The economic consulting firm of Jesse J. Friedman & Associates, which since its inception in 1954 has acted in an advisory capacity to business corporations and associations in a wide range of regulated and unregulated industries, is headed by Jesse J. Friedman, whose experience as a government official and a consulting economist has embraced many aspects of public policy in relation to industry. On numerous occasions Mr. Friedman's work has involved the study of the implications of government and business policies for the public interest. He was staff director of a cabinet committee established by President Truman on problems of competition and monopoly and has served as economic consultant to the Antitrust and Monopoly Subcommittees of both the United States Senate and the House of Representatives, to the Senate Committee on Interstate and Foreign Commerce, and to the Department of Commerce, Department of Justice, and various state agencies. His studies published by Congressional Committees include Concentration in American Industry, Corporate Mergers and Acquisitions, and Merger in a Regulated Industry. In private consulting, he has made and directed studies and advised corporations and their counsel on the economic soundness of government and business policies relating to regulation, competition, pricing, profitability, investment, and the determination of revenue and income needs. He has dealt with varied economic issues in air, motor, rail, and water transportation. Among recent writings, he is co-author of a study of Relative Profitability and Monopoly Power, published in 1972, and the author of A New Air Transport Policy for the North Atlantic, published in 1976, and of Collective Ratemaking in Trucking: The Public Interest Rationale, Parts I and II, published in 1977-78.

An Historical, Economic and Legal Interpretation of Public Policy Which Encouraged the Building of Transcontinental Railroads

Suum quaque in annum referre

...Refer everything back to its own year.

INTRODUCTION

Perhaps no issue has similarly fascinated historians, economists, and attorneys as the issue of railroad land grants. During the mid-1800's, railroads, as homesteaders, highway builders, and canal builders before them, were the recipients of free Federal lands. The Federal government, with a seemingly infinite amount of undeveloped land on its hands, traded this land to hearty souls sufficiently bold to settle on and develop the forbidding Great

Plains.

The era of railroad land grants should be of little more than historical interest today. Congress and the courts long ago closed the books on railroad land grants. The record is complete and the conclusions straight forward. The railroads more than repaid the Federal government for the value of lands granted.

Unfortunately, the nation's barge and heavy truck operators, which are today receiving billions annually in rights-of-way subsidies, are spreading specious arguments regarding past railroad land grants in an effort to prevent a reformulation of public policy which would require all modes--railroads included--to compete solely on the basis of market forces and not subsidy.

The matter of past railroad land grants is as irrelevant as the matter of past barge and heavy truck subsidies. Though the U.S. Department of Transportation found that past Federal aid to barges and heavy trucks has far exceeded the value of past Federal aid to the railroads, the railroads do not suggest that barge and heavy truck interests repay past aid. The focus of economic analysis and public policy should be not on sunk costs, but on future costs.

This fact was borne out by a Department of Transportation spokesman, Richard F. Walsh, Director of DOT's Office of Economics and Public Investment, who, in response to these land grant allegations, told a Senate Subcommittee June 16, 1981:

These were all legitimate public policy objectives and didn't and shouldn't have anything to do with the principle of full cost recovery over the long run for all modes.

Mr. Walsh also said that raising questions about a mode's past Federal assistance "is not a particularly helpful way" to view this matter of competitive equity.

BACKGROUND

Unfortunately, when one repeats a myth sufficient numbers of times, the myth tends to become conventional wisdom unless challenged by truth. To counter the specious and irrelevant arguments of the barge and trucking industries regarding century old railroad land grants, we have prepared this paper providing the facts as established by the Federal government and Federal

courts.

During the 20 years from 1837 to 1857, approximately 130 million acres of Federally-owned lands were deeded by the Federal government to states and private sector interests to facilitate the building of railroads. The justification for railroad land

grants was both to ensure the defense of the West Coast from the British, and to exploit the Great Plains which appeared to stretch endlessly west from the Allegheny Mountains, and which seemed to have no value absent available and dependable transportation.

For years, there was a general fear in Congress that without a means of linking the West Coast with the East, California and other western possessions might be lost. In 1861, a U.S. Navy ship stopped a British mail packet, the Trent, removed two Confederate diplomats, and carried them to Boston. In the British view, this constituted a clear violation of international law and

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