- Historic Sites
One hundred and eight years of managing a problem that might have been solved at the outset with a single law
May/June 1996 | Volume 47, Issue 3
In the Roman army the soldiers’ regular rations were principally in the form of large loaves of bread, each one enough for two soldiers for a day. This presented a big problem. As with every standing army before and since, life in the legions was largely a matter of hurry up and wait, and soldiers have a bad habit of fighting among themselves when they’re bored. And with the exception of women and gambling, nothing makes so convenient a casus belli among idle troops as food.
But while the Romans had a genius for military matters, they also had a genius for law. By no means the least of its manifestations was a nifty regulation to prevent quarrels over the daily bread ration. When a pair of soldiers was issued a loaf, the rule called for one soldier to divide it and the other soldier to take his choice of halves.
This is a perfect example of a self-enforcing law, a law so constructed as to make it in everyone’s self-interest to act fairly. One would think that such laws would be used in every possible case, and doubtless they will be as soon as the Kingdom of Heaven on Earth arrives. But pending that event, they are likely to remain very rare. The reason is simple enough: Self-enforcing laws are in everyone’s interest except for one group, the people who make and enforce the laws to start with. Those who work for government—legislators and bureaucrats alike—tend to prefer to manage problems rather than solve them.
The classic example of what happens as a result of this predilection for management, not solution, is the Interstate Commerce Commission (ICC). On December 31 of last year, it finally closed its capacious doors after 108 years of managing a problem that could have been largely solved with a deft law. Indeed, through the immense inertia of politics, the ICC actually outlived by several decades the problem it was created to manage. That problem was the monopoly of overland transportation that railroads enjoyed in the nineteenth and early twentieth centuries and the economic power this monopoly gave them.
In fact, the modern world economy, which began to arise in the middle decades of the nineteenth century, came into being only because, for the first time in history, it became possible to move massive amounts of freight quickly and cheaply over long distances. But nineteenth-century railroads had very peculiar economics. They were quite capital-intensive by the standards of the day and had virtually the same high maintenance costs regardless of whether business was brisk or slow. Railroads therefore were inherently a volume business, because they needed to spread their vast fixed costs over as much traffic as possible. That meant intense competition for market share.
The railroads tried forming cartels to allocate the traffic, but they often broke down, especially in bad times, and price wars resulted on routes where railroads competed with one another. In turn, the price wars meant that the railroads often had to operate at a loss on the trunk lines that ran between major cities, such as Chicago and New York—the biggest trunk line of all—where the competition was at its most ferocious.
In those days, however, railroads not only operated trunk lines but also operated myriad branch lines running off the main ones to smaller cities and agricultural areas. On most of these there was no competition, so the railroads, naturally, made the most of that fact to redress the losses they experienced on the trunk lines.
Just as naturally this wasn’t popular with the farmers and manufacturers living along these monopoly lines. As early as the 1860s railroads had stirred up enormous resentment with their highhanded ways and their tendency to favor the powerful over the weaker with such devices as rebates. States, responding to political pressure, began to introduce regulation. Many states set up commissions to oversee the business, but these often proved ineffective, largely because the railroad lobbyists saw to it that their powers were limited, if not nonexistent.
Indeed, they often became nothing more than covers for permitting railroads to behave as they pleased. One critic complained about the California Railroad Commission, which had been set up precisely to bring the Central Pacific Railroad to heel. “The curious fact remains,” he wrote in 1895, “that a body created sixteen years ago for the sole purpose of curbing a single railroad corporation with a strong hand, was found to be uniformly, without a break, during all that period, its apologist and defender.”
And as railroads amalgamated into vast networks spanning dozens of states, each state’s power to regulate its own portion dwindled. In 1886 the Supreme Court, in Wabash Railroad v. Illinois , ruled that the states had no power over railroads that were carrying goods coming from or going to another state. For all intents and purposes that meant that states could not regulate railroads at all.