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Competition and Regulation: The Railroad Model

Published online by Cambridge University Press:  13 December 2011

Maury Klein
Maury Klein
Affiliation:
Maury Klein is professor of history at theUniversity of Rhode Island.
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Extract

In the following essay on the railroad industry, Maury Klein examines preconceptions and misunderstandings surrounding Americans' views of regulation and competition. He argues that the United States seems to want competition without losers and that, at least in the case of railroads, regulation has often tried to ensure this outcome without a real understanding of the economics of the industry.

Type
Articles
Information
Business History Review , Volume 64 , Issue 2 , Summer 1990 , pp. 311 - 325
Copyright
Copyright © The President and Fellows of Harvard College 1990

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References

1 Given the voluminous literature on railroads, it is remarkable how few general works treat the subject, let alone interpret it in broad terms. Stover, John F., American Railroads (Chicago, Ill., 1961)Google Scholar and The Lift and Decline of the American Railroad (New York, 1970)Google Scholar are descriptive and largely repetitive of each other. Holbrook, Stewart H., The Story of the American Railroads (Garden City, N.Y., 1953)Google Scholar is a popular history. The most useful volumes remain Chandler, Alfred D. Jr, The Railroads: The Nation's First Big Business (New York, 1965)Google Scholar, and the same author's broad synthesis in The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977), 122–87.Google Scholar

2 For a useful discussion of why historians have been so slow to treat railroad history intelligently and comprehensively, see Albro Martin, “Light at the End of a Very Long Tunnel: The Railroads and the Historians,” Railroad History (Autumn 1986): 15-33.

3 Alexander, E. Porter, Railway Practice (New York, 1887), 6.Google Scholar

4 I am aware that competition existed in many areas between railroads and water carriers. The point here is that the most influential and decisive form of competition was between rival rail lines rather than intermodal competition.

5 Adams, Charles Francis Jr, Railroads: Their Origin and Problems (New York, 1888), 85, 185Google Scholar; “Transportation Developments in the United States,” Proceedings ofthe Academy of Political Science 17 (Jan. 1937): 73–74.Google Scholar

6 The literature on costs and pricing is extensive but diffuse. See, for example, Albert Fink's pioneering “Cost of Railroad Transportation” [extract from the Annual Report of the Louisville & Nashville Railroad] (Louisville, Ky., 1875); Johnson, Emory R. and Metre, Thurman W. Van, Principles of Railroad Transportation (New York, 1920), 337–51Google Scholar; Brown, Harry Gunnison, Transportation Bates and Their Regulation (New York, 1921)Google Scholar; Jones, Eliot, Principles of Bailway Transportation (New York, 1924), 71–90Google Scholar; Ely, Owen, Railway Sates and Cost of Service (Boston, Mass., 1924)Google Scholar; Daniels, Winthrop, The Price of Transportation Service (New York, 1932)Google Scholar; Nelson, James C., Railroad Transportation and Public Policy (Washington, D.C., 1959), 327–73Google Scholar; U.S. Senate, National Transportation Policy, Sen. Report No. 445, 57th Cong., 1st Sess. (Washington, D.C., 1961), 385–424Google Scholar [hereafter cited as Doyle Report]; Meyer, John R. et al. , The Economics of Competition in the Transportation Industries (Cambridge, Mass., 1960)Google Scholar; Keeler, Theodore E., Railroads, Freight, and Public Policy (Washington, D.C., 1983), 43–61.Google Scholar Historically, the pricing of rail service has been based on value of service rather than its cost.

7 The literature on rates, the classification system, and discriminations is too enormous to cite here. Virtually every work cited in this article has something to say on these subjects. For some standard introductions see Jones, Principles of Railway Transportation, 71–180; Noyes, Walter Chadwick, American Railroad Rates (Boston, Mass., 1905)Google Scholar; Ely, Railway Rates and Cost of Service, 1–80; Johnson, Emory R. and Huebner, Grover G., Railroad Traffic and Rates (New York, 1911) 1: 331–492Google Scholar; Doyle Report, 385–443.

8 The intensity of these early rate wars can best be appreciated by extensive browsing in such periodicals as the Commercial and Financial Chronicle, Railroad Gazette, Financier (later Public), and Bradstreet's for the 1870s and 1880s. Contemporary newspapers in New York and Chicago, as well as in other affected cities, also contain a wealth of detail on rate wars.

9 This conclusion is derived from reading thousands of pages of testimony scattered through state and federal hearings for the period 1870–1900. For two examples see the testimony in the proceedings cited in footnote 10.

10 Stickney, A. B., The Railway Problem (St. Paul, Minn., 1891), 69, 143, 219, 223–24.Google Scholar For examples of this view of rates, see the testimony in [Hepburn Committee], Proceedings of the Special Committee on Railroads… (New York, 1897)Google Scholar and U.S. Senate, Report of the Senate Select Committee on Interstate Commerce (Washington, D.C., 1886).Google Scholar

11 For accounts of these wars and attempts to stop them see Klein, Maury, The Great Richmond Terminal (Charlottesville, Va., 1970)Google Scholar, The Life and Legacy of Jay Gould (Baltimore, Md., 1986)Google Scholar, and Union Pacific: The Birth, 1862–1893 (New York, 1987)Google Scholar; Grodinsky, Julius, The Iowa Pool (Chicago, Ill., 1950)Google Scholar and Transcontinental Railway Strategy, 1869–1893 (Philadelphia, Pa., 1962).Google Scholar There is no satisfactory account of the eastern rate wars or the trunk line pool. For a brief discussion see Martin, Albro, “The Troubled Subject of Railroad Regulation in the Gilded Age—A Reappraisal,” Journal of American History 61 (Sept. 1974): 353–59.CrossRefGoogle Scholar

12 Stickney, Railway Problem, 140; Alexander, Baihmy Practice, 59; Waters, Richard Hadley, Competition and Regulation (Philadelphia, Pa., 1938), 97Google Scholar; Nelson, Railroad Transportation, 112; Hilton, George W., The Transportation Act of 1958 (Bloomington, Ind., 1969), 4.Google Scholar For a survey of the literature on regulation see McCraw, Thomas K., “Regulation in America: A Review Article,” Business History Review 49 (Summer 1975): 159–83.CrossRefGoogle Scholar

13 Nelson, Railroad Transportation, 112; McCraw, Thomas K., Prophets of Regulation (Cambridge, Mass., 1984), 9.Google Scholar

14 McCraw, Prophets of Regulation, 10. The pooling issue and its alter ego, the long haulshort haul clause, are expertly discussed in Martin, “Troubled Subject of Railroad Regulation,” 339–71.

15 Different aspects of this story are found in Martin, Albro, Enterprise Denied: Origins of the Decline of American Railroads, 1897–1917 (New York, 1971)Google Scholar; Martin, Albro, James J. Hill and the Opening of the Northwest (New York, 1976)Google Scholar; Kennan, George, E. H. Harriman: A Biography, 2 vols. (Boston, Mass., 1922)Google Scholar; Meyer, B. H., A History of the Northern Securities Cases (Madison, Wise, 1906)Google Scholar; Klein, Maury, Union Pacific: The Rebirth, 1894–1969 (New York, 1990)Google Scholar.

16 The Northern Securities decisions are in 193 U.S. 197 and 197 U.S. 244. For the dissolution of the Union Pacific-Southern Pacific merger see United States v. Union Pacific Railroad et al., 266 U.S. 61, 33 S. Ct. 53, and 57 L. Ed. 124.

17 Kolko, Gabriel, Railroads and Regulation (Princeton, N.J., 1965), 74, 87Google Scholar; “Transportation Development in the United States,” 68–69. Kolko's version of the “capture” thesis of regulation has been pretty thoroughly demolished. See, for example, Vietor, Richard H. K., “Businessmen and the Political Economy: The Railroad Rate Controversy of 1905” Journal of American History 64 (June 1977): 47–66CrossRefGoogle Scholar, and McCraw, “Regulation in America,” 164–66.

18 The best and most lucid account of the prewar struggle between the carriers, the ICC, and the government is Martin, Enterprise Denied. See also Kerr, K. Austin, American Railroad Politics, 1914–1920: Rates, Wages, and Efficiency (Pittsburgh, Pa., 1968)Google Scholar; Kolko, Rates and Regulation; Sharfman, I. L., The Interstate Commerce Commission: A Study in Administrative Law and Procedure (New York, 1931–1937), 5 vols.Google Scholar For the wartime experience see Kerr's book and Hines, Walker D., War History of American Railroads (New Haven, Conn., 1928).Google Scholar

19 Hoogenboom, Ari and Hoogenboom, Olive, A History of the ICC: From Panacea to Palliative (New York, 1976), 105.Google Scholar The literature on the Transportation Act of 1920 is voluminous. A full description of the act is in Sharfman, , Interstate Commerce Commission, 1: 177–244.Google Scholar

20 Details on the consolidation provisions of the 1920 act and their tortuous fate are in Sharfman, , Interstate Commerce Commission, 3A: 385–501Google Scholar, and Hoogenboom and Hoogenboom, ICC, 105–10.

21 Quoted in Sharfman, , Interstate Commerce Commission, 3A: 432–33, 461Google Scholar.

22 Quoted in ibid., 3A: 358–59. For details on these provisions see ibid., 3A: 327–85.

23 Quoted in ibid., 3A: 359.

24 This quest for diversity can be seen by glancing through issues of Railway Age for the interwar years. In 1926, for example, this trade journal began a section devoted to truck and bus activities undertaken by railroads. For the Union Pacific flirtation with air travel, see Klein, , Union Pacific, 2: 320–26Google Scholar.

25 For the mood of the 1930s see Latham, Earl, The Politics of Bail Coordinatim, 1933–1936 (Cambridge, Mass., 1959).CrossRefGoogle Scholar

26 These acts are summarized briefly in Keeler, Railroads, Rreight, and. Public Policy, 26–43.

27 Ibid., 136; Railway Age, 108: 851–54,1043–45; 109: 371–73, 399–403; Keeler, Railroads, Freight, and Public Policy, 27.

28 Doyle Report, 152–84; Nelson, Railroad Transportation and Public Policy, 111–45; Association of Railway Executives, “Declaration of Policy Deemed Necessary to the Continuance of Adequate Transportation Service to the Public,” 20 Nov. 1930, copy in possession of Union Pacific Corporation.

29 Nelson, Railroad Transportation and Public Policy, 3–110, 148–92; Doyle Report, 47–74.

30 For a pivotal work in this transition see Meyer, Economics of Competition.

31 Keeler, Railroads, Freight, and Public Policy, 147.

32 There has been another interesting trend in recent years toward the creation of shortline roads operating over the better routes of abandoned larger systems. See, for example, Providence Journal,7 Nov. 1988.

33 Adams, Railroads: Their Origin and Problems, 203.