Post Office History: Why Congress Endorsed Low Shipping Rates

(Bloomberg View) -- Everyone knows that President Donald Trump loves feuds, but one of his strangest targets is Amazon. Trump has repeatedly claimed that the retail giant is “scamming” the U.S. Post Office by taking advantage of the venerable institution's low shipping rates.

Trump has long complained about the Washington Post, and Amazon founder Jeff Bezos' ownership of it. But it's still worth assessing the merits of the president's argument. Is Amazon exploiting the Post Office?

No more than any other company in U.S. history. From the beginning, the Post Office has subsidized the cost of delivering all manner of goods, from newspapers to mail-order clothing, to encourage service to as many Americans as possible. It has done so in the name of knitting the nation together into a single, national market. Amazon is simply the latest in a long line of commercial interests to benefit.

When the founders sat down in Philadelphia and hammered out the document that became the U.S. Constitution, they explicitly gave Congress the power to create the Post Office in Article I, Section 8, Clause 7. In 1792, Congress passed the Post Office Act, activating this particular constitutional imperative.

As the historian Richard John has observed, the nation's postal system swiftly grew into something far more momentous and transformative than colonial precedent would have suggested. This was most apparent in how the Post Office treated newspapers. In charging only a nominal fee for carrying newspaper from place to place, Congress effectively subsidized the dissemination of information to all areas of the country, especially rural ones. If the Post Office charged the “real” rate for carrying newspapers, an early nineteenth-century estimate calculated that the cost would soar 700 percent.

But the subsidy remained. And by the mid-19th century, Congress began applying the same logic to letters, establishing new routes into remote areas that could never become self-sustaining. But profit wasn't the point: The Post Office was well on its way to becoming the nation's most important communications network, binding together disparate, remote locales into some semblance of unified whole. E Pluribus Unum.

But there was one thing the Post Office didn't carry: most parcels and packages. That job initially fell to private express companies, who happily charged whatever the market could bear. What that meant in practice, though, was that a nation that remained overwhelmingly rural generally could not receive packages. It was far too expensive.

By the late 19th century, rural Americans -- emboldened by political movements like the Farmers' Alliance, which set the stage for the later Populist Movement -- began agitating for subsidies that would better integrate the country's rural population into the postal network. In 1890, 65 percent of the population still lived in rural areas.

In response, Postmaster General John Wanamaker proposed the idea of Rural Free Delivery, or RFD: Rather than making farmers travel to retrieve their mail, the mail would come to them. Congress permitted a trial experiment in 1896. Three years later, RFD became national policy.

But that still left the question of parcels and packages unresolved. By this time, two companies had anticipated the strategy that Amazon revived for the internet era: Sears Roebuck and Montgomery Ward. Both began small with a handful of mail-order goods, and then swiftly expanded into selling, well, everything. Sears would eventually sell entire houses by mail. The link between the customer and the company was a catalog, not a computer. Otherwise, the strategy was the same.

Both companies had massive fulfillment centers with a bewildering array of goods in stock: clothing, toys, farming implements, books -- you name it. Customers would send their orders by mail, and the retail giants would send the requested goods. But that's where things got complicated: The Post Office couldn't deliver these packages, and the private express companies charged exorbitant rates -- or simply ignored customers outside major population centers.

In the early 20th century, rural interests began clamoring for the Post Office to expand its mandate to parcels. The private express companies, horrified at the idea, stymied attempts for the legislation to get a public hearing before committees.

In 1909, some of the express companies made the blunder of paying their stockholders a particularly generous dividend. Wells Fargo, for example, paid out $300 per share in surplus earnings. The Christian Science Monitor quietly observed that it was almost certain that Congress would not appreciate the companies' unwillingness “to share a part of their prosperity with their patrons.”

Over the next few years, legislation giving the Post Office the power to deliver parcels at subsidized rates moved forward. The reasoning was evident to most observers. Indeed, the Atlanta Journal Constitution, writing in 1912, explicitly described the pending bill as a “logical extension” of Free Rural Delivery. If the government was going to subsidize the delivery of mail to rural farmers, why not packages? In 1913, Congress passed legislation that made Parcel Post national policy.

Americans wasted no time in embracing the service, shipping 4 million packages in its first five days and 300 million in its first six months. Amazingly, Sears Roebuck shipped five times the number of packages in the year after parcel post became available. But the real winners were the American people, especially those formerly cut off from national markets. Now, rural dwellers could get anything they wanted. By one estimate, rural residents who had previously never received a package in the mail ordered up an average of 17 packages a year.

Cheap parcel post has been essential to the American consumer economy for over a century. It remains so today. If Trump succeeded in jacking up rates to match their actual cost, the people who would be hurt most would be isolated rural voters who have relied on the Postal Service for more than a hundred years. And those same people, of course, are the ones who helped put Trump in office in the first place.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to Bloomberg View.

To contact the author of this story: Stephen Mihm at smihm1@bloomberg.net.

To contact the editor responsible for this story: Mike Nizza at mnizza3@bloomberg.net.

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