the poison that led to the city taking it over in (iirc) 1940, It hasn't been anything other than a big money loser since.
More recently, the tallest bridge in the world, the Millau viaduct was built by private investors.
Patrick,
Alas, August Belmont's company owned and operated only the rolling stock of NYC's first subway. The system was built by government (and it's operation was regulated by government until it was 'municipalized' under the administration of Mayor LaGuardia [I think in 1940]). BUT there were a couple of private efforts in the 1870s and 1880s — one involving Alfred Ely Beach, founder of the magazine Scientific American — to build an NYC subway privately. One problem (although not the only problem) faced by these private entrepreneurs and investors was opposition from Tammany Hall. Some of those folks were none-too-keen to have a new source of competition for the horse-drawn routes on the surface of the city — routes that were protected as monopolies by Tammany Hall.
> With so many people in between, it is quite likely that I will not be able to find a path that works. Or, that path may exist, but it may take years for me to find it.
It's a problem that can be solved. You just have to consider enough from paths the start. Even half a road or canal is more use than none. Indeed this often happened. When a canal came up to the property of an individual who wouldn't sell they built that part of it. Then they bid with all of the nearby possible properties that would allow its completion.
Besides, just because government control eminent domain doesn't mean they must do every step of the process including building and running.
There's a problem with having a government with the power of eminent domain: you get a government with the power of eminent domain, people by politicians and bureaucrats, purchased as needed by the unscrupulous.
Debate Pits Private Property Against Powers of the State , from the WSJ's Econoblog, provides an interesting debate between Professor Boudreaux and David Barron about eminent domain. It includes a brief discussion of the use of eminent domain to build highways.
I am not as confident as Professor Boudreaux that efficiently designed public highways and roads could be built without using eminent domain. But I am not as libertarian in my orientation as Don is, so its not clear to me that the property rights of individuals should always supercede the needs of the general population. That the founders included eminent domain powers in the Constitution more or less trumps all arguments, IMO. Those who acquired property in the U.S. did so with the understanding that the various governments would be able to use eminent domain to provide the infrastructure required for a functioning economy.
I do not agree with the use of eminent domain to enable one private use of property to superceded another private use. Of course, libertarians would probably prefer there be no public infrastructure, so that every property use would be private.
http://www.powerset.com/explore/semhtml/Carl_G._Fisher?query=Carl+G.+Fisher+developed+Miami+Beach
In 1913, Fisher conceived and helped develop the Lincoln Highway, the first paved road planned across the entire United States. A convoy trip a few year later by the U.S. Army along Fisher's Lincoln Highway was a major influence upon then Lt. Col. Dwight D. Eisenhower years later in championing the Interstate Highway System during his presidency in the 1950s.
Carl Fisher followed the east-west Lincoln Highway in 1914 with the conception of the north-south Dixie Highway, which first led from Indianapolis, and eventually extended in several northern branches from the Mid-West U.S. at the Canadian borders to southern mainland Florida. Under his leadership, the initial portion was completed within a single year, and he led an automobile caravan to Florida from Indiana.
In 1913, foreseeing the automobile's impact on American life, Carl Fisher conceived and was instrumental in the planning, development, and construction of the Lincoln Highway, the first road across America, which connected New York City to San Francisco. Fisher estimated the highway, an improved, hard-surfaced road stretching almost 3,400 miles (5,472 km), would cost ten million dollars. Fellow industrialists Frank Seiberling and Henry Bourne Joy helped Fisher with their promotional skills, together creating the Lincoln Highway Association. Much of the highway was paid for by contributions from automobile manufacturers and suppliers, a policy bitterly opposed by Henry Ford.
Former U.S. President Theodore Roosevelt and Thomas A. Edison, both friends of Fisher, sent checks, as well as the current President Woodrow Wilson, who has been noted as the first U.S. President to make frequent-use of an automobile for what was described as stress-relief relaxation rides.
In 1919, as World War I was ending, the U.S. Army undertook its first transcontinental motor convoy along the Lincoln Highway. One of the young Army officers was Dwight David Eisenhower, then a Lt. Colonel, who credited the experience when supporting construction of the Interstate Highway System when he became President of the United States in 1952.[2]
Correction:
There's a problem with having a government with the power of eminent domain: you get a government with the power of eminent domain, staffed by politicians and bureaucrats, purchased as needed by the unscrupulous.
As soon as a way to do something is manifested, the imagination is affected such that other ways of doing that thing become harder to imagine.
That government builds roads becomes evidence that only the government can undertake such projects.
Hence the perpetual turning of the public's eyes to government force of arms to address all sorts of issues.
Thank you floccina for a good capsule on the private partnership that helped develop US infrastructure.
And thank you as well for underlining the central, if often overlooked, importance Indiana plays in modern history.
" Much of the highway was paid for by contributions from automobile manufacturers and suppliers, a policy bitterly opposed by Henry Ford."
Not sure who is right, but the Federal Highway Administration tells a very different story about the financing of the Lincoln Highway and the role of the Lincoln Highway Association (LHA):
"One reason the LHA concentrated on publicity was that it could not afford to build the highway. In short, Henry Ford had been right. Fisher's idea that the auto industry and private contributions could pay for the highway was abandoned early. For the most part, the LHA used contributions for publicity and promotion to encourage travel over the Lincoln Highway, as well as to encourage State, county, and municipal officials to improve the road. The LHA did, however, help finance construction of short sections of the route."
I've been looking for information about whether eminent domain was used to acquire land upon which the Lincoln Highway was built. It turns out that the highway was built on top of existing mostly public, unpaved roads for most of its length. One such road was the Philadelphia and Lancaster Pike in Pennsylvania. Though the Philadelphia and Lancaster was originally built by a private firm, that earlier highway project was conceived, initiated, and authorized by the state legislature and governor.
The Lincoln Highway, the shining example of private highway construction, was actually anything but private.
Government infrastructure expenditure can lead to increased productivity and increase the capacity of an economy. However, too often Government expenditure is misdirected towards pet projects that serve electoral rather than economic purposes. Therefore, the best way forward is to utilise the Government as a fund raiser through existing taxation, then place those funds in an independent trust that determines projects on purely economic and financial grounds without political interference. These funds should be transparent and run by recognised experts and should aim to get maximum bang for every taxpayers buck.
Therefore, the best way forward is to utilise the Government as a fund raiser through existing taxation, then place those funds in an independent trust that determines projects on purely economic and financial grounds without political interference. These funds should be transparent and run by recognised experts and should aim to get maximum bang for every taxpayers buck.
Count me as dubious.
Not true, Don. The city tried several times to build a subway in the late 19th century and failed–thanks to meddling from Tammany Hall. They finally turned to Belmont.
As I remember the story, the city provided the property right to tunnel under everyone else's property AND it floated a bond issue of something like $30 million for construction costs.
However, Belmont had to post a $5 million dollar bond, and he was completely responsible for paying off the bonds, not the city (though they were guaranteeing them). Belmont had to buy the rolling stock and rails too. And, he built the IRT. He never 'owned' the IRT, but had a fifty year lease to operate it–similar to the deal that France gave to the builder of the Millau viaduct, btw.
The IRT was fabulously profitable. So much so that when it came time to build the second line, the BMT, the city wanted in, and insisted on a fifty-fifty split of the profits, but in return the city would be responsible for paying off the construction bonds.
Then, the city politicians began to play political games with the fares. Eventually freezing fares below inflation escalated costs. That's the poison I referred to.
IIRC, the city built the IND by itself later at substantial more cost per mile than either of Belmont-built lines.
Don is exactly right about Alfred Ely Beach, who did build NYC's first subway. It was a block long, and he did it secretly:
When a canal came up to the property of an individual who wouldn't sell they built that part of it. Then they bid with all of the nearby possible properties that would allow its completion.
Of course, if your government has no eminent domain powers to demand a right of way through someone's land, who would want to stop after buying the route for a canal around one side of the offensive individual's property? Buy the land around *both* sides of his property! "That's right, today's toll for you to cross over my land is $100, and just wait until you see how expensive it's going to be to cross back!"
*That* is when you've got the leverage to get him to sell. Natural monopolies are fun, as long as you're the monopolist.
Nice try, but it all falls apart here:
These funds should be transparent and run by recognised experts and should aim to get maximum bang for every taxpayers buck.
The whole point of a market is that a. funds don't *need* to be transparent, b. investors are in the best position to ensure things are run by real experts and c. if it's not profitable (not enough "bang for buck") it goes out of business and someone else can try.
Of course, if your government has no eminent domain powers to demand a right of way through someone's land, who would want to stop after buying the route for a canal around one side of the offensive individual's property? Buy the land around *both* sides of his property! "That's right, today's toll for you to cross over my land is $100, and just wait until you see how expensive it's going to be to cross back!"
That's just another form of coercion and, besides, he'd just ask for an easement.
The reason eminent domain is so terrible is that the canal could be a huge failure and the landowner might say, "see, I was right not to tear down my property for this." And if it becomes truly valuable, the investors would be able to offer more money to entice him to leave.
Instead, with eminent domain, someone has a Grand Scheme and the hopes and dreams of the little people who are in the way of this manifestation of ego are destroyed to make way.
The funny thing about the debate about eminent domain is how much it mirrors the debate over evolution. The anti-evolutionists, much like the control-economists, can't comprehend how something complex can come about through a myriad of small changes. In reality, though, not one city exists where the grand plans actually worked. In every case, the city government is constantly playing catchup with the market, and usually delaying real progress by allowing corruption and bureaucratic inertia to control the process.
Another problem with eminent domain is that the "market price" for the coveted property cannot be determined in advance. No one sells their property for the "market price." Instead, they sell it for the most they can get subject to the least they will accept. Since the true market price for a particular piece of property is only known after the sale, it cannot be a condition of the sale.
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