History Shows Infrastructure Has Diminishing Returns

In my researches into the Industrial Revolution, I have been looking at British canal building. There were three “canal manias” in 1766-75, 1786-93, and 1816-25, but only the first yielded truly attractive investments and economic gains, while the last wave lost money in general. This decline in returns for the later investments has lessons for us today: over-investing in infrastructure density is a huge waste of money, especially if undertaken by the government, and a rocket to Mars is almost certainly a better investment than yet another high-speed train.

Apart from a couple of small earlier projects, the Canal Age was opened in 1759 by Francis Egerton, 3rd Duke of Bridgewater, in financing the Bridgewater Canal to take coal from his Worsley mines more cheaply to the Manchester market. In today’s terms, the Duke was Elon Musk; at the age of 23 he was undertaking an investment project that had never been attempted in Britain before, financing it entirely out of his own pocket, and employing a designer of genius (James Brindley) to bring it to fruition. The Bridgewater Canal was a typical billionaire project in other ways; it was hopelessly “gold-plated” with several luxury features, costing three times as much per mile as later projects that were financed by local businessmen of more modest means.

photography of traveling boat on river during daytime

Source: Unsplash 

The Bridgewater Canal had the same effect as Tesla (without the state subsidies) and other Musk projects – it acted as a demonstration, convincing others that there were opportunities here and money to be made. The result was a series of canal investments, gaining Parliamentary authorization between 1766 and 1770, that sparked off the Industrial Revolution and changed the world.

To understand the seismic effect of the first industrial canals, consider the problem of transporting heavy goods by road in 1760. Roads had been improving over the previous century, but they were not yet Macadamized (that process did not appear until around 1820) and so in an English winter or the usual wet English summer they tended to descend into quagmires if the traffic over them was heavy. Heavy goods were transported by horse-driven cart, which limited the weight of each load to 2 tons at most, making coal, limestone, and other bulky goods impossibly costly to transport inland. Even less bulky goods, such as Josiah Wedgwood’s china, suffered badly – for that, the problem was the roads around Wedgwood’s factory in Burslem were made of precisely the clay that potters had been using in their products for centuries – hence the potters tended to dig up the road, surreptitiously if necessary, making its surface even more treacherous.

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(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of "sell" recommendations put ...

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