A central problem facing the business enterprise is maintaining the orderly gove
A central problem facing the business enterprise is maintaining the orderly governance of the markets in which they operate. The going concern wishes to form stable expectations over the viability of its business through time. An industrialized economics system means that firms are embedded in networks of interdependent financial flows, which suggests that firms must find mechanisms to coordinate their operations and establish norms governing how other participants in the markets will behave, especially via their pricing policy. Formal and informal cartel systems were frequently established in an attempt to bring harmony to markets. Earlier we have referred to these arrangements as restrictive trade practices, due to their objective of avoiding price competition between firms over market share. Recall, the business enterprise must ensure that it is capable of administering a price to the market that embodies a sufficient markup that recovers their costs over some defined period. Prices must be also provide a flow of income to its shareholders as profits, as well as a means of accumulating funds for investment purposes. If firms engage in a price war to capture a larger share of the market, they will undermine their revenue streams and have difficulty achieving their desired cash flows. The solution is to institute controls on individual firms so that they are properly incentivized to cooperate.
Market governance institutions are best viewed as efforts on the part of the business community to socialize the risks and rewards to individual firms. However, voluntary and privately organized market governance institutions were not terribly stable. There was always the risk that some participants would defect and undermine the cooperative agreement, resulting in a newfound round of ruinous competition.
A solution to the instability of private market governance structures was found in the federal government. The Interstate Commerce Commission (ICC) was established in 1887 in order to provide regulation over railroad rates, and emerged largely as a result of lobbying efforts by the railroads themselves. Government regulation over markets was not new to the American economic history. However, establishment of the ICC resulted in the federal government exercising its discretion over of the development of economic affairs, by instituting a new form of market governance by regulatory commission. With a standing commission now responsible for authorizing proposed rate schedules the problem of coordinating and enforcing voluntary rate design policies solved by outsourcing this function to the federal government.
The Interstate Commerce Commission emerged as a result of two political processes. On one hand, agricultural interests organized through the Grange, Patrons of Husbandry, and the like, viewed railroads as monopolies that extracted unfair monetary flows from them by charging exorbitant rates, and administering differential rate schedules that had the eff