The Interstate Commerce ActBy 1886 the movement for a federal regulatory law had become a strong force; farm groups, merchants, and some of the railroad managers had put their collective energy in the effort. Congress had debated the effort for over a decade. But not until the Wabash Case in 1886 did the gathering forces for regulation carry a bill through Congress. The Interstate Commerce Act of 1887 was made law with the support of both major political parties and of pressure groups in all regions of the country. The main provisions of the law, all of which applied only to railroads, were these:
- Mandating of "just and reasonable" rate changes. (This was the traditional language of the Anglo-American common law).
- Prohibition of discrimination in the form of either special rates or rebates for individual shippers.
- Prohibition of discrimination or unjustified "preference" in rates for any particular localities or shippers or products.
- Forbidding of long-haul / short-haul discrimination. Unless an exception was allowed by the Interstate Commerce Commission, no company might charge more for a shorter than for a longer distance on the same route (and in the same direction).
- Prohibition of pooling of traffic or markets.
- Establishment of a five-member Interstate Commerce Commission.
The ICC was empowered to investigate railroad operations, to call witnesses, and to hand down decisions on all aspects of rates and other matters covered by the act. Thus it became the first federal independent regulatory commission, a hybrid agency with elements of judicial, legislative, and executive powers.
In future years the ICC would become the model for many other regulatory agencies, but in 1887 it was unique. Because of its uniqueness, but also because the act that created it was vague in many areas, its precise powers and character remained unclear. From the standpoint of pressure groups that wanted powerful federal controls, the Interstate Commerce Act was very restraining, because it left enforcement to a judicial process: the ICC could not directly impose its regulations and rulings, but had to bring suit in federal courts for compliance if a railroad company refused to accept its decisions. Besides that, the law left a rather large margin by authorizing the ICC to exempt railroads from the ban on long-haul / short-haul discrimination where the public interest (however that was to be defined) required it.
In the courts, the ICC ruled in favor of the railroads' interests in most cases the first few years. They approved many exemptions to the long-haul / short-haul discrimination ban and the commission did not act vigorously to enforce discrimination prohibitions on types of freight. The commissioners at first decided against dictating detailed rate schedules, thus leaving the initiative entirely to the railroad companies. When the commission did become tough, usually the federal courts intervened to relieve the railroads. In a series of sixteen Supreme Court cases on rate rulings by the ICC, railroad appeals were upheld in all but one. When the ICC finally proposed to introduce detailed rate schedules for the roads to adopt in the 1890s, the Supreme Court ruled (in the Maximum Rate Case, 1897) that the commission did not have the power to do so.
In another 1897 ruling, the Alabama Midland Case, the Court further limited the commission's power to eliminate long-haul / short-haul discrimination. This made the commissioners declare in their annual report that they were no longer able to establish meaningful regulation. "The people", they wrote, "should no longer look to this Commission for a protection which it is powerless to extend." The Court limited the commission's power to acting and ruling on the "reasonableness" of existing rates only, not future rates. The judiciary also reserved for itself the final power to declare what rates would be "reasonable" and what commission rulings violated the Fourteenth Amendment guarantee of due process because they were "unreasonable".
For at least the first decade of the ICC, then, the railroad managers' strategy of having regulatory powers transferred from the states to a federal control was working out according to their wishes. But in a series of Court rulings and new acts, the ICC's power was gradually elaborated, and by 1917, the railroads had been brought under comprehensive regulation. One of the acts was the Adamson Act of 1916, which mandated a maximum eight-hour day for railroad workers and prohibited the companies from cutting wages because of the eight-hour maximum.