>. -_: : ./> 
 
 .LIBRARY 
 
 .OF THK 
 
 UNIVERSITY OF CALIFORNIA. 
 
 ^ Received 
 
 'Accessions No.. &-&./-;? Shelf No.. 
 
AN INVESTOR'S NOTES 
 
 ON 
 
 AMERICAN RAILROADS 
 
 JOHN SWANN, M.A., OXON. 
 
 COUNSELLOR-AT-LAW AND SOMETIME GENERAL MANAGER ALABAMA GREAT 
 SOUTHERN RAILROAD 
 
 SECOND EDITION, REVISED AND ENLARGED 
 
 NEW YORK & LONDON 
 
 G. P. PUTNAM'S SONS 
 
 ftfyt ^nicherbotker ^rwsi 
 
 ^ l887 
 
COPYRIGHT BY 
 
 JOHN SWANN 
 
 Press of 
 
 G. P. PITNAM'S SONS 
 New York 
 
PREFACE. 
 
 A GOOD deal has of late years been written by experts 
 touching the history, growth and management of rail- 
 ways, their duties to the State, and their relation to the 
 people. Many valuable conclusions have been arrived at, 
 and much technical knowledge has been made accessible 
 to the casual reader. In the excellent and well-known 
 work of Mr. Charles Francis Adams Jr. published in 
 1880,* and the late able works of Prof. Hadley f and Mr. 
 J. F. Hudson J published in 1886, historical, adminis- 
 trative and political aspects of the subject have been 
 handled with accurate knowledge and in attractive form. 
 But, if we except the necessarily cumbrous works, which 
 deal with large masses of figures and require attentive 
 study for their profitable interpretation, the interest of 
 the investor, as such, and notably that of the European 
 investor in American railroad securities, seems to have 
 been overlooked or lightly regarded. 
 
 Possibly, if the European outlook had not been some- 
 what stormy, and large changes in the conditions affect- 
 ing property in the British Empire had not been distinctly 
 foreshadowed, the interest of the investor, as such, might 
 have rightly been considered a matter of small immediate 
 moment, and undeserving special consideration. But it 
 
 * " Railroads, their Origin and Problems." C. F. Adams Jr. 
 f " Railroad Transportation." Prof. A. T. Hadley. 
 j " The Railways and the Republic." Jas. F. Hudson. 
 
IV PREFACE. 
 
 is conceived by the present writer that very large changes 
 in European investment are likely to occur in the course 
 of the next few years, and that a liberal transfer of capi- 
 tal will be made from European to American securities. 
 Experience conclusively shows that, in the past, the 
 casual investor has given but slight personal attention to 
 the choice or protection of his investments in American 
 railroads. It is accordingly thought possible that a few 
 practical observations on salient points in the situation 
 may be acceptable to those investors who have neither 
 time nor inclination for any approach to exhaustive in- 
 vestigation of the subject. 
 
 The present notes are confined to a very limited aspect 
 of the railroad problem viz., that small range of condi- 
 tions which affects the interest of the investor, as such. 
 Even in a most superficial view of the subject, the con- 
 clusions of experts must inevitably be utilized as data for 
 specific inferences relating to the interest of an investor. 
 In this view, many conclusions contained in the valuable 
 works above indicated have been used or referred to, and 
 the writer's obligations to their authors are freely ac- 
 knowledged. 
 
CONTENTS. 
 
 CHAPTER PAGE 
 
 I. SPHERES OF INVESTMENT i 
 II. FAIR AND FREE TRADE . . ... .14 
 
 III. CONTROL 29 
 
 IV. COMBINATION 44 
 
 V. POOLS 49 
 
 VI. WATER 56 
 
 VII. PARALLEL LINES 60 
 
 VIII. REORGANIZATION 64 
 
 IX. PROXIES . . . . . . .70 
 
 X. FUNDING 74 
 
 XI. RECEIVERS' CERTIFICATES . . . .81 
 
 XII. CORNERS 83 
 
 XIII. PUBLICITY 85 
 
 XIV. RAILROAD COMMISSIONS . . . . 91 
 
 XV. VESTED INTERESTS AND GRAZING LANDS . no 
 
 XVI. STATE CONTROL 124 
 
 XVII. GEOGRAPHICAL DIRECTION OF RAILROADS . 130 
 -XVIII. SOME IMPORTANT DECISIONS .... 142 
 XIX. SOME NOTES ON THE INTER-STATE COM- 
 MERCE ACT 156 
 
 XX. THE "ALIEN LAND ACT" . 186 
 
 APPENDIX ..,,,,... 189 
 

 . 
 
 AN INVESTOR'S NOTES ON AMERICAN 
 RAILROADS. 
 
 CHAPTER I. 
 
 SPHERES OF INVESTMENT. 
 
 SOME fifteen years ago it was held by the writer's 
 friends and by a large section of English society that the 
 government and institutions of America were separated 
 from those of England by an impassable gulf. Every thing 
 American was thought to be more or less ephemeral and 
 transitory, because unprotected by ancient traditions, 
 tending to the growth of an enlightened conservatism. 
 Rights of property in that country were thought by many 
 Englishmen to be more or less illusory, and the perma- 
 nence of social institutions uncertain and untrustworthy. 
 
 Concerning English institutions, on the other hand, a 
 different impression prevailed. It was thought that 
 around property in Great Britain, and especially around 
 the time-honoured freehold, there stood the British Con- 
 stitution, firm as the hills which stood around Jerusalem. 
 A man who seriously compared the stability of property in 
 England with that of property in America would have 
 been considered scarcely fit to be at large. But since 
 that time many things have happened. Entries have 
 been made on England's record which somewhat alter 
 the relative situation. Such words as " Midlothian," 
 
2 SPHERES OF INVESTMENT. 
 
 " Kilmainham," " National League/' " Fundamental 
 Law," "Home Rule," " Three acres and a cow," 
 " Ransom," " House League," suggest political infer- 
 ences which fifteen years ago were never dreamed of. 
 London has rioted, and Queen Victoria has abdicated 
 in favour of Mr. Parnell. It has been made clear that 
 the equal enforcement of established law and the pro- 
 tection of existing rights are no longer regarded as ab- 
 solutely essential to British freedom and prosperity ; 
 but are subject to modification or suspension, for the 
 mere purposes of party warfare or personal popularity. 
 
 Now the rights of property have been ascertained and 
 defined by a long line of thoughtful precedents and well- 
 reasoned decisions. The immense value of certainty in 
 respect of the rights of property, as a factor in credit and 
 commerce, can scarcely be over-rated. Upon this cer- 
 tainty, as upon a sure foundation, was gradually built up 
 the superstructure of England's commercial supremacy. 
 It is true that the present age is apt to be resentful of au- 
 thority. But the fathers of English jurisprudence, though 
 certainly not all Solomons, were not invariably simple- 
 tons. In the aggregate of their decisions may be found 
 a comprehensive chart, which thoughtfully and critically 
 defines the rights of a free people in the property which 
 they own and the remedies incident thereto. To the 
 casual observer it seems somewhat rash to make these 
 solemn and enlightened sanctions subject to the impulses 
 of the restless or lawless members of the community. In 
 a case where such broad and vital interests are concerned, 
 is it worth while to tear up the chart which marks with 
 precision dangerous reefs and safe channels,*and to trust to 
 the mere passion of the hour for a safe voyage ? This 
 chart which law has laid down is cold-blooded and criti- 
 
SPHERES OF INVESTMENT. 3 
 
 cal, if you like ; but for that very reason it is well-con- 
 sidered, steadfast, trustworthy, while the impulses of 
 popular emotion are capricious and short-sighted. To 
 govern by reference to the passions, instead of the 
 understanding, is something like steering an ocean 
 steamship by the thermometer instead of the compass. 
 
 The American side of the question is also better 
 understood. Sir Henry S. Maine has written ; and many 
 candid readers of his able essays will hesitate before 
 they decide that the English Constitution is impregna- 
 ble, and that the American Constitution is all moon- 
 shine. As things now stand, some considerations oc- 
 cur which would seem to render appropriate to the 
 present time a budget of suggestive notes on the sub- 
 ject of investment, provided they should make no at- 
 tempt at exhaustive treatment of any thing, nor tres- 
 pass unduly on the time and patience of a busy or 
 pre-occupied investor. 
 
 However great and noble may be the advantages which 
 are likely to accrue to the British Empire from the onward 
 march of democracy, it must be admitted that the finan- 
 cial outlook, if not in the last degree depressing, is at 
 least stormy and suggestive of grave uncertainties. Of 
 course critical periods occur during which political talk, 
 involving [e. g.~\ the integrity of an empire, the rights of 
 property, or the tenure of office by particular men, is 
 exclusively in order. But, as there is a time for every 
 thing which affects the problem of human welfare, occasions 
 recur when finance of the humbler type and the econom- 
 ical investment of individual fortunes may deserve pass- 
 ing consideration. The material prosperity of those classes 
 in the community, which by reason of thrift or inheritance 
 possess accumulated wealth, must sooner or later claim a 
 
4 SPHERES OF INVESTMENT. 
 
 hearing. Even the Irish land question is thought by 
 some observers to be tinged with the hue of gold, as 
 well as of blood. Whatever solution of this urgent ques- 
 tion may be desired by Mr. Gladstone, it is probable that 
 property invested in Ireland under government pledges 
 will be to some extent protected. It is a matter of 
 deep regret that money when once released from Ire- 
 land will not generally seek reinvestment there. But, as a 
 financial fact, it is improbable that it will do so, except 
 under very special conditions and subject to somewhat 
 narrow limits. From the investor's point of view, security 
 of principal and peaceful collection of interest are at least 
 as important as the prospect of liberal profits. As a mat- 
 ter of business, wholly apart from political or party con- 
 siderations, prudent investors reasonably shrink from lock- 
 ing up their money in any country in which the law is not 
 supreme, or in which the mechanism necessary for the 
 enforcement of existing rights is substantially impaired 
 or indefinitely suspended. A reasonably sound railroad 
 bond may furnish, at most, four or five per cent, on in- 
 vested capital. But, if at the end of each half-year the 
 holder can collect his coupons peacefully and punctually, 
 this result is on the whole fairly satisfactory. It is, at all 
 events, a better investment than the purchase of land 
 which the owner or mortgagee is afraid to occupy or 
 visit, or the conduct of a business to which the system 
 of boycotting may be any day applied. The economical 
 prospects of Ireland practically divorced from England 
 may be satisfactory to Mr. Gladstone, and yet far from 
 reassuring to the casual investor in Irish securities. 
 The point of view of the former is political, and turns 
 on a large and popular confidence in " flesh and blood." 
 The point of view of the latter is economical, and 
 
SPHERES OF INVESTMENT. 5 
 
 turns on a paltry and unpopular estimate of pounds 
 shillings and pence. A political blunder might be 
 lightly survived by Mr. Gladstone, but an economical 
 mistake might be a serious calamity to an investor of 
 moderate means. If the Nationalist party are disinclined 
 to protect rights in land, and are not particularly cordial 
 towards their best local industries, such as the linen manu- 
 facture, an intending investor naturally distrusts the law- 
 abiding instincts of the new regime. Not even Mr. Glad- 
 stone's eloquence can persuade him that capricious legis- 
 lation can make rich and strong a people endowed with a 
 poor soil, if such legislation encourages thriftless habits 
 or lawless instincts. The sources of national wealth lie 
 deeper. The severance of the last link which binds 
 Ireland to England is a good phrase, and has a fine free 
 ring about it. No doubt it tickles the ear of the Nation- 
 alist, who has not been overthrifty in the past and would 
 like to shirk work in the future. But the colder-blooded 
 business man will note that, when this last link is severed, 
 capital and credit will go down in the general crash. He 
 will be apt to reflect that, while absolute independence is 
 intrinsically a noble thing, its permanent beauty is largely 
 dependent on environment. Of course freedom attended 
 by prosperity commands the admiration of the civilized 
 world. But freedom associated with famine makes at 
 best a gloomy picture. A particular form of government 
 is like the bubble on the champagne. It is the vintage 
 that determines the bubble, and not the bubble the 
 vintage. The governing body will represent, with some 
 rough approximation to accuracy, the character and 
 qualities of the constituencies which confer power. If 
 constituencies exhibit characteristics which fail to inspire 
 faith in their just, temperate, and law-abiding instincts : 
 
O SPHERES OF INVESTMENT. 
 
 the confidence of the investor will be proportionately 
 discounted. " If," he will ask, " they do these things 
 in a green tree, what shall be done in the dry ? " He will 
 regulate his investments accordingly. 
 
 Then, again, as regards the European outlook, it may 
 well be that a firm foreign policy will eventually secure 
 peace. But, if the past be any guide to the future, it is 
 impossible to dismiss all apprehension under this head. 
 It is enough for the present purpose to indicate that a 
 European war is, in the last degree, unfavourable to confi- 
 dent and liberal investment in European securities, outside 
 the British Empire. 
 
 As regards English land and the industries directly ap- 
 purtenant thereto, it would of course be absurd to dog- 
 matize. But it is still worth noting that next to serious 
 calamities involving wholesale destruction of material as- 
 sets nothing tends so directly to depress property, and 
 to chill legitimate investment in its development, as un- 
 certainty affecting existing rights. England's well-wishers 
 cordially hope that English land may recover its prestige 
 and profit. But would any prudent lawyer, in the face of 
 , State socialism and foreign competition, recommend his 
 clients as landowners to expend their means lavishly on 
 the development of their freeholds ? Would he not 
 rather advise them to invest their capital in more re- 
 munerative and more readily convertible securities, and 
 to become tenants of whatever land they require ? If 
 there be any truth in this view, it is probable that, in the 
 course of the next few years, we shall see large accumula- 
 tions of unemployed money seeking such investment as 
 may combine reasonable security with fairly remunerative 
 interest. The question arises, where is a suitable sphere 
 of investment to be found ? 
 
 
SPHERES OF INVESTMENT. J 
 
 The feasibility of judicious investment in America has 
 of late been the subject of warm discussion in European 
 circles ; and grave issues have been raised by the parti- 
 sans of incompatible theories. There are many who think 
 that, whenever Europe invests capital in America, it will 
 of necessity follow that America will make the profit, and 
 that Europe will have to be content with the experience. 
 There are others who think that the existing Constitu- 
 tion of America affords a substantial security for vested 
 interests. They hold that written provisions, which 
 [amongst other things] forbid the impairment of a con- 
 tract and are subject to interpretation by the Supreme 
 Court of the United States, are more trustworthy safe- 
 guards to vested interests, than the personal discretion of 
 any advanced reformer. They would rather risk their 
 money on provisions, which cannot be repealed except by 
 a very deliberate verdict of a whole nation, than on im- 
 pulses referable to the personal career of any individual 
 statesman, who may have acquired the power of over-rid- 
 ing but does not, in the last resort, adequately repre- 
 sent the convictions of educated people. They consider 
 that, as it is in times of internal peace that prosperity 
 goes forward " by leaps and bounds," invested money has, 
 on the whole, a better prospect in America than else- 
 where. It is not the purpose of these notes to determine 
 the comparative merits of such conflicting views. Their 
 purpose is simply to submit some conclusions gathered 
 from many years of residence in the Country, and many 
 years of intimate acquaintance with the inside history and 
 conditions of current, and especially railroad, investment. 
 By persons well informed on this subject such notes 
 may rightly be regarded as ancient history expressed in 
 an unattractive form. But all are not experts in foreign 
 
8 SPHERES OF INVESTMENT. 
 
 business. There remain the uninitiated, who by lack of 
 time or the pressure of other engagements have been 
 constrained to invest in American securities, without 
 forming any critical judgment of their own on any 
 specific sphere of investment. To such the present 
 notes may perhaps furnish suggestions tending to guide 
 the judgment in the protection of existing, and the choice 
 of future, investments. Roughly stated, the vital ques- 
 tions for a European investor in American securities are 
 something like the following : Are the losses and disasters 
 of the past properly referable to conditions inherent in 
 American securities, as such, or have they resulted in 
 great part from exceptional misfortune, or the contribu- 
 tory negligence of the investor; and, if so, to what "ex- 
 tent ? Was it or was it not, in the past, competent to 
 investors to discern the signs of the times, with a nearer 
 approach to correctness than they ever in fact achieved ? 
 Is it competent to them in the future, by the observance 
 of a few simple indications, to avoid the graver class of 
 mistake ? Obviously, life is not long enough for an 
 exhaustive examination of every proposed investment. 
 But, if serious error is to be avoided, are there any land- 
 marks intelligible to the casual observer which may suffice 
 if not to indicate reasonably safe routes to warn the 
 traveller against dangerous pitfalls ? To the mind of the 
 seafarer the lighthouse is not as exhaustive as an ocean 
 chart. But nevertheless it fulfils a useful purpose. It 
 appeals to the eye of the unwary, and marks the exist- 
 ence of a dangerous reef, though it makes no pretensions 
 to map out safe channels. It seems to the writer that the 
 chance of doing something in this direction might justify 
 a modest effort. In this view of the subject, the scope of 
 the present notes is strictly limited, and their object is 
 
SPHERES OF INVESTMENT. 9 
 
 the reverse of ambitious. An endeavour has been made to 
 subserve the convenience of the reader by the addition of 
 a comprehensive index. 
 
 The total capital invested in American railroads repre- 
 sents an enormous sum. Its precise dimensions cannot 
 be determined with absolute exactness, because there 
 exists a wide difference, in the first place, between the 
 amount nominally and the amount actually expended in 
 construction ; and, in the second, between the nominal 
 value of securities and the price actually paid for them by 
 their holders. But, allowing a wide margin for elements 
 of uncertainty, it may be taken as fairly established 
 that the total investment approximates to thirteen hun- 
 dred millions sterling, and that of this the larger part is 
 foreign. I^OC^OOO^oO 
 
 In days when it is the custom for' financiers to think in 
 millions, it can scarcely be matter for surprise to find in- 
 vestments of enormous amount treated in a somewhat airy 
 fashion. But, if the true significance of seven or eight hun- 
 dred millions sterling be thoroughly grasped, it will be seen 
 that a sum of this magnitude is a feature of real importance 
 in the commercial and social history of the day. It forms 
 an appreciable element in any exhaustive estimate of na- 
 tional wealth. It represents the sinews of a vast aggre- 
 gate of productive enterprise, and the " hoarded self- 
 denial " of tens of thousands of investors. Now this 
 huge investment is made up of securities varying widely 
 in character and quality. Some of them are sound and 
 productive ; but very many possess a modest present and 
 a doubtful future value. During periods of so-called " in- 
 flation," the constructive impulse far out-ran the indications 
 of demand. The cart was put before the horse, and rail- 
 roads were built in advance of any real need of them, by 
 
10 SPHERES OF INVESTMENT. 
 
 means of bonds placed in Europe. The securities issued by 
 many of these railroads are not sufficiently sound or attrac- 
 tive to be absorbed by American investors. That is a point 
 of some importance, and very pertinent to the matter in 
 hand, because the money invested in these securities must, 
 as between Europe and America, be considered to be 
 finally sunk. It is scarcely necessary to point out that in- 
 vestments, which are permanently located on American 
 soil but which America will not re-purchase from Europe, 
 are beyond all others the most susceptible to the influ- 
 ences of rash legislation. It is true that many railroad 
 loans negotiated in Europe on the security of faith rather 
 than of works have, by reason of the rapid settlement 
 and the extraordinary internal resources of particular dis- 
 tricts, grown steadily in value. But it must not be for- 
 gotten that conditions of a specially favourable character 
 attended this growth. The increment of value which the 
 constructors of a railroad must be taken to have relied on 
 as an equivalent for extraordinary risks was allowed to 
 enure in its integrity to the benefit of the constructing 
 companies. No legislation was proposed tending to re- 
 duce the earning power of a railroad, or to limit its pos- 
 sible dividends. On the contrary, the elements of growth 
 and of recuperative power were fostered by an almost 
 absolute freedom from government interference. 
 
 It is assumed then by the present writer that European 
 investors have a large stake in America to protect ; and 
 that, owing to political and social complications in the 
 European outlook, a good deal of capital, which is timid 
 and sensitive to the action of violent influences, will 
 probably seek investment in this Country in the course of 
 the next ten years. If there be truth in this view, there 
 would seem to be some show of reason in selecting the 
 
SPHERES OF INVESTMENT. II 
 
 present time for a brief reconsideration of some salient 
 points in the railroad situation. To invest such brief re- 
 consideration with a modest value, it is by no means 
 necessary that the points to which attention is directed 
 should be new or original. It is exactly because well- 
 worn maxims have become too familiar that they are so 
 often forgotten or overlooked. Familiarity has bred con- 
 tempt, and thus useful indications are very often dis- 
 missed as hopelessly stale. But a truism does not cease 
 to be true because it is trite. 
 
 In making any forecast about the future, it is wise if 
 not indispensable to remember ancient landmarks, and 
 from time "to time to make a comparative survey of the 
 ground, taking note of changed conditions and new ele- 
 ments in the situation. The environment of many rail- 
 roads is materially changed since the European investor 
 first put his money into them. There are available to-day 
 data relating to the settlement and resources of many dis- 
 tricts, which some years ago were obscure or unascertained. 
 To-day there has grown up a rank crop of legislation 
 affecting railroad property, which formerly was never 
 dreamed of. State and Federal courts have made deci- 
 sions on various branches of the subject which were not 
 anticipated. Popular sentiment has undergone great 
 change ; and the drift of feeling, in comparatively prosper- 
 ous days, is less cordial to the investor than in days of 
 extreme adversity, when ready money was scarce and its 
 possession was regarded as a considerable merit in the 
 possessor. There is, in short, abundant room for vigil- 
 ance and a large sphere for judgment and discretion. If 
 that be so, the lessons of the past may perhaps to some 
 extent, be utilized for the guidance of the future ; and it 
 does not follow that nothing is valuable which is not fresh. 
 
12 SPHERES OF INVESTMENT. 
 
 The investor wants rather what is true than what is new. 
 A substantially correct statement of data, which are to- 
 day available for his purposes, is likely to be more useful 
 to him than original theories or ingenious prophecy. Ac- 
 cordingly, for the sake of convenience, it is proposed to 
 jot down, under separate headings, a few notes on several 
 points in the railroad situation, which appear to have been 
 forgotten or overlooked, and which, under the rapidly 
 changing conditions of the present age, may possibly give 
 an uninitiated enquirer some useful hints. 
 
 Let us suppose that we have to deal with an intending 
 investor of moderate means, who has very slight acquaint- 
 ance with the conditions of the American market. 
 Knowledge of details and inferences derivable therefrom, 
 which are ancient history to the expert, may be to him 
 obscure or unknown. It is proposed to make some notes 
 on the following subjects in their order: 
 
 1. Spheres of Investment. 
 
 2. Fair and Free Trade. 
 
 3. Control.. 
 
 4. Combination. 
 
 5. Pools. 
 
 6. Water. 
 
 7. Parallel Lines. 
 
 8. Reorganization. 
 
 9. Proxies. 
 
 10. Funding. 
 
 11. Receivers' Certificates. 
 
 12. Corners. 
 
 13. Publicity. 
 
 14. Railroad Commissions. 
 
 15. Vested Interests. 
 
 1 6. State Control, 
 
SPHERES OF INVESTMENT. 13 
 
 17. Geographical Direction of Railroads. 
 
 1 8. Some Important Decisions. 
 
 19. Short Appendix. Report of Railroad Commissions, 
 
 etc. 
 
 In any intelligent endeavour to appraise at its true value 
 the merits of any particular sphere of investment, the 
 institutions of any given country are at least as important 
 as its intrinsic resources. If the habits of the people, its 
 social machinery, legislative procedure and jurisprudence 
 be unsettled or unsatisfactory, the value of its internal 
 resources is, from the investor's point of view, indefinitely 
 depreciated and discounted. If there is much that is 
 defective in American institutions, there is also much 
 that is re-assuring. Of course, divergences of opinion on 
 so large a subject must, of necessity, be broad and fre- 
 quent. But there are data easily accessible to everybody 
 which may be profitably used in the formation of an 
 approximately correct judgment. The following ob- 
 servations are addressed to this view of the subject. 
 
CHAPTER II. 
 
 FAIR AND FREE TRADE. 
 
 A GOOD deal has of late years been said by the uncom- 
 promising champions of free trade about the gross ab- 
 surdity of the rejection of their doctrines by the American 
 people. No doubt, on both sides of this question, many 
 good arguments might be urged, which it is not the pur- 
 pose of the present notes to set forth. It may however 
 be said shortly that, in the writer's opinion, it has been 
 a substantial advantage to England that America has not 
 entered into commercial competition with her on the 
 basis of free trade. As a matter of course, every nation 
 which competes in the great commercial race is handi- 
 capped by a variety of conditions, which the political 
 economist can formulate with some approach to correct- 
 ness. Notable among these conditions are internal 
 resources, area, soil and climate, the energy of the 
 people, their law-abiding instincts, and their willingness 
 to give to superior skill and energy the compensation to 
 which it is entitled. Whatever superiority England may 
 have possessed in past times, in respect of the character 
 and habits of its working population, it can scarcely be 
 stated with any semblance of confidence that this 
 superiority will be permanent. In past times the classes 
 in England who excelled in skill and endurance produced 
 a larger and more valuable output in their respective 
 spheres of industry than any other people in the world. 
 
 14 
 
FAIR AND FREE TRADE. 1$ 
 
 It was precisely because they did so that they were able 
 to undersell foreign competitors in foreign markets, and 
 especially in newly discovered spheres of enterprise. The 
 policy of free trade, as enunciated by Messrs. Cobden and 
 Bright, was at all events robust in fibre and liberal in as- 
 piration. On their theory, it was to be competent to the 
 consumer to buy whatever he required in the cheapest 
 market. Raw materials for specific industries were to 
 come to him untaxed, and the necessaries of life, which 
 he consumed while converting raw materials into finished 
 products, were to be relatively cheap. But the modern 
 Liberal or shall we say Socialist ? school disregards the 
 doctrines of free trade which favour free contract and 
 promote self-help. Contribution in the form of school 
 fees was an important element in the arguments offered 
 in support of compulsory education. Offer the people 
 free education, and you at once diminish the value, in 
 their eyes, of the commodity supplied, and invite them 
 to be wholly dependent, instead of partially self-support- 
 ing. Offer the poorer classes of the people a subsidy 
 from the State as a means of livelihood, instead of 
 stimulating the thrift and responsibility underlying the 
 duties of good citizenship, and you sap the morals arid 
 weaken the backbone of that very labouring class which it 
 is the delight of the demagogue to flatter and mislead. 
 If the lessons derivable from many years' experience in 
 the imperfect administration of a defective poor-law have 
 failed to convince the Socialist school that its champions 
 are preparing the downfall of England's commercial 
 supremacy, " neither will they be persuaded though one 
 rose from the dead." Limit by statutory enactment the 
 hours of labour, and you reduce, at one stroke, the pro- 
 ductive capacity of a community w nch is probably, 
 
l6 FAIR AND FREE TRADE. 
 
 taken as a whole, the most efficient producer in the 
 world. And what do you get in return for this gratuitous 
 legislative interference ? Certainly not an increase in the 
 national wealth. For the German and Belgian artisan 
 will work longer hours for less wages ; and, if so, the 
 capitalist who employs him can, with a fair profit, take 
 up contracts which the English employer of labour could 
 not safely touch. You certainly do not benefit the 
 skilled artisan of the highest class. It is his ambition to 
 utilize his superior physique, his great power of endur- 
 ance, and the valuable skill which enables him to produce 
 more rapidly as well as more effectually than the aver- 
 age workman, for the advancement in life of himself and 
 his family. To limit the hours of labour is to level him 
 down against his will. 
 
 It is indeed said that, by authoritatively restricting the 
 hours devoted to production, you will improve the happi- 
 ness of the people and their physical and material welfare. 
 Nobody doubts that, in a certain limited sense, less work 
 and more play is reasonably desired by every working bee 
 in the great national hive. The Saturday half-holiday, 
 and such additional periods of rest and refreshment as 
 may be voluntarily agreed upon between the employer 
 and employed, are doubtless tonic and wholesome ar- 
 rangements. But is it quite clear that legislative restric- 
 tion of the hours of labour will, in the long run, tend to 
 a beneficial result, without involving a serious set-off in 
 point of disadvantage? 
 
 Suppose the limitation of production by statutory 
 enactment causes the withdrawal of capital from current 
 enterprise, and the transfer of valuable contracts from 
 English to foreign artisans. You will have compelled an 
 industrious community to work below its maximum 
 
FAIR AND FREE TRADE. 1 7 
 
 productive power; and you will practically transfer, by 
 legislative enactment, a large portion of the work, which 
 it would gladly have performed, to other producing 
 communities in which supply and demand are permitted 
 to take care of themselves. You will have taught a self- 
 reliant community to look for its prosperity to the State, 
 instead of to its own unassisted energy and skill. Against 
 the improved happiness, which your State socialism con- 
 fers on its nurselings, you must set off the diminution of 
 vigour which arises from dependence. If the survival 
 of the fittest subject to certain reasonable and humane 
 limitations be the law of societies and nations, the least 
 governed is, in the long run, the most likely to survive. 
 Whom then do you benefit by your restrictive legisla- 
 tion ? Only the demagogue, who hopes to attain office 
 by the votes of the ignorant whom he has misled, and the 
 officers of his pet organizations, who will be paid liberal 
 salaries for drilling ignorant voters into the acceptance of 
 untenable doctrines. Neither history nor analogy affords 
 sufficient ground for believing that the temporary protec- 
 tion of specific industries tends to demoralize or pauperize 
 a people in the same sense or to the same extent as State 
 socialism. It is not denied by the advocates of protection 
 in this country that the right of the consumer to buy what 
 he needs in the cheapest market is sustained by the gen- 
 eral tenour of free institutions. But they argue that other 
 considerations must be taken into account. These may 
 be briefly summarized as follows : 
 
 I. The statesman who desires the welfare of the country 
 for which he legislates must have regard to the America, 
 not exclusively of to-day or to-morrow, but to the America 
 of twenty-five, fifty, one hundred years hence. The inter- 
 national competition for the commercial supremacy of the 
 
1 8 FAIR AND FREE TRADE. 
 
 world is not a short race, but a very long one. In such a 
 race the competitors are all handicapped ; and weight will 
 tell every yard of the way from the start to the finish. 
 
 2. If that be so, it is prudent to consider what weight 
 America has to carry in the race, as compared with other 
 competitors. The answer popularly given to this question 
 is that she has several points in her favour economical, 
 political, and social. 
 
 (a.) Economical. She possesses immense territorial area 
 and great varieties of climate, which may hereafter enable 
 her to compete with foreign countries in many not to 
 say most of the staple articles of commerce. For ex- 
 ample : If her cotton product were worked up on or near 
 the ground where it is raised, great economies in transpor- 
 tation and handling of raw materials might be effected. 
 If her iron industry (rolling, nail, hardware mills etc.) 
 were prosecuted on the ground where the coal and the 
 iron lie close together, a similar great saving would result. 
 If her potteries were established in the neighbourhood of 
 her great mines of kaolin and china-clay, like economical 
 benefits would be derived therefrom. With advantages 
 of this kind at the outset, the gradual influx of capital, 
 the gradual importation of highly educated or skilled arti- 
 sans, and the gradual training of her own people in special 
 industrial schools will give her a fair chance of competing 
 with the world within a reasonable period of some (say) 
 twenty-five years, and possibly a good deal earlier. 
 
 (b) Political America, has no foreign policy. Its ab- 
 sence is a great saving to the National Exchequer. She 
 is free from the necessity of maintaining great armaments, 
 which make heavy calls on the vigourous manhood of a 
 nation, as well as on its pecuniary resources. For the 
 successful development of industrial enterprise, freedom 
 
FAIR AND FREE TRADE. 1$ 
 
 from foreign complication is an eminently favourable con- 
 dition. There is nothing to distract her attention from 
 the development of her internal resources. From the in- 
 vestor's point of view, in quietness and confidence is 
 strength. Sir Henry S. Maine has indicated, in his recent 
 admirable essays,* the vast difficulties which attend gov- 
 ernment by the multitude. So strongly is a kindred opin- 
 ion held by a large section of the keenest observers in 
 America, that some States have exchanged annual for bi- 
 ennial sessions of their Legislatures. The result has 
 been eminently satisfactory. As long as a Legislature is 
 in session, it is impossible to foresee what tinkering with 
 property will be devised. Investors are hushed and afraid, 
 and active business is chilled. If drastic legislation against 
 property is proposed, capital will inevitably flee away. In 
 these States the general desire is that things of no particu- 
 lar moment may exhaust the session. When an adjourn- 
 ment for two years is announced, everybody rejoices and 
 settles down to business. This feeling involves no dis- 
 respect on the part of the people for their chosen repre- 
 sentatives. They may be the best of men. But thirst for 
 " making a record " and proposing violent measures is 
 felt to be fatal to prosperity. The maiden speech of 
 a thoroughly Radical orator may be the knell of a new 
 railroad, coal mine, cotton mill, iron furnace, municipal 
 loan, or the like. The country wants repose and time to 
 develope its latent wealth. The restless demagogue is its 
 very worst enemy. The substitution of biennial for 
 annual sessions is more significant than pages of didactic 
 exposition. It is a great example of the political sagacity 
 of the American people ; and it is immensely reassuring 
 to the investor. 
 
 * " Popular Government," Sir Henry S. Maine. 
 
2O FAIR AND FREE TRADE. 
 
 (c) Social. Although no country can, in this century, 
 count on escaping the pest of Communism, America's 
 power of resistance is to-day at least as high as that of any 
 other country. A very substantial proportion of her citi- 
 zens owns a little property in one form or another ; and 
 even a very limited amount of property suffices to bring the 
 owner into line with his law-abiding fellow-citizens, as 
 against the Socialist or the transgressor of law. Expe- 
 rience shows that the man who has the grit to make 
 money has generally the grit to protect it. In a riot or a 
 fight the owner of a little homestead or store is worth ten 
 loafers. He has more nerve, a stiffer backbone, and 
 something to lose, which the loafer has not. His six- 
 shooter is of a better quality than that of the loafer, his 
 powder is straighter, and, in short, there is a better man 
 behind the gun. That as time goes on organized labour 
 will, as between labour and capital, obtain a larger share 
 of the profits of industry than it has heretofore received 
 may be accepted as a foregone conclusion. Such a result 
 will probably not be confined to America ; but will extend, 
 at no very remote period, to the whole of the civilized 
 world. The question for the investor is how far inevita- 
 ble reduction of interest is likely to be associated with in- 
 security of capital. Many indications point to the con- 
 clusion that Communism always dangerous is, on the 
 whole, less alarming in America than elsewhere. The 
 singular quietness, with which the whole nation settles down 
 to business after the violent excitement of a contested Pres- 
 idential election, affords presumptions in favour of a peace- 
 ful solution of strikes. The tendency of the people is 
 rather to accept arbitration than to pursue labour quarrels 
 to their ultimate logical result. Appeals ad misericordiam, 
 in cases where the transgressor of law has unduly presumed 
 
PAIR AND FREE TRADE. 21 
 
 on his power to dictate terms, and in the vernacular lan- 
 guage " got badly left," excite very little pity in the 
 public mind. An uprising, which had no foundation in a 
 real grievance and is defeated by unflinching resistance, 
 meets with its fair share of ridicule. The public regards 
 an unsuccessful striker very much as it regards a player 
 who " bluffs " at poker and is promptly " called." He has 
 met with an opponent with nerve at least as good as his own, 
 and it is plain that, if he was " blurring," his game is up. 
 
 It is thought by many competent observers in this 
 country that, at no very remote interval, the immense evil 
 arising from monetary contraction will be, to some extent, 
 grappled with and perhaps economized. It is beginning 
 to be realized that as the legitimate expectation of gain 
 lies at the root of the liberal employment of capital in in- 
 dustrial enterprise, consistently falling prices carry with 
 them their own special nemesis. It may be doubted 
 whether the confidence with which a higher range of 
 prices inspires the owners of accumulated wealth is not, 
 on the whole, better for the producing communities of 
 the world than a very low range of prices, which marks 
 undue appreciation of gold, and gives to the creditor of 
 several years' standing an undue advantage, and to the 
 owner of unemployed wealth a silent and unperceived 
 increment of power as against property generally.* It is 
 also thought not impossible that the natural shrewdness 
 of the American wage-earner may induce him to see the 
 propriety of submitting to a reduction of wages, if satis- 
 fied by fair explanation on the part of the capitalist that 
 no profit can be made at subsisting rates of compensation, 
 provided he is equally satisfied that an increase of wages 
 will certainly follow on the realization of fair profits. 
 
 * The Economic Crisis and Its Causes, M. E. de Laveleye, Contemporary 
 Review, May, 1886. 
 
22 FAIR AND FREE TRADE. 
 
 Again, the drift of public opinion is beginning to set in 
 the direction of resistance to "rings," or any type of or- 
 ganization which lives by a policy of cajolery or intimida- 
 tion and enforces on its members a sliding scale of rewards 
 and punishments. Neither a National League nor a Bir- 
 mingham " Caucus" could to-day reach its full stature in 
 America. It would be killed by ridicule in its embryonic 
 stage. America tried the experiment in Mr. Tweed's day, 
 and discovered to her cost that a compact organization of 
 irresponsible persons was a luxury altogether too expen- 
 sive for a democratic community to support. She be- 
 queathes the system as a legacy to England, with her best 
 wishes, as a garment for which she has no further use. 
 
 Another very hopeful symptom is the discredit which is 
 beginning to attach to solid votes. Wherever fifty or one 
 hundred members in a representative body are prepared 
 to vote " solid," it is plain that party organization is pre- 
 dominant and personal conviction subordinate. The 
 moral value of a solid vote by the Birmingham " Caucus " 
 or by Mr. Parnell's followers is greatly discounted by the 
 circumstance that personal conviction and criticism are 
 virtually excluded by the operation of an organized scale 
 of rewards and punishments. The solid vote obviously 
 means that party governs, and that patriotism and indi- 
 vidual opinion are asleep. In America solid voting is on 
 the decline, as the dignity of asserting independent con- 
 viction is becoming more generally appreciated, and the 
 servility attached to " wearing the collar of the machine " 
 is more generally felt. 
 
 3. Holding these views as to her place in the interna- 
 tional handicap, it can be no matter of surprise that her 
 citizens are willing to put up with some inconvenience for 
 the purpose of making the Country as nearly self-sufficing 
 
FAIR AND FREE TRADE. 2$ 
 
 as possible. She needs no importation of food. The 
 Mississippi valley and Texas alone, to say nothing of the 
 undeveloped territories, afford her adequate assurance 
 under this head. In the view of the people, it remains to 
 utilize the resources of her area, soil and climate, and the 
 ingenuity and energy of her citizens. 
 
 From the Protectionist point of view, a view which 
 contemplates an indefinitely long period, it is held to be 
 worth while to protect and nurse a variety of nascent in- 
 dustries in all those cases in which the conclusions of po- 
 litical economy and the relations of environment afford a 
 reasonable presumption of eventual success. It is held 
 (whether rightly or wrongly, experience must decide) that 
 within a few years many of these nascent industries will 
 be able to take care of themselves in the competition 
 of nations, provided their infancy is nursed and fostered 
 till they are able to walk or run without assistance. The 
 most ardent Protectionist would scarcely contend that a 
 protective tariff should not admit, from time to time, of 
 wise and adroit readjustment, with a view of relieving raw 
 material of its burdens and modifying, according to cir- 
 cumstances, the duties upon finished products. Common- 
 sense and practical statesmanship may, it is thought, be 
 trusted to deal with each case according to its peculiar 
 merits. 
 
 When the Free-trader objects that during this period the 
 consumer suffers, the answer commonly given is that 
 production precedes consumption ; that the producer is 
 in turn a consumer ; and that, although any specific class 
 of producers forms, at any given time, a minority of the 
 whole community, still the verdict of the whole people 
 is in favour of making the Country self-sufficing. They are 
 willing to make this effort, even at the cost of some incon- 
 
24 FAIR AND FREE TRADE. 
 
 venience to the large majority of consumers. Such a ver- 
 dict is rendered by a national majority in a population of 
 some fifty millions. It is, therefore, simply an exercise of 
 the popular will in the direction of submitting to tem- 
 porary inconvenience, for the sake of what is (rightly or 
 wrongly) regarded as a substantial element of future na- 
 tional greatness. However absurd such a view may appear 
 to the uncompromising Free-trader, it can scarcely be 
 pooh-poohed by a candid thinker as futile or unpatriotic. 
 Great weight is attached in this country to the distinc- 
 tion between the majority of a whole community and the 
 majority of a section or fragment of that community. The 
 majority of the South desired secession. But the majority 
 of the whole of the United States desired unity. Why 
 should the majority of a section prevail over the majority 
 of the whole people, if democratic maxims are to be con- 
 sistently observed ? The uncompromising advocates of 
 Free-trade in England make but slow progress in the con- 
 version of America. These gentlemen, say the advocates 
 of Protection here, have laid down some excellent prin- 
 ciples, sound in tendency and full of practical insight. If 
 all the nations of the world would accept their rules, there 
 is no doubt whatever that England would for many years 
 to come profit by such a result. But suppose one success- 
 ful player proposes the adoption of a rule, and several 
 other players decline to accept it. What then ? The value 
 of a rule is indefinitely discounted by the refusal of many 
 players to accept it. Its effect is necessarily subject to the 
 context of circumstances. It cannot be said to be either 
 good or bad when taken away from its correlation with 
 its surroundings ; and one of the most important of its 
 surroundings is the consent of many players to its adop- 
 tion. If England likes to walk alone, she is of course 
 
FAIR AND FREE TRADE. 2$ 
 
 at liberty to do so. But it would be fanciful use of Eng- 
 lish to call jl^valking in procession. It is further urged 
 possibly wlfjPsome show of reason that the English Free- 
 trade school made a definite election between two familiar 
 theories of national progress. It was competent to Par- 
 liament to say that they desired to make England self- 
 sufficing all round ; and, in this view, to protect and foster 
 her agricultural and possibly other specific industries, 
 according to the exigency of circumstances. It was also 
 competent to Parliament to say that England's welfare 
 would be best subserved by exclusive devotion to manu- 
 facture, trade and commerce ; and that they were content 
 that England should derive her food from foreign sources, 
 because her people could be better employed in produc- 
 tive industries outside of agriculture. Perhaps, say Ameri- 
 can Protectionists, England judged wisely, in view of the 
 special conditions affecting her case. But the conditions 
 of America's case are widely different ; and we do not care 
 to pin our faith to a particular law or policy, if its appli- 
 cation to a specific instance appears inappropriate and 
 possibly disastrous. And so it has come to pass that the 
 English view of free trade is not received in America with 
 extraordinary cordiality. 
 
 It is unnecessary to say that the above crude remarks 
 are not intended to make out a case for protection in 
 America ; but merely to indicate, in outline, the drift and 
 tendency of popular feeling in this country on the subject. 
 What bearing the existence and probable permanence of 
 this feeling may have on the investments of foreign cap- 
 italists must, of course, be judged of by the parties con- 
 cerned, according to their several idiosyncrasies and the 
 conclusions of their particular schools of political economy. 
 But the answers which they may think proper to give are 
 
26 FAIR AND FREE TRADE. 
 
 not wholly without meaning, if fairly applied to a com- 
 parative survey of various countries considered in one very 
 limited aspect viz., their relative merits ^^pheres of 
 future investment. Our enquirer will not overlook the 
 advantages of protection, whenever he proposes to invest 
 in any particular form of protected industrial enterprise. 
 There is of course to-day no sufficient ground for 
 predicting that England will not maintain, for many 
 years to come, the commercial supremacy which she has 
 laboured hard to achieve. But there is abundant reason 
 to say that the course, on which she is invited by the 
 prophets of State socialism to embark, distinctly involves a 
 denial of the principles and practice which have made her 
 rich and strong. It may safely be affirmed that no people 
 educated to regard the State as its dry-nurse could ever 
 have made such a record as the history of England dis- 
 closes. When the State is everybody's nurse, no doubt 
 the nursery is kept in good order, but the children are 
 slow in learning how to take care of themselves. Paris 
 would never have fallen, if some twenty years of Imperial 
 dry-nursing had not weakened the backbone of the 
 French people. State socialism and the impending 
 shadow of indefinite change are very real elements in 
 existing commercial depression in England. It is true that 
 England is very rich. But capital divorced from confidence 
 makes, at best, a poor show in the competition of the world. 
 The owner of capital may honestly and sincerely desire 
 to maintain the commercial supremacy of his own country. 
 But, in nine cases out of ten, he would rather invest it on 
 reasonably sound security elsewhere, than retain it in 
 English investments on the basis of " ransom." An en- 
 quirer concerning the best mode of investing his modest 
 competence may be perfectly willing to admit Mr. Glad- 
 
FAIR AND FREE TRADE. 2/ 
 
 stone's pre-eminent ability in the management of Imperial 
 finance, and his unrivalled lucidity in the exposition of 
 his views. But he -may be wholly unable to find .in the 
 Premier's policy that kind of re-assurance which he looks 
 for in the protection of his outlay in lands, houses, 
 ground-rents, or many other familiar and attractive forms 
 of investment. In the writer's opinion, it is impossible 
 for England to undertake the serious political retrogres- 
 sion involved in State socialism, without suffering the 
 penalties of corresponding financial retrogression. 
 
 Beyond a doubt the institutions of America, considered 
 in their various bearings on profitable and safe invest- 
 ment, leave much to be desired. But, in spite of many 
 drawbacks, there would seem to be a reasonable prospect 
 of that kind of internal peace which favours industrial de- 
 velopment, of reasonable stability in public feeling and 
 opinion, and at least as high a security for the rights of 
 property as can be found elsewhere. Before England had 
 been overtaken by the wave of democracy, no doubt real 
 property was better worth having in that country than 
 anywhere else in the world. Its ownership according to 
 measure and extent conferred on a proprietor peculiar 
 advantages dear to the heart of the average Englishman. 
 On the large land-owner it conferred indirect political 
 power and an appreciable access of social importance. 
 On the owner of a modest estate an atmosphere of 
 solidity distinct from the ordinary incidents of mercan- 
 tile prosperity. The merchant, it was thought, might be 
 swamped by speculation, or the professional man by ill 
 health ; but Providence favoured the man of acres. You 
 always knew where to find him or, at all events, his 
 property. His estate in - - shire could not fly away. 
 The powers that govern the universe would, it was felt, 
 
28 FAIR AND FREE TRADE. 
 
 " think twice before damning " the owner of a fair freehold 
 estate. Liberal sporting rights and the sympathy of the 
 county or local society made residence in a sporting shire 
 a delightful privilege even at the cost of low interest on 
 invested capital. The enlightened estate agent, who was 
 at once devout and artistic and who recommended a resi- 
 dence because it was close to a church, generally added 
 that there were two packs of fox-hounds within reach, 
 and that fair shooting and trout-fishing were obtainable. 
 In short the ownership of English land involved a large 
 measure of security, credit, peace and pleasure which 
 was honestly worth every penny of the price paid for it. 
 But this view is undergoing a steady process of dissolu- 
 tion. Investors of capital must judge for themselves, in 
 view of recent political and social complications, on which 
 side of the Atlantic they have, on the whole, the best 
 prospect of protecting and enlarging their store. One 
 thing is plain, that if England abdicates her commercial 
 supremacy, the humiliating process will not have been 
 compelled from without, but invited from within. She 
 will have decided for herself what is a proper price to pay 
 for a somewhat servile observance of successful dema- 
 gogues. 
 
CHAPTER III. 
 
 CONTROL. 
 
 ON the mind of an uninitiated visitor to Wall Street 
 a strong impression is made by the constant recurrence 
 of the word ' Control ' in discussions affecting the se- 
 curities of railroad companies and their various degrees 
 of merit or demerit. He hears experts say that it is 
 dangerous to touch this or that stock, because it 
 is " controlled by A. or by B's crowd, and you never 
 quite know where you are." Or, again, that the stock 
 of the C. Railroad will never really be good for any 
 thing until the road is " controlled by K. and his peo- 
 ple." The stranger had supposed that the value of the 
 securities of any given railroad was roughly measured by 
 comparatively simple and definite conditions ; such, for 
 instance, as the amount of the company's fixed and float- 
 ing debt, the volume of its business, the relation between 
 net and gross receipts, the ability of its executive, and so 
 forth. Ten or twelve years' familiarity with the details of 
 railroad administration in its various relations to Wall 
 Street would lead him to the conclusion that " control " 
 has more to do with values than he had supposed, and 
 that it is a word of the first importance in the railroad vo- 
 cabulary. 
 
 Some observations have been made above (pages 8-10) 
 as to the history and growth of American railroads, and 
 it has been indicated that a great number of these have 
 
 29 
 
30 CONTROL. 
 
 been built in very large part with foreign money. It has 
 been further noticed that many of these were built in ad- 
 vance of any real need for them ; and were, in short, rather 
 promoters' roads, than expressions of genuine supply ad- 
 dressed to meet a pressing demand for effective transpor- 
 tation. 
 
 In days of so-called " inflation," which perhaps might 
 better be described as periods of irrepressible speculative 
 restlessness, there was a general scramble for all sorts of 
 privileges which seemed to possess elements of remote 
 potential value. Concessions to construct public works 
 and enterprises in foreign countries were eagerly sought, 
 in spite of very imperfect knowledge of their environ- 
 ment. A promising sphere for the construction of a rail- 
 road was instantly pounced upon, and innumerable routes 
 for future railroads were selected and protected by char- 
 ters granted by various American States. The limited 
 scope of such charters was but imperfectly understood in 
 Europe, or understood only by a few, and not generally 
 investigated or discussed. The solemnity of a charter, 
 its seal, its language, its formality, were impressive details. 
 If a Government subsidy in the form of land were added, 
 the success of an effort to raise money in Europe was 
 almost assured. To the uninstructed mind, the notion of 
 connecting the ".rolling Atlantic " with the waters of the 
 "blue Pacific" was pictorially irresistible. To "tap" 
 the resources of districts possessing untold latent wealth 
 seemed an attractive privilege, rather than an incalculable 
 risk. And so it happened that European money was very 
 freely invested. So great was the encouragement offered 
 to the energetic American, that he did not hesitate to em- 
 ploy his means in building a mile or two of railroad from his 
 house to his sand-pit in an Eastern State, and then fear- 
 
CONTROL. . 3 1 
 
 lessly propose extension to San Francisco, or some other 
 indefinitely remote point. It is quite true that he might 
 be imperfectly equipped for so great an undertaking. He 
 might, for instance, have a mule and a five-dollar bill. 
 History shows that this is an insufficient basis on which 
 to undertake a transcontinental railroad. Still, if Europe 
 was good to find the necessary money, the energetic con- 
 tractor had no reason to complain. When the money 
 was provided, the foreign investor rarely took the pains 
 to insist on having his own representative on the board 
 of the constructing company, or on its executive com- 
 mittee, for the purpose of checking improper expen- 
 diture ; and the neglect of this precaution resulted in a 
 luxuriant crop of extravagance and jobbery, which judi- 
 cious restraint might have prevented or minimized. 
 
 The tremendous effort made by the North to preserve 
 the integrity of the Union was a fine display of decision 
 and patriotism. But it necessarily involved sacrifices re- 
 sulting in grave and enduring difficulties. The inevitable 
 effect of the war was to let loose evil passions and to dis- 
 integrate, to a certain extent, the creed and the canons 
 of commercial morality. A vast number of people had 
 been hopelessly wrecked and ruined. It could hardly be 
 expected that complete re-adjustment of old relations 
 would be accomplished in a year. The Country was de- 
 pressed. Ill-conceited undertakings failed to answer the 
 expectations forml'd of them. Many railroads constructed 
 or in course of construction failed to pay or to give reason- 
 able assurance of ultimate success. Their securities could 
 not be regarded as safe and profitable investments, and 
 became a foot-ball upon the " Street." Fortunes could 
 not be made out of their coupons' or dividends. Yet, 
 many large fortunes were put together in Wall Street in 
 
32 CONTROL. 
 
 connection with railroads to a large extent built by foreign 
 capital, and quite unsuccessful, considered as strictly 
 commercial concerns. Observant people were struck with 
 this difficulty, and enquired for the key. The answer they 
 received was simply " Control." 
 
 To give a scientific definition of this word, in such a form 
 as to meet the requirements of the critic, would be diffi- 
 cult ; at all events, it is too serious a task for the writer to 
 attempt. A rough description of one of its aspects suffi- 
 cient for immediate practical purposes may properly be 
 essayed. In this view, " Control " is the power of creat- 
 ing and regulating a market, in relation to the securi- 
 ties of a given undertaking, which its creator subse- 
 quently proposes to interpret for his own advantage. 
 Obviously, this attempt at description must appear very 
 obscure in the absence of some reference to the context 
 of circumstances. It may be pertinent to indicate one or 
 two salient points. The general situation postulated cer- 
 tain conditions, which might be matter of regret, but 
 could scarcely be matter for wonder or surprise. As 
 above noted, a serious shock had been given to subsist- 
 ing commercial relations and to the unwritten code which 
 was supposed to define and govern good faith in trade. 
 The unflinching repudiation of their just obligations by 
 several American States is evidence (sufficient for the 
 present purpose) of the existence of great demoraliza- 
 tion. Many enterprises when involved in serious diffi- 
 culty had been resuscitated or helped more than once 
 by Wall Street financiers, and were virtually in their 
 hands. The latter had little hope of recovering their 
 outlay from coupons on bonds or dividends on stock. 
 But, if the restless spirit of the day made the securities 
 of these doubtful enterprises sufficiently active (in its 
 
CONTROL. 33 
 
 technical sense), remunerative coups in stock might oc- 
 casionally be possible. 
 
 Let us imagine ourselves for a moment going into coun- 
 cil in Wall Street or its neighbourhood, and considering, 
 in a comfortable bank parlour over excellent cigars, how 
 " Control " might be utilized for the purpose of retrieving 
 serious losses or risks on the part of the Wall Street allies 
 of the railroad. Let us suppose, for argument's sake, that 
 an imaginary railroad, the prospects of which are under 
 discussion, has an unduly large capital, and that a great 
 majority of its securities are held in Europe ; that it has, 
 so far, not finally or badly defaulted on its funded indebt 
 edness ; that there is an active market with an upward 
 tendency ; that the latest official report of the road has 
 inspired some confidence ; and that its stock is worth 
 for speculative purposes (say) forty cents on the dollar. 
 Its floating debt is in fact very large, because it has a 
 great deal of outstanding paper, which, though approach 
 ing maturity, has not actually matured, and has therefore 
 not been published as part of its floating debt. The state 
 of the market is very tempting. We call upon Mr. Jeffen 
 son J. Wiggins, whose intelligence is well known, and 
 who has a great deal of money in the road, to advise 
 us what we shall do. To save time and avoid unnecessary 
 details the effect of his advice may be crudely summarized 
 as follows : 
 
 ist. The stock is at forty, market active. Some months 
 must elapse before crops can be moved. Plenty of room 
 for sucessful operation. Roughly as follows : 
 
 2d. Let our pool sell " short " at present prices, but 
 gradually, not hurrying the market. Before the stock 
 goes down to twenty-seven, we shall have sold enough to 
 initiate a coup. 
 
34 CONTROL. 
 
 3d. We want to cover our " shorts" at about twenty. 
 Proceed as follows : 
 
 (a) Let our financial organ state that the prospects of 
 the harvest to which we have looked forward are very 
 poor. Express doubts whether the Directors ought not 
 to fund next coupon. 
 
 (b) Let prominent stockholder announce that he has 
 trustworthy information to the effect that the last divi- 
 dend on preference stock was not earned. He therefore 
 asks immediate Receivership. 
 
 (c) In view of this important development, let Direc- 
 tors announce that they feel it incumbent on them to 
 pass the next coupon. 
 
 (d) Let organ state that negotiations concerning ter- 
 minal facilities in a leading city have broken down. 
 
 (e) Let a prominent bondholder connected with the 
 only leased line that pays propose to take immediate pro- 
 ceedings to invalidate the lease. 
 
 (/) Let organ announce that there is an immediate 
 prospect of a war of rates. Under the circumstances, 
 in spite of the vast business which the road carries on, it 
 will 'probably have to do a great part of it during the next 
 year at less than cost. 
 
 (g} Let a prominent reformer suggest a legislative 
 investigation with a view to the forfeiture of the charter. 
 
 The above programme will probably put the stock 
 down below twenty. All that you can buy at that figure 
 will give you a profit when we are hereafter ready to put 
 up the stock. 
 
 Imagine yourself a foreign stockholder under these de- 
 pressing circumstances. You naturally tear your hair 
 and sell out without a moment's delay. Perhaps it does 
 not occur to you that the party who put down the price 
 will, in fact, become the purchasers of your stock. 
 
CONTROL. 35 
 
 Let us now avail ourselves for a moment of the privi- 
 lege extended to the dramatist and novelist, and say that 
 here an interval of some months has elapsed, and then let 
 us suppose ourselves meeting again amid personal sur- 
 roundings similar to those above outlined. Our little 
 friendly pool has sold " short " largely, beginning at 
 forty, and have " covered their shorts " (i. e., bought back 
 cheaply stock which they sold dearly for future delivery) 
 in the twenties. Some members of the pool who could 
 raise the ready money have bought heavily in the neigh- 
 bourhood of twenty. Since the meeting above described 
 .the market has undergone many fluctuations, but it is to- 
 day active and buoyant. Again we defer to Mr. Jeffer- 
 son J. Wiggins' great experience, and ask him what we 
 shall do. Again we summarize the effect of his masterly 
 advice in a few crude paragraphs : 
 
 1st. The market, says he, is favourable. Stock will go 
 up rapidly, if we have any thing to go up on. Why not 
 try something as follows ? 
 
 (a) Let organ state, at convenient intervals of time, 
 that, much needless alarm having been felt about the 
 floating debt of the Company, we are authorized to say 
 that our indefatigable President is negotiating with an 
 eminent firm of bankers for the complete discharge of 
 this indebtedness by the issue of (say) income bonds. 
 This will enable the Company to handle the unexpected 
 access of its business with unexampled promptness and 
 efficiency. 
 
 (b) Organ: We are delighted to announce that the 
 wretched croakers who prophesied a bad harvest are 
 wholly mistaken in their forecast. In respect of one 
 Road (our Road) at least, it is confidently anticipated 
 that the volume of business will surpass the record of 
 any previous year. 
 
36 CONTROL. 
 
 (c) Organ again : We are glad to be able to announce 
 that the prominent stockholder, whose deep sense of 
 integrity compelled him to institute a suit against the 
 Company, in spite of his reluctance to prejudice his own 
 pecuniary interests, has withdrawn his suit, and acknowl- 
 edges in his well-known frank and manly way that he was 
 entirely mistaken in supposing that a dividend on prefer- 
 ence stock had been improperly paid. We understand 
 that he has fortified his opinion by a large increase in his 
 already heavy investments in the securities of the Company. 
 
 (d) Organ again : We understand that our indefatigable 
 President has succeeded in securing, on very favourable 
 terms, an alliance with the K. C. B. system. By this well- 
 conceived and far-sighted policy it is plain that the im- 
 mense traffic accruing from a direct connection at Jericho 
 Junction with the Jerusalem extension of the K. C. B. 
 system will hereafter pass over the track of the A. B. (our) 
 Road, and indefinitely increase the volume of its already 
 enormous traffic. 
 
 (e) Organ again : In view of this astounding develop- 
 ment, the indefatigable President of the A. B. Railroad 
 has entered into negotiations with a prominent syndicate 
 of European bankers with a view to laying the whole line 
 of the A. B. Railroad with steel rails. It is thought that, 
 on the L. M. section of this great road, it may be neces- 
 sary to quadruple the existing track, in anticipation of 
 the immense access of business expected during the ap- 
 proaching Fall. 
 
 (f) Organ again : Negociations for extended terminal 
 facilities in the City of Q., which were recently intercept- 
 ed, have been resumed under conditions favourable to the 
 A. B. Railroad. This coup must be regarded as a most 
 important (though scarcely to be expected) addition to 
 
CONTROL. 37 
 
 the resources of this great system, which bids fair to swal- 
 low up its rivals, as the rod of Aaron swallowed the futile 
 devices of the Egyptian magicians. 
 
 (g) Organ again : We are authorized to contradict the 
 impression that any legislative investigation is intended, as 
 it has been conclusively demonstrated that no grounds ex- 
 ist for such a proceeding. A prominent Legislator has 
 stated in a recent interview that the future of the A. B. 
 Railroad appears to him exactly like that of the great 
 American Republic, occasionally decried by the ignorant 
 and irresponsible, but ultimately destined to proceed with- 
 out interruption on its majestic march, wholly regardless 
 of the petty obstacles interposed in its path by envious 
 and disappointed rivals. 
 
 It is scarcely necessary to say that Mr. Wiggins' insight 
 into the situation is promptly accepted, and week by 
 week the stock recovers itself by "leaps and bounds." 
 Once more the wretched foreign stockholder tears his 
 hair, and instructs his brokers without a moment's delay 
 to buy back the stock which, in an access of unreasoning 
 panic, he recently sold. " How, in the name of all the 
 gods," he says to himself, " can anybody be so foolish as 
 to part with a stock of this description for the nominal 
 value of fifty cents on the dollar? Well," he resumes 
 thoughtfully, " I was once foolish enough to sell out my 
 stock in obedience to a misguided impulse, and I suppose 
 that others are the unhappy victims of the same delusion. 
 Why should I not recoup myself at their expense ?" Poor 
 man ! He does not know that the same party which 
 bought his stock at twenty will before long quietly " un- 
 load " upon him in the neighbourhood of fifty, and that 
 ere two years have elapsed the same process with all its 
 harrowing details will be repeated. 
 
38 CONTROL. 
 
 But it is not merely in respect of the adroit manipula- 
 tion of the market that the word " Control " has a special 
 significance for the uninstructed investor. The word 
 involves many other important elements of success or 
 failure (e. g.) the question of leased lines, issue of new 
 capital, special contracts and the like. 
 
 Leased Lines. 
 
 As the investor becomes more familiar with the subject, 
 he will readily note that many trunk lines, which would 
 pay enormous dividends if standing alone, are grievously 
 hampered by parasitical groups of leased lines. He will 
 conclude that, in many instances, what are popularly 
 known as " feeders " might better be described as " suck- 
 ers." The old tree has plenty of sap, but it needs the 
 pruning knife. Instances of course occur in which an 
 expensive branch line not only pays its way but helps 
 the main stem. But, in a far larger number of instances, 
 branches constitute a serious embarrassment. Sometimes 
 it happens that the branch line has been originally built 
 by private projectors, either with a view to develope real 
 estate of their own, or in deference to popular clamour in 
 local circles. If the cost of building such a branch had 
 never been incurred, nor its adoption by a main line pro- 
 cured, a clique of land owners or perhaps a limited local 
 public might have been dissatisfied. But still topograph- 
 ical and physical conditions would have compelled them 
 to bring the bulk of their business to the main line. In 
 short, what the main line really gains from the extension 
 is, not the whole of the business carried by the extension, 
 but only the excess over and above the amount of busi- 
 ness which the main line would have obtained in any case 
 if the extension had not been built. That circumstance 
 
ISSUE OF NEW CAPITAL. 39 
 
 appreciably reduces the desirability of the branch, and 
 puts a new interpretation on its earning power, as com- 
 pared with the cost of construction and maintenance. 
 
 Or again, a branch line has been advocated by cordial 
 friends possibly even by one or two Directors of the 
 main line. The parties concerned have been sanguine 
 rather than critical, and a large guarantee of interest either 
 on the bonds or stock of the branch Company has been 
 given. There will come within the enquiring investor's 
 observation dozens of cases, in which the capitalized 
 value of the branch (on which interest in some form 
 has been guaranteed) is far in excess of any cold-blooded 
 and critical estimate of its real worth. Suppose six 
 or seven per cent, to be guaranteed on a capital far ex- 
 ceeding the value of a leased line. Next, suppose that 
 competition and Railroad Commissioners so reduce rates 
 that the main line can pay little or nothing by way of 
 dividend on its own stock. The holders of the securities 
 of the leased line have reason to rejoice in their assured 
 income. But the holders of the junior securities of the 
 main line can scarcely be expected to be enthusiastic 
 about it. The uninitiated investor will merely note that 
 careful and conservative boards hesitate very much before 
 committing themseves to such liberal guarantees ; but 
 that, under speculative forms of " Control," leased lines 
 have been accepted with astounding avidity. 
 
 Issue of New Capital. 
 
 The light-hearted issue of unnecessary capital is another 
 point which our simple-minded enquirer will naturally take 
 into consideration. It will, of course, have occurred to 
 him that the tendency of the times is unmistakably to 
 reduce the rate of interest earned by safely invested capi- 
 
40 CONTROL. 
 
 tal, in railroads as well as in other forms of enterprise. 
 Where invested capital is practically, though not nomi- 
 nally, earning twelve or fourteen per cent., he will note 
 that such a result is especially liable to suffer from the 
 " changes and chances of this mortal life." Such a rate of 
 interest is, of course, far less likely to be permanently 
 sustained than a rate of four or five per cent, on a sound 
 commercial security. It is at this point and in this con- 
 nection that his attention will fasten on the question of 
 unnecessary capital, which practically amounts to " water" 
 in one form or another. It is plain that, if a railroad is 
 to-day earning four or five per cent, on any given capital, 
 including " water," while only (say) half of that capital 
 was really and honestly invested in the undertaking, it is, 
 in fact, earning eight or ten per cent, upon the capital in- 
 vested. It is easy for our enquirer to perceive that the 
 tendency of the times is adverse to the supposition that 
 very heavily " watered " concerns can permanently and 
 consistently pay large dividends on both genuine stock 
 and on a large and light-hearted infusion of " water." 
 
 Special Contracts. 
 
 If our enquirer is wise, he will probably not be greatly 
 intimidated by the idea of " ghost trains." But he will 
 perhaps discover that, to a certain extent, discrimination 
 in favour of friendly cliques, under the guise of special 
 contracts for transportation etc., is not a mere figment. 
 Possibly he will do well to conclude that abuses of this 
 kind are incidents of a speculative form of " control," 
 but are emphatically discountenanced by every sound 
 and conservative administration. 
 
 Let us take, for example, some familiar irregularities 
 which would certainly have been restrained, if foreign 
 
SPECIAL CONTRACTS. 41 
 
 stockholders some fifteen or twenty years ago had been 
 more careful about their direct representation on railroad 
 boards. Let us suppose that a Director on a central 
 board is interested in an unfinished leased line which his 
 company desires to control, or holds shares in a rolling 
 stock company from which his board proposes to hire 
 cars, or has a heavy stake in an oil company with which 
 a special contract is to be made. His personal interest 
 points to a large capitalization and a liberal rental for a 
 leased line, to a liberal rent for cars, or to a low rate for 
 oil under any special contract that may be made. In 
 short, his personal interests are in direct conflict with his 
 fiduciary capacity. No doubt his faith in the value of 
 the subordinate undertaking, in which he has become a 
 shareholder, was the cause of his investing in it. But, 
 just because his confidence in its merits is very great, his 
 estimate of its value is apt to be somewhat sanguine. It 
 would be by no means as critical as the view of a Director 
 who represented exclusively interests which would be best 
 subserved by strict economy. 
 
 A few years ago the European stockholder did not 
 know enough about American railroads to put his finger 
 on the real points of leakage. He was credulous enough 
 to believe that his railroad did not pay, because American 
 engineers were incompetent, and American officials could 
 not run a railroad efficiently and keep its accounts clearly. 
 Our enquirer is very likely to infer from what he sees that, 
 if European investors had concentrated their vigilance and 
 attention on the wise and conservative administration of 
 financial and board business, instead of worrying them- 
 selves about engineering and executive details, they 
 would have saved untold millions of cash, which are to- 
 day, so far as they are concerned, represented exclusively 
 by a mournful experience. 
 
42 CONTJWL. 
 
 He will pay some attention to the relation which sub- 
 sists between the real owners of a railroad and the repre- 
 sentatives by whom their interests are protected. Sup- 
 pose him to have acquired his knowledge of railroad 
 administration in England, it will appear to him incon- 
 gruous that one set of people should have provided all 
 the capital, and that quite another set should control it. 
 In England stockholders commonly build a road out of 
 their own resources ; and when they have brought it to 
 such a point of development as to constitute a real se- 
 curity for money, they mortgage it, in the form of bonds, 
 for all that it will carry. Obviously, in such a case, stock- 
 holders are the real owners of the property, and the bond- 
 holders are their mortgagees. So long as the obligations 
 of the mortgage are properly fulfilled, the bondholder has 
 no reason for complaint, unless indeed the corpus of the 
 security is wasted by the methods adopted for the raising 
 of the interest. But in a great number of American rail- 
 roads the stockholders had no means of their own out of 
 which to construct and equip a railroad. The foreign bond- 
 holders supplied the money ; the native stockholder was 
 in clover. He stood to win, and not to lose. If the re- 
 sources of the district not only grew up to the fixed 
 charges, but made the railroad worth more than its fund- 
 ed debt, the excess of value was the stockholder's profit. 
 If success stopped somewhat short of this, he disposed of 
 contracts to intermediary construction companies, and 
 stood in with them. But whatever profit he made came 
 out of the bondholder's pocket, and, if the enterprise 
 proved a failure, he lost nothing. 
 
 It is plain that burthens and privileges are closely corre- 
 lated. Profit, power, control, patronage, are properly in- 
 cident to the cash that builds the railroad. When foreign 
 
 
SPECIAL CONTRACTS. 43 
 
 investors furnished ten or twenty millions of dollars, why 
 not, in every case, have provided for a strong confidential 
 representation and protection of their own interests, with 
 a condition that their representatives should be properly 
 compensated as an incident of the capital which they 
 provided before stockholders, who found no money, 
 were entitled to profit ? Our enquirer will note that, 
 either in the case of original investment or in a reorgani- 
 zation, the sort of control which will best serve his pur- 
 pose is the control of the people who find the money, and 
 not 01 the people who do not. 
 
CHAPTER IV. 
 
 COMBINATION. 
 
 IT has often been said that combination of railroads 
 would tend to undermine the rights of the people, and 
 grievous disasters have been prophesied in its name. An 
 a matter of fact, judging by a critical rather than by an 
 emotional standard, we must admit that the disasters 
 predicted have not, so far, come off in accordance with 
 the programme of the alarmists. Whatever dangers may 
 result to society, in a political point of view, from the 
 concentration of vast fortunes in the hands of the few, 
 combination has certainly not issued in the raising of 
 rates. So far, the public at all events has no reason for 
 complaint. It has indeed been objected to combination 
 that power would be centralized in fewer hands ; that the 
 limits of possible coups would be enlarged, and the in- 
 ducement to institute them correspondingly increased ; 
 that ampler funds would be available for the caprice of a 
 speculative board ; that the representation of parallel and 
 possibly conflicting interests would become less direct 
 and less crisply defined. Further that it would become 
 possible to subordinate the interests of one or another 
 section of a combined undertaking to those of a particular 
 section in connection with which a coup was projected. 
 
 Though experience shows that such apprehensions were 
 not wholly unfounded, the obvious answer occurs that 
 dangers of this kind are inherent in speculative control ; 
 
 44 
 
COMBINA TION. 45 
 
 and are not valid objections to the principle or prac- 
 tice of combination as such. Given a sound and con- 
 servative administration, in which the rights of various 
 elements composing the combined undertaking are ade- 
 quately and intelligently represented, the dangers feared 
 become shadowy in the extreme. If the holders of the 
 stock of a section were properly represented on the cen- 
 tral board, to pet one section and starve another would 
 simply be out of the question. No unjust discrimination 
 in investing funds provided in the interest of the general 
 undertaking would for a moment be tolerated. Specula- 
 tive investment (e. g.) in coal lands, real estate, unfinished 
 leased lines, or other " fads " would be resolutely op- 
 posed and at once killed by inside and responsible oppo- 
 sition. 
 
 It cannot be doubted that the substitution of a central 
 board for two or three sectional boards makes a substan- 
 tial saving in the cost of administration. If the services 
 of competent men are secured for sectional boards, they 
 must be paid for at market price ; and a very cheap arti- 
 cle will scarcely answer the purpose. Again, a combined 
 enterprise has the advantage of undivided judgment and 
 unrestricted freedom in laying out its programme of 
 through business. The several sections are under one 
 control, and can be worked with organic unity and pre- 
 cision. The elasticity of existing resources is multiplied.' 
 The rolling stock, equipment, staff and general appurte- 
 nances can be shifted and transferred with facility. Pres- 
 sure in one part of the system can be relieved by the 
 superfluous resources of another part. The economy 
 towards which combination tends is not a matter of a day. 
 It operates during the whole three hundred and sixty-five 
 days of the year. 
 
46 CO MB IN A TION. 
 
 Then again, wasteful or unnecessary forms of competi- 
 tion can, in many instances, be suppressed or dispensed 
 with. While it is quite true that, in the main, competition 
 protects the public against unfair charges, it is possible 
 (in vernacular language) to run this principle " into the 
 ground." The public needs a certain amount of trans- 
 portation. The best service will be rendered by that 
 system which supplies exactly what is wanted, no more 
 and no less. When two competing companies send 
 rival trains approximately from and to the same ter- 
 minal points, and each is loaded far below the point of 
 paying business, that is not really beneficial to the public. 
 Neither of the two companies dares to withdraw its train, 
 lest its rival steal a march. The result is a service in- 
 ferior from the point of view of the public, because unre- 
 munerative from the point of view of the transporting 
 companies. An appreciable amount of power is wasted 
 in unnecessary friction. Combination would enable the 
 rival companies to put on one superior train, instead of 
 two or three inferior ones, adequate to all the requirements 
 of the public at a slightly reduced price, and to make a 
 living profit for their stockholders besides. The encour- 
 agement would grow and multiply as development pro- 
 ceeded under the guidance of sound management. It 
 would come to be understood that the interests of the 
 public and of the transporting companies, though not 
 strictly co-extensive, largely overlap one another, and that 
 the best result, from both sides of the question, is that a 
 genuine and satisfactory service be consistently and unin- 
 terruptedly rendered at a fair market price. The recurring 
 disturbance of existing contracts and relations produced 
 by the strain of excessive competition, and the uncer- 
 tainty and disappointment incident thereto, are highly 
 
COM BIN A TION. 47 
 
 injurious to prosperous trade and public convenience on 
 the one hand, and to successful railroad administration on 
 the other. It is, in the writer's opinion, a grave mistake 
 to suppose that the inferences derivable from experience 
 really point to the conclusion that railroads judiciously 
 combined or consolidated are less efficiently managed 
 than those which are operated by fractions. As Mr. C. F. 
 Adams Jr. has well pointed out,* the enlargement of 
 power, judgment and resources is apt to beget an enlarged 
 sense of responsibility. Suppose many years ago the 
 English Government had permitted the combination of 
 the southern lines leading out of London, and had, in 
 consideration thereof, asked one or two minor concessions 
 for the protection and convenience of the public. Does 
 any practical railroad administrator doubt that a better 
 and cheaper service would to-day be at the command of 
 the public, and that the stockholder would be the richer 
 by untold thousands of pounds? No doubt such a com- 
 bination, in order to be thoroughly satisfactory, would 
 have needed at the outset very skilful adjustment of sub- 
 sisting interests, and very adequate and balanced repre- 
 sentation of those interests for all time. But that would 
 not have formed an insuperable difficulty, if the immense 
 advantages of enlightened combination had been thor- 
 oughly understood and frankly accepted. 
 
 If the foregoing view be substantially true, our en- 
 quirer will not be at all frightened at the mere fact of 
 combination as such. On the contrary, he will be wise to 
 bear in mind that the unmistakable tendency of compen- 
 sation to transporting companies is towards a lower, not 
 a higher, level ; and that, as a corollary, the investor 
 must expect, as the years go on, to get a lower rather 
 
 * " Railroads : Their Origin and Problems," C. F. Adams Jr., 1880. 
 
48 COM BIN A TION. 
 
 than a higher rate of interest for the money which he 
 locks up in railroads. In selecting his investments he de- 
 sires, as a matter of course, to evade the consequences of 
 this systematic reduction of interest as far as practicable. 
 The economies which are rendered possible by judicious 
 combination will probably go far towards effecting this 
 object. He will of course have a preference towards 
 those examples of combination which are least liable to 
 speculative control, or to legislative or official interference 
 with competent private management, and which exhibit, 
 in the most effective form, an adequate and permanent 
 representation of legitimate subsisting interests. 
 
CHAPTER V. 
 
 POOLS. 
 
 Our observer will certainly be struck by the import- 
 ance attaching to the " Pool " in connection with various 
 aspects of investment. Concerning its moral status and its 
 relative necessity or expediency, he will find abundant in- 
 formation in current text-books. The question in which he 
 is directly interested is rather whether the creation of a 
 pool is calculated permanently to solve apparently insu- 
 perable difficulties arising between competing railroads of 
 which he holds, or is disposed to acquire, the securities ; 
 or whether the mere existence of a pool contains for him 
 adequate reason for alarm or distrust. As in practical 
 business the word is used in a variety of senses, it will be 
 proper to note that the following observations relate not 
 to any speculative or " blind " pool. The objections to 
 which this form of the thing is liable are of that general 
 kind which apply to all forms of speculative control. The 
 pool referred to is simply the expression of a serious 
 necessity which attends the development of railroad en- 
 terprise, and may be regarded as a sort of convenient 
 half-way house between internecine competition on the 
 one hand, and wholesale combination on the other. Per- 
 haps the most striking illustrations connected with the 
 subject may be found in the well-known " Granger " cases, 
 and the experience of the railroads affected by them. 
 
 A period occurred in the history of America when the 
 
 49 
 
50 POOLS. 
 
 universal cry was " Go West." Prophets of this doctrine 
 took little pains to determine how far west the energetic 
 fortune-seeker should go, or under what conditions as to 
 personal aptitude and accumulated savings he might fairly 
 count on a successful career. As the wave of emigration 
 crept steadily westward, and many pioneers attained sub- 
 stantial success, it seems to have been taken for granted 
 that the farther west a man went the better results would 
 he obtain, and the shorter would be his route to fortune. 
 In the case of the miner, this forecast was often justified. 
 But in the case of the agriculturist serious disappointment 
 was in store. In early days there was an old-fashioned 
 idea that it would not pay to raise agricultural produce 
 beyond a certain distance from a market. This well- 
 founded notion was apparently discredited by a period of 
 reckless activity in railroad construction. Intending 
 farmers settled in districts notoriously deficient in facili- 
 ties of transportation, apparently forgetful of the obvious 
 certainty that no future railroad would permanently 
 consent to carry their produce to market at a loss. It 
 gradually became apparent that, if the farmer could not 
 obtain transportation at an extraordinarily low rate, his 
 produce would not be worth the cost of transportation, 
 and he would eventually go to ruin. But the construc- 
 tion and operation of a railroad postulates fixed charges. 
 An existing railroad could not honestly be required to 
 carry his produce to market at a loss ; and, in face of ex- 
 traordinarily low rates, railroads in the future would not 
 be built in his district. Under such conditions, it was 
 natural that grave issues should arise between the farmers 
 who desired to get a living, and the railroads which were 
 built for the purpose of making money. The latter had 
 a right to urge that their charters were in fact contracts ; 
 
POOLS. 5 1 
 
 that they had locked up vast sums of money as a consid- 
 eration for being permitted to run their business in their 
 own way, subject to the fair interpretation of the law of 
 the land ; that their charters formed part of that law, and 
 that it would be a monstrous injustice to deprive them of 
 a large and permanent investment by ex post facto confis- 
 catory legislation. 
 
 The farmers on the other hand contended, roughly 
 and in effect, that the regulative power inherent in a 
 State entitled its Executive not merely to prohibit abuse 
 or to redress established grievances, but practically to 
 assume the administrative functions of railroad manage- 
 ment, such as the framing of rates, adjustment of the difficult 
 problems of competition, and in some instances even 
 limitation of dividends on stock. Every producer, they 
 contended, should be placed on precisely the same footing 
 as regards facilities and cost of transportation, whether he 
 lived far from or near to competitive points, and whether 
 the freight which he shipped was large in quantity and 
 certain in point of delivery, or whether it was small in 
 quantity and so irregular in point of delivery as to greatly 
 multiply the expense and trouble of the transporting com- 
 pany. 
 
 The 'truth would seem to be that it is no part of the 
 proper functions of a railroad to review and correct, at its 
 own expense, the errors in judgment committed by those 
 settlers who selected for themselves spheres of industrial 
 activity ill-adapted to accomplish the purposes of their 
 selectors. Let us suppose that A. has located his farm, 
 flour mill, or lumber mill with genuine insight into the 
 physical conditions which, in the natural growth of the 
 country, tend to ensure success (e-g.\ his enterprise is 
 located within measurable distance of water transporta- 
 
52 POOLS. 
 
 tion. It is also near a railroad junction, which promises 
 to become a competitive point of substantial importance. 
 He is plainly entitled to the credit of his forecast that 
 the conditions of transportation will be permanently 
 favourable to his enterprise, and to the benefits derivable 
 therefrom. Let us suppose that B. has selected a site for 
 his farm or mill very remote from water carriage and 
 from a competitive railroad point. It is possible that a 
 branch railroad may be built sufficiently near to give him 
 a modest chance of limited railroad facilities. But to in- 
 duce a constructing company to build such a branch line 
 is by no means easy. Perhaps the free grant of the right 
 of way, and of a block of land amply sufficient for depot 
 accommodation wherever a depot may be required, a 
 subsidy or subscription from villages or small towns on 
 the route, and, lastly, a high rate for passengers and 
 freight, may induce a speculative or sanguine company to 
 build the branch or extension under consideration. It is 
 probably constructed with reluctance, and its operation is 
 attended with loss. After it is built, but emphatically not 
 before, B. discovers that A., with the advantages of prox- 
 imity to water carriage and a competitive point, can reach 
 a market on better terms than he (B.) can ; and he taxes 
 railroads generally with unjust discrimination. In other 
 words, he would like the railroad to shoulder the unfor- 
 tunate results of his defective judgment. It is impossible 
 to convince him that A. is well placed, because he correctly 
 interpreted the situation, and that he (B.) is ill placed, 
 simply because he failed to do so. Why should a rail- 
 road company be expected to compensate out of its own 
 pocket any difference in point of business capacity that 
 may exist between A. and B. ? If a railroad be not bound to 
 do so, it follows, as a logical consequence, that it is no part 
 
POOLS. 53 
 
 of the functions of a State to compel it to do so. The obli- 
 gation of the State to compel a railroad to undertake gratu- 
 itous and costly experiments necessarily falls to the ground, 
 if the duty of the railroad in that behalf be disproved. 
 But the champions of the " Granger " movement could 
 not be convinced of the absolute necessity, not to say ex- 
 pediency, imposed on railroad administrators of charging 
 such rates as traffic would bear. 
 
 One school contended earnestly for the theory that all 
 freight should be charged on an absolute basis of mileage, 
 ignoring the certainty that, under such conditions, a 
 railroad could not efficiently conduct its "way" and 
 "through" business, without incurring the penalty of 
 starvation. If its competitive rates were raised to the 
 level of its local rates, it would of course lose its com- 
 petitive business. If, on the other hand, it reduced 
 its local rates to the level of its competitive rates, it 
 could earn no income sufficient to keep it from insolvency. 
 Another school contended for rates based on cost of ser- 
 vice, overlooking the consideration ably pointed out by 
 Prof. Hadley in his excellent work on transportation, 
 that such a course could not permanently tend to the 
 steady and systematic reduction of rates. All freight 
 moved on the basis of the cost of service must bear its 
 pro raid of fixed charges. Suppose the fixed charges 
 are honestly and inevitably heavy. The result is obvious : 
 If in America, where fixed charges are often unduly bur- 
 densome, this basis had been universally adopted, rates 
 would have ranged much higher than is the case to-day. 
 A third school thought the true remedy lay in the defi- 
 nition by Railroad Commissioners of reasonable rates. 
 But experience only repeated itself, and plainly showed 
 that technical problems, which have for years defied solu- 
 
54 POOLS. 
 
 tion at the hands of the ablest experts, could not so lightly 
 be disposed of by less adequately trained Government 
 officials. 
 
 From the poverty of the agriculturists who settled too 
 far from their market arose, to a great extent, the embar- 
 rassment of numerous Western railroads with which the 
 foreign investor has a painful familiarity. As time went 
 on, many of these smaller roads recognized that their sole 
 chance of salvation must be sought in combination ; and, 
 in isolated instances, arrangements favourable to the inves- 
 tors in the absorbed lines were eventually made. But, 
 while the consolidation of isolated lines into large organi- 
 zations was probably beneficial to the country, it tended 
 to define and sharpen the lines of competition between 
 the larger systems. To state the result shortly, several 
 East and West lines, fairly compact in external form, but 
 varying greatly in prospective value and organic symmetry, 
 became very keen competitors for East and West trade. 
 To include them all in one gigantic combination was 
 obviously impracticable, their financial history, intrinsic 
 merits, future prospects, and modes of administration 
 being not sufficiently homogeneous. To fight out the 
 competitive battle to its logical conclusion could only 
 result in starving them all. So the pool was devised, 
 as a modus vivendi, by which business which could not 
 give a profit to all should still be so distributed as to give 
 something to each. The basis of distribution differed 
 from time to time, and as a matter of course there were 
 always to be found dissatisfied parties. But, as between 
 the railroads and the public, the result was on the whole 
 beneficial. Stability of rates is, from the point of view of 
 the trading public, second only in importance to lowness 
 of rates. And, if this result could be consistently main- 
 
POOLS. 55 
 
 tained, practical railroad men would see no insuperable 
 objection to pools. 
 
 On the other hand, it must be borne in mind that 
 there is no pool without a leak. Although the trunk- 
 line pools in this country have been greatly helped by 
 the immense ability and exhaustive knowledge of Mr. 
 Fink, experience shows the enormous difficulty of keep- 
 ing fairly in hand such a vast mass of conflicting inter- 
 ests. The truth is that, comparing mileage with tonnage 
 and practicable rates throughout the year, there is not 
 enough to go round so as to satisfy everybody. The 
 stronger company reasonably contends that a pool is de- 
 vised for the benefit of the weaker. But it is an incident 
 of weakness to fail in seeing ourselves as others see us ; 
 and, if the weak ask too much, the strong are driven to 
 rely on their own force, and to adopt an independent policy. 
 If in a trunk-line pool all parties could agree to abide by 
 the decision of an extraordinarily able Commissioner, and 
 recognize that two and two make four, it is probable that 
 the success of pools in this country 'would be assured. 
 But, if they are of opinion that two and two make seven, 
 their arbitrator, however able and honest, must neces- 
 sarily have an up-hill game. 
 
 So long as our observer takes note of the practical re- 
 lation which a pool bears to the securities in which he 
 proposes to invest, he will find no difficulty in protecting 
 his money ; and he may leave the theoretical merits or 
 demerits of the modern pool to the exponents of political 
 economy and railroad administration. He will probably 
 conclude that the necessity for a pool indicates a certain 
 amount of weakness somewhere, and that this weakness is 
 most likely to make itself severely felt in the experience 
 of the feebler corporations. 
 
CHAPTER VI. 
 
 WATER. 
 
 MUCH has been written about the ethics of stock- 
 watering, and from this point of view the subject has 
 been pretty well threshed out. But its effect on invest- 
 ment has produced such serious results that it may be 
 thought to deserve a short notice. 
 
 Let us suppose that a going concern finds itself in a 
 position to earn 15 or 16 % on the capital invested. The 
 first impulse of its managers will probably be to observe 
 strict reticence on the subject of its profits. To advertise or 
 publish them without reserve would be to directly in- 
 vite the investment of new capital in the same field, and 
 to produce serious and possibly ruinous competition. A 
 ready solution of the difficulty presents itself. If the 
 capital on which dividend is paid be doubled, and the new 
 stock issued to the original shareholders, instead of paying 
 15 % on (say) $10,000,000, it will pay 7^ % on $20,000,000. 
 Now, if there existed any law which restricted the amount 
 of dividend payable on a going concern, this process 
 would obviously be a fraud as against the law which 
 created such restriction. But suppose no such law exists 
 in a given case, the infusion of water becomes a question 
 of commercial or corporate tactics. The managers of an in- 
 dustrial enterprise do not profess to be philanthropists. If 
 they can make a large profit without transgressing the 
 law of the land, it is their business to do so in the interest 
 
 56 
 
WATER, 57 
 
 of their shareholders. If a railroad board can distribute 
 large dividends, their interest in the public is necessarily 
 subordinate to their interest in their own corporation. 
 They may properly contend that all the features of their 
 organization adjustment of their capital, status of their 
 funded debt, mode of administration, distribution of 
 profits etc. are all parts of a mechanism which is not an 
 end in itself, but a means to an end. The ultimate assets 
 owned by the company are neither increased nor dimin- 
 ished by the infusion of water. But its component parts 
 are expressed or represented on paper in different terms. 
 It may be that the holders of $20,000,000 of stock paying 
 7|- % dividend can do better with it on the market than 
 with $10,000,000 of stock paying \$%. If the administra- 
 tion be honest and conservative, the infusion of water will 
 not interfere with the productiveness of the concern. If 
 it be speculative and adventurous, more frequent and lib- 
 eral opportunities will occur for the manipulation of finan- 
 cial coups. To take a well-known instance : before the im- 
 mense infusion of water into the N. Y. Central system, it 
 was plainly earning an enormous dividend on the capital 
 invested. Even after the infusion of 100 % of water, it 
 paid such large dividends, and was such a strong and 
 flourishing concern, that the projectors of the West Shore 
 Railroad were tempted to scramble for a part of the 
 profits, and were willing to spend a good deal of money 
 for the exercise of that privilege. Whatever may have been 
 the moral or social merits of the late Commodore Vander- 
 bilt's coup, there can be no doubt whatever that the stock- 
 holders of the railroad did not eventually lose thereby. 
 So active is the desire of keen trading communities to 
 transfer capital from fading industries to those which ap- 
 pear to be unusually remunerative, that the owners of 
 
58 WATER. 
 
 very profitable going concerns hold their tongues about 
 their profits till they are ready to sell out to a joint-stock 
 company. It is not the morality of stock watering to 
 which our observer will address himself, but rather the 
 numerous disguises to which it gives occasion, and the 
 disastrous mistakes which it invites and promotes. Mil- 
 lions of dollars have been invested on foreign account in 
 American railroads under conditions which excited the 
 amazement and mirth of the native investor. During one 
 period of great " inflation," it seemed as if a liberal infu- 
 sion of water rather increased than diminished the value 
 of shares which were unloaded on Europe. 
 
 To determine with any thing like precision what rela- 
 tion nominal capital bears to capital actually, honestly, 
 and economically invested in a concern is perhaps too seri- 
 ous an undertaking for the ordinary investor. Life is not 
 long enough, nor opportunities for searching investigation 
 sufficiently accessible, to render such exhaustive research 
 feasible. But, in a superficial survey of American rail- 
 roads, many instances occur of so striking and unmistak- 
 able significance, that very cursory observation may suffice 
 to prevent the more serious class of mistakes. If a rail- 
 road company, which has honestly expended (say) $25,- 
 000,000 and has a road worth (say) $30,000,000 to-day, 
 expects to provide for an indebtedness of (say) $50,000,000 
 or $60,000,000, paying a fair rate of interest, (say) 4%%, it 
 can only do so on the assumption that it does now earn, 
 and will continue hereafter to earn, some 9 % on capital 
 really invested. The signs of the times distinctly tend to 
 show that such a result is improbable in the last degree. 
 Great as have been the benefits conferred on the public 
 by the constructors of railroads, the public, which they 
 have served well and in the face of immense risks, will not 
 
WA TER. 59 
 
 pay them at anything like the rate of g% or 10% for the 
 capital which they have invested and the services which 
 they perform. If the public will not permanently pay in- 
 terest on " water," the investor will do wisely to take this 
 circumstance into account. As it may properly be asked, 
 what indications in this direction are afforded by the railroad 
 situation of to-day, the answer is not far to seek. Amongst 
 other leading facts, may be mentioned the drift of State 
 legislation ; the institution and expressed views of Rail- 
 road Commissioners ; the tendency of the people to re- 
 gard railroad charters as benefits conferred on construct- 
 ing companies, rather than as unfortunate bargains on 
 the part of the grantees ; and the tendency of the courts 
 to push beyond its legitimate limits the regulative power 
 of State Legislatures and of Congress. 
 
CHAPTER VII. 
 
 PARALLEL LINES. 
 
 THE occasional practice of building new lines roughly 
 parallel and in unduly close proximity to existing and 
 successful old lines will possibly attract our enquirer's 
 notice, if only because it throws light on the value and 
 incidents of American State charters. The language of 
 a great number of subsisting State charters is satisfactory, 
 and there is no doubt about the validity either of the com- 
 pulsory powers conferred thereby, or of the rights acquired 
 thereunder by contracting parties. But it is possible to 
 read and interpret them in the light rather of English 
 parliamentary practice than of the procedure and environ- 
 ment of American State Legislatures, and such a course 
 would certainly lead to misconception. 
 
 As everybody knows, a company applying to Parlia- 
 ment for an act to construct its railway must prove the 
 preamble of its bill; or, in short, make out a case suf- 
 ficient, in the opinion of the Committees, to justify the 
 grant of compulsory powers. Parliament distinctly ob- 
 jects to permit interference with the rights of private prop- 
 erty, unless the existence of a public need be proved to 
 its satisfaction ; not merely or mainly because certain 
 forms of competition may be unnecessary or superfluous, 
 but on the reasonable grounds that the rights of private 
 owners of property ought not to be lightly interfered with, 
 in default of a public need, and for the mere purpose of 
 
 6p 
 
PARALLEL LINES. 6 1 
 
 helping a knot of speculators to make money. It follows 
 that, if an act be obtained authorizing the construction of a 
 railway through any given district in England, and the en- 
 terprise is usefully and successfully conducted, it would be 
 futile, in the last degree, for a new combination to apply 
 to Parliament for power to build a railway alongside of 
 it. Such new combination could not prove the exist- 
 ence of a real public need ; it would break down in prov- 
 ing the preamble of its bill. But, in the case of American 
 enterprises, we have to deal with a different set of local 
 conditions and, as a corollary, with a different mode of 
 legislative procedure. In America, outside of the mem- 
 bers of an old and successful railroad corporation, there 
 is scarcely such a thing as an opponent to the construc- 
 tion of a new railroad. Property-owners of every descrip- 
 tion welcome its advent. The trader, because it gives 
 additional facilities for the transportation of the pro- 
 duce which he handles. The land-owner, because it mul- 
 tiplies indefinitely the value of the balance of his land. 
 The professional man or casual resident, because it econo- 
 mizes his wear and tear in covering the long distances 
 incident to his life. The right of way can often be ob- 
 tained for the asking, without compensation, or at the 
 most a very trifling compensation in cases where dis- 
 turbance amounts to positive inconvenience. In thinly 
 populated districts the location of a station near partic- 
 ular hamlets or large farms is so eagerly desired that the 
 free grant of a substantial number of acres is frequently 
 offered. Townships or even hamlets on the line of a 
 projected railroad are generally willing to subscribe some- 
 thing towards its construction. Members of Legislatures 
 have no inducement to oppose the wishes of their con- 
 stituents. Practical shrewdness convinces all the natives 
 
62 PARALLEL LINES. 
 
 that they have every thing to gain, and nothing to lose 
 by the construction in their State of a new railroad. 
 Money will be freely spent during the period of construc- 
 tion, and will be absorbed by local circles. If the enter- 
 prise is successful, the whole neighbourhood will be bene- 
 fitted, and the taxable property of the State will be in- 
 creased. If it fails or is abandoned in a half-finished 
 condition, the unfortunate constructing company cannot 
 carry away bridges or tunnels in its pocket. The wreck 
 will hereafter be bought up cheaply, and utilized by some 
 local combination. It follows that a State Legislature has 
 no inducement to insist that a company applying for a 
 charter shall prove the preamble of its bill in the technical 
 English sense of the term. If, therefore, a new combina- 
 tion at anytime desires to "parallel " an old and subsisting 
 railroad, there has heretofore existed no serious obstacle 
 to the execution of its project, except such as may be 
 found to exist in the financial risks and difficulties in- 
 herent in every such enterprise. It is unnecessary here to 
 particularize the results of recent experiments in this 
 direction. It is plain however that, to justify so bold a 
 a game, a new combination must hold a very strong hand ; 
 and it needs a good deal of judgment to appraise relative 
 strength to a nicety. The new combination may possess 
 large means ; but it may also turn out that the old and 
 successful road against which the effort is directed is 
 stronger still. If, for instance, the old company's profits 
 are so large and unvarying as to justify a large expendi- 
 ture in order to compete for a slice of its income, it is 
 very possibly strong enough to starve the new undertak- 
 ing. Even granting, for argument's sake, that the rivalry 
 of the new organization is very formidable, and it feels 
 3ure of eventually compelling the absorption of its new 
 
PARALLEL LINES. 63 
 
 enterprise by the old company, the question inevitably 
 arises, on what terms can the absorption be compelled, 
 and is the game, as a net result, worth the candle ? To- 
 day, as of old, it is prudent to consider whether a board 
 with ten thousand can meet him that cometh against it 
 with twenty thousand. Possibly our enquirer will be 
 right in considering that the compulsory absorption of un- 
 necessary lines virtually amounts to the creation of new 
 capital, which is not desirable, in view of the canons of 
 political economy, and he will shape his course accordingly. 
 
CHAPTER VIII. 
 
 REORGANIZATION. 
 
 WHEN a cynic remarked that " fools build houses for 
 wise men to live in," he was understood to mean, in ref- 
 erence to railroad enterprise, that the resuscitation of 
 wrecked property often gives better results to the investor 
 than the construction of brand new lines. A very cur- 
 sory observation of the history of American railroads will 
 probably satisfy our observer that the utterance above 
 cited is, at best, only a half truth ; but that still the cynic 
 probably knew what he was talking about. He will find 
 no lack of instances in point. The most salient and im- 
 pressive are cases in which a new railroad has been, in the 
 main, well conceived. Let us suppose that the importance 
 of its terminal points has been considered. Its relations 
 to lines which it intersects, or with which it may hereafter 
 make more intimate and direct connection, have not been 
 overlooked. The volume of trade in a given direction 
 and through a given channel, with fair presumption in 
 favour of quantity and permanence, has been taken into 
 account. Constructive work of good quality has been 
 accomplished (e. g.) expensive grading and here and there 
 costly bridges and structures of permanent value. But 
 on a promising beginning has supervened a financial panic, 
 or a period of hard times, or disunion of shareholders, 
 or some speculative complication. Construction is at 
 first temporarily suspended, and after a time abandoned 
 
 64 
 
REORGANIZA TfOtf. 6$ 
 
 sine die. The ordinary incidents of receivership, fore- 
 closure etc. follow. As time goes on the outlook affords 
 little hope of any available income or profit to the share- 
 holders. Still a great deal of money has been sunk, and 
 to write this off without an effort would seem to be a 
 somewhat tame solution of the difficulty. Many meet- 
 ings are held, and generally the smallest stockholders are 
 the most eloquent and positive. The result is reorganiz- 
 ation in a form which gives control of the concern to the 
 men who provide the new capital. Now, assuming that a 
 railroad was in the first place fairly well conceived, and 
 has been brought within measurable distance of comple- 
 tion on a basis of (say) $25,000 per mile, a new combina- 
 tion or syndicate cannot hurt themselves very seriously if 
 they see their way to acquire the enterprise on a basis of 
 (say) $10,000 per mile. The advantage accruing to the 
 new syndicate is not confined to the mere pecuniary 
 cheapness of the acquisition. They succeed gratis to a 
 vast aggregate of valuable experience for which their 
 predecessors paid highly. They know more about the 
 general and local possibilities and the correlative draw- 
 backs of the enterprise than their predecessors could 
 possibly know at the outset, and they get this knowledge 
 without paying value received for it. On the whole, 
 resuscitation appears a more comfortable theory than 
 creation, and results are often found to justify this forecast. 
 On general principles then our observer will not be 
 deterred from investing in reorganized concerns by the 
 mere fact that their past history has been disastrous. He 
 will make a few superficial enquiries which may be neces- 
 sary for his protection, the answers to which will readily 
 occur. For instance, he will note as a matter of course 
 the amount of good money honestly expended on the 
 
66 &&ORGANIZA T10N. 
 
 property, as distinguished from outlay incurred through 
 intermediate construction companies, extravagant tem- 
 porary loans, and other complex financial arrangements ; 
 its relation to the new capital proposed ; the probabilities 
 of reasonably prompt completion, and therefore produc- 
 tiveness within a measurable limit of time ; and the nature 
 and extent of the control proposed to be given to the 
 persons providing the new capital. Next, it may be worth 
 his while to enquire how often and to what extent an 
 embarrassed railroad which it is intended to resuscitate 
 has done duty as a factor in prior reorganizations. He 
 will note that, in many great combined schemes, there 
 have been several weak and comparatively worthless 
 sections of line which were intrinsically and of their own 
 nature destined to insolvency. With a really clever 
 clique of capitalists possessing large means and influence 
 at the helm, this circumstance has in many instances 
 presented no insuperable obstacle to the ultimate manip- 
 ulation of a great coup, involving the unloading of worth- 
 less securities on European investors. Again a wrecked 
 line, well conceived at the outset and intercepted in its 
 career of success by panic or accident, may have been 
 employed as a serviceable stalking-horse, and its attrac- 
 iveness already exhausted. For instance, after it has 
 been bought up cheaply, the trumpet is freely blown and 
 a lively tune is played on the theme of its intrinsic merits. 
 It is now- once more warranted to carry almost exclu- 
 sively the vast business of (let us say) the far West to the 
 Eastern seaboard. Once more the unspeakably wealthy 
 districts which it will " tap " are indicated on an appro- 
 priate map. The dense black line on this map, which 
 indicates the route of the new figure-head portrays, with 
 its new connection, a line so nearly straight, or (in the 
 
REORGANIZATION. 67 
 
 current argot) is so nearly a " bee-line," that one marvels 
 how it can be possible that a single ton of freight should 
 go by any other route. It will be enough for our observer 
 to compare this dense black line with the ordnance map of 
 the United States. This will possibly give him some new 
 impressions on the subject. 
 
 In connection with the " tapping " business, it may 
 occur to him to enquire whether this process has not 
 been repeatedly performed on the favoured district dur- 
 ing the last few years. He may perhaps reflect that, 
 while " tapping " is essentially a festive process, it makes 
 all the difference to a thirsty man whether the barrel is 
 full or empty. He will also do well to enquire what are 
 the incidents of recent receivership. These sometimes 
 make serious calls on the resources of a demoralized road. 
 The annals of receivership record enormous claims for 
 compensation of receivers, among the largest being in a 
 heavy case $750,000 for seven months' service. Our 
 enquirer will be disposed to prefer systems which, if 
 they cannot pay a dividend, are somewhat more economi- 
 cal in their view of the compensation likely to be claimed 
 for official service. 
 
 It will sometimes occur that a relatively heavy 
 assessment on the stock of a distressed railroad is pro- 
 posed. Our enquirer, if he hold such stock, will do well 
 to consider a proposal of this kind somewhat carefully. 
 It may of course be worth while to protect his stake in 
 the concern by paying the amount required. But he will 
 bear in mind that, in a large majority of cases, the stock 
 which he is asked to protect really represents, not actual 
 outlay, but a contingency dependent on the net earnings 
 of the railroad over and above working expenses and fixed 
 interest on the bonds by means of which the road itself 
 
68 REORGAN1ZA TION. 
 
 was built. It may be that the value of the stock is purely 
 speculative ; useful for the purposes of the " Street," but 
 of little merit so far as the chance of a dividend is con- 
 cerned. Again, the destination of the money to be raised 
 by assessment is worth attention. If it is to be strictly 
 devoted to urgent repairs, improved equipment or the 
 like, the investment may be worth making. If it is to 
 be appropriated to the acquisition of speculative property, 
 or to the protection or development of collateral assets, a 
 single assessment will not permanently stop formidable 
 gaps ; and the process of taxing shareholders may be re- 
 peated at an unexpectedly short interval. The privilege 
 of holding unproductive stock on the terms of assessment 
 recurring at short periods may be somewhat too costly. 
 
 Per contra, the submission to assessment by stock- 
 holders may sometimes enable them to greatly strengthen 
 their position by suitable arrangements with the holders 
 of junior funded securities. The stockholder, who has 
 ready money wherewith to meet a real emergency, may 
 see his way to greatly fortify his position in a reorganiza- 
 tion. The possession of cash, and the courage to invest 
 St at a time of need, clothes him with special importance 
 and power. No doubt the owners of prior securities hold 
 the fortress and the big guns. But, in a period of emer- 
 gency, the owner of ready money controls the ammunition. 
 He is a very useful man in view of an immediate fight. 
 If the resuscitated railroad has already done duty as a 
 figure-head in one or two combinations which have re- 
 sulted disastrously, the observer will be disposed to ex- 
 tend his enquiries somewhat more closely to the actual 
 duty which it is at the moment called on to perform. 
 Perhaps it may be incorporated in a new combination to 
 facilitate the floating of a " blanket " mortgage. It is 
 
REORGANIZA T10N. 69 
 
 very commonly an incident of a " blanket " mortgage 
 that it covers under its ample folds one good section of 
 line and several bad ones. If such a case should come 
 under his notice, and he is the holder of sectional bonds 
 of the sound portion of the proposed combination, he will 
 do well to stick to them for the present. He need not be 
 afraid of further investment, because it is probably very 
 desirable to the holders of a great number of weak securi- 
 ties to float a "blanket" mortgage; and the holders of 
 bonds of the sound section are virtually masters of the 
 position. If they have ready money besides, they should 
 control the reorganization and have things pretty much 
 their own way. No very deep or close enquiry is necessary 
 to guide our observer in determining and identifying those 
 cases in which the lemon has been squeezed dry. Finan- 
 ciers have made several coups in them already. The most 
 speculative think they will not pay for another squeeze ; 
 and the confidence of the foreign investor is already well- 
 nigh exhausted. 
 
 Superficial enquiries of the kind indicated above tend 
 to prevent some of the most familiar and disappointing 
 forms of investment in resuscitated American railroads. 
 They may equally tend to indicate that resuscitation, re- 
 organization and combination with new elements are not, 
 by any means, necessarily prohibitory factors in connec- 
 tion with projected investments. 
 
CHAPTER IX. 
 
 PROXIES. 
 
 AMONGST other obvious conditions which have made 
 speculative control possible, our enquirer can scarcely fail 
 to be struck by the circumstance that, in the past, there 
 existed a remarkable divorce between the possession of 
 stock and the voting power properly incident thereto. It 
 is of course true that some fifteen or twenty years ago 
 there was not the same craze for direct representation in 
 every department of life or business which characterizes 
 the life and politics of to-day. But it will strike him as a 
 strange thing that one set of people should have paid for 
 and own the stock of a railroad company, and that the 
 voting power should be retained by Directors who, by 
 virtue of that very fact, would have the option of running 
 a railroad in the interest of a speculative clique, instead of 
 in the interest of its real owners. The injury which in 
 the past has accrued to foreign investors from the exist- 
 ence of this system of course admits of degrees, accord- 
 ing to the circumstances of each particular case. But, in 
 very extreme instances, the results have been in different 
 aspects both disastrous and ridiculous. Take, for in- 
 stance, the case of the Erie Road in the palmy days of 
 the notorious Erie Ring. A corrupt Legislature at Albany 
 controlled by Mr. Tweed and his friends had passed the 
 Erie Classification Act, by virtue of which only a small 
 proportion of the Directors could be retired at annual elec- 
 
 70 
 
PROXIES. /I 
 
 tions, thus leaving the power incident to a majority chron- 
 ically vested in a compact and highly organized party. 
 Now it happened that the Company had no power to issue 
 directly an unlimited amount of new stock at the dis- 
 cretion of Directors, who might for any reason desire 
 to water the capital. But, by the manipulation of a 
 power vested in the corporation, it was permissible to 
 issue bonds convertible into stock ; and this power, from 
 the point of view of the Ring, was sufficient for all prac- 
 tical purposes. The mode of procedure was, on an elec- 
 toral emergency, to issue (say) five or ten millions of dol- 
 lars of convertible bonds ; next to convert them into 
 stock, and then to leave the stock standing in the name 
 of one or more of the Directors or their brokers or agents. 
 The certificates were sold upon the " Street " at a nominal 
 price, and passed from hand to hand. But, if presented 
 for transfer, they were retained in the office of the Com- 
 pany under the pretext of " verification " etc., until the 
 election in view of which the new stock was issued had 
 passed. Of course, for the purposes of the immediately 
 pending election, the voting power was vested in the 
 Director, broker or agent in whose name the stock stood 
 on the books of the Company. Purchasers of the stock 
 certificates, having been precluded from obtaining transfer 
 till after the election, were altogether out of the hunt. 
 The party in control of course voted on the stock thus 
 detained for " verification," and equally of course voted 
 their own re-election. The late Mr. Jas. Fisk Jr. is re- 
 ported to have said that he could never be turned out of 
 his seat in the Erie Board, so long as he owned a printing 
 press. This is of course an extreme case ; but it serves 
 to illustrate the principle that a divorce between the legal 
 ownership of stock and the voting power which is its 
 
72 PROXIES. 
 
 proper incident is an unhealthy symptom in the life and 
 administration of a corporation. If, on the eve of an elec- 
 tion, stock which has little or no value (except for specu- 
 lative purposes) is bought up by the party in control at 
 (say) forty cents or fifty cents on the dollar, it is impos- 
 sible to resist the conclusion that permanence of control 
 must, for some reason or other, be a very desirable thing 
 to a party which is willing to pay so large a price for the 
 exercise of power. If our enquirer is induced to look up 
 this question and to ascertain for himself why any stock, 
 which does not pay a dividend in the present and has 
 little prospect of doing so in the future, should possess a 
 large marketable value, he may perhaps acquire informa- 
 tion which may be of use to him in his future invest- 
 ments. Nor will he fail to note that " controlling " 
 parties, who are willing to make considerable sacrifice 
 for the acquisition of stock necessary to maintain them in 
 power, are diligent in the promotion of the system of 
 proxies. The reasonableness or unreasonableness of the 
 proxy system must of course, in the last resort, depend 
 upon the reasonableness or unreasonableness of the dele- 
 gation of the trust which is involved in voting power. It 
 will not be denied that the exercise of voting po*wer is, in 
 every case, the exercise of a trust. Every trust contains 
 within itself an element of duty and of responsibility. 
 Every improper or rash exercise of a trust affects to a 
 greater or less extent the interests of other persons more 
 or less numerous. It may well and often does happen 
 that the delegation of power by proxy is in every respect 
 legitimate, proper and expedient. For instance, the ad- 
 ministration of a given railroad may have been for many 
 years past in every respect trustworthy, efficient and suc- 
 cessful. In such a case, the delegation of a controlling 
 
PROXIES. 73 
 
 vote by proxy to one or more Directors who are deserved- 
 ly entitled to the confidence of shareholders is a wise and 
 entirely justifiable step. The trustees of the interests of 
 stockholders have represented those interests to the best 
 of their power, and have earned the confidence of their 
 cestuis que trustent. But, in cases where the history of 
 a railroad has been marked by the unmistakable incidents 
 of speculative control, the proxy system is necessarily 
 fraught with danger. 
 
 Our observer will, in the course of his casual enquiries, 
 read some of these proxies, and he may perhaps observe 
 that they affect to pledge the giver of the proxy to some- 
 thing like a power irrevocable within a given number of 
 years, or even irrevocable absolutely. He will (not un- 
 naturally) ask what inducement there can possibly be for 
 the Trustees or practically the servants of the stock- 
 holders in a company to desire comparatively perma- 
 nent pledges in respect of a tenure of office, which can 
 only be desirable to shareholders so long as it is thorough- 
 ly understood by them to be held for their exclusive 
 benefit, and in the prosecution of interests neither directly 
 nor indirectly outside of their own. 
 
CHAPTER X. 
 
 FUNDING. 
 
 IN his casual survey our observer will note the great 
 number of enterprises which are hopelessly overloaded 
 by the volume and incidents of their fixed indebtedness. 
 The experience of the most successful English railways 
 certainly points to the conclusion that the adjustment of 
 a reasonable or even heavy measure of fixed charges is 
 not an insoluble problem. It does not necessarily cripple 
 the credit or impair the efficiency of a well-managed rail- 
 way, provided the rate of interest be not unduly burden- 
 some. But he will note that, in many American railroads, 
 while the senior securities receive an extraordinarily high 
 rate of interest, sufficient to take the marrow out of the 
 concern, the junior securities have nevertheless multiplied 
 to an extent quite passing the belief of the ordinary ob- 
 server. It goes without saying that the holders of prior 
 securities would always welcome a large extension of the 
 interests held by posterior encumbrancers. " But why," 
 he asks, " should junior securities have been heaped up at 
 such an unconscionable pace, and to such an incredible 
 amount, relatively to the value of the undertaking ? " 
 The true answer may perhaps be indicated as follows : 
 The trade of America, of which railroads are more or less 
 a barometer, has undergone many grave vicissitudes, which 
 it is unnecessary to specify in detail. To keep a concern 
 going under grievous pressure often needed immediate and 
 
 74 
 
FUNDING. 75 
 
 liberal outside assistance, and the foreign investor was 
 known to be, as a rule, dogged and staunch in protecting 
 investments to which he had committed himself. The 
 prior and best securities in American railroads were gen- 
 erally held by native capitalists, and the posterior and 
 more risky ones were unloaded on Europe. The spirit 
 of a familiar precept contained in the Levitical law * 
 seems to have been appreciated by the native capital- 
 ist in connection with dead or moribund concerns. 
 " Ye shall not eat," says the precept, " of any thing 
 that dieth of itself : thou shalt give it unto the stranger 
 that is in thy gates that he may eat it ; or thou mayest 
 sell it unto an alien." 
 
 Now the native holders of these prior securities naturally 
 maintained a very hopeful attitude of mind. If they had 
 not felt great confidence in the future of their country, 
 they would not have retained even prior securities. But 
 they believed that times would mend and that existing 
 troubles would be only transitory. Their confidence in 
 their investment was confirmed by the consciousness of 
 special strength derived from \hzpriority of their securi- 
 ties. They felt that sort of trust in Providence which 
 a poker player is supposed to feel when he holds four 
 aces. Every thing which they could do to stimulate the 
 confidence of investors in junior securities they conscien- 
 tiously and consistently did, short of reducing the rate of 
 interest to which their own securities were entitled. They 
 insisted on the temporary character of successive depres- 
 sions, and said re-assuring and often witty things about 
 the future of their railroads. 
 
 If, when collapse and stoppage of effective work were 
 imminent, foreign investors had insisted on measures of 
 
 * Deuteronomy, xiv., 21. 
 
/6 FUNDING. 
 
 funding, sufficiently drastic to place a railroad in a condi- 
 tion to bear its fixed charges, they would have occupied 
 an indefinitely better position to-day. The command of 
 ready money, sufficient to stave off a disastrous crisis, is 
 an immense screw power recognized to a greater or less 
 extent even by prior encumbrancers. A modest interest 
 in a solvent going concern is often more satisfactory than 
 a larger interest in an enterprise which may at any mo- 
 ment become unproductive or insolvent. If there be any 
 truth in this view, the proper time to assert it commonly 
 occurs when ready money is urgently needed. If such an 
 opportunity is missed, it may possibly not recur ; for 
 finance, like whist, rarely forgives a blunder. In a vast 
 number of instances occasions suitable for drastic meas- 
 ures of funding were overlooked. And so it came to pass 
 that the native investor sat down quietly in the enjoyment 
 of his seven or eight per cent., and advised the junior 
 encumbrancers to settle it among themselves. He pru- 
 dently withdrew from the strife 
 
 . . . " ere close of day, 
 And bade the rest keep fighting." 
 
 To ask prior encumbrancers to concur in funding ar- 
 rangements of drastic character is of course to ask a 
 great deal. Sometimes the mere magnitude of an under- 
 taking renders it improbable that prior encumbrancers 
 will fail to get their coupons paid for several years to 
 come. Of course, the greater the value of posterior in- 
 terests, the greater is the probability that the first mort- 
 gagee will be saved harmless. As long as he gets his seven 
 or eight per cent, on bonds which he originally bought at 
 prices far below their face value, he has every reason 
 to be satisfied with the status quo. Delay is altogether 
 
FUNDING. 
 
 77 
 
 In his favour, and the energy developed by persons who 
 desire to include him in funding arrangements seems to 
 him repulsive, not to say unchristian. On the other hand, 
 a railroad of large mileage, burthened with excessive capi- 
 tal and in inferior working condition, is not an article 
 which, in the event of a foreclosure, every investor (even 
 a first mortgagee) would wish to acquire or could use 
 with effect. There is something of the white elephant 
 about it. It is not given to every one to handle a white 
 elephant as Mr. Barnum did. Capitalists possessing enor- 
 mous resources might, in rare instances, be able to do 
 so, in the confident expectation of persuading the public 
 to shoulder the heavier portion of the weight to be car. 
 ried. But nothing short of exceptional ability, backed by 
 liberal supplies of money, could cope with the situation so 
 as to make a profit. Probably in the long run a thor- 
 oughly liberal adjustment, by funding the fixed indebted- 
 ness of an overburthened enterprise, would be best for all 
 parties, even though it postulated exceptional foresight 
 and generosity in respect of sacrifices and concessions which 
 would be inevitable. The history of a great railroad may 
 fairly be regarded as covering a large area in national 
 growth and development, far larger than that which is 
 embraced by an individual life. There is both need and 
 room for a long range of foresight, and for a corresponding 
 generosity in the interpretation of prospective, sometimes 
 very remote, conditions. Our observer will note that the 
 wise adjustment of fixed charges is an element too im- 
 portant to be lightly passed by. The price of money, 
 popular sentiment, trade depression, and in short the 
 general tendency of the times point. to the conclusion 
 that railroad profits in the future may suffice to pay rea- 
 sonably good and safe interest on fixed indebtedness; 
 
78 FUNDING. 
 
 but that, if the encumbrancer expects a rate of 
 seven or eight per cent, on bonds which were originally 
 bought at (say) sixty per cent, of their face value, or seven 
 or eight per cent, on the capital of leased lines which were 
 capitalized and taken up at prices representing two or 
 three times their value, there cannot be enough to go 
 round. 
 
 That the holders of junior securities get very little in 
 any given year is not the worst feature of the situation. 
 It has been said above that reasonably large fixed charges 
 at a moderate rate of interest were not disadvantageous. 
 The reasons are sufficiently simple. Outlay which ought 
 to be charged to capital account can be so charged and pro- 
 vided at a moderate rate of interest. This leaves in the 
 hands of the administration a large fund of ready money, 
 which is of incalculable value in the conduct of their bus- 
 iness. All that they need to purchase can be purchased 
 in the most convenient market, of the best quality, and at 
 the lowest prices, for cash. Labour is liberally and regu- 
 larly paid, and the railroad service is improved thereby. 
 The floating debt is not permitted to accumulate un- 
 fairly ; nor paper put on the " Street " at extravagant 
 rates of interest. The cost of incessant litigation, varied 
 by an occasional receivership foreclosure and reorganiza- 
 tion, is avoided. The immense economies, which are pos- 
 sible to a solvent road paying only reasonable interest on 
 its fixed indebtedness, and employing its earnings so as to 
 utilize the maximum purchasing power of ready money, 
 go far not only to make the road generally successful, but 
 to clothe its securities with stability. It may be worth 
 noting that where American railroad securities have shown 
 stability for some years, there is a very strong presump- 
 tion of an indefinitely progressive increase in value. Ex- 
 
FUNDING, 79 
 
 ceptional circumstances may, of course, interfere with 
 such a result. But, as a general rule, a railroad which has 
 for some years produced a steady profit has an excellent 
 chance of uninterrupted advance in prosperity. Every- 
 body realizes that demand creates supply. It is some- 
 times worth bearing in mind that supply in turn creates 
 demand. A sound railroad administration, and the effec- 
 tive service incident thereto, attracts to itself fresh accre- 
 tions of business, not merely because the business of the 
 country increases and grows up to meet the outlay origi- 
 nally made in construction, but also because peace, sta- 
 bility and credit are substantial factors in commercial 
 success. 
 
 Of course, it may be said that many railroad corpora- 
 tions which do not hold this creed hang on to life and, to 
 a greater or less degree, satisfy the aspirations of their 
 shareholders. That is no doubt true to a certain extent. 
 But satisfaction in the present is heavily discounted by 
 the confident forecast of difficulty in the future. A rail- 
 road which is hopelessly overburthened must some day or 
 other face the axioms of the multiplication-table, and rec- 
 ognize that two and two make four, and not five. Take 
 the case of a railroad which finds itself to-day unable to 
 meet its funded indebtedness without immense prospec- 
 tive sacrifice. To make any show at all, it must let its 
 track and equipment run down. It is strongly tempted to 
 disguise to a greater or less extent its floating debt, and 
 to ignore engagements on paper which have not matured. 
 Its credit is impaired, and the purchasing power of paper 
 is very inferior to the purchasing power of cash. It is con- 
 stantly liable to the incidents of hostile action ; it must 
 get ready money somehow, and it gets it at an exorbitant 
 price. When the end eventually comes, it is quite cer- 
 
80 FUNDING. 
 
 tain that somebody will be badly hurt. You cannot rea- 
 sonably expect a syndicate to find money for a sinking 
 concern, without adequate compensation and approximate 
 security. But, if the situation is radically a false one, it is 
 extremely doubtful whether it is worth while to prolong 
 the agony. Our observer will do well to make note that 
 the necessity of drastic measures of funding and the pos- 
 sibility of carrying them out may afford him profitable 
 subject for reflection in connection with railroads in which 
 he holds, or proposes to acquire, an interest. 
 
CHAPTER XL 
 RECEIVERS' CERTIFICATES. 
 
 A FORM of security in which a good deal of money 
 has been made and lost is the Receivers' certificate. It 
 may be said shortly t that investment in this form of se- 
 curity is good for the inside, and somewhat risky for the 
 outside, investor. It goes without saying that the strength 
 of the Receivers' certificate is the priority over all previous 
 encumbrances with which it is invested by the special ac- 
 tion of a court of competent jurisdiction. The validity 
 and completeness of the order creating it is a very simple 
 matter, calling for no special business knowledge. But 
 other considerations occur which our enquirer will do well 
 to note. 
 
 The purpose of this special form of security is to meet 
 a grave emergency, so grave that, in the opinion of the 
 Court, it is entitled to take precedence over mortgagees. 
 To arbitrarily set back the priority of a first mortgagee is 
 obviously a tremendous exercise of power, and can be jus- 
 tified only by strict vigilance and close examination of the 
 urgent need which it is proposed to meet, and by the en- 
 forcement of unconditional compliance with the orders of 
 the Court. Suppose it to happen (and in the writer's ex- 
 perience it has often happened) that the certificates were 
 duly issued and, so far as the face of the documents were 
 concerned, were in every respect satisfactory. Let us sup- 
 pose next that the proceeds of such certificates, instead of 
 
 81 
 
82 RECEIVERS' CERTIFICATES. 
 
 being expended on purposes within the four corners of 
 the order, have been diverted to other purposes. The 
 chances are that the holder of the certificate will have to 
 fight his battle with the first mortgagee, and is very likely 
 to get nothing out of it beyond some valuable hints for 
 his future guidance. Our enquirer's rough conclusion 
 will be to invest freely in Receivers' certificates when he is 
 inside, and to leave them alone when he is outside. 
 
CHAPTER XII. 
 
 CORNERS. 
 
 FIFTEEN or twenty years ago the effect of a well- 
 organized corner was so tremendously drastic that it was 
 apt to leave an enduring mark on subsequent railroad his- 
 tory. But of late years, owing to increased publicity and 
 a more general diffusion of knowledge on the subject of 
 railroad business, the occurrence of an effective corner is 
 comparatively rare. Only at very long intervals are the 
 special conditions necessary for complete success found in 
 juxtaposition. A successful exhibition of the process 
 postulates as a matter of course, first, the existence of a 
 market in a particular stock so active (in its speculative 
 sense) that extensive short sales have been made, and the 
 amount of such sales must bear a very large proportion to 
 the total amount of the particular stock. Secondly, the 
 campaign must be engineered by fairly strong and adroit 
 manipulators. Thirdly, these must be able to rely with 
 reasonable confidence on the entire good faith of their 
 confederates. The leading conditions being fulfilled, it is 
 easy to see that the quiet acquisition or control of the 
 whole or nearly the whole of the stock of a given com- 
 pany will enable the holders to squeeze the short sellers, 
 and make them pay for their release whatever price may 
 be demanded. It has been discovered however by ex- 
 perience that the combination of these necessary elements 
 is very rarely perfect at all points. 
 
 83 
 
84 CORNERS. 
 
 Although the holders of nearly all the stock of a com- 
 pany in connection with which a corner is projected 
 may feel that they are logically in command of the situa- 
 tion, their corner may be broken by an irregular issue of 
 new stock. This was the method pursued with much 
 effect by the late Mr. James Fisk Jr. Or again they 
 may be conscious of holding nearly all the stock of a 
 company, and have orders in the market to buy up the 
 small outstanding residue at comparatively high prices. 
 This they can afford to do in view of large profits to be 
 realized hereafter. But presently they discover that there 
 is apparently no end to the amount of stock which they 
 can purchase at these comparatively high prices; and it 
 eventually dawns on them that this high-priced stock 
 which they have lately purchased has been unloaded on 
 them by one of their own confederates. On the whole, it 
 may be considered for practical purposes that the old- 
 fashioned corner, in its highly picturesque and dramatic 
 development, is played out. More or less remote imita- 
 tions of it are still in vogue. But the enquirer will prob- 
 ably be well advised to leave the corner business alone. 
 Outside meddlers with a corner may generally count on 
 getting hurt in one form or another ; and, apart from the 
 doubtful morality of the transaction, the investor will gen- 
 erally find that the game is not worth the candle. 
 
CHAPTER XIII. 
 
 PUBLICITY. 
 
 WHILE it would be idle to suppose that publicity is a 
 specific for all kinds of irregular or defective administra- 
 tion, it is, to a certain extent, rightly associated in the 
 investor's mind with open and straightforward manage- 
 ment. The kind of discrimination which has incited pub 
 lie sentiment to favour drastic legislation against railroads 
 would have been in a great measure restrained by the 
 action of publicity, if applied in due time and by well- 
 chosen methods. A judicious and business-like tariff, 
 framed not necessarily by Railroad Commissioners but by 
 skilful and responsible railroad officials, would of course 
 have failed to give universal satisfaction ; but it would 
 have afforded all sections of the public the same kind of 
 chance within certain well-understood conditions and limi- 
 tations. Thus, for example, the right of a transporting 
 company to recognize a distinction between wholesale 
 and retail business, between large quantities of freight 
 delivered at regular intervals, and small quantities un- 
 certain or capricious in point of delivery, would only 
 need the condition of publicity to make it work fairly. It 
 would soon come to be understood that, in pursuance of 
 established commercial canons, the wholesale regular 
 shipper has an intrinsic right to better terms of transpor- 
 tation than the small and irregular shipper. If I want a 
 single dinner provided for me by a restaurant keeper three 
 
 85 
 
86 PUBLICITY. 
 
 days in a week, but am not sure on which days in the 
 week or at what hour in the day I shall require it, a busi- 
 ness man will arrange to supply me at a reasonable price. 
 But, if I extend my order to fifty dinners a day of the 
 same quality, to be ready certain at two o'clock every day 
 for three months, it is plain that I have a right to expect 
 more favourable terms. The difference between whole- 
 sale and retail interchange is a recognized factor in all 
 departments of supply and demand ; and it is difficult to 
 see why transportation considered as a commodity- 
 should be exempted from the rule, except in cases where 
 it becomes part of an organized national service, like the 
 Post-office or the Telegraph in England. Obviously the 
 making of profit is not essential to a public service of the 
 latter kind, but merely incidental to it. If a profit is 
 made, so much the better. But, if loss accrue, the rate- 
 payer is in the last resort responsible for a deficit. If a pub- 
 lic service established on this basis chooses to ignore the 
 distinction between wholesale and retail business, it is of 
 course at liberty to do so. It is not so clear that a State 
 has any right to compel a trading company to ignore this 
 distinction, when it has specifically recognized its position 
 as a trading company, and has accepted a large valuable 
 consideration in exchange for powers conferred under a 
 charter. The advantage of publicity in such a case would 
 be to make quite clear to everybody the terms on which a 
 transporting company could effectually do its business. 
 It would accentuate the proposition referred to above, 
 that it is no part of the business of the purveyors of trans- 
 portation to equalize at their own expense the inevitable 
 difference between the strong and the weak trader. The 
 wisdom or unwisdom of embarking in a particular line of 
 industry ought to be judged of by each individual trader 
 
PUBLICITY. 87 
 
 on his own responsibility, with direct reference to his own 
 business aptitudes, capital and environment, and not by 
 the transporting companies of whose services he desires to 
 make use. 
 
 While in the case of soundly administered companies a 
 yearly report is found sufficient for all practical purposes, 
 it cannot be seriously supposed that such a mechanism is 
 an adequate protection to the average investor. Let us 
 suppose the case of a speculative administration which, 
 with the aid of its outside friends, has decided to put up 
 the stock. Their track and equipment are badly run down 
 and need large outlay to restore them to average working 
 condition. But their gross receipts are actually, and their 
 net earnings apparently, large ; and as the party in control 
 have decided to put up the stock, it is thought desirable to 
 pay a dividend on preference shares in aid of the projected 
 boom. The day for an annual report is approaching. 
 What is to be done about the floating debt ? It is nomi- 
 nally stated at (say) three or four millions of dollars. But 
 the equipment needed for the new " boom " will run it up 
 to (say) six or seven millions. Now, suppose all the roll- 
 ing stock and equipment that is needed be procured by 
 means of paper maturing after the date of the official report. 
 These are of course engagements and liabilities which 
 must some day be met, but they are not strictly debts, 
 because the paper has not matured. Our imperfectly in- 
 formed enquirer may well imagine the annual statement 
 to represent the condition of the floating debt, and may 
 invest freely. But when the next annual report is made 
 he discovers that he knew very little about the true con- 
 dition of the floating debt at the time of making his in- 
 vestment. Here again it is not impossible that publicity 
 derived from quarterly statements might conduce to the 
 
88 PUBLICITY. 
 
 protection of the investor. A financial coup in a specula- 
 tive stock needs a reasonable time for incubation, and the 
 intervention of publicity at short intervals is very unfavour- 
 able to the successful manipulation of such coups. Of 
 course cases occur in which the party who control the 
 speculative road and temporarily own the majority of its 
 stock contend that they do not desire aggressive publicity, 
 but prefer to run their own business in their own way. 
 That might be a conclusive answer to any thing that the 
 casual investor could say, if it were not for the fact that 
 he and his class are precisely the people upon whom the 
 securities of the speculative company will be presently 
 unloaded. 
 
 The prevalent divergence in the method of keeping 
 railroad accounts is a matter which will probably be soonef 
 or later dealt with by Congress. It may, for the present, 
 be dismissed with the remark that nothing short of inside 
 knowledge will enable the enquirer to pursue this subject 
 with appreciable advantage. If this question, coupled 
 with that of Inter-State commerce, be subjected to a new 
 and special type of regulation, the effect of publicity will 
 be very largely increased. It Js thought possible by some 
 observers that the formal legalization of pools would pro- 
 duce satisfactory results, in the direction of publicity and 
 a clear understanding of the subject by all classes. But 
 on this point no forecast can at present be made with any 
 approach to confidence. It may be prudent however to 
 note in passing that, when railroad companies hold sub- 
 stantial interests in various kinds of property not immedi- 
 ately connected with the purpose of their corporate ex- 
 istence, a very sanguine view is apt to be taken in 
 official reports of the market value of collateral assets. 
 There may be, for instance, included in the list of assets 
 
PUBLICITY. 89 
 
 large blocks of securities connected with leased lines, or 
 with property which it is thought may some day be valu- 
 able for terminal facilities, or perhaps coal or mineral 
 land, or real estate in projected new towns. The business 
 of a transporting company is, as a rule, most effectually 
 conducted, when attention is exclusively given to the 
 matter in hand and not to collateral undertakings. In 
 these days it is a sufficiently difficult task for a railroad 
 company to conduct its proper business on a paying basis. 
 A transportation company cannot, in the long run, profit- 
 ably become the owner of the produce which it is its busi- 
 ness primarily not to produce but to transport. Excep- 
 tional cases will of course occur in which it may be pos- 
 sible to run under the same "umbrella" all kinds of 
 incompatible elements. But, from the investor's point of 
 view, business of this kind is a fertile source of mistake 
 and confusion. The railroad, which spends a good deal of 
 time and energy in hauling about material which it pro- 
 duces, may make a good show on paper ; but inferences 
 derivable from a superficial view of its nominal earnings 
 are very likely to be illusory. Again, the valuation of 
 collateral assets only indirectly connected with the busi- 
 ness of a transporting company is very apt to be sanguine 
 and excessive. Nothing is more common than to find 
 that, if an effort were made to realize them in discharge of 
 floating debt, their immediate market value would turn 
 out to be merely nominal, and their prospective value al- 
 together too remote to deserve the confidence of an in- 
 tending investor. New acquisitions, new construction, 
 new additions to mileage or accommodation form the 
 proper subject-matter for an enlightened increase of 
 funded debt at a reasonable rate of interest. When ex- 
 traordinary weight is attached to them, as a set-off to an 
 
QO PUBLTCTTY. 
 
 excessive floating debt, an intending investor is put on his 
 enquiry. It may well happen that these new acquisitions 
 represent money which under a sound administration 
 should have been appropriated to repairs. No more 
 wasteful or dangerous method, from the investor's point 
 of view, can be adopted than to allow the track and equip- 
 ment of a going concern to run down, and to excuse or 
 disguise such a result by a showy statement of new acqui- 
 sitions or collateral assets. It is a method which points 
 to receivership and insolvency as truly as the needle 
 points to the pole. 
 
 Our enquirer will probably come to the conclusion that 
 the drift of the age is in favour of exclusive attention to 
 the particular matter in hand, and he will be inclined to 
 prefer those forms of administration which do not go, to 
 any large extent, outside of their proper business. 
 
CHAPTER XIV. 
 
 RAILROAD COMMISSIONS. 
 
 BY far the most important change in the status of rail- 
 road property which has taken place in recent years turns 
 on the adoption of the Railroad Commission. The bear- 
 ing on railroad property of this institution must be sought, 
 not so much in the principle of a Railroad Commission 
 which is probably right, as in the remarkable variation in 
 point of degree, which in different States characterizes the 
 powers conferred on the Commissioners. For instance, 
 between the advisory method successfully adopted by 
 Massachusetts and the somewhat peremptory exercise 
 of power which prevails in Georgia there is a great gulf 
 fixed. Whichever form may be preferred by the intend- 
 ing investor, it is plainly worth his while to bear in mind 
 that the jurisdiction of a Railroad Commission is a very 
 elastic thing ; and it will be prudent for him to give some 
 attention to its principles, its incidents and its possibili- 
 ties. The issues raised by it are important in principle 
 and far-reaching in practical result; e. g., Is a railroad 
 corporation which has built a road at its own expense 
 simply a purveyor of transportation whose status is de- 
 fined by formal legislation, or is it an agent of the State 
 and a trustee for the people ? To whom does the incre- 
 ment of value properly belong? Does the admitted 
 power of the State to assume ownership of railroads on 
 payment of compensation involve the right to assume 
 
 9' 
 
92 RAILROAD COMMISSIONS. 
 
 their virtual management without giving either compen- 
 sation or indemnity against losses resulting from defective 
 or unfortunate State intervention? If the State under- 
 takes to reduce the earning power of a railroad and to 
 annex a portion of the increment of value, can it fairly 
 prescribe the expenditure by corporations of additional 
 capital and the improvement of existing accommodations, 
 outside the requirements of public safety? Is "regula- 
 tion " substantially a corrective process, or is it broad 
 enough in its application to railroads to supersede a 
 charter ? 
 
 The mode in which these questions are practically an- 
 swered by State legislation is a matter of grave import- 
 ance to foreign stockholders. If they are held to be 
 traders or purveyors of transportation protected by valid 
 contracts, they can take care of themselves by reasonable 
 vigilance. But, if the earning power of their railroads and 
 the amount of their dividends are liable to be indefinitely 
 reduced or restricted by the State, while the entire re- 
 sponsibility for losses is left on their shoulders, then 
 their position is not without serious difficulties. 
 
 The assertion by a State of a right to fix rates and 
 limit dividends by ex post facto legislation, without re- 
 gard to existing charters and without compensation or 
 indemnity, is, in fact, the barely disguised assertion of a 
 right to confiscate * to a greater or less extent the incre- 
 ment of value legitimately accruing to a going concern. 
 In connection with a railroad the increment of value can- 
 not with any semblance of propriety be described as an 
 " unearned " increment. In a vast number of instances 
 an American railroad may be said to create the settle- 
 ment of population which is destined to furnish passen- 
 
 * Binghampton Bridge Case, 3 Wai. 51. 
 
RAILROAD COMMISSIONS. 93 
 
 gers and to produce freight. Reflex activities are of 
 course stimulated, and contribute in their turn to the 
 development of traffic ; but in many instances the rail- 
 road itself primarily constitutes the determining condi- 
 tion of settlement in a particular place, and of the trans- 
 portation of passengers and merchandise through a par- 
 ticular channel. Subject to the restraints of equitable 
 regulation, the right of a constructing company to the 
 increasing benefit of the business, which it builds up by 
 its outlay and its skill, is no less real than that of the 
 founder of a purely commercial or professional business 
 to the increasing benefit of his capital or ability. If it 
 has undertaken extraordinary risks in consideration of 
 the special protection of a charter, statutory rights are 
 added to its natural equities. 
 
 To transfer in whole or in part the increment of value 
 of a railroad by ex post facto legislation, without regard 
 to existing charters and without giving equivalent of any 
 kind, while decrement is allowed to take care of itself, is 
 to say the least of it a strong measure. It constitutes a 
 new departure in respect of the rights and incidents of 
 ownership. It involves pecuniary incidents of great im- 
 mediate value, and suggests remoter political inferences 
 in respect of the definition and rights of property, which 
 it is impossible to regard lightly. 
 
 The return of comparative prosperity in railroad enter- 
 prise, which ensued after the severe depression incident 
 to the great panic of 1873, brought with it conditions 
 calculated to excite possibly not alarm, but certainly 
 vigilance. 
 
 A formidable indictment, including counts in respect of 
 discrimination and extortion, was brought against trans- 
 portation companies at the instance of the people ; and 
 
94 RAILROAD COMMISSIONS. 
 
 very drastic treatment was recommended, with an em- 
 phasis too cordial to admit of misapprehension. So long 
 as this movement was confined to occasional complaints 
 conveyed through the press or to isolated action taken 
 in the courts, railroad managers regarded it lightly. But 
 as soon as it was seriously taken in hand by several State 
 Legislatures, the subject assumed a graver aspect. 
 
 The agitation of a popular grievance in a' State Legis- 
 lature has, ere now, been known to result in legislation 
 altogether more sweeping than the champions of the 
 grievance originally desired or deserved. Excited feeling 
 is often an indispensable agent in accelerating the correc- 
 tion of abuses ; but it is a dangerous basis for hasty legis- 
 lation touching rights of property. It is too often unre- 
 strained by accurate knowledge and unchastened by fair 
 discussion ; and is therefore frequently uncritical and some- 
 times unjust. Searching criticism and a calm review of 
 relative rights are conditions essential to sound and per- 
 manent legislation. In the absence of these elements, it 
 sometimes happens that, by the hasty adoption of unsound 
 principles, mischief is_ done in a single Session which it 
 needs the labour of many years to repair. No doubt the 
 " heroic " mode of treatment has its merits, when applied 
 by a master-mind under very special conditions. But ex- 
 perience shows that, in cases involving the nice adjustment 
 of complex and conflicting interests in property, it is apt 
 to be somewhat heavy-handed. The laws of trade and 
 the traditions of commercial good faith recognize a close 
 relation between burthens and privileges, risks and profits. 
 Special legislation, which purports to modify this relation 
 to an appreciable extent, should at least be deliberate and 
 well-considered. Again, the laws of supply and demand 
 require special care and insight for their correct interpre- 
 
RAILROAD COMMISSIONS. 95 
 
 tation. The statesman who seeks to evade or postpone 
 their natural operation by the creation of an artificial 
 mechanism, is undertaking to interfere with laws which do 
 not readily lend themselves to external regulation or con- 
 trol. The whole subject is complex and difficult. Rash 
 and hasty treatment of it is likely to involve injustice on 
 the one hand and short-sightedness on the other. 
 
 If this be so, it may be worth while to note the tenour 
 or drift of popular aspiration in connection with this most 
 important subject. This may be roughly formulated un- 
 der the following heads, of which some have already 
 obtained legislative acceptance, and others are recom- 
 mended as subjects for immediate conference between the 
 Railroad Commissioners of several States, with a view to 
 more extended and uniform legislative action. 
 
 ist. The institution of boards of Railroad Commission- 
 ers with unprecedentedly large powers involving the 
 assumption of important directorial functions. The cost 
 of their maintenance to be paid by the railroads subject 
 to their jurisdiction. 
 
 2d. The formal incorporation into the statute-book of 
 the several States of the proposition that " a railroad is a 
 public highway, the property of the people." As inci- 
 dents thereof, 
 
 3d. The right of the people by their Commissioners to 
 fix rates, settle tariffs and revise special contracts. 
 
 4th. The like right to limit dividends in advance. 
 
 5th. The right to direct from time to time additional 
 expenditure by corporations, in order to furnish such 
 improved accommodation as may be deemed suitable for 
 the public convenience, outside the requirements of public 
 safety. 
 
 As regards No. i, it may be broadly stated that the 
 
96 RAILROAD COMMISSIONS. 
 
 better opinion in America favours the institution of Rail- 
 road Commissions, provided their powers be confined to 
 " regulation," as the term is commonly understood. Sub- 
 ject to this condition, no objection would probably be 
 made to a special tax on railroads for maintenance of 
 such Commissions, though it may be doubted whether 
 this expense be not properly chargeable to the public 
 (State) revenue. Nor would serious opposition be offered 
 to a maximum rate for freight and passengers, if special 
 equities were provided for. A sound Commission, com- 
 petent to judge of evidence and free from party bias, 
 would probably, by its mere existence, prevent more griev- 
 ances than it would ever be called on to redress. But, in 
 order to accomplish this result, its judicial characteristics 
 should be essential and predominant, and its political 
 characteristics accidental and subordinate. It should be 
 empowered to interpret rights of property, not to make 
 or unmake them. 
 
 Although discrimination or extortion cannot for 
 moment be defended, it is a matter of some importance 
 that these offences should be clearly and equitably de- 
 fined. Much litigation has already arisen out of the 
 question, how far transportation companies can be prop- 
 erly charged with discrimination for observing the familiar 
 distinction between wholesale and retail and between 
 constant and spasmodic business. 
 
 The tenour of recent decisions is, so far, adverse to the 
 claim of the transportation companies that they should 
 be at liberty to carry at special rates freight which they 
 can handle with special ease and cheapness. 
 
 The proposition (No. 2) that "a railroad is a public 
 highway, the property of the people," is a somewhat 
 equivocal proposition, and is susceptible of a great variety 
 
RAILROAD COMMISSIONS. 97 
 
 of interpretation. Its soundness, and the limitations 
 under which it can be unequivocally affirmed, can of 
 course only be determined by reference to the history 
 and status of each individual railroad ; but it is notorious 
 that a very large group of railroads were constructed 
 under substantially identical conditions. Let us take an 
 instance fairly typical of a large class, and examine its 
 genesis. 
 
 A State contemplating its vast undeveloped resources 
 was struck with the astounding contrast which existed 
 between its great potential wealth and its comparative 
 lack of cash. 'An obvious solution readily suggested itself 
 viz., that the need of the moment was effective trans- 
 portation. But the construction of an adequate railroad 
 system postulated a large immediate outlay of cash, 
 amounting possibly to many millions of dollars ; and that 
 was precisely the element which the State did not at 
 the moment command. The question arose, " who will 
 become producers or purveyors of transportation ? " 
 Native capitalists took up the challenge, and associated 
 themselves with foreign investors ; but it was felt that the 
 risks to be incurred were very serious indeed. Rival roads 
 might be built ; commerce might, by the operation of 
 unforeseen conditions, be diverted from its customary 
 channels ; panics might render the permanent locking up 
 of capital dangerous or even fatal to the credit of the in- 
 vesting capitalist ; the period of productiveness might be 
 indefinitely postponed by delay in construction ; and then 
 dissatisfaction of shareholders might develope into dis- 
 union, and result in irretrievable loss. But still intending 
 producers of transportation were willing to accept these 
 risks, if a satisfactory inducement and protection were 
 offered in the solemn form of a charter. It was admitted 
 
98 RAILROAD COMMISSIONS. 
 
 that the State would, under a charter duly offered and 
 accepted, become a lawful contracting party ; and that 
 the Federal Constitution (herein more conservative than 
 the British Constitution) imperatively forbade State legis- 
 lation which should " impair the obligation of a con- 
 tract." ' Relying on such assurances, foreign capitalists 
 were not afraid to lock up large sums of money. The 
 " public highway the property of the people " was not 
 yet surveyed or located. Its precise route with the ex- 
 ception of its terminal points and general direction was 
 a question for the discretion of the chartered company. 
 The right of way, in many instances the freehold of the 
 soil over which the railroad was to run, construction, equip- 
 ment and rolling stock were all paid for in one form or 
 another by the company. If the railroad were sold or 
 leased, the purchase money or the rent confessedly be- 
 longed respectively to the vendors or lessors, and not to 
 the State or its people. Whatever the right of the State 
 or the people to a railroad so constructed may have been, 
 it was certainly not a proprietary right, sufficient to au- 
 thorize compulsory assumption of control, without some 
 equivalent being given in the form of compensation or 
 indemnity. The owners of a limited right, privilege or 
 easement in connection with property are of course en- 
 titled to have it effectually protected ; but it does not 
 follow that, in order to save the trouble of devising a 
 mechanism suitable for -such protection, the real owners 
 should be divested of the management of their property. 
 It is proverbially a subversion of the natural order of 
 things that the " tail should wag the dog." 
 
 A good deal has been said about the obligation of 
 common carriers to serve the people in accordance with 
 
 * Federal Constitution, Art. I, Sec. 10, 
 
RAILROAD COMMISSIONS. 99 
 
 ancient law and custom. No doubt, in the absence of a 
 charter, this obligation might substantially govern the 
 question. But the grant of a charter was a statutory 
 enactment, the formal act of the people. It created a 
 specific contract, changed the law of the land, and altered 
 the relative situation. It was competent to a State to 
 permit all sorts and conditions of men to establish com- 
 mercial enterprises at their own risk, subject to the gen- 
 eral law of the land including (amongst other things) the 
 laws and customs relating to common carriers. It was 
 equally competent to the State, in any given case, to pass 
 a special act embodying a specific contract, and thus to 
 define the privileges and to determine the status of a 
 particular enterprise by the express terms of statute law. 
 For reasons of its own, which results have shown to be 
 wise reasons, a State in certain cases thought proper to 
 adopt the latter course. To claim the right to confiscate 
 privileges thus conferred or to change the status thus 
 protected, by appealing to general laws, is something like 
 setting up the statutes relating to intestacy against a 
 devisee entitled under a confessedly valid will. 
 
 It may be pertinent to observe closely what, in such a 
 typical instance as above mentioned, the State did not, as 
 well as what it did, offer by way of inducement to capital- 
 ists to accept extraordinary risks. It emphatically did not 
 say : You are invited to become the occupiers of ancient 
 highways; the railroad in which you invest your capital 
 will become the property of the people, and you will be 
 virtually their tenants at will. It did not say : If you fail, 
 or as long as your enterprise is unproductive, your loss 
 will be all your own ; but, if you succeed, you will always 
 remain exclusively liable for losses, while your profit will 
 be limited by the people at their discretion. It did not 
 
100 RAILROAD COMMISSIONS. 
 
 say : You are invited to sink large sums of ready money 
 in the construction of permanent works on American soil. 
 Any increment in value which may hereafter accrue to 
 your railroad will be dealt with as the people think best. 
 
 What the State did say was of a very different kind. 
 It said in effect : It is competent to us to exercise the 
 right of eminent domain for the public good. We say 
 that, in view of a great public need, the present is a 
 proper case for such exercise ; and, if you will lock up 
 some millions of capital for our benefit, we can lawfully 
 offer you the power of recouping yourselves by the 
 product of your railroads, to be realized under your own 
 management and distributed at your own discretion. 
 The increase of our State wealth which you will effect for 
 us justifies us in giving you this solemn assurance in the 
 name of the people, and in making it part of the statute 
 law. 
 
 By such an arrangement the inherent power of the State 
 to " regulate " was not for a moment waived, but the inter- 
 change of consideration between the State and the com- 
 pany was emphasized. The State did not by becoming a 
 contracting party abdicate any of its functions as a State ; 
 but it brought itself, quo ad the subject-matter of a par- 
 ticular contract, within the provisions of the Federal Con- 
 stitution, and thereby conferred on contracting companies 
 the right to protection in the Federal courts.* It cannot 
 be doubted that, if it had been sought to import into a 
 charter at the date of its grant any one of the conditions 
 first above formulated, such charter would have been de- 
 clined with thanks by intending grantees. Results have 
 conclusively shown that charters granted to railroads have 
 proved enormously beneficial contracts to those States 
 
 * The Bridge Proprietors vs. The Hoboken Co. I Wai. 116. 
 
RAILROAD COMMISSIONS. IOI 
 
 which were fortunate or far-sighted enough to obtain 
 willing grantees. 
 
 As regards No. 3, nobody doubts the power of a State 
 to assume the ownership of railroads upon proof that 
 such a course is for the public good and upon payment 
 of just compensation. Nobody questions its right to in- 
 stitute appropriate tribunals for the redress or prevention 
 of wrong and for the purposes of " regulation," properly so 
 called. But the representatives of chartered interests 
 may not unreasonably object, if " regulation " be so con- 
 strued as to warrant a compulsory divorce between own- 
 ership and management, which would leave them wholly 
 responsible for losses, but deprive them of the correlative 
 power of realizing and controlling profits. 
 
 They may properly contend that a tribunal authorized 
 to redress or prevent wrong is an expression of the sover- 
 eign power compatible with corporate ownership ; but 
 that a Commission authorized in the face of existing 
 charters to fix rates and limit dividends would wield 
 powers incompatible with the control essential to the 
 free enjoyment and succcessful management of corpo- 
 rate property. If State officers are empowered to set- 
 tle tariffs, restrict dividends, and order additional out- 
 lay for purposes outside the requirements of public safe- 
 ty, it is obvious that the solution of leading problems 
 of railroad administration will be practically transferred 
 to the State. It will be competent to the State to de- 
 termine the earning power of a railroad, the dividends 
 payable on its stock, the distribution between the peo- 
 ple and the corporation of the increment of value, and 
 perhaps the liability of stockholders for further expendi- 
 ture. But the entire responsibility for losses incident to 
 defective or unfortunate State management will be left 
 
102 RAILROAD COMMISSIONS. 
 
 on the shoulders- of the corporation. It must be admit- 
 ted that this would be an experiment in paternal govern- 
 ment, which might or might not be wise, but which, if 
 made at all, must be made at the sole risk of the cor- 
 porations. 
 
 Nor, in view of the relations subsisting between la- 
 bour and capital, is this risk by any means trivial or im- 
 aginary. 
 
 To refer to a well-known instance (cited below *), the 
 Supreme Court of the State of New York has recently 
 decided that corporations can be compelled by manda- 
 mus to handle promptly all freight offered for transporta- 
 tion in the face of a strike of the freight-handlers. In a 
 city which receives and distributes an enormous amount 
 of produce, this is a very serious obligation. If a cor- 
 poration be thus bound and liable for losses arising out 
 of delay in moving sensitive or perishable freight, it 
 must in order to economize such losses either pay 
 such prices for labour as strikers insist on, or procure 
 unskilled labour to do their work. Now, where a cor- 
 poration can control its own tariff (within the limits of 
 a liberal maximum), and thus protect itself against 
 emergencies, the obligation to handle promptly all 
 freight offered by the public is a measurable commer- 
 cial risk. But, if a State which does not actively discour- 
 age labour combinations neither permits corporations to 
 protect themselves by raising rates to meet the fluctua- 
 tions of the labour market, nor itself bears any portion 
 of the loss arising from its official adjustment of the tar- 
 iff during the existence of a strike, it creates a divorce be- 
 tween management and responsibility. It disarms the 
 
 * Attorney-General ex. rel. People of the State of New York vs. N. Y. 
 Central and Erie R. R, Companies. Not reported at date of writing. 
 
RAILROAD COMMISSIONS. IO3 
 
 corporations by official intervention, and then leaves 
 them solely liable for the losses incident to their dis- 
 armed condition. It assumes a leading administrative 
 function, without accepting the correlative responsibil- 
 ity for loss. The corporation must procure labour at 
 such prices as it can, under pain of heavy damages, but 
 it may charge for transportation only what the State pre- 
 scribes. The tale of bricks is not diminished, but the 
 maker must gather stubble where he can find it. If this 
 be so, it is perhaps not unreasonable that, if the corpora- 
 tions remain solely liable for losses, they should resent 
 the transfer of important administrative functions from 
 responsible proprietors to elective State officers. 
 
 It would be idle to pretend that in America the general 
 results of government administration in any sphere that 
 can be named compare favourably, in respect either of 
 economy or efficiency, with those of private administra- 
 tion. The conclusions of Parliamentary Committees in 
 England are, on the whole, unfavourable to government 
 interference with railways outside the limits of " regula- 
 tion " in the ordinary sense of the term. The chances of 
 success would be still further reduced if a government ar- 
 bitrarily assumed leading administrative functions, but 
 left with corporations the entire liability for losses inci- 
 dent to " defective or unfortunate State management. 
 Would any thoughtful person seriously contend that 
 you could advantageously " regulate." the business of 
 the Bank of England by transferring the control of the 
 bank rate to a government official? The truth would 
 seem to be that discretion and responsibility are true 
 yoke-fellows, and each performs best in the company of 
 its mate. 
 
 From the point of view of a railroad corporation, the 
 
104 RAILROAD COMMISSIONS. 
 
 wise adjustment of rates is the seed-time, and the distri- 
 bution of dividends is the harvest. Knowledge of admin- 
 istration is not a mere aptitude, but an acquirement ; and 
 it would seem that the self-interest which is an incident of 
 proprietorship supplies more trustworthy incentives to 
 sustained effort and to the development of technical skill 
 than can be looked for in disinterested government ad- 
 ministration. A chartered corporation may, in many 
 cases, fairly contend that it has legitimately acquired for 
 valuable- consideration the exclusive right to manage its 
 own property in conformity with law ; that its charter is 
 part of that law ; that its executive is specially trained 
 for its purpose ; and that amateur dry-nursing by the 
 State would at once impair its business and increase its 
 expenditure. It may urge with some reason that, if the 
 State desires to administer a railroad, it has the right to 
 become its proprietor*; but that, before it can justly 
 assume the functions of proprietorship, it must first 
 become a purchaser. Ex post facto legislation, involving 
 a compulsory transfer of property or right without com- 
 pensation, needs to be supported by singularly cogent 
 reasons if it is to command the assent of fair minds. 
 
 It must not be overlooked that the power of a State to 
 compel the good behaviour of corporations within its juris- 
 diction, without having recourse to the assumption of ad- 
 ministrative functions, is very large. Moreover, even if a 
 corporation behaves well but makes a very large profit, 
 the State can compel the transfer of ownership to itself by 
 purchase. Consequently the profit which can be realized 
 by any given corporation cannot permanently exceed the 
 limit at which it becomes to the interest of the State to 
 
 * Pontchartrain R. R. Co. vs. Orleans Navigation Co. 15 La. Ann., 404- 
 
RAILROAD COMMISSIONS. 1 05 
 
 assume ownership. This is in itself a power of no mean 
 cogency. But its indirect value is increased by the cir- 
 cumstance that the corporations possess no correlative 
 power to compel the State to purchase. The possession 
 of such a power would of course have furnished them with 
 an appreciable measure of protection, because the State 
 would be very cautious in modifying privileges or enlar- 
 ging risks to which it might hereafter succeed or besubro- 
 gated by the action of the corporations. In the absence 
 of such a power, it is no doubt more advantageous, from 
 the point of view of the advanced reformer, for the State 
 to control profits and decline risks than by assuming own- 
 ership to take over profits and risks together. 
 
 As regards limitation of dividends (No. 4), it is obvious 
 that rates might be so " fixed " by the representatives of the 
 people that any discussion relating to dividend might be- 
 come superfluous. But the power claimed under this head 
 deserves special notice, because it presents a tangible issue 
 between State legislation and the Federal Constitution, 
 and accentuates the hardship which might through its 
 operation be inflicted on companies. 
 
 It will not be denied that, in the case of many existing 
 charters containing no specific provision as to limitation 
 of dividend, the more or less remote prospect of the 
 amplest dividend possible under the charter formed a real 
 factor in the consideration offered by one of the contract- 
 ing parties and relied on by the other.* Such prospect 
 was, in fact, the commercial equivalent for the acceptance 
 of extraordinary risks. It needs some courage to contend 
 that legislation, which gratuitously confers on Commis- 
 sioners the power of indefinitely limiting this prospect, 
 
 * Binghampton Bridge Case. 3 Wai. 51. See remarks of Davis, Ch. J., 
 as to purposes of grants to corporations. 
 
106 RAILROAD COMMISSIONS. 
 
 does not " impair the obligation of a contract," or that 
 "regulation" is broad enough to cover the confiscation 
 of valuable rights of contract.* It is indeed said that 
 Commissioners would always be competent and trust- 
 worthy. But, assuming that to be so, it does not answer 
 the objection. A corporation subjected to arbitrary ex- 
 ternal control is no longer master of itself, but is, in prin- 
 ciple, placed at the mercy of others outside its organiza- 
 tion and having no proprietary interest in its welfare. It 
 is not necessary to contend that Commissioners would be 
 likely to exercise their powers wrongfully or even capri- 
 ciously. It may be quite true (and in the writer's opinion 
 is true) that the Commissioners heretofore selected by the 
 States which have in part or in whole adopted the pro- 
 gramme of reform are honest and competent officers. 
 But the objection is that existing rights of property can- 
 not fairly be made by ex post facto legislation to depend 
 on the exercise of official discretion. 
 
 It is obvious that an honest fluctuation in the constitu- 
 tion and opinions of successive Commissions might well 
 produce serious injury. Suppose the case of a solvent 
 corporation which to-day pays seven per cent, on its 
 stock. Three Commissioners might to-day decide on a 
 limit of ten per cent. That would be reassuring, and the 
 stock might retain its market value. Within six months 
 two of those three Commissioners might die or become 
 disqualified. Their successors might be of the opinion 
 that, whatever the conclusion of the former Commission- 
 ers might have been, they now, in the light of new evi- 
 dence affecting the history of the road, consider three or 
 four per cent, a fair limit. The conclusion of the Com- 
 missioners might be perfectly conscientious ; but what 
 
 * Green vs. Biddle. 8 Wheat i. 
 
RAILROAD COMMISSIONS. IO/ 
 
 becomes of the non-resident stockholder or trustee who 
 has pinned his faith to a charter ? The data to which, in 
 extreme cases, it is proposed that Commissioners shall 
 have recourse in determining the dividend payable, include 
 broadly all the antecedents of a railroad the cost of its 
 construction, the financial history of its securities, the 
 conditions and method of transportation, and many other 
 details which it is unnecessary here to specify. It is 
 enough for the present purpose to point out that regula- 
 tion as a corrective of abuses is one thing, and regulation 
 as a mask for the confiscation of vested rights is quite 
 another. 
 
 Nor would the evil in such a case cease with the first 
 loss inflicted on the stockholders. The future stability of 
 the value of their securities would be grievously shaken. 
 If you want to undermine the prosperity of a solvent cor- 
 poration or to check the recovery of a depressed one, you 
 cannot do better than legislate away whatever stability 
 its securities possess. Thenceforward they become a foot- 
 ball for the " Street " ; and there is a prospect once in 
 every five or ten years of a foreclosure accompanied by 
 unlimited litigation. The foreign stockholder contributes 
 his share towards paying the piper, but he has practically 
 no voice in the selection of the tune. 
 
 Apart therefore from its legality, such legislation as 
 last above mentioned has the serious fault of tending to 
 shake public confidence and to alienate foreign capital. 
 Nor is its constitutionality, from the point of view of a 
 State itself, entirely free from doubt. The modification 
 of chartered rights- not as a penal measure but for the 
 public good is a legislative, not a ministerial act. The 
 question inevitably occurs, Can a State lawfully and con- 
 stitutionally by one act delegate for a term of years to 
 
108 RAILROAD COMMISSIONS. 
 
 Commissioners, to bankers, or to a fiscal agent, the con- 
 tinuing power of finally deciding what, from time to time, 
 is or is not for the public good ? Is the power of Eminent 
 Domain susceptible of unlimited delegation as against re- 
 luctant third persons ; and, if not, what are the limits? It 
 may be noted in passing that to impose a special tax on 
 stockholders, in order to provide the cost of limiting their 
 dividends, savours of hardship. It is rather like seething 
 " the kid in his mother's milk." 
 
 If the irregularity complained of be extortion or dis- 
 crimination, legislation limiting dividends would seem to 
 apply a corrective in the wrong place. It is, on the 
 whole, more tolerable to restrict the method of farming 
 than first to encourage unrestricted outlay by the farmer 
 and then to confiscate part of his harvest. If legislative 
 coercion be needed, it is the business of the statesman to 
 see that it be applied in the right place ; that the mode 
 of application combine the maximum of force with the 
 minimum of friction ; that his remedy be proportionate, in 
 point of severity, to the irregularity complained of ; and 
 that it will not (except where an explicit penalty is im- 
 posed on the wrong-doer) irreparably injure the fortunes, 
 or impair the public efficiency, of the enterprise to which 
 it may be applied. Restriction of dividends, considered 
 as a remedy for discrimination or extortion, can scarcely 
 be taken to fulfil these conditions. 
 
 Mature consideration of the subject of Railroad Com- 
 missions is to-day tending towards a preference for the 
 grant of moderate, as distinguished from extreme, powers. 
 Though the opinion of the United States Supreme Court 
 at Washington must, on the whole, be taken to incline 
 towards the law laid down in the " Granger" cases, there 
 are wholesome symptoms of dissent from that somewhat 
 
RAILROAD COMMISSIONS. 109 
 
 extreme interpretation of the law. In any event, an in- 
 tending investor will do well, before selecting any par- 
 ticular State as a sphere of investment, to examine the 
 powers conferred on Commissioners' and the exercise 
 made of them as embodied in their annual report. He 
 will probably conclude that advisory, or even moderate 
 compulsory, powers exercised by competent men are 
 thoroughly beneficial to railroad property, but that the 
 grant of drastic powers involves many perils and risks 
 from the investor's point of view. 
 
CHAPTER XV. 
 
 VESTED INTERESTS. 
 
 AMONG the most striking traits of the American national 
 character are the singular elasticity with which it recovers 
 from disasters, and the rapidity with which it throws the 
 past behind its back. Few more remarkable passages of 
 history can be found than that which records America's 
 resurrection after the close of the great Civil War. Long 
 before people had ceased to discuss its tremendous inci- 
 dents, the nation was again in full march towards pros- 
 perity and wealth. Again, the Chicago fire was a very 
 sharp and decisive calamity. But a new city arose from 
 the ashes with unprecedented speed, and in the twinkling 
 of an eye the past was left behind. This kind of recupera- 
 tive power reasonably inspires the foreign investor with 
 courage and hopefulness. But the observer will be apt to 
 note that facility in throwing the past behind our backs 
 is a more or less two-edged weapon. From the investor's 
 point of view, it is a serious question what is the subject- 
 matter that is thus easily forgotten. If it is a loss or a 
 toothache, well and good. If it is a mortgage or a valuable 
 consideration, the memory and benefit of which ought to 
 be permanent until they have been respectively discharged 
 or recognized, the case is somewhat altered. Perhaps the 
 most striking instances of this short memory have been 
 afforded by States which have, in whole or in part, repu- 
 diated loans of which they were sorely in need at the time 
 
 JIQ 
 
VESTED INTERESTS. Ill 
 
 of contracting them, or have repudiated subsequent com- 
 positions assented to by both lenders and borrowers after 
 a fair consideration of the circumstances proper to the 
 particular case. Instances are not lacking in which the 
 lenders' rights have been frankly disregarded, in spite of 
 the fact that the very railroads on which the borrowed 
 money was expended had for years been largely contrib- 
 uting to State wealth, and are doing so to-day. 
 
 Securities of this class, although their amount is not in- 
 considerable, will probably possess a very limited interest 
 for our enquirer. He will therefore be content to note 
 one or two salient points connected with current contro- 
 versies. These may be worth passing attention, because 
 they illustrate to some extent the incidents of State rights 
 in their bearing on broader questions of vested interests 
 in property generally. First, then, he will do well to beaf 
 in mind that a State claims the rights and immunities 
 of sovereignty. An aggrieved person who desires to sue 
 a State may find himself checkmated by a great variety of 
 tactics. Under certain conditions a* State may decline to 
 permit itself to be sued except in courts possessing a 
 particular jurisdiction in respect of a claim the merits of 
 which it does not explicitly deny. That is a serious dis- 
 appointment to a suitor who is perhaps a good swordsman 
 and would like to fight his opponent according to the es- 
 tablished etiquette of the arena. He has issued his chal- 
 lenge, but his opponent politely declines to fight. The 
 Executive of the State claims to be, in a certain sense, at 
 once the trustee and the servant of the sovereign people. 
 It can meet the challenge of a suitor with a simple " Non 
 possumus" That is a line of defence very difficult to 
 break down, because, by availing itself of this mode of 
 obstruction, the State need not take into account the 
 
112 VESTED INTERESTS. 
 
 specific merits of a suitor's claim. There is left to the 
 aggrieved person an appeal ad misericordiam. So long as 
 he is aware of the limit of his power, " forewarned is fore- 
 armed." But it is always weak, and sometimes dangerous, 
 to confuse the right of entreaty with the possession of a 
 valid remedy. Concerning his rights in the Federal 
 courts one or two comments will be found below. 
 
 But the obstructions which the suitor may meet with in 
 any effort to enforce his alleged rights are not confined to 
 the power of the State Executive to decline his challenge. 
 He has to reckon with State Legislatures, and therefore 
 with demagogues of many types who (side by side with 
 many honourable and distinguished Statesmen) sit there- 
 in. In the hands of a clique of demagogues, who are 
 described in vernacular language as " on the make " and 
 who have their own axes to grind, a mode of procedure 
 which may be roughly described as " hook and eye " leg- 
 islation is a tremendous engine. This designation is sim- 
 ply adopted for lack of a better term, and is not sufficiently 
 clear to justify the writer in dispensing with some words 
 of explanation. Its distinctive feature consists in the 
 notion of carrying by two or more separate and distinct 
 bills a measure which would certainly be rejected if its 
 principles, purposes and incidents had been considered as 
 a whole. It is easy to the adroit manipulator of legisla- 
 tive procedure so to marshal and to arrange the se- 
 quence of his bills that the first instalment of the proposed 
 legislation in view appears not only harmless, but abso- 
 lutely patriotic and noble. Once grant that the first 
 instalment is meritorious and has become law, the second 
 follows as a logical sequence. Yet, if both the bills had 
 been considered together, the net result would have been 
 palpably unjust, and legislation promoting it would have 
 
VESTED INTERESTS. 113 
 
 been certainly rejected. But by the " hook and eye " 
 system a result, which the Legislature would not approve 
 as a whole, can be smuggled through by instalments. 
 Perhaps an illustration may make reasonably clear a situa- 
 tion which it would be difficult to present intelligibly in 
 abstract form. Let us suppose that a clique of repudia- 
 tors desires to evade the obligation of a State loan. To 
 announce this view explicitly would be to invite defeat. 
 How shall we go to work to pass the bill we desire ? The 
 following is a mere illustration. Patriotic member states 
 that the moral sense of the community is in favour of an 
 equitable compromise with the State's creditors. He 
 therefore proposes to issue new bonds to the holders of 
 State securities, in exchange for old outstanding bonds 
 which will be destroyed in due course contemporaneously 
 with the new issue. A proper mechanism is devised for 
 surrender and exchange, and outstanding bonds are freely 
 surrendered. That is the " hook " side of the proposed 
 legislation. Now for the " eye " side. There now comes 
 to the front a member even more patriotic than the first. 
 He is weary of the economical extravagances of the oppo- 
 site political party. They have committed, he says, a sin 
 which no patriot ought to overlook. They have allowed 
 payments of interest on State loans to be made, without 
 being passed on by the people, and without a specific 
 appropriation by the Legislature for every one of such 
 payments. His duty to his constituents compels him to 
 protest against such an outrage, and to erect, so far as 
 may be, some kind of constitutional barrier by which this 
 wave of partisan extravagance may be checked. The 
 people, he says, acting through their elected representa- 
 tives, ought to pass on every such important and vital 
 payment. It is their duty as well as their privilege to do 
 
114 VESTED INTERESTS. 
 
 so. He therefore begs to introduce a bill by virtue of 
 which the Treasurer is forbidden to make any payment 
 from the Treasury on account of State indebtedness, 
 unless or until a legislative appropriation has been made 
 for that purpose. This proposal he makes with reluct- 
 ance. But it is so obviously essential to economic reform 
 in the State, in the Legislature of which he has the 
 privilege of sitting, that he has no hesitation in asking 
 the support of the House. His emotion is unmistakable. 
 No one doubts his sincerity, because he tears his hair and 
 smites the table. The bill is passed on purely patriotic 
 grounds. The " wire-puller " has the satisfaction of seeing 
 that he has fitted the "hook" into the "eye." The 
 result is that the holders of the new bonds get nothing. 
 But this result could never have been obtained if the sub- 
 ject had been considered as a whole. 
 
 Partisans in this country who favour the dark and 
 sometimes tricky tactics of State legislation are flattered 
 by the belief that their system has the countenance and 
 approval of so great a statesman as Mr. Gladstone. His 
 proposal to pass his bill for extension of suffrage first, and 
 then with the help of the logical inferences and the pre- 
 ponderating strength derived therefrom to settle the dis- 
 tribution of seats in his own way, is thought here to be 
 about the best illustration of "hook and eye" legislation 
 which the world has so far witnessed. Of course, tactical 
 skill in interpreting the conditions of parliamentary pro- 
 cedure will always prevail in democratic communities, 
 whose form of government lends itself with peculiar facil- 
 ity to the adroit manipulation of rings. But experience 
 shows that the best way to meet this complication is 
 frankly and fairly to show up the trick ; and as far as pos- 
 sible to debate revolutionary measures in full view of 
 
VESTED INTERESTS. 11$ 
 
 their incidents, conditions and whole environment. As a 
 matter of course, the bills introduced in the Virginia Leg- 
 islature and popularly known as " coupon killers," have 
 the benefit of relationship to Mr. Gladstone's method. 
 But they scarcely commend themselves to the minds of 
 those observers, who think that adroit manipulation of 
 parliamentary procedure ought not to be allowed to ob- 
 scure or supersede the ultimate objects which both Parlia- 
 ment and procedure are designed to answer. In America, 
 as in England, too much weight is attached and too 
 serious incidents are permitted to arise out of mere adroit- 
 ness in the management of legislative and parliamentary 
 details. As the whole concern, including party govern- 
 ment, tenure of office by particular men and so forth, is, 
 in the last resort, merely a part of a mechanism intended to 
 secure good government and substantial justice to all 
 classes of the community, " hook and eye " legislation is 
 plainly a thing to be deplored on principle ; no matter 
 whether the " coupon-killing" Virginia Legislature or Mr. 
 Gladstone be considered its most skilful exponent. 
 
 An equally good illustration is afforded by another as- 
 pect of the controversy between the foreign bondholders 
 and the State of Virginia. Programme of "hook" bill: 
 Propose a settlement on the basis that the coupons of 
 State bonds are to be available for payment of State 
 taxes. Make this proposal on highest known moral 
 grounds connected with the integrity, the dignity and 
 the unswerving good faith of a great and sovereign peo- 
 ple. The proposed legislation is at once morally fine and 
 within limits pecuniarily satisfactory to the bond- 
 holders. But the " eye " bill, which appears at least as 
 high-toned in its purposes and aspirations as its predecessor, 
 deplores the romantic circumstance that innumerable 
 
Il6 VESTED INTERESTS. 
 
 forged coupons are floating round, and proposes that no 
 coupon shall be receivable for taxes until it has been sub- 
 jected to the test of an ordeal which virtually deprives it 
 of its value. The coupon-holder, forsooth, is asked to 
 pay his taxe's in cash and submit his coupon for official 
 investigation. If the "hook" bill and the "eye" bill 
 had been considered together, and their incidents investi- 
 gated as a whole, the injustice of the net result would 
 have been apparent and its absurdity would have ensured 
 and expedited its funeral. The stock argument that 
 State loans were frequently issued by legislatures which 
 did not represent the people is at once too musty and too 
 feeble to need more than a passing word. A sovereign 
 people devises for itself the political mechanism which it 
 considers most suitable to its requirements. Outside 
 parties have rightly no voice at all in determining its jus- 
 tice, adequacy or efficiency. It follows that no State can 
 properly set up the imperfection of its own machinery 
 against innocent third parties, who had every right in the 
 world to suppose that a sovereign people would elect its 
 government in its own way, and would be responsible for 
 the incidents of its representative character. It was prob- 
 ably rather on the strength of this than of any other 
 argument that the English people paid the "Alabama" 
 claims. What is sauce for the goose is sauce for the 
 gander. 
 
 There is another set of securities on which our en- 
 quirer may think it worth while to make one or two pass- 
 ing notes, viz. : those which consist of American land, 
 either purchased outright for the purpose of mineral or 
 agricultural operations, or accruing to railroad corporations 
 under the system of land grants. It is scarcely necessary 
 to point out that the interests of foreign investors in 
 
VESTED INTERESTS. 1 1/ 
 
 lands held under the latter system vastly exceed in 
 amount those acquired by direct purchase. 
 
 The tendency, above referred to, to forget or ignore the 
 valuable consideration contributed by the foreign investor 
 in payment for his interest in land-grants forms a very 
 striking feature of legislative activity in America to-day. 
 A great deal has been said and written about the rapid 
 decrease of the vast domain owned by the United States, 
 and its absorption by corporations including a large 
 foreign element, or by foreign purchasers in their own 
 undivided right. It is said that the land held by the 
 United States is immensely valuable to-day ; and that 
 this circumstance shows up in strong relief the wasteful- 
 ness and absurdity of parting with any of it to railroad 
 corporations or foreign investors. If the gist of these re- 
 monstrances merely amounts to the statement that, in 
 the alienation of government lands, there has been much 
 extravagance and some jobbery, no one intimately ac- 
 quainted with Washington business will for a moment 
 doubt the substantial truth of the allegation. The point 
 that strikes the observer most forcibly in connection with 
 this contention is that the vast and valuable consideration 
 paid by the persons who are interested in railroad grants 
 is either deliberately ignored or unaccountably overlooked. 
 Let us examine for a moment the conditions attending a 
 railroad grant of the most conventional type. In a given 
 State the United States Government owns several mil- 
 lions of acres. A great part of this vast tract is intrinsically, 
 in a potential sense, very valuable ; in some places rich in 
 mineral wealth, in others abundant in valuable timber, 
 and again in others admirably adapted for agricultural 
 development. Desiring to realize from the sale of these 
 lands a reasonable contribution to the national ex- 
 
VESTED INTERESTS. 
 
 chequer, the United States Government repeatedly offered 
 them for sale at fabulously low prices. The answer of 
 the really practical judge of values was consistently un- 
 favourable, and purchasers could not be found. No doubt 
 the land was rich in intrinsic elements of wealth ; but it 
 lacked one vital condition of success, viz. : proximity to 
 a system of transportation which would enable the pro- 
 ducer to get money or money's-worth for his produce. 
 Suppose you have an immense deposit of minerals in an 
 inaccessible part of the Rocky Mountains. Suppose that 
 the expense of constructing a railroad to a point within 
 measurable distance of this deposit renders such construc- 
 tion out of the question. For all practical purposes in 
 the present, you may as well have a deposit of ore in 
 Saturn or Jupiter. If you haul your produce to a market 
 by mules, its value will be eaten up long before it gets to 
 its destination. Tons of magnificent corn have been 
 burned in the Western States as fuel, simply because the 
 cost of transportation would have exhausted its worth be- 
 fore it could reach a market and become subject-matter 
 of exchange. This is the sort of illusory value about 
 which American patriots of the " spread-eagle " school 
 talk so largely. The United States Government, how- 
 ever, took a different view of the problem, and this view 
 was in principle very similar to that which induced in- 
 dividual States to scheme for the development of their 
 own internal resources, and to invite the introduction of 
 the foreign investor under conditions indicated in a former 
 chapter. It reasoned something as follows : Here is a 
 district possessing all the conditions favourable to immedi- 
 ate settlement and ultimate wealth, if only we can supply 
 the vital need of transportation. To lock up any thing 
 like from five to twenty million dollars in the construe- 
 
VESTED INTERESTS. 1 1 9 
 
 tion of a railroad involves tremendous risks. The States 
 in which these lands are situate have not at present cash 
 adequate or available for so great a work ; nor, if they had, 
 would their people be content to accept so serious a hazard. 
 Yet perhaps we may find some foreign investors with suf- 
 ficient courage to accept these great risks, if we give them 
 a subsidy in land ranging from six to fifteen miles from 
 the track of a projected railroad and continuing through- 
 out its length. By this method we sit down quietly at 
 home, and permit the foreign investor to shoulder incal- 
 culable risks. Such a course combines, in a remarkable 
 degree, national patriotism with economic prudence. 
 
 Mr. Artemus Ward has made the world familiar with the 
 soundness of this view. He says, in effect, that he had no 
 overpowering personal desire to go to the war. But a fine 
 sense of duty precluded him from actively opposing the 
 desire of his wife's relations to go if they so desired. Now 
 our government map divides the land into sections of 640 
 acres each. If we give to the constructing company alter- 
 nate sections of land within the limits above referred to, 
 or larger limits if necessary, in consideration of their 
 building a railroad, the residuary sections which we re- 
 tain will be doubled, trebled or perhaps quintupled in 
 value. The Government of the United States will suffer 
 no pecuniary loss, because the balance of the land which 
 we retain will (by reason of the creation of a system of 
 transportation) be worth vastly more in the market than 
 the whole property was worth prior to the gift of a por- 
 tion. From the point of view of the United States Gov- 
 ernment, " 7t\iov rj)j.iGv narrow. 
 
 It is a monstrous injustice to describe this interchange of 
 consideration as an ill-considered and extravagant sacrifice 
 of property on the part of the United States, It is indeed 
 
120 VESTED INTERESTS. 
 
 scarcely credible that any candid observer intimately ac- 
 quainted with the commercial history of American States 
 can seriously contend that, on the whole,' this policy has 
 not indefinitely accelerated the settlement, development 
 and general improvement of the several States in which it 
 has been liberally carried out, or that, in the long run, the 
 grantor has not gotten substantially the best of the bar- 
 gain. To reason from the analogy of English railways 
 is plainly absurd, because in England settlement and 
 civilization preceded railway construction, while over 
 large tracts of the American continent the exact con- 
 verse has been the case. In the West and South the con- 
 struction of a railroad has almost invariably, in fact, 
 though subject to great variation in point of degree, 
 been the pioneer of civilization. Its advent in a new dis- 
 trict has introduced new ideas and personalities, new indi- 
 vidual ambitions and social aspirations, new phases and 
 standards of thought and obligation. It has largely tend- 
 ed to produce order out of chaos, to set up a standard of 
 social law and public opinion in the roystering mining 
 camp, and to inform with energy and enterprise the sleep- 
 iest agricultural village. By its operation the taxable 
 property of States has been increased so as to meet pro- 
 gressive educational and humanitarian demands. The re- 
 sources of municipal corporations have been enlarged so as 
 to enable them to cope with the requirements of public 
 order and decency. It would indeed be difficult to por- 
 tray the advantages which railroads have conferred upon 
 remote and scarcely civilized districts, without recourse to 
 language bordering on the melodramatic. That is not the 
 purpose of the present notes. 
 
 It may indeed be said that a subsidy of land offered by 
 the Government to a constructing railroad corporation is 
 
VESTED INTERESTS. 121 
 
 undistinguishable in principle from any other forms of taxa- 
 tion. That proposition may be quite true, and may be 
 freely granted to the opponents of the system, for what- 
 ever it may be worth. But suppose that a popular gov- 
 ernment sees nothing immoral in indirect taxation, or in 
 protection of particular industries, or in any other fiscal ad- 
 justment, which in its opinion tends to the development 
 and ultimate independence of the whole nation, and with 
 which the verdict of the majority of the people is in accord. 
 Opinions will of course differ as to the correctness of the 
 principle. The irreconcilable free-trader will regard it as 
 a frightful outrage. On the other hand, States pledged 
 to protection will consider it an unmixed benefit. There 
 remains, after all, an open question "which the majority 
 considers to have been right in principle and beneficial in 
 result, and which the minority denounces. You cannot 
 cut up a principle by citing its abuses. Neither the 
 majority nor the minority contends that extravagance 
 or jobbery was in any respect justifiable. 
 
 The signs of the times indicate fair recognition by the 
 people of the United States of the benefits which the 
 Country has derived from the investment of foreign 
 capital, and of the protection to which that capital is en- 
 titled. If, under that form of popular government which 
 the American nation has devised for itself, Congres- 
 sional, Legislative or Municipal rings have been permit- 
 ted to make an undue profit out of the national resources, 
 that can afford no sufficient reason for ignoring or failing 
 to protect the legitimate interests of -the foreign investor. 
 It is probable that, if the latter would assert firmly and 
 temperately the importance of his rights, with due regard 
 to their real merit and general conditions, he would 
 obtain as fair a hearing in America as elsewhere. In 
 
122 WESTERN AND SOUTHWESTERN GRAZING LANDS. 
 
 order to do so successfully, it is incumbent on him to 
 appraise with some approach to correctness his real 
 equities and the vitality of the remedies appurtenant 
 thereto. If, for example, he were desirous of protecting 
 his interest in State bonds as against a State showing a 
 disposition to repudiate, he would probably have a better 
 chance to-day than at any time within the last ten or 
 fifteen years. Per contra, if he should propose to induce 
 the Federal Government to pay his Confederate bonds, 
 his prospect of success would be in the last degree vision- 
 ary. He will possibly conclude that, in the long run, 
 "wisdom is justified of her children/' but that they are 
 not always identifiable at first sight. 
 
 Western and Southwestern Grazing Lands. 
 
 Advanced reformers have spoken very frankly about 
 the necessity for drastic legislation in connection with 
 property in the Far West and Southwest held mainly for 
 grazing purposes by individuals or corporations represent- 
 ing a large amount of foreign capital. The truth would 
 seem to be that the outcry is addressed not primarily 
 against the legitimate ownership of property, but against 
 an unfair interpretation of the rights and privileges inci- 
 dent to such ownership. The occupiers of large ranches 
 possessing grazing privileges defined by the custom of the 
 Country are of course subject, like every body else, to the 
 obligations of written and unwritten law and custom. If, 
 in the exercise of a grasping spirit, rights are transgressed, 
 the trespasser has placed himself in a false position. If 
 privileges have been abused or rational customs set at 
 nought, the party in fault must reasonably expect to be 
 more or less coerced by such forms of remedy or restraint 
 as the social conditions of the community in which he 
 
WESTERN AND SOUTHWESTERN GRAZING LANDS. 123 
 
 resides permit and justify. But the coercion or restraint 
 of a trespasser on legal rights or social institutions is a 
 matter which stands on its own merits. It throws no ap- 
 preciable light on the security or insecurity of property 
 owned and held in accordance with law. Our observer 
 will probably conclude that law-abiding men who have 
 honestly acquired interests in property in the Far West 
 or Southwest can, if they choose to adopt the proper 
 means, protect their interests there as effectually as else- 
 where. Whatever views they may be disposed to take 
 concerning property already in possession, it may be con- 
 sidered as a foregone conclusion that legislation restrict- 
 ing the acquisition of land in large quantities by aliens 
 (whether in an individual or corporate capacity) will 
 assuredly be carried out. A comprehensive bill dealing 
 with this subject is, at the time of writing, before Con- 
 gress, and is, in substance, practically certain to pass both 
 Houses. It is scarcely necessary to say that restrictions 
 on the future acquisition of land by aliens need excite no 
 apprehension as to the observance of the foreign inves- 
 tor's rights in the property of which he has become the 
 legitimate owner prior to the passage of the bill referred 
 to. 
 
CHAPTER XVI. 
 
 STATE CONTROL. 
 
 Is there any truth in the forecast that, within a measur- 
 f able limit of time (say five or ten years), the railroads of 
 this country will be taken over by the Government, and 
 managed in the future as part of one great national sys- 
 tem composed of railroads, post-office and telegraphs ? 
 If such a result should be accomplished, on what con- 
 ditions would the transfer be made ; and in what manner 
 and to what extent would the interests of the foreign 
 investor be affected thereby ? There are not wanting 
 competent judges who hold that the three best known 
 forms of inter-communication above referred to form a 
 natural trio, and are peculiarly susceptible of successful 
 and harmonious combination. Great economies, say the 
 partisans of this school, could be effected if these three 
 branches could be made to play into each others' hands. 
 Fewer buildings would be needed for post-offices and 
 telegraph stations. A smaller staff would suffice for the 
 combined work, and the services of each member would 
 be more adequately utilized. 
 
 By the opposite school it is contended that the advan- 
 . tages above referred to are out-weighed by the defects 
 inherent in State control. The State, they say, cannot 
 and does not make money go as far or produce as much 
 as an individual, firm or company. When the Govern- 
 ment takes to ship-building, it does not turn out as good 
 
 124 
 
STATE CONTROL. 125 
 
 ships as private builders. It spends more money over its 
 work, and is a longer time about it. It is not as judicious 
 a purchaser of raw material. It does not get as good a 
 day's work out of its employees. Government buildings, 
 they say, are unduly tedious and costly undertakings ; 
 and, in short, having regard to existing results which 
 appeal to the mind of the average observer, railroads are 
 not satisfactory matter for State management. 
 
 Whichever of these views be the more reasonable, it is 
 plain that the immense capital invested in railroads 
 greatly complicates the problem. The money that has 
 been expended in them is locked up in a specially perma- 
 nent sense.* It cannot, like many other forms of capital, 
 be withdrawn and shifted at pleasure to more productive 
 or promising enterprises. What has been laid out in 
 tunnelling hills, bridging rivers, and making rough places 
 smooth is virtually an irrevocable outlay. If railroads are 
 to be acquired by the Government, somebody must pro- 
 vide the purchase money. On the one hand, the tax- 
 payer's money cannot be extravagantly dispensed, without 
 a violation of duty on the part of the Government. On 
 the other, the proprietor's rights cannot be confiscated or 
 prejudiced, without conflict with the Federal Constitution. 
 Nor is a basis of compensation equitable to all interests 
 concefned such a very simple matter. A basis of original 
 cost is of course out of the question. In respect of an 
 economically constructed and successful railroad, it would 
 be unfair to the proprietor. In the case of an extrava- 
 gantly constructed and unsuccessful railroad, it would be 
 resisted by the tax-payer. The capitalized value of a 
 going concern is a calculation of some complexity. 
 America certainly would not pay for the acquisition of its 
 
 * " Railroad Transportation," Hadley, pp. 40, 41, 
 
126 STATE CONTROL. 
 
 railroads on the scale adopted by the English Government 
 when it assumed the telegraphs. 
 
 The division of power vested in the Federal Govern- 
 ment and the several States might, in readily conceivable 
 cases, give rise to much difficulty. Public opinion is 
 not sufficiently unanimous on the subject even from an 
 economical point of view to afford any reasonable ex- 
 pectation that so vast a change will be carried through 
 within the immediate range of the investor's vision. 
 
 There remains the political aspect of the question, on 
 which the public mind is even more distinctly divided 
 than on its economical aspect. It is quite true that in 
 many European countries State control has answered the 
 purposes of its projectors with a reasonable degree of 
 success. But in those cases it has been more or less con- 
 genial to the idiosyncrasies, habits and political bias of 
 the people. As has been ably pointed out in recent 
 treatises on the subject,* bureaucracy is not uncongenial 
 to the French people. But it may be doubted whether, 
 on the whole, republican government in France of the 
 type recently developed could do better for the general 
 interests of the people than the existing railroad com- 
 panies. In Prussia, under the strong hand of Prince 
 Bismarck, the assertion of State control must be regarded, 
 not strictly as an economical experiment, but as part of 
 a political machinery tending, in his judgment, toward 
 the consolidation of national unity and the permanent 
 development of military efficiency. In Belgium, until 
 recently, the Government was itself a large proprietor, 
 and took a hand in active railroad competition. C In 
 England, if the experiment be tried at all, it will 
 
 * " Railroads, their Origin and Problems," C. F. Adams, Jr. " Railroads 
 and the Republic," J. F. Hudson. 
 
 
STATE CONTROL. I2/ 
 
 probably be adopted as part of the programme of State 
 socialism ; not necessarily because it is economically 
 advantageous, but because it may be thought expedient 
 to adopt this course as the price of party support. In 
 America none of these special conditions are found to 
 exist in any very cogent or convincing form. The con- 
 trol of railroads would subserve no theory of national 
 consolidation or military organization, for the excellent 
 and satisfactory reason that the Country can dispense with 
 such cumbrous drawbacks to the progress of her internal 
 prosperity. 
 
 The liability of the rate-payer to meet in the last resort 
 any deficit that may arise from defective government ad- 
 ministration appreciably limits the desire of the public for 
 government intervention in private enterprise in all civ- 
 ilized countries. As time goes on, the " machine " 
 becomes more distasteful, and bureaucracy is altogether 
 too intrusive and paternal to commend itself to the in- 
 stincts of the American people. The average American 
 citizen who has entered himself in the race for wealth 
 is self-reliant in originating enterprises, and strenuous in 
 conducting them. He is apt to resent any interference 
 with the conduct of his chosen business which is not justi- 
 fied by proprietary interest therein. In short, he would 
 like the Government which he elects for his own benefit to 
 confine itself within reasonable limits to the restraint of 
 transgressions against law and trespasses on social rights, 
 and to leave the enterprising citizen to fight out his own 
 battle with the laws of supply and demand. He is con- 
 scious that to invest his Government with a new and un- 
 tried sphere of action, in which political influences may 
 be brought to bear on private concerns, is to say the least 
 of it a dangerous experiment. He has already suffered a 
 
128 STATE CONTROL. 
 
 wide and disastrous experience in connection with political 
 jobbery, and on the whole would rather not offer new 
 temptations to the energy, shrewdness and capacity for 
 intrigue which are incident to politics when considered as 
 a profession. 
 
 Although therefore many competent thinkers desire the 
 assumption of railroads by the Government, it is, in the 
 writer's opinion, improbable that such a result will be ac- 
 complished here, so long as internal peace and the quiet 
 growth of national prosperity are comparatively free from 
 the violent disturbances incident to socialist feeling. It 
 has been noted above that, while this pestilent and un- 
 fortunate impulse is certain to make itself felt here as 
 elsewhere, America's powers of resistance are at least as 
 great as those of any other civilized country. If it be true 
 that the " Granger " States represent the dynamite element 
 in connection with American prosperity, it is impossible 
 to forecast with accuracy what embarrassments the action 
 of a dissatisfied and disappointed section of a community 
 may eventually inflict on the law-abiding creators of 
 American wealth and prosperity. But the signs of the 
 times point to the conclusion that the better instincts of 
 the whole people are pledged to the maintenance of the 
 American Constitution. 
 
 Let us suppose then that a great deal of foreign money 
 is hereafter invested in American railroads. The chances 
 would seem to be that no assumption of them by the Gov- 
 ernment will take place within the horizon visible to the 
 average investor of to-day ; and that, if such a result 
 should take place, his rights will be respected and com- 
 pensated as fairly here as in the older European countries. 
 The outcry of the people against railroads, which have 
 greatly contributed to their welfare, will always be a use- 
 
STATE CONTROL. 129 
 
 ful instrument in the hands of the demagogue ; but it 
 lacks the salient feature of natural and easily recognizable 
 equity. Nobody denies that, if it had been possible to 
 lay out the railroads of any highly populous and civilized 
 country on comprehensive principles involving central 
 unity and organic symmetry, friction and waste of power 
 might have been indefinitely reduced. But, as no govern- 
 ment could have stability or foresight, nor any generation 
 of men material resources, sufficient to justify so gigantic 
 an undertaking, it was left to private enterprise to accom- 
 plish the task by piecemeal methods, as best it could. 
 
 Having regard to the profit which, since the creation of 
 railroads on a large scale, has rewarded ordinary risks in 
 commerce, trade and manufacture, will any thoughtful 
 observer seriously contend that an average interest of 
 some 4|- % on invested capital is an excessive compensa- 
 tion for the extraordinary risks incurred in the construc- 
 tion of railroads? Extraordinary risks, accepted for a very 
 ordinary compensation and enuring in a most remarkable 
 degree to the public welfare, give rise to equities which, 
 as between railroad companies and the Government of any 
 country, are entitled to most careful consideration, and in 
 the long run are likely to receive it. 
 
CHAPTER XVII. 
 
 GEOGRAPHICAL DIRECTION OF RAILROADS. 
 
 AMONG other elementary enquiries, our visitor may 
 probably ask whether the geographical direction of rail- 
 roads has, from the investor's point of view, any bearing 
 on their present and prospective success; and if so to 
 what extent and for what reason. Any attempt to an- 
 swer such a question exhaustively would of course exceed 
 the scope and limits of the present notes. Nor has our 
 enquirer any intention of burthening his own note-book 
 with cumbrous tables of statistics. To state in detail the 
 figures which indicate the progress of railroad enterprise 
 in America would virtually amount to a record of the 
 progress of her internal trade. Railroad history, in short, 
 affords something like a rough standard of internal 
 business, recording in general outline permanent growth, 
 temporary depressions, and temporary recoveries. For 
 any exhaustive discussion of this subject the enquirer will 
 properly refer to recognized text-books. For the present, 
 the practical question is this : Can he derive any useful 
 suggestions from a rapid and superficial survey ? Possibly 
 one or two leading conditions connected with the situa- 
 tion may be worth noting. 
 
 The tonnage which is annually moved from the Western 
 States to the Eastern seaboard is enormous in its dimen- 
 sions. But the periods during which the movement of 
 this tonnage continues are unequal in duration and some- 
 
 130 
 
GEOGRAPHICAL DIRECTION OF RAILROADS. 131 
 
 what uncertain in their incidents. Take, for example, a 
 very favourable stage in the commercial history of the 
 great East-and-West roads. Let us suppose that a 
 plentiful harvest has been gathered in by those American 
 States which produce grain and meat in extraordinary 
 profusion. Let us suppose further that there is an im- 
 mense demand in Europe for imported food. It follows 
 that the period which covers the moving of the crops from 
 Western farms to the Eastern seaboard will tax to their 
 utmost capacity the resources of railroads running due 
 east and west. To accomplish this service with effect, 
 a vast aggregate of rolling stock is an absolute necessity. 
 No railroad which is not in a position to fill large orders 
 for transportation can reasonably expect to hold its own 
 in a keen (and occasionally unscrupulous) competition. 
 
 In order to comply with this condition, it is necessary 
 to maintain an amount of rolling stock roughly adequate 
 to the demands of maximum pressure, and therefore 
 greatly in excess of the demand which will exist during 
 the relatively inactive months of the year. If the trans- 
 porting company is the absolute owner of its rolling stock, 
 it must take account of interest on capital invested there- 
 in ; also of the cost of repairs and maintenance which are 
 appreciable items of expenditure. If the company hires 
 its rolling stock, it must reckon with the amount paid for 
 car hire ; and this too involves serious outlay. To very 
 long hauls during periods of high pressure delay and de- 
 tention are inevitably incident ; and detention in a state 
 of inactivity means suspension of earning power in respect 
 of the cars so detained. Then again the gradual building 
 up of manufacturing industries in the large cities of the 
 Middle and Western States enables those cities to supply 
 a liberal share of the necessaries of life, which were for- 
 
132 GEOGRAPHICAL DIRECTION OF RAILROADS. 
 
 merly transported to the far West from cities in the 
 neighbourhood of the Eastern seaboard. It results that 
 the car which makes a long haul from the far West to 
 the Eastern seaboard is not only liable to considerable 
 delay and detention, but is very apt (if the familiar bull be 
 permitted) to " load back empty." 
 
 Under these conditions it is worth while to consider 
 roughly what are the annual net earnings of a vast aggre- 
 gate of rolling stock. Granting that each car earns a good 
 deal of money during the moving of the harvest, what is 
 its average earning on the work of the whole year ? The 
 result is perhaps scarcely as satisfactory as might at first 
 sight be anticipated. So vast is the annual tonnage 
 moved from the West to the East, that in spite of the 
 immense supply of transportation and extraordinarily low 
 rates there is amply sufficient to make a fair profit for a 
 certain proportion of competing lines. Those which are 
 intrinsically the strongest and best managed will no doubt 
 continue their career of success. But, to enable them to 
 accomplish this result, the weaker East-and-West lines 
 will probably sooner or later suffer a severe discipline. If 
 there is barely enough to go round and the stronger take 
 the lion's share, the prospect of the weaker must always 
 be a matter for careful consideration, possibly even of 
 apprehension, from the investor's point of view. There 
 are indeed optimists who hold that the traffic between the 
 remote East and West will shortly grow up to the exist- 
 ing supply of transportation ; and, even at very low rates, 
 make every East-and-West road a paying concern. In 
 this view the writer does not concur. It seems not im- 
 probable that, with very modest rates, the business of the 
 East-and-West lines would suffice to pay a fairly liberal 
 rate of interest on all the capital really and economically 
 
GEOGRAPHICAL DIRECTION OF RAILROADS. 133 
 
 invested in them. But, when the amount of water which 
 has been infused into existing capital accounts is taken 
 into consideration, it may be doubted whether in the 
 future very remunerative interest will be permanently 
 paid on anything like the whole of their present capital, 
 real and fictitious. The amount of this water is, in fact, 
 so great that the prudent investor can scarcely fail to re- 
 gard it with misgiving. Suppose to-morrow a new East-and- 
 West " bee-line " were projected and laid out with genuine 
 insight and superior judgment ; that it were built with- 
 out a dollar of waste ; and that all the economical ad- 
 vantages derivable from the maximum purchasing power 
 of ready money were utilized. Suppose further that the 
 aid of all modern appliances conducive to cheap and 
 effective construction were conscientiously and scientific- 
 ally enlisted in the development of the enterprise. Sup- 
 pose that townships and hamlets throughout the proposed 
 line subscribed with fair liberality in aid of the undertak- 
 ing ; and lastly that the new railroad when built was 
 operated from the start on a strictly commercial basis ; 
 that its administration \\.-&& from the outset no speculative 
 complications, no expensive emergencies to tide over and 
 no axes to grind, outside of the immediate interest of the 
 road and its stockholders. Such a line, unembarrassed 
 by water and unencumbered by artificial and unnecessary 
 engagements, would break the heart of the weaker East- 
 and-West lines, who would surely, in any future war of 
 rates, find themselves handicapped out of the race. The 
 lightly weighted road would make the most of its light 
 weight, and decline pooling arrangements. A scale of 
 rates, which would provide a fair living profit for a new 
 road constructed and operated in the manner and under 
 the conditions above indicated, would starve the junior 
 
I 34 GEOGRAPHICAL DIRECTION OF RAILROADS. 
 
 securities of existing weak and heavily watered concerns. 
 Whatever might be the volume of existing business at 
 any given time, the road which could best afford to un- 
 dersell would have the best of the struggle and be the 
 most likely to survive. 
 
 Possibilities of this kind must properly be recognized 
 as factors in the conclusions of an investor, whenever he 
 contemplates acquiring the securities of the weaker East- 
 and-West lines. Whether such a view be well founded 
 or not, it must of course be worth while for the investor 
 to consider the relative claims of lines which run north 
 and south or diagonally, with some approximation to a 
 north and south direction. Many cities of the Middle 
 States have, in the last twenty years, grown with astonish- 
 ing rapidity into commercial and manufacturing impor- 
 tance. In exchange for raw material shipped to them 
 from the Southern States, they are in a position to send 
 back a large portion of the necessaries of life which the 
 Southern States do not to-day produce for themselves in 
 reasonable proportion to their capacity and general 
 physical advantages. While it may be hoped, in the in- 
 terest of the latter, that greater attention will hereafter 
 be given to the production of food, live stock, and the 
 manufacture of articles of commerce, it is plain to the 
 observer that to-day the attention of the South is too ex- 
 clusively concentrated on certain special resources. Some 
 of these such as coal, iron and other minerals the soil 
 produces in profusion and in singularly convenient juxta- 
 position ; and others such as cotton, fruit, etc. the 
 climate fosters with something like trustworthy assurance 
 of success. The home of the cotton plant is in many 
 instances liberally supplied with the water power to drive 
 the spindle. Coal, iron, limestone and water are founc! 
 
GEOGRAPHICAL DIRECTION OF RAILROADS, .13$ 
 
 lying close together within short distances of adequate 
 railroad transportation. The great cities of the Middle 
 States afford a convenient market for the Southern pro- 
 ducer of these raw materials. Chicago, Cincinnati, Louis- 
 ville, St. Louis, and many other inland cities desire new 
 markets for their finished goods, and invite interchange 
 by all available means. 
 
 What is likely to be the effect of these conditions on 
 railroads from the investor's point of view ? First and 
 foremost, " way trade " is far more remunerative than 
 " through business." Cars, which carry coal to a furnace 
 or cotton to a mill, carry also the manufactured product 
 to a convenient market, and bring back the stores neces- 
 sary for the requirements of the manufacturing com- 
 munity. There is in short ample material for interchange ; 
 and transporting companies load their cars to some extent 
 in both directions at rates higher than "through business" 
 between very distant points will stand. Again, the trade 
 between the North and South is in its infancy, while a 
 good deal of the East-and-West trade has, so far as the 
 profits of railroad companies are immediately concerned, 
 passed into a period of comparative decrepitude. The 
 future of rates on North-and-South lines seems less liable 
 to disturbance from the incidents of severe competition 
 than those of due East-and-West lines. Water transporta- 
 tion, which limits to a great extent the elasticity of East- 
 and-West rates, operates with far less severity on the 
 strictly inland lines which exchange the raw produce of 
 the South for supplies furnished by the great cities of 
 the Middle States. While the importation of food to 
 Europe is likely to afford for some years to come a fairly 
 profitable business, its conditions are not very stable, nor 
 its remuneration excessive. Railroad enterprises which 
 
136 GEOGRAPHICAL DIRECTION OF RAILROADS. 
 
 depend on this condition to any great extent are liable to 
 serious disappointment. 
 
 So far the coloured labour of the South, as compared 
 with the white labour of the " Granger " States on the 
 great East-and-West routes, has been less demoralized by- 
 popular agitation ; and perhaps on the whole the dis- 
 turbance of business by prolonged and serious strikes is 
 less probable in the future. In the South the deference 
 paid by the labouring classes to the seditious suggestions 
 of the professional demagogue is less general and less 
 earnest than in the " Granger " States. The writer re- 
 members the time when the " carpet-bagging " demagogue 
 who went South from the Eastern States could command 
 a ready ovation by the utterance of a florid and prepos- 
 terous stump speech. On the eve of an election he was 
 wont to say to a lazy and thriftless coloured audience 
 that th.e North " looked to them to inform politics with 
 patriotism, law-courts with equity, and society with re- 
 finement " ; and he would be greeted by a hearty salvo of 
 cheers. Let him make the same effort to-day, and he 
 will find the result deeply disappointing. When he 
 reaches the climax of unblushing flattery, a good-humoured 
 "darkey" in the crowd will simply nudge his neighbour 
 and say " he guesses the boss must be going to send 
 round the hat." In short', even in the South, the 
 national humour is to some extent awakened. It is be- 
 ginning to be dimly understood that nobody ever lavishes 
 fulsome praise on the lowest of the people, except when 
 he wants to use them for his own purposes. The percep- 
 tion of this fact overthrew Mr. Tweed's celebrated 
 Ring. Many patriotic orators had urged with elo- 
 quence and ability the rights of the people. But their 
 appeals fell somewhat flat. Mr. Tweed and his friends 
 
GEOGRAPHICAL DIRECTION OP RAILROADS. 137 
 
 replied, in effect, that they did not care much about the 
 " People " [whatever that phrase might mean], so long as 
 they had behind them a compact and highly organized ma- 
 jority of irresponsible persons. But presently somebody 
 approached the subject from a different point of view. 
 Perceiving the absurdity of the situation, he asked : " Who 
 are these people that impose on us unlimited taxes, 
 expend them for their own aggrandizement, and rule us 
 with a rod of iron ? Are they (as Mr. Gilbert's Duke in 
 " Patience " candidly enquires) particularly intelligent, or 
 remarkably studious, or excruciatingly witty, or unusually 
 accomplished, or exceptionally virtuous?" The next 
 enquirer asked : " Do they contribute much to the taxes 
 which they impose ? Are they particularly distinguished 
 as legislators, or specially eminent in their scientific or 
 professional careers ?" The answer returned was in the 
 negative. It was rendered, not with a howl of moral 
 indignation, but with a subdued sense of amusement, that 
 citizens of responsibility and common-sense had allowed 
 themselves to be so absurdly out-generalled and " got so 
 badly left." Underlying however this subdued sense of 
 amusement was a strenuous resolve not to " get left " a 
 second time, and the downfall of the Ring became a fore- 
 gone conclusion. It remained for Mr. Nast's pencil to 
 accelerate its funeral. 
 
 The gradual awakening of national humour is the knell 
 of the demagogue's trade. It is a very hopeful sign, from 
 the point of view of the investor in Southern securities, 
 that the demagogue cannot accomplish as much in the 
 South to-day as he could some ten or fifteen years ago ; 
 nor even as much as he can to-day accomplish among the 
 inhabitants of the " Granger " States, who are made of 
 sterner stuff than the labourers of the South. 
 
138 GEOGRAPHICAL DIRECTION OI< RAILROADS. 
 
 Again, with one or two exceptions, Railroad Commissions 
 in the South have been less ambitious, and have, on the 
 whole, exercised their powers with greater judgment and 
 moderation than elsewhere. The Massachusetts Railroad 
 Commission may be regarded as standing apart by itself, 
 and as outside the scope of the present consideration. 
 This is probably due to the exceptional personal ability 
 of its representatives, as well as to the wise limitation of 
 the powers granted them. 
 
 Moreover, there would seem to exist in the South a 
 somewhat higher and more general appreciation of the 
 great benefits conferred by railroads on States recovering 
 from depression than is to be found in the Granger 
 States ; and consequently railroad corporations are dealt 
 with in a fairer spirit. Granting that to-day the aggregate 
 mileage of railroads in the South is somewhat in excess of 
 the demand of the aggregate tonnage to be moved and 
 travel to be accommodated, still there is a larger margin 
 of undeveloped internal resources than in the Northern 
 and Middle States. In short, the trade of the former is 
 on the whole growing up to a remunerative point (so far 
 as concerns railroads) at a more rapid rate of progression 
 than the trade of the latter. Amongst other indications 
 of prosperity, the mineral trade of the South shows a 
 steady and encouraging advance. 
 
 To suppose that, because a given district discloses at any 
 given time unusual wealth in mineral products, the whole 
 active world of capital and energy will immediately migrate 
 to that spot is of course visionary and absurd in the last 
 degree. But it is probably true that, in the long run and 
 after allowing a sufficient interval of time for transfer of 
 capital and adjustment of the market, the sphere of cheap 
 production will become to a greater or less extent th-j 
 
GEOGRAPHICAL DIRECTION OF RAILROADS. 139 
 
 home of a successful cognate industry. Time is needed 
 to bridge over a number of gaps in the process of transi- 
 tion ; but sooner or later the laws of supply and demand, 
 operating under the stress of keen competition, cause the 
 producer to gravitate towards the centres of cheapest 
 production. 
 
 To take a familiar instance : If it should hereafter be 
 found that marketable pig-iron can be manufactured and 
 marketable coal supplied in Alabama at a substantially 
 lower price than in Northern States, it will pay the manu- 
 facturer of the Northern and Middle States to work up 
 Southern iron, rather than to raise the raw material for 
 himself. What is good for the trade of a State tends 
 to the prosperity of its railroads. If, as some observers 
 think, the rapidly growing city of Birmingham, Alabama, 
 should hereafter become a centre of a " black country," 
 like its namesake in England, a great impulse will have 
 been given to the energy and scope of Southern industry ; 
 and the importation of foreign capital and skilled labour 
 will be ensured. The marketable products of the country 
 will obtain a larger circulation, and progress in many in- 
 dustrial departments will follow the indications of success. 
 Some assurance will be offered to capital that it is invested 
 in rising not in sinking communities and near the cheap- 
 est known centres of production. 
 
 Though the coloured man has in many respects disap- 
 pointed the lofty estimate formed of his capacity for the 
 higher range of administrative functions, he is not on the 
 whole a bad citizen or labourer, if properly directed. His 
 sense of humour is not a myth. On the contrary, though 
 in a rudimentary stage, it saves him from many extrava- 
 gances, and supplies wholesome restrictions on his credu- 
 lity when under treatment by the professional demagogue. 
 
140 GEOGRAPHICAL DIRECTION Of RAILROADS. 
 
 Persons thoroughly familiar with his habits of thought are 
 not over-much surprised at his practical common-sense 
 in many departments of life. Tell him for instance that 
 according to the modern " high-toned " view, you must 
 seek political wisdom, not from educated and disciplined 
 thought, but from the fresh impressions of the most ignor- 
 ant people you can find. He replies : " If the poor white 
 trash up in the piney woods know more than the bosses 
 at Washington who are studying all the time, he guesses 
 that it is not much good to starve himself to send the boys 
 to school." It would no doubt be easy for a competent 
 debater to demonstrate on the spot that -fresh impressions, 
 being free from the restraints imposed by knowledge of 
 facts are more trustworthy guides to the wise solution 
 of difficult problems than the conclusions of educated 
 reasoning. An eminent wit of old is reputed to have shrunk 
 from reading a book before reviewing it, " because it pre- 
 judiced a fellow so." In short, the real difficulty of hand- 
 ling a subject would seem to arise from the limitations 
 imposed by knowledge rather than from those imposed 
 by ignorance. This view is somewhat disappointing to 
 old-fashioned people who had supposed that, by disburs- 
 ing the tax-payer's money for compulsory education, they 
 were converting capricious political aptitudes into perma- 
 nent and valuable habits, and eventually promoting the 
 cause of sound government. 
 
 Though the coloured labourer of the South is very apt 
 to be both lazy and thriftless, the gradual acquisition of a 
 little property has tended to steady and develope him. 
 He is physically strong, remarkably enduring under the 
 strain of a semi-tropical climate, very light-hearted, and 
 almost entirely free from apprehensions concerning the 
 future. His wants are extremely few and simple, and 
 
GEOGRAPHICAL DIRECTION OP RAILROADS. 14! 
 
 he is willing to labour for a rate of compensation which 
 his white brethren in the East or Far West would decline 
 or resent. If, on the whole, he is a less competent 
 labourer than the better class of white men, it is by no 
 means clear that his labour is not better worth having at 
 the price for which it can be obtained. The rate of 
 wages which he demands is appreciably lower, and in the 
 case of the farm labourer a good deal of it is paid in kind. 
 On the whole, it is reassuring to persons interested in 
 Southern undertakings to note that, if their enterprises 
 are in other respects sound and well conceived, their suc- 
 cess will not be imperilled by the mere colour of the 
 labour which they employ. From the point of view of 
 the investor of new capital, a reasonable prospect of 
 progressive increase in the value of his securities is a con- 
 sideration of the first importance. 
 
CHAPTER XVIII. 
 
 SOME IMPORTANT DECISIONS. 
 
 WITHOUT going so far as to say that the American 
 Constitution is the investor's Bible, it would seem that a 
 few salient provisions contained in it are of such import- 
 ance as to deserve some consideration on the part of 
 an enquirer interested in American railroad securities. 
 Where any note has been appended to cited cases, it is 
 not the purpose of the writer to attempt an analysis or 
 summary of a case, but merely to direct the investor's 
 attention to some one point which may seem to bear 
 directly on a specific phase of his interest. For the pur- 
 poses of convenient reference, short extracts are set 
 forth. 
 
 1. Constitution of the United States, Art. I., Sec. 10. 
 No State shall . . . make any ex post facto law, or law 
 impairing the obligation of contracts. 
 
 2. Id., Art. V. No person shall ... be deprived 
 of life, liberty, or property, without due process of law; 
 nor shall private property be taken for public use, without 
 just compensation. 
 
 JURISDICTION. 
 
 3. Id., Art. III., Sec. 2. The judicial power shall ex- 
 tend to all cases, in law and equity, arising under this 
 Constitution, the laws of the United States and treaties 
 made, or which shall be made, under their authority ; to 
 
 142 
 
SOME IMPORTANT DECISIONS. 143 
 
 all cases affecting ambassadors, other public ministers, and 
 consuls ; to all cases of admiralty and maritime jurisdic- 
 tion ; to controversies to which the United States shall 
 be a party ; to controversies between two or more States ; 
 between a State and citizens of another State ; between 
 citizens of different States ; between citizens of the same 
 State claiming lands under grants of different States ; 
 and between a State, or the citizens thereof, and foreign 
 States, citizens, or subjects. 
 
 4. /</., Art. XI. [amendment]. The judicial power of 
 the United States shall not be construed to extend to 
 any suit in law or equity, commenced or prosecuted 
 against one of the United States by citizens of another 
 State, or by citizens or subjects of any foreign State. 
 
 5. Art. XIV., Sec. 4. The validity of the public debt 
 of the United States, authorized by law, including debts 
 incurred for payment of pensions and bounties for ser- 
 vices in suppressing insurrection or rebellion, shall not be 
 questioned. But neither the United States nor any State 
 shall assume or pay any debt or obligation incurred in aid of 
 insurrection or rebellion against the United States, or any 
 claim for the loss or emancipation of any slave ; but all 
 such debts, obligations, and claims shall be held illegal 
 and void. 
 
 REMOVAL. 
 
 6. Sec. 639, R. S. U. S. Any suit commenced in any 
 State court, wherein the amount in dispute, exclusive 
 of costs, exceeds the sum or value of five hundred 
 dollars, to be made to appear to the satisfaction of said 
 court, may be removed for trial, into the circuit court, 
 for the district where such suit is pending, next to be 
 held after the filing of the petition for such removal 
 
144 SOME IMPORTANT DECISIONS. 
 
 hereinafter mentioned, in the cases and in the manner 
 stated in this section. 
 
 First. When the suit is against an alien, or is by a citi- 
 zen of the State wherein it is brought, and against a citi- 
 zen of another State, it may be removed on the petition 
 of such defendant, filed in said State court at the time of 
 entering his appearance in said State court. 
 
 Second. When the suit is against an alien and a citizen 
 of the State wherein it is brought, or is by a citizen of 
 such State against a citizen of the same, and a citi- 
 zen of another State, it may be so removed, as against 
 said alien or citizen of another State, upon the petition of 
 such defendant filed at any time before the trial or final 
 hearing of the cause, if, so far as it relates to him, it is 
 brought for the purpose of restraining or enjoining him, 
 or is a suit in which there can be a final determination of 
 the controversy, so far as concerns him, without the pres- 
 ence of the other defendants as parties in the cause. But 
 such removal shall not take away or prejudice the right 
 of the plaintiff to proceed at the same time with the suit 
 in the State court as against the other defendants. 
 
 Third. When a suit is between a citizen of the State in 
 which it is brought and a citizen of another State, it may 
 be so removed on the petition of the latter, whether he 
 be plaintiff or defendant, filed at any time before the trial 
 or final hearing of the suit, if before or at the time of filing 
 said petition he makes and files, in said State court, an 
 affidavit, stating that he has reason to believe, and does 
 believe, that, from prejudice or local influence, he will not 
 be able to obtain justice in such State court. 
 
 Ayres v. Watson, 113 U. S. Rep.; Gregory, ?>. Hartly, 
 113 U. S. Rep. 
 
 Stone v, South Carolina, 117 U. S, Rep., 430. A State 
 
SOME IMPORTANT DECISIONS. 145 
 
 court is not bound to surrender its jurisdiction of a suit 
 on petition for removal, until a case has been made which, 
 on its face, shows that the petitioner has a right to the 
 transfer ; and if it decides against the removal and pro- 
 ceeds with the cause, its ruling is reviewable by the 
 ultimate court of appeal after final judgment. 
 
 Of course, the foreign investor is interested to a greater 
 or less extent in a vast range of statute and case law. 
 But the utmost that is possible within the scope of the 
 present notes is to briefly direct or recall his attention to 
 certain very limited aspects of his interest present and 
 future in connection with which it may be specially 
 sensitive to hostile action on the one hand, or admit of 
 effectual defence on the other. At once the most fa- 
 miliar and formidable complications would seem to arise 
 from the conflict between Federal and State powers 
 e. g., cases in which a State desires to impair the obliga- 
 tion of contracts, or to injuriously affect property, by the 
 enactment of laws of doubtful validity within the mean- 
 ing of the Federal Constitution. A few notes and refer- 
 ences roughly indicative of familiar situations are sub- 
 joined. 
 
 IMPAIRMENT OF CONTRACTS. 
 
 7. Dartmouth College v. Woodward, 4 Wheat., 498. 
 The charters of private corporations are contracts pro- 
 tected from invasion by the Constitution of the United 
 States. " The objects for which a corporation is created 
 are universally such as the government wishes to promote. 
 They are deemed beneficial to the country, and this bene- 
 fit constitutes the consideration, and in most cases the sole 
 consideration, for the grant." 
 
 8. The Binghamton Bridge, 3 Wai., 74, "The Legisla- 
 
146 SOME IMPORTANl^ DECISIONS. 
 
 ture, therefore, says to public-spirited citizens : ' If you 
 will embark, with your time, money, and skill in an enter- 
 prise which will accommodate the public necessities, we 
 will grant to you, for a limited period, or in perpetuity, 
 privileges that will justify the expenditure of your money, 
 and the employment of your time and skill.' Such a grant 
 is a contract, with mutual considerations, and justice and 
 good policy alike require that the protection of the law 
 should be assured to jt." 
 
 9. Fletcher v. Peck, 6 Cr., 87. A contract is a compact 
 between two or more parties. The Constitution of the 
 United States embraces all contracts, executed or execu- 
 tory, whether between individuals or between a State and 
 individuals. 
 
 10. Greene. Biddle, 8 Wheat., 105. The practice of the 
 courts of the United States that is, the remedies of the 
 parties therein, is subject to no other power than that of 
 Congress. 
 
 11. Wolf v. New Orleans, 103 U. S., 358-365. " Legisla- 
 tion producing this latter result (impairment of the obliga- 
 tion of a contract by abrogating or lessening the means of 
 its enforcement), not indirectly as a consequence of legiti- 
 mate measures taken, as will sometimes happen, but 
 directly by operating upon those means, is prohibited 
 by the Constitution, and must be disregarded, treated 
 as if never enacted, by all courts recognizing the Con- 
 stitution as the paramount law of the land." 
 
 12. Id., 367. " The prohibition of the Constitution 
 against the passage of laws impairing the obligation of 
 contracts applies to the contract of the State and to those 
 of its agents acting under its authority, as well as to con- 
 tracts between individuals. And that obligation is im- 
 paired in the sense of the Constitution when the means 
 
SOME IMPORTANT DECISIONS. 147 
 
 by which a contract at the time of its execution could be 
 enforced that is, by which the parties could be obliged to 
 perform it, are rendered less efficacious by legislation 
 operating upon those means." 
 
 13. The Bridge Proprietors^, the Hoboken Co., I Wai., 
 1 16. Where a statute of a State creates a contract, and a 
 subsequent statute is alleged to impair the obligation of 
 that contract, and the highest court of law or equity in 
 the State construes the .first statute in such a manner 
 as that the second statute does not impair it, whereby the 
 second statute remains valid under the Constitution of the 
 United States, the validity of the second statute is " drawn 
 in question," and the decision is in " favour " of its valid 
 ity, within the meaning of the 25th section of the Judici- 
 ary Act of 1789. This court may accordingly, under the 
 said section, re-examine and reverse the judgment or 
 decree of the State court given as before said. The case 
 distinguished from the Commercial Bank v. Buckingham's 
 Executors [5 Howard, 317], Grier, J., dissenting. 
 
 14. Id., 2. A party relying on this court for re-examina- 
 tion and reversal of the decree or judgment of the high- 
 est State court, under the 25th section of the Judiciary 
 Act of 1789, need not set forth specially the clause of the 
 Constitution of the United States on which he relies. If 
 the pleadings make a case which necessarily comes within 
 the provisions of the Constitution, it is enough. 
 
 15. Osborn v. Bank of the United States, 9 Wheat., 738- 
 903. An injunction was sustained against the treasurer 
 and auditor of Ohio to prevent the seizure of moneys be- 
 longing to the bank in payment of taxes levied under an 
 unconstitutional law of the State. Marshall, Ch. J., de- 
 livering the opinion said : " If the person who is the 
 real principal, the person who is the true source of the 
 
148 SOME IMPORTANT DECISIONS. 
 
 mischief, by whose power and for whose advantage it is 
 done, be himself above the law, it would be subversive of 
 the best established principles to say that the laws could 
 not afford the same remedies against the agent employed 
 in doing the wrong which they would afford against him 
 could his principal be joined in the suit." 
 
 16. United States v. Lee, 106 U. S., 196 ; cited and 
 affirmed in Davis v. Gray, i6Wal., 203-220. "Where the 
 State is concerned, the State should be made a party, if 
 it could be done. That it cannot be done is a sufficient 
 reason for the omission to do it, and the court may pro- 
 ceed against the officers of the State in all respects as if 
 the State were a party to the record." In deciding who are 
 the parties to the suit, the court will not look beyond the 
 record. Making a State officer a party does not make the 
 State a party, although her law may have prompted his 
 action, and the State may stand behind him as the real 
 party in interest. 
 
 In Davis v. Gray, the Governor and the Commissioner 
 of the General Land Office of Texas were " enjoined 
 from issuing, or causing or permitting to issue," patents 
 of certain lands, the sale of which her Constitution had 
 authorized, upon the supposition that the title of a cor- 
 poration to them had been lost. In considering the right 
 of a private party to maintain suit against those officers, 
 inasmuch as a suit could not be brought directly against 
 the State, the court reasserted the doctrine announced in 
 Osborn v. Bank of the United States. 
 
 The objection suggested was also considered and dis- 
 posed of in the Board of Liquidation v. McComb, a 
 case against these very officers, decided in 1865. There 
 the board undertook to liquidate a debt contracted 
 in reconstructing and keeping in repair levees on the 
 
SOME IMPORTANT DECISIONS. 149 
 
 Mississippi River, with consolidated bonds issued under 
 the act of 1874, pursuant to the authority of a sub- 
 sequent statute of the Legislature. A citizen of Dela- 
 ware holding some of the consolidated bonds contended 
 that the levee debt was not one of the debts to fund 
 which these bonds had been issued, and that the use of 
 them for that purpose would defeat one of the benefits of 
 the funding scheme. He therefore applied to the Circuit 
 Court of the United States for an injunction to restrain 
 the board from funding the levee debt with these bonds, 
 and obtained it. The injunction was made perpetual by 
 a final decree, which was affirmed here. " In our judg- 
 ment, therefore," we said, speaking by Mr. Justice Bradley, 
 " the court below was right in granting the injunction as 
 to the consolidated bonds, if the defendants, occupying 
 the official position they do, are amenable to such a pro- 
 cess. On this branch of the subject, the numerous and 
 well-considered cases heretofore decided by this court 
 leave little to be said. The objections to proceeding 
 against State officers by mandamus or injunction are, first, 
 that it is in effect proceeding against the State itself, and, 
 secondly, that it interferes with the official discretion 
 vested in the officers. . It is conceded that neither of these 
 things can be done. A State, without its consent, cannot 
 be sued by an individual ; and a court cannot substitute 
 its own discretion for that of executive officers in matters 
 belonging to the proper jurisdiction of the latter. But it 
 has been well settled that when a plain official duty, requiring 
 no exercise of discretion, is to be performed, and perform- 
 ance is refused, any person who will sustain personal 
 injury by such refusal, may have a mandamus to compel 
 its performance; and when such duty is threatened to be 
 violated by some positive official act, any person who will 
 
150 SOME IMPORTANT DECISIONS, 
 
 sustain personal injury thereby, for which adequate com- 
 pensation cannot be had at law, may have an injunction 
 to prevent it. In such cases the writs of mandamus and 
 injunction are somewhat correlative to each other. In 
 either case, if the officer plead the authority of an 
 unconstitutional law for the non-performance or violation 
 of his duty, it will not prevent the issuing of the writ. 
 An unconstitutional law will be treated by the courts as 
 null and void." 92 U. S., 531, 541. 
 
 For another view, see La. v. Jumel., 17 Otto, 711, and 
 dissenting opinion of J. J. Field and Harlan. There may 
 be a statutable obligation on a public officer to fulfil a 
 public duty of such a kind as to be enforcible in Federal 
 courts. 
 
 17. U. S. v. Diekelman, U. S., 520; N. H. v. La.; N. Y. v. 
 La., U. S., 77. A State cannot allow the use of its name 
 in a suit against another State for the benefit of one of 
 its citizens, or become a mere collecting agent of his 
 bonds or coupons. 
 
 1 8. The law which governs the police power of States 
 is important, because the elasticity of these powers would 
 seem to be extraordinarily great. If they are so inter- 
 preted as merely to sustain the inherent power of States 
 to regulate railroad business within the ordinary meaning 
 of the term " regulation," the investor in the securities of 
 Granger States has no special cause for apprehension. 
 But, if they are so interpreted as to amount, in effect, to 
 indirect confiscation of the increment of value and of 
 vested interests in various other forms, they are plainly 
 calculated to alarm and alienate foreign capital. It may 
 be worthy of note that the mind of the highest tribunal 
 in this country would appear to be not finally made up on 
 this very important subject. While the general tenour of 
 
SOME IMPORTANT DECISIONS. I$I 
 
 the Granger cases favours an interpretation of police regu- 
 lation strongly adverse to the interests of an intending 
 investor, the dissenting opinions of very strong and able 
 Judges tend in the opposite direction, and incline to the 
 protection of contracts under the provisions of the Fed- 
 eral Constitution. The cases cited below will repay the 
 casual investor for the trouble of considering them atten- 
 tively. Munn vs. Illinois, 4 Otto, 113 ; C., B., & Q. R. R. 
 vs. Iowa, 4 Otto, 155 ; Peik vs. C. & N. W. R. R.; Win- 
 ona and St. Peters vs. Blake, 4 Otto, 164. 
 
 RESERVED POWER OF STATES TO REPEAL OR MODIFY 
 CHARTERS. 
 
 19. When a State reserves to itself under the provisions 
 of an old existing constitution the right to repeal or mod- 
 ify at will the charters which it grants, and by inference 
 the contracts which it makes, a railroad corporation ac- 
 cepts a charter subject to the risks and losses incident to 
 the future exercise by the State of such reserved power. 
 See" Tilley 77. Sav., Florida, and Western R. R. Co., 5 Fed. 
 Rep., 641. Woods, C. J., speaks as follows : " It has been 
 the policy of Georgia, at least since January 1st, 1863, to 
 grant no charter which should not be subject to revision 
 or repeal by the General Assembly. Whether wise or un- 
 wise, this policy has been embodied in the constitution of 
 1877. It was clearly the purpose of the people, in the 
 adoption of that revision of the organic law, to keep the 
 charges of the railroad companies of the State within legis- 
 lative control. They were not satisfied with the rules of 
 the common law on this subject. The act of October 14, 
 1879, i s k ut tne practical expression of the will of the 
 people of the State as embodied in their organic law. It 
 
152 SO ME IMPORTANT DECISIONS. 
 
 is the exercise of a right which they have been careful to 
 reserve, and subject to which the defendant company 
 were allowed to exist as a corporation." 
 
 The case is important, because it indicates the necessity 
 of strictly investigating the reserved powers of States to 
 repeal charters or modify a contract by ex post facto legis- 
 lation, after the valuable consideration of building a rail- 
 road has been paid by a corporation. Acquiescence in the 
 consolidation of chartered railroads and in the issue of their 
 securities does not affect the right of a State to exercise 
 reserved power. The investor in railroads must depend on 
 the virtue of the people rather than on enforcible rights 
 of contract, and this is, of course, a matter of taste and 
 judgment. 
 
 20. As regards the right of a State to decline to permit 
 itself to be sued, and the point to which and limitations 
 under which this protection is extended to public [State] 
 officers, acting in conformity with their official instruc- 
 tions, see Hagood v. Southern, 117 U. S. Rep.; R. R. 
 Company v. Alabama, 101 U. S. Rep.; Poindexter v. 
 Greenhow, 1 14 U. S. Rep., and cases connected therewith, 
 known as the Virginia Coupon Cases. 
 
 21. In View of the great injury to railway business aris- 
 ing from strikes, and the intimidation and obstruction 
 incident thereto, a case recently decided by the New York 
 Court of Appeals, the highest authority in that State 
 [reported in the New York Railway Age, July 8, 1886], 
 may be worth perusal. 
 
 The action was that of Meyer Geismer, respondent, v. 
 Lake Shore & Michigan Southern Railroad Company, ap- 
 pellant, and was brought by the plaintiff to recover dam- 
 ages caused by delay of many days on account of the 
 great strike at Cleveland and along the line in 1877. The 
 
SOME IMPORTANT DECISIONS. 153 
 
 plaintiff recovered a large verdict at the circuit, which 
 was affirmed at the general term. The Court of Appeals 
 has just reversed these decisions, and holds that a com- 
 mon carrier is not liable for any delays occasioned by a re- 
 sisting force or mob over which it has no control. 
 
 The Court, amongst other things, spoke as follows: 
 " A railroad carrier stands upon the same footing as other 
 carriers, and may excuse delay in the delivery of goods by 
 accident or misfortune, not inevitable or produced by the 
 act of God. All that can be required of it in any emer- 
 gency is that it shall exercise due care and diligence to 
 guard against delay, and to forward the goods to their 
 destination, and so it has been uniformly decided. 
 
 " In the absence of special contract, there is no absolute 
 duty resting upon a railroad carrier to deliver the goods 
 entrusted to it within what, under ordinary circumstances, 
 would be a reasonable time. Not only storms and floods 
 and other natural causes may excuse delay, but the con- 
 duct of men may also do so. An incendiary may burn 
 down a bridge, or a mob may tear up the tracks, or disable 
 the rolling-stock, or interpose irresistible force or over- 
 powering intimidation, and the only duty resting upon 
 the carrier, not otherwise in fault, is to use reasonable 
 efforts and due diligence to overcome the obstacles thus 
 interposed, and to forward the goods to their destination. 
 
 " While the Court below conceded this to be the general 
 rule, it did not give the defendant the benefit of it, because 
 it held that the men engaged in the violent and riotous 
 resistance to the defendant were its employees, for whose 
 conduct it was responsible, and in that holding was the 
 fundamental error committed by it. It is true that these 
 men had been in the employment of the defendant ; but 
 they left and abandoned that employment. They ceased 
 
154 SOME IMPORTANT DECISIONS. 
 
 to be in its service, or in any sense its agents, or for whose 
 conduct it was responsible. They not only refused to 
 obey its orders, or to render it any service, but they wil- 
 fully arrayed themselves in positive hostility against it, 
 and intimidated and defeated the efforts of its employees, 
 who were willing to serve it. They became a mob of 
 vicious law-breakers, to be dealt with by the government, 
 whose duty it was, by the use of adequate force, to restore 
 order, enforce proper respect for private property and 
 private rights and obedience to law. If they had burned 
 down bridges, torn up tracks, or gone into passenger-cars 
 and assaulted passengers, upon what principle could it be 
 held that as to such acts they were the employees of the 
 defendant for whom it was responsible? If they had sued 
 the defendant for wages for the eleven days when they 
 were thus engaged in blocking its business, no one will 
 claim that they could have recovered." * 
 
 As the law relating to strikes and the obligations and 
 liabilities devolving on railroad companies in connection 
 therewith can scarcely be considered to be finally settled, 
 this case is reassuring to the investor in railroad securities. 
 
 22. Some observations have been made above [90-109] 
 as to the importance from the investor's point of view of 
 the powers conferred on railroad commissions as factors in 
 the general railroad situation of to-day. The enquirer 
 may not unreasonably say that, in order to form any ade- 
 quate judgment on the subject, it would be convenient to 
 have before him a typical example of an act conferring 
 such powers, together with the remedies, penalties and 
 general provisions included therein. In order to meet 
 this requirement, the Act of Georgia constituting its 
 Railroad Commission is subjoined in the form of an ap- 
 
 * Railway Age, July 8, 1886. 
 
 
 
SOME IMPORTANT DECISIONS. 155 
 
 pendix. Measured by the average standard of railroad 
 legislation, this may be considered a stringent act. 
 
 The law of Massachusetts is considered by many com- 
 petent critics to occupy the highest place as a precedent 
 or model for railroad legislation in America, and is com 
 paratively well known to foreign investors. A short ex- 
 tract showing powers reserved to the Commonwealth is 
 subjoined. 
 
CHAPTER XIX. 
 
 SOME NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 SINCE the above pages were written, a bill addressed 
 to the regulation of Inter-state commerce has passed into 
 law. That legislation in this direction would be carried 
 through both Houses at no very remote period was confi- 
 dently anticipated by competent observers of the railroad 
 situation. No serious doubt existed as to the power of 
 Congress to institute an appropriate tribunal for the regu- 
 lation contemplated by the Constitution. But there 
 existed a conflict of opinion as to the legitimate scope of 
 the powers which could lawfully and wisely be conferred 
 on the Commission of the future. It is too early in the 
 history of the recent Act to predict, with any semblance 
 of confidence, the effect which it will produce on the com- 
 merce and trade of the country, because it is necessary to 
 take into account elements which are at present unknown 
 quantities. Forecasts based on the operation of the laws 
 of supply and demand are liable to serious disappoint- 
 ment. This branch of the subject involves many complex 
 and obscure conditions, and is, at the best, very imper- 
 fectly understood. As has been noted above, these laws 
 do not readily lend themselves to arbitrary control. Their 
 beneficent operation may easily be retarded by rash legis- 
 lation, but can very rarely be materially accelerated by 
 heroic measures. Again, the cordiality or dislike, with 
 which the new legislation may be accepted by the railroad 
 
NOTES ON THE INTER-STATE COMMERCE ACT. 157 
 
 companies on the one hand and by the outside public on 
 the other, are also unknown quantities. Sociology is not 
 sufficiently advanced to enable the observer to measure 
 and define the undercurrents of motive and feeling which 
 may, to an appreciable extent, affect the calculation. 
 Although however elaborate prediction as to net results 
 may be dismissed as futile, the Act contains certain known 
 elements which may be regarded as tending to produce 
 definite effects, and these are the legitimate subjects of 
 criticism. If this be so, it may not be wholly uninterest- 
 ing to note a few points which occur in connection with 
 the history and tenor of the Act, provided such notes be 
 suggestive not didactic in character. 
 
 Having regard to the immense complexity of the inter- 
 ests involved, it is difficult to resist the conclusion that 
 the legislation embodied in the recent Act has been some- 
 what over-hasty. Investigation of the more searching 
 kind has followed, instead of preceding, enactment. The 
 amount of light which experts have thrown upon the bill 
 since its passage became a foregone conclusion has 
 greatly exceeded that which was shed upon it in its earlier 
 stages. To use a metaphor, the patient's disease was 
 complex in character, and its symptoms were obscure and 
 misleading. But his condition was not immediately 
 critical, and his life and health were matters of immense 
 public importance. As his disease was confessedly not 
 understood, would it not have been wiser to prolong the 
 process of diagnosis than to administer a kill-or-cure 
 remedy, and trust to a post-mortem examination for the 
 explanation of the malady ? In the writer's opinion, the 
 case called for a special commission, in order that its 
 legal, commercial and social conditions might be ade- 
 quately investigated, and that the direction and scope of 
 
158 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 so vastly far-reaching an enactment might be wisely de- 
 termined. 
 
 As the bill has passed into law, it is obvious that its 
 antecedents are now of little practical importance, from 
 the investor's point of view. To examine in detail the 
 provisions of the Act would greatly exceed the limits of 
 space which can properly be allotted to the present notes. 
 This task has been ably carried out in Mr. Dos Passos' 
 excellent analysis of the Act,* which greatly facilitates the 
 understanding of a somewhat obscure piece of legisla- 
 tion, and to the author of which the present writer 
 acknowledges his obligations. 
 
 The legal difficulties which beset the situation are ably set 
 forth by the author referred to, and that aspect of the ques- 
 tion may be considered as practically exhausted. From the 
 foreign investor's point of view, some of these difficulties 
 are of deep and immediate interest, while others, so far as 
 the protection of his money is concerned, may be re- 
 garded as " soaring into the region of speculation." The 
 only criticism which would seem to call for his attention 
 has reference to the probability of situations favourable or 
 adverse to his permanent interest being generated by the 
 Act, and either inspiring him with courage or depressing 
 him by apprehension. Even this very limited view of the 
 subject postulates reference to the leading provisions of 
 the Act, to their soundness in principle, and the chances 
 of their beneficent operation. Accepting then Mr. Dos 
 Passes' work as a text-book of authority, it is proposed 
 to jot down the writer's impressions on those particular 
 points to which the foreign investor may do well to de- 
 vote passing attention. These may be briefly classified 
 
 * " The Inter-State Commerce Act," by John R. Dos Passos. G. P. Put- 
 nam's Sons, New York, 1887. 
 
ttOTES Orf THE INTER-STATE COMMERCE ACT, I 59 
 
 under the following heads, viz. I. Definition of regula- 
 tion of Inter-state commerce and the language of the 
 Act. 2. Some possible commercial results. 3. Some 
 points bearing on the relation of the Act to the existing 
 system of jurisprudence. 
 
 i. It seems to the writer that in the framing of the Act 
 no sufficient attention was given to the interpretation of 
 the language of the Constitution ; and that notably the 
 true meaning of the word " regulation," within the spirit of 
 the Constitution, scarcely received the consideration which 
 it deserved. In France, under the third Napoleon, no 
 doubt " regulation " was practically taken to mean dry- 
 nursing by the State, and an intrusive supervision of a 
 very large area of private interest and personal business. 
 As has been noted above, it is of course a question of 
 national bias and idiosyncrasy whether paternal superin- 
 tendence is or is not congenial to a people ; and the 
 proper meaning of " regulation " is to some extent col- 
 oured if not actually extended or restricted by this 
 consideration. But among the English-speaking races 
 intrusive and inquisitorial government supervision is 
 habitually resented. " Regulation," as understood and 
 submitted to by the English and American peoples, gives 
 prominence to reasonable restrictions, but rarely pre- 
 scribes positive rules of action. The negative side of the 
 term is dominant ; the positive side is subordinate. Police 
 regulation aims at the restraint of aggression, the preven- 
 tion of trespasses and nuisances, and the redress of estab- 
 lished grievances. But it seldom takes under its control 
 the constructive side of commercial or industrial enter- 
 prise. If the language of the American Constitution be 
 carefully considered, it is difficult to resist the conclusion 
 that the " regulation " of Inter-state commerce was in- 
 
l6o NOTES ON THE INTER-STATE COMMERCE ACT, 
 
 tended simply to restrain any selfish or obstructive policy 
 which might prevent or hamper transportation through 
 the various States, and to redress injury to the trader or 
 consumer which might directly arise therefrom. In the 
 writer's opinion, there is nothing in the language to justify 
 the notion that regulation of Inter-state commerce was 
 intended to involve the assumption by the Government of 
 the functions of railroad managers. To restrain unneces- 
 sary embarrassment to commerce in its passage through 
 appropriate channels is one thing ; to run the railroads of 
 the country is emphatically another. 
 
 If this view be sound, the relation of the new Act to the 
 Constitution would seem to be not entirely satisfactory. 
 In this connection one or two points may properly be in- 
 dicated. 
 
 (a) As everybody knows, the powers enjoyed by Con- 
 gress are, in fact, the aggregate of several powers carved 
 out of the sovereignty claimed by the several States, and 
 surrendered to Congress for the purpose of promoting 
 national unity and good government. But these powers 
 are contained within the four corners of the written Con- 
 stitution, and it would scarcely be safe to rely on any 
 supposed surrender to Congress by the several States of 
 large inferential powers not explicitly defined in the 
 text. Authority to prevent by appropriate legislation ob- 
 structions to the development of commerce was plainly 
 granted. But where is it shown that the several States 
 surrendered to Congress the right to run the business of 
 railroad corporations within the limits of their respective 
 sovereignties ? 
 
 As indicated above (pp. 97-100), the more fortunate 
 States succeeded in inducing native and foreign capitalists 
 to make large outlay in the construction of railroads, and 
 
MOTES ON- THE INTER-STATE COMMERCE ACT. l6l 
 
 by this means to develop the latent resources of the 
 States in which their railroads were situate. The extra- 
 ordinary risks which constructing companies undertook, 
 and the vast amount of capital which they locked up, 
 were distinctly protected by charters which expressed the 
 deliberate will and purpose of the people of those States, 
 and formed an integral part of their statute law. It was 
 believed at the date of such charters that the several 
 States possessed contracting power, and that parties con- 
 tracting with them could not be divested of their rights 
 under the Federal Constitution merely because the States 
 had surrendered to Congress the power of " regulating" 
 Inter-state commerce. If this view was ever sound, it 
 must be sound to-day. It will hardly be questioned that 
 as a net result the new Act purports to vest in the Com- 
 mission the practical control of the operation of American 
 railroads. Whether particular Commissioners may be dis- 
 posed to push their power to its utmost limits or to exer- 
 cise it with great moderation, will depend on the constitu- 
 tion and discretion of the Commission for the time being. 
 (b) It has been noted above that the delegation of 
 prerogative power is liable to serious objection. No 
 doubt Congress can properly delegate to officials strictly 
 ministerial business. But one of the distinctions between 
 ministerial and legislative business turns on the discretion 
 to determine questions affecting the public good. A doubt 
 has been expressed above (pp. 107-108) whether a State 
 can delegate to a fiscal agent the right to virtually modify a 
 charter for the public good and not as a penal measure, 
 such modification being (in the writer's view) a legislative 
 and not a ministerial act. By analogy the same line of 
 reasoning may be applied to the action of Congress when 
 it vests in Commissioners powers which involve the mak- 
 
162 NOTES OX THE INTER-STATE COMMENCE ACT. 
 
 ing or unmaking of rights of property distinctly protected 
 by the Federal Constitution. May it not be reasonably 
 contended that the authority delegated to Congress by 
 the several States was so delegated, because in the opin- 
 ion of the several States Congress was a proper and repre- 
 sentative trustee? But, if it had been supposed that Con- 
 gress could sub-delegate these powers (outside of merely 
 ministerial matters) to agents or nominees about whom the 
 States had no specific knowledge, an entirely new set of 
 precautionary measures would have been instituted by the 
 States in their own protection. It might well have hap- 
 pened that neither the States themselves, nor parties con- 
 tracting with them on the faith of their sovereignty and 
 its relation to the Federal Constitution, would have ob- 
 jected to any direct exercise of power by Congress 
 itself, authorized by the Constitution, because they con- 
 sidered that Congress itself could be trusted to exercise a 
 safe and enlightened discretion. But it often happens 
 that individuals or bodies of men are willing to delegate 
 to a trustee, in whose judgment they have great confidence, 
 a wide discretionary power affecting vast personal and 
 financial interests, but would unconditionally refuse to 
 such trustee the power of sub-delegation to a nominee 
 chosen exclusively by himself. Suppose a State, in grant- 
 ing a charter for valuable consideration, had enacted a 
 maximum rate for freight or passengers, and that the 
 elasticity accruing to the managers from this maximum 
 constituted the leading condition of the prosperity of the 
 railroad in question. Is it competent to Congress, under 
 the pretence of " regulating " Inter-state commerce, and 
 within the reasonable interpretation of the term, to legis- 
 late away from the corporation which has built a rail- 
 road and so paid value received the benefit of that 
 
NOTES ON THE INTER-STATE COMMERCE ACT. 163 
 
 statutory limit ? Again, if the business of a railroad 
 can be run in conformity with a charter granted by a 
 State in which it is situated, with absolute freedom from 
 penalties, is it competent to Congress to create, ex post 
 facto, a liberal schedule of new offences involving severe 
 penalties, in virtue of the very limited power surrendered 
 to it by the State for the purpose of " regulating " Inter- 
 state commerce ? Can it thus handicap out of the com- 
 petitive race a railroad which has a right to look to the 
 sovereign State for its protection? Even if it be com- 
 petent to Congress to create such new offences and punish 
 them by penalties as a legislative act, is it competent to 
 that body to delegate the discretionary power of impos- 
 ing, enforcing, modifying or waiving such penalties, as if 
 these acts were matters of ministerial detail* instead of 
 constituting a grave interference with the rights of citi- 
 zens? Are not these acts so grave as to need deliberate 
 legislative sanction, and to call for fair consideration by 
 debate and discussion under constitutional forms? May it 
 not be true that a contract, under which one can do busi- 
 ness peacefully, legitimately and in accordance with the 
 sense of the community in which one lives, is " impaired "f 
 within the spirit of the Federal Constitution if ex post 
 facto prohibitory penalties are imposed on it ? Has not a 
 State some reason for examining closely the true nature 
 of the powers which it surrendered to Congress, and to 
 contend that it carved out of its sovereignty a right to pre- 
 vent abuses and redress grievances within the meaning of 
 the " regulation " of Inter-state commerce, but certainly 
 did not give Congress the right to usurp the control and 
 supervision of enterprises fostered in its own interest and 
 protected by its own sovereignty ? 
 
 * Supra, pp. 107-109. \ Supra, p. 106. 
 
164 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 (c) The obscurity of the language of the fourth section has 
 been liberally discussed by the public Press, and the sub- 
 ject may be considered threshed out. It is enough for the 
 present purpose to say that the language of any statute 
 should, at the outset, be sufficiently clear to the average 
 understanding of competent readers to dispense with the 
 necessity of interpretation by the courts, before compre- 
 hensive and uniform action can be confidently taken 
 in obedience to its provisions. What may be the true 
 meaning of the " regulation of Inter-state commerce " ; 
 what are its incidents in connection with State sovereignty 
 and Federal authority; and what interpretation will 
 be placed on the language of the fourth section, must 
 abide the decision of the Supreme Court of the United 
 States. 
 
 2. It has been noted above that, by reason of imper- 
 fect knowledge, it would be unprofitable from the invest- 
 or's point of view to make any elaborate forecast concern- 
 ing the effect of the Act on the trade and commerce of 
 the country. A brief notice, however, of one or two 
 leading features in the situation may be in order. The better 
 opinion prevailing amongst a large number of educated 
 people inclines to the view that the bill indicated by the 
 special conditions of the case was a bill defining clearly 
 and equitably discrimination and extortion, and restraining 
 those offences by appropriate mechanism, but excluding 
 from its scope imperfectly reasoned conclusions from data 
 inadequately investigated. Such a bill, cleanly-cut and 
 dealing exclusively with well-understood points, would 
 have commanded universal sympathy and approval. 
 Granting that it did not exhaust the subject, it would 
 have constituted a valuable instalment, and would have 
 cleared the way for further beneficial legislation when the 
 
NOTES ON THE INTER-STATE COMMERCE ACT. 1 6$ 
 
 questions to be subsequently dealt with had been ex- 
 haustively considered. For legislation repressing distinct 
 offences there existed abundant precedents. But for the 
 comprehensive treatment of the " long- and short-haul " 
 doctrine there existed no precedent, and very little exact 
 knowledge. When this clause and the question of pools 
 were included in the bill, the lack of adequate information 
 on the subject became apparent. 
 
 (a) An angry and disappointed crowd of shippers clam- 
 oured for immediate and drastic remedies for their own 
 particular grievances. Their cry was, in effect, " Cut the 
 combs of the railroad corporations at all hazards." It 
 was plain that emotion and prejudice overrode the sug- 
 gestions of enlightened self-interest. Producers, who had 
 located their enterprises too far from their market, in- 
 structed their representatives to vote for a measure, of 
 which the first and most immediate effect could only be 
 to raise through rates and impair the marketable value of 
 their produce. Rather than leave the railroad corpora- 
 tions alone, the producer was willing to " cut off his nose 
 to spite his face," and gave his representative a mandate 
 to vote for the bill. How the producer of corn in a remote 
 Territory, or of iron or coal in the Southern States, could 
 see his account in promoting an increased rate for through 
 transportation passes the understanding of the average ob- 
 server. Why (e.g.} should the Californian producer of wool, 
 sugar, or grapes desire such a bill ? Time and reflection 
 will no doubt bring repentance ; but then repentance (as 
 we all know from experience) does not always afford an 
 escape from the penalties incident to indiscretion. Al- 
 ready almost immediately on the bill coming into opera- 
 tion the Southern Steamship Association is arguing be- 
 fore the Commission that the Act will be injurious to the 
 
1 66 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 prosperity of the South. This circumstance supplies a 
 suggestive comment on the validity of the reasoning ad- 
 duced in support of the beneficial tendency of the bill, 
 from the point of view of producers located at a great 
 distance from their market. 
 
 (b) Much stress has been laid on the provision under 
 which the Commissioners can suspend the operation of 
 the " long- and short-haul " clause, on good cause for such 
 action being shown. The signs of the times point to the 
 probability that a vast number of corporations will apply 
 for the exercise of this suspension in their own self-de- 
 fence. A rule coupled with an exception can scarcely be 
 worth enacting, if the cases to which the exception ap- 
 plies are more numerous than those covered by the rule. 
 The familiar relation between rule and exception becomes 
 inverted. A vast amount of trouble, expense and general 
 friction is imposed on the applicants for the benefit of the 
 exception. To subject the countless and complex details 
 of railroad administration to the direct supervision of 
 Government officials is the apotheosis of red tape. Against 
 the claim of disappointed shippers, to the effect that com- 
 prehensive legislation dealing with the " long- and short- 
 haul " clause and with pools should be immediately passed 
 in the absence of adequate investigation, several obvious 
 considerations may be urged. There is the equity of the 
 general consumer. Rates for freight and passengers on 
 American railroads compare favourably with those of any 
 other important country, if the matter be looked at all 
 round, and the relative merit of the service be taken into 
 account. Experts have made a strong case in support of 
 the proposition, that the general public would be better 
 served by the modes of railroad administration existing 
 prior to the passage of the Act, than by those which are 
 
NOTES ON THE INTER-STATE COMMERCE ACT. l6/ 
 
 now subjected to governmental supervision.* In demo- 
 cratic communities, the maximum welfare of the general 
 consumer is a consideration which can not be lightly pooh- 
 poohed. Again, there is the equity of the railroad com- 
 panies. As has been noted above, the Federal Govern- 
 ment could not, and did not, build the railroads which have 
 contributefl so largely to national wealth and progress. 
 They were, perforce, built piece-meal by private courage 
 and enterprise, and in many cases aided by the resources 
 and protected by the sovereignty of the several States. 
 On the whole, they have served the public well ; and the 
 existing low standard of rates, and the high average merit 
 of the service offered to the public, establish this propo- 
 sition beyond the possibility of question. As between 
 themselves and the public, they possess large natural 
 equities and cogent statutory rights. 
 
 (c) The disappointed shipper is often the victim of a 
 fallacy which (for lack of a better term) may be called the 
 fallacy of the illusory standard. This apparently fan- 
 ciful expression needs explanation. The producer who 
 located his enterprise at a point remote from reasonable 
 accessibility to transportation did so with his eyes open 
 and at his own risk. The Government did not compel 
 him to do so ; no railroad invited or advised him to do 
 so. Yet when he compares -his position with that of his 
 schoolmate or friend, who has settled in a locality highly 
 favoured in point of transportation and is making a for- 
 tune rapidly, he often estimates his rights by a false 
 standard. His friend's farm is close to a competitive 
 point on a cheaply constructed railroad. His own farm 
 is (say) fifteen miles from a very expensive branch rail- 
 
 *" Railroad Transportation," by Arthur T. Hadley ; "Railroad Prac- 
 tice," by E. Porter Alexander. 
 
1 68 NOTES OAT THE INTER-STATE COMMERCE ACT. 
 
 road, which had rivers to bridge and mountains to tunnel, 
 and which by so doing became necessarily liable to heavy 
 fixed charges. How can the foolish shipper expect as 
 favourable a rate as his wiser friend or competitor? The 
 rate which he has a right to expect must be compared, 
 not merely with the very low rate charged to his friend 
 by a cheaply constructed line for competitive business, 
 but with a way-rate sufficient to give a living profit to a 
 costly line constructed through a difficult country. A 
 rate on way-business, on the faith of which that expen- 
 sive line was constructed through a difficult country, is no 
 doubt relatively high, but may be entirely reasonable. It 
 affords to the badly placed shipper a far better chance 
 than he would have possessed if the line had never been 
 built. If he settled in a badly selected locality after the 
 line was built, he accepted the position subject to the 
 equities attaching thereto. If the line was built after the 
 date of his settlement, it could of course only be built on 
 the faith of remunerative rates. And so it comes to pass 
 that, when he asks the -railroads or the general public to 
 indemnify him for his unfortunate selection of a location, 
 he sets up an illusory standard of relative right. To 
 cite a familiar illustration, it was no doubt somewhat 
 rough on the five foolish virgins in the parable that, at a 
 critical moment, they found their lamps going out ; but 
 their right, as against the wise virgins, was confined to 
 the right of entreaty. If they supposed that they were 
 entitled to a general division of the oil which remained, 
 they were the victims of " an illusory standard " of right. 
 Of course cases occur in which conflicting equities re- 
 quire the deepest kind of insight for their true solution. 
 Much deliberation is needed to marshal the equities of 
 such cases in their proper order. Take, for instance, the 
 
NOTES ON THE INTER-STATE COMMERCE ACT. l6g 
 
 case of the English farmer, who finds that imported prod- 
 uce which has gone far to break his fortunes and his 
 heart passes over English lines at a very low rate, while 
 his own produce pays a relatively high one. It is (as 
 mentioned above) impossible to pooh-pooh the interest of 
 the general consumer. Importation of food at cheap rates 
 is a condition vital to the welfare of the masses, though 
 it rings the knell of the English farmer's prosperity. Yet it 
 can scarcely be denied that he, as well as the masses, has 
 some genuine equities of his own. He was badly knocked 
 about by the repeal of the Corn laws, and he took his 
 punishment with considerable fortitude. Fiscal legisla- 
 tion, which has nursed the manufacturing interest of the 
 country, has done very little for him. After surviving 
 the withdrawal of protection, it is a bitter trial to see his 
 foreign competitor virtually subsidized. He has for years 
 been living on his capital, and fair minds must regard his 
 case as a hard one. It is true that Mr. Gladstone has 
 recommended the production of jam. But adversity 
 has rendered the English farmer sour and sceptical about 
 nostrums of this kind. Mr. Gladstone, he says, cannot pos- 
 sibly know any thing about the difficulty of raising a 
 profitable orchard. As soon as any tree was old enough to 
 bear good fruit, he would feel bound to hew it down and 
 send a section of the stem to a local exhibition. Such 
 small industries, he thinks, need very patient and tender 
 handling if they are to do any good. Paul may plant and 
 Apollos may water, but the insatiable axe is fatal to per- 
 manent " increase." In the fondly remembered days of 
 old, corn and meat were hum-drum, but profitable ; jam 
 is Arcadian but precarious. In his deep need, the Eng- 
 lish farmer must look for relief to some remedy altogether 
 more drastic than jam. Any thinker who will devise a, 
 
170 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 clear, equitable and reasonably final solution of this conflict 
 of interest will deserve the thanks of all fair-minded men. 
 (d) Much weight has been attributed to the desirability 
 of quasi-scientific uniformity in the framing of rates, and 
 to a spurious sort of iron-clad rigidity in the administra- 
 tion of railroads differing widely in their character, poten- 
 tialities and general conditions and environment. The 
 theory that all corporations, all producers and all con- 
 sumers must imperatively be governed by inflexible 
 statutory rules, and that they should in all cases be treated 
 exactly alike, has a fine academic flavour. But in fact, 
 when we come to face the results of experience, it is 
 found that there is no magic in quasi-scientific uniformity 
 and symmetry, because the conditions of the subject- 
 matter to which these desirable principles are to be 
 applied are not sufficiently understood; and, so far as 
 they are understood, appear to be not sufficiently simple 
 or homogeneous. Shocking as it must appear to the mind 
 of the academic railroad reformer, enlightened and suc- 
 cessful railroad administration consists like politics of 
 a series of compromises. No doubt railroad administra- 
 tion, to be permanently sound and successful, must be 
 tempered by a high sense of responsibility and informed 
 with accurate knowledge. In the writer's opinion, a 
 rational degree of publicity would tend to make the dis- 
 cretion of an able administration, in the framing of rates 
 and tariffs, thoroughly acceptable to the public, without 
 the intervention of the statutory " long- and short-haul " 
 clause. Producers and consumers alike would have an 
 even chance,* and would know from time to time what 
 accommodation they had a right to expect, with some- 
 thing like reasonable assurance. Disturbance of con- 
 
 * Supra, pp. 85-86. 
 
NOTES ON THE INTER-STATE COMMERCE ACT. 1 7 1 
 
 tracts would be greatly economized, and litigation and 
 controversy would be reduced to a minimum. After all 
 said and done, the maximum welfare of the great majority 
 of consumers, subject to certain special equities in favour 
 of special classes, is and ought to be, in the last resort, 
 the object of progressive railroad reform. To apply the 
 familiar moral of a great saying of old, railroad legislation 
 was made for man, and not man for railroad legislation. 
 It is a very doubtful question whether the enactment of 
 the " long- and short-haul " clause can be considered a 
 desirable contribution to the object in view. 
 
 3. It remains to consider briefly some points bearing 
 on the relation of the new statute to the general jurispru- 
 dence of the country. To substitute a comprehensive 
 statutory enactment for a large and elastic body of case 
 law is always a step of grave importance. The new statute 
 may affect a large area of vested interests ; may involve a 
 large modification of familiar remedies ; may prescribe large 
 changes in existing rules of procedure. It may constitute 
 a new and rigid line of departure, as compared with the 
 pre-existing situation. In some instances it may create new 
 offences, abrogate recognized equities, or abolish customs 
 sanctioned by experience and more or less justified by 
 success. In order to meet the requirements of the case 
 with any semblance of adequacy, such a statute impera- 
 tively calls for the highest concentration of trained minds, 
 and the clearest language of the ablest exponent. Though 
 the desirability of legislation may be frankly accepted, a 
 particular expression or embodiment of the proposed policy 
 may be liable to serious, perhaps insuperable, objections. 
 Each particular bill must stand or fall on its own merits. 
 In this connection, the writer's objection to the new Act is 
 that it undertakes to accomplish too much in the changes 
 
1/2 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 which it imports into the existing jurisprudence of the 
 country. Some specific points may properly be indicated. 
 (a) Perhaps the most important of these is one which 
 is emphasized by Mr. Dos Passes in his able analysis of 
 the Act,* viz. the permission, not to say invitation, to 
 intending plaintiffs to force defendants before the Com- 
 mission without themselves possessing either a competent 
 interest or ^.primd facie grievance. It would be idle to de- 
 scribe this abrogation of a vital principle of the common 
 law as a mere matter of procedure. It goes to the root 
 of sound public policy. The fathers of the jurisprudence 
 of English-speaking races have always held that the right 
 to ask the intervention of a court must in every case be 
 made dependent on the possession of an interest or the 
 existence of a wrong. They clearly foresaw that, if it 
 were open to every litigious or meddlesome person 
 to call upon the courts to aid him in the prosecution 
 of vexatious or frivolous purposes, strife would be 
 indefinitely increased, and the amateur litigant must 
 eventually become the despot of the community in 
 which he lived. Perhaps no more beneficent policy is 
 to be found in the jurisprudence of England or America 
 than that which is expressed in the familiar words " ut 
 sit finis litium" Of course this maxim constitutes the 
 rationale and justification of statutes of limitation, which 
 in many instances it would be difficult to defend on purely 
 moral grounds. It would seem to the casual observer that 
 the courts have quite enough to do in keeping down the 
 arrears of bond fide litigation, instituted by persons who 
 have a competent interest to assert or a colourable griev- 
 ance to redress. To permit all sorts and conditions of 
 
 * " The Inter-State Commerce Act." By John R. Dos Passos. G. P. 
 Putnam's Sons, New York, 1887. 
 
NOTES ON THE INTER- STATE COMMERCE ACT. 173 
 
 men to set in motion the machinery of a new tribunal, 
 without showing competent interest or at least colourable 
 wrong, is a far-reaching measure. It is too far-reaching to 
 be properly tacked on to a legislative act, which purports 
 to regulate Inter-state commerce, but does not primarily 
 purport to recast the jurisprudence of the country. The 
 regulation of Inter-state commerce is confessedly impor- 
 tant in its own way and within its own particular limits, but 
 the jurisprudence of America is far too valuable to be indi- 
 rectly tampered with. It is more vital, in its relations to the 
 maintenance of the Federal Constitution and the welfare 
 of the American people, than any other institution which 
 can be named. If the people of America desire to change 
 this system and its methods, they can of course do so at 
 their discretion. But, in the writer's opinion, they should 
 do so only after consideration and discussion of all ques- 
 tions involved, and not by a side-wind accidentally arising in 
 connection with the regulation of Inter-state commerce. 
 By parity of reasoning, it may be doubted whether the en- 
 largement of the jurisdiction of U. S. Circuit Courts be not 
 entitled to form a distinct and independent subject for 
 special debate and discussion. 
 
 (b) The liability to be mulcted in costs constitutes a" 
 very necessary restraint on vexatious litigation. Under 
 the new statute, however, no provision is made for pay- 
 ment of costs* of a successful defendant. Anybody who 
 pleases may force a railroad corporation before the Com- 
 mission, and impose on it the expense and trouble of de- 
 fence. But, even if the attack be made in a spirit of vex- 
 ation or proceed from mere idle curiosity, the unsuccessful 
 plaintiff gets off scot-free. The abolition of liability to 
 
 * " The Inter-State Commerce Act." By John R, Dos Passes. G. P. 
 Putnam's Sons, New York, 1887. 
 
1/4 MOTES ON THE INTER-STATE COMMERCE ACT. 
 
 costs unties the hands of a class which ought to be con- 
 sistently, and in many instances severely, checked and 
 restrained. By virtue of the recent Act there is opened 
 to the meddlesome person a career at once congenial and 
 inexpensive, and the blackmailer's millennium has arrived. 
 Holders of railroad securities rightly desire to restrain 
 litigation affecting their interests within the narrowest 
 possible limits. 
 
 (c) The liability of corporations to persecution of an un- 
 precedented kind is not even thus exhausted. If a plain- 
 tiff be not forthcoming outside the organization of the 
 Commission, then the Commission itself may proceed to 
 investigate. By section 13 the Commissioners may initiate 
 investigation, and deal with the matter as if a complaint 
 had been made. They may afterwards take part in adjudi- 
 cating on the questions thus raised. This is a remarkable 
 deviation from the traditions of American jurisprudence. 
 
 (d) Who are the persons indicated in section 16, through 
 whom the Court, if it think fit, may direct and prosecute 
 in such mode as it may appoint " all such enquiries as it 
 may think needful to enable it to form a just judgment " ? 
 Are they to be considered as in some sense deputy com- 
 missioners, or are they to be regarded as amateur inform- 
 ers or fishermen whose services may be enlisted at will, 
 if there is a reasonable prospect of sport? It is im- 
 possible to resist the conclusion that the creation of such 
 functionaries places corporations in a very difficult posi- 
 tion. Other provisions of the Act prevent them from 
 defending themselves by familiar methods. They are 
 precluded from meeting the emergency, by asking such 
 investigating persons what competent interest they have 
 in the concern about which they enquire. They cannot, 
 with due regard to administrative economy, say that they 
 
NOTES ON THE INTERSTATE COMMERCE ACT. 175 
 
 will place the business in the hands of their lawyers and re- 
 sist the intrusion, because, even if the investigation should 
 prove fruitless, they cannot recover their costs. Is it com- 
 petent to the investigating persons to insist on the produc- 
 tion by corporations of books, contracts, accounts or other 
 confidential matter ? Is disobedience to the requisitions 
 of these sub-delegates or fishermen punishable in the same 
 way as disobedience to the requisitions of the Commis- 
 sioners or the Court? What are the limits of possible sub- 
 delegation, and what are the official credentials of the class 
 of sub-delegates or fishermen most remote from the source 
 of central authority ? To the casual observer this mechan- 
 ism seems to resemble a stray leaf torn from the manual of 
 Continental bureaucracy in the days of the third Napoleon. 
 Having regard to the high character and ability of the ex- 
 isting Commissioners and to the dignity of the Court, it 
 would not be a legitimate contention that any improper 
 use will be made of this power. The objection is a general 
 one, viz. that, if a particular power be an improper one and 
 ought not to be included in the Act, it is an insufficient 
 answer to say that it will most probably not be misused. 
 
 (e) In order to arrive at any intelligent conclusion, 
 the owner of railroad property must compare his reme- 
 dies under the system of jurisprudence existing prior to 
 the passage of the Act, with the position which he occu- 
 pies now that the bill under consideration has passed into 
 law. It will of course occur to him that, if a case in 
 which he was interested were presented to a jury, no pre- 
 sumptions would arise against him which (roughly speak- 
 ing) were not warranted by the evidence before the Court. 
 But under the recent Act he is liable to be fettered by pre- 
 sumptions created by the findings of the Commissioners. 
 Now, the best of Commissioners are only mortal, and the 
 
1/6 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 thorough investigation of the matters with which they 
 will probably in the not very remote future be called on 
 to deal may be expected to be heavy enough to tax the 
 powers of twenty Commissioners instead of five. With- 
 out assuming any lack of diligence or thoroughness in in- 
 vestigation, the findings of heavily burthened Commission- 
 ers must often fail to be based on even approximately 
 exhaustive data. On the whole, trial by jury, according to 
 constitutional forms, would be indefinitely more satisfac- 
 tory to the litigant, whether plaintiff or defendant, than 
 the remedy prescribed by the recent Act. 
 
 (f) To a wise and satisfactory system of jurisprudence, 
 the recognition of sound principles of equity and their 
 enforcement by honest and educated representatives are 
 indeed necessary conditions. But something further is 
 needful, viz. consistent and enlightened rules of proced- 
 ure. The importance of this element as a factor in the 
 beneficial results of good administration of law is, in fact, 
 greater than would seem to be supposed by the average 
 layman. If rules of procedure are ill-conceived in prin- 
 ciple or defective in detail, pleading in turn becomes 
 tedious in its processes, and often futile in its results. 
 Issues cannot be arrived at with reasonable promptitude 
 or economy. The chariot of justice finds its wheels 
 clogged and is driven heavily. The just and judicious 
 determination of the various limitations of time and place 
 which ought to be imposed on plaintiffs and defendants 
 alike are of immense mechanical importance in the conduct 
 of the litigious business of the country. It may be worth 
 noting that in the recent Act the lessons of wisdom and 
 experience derived from the past have not been ade- 
 quately utilized. By section 13 it is enacted in effect 
 that the rules of procedure relating to time, place etc. 
 
NOTES ON THE INTER-STATE COMMERCE ACT. I// 
 
 shall in (presumably) a vast number of instances be such 
 as the Commissioners direct. 
 
 The section provides that, under certain conditions cov- 
 ering a very large area, " it shall be the duty of the Com- 
 mission to investigate the matters complained of in such 
 manner and by such means as it shall deem proper." To 
 any one, who can conduct his legal business and settle 
 the graver issues of life " in such manner and by such 
 means as he may think proper," life must indeed be worth 
 living. If the Commissioners can determine manner and 
 means at their own discretion, they are truly masters 
 of the whole situation ; and the litigant who is forced 
 before their tribunal must be entirely out of his latitude, 
 without a chart to refer to or a compass to steer by. 
 It would be difficult to effect a larger delegation* of control 
 over litigation than is conveyed by the power of deter- 
 mining " manner and means." For some generations the 
 suitor, whether plaintiff or defendant, has (not unreasona- 
 bly) relied on the established and familiar rules of pro- 
 cedure for guidance touching many important conclusions 
 and inferences, outside the intrinsic merits of his case. If 
 he wanted to decide within what approximate interval of 
 time he could enforce a remedy, he looked to the rules of 
 procedure for the answer to his question. If he were in 
 doubt for how long a period hostile proceedings could be 
 kept hanging over his head perhaps clouding his title, 
 impairing his credit or more or less impeding his financial 
 operations he looked to the same rules to furnish a 
 reply. In the writer's opinion, these rules should be pri- 
 marily devised by a deliberate consensus of the courts 
 themselves, and not by legislative bodies or by their 
 agents or even by an individual Judge, on the impulse of 
 
 * " The Inter-State Commerce Act," by John R. Dos Passes, pp. 85-86. 
 
178 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 the moment. It may of course become necessary or ex- 
 pedient that a set of rules primarily constructed under the 
 advice and with the approval of a body of judges should 
 be adequately criticised, and, if found satisfactory, adopted 
 by the legislative body to which it may appropriately be 
 referred. But the average legislator is never more com- 
 pletely at sea than when he undertakes to deal with rules 
 of procedure. These are properly within the province of 
 the courts, which in the ordinary course of business are 
 required to apply and enforce them. The inclusion of an 
 exceedingly wide discretion in this respect is a drawback 
 which must be taken into account in any candid consider- 
 ation of the merits of the Act. The foreign investor 
 would like to feel assured that his remedies as well as his 
 rights are definite, consistent and trustworthy. 
 
 To sum up the foregoing observations, it will be gathered 
 that, in the writer's opinion, the treatment of railroad 
 reform as expressed in the Inter-State Commerce Act 
 leaves much to be desired. As noted above, a terse bill 
 confined exclusively to the repression of discrimination 
 and extortion should have been first passed. It could 
 properly have been disposed of by a short debate, because 
 its conditions would have been fairly well understood. 
 If its definitions and terminology had been equitable and 
 clear, it would have commanded almost universal assent. 
 So far as it went, it would have been accepted as a wise 
 instalment of reform ; and its prompt passage would have 
 by no means retarded the approximately exhaustive con- 
 sideration of obscure or imperfectly understood subjects 
 outside its legitimate scope. Such short bill should have 
 asked the appointment of a special Commission armed 
 with adequate powers to investigate problems, for the cor- 
 rect solution of which there existed on the one hand no 
 
NOTES ON THE INTER-STATE COMMERCE ACT. 179 
 
 urgent pressure, nor on the other any sufficient data. Such 
 a course would have involved some advantages which 
 would seem to be indicated by the signs of the times. Ex- 
 perts, who had devoted a lifetime to the solution of techni- 
 cal difficulties, would have had an opportunity to express 
 their views. Partizan zeal, which (so far as can be judged 
 by the context of circumstances) induced remote South- 
 ern and Western producers to support the bill, would 
 have obtained a breathing space for reconsideration of 
 views formulated in the heat of political excitement. No 
 suspension of the Act, on the application of important 
 sections of the community, would have been necessary. 
 The doubts thereby (not unreasonably) created as to the 
 intrinsic merits of the Act would have been superseded, 
 and the authority of the new legislation would have been 
 spared a very serious shock. As legislation has pursued 
 a course very different from that which commends itself 
 to the judgment of the writer, it would be tedious to dis- 
 cuss the matter further, beyond perhaps indicating ten- 
 tatively the probable effect of the recent legislation on 
 the interests of the foreign investor. At the outset, no 
 doubt, the income of many railroads will not be dimin- 
 ished by its operation. In the first instance, many of 
 them will be able to protect or indemnify themselves in 
 one form or another. On the first blush of the thing, the 
 restraint imposed on free transportation will be welcomed 
 by the corporations. It will clearly constitute an appre- 
 ciable economy ; and the terms of the Act afford an ade- 
 quate loop-hole for escape from such unpopularity as 
 might otherwise have accrued to them from the new situ- 
 ation. Again, it will readily occur to the railroad com- 
 panies that the price of any staple commodity delivered 
 at an important centre of distribution and consumption 
 
180 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 consists of two main items, viz. the net cost of produc- 
 tion at the scene of production, and the cost of transpor- 
 tation thence to the point of consumption or retail distri- 
 bution. Of these two elements the Act has undertaken 
 to determine one, viz. the minimum cost of transporta- 
 tion ; and this therefore is to a large extent a fixed quan- 
 tity. The second item is governed by familiar laws affect- 
 ing the cost of production ; but, so far as Government 
 interference is concerned, is left to take care of itself and 
 is therefore elastic. It is plain that if a railroad corpora- 
 tion undertakes on a large scale the twofold functions of 
 producing and transporting, it can subject the private pro- 
 ducer to severe trials. The improved price which such 
 producing and transporting corporation can obtain for 
 transportation will enable it to write off a portion of the 
 cost of production, and to undersell the private producer 
 while still making a living profit for itself. The operation 
 of this principle has been recently pointed out >y an 
 able writer in the Evening Post* and well illustrated by 
 the instance of the coal trade of New York. That this 
 combination of the functions of producing and transport- 
 ing staple articles of commerce will ultimately tend to 
 sound railroad administration is contrary to the writer's 
 convictions. But it would be idle to hold that rail- 
 road corporations, finding themselves restricted by the 
 Act in the prosecution of the policy which they prefer, 
 will not endeavour to indemnify themselves by the adop- 
 tion of the second-best course open to them, viz. that 
 which gives the most lucrative result permitted by the 
 new situation. 
 
 It goes without saying that the passenger business of 
 railroads will be affected by the Act to a much less serious 
 
 * N. Y. Evening Post, April 14, 1887. 
 
NOTES ON THE INTER-STATE COMMERCE ACT. l8l 
 
 extent than their freight business. Increased weight 
 will attach to the geographical direction of railroads and 
 their relation to competitive water-routes, which will re- 
 ceive a considerable access of importance and prosperity. 
 No doubt relative differences, in respect of intrinsic 
 strength and solvency which already exist between rising 
 and sinking railroads, will be more sharply accentuated 
 than in the past. Those which traverse thickly settled 
 districts and do a -lucrative way business will be able 
 to take care of themselves. But weaker lines, running 
 through thinly populated districts and depending for 
 their income on the transportation of raw material to 
 remote markets, will find themselves very severely handi- 
 capped. By extraordinarily low through rates, the remote 
 States and districts, which produce in profusion the staple 
 raw materials of commerce, were in the past brought 
 within measurable distance of older and more highly de- 
 veloped manufacturing communities. Specially low rates 
 constituted, in fact, an appreciable bond of common in- 
 terest and commercial unity between the extremities and 
 the centres of life and energy in the great trading body. 
 Legislation, which points to a partial paralysis of the co- 
 operation and sympathy which the old state of things 
 tended to foster, cannot, so far, be considered a legitimate 
 subject for congratulation. The great inconveniences im- 
 posed on producers and consumers will, for a time, proba- 
 bly be felt by those classes more severely than by the 
 railroad interest. But, as has been noted above, the ulti- 
 mate interest of the transporting companies is closely 
 identified with, and largely overlaps, that of the producing 
 and consuming members of the community, who are, in 
 short, the people of the United States. Sooner or later 
 legislation, which embarrasses the vast population availing 
 
1 82 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 itself of transportation, is destined to affect the interests 
 of the companies which serve it. Sooner or later it will 
 be perceived that unnecessary Government supervision in 
 the conduct of the vast interests, which the Government 
 cannot handle as efficiently as private administrators, is 
 retrogressive in principle, and unsatisfactory in result. It 
 will presently be discovered that comparative freedom from 
 red tape will give the Canadian railroads an immense ad- 
 vantage over their American rivals. If, instead of being 
 a tribunal for the prevention and redress of grievances, 
 the Commission is destined to become a vast bureaucratic 
 machine virtually supervising the books and papers con- 
 nected with the immense railroad mileage of America, 
 the institution will find many honest opponents. If the 
 business of supervision is to be thoroughly carried out, an 
 enormous staff of officials must be provided at the public 
 expense. If it is to be conducted in a partial or perfunc- 
 tory manner, the legislation which authorized it could 
 have been scarcely worth enacting. As there exist no 
 sufficient data to justify confident forecast, the investor 
 will do well to await further developments, before com- 
 mitting himself to important decisions. On the one hand 
 he has the valuable assurance that the Commission ap- 
 pointed to administer the Act consists of gentlemen of 
 the highest ability and integrity, and that they will use 
 their powers with wisdom and moderation. On the other 
 hand, the Act which they are called on to administer is 
 difficult of interpretation, and, so far as can be gathered 
 from current indications, pregnant with obscure and 
 unforeseen problems. For what it may be worth, the 
 writer offers the opinion that, when the pulse of the 
 nation has been adequately felt, it will be agreed on all 
 hands that the recent Act does more harm than good ; 
 
NOTES ON THE INtER-STATE COMMERCE ACT. 183 
 
 and supplementary legislation will be urged by many 
 large sections of the community. It will depend on the 
 magnitude of the property at stake, and the earnestness 
 with which its owners prosecute their purpose, whether a 
 substantial modification of the Act be promptly made, or 
 whether the interests of the country generally be destined 
 to remain for a long time subject to gratuitous embar- 
 rassment. In the adjustment of commercial and trading 
 relations the American people exhibit a very high degree 
 of shrewdness and sagacity. It can scarcely fail to strike 
 an observer that in the so-called struggle between the 
 railroads and the people each party has in the past sub- 
 stantially obtained pretty much what it wanted and was 
 entitled to have. Only the advanced and fiery politician 
 ever pretended to believe that this struggle was interne- 
 cine, and must end in Caesarism on the one hand or social- 
 ism on the other. Practical observers regarded such 
 prophecies as nonsensical and inconsistent with the habits 
 and bias of the American people. When legislative ob- 
 stacles were placed in the path of railroads, they at first 
 strove to break them down and to control legislatures. 
 Failing in many instances to accomplish this result, they 
 compromised with the obstacles in their path in a very sen- 
 sible way. Like Jacob at Bethel, they used the stones for 
 a pillow and had a very comfortable night. On the other 
 hand, the people were determined to have low rates ; and 
 it soon became apparent that they could get them, if they 
 permitted the railroads themselves within rational limits 
 to work out the problem in their own way. They en- 
 joyed, prior to the passage of the Inter-State Commerce 
 Act, the benefit of low rates and a good service. A rea- 
 sonable modus vivendi had been arrived at, and the great 
 bulk of the community was fairly well satisfied. In the 
 
184 NOTES ON THE INTER-STATE COMMERCE ACT. 
 
 writer's opinion, the experience of the past affords the 
 best key to the future ; and what has happened before in 
 connection with the railroad situation is likely to happen 
 again. If this be so, the new legislation would appear cal- 
 culated to challenge the vigilance, but not necessarily to 
 excite the alarm, of the foreign investor. 
 
 Of course, to the radical politician it is a vital article of 
 faith that, at all times and in all places, " something must 
 be done." It is too much the fashion of the day to re- 
 present the merest fads of individual crotcheteers as an 
 essential part of the majestic onward march of some great 
 popular movement. The public are solemnly warned that 
 to resist the noble and impressive procession of events is 
 wilfully to oppose the inevitable. It is true that Gamaliel 
 of old advised his hearers to avoid fighting against God. 
 But, if closely examined, the legislation promoted by the 
 crotcheteer often turns out to be by no means " of God," 
 but very much " of man." The attitude of mind which 
 regards every popular fad or caprice as an expression of 
 the inevitable is apt to degenerate into a sort of dilettante 
 fatalism. Why not examine closely and fearlessly the 
 constituent elements of the supposed popular movement? 
 It may be that what is described as a " majestic proces- 
 sion " will turn out to be a mere masquerade, and that 
 many who pose as patriots are only mummers. 
 
 The point of view of the investor is separated from that 
 of the thorough-going political partizan by a broad line 
 of demarcation. Their relative attitude is something 
 like that of the claimants to possession of the child in the 
 familiar " Judgment of Solomon." In America as in 
 England to-day the ambitious politician is quite willing 
 that the infant should be cut in halves, if by such an ar- 
 rangement he can disappoint and "dish" his opponents. 
 
NOTES- ON THE INTER-STATE COMMERCE ACT. 1 8$ 
 
 On the contrary, the investor, as such, has no record to 
 maintain and no opponent to "dish"; and he would 
 rather make concessions than see the child vivisected. 
 His consistent desire is not that " something should be 
 done," but that whatever is undertaken be well done. 
 
CHAPTER XX. 
 
 THE "ALIEN LAND ACT." 
 
 THE recent Act entitled " An Act to restrict the owner- 
 ship of real estate in the Territories to American citizens, 
 and so forth," popularly known as the " Alien Land Act," 
 contains provisions of very considerable importance, from 
 the point of view of that class of foreign investors which 
 has, in the past, locked up a large amount of capital in 
 the acquisition of American land. Prior to the passage 
 of the Act, many investors of this class had intended to en- 
 large their existing investments and to compact and con- 
 solidate them by further purchases. Other groups of 
 capitalists, who were not committed in the past but were 
 distrustful of European spheres of investment, had enter- 
 tained the project of acquiring large blocks of land in 
 America. By persons acquainted with the situation it 
 could not for a moment be doubted that legislation of a 
 restrictive kind would be carried through both Houses of 
 Congress, as soon as the condition of legislative business 
 rendered such a result feasible. It may therefore be 
 hoped that the passage of the Alien Land Bill will create 
 serious disappointment exclusively in the minds of those 
 who failed to interpret the signs of the times. Inasmuch 
 however as the interests involved are substantial, and the 
 provisions of the Act somewhat stringent, it is thought 
 that a copy of the text may form a convenient appendix 
 to the present notes. It will readily appear to the foreign 
 
 186 
 
THE ALIEN LAND ACT. 187 
 
 owner of land in America that, while his future interests 
 are restricted, his investments in the past are not necessarily 
 prejudiced to any serious extent. The limitations imposed 
 by the Act are undoubtedly cogent, and the penalties se- 
 vere. If the history of the past be wisely interpreted, it may 
 be doubted whether they are altogether wise. But they 
 plainly represent the views of the American people ; and 
 therefore elaborate discussion from the investor's point of 
 view would be superfluous not to say tiresome. The 
 upshot of the Act is shortly this : that the bond fide alien 
 owner of American land can protect legitimate interests 
 already acquired ; but that, as regards future enterprises, 
 he is compelled to draw in his horns. The wisdom and 
 expediency of the " twenty-per-cent " limit of. course ad- 
 mit of wide difference of opinion. In the writer's view, it 
 is a somewhat premature expression of patriotism at the 
 expense of obvious profit. But, if the American people 
 think that the time has arrived to check foreign invest- 
 ment in land, they are clearly the masters of the position. 
 
APPENDIX A. 
 
 Extracts from the Constitution of the State of Georgia 
 relating to railroads, together with the law creating a Railroad 
 Commission. 
 
 CONSTITUTION. 
 
 ARTICLE IV. SECTION II. 
 
 Paragraph I. The power and authority of regulating rail- 
 road freight and passenger tariffs, preventing unjust discrim- 
 inations, and requiring reasonable and just rates of freight 
 and passenger tariffs, are hereby conferred upon the General 
 Assembly, whose duty it shall be to pass laws, from time to 
 time, to regulate freight and passenger tariffs, to prohibit 
 unjust discriminations on the various railroads of this State, 
 and to prohibit said roads from charging other than just 
 and reasonable rates, and enforce the same by adequate pen- 
 alties. 
 
 Par. III. The General Assembly shall not remit the for- 
 feiture of the charter of any corporation, now existing, nor 
 alter or amend the same, nor pass any other general or special 
 law for the benefit of said corporation, except upon the condi- 
 tion that such corporation shall thereafter hold its charter sub- 
 ject to the provisions of this Constitution ; and every amend- 
 ment of any charter of any corporation in this State, or any 
 special law for its benefit, accepted thereby, shall operate as a 
 novation of said charter, and shall bring the same under the 
 provisions of this Constitution : Provided, that this section 
 shall not extend to any amendment for the purpose of allowing 
 
 189 
 
190 APPENDIX. 
 
 any existing road to take stock in or aid in the building of any 
 branch road. 
 
 Par. IV. The General Assembly of this State shall have no 
 power to authorize any corporation to buy shares, or stock, in 
 any other corporation in this State, or elsewhere, or to make 
 any contract, or agreement whatever, with any such corpora- 
 tion, which may have the effect, or be intended to have the 
 effect, to defeat or lessen competition in their respective busi- 
 nesses, or to encourage monopoly ; and all such contracts and 
 agreements shall be illegal and void. 
 
 Par. V. No railroad company shall give, or pay, any rebate, 
 or bonus in the nature thereof, directly or indirectly, or do any 
 act to mislead or deceive the public as to the real rates charged 
 or received for freights or passage ; and any such payments 
 shall be illegal and void, and these prohibitions shall be en- 
 forced by suitable penalties. 
 
 Par. VI. No provisions of this article shall be deemed, held 
 or taken to impair the obligation of any contract heretofore 
 made by the State of Georgia. 
 
 Par. VII. The General Assembly shall enforce the pro- 
 visions of this article by appropriate legislation. 
 
 The following is the law under which the Railroad Com- 
 mission was created, being Act No. 269, Part i, Title 12, of the 
 Acts and Resolutions of the General Assembly of the State of 
 Georgia, 1878-1879 : 
 
 AN ACT 
 
 To provide for the regulation of railroad freight and passenger 
 tariffs in this State ; to prevent unjust discrimination and 
 extortion in the rates charged for transportation of passengers 
 and freights , and to prohibit railroad companies, corporations 
 and lessees in this State from charging other than just and 
 reasonable rates, and to punish the same, and prescribe a mode 
 
APPENDIX. IQI 
 
 of procedure and rules of evidence in relation thereto j and to 
 appoint Commissioners, and to prescribe their powers and duties 
 in relation to the same. 
 
 WHEREAS, it is made the duty of the General Assembly, in 
 article 4, paragraph 2, and section i of the Constitution, to 
 pass laws from time to time to regulate freight and passenger 
 tariffs ; to prohibit unjust discriminations on the various rail- 
 roads of this State, and to prohibit railroads from charging 
 other than just and reasonable rates, and enforce the same by 
 adequate penalties ; therefore, 
 
 SECTION i. Be it enacted by the General Assembly of Georgia, 
 That there shall be three Commissioners, appointed by the 
 Governor, with the advice and consent of the Senate, to carry 
 out the provisions of this Act, of whom one shall be of experi- 
 ence in the law, and one of experience in railway business. 
 After the expiration of the terms of the office of the Commis- 
 sioners first appointed, the term of office of successors shall be 
 six years ; but, at the first appointment, one Commissioner 
 shall be appointed for two years, one for four years, and one 
 for six years. The salary of each Commissioner shall be twenty- 
 five hundred dollars, to be paid from the Treasury of the State. 
 Any Commissioner may be suspended from office by order of 
 the Governor, who shall report the fact of such suspension, and 
 the reasons therefor, to the next General Assembly, and if a 
 majority of each branch of the General Assembly declare that 
 said Commissioner shall be removed from office, his term of 
 office shall expire. The Governor shall have the same power 
 to fill vacancies in the office of Commissioner as to fill other 
 vacancies, and if, for any reason, said Commissioners are not 
 appointed during the present session of the General Assembly, 
 the Governor shall appoint them thereafter, and report to the 
 next Senate, but the time until then shall not be counted as 
 part of the term of office of said Commissioners, respectively, 
 as herein provided. Said Commissioners shall take an oath of 
 
192 APPENDIX. 
 
 office, to be framed by the Governor, and shall not, jointly or 
 severally, or in any way, be the holders of any railroad stock or 
 bonds, or be the agent or employee of any railroad company, or 
 have any interest in any way in any railroad, and shall so con- 
 tinue during the term of office ; and in case any Commissioner 
 becomes disqualified in any way, he shall at once remove the 
 disqualification or resign, and on failure so to do, he must be 
 suspended from office by the Governor, and dealt with as here- 
 inafter provided. In any case of suspension the Governor 
 may fill the vacancy until the suspended Commissioner is re- 
 stored or removed. 
 
 SEC. II. That said Commissioners shall be furnished with 
 an office, necessary furniture, and stationery, and may employ 
 a secretary or clerk, at a salary of twelve hundred dollars, at 
 the expense of the State. The office of said Commissioners 
 shall be kept in Atlanta, and all sums of money authorized to 
 be paid by this Act out of the State Treasury shall be paid 
 only on the order of the Governor : Provided, that the total 
 sum to be expended by said Commissioners for office rent, fur- 
 niture, and stationery shall, in no case, exceed the sum of five 
 hundred dollars ($500.00,) or so much thereof as may be neces- 
 sary, per annum. 
 
 SEC. III. That from and after the passage of this Act, if any 
 railroad corporation, organized or doing business in this State, 
 under any Act of incorporation or general law of this State 
 now in force, or which may hereafter be enacted, or any rail- 
 road corporation organized, or which may hereafter be organ- 
 ized, under the laws of any other State, and doing business in 
 this State, shall charge, collect, demand, or receive more than a 
 fair and reasonable rate of toll or compensation for the trans- 
 portation of passengers or freight of any description, or for the 
 use and transportation of any railroad-car upon its track, or 
 any of its branches thereof, or upon any railroad within this 
 State which it has the right, license, or permission to use, oper- 
 ate, or control, the same shall be deemed guilty of extortion, 
 
 
APPENDIX. 193 
 
 and, upon conviction thereof, shall be dealt with as hereinafter 
 provided. 
 
 SEC. IV. That if any railroad corporation as aforesaid shall 
 make any unjust discrimination in its rates or charges of toll or 
 compensation for the transportation of passengers or freights of 
 any description, or for the use and transportation of any rail- 
 road-car upon its said road, or upon any of the branches there- 
 of, or upon any railroads connected therewith, which it has the 
 right, license, or permission to operate, control or use, within 
 this State, the same shall be deemed guilty of having violated 
 the provisions of this Act, and, upon conviction thereof, shall 
 be dealt with as hereinafter provided. 
 
 SEC. V. That the Commissioners appointed as hereinbefore 
 provided, shall, as provided in the next section of this Act, 
 make reasonable and just rates of freight and passenger tariffs, 
 to be observed by all railroad companies doing business in this 
 State on the railroads thereof ; shall make reasonable and 
 just rules and regulations, to be observed by all railroad com- 
 panies doing business in this State, as to charges at any and all 
 points, for the necessary handling and delivering of freights ; 
 shall make such just and reasonable rules and regulations as 
 may be necessary for preventing unjust discriminations in the 
 transportation of freight and passengers on the railroads in this 
 State ; shall make reasonable and just rates of charges for use 
 of railroad-cars carrying any and all kinds of freight and pas- 
 sengers on said railroads, no matter by whom owned or carried ; 
 and shall make just and reasonable rules and regulations, to be 
 observed by said railroad companies on said railroads, to pre- 
 vent the giving or paying of any rebate or bonus, directly or in- 
 directly, and from misleading or deceiving the public in any 
 manner as to the real rates charged for freight and passengers : 
 Provided, that nothing in this Act contained shall be taken as in 
 any manner abridging or controlling the rates for freight charged 
 by any railroad company in this State for carrying freight which 
 comes from or goes beyond the boundaries of the State, and on 
 
194 APPENDIX. 
 
 which freight less than local rates on any railroad carrying the 
 same are charged by such railroad, but said railroad companies 
 shall possess the same power and right to charge such rates for 
 carrying such freights as they possessed before the passage of 
 this Act ; and said Commissioners shall have full power by 
 rules and regulations to designate and fix the difference in rates 
 of freight and passenger transportation, to be allowed for longer 
 and shorter distances on the same or different railroads, and 
 to ascertain what shall be the limits of longer and shorter dis- 
 tances. 
 
 SEC. VI. That the said Railroad Commissioners are hereby 
 authorized and required to make for each of the railroad cor- 
 porations doing business in this State, as soon as practicable, a 
 schedule of just and reasonable rates of charges for the trans- 
 portation of passengers and freights and cars on each of said 
 railroads ; and said schedule shall, in suits brought against any 
 such railroad corporations wherein is involved the charges of 
 any such railroad corporation for the transportation of any pas- 
 senger or freight or cars, or unjust discrimination in relation 
 thereto, be deemed and taken in all courts of this State as suf- 
 ficient evidence that the rates therein fixed are just and reason- 
 able rates of charges for the transportation of passengers and 
 freights and cars upon the railroads ; and said Commissioners 
 shall, from time to time, and as often as circumstances may re- 
 quire, change and revise said schedules. When any schedule 
 shall have been made or revised, as aforesaid, it shall be the 
 duty of said Commissioners to cause publication thereof to be 
 made for four successive weeks in some public newspapers 
 published in the cities of Atlanta, Augusta, Albany, Savannah, 
 Macon, Rome, and Columbus, in this State ; and after the 
 same shall be so published, it shall be the duty of all such rail- 
 road companies to post, at all their respective stations, in a 
 conspicuous place, a copy of said schedule for the protection 
 of the people : Provided, that the schedules thus prepared shall 
 not be taken as evidence, as herein provided, until schedules 
 
 
APPENDIX. 195 
 
 shall have been prepared and published as aforesaid, for all the 
 railroad companies now organized under the laws of this State, 
 or that may be organized at the time of said publication. All 
 such schedules purporting to be printed and published as 
 aforesaid, shall be received and held in all such suits, asprima 
 facie the schedules of said Commissioners, without further 
 proof than the production of the schedules desired to be used 
 as evidence, with a certificate of the Railroad Commission 
 that the same is a true copy of the schedule prepared by them 
 for the railroad company or corporation therein named, and 
 that the same has been duly published as required by law, 
 stating the name of the paper in which the same was published, 
 together with the date and place of said publication. 
 
 SEC. VII. That it shall be the duty of said Commissioners to 
 investigate the books and papers of all the railroad companies 
 doing business in this State, to ascertain if the rules and regu- 
 lations aforesaid have been complied with, and to make per- 
 sonal visitation of railroad offices, stations and other places of 
 business for the purpose of examination, and to make rules 
 and regulations concerning such examinations, which rules and 
 regulations shall be observed and obeyed as other rules and 
 regulations aforesaid ; said Commissioners shall also have full 
 power and authority to examine all agents and employees of 
 said railroad companies and other persons, under oath or other- 
 wise, in order to procure the necessary information, to make 
 just and reasonable rates of freight and passenger tariffs, and 
 to ascertain if such rules and regulations are observed or vio- 
 lated, and to make necessary and proper rules and regulations 
 concerning such examination, and which rules and regulations 
 herein provided for shall be obeyed and enforced as all other 
 rules and regulations provided for in this Act. 
 
 SEC. VIII. That all contracts and agreements between rail- 
 road companies doing business in this State, as to rates of 
 freight and passenger tariffs, shall be submitted to said Com- 
 missioners for inspection and correction, that it may be seen 
 
196 APPENDIX. 
 
 whether or not they are a violation of law or of the provisions 
 of the Constitution, or of this Act, or of the rules and regula- 
 tions of said Commissioners ; and all arrangements and agree- 
 ments whatever as to the division of earnings of any kind by 
 competing railroad companies doing business in this State, 
 shall be submitted to said Commissioners for inspection and 
 approval, in so far as they affect rules and regulations made by 
 said Commissioners, to secure to all persons doing business 
 with said companies just and reasonable rates of freight and 
 passenger tariffs ; and said Commissioners may make such rules 
 and regulations as to such contracts and agreements as may be 
 then deemed necessary and proper, and any such agreements 
 not approved by such Commissioners, or by virtue of which 
 rates shall be charged exceeding the rates fixed for freight and 
 passengers, shall be deemed, held, and taken to be, violations 
 of article 4, section i, paragraph 4 of the Constitution, and 
 shall be illegal and void. 
 
 SEC. IX. That if any railroad company doing business in 
 this State, by its agents or employees shall be guilty of a viola- 
 tion of the rules and regulations provided and prescribed by 
 said Commissioners ; and if, after due notice of such violation 
 given to the principal officer thereof, ample and full recom- 
 pense for the wrong or injury done thereby to any person or 
 corporation, as may be directed by said Commissioners, shall 
 not be made within thirty days from the time of such notice, 
 such company shall incur a penalty for each offense of not less 
 than one thousand dollars, nor more than five thousand dollars, 
 to be fixed by the presiding Judge. An action for the recovery 
 of such penalty shall lie in any county in the State where 
 such violation has occurred, or wrong has been perpetrated, and 
 shall be in the name of the State of Georgia. The Commis- 
 sioners shall institute such action through the Attorney-General 
 or Solicitor-General, whose fees shall be the same as now pro- 
 vided by law. 
 
 SEC. X. That if any railroad company doing business in this 
 
APPENDIX. IQ7 
 
 State shall, in violation of any rule or regulation provided by 
 the Commissioners as aforesaid, inflict any wrong or injury on 
 any person, such person shall have a right of action and re- 
 covery for such wrong or injury in the county where the same 
 was done, in any court having jurisdiction thereof, and the 
 damages to be recovered shall be the same as in actions be- 
 tween individuals, except that in cases of wilful violation of 
 law, such railroad companies shall be liable to exemplary dam- 
 ages : Provided, that all suits under this Act shall be brought 
 within twelve months after the commission of the alleged 
 wrong or injury. 
 
 SEC. XI. That in all cases under the provisions of this Act 
 the rules of evidence shall be the same as in civil actions, ex- 
 cept as hereinbefore otherwise provided. All fines recovered 
 under the provisions of this Act shall be paid into the State 
 Treasury, to be used for such purposes as the General Assem- 
 bly may provide. The remedies hereby given the persons in- 
 jured shall be regarded as cumulative to the remedies now 
 given by law against railroad corporations, and this Act shall 
 not be construed as repealing any statute giving such remedies. 
 
 SEC. XII. That the terms " railroad corporation," or " rail- 
 road company," contained in this Act shall be deemed and 
 taken to mean all corporations, companies, or individuals now 
 owning or operating, or which may hereafter own or operate 
 any railroad, in whole or in part, in this State, and the provis- 
 ions of this Act shall apply to all persons, firms and companies, 
 and to all associations of persons, whether incorporated or 
 otherwise, that shall do business as common carriers upon any 
 of the lines of railroad in this State, (street railways excepted) 
 the same as to railroad corporations hereinbefore mentioned. 
 
 SEC. XIII. That all railroad companies in this State shall, on 
 demand, issue duplicate freight receipts to shippers, in which 
 shall be stated the class or classes of freight shipped, the 
 freight charges over the road giving the receipt, and so far as 
 practicable shall state the freight charges over other roads that 
 
198 APPENDIX. 
 
 carry such freight. When the consignee presents the railroad 
 receipt to the agent of the railroad that delivers such freight, 
 such agent shall deliver the article shipped on payment of the 
 rate charged for the class of freights mentioned in the receipt. 
 If any railroad company shall violate this provision of the 
 statute, such railroad company shall incur a penalty to be 
 fixed and collected as provided in section nine of this Act. 
 
 SEC. XIV. That it shall be the duty of the Commissioners 
 herein provided for, to make to the Governor semi-annual 
 reports of the transactions of their office, and to recommend 
 from time to time such legislation as they may deem advisable 
 under the provisions of this Act. 
 
 SEC. XV. That said Railroad Commissioners, in making any 
 examination for the purpose of obtaining information pursuant 
 to this Act, shall have power to issue subpoenas for the attend- 
 ance of witnesses, by such rules as they may prescribe. And 
 said witnesses shall receive for such attendance two dollars per 
 day, and five cents per mile, traveled by the nearest practicable 
 route in going to and returning from the place of meeting of 
 said Commissioners, to be ordered paid by the Governor upon 
 presentation of subpoenas, sworn to by the witnesses, as to the 
 number of days served and miles travelled, before the clerk of 
 said Commissioners, who is hereby authorized to administer 
 oaths. In case any person shall wilfully fail or refuse to obey 
 such subpoena, it shall be the duty of the Judge of the Supe- 
 rior Court, of any county, upon application of said Commis- 
 sioners, to issue an attachment for such witness, and compel 
 him to attend before the Commissioners and give his testi- 
 mony upon such matters as shall be lawfully required by such 
 Commissioners, and said court shall have power to punish for 
 contempt, as in other cases of refusal to obey the process and 
 order of such court. 
 
 SEC. XVI. That every officer, agent or employee of any 
 railroad company who shall wilfully neglect or refuse to make 
 and furnish any report required by the Commissioners, as neces- 
 
APPENDIX, 
 
 I 99 
 
 sary to the purposes of this Act, or who shall wilfully and 
 unlawfully hinder, delay or obstruct said Commissioners in the 
 discharge of the duties hereby imposed upon them, shall forfeit 
 and pay a sum of not less than one hundred, nor more than 
 five thousand, dollars, for each offense, to be recovered in an 
 action of debt in the name of the State. 
 
 SEC. XVII. That all laws militating against this Act are 
 hereby repealed. 
 
 Extract from the general Railroad Law of. Massachusetts, 
 being chapter 112 of the Public Statutes. 
 
 RIGHTS RESERVED BY THE COMMONWEALTH. 
 
 SECT. 6. Nothing contained in this chapter shall be con- 
 strued to impair the rights of the commonwealth as asserted or 
 reserved in previous statutes. The provisions of this chapter, 
 and the franchises, rights, powers, privileges, duties, and liabili- 
 ties of railroad corporations established under this or any 
 general statute, may be altered, amended, or repealed, and the 
 general court may annul or dissolve any such corporation. 
 
 SECT. 7. The commonwealth may at any time during the 
 continuance of the charter of a railroad corporation, after the 
 expiration of twenty years from the opening of its road for 
 use, purchase of the corporation its road and all its franchise, 
 property, rights, and privileges, by paying therefor such sum as 
 will reimburse to it the amount of capital paid in, with a net 
 profit thereon of ten per cent, a year from the time of the pay- 
 ment thereof by the stockholders to the time of the purchase. 
 
 SECT. 8. The commonwealth may at any time take and 
 possess the road, franchise, and other property of a railroad 
 corporation, after giving to it one year's notice in writing and 
 shall pay therefor such compensation as may be awarded by 
 three commissioners, to be appointed by the supreme judicial 
 court, who shall be sworn to appraise the same justly and fairly, 
 and shall estimate and determine all damages sustained by it 
 
200 APPENDIX, 
 
 by such taking ; and a corporation aggrieved by the determina- 
 tion of said commissioners may have its damages assessed by a 
 jury of the superior court in the county of Suffolk, in' the same 
 manner as is provided by law with respect to damages sustained 
 by reason of the laying out of ways in the city of Boston. 
 
APPENDIX B. 
 
 [PUBLIC No. 126.] 
 
 An Act to restrict the ownership of real estate in the Territories to Ameri- 
 can citizens, and so forth. 
 
 Be it enacted by the Senate and House of Representatives of the 
 United States of America in Congress assembled, That it shall be 
 unlawful for any person or persons not citizens of the United 
 States or who have not lawfully declared their intention to be- 
 come such citizens, or for any corporation not created by or 
 under the laws of the United States, or of some State or 
 Territory of the United States to hereafter acquire, hold, 
 or own real estate so hereafter acquired, or any interest there- 
 in, in any of the Territories of the United States or in the 
 District of Columbia, except such as may be acquired by in- 
 heritance or in good faith in the ordinary course of justice in 
 the collection of debts heretofore created : Provided, That the 
 prohibition of this section shall not apply to cases in which 
 the right to hold or dispose of lands in the United States is 
 secured by existing treaties to the citizens or subjects of for- 
 eign countries, which rights, so far as they may exist by force 
 of any such treaty shall continue to exist so long as such 
 treaties are in force, and no longer. 
 
 SEC. 2. That no corporation or association more than twenty 
 per centum of the stock of which is or may be owned by any 
 person or persons, corporation or corporations, association or 
 associations, not citizens of the United States, shall hereafter 
 acquire or hold or own any real estate hereafter acquired in 
 
202 APPENDIX. 
 
 any of the Territories of the United States or of the District 
 of Columbia. 
 
 SEC. 3. That no corporation other than those organized for 
 the construction or operation of railways, canals, or turnpikes 
 shall acquire, hold, or own more than five thousand acres of 
 land in any of the Territories of the United States ; and no 
 railroad, canal, or turnpike corporation shall hereafter acquire, 
 hold, or own lands in any Territory, other than it may be neces- 
 sary for the proper operation of its railroad, canal, or turnpike, 
 except such lands as may have been granted to it by act of 
 Congress. But the prohibition of this section shall not affect 
 the title to any lands now lawfully held by any such corporation. 
 
 SEC. 4. That all property acquired, held, or owned in violation 
 of the provisions of this Act shall be forfeited to the United 
 States, and it shall be the duty of the Attorney-General to en- 
 force every such forfeiture by bill in equity or other proper 
 process. And in any suit or proceeding that may be com- 
 menced to enforce the provisions of this Act, it shall be 
 the duty of the court to determine the very right of the matter 
 without regard to matters of form, joinder of parties, multi- 
 fariousness, or other matters not affecting the substantial rights 
 either of the United States or of the parties concerned in any 
 such proceeding arising out of the matters in this Act men- 
 tioned. 
 
 Approved, March 3, 1887. 
 
APPENDIX C. 
 
 THE INTER-STATE COMMERCE ACT OF 
 FEBRUARY 4, 1887. 
 
 Be it enacted by the Senate and House of Representatives of the 
 United States of America in Congress assembled, That the pro- 
 visions of this act shall apply to any common carrier or car- 
 riers engaged in the transportation of passengers or property 
 wholly by railroad, or partly by railroad and partly by water 
 when both are used, under a common control, management, or 
 arrangement, for a continuous carriage or shipment from one 
 State or Territory of the United States, or the District of Co- 
 lumbia, to any other State or Territory of the United States, or 
 the District of Columbia, or from any place in the United 
 States to an adjacent foreign country, or from any place in the 
 United States through a foreign country to any other place in 
 the United States, and also to the transportation in like man- 
 ner of property shipped from any place in the United States to 
 a foreign country and carried from such place to a port of 
 trans-shipment, or shipped from a foreign country to any place 
 in the United States and carried to such place from a port of 
 entry either in the United States or an adjacent foreign coun- 
 try : Provided, however, That the provisions of this act shall 
 not apply to the transportation of passengers or property, or 
 to the receiving, delivering, storage or handling of property 
 wholly within one State, and not shipped to or from a foreign 
 country from or to any State or Territory as aforesaid. 
 
 The term " railroad " as used in this act shall include all 
 bridges and ferries used or operated in connection with any 
 
 203 
 
204 APPENDIX. 
 
 railroad, and also all the road in use by any corporation ope- 
 rating a railroad, whether owned or operated under a contract, 
 agreement, or lease ; and the term " transportation " shall in- 
 clude all instrumentalities of shipment or carriage. 
 
 All charges made for any service rendered or to be rendered 
 in the transportation of passengers or property as aforesaid, or 
 in connection therewith, or for the receiving, delivering, sto- 
 rage, or handling of such property, shall be reasonable and 
 just ; and every unjust and unreasonable charge for such serv- 
 ice is prohibited and declared to be unlawful. 
 
 SEC. II. That if any common carrier, subject to the provi- 
 sions of this act, shall, directly or indirectly, by any special 
 rate, rebate, drawback, or other device, charge, demand, col- 
 lect or receive from any person or persons a greater or less 
 compensation for any service rendered or to be rendered, in 
 the transportation of passengers or property subject to the 
 provisions of this act, than it charges, demands, collects, or 
 receives from any other person or persons for doing for him 
 or them a like and contemporaneous service in the transpor- 
 tation of a like kind of traffic under substantially similar cir- 
 cumstances and conditions, such common carrier shall be 
 deemed guilty of unjust discrimination, which is hereby pro- 
 hibited and declared to be unlawful. 
 
 SEC. III. That it shall be unlawful for any common carrier 
 subject to the provisions of this act, to make or give any un- 
 due or unreasonable preference or advantage to any particular 
 person, company, firm, corporation, or locality, or any particu- 
 lar description of traffic, in any respect whatsoever, or to sub- 
 ject any particular person, company, firm, corporation, or 
 locality or any particular description of traffic, to any undue 
 or unreasonable prejudice or disadvantage in any respect 
 whatsoever. 
 
 Every common carrier subject to the provisions of this act 
 shall, according to their respective powers, afford all reason- 
 able, proper, and equal facilities for the interchange of traffic 
 
APPENDIX. 20$ 
 
 between their respective lines, and for the receiving, forward- 
 ing, and delivering of passengers and property to and from 
 their several lines, and those connecting therewith, and shall 
 not discriminate in their rates and charges between such con- 
 necting lines ; but this shall not be construed as requiring any 
 such common carrier to give the use of its tracks or terminal 
 facilities to another carrier engaged in like business. 
 
 SEC. 4. That it shall be unlawful for any common carrier 
 subject to the provisions of this act to charge or receive any 
 greater compensation in the aggregate for the transportation 
 of passengers or of like kind of property, under substantially 
 similar circumstances and conditions, for a shorter than for a 
 longer distance over the same line, in the same direction, the 
 shorter being included within the longer distance ; but this 
 shall not be construed as authorizing any common carrier 
 within the terms of this act to charge and receive as great com- 
 pensation for a shorter as for a longer distance : Provided, 
 however, That upon application to the Commission appointed 
 under the provisions of this act, such common carrier may, in 
 special cases, after investigation by the Commission, be au- 
 thorized to charge less for longer than for shorter distances 
 for the transportation of passengers or property ; and the 
 Commission may from time to time prescribe the extent to 
 which such designated common carrier may be relieved from 
 the operation of this section of this act. 
 
 SEC. V. That it shall be unlawful for any common carrier 
 subject to the provisions of this act to enter into any contract, 
 agreement, or combination with any other common carrier or 
 carriers for the pooling of freights of different and competing 
 railroads, or to divide between them the aggregate or net 
 proceeds of the earnings of such railroads, or any portion 
 thereof ; and in any case of an agreement for the pooling cf 
 freights as aforesaid, each day of its continuance shall be 
 deemed a separate offence. 
 
 SEC. VI, That every common carrier subject to the provi- 
 
2C>6 APPENDIX. 
 
 sions of this act shall print and keep for public inspection 
 schedules showing the rates and fares and charges for the 
 transportation of passengers and property which any such 
 common carrier has established and which are in force at the 
 time upon its railroad, as denned by the first section of this 
 act. The schedules printed as aforesaid by any such common 
 carrier shall plainly state the places upon its railroad between 
 which property and passengers will be carried, and shall con- 
 tain the classification of freight in force upon such railroad, 
 and shall also state separately the terminal charges and any 
 rules or regulations which in any wise change, affect, or de- 
 termine any part of the aggregate of such aforesaid rates and 
 fares and charges. Such schedules shall be plainly printed in 
 large type, of at least the size of ordinary pica, and copies for 
 the use of the public shall be kept in every depot or station 
 upon any such railroad, in such places and in such form that 
 they can be conveniently inspected. 
 
 Any common carrier subject to the provisions of this act 
 receiving freight in the United States to be carried through a 
 foreign country to any place in the United States, shall also 
 in like manner print and keep for public inspection, at every 
 depot where such freight is received for shipment, schedules 
 showing the through rates established and charged by such 
 common carrier to all points in the United States beyond the 
 foreign country to which it accepts freight for shipment ; and 
 any freight shipped from the United States through a foreign 
 country into the United States, the through rate on which 
 shall not have been made public as required by this act, shall, 
 before it is admitted into the United States from said foreign 
 country, be subject to customs duties, as if said freight were 
 of foreign production ; and any law in conflict with this sec- 
 tion is hereby repealed. 
 
 No advance shall be made in the rates, fares, and charges 
 which have been established and published as aforesaid by any 
 common carrier, in compliance with the requirements of this 
 
APPENDIX. SO/ 
 
 section, except after ten days' public notice, which shall 
 plainly state the changes proposed to be made in the schedule 
 then in force, and the time when the increased rates, fares, or 
 charges will go into effect ; and the proposed changes shall be 
 shown by printing new schedules, or shall be plainly indi- 
 cated upon the schedules in force at the time and kept for pub- 
 lic inspection. Reductions in such published rates, fares, or 
 charges may be made without previous public notice ; but 
 whenever any such reduction is made, notice of the same shall 
 immediately be publicly posted, and the changes made shall 
 immediately be made public by printing new schedules, or 
 shall immediately be plainly indicated upon the schedules 
 at the time in force and kept for public inspection. 
 
 And when any such common carrier shall have established 
 and published its rates, fares, and charges, in compliance with 
 the provisions of this section, it shall be unlawful for such 
 common carrier to charge, demand, collect, or receive from 
 any person or persons a greater or less compensation for the 
 transportation of passengers or property, or from any services 
 in connection therewith than is specified in such published 
 schedule of rates, fares, and charges as may at the time be in 
 force. 
 
 Every common carrier subject to the provisions of this 
 act shall file with the Commission hereinafter provided for 
 copies of its schedules of rates, fares, and charges which have 
 been established and published in compliance with the re- 
 quirements of this section, and shall promptly notify said 
 Commission of all changes made in the same. Every such- 
 common carrier shall also file with said Commission copies 
 of all contracts, agreements, or arrangements with other 
 common carriers in relation to any traffic affected by the pro- 
 visions of this act to which it may be a party. And in cases 
 where passengers and freight pass over continuous lines or 
 routes operated by more than one common carrier, and the 
 several common carriers operating such lines or routes estab- 
 
208 APPENDIX* 
 
 lish joint tariffs of rates, or fares, or charges for such continu- 
 ous lines or routes, copies of such joint tariffs shall also, in 
 like manner, be filed with said Commission. Such joint rates, 
 fares, and charges on such continuous lines so filed as afore- 
 said shall be made public by such common carriers when 
 directed by said Commission, in so far as may, in the judg- 
 ment of the Commission, be deemed practicable ; and said 
 Commission shall, from time to time, prescribe the measure 
 of publicity which shall be given to such rates, fares, and 
 charges, or to such part of them as it may deem it practica- 
 ble for such common carriers to publish, and the places in 
 which they shall be published ;- but no common carrier party 
 to any such joint tariff shall be liable for the failure of any 
 other common carrier party thereto to observe and adhere to 
 the rates, fares, or charges thus made. and published. 
 
 If any such common carrier shall neglect or refuse to file 
 or publish its schedules or tariffs of rates, fares, and charges 
 as provided in this section, or any part of the same, such 
 common carrier shall, in addition to other penalties herein 
 prescribed, be subject to a writ of mandamus, to be issued 
 by any circuit court of the United States in the judicial dis- 
 trict wherein the principal office of said common carrier is 
 situated or wherein such offence may be committed, and if 
 such common carrier be a foreign corporation, in the judi- 
 cial circuit wherein such common carrier accepts traffic and 
 has an agent to perform such service, to compel compliance 
 with the aforesaid provisions of this section ; and such writ 
 shall issue in the name of the people of the United States, at 
 the relation of the Commissioners appointed under the provi- 
 sions of this act ; and failure to comply with its requirements 
 shall be punishable as and for a contempt ; and the said Com- 
 missioners, as complainants, may also apply, in any such Circuit 
 court of the United States, for a writ of injunction against 
 such common carrier, to restrain such common carrier from 
 receiving or transporting property among the several States 
 
APPENDIX. 209 
 
 and Territories of the United States, or between the United 
 States and adjacent foreign countries, or between the ports of 
 trans-shipment and of entry and the several States and Terri- 
 tories of the United States, as mentioned in the first section of 
 this act, until such common carrier shall have complied with 
 the aforesaid provisions of this section of this act. 
 
 SEC. VII. That it shall be unlawful for any common carrier 
 subject to the provisions of this Act to enter into any combi- 
 nation, contract, or agreement, expressed or implied, to pre- 
 vent by change of time schedule, carriage in different cars, or 
 by other means or devices, the carriage of freights from be- 
 ing continuous from the place of shipment to the place of 
 destination ; and no break of bulk, stoppage, or interruption 
 made by such common carrier shall, prevent the carriage of 
 freights from being and being treated as one continuous car- 
 riage from the place of shipment to the place of destination, 
 unless such break, or stoppage, or interruption was made in 
 good faith for some necessary purpose, and without any in- 
 tent to avoid or unnecessarily interrupt such continuous car- 
 riage or to evade any of the provisions of this act. 
 
 SEC. VIII. That in case any common carrier subject to the 
 provisions of this act shall do, cause to be done, or permit 
 to be done any act, matter, or thing in this act prohibited or 
 declared to be unlawful, or shall omit to do any act, matter, 
 or thing in this act required to be done, such common carrier 
 shall be liable to the person or persons injured thereby for 
 the full amount of damages sustained in consequence of any 
 such violation of the provisions of this act together with a 
 reasonable counsel or attorney's fee to be fixed by the court 
 in every case of recovery, which attorney's fees shall be taxed 
 and collected as part of the costs in the case. 
 
 SEC. IX. That any person or persons claiming to be dam- 
 aged by any common carrier subject to the provisions of this 
 act, may either make complaint to the Commission as herein- 
 after provided for, or may bring suit in his or their own behalf 
 
210 APPENbtX. 
 
 for the recovery of the damages for which such commoii carrier 
 may be liable under the provisions of this act in any district or 
 circuit court of the United States of competent jurisdiction ; 
 but such person or persons shall not have the right to pursue 
 both of said remedies, and must in each case elect which one 
 of the two methods of procedure herein provided for he or 
 they will adopt. In any such action brought for the recovery 
 of damages, the court before which the same shall be pending 
 may compel any director, officer, receiver, trustee, or agent of 
 the corporation or company defendant in such suit to attend, 
 appear, and testify in such case, and may compel the produc- 
 tion of the books and papers of such corporation or company 
 party to any such suit ; the claim that any such testimony or 
 evidence may tend to criminate the person giving such evi- 
 dence shall not excuse such witness from testifying, but such 
 evidence or testimony shall not be used against such person on 
 the trial of any criminal proceeding. 
 
 SEC. X. That any common carrier subject to the provisions 
 of this act, or whenever such common carrier is a corporation, 
 any director or officer thereof, or any receiver, trustee, lessee, 
 agent, or person acting for or employed by such corporation, 
 who, alone or with any other corporation, company, person or 
 party, shall wilfully do or cause to be done, or shall willingly 
 suffer or permit to be done, any act, matter, or thing in this 
 act prohibited or declared to be unlawful, or who shall aid or 
 abet therein, or shall wilfully omit or fail to do any act, matter, 
 or thing in this act required to be done, or shall cause or wil- 
 lingly suffer any act, matter, or thing so directed or required 
 by this act to be done not to be so done, or shall aid or abet 
 any such omission or failure, or shall be guilty of any infrac- 
 tion of this act, or shall aid or abet therein, shall be deemed 
 guilty of a misdemeanor, and shall, upon conviction thereof in 
 any district court of the United States within the jurisdiction 
 of which such offence was committed, be subject -to a fine of 
 not to exceed five thousand dollars for each offence. 
 
APPENDIX. 211 
 
 SEC. XI. That a Commission is hereby created and estab- 
 lished to be known as the Inter-State Commerce Commission, 
 which shall be composed of five Commissioners, who shall be 
 appointed by the President, by and with the advice and con- 
 sent of the Senate. The Commissioners first appointed under 
 this act shall continue in office for the term of two, three, four, 
 five, and six years respectively, from the first day of January, 
 Anno Domini eighteen hundred and eighty-seven, the term of 
 each to be designated by the President ; but their successors 
 shall be appointed for terms of six years, except that any per- 
 son chosen to fill a vacancy shall be appointed only for the un- 
 expired time of the Commissioner whom he shall succeed. 
 Any Commissioner may be removed by the President for in- 
 efficiency, neglect of duty, or malfeasance in office. Not more 
 than three of the Commissioners shall be appointed from the 
 same political party. No person in the employ of or holding 
 any official relation to any common carrier subject to the pro- 
 visions of this act, or owning stock or bonds thereof, or who 
 is in any manner pecuniarily interested therein, shall enter 
 upon the duties of or hold such office. Said Commissioners 
 shall not engage in any other business, vocation, or employ- 
 ment. No vacancy in the Commission shall impair the right 
 of the remaining Commissioners to exercise all the powers of 
 the Commission. 
 
 SEC. XII. That the Commission hereby created shall have 
 authority to inquire into the management of the business of 
 all common carriers subject to the provisions of this act, 
 and shall keep itself informed as to the manner and method 
 in which the same is conducted, and shall have the right to 
 obtain from such common carriers full and complete informa- 
 tion necessary to enable the Commission to perform the duties 
 and carry out the objects for which it was created ; and for the 
 purposes of this act the Commission shall have power to re- 
 quire the attendance and testimony of witnesses, and the pro- 
 duction of all books, papers, tariffs, contracts, agreements, and 
 
212 ' APPENDIX. 
 
 documents relating to any matter under investigation, and to 
 that end may invoke the aid of any court of the United States 
 in requiring the attendance and testimony of witnesses and the 
 production of books, papers, and documents under the provi- 
 sions of this section. 
 
 And any of the circuit courts of the United States within 
 the jurisdiction of which such inquiry is carried on may, in 
 case of contumacy or refusal to obey a subpoena issued to any 
 common carrier subject to the provisions of this act, or other 
 person, issue an order requiring such common carrier or other 
 person to appear before said Commission (and produce books 
 and papers if so ordered) and give evidence touching the mat- 
 ter in question ; and any failure to obey such order of the 
 court may be punished by such court as a contempt thereof. 
 The claim that any such testimony or evidence may tend to 
 criminate the person giving such evidence shall not excuse 
 such witness from testifying, but such evidence or testimony 
 shall not be used against such person on the trial of^any crimi- 
 nal proceeding. 
 
 SEC. XIII. That any person, firm, corporation, or associa- 
 tion, or any mercantile, agricultural, or manufacturing society, 
 or any body politic or municipal organization complaining of 
 any thing done or omitted to be done by any common carrier 
 subject to the provisions of this act in contravention of the 
 provisions thereof, may apply to said Commission by petition, 
 which shall briefly state the facts ; whereupon a statement of 
 the charges thus made shall be forwarded by the Commission 
 to such common carrier, who shall be called upon to satisfy 
 the complaint or to answer the same in writing within a reason- 
 able time, to be specified by the Commission. If such common 
 carrier, within the time specified, shall make reparation for the 
 injury alleged to have been done, said carrier shall be relieved 
 of liability to the complaint only for the particular violation of 
 law thus complained of. If such carrier shall not satisfy the 
 complaint within the time specified, or there shall appear to be 
 
APPENDIX. 213 
 
 any reasonable ground for investigating said complaint, it shall 
 be the duty of the Commission to investigate the matters com- 
 plained of in such manner and by such means as it shall deem 
 proper. 
 
 Said Commission shall in like manner investigate any com- 
 plaint forwarded by the railroad commissioner or railroad 
 commission of any State or Territory, at the request of such 
 commissioner or commission, and may institute any inquiry 
 on its own motion in the same manner and to the same effect 
 as though complaint had been made. 
 
 No complaint shall at any time be dismissed because of the 
 absence of direct damage to the complainant. 
 
 SEC. XIV. That whenever an investigation shall be made 
 by said Commission, it shall be its duty to make a report in 
 writing in respect thereto, which shall include the findings of 
 fact upon which the conclusions of the Commission are based, 
 together with its recommendation as to what reparation, if any, 
 should be made by the common carrier, to any party or parties 
 who may be found to have been injured ; and such findings so 
 made shall thereafter, in all judicial proceedings, be deemed 
 primd facie evidence as to each and every fact found. 
 
 All reports of investigations made by the Commission shall 
 be entered of record, and a copy thereof shall be furnished to 
 the party who may have complained, and to any common car- 
 rier that may have been complained of 
 
 SEC. XV. That if in any case in which an investigation 
 shall be made by said Commission it shall be made to appear 
 to the satisfaction of the Commission, either by the testimony 
 of witnesses or other evidence, that any thing has been done 
 or omitted to be done in violation of the provisions of this act 
 or of any law cognizable by said Commission, by any common 
 carrier, or that any injury or damage has been sustained by the 
 party or parties complaining or by other parties aggrieved in 
 consequence of any such violation, it shall be the duty of the 
 Commission to forthwith cause a copy of its report in respect 
 
214 APPENDIX. 
 
 thereto to be delivered to such common carrier, together with 
 a notice to said common carrier to cease and desist from such 
 violation, or to make reparation for the injury so found to have 
 been done, or both, within a reasonable time, to be specified 
 by the Commission ; and if, within the time specified, it shall 
 be made to appear to the Commission that such common car- 
 rier has ceased from such violation of law, and has made repa- 
 ration for the injury found to have been done, in compliance 
 with the report and notice of the Commission, or to the satis- 
 faction of the party complaining, a statement to that effect 
 shall be entered of record by the Commission, and the said 
 common carrier shall thereupon be relieved from further 
 liability or penalty for such particular violation of law. 
 
 SEC. XVI. That whenever any common carrier, as defined 
 in and subject to the provisions of this act, shall violate or re- 
 fuse or neglect to obey any lawful order or requirement of the 
 Commission in this act named, it shall be the duty of the Com- 
 mission, and lawful for any company or person interested in 
 such order or requirement, to apply, in a summary way, by 
 petition, to the circuit court of the United States, sitting in 
 equity in the judicial district in which the common carrier 
 complained of has its principal office, or in which the violation 
 or disobedience of such order or requirement shall happen, 
 alleging such violation or disobedience as the case may be ; 
 and the said court shall have power to hear and determine the 
 matter, on such short notice to the common carrier complained 
 of as the court shall deem reasonable ; and such notice may be 
 served on such common carrier, his or its officers, agents or 
 servants, in such manner as the court shall direct ; and said 
 court shall proceed to hear and determine the matter speedily 
 as a court of equity, and without the formal pleadings and 
 proceedings applicable to ordinary suits in equity, but in such 
 manner as to do justice in the premises ; and to this end such 
 court shall have power, if it think fit, to direct and prosecute, 
 in such mode and by such persons as it may appoint, all such 
 
APPENDIX. 21$ 
 
 inquiries as the court may think needful to enable it to form a 
 just judgment in the matter of such petition ; and on such 
 hearing the report of said Commission shall be primd facie evi- 
 dence of the matters therein stated ; and if it be made to appear 
 to such court, on such hearing or on report of any such person 
 or persons, that the lawful order or requirement of said Com- 
 mission drawn in question has been violated or disobeyed, it 
 shall be lawful for such court to issue a writ of injunction or 
 other proper process, mandatory or otherwise, to restrain such 
 common carrier from further continuing such violation or dis- 
 obedience of such order or requirement of said Commission, 
 and enjoining obedience to the same ; and in case of any dis- 
 obedience of any such writ of injunction or other proper pro- 
 cess, mandatory or otherwise, against such common carrier, 
 and if a corporation, against one or more of the directors, 
 officers, or agents, of the same, or against any owner, lessee, 
 trustee, receiver, or other person failing to obey such writ of 
 injunction or other proper process, mandatory or otherwise ; 
 and said court may, if it shall think fit, make an order direct- 
 ing such common carrier or other person so disobeying such 
 writ of injunction or other proper process, mandatory or other- 
 wise, to pay such sum of money not exceeding for each carrier 
 or person in default the sum of five hundred dollars a day for 
 every day after a day to be named in the order that such car- 
 rier or other person shall fail to obey such injunction or other 
 proper process, mandatory or otherwise, and such moneys 
 shall be payable as the court shall direct, either to the party 
 complaining, or into court to abide the ultimate decision of the 
 court, or into the Treasury ; and payment thereof may, without 
 prejudice to any other mode of recovering the same, be enforced 
 by attachment or order in the nature of a writ of execution, in 
 like manner as if the same had been recovered by a final decree 
 inpersonam in such court. When the subject in dispute shall 
 be of the value of two thousand dollars or more, either party 
 to such proceeding before said court may appeal to the Supreme 
 
2l6 APPENDIX. 
 
 Court of the United States, under the same regulations now 
 provided by law in respect of security for such appeal, but 
 such appeal shall not operate to stay or supersede the order of 
 the court or the execution of any writ or process thereon ; and 
 such court may in every such matter order the payment of 
 such costs and counsel fees as shall be deemed reasonable. 
 Whenever any such petition shall be filed or presented by the 
 Commission it shall be the duty of the District Attorney, under 
 the direction of the Attorney-General of the United States, to 
 prosecute the same ; and the costs and expenses of such pros- 
 ecution shall be paid out of the appropriations for the expenses 
 of the courts of the United States. For the purposes of this 
 act, excepting its penal provisions, the circuit courts of the 
 United States shall be deemed to be always in session. 
 
 SEC. XVII. That the Commission may conduct its proceed- 
 ings in such manner as will best conduce to the proper dispatch 
 of business and to the ends of justice, a majority of the Commis- 
 sion shall constitute a quorum for the transaction of business ; 
 but no Commissioner shall participate in any hearing or pro- 
 ceeding in which he has any pecuniary interest. Said Com- 
 mission may, from time to time, make or amend such general 
 rules or orders as may be requisite for the order and regula- 
 tion of proceedings before it, including forms of notices and 
 the service thereof, which shall conform, as nearly as may be, 
 to those in use in the courts of the United States. Any party 
 may appear before said Commission and be heard, in person 
 or by attorney. Every vote and official act of the Commission 
 shall be entered of record, and its proceedings shall be public 
 upon the request of either party interested. Said Commission 
 shall have an official seal, which shall be judicially noticed. 
 Either of the members of the Commission may administer 
 oaths and affirmations. 
 
 SEC. XVIII. That each Commissioner shall receive an an- 
 nual salary of seven thousand five hundred dollars, payable in 
 the same manner as the salaries of judges of the courts of the 
 
APPENDIX. 217 
 
 United States. The Commission shall appoint a Secretary, 
 who shall receive an annual salary of three thousand five hun- 
 dred dollars, payable in like manner. The Commission shall 
 have authority to employ and fix the compensation of such 
 other employes as it may find necessary to the proper per- 
 formance of its duties, subject to the approval of the Secretary 
 of the Interior. 
 
 The Commission shall be furnished by the Secretary of the 
 Interior with suitable offices and all necessary office supplies. 
 Witnesses summoned before the Commission shall be paid the 
 same fees and mileage that are paid witnesses in the courts of 
 the United States. All of the expenses of the Commission, 
 including all necessary expenses for transportation incurred 
 by the Commissioners, or by their employes under their orders, 
 in making any investigation, in any other places than in the 
 city of Washington, shall be allowed and paid, on the 
 presentation of itemized vouchers therefor approved by the 
 Chairman of the Commission and the Secretary of the 
 Interior. 
 
 SEC. XIX. That the principal office of the Commission shall 
 be in the city of Washington, where its general sessions shall 
 be held ; but, whenever the convenience of the public or of 
 the parties may be promoted, or delay or expense prevented 
 thereby, the Commission may hold special sessions in any 
 part of the United States. It may, by one or more of the 
 Commissioners, prosecute any inquiry necessary to its duties, 
 in any part of the United States, into any matter or question 
 of the fact pertaining to the business of any common carrier 
 subject to the provisions of this act. 
 
 SEC. XX. That the Commission is hereby authorized to re- 
 quire annual reports from all common carriers subject to the 
 provisions of this act, to fix the time and prescribe the man- 
 ner in which such reports shall be made, and to require from 
 such carriers specific answers to all questions upon which the 
 Commission may need information. Such annual reports 
 
21 8 APPENDIX. 
 
 shall show in detail the amount of capital stock issued, the 
 amounts paid therefor, and the manner of payment for the 
 same ; the dividends paid, the surplus fund, if any, and the 
 number of stockholders ; the funded and floating debts, and 
 the interest paid thereon ; the cost and value of the carrier's 
 property, franchises, and equipment ; the number of em- 
 ployes and the salaries paid each class ; the amounts expended 
 for improvements each year, how expended, and the character 
 of such improvements ; the earnings and receipts from 
 each branch of business and from all sources ; the operating 
 and other expenses ; the balances of profit and loss ; and a 
 complete exhibit of the financial operations of the carrier 
 each year, including an annual balance-sheet. Such reports 
 shall also contain such information in relation to rates or 
 regulations concerning fares or freights, or agreements, ar- 
 rangements, or contracts with other common carriers as the 
 Commission may require ; and the said Commission may, 
 within its discretion, for the purpose of enabling it the better 
 to carry out the purposes of this act, prescribe (if in the 
 opinion of the Commission it is practicable to prescribe such 
 uniformity and methods of keeping accounts) a period of time 
 within which all common carriers subject to the provisions 
 of this act shall have, as near may be, a uniform system of ac- 
 counts, and the manner in which such accounts shall be kept. 
 SEC. XXI. That the Commission shall, on or before the first 
 day of December in each year, make a report to the Secretary 
 of the Interior, which shall be by him transmitted to Con- 
 gress, and copies of which shall be distributed as are the 
 other reports issued from the Interior Department. This 
 report shall contain such information and data collected by 
 the Commission as may be considered of value in the deter- 
 mination of questions connected with the regulation of com- 
 merce, together with such recommendations as to additional 
 legislation relating thereto as the Commission may deem 
 necessary. 
 
 
APPENDIX. 219 
 
 SEC. XXII. That nothing in this act shall apply to the car- 
 riage, storage, or handling of property free or at reduced rates 
 for the United States, State,or municipal governments, or for 
 charitable purposes, or to or from fairs and expositions for 
 exhibition thereat, or the issuance of mileage, excursion, or 
 commutation passenger tickets ; nothing in this act shall be 
 construed to prohibit any common carrier from giving re- 
 duced rates to ministers of religion ; nothing in this act shall 
 be construed to prevent railroads from giving free carriage 
 to their own officers and employe's, or to prevent the principal 
 officers of any railroad company or companies from exchan- 
 ging passes or tickets with other railroad companies for their 
 officers or employes ; and nothing in this act contained shall 
 in any way abridge or alter the remedies now existing at com- 
 mon law or by statute, but the provisions of this act are 
 in addition to such remedies : Provided, That no pending 
 litigation shall in any way be affected by this act. 
 
 SEC. XXIII. That the sum of one hundred thousand dollars 
 is hereby appropriated for the use and purposes of this act for 
 the fiscal year ending June thirtieth, Anno Domini eighteen 
 hundred and eighty-eight, and the intervening time anterior 
 thereto. 
 
 SEC. XXIV. That the provisions of sections eleven and eigh- 
 teen of this act, relating to the appointment and organization of 
 the Commission herein provided for, shall take effect imme- 
 diately, and the remaining provisions of this act shall take 
 effect sixty days after its passage. 
 
 Approved February 4, 1887. 
 
INDEX. 
 
 Absorption of parallel lines, terms 
 
 of, 62 
 Acquisition by railroad company of 
 
 stock of other railroad, restriction 
 
 on, 158 
 Adams, C. F., Jr., Railroads, their 
 
 Origin and Problems, Preface and 
 
 126 
 Agents and public officers of States 
 
 liable to be sued, 147, 148 
 American institutions, I, 13 
 American protectionists, views of, 
 
 23-25 
 
 American securities, 7, 8 ; compara- 
 tive safety of, 7, 8 ; amount of 
 railroad capital invested in, 9, 10 
 
 Artisans, English, 15, 16 ; German, 
 16 ; Belgian, 16 
 
 Assessments of stockholders, 67, 68 
 
 Assumption of railways by Govern- 
 ment, 124, 125 ; advantages and 
 drawbacks incident to, 124, 125 
 
 Basis of compensation to corpora- 
 tions for railroads assumed by 
 government, 125 
 
 Basis of mileage, 53 
 
 Birmingham caucus, 22 
 
 Blanket mortgages, 68, 69 
 
 Central and subordinate Boards, re- 
 lation between, 40-43 ; directors 
 of, 40-43 
 
 Charter, forfeiture of, 34 
 
 Chartered rights, modification of 
 legislative not ministerial act, 107 
 
 Collateral assets, valuation of, 88- 
 
 Coloured labour in the South, 139, 
 140 ; its relative compensation and 
 value, 140, 141 
 
 Combination, current objections to, 
 44 ; economies derivable from, 45- 
 47 ; Southern lines (London), an 
 illustration of, 47 ; as an escape 
 from insolvency, 54 
 
 Commercial supremacy, internation- 
 al race for, 17, 18 ; nations handi- 
 capped in, 18 ; economically, 18 ; 
 politically, 18, 19 ; socially, 20-22 
 
 Commission to assess value of rail- 
 roads assumed by State, 167 
 
 Communism, growth of, 20 ; power 
 of resistance to, 20, 21 
 
 Competitive points, 52 
 
 Compulsory purchase by State (Mas- 
 sachusetts), 167, 168 
 
 Concessions in foreign countries, 30 
 
 Constructing Boards, representation 
 of investors on, 31 
 
 Construction of Statutes by Federal 
 Court, 147 
 
 Contract between State and char- 
 tered railroads, nature and scope 
 of, 96-100 
 
 Contract, impairment of, 145151 
 
 Contracts intended to lessen compe- 
 tition, 158 
 
 Control, 29 ; relation of to Wall 
 street vocabulary, 29 ; definition 
 of one aspect of, 32 
 
 Convertible bonds, 71 
 
 Corners, risks incident to, 83, 84 
 
 Cost of service, 53 
 
 Cumulative remedies, 164-166 
 
 Debts incurred in aid of rebellion 
 
 invalid, 143 
 
 De Laveleye, M. E., 21 
 Demagogues in the South, 136, 137 
 Discrimination and extortion, 96, 
 
 161 
 
 231 
 
222 
 
 INDEX. 
 
 Dividends, 105-108 ; restriction of 
 in advance, 105-108 ; hardship on 
 investor arising from, 106, 107 ; 
 alienation of foreign capital caused 
 by, 107 ; stability of securities, 107 
 
 Divorce between ownership and 
 voting .power, 70 
 
 Dry-nursing by State, 26, 104 
 
 Eminent domain, 100, 108 
 
 English Free-Trader, views of, 25 ; 
 inapplicable in America, 25 
 
 English institutions, I, 3 ; changes 
 of opinion concerning, i, 3 
 
 English securities, 27 ; houses, 
 ground rents, etc., 27 ; residen- 
 tial property and sporting rights, 
 27, 28 
 
 Erie classification Act, 70 
 
 Europe, effect of war on investment, 
 6 
 
 Evidence before Railroad Commis- 
 sion, 163, 164 
 
 Exemplary damages, 165 
 
 Farming prosperity, effect of re- 
 moteness on, 50 
 
 Federal and British Constitutions, 98 
 
 Fictitious capital, 39, 40 
 
 Fink, Mr., Commissioner, 55 
 
 Fisk, Mr. James Jr., 84 
 
 Fixed charges, effect of, their bene- 
 fits and drawbacks, 74, 78 
 
 Fixed charges, relation of to rates, 
 
 53 
 Floating debt, incidents of, 78, 79, 
 
 , 87 
 Foreclosure, difficulties incident to 
 
 when road in bad condition, 77 
 Future legislation, 158 
 
 Geographical direction of railroads, 
 130-141 ; due east-and-west lines, 
 131-133 ; tonnage fluctuations of, 
 131 ; capital, real and fictitious 
 interest on, 132, 133 ; danger to 
 weak lines from competition based 
 on modern principles, 133, 134 
 
 Ghost trains, 40 
 
 Gladstone, Mr., 4, 5, 26 
 
 Government management, compara- 
 tive efficiency of, 103, 104 
 
 Government subsidy in form of land, 
 
 30 
 
 Granger cases, 108, 150, 151 
 Granger opinions and grievances, 
 
 52, 53, 128 
 Grazing lands, ownership of, 122 ; 
 
 privileges attaching thereto, 122 ; 
 
 use and abuse of, 122 
 Great Britain, landlords and tenants, 
 
 6 
 
 Hadley, Prof. A.T., Railroad Trans- 
 portation, Preface and 125 
 
 Hudson, James F., The Railways 
 and the Republic, Preface and 126 
 
 Income bonds, 35 
 
 Increment of value, 10 ; earned and 
 unearned, 92, 93 
 
 Inflation, 9, 30 
 
 Interchange of special commodities, 
 advantages accruing to railroads 
 from, 135 
 
 Interest of public and railroads re- 
 lation between, 46, 47 
 
 Inter-State commerce, 88, 161-163 
 
 Ireland, withdrawal of capital from, 
 4-6 
 
 Iron-masters of Northern and Mid- 
 dle States, 139 
 
 Jurisdiction of Federal Courts, 142, 
 143 
 
 Land-grants to railroads, 117, 118 ; 
 ample consideration paid for by 
 foreign investors 117-120 ; policy 
 of U. S. Government relating to, 
 117-119 ; grant of alternate sec- 
 tions advantageous to Govern- 
 ment, 119 
 
 Laws of supply and demand, opera- 
 tion and regulation of, 94, 95 
 
 Leading subjects, list of, 12, 13 
 
 Leased lines, real value of, 38, 39 ; 
 earning power of, 39 ; hasty adop- 
 tion of, 39 
 
 Liabilities arising from strikes, 102, 
 103, 152-154 
 
 Maine, Sir Henry S., 19 
 Manipulation of price of stock, 33-38 
 
t.VDEX. 
 
 22 3 
 
 Mineral trade of the South, advance 
 of, 138, 139 ; Birmingham, Ala- 
 bama, 139 
 
 Monetary contraction, incidents of, 
 21 
 
 New acquisitions and additions to 
 
 mileage, 8q 
 
 New railroads in remote States, 120 
 New York Central R. R. system, 57 
 New York Railway Age, 152 
 Novation of charter, 157 
 
 Opposition to new railroads, 61 
 Organs, railroad, 34-38 ; elasticity 
 of illustrated, 34-37 
 
 Paper and cash, 79 
 
 Patronage, relation of to invested 
 
 capital, 42, 43 
 Police power of States to regulate, 
 
 150, 151 
 Pools, necessity of an indication of 
 
 weakness, 55 
 Popular aspirations in respect of 
 
 railroad reform, 95, 96 
 Position of native capitalists as com- 
 pared with foreign, 75 
 Power of State to assume railroads, 
 
 101 ; terms of in Massachusetts, 
 
 167, 168 
 Powers reserved to States to modify 
 
 charters, 151 
 Proxies, 70 ; their use and abuse, 
 
 72, 73 
 Public advantage the consideration 
 
 for charters, 145, 146 
 Publicity official reports intervals of, 
 
 87, 88 ; quarterly statements, 
 
 87, 88 
 
 Railroad and ordnance maps, 66, 67 
 Railroad situation, recurring changes 
 
 in, n, 12 
 Ransom, 26 
 
 Ready money in reorganization, 68 
 Rebates, 158 
 Receiver's certificates, issue of 81, 
 
 82 ; employment of proceeds, 
 
 81, 82 
 
 Receivers, compensation of, 67 
 Recuperative power, no 
 
 Regulation of railroad accounts, 88 
 
 Removal from State to Federal 
 Courts of suits by and against 
 aliens, 143-145 
 
 Reorganization, incidents of, 64 ; 
 value to new company of the les- 
 sons of their predecessors' experi- 
 ence, 65 
 
 Responsibility in management, ef- 
 fect of, 47 
 
 Responsibility of railroads for cor- 
 rection of traders' mistakes, 51,52 
 
 Restriction on future acquisition of 
 large tracts by aliens, 123 
 
 Right of way, 61 
 
 Rings, resistance to, 22 
 
 Securities, prior and posterior, and 
 their ownership, 74 j undue in- 
 crease of posterior, 74 
 
 Shipments, wholesale and retail, 85, 
 86 ; constant and spasmodic, 85, 
 86 
 
 Shorts, 34 
 
 Solid voting, decline of, 22 
 
 Southern products, 134, 135 
 
 Sovereignty of State, 111-116, 152 ; 
 defences available to, ill, 112 ; 
 non possumus, in j legislative 
 obstruction, 112 ; hook-and-eye 
 bills, 112-116 ; Virginia coupon 
 cases, 115, 116, 152 
 
 Stability of rates, importance of, 
 
 54, 55 
 
 State and Confederate bonds, 122 
 
 State cannot become collecting 
 agent for citizens, 150 
 
 State charters compared with Eng- 
 lish Railway Acts, 60-62 
 
 State control, 124-129 ; France, 
 126 ; Prussia, 126 ; Belgium, 126 ; 
 England, 126, 127 ; regarded po- 
 litically, 128 ; economically, 128, 
 129 
 
 State legislation, elasticity of, 9.1-95 ; 
 Georgia R. R. Commission, 91, 
 157-167 ; Massachusetts R. R. 
 Commission, 91, 138, 167, 168 
 
 State, transfer of directorial func- 
 tions to, 99-107 
 
 Steel rails, 36 
 
 Syndicates, 80 
 
INDEX. 
 
 Tapping, 30, 67 
 
 Terminal facilities, 36 
 
 Tweed's Ring, 22, 70, 71, 136, 137 
 
 Unloading on foreign investor, 37 
 Water, legal restraint on, 56 ; its 
 
 effect overlooked by foreign inves- 
 tor, 58 ; interest on unlikely to be 
 permanent, 59 
 
 Water transportation, effect of, 135 
 
 West Shore R. R., 57 
 
 Working hours, legislative restric- 
 tion of, 15, 16 
 
 
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 14 It is the interpretation of a very sound lawyer, and will be of great practical as- 
 sistance." Washington (D. C.) Critic. 
 
 RAILROAD TRANSPORTATION: ITS HISTORY AND 
 ITS LAWS. By Arthur T. Hadley. 8vo, cloth, $1.50. 
 
 " The work is one of the most important discussions of the year. It combines 
 within a moderate compass a great variety of information and suggestive criticism 
 concerning the characteristic feature of modern industrial life. The book should have 
 a wide circulation, and should serve to bring about an increased public intelligence on 
 the questions affecting railroads." New Haven Register. 
 
 RAILROADS AND RAILROAD QUESTIONS. By Charles 
 Francis Adams, Jr. I2mo, cloth, $1.25. 
 44 Characterized by broad, progressive, liberal ideas." Railway Review. 
 
 RAILROAD ACCIDENTS : Their Causes and Prevention. By 
 
 the same author. I2mo, cloth, $1.25. 
 14 The entire conclusions are of great value." N. Y. Journal of Commerce. 
 
 AN INVESTOR'S NOTES ON AMERICAN RAILROADS. 
 
 By John Swann, M.A., Oxon. I2mo, cloth, $1.25. 
 
 44 Mr. Swann has evidently studied the whole railway problem closely, and his con- 
 clusions are always marked by manly good sense and set forth in the simplest and 
 most direct way. His work cannot fail to be of very great value." Chicago Times. 
 
 THE DISTRIBUTION OF PRODUCTS; or, The Mechanism 
 and the Metaphysics of Exchange. By Edward Atkinson. Second 
 edition, much enlarged. Svo, cloth, $1.50. 
 
 44 Facts of general interest and declarations of scientific value. . . . Clear and 
 cogent method." Republican, Springfield, Mass. 
 
 G. P. PUTNAM'S SONS, NEW YORK AND LONDON 
 

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