Lexonomic Analysis of Rate Regulation

Abstract

Government and business were more closely related in the 18th century than today. For example, during the colonial period in America state legislatures frequently established prices for many items including.bread and other necessities.' However, the system was challenged in 1776 when Adam Smith published his great work, The Wealth of Nations, and initiated an intellectual ferment that became part of the developing industrial and technological revolution. Under Smith's conceptual model of the free enterprise system, the interest-and the wealth of the nation as a whole-was better served by an economic structure where each enterprise set prices in response to the impersonal forces of the market rather than government edict. This concept was so powerful and well adapted to the needs of the time that it gained wide acceptance in the following century and provided part of the intellectual framework for the Constitution. Moreover, operation of the American economy of the 19th century closely approximated Smith's conceptualization of the free enterprise system. During the latter part of the 19th century, the growing power of large business aggregations created political demands for return to some measure of governmental control of pricing. In 1876, only a century after publication of Adam Smith's work, the Supreme Court held that a state legislature could constitutionally establish maximum prices to be charged by grain elevators since the elevators were engaged in a business affected with a public interest.2 A decade later Congress established the Interstate Commerce Commission to regulate railroad rates and services. In the 1920s and 1930s similar agencies were established or endowed with power to regulate rates and other activities of telegraph and telephone companies, power companies, interstate pipelines, and common