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Fogel and Quantitative Methods: Alternative View on the Railroad

Many historians and economists have argued that the railroad was the most important
innovation to the growth of the American economy. It was shown to be the force behind the
movement of agriculture, rise of the corporation, industrial and manufacturing development,
urbanization, growth of cities, expanding trade, abandonment of canals and rivers, population
growth, and increased commercial activity. However, Robert W. Fogel argues that the railroad
was not indispensable to the American economy using quantitative counterfactual methods.
Fogel sought to quantify the railroads' contribution to U.S. economic growth in the 19th
century by simulating what wagons, canals and natural waterways would have done had the
railroad not existed and determine the price of transportation in the two scenarios. In his first
scenario, he removes all railroads and in his second scenario he replaces railroads with
Midwestern canals. He found that either way transport would have been good and cheap. He
concluded that by 1890, output per capita in the United States was a few percent more (2.7% of
1890 GNP) with the railroad than it would have been had the railroad not been invented,
important, but not as transformational as argued by others. Fogel states that the argument that
railroads were indispensable to the American economy is based on an association between the
growth of the rail network and the growth of the economy, not a causal relationship.
Although Fogel does not consider spillover effects on other economies outside America,
he presents a strong technical and quantitative analysis, collecting data about prices, quantities,
and use of assets, and through data analysis, he fills the gap where an innovation replaced
something else tells you it had a cost advantage, but not the size or importance of that cost
advantage or the aggregate gains to society through his concept of social savings.
Fogels social savings is the difference between the cost of shipments carried out by some
combination of rail, wagon, and water haulage and the alternative cost of shipping exactly the
same bundle of goods in exactly the same pattern without the railroad. The year 1890 contained
the specific event Fogel needed to calculate this difference, where a certain bundle of agricultural
commodities was shipped from the primary markets to the secondary markets in a certain
pattern, with certain tonnages moving from each primary market city to each secondary market
city, carried out by some combination of rail, wagon, and water haulage at some definite cost.