When Law and Economics Was a Dangerous Subject: The Controversy Over Railroad Regulation Before the Hepburn Act

Abstract

At the turn of the 20th century railroad regulation was hotly debated in the US. Railways were accused of abusing of their monopolistic positions, in particular by discriminating rates. Public opinion’s pressure for tighter regulation led to the 1906 enactment of the Hepburn Act, which strengthened the powers of the Interstate Commerce Commission. American economists actively participated to the debate. While most of them sided with the pro-regulation camp, the best economic analysis came from those who used the logic of modern law and economics to demonstrate how most railroads’ practices, including rate discrimination, were simply rational, pro-efficiency behavior. However, as relatively unknown Chicago University economist Hugo R. Meyer would discover, proposing that logic in public events could at that time cost you your academic career.