Interstate Commerce Act Summary

  • Last updated on November 10, 2022

When the U.S. Congress passed the Interstate Commerce Act, it made the railroad industry the first industry to be subject to federal regulation in the United States. The act created the Interstate Commerce Commission to enforce its regulations.

Summary of Event

By the 1880’s, the United States had experienced more than fifty years of railroad expansion. Transcontinental railroad lines tied the nation together, while spurring the growth of industry and agriculture through the rapid transportation of both raw materials and finished goods. During much of this time, government had served as a willing partner to the rapid growth of the railroads. Both national and state governments had provided land for the railroad right-of-way, as well as other subsidies to underwrite the cost of this vital form of transportation. By the end of the Civil War (1861-1865), however, many people in the United States had begun to have second thoughts about the railroads. Interstate Commerce Act of 1887 Interstate Commerce Commission Railroads;regulation of Reagan, John Henninger [kw]Interstate Commerce Act (Feb. 4, 1887) [kw]Commerce Act, Interstate (Feb. 4, 1887) [kw]Act, Interstate Commerce (Feb. 4, 1887) Interstate Commerce Act of 1887 Interstate Commerce Commission Railroads;regulation of Reagan, John Henninger [g]United States;Feb. 4, 1887: Interstate Commerce Act[5520] [c]Laws, acts, and legal history;Feb. 4, 1887: Interstate Commerce Act[5520] [c]Trade and commerce;Feb. 4, 1887: Interstate Commerce Act[5520] [c]Transportation;Feb. 4, 1887: Interstate Commerce Act[5520] [c]Government and politics;Feb. 4, 1887: Interstate Commerce Act[5520] Cullom, Shelby Moore Cooley, Thomas M. Sterne, Simon Thurber, F. B.

Although almost no one doubted the need for railroads, many criticized the business practices of the railroad companies. Consumers suffered when railroad companies experienced either too much or too little competition. In regions where one company dominated, that company often took advantage of its monopoly of the market and charged its customers exorbitant fees for necessary services. Where competition was intense, the railroads too often resorted to unfair practices in order to attract and retain the business of large-volume shippers. They reduced rates in some areas to meet competition and raised rates in noncompetitive areas to compensate. They also engaged in such practices as offering rebates or kickbacks to large-volume shippers at the expense of the average consumer. The railroads entered into agreements, often referred to as “pools,” among themselves to fix rates at a level higher than the free market permitted. They charged more for a short haul in order to offer special long-haul rates to large shippers.

The railroads also were guilty of watering their stock, or overcapitalizing issues, to bilk investors. These and other practices worked to the advantage of the railroads and a few favored customers. As a result of railroad manipulation of freight charges, it often cost small farmers more to ship their grain than they would receive in payment for it, while large mill owners would receive a discount on the shipment of the finished flour. The unethical business practices thus worked to the detriment of the ordinary shippers, farmers, and the public.

The states responded first to the demands for railroad reform. Many states passed laws that compelled railroads to offer standard rates for all, and many states set up regulatory boards to supervise the practices of the railroad companies. The states, however, could not supervise interstate operations. Farmers shipping grain from the Dakotas to Minnesota mills or cattle from Texas to Chicago slaughterhouses were not protected by individual state regulations. In addition, the state regulatory laws and boards often created more problems than they solved. Finally, the railroads resisted attempts at state regulation and fought enforcement in the courts. In October, 1886, the Supreme Court in Wabash, St. Louis, and Pacific Railway v. Illinois Wabash, St. Louis, and Pacific Railway v. Illinois (1886) held that a state could not regulate commerce that went beyond its boundaries. This meant that any regulation of interstate commerce would have to come from the federal government.

Numerous groups and individuals had long pressed for national legislation to reform the railroads. Organizations of producers, shippers, and merchants demanded an end to practices by which railroad companies took advantage of the need for rail transportation. F. B. Thurber Thurber, F. B. , a New York wholesale grocer, and Simon Sterne Sterne, Simon , chairman of New York’s Board of Trade New York State;Board of Trade and Transportation, became active lobbyists. Some of the loudest demands for some system of national regulation began to come from the railroad companies themselves, particularly in the East, where competition was ruthless. Financiers such as Jay Gould recognized that without some reforms, public outrage could lead to harsh regulations in the future.

John Henninger Reagan, a congressman from Texas and the chairman of the House Committee on Commerce, during the 1870’s and early 1880’s introduced many bills in Congress that would outlaw specific practices, such as pools, rebates, and price discrimination between long and short hauls. Reagan’s approach to the problem was an attempt to clean up the competition among the railroads on the assumption that fair competition was economically healthy for the entire nation. The proposed bills described what would constitute illegal practices but contained no provisions for investigation or regulation. Reagan’s attempts to regulate the railroads met with little success until the first administration of President Grover Cleveland Cleveland, Grover [p]Cleveland, Grover;and railroad regulation[Railroad regulation] .

Cleveland, a Democrat, strongly opposed the growth of government but opposed the idea of government favors to business even more. Following the Supreme Court decision in Wabash, St. Louis, and Pacific Railway v. Illinois, Cleveland urged Congress to take action to regulate the railroads. This time, Congress seemed ready to pass regulatory legislation. Reagan once again introduced a bill in the House of Representatives, while in the Senate, Shelby Moore Cullom Cullom, Shelby Moore of Illinois proposed a more far-reaching solution.

Cullom’s approach, which emerged from extensive committee hearings, embodied a regulatory commission with broad powers to investigate and to bring into court railroad companies whose rates or practices were unfair. Cullom proposed that the federal government take positive action in laying down precisely what constituted unfair tactics and rates. The Reagan and Cullom bills went to a joint committee of the House and the Senate. President Cleveland Cleveland, Grover [p]Cleveland, Grover;and railroad regulation[Railroad regulation] exerted some influence in favor of Cullom’s proposals. From the joint committee emerged the Interstate Commerce Act, which was passed on February 4, 1887.

The act followed Reagan’s suggestions and prohibited specific abuses, such as long- and short-haul discrimination. It also created the Interstate Commerce Commission Interstate Commerce Commission (ICC). Under the provisions of the act, the commission would comprise five members whose duty it was to investigate and expose unfair rates and practices among interstate carriers. Congress empowered the commission to take unrepentant railroads into court. After decades of encouraging and subsidizing the railroads, the government had begun to regulate them.

Significance

The jubilation of railroad reformers in the wake of the Interstate Commerce Act’s passage was short-lived. The courts and the ICC itself seemed determined to frustrate substantive reform. The commission, whose first chairman was Thomas M. Cooley, Thomas M. Cooley, a professor of law at the University of Michigan, often dealt with the railroads in an extremely conservative manner, and the Supreme Court weakened the commission’s powers. Cooley believed in a strict interpretation of the Constitution and was reluctant to expand the power of the federal government. When the railroads chose to dispute the rulings of the ICC, they generally won in court. Of the sixteen cases involving railroads and the ICC that were heard by the Supreme Court between 1887 and 1911, the railroads won fifteen. In the process, the Supreme Court destroyed the commission’s power to act against fixing rates, pooling, and long- and short-haul discrimination. Government regulation had been established in theory, but not yet in practice. The Interstate Commerce Act was significant chiefly as a precedent for the genuine economic reform that followed in later years.

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Cullom, Shelby Moore. Fifty Years of Public Service: Personal Recollections of Shelby M. Cullom. New York: Da Capo Press, 1969. A memoir by a politician who lived through some of the most volatile times in U.S. history.
  • citation-type="booksimple"

    xlink:type="simple">Jeffers, H. Paul. An Honest President: The Life and Presidencies of Grover Cleveland. New York: William Morrow, 2000. Jeffers portrays Cleveland as a staunch reformer, a man of high moral character and courage who restored dignity to the presidency.
  • citation-type="booksimple"

    xlink:type="simple">Jones, Alan R. The Constitutional Conservatism of Thomas McIntyre Cooley: A Study in the History of Ideas. New York: Garland, 1987. An intellectual history that helps clarify why the ICC accomplished little of substance with Cooley as its chairman.
  • citation-type="booksimple"

    xlink:type="simple">Neilson, James W. Shelby M. Cullom: Prairie State Republican. Urbana: University of Illinois Press, 1962. Biography of one of the prime movers behind the Interstate Commerce Act and its regulatory features.
  • citation-type="booksimple"

    xlink:type="simple">Reagan, John H. Memoirs, with Special Reference to Secession and the Civil War. Edited by Walter Flavius McCaleb. New York: AMS Press, 1978. Originally published in 1906, Reagan’s memoirs provide fascinating glimpses into the history of the Confederacy and Gilded Age politics in the United States.
  • citation-type="booksimple"

    xlink:type="simple">Stone, Richard D. The Interstate Commerce Commission and the Railroad Industry: A History of Regulatory Policy. New York: Praeger, 1991. Good, detailed history of the ICC and the growth of both railroads and regulations.
  • citation-type="booksimple"

    xlink:type="simple">Welch, Richard E. The Presidencies of Grover Cleveland. Lawrence: University Press of Kansas, 1988. A thorough examination of the Cleveland presidencies.

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Grover Cleveland. Interstate Commerce Act of 1887 Interstate Commerce Commission Railroads;regulation of Reagan, John Henninger

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