Free To Choose: a personal Statement

Who Protects the Consumer?
195
separate railroads. The country was literally crisscrossed with
railroads going to every remote hamlet and covering the nation
from coast to coast. The miles of track in the United States ex-
ceeded that in all the rest of the world combined.
Competition was fierce. As a result, freight and passenger rates
were low, supposedly the lowest in the world. Railroad men, of
course, complained of "cutthroat competition." Every time the
economy faltered, in one of its periodic slumps, railroads went
bankrupt and were taken over by others or simply went out of
business. When the economy revived, another surge of railroad
construction followed.
The railroad men of the time tried to improve their position by
joining together, forming pools, agreeing to fix rates at profitable
levels and to divide the market. To their dismay, the agreements
were always breaking down. So long as the rest of the members
of a pool kept up their rates, any one member could benefit by
cutting his rates and taking business away from the others. Of
course, he would not cut rates openly; he would do so in devious
ways to keep the other members of the pool in the dark as long
as possible. Hence such practices arose as secret rebates to favored
shippers and discriminatory pricing between regions or com-
modities. Sooner or later the price cutting would become known
and the pool would collapse.
Competition was fiercest between distant, populous points such
as New York and Chicago. Shippers and passengers could choose
among a number of alternate routes operated by different rail-
roads and also among the canals that had earlier covered the land.
On the other hand, between shorter segments of any one of these
routes, for example, between Harrisburg and Pittsburgh, there
might be only one railroad. That railroad would have something
of a monopoly position, subject only to competition from alter-
native means of transport, such as canals or rivers. Naturally, it
would take full advantage of its monopoly position wherever it
could and charge all that the traffic would bear.
One result was that the sum of the fares charged for the short
hauls—or even for one short haul—was sometimes larger than
the total sum charged for the long haul between the two distant
points. Of course, none of the consumers complained about the low

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196
FREE TO CHOOSE: A Personal Statement
prices for the long haul, but they certainly did complain about the
higher prices for the short hauls. Similarly, the favored shippers
who got rebates in the secret rate-cutting wars did not complain,
but those who failed to get rebates were loud in their complaints
about "discriminatory pricing."
The railroads were the major enterprises of the day. Highly
visible, highly competitive, linked with Wall Street and the finan-
cial East, they were a steady source of stories of financial manipu-
lation and skulduggery in high places. They became a natural
target, particularly for the farmers of the Middle West. The
Grange movement, which arose in the 1870s, attacked the
"
mo-
nopolistic railroads." They were joined by the Greenback party,
the Farmers' Alliance, and so on and on, all agitating, frequently
with success, at the statehouse for government control of freight
rates and practices. The Populist party, through which William
Jennings Bryan rose to fame, called not merely for regulation of
the railroads but for outright government ownership and opera-
tion.' The cartoonists of the time had a field day depicting the
railroads as octopuses strangling the country and exercising tre-
mendous political influence—which indeed they did.
As the campaign against the railroads mounted, some far-
sighted railroad men recognized that they could turn it to their
advantage, that they could use the federal government to enforce
their price-fixing and market-sharing agreements and to protect
themselves from state and local governments. They joined the re-
formers in supporting government regulation. The outcome was
the establishment of the Interstate Commerce Commission in
1887.
It took about a decade to get the commission in full operation.
By that time the reformers had moved on to their next crusade.
The railroads were only one of their concerns. They had achieved
their objective, and they had no overpowering interest to lead
them to do more than cast an occasional glance at what the ICC
was doing. For the railroad men the situation was entirely dif-
ferent. The railroads were their business, their overriding concern.
They were prepared to spend twenty-four hours a day on it. And
who else had the expertise to staff and run the ICC? They soon
learned how to use the commission to their own advantage.

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