Mr. Anderson is a member of the teaching staff, Department of Economics, Grove City College, Pennsylvania.
Along the banks of Pithole Creek in Western Pennsylvania lies a deserted field overgrown with weeds. One hundred years ago it was the same. A casual glance might suggest that the place had not changed in the intervening years, but closer inspection reveals forgotten remnants of the once thriving city of Pithole.
Pithole’s life span was but a few years. Yet, in its heyday, the city was as well-known as Pittsburgh, Detroit, or any other industrial center.
It all began in 1859 when Edwin L. Drake drilled the first successful oil well near the small town of Titusville in Western Pennsylvania. That was the beginning of a new industry—petroleum. The success of "Colonel" Drake at Titusville led to further oil drilling along Oil Creek, and during the Civil War that area grew rapidly.
Then, in 1864 a venturesome driller, I. G. Frazier, leased a farm seven miles up Pithole Creek, quite distant from the Oil Creek producing area. Early the following January, at a depth of 600 feet, he brought in a well producing 650 barrels of oil a day. The report of the new discovery brought wild speculation, but the winter was too severe for immediate new drilling.
The town was created the following spring. Thousands of people—drillers, speculators, teamsters, merchants, and Civil War veterans—came to Pithole to seek their fortunes.
The town literally "sprang up." Two days after lots in the town were offered for lease, the first building was under construction. Six days later, the Oil City Register reported that "nearly two entire streets are built up, and a large number of buildings are in the course of construction." Pit-hole’s first hotel, the Astor House, was built in a single day.
This feverish pace continued through the summer. Streets were laid out, a water works system installed, a fire department organized; and there were two each of banks, telegraph offices, and churches. A daily newspaper was published. There were over fifty hotels, one of which—the four-story Chase Hotel—was built at a cost of $100,000.
No census was ever taken of Pit-hole’s population. But by July of 1865 its post office was handling 5,000 letters daily, a volume exceeded in Pennsylvania at that time in only Philadelphia and Pittsburgh. One-third of the production of petroleum in the United States that year came from Pit-hole. Today, by comparison, it takes practically all of Texas to produce a third of the nation’s annual output.
Pithole was an important city in 1865. Scores of new businesses had been created. Some actually produced oil, while the others thrived off the wealth that the wells created.
Then the inevitable happened. In 1866, Pithole wells started going dry, and fewer new wells were coming in. At the same time, new fields were being discovered in such places as Pleasantville, Tidioute, and Shamburg. A mass exodus took place. The drillers and speculators were followed by the teamsters and merchants. Buildings were torn down to be moved and rebuilt in other towns. Some were sold for kindling. Fires claimed much of the town.
By June of 1868, oil production had come to a standstill, with only a handful of "hangers-on" in the dying town. Today, Pithole is gone, and many people living in the locality have never heard of it.
In 1866 Pithole became, in modern terminology, a depressed area. Not only were the wells drying up, but crude oil that had been selling in 1864 for $12.00 a barrel declined to a low of $1.35 in 1866. Such low prices forced many oil producing companies out of business. Thousands of laborers were unemployed. Pithole undoubtedly was the most depressed area of that period of general depression.
Much is heard nowadays about depressed areas in the United States. Newspapers picture shabby homes and families and tell of jobless workers and their hungry children. But they go on to report federal aid to the rescue, and herald the President’s "coupon plan" as having struck at the "real root" of the problem.
There was no large government to come forth with aid and assistance at Pithole’s time of need. But suppose there had been; consider what might have happened!
One possibility would have been government purchase of crude oil— price support via an "oil bank" — with barrels of surplus crude oil as wheat is stored today. Or, the government could have subsidized the Oil City and Pithole Railroad—just in case it might be needed for national defense. Had there been sufficient unemployment compensation and gifts of food, Pithole might still be populated today.
No one knows for sure what might have happened to Pithole and the petroleum business if government had intervened, but we do know what happened otherwise. A city disappeared because it no longer had economic value or reason to exist. And an infant petroleum industry expanded its annual output from 2.5 million barrels in 1865 to 2.5 billion barrels in 1959. If government had intervened to "protect" them, it might have saved the dying Pithole; but who knows what "help" of this kind could have done to the emerging oil industry?
There are at least three ways in which a so-called depressed area develops: (1) the goods or services it offers may be available elsewhere at less cost; (2) the goods or services it offers may no longer be wanted; (3) the area may have lost its capacity to produce. Pithole qualified in all three ways—its oil wells were drying up, oil was being produced more economically elsewhere, and —without its oil wells—there was no longer any use for the hotels and other services in the town.
It would have been possible, no doubt, to pump tax-collected funds into Pithole, to drill more wells or deeper ones, to subsidize various service industries, and otherwise nurse and coddle that dying community. But would it have been worth while to thus defy the market demand for change and progress?
A depressed area is a sign of inefficiency and of failure to satisfy the most urgent and always changing demands of consumers. It is a sign that capital and managerial talent have turned to new and better opportunities to satisfy consumers and earn profits. And it is both an invitation and a challenge to workmen to follow suit.
When government tries to defy such change, it penalizes efficiency and rewards failure, pours good money after bad, and changes the name and character of the subsidized community from Pithole to "rathole"!