Interstate Commerce Act of 1887
Encyclopedia
The Interstate Commerce Act of 1887 is a United States federal law that was designed to regulate the railroad industry, particularly its monopolistic
practices. The Act required that railroad rates be "reasonable and just," but did not empower the government to fix specific rates. It also required that railroads publicize shipping rates and prohibited short haul/long haul fare discrimination, a form of price discrimination against smaller markets, particularly farmers. The Act created a federal regulatory agency, the Interstate Commerce Commission
(ICC), which it charged with monitoring railroads to ensure that they complied with the new regulations.
The Act was the first federal law to regulate private industry in the United States. It was later amended to regulate other modes of transportation and commerce.
and trusts that fixed rates at higher levels than they could otherwise command.
Larger railroads alarmed populist activists by attempting to engage in predatory pricing. In spite of its broad appeal as a means of drumming up support for price regulation, predatory pricing is not a sustainable practice. Even if a competitor is forced out of business, that firm's capital remains intact and may be purchased by a new entrepreneur. The so-called predator cannot engage in such pricing indefinitely.
Railroads often charged more for short hauls than for long hauls. The practice was decried as one that discriminated against smaller businesses, when it was in fact a practice based on scale economies
.
Responding to a widespread public outcry, states
passed numerous pieces of legislation. Through the 1870s various constituencies, notably the Grange movement
representing farmers, lobbied Congress
to regulate railroads, but Congress declined to step in. However, in a decision in 1886, Wabash, St. Louis & Pacific Railway Company v. Illinois, the U.S. Supreme Court ruled that state laws regulating interstate railroads were unconstitutional because they violated the Commerce Clause
of the Constitution
, which gives Congress the exclusive power "to regulate Commerce with foreign nations, and among the several States, and with the Indian Tribes." The following year, Congress passed the Interstate Commerce Act, which was signed into law by President Grover Cleveland
on February 4, 1887.
The act worked to keep rates and railroad revenue up on routes where competition existed. It did this by attempting to force publicity about rates and make rebates and discrimination illegal. ('Discrimination' meant lower rates for certain customers, e.g. politicians, large customers, sharp bargainers, long haul shippers, shippers in competitive markets, low season travelers.) Railroads saw that competition made it hard to pay their stockholders and bondholders the amount of money promised them, and competition was therefore "bad."
orders to combat unfair practices. While the ICC was empowered to investigate and prosecute railroads and other transportation companies that were alleged to have violated the Act, its jurisdiction was limited to companies that operated across state lines. The courts
further narrowed the agency's authority. By 1906, the U.S. Supreme Court had ruled in favor of a railroad company in fifteen out of the sixteen cases over which it presided.
The commission later regulated many other forms of surface transportation, including trucking and bus transportation. Congress abolished the ICC in 1995 (see Interstate Commerce Commission Termination Act
) and many of its remaining functions were transferred to a new agency, the Surface Transportation Board
.
. Major amendments were enacted in 1906 and 1910. The Hepburn Act
of 1906 authorized the ICC to set maximum railroad rates, and extended the agency's authority to cover bridges, terminals, ferries, sleeping cars, express companies and oil pipelines. The Mann-Elkins Act
of 1910 strengthened ICC authority over railroad rates and expanded its jurisdiction to include regulation of telephone, telegraph, and cable companies.
passed the Motor Carrier Act, which amended the Interstate Commerce Act to regulate bus
lines and trucking as common carrier
s.
measures in the 1970s and 1980s. The Railroad Revitalization and Regulatory Reform Act of 1976 (often called the "4R Act") gave railroads more flexibility in pricing and service arrangements. The 4R Act also transferred some powers from the ICC to the newly-formed United States Railway Association
, a government corporation, regarding the disposition of bankrupt railroads. The Staggers Rail Act
of 1980 further reduced ICC authority by allowing railroads to set rates more freely and become more competitive with the trucking industry.
The Motor Carrier Act of 1980
deregulated the trucking industry.
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
practices. The Act required that railroad rates be "reasonable and just," but did not empower the government to fix specific rates. It also required that railroads publicize shipping rates and prohibited short haul/long haul fare discrimination, a form of price discrimination against smaller markets, particularly farmers. The Act created a federal regulatory agency, the Interstate Commerce Commission
Interstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
(ICC), which it charged with monitoring railroads to ensure that they complied with the new regulations.
The Act was the first federal law to regulate private industry in the United States. It was later amended to regulate other modes of transportation and commerce.
Background of the Act
The Act was passed in response to rising public concern with the growing power and wealth of corporations, particularly railroads, during the late 19th 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 were perceived to have abused their power as a result of too little competition. Railroads also banded together to form poolsRailroad pool
Railroad pools in the United States were associations of competing railroads "for the purpose of a proper division of the traffic at competitive points and the maintenance of equitable rates that may be agreed upon."...
and trusts that fixed rates at higher levels than they could otherwise command.
Larger railroads alarmed populist activists by attempting to engage in predatory pricing. In spite of its broad appeal as a means of drumming up support for price regulation, predatory pricing is not a sustainable practice. Even if a competitor is forced out of business, that firm's capital remains intact and may be purchased by a new entrepreneur. The so-called predator cannot engage in such pricing indefinitely.
Railroads often charged more for short hauls than for long hauls. The practice was decried as one that discriminated against smaller businesses, when it was in fact a practice based on scale economies
Economies of scale
Economies of scale, in microeconomics, refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit...
.
Responding to a widespread public outcry, states
State governments of the United States
State governments in the United States are those republics formed by citizens in the jurisdiction thereof as provided by the United States Constitution; with the original 13 States forming the first Articles of Confederation, and later the aforementioned Constitution. Within the U.S...
passed numerous pieces of legislation. Through the 1870s various constituencies, notably the Grange movement
Grange movement
The National Grange of the Order of Patrons of Husbandry, also simply styled the Grange, is a fraternal organization for American farmers that encourages farm families to band together for their common economic and political well-being...
representing farmers, lobbied Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
to regulate railroads, but Congress declined to step in. However, in a decision in 1886, Wabash, St. Louis & Pacific Railway Company v. Illinois, the U.S. Supreme Court ruled that state laws regulating interstate railroads were unconstitutional because they violated the Commerce Clause
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...
of the Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
, which gives Congress the exclusive power "to regulate Commerce with foreign nations, and among the several States, and with the Indian Tribes." The following year, Congress passed the Interstate Commerce Act, which was signed into law by President Grover Cleveland
Grover Cleveland
Stephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
on February 4, 1887.
The act worked to keep rates and railroad revenue up on routes where competition existed. It did this by attempting to force publicity about rates and make rebates and discrimination illegal. ('Discrimination' meant lower rates for certain customers, e.g. politicians, large customers, sharp bargainers, long haul shippers, shippers in competitive markets, low season travelers.) Railroads saw that competition made it hard to pay their stockholders and bondholders the amount of money promised them, and competition was therefore "bad."
Jurisdiction of the Act
The act also created the Interstate Commerce Commission (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 desistCease and desist
A cease and desist is an order or request to halt an activity and not to take it up again later or else face legal action. The recipient of the cease-and-desist may be an individual or an organization....
orders to combat unfair practices. While the ICC was empowered to investigate and prosecute railroads and other transportation companies that were alleged to have violated the Act, its jurisdiction was limited to companies that operated across state lines. The courts
Courts of the United States
Courts of the United States include both the United States federal courts, comprising the judicial branch of the federal government of the United States and state and territorial courts of the individual U.S...
further narrowed the agency's authority. By 1906, the U.S. Supreme Court had ruled in favor of a railroad company in fifteen out of the sixteen cases over which it presided.
The commission later regulated many other forms of surface transportation, including trucking and bus transportation. Congress abolished the ICC in 1995 (see Interstate Commerce Commission Termination Act
Interstate Commerce Commission Termination Act
The Interstate Commerce Commission Termination Act is a United States federal law enacted in 1995 that abolished the Interstate Commerce Commission and simultaneously created its successor agency, the Surface Transportation Board.-External links:...
) and many of its remaining functions were transferred to a new agency, the Surface Transportation Board
Surface Transportation Board
The Surface Transportation Board of the United States is a bipartisan, decisionally-independent adjudicatory body organizationally housed within the U.S. Department of Transportation. The STB was established in 1996 to assume some of the regulatory functions that had been administered by the...
.
Early 20th century
Congress passed a minor amendment to the Act in 1903, the Elkins ActElkins Act
The Elkins Act is a 1903 United States federal law that amended the Interstate Commerce Act of 1887. The Elkins Act authorized the Interstate Commerce Commission to impose heavy fines on railroads that offered rebates, and upon the shippers that accepted these rebates. The railroad companies were...
. Major amendments were enacted in 1906 and 1910. The Hepburn Act
Hepburn Act
The Hepburn Act is a 1906 United States federal law that gave the Interstate Commerce Commission the power to set maximum railroad rates. This led to the discontinuation of free passes to loyal shippers. In addition, the ICC could view the railroads' financial records, a task simplified by...
of 1906 authorized the ICC to set maximum railroad rates, and extended the agency's authority to cover bridges, terminals, ferries, sleeping cars, express companies and oil pipelines. The Mann-Elkins Act
Mann-Elkins Act
The Mann–Elkins Act was a 1910 United States federal law that is among the Progressive era reforms. The Act extended the authority of the Interstate Commerce Commission to regulate the telecommunications industry, and designated telephone, telegraph and wireless companies as common...
of 1910 strengthened ICC authority over railroad rates and expanded its jurisdiction to include regulation of telephone, telegraph, and cable companies.
Motor Carrier Act of 1935
In 1935, CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
passed the Motor Carrier Act, which amended the Interstate Commerce Act to regulate bus
Bus
A bus is a road vehicle designed to carry passengers. Buses can have a capacity as high as 300 passengers. The most common type of bus is the single-decker bus, with larger loads carried by double-decker buses and articulated buses, and smaller loads carried by midibuses and minibuses; coaches are...
lines and trucking as common carrier
Common carrier
A common carrier in common-law countries is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport...
s.
Later amendments
Congress enacted simplifying and reorganizing amendments in 1978, 1983 and 1994.Deregulation
Congress passed various railroad deregulationDeregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
measures in the 1970s and 1980s. The Railroad Revitalization and Regulatory Reform Act of 1976 (often called the "4R Act") gave railroads more flexibility in pricing and service arrangements. The 4R Act also transferred some powers from the ICC to the newly-formed United States Railway Association
United States Railway Association
The United States Railway Association was a government-owned corporation created by United States federal law that oversaw the creation of Conrail, a railroad corporation that would acquire and operate bankrupt and other failing freight railroads...
, a government corporation, regarding the disposition of bankrupt railroads. The Staggers Rail Act
Staggers Rail Act
The Staggers Rail Act of 1980 is a United States federal law that deregulated the American railroad industry to a significant extent, and replaced the regulatory structure that existed since the 1887 Interstate Commerce Act.-Background:...
of 1980 further reduced ICC authority by allowing railroads to set rates more freely and become more competitive with the trucking industry.
The Motor Carrier Act of 1980
Motor Carrier Act of 1980
The Motor Carrier Regulatory Reform and Modernization Act, more commonly known as the Motor Carrier Act of 1980 is a United States federal law which deregulated the trucking industry.-Background:...
deregulated the trucking industry.
External links
- "People & Events: Interstate Commerce Commission" - PBS Online