The Interstate Commerce Act 1887

The Interstate Commerce Act 1887

The Interstate Commerce Act 1887
Unfair and haphazard business practices by the railroad companies prompted Congress to enact the Interstate Commerce Act. Carleton Watkins (1829–1916) took this photo of a trestle on the Central Pacific Railroad in 1877.
The Interstate Commerce Act 1887

The Interstate Commerce Act, passed on February 4, 1887, established an Interstate Commerce Commission to monitor the railroad industry’s operations. The railways were the first industry to be regulated by the federal government as a result of this act.

The Interstate Commerce Act of 1887 made railways the first business to be regulated by the federal government. The law was primarily enacted in reaction to public demand for train activities to be controlled. The legislation also established the Interstate Commerce Commission, a five-member enforcement body. Railroads were privately owned and uncontrolled in the years following the Civil War. In the areas that they solely served, train firms had a natural monopoly.

Monopolies are often thought to be bad because they inhibit free competition, which affects the price and quality of goods and services available to the general population. In some geographic areas, railroad monopolies possessed the capacity to set prices, exclude rivals, and dominate the market. Although railroads competed for long-haul routes, there was little rivalry for short-haul ones. By granting rebates to major shippers or purchasers, railroads discriminated in the rates they charged passengers and shippers in various areas. These techniques were particularly detrimental to American farmers, who lacked the requisite export volume to gain better rates.

In the 1870s, “Granger” dominated state legislatures in the West and South took the first steps against railroad monopolies. In the 1860s, the Granger Movement began to provide numerous benefits to distant rural areas. The Supreme Court maintained state railroad monopoly regulations in Munn v. Illinois (1877). State commissions and regulations, on the other hand, have shown to be ineffectual, inept, and even corrupt. In the 1886 Wabash decision, the Supreme Court overturned an Illinois legislation prohibiting discrimination based on distance traveled. Nonetheless, Wabash established the exclusive right of Congress to control interstate trade, which was a significant effect of the case.

By establishing standards for how railways might conduct business, the Interstate Commerce Act addressed the problem of railroad monopolies. With the backing of major political parties and pressure organizations from around the country, the measure was signed into law. The law, which only applied to railroads, required “just and reasonable” rate changes, prohibited special rates or rebates for individual shippers, prohibited “preference” in rates for any specific localities, shippers, or products, prohibited long-haul/short-haul discrimination, prohibited traffic or market pooling, and, most importantly, established a five-member Interstate Commerce Commission (ICC).

The words of the legislation sometimes contradicted one another. Some measures were intended to encourage competition while others were intended to discourage it. The law was not particularly successful in practice. The mandate that railroads make yearly reports to the ICC and the prohibition on special rates that railroads would establish among themselves were the most successful parts of the law, while identifying which prices were discriminatory was technically and politically challenging. Years later, the ICC would become a model for many other regulatory organizations, but it was a one-of-a-kind organization in 1887. The Interstate Trade Act posed a challenge to laissez-faire economics by stating unequivocally that Congress has the authority to regulate private firms involved in interstate commerce. The act, with its provision for the ICC, remains one of the most important legislation in American history, providing as a precedent for future government control of private enterprise.

SEE ALSO:

The Sherman Antitrust Act (1890);

Busting the Trusts (1911);

The Clayton Antitrust Act (1914);

Congressional Regulation of Commerce (1824);

The Microsoft Monopoly (2000).

SOURCES:

The Interstate Commerce Act 1887

The Interstate Commerce Act Is Passed

The Law Book: From Hammurabi to the International Criminal Court, 250 Milestones in the History of Law (Sterling Milestones) Hardcover – Illustrated, 22 Oct. 2015, English edition by Michael H. Roffer (Autor)

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