Three Short Observations on the Economics of Waterways

The Rhine River is the heart of significant economic activity as a European transport and commercial corridor.  Running 1,233 km from the Alps to the North Sea, its rich economic hinterland generates commercial traffic, which made it attractive as a source of revenue for regional lords and masters for centuries.  Hence, the numerous castles, which were built at key points to defend the trade route and help extract tolls.  By way of comparison, our much longer Great-Lakes St. Lawrence Seaway (3700 km) never developed the fractured payment system – as well as the numerous political entities - that characterized the Rhine.  The upper middle route from Strasbourg to Koblenz is lined with picturesque castles and towns – and industrial activity – such as the massive BASF complex in Mannheim.

Three points come to mind.  First, the economic externalities and path dependent effects of the efforts to control commerce on the Rhine today generate a significant economic benefit in the form of tourism as riverboats ply the waters.  The long hand of economic history has created a stunning visual panorama of castles that now capture tourists in hotels and museums.  Along with major riverboat cruise lines of Croisieurope and Viking, there are numerous smaller operators, which provide excursions and longer voyages along the Rhine and through the lock system to the rest of Europe via the Danube or the Rhone.  I have not been able to find a specific estimate of the economic impact of Rhine River tourism but it must be substantial given the day visits provided into surrounding towns.

Second, there is the microeconomics of entry, exit, and pricing as applied to the rise and fall of Rhine towns and castles.  Numerous castles at key choke points – often about every five kilometers – were erected for defensive and tolling purposes.  An interesting unpublished paper by Gardner, Gaston and Masson points out that between the years 800 and 1800, 79 different locations served as tolling stations along this commercial thoroughfare.  While the rights to toll were awarded by the Holy Roman Emperor, from time to time there were outbursts of non-officially sanctioned tolling activity.  As the authors write:

 

“…an Emperor faced a classic complementary monopoly problem: how many toll stations to have, where to site them, and what toll to charge at each. As a basic part of the answer to this problem, Emperors tended to keep the number of stations low. For instance, in 1250 an important date in our analysis--there were 12 stations on the Rhine between Mainz and Cologne [Pfeiffer, p.332] . Siting was a complicated decision, whose components included the local power structure (powerful ecclesiastical or noble interests were likely recipients), spacing (a 5 kilometer minimum seems to have been observed), and defensibility (some of the castles which acted as toll booths survived as military structures until the French invasion of 1689).”

 

While decision-making was quite decentralized, the authors argue that in the end the parties in engaged in collusive practices that resulted in joint profit maximizing Nash Equilibria. 

Third, the Rhine also offers a comparison between the relationship between transportation routes and political development.  In Canadian economic history, the Great Lakes-St. Lawrence system facilitated penetration of the continent and centralized control from the East first by the French, then the English and finally the Dominion government.   In the case of the Rhine, it appears to have facilitated decentralized political development and control that remained so well into the 20^th century.  The wealth of the surrounding agricultural hinterland must have played a role in generating the numerous nodes of population and economic activity.  The Great Lakes-St. Lawrence on the other hand was much longer and the fur trade activity did not generate the wealth and density of activity that invited numerous forts and tolls.  On the other hand, it can be argued that the Iroquois made an effort to capture benefits from the fur trade by eliminating other middlemen along the routes.  By the time agricultural settlement and industrialization began to generate greater wealth, centralized control had already been established.  No castles on the Great Lakes in the long run unfortunately.

Comments

[Nick Rowe]

Yep. This is one of those lovely examples where if firms with market power collude, everyone is better off! When they collude, they collude to *lower* prices.

[Jacques René Giguère]

Québec City and Montréal were established at choke points on the St-Laurent and Trois-Rivières at the confluence of the St-Laurent and St-Maurice.
And today, we can argue that the Chateau Frontenac
http://en.wikipedia.org/wiki/Chateau_Frontenac
http://www.fairmont.com/frontenac-quebec/
capture the toll from the view. In fact , a few years ago, before the shale gas boom, there was a project for a deliquifying natural gas plant to import foreign gas into the North American market. Some bozo had decided that the ideal location was right across the river from the Chateau Frontenac. A study established the view's value as between 45 to 75 $ Millions. ( The study used the capitalized difference in estimated room rate value between after and before the plant construction).

[Wonks Anonymous]

Did Bastiat ever comment on river tolls, or just the railroad made entirely of gaps?

[Determinant]

Upriver from Montreal, there's Fort Henry at Kingston, Fort George at Niagara-on-the-Lake, Fort Niagara right across the river (abandoned to the Americans in 1783) and Fort Erie. There is also Fort York at Toronto, which controlled access to the portages to Lake Simcoe and Georgian Bay.

But North America really started to boom with railways, and railways require a single planning authority, which is why the US and Canada spread the way they did.

[Doug M]

I read a novel by Neil Stephenson where King Louis XIV gives one of the characters the assignment to attempt to build a ship in France, knowing that it is impossible to do so with the impediments to move goods in that era. England and Holland didn't have these trade obstacles and had superior shipyards and navies as a result.

[Jacques René Giguère]

Doug:Under Louis XIV, the French Navy was somewhat inferior the the Royal navy but France was more interseted in the land power balance on the continent. Under Louis XV, during the American war of Independance, the French navy wupped up the british ( who took their revenge during the napoleonic wars...)

[Bob Smith]

Indeed, under Louis XV the French Navy wupped the Royal Navy so badly that the British weren't able to (i) destroy the French Navy at the Battle of Lagos and the Battle of Quiberon Bay in 1759 and to blockade the survivors of the main French fleet at Brest for the rest of the war, or (ii) to use the resulting strategic freedom to apply Britain's amphibious power to capture French (or allied Spanish) outposts in Asia (India and Manila), the West Indies (Havana and Guadalupe), and North America (Louisbourg and, ahem, Quebec). No, wait...

[Jacques René Giguère]

Bob: read my post...After being trashed almost every time from the 1600's till the Seven Years war, France decided to get back in the game. Choiseul rebuit the navy and one of the British problems was that for once the tables were turned and supplies and men couldn't get through at will, unlike the situation in 1759.
One reason of anti-french sentiment in some U.S. quarters is that they don't like remembering that their independance is due more to the french navy and army ( and more to the professional Continental army than to the militias...)

[Bob Smith]

So what you meant to say was "Under Louis XVI"... (Louis XV having died two years before the war of independence began).

And while there's no doubting the French contribution to US independence (although I suspect that 20th century French anti-Americanism has more to do with America's attitude towards France than resentment over French assistance in the War of Independence - of which Americans, to the extent they are aware of it at all, have generally been appreciative - remember Pershing's "Lafeyette, we are here"?), "wupped up" is a strange description for a naval campaign in which the main French fleet was ultimately defeated in fleet engagements at the Battle of St. Vincent and the Battle of Saintes (in which Admiral de Grasse's flagship, and de Grasse himself, was captured), although admitedly, not before driving off a smaller British fleet in the crucial Battle of the Chesapeake (a strategic victory, to be sure, though hardly a "wupping").

[The Keystone Garter]

Europe has 5x as many watersheds as China. That is an additional reason tyranny was much less likely in Europe. The English Channel facilitated the Scottish Enlightenment as military technology advanced. And the Atlantic Ocean kept Canada and the United States away from zee Germans long enough to divert their ICBM R+D to synthetic oil. Then came the WMD treaties and the NSA. It is tough to get an appreciation for Q-of-L education and engineering, living in Eurasia until modern tranport and communications. So most civilizations and religions here tend to be overly hawkish. It takes an outlier like Scotland to appreaciate beauty that isn't an afterlife lie (if we get there it isn't by closing our minds to non Holy Texts)...I'd guess such pursuit of truth facilitated engineering too. Less certain why Rome conquered Greece. Maybe Rome had easier neighbours for conquering/learning than did Greece's east?

[Jacques René Giguère]

Louis built the navy in time for XVI to use it.
Tactically, the French suffered defeat but were far tougher than the British had been accustomed. Better to have both tactical and strategic success,but if you have to choose, take strategic. In the end, the French succeeded in their strategic objectives, the British did not.
In WWI, the German Fleet was better with metallurgy ( guns,shells and armor), chemistry (propellant and explosives), optic ( gun ranging), ship design ( british battle cruisers were death traps) and were more imaginative in tactics and ship handling. At Jutland (Skagerrak), the British lost far more ships and men than the Germans. A tactical defeat which gave them complete control of the sea...
See also Battle of the Coral Sea, where what was an almost tactical defeat for the Americans insured their long term dominance of the Southwest Pacific.

[Jacques René Giguère]

Casual ObserverLos Angeles
A classic Naval text by Mahan observed that Britain preferred the weather gage while France the lee gage in sea battles, and it reflected their differing strategies for expanding their commercial activities as well. Weather gage meant to take the upwind position which favored the attack while lee gage meant to take the down wind position which favored defense. Victories tended to be higher for those who chose the weather gage and material losses tended to be lower for those who chose the lee gage. In commerce the French preference was to husband resources, save to the point of hoarding, and to await good fortune to shine upon them, while the British preferred to seek out opportunities to exploit and to borrow if necessary to do so. The French preferred austerity over risking their resources while the British preferred making the most of opportunities even if there resources were stretched.

[Jacques René Giguère]

Missing line from preceding comment:
I found that comment by someone on Krygman's blog.

[Jacques René Giguère]

A comment I founf on Krugman's blog
Casual ObserverLos Angeles
A classic Naval text by Mahan observed that Britain preferred the weather gage while France the lee gage in sea battles, and it reflected their differing strategies for expanding their commercial activities as well. Weather gage meant to take the upwind position which favored the attack while lee gage meant to take the down wind position which favored defense. Victories tended to be higher for those who chose the weather gage and material losses tended to be lower for those who chose the lee gage. In commerce the French preference was to husband resources, save to the point of hoarding, and to await good fortune to shine upon them, while the British preferred to seek out opportunities to exploit and to borrow if necessary to do so. The French preferred austerity over risking their resources while the British preferred making the most of opportunities even if there resources were stretched.

[Determinant]

Another factor was the execution of Admiral Byng (ancestor of General Julian Byng, commander of the Canadian Corps for the first part of WWI) in the 1750's.

Admiral Byng was shot under the authority of the Articles of War; he was convicted of Failing to Do His Utmost in Action and the Articles provided no alternative punishment. His death led Voltaire to write "Every so often in England an Admiral is shot; it is done to encourage the others."

The port-bound French fleet in the Napoleonic Wars would have led to some Admiral being shot if the sides were reversed.