These measures, following one another in rapid succession, produced a national, even an international sensation. The railroad managements stood aghast at what they regarded as demagogic invasions of their rights, and the more conservative elements of the American public looked upon them as a violent attack upon property. Up to this time there had been little general understanding of the nature of railroad property. In the minds of most people a railroad was a business, precisely like any other business, and the modern notion that it was "affected with a public interest" and that the public was therefore necessarily a partner in the railroad business had made practically no headway. "Can't I do what I want with my own?" Commodore Vanderbilt had exclaimed, asserting his exclusive right to control the operations of the New York Central system; and that question fairly well represented the popular attitude. That the railroad exercised certain rights of sovereignty, such as that of eminent domain, that it actually used in its operations property belonging to the State, and that these facts in themselves gave the State the right to supervise its management, and even, if necessity arose, to control it—all this may have been recognized as an abstruse legal proposition, but it occupied no practical place in the business consciousness of that time. Naturally the first step of the railroads was therefore to contest the constitutionality of the laws, and while these suits were pending they resorted to various expedients to evade these laws or to mitigate their severity. A touch of liveliness and humor was added to the situation by the thousands of legal fare cases that filled the courts, for farmers used to indulge in one of their favorite agricultural sports—getting on trains and tendering the legal two and a half cents a mile fare, a situation that usually led to ejectment for nonpayment and then to a suit for damages. The railroads easily met the laws forbidding lighter charges for long than for short hauls by increasing the rates for the longer distances, and the laws fixing maximum rates within the State by increasing the rates outside the State. When the courts decided the cases against the railroads, as in most cases they did, these corporations set about to secure the repeal of the laws. They started campaigns of education, frequently through magazine or newspaper articles pointing out the injustice of the Granger laws and insisting that they were working great public damage. It is a fact that a decrease in railroad construction followed the Granger demonstration, and the friends of the railroads insisted that timid capital hesitated to embark in an enterprise that was constantly subject to legislative attack. These campaigns succeeded much better than the more violent opposition to which the railroads had first resorted. The Western States in the majority of cases repealed their most drastic legislation. Nearly all the laws fixing maximum rates disappeared from the books, and even Iowa and Wisconsin substituted for these measures supervisory and advisory commissions after the Massachusetts model.
While the Granger movement thus failed effectively to curb the railroads, it succeeded in arousing great popular interest in the railroad problem and in placing before the public several of the most important details of that problem. Not the least of its achievements were the decisions which it obtained from the Supreme Court of the United States. The Granger cases are among the most epoch-making in American history, and they fixed for all time the principles of American policy in dealing with the railroad question. They are particularly worthy of study by those who have regarded the Supreme Court as the bulwark of social injustice and as a body which can always be relied upon to protect the rights of property against the interests of the masses. In its railroad decisions this charge hardly holds; for these Granger cases sustain practically all the legal contentions made by the Granger legislatures. * The cases fixed for all time the point that a State, acting under the police power, may regulate the charges of a railroad even to the extent of fixing maximum rates. They even went so far as to hold that the right to fix rates is not subject to any restraint by the court on the ground of unreasonableness, a principle which the Supreme Court has reversed in more recent times. The courts also held that a State, at least until Congress acted, could regulate interstate commerce, but this decision also has since then been reversed. These subsequent reversals of decisions which were exceedingly popular at the time, however, not only constituted sound law but promoted the public interest, for they established that body of law which has made possible the present more comprehensive system of Federal regulation of railroads.
* The cases of particular interest were: Munn vs. Illinois, 94
U.S. 114; Peik vs. Chicago and Northwestern Railway Company, 94 U.S.
164; and Chicago, Burlington and Quincy Railway Company vs. Cutts, 94
U.S. 155.
Meanwhile the demand for regulation was gaining strength in the Eastern States, but for somewhat different reasons. The farmers of New England, New York, and the Eastern region in general had not particularly sympathized with the Granger legislation; they already had great difficulty in competing with the large Western farms, and a reduction in rates to the seaboard would have made their position even less endurable. This attitude was unquestionably selfish but entirely comprehensible. The agitation for railroad reform in the East came chiefly from the manufacturing and commercial classes. Here the main burden of the complaint was the railroad rebate. This was a method of giving lower rates to large shippers than to small—charging the favored shipper the published rate and then, at stated periods, surreptitiously returning part of the payment. This was perhaps the most vicious abuse of which the railroads have ever been guilty. That the common law forbade the practice and that it likewise violated the implied contract upon which the railroad obtained its franchise was hardly open to dispute; yet up to 1887 no specific law in this country prohibited the practice. For many years the rebate hung over the American business world, a thing whose existence was half admitted, half denied, a kind of ghostly economic terror that seemed persistently to drive the small corporation to bankruptcy and the large corporation to dominating influence. The Standard Oil Company was the "monster" that was believed especially to thrive upon this kind of sustenance, though this was by no means the only industry that maintained such secret relations with the railroads; the Carnegie Steel Corporation, for example, accepted rebates almost as persistently. It was not until 1879, when the Hepburn Committee in New York State had its hearings, that all the facts concerning the rebate were exposed officially to public view. The contracts of the Standard Oil Company with the railroads were placed upon the records and these showed that all the worst suspicions regarding this practice were justified. This disclosure made the railroad rebate one of the most familiar facts in American industrial life; and in consequence a demand arose for Federal legislation that would definitely make the practice a crime and also for some kind of Federal supervision to do effectively the work which the state commissions had failed to do.
By this time it was clear enough that the only hope of adequate regulation lay with the Federal Government. Congressman Reagan, of Texas, had for years been pushing a bill to regulate interstate commerce and to prohibit unjust discriminations by common carriers; other measures periodically made their appearance in the Senate; but the Houses had been unable to agree and nothing had been done.
Two facts presently gave great impetus to the movement; in 1886 the United States Supreme Court, reversing its previous decision, decided that no State could fix rates for railroad lines outside its own borders, in other words, that interstate rates were exclusively within the jurisdiction of the Federal authority *; and a Senate committee, under the chairmanship of Shelby B. Cullom, conducted an investigation of railroad conditions which made clear the need of immediate reform. As a consequence, Congress passed the Interstate Commerce Act, which received President Cleveland's signature on February 4, 1887. This measure specifically made illegal rebates, pools, higher charges for short than for long hauls (when the hauls in question were upon the same road); it required railroads to file their tariffs, and it established a commission of five members, who had powers of investigation, including the right to make the companies produce their books. This commission received power to establish systems of accounting and the like, but it had no prerogative to fix rates. Inadequate as this measure seemed to the radical element, it was generally hailed as marking the beginning of an era in the Federal control not only of railroads but of other corporations, and this impression was increased by the high character of the men whom President Cleveland appointed to the first board.
* Wabash, St. Louis and Pacific Railway Company vs. Illinois, 118
U.S. 557.
The Interstate Commerce Commission lasted essentially in this form for nearly twenty years. On the whole it was a failure. Such was the judgment passed by Justice Harlan of the United States Supreme Court when he remarked in one of his decisions that the commission was "a useless body for all practical purposes"; and such, indeed, was the judgment of the commission itself, for in its report of 1898 it declared that the attempt at Federal regulation had failed. The chief reasons for this failure, the commission said, were the continued existence of secret rates and the fact that published tariffs were not observed. * The managers of the great American railroad systems would not yet admit that the fixing of railroad rates was the concern of any one but themselves, and they still regarded railroad management as essentially a private business. If they could obtain large shipments by granting special rates, even though they had to do it by such underhanded ways as granting rebates, they believed that they were entirely justified in doing so. Thus rebates flourished almost as much as ever, passes were still liberally bestowed, and pools were still formed, though they sometimes took the shape of "gentlemen's agreements."
* But it should be added that the effectiveness of the commission
as an administrative and regulating body was diminished by decisions
of the courts, notably the decision of the Supreme Court in the maximum
rate case. See 160 U.S. 479.
In 1906, when President Roosevelt became intensely active in the railroad problem, conditions were fairly demoralized. Attempts to enforce the anti-pooling clause had led railroads to purchase competing lines, and when the United States Supreme Court pronounced this illegal, the situation became chaotic. The evils of overcapitalization also became an issue of the times. The Interstate Commerce Commission had become almost moribund, and there was a general sentiment that the trouble arose from the fact that the commission had no power to fix rates and that the solution of the railroad problem would come only when such power was vested in it. * The Interstate Commerce Act which became a law on June 29, 1906, was the outcome of one of the greatest battles of President Roosevelt's political life. The act increased the membership of the commission from five to seven members, placed under its jurisdiction not only railroads but pipe lines, express companies, and sleeping-car companies, added to the other familiar restrictions a "commodities clause," which prohibited any railroad from transporting a product which it had produced or mined, "except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier"—this clause was intended to end the railroad monopoly of the coal mines—and made the failure to observe published tariffs a crime punishable with imprisonment. The amended law did not give the commission the right to fix rates in the first instance but did empower it, on complaint, to investigate charges and on the basis of this investigation to determine just maximum rates, regulations, and practices, though carriers were given the right of appeal to the courts.