Retrospectives: Fixed Capital, Railroad Economics and the Critique of the Market

Abstract

Where average fixed costs are large compared to marginal costs, competition will drive industry into bankruptcy. During the last century, the chaos that competition created within the railroad industry caused many prominent U.S. economists to reject the market in favor of trusts, cartels, and monopolies. They created the American Economic Association to counter the prevailing laissez faire theory. Nonetheless, some, such as J. B. Clark, still wrote in favor of abstract laissez to counter socialist and populist agitation.