How did developing the system of roads in the early nineteenth century affect the economy?

Daniel B. Klein, Santa Clara University and John Majewski, University of California – Santa Barbara 1

Private turnpikes were business corporations that built and maintained a road for the right to collect fees from travelers.2 Accounts of the nineteenth-century transportation revolution often treat turnpikes as merely a prelude to more important improvements such as canals and railroads. Turnpikes, however, left important social and political imprints on the communities that debated and supported them. Although turnpikes rarely paid dividends or other forms of direct profit, they nevertheless attracted enough capital to expand both the coverage and quality of the U. S. road system. Turnpikes demonstrated how nineteenth-century Americans integrated elements of the modern corporation – with its emphasis on profit-taking residual claimants – with non-pecuniary motivations such as use and esteem.

Private road building came and went in waves throughout the nineteenth century and across the country, with between 2,500 and 3,200 companies successfully financing, building, and operating their toll road. There were three especially important episodes of toll road construction: the turnpike era of the eastern states 1792 to 1845; the plank road boom 1847 to 1853; and the toll road of the far West 1850 to 1902.

The Turnpike Era, 1792–1845

Prior to the 1790s Americans had no direct experience with private turnpikes; roads were built, financed and managed mainly by town governments. Typically, townships compelled a road labor tax. The State of New York, for example, assessed eligible males a minimum of three days of roadwork under penalty of fine of one dollar. The labor requirement could be avoided if the worker paid a fee of 62.5 cents a day. As with public works of any kind, incentives were weak because the chain of activity could not be traced to a residual claimant – that is, private owners who claim the “residuals,” profit or loss. The laborers were brought together in a transitory, disconnected manner. Since overseers and laborers were commonly farmers, too often the crop schedule, rather than road deterioration, dictated the repairs schedule. Except in cases of special appropriations, financing came in dribbles deriving mostly from the fines and commutations of the assessed inhabitants. Commissioners could hardly lay plans for decisive improvements. When a needed connection passed through unsettled lands, it was especially difficult to mobilize labor because assessments could be worked out only in the district in which the laborer resided. Because work areas were divided into districts, as well as into towns, problems arose coordinating the various jurisdictions. Road conditions thus remained inadequate, as New York’s governors often acknowledged publicly (Klein and Majewski 1992, 472-75).

For Americans looking for better connections to markets, the poor state of the road system was a major problem. In 1790, a viable steamboat had not yet been built, canal construction was hard to finance and limited in scope, and the first American railroad would not be completed for another forty years. Better transportation meant, above all, better highways. State and local governments, however, had small bureaucracies and limited budgets which prevented a substantial public sector response. Turnpikes, in essence, were organizational innovations borne out of necessity – “the states admitted that they were unequal to the task and enlisted the aid of private enterprise” (Durrenberger 1931, 37).

America’s very limited and lackluster experience with the publicly operated toll roads of the 1780s hardly portended a future boom in private toll roads, but the success of private toll bridges may have inspired some future turnpike companies. From 1786 to 1798, fifty-nine private toll bridge companies were chartered in the northeast, beginning with Boston’s Charles River Bridge, which brought investors an average annual return of 10.5 percent in its first six years (Davis 1917, II, 188). Private toll bridges operated without many of the regulations that would hamper the private toll roads that soon followed, such as mandatory toll exemptions and conflicts over the location of toll gates. Also, toll bridges, by their very nature, faced little toll evasion, which was a serious problem for toll roads.

The more significant predecessor to America’s private toll road movement was Britain’s success with private toll roads. Beginning in 1663 and peaking from 1750 to 1772, Britain experienced a private turnpike movement large enough to acquire the nickname “turnpike mania” (Pawson 1977, 151). Although the British movement inspired the future American turnpike movement, the institutional differences between the two were substantial. Most important, perhaps, was the difference in their organizational forms. British turnpikes were incorporated as trusts – non-profit organizations financed by bonds – while American turnpikes were stock-financed corporations seemingly organized to pay dividends, though acting within narrow limits determined by the charter. Contrary to modern sensibilities, this difference made the British trusts, which operated under the firm expectation of fulfilling bond obligations, more intent and more successful in garnering residuals. In contrast, for the American turnpikes the hope of dividends was merely a faint hope, and never a legal obligation. Odd as it sounds, the stock-financed “business” corporation was better suited to operating the project as a civic enterprise, paying out returns in use and esteem rather than cash.

The first private turnpike in the United States was chartered by Pennsylvania in 1792 and opened two years later. Spanning 62 miles between Philadelphia and Lancaster, it quickly attracted the attention of merchants in other states, who recognized its potential to direct commerce away from their regions. Soon lawmakers from those states began chartering turnpikes. By 1800, 69 turnpike companies had been chartered throughout the country, especially in Connecticut (23) and New York (13). Over the next decade nearly six times as many turnpikes were incorporated (398). Table 1 shows that in the mid-Atlantic and New England states between 1800 and 1830, turnpike companies accounted for 27 percent of all business incorporations.

Table 1: Turnpikes as a Percentage of All Business Incorporations, by Special and General Acts, 1800-1830

As shown in Table 2, a wider set of states had incorporated 1562 turnpikes by the end of 1845. Somewhere between 50 to 70 percent of these succeeded in building and operating toll roads. A variety of regulatory and economic conditions – outlined below – account for why a relatively low percentage of chartered turnpikes became going concerns. In New York, for example, tolls could be collected only after turnpikes passed inspections, which were typically conducted after ten miles of roadway had been built. Only 35 to 40 percent of New York turnpike projects – or about 165 companies – reached operational status. In Connecticut, by contrast, where settlement covered the state and turnpikes more often took over existing roadbeds, construction costs were much lower and about 87 percent of the companies reached operation (Taylor 1934, 210).

Table 2: Turnpike Incorporation, 1792-1845

Source: Klein and Fielding 1992: 325.

Although the states of Pennsylvania, Virginia and Ohio subsidized privately-operated turnpike companies, most turnpikes were financed solely by private stock subscription and structured to pay dividends. This was a significant achievement, considering the large construction costs (averaging around $1,500 to $2,000 per mile) and the typical length (15 to 40 miles). But the achievement was most striking because, as New England historian Edward Kirkland (1948, 45) put it, “the turnpikes did not make money. As a whole this was true; as a rule it was clear from the beginning.” Organizers and “investors” generally regarded the initial proceeds from sale of stock as a fund from which to build the facility, which would then earn enough in toll receipts to cover operating expenses. One might hope for dividend payments as well, but “it seems to have been generally known long before the rush of construction subsided that turnpike stock was worthless” (Wood 1919, 63).3

Turnpikes promised little in the way of direct dividends and profits, but they offered potentially large indirect benefits. Because turnpikes facilitated movement and trade, nearby merchants, farmers, land owners, and ordinary residents would benefit from a turnpike. Gazetteer Thomas F. Gordon aptly summarized the relationship between these “indirect benefits” and investment in turnpikes: “None have yielded profitable returns to the stockholders, but everyone feels that he has been repaid for his expenditures in the improved value of his lands, and the economy of business” (quoted in Majewski 2000, 49). Gordon’s statement raises an important question. If one could not be excluded from benefiting from a turnpike, and if dividends were not in the offing, what incentive would anyone have to help finance turnpike construction? The turnpike communities faced a serious free-rider problem.

Nevertheless, hundreds of communities overcame the free-rider problem, mostly through a civic-minded culture that encouraged investment for long-term community gain. Alexis de Tocqueville observed that, excepting those of the South, Americans were infused with a spirit of public-mindedness. Their strong sense of community spirit resulted in the funding of schools, libraries, hospitals, churches, canals, dredging companies, wharves, and water companies, as well as turnpikes (Goodrich 1948). Vibrant community and cooperation sprung, according to Tocqueville, from the fertile ground of liberty:

If it is a question of taking a road past his property, [a man] sees at once that this small public matter has a bearing on his greatest private interests, and there is no need to point out to him the close connection between his private profit and the general interest. … Local liberties, then, which induce a great number of citizens to value the affection of their kindred and neighbors, bring men constantly into contact, despite the instincts which separate them, and force them to help one another. … The free institutions of the United States and the political rights enjoyed there provide a thousand continual reminders to every citizen that he lives in society. … Having no particular reason to hate others, since he is neither their slave nor their master, the American’s heart easily inclines toward benevolence. At first it is of necessity that men attend to the public interest, afterward by choice. What had been calculation becomes instinct. By dint of working for the good of his fellow citizens, he in the end acquires a habit and taste for serving them. … I maintain that there is only one effective remedy against the evils which equality may cause, and that is political liberty (Alexis de Tocqueville, 511-13, Lawrence/Mayer edition).

Tocqueville’s testimonial is broad and general, but its accuracy is seen in the archival records and local histories of the turnpike communities. Stockholder’s lists reveal a web of neighbors, kin, and locally prominent figures voluntarily contributing to what they saw as an important community improvement. Appeals made in newspapers, local speeches, town meetings, door-to-door solicitations, correspondence, and negotiations in assembling the route stressed the importance of community improvement rather than dividends.4 Furthermore, many toll road projects involved the effort to build a monument and symbol of the community. Participating in a company by donating cash or giving moral support was a relatively rewarding way of establishing public services; it was pursued at least in part for the sake of community romance and adventure as ends in themselves (Brown 1973, 68). It should be noted that turnpikes were not entirely exceptional enterprises in the early nineteenth century. In many fields, the corporate form had a public-service ethos, aimed not primarily at paying dividends, but at serving the community (Handlin and Handlin 1945, 22, Goodrich 1948, 306, Hurst 1970, 15).

Given the importance of community activism and long-term gains, most “investors” tended to be not outside speculators, but locals positioned to enjoy the turnpikes’ indirect benefits. “But with a few exceptions, the vast majority of the stockholders in turnpike were farmers, land speculators, merchants or individuals and firms interested in commerce” (Durrenberger 1931, 104). A large number of ordinary households held turnpike stock. Pennsylvania compiled the most complete set of investment records, which show that more than 24,000 individuals purchased turnpike or toll bridge stock between 1800 and 1821. The average holding was $250 worth of stock, and the median was less than $150 (Majewski 2001). Such sums indicate that most turnpike investors were wealthier than the average citizen, but hardly part of the urban elite that dominated larger corporations such as the Bank of the United States. County-level studies indicate that most turnpike investment came from farmers and artisans, as opposed to the merchants and professionals more usually associated with early corporations (Majewski 2000, 49-53).

Turnpikes became symbols of civic pride only after enduring a period of substantial controversy. In the 1790s and early 1800s, some Americans feared that turnpikes would become “engrossing monopolists” who would charge travelers exorbitant tolls or abuse eminent domain privileges. Others simply did not want to pay for travel that had formerly been free. To conciliate these different groups, legislators wrote numerous restrictions into turnpike charters. Toll gates, for example, often could be spaced no closer than every five or even ten miles. This regulation enabled some users to travel without encountering a toll gate, and eased the practice of steering horses and the high-mounted vehicles of the day off the main road so as to evade the toll gate, a practice known as “shunpiking.” The charters or general laws also granted numerous exemptions from toll payment. In New York, the exempt included people traveling on family business, those attending or returning from church services and funerals, town meetings, blacksmiths’ shops, those on military duty, and those who lived within one mile of a toll gate. In Massachusetts some of the same trips were exempt and also anyone residing in the town where the gate is placed and anyone “on the common and ordinary business of family concerns” (Laws of Massachusetts 1805, chapter 79, 649). In the face of exemptions and shunpiking, turnpike operators sometimes petitioned authorities for a toll hike, stiffer penalties against shunpikers, or the relocating of the toll gate. The record indicates that petitioning the legislature for such relief was a costly and uncertain affair (Klein and Majewski 1992, 496-98).

In view of the difficult regulatory environment and apparent free-rider problem, the success of early turnpikes in raising money and improving roads was striking. The movement built new roads at rates previously unheard of in America. Table 3 gives ballpark estimates of the cumulative investment in constructing turnpikes up to 1830 in New England and the Middle Atlantic. Repair and maintenance costs are excluded. These construction investment figures are probably too low – they generally exclude, for example, tolls revenue that might have been used to finish construction – but they nevertheless indicate the ability of private initiatives to raise money in an economy in which capital was in short supply. Turnpike companies in these states raised more than $24 million by 1830, an amount equaling 6.15 percent of those states’ 1830 GDP. To put this into comparative perspective, between 1956 and 1995 all levels of government spent $330 billion (in 1996 dollars) in building the interstate highway system, a cumulative total equaling only 4.30 percent of 1996 GDP.

Table 3 Cumulative Turnpike Investment (1800-1830) as percentage of 1830 GNP

Sources: Pennsylvania turnpike investment: Durrenberger 1931: 61); New England turnpike investment: Taylor 1934: 210-11; New York, New Jersey, and Maryland turnpike investment: Fishlow 2000, 549. Only private investment is included. State GDP data come from Bodenhorn 2000: 237. Figures for the cost of the Interstate Highway System can be found at http://www.publicpurpose.com/hwy-is$.htm. Please note that our investment figures generally do not include investment to finish roads by loans or the use of toll revenue. The table therefore underestimates investment in turnpikes.

The organizational advantages of turnpike companies relative to government road not only generated more road mileage, but also higher quality roads (Taylor 1934, 334, Parks 1967, 23, 27). New York state gazetteer Horatio Spafford (1824, 125) wrote that turnpikes have been “an excellent school, in every road district, and people now work the highways to much better advantage than formerly.” Companies worked to intelligently develop roadway to achieve connective communication. The corporate form traversed town and county boundaries, so a single company could bring what would otherwise be separate segments together into a single organization. “Merchants and traders in New York sponsored pikes leading across northern New Jersey in order to tap the Delaware Valley trade which would otherwise have gone to Philadelphia” (Lane 1939, 156).

Turnpike networks became highly organized systems that sought to find the most efficient way of connecting eastern cities with western markets. Decades before the Erie Canal, private individuals realized the natural opening through the Appalachians and planned a system of turnpikes connecting Albany to Syracuse and beyond. Figure 1 shows the principal routes westward from Albany. The upper route begins with the Albany & Schenectady Turnpike, connects to the Mohawk Turnpike, and then the Seneca Turnpike. The lower route begins with the First Great Western Turnpike and then branches at Cherry Valley into the Second and Third Great Western Turnpikes. Corporate papers of these companies reveal that organizers of different companies talked to each other; they were quite capable of coordinating their intentions and planning mutually beneficial activities by voluntary means. When the Erie Canal was completed in 1825 it roughly followed the alignment of the upper route and greatly reduced travel on the competing turnpikes (Baer, Klein, and Majewski 1992).

Figure 1: Turnpike Network in Central New York, 1845 detail

Another excellent example of turnpike integration was the Pittsburgh Pike. The Pennsylvania route consisted of a combination of five turnpike companies, each of which built a road segment connecting Pittsburgh and Harrisburg, where travelers could take another series of turnpikes to Philadelphia. Completed in 1820, the Pittsburgh Pike greatly improved freighting over the rugged Allegheny Mountains. Freight rates between Philadelphia and Pittsburgh were cut in half because wagons increased their capacity, speed, and certainty (Reiser 1951, 76-77). Although the state government invested in the companies that formed the Pittsburgh Pike, records of the two companies for which we have complete investment information shows that private interests contributed 62 percent of the capital (calculated from Majewski 2000: 47-51: Reiser 1951, 76). Residents in numerous communities contributed to individual projects out of their own self interest. Their provincialism nevertheless helped create a coherent and integrated system.

A comparison of the Pittsburgh Pike and the National Road demonstrated the advantages of turnpike corporations over roads financed directly from government sources. Financed by the federal government, the National Road was built between Cumberland, Maryland, and Wheeling, West Virginia, where it was then extended through the Midwest with the hopes of reaching the Mississippi River. Although it never reached the Mississippi, the Federal Government nevertheless spent $6.8 million on the project (Goodrich 1960, 54, 65). The trans-Appalachian section of the National Road competed directly against the Pittsburgh Pike. From the records of two of the five companies that formed the Pittsburgh Pike, we estimate it cost $4,805 per mile to build (Majewski 2000, 47-51, Reiser 1951, 76). The Federal government, on the other hand, spent $13,455 per mile to complete the first 200 miles of the National Road (Fishlow 2000, 549). Besides costing much less, the Pennsylvania Pike was far better in quality. The toll gates along the Pittsburgh Pike provided a steady stream of revenue for repairs. The National Road, on the other hand, depended upon intermittent government outlays for basic maintenance, and the road quickly deteriorated. One army engineer in 1832 found “the road in a shocking condition, and every rod of it will require great repair; some of it now is almost impassable” (quoted in Searight, 60). Historians have found that travelers generally preferred to take the Pittsburgh Pike rather than the National Road.

The Plank Road Boom, 1847–1853

By the 1840s the major turnpikes were increasingly eclipsed by the (often state-subsidized) canals and railroads. Many toll roads reverted to free public use and quickly degenerated into miles of dust, mud and wheel-carved ruts. To link to the new and more powerful modes of communication, well-maintained, short-distance highways were still needed, but because governments became overextended in poor investments in canals, taxpayers were increasingly reluctant to fund internal improvements. Private entrepreneurs found the cost of the technologically most attractive road surfacing material (macadam, a compacted covering of crushed stones) prohibitively expensive at $3,500 per mile. Thus the ongoing need for new feeder roads spurred the search for innovation, and plank roads – toll roads surfaced with wooden planks – seemed to fit the need.

The plank road technique appears to have been introduced into Canada from Russia in 1840. It reached New York a few years later, after the village Salina, near Syracuse, sent civil engineer George Geddes to Toronto to investigate. After two trips Geddes (whose father, James, was an engineer for the Erie and Champlain Canals, and an enthusiastic canal advocate) was convinced of the plank roads’ feasibility and became their great booster. Plank roads, he wrote in Scientific American (Geddes 1850a), could be built at an average cost of $1,500 – although $1,900 would have been more accurate (Majewski, Baer and Klein 1994, 109, fn15). Geddes also published a pamphlet containing an influential, if overly optimistic, estimate that Toronto’s road planks had lasted eight years (Geddes 1850b). Simplicity of design made plank roads even more attractive. Road builders put down two parallel lines of timbers four or five feet apart, which formed the “foundation” of the road. They then laid, at right angles, planks that were about eight feet long and three or four inches thick. Builders used no nails or glue to secure the planks – they were secured only by their own weight – but they did build ditches on each side of the road to insure proper drainage (Klein and Majewski 1994, 42-43).

No less important than plank road economics and technology were the public policy changes that accompanied plank roads. Policymakers, perhaps aware that overly restrictive charters had hamstrung the first turnpike movement, were more permissive in the plank road era. Adjusting for deflation, toll rates were higher, toll gates were separated by shorter distances, and fewer local travelers were exempted from payment of tolls.

Although few today have heard of them, for a short time it seemed that plank roads might be one of the great innovations of the day. In just a few years, more than 1,000 companies built more than 10,000 miles of plank roads nationwide, including more than 3,500 miles in New York (Klein and Majewski 1994, Majewski, Baer, Klein 1993). According to one observer, plank roads, along with canals and railroads, were “the three great inscriptions graven on the earth by the hand of modern science, never to be obliterated, but to grow deeper and deeper” (Bogart 1851).

Except for most of New England, plank roads were chartered throughout the United States, especially in the top lumber-producing states of the Midwest and Mid-Atlantic states, as shown in Table 4.

Table 4: Plank Road Incorporation by State

Notes: The figure for Ohio is through 1851; Pennsylvania, New Jersey, and Maryland are through 1857. Few plank roads were incorporated after 1857. In western states, some roads were incorporated and built as plank roads, so the 1388 total is not to be taken as a total for the nation. For a complete description of the sources for this table, see Majewski, Baer, & Klein 1993: 110.

New York, the leading lumber state, had both the greatest number of plank road charters (350) and the largest value of lumber production ($13,126,000 in 1849 dollars). Plank roads were especially popular in rural dairy counties, where farmers needed quick and dependable transportation to urban markets (Majewski, Baer and Klein 1993).

The plank road and eastern turnpike episodes shared several features in common. Like the earlier turnpikes, investment in plank road companies came from local landowners, farmers, merchants, and professionals. Stock purchases were motivated less by the prospect of earning dividends than by the convenience and increased trade and development that the roads would bring. To many communities, plank roads held the hope of revitalization and the reversal (or slowing) of relative decline. But those hoping to attain these benefits once again were faced with a free-rider problem. Investors in plank roads, like the investors of the earlier turnpikes, were motivated often by esteem mechanisms – community allegiance and appreciation, reputational incentives, and their own conscience.

Although plank roads were smooth and sturdy, faring better in rain and snow than did dirt and gravel roads, they lasted only four or five years – not the eight to twelve years that promoters had claimed. Thus, the rush of construction ended suddenly by 1853, and by 1865 most companies had either switched to dirt and gravel surfaces or abandoned their road altogether.

Toll Roads in the Far West, 1850 to 1902

Unlike the areas served by the earlier turnpikes and plank roads, Colorado, Nevada, and California in the 1850s and 1860s lacked the settled communities and social networks that induced participation in community enterprise and improvement. Miners and the merchants who served them knew that the mining boom would not continue indefinitely and therefore seldom planted deep roots. Nor were the large farms that later populated California ripe for civic engagement in anywhere near the degree of the small farms of the east. Society in the early years of the West was not one where town meetings, door-to-door solicitations, and newspaper campaigns were likely to rally broad support for a road project. The lack of strong communities also meant that there would be few opponents to pressure the government for toll exemptions and otherwise hamper toll road operations. These conditions ensured that toll roads would tend to be more profit-oriented than the eastern turnpikes and plank road companies. Still, it is not clear whether on the whole the toll roads of the Far West were profitable.

The California toll road era began in 1850 after passage of general laws of incorporation. In 1853 new laws were passed reducing stock subscription requirements from $2,000 per mile to $300 per mile. The 1853 laws also delegated regulatory authority to the county governments. Counties were allowed “to set tolls at rates not to prevent a return of 20 percent,” but they did not interfere with the location of toll roads and usually looked favorably on the toll road companies. After passage of the 1853 laws, the number of toll road incorporations increased dramatically, peaking to nearly 40 new incorporations in 1866 alone. Companies were also created by special acts of the legislature. And sometimes they seemed to have operated without formal incorporation at all. David and Linda Beito (1998, 75, 84) show that in Nevada many entrepreneurs had built and operated toll roads – or other basic infrastructure – before there was a State of Nevada, and some operated for years without any government authority at all.

All told, in the Golden State, approximately 414 toll road companies were initiated,5 resulting in at least 159 companies that successfully built and operated toll roads. Table 5 provides some rough numbers for toll roads in western states. The numbers presented there are minimums. For California and Nevada, the numbers probably only slightly underestimate the true totals; for the other states the figures are quite sketchy and might significantly underestimate true totals. Again, an abundance of testimony indicates that the private road companies were the serious road builders, in terms of quantity and quality (see the ten quotations at Klein and Yin 1996, 689-90).

Table 5: Rough Minimums on Toll Roads in the West

Sources: For California, Klein and Yin 1996: 681-82; for Nevada, Beito and Beito 1998: 74; for the other states, notes and correspondence in D. Klein’s files.

Table 6 makes an attempt to justify guesses about total number of toll road companies and total toll road miles. The first three numbers in the “Incorporations” column come from Tables 2, 4, and 5. The estimates of success rates and average road length (in the third and fourth columns) are extrapolations from components that have been studied with more care. We have made these estimates conservative, in the sense of avoiding any overstatement of the extent of private road building. The ~ symbol has been used to keep the reader mindful of the fact that many of these numbers are estimates. The numbers in the right hand column have been rounded to the nearest 1000, so as to avoid any impression of accuracy. The “Other” row throws in a line to suggest a minimum to cover all the regions, periods, and road types not covered in Tables 2, 4, and 5. For example, the “Other” row would cover turnpikes in the East, South and Midwest after 1845 (Virginia’s turnpike boom came in the late 1840s and 1850s), and all turnpikes and plank roads in Indiana, whose county-based incorporation, it seems, has never been systematically researched. Ideally, not only would the numbers be more definite and complete, but there would be a weighting by years of operation. The “30,000 – 52,000 miles” should be read as a range for the sum of all the miles operated by any company at any time during the 100+ year period.

Table 6: A Rough Tally of the Private Toll Roads

Sources: Those of Tables 2, 4, and 5, plus the research files of the authors.

The End of Toll Roads in the Progressive Period

In 1880 many toll road companies nationwide continued to operate – probably in the range of 400 to 600 companies.6 But by 1920 the private toll road was almost entirely stamped out. From Maine to California, the laws and political attitudes from around 1880 onward moved against the handling of social affairs in ways that seemed informal, inexpert and unsystematic. Progressivism represented a burgeoning of more collectivist ideologies and policy reforms. Many progressive intellectuals took inspiration from European socialist doctrines. Although the politics of restraining corporate evils had a democratic and populist aspect, the bureaucratic spirit was highly managerial and hierarchical, intending to replicate the efficiency of large corporations in the new professional and scientific administration of government (Higgs 1987, 113-116, Ekirch 1967, 171-94).

One might point to the rise of the bicycle and later the automobile, which needed a harder and smoother surface, to explain the growth of America’s road network in the Progressive period. But such demand-side changes do not speak to the issues of road ownership and tolling. Automobiles achieved higher speeds, which made stopping to pay a toll more inconvenient, and that may have reinforced the anti-toll-road company movement that was underway prior to the automobile. Such developments figured into the history of road policy, but they really did not provide a good reason for the policy movement against the toll roads The following words of a county board of supervisors in New York in 1906 indicate a more general ideological bent against toll road companies:

[T]he ownership and operation of this road by a private corporation is contrary to public sentiment in this county, and [the] cause of good roads, which has received so much attention in this state in recent years, requires that this antiquated system should be abolished. … That public opinion throughout the state is strongly in favor of the abolition of toll roads is indicated by the fact that since the passage of the act of 1899, which permits counties to acquire these roads, the boards of supervisors of most of the counties where such roads have existed have availed themselves of its provisions and practically abolished the toll road.

Given such attitudes, it was no wonder that within the U. S. Department of Agricultural, the new Office of Road Inquiry began in 1893 to gather information, conduct research, and “educate” for better roads. The new bureaucracy opposed toll roads, and the Federal Highway Act of 1916 barred the use of tolls on highways receiving federal money (Seely 1987, 15, 79). Anti-toll-road sentiment became state and national policy.

Conclusions and Implications

Throughout the nineteenth-century, the United States was notoriously “land-rich” and “capital poor.” The viability of turnpikes shows how Americans devised institutions – in this case, toll-collecting corporations – that allowed them to invest precious capital in important public projects. What’s more, turnpikes paid little in direct dividends and stock appreciation, yet still attracted investment. Investors, of course, cared for long-term economic development, but that does not account for how turnpike organizers overcame the important public goods problem of buying turnpike stock. Esteem, social pressure, and other non-economic motivations influenced local residents to make investments that they knew would be unprofitable (at least in a direct sense) but would nevertheless help the entire community. On the other hand, the turnpike companies enjoyed the organizational clarity of stock ownership and residual returns. All companies faced the possibility of pressure from investors, who might have wanted to salvage something of their investment. Residual claimancy may have enhanced the viability of many projects, including communitarian projects undertaken primarily for use and esteem.

The combining of these two ingredients – the appeal of use and esteem, and the incentives and proprietary clarity of residual returns – is today severely undermined by the modern legal bifurcation of private initiative into “not-for-profit” and “for-profit” concerns. Not-for-profit corporations can appeal to use and esteem but cannot organize themselves to earn residual returns. For-profit corporations organize themselves for residual returns but cannot very well appeal to use and esteem. As already noted, prior to modern tax law and regulation, the old American toll roads were, relative to the British turnpike trusts, more, not less, use-and-esteem oriented by virtue of being structured to pay dividends rather than interest. Like the eighteenth century British turnpike trusts, the twentieth century American governmental toll projects financed (in part) by privately purchased bonds generally failed, relative to the nineteenth century American company model, to draw on use and esteem motivations.

The turnpike experience of nineteenth-century America suggests that the stock/dividend company can also be a fruitful, efficient, and socially beneficial way to make losses and go on making losses. The success of turnpikes suggests that our modern sensibility of dividing enterprises between profit and non-profit – a distinction embedded in modern tax laws and regulations – unnecessarily impoverishes the imagination of economists and other policy makers. Without such strict legal and institutional bifurcation, our own modern society might better recognize the esteem in trade and the trade in esteem.

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1 Daniel Klein, Department of Economics, Santa Clara University, Santa Clara, CA, 95053, and Ratio Institute, Stockholm, Sweden; Email: .

John Majewski, Department of History, University of California, Santa Barbara, 93106; Email: .

2 The term “turnpike” comes from Britain, referring to a long staff (or pike) that acted as a swinging barrier or tollgate. In nineteenth century America, “turnpike” specifically means a toll road with a surface of gravel and earth, as opposed to “plank roads” which refer to toll roads surfaced by wooden planks. Later in the century, all such roads were typically just “toll roads.”

3 For a discussion of returns and expectations, see Klein 1990: 791-95.

4 See Klein 1990: 803-808, Klein and Majewski 1994: 56-61.

5 The 414 figure consists of 222 companies organized under the general law, 102 charted by the legislature, and 90 companies that we learned of by county records, local histories, and various other sources.

6 Durrenberger (1931: 164) notes that in 1911 there were 108 turnpikes operating in Pennsylvania alone.