State Regulation of Economic Enterprise

The states' historic police powers furnished the constitutional support for legislative efforts to regulate industrialization. No other area of state activity was more controversial; no other legislative actions ran more fully in opposition to the doctrine of laissez- faire. Through the last quarter of the nineteenth century, the states were the center of regulatory activity, limiting corporate enterprise, throwing up a shield of protective legislation for women and child laborers, and pioneering the development of bureaus and independent regulatory commissions. Given the national character of economic change, however, authority gravitated from the states to the nation, culminating in the federal government's intervention in the economy during World War I.

State Regulation of Railroads

State regulation grew in response to the railroad. Farmers, merchants, and laborers urged railroad regulation, and by the early twentieth century they were joined by railroad managers, who viewed regulation as a means of reducing cutthroat competition. Massachusetts pioneered the way in 1869 with legislation that substantially revised its prewar railroad commission. The revised body was given "general supervi

-197-

sion of all railroads," with authority to examine them and to make certain that they complied with the law. ¹⁶ The commission, as was typical of most early state regulatory bodies, had no power to set rates or to enforce what it deemed reasonable rates. Its role was strictly advisory.

In the Midwest, where Grange and Populist agitation was significant, legislators fashioned somewhat more powerful regulatory bodies. Illinois in 1871 passed Grange, laws that established a commission with authority to ascertain whether railroads and warehouses were complying with the laws. If not, the commission could seek prosecution of the violators. The commission lacked rate-setting authority, but its hand was strengthened considerably by tough legislation that set down strict rules about the maximum charges that the railroads could levy. Other midwestern states followed a similar pattern, and somewhat later Virginia ( 1877), South Carolina ( 1878), and Georgia ( 1879) also added commissions.

Every state commission was buffeted by forces that it could not fully resist. Legislatures were jealous of their own powers and therefore unwilling to give broad authority to the new regulatory bodies. These early bodies, moreover, were formed during the "party period," which meant that the key decision in the regulatory process, the setting of rates, remained subject to political alteration in the legislatures. The railroads were hardly docile creatures, because state regulations could influence their profits and the way in which they conducted business. And they were also possessed of the financial resources to orchestrate the political process with the quite predictable result that the regulated became the regulators. In California, for example, Leland Stanford and Collis P. Huntington of the Central and Southern Pacific Railroads influenced the state's late-nineteenth-century political and administrative machinery. No sooner had delegates to the California constitutional convention of 1879 fashioned a commission to regulate railroads than the railroads took control of it.

The state commissions also labored under the burden of having to apply legislatively mandated rates on a day-to-day basis in a highly competitive marketplace. In practice, "this meant that commissions learned--if not already so disposed--to be gentle and sympathetic with their railroads." Commissioners had "to chastise [railroads] but not kill them." ¹⁷ State commissions were generally incapable of doing either. The railroads, for their part, gravitated toward the position that federal supervision was an attractive alternative to a tangled web of state regulation.

Date: 2015-01-29; view: 757