Trust Busting

The Trust Problem

Large corporations were nothing new to the U.S. economy in the late nineteenth century. Early in the century, families and groups of New England capitalists built large textile mills with hundreds of workers in towns such as Lowell, Massachusetts. Canal companies in the Northeast, Middle Atlantic, and Midwest (then the West) consumed millions of dollars of public and private investment capital. And railroads boosted the scale and scope of corporate business by an order of magnitude. Growing from local lines to interstate systems in the mid 1800s, railroads merged to form vast regional systems in the 1870s and 1880s. By that time the Pennsylvania Railroad—with thousands of miles of track and some 5,000 employees—was the largest business enterprise in the world.

The scale and scope of the railroads disconcerted a growing number of Americans. Midwestern farmers and shippers were especially vocal in their criticisms of the major railroad lines, and they lobbied successfully for passage of a series of “Granger” laws in the 1870s (passed in response to the farmers' Grange movement) that regulated railroad ratesetting and operations. At the same time, it was clear that the railroads—as a fast, efficient, reliable, and high-capacity mode of transportation—held many benefits for society.

Not surprisingly, the first federal regulation of corporations was directed at the railroads. Several states had developed a commission form of regulation, in which a board of experts was appointed to collect information about railroad operations and rates and make it available to the public. But the commission did not have direct power of enforcement or ratesetting. For this reason, some astute observers called them “sunshine” commissions: They would cast light on railroad operations with the expectation that those that competed unfairly would draw the attention of the press and, ultimately, the wrath of the public and its legislators, who might revoke a corporation's charter [Page 1579]or take other punitive actions. In 1887, the federal government emulated the actions of some of the more progressive state commissions by passing the Interstate Commerce Act, the first federal corporate regulation in American history. The legislation created the Interstate Commerce Commission, a board of independent experts.

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