February 1964 | Volume 15, Issue 2
Grain elevators had false bottoms; freight rates had no ceilings. The farmers raised the roof, and government regulation crossed industry’s threshold
One fine November day in 1848 a railroad locomotive christened the Pioneer chugged westward out of Chicago a distance of eight miles. It pulled only a single coach, a baggage car temporarily outfitted to carry a handful of prominent Chicagoans being treated to one of the first runs of the Galena & Chicago Union Railroad. Spotting a farmer driving an ox wagon filled with wheat and hides toward Chicago, two of the passengers purchased the goods and transferred them to the baggage car. The train then returned to its home city. This simple event foreshadowed the future course of Chicago’s development: within twenty years the modest railroad comprising ten miles of track became the giant Chicago & North Western, one of the roads that made Illinois the nation’s leader in railroad mileage; while the city itself grew tenfold to a population of 300,000. The inflow of wheat, which had begun when a group of men on a one-car train hauled a few bushels, amounted to tens of millions of bushels annually.
“Let the golden grain come, we can take care of it all,” cried a Chicago newspaper of the 1850’s. And come it did. Illinois was a major grain producer, and Chicago—“the New York of the West”—enjoyed a strategic location that made it the key transfer point for transcontinental trade. Systems like the Chicago & North Western and the Illinois Central funnelled in wheat, corn, and barley from the immense cereal carpet that lay to the city’s west and northwest. During the sixties it became one of the world’s primary grain markets; through the wonder of the telegraph, price fluctuations in the Chicago market were quickly communicated to the world and affected prices in New York and faraway Liverpool. At the center of these transactions stood the Chicago Board of Trade, the focal point for the buying and selling of grains, flour, and other foodstuffs. A contemporary called the Board “the Altar of Ceres,” and the label was apt. Grain, and the money it might bring, was indeed a goddess to be worshipped by the restless merchants of the Board of Trade.
To accommodate the huge quantities which flowed in and out of Chicago there developed a most lucrative business, that of storing the grain in warehouses until it was sold and shipped east. (Railroad connections were such that direct shipments to eastern centers were difficult or impossible.) Known as grain elevators, the warehouses were skyscrapers able to hold 500,000 to 1,000,000 bushels in elongated, perpendicular bins that were mechanically loaded by the lifting up of dump buckets fastened to conveyor belts. Once the grain was deposited there, the warehousemen facilitated sales to merchants and speculators by issuing them receipts to represent the amount in storage. These receipts were regarded as stable tokens of value comparable to bank bills; and presumably a warehouseman, like a banker, held a position of public trust demanding a high level of integrity. The presumption, however, proved to be quite unjustified.
The history of the great Chicago grain elevators is reflected in the rise and fall of Munn & Scott, a firm founded in Spring Bay, Illinois, in 1844. The two partners, Ira Y. Munn and George L. Scott, ran a small (about 8,000 bushels capacity) warehouse that served the north central part of the state. Munn, who was the firm’s driving spirit, soon expanded his operations. Taking advantage of the opportunities presented by the growing commercial ascendancy of Chicago, he established a 200,000-bushel grain elevator there in 1856 under the name of Munn, Gill & Co. Two years later it became Munn & Scott, one of Chicago’s thirteen elevator firms, which had a combined storage capacity of over four million bushels.
The next decade—one that belonged to America’s capitalists—was enormously prosperous for Munn & Scott. They expanded to four elevators with a total capacity of 2,700,000 bushels; they could receive as many as 300,000 bushels daily and ship out twice that number. With success came power and prestige. Ira Munn emerged as a leading Chicago businessman; he was prominent in the affairs of the Board of Trade, serving as its president in 1860 and as president of the city’s Chamber of Commerce in 1868. During the Civil War he participated conspicuously in activities supporting the Union cause. At the same time, good capitalist that he was, Ira Munn diversified his enterprises by engaging in wholesale grain speculation and by investing in newspapers and banks.
On the surface all seemed well for Munn & Scott, but they had their problems. These, in large measure, were of their own making; the age of enterprise was also an age of corruption, and the Chicago warehousemen were not at war with the spirit of their age. By 1868 Munn & Scott and four other firms dominated the field. They were interlocked in a business pool, each owning part interest in each of the others. They could thus fix prices and force farmers, who had to store their grain prior to sale, to pay high storage fees. There were cruder forms of chicanery. The warehousemen commonly made deals with the railway men whereby they were assured of receiving the grain carried by a particular line, regardless of the shipper’s consignment. Munn & Scott, for instance, received most of their grain from the Chicago & North Western. Another practice was to issue bogus receipts not backed by actual grain. Yet another favorite trick, performed with allied speculators, was to spread false rumors that the grain was spoiling; unsuspecting merchants would hasten to unload their grain receipts at depressed prices, thus setting up a juicy profit for the warehousemen.
While this sophisticated graft pleased the profiteers, it aroused its victims. As early as 1857, Chicago’s grain merchants, acting through the Board of Trade, sought to impose a system of self-regulation upon the grain-elevator owners. Their aim was to get impartial inspectors into the warehouses to report on the condition and quantity of the grain in storage. A related objective was to make the Board a central registration agency which would record incoming shipments of grain and validate their sale, so as to eliminate the practice of issuing bogus receipts. The warehousemen naturally resisted, claiming that as private owners they had an inherent right to exclude outside parties from their property. Since the elevator proprietors also had representation on the Board of Trade, they were usually able to turn the regulatory proposals into meaningless compromises. The upshot was the semblance but not the substance of regulation: grain weighers who were in the employ of the warehousemen; Board inspectors whose admission into the elevators depended upon the owners’ good will and who were vulnerable to bribes; and unverifiable reports, filed by the warehousemen, which were as worthless as many of their grain receipts.
The Munn & Scott firm was both a prime cause of complaints and a leader in the fight against effective control by the Board. In 1861, after warehouse “wheat doctors” had camouflaged a huge quantity of spoiled grain and mixed it with good grades, open charges of fraud were voiced. The Board appointed an investigating committee, but by tacit agreement its report was suppressed. When Joseph Medill’s crusading Chicago Tribune suggested that the report had been shelved because it incriminated many elevator men, Munn & Scott succeeded in getting Tribune reporters expelled from Board meetings. Similar newspaper charges hinting at Munn & Scott frauds appeared in 1865; another public furor followed, but the lax inspection procedures remained unchanged.
Four years later almost all of Chicago’s receivers, shippers, and dealers united in demanding a system of real inspection. The immediate cause was a raise in storage rates and the imposition of an extra charge for grain that spoiled while in storage. New Board regulations designed to eliminate fraudulent issues of grain receipts were adopted early in 1870; once again the warehousemen, including Munn & Scott, asserted their right to control matters within their own elevators. The fight intensified. Elections for Board of Trade offices in the spring of 1870 split the membership into two factions—one supported the warehousemen; the other, which won most of the positions, insisted that their power be broken.
Businessmen are not customarily champions of governmental regulation, but the warehouse situation had become intolerable. The conduct of complex business relationships, after all, depends in significant part on mutual trust. Unable to control the warehousemen, the Board of Trade turned to the state, asking that Illinois subject them to public regulation. It was necessary, declared the retiring Board president in 1870, to destroy “a monopoly highly detrimental to every interest of the city.“Joseph Medill, whose newspaper made warehouse regulation its cause, put it more colorfully when he described the warehousemen as “rapacious, blood sucking insects.” These complaints went before the state’s constitutional convention of 1869–1870, then in session. The result was one of those strange yet almost typical alliances of American politics: a temporary pact between two normally opposed interests, the grain merchants and the grain producers.
The farmer-merchant alliance was an unusually strange one for 1870 because that year found the mid-western farmer in the grip of depression. Beyond a doubt, the economic balance of the post-Civil War period was heavily weighted against the American farmer. Between 1861 and 1865 he had rapidly expanded production to meet burgeoning needs, but the postwar market absorbed only part of his fantastic output of wheat, corn, and other grains. The farmer, moreover, sold in an unprotected world market at a time of falling prices; wheat, which sold at $1.45 a bushel in 1866, dropped to 76 cents within three years. As prices dropped, the value of money appreciated, and the farmers, who had borrowed in the wartime flush of inflationary optimism, had to meet debts with a scarce and hard-earned currency. Manufacturers, by contrast, were protected by a high tariff which pushed up the cost of the farmers’ tools and domestic necessities.
The farmers of the West and Midwest had yet another grievance which became a focus of all their discontents _the great railroad systems whose shiny rails criss-crossed the farm country. No one had welcomed the coming of the railroad more than the western farmer, since it opened up new markets for his products and made farming feasible in otherwise remote areas. Many had mortgaged their property to buy railroad shares; others had cheerfully accepted high local taxes to finance the bonds that lured the iron horse into their territory.
Unfortunately, the harvest was a bitter one. Once established, the railroads treated their clientele with disdain. Company officials were overbearing, charged exorbitant rates, and discriminated in favor of large shippers, who received special discounts. Precisely because the railroads were essential, they could act arrogantly; in any given area a single line usually enjoyed a monopoly and thus could charge as much as the traffic would bear. The railroads, of course, defended their rates as moderate, sufficient only to make good on I he immense speculative risks they had undertaken. The farmers were unimpressed. To them the dominant fact was that freight costs ate up a frightful percentage of their income. Sometimes they were even reduced to burning their corn as fuel rather than shipping it to market at a loss.
Their profound discontent soon led them to organize. Oddly, what became the major vehicle for agrarian protest had its start as a fraternal order’ intended to end the farmers’ isolation from social and educational opportunities. In 1867 an idealistic: government clerk in Washington, Oliver Hudson Kelley, singlehandedly founded the National Grange of the Patrons of Husbandry. At first his organization existed more on paper than in reality, but Kelley was an indefatigable worker —and also a shrewd observer. He broadened the Grange’s appeal by making its primary objectives cooperative purchasing and the control of monopolies. These tactics paid off, and the Grange spread like prairie wildfire It soon blanketed the entire nation, reaching its peak in 1874 when representatives of some 800,000 farmers convened in St. Louis to proclaim “the art of agriculture” as “the parent and precursor of all arts, and its products the foundation of all wealth.”
Although “the Grange” became a synonym for all the agrarian movements of the seventies, there were other highly vocal farmers’ associations which antedated the Patrons of Husbandry, and which intervened in politics throughout the Midwest. All shared the same goals: elimination of the middleman’s profits, lowered interest charges, and, most insistently, railroad rate regulation. “We were all grangers.’ a farmer later recalled. “I never belonged to the order but I was a granger just the same.”
In Illinois the farmers scored one of their first successes when they joined with Chicago’s merchants in getting the state’s constitutional convention to authorize railroad and warehouse regulation. Like the Board of Trade, Illinois farmers had just cause for wanting to see the elevators controlled. Typically, a farmer might ship 1,000 bushels of wheat to Chicago, but receive, a warehouse receipt for only 950. After paying costly storage charges, he might be told that his grain was “heating” and that, to avoid a complete disaster, he should sell his receipt to the warehouseman at a loss of 10 cents per bushel. Later, the hapless farmer would learn that his grain, perfectly sound, had been sold al a nice profit. But beyond their joint desires to clean up a dirty business, both farmers and merchants were interested in comprehensive regulation. The Board of Trade wanted to make normal business relationships possible; the farmers wanted a stringent limitation on the rates charged by railroads and warehouses.
Acting in response to these pressures, the 1871 legislature passed laws forbidding railroad discriminations and prescribing maximum freight and passenger rates. The warehousemen’s fraudulent practices were outlawed, storage rates were limited, and a Board of Railroad and Warehouse Commissioners was created to enforce the regulations.
Enforcement, however, was not easy. The warehousemen proclaimed the law unconstitutional and ignored it. Munn & Scott refused to take out the required license and kept the state-appointed registrar of grain out of their elevators. The state then sued the firm; but the trial proceedings were delayed because of the mass destruction of records by Chicago’s Great Fire of 1871. In July, 1872, the state won a judgment of $100; Munn & Scott promptly appealed to the Illinois Supreme Court:
Meanwhile, however, through a series of related events, the downfall of Munn & Scott was beginning. Despite the state regulation (which at first had no. practical impact), the Board of Trade continued to seek inspection of the warehouses during 1871 and 1872. Some elevators co-operated with Board inspectors in measuring their grain, but Munn & Scott remained defiant. Finally, in 1872, the firm consented to admit inspectors. It requested, however, that its elevators be inspected last in order to give it time to consolidate its grains and to avoid any implication of particular mistrust of Munn & Scott. The Board agreed, and the firm put the time to good use—flooring over the tops of several bins in one large elevator and covering the false bottoms with grain so as to give the illusion of full bins. The inspectors were fooled until an employee divulged the secret, and it was learned that Munn & Scott grain receipts totaling 300,000 bushels were not backed by grain.
Deplorable as the corruption was, its disclosure merely confirmed what had long been suspected. More immediately damaging were Munn & Scott’s financial misadventures in the summer of 1872. Along with three other speculators, the firm attempted to corner all the wheat pouring into Chicago, hoping to dictate its ultimate price in world markets. For a while the corner worked, as Munn & Scott made huge purchases. The heavy buying, however, pushed the price of wheat so high that the farmers, who normally held some grain in reserve in the hope that its value would rise, shipped their surplus to market. This was the crucial stage, for to secure their corner the speculators would have to buy up all the grain. They turned to Chicago’s banks for a million-dollar loan, but were unsuccessful: their credit was already severely stretched. They had to stop buying, and wheat prices plummeted forty-seven cents in a twenty-four-hour period. Munn & Scott was ruined, its grain receipts thoroughly discredited. To avoid a complete panic, the powerful George Armour & Co. bought the Munn interests and quietly set about purchasing grain to make its receipts good. Munn and Scott themselves went into bankruptcy; the ensuing court proceedings, as summarized in newspaper headlines, told the story of the Chicago elevator business: IRA Y. MUNN ON STAND LAYS BARE ELEVATOR COMBINATION — PROFITS DIVIDED — AGREEMENT IN 1866— A GENERAL POOL — HISTORY OF CONTRACTS WITH NORTHWESTERN RAILWAY BEGINNING IN 1862 AND RENEWED IN 1866.
The sequel came on December 3, 1872, when Munn and Scott were expelled from the Board of Trade.
Although Ira Munn and George Scott passed into oblivion, the regulatory impulse that they and their fellow warehousemen had helped trigger continued unabated. The year 1873 was one of economic panic; grain prices dropped further, and a severe shortage of credit forced numerous mortgage foreclosures. The Granger movement reached floodtide, and its political power was felt in all the midwestern states. Granger votes elected legislators and governors who helped pass laws lowering railroad rates; as the Minnesota governor inelegantly put it, “It is time to take robber corporations by the scruff of the neck and shake them over hell!”
The Granger laws, cursed as communistic in eastern business and financial circles, were a tribute to the political power of organized farmers. But, having failed to prevent the new legislation, the railroads retaliated with a variety of weapons. Their agents fought to repeal or weaken the laws and to persuade the public of their undesirability. They insisted that regulation would discourage further rail construction—an effective point, for even the bitterest foes of “the octopus” wanted increased railroad service at a fair price.
Resistance took other forms as well. In some cases the roads aimed to make the laws backfire: because of technical loopholes they were able to equalize their rates (thus formally ending discriminations) by raising them as much as fifty per cent in areas where they had been low. In other cases, they reduced service and forecast its complete abandonment. Wisconsin customers, for example, were subjected to dilapidated cars and erratic service that the railroads suavely blamed on the unusually harsh regulations of the Potter law—“Potter cars, Potter rails, and Potter time.”
Mostly, however, the corporations put their faith in the judiciary—not the elective state courts where decisions were likely to mirror popular desires, but the United States Supreme Court. The railroads were supremely confident that rate regulation, no matter how moderate, violated the Constitution for at least three reasons. The first was that the laws contravened the federal contract clause by impairing their right to set rates, a right granted by the states’ charters of incorporation. Here the railroads cited the Dartmouth College doctrine of 1819 (see Richard N. Current’s article in the August, 1963, AMERICAN HERITAGE ). (They conveniently overlooked the Supreme Court’s later ruling in the Charles River Bridge Case, which modified the doctrine on the ground that the public also had rights and that these could be bargained away only by an explicit grant. Furthermore, the railroads’ charters had been issued under state constitutions which contained clauses reserving the legislatures’ authority to amend them.) Second, the corporations urged that rate regulation tampered with interstate transportation, thereby impinging on Congress’ plenary power over interstate commerce. Lastly, they argued that public rate-setting was a radical innovation unknown in the American experience. It was, they contended, a confiscation which violated the Fourteenth Amendment’s prohibition against depriving persons of their property without due process of law.
Corporation resistance quickly led to specific cases in the state and lower federal courts. The Chicago warehousemen who had by now succeeded to the Munn & Scott properties continued to defy the Warehouse Act and carried their case to the state supreme court—unsuccessfully. The state, declared the Illinois judges, might regulate all subjects “connected with the public welfare” in order “to promote the greatest good of the greatest number.”
Despite this and other reverses in the lower courts, the business interests were confident of ultimate victory. The assurances of their high-priced legal talent’ were soothing, and the corporations appealed their cases. In 1873 and 1874 Munn v. Illinois and seven railroad cases, which became known as the Granger Railroad Cases, all made their way to the United States Supreme Court, and, so the railroad leaders felt, toward a decision favorable to business.
Their confidence, however, was grossly misplaced. The Court of the 1870’s did not regard itself as the judicial handmaiden to entrepreneurial capitalism. Its Chief Justice, Morrison Remick Waite, was a moderate whose deep faith in representative democracy made him tolerant of legislative experimentation. His attitude had been shaped in frontier Ohio, where he had settled in 1838. His politics were solidly Republican, and his experiences in a close-knit community where personal honesty and character mattered as much as business acumen made Waite a typical member of the ante-bellum class of professional and mercantile men to whom wealth was not an end in itself.
Ironically, this man of complete integrity was appointed to the Chief Justiceship through the tawdry maneuverings of the Grant era. When a vacancy occurred in the office in 1873, President Grant tried to please his malodorous entourage with three dubious candidates, but was forced by public outcry to withdraw each in turn. The muddled President then looked for an honest man and found Waite, whose obscure respectability assured his confirmation. An unassuming middle-aged lawyer of medium height, his face clothed in one of those ample beards that were the style of his day, Waite proved himself a first-rate judge and an excellent Chief Justice. While his intelligence was keen, his most valuable assets were an amiable personality and a knack for leading men. “Policy” and “diplomacy” were his self-proclaimed guidelines.
These qualities served him well. Waite’s associates were men of uncommon ability, but their vanities and ambitions could easily have mired the Court in a morass of personal conflicts. Unquestionably the best mind and the most learned jurist among them was Joseph P. Bradley. A self-made man, Bradley enjoyed a successful career representing some of New Jersey’s leading railroads until appointed to the Court in 1870 by President Grant. Once on the bench, he showed marked independence toward the corporate interests he had formerly defended, frequently upholding economic regulation. Another Court giant was Samuel Freeman Miller. Beginning as a poor Kentucky farm boy, Miller had had two careers, one as a rural doctor and, after studying law on his own, another as a country lawyer. Appointed by Lincoln in 1862, Miller habitually stressed the importance of personal liberties and reflected a hostility to corporate and financial wealth. Blunt, self-confident, and prone to vanity, he was a dominant figure on the Court after the Civil War.
Ward Hunt, Noah H. Swayne, Nathan Clifford, and David Davis, four of the tribunal’s lesser lights, generally followed Waite’s lead in economic regulation cases. Like Waite, all of them had grown to maturity in Jacksonian America, and they retained a democratic faith that made them favorably disposed to laws passed by the people’s representatives.
The remaining two associate justices were exceptions. William Strong was a conservative, sympathetic to corporation views. Stephen J. Field, whose brother Cyrus laid the Atlantic cable, was a transplanted New Englander who prided himself on being a rugged Californian. Through a judicial service of nearly thirty-five years Field outspokenly defended the claims of American business.
Judicial processes are rarely speedy, and the Court of the seventies moved with majestic slowness. Overburdened with a lengthy docket, it required an average of three years to announce decisions. The first Granger case to reach the Court, a challenge to Minnesota’s rate law, arrived in October, 1873, and the Illinois, Iowa, and Wisconsin cases were docketed the next year. Oral arguments occupied two sessions during the 1875 term; the Granger Railroad Cases were heard in October, 1875, and Munn v. Illinois , the elevator case, was argued early in 1876.
For the oral arguments the business interests marshalled the elite of the nation’s bar. William M. Evarts, Orville H. Browning, David Dudley Field (another brother of Justice Field’s), and Frederick T. Frelinghuysen were among the assembled legal talent. They strongly argued the three contentions advanced by their side in the lower courts: confiscation of property, impairment of contract obligations, and interference with interstate commerce. To these constitutional arguments they added that rate regulation was almost unheard of in America, and that the Granger laws were “the beginning of the operations of the [Paris] commune in the legislation of this country.” In reply, the attorneys for the state governments involved defended the laws as reasonable measures to protect the general welfare against the exactions of private, uncurbed monopolies whose business had in effect become public.
Despite the brilliance of the railroad attorneys and the eloquence of their arguments, seven of the Supreme Court justices cast their votes for the Granger laws. Only Field and Strong dissented on November 18, 1876, when all eight cases were decided together. Chief Justice Waite assigned himself the opinions, well aware of their importance; this was the Court’s first major statement on the constitutionality of regulating the new industrial capitalism. He chose the elevator case, Munn v. Illinois , for his main opinion. Unlike the companies involved in the Granger Railroad Cases, Munn and Scott were unincorporated partners and their business was not directly involved in interstate transportation. Their case therefore presented the crucial issue, the permissibility of rate regulation, in pure form, uncomplicated by the contract and commerce questions raised in the other disputes.
The Chief Justice devoted the winter to preparing the opinions, later remarking that “they kept my mind and hands at work all the time.” Waite did his opinion-writing at home, sitting at a long and cluttered library table in his private study, where he worked in the morning’s early hours and often into the night. Admittedly old-fashioned, he spurned secretaries and the newfangled typewriter, making his drafts in longhand. A glimpse of his labors on the Munn opinion is preserved on a lined sheet of paper on which he jotted down earlier illustrations of American business regulation. These references to historical practice, some of which appeared in the final opinion, were pertinent. The parties challenging the Granger laws had strongly contended that regulation was alien to America; to demolish their claim Waite naturally referred to the state he knew best, citing precedents from Ohio history.
As Waite prepared the Munn opinion, he turned for assistance to Justice Bradley, his closest collaborator on the Court. Bradley in fact deserves recognition as the opinion’s co-author: he prepared a lengthy “Outline of my views on the subject of the Granger Cases,” from which the Chief Justice freely borrowed. In refuting the business arguments, Bradley, a confirmed legal anti-quarian, dug up an obscure seventeenth-century English legal treatise, De Portibus Maris . Written by Lord Chief Justice Hale, it justified regulation of the fees charged in public ports with the following language: “For now the wharf and crane and other conveniences are affected with a publick interest, and they cease to be juris privati only.” Waite quoted this statement and so introduced the public-interest doctrine to a long life in American constitutional law. Late in February he circulated the draft opinions among the brethren for their final approval. Bradley, the former railroad attorney, responded enthusiastically—“terse, correct, & safe.” Miller found the opinions “equal to the occasion which is a very great one.”
With these endorsements, the Court released its opinions on March i, 1877, ruling that the Constitution sanctioned economic regulation in the public interest. Waite’s opinion in Munn v. Illinois began by stressing the power of the Chicago grain elevators, which, standing at the gateway of commerce to the East, “take toll from all who pass.” Their business, he argued, citing Lord Hale, “tends to a common charge, and is become a thing of public interest and use” subject to state control. Noting earlier instances of American price regulation, Waite summarily dismissed the contention that such laws unconstitutionally confiscated private property. Underlying these conclusions was the root assumption of Munn v. Illinois —that the popularly accountable legislatures should be the judges of the wisdom of regulatory laws. “For protection against abuses by legislatures the people must resort to the polls, not to the courts,” Waite wrote, a remark that symbolizes the opinion’s status as one of the Supreme Court’s major declarations in favor of judicial self-restraint in economic-regulation cases.
With the Warehouse Act sustained, the Granger Railroad Cases fell easily into place. In brief opinions Waite disposed of them by relying on the public-interest doctrine. He rejected the commerce-clause argument, finding that none of the regulations extended to commerce beyond state lines. He found the claim that the rate laws impaired contract rights to be equally without merit; the states’ constitutions had reserved the power to amend charters.
Justice Field, as expected, wrote a fiery dissent labelling the Munn decision “subversive of the rights of private property” and predicted that its reasoning implied an almost unlimited scope for the regulatory power: “If the power can be exercised as to one article, it may as to all articles, and the prices of everything, from a calico gown to a city mansion, may be the subject of legislative direction.” Field’s gloomy prediction was essentially correct in calling attention to the broad implications of the Munn decision. In modern-day America the scope of governmental regulation is immense; no one doubts that “the prices of everything”—even calico gowns and city mansions—may be regulated. And this intervention by government in economic affairs finds much of its constitutional sanction in Munn v. Illinois and in the line of cases which are its progeny.
During the seventies and eighties, the years when Waite and his majority sat on the Court, the public-interest doctrine, and the underlying assumption that legislative acts are valid unless completely arbitrary, led to further expansions of regulatory power. State railroad regulations were repeatedly upheld, as were laws limiting the rates charged by water companies, prohibiting lotteries, and scaling down the interest and principal owed to the holders of state bonds. Congress’ power to regulate federally chartered corporations was similarly upheld by a decision, in the Sinking Fund Cases of 1879, which infuriated corporation and financial leaders.
In later judicial periods, roughly between 1895 and 1937> judges far more committed to free enterprise than Waite, Bradley, and Miller often found reasons for invalidating economic regulations in the due-process clauses of the Fifth and Fourteenth amendments. Munn v. Illinois was never overruled, but its public-interest doctrine was radically reinterpreted in the 1920’s. The conservative Taft Court struck down a number of state regulatory laws as unconstitutional, declaring that only a narrow category of businesses—enterprises traditionally regulated and large monopolies—were affected with a public interest.
All this came to an end in the next decade. In the 1934 case of Nebbia v. New York , sustaining a comprehensive scheme of state milk-price regulation, the Supreme Court returned to a sweeping view of the public-interest doctrine. “A state,” it announced in words that Waite would have approved, “is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose.” Three years later in the case of NLRB v. Jones and Laughlin Steel Corporation , when the justices began the process of upholding the economic regulation of the New Deal, the permissive spirit of Waite’s Munn opinion again triumphed.
Munn v. Illinois , of course, also had a more contemporary impact. The proprietors of the city’s grain elevators, the Chicago Tribune reported a few days after the Supreme Court’s decision, “are thoroughly reconstructed. They bow to the inevitable.” They lowered their rates and began co-operating fully with the state’s Railroad and Warehouse Commission. Two decades of arrogance by the warehousemen had come to an end; not only were their opponents politically dominant, but the elevator men found their monopolistic power weakened. They faced strong competition from new grain centers at Milwaukee and Minneapolis, and in addition, improved rail connections now permitted farmers to ship grain through Chicago to the East without temporarily storing it.
The railroads also bowed, although many of the midwestern states, responding to powerful railroad lobbies, later repealed or drastically loosened their regulatory laws. Illinois, however, remained a leader in strong railroad regulation; the farmers’ influence prevented the repeal of the laws, which were sustained by both state and federal courts.
By 1877 the Patrons of Husbandry, who had provided much of the political support behind the regulatory laws, were but a shadow of their onetime strength. Internal dissensions and the financial collapse of its co-operative enterprises sharply reduced the organization’s membership and destroyed its political influence. In fact, the Grange gradually reverted to its original social purposes and is today a thriving fraternal order. As for the unsavory firm of Munn & Scott, it too was no longer a factor by 1877, for it had passed out of existence.
But ultimately more significant than the immediate results and the conflicting motives of the many participants was the constitutional residue left by the struggles of the seventies: the clear announcement that legislatures might regulate business on behalf of the public interest, a principle that received additional vitality from Chief Justice Waite’s assertion that the Court should be reluctant to upset regulatory laws passed by elected representatives. This was the meanine of Munn v. Illinois , and it provided a leading precedent for the day when American big business would find itself under continuing government regulation.