United States - History Railroads, Regulations and the Tariff

Railroads, regulations and the tariff

Railroads became increasingly important to the expanding nation, and unfair railroad practices proliferated. Rail lines extended cheaper rates to large shippers by rebating a portion of the charge, operated to the disadvantage of small shippers. Also, some railroads charged arbitrarily higher rates to some shippers than to others between certain points, regardless of distance.

Moreover, while competition held down freight charges between cities with several rail connections, rates were excessive between points served by only one line. Thus it cost less to ship goods 1,280 kilometers from Chicago to New York than to places a few hundred kilometers from Chicago. And by joint action to avoid competition -- pooling -- rival companies divided the freight business according to a prearranged scheme that placed the total earnings in a common fund for distribution.

Popular resentment at these practices stimulated state efforts at regulation. These had some effect, but the problem was national in character and demanded congressional action.

In 1887 President Grover Cleveland signed the Interstate Commerce Act, which forbade excessive charges, pools, rebates and rate discrimination, and created an Interstate Commerce Commission (ICC) to guard against violations of the act. In the first decades of its existence, however, the railroads used conservative Supreme Court decisions to thwart virtually all the ICC's efforts at regulation and rate reductions.

Cleveland was also active in combating the high tariff, which, adopted originally as an emergency war measure, had come to be accepted as permanent national policy under the Republican presidents who dominated the politics of the era. Cleveland, a Democrat, regarded excessive tariffs as responsible in large measure for a burdensome increase in the cost of living and for the rapid development of trusts. After many years, during which the tariff had not been a political issue, the Democrats in 1880 demanded a "tariff for revenue only," and soon the clamor for reform became insistent. In his annual message to Congress in 1887, Cleveland, despite warnings to avoid the explosive subject, startled the nation by denouncing the extremes to which the principle of protecting American industry from foreign competition had been pushed.

The tariff became the main issue of the presidential election campaign in 1888, and Republican candidate Benjamin Harrison, a defender of protectionism, won in a close race. The Harrison administration, fulfilling its campaign promises, passed in 1890 the McKinley tariff bill, a measure designed to protect established industries as well as to foster so-called "infant industries." The new tariff's generally high rates contributed to high retail prices, triggering widespread dissatisfaction.

During this period, public antipathy toward the trusts increased. The nation's gigantic corporations, subjected to bitter attack through the 1880s by such reformers as Henry George and Edward Bellamy, became a hotly debated political issue. To break the monopolies, the Sherman Antitrust Act, passed in 1890, forbade all combinations in restraint of interstate trade and provided several methods of enforcement with severe penalties. Couched in vague generalities, the law itself accomplished little immediately after its passage. But a decade later, in the administration of Theodore Roosevelt, its effective application earned the president the nickname of "trust-buster."

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