Regulatory Uncertainty and Railroads Asset Prices during World War I

Robert Kaminski, University of Chicago

After the Wilson Administration announced its temporary nationalization of America’s railroads on December 26, 1917, the only postwar fate that seemed unthinkable was a return to the status quo ex ante. Nevertheless, railroad managers and financiers initially greeted nationalization with a sigh of relief. It promised relief from uncertainties that increasingly-potent federal regulations had introduced by offering a guaranteed rate of profit and it seemed to open the door to long-coveted regional consolidations that antitrust regulations had previously blocked. Soon, however, railroad interests changed their mind. They professed anxiety that railroad workers’ plan for a permanent, only partially-compensated nationalization would come to pass. Much of the wider business community bought into their claims that railroads had become the canary in capitalism and property rights’ coal mine—claims that appeared credible amid the uncertainties introduced by wartime mobilization of America’s economy, international revolution, domestic labor unrest (one-fifth of America’s workers participated in strikes during 1919-1920), and the Wilson Administration ignoring statutory limits to extend federal control far beyond the armistice. In the decade since the 2008 financial crisis, economists and historians have devoted increasing attention to questions of risk and uncertainty. One strand of this literature—rendered increasingly salient by world events despite general economic recovery—has attempted to measure the effect of public policy uncertainty on asset prices. My paper will contribute to this project by combining close historical reading with quantitative analyses of newly-collected data to test the correspondence between rhetorical claims about uncertainty’s effects and its measurable effect upon asset prices. Following an approach from Baker, Hilt, and Frydman’s recent work, it will leverage the appearance of unexpected political news that introduced policy uncertainty to isolate its effect on different classes of railroad and industrial assets.

No extended abstract or paper available

 Presented in Session 169. States and Regulations