1911 Encyclopædia Britannica/Interstate Commerce

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13906101911 Encyclopædia Britannica, Volume 14 — Interstate CommerceFrank Albert Fetter

INTERSTATE COMMERCE. The phrase “interstate commerce,” as used in the United States, denotes commerce between the citizens of different states of the Union. The words “interstate” and “intrastate” are not found in the constitution nor, until comparatively recently, in decisions of the courts or in legislative acts (probably being first used officially in 1887 in the Interstate Commerce Act). The constitution of 1789 uses the phrase “commerce among the states,” and the first official decision interpreting the phrase says that “it may very properly be restricted to that commerce which concerns more states than one” (Chief Justice Marshall in Gibbons v. Ogden, 9 Wheaton 194). Commerce among the states is there distinguished from “commerce which is completely internal, which is carried on between man and man in a state, or between parts of the same state, and which does not extend to or affect other states.” It was declared (Lehigh case, 145 U.S. 192) that commerce between two persons in the same state is not interstate even when there is a temporary deviation to the soil of another state; but later (Hanley case, 187 U.S. 617, distinguishing the Lehigh case) it was declared that as to transportation, such commerce is interstate. The courts have interpreted commerce to denote not merely a mutual selling or traffic, but as “a term of the largest import,” including intercourse for the purposes of trade in any and all its forms (Gibbons v. Ogden, 9 Wheaton 194, and Welton v. Missouri, 91 U.S. 280). Thus have been included not only the actions of trading, navigation, transportation, and communication, but also the instruments and agents employed, including even telegraph messages and, in the extremest cases, lottery tickets.[1]

The decision of the question where federal control of interstate traffic ends and state control begins has been one of great practical difficulty. In general it has been held that whenever a commodity begins to move as an article of trade from one state to another, commerce in that commodity between the states has begun. Mere intention to ship goods does not make them subjects of interstate commerce, but they must actually be put in motion or committed to the carrier for that purpose (Coe v. Errol, 116 U.S. 517). As a practical guide in deciding when state control should be resumed, the court as early as 1827 (Brown v. Maryland) laid down the “original package rule,” that the taxing power of the state should begin when the original package in which the goods had been imported into the state had been broken up or sold. The injustice of allowing goods to be held thus, for long periods escaping local taxation, led to a modification of the rule in 1868 (Woodruff v. Parkham, 8 Wall. 123), and such goods after reaching their destination may be taxed as property in common with other property in the state.[2]

Reason for Federal Control of Interstate Commerce.—Immediately after the close of the War of American Independence in 1783 appeared the separatist tendencies and local jealousies usual in a confederation. The Congress of the Confederation had no power to levy tariff duties or to regulate commerce between the states, and the separate states freely and recklessly exercised their rights in this matter. Though commerce at that time was comparatively unimportant, the results of this restrictive policy were most unfortunate. The Annapolis Convention of 1786 was called by the Virginia legislature to take into consideration the trade of the United States and to consider how far a uniform system in their commercial relations might be necessary to the common interests and their permanent harmony. This conference resulted in the call of the Philadelphia Convention of 1787, which framed the present Constitution. Chief Justice Marshall, in one of the early cases on this subject (Brown v. Maryland, 12 Wheaton 419, in 1827), said in words often since quoted: “It may be doubted whether any of the evils proceeding from the feebleness of the federal government contributed more to that great revolution which introduced the present system than the deep and general conviction that commerce ought to be regulated by Congress.”

Every year has increased the importance of the congressional power of regulating commerce. At the time of the adoption of the Constitution, each neighbourhood supplied nearly all its needs by its own industry, but improving means of transportation and communication have multiplied the commercial ties between the citizens of the various states. This change went on slowly until 1830, more rapidly between 1830 and 1860, and at an ever-hastening pace after the Civil War. Until 1824 no case involving directly the consideration of this power reached the United States Supreme Court. From 1824 to 1840 the Supreme Court decided an average of one-third of a case a year; from 1841 to 1860, an average of three-fourths of a case; from 1861 to 1870, an average of one case; from 1871 to 1880, an average of nearly six cases; from 1881 to 1890, an average of more than seven cases; and from 1891 to 1900, an average of more than ten cases. The decisions have not been entirely uniform, and there were some decisions too contradictory to be explained by any ingenuity. The Supreme Court itself has said (Fargo v. Michigan, 121 U.S. 230) that “it may be admitted that the court has not always employed the same language, and that all of the judges of the court who have written opinions for it may not have meant precisely the same thing.” Though in the period just preceding the Civil War the doctrine of states’ rights tended to weaken somewhat the federal power, the broad outlines of the interpretation by Chief Justice Marshall laid down in 1824 in Gibbons v. Ogden remain to-day almost undimmed.

Interstate Commerce in the Federal Constitution.—Freedom of trade, without discrimination, between the citizens of all the states was in the main ensured by one brief sentence, usually called the “commerce clause” of the federal constitution:—“The Congress shall have power . . . to regulate commerce with foreign nations, and among the several states, and with the Indian tribes” (Art. 1, sec. 8, clause 3). Hardly less important is the power “to make all laws which shall be necessary and proper for carrying into execution the foregoing powers, and all other powers vested by this Constitution in the government of the United States, or in any department or officer thereof” (Art. 1, sec. 8, clause 18). To the same end of freedom of commerce, Congress is limited in that “no tax or duty shall be laid on articles exported from any state,” and “no preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another; nor shall vessels bound to or from one state be obliged to enter, clear, or pay duties in another” (Art. 1, sec. 9, clauses 5 and 6). Directly and by implication, Congress was granted a number of other powers over commerce, in that it may coin money, establish uniform laws of bankruptcy, establish post-offices and post roads, regulate weights and measures, exercise admiralty jurisdiction (now interpreted to extend to all public waterways accessible to the traffic of more than one state), grant patents and copyrights, and use the power of taxation to protect, repress or even destroy the agencies of commerce (e.g. state bank notes). But these powers can be exercised only in ways which favour and make free the intercourse among all parts of the nation.

Even if the commerce clause had been omitted from the Constitution, a large part of its object would have been attained by certain prohibitions upon the states as follows: “The citizens of each state shall be entitled to all privileges and immunities of citizens in the several states” (Art. 4, sec. 2). “No state shall, without the consent of the Congress, lay any impost or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws; and the net produce of all duties and impost, laid by any state on imports or exports, shall be for the use of the treasury of the United States, and all such laws shall be subject to the revision and control of the Congress” (Art. 1, sec. 10, clause 2). “No state shall, without the consent of Congress, lay any duty of tonnage” (Art. 1, sec. 10, clause 3). Thus by threefold measures of precaution was ensured domestic freedom of trade from every point in the land to its farthest frontiers.

Negative Working of the Commerce Provisions.—For nearly a hundred years these provisions were important only in their negative effects of preventing the states from granting special privileges to their citizens or taxing unequally the citizens of other states. The decision in 1824 of Gibbons v. Ogden stopped the attempt of the state of New York to grant the monopoly of steamboat traffic on the waters of that state. Had the clear and unequivocal opinion in that case been different, local ingenuity doubtless would have devised a multitude of discriminations. “The power to tax involves the power to destroy,” and ever since the decision of McCulloch v. Maryland in 1819 it has been held that no agencies created by the federal government, such as banks or legal tender notes, are subject to state taxation, and the rule has also been laid down repeatedly by the Supreme Court (for the first time in 1886) that no burden can be laid upon the act of taking goods into or out of the state, of soliciting sales, or of delivering goods even though the tax is without discrimination as between the state’s own citizens and others; that is, interstate commerce “cannot be taxed at all” (Robbins v. Shelby County Taxing District, 120 U.S. 489).[3]

Federal control of interstate commerce has been interpreted by the courts to be exclusive of any control by the states. This is not self-evident in the clause, “Congress shall have power to regulate commerce among the several states.” Over some other subjects the power of the federal and state governments is concurrent, the state being able to act until Congress enacts some conflicting legislation. Although the early decisions suggested that the power of Congress was exclusive, yet for nearly a century no positive decision was rendered and no positive action was taken by Congress. Between 1870 and 1886 the states made great progress in the regulation of railways on the assumption that until Congress had acted the states were free to act. The question was put beyond doubt in a series of decisions establishing the principle that the non-action of Congress indicates its will that commerce shall be free and untrammelled and that the states cannot interfere either through their police power or their taxing power.[4]

Positive Federal Regulation.—Though the regulation of interstate commerce up to the Civil War was mainly negative, some positive actions of the federal government had indirect effects on commerce, as, for example, the coinage of money, the establishment of post-offices, the charter of the first and second United States banks, and the charter of the Pacific Railroad. The power to do these things was conferred by the Constitution in some cases directly, in other cases by implication in that any means appropriate to lawful ends might be employed (as in case of charter of the United States Bank, McCulloch v. Maryland). From 1850 to 1862 the federal government had made numerous land grants in aid of railways, but always to the states, not directly to the corporations, and it had never until 1862 granted a charter to a railway, canal, turnpike or transportation company. In 1866 Congress passed an act authorizing railway companies whose roads were operated by steam to carry passengers, freight, &c., “on their way from any state to another state and to receive compensation therefor and to connect with roads of other states so as to form continuous lines for the transportation of the same to the place of destination.”[5] This act, so vague and general in its terms, had very little effect, though it has been the occasion of considerable litigation to determine its influence upon existing police laws of the states. In 1884 Congress established the Bureau of Animal Industry for preventing the exportation of diseased cattle and for the extirpation of disease among domestic animals. This had little significance at the time for interstate commerce, its purpose being to meet the objections of foreign countries to the importation of American meat. In 1887 was passed the Interstate Commerce Act, providing a national commission to supervise interstate railways. In 1888 was passed an Arbitration Act, replaced in 1898 by an act which provides that in case of disputes between common carriers subject to the Interstate Commerce Act and their employees, conciliation shall be tried, and, in case this should fail, indicates the methods that may be used for the voluntary submission of the dispute to a board of arbitration. In 1890 was passed the Sherman Anti-Trust Act, making illegal every contract and combination in restraint of trade or commerce among the several states or with foreign nations. In 1893 a Safety Appliance Act, the administration of which was put into the hands of the Interstate Commerce Commission, promoted the safety of employees and travellers, and required the roads engaged in interstate commerce to equip their cars and locomotives with automatic couplers and brakes. In 1895 was prohibited the interstate carriage of condemned carcasses of animals, and of lottery tickets (see above reference to the interpretation of the Lottery Act), in 1897 of obscene literature, and in 1900 of game killed in violation of state laws. In 1901 carriers engaged in interstate commerce were required to make full reports of all accidents to the Interstate Commerce Commission. In 1902 was prohibited the interstate carriage of dairy products falsely labelled or branded as to the state or territory in which produced, and in 1903 the Secretary of Agriculture was empowered to establish rules concerning importation and transportation of live stock. In 1903 the Bureau of Corporations was established with power to investigate the conduct of corporations engaged in interstate and foreign commerce, excepting common carriers subject to the Interstate Commerce Act. In 1903 the Interstate Commerce Act was amended by the Elkins Act, making much more difficult the granting of rebates. In 1905 the President was authorized to grant medals of honour to persons who by their daring save life or prevent accident on railways. In 1906 the Interstate Commerce Act was amended in important particulars (specified below). In 1906 were passed pure food laws, greatly enlarging the duties of the Department of Agriculture in reference to inspection of foods prepared for interstate commerce.

The Interstate Commerce Act.—The period of positive action by Congress in the regulating of interstate commerce practically begins, therefore, with the enactment of the Interstate Commerce Act of February 1887, the outcome of fully seventeen years of agitation and discussion. The law was modelled in large part upon English acts. It applied to common carriers wholly by railway, and partly by railway and partly by water when both are used under a common arrangement for continuous shipment; forbade unjust discrimination and undue and unreasonable preference; made it unlawful to charge more for a shorter than for a longer distance over the same line in the same direction, the shorter being included within the longer distance (though a carrier might be freed by the Commission from the working of this provision); and forbade pooling and division of earnings. The administration of the law was entrusted to a Commission of five members, appointed by the President. From this act much was expected, but eighteen years of its operation gave as net results little more than a greater uniformity of railway accounting and much better understanding by the public of the nature of the railway problem. Discrimination and secret rebates continued. The anti-pooling clause (pretty generally recognized by the well-informed to be a mistake) prevented open but not secret agreements between carriers, and probably hastened the movement toward consolidation. The long and short haul clause was made meaningless by the judicial interpretation that any competition, even that of other carriers subject to the act, justified the railway in charging more for a shorter than for a longer haul. The effectiveness of the Commission was destroyed by the judicial decision that it had no power to fix rates for the future. Until 1897, the Commission, when it adjudged a rate unreasonable, usually declared what rate was reasonable, and directed the carrier to reduce the rate by a given date to the designated maximum. Of 135 orders made in decisions rendered in the first ten years of the Commission, 68 prescribed a maximum rate for the future. In 1897 it was finally decided in the Cincinnati Freight Bureau Case (167 U.S. 479) that Congress had not conferred upon the Commission the power to prescribe any rate for the future. The court said that Congress might fix the rate itself or authorize a sub-tribunal to do so, but that Congress had not yet given that authority.

The need of further legislation had been felt from the beginning by many, and after 1903 the agitation became very active. The position taken by President Roosevelt in his message to Congress in 1904 made the amendment of the Interstate Commerce Act the principal political issue before Congress in the sessions of 1905 and of 1906. After the most remarkable senatorial debates heard at Washington in years, followed with close interest by the country, a number of amendments became law on the 29th of June 1906. The act was strengthened to a degree hardly expected by the most earnest advocates of revision. A number of minor changes made in the light of experience were: increasing the number of commissioners to seven and their pay to $10,000; facilitating procedure and the taking of evidence; requiring thirty days notice of a change of rates; requiring appeal from the Commission’s decision to be taken within thirty days; empowering the Commission to establish joint rates and to order switches to be built. The following are generally thought to be still more important changes: (1) Including within the application of the act pipe lines (particularly for oil), express and sleeping car companies, and all the facilities and services in connexion with goods transported; (2) giving publicity to railway business by empowering the Commission to prescribe all forms of accounts and to examine the books at all times, and by forbidding any other accounts or memoranda to be kept by the companies; and (3) empowering the Commission to prescribe reasonable maximum rates to take effect within not less than thirty days and to continue not over two years unless set aside by the courts.

The Anti-Trust Act of 1890.—The growth of large corporations with some degree of monopoly power, the so-called trusts, had called forth in a number of the states anti-trust laws before 1890. When it became evident that the states were not succeeding in dealing with the problem, public sentiment found expression in the Sherman Anti-Trust Act, approved on the 2nd of July 1890. This act declared illegal and criminal, punishable by fine or imprisonment or both, every contract in restraint of trade or commerce among the several states or with foreign nations. The statute thus changed the common law wherein such contracts were merely unenforceable but not criminal. This act was at first construed by the Supreme Court as applying to any contract in restraint of interstate commerce, whether reasonable or unreasonable (Trans-Missouri Freight Association, 166 U.S. 331), but later, in 1905 (Stock Yards case, 25 Supreme Court Reporter 276) it was held that the act did not apply to agreements for the better conduct of business which incidentally affected interstate commerce.[6] The act has been interpreted to apply to transportation (Freight Association case, 166 U.S. 290, and Northern Securities case), with results felt even by some of the advocates of railway regulation to be unfortunate. It applies to unlawful combinations of manufacturers to divide the territory and regulate the prices (Addyston Pipe Trust Case, 175 U.S. 211). In the Sugar Trust case (1895 U.S. v. Knight Co. 156 U.S.) it was declared that the statute did not apply to a manufacturing company which had acquired nearly complete control of the manufacture of refined sugar by means of the purchase of stock of other refining companies.

The Attorney-General submitted to the Senate, in June 1906, a statement of the results of all suits instituted by the Department of Justice under the anti-trust law, the Interstate Commerce Act and the Elkins Act, in the period from 1887 to June 1906 inclusive. Thirty-six suits were still pending; of the 250 which had been disposed of in some manner 186 ended in dismissal, non-prosecution or acquittal, and 64 were successful in securing in whole or in large part the object of the suit (in 30 cases conviction, in 34 cases the granting of a petition or an injunction, &c.). In addition to these results of federal efforts to regulate industry must be counted the cases in which carriers complied with the orders of the Interstate Commerce Commission without suit; but even then the total by 1906 was somewhat meagre.

The establishment of the Bureau of Corporations in 1903, and the considerable extension of the powers of inspection of the Department of Agriculture are recent changes of which the results cannot yet be fairly judged. The aim of the Bureau of Corporations is to ensure publicity in the management of corporations engaged in interstate and foreign commerce. The first commissioner, Mr James R. Garfield, showed much activity in pursuing the purposes of the act, and published informing reports upon the beef trust (1905) and upon the Standard Oil Company (1906). But the effect and possible extension of federal interference became from this time burning political questions of far-reaching importance of too recent a date to be dealt with historically in this article.

See also the Annual Reports of the Interstate Commerce Commission since 1887, and decisions; Prentice and Egan, The Commerce Clause of the Federal Constitution (Chicago, 1898); Reports of the Commissioner of Corporations on the Beef Industry (1905), on the Transportation of Petroleum (1906); W. Z. Ripley (ed.), Trusts, Pools and Corporations (1905), containing leading cases and analyses of the voluminous “trust” literature; F. N. Judson, The Law of Interstate Commerce and its Federal Regulation (Chicago, 1905); Beale and Wyman, Railroad Rate Regulation (Boston, 1906); Frank Hendrick, The Power to Regulate Corporations and Commerce (New York, 1906), favouring less of new legislation.  (F. A. F.) 

  1. The lottery tickets were included only by a divided court (Lottery Cases, 188 U.S. 321) four judges emphatically dissenting. The moral issue doubtless influenced a decision so difficult to reconcile with other opinions of the court, which otherwise had held regularly that commerce involves the physical movement of persons or things and does not include the contractual relations between citizens incident to commercial intercourse. Not all things incidental to commerce are included in it, and it has been held that the following are not included: bills of exchange (in 1850, Nathan v. Louisiana, 8 How. 73), trade marks (in 1879, trade mark cases, 100 U.S. 82), insurance (in 1869, Paul v. Virginia, 8 Wall. 168), and manufacturing (in 1895, U.S. v. Knight Co., 156 U.S. 1). In the last-named case, which concerned a combination of sugar refineries controlling a large proportion of the product of the country, it was said that commerce succeeds manufacture and is not a part of it. The relation of the manufacturer to interstate and foreign commerce being thus only incidental and indirect, the business is subject to state control. By a series of decisions the transportation of persons has been decided to be commerce. (In 1848, passenger cases, 7 How. 283. In 1867, Crandall v. Nevada 6, Wall. 35. In 1875, Henderson v. the Mayor of New York, 92 U.S. 259, &c.).
  2. The question arose with reference to the police power of the state in those states prohibiting the liquor traffic, and in 1889 it was held (Leisy v. Hardin) that, in the absence of legislation by Congress, the right to sell goods taken into a state was unrestricted. This made it impossible for a state to exclude the importation of liquors to be sold within its territory, but this difficulty was remedied by the Wilson Original Package Bill of 1890, which made liquor subject to the police powers of the state to which it was carried.
  3. However, a very important distinction is drawn between taxing the commerce and taxing property employed in commerce. With the increase of interstate commerce, the states have been hard pushed to find sources of revenue adequate to their increasing needs. The courts, therefore, have sought to draw a line between taxes on the privilege of carrying on interstate commerce and taxes on the property employed in carrying on such commerce as a part of the general body of property in the state. Thus it has been held in the case of State Freight Tax (1872, 15 Wall. 232) that a state could not lay a tax on freight transported from one state to another, and yet the same year the court held in State Tax on Gross Receipts (15 Wall. 284) that a tax was valid when laid upon the receipts of railways organized under the laws of the state, as upon a fund which had become incorporated with the general mass of property. This latter decision was by a divided court (three of the nine judges dissenting), but it has since been frequently confirmed. The tax on gross receipts of all railway companies doing business in the state has been supported when levied in proportion to the mileage within as compared with the total within and without the state (Erie Ry. v. Pa., 21 Wall. 492). This so-called “unit rule,” as applied either to gross receipts or to the entire value of an interstate railway, has been upheld in a number of decisions. The method of taxation by gross receipts, however, has not tended to increase of late, but the unit rule, as applied to ad valorem taxes on property, is more and more being applied. Every case involving the distinction between a tax on commerce and a tax on property employed in commerce presents its own difficulties, yet a practical way is thus found to prevent discriminating action by the several states, while leaving to them adequate sources of revenue.
  4. 1873, State Freight Tax, 15 Wall. 232; 1887, Robbins v. Shelby County Taxing District, 120 U.S. 489; Wabash R. R. Company v. Illinois, 118 U.S. 557. The last-named case arose out of the attempts of the state of Illinois to prevent discrimination between two shippers, both being its own citizens and within its own borders, one of whom was being charged more than the other for a shorter shipment on the same line and in the same direction, from a point outside the state. The court, applying the established definition of interstate commerce with verbal formality of logic, decided that the state could do nothing, for even in such a case all regulation of interstate commerce, from the beginning to the end of a shipment, was confided to Congress exclusively. Thus a clause whose clear purpose was to prevent one state from burdening unequally the citizens of other states was successfully invoked by a private corporation to forbid the state securing equality of treatment for its own citizens as regards such parts of shipments as lay within its own borders. Most railway traffic was by this decision declared to be subject to legislation by Congress but Congress had not acted. The impossibility of this situation was so evident that the Interstate Commerce Act, long under discussion, became a law a few months later.
  5. This was probably aimed at the discriminating between New York and Philadelphia (see speech of Charles Sumner on the railroad usurpation of New Jersey in U.S. Senate, February 14, 1865).
  6. In the Northern Securities case, Justice Brewer, who had concurred in the opinion in the Trans-Missouri Freight Association case, took occasion to say that while he still believed the former case had been correctly decided, he thought that the reasons given for the judgment were in some respects faulty, and that the ruling should have been that the contracts there considered were unreasonable restraints and as such were forbidden by the act.