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Private capital, public credit and the decline of American railways in the mid-20th century

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  • Cohen, Jim

Abstract

From the mid-19th Century until the Great Depression, banks, insurance companies and other large institutional investors supplied railways with external capital that supported their rise to near hegemony over transport in the U.S. This regime ended in the 1930’s, when widespread rail bankruptcies threatened broader credit markets. The federal government intervened via a powerful, new, public financial intermediary—the Reconstruction Finance Corporation—to socialize devalued rail debt, which largely removed private institutional investors from rail capital markets. At this defining moment, the Roosevelt Administration could have used its financial and political leverage to rationalize structural weaknesses in the rail industry. It did not. Thus by the time the Depression ended, railways were significantly weakened vis a vis their increasingly successful competitors in highway-based transport. Thus, the decline of American railways was caused more by financial factors than, as existing historiography suggests, by either excessive government regulation or failures of railway management.

Suggested Citation

  • Cohen, Jim, 2009. "Private capital, public credit and the decline of American railways in the mid-20th century," MPRA Paper 17495, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17495
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    File URL: https://mpra.ub.uni-muenchen.de/17495/1/MPRA_paper_17495.pdf
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    References listed on IDEAS

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    1. Michael D. Bordo & Claudia Goldin & Eugene N. White, 1998. "The Defining Moment: The Great Depression and the American Economy in the Twentieth Century," NBER Books, National Bureau of Economic Research, Inc, number bord98-1, January.
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    More about this item

    Keywords

    Capital markets; railways; role of state;

    JEL classification:

    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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