One hundred fifty years ago, Michigan’s first telegraph line was completed from Detroit to Ypsilanti, just in time for Christmas. Even more than e-mail today, the telegraph changed the way Americans communicated with each other in 1847 and for a long time thereafter.
What has largely been forgotten in the decades since is that the federal government first controlled the telegraph business. Only when it was privatized did it expand beyond the East Coast and become profitable. By the time the telegraph system was built in Michigan, it had become a genuine experiment in successful private enterprise. Here’s the story.
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 many miles away.
When the effectiveness of this Morse Code was proven, some people wanted only the government—through the Post Office—to build and operate lines throughout the country. For example, Cave Johnson, the Postmaster General, argued that the use of the telegraph "so powerful for good or evil, cannot with safety to the people 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."
Americans today are more likely than those 150 years ago to accept the argument that if something is good, government ought to do it and, in fact, can do it in "the public interest" better than private enterprise. At the time of the telegraph debate, however, people respected the Constitution as a check on the growth of government and the federal telegraph monopoly didn’t last very long.
Not only was there no authority in the Constitution for the government to build a telegraph, but the Washington to Baltimore line was losing money every month of its operation. During 1845, expenditures for the 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.
Finally, in the hands of entrepreneurs, the telegraph business expanded immediately. Telegraph promoters showed the press how it could instantly report stories occurring hundreds of miles away. Bankers and stock brokers saw how they could live in Philadelphia and invest daily in New York. Even policemen used the telegraph to catch escaped criminals. As the quality of service improved, telegraph lines were strung all over the settled portions of the country.
By 1847, two private companies were competing for business in the old Northwest Territory. Bringing the telegraph hundreds of miles into Michigan was a major challenge for private enterprise. Keeping wires from breaking, sealing them under water, and maintaining the strength of the signal over half the continent did stretch the capabilities of even the best entrepreneurs.
F. O. J. Smith, head of the Erie and Michigan Telegraph Company, showed much enthusiasm coming to Detroit. "Our Lake lines are to be the great receptacles of the Western intercourse with the Atlantic," Smith proposed. And he reminded his staff to "keep boldly in view the cheapness of the lines offered and the magnificence of the main arteries." The Detroit to Ypsilanti line was built along the Michigan Central Railroad and, when it was completed, Michigan had instant access to news and financial markets back in New York.
The Michigan connection gave courage to Smith and other private investors to build wires across the continent and, in 1866, across the Atlantic Ocean. Such a connection with the outside world must have been even more startling to Michiganians of the mid-1800s than radio, television, and e-mail were to later generations.
When government operated the first telegraph, Washington bureaucrats received no profits from the messages they sent on the wire. And the cash they lost each month was not their own; it was mere taxpayer money. Therefore, officials had no incentive to improve service on the telegraph, find new customers, or expand it to more cities.
When Congress privatized the telegraph, Samuel Morse, F. O. J. Smith and other entrepreneurs had strong incentives to find new customers, give them good service, and build wire into Michigan and across the continent. The cheaper and better they could do this, the more business they could attract. Just fifteen years after Congress privatized the telegraph, 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.
Contrary to Postmaster Johnson, Americans had learned that it was privatization, not government control, that really supported the "public interest."
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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