Interstate Commerce Act – Definition

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Interstate Commerce Act Definition

The United States Congress passed the Interstate Commerce Act of 1887 to regulate the railroad industry. While the Act did not give the government price control powers, it ensured reasonable and just railroad rates. Under the law, railroads must publicize shipping rates and cannot discriminate between short and long haul prices, a practice unfair to smallholder farmers in the Western and Southern Territory and favorable to the Official Eastern states. The Act established the interstate Commerce Commission (ICC), a federal regulatory agency that enforced compliance with the new regulations.

The ICC Act was the first federal law in the United States with the power to regulate private businesses. Amendments to the law widened its regulatory powers to other industries and modes of transportation.

A Little More on What is the Interstate Commerce Act

Congress passed the ICC Act in response to growing public dissatisfaction with the level of wealth and power in the hands of corporations, particularly railroads. Railroads were the principal mode of transportation for goods and people, allowing them to charge high prices and adopt practices which had adverse effects on individuals and businesses.

Railroads were abusing their monopoly. They formed pools and trusts to fix higher prices, charging higher rates per mile for short hauls compared to long hauls. People considered this price unfavorable to smaller businesses.

Following continued public outcry, states passed several laws to control the railroads. Several groups, including the farmer’s representative body called Grange movement lobbied for railroad regulation under federal law during the 1870s. However, Congress could not reach a consensus and did not intervene, although an 1874 Senate investigation reported its findings and recommendations.

In 1886, the Supreme Court ruled in Wabash, St. Louis & Pacific Railway Company v. Illinois that states had no constitutional right to regulate interstate railroads as it violates the Commerce Clause of the Constitution. The court maintained that only Congress had the 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 and President Grover Cleveland signed it into law on February 4, 1887.

The act ensured rates and railroad revenue were high on competitive routes. To achieve this, it forced railroads to publicize rates and abolished rebates and discrimination. Discrimination here means giving lower rates to specific railroad users such as large customers, politicians, long haul shippers, and low season travelers among others.

Railroads considered competition a negative influence as it made it difficult to deliver on monetary promises made to their stockholders and bondholders.

Jurisdiction of the Act

The act established the Interstate Commerce Commission (ICC), the US government’s first autonomous regulatory agency. The ICC’s responsibilities included hearing complaints against railroads and issuing cease and desist orders to correct unfair conduct.

The ICC could investigate and prosecute railroads and other transportation companies suspected of violating the act, but it could only regulate railroads with interstate operations. Courts further limited the agency’s powers in later years. To bridge the gap, Congress created the Department of Commerce and Labor and the Bureau of Corporations in 1903 to investigate and report on more industries and how they wield their monopoly powers. Three years later, railroad companies had won fifteen out of sixteen cases heard at the Supreme Court.

The ICC would later have the power to regulate other modes of surface transportation such as bus transportation and trucking. Congress abolished the commission in 1995 and the Surface Transportation Board now performs most of its functions.

Amendments

Early Twentieth Century

Congress passed the Elkins Act in 1903 as a minor amendment to the ICC Act. In 1906, the legislature passed the Hepburn Act to empower the ICC to regulate railroad rates. The Hepburn Act brought bridges, terminals, ferries, sleeping cars, express companies and oil pipelines under the ICC’s jurisdiction. ICC received more powers to regulate railroad rates, telephone, telegraph and cable companies under the Mann-Elkins Act of 1910. In 1913, Congress passed the Valuation Act mandating the ICC to establish a Bureau of Valuation to value railroad property. It would use the data from the valuation to determine freight shipping rates.

Motor Carrier Act of 1935

The Motor Carrier Act of 1935 was an amendment of the Interstate Commerce Act. The law gave the ICC jurisdiction over bus lines and trucking companies.

Later Amendments

The ICC Act received more amendments in 1978, 1983, and 1994 to simplify and reorganize its operations.

Deregulation

The 1970s and 1980s saw Congress passing several laws to deregulate the railroad industry. In 1976, the legislature enacted the Railroad Revitalization and Regulatory Reform Act (4R Act) to allow railroads to be liberal with pricing and services. The 4R Act also transferred the authority to dispose of bankrupt railroads from the ICC to a new government agency called the United States Railway Association. With the Staggers Rail Act of 1980, the ICC lost more of its powers while railroads got more flexible with rates, helping them compete favorably with the trucking industry.

References for the Interstate Commerce Act

Academic Research on the Interstate Commerce Act

Regulation and the theory of legislative choice: The Interstate Commerce Act of 1887, Gilligan, T. W., Marshall, W. J., & Weingast, B. R. (1989). The Journal of Law and Economics, 32(1), 35-61. This article spotlights the Interstate Commerce Act. It looks at the origin of the ICC, its function, evolution and successor agencies.

The consistency of the interstate commerce act, Hilton, G. W. (1966). The Journal of Law and Economics, 9, 87-113. This piece looks at the applications of the Interstate Commerce Act and how it helped change the transport sector.

Using stock price data to measure the effects of regulation: The Interstate Commerce Act and the railroad industry, Prager, R. A. (1989). The RAND Journal of Economics, 280-290. This paper examines the impact of the Interstate Commerce Act of 1887 and regulatory laws on the railroads. The study concluded that while the ICC brought about a positive price regime in the industry, curbing its powers in the 1980s led to a reversal in stock prices.

Evolution of the Interstate Commerce Act: 1887–1937, Aitchison, C. B. (1936). Geo. Wash. L. Rev., 5, 289. This piece is an analysis of the evolution of the Interstate Commerce Act from a price control measure to a full-fledge transport industry regulator.

The enduring nineteenth-century battle for economic regulation: the Interstate Commerce Act revisited, Poole, K. T., & Rosenthal, H. (1993). The Journal of Law and Economics, 36(2), 837-860. This article looks at the role of the Interstate Commerce Act in economic regulation during the nineteenth century.

Ideas and Interests: Businessmen and the Interstate Commerce Act, Purcell, E. A. (1967). The Journal of American History, 54(3), 561-578. This piece narrates the relationship between industry stakeholders and the Interstate Commerce Act.

Origins of the Interstate Commerce Act of 1877, Nash, G. D. (1957). Pennsylvania History, 24(3), 181-190. This book traces the origins of the Interstate Commerce Act of 1887. It revisits the turbulent atmosphere during which Congress passed the law.

The economic incidence of the Interstate Commerce Act of 1887: A theoretical and empirical analysis of the short-haul pricing constraint, Gilligan, T. W., Marshall, W. J., & Weingast, B. R. (1990). The Rand Journal of Economics, 189-210. This article looks at the implication of regulating short-haul rates on railroads. The researchers concluded that the short-haul pricing constraint resulted in abnormal returns to railroads and shipping companies but the Interstate Commerce Commission reduced some abnormal returns railroads suffered.

Railroad Mergers: The Accommodation of the Interstate Commerce Act and Antitrust Policies, Helmetag Jr, C. (1968). Va. L. Rev., 54, 1493. This paper looks at the role of the Interstate Commerce Act and Antitrust policies in ensuring transparency during railroad mergers.

The troubled beginning of the Interstate Commerce Act, Ely Jr, J. W. (2011). Marq. L. Rev., 95, 1131. This piece examines the origins of the Interstate Commerce Act and the crisis that led to the legislation.

Private Motor Carrier Definition of the Interstate Commerce Act: An Economic–Legal Battleground, Coggins, J. (1950). Geo. Wash. L. Rev., 19, 1. In this article, the author analyzes the legal implications of the Interstate Commerce Act’s definition of private motor carriers.

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