Wednesday, June 4, 2014

"Portage: Path Dependence and Increasing Returns in U.S. History"

A correspondent comments on the paper "Portage: Path Dependence and Increasing Returns in U.S. History"

St Paul, Minnesota is where it is because it is the last big flat spot on the river before it enters a canyon and meets the first of two big falls that bar further navigation upstream. Minneapolis is where it is because it is at a big falls that provided plenty waterpower for milling flour. The two cities remain separate because Minneapolis' falls are ten miles from St Paul's flat spot. Midway between the two cities is a tall bluff providing an ideal spot for military fortifications dominating the confluence of two rivers. If these three geographical features - the falls, the fort and the flat spot - had been within two or three miles of each other, Minneapolis and St Paul would be one giant city with a single downtown.

The federal government placed one of two national arsenals at the fall line of the Connecticut River, at Springfield. This provided water power and the falls also prevented the British navy from reaching it with ships of the line. The same is true of Harper's Ferry arsenal. However, Harper's Ferry is confined by river bluffs that leave it too little flat land for a city site.

The falls or rapids at the site of the Ford dam are what divided Minneapolis and St Paul into two separate cities in the 1850s.They prevented steamboats from reaching the flat spot next to the Mississippi River just south of St Anthony Falls. The Ford dam falls or rapids were unsuitable for developing power in the mid-19th Century because the falls were too far below the level of the surrounding land for a system of belts, wheels and shafts to transfer water power to where it was needed. The Mississippi is confined by tall bluffs into a narrow canyon that leaves no flat spot where power could be used. Once electrical generation was developed, these falls or rapids could be dammed and electrical power led up the bluffs to a site where it could be used. But by then the sites of the two downtowns were established.


James said...

Interesting paper.

It sounds like portage sites were lucky to have advantages for both pre-industrial commerce (as trade hubs) and early industrialization (as sources of power), which let them make a seamless transition into the industrial age. Eventually the Industrial Revolution created better forms of power and transportation, but by then the portage cities had an incumbency advantage (I assume that's what the authors mean by path dependence and returns to scale).

CP said...

Yep, that is the theory.

CP said...

Recent posts:

I've been meaning to review MoS - I'll be giving it about a 3/5.

Excellent point about "wonderful businesses". It's just like the "great" capital allocation decisions in the Outsiders. Decided retrospectively.

Anonymous said...

Excellent point about "wonderful businesses". It's just like the "great" capital allocation decisions in the Outsiders. Decided retrospectively.

Thanks. I had your post about moats vs. niches in mind when I wrote that-- in a low-growth environment, I would rather invest in solid niche businesses like Conrad than pay up for a moat that might or might not endure.

I'd give MoS the same rating. It's a decent book but many of the ideas (and the writing style, and even the title) feel derivative of Graham/Dodd.

CP said...

I'd read a book where Klarman tells us how he's figuring out what biotechs to buy, though.