A mill can only sell as far as its goods can be carried at a price someone will pay, so the size of the market is set by the cost of moving a ton of it.
The previous lessons have built an industry that produces enormously more than it used to, out of materials dug from particular places and burned in particular places. None of that is worth much if a ton of coal doubles in price forty miles from the pit, which is roughly what happened in Britain before 1760. This lesson is about the two transport revolutions that removed the constraint, and about how to measure what the second of them was actually worth, which turns out to be a genuinely hard question with a surprising answer.
What it cost to move a ton
Start with a horse, because before 1830 every land carriage cost is a horse cost.
A packhorse carries about an eighth of a ton on its back. Harnessed to a wagon on a decent turnpike road, the same horse moves perhaps 2 tons. Harnessed to a barge on still water, it moves 30 tons, because water supports the load and the only resistance is drag. On iron rails, before any locomotive exists, it moves around 8 tons, since a smooth hard wheel on a smooth hard rail has very little rolling resistance.
Those four numbers, one eighth, two, eight and thirty, are most of the transport history of the period. Water beats road by a factor of 15 for the same animal and the same wage to its driver, and that ratio shows up directly in freight rates: land carriage cost on the order of a shilling per ton-mile in the eighteenth century, canal carriage on the order of one to two pence, and coastal shipping less again.
The consequence is that before the canals, heavy low-value goods simply did not travel overland. Coal, iron ore, limestone, bricks, timber and grain moved by sea and river or did not move. An industry that consumed tons of raw material per ton of product had to sit on top of its raw material or on a navigable waterway, and Britain's early industrial geography is that constraint made visible.
Canals
The Duke of Bridgewater owned coal mines at Worsley and a market seven miles away in Manchester that he could not reach cheaply. In 1759 he obtained an act of Parliament and put James Brindley, a millwright who was close to illiterate and one of the finest engineers of the century, in charge of building a canal from the mine to the town, including an aqueduct carrying the canal over the River Irwell that people came from all over England to disbelieve.
The canal opened in 1761 and the price of coal in Manchester fell by about half, from around 7 pence per hundredweight to around 3½. That was the demonstration, and it was followed by seventy years of building: the Trent and Mersey, the Leeds and Liverpool, the Grand Junction, and by the 1830s a network of several thousand miles of canal and improved river joining all four of England's major estuaries.
Example. Compare a horse hauling a canal barge with the same horse hauling a wagon, in ton-miles per day, and say what fraction of the freight rate that ratio explains.
Take a ten hour day. On the canal the horse moves 30 tons at about 2½ miles an hour, so ton-miles. On the road it moves 2 tons at about 3 miles an hour, so ton-miles. The ratio is 12.5 to 1, and the horse, its feed and its driver cost about the same either way. That accounts for most, though not all, of the eight to twelve-fold gap between road and canal rates: the canal also has costs the road does not, since somebody had to pay for the cutting, the locks and the tolls, and a canal is a fixed asset that must earn a return whether or not traffic uses it. The general shape is worth holding on to, because it recurs with the railway: the productivity gain in the vehicle is larger than the fall in the price charged, and the difference is the capital.
Now you. Coal at a Lancashire pithead cost about 4 shillings a ton. Using a land rate of 12 pence per ton-mile, how far could it travel before carriage doubled its price, and how far at a canal rate of 1.5 pence?
Answer
Four shillings is 48 pence, so at 12 pence a ton-mile the coal has doubled in price after 4 miles. At 1.5 pence a ton-mile it takes 32 miles. That single comparison is the economic geography of pre-industrial Britain in one line: a coalfield served only by roads has a market four miles wide, and one served by a canal has a market thirty miles wide, an area roughly sixty times larger. It also shows why the canal companies could charge what they liked. Their competitor was a road rate eight times higher, so a canal serving a route with no rival could set tolls far above its costs and still be the cheapest way to move anything, which is exactly what several of them did and one of the reasons the railway was welcomed by manufacturers.
What canals could not do
Canals are slow, at two or three miles an hour. They freeze in a hard winter and run short of water in a dry summer, since every lock cycle empties a lockful downhill. They cannot climb without locks, and locks cost money and time. Each company built to its own dimensions, so a boat that fitted the Bridgewater might not fit the Birmingham canals, and cargo had to be transhipped. And where a route had one canal it had a monopoly.
None of that mattered much for coal. It mattered enormously for anything perishable, anything urgent, and for people. A canal was a good answer to the question of how to move a ton of stone and a poor answer to almost every other transport question, and the gap it left is precisely the one the railway filled.
The railway
Rails and steam existed separately for decades before they were joined. Wooden and then iron wagonways had served collieries since the seventeenth century, hauled by horses, and Trevithick had put a high pressure engine on wheels at Penydarren in 1804. What was missing was a demonstration that a locomotive could do useful work reliably enough to be worth the capital.
The Stockton and Darlington, opened in 1825, was the first public railway to use steam locomotives, and it was essentially a colliery line. The decisive event was the Liverpool and Manchester, which set out to connect two large cities and held a competition at Rainhill in October 1829 to decide what should pull the trains. Rocket, built by George and Robert Stephenson, was the only entrant to complete the trials, averaging around 14 miles an hour over the distance and touching about 30. It combined a multi-tube boiler, which puts far more heating surface in contact with the water, with an exhaust blast directed up the chimney to draw the fire, and those two features are in every steam locomotive built afterwards.
The line opened in September 1830, and the opening day killed William Huskisson, a member of Parliament, who stepped onto the adjacent track in front of Rocket. It was a fair warning of what a machine moving at 30 miles an hour meant among people whose intuitions had been formed by horses.
Growth was then extraordinarily fast. British railway mileage went from about 100 in 1830 to about 1,500 in 1840, about 6,000 in 1850 and about 13,500 in 1870, an average of 13 per cent a year for forty years. The middle of that was the railway mania of 1844 to 1847, in which Parliament authorised thousands of miles at once, share prices doubled and collapsed, and railway investment reached something like 5 to 7 per cent of national income in a single year, a rate of construction Britain has never matched since.
Example. Set peak railway investment of about 7 per cent of national income against Britain's total investment rate, which by the 1840s was running at roughly 12 per cent. What follows, and what should make you cautious about the comparison?
The ratio is : at the peak, close to three fifths of everything Britain built that year was railway. Nothing else in the period comes near that concentration, and it explains why the mania shows up in the general economy rather than only in the share price, drawing in navvies, iron, timber and bricks from every other use and then releasing them all at once when the money stopped. Two cautions. The peak year is not the decade, and averaged over 1840 to 1870 railways take a much smaller share, so quoting the peak as though it described the period is exactly the weighting error the second lesson warned about. And both figures are reconstructions with wide error bars, the investment rate especially, so 58 per cent should be read as "over half" rather than as a measurement.
Now you. The mania wiped out a great deal of shareholder wealth. Why is that not the same as wiping out a comparable amount of national wealth?
Answer
Because the money had been converted into embankments, cuttings, tunnels, bridges and track, and those did not disappear when the share price did. What the crash destroyed was the claim on future earnings that investors had paid for, and the destruction of a claim is mostly a transfer: the shareholders lost, the landowners who sold rights of way, the contractors and the navvies had already been paid, and the country kept a railway network it went on using for a century and a half. Real national loss is the part where resources went into something not worth building, and there was some of that, in duplicate lines authorised because Parliament approved competing schemes on the same route and in lines begun and abandoned. But a financial loss and a real loss are different quantities, and conflating them is the standard error in accounts of investment bubbles. The useful test is what physically exists afterwards and whether anyone wants it, and by that test the railway mania looks very different from a speculation in tulips.
What the railway was actually worth
Here the subject gets interesting, because the obvious way to measure the railway's contribution is wrong, and knowing why is worth more than the answer.
The obvious method is to add up what railways earned, or what they carried, and call that their contribution. That double counts, because the goods would have moved anyway, more expensively, by canal and road. Robert Fogel's answer in 1964, applied to American railways, was the social saving: take the traffic the railways actually carried in a given year, cost it out at what the next best alternative would have charged, and subtract what the railways did charge. The difference is what the country saved by having railways rather than not.
Example. Work the method with round figures. Suppose the railways carry 5 billion ton-miles of freight in a year at 1 penny a ton-mile, the alternative would have cost 1.6 pence, and national income is £270 million. What is the social saving?
The extra cost of the alternative is 0.6 pence per ton-mile, so pence. At 240 pence to the pound that is £12.5 million, which against £270 million of national income is 4.6 per cent. So on these figures a country that woke up one morning with no railways at all, and had to move exactly the same freight by canal and road, would be about 4.6 per cent poorer. Gary Hawke's actual calculation for England and Wales in 1865, published in 1970, produced a freight social saving of about 4 per cent, and adding passengers takes the total to somewhere around 10 per cent depending on how comfort is valued. Those are large numbers for a single industry and much smaller than the railway's reputation, which is the finding.
Now you. Give one reason the social saving overstates the railway's contribution and one reason it understates it.
Answer
It overstates because it holds the alternative fixed. Had there been no railways, canal and road companies would have invested, extended and competed away some of their high rates, so the counterfactual freight bill would not really have been 1.6 pence a ton-mile in 1865; the true alternative is a better canal system than the one that actually existed, since the canals stopped improving once they had lost. It understates in at least three ways: it counts the cost of moving goods and not the value of moving them faster, so nothing perishable, urgent or seasonal is properly valued; it ignores traffic that only exists because the railway made it possible, since the demand curve is cut off at the actual quantity carried; and it ignores everything the railway did that is not freight or fares, from the national capital market that grew up to finance it to the standard time it imposed. The method is a lower bound on a well-defined question rather than an answer to the loose question of how much the railway mattered.
What no calculation captures
Two effects deserve naming because they change the country rather than its accounts.
The first is time. Before railways every town kept its own solar time, so Bristol clocks ran about ten minutes behind London. A timetable makes that intolerable, and the railways simply imposed London time on their own stations from the 1840s; by the mid 1850s nearly every public clock in Britain was set to it, a generation before Parliament made it law in 1880. A private company standardised the hour of an entire country because its trains would otherwise collide.
The second is the market itself. When freight rates fall by an order of magnitude and delivery becomes reliable, a producer in Manchester and a producer in Glasgow are in the same market for the first time, competing on price rather than being protected by distance. Local prices converged, local monopolies died, provincial breweries and brickworks and mills either got large or got out, and perishable food began arriving in cities from far away, which is a public health matter as much as an economic one.
By the middle of the century Britain therefore had cheap power, cheap iron, cheap transport and machines that outproduced hands by factors of hundreds. What it had not yet been asked is where and how the people using them actually worked, and why that turned out to be a large building full of strangers under supervision. That is the next lesson.