The Hepburn Act played a significant role in making the Interstate Commerce Commission the powerful regulatory body it eventually came to be. This story tells you more facts about the Hepburn Act of 1906, such as its goal, background, and significance, along with what was provided for in it.
The first time that a US President used the press to appeal directly to the masses was when Theodore Roosevelt sought public support for the Hepburn Act.
The first two decades of the 20th century are collectively known as the Progressive Era in American history. This period saw a slew of administrative measures which brought about a great deal of political, economic, and social change in the country - for the better.
The United States saw the emergence of several corporations during this period, which had but a few business rivals. Such powerful organizations, apart from monopolizing the business sphere, had begun to spread their tentacles into the political arena as well.
Arguably, one of the biggest accomplishments of the Progressive Era was how all political parties got together to curtail the power of such monopolies, so as to ensure that corporate greed did not threaten competitiveness in the business world and the general welfare of American people.
In fact, the Hepburn Act, passed in 1906, was one of these positive measures. So what did the Hepburn Act do? Let us understand that.
The Hepburn Act was passed by the US Congress on June 29, 1906, seeking to bring fairness into railroad shipping and other carriers, by increasing the powers of a federal agency called the Interstate Commerce Commission (ICC), to regulate such carriers.
In 1887, Congress established the Interstate Commerce Commission, with the aim of regulating trade practices of railroad and other common carriers. However, the agency failed to live up to its expectations, as it was not given sufficient powers to enforce its objectives.
Around the same time, railroad corporations had become a natural monopoly, especially in the areas covered by them. However, with the growth of the industry, other corporations began laying railroads in areas which were controlled by only one major corporation in the past.
This led to increased competition in the trade, resulting in the growth unfair practices. Since oil and iron ore companies had major investments in the railroad industry, they began demanding discounts from them for shipping their goods.
To cripple their own rivals, railroads gave in to such demands, by charging the same price from large shippers for long haul,, what they charged from small organizations for short hauls.
In addition, the big corporations were offered rebates on their shipping rates, which helped them reduce the prices of their own products, thus pushing their smaller competitors out of the market.
To prevent such unfair practices, Congress introduced the Elkins Act in 1903, which levied fines on railroads and shippers who gave or accepted discounts. However, such corporations were able to exploit the limitations of this Act, and continue their activities.
By 1905, the railroads, shippers, and politicians had begun to explore newer ways to understand how railroad shipping could be regulated. Such regulation was a priority of President Theodore Roosevelt since he took over his second term in office.
The limitations of the Elkins Act were soon evident, and he was determined to find a better solution to regulate the industry. In 1906, he persuaded Congress to pass the Hepburn Act, named after its sponsor, a Republican named William Peters Hepburn.
Despite some protests, the bill smoothly passed through both houses of Congress, with a mere three votes against it.
● It allowed the ICC to decide the maximum shipping rates for railroads and other carriers.
● The Act included ferries, sleeping cars, storage terminals, bridges, and oil pipelines, under the ambit of 'carriers', and allowed them to be regulated by the ICC.
● It forbade railroads from indulging in anti-business practices, like offering rebates to customers, and free passes.
● It introduced a standardized system of accounting, that was to be followed by all shipping carriers.
● The Act authorized the ICC to examine the financial statements of all railroads to prevent any irregularities.
● It ordered railroads to abide by all ICC orders, or else seek legal intervention in district courts.
● To speed up the appeals process, it allowed appeals against district court rulings to be directly heard in the supreme court.
● All violations were punishable by fines or imprisonment.
● The Act increased the number of commissioners in the ICC from 5 to 7, and their tenure to 7 years.
● It mandated that all railroads had to increase their notice period for rate changes from 10 to 30 days.
● It forbade railroads from transporting commodities like oil and coal in which they had personal interests, except for their own use.
The Hepburn Act increased the scope and powers of the ICC. From being a quasi-judicial body in the past, it was now authorized to act as an investigative agency, by appointing agents and investigators.
The Act set a new precedent, where railroads were expected to prove their innocence, in contrast to the past where the ICC was required to point out any irregularities.
It was supported by both, the majority of shippers, who were tired of the discriminatory practices of railroads, and also by the railroads themselves, who wanted to get rid of any pressure to offer discounts to large corporations.
The Hepburn Act is considered as one of the most iconic laws concerning railroads, especially in the early 20th century.
It is also considered as one of the most important initiatives taken by President Roosevelt, who was in favor of the moderate regulation of business practices, rather than a situation of free markets, an extreme, where large corporations could become monopolies, and the other extreme of government ownership of all railroads.
While there is no doubt over the goal of this Act in promoting market competitiveness, there has been a steady debate on the impact it had on the railroad industry. The ICC's power to regulate rates meant that railroads could not charge higher than a predefined limit set by the government.
The agency was also allowed to monitor the financial statements of all carriers, which eliminated many unfair practices common in the past because of arbitrary bookkeeping.
It is said that such tight control, coupled with the growth of the automobile industry in the early 20th century, led to the decline of railroads, as the emerging trucking industry ate into their profits.
The Act had an immediate effect on railroad securities, which decreased significantly after its enactment. This has been pointed out as a contributing factor to the Panic of 1907, when the New York Stock Exchange saw a decline of almost 50%
The Hepburn Act was passed to prevent monopolistic practices of big institutions. A lot of its credit goes to President Roosevelt, who battled the fierce resistance of industrial lobbies, to pass a legislation which has played a major role in the development of the US over the past century.
