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Saturday, March 10, 2007

Economic Development in the Great Northwest

This discussion of economic development in the Great Northwest in the late 1800s, particularly the development led by the installation of rail lines, is from the Minneapolis Fed:

Claire Strom on James J. Hill's legacy and influence on the northern Great Plains, FedGazette. FRB Minneapolis: ...fedgazette: Before we can talk about the development of rail companies in what was then known as the Great Northwest, we first have to discuss the role of government in the development of rail lines. Please describe the influence of government on rail development in the latter decades of the 19th century.

Strom: The key problem for all of the West was that railroads could not be developed in the same way that they were in the East. In the East, you ran a rail line from Town A to Town B, started traffic between those two towns, and from that you were able to generate enough income to extend the line to Town C. The problem in the West was that there were no towns. So, in the case of transcontinental railroads, for example, you had to build a rail line from St. Louis all the way to California before you could effectively start to generate profits. And no company could afford to front that kind of money.

Likewise, many believed that the federal government should get involved, and there was much congressional discussion about this before the Civil War. However, they couldn't decide whether there should be a southerly or northerly route to the West Coast. Once the Civil War started, of course, the sectional rivalry in Congress disappeared because the two sections were split. At that point the federal government—the Union government—could commit to aiding railroads, and the first railway land grant was issued in 1862. Most of the great transcontinental railroads were built with federal land grants.

It quickly became apparent that rail companies were abusing these land grants—by getting multiple grants, for example, from federal, state and local governments. There were also famous scandals that occurred and, so, by the 1870s and 1880s, the federal government had lost its appetite for issuing these grants to rail companies. The Great Northern [James J. Hill's line], then, completed in 1893, was the only transcontinental line built without federal land grants. It did receive state grants, though.

fedgazette: Land grants for rail lines, of course, had a great impact on the development of this region. However, other pieces of legislation at that time had an equally important influence.

Strom: That's right. There were three huge acts in 1862: the Pacific Railway Act, the Morrill Land Grant Act and the Homestead Act (see sidebar). So, in terms of transforming the West, 1862 was a crucial year that really redefined the landscape of the American West.

The Homestead Act and the land grant acts for the railways really work together, of course. Indeed, in many cases, settlers chose to homestead on land that belonged to the rail companies precisely because it was along the railways. The rail companies got to choose the better land, and since homestead land was often fairly poor, some settlers actually bought land from the rail companies. So if you had a little money, it was a better deal to purchase land than it was to homestead. And, in fact, that was how a lot of rail companies made their money—they didn't make their money through freight, but made it through selling land to settlers.

And the problem becomes, especially with the Southern Pacific and Union Pacific, that they built really bad rail lines. Some sections of track had to be replaced before the whole line was completed because they didn't care about the line as much as they cared about getting it done so they could get their hands on the land.

Now that, again, is why the Great Northern was such a distinctive line. Hill and his cohorts had to make money from the railway, so they built a good railway. And it was the only one that really had high-quality steel; it was the only one where they were very careful to pick the flattest pieces of land that best passed through the mountains. So, out of all the transcontinentals, it was the best line.

fedgazette: So let's talk about Hill's big idea to build an intercontinental railroad. He begins locally, in Minnesota, with regional lines, correct?

Strom: Well, he bought a Minnesota line that had to cross the Canadian border by a certain date or he would lose its state land grant—this was the only land grant that he did have. And he and [railroad entrepreneur Norman] Kittson and some other financiers bought the line and met the deadline.

Then he wanted to go west. Now, Hill was a Canadian, and he initially wanted to push westward through Canada. And the Canadians wouldn't let him; in fact, he waged a huge battle with the Canadian Pacific. Losing, he eventually dropped down back into the United States and laid his track along what became Route 2, about as close to the border as you can get without being in Canada.

fedgazette: So this brings us back to a previous point: Hill had to build a line and earn a profit without federal land grants. Was this what influenced his involvement in agricultural development? Was this his incentive to get involved?

Strom: Very much so, but there's a combination here. As I always tell my students, people are very complex and they often have multiple motivations, and usually we find ways to bring all those motivations into sync so they support each other. Hill very much wanted to see a pattern of small, family-owned farms across the northern Great Plains. He thought that would be best for America; he thought that would be best for the settlers; he very much subscribed to the Jeffersonian philosophy of a rural America. He was also a neo-Malthusian, who believed that the cities in the East were becoming too big and that they would soon tax the finite resources available to support their booming populations. Farming the new frontier would address this problem.

In combination with this vision was a more practical aim. If his ideal had come to pass, it would have provided a huge amount of money for his railroads. Now, I don't think that means he was any less idealistic. I think he really believed in his ideals. But, of course, he had a very good economic reason for that belief. And so, over the course of his life, that was what he was trying to promote on the northern Great Plains—these small, family-owned farms.

He started off here in the [Red River] Valley, and he riddled the area with branch lines to serve the bonanza wheat farmers. His railroads made huge amounts of money taking that wheat down to Minneapolis. But he didn't like those big bonanza farms, even though he owned one himself. So he subdivided his, put houses on those subdivisions and sold them as small family farms. That worked, somewhat, in the Valley, where we've got good soil and relatively good moisture, but further west this was just not going to work.

Hill did not put all his eggs in one basket. He was always looking for other ways to make the lines profitable: He invested in township formation, like in Great Falls, Mont.; he invested in mining; he invested in coal; he invested in irrigation for apple orchards in Washington state. And those investments tended to be successful. For example, he worked very closely with the Anaconda mine in Butte, Mont. So it was not like he was just out there trying to promote agriculture; he certainly did other things to make his lines successful.

But agriculture was something that he was particularly interested in, and it was something that succeeded, but not in terms of his vision. Agriculture on the Plains remained extensive rather than intensive. You can only make good profits from vast acreages; you have to move to mechanization; you have to import labor—it became a commercial endeavor rather than a family-farm endeavor, which was what he wanted.

fedgazette: Let's talk about that a little more. Those idealistic notions of rural America are still very much alive today, even after they've been challenged for so long. Indeed, 100 years ago people on the Plains understood that farming in this region was a hardscrabble life and—as you note in your book—there was a big movement of people off the Plains and into the cities, a movement that continues to this day. What was Hill's reaction or understanding of this phenomenon?

Strom: If you go back—and I'm primarily an agricultural historian, not a railroad historian—to the earliest Colonial days, commercialization of farming has always been the name of the game. So by the early 20th century, this was nothing new. And yet we always have this myth of this Jeffersonian yeoman and how it would be so wonderful to have lots of small-scale, family-owned farms, growing mainly for their own subsistence with a little extra for the market. We still have it, as you say, even today.

It strikes me—and I may be wrong in this—but it strikes me that the people who talk the loudest about how we need those family farms are people who aren't living on them. And Hill didn't live on one either. He lived in St. Paul and New York. He had an apartment in Paris. He was well-set to tell people in North Dakota how they should live. Hill wasn't alone in this regard. There were plenty of others willing to say that others should go west and experience the pure life, who didn't follow their own advice, such as Horace Greeley, the newspaper publisher from New York City. But that's the way people are—they like to tell other people how to live.

fedgazette: When it comes to agricultural concepts, Hill was involved in many, from grain farming to raising stock. One of the most influential ideas at the time was that of dryland farming. Please describe this notion and its influence on Plains development.

Strom: Dryland farming is a term that incorporates a huge variety of techniques and agricultural science. Basically, it's a way to produce crops—and at this time, especially wheat—on arid land. The basic question was: How do you maximize water retention? And the answer could be anything from the species of wheat to grow to using cover crops to irrigation to fertilization. But at the time that Hill was working, the two key issues were crop rotation and deep plowing.

The way that plowing worked is that your plow dug very deeply, and that encouraged capillary action—so the theory went—that would get the water up toward the surface and to the root of the plant. And at the same time, the plow would tamp down the surface ground and provide a barrier so the moisture in the ground would not evaporate. Did it work? Perhaps somewhat, but this was a time when there was actually fairly good rainfall on the Plains. So while (farmers) were congratulating themselves for this new technique, they may have actually just benefited from higher-than-average rainfall.

This dryland farming boom—and it wasn't just Hill who was promoting this—caused floods of immigrants to move to Montana and the Dakotas. Then the bubble burst, if you will, and dry years returned. There were counties in Montana during this time that lost their entire population. Things just dried up, went away. And you don't see much wheat out there these days.

We also have to remember that this was a time when Americans were deeply optimistic about what they could achieve. They fundamentally believed that man and science could conquer any obstacle. We perhaps have a more complex view of our relationship with the environment 100 years later.

fedgazette: Hill also spent a great deal of time and resources on breeding stock, from horses to cows to beef cattle.

Strom: That's right, his dream was to have these family farms with healthy pigs and chickens and cows. A family would be able to sustain itself and then produce extra for the market. He did everything in his power to introduce quality stock into the region's farms. And in some instances, he was very successful.

One of the things he did, a number of times, was give away breeding stock to farmers along his lines. And the condition was that the bull or the boar would act as sire for neighboring farms. Now, with the pigs, he was very successful; he did improve the breeding stock. But pigs are easy to keep. Purebred cattle, on the other hand, on the northern Great Plains, were really difficult to keep. They took a lot of work, and the winters were long and difficult, making care that much harder. Often the farmers ended up killing the bulls and had good Sunday dinners for a while, and that was the end of that idea.

fedgazette: One thing you do in your book is take on those historians and history popularizers who give a lot of credit to Hill for influencing the development of agriculture. Why are they wrong?

Strom: Hill was terribly active in agricultural issues. He was front and center at state and county fairs, in state legislatures, at congressional hearings, and involved in major legislative issues. If you were around and you were engaged in agricultural development at that time, you would have known him. I think most historians have only looked tangentially at this question, and what they see, quite rightly, is this guy who was in everybody's face when it comes to agriculture. He was everywhere.

And when I looked at that question, I recognized that, yes, he was front and center, but very little of what he wanted actually came to pass. And when it did, like dryland farming, he was only one of many promoters. It wasn't like he was the only one beating the dryland farming drum and changing people's minds.

Where I can accept that he was cutting edge and influential was with the type of railroad he built, the quality of railroad he built, the way he financed the railroad—that was just remarkable. As far as agriculture goes, he was pretty much a neophyte and a failure. He failed in other things too. That shouldn't surprise us, of course. We all fail in aspects of our lives, and that doesn't make us woefully inadequate people; it makes us human.

fedgazette: Thank you, Professor Strom.

    Posted by on Saturday, March 10, 2007 at 12:39 AM in Economics | Permalink  TrackBack (0)  Comments (2)


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