1911 Encyclopædia Britannica/Railways/American Railway Legislation
American Railway Legislation
Before 1870.—The earliest legislation is contained in charters granted by special act, for the construction of railways. These special acts gradually gave way to general statutes under which railway corporations could be created without application to the legislature. In the east, where, as a rule, charters had been uniform and consistent, the change to general incorporation law was due to a desire to render incorporations speedier and less expensive. In the west, general laws came rather as a result of the abuses of special legislation. By 1850, general incorporation laws were found in nearly all the eastern states, and by 1870 in those of the west.
Early legislation was confined almost entirely to matters of construction. In cases where statutes did touch the question of regulation, they had to do with the operation of trains and with the provision of facilities for shippers and passengers, rather than with questions of rates. It was natural that this should be so, for the new transportation agency was so much more efficient than anything previously available that the people were eager to take advantage of its superior service. As a rule, the making of rates was left to the corporations. If the maximum rates were prescribed, as they sometimes were, the limit was placed so high as to be of no practical value for control. Such crude attempts as were made to prevent rates from being excessive concerned themselves with profits, and were designed to confiscate for the state treasury any earnings beyond a certain prescribed dividend. Publicity of rates was not generally required, and provisions against discrimination were rare. In the period before 1850 there was but little realization of the public nature of the railway industry and of the possibilities of injury to the public if railway corporations were left uncontrolled.
In regions where capital was lacking eagerness for railway facilities led the people to demand the direct co-operation of the state, and many projects, most of which ended in disaster, were undertaken either by the state itself or through the aid of the state’s credit. For example, Michigan, in 1837, in the first session of its state legislature, made plans for the construction of 557 miles of railway under the direct control of the state, and the governor was authorized to issue bonds for the purpose. The unfortunate results of this policy led many of the states, from about 1850, to put constitutional limitations upon the power of their legislatures to lend the state’s credit or to involve the state as stockholder in the affairs of any corporation.
As railway building increased in response to traffic needs, and as the consolidation of short lines into continuous systems proceeded, legislation applicable to railways became somewhat broader in scope and more intelligent. About 1850 there began to appear on the statute books laws requiring publicity of rates and the submission of annual reports to the legislature, prescribing limits to corporate indebtedness, and also making provision for safety in operation and for the character and quality of railway service. Consolidation and leasing were commonly permitted in the case of continuous lines, but were regularly prohibited in the case of parallel and competing lines. The practice of pooling seems not to have attracted the attention of the legislature. In general it may be asserted that legislation of this period was ill-considered, haphazard, and on a petty scale. Moreover, it was of little practical importance even within its narrow range, for it does not appear to have been generally enforced.
1870–1900.—Railway legislation first assumed importance in connection with the “Granger Movement” in the middle west. There the policy of subsidies for railway building had been, carried to a reckless extreme. Roads had been constructed in advance of settlement, and land-seekers had been transported to these frontier sections only to become dependent upon the railways for their very existence. To the unusual temptations thus offered for favouritism and discriminations in rates, the railways generally yielded. This preferential and discriminating policy, combined with other causes which cannot here be discussed, resulted in the Granger legislation of the ’seventies. In the first instance laws were enacted prescribing schedules of maximum freight and passenger rates with stringent penalties against rebates and discriminations. These measures proving unsatisfactory, they were soon superseded by statutes creating railway commissions with varied powers of regulation. The commission method of control was not a new one. Such bodies, established to appraise land for railway purposes, to apportion receipts and expenditures of interstate traffic, and in a general way to supervise railway transportation, had been in existence in New England before 1860, one of the earliest being that of Rhode Island in 1839. In 1869 Massachusetts had instituted a commission of more modern type, which was given only powers of investigation and recommendation, the force of public opinion being relied upon to make its orders effective. Western commissions, the offspring of the Granger movement, were of a more vigorous type. Most of them, had power to impose schedules of maximum rates; practically all of them had authority to prescribe rates upon complaint of shippers; and they could all seek the aid of the courts to enforce their decrees. Their power to initiate rates, conferred upon them by their legislatures, was sustained by the Supreme Court of the United States, the Court reserving to itself only the power to decide whether the prescribed rates were reasonable.
But the jurisdiction of the state commissions was, by judicial interpretation, limited to commerce beginning and ending within the limits of the single state. The most important part of railway transportation, that which was interstate in character, was left untouched. It was this impotence of the state commission that furnished the strongest incentive to Congressional action. The result was the passage, in 1887, of the Interstate Commerce Act, which was directed towards the extirpation of illegal and unjust practices in commerce among the states. Its primary purpose was to embody in statutory form the common law principle of equal treatment under like circumstances, and to provide machinery for enforcement. It aimed at the prohibition of discrimination between persons, places and commodities. It made provision for publicity of rates and for due notice of any change in rates; it forbade pooling of freight or earnings, and required annual reports from the carriers. For its enforcement, it created an Interstate Commerce Commission of five members, with powers of investigation, and with authority to issue remedial orders upon complaint and after hearing. Findings of the Commission were to be prima facie evidence in any court proceeding for the enforcement of its orders.
In this connexion, reference should be made to the Anti-Trust Act of 1890, which, by its judicial interpretation, has been held to include railways and to forbid rate agreements between competing carriers.
The act of 1887 remained in force without substantial amendment until 1996, although with constantly diminishing prestige, a result largely due to adverse decisions concerning the powers of the Commission. Ten years after the passage of the law, the court decided that the Commission had no power to prescribe a rate, and that its jurisdiction over rates was confined to a determination of the question whether the rate complained of was unreasonable. The Commission had much difficulty at the beginning in securing the testimony of witnesses, who invoked the Constitution of the United States as a bar against self incrimination, and the immunity clause of the act had to be amended before testimony could be obtained. The so-called “long-and-short-haul clause,” which forbade a greater charge for a long than for a short haul over the same line, if circumstances were substantially similar, was also robbed of all its vitality by court decision. The section requiring annual reports, while it led to the creation of a Bureau of Statistics, did not give the Commission power to compel complete or satisfactory answers to its requests for information. The only element of real strength that the statute acquired during the first twenty years of its history came from the Elkins Act of 1903, which stipulated that the published rate should be the legal rate, and declared any departure from the published rate to be a misdemeanour. It held shipper as well as carrier, and corporation as well as its officer or agent, liable for violations of the act, and conferred upon United States courts power to employ equity processes in putting an end to discrimination. Conviction for granting rebates was by this law made easier and more effective.
Since 1900.—The movement in favour of more vigorous railway regulation be came pronounced after 1900. Twenty years of experience and observation had revealed the defects of the earlier legislation, and had concentrated public attention more intelligently than ever before upon the problem of strengthening the weak spots. The state commissions, since their establishment in the ’seventies and the ’eighties, had increased their functions and influence. Many of them, beginning only with powers of recommendation, had obtained large extension of authority. By 1908, thirty-five of the forty state commissions were of the mandatory type, and thirteen of these had been created since 1904. They had been given power to require complete annual reports from carriers, with a consequent great increase in public knowledge concerning railway operation and practice. The most recent type of state commission is the so-called Public Utility Commission, of which the best examples are those of New York and Wisconsin, established in 1907. In both states, the Commissions have power over electric railways and local public utilities furnishing heat, light and power, as well as over steam railway transportation, and the Wisconsin Commission also has control over telephone companies. In both states the consent of the Commission is necessary for the issue of corporate securities.
Mention should be made of the mass of general legislation passed, principally by western states, since 1905, in response to a popular demand for lower rates. This demand has in many instances led to ill-considered legislation, has frequently ignored the prerogatives and even the existence of the state commissions, and has brought about the passage by state legislatures of maximum freight and passenger rate laws, with rates so low in many cases that they have been set aside by the courts as unconstitutional. The numerous laws limiting the fare for passengers to two cents per mile are an illustration of this tendency.
In the field of federal legislation, no significant change took place until the passage of the Hepburn Act of 1996, which was an amendment of the act of 1887. While failing to correct all the defects in the original statute, the amended law was a decided step in the direction of efficient regulation. It increased the jurisdiction of the Commission by placing under the act express companies, sleeping-car companies and pipe lines for the transportation of oil. It extended the meaning of the term “railroad” to include switches, spurs and terminal facilities, and the term “transportation” to include private cars, and all collateral services, such as refrigeration, elevation and storage. The Elkins Act of 1903 was incorporated in the statute, and an imprisonment penalty was added to the existing fine. It forbade the granting of passes except to certain specified classes,—a provision entirely absent from the original measure. It expressly conferred upon the Commission the power to prescribe maximum rates, upon complaint and after hearing, as well as to make joint rates, and to establish through rates when the carriers had themselves refused to do so. It enacted that published rates should not be changed except on thirty days notice, whether the change involved an increase or a decrease, and it required annual reports to be made under oath, penalties being prescribed for failure to comply with the Commission’s requests for information. Power was also given to prescribe uniform systems of accounts for all classes of carriers, and to employ special examiners to inspect the books and accounts. Carriers were forbidden to keep any accounts, records or memoranda other than those approved by the Commission. Orders of the Commission became effective within such time, not less than thirty days, as the Commission should prescribe, and penalties began to take effect from the date fixed by the Commission, unless the carrier secured an injunction from the Court suspending the order. Such injunction might not issue except after hearing, of which five days’ notice must be given. Decisions of the Commission were not reviewable by the Court unless the Commission had exceeded its authority, or had issued an unconstitutional order.
A new and important act was signed by the President on the 18th of June 1910. It created a Commerce Court (composed of five judges nominated by the president of the United States from the Federal circuit judges), transferred to it jurisdiction in cases instituted to enforce or set aside orders of the Inter-State Commerce Commission, and made the United States instead of the Commission a party in all such actions. The law forbids a railway or any other common carrier to charge more for a short haul than for a long haul over the same line, unless, in special cases, it is authorized to do so by the Commission. It forbids a railway which has reduced its rates while in competition with a water route to raise them again when the competition has ceased, unless the Commission permits it to do so because of other changed conditions. It extends the initiative of the Commission from the investigation of complaints to the investigation of rates on its own motion; authorizes it to suspend rates in advance of their going into effect, pending an investigation which may be continued for ten months, and to establish through routes; and provides for a special commission, appointed by the President, to investigate questions pertaining to the issuance of railway securities.
Bibliography.—See A. T. Hadley, Railroad Transportation (New York, 1885); B. H. Meyer, Railway Legislation in the United States (New York, 1903); F. A. Cleveland and F. W. Powell, Railroad Promotion and Capitalization in the United States (New York, 1909); L. H. Haney, A Congressional History of Railways (2 vols., Madison, Wis.; 1908 and 1910); Elkins Committee Report (1905); F. H. Dixon, “The Interstate Commerce Act as Amended,” Quarterly Journal of Economics, xxi. 22 (Nov. 1906); F. H. Dixon, “Recent Railroad Commission Legislation,” Political Science Quarterly, xx. 612 (Dec. 1905).