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.
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.
● 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.
● 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.
● 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 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%.