The year is 1789, and you are living in Philadelphia. George Washington has just been elected president of the United States. You have always been one of George's biggest fans. He just dropped by your house and appointed you secretary of state. How long will it be before the rest of the country knows of your appointment from the newspapers?
Here is the average number of days you should expect to lapse before people in other cities hear of your good news:
Albany, NY = 20 Days
Baltimore, MD = 10 Days
Boston, MA =15 Days
Charleston, SC = 22 Days
New York, NY = 5 Days
Harrisburg, PA =15 Days
Lexington, KY = 57 Days
Pittsburgh, PA = 31 Days
Quebec City = 100 Days
Portland, ME = 20 Days (1)
Ten years later, in 1800, you live in New York and decide to go on the lecture circuit about your experience as the secretary of state. Thirty years later, in 1830, a biographer will retrace your steps. How long should you expect your commute to any given city to be versus how long your biographer's commute will be to the same cities?
Albany, NY: 3 Days vs 2 Days
Boston, MA: 4 Days vs 2 Days
Charleston, SC: 2 Weeks vs 5 Days
Detroit, MI: 4 Weeks vs 1 Week
Louisville, KY: 4 Weeks vs 1 Week
New Orleans, LA: 4 Weeks vs 2 Weeks
Philadelphia, PA: 1 Day vs 1 Day
Pittsburgh, PA: 2 Weeks vs 4 Days
St. Louis, MO: 5 Weeks vs 2 Weeks (2)
Clearly, improvements were happening in transportation in the early nineteenth century. Travel times declined considerably, and average travel fares dropped by 50-80%. Still, as late as the 1840s, transportation was very costly. The average non-farm laborer's wage was about $1.00 a day, and a free agricultural laborer's was about $10.00 monthly. Travel in the North would cost about 2.0-4.5 cents a mile and about 5.5-6.0 cents a mile in the South (where wages were about 50-75% of Northern wages.) Furthermore, many of these trips required food and lodging expenses along the way. A roundtrip from Baltimore to New York could easily consume one month's wages for a northern agricultural worker and two months or more for a similar person traveling similar distances in the South. (3)
I live in Kansas City, Missouri, about 2.5 miles south of downtown on the Missouri River. About 1.5 miles south of me is an area called Westport. In 1850, people beginning on the Santa Fe Trail came up the Missouri River from St. Louis to Kansas City. They purchased provisions there and made the first leg of the journey to Westport, 4.0 miles south. The terrain was so rugged it could take the better part of a day to make the trip.
Yesterday I drove most of this distance down to the River Market, had lunch, and was back in less than one hour. Travel was a few cents for gas. Last week I got up one morning, flew to Chicago 500 miles away, attended a meeting, flew back home, and went to bed the same day. The cost was less than one day's wages. What happened in the last 150-200 years? The four factors of prosperity.
I concluded the last post by noting that most of the pieces for modern capitalism existed in England, the United States, and a few other places at the beginning of the eighteenth century. Property rights were well developed, scientific rationalism was coming of age, and capital markets had become more sophisticated and integrated than they had been at any time in history. The missing fourth piece to the puzzle was power.
Many historians differ about which technological events had the most significant impact. The first steam-powered pumps emerged in England in 1705 to pump water out of mines. This technology was tinkered with over the next several decades. The watershed moment would appear to be James Watt's invention of the steam engine in 1765. It took another thirty years of tinkering before the technology could be perfected, and engines could be put to practical use.
At the beginning of the nineteenth century, production was no longer limited to the power provided to man and beast for the first time in human history. But the mass production of such machines was anything but cheap. The raw materials were expensive and had to be finely crafted by skilled laborers. The potential for exponential growth in manufacturing was staggering, but the manufacturer's cost to make engines and the cost to the end users to purchase them were equally staggering. These were the dynamics that drove governments to create laws that facilitated the aggregating of capital into limited liability corporations.
However, increased production would be pointless if you couldn't transport your products in large quantities. I noted in an earlier post that the English had developed horse-drawn rail systems for transporting coal to various distribution centers. It wasn't long before innovative entrepreneurs began exploring how to use the new technology to move these carts, and thus the steam-powered locomotive was born.
The United States faced an enormous transportation problem. I have illustrated the travel issues above. There was a desire to expand territory, but the land area was already enormous at the beginning of the nineteenth century. Then the Louisiana Purchase came in 1803 and doubled the nation's size. How could a government effectively govern such a diverse and disconnected expansive area?
Some turned to the idea of building canals. The Erie Canal, which took nearly a quarter century to build, was completed in 1825 across New York. It was far more expensive to build than the government was willing to risk, so a quasi-corporation was established to finance its construction. Some inventors took steam technology and applied it to boats that could navigate the highly developed network of waterways. Sea-going vessels were modified for international travel. Steam locomotives began appearing in England and the United States during the 1820s-1830s. Meanwhile, English engineer John Loudon McAdam perfected a road-building process called macadamization that revolutionized the quality of road construction.
The construction and maintenance of all these canals, ships, railroads, and roads required huge sums of capital. Not surprisingly, it was in the 1830s that the United States saw the emergence of limited liability companies. The railroads, in particular, would become the most powerful corporations of the nineteenth century.
As impressive as the transport revolution was, the invention of the telegraph was even more transforming. It came into use in England and the United States in the 1840s. Information could travel faster than a man on horseback for the first time. It was not just faster but virtually instantaneous. One author describes the telegraph as the Victorian Internet. Capital markets and the economy thrive on having a broad range of buyers and sellers able to have as complete a view of markets as possible. The telegraph ballooned the number of players participating in markets in real-time. Using the analogy I started with above, the travel of critical information quickly went from taking weeks and days to minutes and seconds.
We talk about today as a time of rapid transformation, but I agree with William J. Bernstein's conclusion that the most rapid change in human history is not our current era. It was the time between about 1825-1875. (4) Most of what we have seen since is a refinement and elaboration of the changes experienced during those times. The internal combustion engine was invented during the nineteenth century. It further expanded our ability to travel by automobile and at radically reduced costs. The technology was further elaborated to create air and space travel in the twentieth century. The electricity critical for telegraphs (which morphed into telephones) created power for almost everything we touch. Radio waves were discovered and turned into radio and television signals in the twentieth century. Microchips were invented to handle electronic signals. They were made into computers that morphed with telephones and wave technology to create our present digital and wireless communication networks, including the internet and cell phones. Then there is the controversial development of atomic energy. The list goes on.
Each subsequent step has expanded and integrated ever-broadening markets. Science and technological knowledge have mushroomed and are more widely shared than ever before. (An astronomy professor friend tells me we have learned more about the universe in the past ten years than in all human history combined.) All of these have led to broadening (though clearly uneven) prosperity throughout the planet. As Bernstein notes, when a significant number of people in poverty begin to experience prosperity, they begin to take a greater interest in the rule of law and property rights to solidify and perpetuate that prosperity.
This is not to say this transition of the past 200 years has been absent from its share of abuse or harmful effects. Dissecting every influence of these technological changes is beyond our scope here. The point I hope is clear is how the emergence of property rights, scientific rationalism, and capital markets interacted in a way that gave birth to modern technology and infrastructure. The rise of this technology and infrastructure put pressure on the other three, leading to their transformation and elaboration. The four combined have generated the prosperity we know today.
(1) Allan R. Pred Urban Growth and the Circulation of Information: The United States System of Cities, 1790-1840 Cambridge, MA: Harvard University Press, 1973. 37.)
(2) Ibid, 176-177.
(3) Ibid, 175-185.
(4) William J. Bernstein The Birth of Plenty: How the Prosperity of the Modern World Was Created New York: McGraw Hill, 2004. 187-188.
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