Interstate Commerce Act

The Interstate Commerce Act of 1887 (24 Stat. 379 [49 U.S.C.A. § 1 et seq.]) stands as a watershed law in the history of the federal regulation of business. Originally designed to prevent unfair business practices in the railroad industry, the act shifted responsibility for the regulation of economic affairs from the states to the national government. Among its many provisions, the act established the Interstate Commerce Commission (ICC). The act has been amended over the years to embrace new and different forms of interstate transportation, including pipelines, water transportation, and motor vehicle transportation.

The Interstate Commerce Act was passed as a result of public concern with the growing power and wealth of corporations, particularly railroads, during the late nineteenth century. Railroads had become the principal form of transportation for both people and goods, and the prices they charged and the practices they adopted greatly influenced individuals and businesses. In some cases, the railroads abused their power as a result of too little competition, as when they charged scandalously high fares in places where they exerted monopoly control. Railroads also grouped together to form trusts that fixed rates at artificially high levels.

Too much competition also caused problems, as when railroads granted rebates to large businesses in order to secure exclusive access to their patronage. Such a rebate prevented other railroads from serving those businesses. Larger railroads sometimes lowered prices so much that they drove other carriers out of business, after which they raised prices dramatically. Also, railroads often charged more for short hauls than for long hauls, a scheme that effectively discriminated against smaller businesses. These schemes resulted in bankruptcy for many rail carriers and their customers.

Responding to a widespread public outcry, states passed laws designed to curb railroad abuses. However, in an 1886 decision, Wabash, St. Louis, & Pacific Railway Co. v. Illinois, 118 U.S. 557, 7 S. Ct. 4, 30 L. Ed. 244, the U.S. Supreme Court ruled that state laws regulating interstate railroads were unconstitutional because they violated the Commerce Clause, which gives Congress the exclusive power "to regulate Commerce with foreign nations, and among the several States, and with the Indian Tribes" (art. I, § 8). Wabash left a regulatory void that was soon filled by Congress. The following year, it passed the Interstate Commerce Act, which was signed into law by President Grover Cleveland on February 4, 1887.

The act required that railroad rates be "reasonable and just," but did not empower the government to fix specific rates. It prohibited trusts, rebates, and discriminatory fares. It required railroads to publish their fares, and allowed them to change fares only after giving the public ten days' notice.

The act also created the ICC, the first independent regulatory agency of the U.S. government. As part of its mission, the ICC heard complaints against the railroads and issued cease and desist orders to combat unfair practices. It later regulated many other forms of surface transportation, including motor vehicle and water transportation. The ICC was abolished in 1995, and many of its remaining functions were transferred to the Department of Transportation.

See: Carriers; Shipping Law.

The Interstate Commerce Act (ICA) of 1887 (24 Stat. 379) targeted unfair practices in the railroad industry by attempting to eliminate discrimination against small markets, outlawing pools and rebates, and establishing a "reasonable and just" price standard. To ensure the overall purpose of the act and avoid favoritism in the industry, railroad companies were to publish their rates for all to see. The Interstate Commerce Commission (ICC) was created by the act to enforce these regulations and investigate allegations of fraud, deception, and discrimination.

For years railroad tycoons such as J. P. Morgan and Jay Gould had been milking the public. Taking advantage of area transportation monopolies, these "robber barons" often charged unreasonable rates to farmers, small businessmen, and individual passengers for branch service rides, while providing sweet deals to large companies that shipped across the nation. Since large companies represented greater business potential than small ones, they were given "rebates," wherein they received undisclosed sums in consideration of their patronage.

Initially states had tried to combat these unscrupulous business practices by enacting their own railroad laws. But the Constitution granted only Congress the power to control interstate commerce, and states were limited to within their own borders. Political organizations tried to get around this by pushing for regulatory laws in various states. These efforts, while not universal, were somewhat successful nonetheless. Proponents of regulation would, however, receive a setback in 1886. In Wabash, St. Louis, and Pacific Railway v. Illinois, the Supreme Court ruled that Illinois had exceeded its Constitutional authority when it attempted to regulate the railroads. This was a power reserved to Congress, the Court said. If Congress wanted to get involved, it could; but states had no power to regulate interstate businesses. This left Congress no choice but to take action on its own and the ICA was the result.

"All charges made for any [rail] service ... shall be reasonable and just," the act declared, "and every unjust and unreasonable charge for such service is prohibited and declared to be unlawful." Unfortunately, the five board members of the ICC (later seven, then eleven) had little power to enforce this goal. The authority given to them was ambiguous at best, and further weakened by the Supreme Court. In the Maximum Freight Rate case (1897), the Supreme Court denied the ICC's ability to set standards for future rates and undermined its ability to question rates in general. In the Alabama Midland Railway Company case of the same year, the Supreme Court again decided against the ICC, ruling that companies could conduct their own investigations to counter the ICC inquiries. The result was utter disregard for ICC findings; the ICC was quickly becoming little more than a public support group.

Yet the strong voices of changing times would not go unheard. The people were anxious for reform and they would find it in the presidency of Theodore Roosevelt. With Roosevelt's induction into office in 1901, a new era of governmental regulation began. The Roosevelt Administration sought to enforce and strengthen the ICA, and Congress was obliged to review its weaknesses.

Congress addressed these weaknesses by passing the Elkins Act of 1903, the Hepburn Act of 1906, and the Mann-Elkins Act of 1910. The Elkins Act strengthened the ICA's antirebate initiative by making it illegal to receive rebates as well as to give them. The Hepburn Act enabled the ICC to put a cap on rate charges, to determine adequate accounting procedures, and to alter unfair rates to ones it deemed "just and reasonable." The Mann-Elkins Act empowered the ICC to suspend proposed rate increases pending an investigation of the potential effects.

Other acts intent on assuring the integrity of the railroads followed, expanding the role of the ICC. The Valuation Act of 1913 required the ICC to verify the value of railroad properties, while the Transportation Act of 1920 gave the ICC authority over railroad pooling and enabled it to regulate railroad securities. The 1935 Motor Carrier Act brought the ICC into the new territory of trucking, though regulation in this area did not nearly approach the amount prescribed for the railroad industry. Many railroad executives complained that they were being singled out.

Railroad companies were losing their grip on transportation. What had once been the fastest way to travel was no longer the fastest nor the most convenient. Trucking and air travel had knocked the rails from their place of prominence, and, along with shipping, relegated it to a lesser role. Railroad companies were justified in declaring the old travel monopolies extinct. Perhaps in a nod toward this opinion, Congress passed the Transportation Act of 1958 which allowed the ICC to guarantee loans to railroad companies for capital, equipment, and maintenance. The goal had turned from one of regulation to both regulation and support. The 1976 Railroad Revitalization and Regulatory Reform Act allowed railroad companies to lower their prices for competitive purposes. In addition, two major acts of 1980 gave the industry some breathing room: the Staggers Rail Act relaxed government control over rates, mergers, and line abandonment; and the Motor Carrier Act began the process of ending rate regulation.

Despite the fall of the industry, railroad employment still represented a major sector of the economy. At the time of the ICA, the government had feared the effects of railroad domination. Less than a hundred years later, the government was ready and willing to rescue the industry, even if it had to join in as a partner, as it did with Amtrak, taking on a substantial financial risk to retain jobs. The need for the ICC, meanwhile, gradually became obsolete. It was finally dissolved by act of Congress on December 31, 1995. Most of the surviving functions of the ICC were assigned to the Surface Transportation Board of the Department of Transportation, which began operation on January 1, 1996. These functions included the oversight of railroad rates and service issues, rail mergers, and labor disputes within the industry.

Bibliography

Bryant, Keith L., and Henry C. Dethloff. A History of American Business. Englewood Cliffs, NJ: Prentice-Hall, Inc., 1983.

Galambos, Louis, and Joseph Pratt. The Rise of the Corporate Commonwealth: United States Business and Public Policy in the Twentieth Century. New York: Basic Books, Inc., 1988.

Pusateri, Joseph C. A History of American Business. Arlington Heights, IL: Harlan Davidson, Inc., 1984.