How did the Western railroads survive regulation

[schlimm]

Of course I realized the case was hypothetical, but it illustrated nicely the fundamental flaws in the reasoning of the "Regulation bad' crowd.  The historical reality of farmers and other groups that turned to the states and federal government  after suffering at the hands of the rails illustrates why regulation started in the 19th century.  To listen to some, regulation of the railroads originated in a vacuum.  It is important to distinguish between the 19th and early 20th century laws and later laws and decisions from 1920 onward in terms of evaluating the wisdom of regulation.  Like most matters in the real world, the truth is not obtained by dichotomous reasoning.

[Murphy Siding]

     A question comes to mind.  When there was only one railroad to haul grain out, and no other conceivable competitive alternative,  who would anyone determine what the *fair*  or *correct* price should be for shipping?

     The railroad would be trying to charge as much as they could.  The farmer would be trying to pay as little as he could.

[John WR]

schlimm

Like most matters in the real world, the truth is not obtained by dichotomous reasoning.

I agree that dichotomous reasoning does not really explain anything because the world is not dichotomous.  Railroad regulations were created for reasons that arose out of historical situations.  We can argue about them but we cannot change them or the historical situation.  I prefer to understand them without feeling a need to make a personal judgement about them.  

Every society in the history of the world has had government.  It is not going away.  To simply argue that government should not have governed as it did may be personally satisfying but it will not help us to understand our own economic history.  

[John WR]

Murphy Siding

When there was only one railroad to haul grain out, and no other conceivable competitive alternative,  who would anyone determine what the *fair*  or *correct* price should be for shipping?

In 1906 Theodore Roosevelt signed the Hepburn Act.  The Act empowered the Interstate Commerce Commission to set maximum railroad rates.  As far as I know before that railroads were free to set their own freight rates and the only control on them was competition to the extent that it existed.  

[schlimm]

John WR

I agree that dichotomous reasoning does not really explain anything because the world is not dichotomous.  Railroad regulations were created for reasons that arose out of historical situations.  We can argue about them but we cannot change them or the historical situation.  I prefer to understand them without feeling a need to make a personal judgement about them.  

And that was why I excerpted a summary of three differing economic historical interpretations of regulation much earlier in the thread.

[John WR]

Yes, I recall your post Schlimm.  And I agree you make a good point.  The most recent view, which makes sense to me, points out that under regulation some railroads were winners and others were losers.  All railroads were not equal and it is a mistake to consider them as equals.  

[John WR]

schlimm

And that was why I excerpted a summary of three differing economic historical interpretations of regulation much earlier in the thread.

I find Charles Francis Adams' writing on regulation interesting.  In Railroads:  Their Origins and Problems he shows that without regulation neither British and European nor American railroad owners wanted competition. Rather, they would join together and agree on their rates.  In the US the railroads formed pools.  Thus, before the days of regulation competition among railroads was something of a myth. It is true that the pools did not always work well but that is what the railroads intended.  Adams suggested the government should recognized the pools and make then open rather than secret.   Then rates could be let at a level that was fair to both the companies and the shippers.  That would allow railroads to make a reasonable profit but prevent them from monopolistic practices.  

Adams was a railroad manager (among other things) and operated in a day when there was absolutely no Federal regulation or constraint on railroads.  There were state laws including the Granger laws but no regulation by the Federal Government.  He had a kind of first hand experience which it would be impossible to get today.

Greyhounds has a low opinion of Adams because Adams did not have a degree in economics.  However, he was highly regarded in his day and had a lot more credibility with elected officials than most railroad men.  

 

[schlimm]

John WR

Greyhounds has a low opinion of Adams because Adams did not have a degree in economics.  However, he was highly regarded in his day and had a lot more credibility with elected officials than most railroad men.  

Probably more to do with differing views than Adams' credentials.  greyhounds dismisses any views that differ from his, at least on here.

[John WR]

schlimm

Probably more to do with differing views than Adams' credentials.  greyhounds dismisses any views that differ from his, at least on here.

Greyhounds has every right to his personal opinion of Charles Francis Adams.  But Adams does have some important credentials.  He was President of the Union Pacific although its Federal debt pushed it into bankruptcy during his Presidency.  He had many years of involvement with railroads and he wrote widely about them.  And at a time when many railroad men were not particularly well educated Adams was educated at Harvard.  His contemporary, Jay Gould, didn't attend any college and E. H. Harriman who came after him left school at 14.  So, while I respect Greyhounds' opinion, I think it is a mistake to simply dismiss Adams.  

Also his observation that before regulation and even after it began railroad management made agreements precisely to avoid competition and set higher rates is well known and widely documented.