The Granger Laws

The first effective public call for railroad regulation came in the midwestern states of Illinois, Iowa, Minnesota, and Wisconsin, in the late 1860's. Among those who most prominently pushed for regulation were the Grangers (the first major farm organization), who represented farm interests that suffered under discriminatory rate practices. The Grangers were established in 1867. Within a few years, there were Grangers in almost every state, with a total membership exceeding three-quarters of a million[74]. Throughout the West and South, Grangers placed representatives in office. Greatest success was enjoyed in Illinois, Wisconsin, Iowa and Minnesota, whereas Kansas and Nebraska had the highest proportion of members[75]. However, not all farmers favored regulation; farmers in areas not yet served by the railroads generally opposed it because it could discourage new railroad investment. And not all proponents of regulation were Grangers. Urban merchant groups and shipping interests that suffered from rate practices were as active in the regulatory movement as were the farmers.

From 1869 to 1875, a series of laws was enacted in the Granger states, establishing public regulation of railroad rates and operating practices. The railroads, appalled by this development, immediately started lawsuits against these commission- enforced rates. Their main argument was that such regulation constituted, in effect, confiscation of their property in violation of the Fourteenth Amendment - which had been intended to protect black people against discriminatory treatment by providing that no state could "deprive any person of life, liberty, or property without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.[76]" The railroad lawyers also held that state regulation violated the national government's exclusive power under the Constitution to regulate interstate commerce.

In 1876 and 1877, these legal issues came before the Supreme Court, in the so-called Granger Cases. In 1877 the Court ruled in favor of the states' regulatory power and against the corporations. The Court held that railroads were no ordinary business. Drawing from an English common-law doctrine that had long been in use in American law to justify giving railroads extraordinary privileges, the Court declared them to be businesses "affected with a public interest". As such, they "must submit to be controlled by the public for the common good [77]". The Court further held that the fixing of rates was not a proper matter for judicial review, asserting that this function belonged only to the legislative branch. As for the railroads' argument that only Congress could regulate interstate commerce, the Court ruled that in the absence of federal laws on the subject, the states could properly exercise regulation of "fares, etc., so far as they are of domestic [state] concern[78]".

This federal doctrine stood for a decade. But changing composition of the Court and a fierce legal assault on the Granger Cases doctrine resulted in a surprising reversal of position in the Wabash Case of 1886. The Court then overturned an Illinois regulation governing railroad charges to the east coast, ruling that this was indeed a violation of the power over interstate commerce exclusive to Congress. Three years later the railroads received another major victory, when the Court ruled that the judiciary could, after all, exercise its power of judicial review over specific rates imposed by commissions. In this decision, the Minnesota rate Case, the Court took the position that "reasonableness" of regulation was something federal judges must finally decide.