The first wave of railroad regulations came at the state level in the early 1870s, largely in response to increasing evidence of discrimination against persons and places. As the decade progressed, agrarian tempers rose as farm incomes declined. As emphasized in chapter 15, farmers in the Midwest blamed a large measure of their distress on the railroads. Many farmers had invested savings in railroad ventures on the basis of extravagant promises of the prosperity sure to result from improved transportation. When the opposite effect became apparent, farmers clamored for legislation to regulate rates. Prominent in the movement were members of the National Grange of the Patrons of Husbandry, an agrarian society founded in 1867. Thus, the demand for passage of measures regulating railroads, grain elevators, and public warehouses became known as the Granger movement, the legislation as the Granger laws, and the review of the laws by the Supreme Court as the Granger cases.
Between 1871 and 1874, Illinois, Iowa, Wisconsin, and Minnesota passed regulatory laws. Fixing schedules of maximum rates by commission rather than by statute was a feature of both the Illinois and Minnesota laws. One of the common practices that western farmers could not tolerate was charging more for the carriage of goods over a short distance. The pro rata clause in the Granger laws prohibited railroads from charging short shippers more than their fair share of the costs. Both personal and place discrimination were generally outlawed, although product discrimination was not. Finally, commissions were given the power to investigate complaints and to institute suits against violators.
Almost as soon as the Granger laws were in the statute books, attempts were made to have them declared unconstitutional on the ground, among others, that they were repugnant to the Fifth Amendment to the Constitution, which prohibits the taking of private property without just compensation. It was argued, for example, that limitations on the prices charged by the grain elevators restricted their earnings and deprived their properties of value. Six suits were brought to test the laws. The principal one was Munn v. Illinois, an action involving grain elevators. This case was taken to the U. S. Supreme Court in 1877 after state courts in Illinois found that Munn and his partner Scott had violated the state warehouse law by not obtaining a license to operate grain elevators in the city of Chicago and by charging prices in excess of those set by state law. From a purely economic point of view, the argument made by the grain elevator operators makes some sense. The loss of wealth may be the same whether the government takes a piece of land to build a road (the classic case requiring compensation) or imposes a maximum price.
But the Supreme Court saw the case (and five similar railroad cases before it) in a different light: it upheld the right of a state to regulate these businesses. Chief Justice Morrison Remick Waite stated in the majority opinion that when businesses are “clothed with a public interest,” their regulation as public utilities is constitutional. The Munn case settled the constitutionality of the state regulation of railroads and certain other enterprises within the states—but not between states.
In 1886, a decision in the case of Wabash, St. Louis and Pacific Railway Company v. Illinois, however, severely limited what states could regulate. The state had found that the Wabash was charging more for a shorter haul from Gilman, Illinois, to New York City than for a longer haul from Peoria to New York City and had ordered the rate adjusted. The U. S. Supreme Court held that Illinois could not regulate rates on shipments in interstate commerce because the Constitution specifically gave the power to regulate interstate commerce to the federal government. In the absence of federal legislation, the Wabash case left a vast area with no control over carrier operation; regulation would have to come at the national level or not at all.
World History
