Why There's No Better Investment than the Railroad Industry

Frontier Investing Week continues.

We’re still writing from the old frontier about the new frontier.

As we mentioned earlier this week, we’re writing from Baltimore, Maryland, on the American east coast.

Baltimore played a key role in the expansion of the American frontier. It was thanks to the railroad industry, and in particular the Baltimore & Ohio Railroad.

So it was only fitting that today we went to the B&O Railroad Museum near downtown Baltimore. Because, just as the railroad helped shape the American frontier and build wealth, it stands to do the same in the ‘New Frontier’…

Who hasn’t seen one of these on an old Western film?

By the way, if you wondered why the American locos had the distinctive wide-topped conical funnels, it was because these American locos were mostly wood burners rather than coal burners.

It meant they needed a spark arrestor in the funnel to stop sparks flying out the top causing grass fires.

These were the steam engines that built America. They had a huge impact on the economy. But they didn’t just impact commerce. The rise of the steam engine had a big impact on war too.

Railroads made America

As one of the info plates at the B&O museum notes:

‘A loaded [horse drawn] wagon could travel approximately 15-20 miles a day on normal roads.’

Now compare that to how quickly armies could move troops by rail during the Civil War:

‘Just one week after the firing on Fort Sumter, the Sixth Massachusetts Infantry Regiment travelled approximately 450 miles from Boston to Washington, DC, in only 48 hours.’

That was the power and the influence of the railroads on the American economy.

But it’s wrong to say that America was the only place where railroads changed the economy. It did the same in England. Until the introduction of steam engines, goods and people could only move by horsepower.

When the steam engines arrived, it had a big impact on the economy. It helped to compound the impact of the Industrial Revolution. The new coal trains could move more coal more quickly from the mines to the industrial heartlands.

More coal meant the factories could run for longer. It meant factory owners could build bigger factories to produce more goods. And they could do so at cheaper prices per unit. That led to falling prices and increased demand.

The same story played out in Europe. It’s no exaggeration to say that the railroads revolutionised economies across the Western world in the 19th and early 20th centuries.

And now it’s happening again.

Railroads can make China and India

As the Financial Times reports today:

‘India is to open up its dilapidated colonial-era railway network to foreign investors in one of recently elected premier Narendra Modi’s first moves to meet election promises of boosting economic growth and strengthening infrastructure in the subcontinent.

‘The antiquated train network needs at least $93 billion over five years to upgrade existing track, strengthen bridges, and modernise signalling and communications to meet the demands of the modern Indian economy.’

That’s a huge investment to modernise a decaying network. If India wants to modernise and grow its economy, the rail network is a good start.

Remember, for all the talk of India’s potential for growth and its huge population, India’s GDP is only US$1.8 trillion. Its GDP per capita is just US$1,503.

Compare that to Australia. It has a GDP of US$1.5 trillion. GDP per capita is US$67,441.

Of course, big population doesn’t guarantee economic success. Indonesia has a big population. Brazil has a lot of people. So does Nigeria. You couldn’t call any of those countries an economic success.

Read the rest of this article at Money Morning