Friday, 12 September 2014

Economic myths: Victorian railways were private enterprise

Sobers repeats the Faux Lib myth:

The State did indeed build the M4, but the growth of Swindon was driven entirely by the building of the railway works by Brunel, which was private enterprise, not the work of the State at all.

Victorian railway companies were indeed privately funded, but without the intervention of the government on behalf of society as a whole ('the State'), they would never have happened; all those railway companies depended very much on the government.


Because to build a railway from A to B you need to be able to buy up lots of strips of land from hundreds of different landowners; without an Act of Parliament giving you compulsory purchase orders (or whatever they were called in those days), the railways could never have been built.

And why would you want to build a railway from A to B? Because there are people and businesses at A and people and businesses at B; by shortening the effective distance between the two, extra value is created and the railways taps into that added value.

So without 'the State', being the sum total of the people and businesses at A and B and the government to ride roughshod over the rural landowners in between holding out for their ransom payments, the railways would never have been built; and although private individuals stumped up cash up front to build the railways, they got their money back from 'the State' in the end (in ticket prices etc).

PS, all the railways ended up going bankrupt and being nationalised anyway, even though this was not entirely their own fault.


Demetrius said...

There was a huge amount of regulation as well. Also for over a century the mail and parcels went by rail over any distances, in effect a subsidy. Also, count all the troop and naval movements. The state provided an inspectorate and a few other things.

Lola said...

@@D and prices were controlled as well.

Sobers said...

Thats all irrelevant to whether Swindon grew or not, because Swindon grew because Brunel decided to build the GWR engine works near Swindon. The railway could have come past Swindon (the original Swindon, Old Town as its known now, is a mile from the station and the works) and it would have been no more affected than any other small market town that the railway came near to, if the works hadn't come too. Royal Wootton Basset had the main line come right along side it, it didn't turn into a 100K population town, which Swindon was by 1970, when the M4 was just about to arrive.

Brunel could have put the works anywhere along the line he liked, or indeed not built one at all and just bought in his locos and rolling stock from 3rd party manufacturers. But he wanted a 7 foot gauge railway and was a control freak who liked to be in charge of everything on a project down to the last nut and bolt, so wanted his own designs built in his own works. And thus modern Swindon was born. Nothing to do with the State, everything to do with IK Brunel.

JJ said...


1. Swindon was chosen because it was at the junction of the mainline (to Bristol) and the branch line to Gloucester and because of its proximity to the Somerset coalfield which was reachable via the Wilts & Berks Canal. It was also relatively central to the whole Great Western network.

2. The state had a pivotal role in the route of the main line as they upheld the Marquess of Ailesbury's objections to the line running through his land in Marlborough. The state decided the route in most instances.

3. The idea that Brunel could not have built a works is laughable, most railways that ran their own services did.

Lola said...

I would think in the LVT Nirvana the Victorian railway boom was bang on the money. Land being a 'national asset' can be made available to entrpreneurs who wish to invest their own wealth in pursuit of profit in a scheme which - as is the way with capitalism - will benefit everyone. (yes, yes I know I know about land values).
The point is that the railways were entirely built with private capital, risk capital at that. This is materially different to the funds being squandered by Government on HS2 which no private investor wants any part of.

Mark Wadsworth said...

D, that's true, but the government also imposed price caps on railways which it didn't impose on road transport etc.

S, you seem to be gloriously missing the point as per usual.

JJ, more good points, ta.

L. we are not disputing the the Victorian railways were privately financed, which is nothing like HS2. Most investors seem to have lost money investing in railways, heck knows how it all worked.

Lola said...

MW. Indeed. One of the first major busts of the railway mania was precipitated by the over-extension of its balance sheet by a london bank who's name escapes me pro tem. But, owing to the Gold standard and the Bank of England actually doing the right thing and letting it go bust it wasn't really a problem.
I think, although I am not sure, that the railways were killed by WW2. They were nationalised rather than repaid for the war damage.
My personal opinion is that Nationalisation was a Bad Thing. BUt there again so is subsidising them now. Better to leave that wealth in private hands. Who knows, it might accellerate autonomous vehicles and fuel cell development making railways even more redundant.

Lola said...

Found this:

JJ said...


1. The money the railways received when they were nationalised was tantamount to being compensated for war damage. I'd say they got off lightly considering Germany could've actually won the war. Also as far I am aware the railways weren't in the best of shape economically before the war anyway.

2. Whilst I am aware you have an ideological objection to the government running things you are letting your dogma get in the way. Nationalisation wasn't a bad thing in itself, the problem was the decision making that occurred absent raising government revenue through property taxes (more specifically land value tax).

3. The funding the railways receive is no more a subsidy than the cost of maintaining a lift in a tower block is. It is the maintenance cost of ESSENTIAL infrastructure that in the long run more than pays for itself. The fact that the railways don't receive back all that they create is the real issue.

4. I'm surprised a libertarian would want to enhance government surveillance capabilities with automated personal vehicles.

5. Your desire for automated cars and your quips about the railways being on their way to redundancy belie your agenda. Basically as long as dense cities are economically efficient railways will never be redundant.

Lola said...


1. Not really. They were nationalised - that is compulsorarily purchased. That is in no way a subsidy. Yes, the railways had struggled between the wars with the advent of the motor vehicle and the effects of the depression precipitated by the inflation following WW1. But, they had rationalised themeselves and introduced new services and marketing and were starting to prosper again in the new circumstances.
The point about Germany possibly winning is irrellevant. They didn't. They came second.
2.Careful with the 'idealogical' word. There can be no idealogy in liberty. Funding the railways through LVT is still a subsidy. Better to make it possible for the railway to benefit from the uplifted land values and then tax that. I think Singapore and Hong Kong have a mechanism for this. But I do agree that if you are engaged in a grande projet that benefits a particular set of land owners - Crossrail, HS2 - said land owners should pay. But that still does not mean that it needs to be nationalised.
4. No such thing as 'essential' infrastructure. I have no mains drains or sewerage at my house. No gas and no street lights. Often our electric goes wrong. I deal with all that privately at modest cost. As regards trade arteries you can look to the Causey Arch as to how private money can provide useful infrasructure.
4. Of course I want technical development. The problem is the coercive state assuming it has the right to surveille me. You have made my argument for micro-government for me.
5.You cannot possibly know that. Suppose just suppose that the science fiction transporter technology as shown in Star Trek can actually be made to work. (It can't). Why would you ever need a railway again? In fact I have worked as a design engineer on highway jobs where roads were built on the routes of redundant railways. The point is the 'market' generally sorts it all out, because the market - unlike government is motivated by profit and loss to work to more and more efficiency all the time. It wants to do more for less every day, unlike government bureaucrats whose motivation is precisely the reverse (see Parkinson's Law).

Mark Wadsworth said...

L, I must admit I tend to agree with JJ on this one.

"In fact I have worked as a design engineer on highway jobs where roads were built on the routes of redundant railways. The point is the 'market' generally sorts it all out,"

Aha, but without the government the railways would not have been built, as a result of government intervention (for better or worse) a lot of railway lines were shut down, as a result of which the government owned these strips of land and then the government decided to build roads instead.

This will be a positive overall outcome in many cases, but that whole sequence of events is far from 'free market micro government'.

Perhaps in a truly free market, that road would have been built anyway, but any project which involves acquiring land from more than one party (who would otherwise hold the private business to ransom) requires government intervention.

So roads, railways, sewers, national grid and so are all things where the government has to get involved, it's all to do with land and land values i.e. national wealth.

The bulk of businesses, which are not dependent on acquiring control of very particular large areas of land, do not require any such intervention.

So e.g. manufacturing cars or trains themselves is inherently a private thing.

JJ said...
This comment has been removed by the author.
JJ said...


1.a. Those that owned shares in the railways knew that the government had the right to commandeer their assets at time of war.
b. I never said it was a subsidy, I said the compulsory purchase was tantamount to being compensated. Also complaining about compulsory purchase is a bit rich considering how the railways came into being in the first place
c. The German point is entirely relevant because the alternative to war damage was Germany invading and plundering.
d. As far as I am aware at least two of the big four were on the brink of bankruptcy, hardly prospering.

2.a. Statements like “there is no ideology in liberty” betray the ideology in you. Co-opting the term liberty is clever as it allows you use the positive connotations the word evokes to mask the reality of what you actually mean. True liberty cannot exist; the “liberty” that you seem to advocate (evidenced in these comments) would be a backwards step.
b. When did I ever say we need to have a nationalised railway? I said “nationalisation wasn’t bad in itself” and it isn’t. A nationalised transport network funded mainly through LVT would be a very good outcome.

3.a. Without cities we couldn’t sustain the population we do and without their infrastructure those cities couldn’t exist or at least if they did they’d be places you go to die in your 30s. Now I don’t know about you but I’m quite happy to be alive so I’d argue all that infrastructure which enhanced our wealth and created the conditions which allowed me to exist are pretty damn essential.
b. Using yourself a business owner that lives in rural Suffolk as an example is more than a little bit misleading. It does however substantiate the idea that libertarians would happily send us back to the dark ages if it meant “liberty”.
c. Causey Arch was hardly an artery. Also as far as I can tell it was built on unenclosed common land. It is a pretty irrelevant example. The dense and well developed network we have today could not have been built with private money alone.

4. I haven’t made any argument for you. In fact I never expressed any opinion on whether government surveillance of automated vehicles was a bad thing. Also at no point did you say that we should have automated cars on the proviso that government be small beforehand. I was just drawing attention to the fact that automated cars contradict your ideology.

5.a. If we had a world with transporter technology then there would be very little reason to live in dense cities. And it was the fact that dense cities are now efficient which led me to say railways wouldn’t become redundant.
b. Many routes were made redundant using voodoo economics and would be more than viable today.
c. The Jubilee line is evidence to contrary as its routing is far better than that of the original proposal from Olympia & York. It’s clear that without the right incentives the market isn’t always best.
d. With LVT the incentives of government change as does how we evaluate their successes. So in this instance your anti government rant is moot.

Lola said...

Except that the ex railway route we used had returned to private was the alignment that was useful and its legacy of disrupting the land use pattern.

I do not tnink I am explaining myself properly.

Private capital sees an opportunity in building a road, a railway, electric distribution etc. etc. They recognise that they are going to need 'government' to help them get access to the land needed. Agreed.

But the thing is driven by prospective profits.

When the state funds the thing it does so by coercion and - mostly - they use this power to fund various boondoggles.

Overall the government is pretty crap at coordinating anything.

Lola said...

Apologies JJ - just too bloody knackerd to carry on chat now. Will try to find time tomorrow.

Kj said...

Lola:" Funding the railways through LVT is still a subsidy. Better to make it possible for the railway to benefit from the uplifted land values and then tax that. I think Singapore and Hong Kong have a mechanism for this."

That´s the thing. What Hong Kong does is allow the tube company to retain all the gains to land from the property that the tube company owns, like a lease without payment. That´s sort of what you are talking about, but it´s still a subsidy, as far as everyone else pays the agreed upon lease except the tube company. So ok, this means that the company is theoretically "free market", and can make their decisions on their own accord, but the difference is as JJ says, largely ideological. I don´t think trying to emulate this would necessarily work everywhere, but the obvious thing, that most govts in Europe does (and the UK as well), is subsidise much of the capital bit of rail infrastructure, and have regulated private companies drive on the tracks. It won´t be perfect, but neither is Hong-Kong´s solution.

Bayard said...

"Most investors seem to have lost money investing in railways, heck knows how it all worked."

Not so. The railways, and the canals before them were classic bubbles. The earlier routes made huge amounts of money for their shareholders, but also collared all the best locations, leaving the late-comers to invest in ever dodgier schemes, but convinced by the example of the early birds that they were going to make a fortune.