During the 1870s, many Americans (particularly farmers) began to resent the apparent stranglehold the railroads exerted over many parts of the country. However, the postwar presidents and many in Congress resisted intervention into economic matters. Early efforts to bring some form of regulation to the giants were made at the state level, but those measures were later struck down by the Supreme Court (Haney, 1910).
In 1887, Congress passed the Interstate Commerce Act which created the Interstate Commerce Commission, the first true federal regulatory agency. It was designed to address the issues of railroad abuse and discrimination and required the following: (Martin, 1972)
- Shipping rates had to be "reasonable and just"
- Rates had to be published
- Secret rebates were outlawed
- Price discrimination against small markets was made illegal.
Although the law granted the Commission power to investigate abuses and summon witnesses, it lacked the resources to accomplish its lofty goals. Later presidents would assure that reform would not go too far, by appointing pro-railroad commissioners (Moulton, 1933).
In 1887 Congress passed the Interstate Commerce Act, making the railroads the first industry subject to Federal regulation. Congress passed the law largely in response to public demand that railroad operations be regulated. The act also established a five-member enforcement board known as the Interstate Commerce Commission. In the years following the Civil War, railroads were privately owned and entirely unregulated. The railroad companies held a natural monopoly in the areas that only they serviced (Bailey, 1987).
Monopolies are generally viewed as harmful because they obstruct the free competition that determines the price and quality of products and services offered to the public. The railroad monopolies had the power to set prices, exclude competitors, and control the market in several geographic areas. Although there was competition among railroads for long-haul routes, there was none for short-haul runs.................
