1922 Encyclopædia Britannica/Interstate Commerce

INTERSTATE COMMERCE (see 14.711).—Subsequently to 1910 numerous Acts of the United States Congress and decisions of the Supreme Court extended the scope of Federal control over interstate commerce. The regulation of railways was made more complete, and the authority of the United States is now exercised regarding railway rates on traffic within the states when such rates affect interstate commerce. The Anti-Trust Act of 1890 was broadened and strengthened by the decisions of the Supreme Court in the oil and tobacco cases in 1911 and by the Clayton Act of 1913. In the adjustment of labour disputes between employers and employees engaged in interstate commerce the U.S. Government plays a constantly larger rôle.

Railway Regulation.—The Interstate Commerce Commission was given authority by the Hepburn Act of 1906 to establish reasonable maximum railway rates on interstate traffic, but could act only on complaints. By the Mann-Elkins Act of 1910, the Commission was authorized to establish reasonable rates after hearings initiated on its own motion. By this law the Interstate Commerce Act was made to apply also to telegraph and telephone companies. The most important addition to the powers of the Commission by the Act of 1910 was the authority to suspend proposed increases in rates. Rates filed by the carriers were to become effective in 30 days, but the Commission might suspend the increase for 120 days, and, if necessary, for an additional period of not exceeding six months. Another important provision of the Mann-Elkins Act gave renewed vitality to the fourth section, or the long and short haul clause, of the Interstate Commerce Act. Previously a carrier might decide whether this clause applied to any particular route, and, as the law had been interpreted by the courts, the fourth section had practically become a dead letter. By the Mann-Elkins Act no carrier may charge more for the shorter intermediate haul than for a longer haul until he has applied to the Commission and permission has been granted because of special circumstances.

The Panama Canal Act, passed in 1912, contains some important items extending Federal power over interstate commerce. It had long been thought by the public that it was the policy of the railways to secure control of competing carriers by water and force them out of existence. In response to this feeling, Congress, by the Panama Canal Act of 1912, provided that it should be unlawful for any railway company or common carrier, subject to the Interstate Commerce Act, to secure control by stock ownership or otherwise of any common carrier by water operating through the Panama Canal or elsewhere, provided the carrier by water and the railway company did or might compete with each other. The Commission was charged with the duty of deciding the questions of fact as to competition. The drastic nature of the law was somewhat modified by the provision that, if the Commission was of opinion that the public interests would be served and competition would not be prevented or reduced by the continued control by the railway company of a competing carrier by water the Commission might extend the period of control. In enforcing this provision, the Commission has compelled the trunk-line railways to sell the passenger and freight lines which they had efficiently operated upon the Great Lakes. The railways have been permitted to continue to operate steamships coastwise between New England ports. The prohibition of the use of the Panama Canal by vessels owned by a competing railway is absolute. The Panama Canal Act also gave the Commission authority, as regards interstate traffic, to require rail carriers to make physical connexion with the docks of steamship companies and to establish through routes and maximum joint rates. Rail carriers, moreover, that have entered into through arrangements with a carrier by water, operating from a port of the United States to a foreign country, must enter into like arrangements with any or all other lines of steamships operating from the same port. The purpose of this provision was to insure shippers from interior points the benefits of competition by through routes to foreign destinations.

Prior to 1915, it was the practice of railway companies by contracts in bills of lading to fix a maximum value for different articles, and in case of loss or damage the owner could collect only to the amount of the maximum value so fixed. By the Cummins Amendment (1915) to the Interstate Commerce Act carriers were made liable for the actual value of commodities. Subsequently the carriers were, however, permitted to establish a scale of rates varying with different values, provided the Commission approved.

As a result of the steady rise in cost of living after 1910, and of the more effective organization of railway employees, a series of demands was made by railway labour for increased wages. The demands were only partially satisfied by arbitration proceedings, and finally in 1916 the employees of the railways of the country threatened a nation-wide strike on Sept. 1 unless the demand for increased wages and for an eight-hour day was granted. The railway companies were unable to grant the demand and the men refused to arbitrate, although the President of the United States sought settlement by arbitration. The urgency of the situation caused the President to recommend and Congress to enact a law establishing the eight-hour day beginning Jan. 1 1917, and providing that the wages then in force should not be reduced for a period of nine months. In March 1917 this law was upheld by the U.S. Supreme Court.

On March 1 1913 Congress directed the Interstate Commerce Commission to undertake the valuation of railways to enable the Commission to regulate interstate carriers more intelligently and effectively. It is expected that the Commission will complete this work in 1923.

The most important legislation affecting the carriers enacted since the passage of the original Interstate Commerce Law of 1887 is the Transportation Act of 1920, which returned the railways to their owners March 1 (at the end of the 26 months of Government operation), provided for a more comprehensive regulation of carriers by the Commission, and established new principles to be followed in the regulation of rates, revenues and capital expenditures of the carriers. An active propaganda for the purchase of the railways by the Government was carried on during 1919 by the leaders of the railway brotherhoods and unions. The agitation received also the support of socialists and other advocates of the extension of Government functions. The movement, however, did not meet with popular approval, and Congress by a large majority decided in favour of the continuance of private ownership and the return to corporate operation of the railways.

In the Transportation Act of 1920 a new principle of rate-making was incorporated. The Commission, as previously, is the final authority as to rates. But in the future the Commission was to adjust rates with a view to enabling carriers, as a whole, to earn 5½% on the aggregate value of their property devoted to the public service. The Commission might also authorize the carriers to earn one-half of 1% per annum additional, the amount thus earned to be devoted to improvements without capitalizing the amount thus invested. Individual carriers whose net operating revenues exceed 6% were to devote one-half of the excess to building up a company reserve fund until the amount reaches 5%, and are to turn the other half of the excess over to the Government to go into a fund from which it might make advances to the carriers.

The regulation of railway securities by the Commission is authorized by the Transportation Act of 1920, which so amends the laws against combinations as to permit railway companies to consolidate with the Commission's approval. Consolidation or grouping of the railways into a limited number of systems of approximately equal strength is recognized to be an ultimate necessity, and there was some sentiment in favour of making consolidation compulsory by law. That principle, however, was not incorporated in the Act.

One of the most important features of the Transportation Act of 1920 is that providing for the adjustment of disputes as to wages and working conditions of employees. The Act makes it the duty of employers and employees to endeavor by negotiation to settle their differences. If negotiation fails, disputes as to working conditions may be referred to boards of adjustment composed of an equal number of representatives of the employer and employees. These boards may be either local, district or national. The law also provides for the appointment by the President of a Railroad Labour Board made up of nine men, three representing the public, three the railway employees and three the railway companies. Such a Board was appointed by the President in the spring of 1920, and it became active in considering many questions involving wages and working conditions.

Intra-state Rates.—The power of the Federal Government over intra-state rates has been extended by important decisions of the Supreme Court and by the Transportation Act of 1920. In the Minnesota Rate Case (Simpson et al. vs. Shepard, 230 U.S. 352), decided in 1913, the Supreme Court upheld the action of the state of Minnesota establishing railway rates within the state, although the facts showed thai these intra-state rates affected the rates on interstate traffic and the revenues of the carriers engaged both in interstate and intra-state traffic. Justice Hughes, speaking for the Court, declared that the “state of Minnesota did not transcend the limits of its authority in prescribing the rates here involved, assuming them to be reasonable.” But Justice Hughes was careful to point out that “if the situation has become such, by reason of the interblending of the inter- and intra-state operations of interstate carriers, that adequate regulation of their interstate rates cannot be maintained without imposing requirements with respect to their intra-state rates which substantially affect the former, it is for Congress to determine, within the limits of its constitutional authority over interstate commerce and its instruments, the measure of the regulation it should supply.” In 1914 the Supreme Court was called on to consider the validity of the order of the Interstate Commerce Commission in its Shrevepqrt decision. The business interests of Shreveport, La., had complained to the Commission that rates within the state of Texas, which had been fixed by the State Commission of Texas, were so much lower than the interstate rates that it was not possible for the merchants of Shreveport to do business in northwestern Texas. The Commission decided that the wide difference between the interstate and intra-state rates constituted an unreasonable discrimination, and the carriers were ordered to correct this, which they did by raising the intra-state to the level of the interstate charges. When the case reached the Supreme Court, the Commission's order was upheld (234 U.S. 342). The principle established by this decision was embodied in the Transportation Act of 1920. The statute provided that when the Interstate Commerce Commission finds that any intra-state rate constitutes an unjust discrimination against interstate or foreign commerce, the Commission may prescribe the maximum or minimum intra-state rate thereafter to be charged. The limitation by the Federal Government of the power of the states over railway charges within their respective territories was not accepted by the states without contest. A test case was pending in the Supreme Court in 1921.

Amendments to the Anti-Trust Act of 1890.—Prior to 1911, the Supreme Court by a series of decisions (see 14.711) had defined the scope of the Anti-Trust law of 1890; but while the Act had been sustained, the net effect of the interpretations given to the law had been to limit its effectiveness. However, in the oil and tobacco cases decided in 1911 (221 U.S. 1-106 and 106-193) the Supreme Court adopted a “rule of reason” formulated by Chief Justice White, which gave greater flexibility to the Act and promised to make the law more effective. In a previous decision involving railway combinations, the Supreme Court had interpreted literally the language of the statute, and had not considered whether the combination was reasonable or in harmony with sound public policy. This interpretation had made the statute almost a dead letter as far as regulating combinations. In the oil case, the Supreme Court, speaking through Chief Justice White, said: “It becomes obvious that the criterion to be resorted to in any given case, for the purpose of ascertaining whether violations of the section have been committed, is the rule of reason guided by the established law and by the plain duty to enforce the prohibitions of the Act, and thus the public policy which its restrictions were obviously enacted to subserve.” The Court held, in effect, that the purpose of the law was to prevent undue restraint of every kind and that it did not deny to individuals the right to enter into contracts when the right was not improperly exercised.

This interpretation of the Anti-Trust law was unsatisfactory to the extreme opponents of industrial combinations, and it was thought by many that Congress should define combinations and monopolies. In response, the Clayton Act of 1913 was passed, prohibiting, under specified provisions, discriminations in prices and containing numerous other sections intended to make the general provisions of the Anti-Trust Act of 1890 more specific. It is doubtful, however, whether the Clayton Act has really strengthened the Act of 1890. Labour unions and organizations of farmers are exempted from the provisions of the Anti-Trust law. Interlocking directorates of banks are prohibited, and it is made unlawful for a corporation engaged in interstate commerce to acquire control by stock ownership of another corporation engaged in interstate commerce when such acquisition will lessen competition. Carriers engaged in interstate commerce are prohibited, after two years from the passage of the law, from dealing in securities or supplies or from making construction contracts amounting to more than $50,000 with a corporation, firm or partnership having on its board of directors or as one of its officers a person who is at the same time a director or officer of the common carrier. This provision was suspended until after the conclusion of the World War, but was in force in 1921.

The most important decision of the Supreme Court subsequently to 1911 was its finding in the case of the United States against the Steel Corporation, March 1 1920 (251 U.S. 417). By this decision, the largest of all industrial combinations was held not to be a violation of the Sherman Anti-Trust Act. It was not shown that the Steel Corporation had unduly limited competition. The Court decided that it “should consider not what the corporation had power to do or did but what it has power to do and is doing.” It reached the conclusion that the public interest would not be served by requiring the dissolution of the Steel Corporation, but that, on the contrary, its dissolution might result in a material disturbance to American foreign trade.

Adjustment of Labour Disputes.—The Erdman Act of 1898 was amended by the Newlands Act of July 15 1913, and more adequate machinery provided for mediation and arbitration of labour disputes. The Erdman Act had provided for voluntary conciliation upon the initiative of the chairman of the Interstate Commerce Commission and the Commissioner of Labor. If conciliation failed, the parties might submit their controversy to arbitration. In that case a board of three men was provided, one arbitrator selected by each side, these to choose the third arbitrator, or, if they failed, the third arbitrator to be chosen by the chairman of the Commission and the Commissioner of Labor. Both the railway companies and their employees objected to submitting their disputes to such a small board, and the Newlands Act therefore provided for a board of five to nine men and also created a board of mediation and conciliation composed of a commissioner and two other designated officials of the Government. A series of important arbitration proceedings was held under the Newlands Act, but by 1916 the railway employees had become dissatisfied with the results of arbitration and made a demand on the carriers for the establishment of an eight-hour day and for a general increase in wages. The carriers resisted and the deadlock was broken by the passage of the Adamson Act in Sept. 1916, establishing the standard eight-hour day in the railway service, and providing for a commission to decide upon wages. There was much popular dissatisfaction with the Adamson Law, which was hurriedly enacted by Congress under the pressure of a threatened labour crisis. The Supreme Court the following spring held the law to be constitutional, and the Adamson Law has definitely established the standard eight-hour day in the railway service (243 U.S. 232). The Newlands Act and the machinery it created have been supplemented and in fact supplanted by the labour provisions of the Transportation Act of 1920. Whether the machinery created by this Act would work satisfactorily had not been fully determined in 1921, but the success of the Board in averting a threatened strike on Nov. 1 of that year gave the Board increased popular support.

For details as to statutes, consult Barnes' Federal Code (1919) and the supplement (1921). The most important decisions of the Supreme Court interpreting the power of the Federal Government over intra-state railway rates are Simpson et al. vs. Shepard, 230 U.S. 352; Houston East and West Texas Railway Co., and Houston and Shreveport Railway Co. et al. vs. United States, 234 U.S. 342. The most recent significant decisions of the Supreme Court interpreting the Anti-Trust Law are Standard Oil Co. vs. United States, 221 U.S. 1; United States vs. American Tobacco Co., 221 U.S. 106; United States vs. U.S. Steel Corporation, 251 U.S. 417, und the Adamson Law Case, Wilson vs. New, 243 U.S. 232. (E. R. J.)