Rev Ind Organ (2013) 43:7–19
The ‘Railroad Problem’ and the Interstate Commerce
John Howard Brown
Received: 1 March 2013 / Accepted: 14 June 2013 / Published online: 21 June 2013
© Springer Science+Business Media New York 2013
Abstract The emergence of railroads presented a problem for the developing eco-
nomic profession. Railroads, by their very nature, often had a localized monopoly.
The check that competition was expected to impose on ﬁrm behavior was singularly
lacking. At the same time, railroads in the United States were national in scope and
thus affected interstate commerce. The Interstate Commerce Act and the Commis-
sion spawned by the Act represented the ﬁrst halting steps towards coping with the
monopoly power that was a consequence of the Second Industrial revolution. In this
paper, the views of prominent economic and legal thinkers regarding the proper legal
framework for railroads are reviewed.
Keywords Discrimination · History of economic thought ·
Interstate Commerce Act · Monopoly · Network industries
Railroads dramatically changed the economics of transportation over the course of
the 19th Century. This unprecedented transformation challenged many of the existing
norms of society. This was even true in the discipline of political economy.
Economists rightly view Adam Smith as the founding father of the discipline.
Smith’s opus, The Wealth of Nations, arguing as it does for a system of “natural
liberty,” served as the foundation of laissez-faire policies followed throughout both the
J. H. Brown (
Department of Finance and Economics, Georgia Southern University,
PO Box 8152, Statesboro, GA 30460, USA