Glossary
Recapture Clause
Tags: Glossary
A provision of the 1920 Transportation Act provided for self-help financing for railroads. Railroads that earned more than the prescribed return contributed one-half of the excess to the fund from which the ICC made loans to less profitable railroads. The Recapture Clause was repealed in 1933.
What is Recapture Clause?
The Recapture Clause was a provision included in the 1920 Transportation Act that aimed to provide financial assistance to railroads. This clause was designed to address the issue of some railroads earning more profits than others, creating an imbalance in the industry.
Under the Recapture Clause, railroads that earned more than a certain prescribed return were required to contribute one-half of the excess to a fund. This fund was then used by the Interstate Commerce Commission (ICC) to provide loans to less profitable railroads. In essence, the Recapture Clause aimed to redistribute some of the profits from successful railroads to those that were struggling financially.
The intention behind the Recapture Clause was to promote fairness and stability within the railroad industry. By providing financial assistance to less profitable railroads, it aimed to prevent the collapse of struggling companies and maintain a healthy and competitive market.
However, the Recapture Clause was not without its criticisms. Some argued that it discouraged railroads from maximizing their profits since any excess earnings would be subject to contribution. This could potentially hinder the growth and development of successful railroads, as they would have less incentive to invest in improving their operations.
In 1933, the Recapture Clause was repealed, marking the end of its implementation. The reasons for its repeal are multifaceted, but one of the main factors was the changing economic landscape during the Great Depression. The financial strain faced by many railroads during this time made it difficult to enforce the Recapture Clause effectively.
While the Recapture Clause is no longer in effect, its historical significance lies in its attempt to address the financial disparities within the railroad industry. It serves as a reminder of the challenges faced by regulators in maintaining a fair and balanced marketplace.
In conclusion, the Recapture Clause was a provision of the 1920 Transportation Act that aimed to redistribute excess profits from successful railroads to less profitable ones. Although it was repealed in 1933, its purpose was to promote fairness and stability within the industry. Understanding the Recapture Clause provides valuable insights into the historical development of logistics and the challenges faced in regulating the transportation sector.