Author’s note:
This series of blogposts will be my paraphrased notes on a lecture given by Murray Rothbard called “The American Economy and the End of Laissez Faire“. This means the post will contain some word for word transcriptions of Rothbard’s words and some editorializing and rephrasing of my own. I will not distinguish between the two.
Sticking it to Standard Oil
The railroad commissions began at the state level, the first commission was in the state of Massachusetts, and following it’s introduction, there began to be a growing drive for a Federal Commission. Standard Oil was getting big discounts from railroad companies simply due to the volume of their business. Some of the smaller, competing oil companies wanted a cartel in the railroad industry to cut down on the competitive advantage enjoyed by Standard Oil (due to their lower freight rates thanks to higher shipping volumes).
In Pennsylvania there was a legislative push for fixed railroad rates driven by small oil companies working against Standard Oil, railroads were almost unanimously in favor of such legislation.
The first House Bill submitted to Congress was written by the attorney for one of the top railroads. In 1886-1887 they passed the Interstate Commerce Act which outlawed price discrimination, rebates, compulsory publicity, etc. When the act was passed the railroad magazines (railroad gazette and railway revue) praised it highly as a massive boon to the industry.
This is counter to the usual liberal “Ralph Nader myth” which is that these commissions were originally in favor of lowering prices and lowering rates but were hijacked after a 20-30 year pro competition/anti monopoly golden era.
Railroads did not like competing cartels that were not overseen by the Federal Commission established by the commerce act, thus there was an early attempt to eliminate smaller cartels, most railroads were in favor of such legislation.
First Board of the ICC
The very first commissioner of the ICC was Judge Thomas MacIntyre Cooley who is praised historians as a great advocate of Laissez-faire. However, in his role as commissioner of the ICC but was far from Laissez-faire. He was a chief justice on the Michigan Supreme Court, he was dean of the University of Michigan Law School, and he was also, however, a railroad lawyer & pool arbitrator working for Albert Fink.
Other members of the first ICC include a former Alabama railroad cartel commissioner, railroad attorneys, and the future chairman of the board of one of the biggest railroads in the country after time in ICC. Almost without exception, every member of the railroad commission were professionals within the railroad industry.
The main idea participants had was that the ICC would not set rates directly, but rather would help the railroads determine the proper rate and outlaw ‘price discrimination’.
One such member of the ICC was Charles Francis Adams Jr. (Union Pacific Railroad President from 1884-1890, which includes the time period during the passage of the commerce act). He was a member of the Boston Brahmin, a power elite compromised of a few dozen families that have been interconnected since the 17th century. (Lee, Adams, Cabot, Lodge, Lowell, etc.). The Adams family always sneered at commerce & manufacturing as un-aristocratic. Adams himself was a big fan of cartels and regulatory capture, upon the passage of the commerce act he commented “It should be rigidly and literally enforced”.
Even after the passage of the Interstate Commerce Act, the ICC still wasn’t very successful in setting up a profitable cartel. The United States railroad industry was so vast that cartels were going bust even with the ICC enforcing rate pools, there was always still new competition. Because of this, railroads kept calling for more and more enforcement from the commission. Thus, over the years, more legislation was continuously introduced to tighten the commerce commission’s grip on market competition.
However, one thing that can be for certain is that this regulation was quite successful in stalling the progress of the railroad industry at the time.
Shippers who had been favorable to the legislation quickly noticed that after the passage of the commerce act rates were not going down as promised but rather going up, and they could not understand the situation at play.
