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

Jim Cohen

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Capital markets; railways; role of state (search for similar items in EconPapers)
JEL-codes: G21 L52 L92 N22 (search for similar items in EconPapers)
Date: 2009-08-15
New Economics Papers: this item is included in nep-his
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Citations: View citations in EconPapers (1)

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