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How successful was the American government in protecting the public from the elimination of competition?

In our previous discussion of the industrial or gilded age, we witnessed the growth of large mega corporations known as trusts. There was much debate over whether or not trusts were helpful or harmful. In the end due to increasing pressure form the public government was forced to step in to control them. Today we will discuss how that was achieved.

In the late 1800's powerful railroad trusts beagn abusing their power and raised rates on farmers to astronomical levels. Many farmers went bankrupt, others were forced to pay rates that placed them near bankruptcy. Farmers recognized that something needed to be done to combat the power of the trusts. An organization called The Grange was created to represent the farmers. It was Grange movements philosophy that railroads were a public utility even though they were privatley owned and operated because they are public in nature. As such they could be regulated by the government. Granger legislation that regulated railroads was passed in 14 states.

Inn the case Munn v. Illinois (1877) Midwestern farmers felt that they were being victimized by the exorbitant freight rates they were forced to pay to the powerful railroad companies. As a result, the state of Illinois passed a law that allowed the state to fix maximum rates that railroads and grain elevator companies could charge.

The Supreme Court of the United States upheldthe Illinois law because the movement end storage of grain were considered to be closely related to public interest. This type of economic activity could be governed by state legislatures, whereas purely private contracts could only be governed by the courts. The Court held that laws affecting public interest could be made or charged by state legislatures without interference from the courts. The Court said, "For protection against abuse by legislatures, the people must resort to the polls, not the courts."

In response to Granger legislation the railroads again filed suit in Federal court. They charged in Wabash Railroad v Illinois that states could not regulate interstate trade and that the railroads were involved in interstate trade. The court agreed citing Gibbons v Ogden as the precedent. In response to the repeal of state level Grange legislation the Federal Government passed the Interstate Commerce Commission Act which created the Interstate Commerce Commission (ICC) to regulate the railroads. This siginfied the beginning of the end of the laissez faire era as it was the first time the government stepped in to regulate buisness.

Wabash, St. Louis & Pacific Railway Co. v. Illinois

(1886) An Illinois statute imposed a penalty on railroads that charged the same or more money for passengers or freight shipped for shorter distances than for longer distances. The railroad in this case charged more for goods shipped from Gilman, Illinois, to New York, than from Peoria, Illinois, to New York, when Gilman was eighty­six miles closer to New York than Peoria. The intent of the statute was to avoid discrimination against small towns not served by competing railroad lines and was applied to the intrastate (within one state) portion of an interstate (two or more states) journey. At issue was whether a state government has the power to regulate railroad prices on that portion of an interstate journey that lies within its borders.

The Supreme Court of the United States held the Illinois statute to be invalid and that the power to regulate interstate railroad rates is a federal power which belongs exclusively to Congress and, therefore, cannot be exercised by individual states. The Court said the right of continuous transportation from one end of the country to the other is essential and that states should not be permitted to impose restraints on the freedom of commerce. In this decision, the Court gave great strength to the commerce clause of the Constitution by saying that states cannot impose regulations concerning price, compensation, taxation, or any other restrictive regulation interfering with or seriously affecting interstate commerce. [One year after Wabash, Congress enacted the Interstate Commerce Commission (ICC). This commission had the power to regulate interstate commerce.]

More legislation to limit the power of the trusts followed:

Interstate Commerce Commission Act (1887)

First federal law regulating the abuse of monopoly power. Banned certain unfair business practices in the railroad industry.

Sherman Antitrust Act (1890)

Made it illegal to create, or attempt to create, a monopoly. Banned any "conspiracy in restraint of trade."

Clayton Antitrust Act (1914)

Sought to prevent the creation of monopolies by defining specific illegal practices. Strengthened the Sherman Act.

Federal Trade Commission Act (1914)

Created the Federal Trade Commission (FTC). The FTC has the responsibility to carry out the provisions of the Clayton Antitrust Act and to enforce federal law in regard regulation of business.

Robinson - Patman Act (1936)

Protects small retailers from unfair competition by chain stores and other large scale competitors.

Celler - Kefauver Act (1950)

Outlawed mergers or acquisitions that would lessen competition or create a monopoly.

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