Laissez-Faire and the First Regulation

Laissez-faire held that government should stay out of the economy and let competition sort things out. Railroads broke that logic first because they were not really competitive. Farmers and small shippers in one-railroad towns had no alternative carrier, so companies charged whatever the market would bear, often more for short hauls than long ones where competition existed. State laws regulating railroads got struck down when railroads crossed state lines, since only Congress could regulate interstate commerce. That gap pushed Congress to act: the Interstate Commerce Act of 1887 created the Interstate Commerce Commission, the first federal agency to regulate a private industry, banning practices like rate discrimination and requiring published rates.

The ICC looked strong on paper but stayed weak for two decades. The law gave it power to investigate and issue orders, but not to set rates itself, and when railroads challenged its rulings in court, judges sided with the companies again and again, narrowing what the commission could actually enforce. The Sherman Antitrust Act of 1890 followed the same pattern of good intentions undercut by application. Written to outlaw combinations in restraint of trade, meaning monopolistic trusts, courts instead used its vague wording against labor unions, ruling that strikes and boycotts were illegal combinations restraining trade. Trusts kept growing while unions got prosecuted.

Both laws show that passing a regulation is not the same as enforcing one. Courts, staffed by judges sympathetic to business and strict readings of property rights, decided how much these laws actually bit. That tension between legislative intent and judicial interpretation carries into later Progressive Era fights, when stronger laws and friendlier courts finally gave regulation teeth.