§ 1. Natural waterways. § 2. The era of canals. § 3. Temporary wreck of inland water transportation. § 4. Rapid building of American railroads. § 5. Eras in the railroad problem. § 6. Governmental aid to railroads. § 7. Emergence of the railroad problem. § 8. Discrimination as to goods. § 9. Local discrimination. § 10. Personal discrimination. § 11. Economic power of railroad managers. § 12. Political power of railroad managers.

Fig. 1, Navigable streams and canals of the U. S.

§ 1. Natural waterways. In the simplest economic conditions the moving of men and their material goods from one place to another was a very important part of economic activity. Our elementary studies make clear that place change may be just as real and effective a way of increasing the value of goods as is form, stuff, or time change. Tens of thousands of years ago savage men began to supplement their comparatively weak powers as burden-carriers by using domestic animals, and to find other aids for carrying burdens in such instruments as yokes, litters, rafts, canoes, drags, and rude wheeled carts. Boats and ships on rivers, lakes, and seas early proved to be the least costly means of transportation for heavy weights and long distances; as the old saying goes, the oceans unite rather than divide the lands. Other means of transportation were naturally the shortest and most easily traversed caravan routes to navigable water, or portages between two waterways. A good system of natural waterways, while not reckoned among the private capital of a country, may be greater wealth to one nation than costly artificial means of transportation are to another.

In natural means of transportation, America was well endowed. The straight ocean coast-line measures 5700 miles, and the line following indentations of the coast is about (34,000 miles. The Great Lakes, with a straight shore-line of 2760 miles, are the most important inland waterways in the world. The 295 navigable rivers in the country have a length of 26,400 miles that might be navigable water.

The natural conditions of transportation and primarily the location of the navigable waters of oceans and rivers, determined entirely the location of industries and the spread of population in America until the eras of canals and railroads. The success of Fulton's steamboat in 1807, indeed, so increased the importance of our natural inland waterways that they were the dominating feature of transportation in many parts of the country until after the Civil War. The successive rise in importance, however, of two artificial kinds of transportation is indicated by the terms "era of canals" and "era of railroads."

§ 2. The era of canals. Canals were used in the ancient empires for irrigating, for the supplying of cities with water, and for navigation. In the late eighteenth and the early nineteenth centuries they were rapidly built in England and America. Six canals had been built in the United States before 1807, but the canal era in America dated from the beginning of work on the Erie Canal in 1817, and continued until about 1840; when nearly all new work ceased; more than 4000 miles of canals had been built at a cost of $200,000,000. The New York State barge canal, costing more than $150,000,000, the most notable of our inland waterways, was opened for navigation May 10, 1918. It is the old Erie Canal, reconstructed to permit the passage of thousand-ton barges. The great advantage of canals is cheapness of operation due to the simplicity of the machinery needed and to the great loads that can be moved with small power. A cent a ton-mile proved to be a paying rate on a small canal in the canal era. For heavy, slow-moving freight, a railroad can even now barely rival a parallel canal at its best. As canals, however, can be built only along fairly level routes and where the water supply is at high level, their construction is limited to a small portion of the country. The principle of diminishing returns applies strongly to the construction of canals: the first canals in favored locations are easily constructed and economically operated, but it is only with greater cost and difficulty that the system can be successively extended. In temperate climates the use of canals is limited by ice to a part of the year, and by the summer's drought sometimes still further. At its best, therefore, the small land-locked canal is fitted only to be a supplementary agent in the system of transportation wherever another transportation agency of higher speed and greater regularity is possible. Far different is the case of the oceanic canal in a tropical climate.

Canals do not appear to have developed many serious problems calling for public regulation. A first simple legislative act fixing the rate of tolls for boats was sufficient. Charges were made by distance as on a toll road, and the boats were owned by different private shippers or by common carriers among whom competition prevailed.

§ 3. Temporary wreck of inland water transportation. After the sudden check to canal-building about 1840, most of the existing canals continued to operate, with slowly declining prosperity, until after the Civil War, when many of them were abandoned. The reasons for their failure can be understood only in connection with the history of the railroads in that period. There was not enough traffic for both water and rail carriers to thrive, and, at every point where canals or rivers and railroads touched or were parallel, railroad rates were cut below average rates, or temporarily even far below the cost of carriage. The shipping on the Great Lakes was the one form of inland water transportation to survive and flourish.

This wreck of the canal and the river carriers ruined the prosperity of great numbers of business enterprises and of whole regions, while artificially favoring other enterprises and locations. In the long run (that is, forty or fifty years after it had been done), especially when traffic had so increased that the railroads were inadequate to care for it, this was seen to have been unfortunate for the country as a whole. "Water transportation has its rightful place along with railroads in a general system of transportation, each agency to be used in the places and for the kind of traffic for which each is best fitted. The restoration and development of our inland waterways is one of the large transportation problems awaiting solution in the second quarter of the twentieth century.

§ 4. Rapid building of American railroads. The canal was just reaching the peak of popular favor when the railroad in 1830, after a half-century of slowly accumulating technical improvements, burst into view as a demonstrated success as a means of transportation.1 The railroad excels in adaptability any other agent of transportation; it can go over mountains or tunnel through them. It is markedly superior in certainty; it may be blocked for a day or two by floods and snows, but it suffers no seasonal stoppage of traffic. In speed, even the early railroad so far excelled that the canal could survive only by dividing the traffic, taking the lower grades of freight, and leaving to the railroad the passenger traffic and fast freight. Although in respect to cheapness, it could not equal the waterways in favored localities the railroad made rapid gains, and improvements in road-bed, rails, cars, engines, and other equipment soon reduced greatly the cost of conducting traffic on the main lines of roads. Because of these qualities railroads soon surpassed in importance every other agency of internal transportation. The miles constructed and miles in operation in the United States, by decades since 1830, were as follows (route mileage, not counting double tracks and sidings) :

1 See A. T. Hadley, "Railroad Transportation," pp. 10, 32

The extension of railroads was so rapid that there was not time for a gradual adjustment of industrial conditions. In many places the resulting changes were revolutionary. The building of railroads in the Mississippi Valley in the seventies lowered the value of eastern farms, ruined many English farmers, and depressed the condition of the peasantry in all western Europe.3 With the lower prices that resulted when the fertile lands of the western prairies were opened to the world's markets, the less fertile lands of the older districts could not compete. Many other changes, of no less moment in limited districts, resulted from the building of railroads. Local trading centers decreased in importance. Villages and towns, hoping to be enriched by the railroads, saw their trade going to the cities. Commerce became centralized. Enormous increases of value at a few points were offset by losses in other localities.