State Regulation of Railroads in the United States
Introduction to State Regulation of Railroads
The railroad industry initially used the corporate form of organization under charters granted by the legislatures of one or more states. These charters, the means by which state regulation was applied, contained provisions relating to rates, safety, financial administration, and service. Charter regulation failed, primarily because of inflexibility.
About 1850 state regulation began to take statutory form. The midwestern states, under pressure from the powerful fraternal agrarian association, the National Grange, took the lead in this type of regulation by enacting what were known as Granger Laws, which imposed regulation in the fields of rates, service, administration, and corporate structure. The Granger movement grew out of a number of grievances the farmers had against the railroads. Many farmers considered freight rates on agricultural commodities and return rates on manufactured commodities excessive. They were antagonized further by so-called long-and-short haul abuses, in which carriers charged more for a shorter than for a longer haul; by rebates, the granting of preferential rates by carriers to favored individuals; and by the many losses suffered by agricultural interests on investments in carrier securities. The Granger movement centered in Illinois, Iowa, Minnesota, and Wisconsin.
State regulation by statute failed, as had regulation by charter, as a result of inflexibility and lack of uniformity. The states therefore turned to regulation by commissions, initially in an advisory or supervisory capacity only. During the 1870s the state commissions were transformed into genuine regulatory bodies. The legislation creating the commissions in Illinois and Minnesota, for instance, forbade discrimination in rates and service and gave the commission power to fix maximum rates and standards of service and to enforce its orders.
In 1877 the Granger Laws were upheld as constitutional in the often-cited case of Munn v. Illinois, in which the U.S. Supreme Court ruled that it was a proper exercise of the police power for a state to regulate a business “clothed with a public interest.”
In 1886 the Supreme Court in the Wabash case invalidated an Illinois law that purported to regulate rates for transportation constituting a part of an interstate movement. The Court held that, under the commerce clause of the U.S. Constitution, regulation of interstate commerce may be imposed only by the U.S. Congress. The clause specifies that “The Congress shall have power…to regulate commerce with foreign nations and among the several states and with the Indian tribes.” The decision of the Court led to federal regulation of interstate commerce.” (1)
Resources
Notes and References
- Information about State Regulation of Railroads in the Encarta Online Encyclopedia
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