What was the Elkins Act?
The Elkins Act of 1903 was a pivotal piece of legislation at the turn of the century. As America experienced rapid economic growth during the humble beginnings of the Progressive Era, the railroad industry reached new heights. The advent of the railroad made America’s first millionaires – both in the way of railroad magnates and business owners.
Of course, an up-and-coming industry is not without its challenges.
Railroad industry leaders began crying foul when some of their most frequent customers demanded significant rebates on shipping fares. It was common to offer rebates as an incentive for customers, but quickly, the payments began to function more like bribes. Although the rail owners started this practice, it quickly spiraled out of control to the point that customers were demanding rebates so high that the railroad would go bankrupt.
Whereas rebates acted as an incentive before, they now served as a ransom. Petroleum and livestock companies demanded large sums of money, or else they’d take their business elsewhere. Some rail owners went as far as to call this extortion, while customers suggested it was simply the turning of the tables. Regardless, the Elkins Act barring the practice of both accepting and offering rebates in the shipping industry was passed into law.
Who Passed the Elkins Act?
The Elkins Act was sponsored by West Virginia Senator Stephen B. Elkins, giving the bill its namesake. A change to existing legislation was requested by the Pennsylvania Railroad. While the act was ratified by Congress, President Theodore Roosevelt was instrumental in ensuring the bill’s passage. He endorsed it as part of his “Square Deal” campaign promise to protect America’s industries, consumers, and natural resources.
What Did the Elkins Act Do?
The Elkins Act amended the Interstate Commerce Act of 1887, which offered no protection for businesses or consumers regarding rebates on fares and shipping costs. Railroads would offer reduced shipping costs and rebates to their partners as a means of bolstering business.
However, some trusts and shippers began demanding them, or they would discontinue their trade agreements. This led to increasingly high demand for payouts that effectively functioned as forced bribes or extortion.
The practice of offering, receiving, and bargaining for rebates led to industry-wide corruption. Although the Pennsylvania Railroad was the first to bring the matter to Congress, many railroads strongly opposed this practice and called for it to end. Senator Elkins drafted the amendment to the Interstate Commerce Act of 1887, which ordered that any railroad company, leader, or employee found offering rebates would be punished by a fine.
Conversely, any shipper who accepted these rebates would also be investigated and fined accordingly. This substantial change was instrumental in beginning measures for accountability in the rail industry. Outlawing harmful practices and imposing fines was a significant move by the US government on controlling the economy, but it was a change welcomed by most.
Why Did the Railroad Industry Champion This Act?
The US Railroad industry was not without its faults and well known for the exploitation of American workers and immigrants through long hours and low pay. Not to mention, railroad tycoons had a distinctive invisible hand in the government.
That said, the industry’s own practices led to their demise. The tables turned as the same companies that railroads bribed with “rebate” payments were now demanding them more frequently and in excess.
Suddenly, shippers from cornerstone raw material industries that the railroad industry could not progress without were able to exploit the lines that would crumble without their business. This practice was unfair from every angle involved, as railroads lost money, shippers created an unrealistic competitive environment with one another, and the government faced a gray area in taxing these large amounts of income.
Therefore, the industry itself lobbied for the bill and called for an end to the practice. As the Progressive Era began to gain momentum, an increasing focus was placed on transparent business practices by the American public. This focus was shared by Theodore Roosevelt, who was elected to office in 1901. Placing measures to protect both businesses and consumers was key to ensuring the economy’s continued growth as the United States exited the industrial revolution.
Who Was Against the Act?
While most industry people were for this amendment to the Interstate Commerce Act, a select few had concerns that abolishing the rebate system would lead to fare fluctuations. Shippers were concerned that fare rates would go up, and railroads were unsure how to attract business without offering incentives. However, the part that received the brunt of the criticism was Congress itself.
Some people argued that the financial penalties were too lenient to punish corruption. The Elkins Act omitted imprisonment as a punishment for violating the law. Critics suggested that repeated violation of the law and lack of regard for transparent business practices should warrant jail time as a deterrent for figures in the industry.
Another source of criticism for the Elkins Act stemmed from representatives who called the amendment to the Interstate Commerce Act redundant. The Interstate Commerce Act did prohibit the practice of issuing rebates in any given industry. However, the core issue of the act is that it did not list any fines or other measures to enforce this rule.
Thus, the railroad industry continued to self-govern and navigate the rapidly expanding market.
What Impact Did the Elkins Act Have?
The Elkins Act specially amended the Interstate Commerce Act to hold railroads and distributors accountable. It was one of the most direct and specific pieces of legislation imposed on businesses by the US government to date.
The United States faced the challenges of a rapidly growing market, albeit a somewhat unsteady one. Areas of the country were still feeling the effects of the reconstruction movement some 40 years prior, and others were still trying to make sense of the manufacturing and immigration boom.
The progressive moment was born out of a need to protect Americans as consumers, workers, and business people. In a market with a large, qualified labor pool that factory owners and landlords had exploited, the demand for governmental accountability was massive.
The Elkins Act was championed by progressive Theodore Roosevelt, who advocated for his “Square Deal” program that established national parks and consumer protections.
Is the Elkins Act Still Relevant Today?
The railroad industry is far more active today than most might think, and it has no plans to slow down. That being said, one of the most significant impacts the Elkins Act had was illustrating the standard to which the government holds citizens accountable for business fraud and exploitation. Some critics indicated that the financial penalties were not enough of a deterrent to participating in unfair business practices.
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Their sentiments would be echoed again later in American history, as the Supreme Court and judicial system began determining what practices were considered criminal violations of the law and what practices were civil court matters instead. Later on, wire fraud and extortion received their own revised criminal codes that allowed for imprisonment in most cases. However, incorporating a business granted the individuals within it personal protection and immunity in the event of a violation of the law.
Certain instances, though, necessitate holding particular individuals accountable, as one might glean from the more modern court decision against Elizabeth Holmes of the biomedical company Theranos. Today, the government is still navigating the ethics of federal involvement in business and when and how to hold business leaders accountable.
Defining America’s Future
The Elkins Act of 1903 had significant ramifications for the railroad industry. The definitive legislation certainly causes quite a stir among both railroads and their shippers. Though it’s disputed whether the Elkins Act affects the price of fares and fair competition in the industry.
As railroad mandates promised, shipping prices did go down in the following years. Although, this price reduction could have been due to technological advances and continued growth. Businesses on the distribution side of things took the biggest blow in profits overall but the market was able to grow and include new players.
The Elkins Act was crucial for Theodore Roosevelt’s Square Deal program to ensure economic protections. It is noteworthy that it was the railroad industry that brought the enforcement upon itself. This act is illustrated in a market dictated by supply and demand. Both sellers and consumers hold an equal amount of importance. The Elkins Act also specifically called against individuals from accepting rebates or offering them.
This was an important move, as it acknowledged that unfair practices could be attributed to particular individuals and these individuals can be held accountable. Conversely, individuals who violate the law can be dealt with accordingly, without bringing down the entire business. This helps ensure that the economy can grow and maintain its equity without experiencing any gaps.
It should be noted that the Elkins Act did not eliminate corruption in the United States. It amended the Interstate Commerce Act to include protections for a specific industry, not all. As the US entered the roaring twenties, more legislation would be lobbied for, both successfully and unsuccessfully.
This legislation would serve as a lifeline coming into the Great Depression and the preceding and succeeding economic booms. As the US navigates its role in the state economy, importance is placed on the right to freedom. The Elkins Act of 1903 is one step in understanding what this means to the American people.
