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Sunday, April 1, 1990

The Great 19th-Century Timber Heist Revisited

This article is based on a study prepared by T. J. Iijima while he was a Research Intern for the Political Economy Research Center (PERC), 502 South 19th Avenue, Suite 211, Bozeman, Montana 59715. Jane S. Shaw is a Senior Associate of PERC. The article was originally published as part of the PERC Viewpoints series.

In the second half of the 19th century, the timber industry cut down large stretches of native forest around the Great Lakes, leaving the land denuded and mills abandoned. Historians and, more recently, environmentalists have portrayed this episode as one of the worst environmental disasters of the 19th century. It has come to symbolize the view that capitalists will always destroy natural resources if they can make short-run profits by doing so.

However, the conventional wisdom about the Great Lakes timber harvest is incomplete. While it is legitimate to regret the logging of those trees, we should consider the reasons they were cut and the benefits that resulted. This article, based on the historical record, will make the following observations:

•       Given the vast stands of timber in the United States and the demand for lumber for construction, the harvests were economically sound.

•       The chief concern about the harvest at the time was that it would produce a “timber famine”—but this fear was based on poor understanding of economic forces. The nation was never in danger of running out of timber.

•       While the denuding of land is offensive to people today, to the people of the 19th century, turning forestland into farmland and providing lumber for construction were more impor-rant than the aesthetic condition of the land.

•       Most of the timberlands regrew over time, and some stands of virgin timber remain.

•       Society generally—and the Great Lakes region specifically—benefited from the harvests.

Did the Timber Barons Miscalculate?

A common theme of historians writing about the timber cuts of the upper Midwest is that the barons of the timber industry, perhaps reflecting the general opinion of the day, mistakenly thought that the Great Lakes timber would last forever. Andrew Rodgers, a historian of American forestry and plant sciences, is typical: “It was assumed that the continent’s forest resources were inexhaustible,” he writes. Robert Fries, in an award- winning book on Wisconsin’s economic history, states that “the very immensity of the forest[s] led most people to take them for granted, much as they did the sunshine and the air about them.”

But these claims about the dominant thinking at the time are overstated. Two economists, Ronald Johnson and Gary Libecap, have concluded that there was no serious indnstry-wide misinformation about the supply. Had there been a serious mis-judgment, they point out, prices would have gone up rapidly at the point that people recognized a pending shortage of timber. There never was a run-up in prices and there never was a shortage.

Johnson and Libecap examined stumpage prices (the prices of standing timber). Writing in the journal Explorations in Economic History, they reported that rates of return on timber investments were relatively constant through 1900; the rate of change in stumpage prices hovered around 6 percent per year or within approximately one percentage point of the prevailing yield on railroad bonds over that period of time. A look at the price of processed wood reveals a similar steady increase from 1789 to the 1930s.

The timber industry included savvy men who recognized the future value of the timber. This differs from their portrayal as reckless men who rushed into the prime timberlands, ravaged them, and quickly deserted them in search of more opportunities. For example, Philetus Sawyer, a lumber tycoon and U.S. Senator, started his fortune with wen-placed purchases of forestlands. Some of these he kept off the market for as much as a quarter- century. He profited because he went to the expense of investigating the quality of forestland and invested capital in trees whose value would not be realized for some time.

Cornell University presents another example. As a land-grant college, Cornell obtained from the government rights to nearly a million acres, about half of which were in Wisconsin. Ezra Cornell, the school’s founder, hired a talented and well-placed land agent who meticulously chose stands and skillfully negotiated sales to lumber mills over a number of years. The land was obtained in the 1860s, and most was sold by 1890, but final sales were not completed until 1925. The better tracts of land, which at times were barely worth $5 an acre, were eventually sold for $20 and more. Cornell’s richest tract of land sold for $82 an acre.

Thus, it appears that what the timber industry did was sound on economic grounds. Even if some firms or entrepreneurs unwisely cut down trees, other firms could easily respond by holding back their supplies in anticipation of increasing prices. The interplay of these judgments led to a gradually increasing price of timber, not to erratic prices or unusually high prices.

What Stopped the Timber Barons?

But even if the timber barons acted intelligently, they did cut down many square miles of virgin forest, and they did not replant. Some prominent people of the day thought that the timber barons would cut down all the trees they could—that, if left to themselves, nothing would stop them. Bernhard Fernow, the first chief of the United States Division of Forestry, exemplifies this view. He wrote in his 1902 book, Economics of Forestry:

The natural resources of the earth have in all ages and in all countries, for a tune at least, been squandered by man with a wanton disregard of the future, and are still being squandered wherever absolute necessity has not yet forced a more careful utilization.

This is natural, as long as the exploitation of these resources is left unrestricted in private, hands; for private enterprise, private interest, knows only the immediate future—has only one aim in the use of these resources, namely, to obtain from them the greatest possible personal and present gain.

Fernow was far from alone. Theodore Roosevelt predicted that if “the present rate of forest destruction is allowed to continue, with nothing to offset it, a timber famine in the future is inevitable.” (He is quoted in Sherry Olson’s book, The Depletion Myth.) In fact, of course, the country has never experienced this timber famine. Why? The economics of supply and demand offers an answer. It explains why the timber industry did not eliminate all the wood in America and why, in spite of centuries of doomsday predictions, no significant natural resources (exhaustible or renewable) have actually been exhausted.

As prices of a commodity increase, consumers tend to reduce their purchases and look for alternatives. As they do, producers have an incentive to find materials that they can produce more cheaply to retain customers or obtain new ones.

As prices increased in the late 19th century, timber companies looked for alternatives; stands on the West Coast gradually became more attractive, as did the Southern pine forests after the 1876 repeal of the Southern Homestead Law opened these forests to logging. By the turn of the century, timber from the South and Far West began to dominate the market.

Similarly, consumers responded to higher prices by conserving wood. The railroads were a major customer for lumber, which was used in bridges and railroad ties. As railroad company executives began to foresee scarcity, they began researching ways to protect wooden bridges and ties against decay, develop steel ties and bridges, and design bridges more efficiently. So, gradually rising prices of Midwestern timber led to the disappearance of the Great Lakes timber industry.

Were They Wasteful?

A related criticism by conservationists then and now is that the industry used inexcusably wasteful procedures in logging and milling the forests. Not only did the timber companies cut down vast stretches of forest, they didn’t even use much of what they cut. Historian Frederick Merk, for example, reports: “It has been estimated that not more than 40 per cent of the magnificent forest . . . ever reached the sawmill.” Robert Fries cites an estimate that a billion more board feet could have been produced in the years 1872-1905 had band saws been used rather than muley and circular saws.

If “wasteful” means that wood was thrown away that could have been processed and used, then the critics are right. But why were loggers so little concerned with conserving good wood?

At the time labor was scarce and expensive, as it was throughout much of U.S. history; in contrast, resources such as land and water were abundant and cheap. In 1871, the average daily wage of a skilled laborer in the United States was $2.58; at the time, good pine stands could be obtained for $4.00 per acre. During the Civil War, labor costs were particularly high and workers were scarce in the pine forests. “In 1864 . . . the wages of loggers in the northwestern pineries of Wisconsin ranged from $3 to $4 per day including board,” writes Merk, who points out that all sawmill innovations were designed to increase output or save labor. Little effort was made to save lumber “since timber was still cheap and abundant.”

The disparity of value also explains why the timber industry failed to replant as it does today. Wood was worth too little to justify using expensive labor. It would take 70 or more years before newly planted trees could be harvested, and forest regeneration occurred without human intervention anyway. Furthermore, property taxes made preservation more expensive. Forested land was usually taxed at a higher rate than unforested land. This gave owners an incentive to remove the trees. Once the trees were cut, taxes went down, but they still existed. With taxes due, but with the land unable to produce timber for many years, some owners abandoned these properties.

Farming was of much greater value than setting land aside for forests, so much of the cut-over land was sold to settlers. Eau Claire, Wisconsin, once a major logging center, is now in the middle of a large farming area. Today, most land in the Great Lakes area is either productive farmland, timberland, or recreational land used by fishermen, hunters, and hikers.

A Matter of Aesthetics

It is true that, in the course of half a century, most of the old-growth timber (that is, timber that hadn’t been touched by humans) in the Great Lakes area was converted from majestic age, grandeur, and beauty to what many would call wasteland. Nearly all the denuded lands have since either regrown into forest or been turned into farmlands; however, in a few small areas, because of the poor quality of the soil, the forests have never regrown.

Further, while the Great Lakes states today contain many thousands of acres of regrown forest-lands, they contain only very limited amounts of old-growth forestlands. This is an aesthetic and environmental cost.

But people living in the middle of the 19th century saw the issue differently. They did not consider harvested forests a “wasteland.” Indeed, the forests were the wasteland. A Wisconsin historian writing at the time of the timber harvests praised the lumbermen on the Upper Wisconsin for their ability to reduce “those wild wastes, into a land of productive industry, equalled by no other in the state—scarcely in the west.”

Even the people who became known as “conservationists” late in the 19th century were not primarily concerned about how the land looked; they were worried that the destruction would cause a dearth of timber. Conservation began to become more popular as the damage of widespread logging became evident, but these logging activities continued to be viewed generally as beneficial to the country.

Most of the population wasn’t wealthy enough to concern itself with environmental amenities-per capita G.N.E today is nearly ten times what it was then. Making sure there would be food on the table was a real daily concern, and fewer people had the time or resources to backpack, canoe, fish, or hunt for leisure. Setting aside land for regrowing forests would have reduced the average standard of living even further.

Although the widespread view is that the Great Lakes forests were totally destroyed, the fact is that we do still have virgin stands. What saved them was primarily the economics of their location. Timber stands that were largely inaccessible, difficult to log, or sparsely wooded (on steep hills, for example, or in swampy areas) were generally untouched throughout the 19th century—logging would not have been profitable. In Northern Michigan and parts of Canada, many thousands of acres were spared; fewer were bypassed in Minnesota and Wisconsin, where the terrain is less rugged and the forests were closer to population centers.

As the public became more interested in leisure, recreation, and the environment, many of these stands were purchased and preserved both by private individuals and the government. Even land that had been cut was purchased and the timber was allowed to regrow, resulting in beautiful lands today. Examples abound: The “Sylvania Tract” of Ottawa National Forest, the Huron Mountain Club near Big Bay, Michigan, the “McCormick Tract,” just south of the Huron Mountain Club, Porcupine Mountains Wilderness State Park in Michigan, and some parts of the Boundary Waters Canoe Area in Superior National Forest all contain some virgin timber. Ironically, the forests of the Porcupine Mountains were nearly logged under Department of Defense contracts during World War II. Private markets had not yet deemed the timber worth the costs of harvest, but the government wanted to cut the trees.

Benefits to Society

Had the forests of the Great Lakes region been off limits as a resource to settlers, Americans would have paid a significantly higher price for what lumber they could get. This would have placed even more hardships on them than they already faced, and would have slowed the country’s economic growth. The profits from timber harvests benefited the nation as a whole and specifically benefited the regions in which the industry operated. Agnes Larson, who wrote about the white pine industry in Minnesota, states that the harvests had “as a direct result the more rapid settlement of the region and the better housing of its people.”

Consider the Kingston Plains, a 40-square-mile area that has never recovered from the logging of 100 years ago. Efforts have been made to replant the area, but the soil is too infertile and sandy. It probably took hundreds of years for the original forest to grow, and it will take hundreds of years for the area to return to forest. The land is virtually useless now, so it is clear that cutting these trees represented a substantial cost to society; but what was the benefit?

At the time the trees were cut, good timber stands in the Great Lakes area were selling for around $20 per acre. To estimate the value that society received from the harvest, suppose that the income from selling these trees had been invested in bonds or some other form of savings at the time. If those bonds or vehicles continued to return interest, the original amount would have grown to approximately $110,000 per acre today. For the 40 square miles, this is $2.8 billion—in other words, society, at least in theory, so far has reaped an estimated $2.8 billion in value from cutting down those trees.

If those trees had been left standing, would the benefits derived over the past 100 years from having the land available for wildlife habitat, hiking, and other recreational activity have been worth forgoing the benefits that came from cutting them down? The answer to that question is highly subjective, but such trade-offs are often ignored.

Looking at the problem from an economic perspective, then, the Great Lakes timber stands were harvested in a responsible way. The fear of a timber famine, which led the federal government to create the Forest Service, reflected poor understanding of natural resource economics. The number of acres harvested was the result of interacting forces of supply and demand; as these changed, people harvested or held back timber as they saw fit. The result was a slow but steady rise in the price of lumber. This rise ultimately led customers to substitute other materials and led the timber companies to find additional sources of wood in the West and South.

(In contrast, by the way, the Forest Service today responds to political forces in deciding how much to harvest. Many environmentalism criticize it for cutting trees that would never be logged if supply and demand were allowed to operate.)

Our modern concern about the “timber heist” reflects a growing interest in preservation that has gradually developed over time. In the late 19th century, Americans wanted additional farmland and lumber more than they wanted to preserve the forests that would supply that land and lumber. As Americans have achieved more leisure and affluence, they have wanted more preservation and restoration. That change in attitude has occurred in the Great Lakes region as well as the rest of the country, and it is a good thing. But does it justify condemning our ancestors who, because they were poorer, did not have the aesthetic consciousness many of us have today?