Saving Communities

Bringing prosperity through freedom, equality, local autonomy and respect for the commons.

How to Fund Transportation

Nothing is more important to civilization than transportation and communication, and, apart from direct tyranny and oppression, nothing is more harmful to the well being of a society than an irrational transportation system. Trade is essential to economic vitality, and transportation is essential to trade. This essay examines the irrationality of our transportation system, the consequences of that irrationality, and, most importantly, how our funding methods drive that irrationality. It also examines the right to travel, established under common law, reasserted in the Magna Carta, and recently eroded in the United States.

Today transportation is in crisis, partly because we have ignored long recognized common-law principles. We sketch the history of transportation only to illustrate important principles that can save us from the current crisis. Pittsburgh and Philadelhia, Pennsylvania are the primary examples we use for discussing local transit, only because the author is from Pittsburgh and has given seminars on transportation funding in Philadelphia, and has better access to sources and examples in these cities. Similar patterns apply in most US cities.

We will make the case that transprotation systems, and particularly the rights of way themselves, should be publicly owned and operated, and that they should be funded from a tax on the land values they create. These principles apply to all transportation systems, from airports to elevators, from highways to canals and river locks. Our failure to adhere to these principles throughout our history has turned our transportation systems into opportunites for plunder and corruption.

Transportation and Land Use

Transportation dictates land use. Before the rise of mechanization, travel over land was limited to the speeds and distances that people and animals could walk, and freight was limited to what they could pull. Towns and villages developed near waterways, and profitable farms had to be located within hauling distance of the towns and villages. Land just beyond the edge of towns had no value other than farm value, and land more than a few miles from towns was not even worth farming. The size of cities was therefore limited to the number of people that could be fed by nearby farms, except where food could be shipped by river. River transporation was mostly for freight, and water freight (especially crops, timber and minerals) mostly travelled downstream.

Trade between distant communities became possible once sailing vessels harnessed wind power. Maritime empires came to dominate earlier land-based empires, first along the Mediterranean, where calm waters accommodated smaller, more primitive sailing technology, and then along the Atlantic Coast of Europe, once people learned to build and sail larger, ocean-worthy vessels. Ocean trade made larger cities possible.

The American colonies developed after sailing technlogy was well established, but before the advent of powered engines. Almost all colonial cities developed next to natural harbors. New York, which had the highest capacity deep-water harbor, has naturally become the largest city in the United States.

The location for Philadelphia was chosen based on its access to both the Delaware and Schuylkill Rivers. Because the banks where these rivers converged were swamplands, the city developed where the rivers came closest to one another.

Transportation and Land Value

The most important determinant of land value is access to population centers, and the best access to population centers is in the population centers themselves. Population centers developed at crossroads, confluences of navigable rivers, and at harbors of oceans, seas and large lakes. The major exceptions were where precious minerals were discovered; even in these exceptional cases, establishing transportation became an immediate priority.

Land value increases with utility, but also with scarcity. That is, land of similar qualities will be more expensive in a region where good land is scarce. Holding land out of use increases the scarcity of land that is available for use, artificially increasing the price of land. In Europe, enclosure acts converted feudal lords into land owners and crowded non-nobles into cities and towns. This crowding drove rents up and wages down, triggering the poverty associated with the Industrial Revolution.

It also triggered massive migration to North America, where there was so much land that its monopolization would not become as advanced as in Europe for centuries. As land was so much cheaper, wages went much further. Workers and entrepreneurs prospered together. This period of low-rent, high-wage, high-profit prosperity occured under both minimal government and minimal rents, in stark contrast with the misery of workers in high-rent Europe. This era of worker prosperity made Americans more receptive to the idea of free-enterprise capitalism.

Migration was also accelerated by the ocean steamer, which reduced ocean crossing times from six weeks down to six days. However, the United States had the same basic land tenure system as England, and speculators were rapidly grabbing up land, with the oldest coastal cities becoming the most monopolized and the most expensive. Transportation to more affordable inland settlements was still expensive, and most immigrants arrived with barely enough money to get a start in the coastal cities.

This rapid influx of stranded immigrants led to sweatshop conditions and low wages in American port cities, but even these wages were higher than in European cities. [Sombart] Horace Greeley's advice, "Go west, young man," was in recognition that wages and opportunities are greater where land is less monopolized. The United States continued to be the "land of opportunity" until the frontier closed. New transportation technology also brought rural land onto the market and helped slow the rise of urban rents, especially with the advent of the automobile.

Rail lines turned idle farmland into affluent neighborhoods. Railroad executives and their cronies bought up as much land as they could before the public knew where the new lines would run. Philadelphia millionaires built "summer homes" at the end of the Reading Railroad's Chestnut Hill line, and Chestnut hill is still the most affluent neighborhood in Philadelphia.

Some of the Chestnut Hill Mansions near Reading Station

Even more affluent is Sewickley Heights, upwind of then-smoky Pittsburgh, and just a short carriage ride from the Sewickley Station of the Pennsylvania Railroad's commuter line. Although passenger trains no longer to run Sewickley, it is still the most affluent neighborhood in Pittsburgh's Allegheny County.

Aerial view of some Sewickley Heights mansions

Speculation, transportation and monopoly

Canals, railroads, trolley lines, roads and airports can dramatically increase the value of land served by them. Those who who had acquired land before it was served by new transportation systems reap what economists call "unearned increments" in land value. The desire for such windfalls has perverted transportation policy throughout history, especially when those who have reaped the windfalls either had not paid for the transportation or were granted artificial privileges related to the transportation.

Transportation lines are "natural" monopolies in that they require exclusive right-of-way grants. Monopoly prices are not limited by competition, but by "whatever the market will bear." Privately owned transportation lines are notorious for price-gouging those who depend on the lines, to the detriment of the communities served. In contrast, publicly owned lines are often subsidized in order to keep rates down and encourage more people to use the lines. This is rational if the subsidy increases land values by more than its cost. We will dicuss this more in the context of the current transportation crisis.

The era of private railroads and trolleys

Nothing exposes the folly of granting licensed monopolies like the history of railroads and trolleys in the United States.

Before the Civil War, most American roads and canals were publicly owned, but railroad rights of way were turned over to private corporations following the English model. Most countries in continental Europe retained ownership of the rights of way, sometimes allowing private companies to maintain the rail and ballast on long-term leases as common carriers. Competing companies could run rolling stock under management of the leaseholding company. This arrangement made it easier to nationalize railroads in continental Europe than in England and the United States, where railroads hold right-of-way privileges in perpetuity.

The Republican Party was formed as a coalition of several reform parties. The largest of them was the Free Soil Party, which opposed large land grants and instead advocated that land be given in small grants to actual settlers. However, the Free Soil Party also advocated the constrution of a transcontinental railroad to provide more access to land, and the Republican party embraced both positions. This attracted unscrupulous financiers to the Republican Party. The demands of the Civil War made the government so dependent on financiers and industrialsts that, by the time the war was over, this party of reformers was in the hands of the interests it had opposed.

The rush to build railroad empires was so great and the politial influence of bankers and speculators so strong that the country was rocked by scandal after scandal, involving massive land grants and inflated subsidies, bribes and kickbacks to elected officials, price gouging of farmers, ranchers and settlers, rate wars designed to eliminate what little competition existed, and preferential rates for "connected" customers. John D. Rockefeller's oil empire was built by using his railroad power to see that competitors were overcharged.

Henry George, who would become the most famous economic reformer of the 1880s, began his reformist career in 1868 San Francisco, with the article "What the Railroad Will Bring Us," and Terence Powderly, as head of the Knights of Labor, would launch the US labor movement on a platform opposing land monopoly, railroad and telegraph monopolies, and banking privilege. George and Powderly are featured below in a front-cover cartoon for Judge Magazine, for taking on railroad monopolist Jay Gould.

In the above cartoon, while Jay Gould is admiring his monopolies and his smashed competition and Henry George looks on, Terence Powderly is poised to give him a good whacking with a cane labelled "Powderly's Speech."

The caption reads: CAUGHT NAPPING: "We are Knights of Labor because we believe that the thief who steals a dollar is no worse than the thief who steals a railroad... and that the law should reach out with a firm, unshaken hand and punish both criminals according to the magnitude of their guilt." - Powderly's Address

In the era of political machines, "patronage" meant contract and franchise patronage. The most lucrative franchises for New Yorks's Tammany Hall bosses and their backers were streetcar franchises. Overcharging for crowded streetcars was so lucrative that the streetcar companies forced delays in construction of the New York subway system for more than a decade. Finally, after the Belmont Company had effectively taken over most of the city's streetcars, it engineered a deal where the city paid for the construction of the subway and then turned it over to Belmont to run for fifty years as a private monopoly. [McClure's]

The first major contract was with the Pennsylvania Railroad to excavate the city and bring trains into Pennsylvania Station. [History of Tammany Hall]

Pennsylvania's major cities were even worse in some ways, because the city, state and national governments had all been under the same political party for over forty years and all backed by the same corporate interests, and all cooperating with one another. Like New York's Tammany Hall, Pennsylvania's machines were based on contract and franchise patronage, with railroads leading the way.

In the State ring are the great corporations, the Standard Oil Company, Cramp's Ship Yard, and the steel companies with the Pennsylvania Railroad at their head, and all the local transportation and other public utility companies following after. They get franchises, privileges, exemptions, etc.; they have helped finance Quay through deals; the Pennsylvania paid Martin, Quay said once, a large yearly salary; the Cramps get contracts to build United States ships, and for years have been begging for a subsidy on home-made ships. The officers, directors, and stockholders of these companies, with their friends, their bankers and their employees are of the organization. Better still, one of the local bosses of Philadelphia told me he could always give a worker a job with these companies, just as he could in a city department, or in the mint, or post office.... The traction companies, which bought their way from beginning to end by corruption, which have always been in the ring and whose financiers have usually shared in other big ring deals, adopted early the policy of bribing the people with" small blocks of stock." ["Philadelphia: Corrupt and Contented," by Lincoln Steffens]

Pittsburgh's experience was similar.

The railroads began the corruption of this city. There "always was some dishonesty" as the oldest public men I talked with said, but it was occasional and criminal till the first great corporation made it business-like and respectable. The municipality issued bonds to help the infant railroads to develop the city, and, as in so many American cities, the roads repudiated the debt and interest and went into politics. The Pennsylvania Railroad was in the system from the start, and as the other roads came in and found the city government bought up by those before them, they purchased their rights of way by outbribing the older roads, then joined the ring to acquire more rights for themselves and to keep belated rivals out....

The city paid in all sorts of rights and privileges, streets, bridges, etc., and in certain periods the business interests of the city were sacrificed to leave the Pennsylvania Road in exclusive control of a freight traffic it could not handle alone.["Pittsburg: A City Ashamed" Steffens]

Mayor Magee and his partner, Flinn, were not content with giving plums to cronies. Rather, they took the best plums (including streetcar lines) for themselves.

Magee took the financial and corporate branch, turning the streets to his uses, delivering to himself franchises, and building and running railways. Flinn went in for public contracts for his firm, Booth & Flinn, Limited, and his branch boomed. Old streets were repaired, new ones laid out; whole districts were improved, parks made, and buildings erected. The improvement of their city went on at a great rate for years, with only one period of cessation, and the period of economy was when Magee was building so many traction lines that Booth & Flinn, Ltd., had all they could do with this work.

Magee did not steal franchises and sell them. His councils gave them to him. He and the busy Flinn took them, built railways which Magee sold and bought and financed and conducted, like any other man whose successful career is held up as an example for young men. His railways, combined into the Consolidated Traction Company, were capitalized at $30,000,000. The public debt of Pittsburg is about $18,000,000, and the profit on the railway building of Chris Magee would have wiped out the debt. "But you must remember," they say in the Pittsburg banks, "that Magee took risks and his profits are the just reward of enterprise."[ibid.]

This pattern ofstate and municipal corruption tied to private railroads and streetcars was repeated in state after state and city after city, but three states, California, Minnesota and Ohio, are worth noting, not because they are the three worst, but because their stories are the most interesting and have the most bearing on current debates.

However, California actually is the worst state for railroad domination, and has been ever since massive land grants were given to promote the trans-continental railroad. Henry George's predictions in ""What the Railroad Will Bring Us" turned out to be accurate in every detail, except that the railroad domination was even worse than George had predicted. Instead of giving railroads to California, Congress gave California to the railroads.

Map of Congressional land grants to railroads as of 1875, prepared by the Secretary of the Interior.

Railroads have ruled California politics ever since. The Union Pacific Railroad still owns more California land than all of its home owners combined. California's Proposition 13, which curtailed the proprety tax, actually increased home owners' share of the tax burden by dramatically reducing taxes for the Union Pacific and other land-rich corporations. It also launched Henry George on a crusade that would make him "the prophet of San Francisco," the most famous American reformer of the 1880s, beginning with the book, Our Land and Land Policy.

Minnesota was the nexus for J. J. Hill's Great Northern Railway. Hill is ballyhooed by conservative libertarians as an example of free enterprise railroading for building the only transcontinental railroad that took no public money, got relatively few land grants, and never went bankrupt. However, he got his start buying earlier railroads which had gotten public money and large land grants, and which had gone bankrupt. (He bought them out of bankruptcy.) His railroad went transcontinental in 1893, after the country had been shocked by previous abuses and had turned decidely anti-railroad. Hill employed a "swarm of lobbyists" in St. Paul, urging the state legislature not only to grant rights of way to his railroad, but to block rights of way to other railroads. He was also in partnership with J. P. Morgan, head of the notoriously corrupt Pennsylvania RR.

Whether credit belongs to Hill, to a change in national mood, or to the good sense of the people of Minnesota and their leaders,  the Great Northern shows that a transcontinental railroad would have been built within a reasonale time without the massive massive subsidies that went to the Union Pacific.

Ohio

Ohio is probably the most interesting state of all, due to Cleveland's "trolley wars" between two political giants who were also Cleveland's two largest trolley millionaires. Nowhere was the battle for against private streetcar franchises as notorious as it was in Cleveland.

Mark Hanna was the consummate salesman, negotiator and political operative. He dominated the Ohio state political machine as its recognized "boss" and became nationally famous for managing McKinley's successful Presidential campaign. Hanna raised unprecedented campaign funds by villainizing William Jennings Bryan and appealing to banking and other monopoly interests who feared Bryan's monetary reforms. Getting streetcar franchises for himself was consistent with Hanna's idea of politics for profit.

Tom Johnson, on the other hand, was an experienced streetcar superintendent and innovator with little interest in politics. He had invented the "Johnson Farebox," which became the national standard for streecars for well over half a century. His other inventions included steel streetcar rails that greatly outlasted the iron rails everyone had been using, flush-laid tracks that were much easier for wagons to cross,  a submerged-cable system for on-street cable cars, free transfers for users of multiple streetcars and buses, and, believe it or not, the first magnetic levitation system. (He sold his maglev patents to General Electric.) 

After taking over a struggling line in Indianapolis, improving management and making it profitable, Johnson thought he could do well running streetcars in Cleveland, which "had eight differentstreet railroad companies "owned by bankers, politicians, business and professional men who had been successful in various undertakings, but without a street railroad man in the entire list." Mark Hanna, politically quashed Johnson's bid for a franchise to an userved neighborhood in 1879, and taught the twenty-five-year-old Johnson the importance of political connections. Johnson bought out a troubled line in Cleveland and proceeded to battle with Hanna. Johnson and Hanna eventually emerged as the owners of Cleveland's only two remaining street railway companies, but Johnson held 60% of the business to Hanna's 40%. He eventually found allies in Hanna's partners, and consolodated everything into one company, with Hanna's influence greatly diminished. [My Story, Chapter 9] The Johnson Company had also acquired franchises in St. Louis, Detroit and other cities, and had built two steel mills and two company towns. Between franchise monopolies, patent monopolies and land speculation, Johnson had become one of America's youngest multi-millionaires.

This would have been just another contest between monopolists if Johnson had not read Social Problems and then Progress and Poverty, both by the reformer Henry George. George's writings convinced Johnson, his partner Arthur Moxham and his lawyer L. A. Russell, that the Johnson Company's fortunes were based largely on the exploitation of privilege and greatly exceeded his contributions to society. Johnson became George's biggest financial backer and an outspoken advocate of land value tax and the municipal ownership of public utilities, including streetcar lines. 

He then entered politics, as an "anti-monopolist monopolist," repudiating the privileges from which his own fortunes derived.  He served in Congress from 1891 through 1895, and as mayor of Cleveland from 1901 through 1909.

People who follow US national politics today might get an idea of how different these two rivals were from modern figures who emulate them. Republican operative Karl Rove has described Hanna as his personal role model, and Democratic congressman Dennis Kucinich has said the same of Tom Johnson.

http://home.comcast.net/~zthustra/pdf/a_program_for_monetary_reform.pdf

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