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Lessons from the Telegraph for the Biden Administration

Americans of the 1800s learned from the development of the telegraph that it was entrepreneurs in a free market, not government, that really promoted the “public interest.”

The central planners of the Biden administration think they know what the energy of the future should look like, so do not be surprised if they squander billions on solar and wind schemes that go broke. It’s time to re-learn what happened nearly 200 years ago when government thought it knew what the future of another industry looked like—communications.

Did you know that the federal government first ran the telegraph business? During that brief period, it stagnated. Only when it was privatized, however, did it expand beyond a small corner of the East Coast and become profitable. The fascinating story of the telegraph’s explosive growth under private enterprise was most recently told by Tom Standage in his book, The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s Online Pioneers.

In 1844, the federal government subsidized and controlled the nation’s first telegraph wire—a Washington to Baltimore line built by Samuel Morse. His system of dots and dashes, run electronically through a magnetic wire, instantly conveyed letters of the alphabet to listeners miles away.

When the effectiveness of Morse Code was proven, some people wanted only the government—through the Post Office—to build and operate lines throughout the country.  Cave Johnson, the Postmaster General, argued that the use of the telegraph, “so powerful for good or evil, cannot with safety be left in the hands of private individuals uncontrolled.” Only the government, Johnson concluded, could be trusted to operate the telegraph in “the public interest.”

Johnson was probably well-meaning but otherwise an idiot. It’s a cardinal rule of life that—with so few exceptions that I can’t think of one at the moment—what the government runs becomes politicized, costly, inefficient and unprofitable quicker than you can spell “boondoggle.”

Fortunately, the federal telegraph monopoly didn’t last very long. The Washington to Baltimore line lost money every month. During 1845, as explained in a Prager University video by historian Burton Folsom (Why Is America So Rich? | PragerU), “expenditures for the government telegraph exceeded revenue by six to one and sometimes by ten to one each month.” Washington bureaucrats could not figure out how to market the new invention and could not imagine what uses people might have for it. In 1846, Congress officially turned the telegraph business over to private enterprise and allowed an unfettered marketplace to spread its wings.

The telegraph business expanded immediately. “Telegraph promoters showed the press how it could instantly report stories occurring hundreds of miles away,” according to Folsom. “Bankers and stockbrokers could live in Philadelphia and invest daily in New York. Policemen used the telegraph to catch escaped criminals.”

By 1847, many private companies were competing for pieces of the telegraph business. Keeping wires from breaking, sealing them under water, and maintaining the strength of the signal over half the continent stretched the capabilities of even the best entrepreneurs. But they did it.

“Washington bureaucrats received no profits from the government’s wire,” explains Folsom. “The cash they lost each month was the taxpayer’s, not their own. They had no incentive to improve service, to find new customers, or to expand it to more cities.”

Private entrepreneurs, however, had strong incentives to improve and market the product. “Just fifteen years after Congress privatized the telegraph,” Folsom found, “both the costs of construction and the rates for service linking the major cities were as little as one-tenth of the original rates established by Washington.”

The central planner types in the Biden administration probably don’t know this history at all. Perhaps none of them even care that they don’t know. I suspect they want the government in charge of just about anything they can manage to put it in charge of—not for reasons of sound economics informed by history, but because that’s what will give them power. “Progressives” and socialists—people who love to “plan” the hell out of other people—are far less interested in actual results than they are in concentrated state power. It’s what Austrian economist F. A. Hayek famously termed “the fatal conceit.”

Americans of the 1800s learned from the development of the telegraph that it was entrepreneurs in a free market, not government, that really promoted the “public interest.”  That’s a lesson smart people should heed today, which is yet another reason why the Biden administration probably won’t.

1 comment
  1. Dear Mr. Reed,
    As I read the contrast between the immediate reaction then and the hands-off attitude toward the Internet in the 1990s and beyond, the contrast is vivid.

    Evan Osborne

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