Railroads
Railroads were especially important to the expanding nation, and their practices were often criticized. Rail lines extended cheaper freight rates to large shippers by rebating a portion of the charge, thus disadvantaging small shippers. Freight rates also frequently were not proportionate to distance traveled; competition usually held down charges between cities with several rail connections. Rates tended to be high 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. Moreover, to avoid competition rival companies sometimes divided (“pooled”) the freight business according to a prearranged scheme that placed the total earnings in a common fund for distribution.
Money, technology, greed and a profound lack of government regulation gave rise to new forms of companies and corporations. The first businesses to become really big were the railroads, and regional lines frequently had monopolies over freight transportation and charges. In 1869, freight accounted for $300 million in railroad earnings. By 1890, the amount more than doubled, to $734 million. The Albany Argus published the train schedules in its daily newspaper. So tied to the vagaries of railroad charges were farmers in the mid-West that they took their concerns to the Supreme Court (Munn v. Illinois, 1876).
At the beginning of Ulysses Grant's second term, several Eastern financial institutions ran out of funds as a result of bad loans. The subsequent Panic of 1873 ravaged the nation; banks closed, the stock market temporarily collapsed, and an economic depression affected Americans for approximately five years. Within the first year, 89 railroads (of the 364 then existing) went out of business; their failure left farmers with no means of transporting products, and they too became casualties. The new industrialized economy was so intertwined that a vicious downward cycle began: by 1875, more than 18,000 companies collapsed. With no money and no visible relief on the horizon, Americans took out their frustrations on the available targets: government, corporations, banks, immigrants. Businesses turned to workers.
Popular resentment stimulated state efforts at regulation, but the problem was national in character. Shippers demanded congressional action. In 1887 President Grover Cleveland signed the Interstate Commerce Act, which forbade excessive charges, pools, rebates, and rate discrimination. It created an Interstate Commerce Commission (ICC) to oversee the act, but gave it little enforcement power. In the first decades of its existence, virtually all the ICC’s efforts at regulation and rate reductions failed to pass judicial review.
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