Editing Elkins Act

{{More citations needed|date=October 2010}}
The '''Elkins Act''' is a 1903 [[United States federal law]] that amended the [[Interstate Commerce Act of 1887]]. The Act authorized the [[Interstate Commerce Commission]] (ICC) to impose heavy fines on [[Rail transport|railroads]] that offered [[rebate (marketing)|rebates]], and upon the shippers that accepted these rebates.  The railroad companies were not permitted to offer rebates. Railroad corporations, their officers, and their employees, were all made liable for discriminatory practices.<ref name=sharf>{{cite book |title=Railway Regulation |chapter=The Elkins Act |last=Sharfman |first=I. Leo |year=1915 |publisher=LaSalle Extension University |location=Chicago |pages=[https://archive.org/details/railwayregulati00unkngoog/page/n213 201]–202 |url=https://archive.org/details/railwayregulati00unkngoog |quote=roosevelt. }}</ref>

Prior to the Elkins Act, the [[livestock]] and [[Petroleum industry|petroleum]] industries paid standard rail shipping rates, but then would demand that the railroad company give them rebates. The railroad companies resented being [[extortion|extorted]] by the railroad [[Trust (monopoly)|trusts]] and therefore welcomed passage of the Elkins Act. The law was sponsored by [[United States President|President]] [[Theodore Roosevelt]] as a part of his "[[Square Deal]]" domestic program, and greatly boosted his popularity.{{citation needed|date=October 2010}}

==Background==
[[United States Congress|Congress]] passed the Elkins Act as an amendment to the Interstate Commerce Act. Without restrictive legislation, large firms could demand rebates or prices below the [[collusion|collusive price]] from railroad companies as condition for their business. As a result, it was common practice for railroads to offer competitive lower rates for transport between the large cities with high density of firms than the [[monopoly|monopolistic]] rates between less industrial cities, irrespective of length of travel.<ref>Hovenkamp, Herbert. "Regulatory Conflict in the Gilded Age: Federalism and the Railroad Problem." Yale Law Journal. Vol 97, No 6 (May, 1998), pp. 1027.</ref> Trusts constituted such a substantial portion of a carrier's revenue that the trusts could demand rebates as a condition for business, and the carrier would be forced to cooperate.

==Purpose==
The ICC had been unable to protect competition and fair pricing. Section 2 of the Interstate Commerce Act prohibits a carrier from offering preferential prices or rebates; however, enforcement of this section was ineffective. Powerful trusts would pay the standard shipping price, but demand a rebate from the carrier. Court cases brought before the commission generally did not result in punitive action, as the ICC was composed primarily of railroad interests.<ref>Scribner, Marc. "Slow Train Coming? Misguided Economic Regulation of U.S. Railroads, Then and Now." Competitive Enterprise Institute. 2013.</ref> Carriers found guilty of price discrimination, moreover, could appeal the ICC decision to federal courts, delaying punishment for years.<ref>Jones, Eliot. Principles of Railway Transportation (New York: Macmillan, 1924), p. 234.</ref>

The Elkins Act was named for its sponsor, Senator [[Stephen B. Elkins]] of [[West Virginia]], who introduced a bill in 1902 at the behest of the [[Pennsylvania Railroad]].<ref>{{cite web |url=http://www.theodorerooseveltcenter.org/en/Learn-About-TR/TR-Encyclopedia/Capitalism-and-Labor/The-Elkins-Act.aspx |title=Elkins Act |author=<!--Staff writer(s); no by-line.--> |website=TR Encyclopedia |publisher=Theodore Roosevelt Center, Dickinson State University |location=Dickinson, ND |access-date=2014-04-18 |archive-url=https://web.archive.org/web/20140419221733/http://www.theodorerooseveltcenter.org/en/Learn-About-TR/TR-Encyclopedia/Capitalism-and-Labor/The-Elkins-Act.aspx |archive-date=2014-04-19 |url-status=dead }}</ref> The law was passed by the [[57th United States Congress|57th Congress]] and signed by President Roosevelt on February 19, 1903. The Act made it a [[misdemeanor]] for a carrier to impose preferential rebates, and implicated both the carrier and the recipient of the low price. The Act also abolished imprisonment as a punishment for breaching the law, so a violator could only be fined.<ref>Elkins Act, "An Act to Further Regulate Commerce with Foreign Nations and Among the States."  [[57th United States Congress|57th Congress]], Sess. 2, ch. 708, {{USStat|32|847}}; 1903-02-19.</ref> By reducing the severity of punishment, legislators hoped to encourage firms to testify against each other, and promote stricter enforcement of the law.<ref>Chicago, E. P. (1903 Mar 19). “The Elkins Act." ''The Washington Post'' (1877-1922).</ref>

==Impact==
Following the passage of the Elkins Act, real freight rates decreased only slightly. In 1905, leaders in the regulation movement testified before Congress to identify the reduction in prices that resulted from the Act.<ref>Elkins Act Sufficient." (1905, Jan 17), ''The Washington Post'' (1877-1924).</ref> Yet, in the first months following the passage of the law, the most pronounced change in railroad pricing was the elimination of rebates. However, later analysis has found that decreases in carrier prices are better attributable to decreases in the costs of operation due to technology advances.<ref name=harbeson>Harbeson, Robert. "Railroads and Regulation, 1877-1916: Conspiracy or Public interest?" ''Journal of Economic History.'' Vol 27, No 2 (June, 1967), pp. 230-242.</ref> The elimination of rebates led the railroads to seek other methods to compete for business, leading [[United States Governor|Governor]] [[Albert B. Cummins]] of [[Iowa]] to declare, in 1905, that the elimination of rebates simply forces railroads to seek alternative noncompetitive means to secure business.<ref name=parsons>{{cite book |title=The Heart of the Railroad Problem |chapter=The Elkins Act and its Effects |last=Parsons |first=Frank |year=1906 |publisher=Little, Brown |location=Boston |pages=[https://archive.org/details/heartrailroadpr00parsgoog/page/n124 110]–119 |url=https://archive.org/details/heartrailroadpr00parsgoog |quote=elkins act. }}</ref> The Elkins Act, thus, was more effective in stabilizing prices and entrenching price [[collusion]] than demonstrably lowering prices.

A diverse group of stakeholders publicly supported the Elkins Act. Citizens who supported the law hoped that reducing price discrimination would lower freight prices uniformly, and railroad interests lobbied for the passage of the Act as a means of enforcing collusive pricing.<ref name=sharf /> While the Act restricted preferential pricing, it did not specify what constituted a "reasonable" shipping rate; thus, railroads could use the law to entrench a system of collusive prices. [[Collusion]] is unsustainable in a market where it is easy to undercut competitors. However in industries that only have a small number of competitors (e.g. railroads, airlines, or transportation companies operating between two given cities) collusion is far more likely. The result of the Elkins Act was that railroads had a stronger mechanism to protect their collusive prices and corporate trusts were weakened in their ability to gain shipping discounts. Farmers and other railroad users, instead of benefiting from greater competition, were unaffected by the Act.{{Citation needed|date=April 2014}}

While farmers may have benefited from the establishment of a [[price ceiling]] on freight rates, the nature of the railroad industry may have not have permitted [[perfect competition]]. Economist Robert Harbeson argues that the price wars prior to the Elkins Act suggest that the railroad industry was more [[oligopoly|oligopolistic]]. In an industry with decreasing [[marginal costs]] and high [[fixed costs]], it would be futile to enforce a [[price cap]]. Moreover, he argues, stronger regulation would have prevented carriers from reaching [[economies of scale]].<ref name=harbeson/>

==Contemporary criticism==
In reaction to the Elkins Act, it was argued that the law was drafted by Congress on behalf of the railroads, and that while some railroads curtailed rebates for some customers, for others the practice continued unabated.<ref name=parsons /> Congress was criticized for enacting only monetary fines for violations of the law and avoiding imposition of [[criminal law|criminal]] penalties.<ref>{{cite book |title=Present Day Problems: A Collection of Addresses Delivered on Various Occasions |publisher=Best Books |chapter=The Legislative Policies of the Present Administration |last=Taft |first=William H. |year=1908|page=[https://archive.org/details/presentdayprobl00statgoog/page/n174 162] |url=https://archive.org/details/presentdayprobl00statgoog |quote=elkins act. }} Speech given at Columbus, Ohio, August 19, 1907.</ref>

==Subsequent legislation==
Citing the shortcomings of the Elkins Act, [[Progressive Era|Progressives]] began to call for greater regulation of railroad interests, and, in 1906, President Roosevelt signed the [[Hepburn Act]] to replace the Elkins Act. The Hepburn Act set maximum freight rates for railroads, representing the greater interests of Americans.<ref name=parsons /> The regulations of the Hepburn Act strained railroads, which saw new competition from the rise of trucks and automobiles. The [[Panic of 1907]] was, in part, a result of the turmoil of the railroad industry that resulted from the Hepburn Act.<ref>Martin, Albro (1971). Enterprise Denied: Origins of the Decline of American Railroads, 1897-1917. New York: Columbia University Press.</ref>

==See also==
*[[History of rail transport in the United States]]
*[[Mann-Elkins Act]] (1910)

==References==
{{Reflist}}

{{United States antitrust law|state=collapsed}}
{{Theodore Roosevelt}}

[[Category:1903 in American law]]
[[Category:United States competition law]]
[[Category:United States railroad regulation]]
[[Category:United States federal transportation legislation]]
[[Category:1903 in rail transport]]
[[Category:1903 in American politics]]
[[Category:Progressive Era in the United States]]