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  • The First Step Toward Creating the Administrative State

    Saturday marks the anniversary of the passage of the Interstate Commerce Act, which in 1887 created the first federal regulatory agency, the Interstate Commerce Commission (ICC). Although those who created the ICC had no intention of establishing the modern administrative state we now have, the creation of the ICC was an inadvertent first step toward the federal leviathan that governs us today.

    The ICC was originally created to address growing problems created by the expansion of railroads in America. It was the outgrowth of the “Granger” movement, which took hold in many Midwestern states such as Illinois, Iowa, Minnesota, and Kansas. The Grangers were farmers who were angry over the immense power held by railroads, banks, and other economic combinations as a result of the Industrial Revolution.

    While some of the Grangers were radical, they were as fearful of unaccountable bureaucrats in centralized agencies as they were of centralized economic power. (One might even say that the Grangers were the first “occupiers,” but unlike today’s Occupy movement, the Grangers did not think that big government was the solution.)

    Since there was little clamor for big government during the 1880s, the ICC’s powers were carefully limited. For years after it was created, the ICC did not have the power to set railroad rates. The main powers held by the ICC were investigatory. It could investigate railroad abuses and corruption and could issue cease-and-desist orders, but courts were charged with enforcing those orders.

    The turning point for the ICC came in 1906, when Congress passed the Hepburn Act, which gave the ICC the power to set railroad rates—essentially a legislative power to set standards for action that the railroads had to follow. Theodore Roosevelt campaigned extensively for the Hepburn Act, circumventing Congress and going straight to the American people to lobby for its passage.

    Despite the limited powers originally entrusted to the ICC in 1887, Roosevelt and other Progressive reformers had big plans for the expansion and centralization of government, and they used the precedent of the ICC to establish what has now become our administrative state. When the Federal Trade Commission (FTC) was created in 1913, for instance, legislators recognized that they were giving a massive grant of power to a commission vested with legislative, executive, and judicial powers. The Federal Trade Commission Act authorized the FTC to prohibit “unfair methods of competition in commerce” without defining that phrase. The FTC Act authorized the FTC to make laws that were to be carried out and enforced by the FTC itself. And like the FTC, many of the alphabet-soup agencies we have today make law, execute law, and even adjudicate cases like a court. In Federalist No. 47, James Madison called this “the very definition of tyranny,” but few citizens today recognize how far we’ve strayed from Madison’s wisdom.

    In 1995, the ICC was abolished, but its legacy lives on today. Though it was not intended to serve as a precursor to the administrative state, the birth of the ICC in 1887 in many ways set precedents that would be used to put us on our current path.

    Posted in Economics [slideshow_deploy]

    2 Responses to The First Step Toward Creating the Administrative State

    1. It is often noted that government intervention ultimately leads to further intervention. The first intervention does not accomplish the stated goals and distorts the market. Politicians then respond with new interventions to correct the problems from the first. The ICC is no exception.

      One of the primary complaints raised by the Grangers was the rates charged by the railroads. The railroads had to charge high rates in order to be profitable, and even then, many went bankrupt. Those rates also made it difficult for western farmers to be profitable. The ICC was the “solution.”

      But this issue would have never arisen if Congress had not intervened in the market. Prior to the Pacific Railway Act, the railroads had determined that building rail lines in the west was unprofitable. So, they did what rational businessmen do–they didn’t build. But this did not fit with Congressional goals, and the federal government decided to subsidize construction of railroads in the west. While government subsidies made construction feasible, the sparse population in the west made operation of the lines unprofitable.

      Had the government not intervened, the railroads would have built western lines when it made economic sense. Instead, Congress intervened, distorted the market, and the ICC was the result.

    2. rich___b says:

      Government agencies should never be able to make and then enforce rules. Never, its basically unconstitutional. Why have a congress passing bills and a president signing them, if government bureaucracy are coming up with its own laws on its own. And that is what they are doing.

      ICC was a bad idea that got us started on this road. Its going to be very hard to reverse that.

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