§ 3. State railroad commissions. When it became apparent that public and private interests in the railroads were so divergent, it still was not easy to determine how the public was to be safeguarded. At first some general conditions, such as maximum rates, were inserted in the laws and charters; but these were not adaptable to changing conditions and, for lack of administrative agents, could not be enforced. Some early efforts at state ownership were disastrous. The old law of common carriers gave to individual shippers an uncertain redress in the courts for unreasonable rates; but the remedy was costly because the aggrieved shipper had to employ counsel, to gather evidence, and to risk the penalty of failure; it was slow, for, while delay was death to the shipper's business, cases hung for months or years in the courts; it was ineffectual, for, even when the case was won, the shipper was not repaid for all his losses, and the same discrimination could be immediately repeated against him and other shippers.

In the older eastern states, attempts to remedy these and other evils by creating some kind of a state railroad commission date back to the fifties of the last century. Massachusetts developed on the eve of the seventies (1869) a commission of the advisory or "weak type," which investigated and made public the conditions, leaving to public opinion the correction of the evils. A number of the western states, notably Illinois and Iowa, developed in the seventies commissions of the "strong type," with power to fix rates and to enforce their rulings. The commission principle, strongly opposed at first by the railroads, was upheld by the courts and became established public policy. By 1915 every state and the District of Columbia had a state commission.

As a remedy for railroad evils, however, the state commissions, strong as well as weak, were disappointing. It is true that from the first they did much to make the accounts of the railroads intelligible, something to make the local rates reasonable and subject to rule, and much to educate public sentiment. But it was difficult to get commissioners at once strong, able, and honest; the public did not know its own mind well enough to support the commissions properly; and the courts decided that state commissions could regulate only the traffic originating and ending within the state. After 1888 the state commissions more and more directed their activities toward the regulation of local utilities. In Wisconsin and in New York in 1907, in New Jersey in 1911, and in many other states since, the "railroad" commissions were replaced by "public utilities" or "public service" commissions, having control not only over the railroads but over street-railway, gas, electric-light, telephone, and some other corporations.

§ 4. Consolidation and need of national regulation. Before passing to the discussion of the next era of railway policy, reference should be made to the steady movement toward the consolidation of small railroad units into larger systems, for this was affecting greatly the character of the railroad problem. The early railroads, many of which were built in sections of a few miles in length, began to be united with many branches. The New York Central between Albany and Buffalo was a consolidation, by Commodore Vander-bilt, of sixteen short lines. The Pennsylvania system was formed, link by link, from scores of small roads.

Toward this result strong economic forces were working. Consolidation has many technical advantages: it saves time, reduces the unit cost of administration and of handling goods, gives better use of the rolling stock and of the terminal facilities of the railroads, and insures continuous train service. It has the advantages of other large production and the possible economies of the trusts. Most important, however, from the point of view of the railroads, is the prevention of competition and the making possible of higher rates and larger dividends. The statement that competition is not an effective regulator of railroads often is misunderstood to mean that it in no way acts on rates. It is true that competition between roads does not prevent discrimination and excessive charges between stations on one line only; but competition usually has acted powerfully at well-recognized "competing points." The larger the area controlled by one management, the fewer are the competing points; the larger, therefore, is the power over the rate and the more completely the monopoly principle applies. It is a grim jest to say that consolidation does not change the railroad situation as re gards the question of rates.

§ 5. The Interstate Commerce Act. We now come to the third era of railroad policy, that of a weak and ineffective control by a federal agency. Public hostility to private railroad management was greatest in the regions where the most rapid building of roads occurred from 1866 to 1873. One center of grievances was in the "Granger states" of Illinois, Wisconsin, Kansas, Nebraska, Iowa, and Minnesota; another center was in the oil regions of Ohio and Pennsylvania. The eastern states were not without their troubles, for the report of the Hepburn Committee of the New York legislature in 1879 showed that discrimination between shippers prevailed to an almost incredible degree in every portion of New York state. When the courts, in 1886, decided that the greater portion of the railroad rates could not be treated by state commissions, national control was loudly demanded. Scores of bills were presented to Congress between 1870 and 1886, and, despite much opposition, the act creating the Interstate Commerce Commission was passed in 1887.

The act laid down some general rules: that rates should be just and reasonable; that railroads should not pool, or agree to divide, their earnings to avoid competition; that they should under similar conditions, and unless expressly excused, fix rates in accordance with the long- and short-haul principle (to charge no more for a shorter distance than for a longer one on the same line and in the same direction, the shorter being included within the longer). The act provided for a commission of five men, to be appointed by the President, which might require uniform accounts from the railroads and which should enforce the provisions of the act. The commission in its earlier years gave promise of effectiveness, but its powers, as narrowly interpreted by the courts, proved inadequate to its assigned task. Court decisions paralyzed its activity, and the railroads in many cases refused to obey its orders. Competent authorities declared in 1901, after fourteen years of the Commission's operation, that discrimination never had been worse, and a series of exposures of abuses strengthened the popular demand for stricter legislation. "Weak federal regulation had been valuable as a means of educating public opinion, but had failed as a means of remedying railroad evils.