Wabash v. Illinois: Supreme Court Shields Interstate Monopolies from Regulation

On October 25, 1886, the U.S. Supreme Court decided Wabash, St. Louis & Pacific Railway Co. v. Illinois (118 U.S. 557) in a 6-3 ruling that severely limited states’ power to regulate interstate commerce, effectively shielding railroad monopolies from state-level oversight. The case arose from an Illinois law prohibiting railroads from charging higher rates for shorter hauls than for longer ones—a discriminatory practice railroads used to exploit small towns lacking competing rail service. The Court ruled that such state regulations constituted “direct” burdens on interstate commerce and therefore exceeded state authority under the Commerce Clause.

The decision fundamentally modified the standard from Cooley v. Board of Wardens (1852), introducing a new distinction between “direct” and “indirect” burdens on interstate commerce. While states could still impose “indirect” regulations like safety standards, they could no longer regulate railroad rates for interstate shipments—precisely the area where monopolistic abuse was most severe. This created an enormous regulatory void: the federal government had left railroad regulation almost entirely to states, while the Court now declared states powerless to regulate the most important aspect of railroad operations.

Wabash effectively nullified the Granger Laws and reversed the democratic victory of Munn v. Illinois (1877), which had affirmed state regulatory power. The three dissenting justices—Bradley, Waite, and Gray—recognized the decision’s dangerous implications: it left railroad monopolies free to exploit farmers, small businesses, and isolated communities without accountability to any government authority. However, the regulatory vacuum created by Wabash proved so economically and politically untenable that it precipitated federal action. Within months, Congress passed the Interstate Commerce Act of 1887, creating the Interstate Commerce Commission as the first modern federal regulatory agency. While Wabash initiated the shift of regulatory responsibility from states to the federal government, it also established legal frameworks that corporations would use for decades to evade democratic accountability, playing state and federal jurisdictions against each other.