The ICC was established by the Interstate Commerce Act of 1887, which was signed into law by President Grover Cleveland. The creation of the commission was the result of widespread and longstanding anti-railroad agitation. Western farmers, specifically those of the Grange Movement, were the dominant force behind the unrest, but Westerners generally — especially those in rural areas — believed that the railroads possessed economic power that they systematically abused. A central issue was rate discrimination between similarly situated customers and communities.:42ff Other potent issues included alleged attempts by railroads to obtain influence over city and state governments and the widespread practice of granting free transportation in the form of yearly passes to opinion leaders (elected officials, newspaper editors, ministers, and so on) so as to dampen any opposition to railroad practices.
Various sections of the Interstate Commerce Act banned "personal discrimination" and required shipping rates to be "just and reasonable."
The Commission had a troubled start because the law that created it failed to give it adequate enforcement powers.
The Commission is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, while at the same time that supervision is almost entirely nominal.
Following passage of the 1887 act, the ICC proceeded to set maximum shipping rates for railroads. However, in the late 1890s several railroads challenged the agency's ratemaking authority in litigation, and the courts severely limited the ICC's powers.:90ff
Expansion of ICC authority
A 1914 cartoon shows railroad companies asking the ICC (depicted as Uncle Sam) for permission to raise rates, while the ghost of a horrified William Henry Vanderbilt looks on.
Congress expanded the commission's powers through subsequent legislation. The 1893 Railroad Safety Appliance Act gave the ICC jurisdiction over railroad safety, removing this authority from the states, and this was followed with amendments in 1903 and 1910. The Hepburn Act of 1906 authorized the ICC to set maximum railroad rates, and extended the agency's authority to cover bridges, terminals, ferries, sleeping cars, express companies and oil pipelines.
A long-standing controversy was how to interpret language in the Act that banned long haul-short haul fare discrimination. The Mann-Elkins Act of 1910 addressed this question by strengthening ICC authority over railroad rates, This amendment also expanded the ICC's jurisdiction to include regulation of telephone, telegraph and wireless companies.
The Valuation Act of 1913 required the ICC to organize a Bureau of Valuation that would assess the value of railroad property. This information would be used to set rates.
In 1935, Congress passed the Motor Carrier Act, which extended ICC authority to regulate interstate bus lines and trucking as common carriers.
Ripley Plan to consolidate railroads into regional systems
The Transportation Act of 1920 directed the Interstate Commerce Commission to prepare and adopt a plan for the consolidation of the railway properties of the United States into a limited number of systems. Between 1920 and 1923, William Z. Ripley, a professor of political economy at Harvard University, wrote up ICC's plan for the regional consolidation of the U.S. railways. His plan became known as the Ripley Plan. In 1929 the ICC published Ripley's Plan under the title Complete Plan of Consolidation. Numerous hearings were held by ICC regarding the plan under the topic "In the Matter of Consolidation of the Railways of the United States into a Limited Number of Systems".
The proposed 21 regional railroads were as follows:
Many small railroads failed during the Great Depression of the 1930s. Of those lines that survived, the stronger ones were not interested in supporting the weaker ones. Congress repudiated Ripley's Plan with the Transportation Act of 1940, and the consolidation idea was scrapped.
April 28, 1941 - In Mitchell v. United States, the United States Supreme Court rules that discrimination in which a colored man who had paid a first class fare for an interstate journey was compelled to leave that car and ride in a second class car was essentially unjust, and violated the Interstate Commerce Act. The court thus overturns an ICC order dismissing a complaint against an interstate carrier.
June 3, 1946 - In Morgan v. Virginia, the Supreme Court invalidates provisions of the Virginia Code which require the separation of white and colored passengers where applied to interstate bus transport. The state law is unconstitutional insofar as it is burdening interstate commerce, an area of federal jurisdiction.
June 5, 1950 - In Henderson v. United States, the Supreme Court rules to abolish segregation of reserved tables in railroad dining cars. The Southern Railway had reserved tables in such a way as to allocate one table conditionally for blacks and multiple tables for whites; a black passenger traveling first-class was not served in the dining car as the one reserved table was in use. The ICC ruled the discrimination to be an error in judgement on the part of an individual dining car steward; both the United States District Court for the District of Maryland and the Supreme Court disagreed, finding the published policies of the railroad itself to be in violation of the Interstate Commerce Act.
November 7, 1955 – ICC bans bus segregation in interstate travel in Sarah Keys v. Carolina Coach Company. This extends the logic of Brown v. Board of Education, a precedent ending the use of "separate but equal" as a defence against discrimination claims in education, to bus travel across state lines.
December 5, 1960 - In Boynton v. Virginia, the Supreme Court holds that racial segregation in bus terminals is illegal because such segregation violates the Interstate Commerce Act. This ruling, in combination with the ICC's 1955 decision in Keys v. Carolina Coach, effectively outlaws segregation on interstate buses and at the terminals servicing such buses.
September 23, 1961 - The ICC, at Attorney General Robert F. Kennedy's insistence, issues new rules ending discrimination in interstate travel. Effective November 1, 1961, six years after the commission's own ruling in Keys v. Carolina Coach Company, all interstate buses required to display a certificate that reads: "Seating aboard this vehicle is without regard to race, color, creed, or national origin, by order of the Interstate Commerce Commission."
Relationship between regulatory body and the regulated
A friendly relationship between the regulators and the regulated is evident in several early civil rights cases. Throughout the South, railroads had established segregated facilities for sleeping cars, coaches and dining cars. At the same time, the plain language of the Act (forbidding "undue or unreasonable preference" as well as "personal discrimination") could be read as an implied invitation for activist regulators to chip away at racial discrimination.
It shall be unlawful for any common carrier subject to the provisions of this part to make, give, or cause any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, association, locality, port, port district, gateway, transit point, region, district, territory, or any particular description of traffic, in any respect whatsoever; or to subject any particular person, company, firm, corporation, association, locality, port, port district, gateway, transit point, region, district, territory, or any particular description of traffic to any undue or unreasonable prejudice or disadvantage in any respect whatsoever. . .
In at least two landmark cases, however, the Commission sided with the railroads rather than with the African-American passengers who had filed complaints. In both Mitchell v. United States (1941) and Henderson v. United States, the Supreme Court took a more expansive view of the Act than the Commission. In 1962, the ICC banned racial discrimination in buses and bus stations, but it did not do so until several months after a binding pro-integration Supreme Court decision Boynton v. Virginia and the Freedom Rides (in which activists engaged in civil disobedience to desegregate interstate buses).
A Puck magazine cartoon from 1907 depicting two large bears named "Interstate Commerce Commission" and "Federal Courts" attacking Wall Street.
The limitation on railroad rates in 1906-07 depreciated the value of railroad securities, a factor in causing the panic of 1907.
Some economists and historians, such as Milton Friedman assert that existing railroad interests took advantage of ICC regulations to strengthen their control of the industry and prevent competition, constituting regulatory capture.
Economist David D. Friedman argues that the ICC always served the railroads as a cartelizing agent and used its authority over other forms of transportation to prevent them, where possible, from undercutting the railroads.
ICC jurisdiction on rail safety (hours of service rules, equipment and inspection standards) was transferred to the Federal Railroad Administration pursuant to the Federal Railroad Safety Act of 1970.
Motor carriers (bus lines, trucking companies) are now regulated by the Federal Motor Carrier Safety Administration (FMCSA), within the U.S. Department of Transportation (USDOT). Prior to its abolition, the ICC gave identification numbers to motor carriers for which it issued licenses. The identification numbers were generally in the form of "ICC MC-000000". When the ICC was dissolved, the function of licensing interstate motor carriers was transferred to FMCSA. All motor carriers with federal licenses now have a USDOT number, such as "USDOT 000000".
In recent decades, this regulatory structure of independent federal agencies has gone out of fashion. The agencies created after the 1970s generally have single heads appointed by the President and are divisions inside executive Cabinet Departments (e.g., the Occupational Safety and Health Administration (1970) or the Transportation Security Administration (2002)). The trend is the same at the state level, though it is probably less pronounced.
The Interstate Commerce Commission had a strong influence on the founders of Australia. The Constitution of Australia provides (§§ 101-104; also § 73) for the establishment of an Inter-State Commission, modeled after the United States' Interstate Commerce Commission. However, these provisions have largely not been put into practice; the Commission existed between 1913–1920, and 1975–1989, but never assumed the role which Australia's founders had intended for it.