INTERSTATE COMMERCE ACT 1 Transportation has been a vital part of human existence, early forms of transportation accomplished by foot power and animal power. Eventually, humans started to invent powerful machines to handle the task of hauling goods and people too far off lands. As technology advanced, there was a need to establish rules for these forms of transportation by local, state, and federal governments. These new policy and regulations often covered all modes of transport while some covered only one type of transportation mode.
All the transportation policies and regulations passed by the government are vital to keep the industry safe and make the playing field level for all companies. One of the most monumental policies passed was the Interstate Commerce Act. Which at the time of passage it affected only the rail industry. Why did the government feel this law was required and how did it effect the railroads? The Interstate Commerce act was a critical step for the Federal Government. However, the push to regulate the railroads started before Congress intervened. Prior to the passage of the act, many local and state governments attempted to control the railroads with very little success.
Early political action against these railroad monopolies came in the 1870s from “Granger” controlled state legislatures in the West and South. The Granger Movement had started in the 1860s providing various benefits to isolated rural communities (Our Documents, n.d.). There were landmark cases pertaining to the railroad monopolies brought in front of the Supreme Court, Munn v. Illinois in 1877, is one such case. In the case against Illinois, the high court ruled that local states have the rights to regulate industries within their borders if such industries effected public interest.
This ruling was short lived; in 1886, the Supreme Court reversed the decision on the Illinois case. The case of Wabash, St. Louis & Pacific Railroad v. Illinois again brought the dispute of railroad monopolies to the Supreme Court. The disputes started over the states, coupled with railroad influence, were still charging unfair rates. In the Wabash hearing two shippers transporting goods from Illinois to New York paid different prices for the same amount of cars. One shipper paid $39 or 15 cents per mile for the trip to New York.
While the second shipper paid $65 at the rate of 25 cents per mile (Miller, n.d.). After hearing the case, the Supreme Court reversed the decision on Munn v. Illinois realizing that the states follow the same practices of the railroads. With the trust of the states in question, Congress had no choice but to get involved. The Interstate Commerce Act passed by congress in February of 1887. The Act, first called the Act to Regulate Commerce. This act was a major milestone as it was the first time the Federal Government took a role in trying to regulate an industry. The law came out of the need to regulate the railroad industry. In the late 1800’s railroads were the main form of transportation for goods and people. With no laws in place to regulate these railroads, they were turning into monopolies.
The railroads could set their own rates for hauling goods with different prices depending on the distance that the goods would travel. They also had some cities where they were the only railroad allowed to access the city. With only one railroad servicing the city, if you wanted to ship via rail you had to pay the high price, as there was no competition. The railroads also favored the bigger companies in their service areas.
The railroads cut deals with big shippers, in the form of secret discounts on the price to ship. These back room deals made it almost impossible for smaller business to compete in the market place, the local farmers received most of the burden. The following statement offers a great example of the issues farmers faced: Farmers were indeed agitated when corn sold for 15 cents a bushel in Iowa and $1.00 a bushel in New York City, and yet the farmer could not make a profit on the sale to the eastern destination because of the high railroad freight rates (Johnson & Highsmith, 2009). Many local governments ignored what the railroads were doing. They received reduced or sometimes even free tickets on passenger trains. In 1886, the public wanted Congress to stop the monopolies that railroads had, many public groups lobbied Congress to step in and regulate the industry. (Aitchison, 1937) wrote, “An Act to Regulate Commerce was approved by President Cleveland February 4, 1887. It was the first general exercise of the regulatory power of Congress under the Commerce Clause.” (p.289) This Act served two main goals to regulate the industry. First, the new law formed a new federal agency called the Interstate Commerce Commission that consisted of nine members.
The duties of this newly formed agency were to ensure that the railroads were following the new law. Secondly was how the law managed and regulated the railroads.
One of the important ways to regulate railroads was to limit the rate that was charged. Any railroad, which charged more than a “reasonable” rate of compensation, was to be guilty of extortion, a misdemeanor (Hilton, 1966, p. 104). Additionally, the law enforced the fact that all rates should be the same for shipping no matter the distance shipped. The Act also required that the railroads post current rates for the public to view. Furthermore, the Act made it illegal for the railroads to offer discounts to any shipper, which made it easier for smaller companies to compete.
Many parts of the Interstate Commerce Act were very vague on the provisions set forth, which had to undergo amending to correct the issues. One thing to note, the act started in less than perfect fashion. The Act declared that charges for interstate rail transportation should be “reasonable and just,” but did not define this term or give the ICC the power to set rates (Ely, 2012). The only authority granted by the Interstate Commerce Act was for the Interstate Commerce Committee to review the rate only. In addition to the rates railroads charged, the goal of the legislation was to break the monopolies established years prior. However, Congress left a loophole in the original wording of the law. While the Federal Government regulated the trade between the states, the states still had the authority to regulate the intrastate trade within their boundaries. This loophole allowed states to undermine any Interstate commerce policy.
When the act passed the five-member team of the Interstate Commerce Committee struggled to exert their authority, many railroad executives ignored the policies. This led to many more cases landing on the desk of the Supreme Court. The high court soon sent the cases back to the lower courts. In the early 1900’s Congress moved to fix many of the outstanding issues with the original law. In 1906, Congress passed the Hepburn Act. The act changed many things pertaining to the railroads, among the changes it granted the ICC power to establish maximum rates that were “just, fair, and reasonable” (terms not defined in the act), and it granted the commission enforcement power (Clark, 2011). The enforcement power held the railroad executives accountable for not following polices passed by the Interstate Commerce Committee, with the penalty ranging from fines to jail for not heeding to the policies. In conclusion, as humans advanced from moving goods with animals to powerful machines, came an increase in the need to regulate them. Local citizens and businessmen took their concerns to the Supreme Court, while at first the courts allowed the states to regulate the industry; they soon understood the error in that decision and reversed the ruling. In order to get these regulations’ the public had to put pressure on the government.
This pressure caused many new laws to satisfy the needs. Although the Interstate Commerce Act was not the only law passed to regulate the railroads, it was a first step to help smaller companies compete with their larger counter parts. The Act also prevented the railroads from becoming a monopoly. The act experienced many change to cover other forms of transportation as technology advanced. Even in these modern times, the Interstate Commerce Commission is still an instrumental part of the government.
The Interstate Commerce Act was the building block for the way the United States transportation system operates today. References Aitchison,C.B. (1937). Evolution of the Interstate Commerce Act: 1887–1937. The George Washington Law Review, 5(3), 289. Retrieved from https://heinonline.org/HOL/LandingPage?handle=hein.journals/gwlr5&div=26&id=&page= Clark,C.L. (2011).The American Economy : A Historical Encyclopedia. Santa Barbara, CA: ABC-CLIO, LLC. Ely,J.W. (2012). The Troubled Beginning of the Interstate Commerce Act.Marquette Law Review,95(4). Retrieved from https://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=5126&context=mulr Hilton,G.W. (1966). The Consistency of the Interstate Commerce Act. Journal of Law and Economics, 9, 104. Retrieved from https://www.jstor.org.ezproxy1.apus.edu/discover/10.2307/724995?uid=3485568&uid=3739960&uid=2134&uid=2478322653&uid=2&uid=70&uid=3&uid=3485120&uid=67&uid=62&uid=3739256&uid=60&uid=2478322643&sid=21103353042733 Johnson,J.C., & Highsmith,J.M. (2009). MUNN V. ILLINOIS (1877) : A CENTENNIAL EVALUATION.Journal of Transportation Law, Logistics, and Policy,76(2), 234-256. Retrieved from https://search.proquest.com.ezproxy2.apus.edu/docview/216478000?pq-origsite=summon Miller,J. (n.d.). WABASH, ST. L. &. P. RY. CO. v. STATE OF ILLINOIS | LII / Legal Information Institute.
Retrieved from https://www.law.cornell.edu/supremecourt/text/118/557 Our Documents. (n.d.). Interstate Commerce Act (1887). Retrieved from https://www.ourdocuments.gov/doc.php?flash=true&doc=49
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