In the 1870s, businesses and especially farmers relied on the railroads to
transport goods across the country. Railroad companies understood this
economic dependence, and they exploited their customers by charging
them unnecessarily high shipping rates. Everyone knew the railroads
were guilty of unfair business practices, but the government was reluctant to get involved in economic matters. The United States operated at
the time under a general belief that businesses needed to control themselves and each other.
As nationwide frustration over the situation grew, Congress decided
the time had come to interfere in business since it was obvious it could
not regulate itself. On February 4, 1887, the Interstate Commerce Act
was passed, 50–20. As a direct result of the law, the Interstate Commerce
Commission (ICC) was formed. The ICC was the first federal regulatory
agency. Its purpose was to address the issue of corruption in the railroad
industry.
The ICC demanded that railroad shipping rates be reasonable and
just. Rates had to be published so that customers could know ahead of
time what to expect. Rebates were outlawed. Rebates were refunds given
to shippers who gave the railroads a lot of business. A railroad company
would give a business a certain percentage refund on its total shipping
charge if that business used only that railroad. This policy worked well
for big businesses that did a lot of shipping. It put the smaller businesses
at a disadvantage, however, simply because they did not do enough business to receive the rebate.
Finally, the ICC made the railroads lessen the price differences between long and short hauls. Previously, railroads charged more to go
shorter distances, even though it did not cost them any more to make
those runs.
Although the idea behind the Interstate Commerce Act and the ICC
was commendable, the agency was virtually powerless to set rates or punish those companies that violated the law. When all aspects of the policy
were in place, nobody was happy. The railroad companies believed the
government was too involved in their business, and farmers felt it was
not involved enough. So while the law existed on paper, it did little to
improve the reality of doing business with the railroads.