- Historic Sites
The Controversial World Of
The Regulatory Agencies
April 1977 | Volume 28, Issue 3
Indeed, at the very time that Adams was trying to regulate with his pen, other commissions were taking up the sword. A group of state agencies in the upper Midwest boldly fixed the maximum rates railroads could charge, then forcibly tried to make their rulings stick. The litigation that resulted culminated in the famous case of Munn v. Illinois (1877), in which the Supreme Court recognized the power of state governments to regulate industries that were, in the Court’s words, “affected with a public interest.” These were industries essential to the well-being of society; and many of them were “natural monopolies” as well. As time passed, the number of industries “affected with a public interest” in the logical sense grew so large that the doctrine lost its usefulness as a legal distinction—though it remained the fundamental guide for administrative regulation by commissions.
Although many industries such as electric and gas utilities remained sufficiently local in nature to permit state regulation, the railroads quickly outgrew state boundaries. The railroad business is obviously interstate in nature, not only in the East, where the small size of many states makes even short trips interstate, but also in the agricultural West, whence staple commodities like corn and wheat were sent by train to the East Coast for transportation by ship to the markets of Europe. Thus, just as the railroad industry had been the first to undergo state regulation, it also became the first to come under a federal commission.
By the 1880’s, practically every area of the country, and every interest group involved in the problem, had come to accept the need for federal regulation of interstate railroad traffic. In 1887, nearly twenty years after the first bill for federal regulation had dropped into the hopper, Congress finally passed the Act to Regulate Commerce. This landmark piece of legislation created the Interstate Commerce Commission. In providing for a board of five presidentially appointed commissioners to serve staggered six-year terms, it set the pattern followed by most subsequent regulatory statutes. The ICC was to be independent, with no direct superior in the Cabinet. In determining the fairness and reasonableness of railroad rates, the commissioners in effect performed the functions of a court. In enforcing their decisions (a power they received later, after a long series of strengthening acts of Congress), they behaved like the executive branch. And in making rules and regulations for the industry, ranging from safety ordinances to the planning of a national transportation system, they performed legislative duties.
The Interstate Commerce Commission, then, had “quasi-judicial, quasi-executive, quasi-legislative-” functions, to use the language of the regulators themselves. This mixture of governmental powers traditionally held separate in the American system became a hallmark of regulator doctrine. It also became a target for critics. How, they asked, could one agency simultaneously be legislator, prosecutor, judge, jury and sheriff? To whom were the regulators responsible? Did not the combination of functions violate the system of checks and balances that lay at the heart of American government? Did not the agencies really constitute, as one influential study in the 1930’s concluded, “a headless ‘fourth branch’ of government,” responsible to no one?
In reply to these charges, the regulators and their defenders pointed out that the agencies are actually under tight control by all three regular branches. The executive appoints the commissioners and usually chooses the chairman. The legislature controls their budgets and defines their powers. The judiciary reviews their decisions. Furthermore, say regulation advocates, the combination of functions is essential if the commissions are to do their job expertly, quickly, and apolitically. Since it was the complexity of modern business enterprise and the appearance of new forms like natural monopoly that made regulation necessary in the first place, the existing three branches of government were ill-equipped to regulate: the executive branch was too politically oriented; the legislature was too inexpert and impermanent; and the judiciary was too slow. Had they been up to the task, commissions need never have been created. To perform adequately, the agencies had to borrow powers from each branch. As the leading theoretician of administrative regulation, James M. Landis, wrote in 1938