In the Wall Street Journal, Larry Schweikart and Burton Folsom correct the misunderstanding that development and growth will follow infrastructure:
History says it doesn’t work like that. Henry Ford and dozens of other auto makers put a car in almost every garage decades before the National Interstate and Defense Highways Act in 1956. The success of the car created a demand for roads. The government didn’t build highways, and then Ford decided to create the Model T. Instead, the highways came as a byproduct of the entrepreneurial genius of Ford and others.
Moreover, the makers of autos, tires and headlights began building roads privately long before any state or the federal government got involved. The Lincoln Highway, the first transcontinental highway for cars, pieced together from new and existing roads in 1913, was conceived and partly built by entrepreneurs — Henry Joy of Packard Motor Car Co., Frank Seiberling of Goodyear and Carl Fisher, a maker of headlights and founder of the Indy 500.
Railroads are another example of the infrastructure-follows-entrepreneurship rule. Before the 1860s, almost all railroads were privately financed and built. One exception was in Michigan, where the state tried to build two railroads but lost money doing so, and thus happily sold both to private owners in 1846. When the federal government decided to do infrastructure in the 1860s, and build the transcontinental railroads (or “intercontinental railroad,” as Mr. Obama called it in 2011), the laying of track followed the huge and successful private investments in railroads.
In fact, when the government built the transcontinentals, they were politically corrupt and often — especially in the case of the Union Pacific and the Northern Pacific — went broke. One cause of the failure: Track was laid ahead of settlements. Mr. Obama wants to do something similar with high-speed rail. The Great Northern Railroad, privately built by Canadian immigrant James J. Hill, was the only transcontinental to be consistently profitable. It was also the only transcontinental to receive no federal aid. In railroads, then, infrastructure not only followed the major capital investment, it was done better privately than by government.
