THE EARLY BRITISH RAILWAY SYSTEM, THE CASSON COUNTERFACTUAL, AND THE EFFECTIVENESS OF CENTRAL PLANNING

Abstract

How large is the “first mover disadvantage,” in which a pioneer in deployment of new technologies incurs costs due to the immature state of that technology and to lack of knowledge about its application? And to what extent can those costs be mitigated by central planning? Mark Casson's book, The World's First Railway System, demonstrates that the British rail system on the eve of World War I could have been replaced by a much more efficient one, with reductions of cost and mileage in the 25-35 percent range. Much of that inefficiency can be attributed to the early days of British railways, in the 1830s and 1840s. It was due to incorrect notions about the nature of demand for railway service and about economic growth--notions that were recognized by only a few contemporary observers as incorrect. Since the correct views were rare and contrarian, it is likely (as was claimed by some experts in the early 1850s) that central planning in the 1840s would have led to an even less efficient system than the one produced by the decentralized, competitive, and admittedly wasteful historical process.