Interstate Commerce Act

AFTER THE CIVIL WAR, the United States embarked on a massive railroad-building program. Although often subsidized generously by state and federal governments, railroad companies were private corporations, and regulation was nonexistent.

Each railroad had an initial natural monopoly but eventually they began to intrude onto each other's territory, creating fierce competition with associated special deals and costs that had to be made up in the areas without competition. Quickly, the railroads came to dominate the economic life of the communities they joined, especially those small agricultural towns in farm country previously accessible only by dirt road.

By the 1870s, farmers and others began to object to the excessive economic power of the railroads. Charges abounded of monopolistic practices, influence peddling in the political arena, stock manipulation, rate discrimination—and the reality was that the charges were at least somewhat true. Frustrated by inability to get their crops to market due to railroad manipulation of access to terminals and the availability of freight cars, the farmers organized and demanded government control of railroad abuses.

Their demands for government intervention fell on deaf ears. During the 1870s, the dominant philosophy in all economic matters was laissez-faire free enterprise, and governments at all levels were reluctant to interfere with the economy. The presidents and many Congressmen opposed regulation, and when the states attempted to regulate the railroad behemoths, the U.S. Supreme Court overturned their efforts. Worse, the efforts were futile because the state power ended at the state line. Illinois passed the first regulatory legislation in 1871, and southern and midwestern states quickly followed suit.

The railroaders faced a hodgepodge, with laws changing at each state line. Nobody found the situation to be satisfactory. Public demand finally got results years after the first complaints. The railroads generally supported one national regulation as preferable to the mix of state ones; it was more rational and easier to deal with (and manipulate). Railroaders were not happy with the cut-throat competition either.

Not until 1887 did Congress enact the Interstate Commerce Act. The act established the first true federal regulatory agency, the Interstate Commerce Commission (ICC.) The president, with Senatorial consent, appointed the members of this first “Fourth Branch” agency. To control abuse and discrimination by the railroads (and later trucking and other common carriers), the ICC required “reasonable and just,” and published shipping rates as well as no more secret rebates or price discrimination against small markets. The setting of equitable guidelines for railroad operations proved complex—what exactly did “reasonable and just” mean? What exactly constituted a “discriminatory” rate? The theory foundered in the details, and in the lack of clear and unambiguous support by the various administrations, as well as the pressures from the railroads and their political friends.

Further, although the ICC could call witnesses and investigate, it lacked enforcement power and adequate funding. It could advise the railroads that their rates were excessive, but it could not force alteration of those rates or levy fines or other punishments. The ICC's major accomplishments were the establishment of annual reporting requirements by the railroads and a prohibition of railroads setting special rates among themselves, or collusion in rate fixing.

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