On examination of the history of the control of such enterprises, the Court found that it had been customary in England for many centuries and in this country from the beginning, to regulate rates on ferries, charges at inns, and similar public enterprises, and that it had never been thought that such action deprived persons of property without due process of law. In other words, the established common law, at the time of the passage of the Fourteenth Amendment, did not look upon rate regulation as a deprivation of property. The Court, therefore, declared the Illinois warehouse law constitutional, and in doing so made the following statement:
Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created.
While the Munn case was before the Court, the case Peik v. the Chicago and Northwestern Railway Company was raising a question which struck at the heart of the chief practical impediment in the way of state control of transportation. The central question in the litigation was whether the legislature of Wisconsin could lawfully regulate rates on railroads inside the state. Since the bulk of the traffic on most roads crosses state borders at one time or another in its transit, the regulation of rates within a state normally affects interstate commerce. But the regulation of interstate commerce is vested in Congress by the terms of the Constitution. The railroad was quick to take advantage of the division of power between the states and the nation. Indeed, when fighting state legislation, the roads earnestly emphasized the exclusive power of Congress over interstate commerce; but when fighting national regulation, they equally deprecated any interference with the reserved rights of the states. Acting in accordance with its established practice, the Court decided that the state was authorized to regulate rates within its borders, even though such regulation indirectly affected persons outside, until Congress passed legislation concerning interstate commerce. Obviously this decision allowed the states to work out their railroad problems unhampered, and constituted one of the chief victories for the Grangers.
In 1886, however, the Court overturned some of the principles which had been established in the Munn and Peik cases. The new development came about in connection with the Wabash railroad. It appeared that the road had been carrying freight from Peoria, Illinois, to New York for smaller rates than were charged from Gilman to New York, despite the fact that Peoria was eighty-six miles farther away. Since Illinois law forbade a road to levy a greater charge for a short haul than for a long one, a suit was instituted and carried to the Supreme Court. The company held that the Illinois legislation affected interstate commerce and hence trenched upon the constitutional power of Congress. This time the Court upheld the road. It decided that the transportation of goods from Illinois to New York was commerce among the states, that such commerce was subject to regulation by Congress exclusively, and that the Illinois statute was void. It seemed, then, that state regulation was a broken reed on which nobody could safely lean, and attention thereupon turned to the federal government.
Congress had already been discussing federal regulation intermittently for some years. The so-called "Windom Report" of 1874 had advised federal construction and improvement of transportation facilities in order to lower rates through competition, but no action had resulted. In 1878 the "Reagan bill" had proposed government regulation, and from that time the subject had been almost continuously before Congress. In 1885 the Senate had appointed a select committee of five to investigate and report upon the regulation of freight and passenger transportation. The committee was headed by Shelby M. Cullom, who had been a member of the legislature of Illinois and later governor, in the years when the railroad and warehouse laws were being put into effect. It endeavored to discover all shades of opinion by visiting the leading commercial centers, and by consulting business men, state commissioners of railroads, Granger officials and others. After a somewhat thorough investigation, the committee expressed its conviction that no general question of governmental policy occupied so prominent a place in the attention of the public as that of controlling the growth and influence of corporations. The needed relief might be obtained, the committee thought, through any one of four methods: private ownership and management, with a greater or less degree of government oversight; government ownership and management; government ownership with private management under public regulations; partial state ownership and management in competition with private companies. The widespread opposition to state ownership of railroads, the commission thought, seemed to point to some form of government regulation and control of the existing situation.
Impressed with the magnitude of the abuses involved, and the hopelessness of regulation through state laws, the committee presented a bill designed to bring about regulation on a national scale through a federal agency. The resulting law was the Interstate Commerce Act of February 4, 1887. It provided that all railway charges should be reasonable and just; forbade the roads to grant rebates, or to give preferences to any person, locality or class of freight, or to charge more for a short haul than for a long one except with the consent of the proper authorities; it made pooling unlawful; and it ordered the companies to post printed copies of their rates, which were not to be altered except after ten days' public notice. The act also created an Interstate Commerce Commission of five members to serve six-year terms, into whose hands the administration of the measure was placed. Persons who claimed that the railways were violating the provisions of the law could make complaint to the Commission, or bring suit in a United States Court. In order that the Commission might know the condition of the roads, it was given power to call upon the carriers for information, to demand annual reports from them, and to require the attendance of witnesses. If the railroads refused to carry out the orders of the Commission, they could be brought before a United States district court.
In forbidding pools, the Act committed the railroads to the policy of enforced competition, a policy which was commonly accepted at the time as the best one for the public interest. Such experts, however, as Professor A.T. Hadley and Charles Francis Adams, Jr., raised important objections. They cited the rate wars to indicate the results of competition and declared that railroads ought to be monopolies. If two grocery stores are established where trade enough exists for only one, they asserted, the weaker competitor can close his doors and the public loss is not heavy; but in the case of the railways a weak competitor must continue business even at disastrously low rates because all his interest charges continue and the depreciation on his property is extreme. The construction of an unnecessary road and its subsequent operation at a loss, its failure or its abandonment, constitute a great drain upon the public. Such objectors contended that pooling combinations did away with many of the evils of cut-throat competition, and they accordingly urged that the carriers be permitted to make such arrangements, under whatever government regulation might be needed to prevent unreasonable charges. By such means the available business of a region might be fairly divided among the roads entering it, without resort to competitive rate-cutting and its consequent evils.
The passage of the law was looked upon with much hostility on the part of the railroad interests. James J. Hill thought that the railroads might survive, although the country would be ruined, and he predicted that Congress would shortly be called in special session to repeal the act. More important than mere hostility was the constant opposition and evasion which characterized the attitude of the carriers toward the operation of the law. Discriminations were commonly practiced and hidden away in accounts under false or misleading headings. Rebates were given and received, a fact which was due in no small degree to the shippers themselves. A large shipper might demand advantageous rates and threaten to turn his trade over to a rival road. As the arrangement would be secret, and the likelihood of discovery small, the temptation to break the law was correspondingly great.
The good results of the passage of the law were disappointingly slight. To be sure, the Commission was gaining experience, administrative precedents were being established and injustice was somewhat less common than before. The first chairman was Judge T.M. Cooley, a noted lawyer whose appointment was considered an admirable one. Most important of all, the principle of government regulation was established. Nevertheless, progress was so slow as to be almost invisible. The courts hampered the activities of the Commission. When cases arose involving its decisions, they allowed a retrial of the entire case from the beginning, permitting the introduction of facts which had been designedly withheld by the carriers in order to undermine the influence of the Commission, and sometimes they reversed its findings and so dulled the effectiveness of its labors. Eleven years after the Act was passed the Commission declared that abuses were so constant that the situation was intolerable; a prominent railroad president made the charge that "good faith had departed from the railway world"; and an important authority on railroad affairs declared that the Commission had become an impotent bureau of statistics.