Firstly, your analogy is factually a little wide of the mark. It is correct, that between 1850 and 1871 the government made land available to some railroads – principally in the west. During that 21 year period, 18,700 miles of land grant railroad was built, or about 42% of the total in 1870. And by 1900, land grant railroad route miles amounted to only 11.4% of the nation’s total. However, the strings attached to those land grants continued long after land grants ended in 1871 and were such that the railroads eventually paid for everything they were granted. Payments were obtained through requiring the railroads to make taxible capital investments to build the tracks, bridges, tunnels and other infrastructure needed to run the railroad; to provide service during the early years when volumes were too low to be economically viable; thirdly, to extend (until 1946) deeply discounted rates to government shipments such as troops and war materials; and lastly, to pay taxes on the full amount of any consideration received for land grant property that was sold, traded or exchanged (i.e., the cost basis of land grant property is zero). That is not to say that the system wasn’t abused. It was with respect to railroad bond holders and shareholders, but not the government. (Does Credit Mobilier ring a bell?) Nevertheless, every study done by Congress or a federal agency has concluded that land grant railroads gave more than fair value in exchange for the land they received. So, it is not accurate to analogize the railroads as users of the government’s front yard; by 1971 what little remaining railroad land not paid for was rented – the railroad bought and paid for that front yard.

The ICC was created to rein in the excesses of the late nineteenth century when railroads had a monopoly on freight and passenger transportation. Beginning with Reconstruction, a few railroads began practicing discriminatory and predatory pricing, denial of service and equipment, and other means to create an artificial advantage for themselves over their competitors. In self defense, the practice eventually spread widely to even those railroads that had tried to be even-handed. The ultimate victims were, of course, the shippers and the passengers.

The Interstate Commerce Act was amended several times to make rail regulation stricter and more enforceable. By the late 1920s, a tangle of statutes and regulations had grown up which required the railroads to comply with a huge body of strict and arcane rules before making any changes to rates (including passenger fares), equipment, service and schedules. However, this regulatory strengthening had a number of unintended consequences, particularly as the railroads began to lose (and eventually lost) their monopoly to motor carriers and the automobile. By the 1960s, the passenger trains had lost their lucrative mail contracts, the REA was disappearing, the ICC would not allow the railroads to charge enough earn a profit on its passenger trains (not to mention when and as fare increases were granted, more passengers fled to their automobiles), and railroad shareholders would not permit freight earnings to be used to cross-subsidize passenger losses. And finally, elimination of money-losing passenger trains required time-consuming and costly petitions and hearings with no assurance of success.

I vividly recall in 1969, while working in the B&O Planning Department, the morning report contained a note about the westbound Capitol Limited being stuck behind a major freight train derailment east of Pittsburgh. The note concluded with the comment, “The passenger was taken to destination by automobile.”

So to make your analogy comparable, you need to introduce the constraints that the front yard tea room could only sell oolong tea, for which it was required to charge $2.83 an ounce, had to serve the tea in 4.2 ounce ceramic cups with curved handles, and could only be open from the hours of 2:46 PM to 5:53 PM. However, the competing tea room that opened in the back yard had no such restrictions. It could sell any kind of tea they wanted, at any price they wanted, and in any kind of container the customer wanted. At first motor common carrier routes were limited, but that eventually went away, and, arguably, the back yard tea room could then be open any time it wanted. Both tea rooms pay tax on the tea they purchase but only the front yard tea room has to pay property taxes.