Institutional Barriers To the Economic Development of the Mountain West 1

AuthorMorris E. Garnsey
Date01 December 1949
Published date01 December 1949
Subject MatterArticles
University of Colorado
Mountain West is about to enter an era of rapid economic ex~
t pansion. During the inter-war period, 1920-1940, the region lagged
behind the rest of the country in economic growth, but the war
gave the Mountain states new capital equipment and an opportunity to
shake off the lethargy of the thirties.
On the other hand, the promise of future expansion is by no means
assured. Prominent among the negative factors in the present situation
is the existence of a number of institutional barriers to the development
of the region. In our society, patterns of behavior develop which get
accepted by habit and custom and often become sanctioned by law and
ideological conceptions. The behavior pattern then becomes institutional-
ized and fixed in the fabric of the society. Among these institutions, three
stand out as important barriers to western development: the freight rate
structure, the basing-point pricing system, and absentee ownership. An
understanding of the way in which these barriers operate to impede west-
ern development is the first step toward the removal of obstacles to our
development. It is the purpose of this article to examine the effect of
these significant institutional barriers on the future of the West.
The new era of rapid growth in the Mountain West derives its
impetus from two sources. The first is the continued strength of the
westward movement in American life, stimulated today by governmental
policy favoring greater public investment in the development of the
water, forest, and mineral resources of the West. Many westerners are
keenly aware of the emergence of these new factors. Private investment
in the West is now at a high level. In addition, the federal government
is already engaged in a six billion dollar Missouri Basin development pro-
gram, and eventually will undertake a similar investment in the Upper
Colorado Basin. The Snake River Valley is to be the site of the new
half-billion dollar atomic energy installation; and the exploitation of shale
oil and phosphate deposits of the West will involve the expenditure of
another three or four billions within twenty-five years. The future ex-
pansion of the West is genuinely spectacular
This article was written during the tenure of a Guggenheim Fellowship, with the assistance of grants
for research from the Lucius N. Littauer Foundation and the Graduate Council on Research of
the University of Colorado.
2 See the author’s forthcoming book, America’s New Frontier—A Study of the Economy of the Mountain
West, which contains data showing the balancing effects of federal funds in the regional balance-
of-payments, and presents estimates of future private and federal investment in the region.

The second source of western expansion is to be found in a group of
technological factors which are creating a trend toward the regional de-
centralization of the American economy. The nature of the decentraliz-
ing forces can be seen best by contrasting them with the major centraliz-
ing forces which shaped the economy in an earlier day. The Mountain
West was opened by the railroads; and in the nineteenth century the rail-
roads acted as a strong centralizing factor in the economy.3
The market
centers of the new region were strung out along the tracks of the new
iron highways and the region fed supplies of raw material to a few great
metropolitan centers such as Chicago and St. Louis. These centers re-
quired great quantities of materials to operate competitively in large
volume, and the metropolitan producers reached out along the fixed
routes of the railroad to supply their needs. The new region became a
satellite of the established centers, dependent upon the economic policies
of producers in the established metropolitan markets.
By contrast, there are at least three technological decentralizing forces
which are exerting a strong influence on the economy at the present time.4
These are the motor truck, electric power, and, potentially, atomic energy.
The motor truck has tended to break down the earlier centralized market
pattern into smaller regional and local patterns. The use of the motor
truck for hauling live animals, for example, has tended to decentralize
meat packing. It is advantageous to move animals by truck to a nearby
point; and it is more efficient to ship fresh meat or packing house products
long distances than to ship live animals. Electric power is a strong de-
centralizing force in the movement of industrial plants from urban to
suburban sites. Equally, the availability of abundant cheap power tends
to attract industry to new regions, especially where hydroelectric power
is developed. The use of atomic energy also may be expected to alter
the location pattern of industry in the next few decades. At present its
influence is military rather than economic, and a certain amount of re-
gional decentralization is now under way for strategic reasons. A part of
this movement is directed toward the Mountain West.
Thus, there are significant evolutionary forces in the American
economy which tend to favor the present and future development of the
Mountain West. But these forces are not always allowed to work them-
selves out unhindered. Individual producers as well as industrial and
political groups in the older centers long have attempted to preserve the
status quo and obstruct the processes of economic evolution. Their ob-
structionism often takes the form of defense of outmoded institutional
3 For more information see Edgar M. Hoover, The Location of Economic Activity (New York: McGraw-
Hill Book Company, Inc., 1948), chaps. iii and iv.
4 See John M. Blair, "Does Large-scale Enterprise Result in Lower Costs?" American Economic Review,
Vol. XXXVIII (1948), pp. 121-164.

behavior patterns which grew up in an early period and which tend to
benefit the older sectors of our society. A striking example of such an
institution is the present freight rate structure in the United States-a
structure which grew up with the rise of the earliest industrial centers
on the Atlantic seaboard and along the Great Lakes.5
From the beginning the West has recognized the importance of rail
transportation to its economy. The Granger Movement of the seventies
was directed against the discriminatory practices of the railroads.6 It led to
state and federal regulation, and to the establishment of the Interstate
Commerce Commission in 1887.7
In recent years protests against rate
policies have risen again in volume. In 1939, the Interstate Commerce
Commission, moved by numerous complaints, undertook an investigation
of the freight rate structure; and in May, 1945, ordered a drastic revision
of class rates and the creation of a uniform scale of intra-territorial and
inter-territorial class rates.8 It further ordered that the practice of main-
taining a separate classification of freight in each of the freight rate terri-
tories be abandoned and replaced by a uniform national system of
classification of freight for rate-making purposes. This order was appealed
by a group of eastern states and railroads,9 but was upheld by the Supreme
Court and became legally applicable in May, 1947.10
The decision to enforce uniformity throughout the United States for
class rates and commodity classifications was a substantial victory for the
West in its struggle for economic expansion; for the great weakness of
the freight rate system has been its diverse and illogical character. The
freight rate structure of the country has grown up by accretion over many
decades. As the nation grew and the railroads were extended westward
and southward the country was divided into &dquo;territories,&dquo; each having its
own rate structure for shipments within the territory, and each one having
its own basis for calculating rates for goods shipped across its boundaries
into other territories. All of these rates, moreover, were derived from those
in &dquo;official&dquo; or eastern territory, which lies east of the Mississippi and
north of the Ohio.
5 For an excellent survey of the freight rate structure see David M. Potter, "The Historical Development
of Eastern-Southern Freight Rate Relationships," Law and Contemporary Problems, Vol. XII
(1947), pp. 416-448.
See Leroy R. Hafen and Carl Coke Rister, Western America (New York: Prentice-Hall, 1941), pp.
647 ff.
7 For a good discussion of this development see Brainerd Currie, "Foreword," Law and Contemporary
Problems, Vol. XII (1947), PP. 391-402.
See Class Rate Investigation, 1939, 262 LC.C. 447 (1945).
9 State of New York v. United States, 65 F. Supp. 856 (1946).
Appealed from the District Court of the United States for the northern district of New York. 331
U. S. 284; 67 S. Ct. 1207. Decided May 12, 1947.

In a like manner as new products were offered for shipment year
after year, new rates were set up for them, and, inevitably, different defi-
nitions of a &dquo;product&dquo; evolved in the different territories, and different
rates were charged for products which were in fact identical. Also there
grew up a system of &dquo;commodity&dquo; rates to take care of low-value bulky
materials, and &dquo;exception&dquo; rates to take care of almost everything else.
The only discernible principle which held all these rates together in a
so-called system was the principle of charging &dquo;what the traffic would
For a number of...

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