Electric Charges: The Social Construction of Rate Systems

Price is a central analytic concept in both neoclassical and old institutional economics. Combining the social network perspective with old and new institutionalist approaches to price formation, this article examines technological, economic, institutional, and political factors that shaped the earliest pricing systems for electricity used in the United States, between 1882 and 1910. We show that certain characteristics of electricity supply led to ambiguities in how the product should be priced, which created a politics of pricing among electricity producers. In particular, we investigate why the “Wright system,” arguably inferior in productive efficiency to other alternatives, was widely adopted by 1900. We argue that this outcome resulted in part from the political and organizational clout of its supporters, as well as from their particular conceptions of the boundaries and future of the industry itself. The Wright system best suited the “growth dynamic” strategy promoted by the managers of large central stations in their fierce competition with smaller and more decentralized installations. Thus, even in this apparently highly technical and mainly economic issue of how to price the product, there was ample room for social construction and political manipulation. The outcome reached was by no means inevitable and had a highly significant impact on the shape of the American industrial infrastructure.