Domestic Concerns: Regulating Commerce

Sources

Railroad Regulation. The establishment of a transnational railroad system after the Civil War dramatically changed the nature of industry and, as a result, of government. Railroads reshaped regional alliances, stimulated businesses, and increasingly tied the country together in one national market. At the same time the structure of the railroad industry left customers vulnerable to unethical business practices, leading many to cali for government oversight of the railroads.

Unfair Pricing. Competition proved difficult to sustain in the railroad industry. Larger lines drove smaller ones out of business by undercutting their rates. Once a larger company had taken over a smaller company’s routes, it raised prices to finance other acquisitions. When a single railroad company controlied a route, the company could charge whatever it chose for transporting freight and passengers. These prices were not only inflated but often whimsical and unfair. Companies often discounted the rates for passenger seats and freight space just before a train left the station. The railroads also regularly gave free rail passes to legislators and politicians. Many feared the special treatment legislators enjoyed blinded them to corruption of the railroad industry.

The Interstate Commerce Act. Lack of regulation especially hurt farmers who relied on the railroad to carry their crops to urban markets. In 1867 they had banded together to found the Patrons of Husbandry, better known as the Grange, and in the 1870s they convinced five states to pass socalled Granger laws regulating railroad rates. The railroads affected by the laws challenged them in a case that went to the Supreme Court, which upheld the laws in Munn v. Illinois. In 1886, however, the court reversed itself, overturning the state laws by ruling in Wabash, St. Louis & Pacific Railway v. Illinois that railroads were a form of interstate commerce and as such were subject to federal regulation only. In 1878 the House had passed a bill calling for such federal legislation, but it died in the Senate. After the Wabash decision, Congress—backed by President Grover Cleveland, who supported federal railroad regulation—passed one of the most important legislative measures of the era, the Interstate Commerce Act of 1887. This act created the first federal regulatory agency, a five-person Interstate Commerce Commission to oversee passenger and freight charges on any railroad that operated in more than one state. The commission was also authorized to hear public testimony on violations, to examine company records, and in general to oversee law enforcement as it applied to railroads. Many railroad companies welcomed federal oversight to stop cutthroat competition and to end rebates and discounts. While a series of Supreme Court cases in the late 1890s undercut the powers of the Interstate Commerce Commission, it provided the basis for federal regulation of commerce in the twentieth century.

Sources

Morton Keller, Affairs of State: Public Life in Late Nineteenth Century America (Cambridge, Mass.: Harvard University Press, 1977);

Page Smith, The Rise of Industrial America: A People’s History of the Post-Reconstruction Era (New York: McGraw-Hill, 1984).