Organization and work of the I. C. C.
The Interstate Commerce Commission.—Congress realized in 1887 that it was not enough to pass a regulatory law; it must also provide some means of enforcing the regulations. So a board, known as the Interstate Commerce Commission, was established and it has now become one of the most powerful regulating bodies in the world. At the outset it had five members; now it has eleven. They are appointed by the President. The commission’s function is, in general, to see that the national laws relating to carriers of interstate commerce are strictly observed. It fixes the maximum rates, hears complaints, adjusts disagreements, and prevents discrimination. In the case of the railroads its powers have recently been widened by the provisions of the Transportation Act of 1920, as will be seen presently.
Methods by which railroads consolidated.
Railroad Consolidation and the Sherman Act.—There are at least three ways in which railroad consolidations have been effected in the United States. The first and simplest method has been outright purchase, one railroad buying up another. The second is by lease, one road leasing another for a long term of years, thus becoming the virtual owner. The third is by forming what is commonly called a “holding company” which steps in and takes the controlling ownership of both roads. In this case neither road buys or leases the other, but both put themselves into the control of a new corporation which proceeds to have the lines operated as though they formed a single road. The objection to these consolidations is that, in many cases, they stifle competition and create a monopoly.
The Sherman Act.
So Congress in 1890 enacted the Sherman Anti-Trust Act, a measure which although it was not primarily aimed at the railroads, prohibited all combinations in restraint of trade or commerce among the several states. |The Northern Securities Case.| For several years, however, this law was left unenforced, but in 1904 it was invoked in the Northern Securities Case to dissolve a combination of two great railroads, the Northern Pacific and the Great Northern, both of which had passed into the control of a holding company. The Supreme Court held the consolidation to be illegal and ordered that the roads should be restored to a competitive basis. The same process was applied to various other roads which had been merged in the years following 1890 and a general “unscrambling of omelets” took place.
Railroad competition, however, is often wasteful and actually results in higher rates. To consolidate two or more small railroads into a larger one may actually cheapen rather than increase the cost of transportation. The practical problem is to permit consolidation in such cases while preventing it in others. This was what the Supreme Court was endeavoring to do by a flexible enforcement of the Anti-Trust Act when the World War broke out and created new problems.
Government operation of the railroads,1917-1920.
The Railroads in War Time.—In 1917, when the United States entered the war, it seemed advisable that Congress should place in the hands of the President a wide range of authority in connection with the mobilization and transportation of troops and war supplies. By virtue of these powers President Wilson, in the closing days of the same year, took over the operation of all the important railroads in the country and placed them in charge of a director-general appointed by himself. The question of compensating the owners of the railroads was settled by providing that they should receive an annual payment equal to the average net earnings of the three preceding years. It was also stipulated that the railroads should be given back to their owners in as good physical condition as when they were taken over, this return to be made within twenty-one months after the close of the war.
How this plan worked.