By creating the significant leap in transportation technology, railroad played a vital role in the nineteenth century in American history. It also appeared to associate with American economy in various ways. Fogel (1962) applied the concept of “the social saving” in order to define the impact of railroad on economic growth of the U.S., suggesting that even though railroad can be regarded as dispensable feature of economic development, it still contributed to the growth.
Cities like Atlanta, Chicago and Louisville all experienced the benefits brought by railroad. Waterway lost its leadership in transportation to railroad. New railroad construction appeared to be highly correlated with commercial activity and population growth. Because of the three evidences above, many had accepted that railroad was indispensable to American economic growth. However, Fogel (1962) argued that these evidences only revealed “an association between the growth of the rail network and the growth of the economy”. The necessity of railroad cannot be represented based on the evidences. Fogel (1962) aimed to testify the relationship between railroad and economy in an empirical way by using data and analytical techniques. “The social saving” was the key concept of Fogel (1962)’s argument. It’s simply the difference between the cost of shipments combined with rail, wagon, and water haulage and the cost of shipping without railroad. The true social saving appeared to be smaller than this difference. Once the pattern of shipments relied on nonrail methods, agricultural production had to be shifted from the Midwest to the East and South together with other productive factors out of agriculture. If the saving is zero, it means that shipping without railroad is unrelated with the existing productive pattern.
To compute the social saving, Fogel (1962) only used the data from 1890. Since the railroad in 1890 appeared to be more efficient than before, the social saving per unit of transportation in 1890 was relatively larger than the level in previous years. Due to the reason that wheat, corn, beef, and pork generated 42 per cent of income in agriculture in 1889, the calculation based on the four commodities was sufficient. By using linear programming model for each commodity in both normal shipment and nonrail shipment method, a rough estimate of social saving can be obtained, which is negative $38,000,000. Fogel (1962) adjusted the result by adding six costs that had been