HE 
 
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 COMMUNICATION 
 
 LELAND STANFORD, 
 
 Representing Certain Railroad Companies of California, 
 
 TO THK 
 
 Committee on Corporations 
 
 LEGISLATURE OF CALIFOKNIA 
 
 1876. 
 
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To the Honorable, the Committee on Corporations 
 of the Assembly of the State of California : 
 
 Gentlemen — I am advised that bills are pending in the 
 Legislature having for their objects State interference with 
 the management of railroads, and a modification in essential 
 particulars of the statutes in pursuance with which corpora- 
 tions were organized and are now operating nearly all of the 
 railways within the State. As the representative of the 
 principal roads to be affected thereby, it will not be regarded 
 as intermeddling with that which does not concern me, if I 
 tender a few reasons why existing laws should remain un- 
 changed. Before proceeding, however, I will call attention 
 to the exhaustive investigations had before the Committee on 
 Corporations of the Senate during the session of 1873-4, 
 wherein the management of the roads passed under most 
 searching review, and the cost of transportation and travel 
 over the California roads was compared with the charges for 
 similar service over the principal roads east of the Rocky 
 Mountains. I also invite attention to similar inquiries made 
 by the Committees of the session of 1871-2. To the showing 
 heretofore made by the companies, in defense of our position 
 and management, I do not know that I have anything to 
 add, though I am ready to respond to any call of kindred 
 character that may be made upon the companies. 
 
 The views I now submit will be general in their character, 
 not as opposed to any particular pending measure, but as 
 
[ 2 ] 
 
 questioning the power of the Legislature over the subject, and 
 denying the expediency or wisdom of action thereupon, if the 
 power exists. I shall endeavor to exercise perfect candor, 
 and to be logically correct. Many years active experience in 
 railway construction and management have taught me, if I 
 were otherwise inclined, to respect the rights of individuals 
 severally as well as collectively, and that it is at all times ill- 
 advised and impolitic for persons or corporations to attempt 
 to maintain a position by sophistry or any specious argu- 
 mentation. 
 
 All experience and all history teach that governments are 
 stable and beneficent in proportion to the security they ajfford 
 to life, liberty and property; that security in the exercise of 
 the right to acquire property, and its legitimate retention by 
 the lawful possessor, is the unerring standard by which the 
 value of a government may at all times be tested. Any feel- 
 ing of doubt or uncertainty in regard to personal liberty or 
 the tenure of property, begets a corresponding lack of respect 
 for and confidence in the State, and these materially tend to 
 idleness, wastefulness and bad citizenship. 
 
 Great undertakings are made successful through the agency 
 of enterprising citizens aided by commensurate capital. The 
 larger ventures, those which usually result in the greatest 
 good to the State in developing her resources, assume such 
 proportions that no single individual is willing to take the 
 hazards involved. Partnerships have been found inconveni- 
 ent and cumbersome modes of associating and managing a 
 large capital, and hence corporations. They seem to be neces- 
 sary to the execution of great undertakings; and the greater 
 the undertaking the more indispensable becomes their agency. 
 
 The citizen in well ordered states is guaranteed in the use 
 and enjoyment of his property according to his own discretion, 
 provided he does not contravene public morals and a sound 
 
[ 3 ] 
 
 police policy. The fundamental law will not suffer him to be 
 divested of his goods without due process of law, nor disturbed 
 therein without adequate compensation. It has been found 
 to be both unwise and unjust to impose embarrassing restric- 
 tions upon the acquisition or use of property — unwise because 
 it takes away the great incentives to industry and economy; 
 and unjust because its tendency is to indirect confiscation. 
 
 Capital is permitted and invited to be aggregated for the 
 purpose of undertaking great improvements — to faciliate those 
 enterprises on which the well-being and even the life of the 
 State may depend. The law permitting and encouraging such 
 aggregation, specifies the teims on which it may be done, the 
 • machinery by which it may be operated, holds its offenders to 
 a rigid personal accountability, and has pledged the faith of 
 the State that such changes in the law as would have a tend- 
 ency to render the investment less secure, shall not be en- 
 couraged or permitted. Good faith requires that associated 
 dollars shall not be made less stable or less productive, by 
 any action of the law, than was contemplated by the law 
 when the aggregation was authorized. Good faith requires 
 that individuals associated in a common enterprise involving 
 the use of large means, should stand on the same plane of 
 security before the law, that they occupied before the com- 
 munity of interests was established. If new restrictions can 
 be imposed on corporations, affecting them in vital points, 
 whereby the income from their investments may be cut down 
 from time to time as shall be dictated by caprice, then the 
 process may be carried on until all profit shall be stopped, 
 which would be confiscation. And who shall mark the line 
 dividing the right to abate from productive capacity, and con- 
 fiscation? Who possesses the wisdom requisite to so difficult a 
 problem? And why are railroad companies singled out from 
 the great body of corporations in this State and made the 
 
[ 4 ] 
 
 center of attack? Why is not some distinguished capitalist 
 called to the bar of legislative omnipotence, and the rule of 
 his business dealing prescribed for himi Because it would 
 be unjuit and unstatesmanlike ; because he would invoke in 
 his protection the fundamental principles upon which civilized 
 society rests. The gravity of this question will be more 
 apparent when we consider that there are three hundred and 
 fifty millions of property created, and now held by corpora- 
 tions in this State — and that they ramify every interest. If this 
 Legislature shall deny by any enactment that there are vested 
 rights in corporations, then I imagine that our citizens will 
 not create new corporations nor invest in those already or- 
 ganized. 
 
 It will not be denied, that for the proper development of 
 the resources of the State and fostering her business interests, 
 the aggregation of capital is not only a convenience, but an 
 absolute necessity. In great enterprises are associated not 
 only capital, but to be successful, corresponding skill and 
 business talent. There is strength in unity of purpose, thought 
 and action, as well as in unity of wealth. There will not be 
 the force of combined ability without community of interest. 
 The rewards of industry ought to be the same, whether the 
 citizen works his hands and brain standing by himself or in 
 concert with his neighbors. Why should the guaranty of 
 protection be less sound in the one case than in the other? 
 The State is directly interested in the industry, skill, econ- 
 omy, and enterprise of her citizens. She is interested in their 
 working and productive capacity. She reaps no profit from 
 drones, either in production or character; on the contrary, 
 they form the disturbing element in society. They challenge 
 the wisdom of the order of things that brings success to the 
 enterprising, and clamor for the comnaunistic era. 
 
 But it has been said that corporations abuse their powers 
 
[ 5 ] 
 
 and privileges. In behalf of the railroad companies repre- 
 sented by me, I deny the statement emphatically. Our roads 
 penetrate many of the populous centers of the State, and we 
 deal largely with the public. It would be indeed strange, 
 certainly exceptional, in railroad experience and management, 
 if some persons with whom we come in business contact, should 
 not complain of fancied grievances. It would be too much to 
 expect of human nature that it should be otherwise. How- 
 ever, the major part of the complaints made, emanate from, 
 and are industriously circulated by, persons who never have 
 any occasion to deal with the companies, and busy themselves 
 in manufacturing public opinion. But no just grievances are 
 brought to the attention of the management with which I am 
 associated, that pass unredressed — self-interest, if there existed 
 no other considerations therefor, would establish such a course 
 of action. 
 
 Perhaps a foundation for justifying legislative interference 
 with railway corporations, is predicated on the right of emi- 
 nent domain, set in motion for the purpose of facilitating the 
 construction of railroads. But this right of eminent domain 
 is exercised for the benefit of the State — to facilitate inter- 
 communication between her citizens; to cheapen transporta- 
 tion and traveling expenses; that her resources may be devel- 
 oped; that her agricultural and manufacturing interests may 
 be fostered; that inducements may be held out to the people 
 of other States to come and cast their lot with us; and tha 
 there may be broad facilities for the rapid interchange of the 
 luxuries and necessaries of civilized life. For the accomplish- 
 ment of these objects, and in her own interest, the State ex- 
 ercises the right of eminent domain, but around such exercise 
 has most carefully drawn the shield of the law for the pro- 
 tection of the citizen. The State exacts that full compensa- 
 tion should be made to the citizen by the railroad company at 
 
[ 6 J 
 
 whose instance he has been compelled to surrender the use of 
 his property. The citizen whose property is thus taken from 
 him by legal force, makes no contribution to railroad construc- 
 tion — ^he is paid by the corporation the full equivalent for the 
 use of his property. If it is otherwise, it is the fault of 
 legislation. The right granted to the railway is a privilege — 
 or necessity — for which the company makes ample recom- 
 pense, in obedience to the law. 
 
 But in proportion to the number of miles of railroads con- 
 structed in this State, the right of eminent domain has been 
 seldom exercised. A very large percentage of our roadbeds 
 and depot grounds has been obtained by negotiation with the 
 owners of the property necessary to be taken. If it be said 
 that this percentage is largely due to the concession of the 
 right of way through the public lands granted by Congress, 
 then I answer that such grant by Congress was upon the con- 
 dition of certain enumerated services to be rendered by the 
 companies to the United States, which is only another mode 
 of making compensation. 
 
 If the property of corporations, or any class of corpora- 
 tions, is to be subjected to this depreciating process at the 
 will of the Legislature, why not make compensation, as in the 
 case of the taking of the property of the citizen? I do not 
 deny that the State may condemn the property of railroad 
 corporations; on the contrary, my position is, that it may do 
 so, but not without compensation, as seems to be the theory 
 with some. In other words, I maintain that any change in 
 the law which has the effect to make money invested in rail- 
 roads less valuable, less remunerative than it might or could 
 be under the law as it stood at the inception of the corpora- 
 tion, is condemnation without compensation, in proportion to 
 the extent to which it is carried. 
 
 But assuming that the constitutional power exists in the 
 
[ 7 ] 
 
 Legislature to regulate and control railroad companies, which 
 I do not concede, is it wise, expedient, or necessary to do so 
 at the present time ? The railway system of the State is far 
 from being completed. The trunk lines are being advanced 
 as rapidly as possible — more rapidly, I think I am justified in 
 stating, than the public anticipated. This is particularly note- 
 worthy, when we consider the damaging blows that have been 
 aimed at railway construction and management, reaching in 
 their effects every quarter of the globe. Through the preju- 
 dices of the people, appealed to often for ephemeral ends, 
 railroad credit has passed through a period of suspension, 
 greatly to the injury of California. Still railroad construction 
 has made annual progress ; and since the last meeting of the 
 Legislature about four hundred miles have been added to the 
 roads of this State. We are now seeking to push the South- 
 ern Pacific far enough to the southeast to bring the productive 
 provinces of Arizona and New Mexico into close connection 
 with our commercial cities. 
 
 Experimental surveys for branch lines have been made and 
 are being made, designed to penetrate some of the richest 
 districts, now comparatively inaccessible and unproductive. 
 These are not projected to mislead or beguile the public. They 
 are conceived with a view to their early execution. 
 
 Thousands of laborers now find employment in railroad 
 construction and thousands in operating completed roads. As 
 the system develops, large additional numbers will be required. 
 
 Within the past two years no State in the Union has ac- 
 complished so much as California to develop and utilize the 
 slumbering riches of the commonwealth. Apart from the 
 values railroads add to the State in and of themselves, as 
 they advance, the properties of the citizens multiply ten and 
 twenty fold. Hundreds of thousands of acres that five years 
 ago were only valuable as cattle and sheep ranges, and this 
 
[ 8 ] 
 
 was the measure of their value, are now appropriated to 
 cereals, give a steady reward to industry, and homes, sur- 
 rounded with the comforts of civilization, to thousands of good 
 citizens. The tide of settlement has and will keep pace with 
 the advance of railroad construction. The prosperity of the 
 State has and will keep pace with both. Unfriendly legisla- 
 tion ought not to check enterprises productive of such results 
 to the State. Its effects would be to intimidate capital and 
 cripple industry; destroy credit and confidence both at home 
 and abroad, and to create a feeling of insecurity fatal to all 
 great undertakings. 
 
 To these considerations so briefly set forth, and kindred 
 ones that will be so readily suggested to the reflecting mind, 
 I most respectfully invite the serious attention of the Legis- 
 lature. 
 
 My purpose in this communication is to present a few funda- 
 mental propositions, which may be condensed as follows : 
 
 First — That the benefits to the State flowing from railroad 
 construction vastly exceed any advantages that can possibly 
 accrue to the companies, by the creation of wealth, by aiding 
 to develop our mineral, mechanical and agricultural resources, 
 and by rendering communication between remote districts 
 more rapid and inexpensive. 
 
 Second — That it is not for the interest of the State to at- 
 tach embarrassing restrictions upon the use of capital, 
 whether under the control of one or an association of her 
 citizens. 
 
 Third — That there are enterprises indispensable to the full 
 development of the material interests of the State, that as- 
 sume such proportions that they cannot be carried out with- 
 out the use and aggregation of large sums of money. 
 
 Fourth — That such aggregation has been found by expe- 
 rience to be necessary to build up and maintain a railway 
 
[ 9 ] 
 
 system commensurate with the natural wealth of the State; 
 and hence the Legislature has authorized the incorporation of 
 companies, in pursuance with which the existing railroad com- 
 panies were organized. 
 
 Fifth — That the State, recognizing the great advantages to 
 accrue to herself through the agency of transportation and 
 traveling facilities, permits private property to be condemned 
 and used by the railroad companies, they paying the full 
 equivalent therefor. 
 
 Sixth — That the interests of the railroad companies are so 
 intimately connected with and dependent lipoii the conven- 
 ience and prosperity of the people, that they must subserve 
 the public good to assure their own success. 
 
 But it has been said that the freights and fares charged on 
 the roads in California are exorbitant, extortionate, and that 
 improper discriminations are practiced. Without entering 
 into details on this subject, or assuming the defensive in this 
 communication, I undertake to say, and am prepared to main- 
 tain: 
 
 First — That the average cost of transportation and travel 
 over the railroads in this State is no greater than is charged 
 on any of the first-class roads on this continent, when the cir- 
 cumstances afiecting the business of railroads are fairly con- 
 sidered. 
 
 Second — That the average cost of transportation in Cali- 
 fornia is 3 66-100 cents per ton per mile, which is 11 34-1001 
 cents per ton per mile less than the law, as it now stands, 
 authorizes our companies to charge. 
 
 Third — That we have endeavored to discriminate in favor 
 of the mineral, agricultural and mechanical products of this 
 coast. 
 
 Fourth — That there are certain expenses denominated fixed 
 expenses, such as interest, salaries, the general cost of ope- 
 
C 10 ] 
 
 rating roads, etc., which must be provided for from the earn- 
 ings of the roads; and if the maximum now allowed by law 
 be reduced, and be held to be binding, it would be necessary 
 to reduce the present rates charged on importations and lux- 
 uries, and advance them on the mineral, mechanical, and agri- 
 cultural productions of the country. A certain average must 
 be reached, or the roads must suspend business. 
 
 Respectfully submitted. 
 
 Leland Stanford. 
 January, 1876. 
 
To the Honorable, the Committee on Corporations 
 of the Senate of the State of California. 
 
 Gentlemen — I have already made a communication to the 
 Committee on Corporations of the Assembly, setting forth, 
 somewhat at length, reasons why there ought not to be any leg- 
 islation which would materially affect the rights of corpora- 
 tions organized under existing laws; to this I respectfully 
 invite your attention, and now beg leave to submit substan- 
 tially the same views more briefly. 
 
 New legislation that would materially change existing laws 
 to the detriment of property existing thereunder, necessarily 
 assumes that corporations pei' se have no vested rights ; it also 
 assumes that the property of the corporation, and conse- 
 quently the property of the citizens of the State who own in 
 corporations, may be taken in whole or in part, without com- 
 pensation. The vast amount of wealth created and held by 
 corporations in this State naturally chailenges attention to a 
 subject so important. 
 
 Before the enactment of general incorporation laws, corpo- 
 rations were created by special acts, and necessarily had ex- 
 clusive privileges, and often became odious monopolies. The 
 necessity for corporations has been long acknowledged, but 
 the making of them available to all persons who desired to 
 associate themselves together in a convenient form for the 
 purpose of embarking in any undertaking, is of more modern 
 invention, and has relieved corporations of the odious features 
 
.L 12 ] 
 
 of monopoly. If it shall now be established that there are 
 no vested rights in corporations, then their agency will go into 
 disuse. They seem inseparable, in this age of progress, from 
 the development of the business and resources of the country. 
 Common law partnerships are insufficient to meet the various 
 demands of business. Our general incorporation laws impose 
 upon the public no monopoly, because they are open to all, 
 and afford a more convenient agency for the transaction of 
 business than partnership. The property of the corporation 
 is still the property of individual citizens as much as though 
 it was invested in an ordinary partnership. Why should this 
 property, the result of the enterprise of the citizen, be less 
 secure in the ^ one case than in the other? Why should the 
 one class be denied the rewards of industry, of economy, of 
 foresight and enterprise, more than the other? Is not the 
 State equally interested to protect alike all citizens in their 
 persons, their property, and their legitimate pursuits'? The 
 State is composed of a community of citizens, all of whom are 
 interested that each citizen shall employ his time in such 
 legitimate pursuit as shall yield to him, and consequently to 
 the community, the greatest reward; and the success which 
 attends his efforts is marked evidence of how far he supplies 
 an immediate want. To limit the profits which the citizen, 
 whether a mechanic, merchant, agriculturist, public carrier, or 
 when engaged in any other pursuit, may derive from his busi- 
 ness, must operate primarily as a discouragement to his energy, 
 because it fixes a restriction upon his productive capacity. 
 Laws aiming to regulate the affairs of individuals are, to a 
 certain extent, attempts to control the property of the indi- 
 vidual without his concurrence, and probably to his injury — 
 control being the essence of ownership — and any legal regula- 
 tions that pass beyond the absolute necessities of police pur- 
 poses are in conflict with the fundamental principles of our 
 
[ 13 ] 
 
 government ; the State is interested in the uses made of the 
 time, the energies, and the property of its citizens. ^: 
 
 The idler is a loss to the State to the extent of the capacity 
 he has for production, but which remains unemployed. This 
 is most manifest to his immediate neighbors to whom he could 
 be of most service. The State is also interested in the mer- 
 chant, the farmer, the manufacturer, indeed in the legitimate 
 business of all of her citizens, but she does not undertake 
 either to prescribe the rules for the management of their 
 business, nor fix a limit upon the profits to accrue therefrom. 
 Enterprise should not only be left open to the citizen, but he 
 should be encouraged therein; and it will be found in all 
 countries where restrictions and embarrassments are imposed 
 upon the people, that thei^e the average condition is much 
 lower than in those countries where enterprise has a more 
 open field for its development. Then can there be any wis- 
 dom in making a distinction between citizens associated under 
 the general incorporation laws and those not so associated? 
 Wherein is the business of one class less legitimate and less 
 entitled to protection than that of the other? Does the State 
 give to corporations as such, by the law authorizing their 
 members to associate in a corporate capacity, anything but 
 the advantages of organization and existence under a law con- 
 ceived in wisdom and fruitful to meet the wants and neces- 
 sities of civilization and modern expansion? If not, then 
 whence comes the reason for an exceptional interference with 
 and regulation of the rights of property of these citizens? 
 Why not hold out to them as to others, the same favorable 
 inducements, and hope that their economy, industry, foresight 
 and enterprise shall reap their just reward ? It seems to me 
 I might well stop here and await answers to these propositions ; 
 but inasmuch as the public attention has been more particu- 
 larly directed to the specific class of corporations known as 
 
[ 14 ] 
 
 railroad corporations, the inquiry naturally is suggested: 
 "Why is it that this more serious attempt is made to inter- 
 fere in the management of their affairs than with that of other 
 corporations ? To my mind, an answer would be found in 
 that railroads seem to be more largely beneficial in their in- 
 fluences, more largely supplying a want, and I may say a 
 necessity, for the varied and often conflicting transactions of 
 life than other corporations. 
 
 The companies deal largely with the public; have transac- 
 tions with every degree of intelligence, involving amounts 
 within the means of the humblest, as well as the wealthiest 
 citizen; the roads have become as much a public necessity as 
 a convenience. 
 
 But perhaps this legislative discrimination against railroad 
 corporations is assumed more especially because of the exer- 
 cise of the right of eminent domain by the State for the pur- 
 pose of permitting their construction; but this right is not 
 exercised for the benefit of these corporations, but for that of 
 the State. Under the fundamental law, the property of "A," 
 cannot be taken for the benefit of "B." The powers of emi- 
 nent domain under which the property of the citizen may be 
 taken, can only be exercised for the benefit of the State, and 
 then only upon just compensation being made. After the 
 exercise of this right and payment has been made by the 
 railroad company, and the road constructed, the individuals 
 who avail themselves of its use are the same persons for whose 
 benefit the property of "A" was taken by the State and paid 
 for by the railroad company. Now, when these patrons of 
 the railroad desire to enjoy the use of the property, which was 
 taken from "A" by the State and paid for by the railroad 
 company, together with that which the company had added 
 thereto, why should not they make compensation commensur- 
 ate therewith. Will any one pretend that the reducing of 
 
[ 15 ] 
 
 income is not the taking of property. The producing capacity 
 of property determines its value. I do not argue against the 
 right of the State to take the property of railroad corporations 
 for a public use on the terms that it takes the property of 
 other citizens, but I claim that citizens composing a railroad 
 corporation shall hold their property as sacred from confisca- 
 tion as under the law other citizens hold theirs. 
 
 But assuming that there exists the right for the exercise of 
 control over railroads different from that exercised over indi- 
 viduals, or other corporations, is it wise to do so at the time 
 when the railroad system of the State is far from being com- 
 pleted; when railroad credit, lately so seriously impaired, is 
 recovering; when there is no just cause of complaint of the 
 management of the roads ; when, in fact, the average charges 
 for business upon the roads is less than one-fourth of the 
 maximum allowed by the laws authorizing their creation, and 
 on the faith of which they were organized; when, as has been 
 repeatedly demonstrated before various committees of the 
 Legislature of the State, a fair consideration of the circum- 
 stances afiecting the business of railroads being given, the 
 cheapest railroading in the United States is here in Califor- 
 nia'? If legislative control over these railroad corporations is 
 to be insisted upon as just and necessary, then their enterprise 
 is not legitimate; their investors have made a mistake, and 
 should, were it possible, withdraw their property and place it 
 where its right to enhancement would be unquestioned, and 
 the profits from its use be encouraged by their fellow men ; 
 and it is a mistake to suppose that the public benefit of rail- 
 roads is sufficient to justify the State, in her exercise of emi- 
 nent domain, to promote their construction. No calling is or 
 will be safe that is to excite the ceaseless effort at control of 
 those who do not own in it, and the State must pronounce 
 against its pursuit. 
 
[ 16 ] 
 
 If the positions taken in the foregoing cannot be contro- 
 verted — and to their close investigation I invite the attention 
 of the Committee, and also of the public press of the State — 
 then wherein can be shown any justification for legislation on 
 the subject? 
 
 It is no answer to say that the people have otherwise in- 
 structed their Bepresentatives, because the people do not 
 exact or desire that any wrong or injury shall be inflicted upon 
 any citizens, nor any class of citizens, nor that there should be 
 unjust legislative discrimination. 
 
 Respectfully submitted. 
 
 Leland Stanford. 
 January, 1876. 
 
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