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.
(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
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
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.