Monday, March 11, 2019

Making It Up

CNBC, in an article about how Elizabeth Warren claims that she is going to break up major corporations if elected president, cites her as saying that,

“Back when the railroads were dominant, and you had to get steel or wheat onto the railroad, there was a period of time when the railroads figured out that they could make money not only by selling tickets on the railroad, but also by buying the steel company and then cutting the price of transporting steel for their own company and raising the price of transporting steel for any competitors. And that’s how the giant grows.”

I would like to see her documentation for that claim because, after more than fifty years of studying American railroad history as a dedicated hobbyist, I cannot find any steel company of significance which was owned by or shared ownership with any railroad in a way which would permit the pricing behavior which she describes in her statement.

There were (and actually still are) many reverse cases, where small Class 2 and Class 3 railroads were owned by steel companies, wherein the railroad served as “bridge carriers” between the steel company and Class 1 railroads. The only steel those railroads ever carried, however, was that produced by their parent company, and so they produced no competitive advantage for their parent steel company. They existed because the amount of traffic they handled was too small to make it economical for the Class 1 railroad to operate the route.

There were also some raw material carriers owned by steel companies, which brought iron ore and coal, for instance, to the mills. Some of them were quite large, the Duluth Missabe and Iron Range Railroad, for instance, was at one time owned by US Steel and in one year transported 49 million tons of iron ore. It served all of the midwest steel mills, however, and charged the same freight rates to all of them.

Actually, the DM&IR carried ore from the Iron and Missabe mountain ranges to ships on Lake Michigan, and the ships, which were mostly not owned by steel companies, carried to ore to Indiana. So the railroad had no way of knowing whose ore it was carrying, since ore is like money, in that it is entirely fungible.

Yes, some massive companies need to be broken up, especially those who sell something for $990 when it only costs them $85 to make it, but you can’t justify it by simply making shit up. You need actual reasons, based on facts.

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