Model Trains, Moral Prices: On the Infrastructuring of Regulated Railroad Rates

How in the absence of a functioning market mechanism do economic regulators set prices for public utilities and common carriers exempted from market competition?  What tools, techniques, and theories enable this political calculation to take place?  Do regulated prices conform to idealized competitive market outcomes or can they be optimized for other purposes or values? At the intersection of economic sociology and social studies of finance, this paper advances a sketch for a material sociology of regulatory ratemaking.  I take as my case the locus classicus of regulatory economics, Progressive-era political history, and American capitalism: the economic regulation of American railroads.  As the nation’s first big business, the railroads were also the first to be regulated in terms of price and market entry by independent regulatory commissions staffed by industry experts.  Where market competition failed the tame the complexity and volatility of railroad rate schedules, regulators introduced the idea that administrative procedures backed by engineering expertise could produce regulated rates free of the excessive profits and price discrimination that marked postbellum railroading, while simultaneously insuring the financial stability of the industry.  Or in the language of the Interstate Commerce Act of 1887, railroad regulators would calculate rates that were  “just, reasonable, and free of discrimination.”  The history of railroad regulation remains essential in the American context, as the routines, institutions, and technical systems underlying rail regulation were later adopted into the regulation of nearby infrastructure services with regulators treating the “electricity flowing over wires, telephone calls flowing over wires, trucks driving along a road, and airplanes flying through the air…as if each activity was a train moving along the railroad tracks” (Brock 2003: 15). 

Reconstructing debates over the design and implementation of railroad rate regulation throughout the 20th century, I reinterpret the political calculation of railroad rates as a more general problem of infrastructuring price.  I deploy the concept in two related ways.  In the first sense, market prices only emerge at the intersection of supply and demand given a shared market infrastructure comprised of human institutions (rules, meanings, scripts) and material systems (trading floors, telephones, electronic order books) that solve collective action problems, resolve disputes, and obviate uncertainties related to everyday market activity, enabling in turn routine buying and selling.  Understood in this way, railroad rate regulation attempted to reform significant parts of the existing rail pricing infrastructure in the public interest through the mandatory publication of railroad rates, the creation of new public forums for contesting prices, and the equalization and unification of rate structures across different markets.  Infrastructuring in this sense called for greater scrutiny and harmonization of existing ratemaking practices, but did not further seek to recalculate prices.  In a second sense, infrastructuring refers to a further embeddedness of price in the physical infrastructures and productive technologies that prices come to signify and economically value.  Infrastructuring encompasses efforts to embed pricing techniques in the material realities of technological systems that produce and distribute goods and services.  Prices serve not only as a lingua franca for communicating and commensurating complex technical decisions, but also come to resemble how technical systems are designed, built, managed, and used.  With an emphasis upon infrastructuring, economies become embedded not just in economics, as Callon has provocatively argued, but engineering as well.  It is in this second sense, we observe rail regulators articulating novel forms of pricing and calculability, which creatively used railroad engineering practices to price rail services in the public interest.   

Focusing on how railroad rates were calculated and contested before state and Federal regulatory commissions, I argue we can understand rate regulation more broadly as an attempt to align the market infrastructures of ratemaking with the material infrastructures of railroading and therefore impose upon railroad properties a new kind of techno-economic value grounded in the physical, operational realities of railroading.  In tracing the history of the infrastructuring of regulated railroad, the paper proceeds through examining two extended controversies over the assessment and allocation of railroad costs for ratemaking purposes.  The first episodes follows early 20th century debates over the valuation of railroad properties used in calculating a reasonable rate of return.  Rather than rely upon speculative stock valuations, regulators instead opted for physical valuation procedures which required a complete material census of the entire railroad network, rail by rail, tie by tie, station by station.  The second episodes follows the development of so-called fully distributed costs, which sought to assign both fixed and variable costs to individual railroad movements through detailed cost studies.

Slowly integrated into routine fact finding procedures and accounting conventions, the infrastructuring of railroad rates was rendered invisible to both carriers and shippers with simplified numbers obscuring the infrastructural roots of these figures.  The result was a system of regulatory ratemaking justified largely on economic fairness grounds, but realized through engineering techniques.  As deregulatory movements in transportation elevated economic efficiency over older fairness and justice concerns beginning in the 1970s, rate regulation would fall victim to the alternative socio-economic values justifying its design even as the technical innovations underlying the system persisted in a path dependent fashion well into the deregulated era.