Pricing Streets and Roads

If, in contrast, we examine the performance of governmental streets and highways in America, it is difficult to see how private ownership could pile up a more inefficient or irrational record. It is now widely recognized, for example, that federal and state governments, spurred by the lobbying of automobile companies, oil companies, tire companies, and construction contractors and unions, have indulged in a vast overexpansion of highways. The highways grant gross subsidies to the users and have played the major role in killing railroads as a viable enterprise. Thus, trucks can operate on a right-of-way constructed and maintained by the taxpayer, while railroads had to build and maintain their own trackage. Furthermore, the subsidized highway and road programs led to an overexpansion of automobile-using suburbs, the coerced bulldozing of countless homes and businesses, and an artificial burdening of the central cities. The cost to the taxpayer and to the economy has been enormous. [p. 209]

Particularly subsidized has been the urban auto-using commuter, and it is precisely in the cities where traffic congestion has burgeoned along with this subsidy to overaccumulation of their traffic. Professor William Vickrey of Columbia University has estimated that urban expressways have been built at a cost of from 6 cents to 27 cents per vehicle-mile, while users pay in gasoline and other auto taxes only about 1 cent per vehicle-mile. The general taxpayer rather than the motorist pays for maintenance of urban streets. Furthermore, the gasoline tax is paid per mile regardless of the particular street or highway being used, and regardless of the time of day of the ride. Hence, when highways are financed from the general gasoline tax fund, the users of the low-cost rural highways are being taxed in order to subsidize the users of the far higher-cost urban expressways. Rural highways typically cost only 2 cents per vehicle-mile to build and maintain.4

In addition, the gasoline tax is scarcely a rational pricing system for the use of the roads, and no private firms would ever price the use of roads in that way. Private business prices its goods and services to “clear the market,” so that supply equals demand, and there are neither shortages nor goods going unsold. The fact that gasoline taxes are paid per mile regardless of the road means that the more highly demanded urban streets and highways are facing a situation where the price charged is far below the free-market price. The result is enormous and aggravated traffic congestion on the heavily traveled streets and roads, especially in rush hours, and a virtually unused network of roads in rural areas. A rational pricing system would at the same time maximize profits for road owners and always provide clear streets free of congestion. In the current system, the government holds the price to users of congested roads extremely low and far below the free-market price; the result is a chronic shortage of road space reflected in traffic congestion. The government has invariably tried to meet this growing problem not by rational pricing but by building still more roads, socking the taxpayer for yet greater subsidies to drivers, and thereby making the shortage still worse. Frantically increasing the supply while holding the price of use far below the market simply leads to chronic and aggravated congestion.5  It is like a dog chasing a mechanical rabbit. Thus, the Washington Post has traced the impact of the federal highway program in the nation’s capital: [p. 210]

Washington’s Capital Beltway was one of the first major links in the system to be completed. When the last section was opened in the summer of 1964, it was hailed as one of the finest highways ever built.

It was expected to (a) relieve traffic congestion in downtown Washington by providing a bypass for north-south traffic and (b) knit together the suburban counties and cities ringing the capital.

What the Beltway actually became was (a) a commuter highway and local traffic circulator and (b) the cause of an enormous building boom that accelerated the flight of the white and the affluent from the central city.

Instead of relieving traffic congestion, the Beltway has increased it. Along with I-95, 70-S, and I-66, it has made it possible for commuters to move farther and farther from their downtown jobs.

It has also led to relocation of government agencies and retail and service firms from downtown to the suburbs, putting the jobs they create out of reach of many inner city dwellers.6

What would a rational pricing system, a system instituted by private road owners, look like? In the first place, highways would charge tolls, especially at such convenient entrances to cities as bridges and tunnels, but not as is charged now. For example, toll charges would be much higher at rush-hour and other peak-hour traffic (e.g., Sundays in the summer) than in off-hours. In a free market, the greater demand at peak hours would lead to higher toll charges, until congestion would be eliminated and the flow of traffic steady. But people have to go to work, the reader will ask? Surely, but they don’t have to go in their own cars. Some commuters will give up altogether and move back to the city; others will go in car pools; still others will ride in express [p. 211] busses or trains. In this way, use of the roads at peak hours would be restricted to those most willing to pay the market-clearing price for their use. Others, too, will endeavor to shift their times of work so as to come in and leave at staggered hours. Weekenders would also drive less or stagger their hours. Finally, the higher profits to be earned from, say, bridges and tunnels, will lead private firms to build more of them. Road building will be governed not by the clamor of pressure groups and users for subsidies, but by the efficient demand and cost calculations of the marketplace.

While many people can envision the working of private highways, they boggle at the thought of private urban streets. How would they be priced? Would there be toll gates at every block? Obviously not, for such a system would be clearly uneconomic, prohibitively costly to the owner and driver alike. In the first place, the street owners will price parking far more rationally than at present. They will price parking on congested downtown streets very heavily, in response to the enormous demand. And contrary to common practice nowadays, they will charge proportionately far more rather than less for longer, all-day parking. In short, the street owners will try to induce rapid turnover in the congested areas. All right for parking; again, this is readily understandable. But what about driving on congested urban streets? How could this be priced? There are numerous possible ways. In the first place the downtown street owners might require anyone driving on their streets to buy a license, which could be displayed on the car as licenses and stickers are now. But, furthermore, they might require anyone driving at peak hours to buy and display an extra, very costly license. There are other ways. Modern technology may make feasible the requirement that all cars equip themselves with a meter, a meter which will not only click away per mile, but may speed up in a predetermined manner on congested streets and roads at peak hours. Then the car owner could receive a bill at the end of the month. A similar plan was set forth a decade ago by Professor A. A. Walters:

The particular administrative instruments which might be used include . . . special mileometers (similar to those used by taxis) . . . . The special mileometers would record mileage when the “flag” is up and a charge would be levied on this mileage. This would be suitable for large urban areas such as New York, London, Chicago, etc. “Flag-up” streets could be specified for certain hours of the day. Vehicles might be allowed to travel on those streets without a special mileometer provided that they bought and displayed a daily “sticker.” The occasional traffic on “sticker” authority would have been charged more than the maximum amount paid by those on mileometer authority. The supervision of [p. 212] the scheme would be fairly simple. Cameras could be set up to record those cars without sticker or flag, and a suitable fine could be levied for contravention.7

Professor Vickrey has also suggested that TV cameras at the intersections of the most congested streets could record the license numbers of all cars, with motorists sent a bill each month in proportion to all the times that they crossed the intersection. Alternatively, he proposed that each car could be equipped with the Oxford electronic metering device; each car would then emit its own unique signal which would be picked up by the device placed at the given intersection.8

In any case, the problem of rational pricing for streets and highways would be an easy one for private enterprise and modern technology to solve. Businessmen on the free market have readily solved far more difficult problems; all that is needed is to allow them the room to function.

If all transportation were set completely free, if the roads, airlines, railroads, and waterways were freed of their labyrinthine networks of subsidies, controls, and regulations in a purely private system, how would the consumers allocate their transportation dollars? Would we return to railroad travel, for example? The best estimates of cost and demand for transportation predict that railroads would become the main staple for long-haul freight, airlines for long-range passenger service, trucks for short-haul freight, and busses for public commuter travel. While railroads, in short, would stage a comeback for long-haul freight, they would not be revivified for much passenger service. In recent years, many liberals who have become disenchanted with the overbuilding of highways have been calling for massive discouragement of highway use, and the subsidizing and building of subways and commuter railways on a vast scale for urban traffic. But these grandiose schemes ignore the enormous expense and waste that would be involved. For even if [p. 213] many of these highways should not have been built, they are there, and it would be folly not to take advantage of them. In recent years, some intelligent transportation economists have raised their voices against the massive waste involved in constructing new rapid transit railroads (such as in the San Francisco Bay area) and have called instead for making use of the existing highways through employing express busses for commuting.9

It is not difficult to envision a network of private, unsubsidized and unregulated railroads and airlines; but could there be a system of private roads? Could such a system be at all feasible? One answer is that private roads have worked admirably in the past. In England before the eighteenth century, for example, roads, invariably owned and operated by local governments, were badly constructed and even more badly maintained. These public roads could never have supported the mighty Industrial Revolution that England experienced in the eighteenth century, the “revolution” that ushered in the modern age. The vital task of improving the almost impassable English roads was performed by private turnpike companies, which, beginning in 1706, organized and established the great network of roads which made England the envy of the world. The owners of these private turnpike companies were generally landowners, merchants, and industrialists in the area being served by the road, and they recouped their costs by charging tolls at selected tollgates. Often the collection of tolls was leased out for a year or more to individuals selected by competitive bids at auction. It was these private roads that developed an internal market in England, and that greatly lowered the costs of transport of coal and other bulky material. And since it was mutually beneficial for them to do so, the turnpike companies linked up with each other to form an interconnected road network throughout the land — all a result of private enterprise in action.10

As in England, so in the United States a little later in time. Faced again with virtually impassable roads built by local governmental units, private companies built and financed a great turnpike network throughout the northeastern states, from approximately 1800 to 1830. Once again, private enterprise proved superior in road building and ownership to the backward operations of government. The roads were built and operated by private turnpike corporations, and tolls were charged to the [p. 214] users. Again, the turnpike companies were largely financed by merchants and property owners along the routes, and they voluntarily linked themselves into an interconnected network of roads. And these turnpikes constituted the first really good roads in the United States.11

• 4From an unpublished study by William Vickrey, “Transit Fare Increases a Costly Revenue.”
• 5For similar results of irrational pricing of runway service by government-owned airports, see Ross D. Eckert, Airports And Congestion (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1972).
• 6Hank Burchard, “U.S. Highway System: Where to Now?,” Washington Post (November 29, 1971). Or, as John Dyckman puts it: “in motoring facilities . . . additional accommodation creates additional traffic. The opening of a freeway designed to meet existing demand may eventually increase that demand until congestion on the freeway increases the travel time to what it was before the freeway existed.” John W. Dyckman, “Transportation in Cities,” in A. Schreiber, P. Gatons, and R. Clemmer, eds., Economics of Urban Problems; Selected Readings (Boston: Houghton Mifflin, 1971), p. 143. For an excellent analysis of how increased supply cannot end congestion when pricing is set far below market price, see Charles O. Meiburg, “An Economic Analysis of Highway Services,” Quarterly Journal of Economics (November 1963), pp. 648-56.
• 7Professor Walters adds that with a suitably large application of the mileometer method, the cost of each mileometer could probably be reduced to about $10. A. A. Walters, “The Theory and Measurement of Private and Social Cost of Highway Congestion,” Econometrica (October 1961), p. 684. Also see Meiburg, op. cit., p. 652; Vickrey, op. cit.; Dyckman, “Transportation in Cities,” op. cit., pp. 135-51; John F. Kain, “A Re-appraisal of Metropolitan Transport Planning,” in Schreiber, Gatons, and Clemmer, op. cit., pp. 152-66; John R. Meyer, “Knocking Down the Straw Men,” in B. Chinitz, ed., City and Suburb (Englewood Cliffs, N.J.: Prentice-Hall, 1964), pp. 85-93; and James C. Nelson, “The Pricing of Highway, Waterway, and Airway Facilities,” American Economic Review, Papers and Proceedings (May 1962), pp. 426-32.
• 8Douglass C. North and Roger LeRoy Miller, The Economics of Public Issues (New York: Harper & Row, 1971), p. 72.
• 9See for example the works of Meyer and Kain cited above, as well as Meyer, Kain, and Wohl, The Urban Transportation Problem (Cambridge: Harvard University Press, 1965).
• 10See T. S. Ashton, An Economic History of England: the 18th Century (New York: Barnes and Noble, 1955), pp. 78-90. See the same source, pp. 72-90, for the mighty network of private canals built throughout England during the same period.
• 11See George Rogers Taylor, The Transportation Revolution, 1815-1860 (New York: Rinehart & Co., 1951), pp. 22-28. Also see W. C. Wooldridge, Uncle Sam the Monopoly Man, pp. 128-36. [p. 215]