UESTIOW y >' i i n .i n ,ii ) iii )i> i >» I kWA ■.^-.^..■:^■:-:u:^^;.,;;.>v^^^^^^^^^s^■:.;.v^\s':^^A^^^^^^^^^ ^ ^ ^ nn i l i 1 " THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES GIFT The Railroad Question. THH RAILROAD QUESTION A HISTORICAL AND PRACTICAL TREATISE ON RAILROADS, AND REMEDIES FOR THEIR ABUSES WILLIAM LARRABEE, LATE GOVERNOR OF IOWA. Salus Populi Suprema Lex. CHICAGO r THE SCHULTE PUBLISHING COMPANY. 189.7. Copyright, 1893, WILLIAM LAKRABEE. DONOHUE & HENNEBERRY, PRINTERS AND BINDER*, CHrCAGO, h^ /l^-n^ L^ 4j ry^^A^L -^ ^^ ,:^^ r^ oL 939403 PREFACE. THE people of the United States are engaged in the solution of tiie railroad problem. The main question to be determined is: Shall the railroads be owned and operated as public or as private property ? Shall these great arteries of commerce be owned and . f controlled by a few persons for their own private use and gain, or shall they be made highways to be kept under strict government control and to be open for the use of all for a fixed, equal and reasonable compensation? In a new and sparsely settled country which is rich in natural resources there may be no great danger in pursu- ing a laissez-faire policy in governmental affairs, but as the population of a commonwealth becomes denser, the (luickened strife for property and the growing complexity of social and industrial interests make an extension of the functions of the state absolutely necessary to secure pro- tection to property and freedom to the individual The American people have shown themselves capable of solving any political question yet presented to them, and the author has no doubt that with full information upon the suljject they will find the proper solution of the railroad problem. The masses have an honest purpose and a keen sense of right and wrong. With them a question is not settled until it is settled right It must be conceded that of all the great inventions of modern times none has contributed as much to ihe pros- perity and happiness of mankind as the railroad. Our age Is under lasting obligations to Watt and Steph- enson and many other heroes of industry who have aided 8 Preface. in bringing the railroad to its present state of perfection. Tlieir genius is the product of our civilization, and their legacies should be shared by all the people to the greatest extent possible. An earnest desire to aid in attaining this end has prompted this contribution to the literature- on the subject. The author is not an entire novice in railroad affairs. He has had experience as a shipper and as a railroad pro- moter, owner and stockholder, and has even had thrust upon him for a short time the responsibility of a director, pres- ident and manager of a railroad com praiy. He has. more- over, had every opportunity to familiarize himself with the various phases of the subject during his more than twenty years' connection with active legislation. He came to the young State of Iowa before any railroad had reached the Mississippi. Engaging early in manu- facturing, he suffered all the inconveniences of pioneer transportation, and his experience instilled into him lib- eral opinions concerning railroads and their promoters. He extended to them from the beginning all the assist- ance in his power, making not only private donations to new roads, but advocating also pulilic aid upon the ground that railroads are public roads. As a member of the Iowa Senate he introduced and fathered the bill for the act enabling townships, incorpor- ated towns and cities to vote a five per cent, tax in aid of railroad construction. He favored always such legis- lation as would most encourage the building of railroads, believing that with an increase of competitive lines the common law and competition could be relied upon to correct abuses and solve the rate problem. He has since become convinced of the falsity of this doc- trine, and now realizes the truth of Stephenson's saying that where combination is possible competition is impos- sible. It is the object of tliis work to sliow that as long as the railroads are permitted to be managed as private property and are used by their managers for speculative pur- poses or other personal gain, or as long even as they are used with regard only for the interest of stockholders, they are not performing their proper functions ; and that the}' will not serve their real purpose until they 1 )ecome in fact what they are in theory-, highways to be controlled by the government as thoroughly and effectually as the common road, the turnpike and the ferry, or the post- office and the custom-house. This book has been written at such odd hours as the author could snatch from his time, which is largely occu- pied with other business. He is under obligations to many of our ministers and consuls abroad for statistics and other valuable information concerning foreign railroads, as well as to a number of personal friends for other assist- ance, consisting chiefly in rendering the railroad litera- ture of Europe accessible to him. William Larrabee. Clermontj loicu, -Uai/, 1893. CONTENTS. I. History of TuAXsroRTAxioN 17 II. The History of Railroads 4fi III. History of Railroads in the United States 76 IV. Monopoly in Transportation 90 V. Railroad Abuses 124 VI. Stock and Bond Inflation 163 VII. Combinations 189 VIII. Railroads in Politics 305 IX. Railroad Literature 231 X. Railroad Literature — Continued 273 XI. Railroads and Railroad Legislation in Iowa. .319 XII. The Interstate Commerce Act 349 XIII. The Rate Question , 370 XIV. Remedies 389 APPENDIX— Tables and Statistics 459 LIST OF Authors and Works Consulted and Quoted AcKWORTH. W. M. - - The Railways of Eng-land Adams, C. F., Jr. - Railroads, Their Orig-in and Problems Adams, H. C. - - • - - Public Debts Adams, Henry - - History of the United States Atkinson, Edward - - The Distribution of Pi-oducts Bagehot. Walter - - The Eng-lish Constitution liAKER, C. W. " - - Monopolies and the People Beach, Charles F., Jr. - On Private Corporations Blackstone, W. - Commentaries on Laws of Eng'land Boisted, C. a. - The Interference Theory of Govei'nment BoLLES, Albert S. - - Bankers" Mag-azine BoNHAM, John M. - Railway Secrecy and Trusts Bryce, James - - The American Commonwealth Buckle, H. T. - History of Civilization of England Carey, H. C. - - Principles of Social Science " " - - - - Unity of Law Gary, M. View of System of Pennsylvania Internal Im- provements. Cloud, D. C. - - Monopolies and the People Clews, Henry - Twenty-eight Years in Wall Street CooLEY, Thomas M. - Constitutional Limitations Congressional Record. Compilation of English Laws upon Railways . Dabney, W. D. - The Public Regulation of Railways Dillon, Sidney - - North American Review Dorn, Alexander - Aufgaben der Eisenbahnpolitik Draper, J. W. - • Intellectual Development of Europe Encyclopedia, American. Encyclopedia Britannica. Encyclopadie (Roll's) des Eisenbahnwesens, 1892. FiNDLAY, George, Working and Management of English Railways. Fink, Albert - Cost of Railroad Transportation, etc. Fisher. G. P. - - Outlines of Universal History 13 14 List of Aufhors und Worku Consaltcd and Quoted. FiSK. John - - - American Political Ideas " " - Critical Period of American History Foreign Commerce of American Republics and Colonies. Graham, Wm. Gibbon, Edward Gkeen, John K. Gilpin, Wm. Grinnell, J. B. GuNTON, George GuizoT, M. Habour, Theodor Hadley, a. T. Socialism Old and New Decline and Fall of the Roman Empire History of English People The Cosmopolitan Railway Men and Events of Forty Years Wealth and Progress History of Civilization Geschichte des Eisenbahnwesens Railway Transportation Hall's Life of Prince Bismarck. Hudson, J. T. Jeans, J. S. Jervis, John B. Jevons, W. S. Kpmx, James KlRKJNIAN, M. M. Leckey, W. E. H, Lieber, Francis Lodge, H. C. Martineau, Harriet McMaster, J. B. Macaulay, T. B. Motley, J. L. The Railways and the Republic Railway Problems Railway Property Methods of Social Reform Commentaries on American Law Railway Rates and Government Control and other works. England in Eighteenth Century Political Ethics Civil Liberty and Self-Government Miscellaneous Essays Life of General Washington History of England History of People of United States History of England The Dutch Republic The United Netherlands The Elements of Railroading Natural Resoiirces of the United States ' The Farmer's Side Paine, Charles Patten, J. H. Peffer, W. A. Poor's Railway Manual, Porter, Horace - - - North American Review Rawlinson, George - - Seven Great Monarchies Redfield - - - - On Law of Railways Records of Central Iowa Traffic Association, 1886-1887. Records of Association of General Freight Agents of the West. List of Aiifliora and Wurks Coumtltn/ mii/ Qituftd . 15 Rkcords of Joint Wp:.stehx Classification Committees. Reports of State Boards of Commissioners. Report of Heprurn Committee. - Reports of UxriEn States Census. Report of Windom Committee. Report of Bankers' Association, 18/' Tnoisjtortafiott, 19 Greek geographers speak with high praise of the excel- lence of the public highways of Hindostan. Among Jthe Babylonians and Assyrians agriculture, trade and comuierce flourished at an almost equally remote period. The ancient inhal)itants of Mesopotamia cultivated the soil with the aid of dikes and canals, and were experts in the manufacture of delicate fabrics, as linen, muslin and silk. To them is attributed the invention, or at least the perfection, of the cart, and the first use of domestic ani- mals as beasts of burden. Their cities had well-built and commodious streets, and the roads which connected them with their dependencies aided to make them the busy marts of Southeastern Asia. During the later Babylonian Empire immense lakes were dug for retaining the water of the Euphrates, whence a net-work of canals distributed it over the plains to irri- gate the land ; and quaj's and l)reakwaters were constructed along -the Persian (hilf for the encouragement of commerce. While highways among the Babylonians served the development of agriculture and the exchange of industrial commodities, they were constructed chieflj^ for strategic purposes by the more war-like Assyrians, whose many wars made a s^^stem of good roads a necessity. The Greek geographer Pausanias was shown a well-kept military road upon which Memnon was said to have marched with an Assj'rian army from Susa to Troy to rescue King Priam. Traces of this road, called by the natives " Itaki Atabeck, " may be seen to this day. The Phoenicians, who were the first of the great historic maritime nations of antiquity, occupied the narrow strip of territcrj' between the mountains of Northern Palestine and the Mediterranean Sea. From their situation they learned to reh' upon the sea as their principal highway. 20 The Rail road Question. They transported to the islands of the Mediterranean as well as the coast of Northern Africa and Southern Europe heavy cargoes consisting of the product of thejr own skill and industry as well as of the manifold exports of the east. They sailed even beyond the " Pillars of Hercules" into the Atlantic Ocean and the North Sea. Through their hands ' ' passed the gold and pearls of the east and the purple of Tyre, slaves, ivory, lion and panther skins from the interior of Africa, frankincense from Arabia, the linen of Egypt, the pottery and fine wares of Greece, the copper of Cyprus, the silver of Spain, tin from England, and iron from Elba." But while the Phoenicians for their commercial inter- course with other nations relied chiefly upon the sea, the great highway of nature, they neglected by no means road- building at home. They connected their great cities, Sidon and Tyre, by a coast road, which the}" extended in time as far as the Isthmus of Suez. They also established great commercial routes by which their merchants penetrated the interior of Europe and Asia. Caravan roads extended south to Arabia and east to Mesopotamia and Armenia, penetrating the whole Orient as far as India, and even the frontiers of China. The Phcenicians thus became the traders of antiquity, Tyre being the link between the east and the west. The Persian Empire, which under Darius stretched from east to west for a distance of 8,000 miles and com- prised no less than two million square miles, with a pop- ulation of seventy or eighty millions, had, with the excep- tion of the Romans, perhaps the best system of roads known to ancient history. Indeed, it is doubtful whether without it such a vast empire, more than half as large as modern Europe, could have been held together. Each Ifi.sfori/ I if Trditsportatuni . 21 satrap, or prefect of a province, was obliged to make regular reports to the king, who was also kept informed by spies of what was taking place in everj* part of the empire. To aid the administration of the government, postal communic4ition for the exclusive use of the king and his trusted servants connected the capital with the distant proAinces. This postal service was, four or five centuries later, patterned after by the Romans. From Susa to Sardes led a royal road along which were erected caravansaries at certain intervals. Over this road, 1,700 miles long, the couriers of the king rode in six or seven days. Under Darius the roads of the empire were sur- veyed and distances marked by means of mile-stones, many of which are still found on the road which led from Ecbatana to Bal)yl(^n. These roads crossed the wildest regions, of that great monarchy. They connected the cities of Ionia witii Sardes in Lydia, with Babylon and with the royal cit^^ of Susa; they led from Syria into Mesopotamia, from Ecbatana to Persepolis, from Armenia into Southern Persia, and thence to Bactria and India. The Chinese commenced road-building long before the Christian era. They graded the roadway and then covered the whole with hewn blocks of stone, carefully jointed and cemented together so that the entire surface pre- sented a perfectly smooth plane. Such roads, although very costly to build, are almost indestructible by time. In China, as well as in several other countries of Asia, the executive power has always charged itself with both the construction and maintenance of roads and navigable canals. In the instrf :'tions which are given to the gov- ernors of the various provinces these objects, it is said, are constantly comm3nded to them, and the judgment which the court forras of the conduct of each is very The Railroad Question. much regulated l)y tlie attention which he appears to have paid to this part of his instructions. This solicitude of the sovereign for the internal thoroughfares is easily accounted for when it is considered that his revenue arises almost entirely from a land-tax, or rent, which rises and falls with the increase and decrease of the annual produce of the land. The greatest interest of the sovereign, his revenue, is therefore directly connected with the cultiva- tion of the land, with the extent of its produce and its value. But in order to render that produce as great and as valuable as possible, it is necessary to procure for it as extensive a market as possible, and, consequently, to establish the freest, the easiest and the least expensive communication between all the different parts of the country, which can be done only l)y means of the best roads and tiie best navigable canals. In Africa the Egyptians and Carthaginians are the only nations of antiquity of which we have much historic knowledge. The former kept up a very active commerce not only with the south, but also with the tribes of Lydia on the west and with Palestine and the adjoining countries on the east. To facilitate commerce, they constructed and maintained a number of excellent highways leading in all directions. One of the most important among these was the old royal road on the coast of the Mediterranean Sea, or the "Road of the Philistines" of the Scriptures. This road crossed the Isthmus of Suez and led through the land of the Philistines and Samaria to Tyre and Sidon. Another road led, in a northwesterly direction, from Rameses to I^elusium. This, however, crossed marshes, lagoons and a whole system of canals, and was used only by travelers without baggage, while the Pharaohs, accompanied by their horses, chariots and troops, pre- History of Transportation. 23 ferred the foriuei- road. A tliinl road led from Coptos, on the Nile, to Berenice, on the Red Sea. There were between these two cities ten stations, about twenty- five miles apart from each other, where travelers might rest with their camels each day, after traveling all night, to avoid the heat. Still another road led from the town of Babylon, opposite Memphis, along the east bank of the Nile, into Nubia. Much of the commerce of Egypt in ancient times, as in our day, was conducted on the Nile and its canals. The boatman and the husbandman were, in fact, the founders of the gentle manners of the people who flourished four thousand years ago in the blessed valley of the Nile. There is one canal among the many which deserves special mention. It flowed from the Bitter Lakes into the Red Sea near the city of Arsinoe. It was first cut by Sesostris before the Trojan times, or, according to other writers, by the son of Psammitichus, who only.began the work and then died. Darius I. set about to complete it, but gave up the undertaking when it was nearly finished, influenced by the erroneous opinion that the level of the Red Sea was higher than Egypt, and that if the whole of the intervening isthmus were cut through, the country would be overflowed by the sea. The Ptolemaic kings, however, did cut it through and placed locks upon the canal. - Carthage was a Phcenician colony. The city was remarkable for its situation. It was surrounded by a very fertile territory and had a harbor deep enough for the anchorage of the largest vessels. Two long piers reached out into the sea, forming a double harbor, the outer for merchant ships and the inner for the navy. This -city early became the head of a North African empire, and her fleets plied in all navigable waters known 24 The Railroad Question . to antiquity. Her navy was the largest in the world, and in the sea-fight with Regains comprised three hundred and fifty vessels, carrying one hundred and fifty thousand men. Though we have but meager accounts of the internal aflfairs of Carthage, there can be no doubt that much attention was given, both at home and in the col- onies, to the construction of highways, which were distinguished for their solidity. It is said that the Romans learned from the Carthaginians the art of paving roads. European history began in Greece, the civilization of whose people passed to the Romans and from them to the other Aryan nations which have played an important role in the great historical drama of modern times. The physical features of the Balkan Peninsula were an important factor in the formation of the character of its inhabitants. The coast has a large number of well-protected bays, most of which form good harbors. Navigation and commerce were greatly stimulated in a country thus favored by Nature. Nearly all the principal cities of Hellas could be reached by ships, and the need of internal thoroughfares was but little felt. Nevertheless, public highways con- nected all of the larger towns with the national sanctuaries and oracles, as Olympia, the Isthmus, Delphi and Dodona. Athens, after the Persian wars the metropolis of Greece, was by the, so-called Long Walls connected with the Piraeus, its harbor. This highway, protected by high walls built two hundred yards apart, was over four miles long, and enabled the Athenians, as long as they held the command of the sea, to bring supplies to their city, even when it was surrounded by an enemy on the land. Rome is the connecting link between antiquity and mediaevalism. The great empire sprang from a single History of Transjiortatwn . 25 city, whose power and dominion grew until it comprised every civilized nation living upon the three continents then known. Under the emperors, the Roman empire extended from the Atlantic to the Euphrates, a distance of more than three thousand miles, and from the Danube and the English Channel to the cataracts of the Nile and the Desert of Sahara. Its population was from eighty to one hundred and twenty millions. The empire was covered with a net-work of excellent roads, which stimulated, together with the safety and peace which followed the civil wai's, traffic and intercourse between the different regions united under the imperial government. More than 50,00U miles of solidly constructed highwa3's connected the various provinces of this vast realm. There was one great chain of communication of 4, 080 Roman miles in length from the Wall of Antoninus in the northwest to Rome, and thence to Jerusalen, a southeastern point of the empire'. There were several thousand miles of road in Italy alone. Rome's highways were constructed for the purpose of facilitating military movements, but the benefits which commerce derived from them cannot easily be overestimated. These military roads were usually laid out in straight lines from one station to another. Natural obstacles were frequently passed by means of very exten- sive works, as excavations, bridges, and, in some instan- ces, long tunnels. The resources of the Roman Empire were almost inexhaustible, and no public expenditures were lar- ger than those made on account of the construction of new roads. The fact that many of these roads have Ijome the traffic of almost two thousand years without material injury is a.bundant proof of the unsurpassed solidity of their con- struction. The Roman engineers always secured a firm bottom, which was done, when necessary, by ram- 26 The Railroad Question. .ming the ground with small stones, or fragments of brick. Upon this foundation was placed a pavement of large stones, which were firmly set in cement. These stones were sometimes square, but more frequently irreg- ular. They were, however, always accurately fitted to each other. Many varieties of stone were used, but the preference was given to basalt. Where large blocks could not be conveniently obtained, small stones of hard quality were sometimes cemented together with lime, forming a kind of concrete, of which masses extending to a depth of several feet are still in existence. The strength of the pavements is illustrated by the fact that the substrata of some have been so completely washed away by water, without disturbing the surface, that a man may creep under the road from side to side while carriages pass over the pavement as over a bridge. The roads were generally raised above the ordinary surface of the ground. They frequently had two wagon- tracks, which were separated by a raised foot-path in the center, and blocks of stone at intervals, to enable travelers to mount on horseback. Furthermore, each mile was marked ^ by a numbered post, the distance being counted from the gate of the wall of Servius. The mile-post was at first a roughly hewn stone, which in time was exchanged for a monument, especially in the vicinity of Rome and other large cities. The most celebrated road of Italy, which has always excited the admiration of the student of antiquity, was the Via Appia, the remains of which are still an object of wonder. It was first built from Rome to Capua by Appius Claudius Caecus in the fourth century before Christ, and was afterwards continued as far as Brundusium. It was broad enough for two carriages to pass each other, and was built of solid stone. The stones Histori/ of Tnii}sj^>ort(itlnn . 27 wei'e hewn sharp and smooth, and their corners fitted into one another without the aid af any connecting mater- ial, so tliat, according to Procopius, the whole appeared to be one natural stone. Each side of the street had a high border for foot-passengers, on which were also placed alternately seats and mile-stones. In spite if its age and heavy traffic parts of this road are still in a good state of preservation. After the completion of the Via Appia similar roads were constructed, so that under the emperors seven great highways started from Rome, viz. : the Via Appia and Latiua to the south ; two, Valeria and Salaria, to the Adriatic; two, Cassia and Aurelia, to the north- west ; and the Via ^-Emilia, serving for both banks of the ?o. Nor were the provinces by any means neglected. Dur- ing the last Punic war a paved road was constructed from Spain through Gaul to the Alps, and similar roads were afterwards built in every part of Spain and Gaul, through Illyricum, Macedonia and Thrace, to Constantinople, and along the Danube to its mouths on the Black Sea. So, likewise, were the islands of Sardinia, Corsica, Sicily and Great Britain crossed by them. It has justly been said ' that the roads of the Roman Empire, whose strong net- work enlaced the known world, were the architectural glory of its people. These military roads caused in the various parts of the empire a wonderful social and com- mercial revolution. They made it possible for civilization to penetrate into the most remote retreats and to conquer their inhabitants more completely than could Ciesar at the head of his legions. The Romans also had an efficient postal service, which was first instituted by Augustus and greatly improved by Hadrian. The tVn-mer, as Gibbon states in his "Decline 28 The Railroad Question. and Fall of the Roman Empire," placed upon all roads leading away from the golden milestone of the Forum, at short distances, relays of young men to serve as couriers, and later provided vehicles to hurry information from the provinces. These posts facilitated communication through all parts of the empire, and while they were originally established in the interest of the government, they proved serviceable to individuals as well, for there is no doubt that, together with the official dispatches, every courier carried private letters also. The expenses of the post were largely defrayed by the cities through which it passed, these cities being obliged to provide the stations established within their territories with the necessary stores. At the principal stations were found inns, where the proprietors were held responsible for injuries suffered bj' travelers while in their houses. The communication of the Roman Empire was scarcely less free and open by sea than it was by land. Italy has by nature few safe harbors, but the energy and industry of the Romans corrected the deficiencies of nature by the construction of several artificial ports. After the downfall of the Roman Empire its roads were either destroyed by the people through whose terri- tories they led or by the conquerors, to render more diflS- cult the approach of an enemy. Civilization and commerce greatly suffered through the downfall of Rome, and did not again revive until after the struggles of the Northern Christian races with the Southern and Eastern nations, which had become Mohammedan. The sixth and seventh centuries were the darkest in the history of Europe. Charlemagne, toward the close of the eighth century, caused many of the old Roman roads to be repaired and new ones to be constructed. He, Ifistor// of Tniii^j)()rlatl(>n. as well as several of his immediate successors, made use of mounted messengers to send imperial man- dates from one part of the realm to the other. The rulers of the succeeding centuries did not profit, how- ever, by this example, and the roads of the empire again fell into decay. Moreover, the public safety was greatly impaired by robbers and feudal knights, whose depredations were so heavy a tax upon commerce as to greatly discourage it. Trade under these circumstances would have been entirely destroyed, had it not been for the merchants' unions which were formed by the larger cities for the protection of their interests. These organi- zations maintained the most important thoroughfares, and even furnished armed escorts to wayfaring merchants. Commerce thus flourished in, and commercial relations were kept up among, the cities immediate between Venice and Genoa, as well as the cities on the Rhine and Danube. Florence, Verona, Milan, Strasburg, Mayence, Augsburg, Ulm, Ratisbon, Vienna and Nuremberg were flourishing marts, and through them flowed the currents of trade between the north and the south. Out of these commercial unions grew in time the Hanseatic League, which from the thirteenth to the fifteenth century controlled the com- merce of the northern part of Europe on both the water and the land. The object of this league, which at the height of its power included eighty-five cities, was to pro- tect its members against the feudal lords on the land and against pirates on the sea. Its power extended from Norway to Belgium and from England to Russia. In all the princi- pal towns on the highways of commerce the flag of the Hansa floated over its counting houses. Wherever its influcnc ^ reached, its members controlled roads, mines, agriculture and manufactures. It often dictated terms to kings, and 30 The RdHnxnJ Question. almost succeeded in monopolizing the trade of Europe north of Italy. It is characteristic of the social and political condition of this time that the postal service was not carried on l)v the state, but was in the hands of the various municipal- ities, convents and universities. During the fifteenth and sixteenth centuries national power and national life made themselves felt, and with a change in the political system the system of communication and transportation changed also. Louis XI. of France took the first step toward making a nation of the French when he transferred the postal service from the cities and other feudal authorities to the state. Two or three centuries later, France obtained a national system of roads and canals. The idea was largely due to Colbert, the minister of Louis XIV. It was, however, not executed in detail until the middle of the last cen- tury. Many abuses grew up in connection with it, but on the whole it was probably the soundest and most efficient part of the French administration. A system of lines of communication, radiating from Paris, was constructed by skilled engineers, and placed under the supervision of men of talent, especially trained for the purpose at the Ecole des Pouts et Chaussees. The whole system was further improved by Napoleon, and has served as a basis for the present system of railroad supervision. The first artificial waterway constructed in France was the Languedoc Canal, connecting the Bay of Biscay with the Mediterranean. This gigantic work, designed by Eiquet, was commenced in 1G66, and completed in 1681. The canal is 148 miles long and its summit level is 600 feet above the sea, the works along its line embracing over one hundred locks and fifty aqueducts. A large number of canals have since been constructed, and France Hisfnrfi of Trini>ipnrfafi(in. 31 has at present over 4,000 miles of artificial waterways, or more than any other country of Europe. Nowhere else was tiie same completeness of organiza- tion possible. The regular mail service of Germany dates back to the year of lolG, when Emperor Maximilian established a postal route between Brussels and Vienna and made Francis Count of Taxis Imperial Postmaster- General. The postal service of the empire greatly improved up to the time of the Thirty Years' War, which completely demoralized it. After the war the individual states and free cities, usurping imperial prerogatives, established postal routes of their own and thereby crippled the national service. The same war also did great damage to the public thoroughfares, and the commercial and manufacturing interests of the German empire were until the end of the eighteenth century in a deplorable condi- tion. Frederick the Great, recognizing the fact that the industrial paralysis of Germany was owing chiefly to its defective means of communication, commenced to con- struct turnpikes and canals in Prussia, and the minor German princes one by one imitated his example, until the Napoleonic wars again put an end to internal improve- ments. The good work was resumed, however, after the downfall of Napoleon, and in 1830 Germany was inter- crossed by from three to four thousand miles of turn- pike. In the Netherlands canals were constructed as early as the twelfth century. Being particularly well adapted to the fl^at country of Holland, they were rapidh' extended until they connected all the cities, towns and villages of the country, and to a large extent took the place of roads. The largest canal of Holland is the one which connects the cit}- of Amsterdam with the North Sea. It 32 The Railroad Qncation. was constructed between the years of 1819 and 1825 at an expense of more than four million dollars. The city of Amsterdam owes to this canal its present commercial prosperity. Puljlic roads and the state postal service are of com- paratively recent origin in G-reat Britain. The first pub- lic postal route was established in 1635, during the reign of Charles I. In 1678 a public stage-coach route was established between Edinburgh and Glasgow. The dis- tance is only forty-four miles, 1)ut the roads were so bad that, though the coach was drawn by six able horses, the journey took three days. It was considered a great improvement when in 1750 it could be completed in half the time originall}' required. In 1763 a mail-coach made only monthly trips between London and Edinburgh, eight long days being required for the journey, which to-day is made in less than twelve hours. The number of stage passengers between these two capitals averaged about twenty-five a month, and rose to fifty on extraordinary occasions. In those days coaches were very lieav}' and without springs, and travelers not unfrequently cut short their journe3's for want of conveniences. Turnpikes in Great Britain do not even date as far back as stage-coaches. It is true the first turnpike act was passed as early as 1653, but the s^'stem was not extensively adopted until a centuiy later. Previous to that time the roads of England, such as they were, were maintained by parish and statute labor. In the lat- ter half of the last century, under improved methods of construction, turnpike roads multiplied rapidly. Both roads and vehicles attained, previous to the advent of the railroads, such a degree of perfection that the stage-coach made the journey between London and Manchester, 178 IL'sfnn/ of Transportatio)) . 33 miles, in 19 hours; between London and Liverpool, 203 miles, in less than 21 hours; and between London and Hol3'head, 261 miles, in less than 27 hours. In spite of these improved facilities, the transportation of merchandise continued to be very expensive. Goods had to be conveyed from town to town by heavy wagons, and the cost of land-carriage between Manchester and Liverpool, a distance of thirty miles, was at times as high as forty shillings per ton. The various disadvantages of land transportation direct- ed, toward the middle of the last century, the attention of the British people to the importance of a system of canals. They realized that these water highways w^ould open an easier and cheaper communication between distant parts of the counts:}", thus enabling manufacturers to collect their materials and fuel from remote districts with less labor and expense, and to convey their goods to a more distant and more profitable market. It would also facili- tate the conveyance of farm produce to a greater distance and would thereb}^ benefit both the producer and consumer. The canal era was formallj^ inaugurated in 1761, when the Duke of Bridgewater presented to Parliament a petition for a bill to construct the canal which has sin6e borne his name. The canal was commenced in 1767 and was completed in 1772. The next forty years were a period of great activity in canal building, but it was left to private enter- prise, with ver}' little aid from the government. Over a hundred canal acts were passed by Parliament before the year 1800. The largest canal of the British Isles is the Caledonian, extending from Inverness to Fort William, a distance of sixty- three miles. It was commenced in 1803 andcompletedinl847,andcost£l,256,000. Othercanalsof importance are the Great Canal, which connects the North 34 The Railroad Question. Sea with the Atlantic Ocean, and the Grand Function Canal, which is over one hundred miles long and connects most of the water-ways of central England with the Thames River. It is estimated that there were over 2,200 miles of navigable canals in Great Britain before the intro- duction of railroads. Canal-building in Spain dates back to the beginning of the sixteenth century, when Charles V. built the Imperial Canal of Aragon, which is over sixty miles long. The political and commercial decline of the country during the seventeenth and eighteenth centuries, however, brought the development of her highways to a standstill, and, with the exception of Tiuke}', probably no European country has at the present time more deficient transpor- tation facilities than Spain. The comparatively high state of civilization which existed in the Italian cities during the middle ages, their commercial and industrial thrift and the importance of Rome as the metropolis of the Catholic Church com- bined to maintain many of the excellent ancient highways of Italy. A number of canals were built in Northern Italy as early as the fifteenth century, and it is claimed b}' some writers that locks were first used on the Milanese canals in 1497. But while public thoroughfares have always been well maintained in Northern Italy and even as far south as Naples, they were during the past two or three centuries permitted to greatly deteriorate in the southern part of the peninsula, to the great detriment of both agriculture and commerce. The condition of the large Italian islands is still more lamentable, Sicily and Sardinia being almost entirely devoid of roads. She that was the granary of ancient Rome to-day scarcely produces enough grain to supply her own people. Jlistorij of Traiixjxirtdtlon. 85 Denmark and the Scandinavian peninsula had a good system of highways long before the railroad era. Among the many excellent canals of Sweden may be mentioned the Guta Canal, which was commenced by Charles XII. in the early part of the last century, but was not entirely completed until 1832. It is, inclusive of the lakes, 118 miles long, and its construction cost $3,750,000, three- fifths of which was contributed by the state. This canal connects the Baltic Sea with Lake Wener, as well as, through the Gota-Elf, with the North Sea. Next to Turkey and Spain, no country of Europe has been as slow to appreciate the advantages of a system of highways as Russia. At the beginning of the nineteenth century the vast empire of the Czar had but a few roads connecting its principal cities, and these were almost impassable in the spring and fall. Much progress has, however, been made since then, and at present Russia has over 75,000 miles of wagon-road and artificial water- way, and 19,000 miles of railroad. A road has been built through Siberia, extending from the Ural Mountains to the city of Jakutsk on the Lena and sending out many branch roads north and south. The development of Russia's resources has kept pace with that of her system of highways, and the agricultural and mineral products of that country are in the markets of the world constantly gaining ground in their competition with the products of Western Europe and America. Passing now to the Western Hemisphere, we find that in ancient Peru the Incas built great roads, the remains of which still attest their magnificence. Probably the most remarkable were the two which extended from Quito to Cuzco, and thence on toward Chile, one passing over the great Plateau, the other following the coast. 36 Tlie Railroad Question. Humboldt, in his "Aspects of Nature," says of tliis mountain road : ' ' But what above all things relieves the severe aspect of the deserts of the Cordilleras are the remains, as marvelous as unexpected, of a gigantic road, the work of the Incas. In the pass of the Andes between Mausi and Loja we found on the plain of Puttal much difficulty in making a way for the mules over a marshy piece of ground, while for more than a German mile our sight continually rested on the superb remains of a paved road of the Incas, twenty feet wide, which we marked resting on its deep foundations, and paved with well-cut, dark porphyritic stone. This road was wonderful and does not fall behind the most imposing Roman ways which I have seen in France, Spain and Italy. By baro- metrical observation I found that this colossal work was at an elevation of 12,440 feet." The length of this road, of which only parts remain, is variouslj' estimated at from 1,500 to 2,000 miles. It was built of stone and was, in some parts at least, covered with a bituminous cement, which time had made harder than the stone itself. All the difficulties which a mountainous country presents to the construction of roads were here overcome. Suspen- sion bridges led over mountain torrents, stairways cut in the rock made possible the climbing of steep precipices, and mounds of solid masonry facilitated the crossing of ravines. Under the rule of the Spaniards the roads of the Incas went to ruin. In fact, throughout South America but little, if anything, was done by the mother country to aid transportation. North America, or at least that part of it which was settled by the Anglo-Saxon race, fared much better in this respect. (The great utility of good roads was univer- sally recognized even in the colonial times, but the Ilistorij '>/' Transportation . 37 scarcity of capital, the great extent of territory as com- pared with the population, and the want of harmonious action among the various colonies, delayed extensive road and canal building until after the establishment of the Union. Mistaken local interests but too often wrecked well-advanced plans, and what road-building was done dur- ing the colonial times was almost efttirely left to individ- ual exertion, without any direct aid from the government. The first American turnpike was built in Pennsylvania in 1790. From there the system extended into New York and Southern New England. Up to 1822 more than six million dollars had been expended in Pennsylvauia for turnpikes, one-third of which sum, or over $1,000 a mile, had been contributed by the commonwealth. In 1800 three wagon-roads connected the xltlantic coast with the country west of the x\lleghanies, one leading from Philadelphia to Pittsburg, one from the Potomac to the Monongahela, and a third passed through Virginia to Knoxville, in Tennessee. Much as was done during this period for the improvement of the roads, stage-coach travel remained for j^ears comparatively slow. In 1792 Mr. Jefferson, then Secretary of State, wrote to the Postmaster-Greneral to know if the post, which was then carried at the rate of fifty miles a day, could not be expedited to one hundred. Even this latter rate was considered slow on the great post-roads forty years later. In the year 1800 one general mail-route was extended from Maine to Georgia, the trip being made in twenty days. From Philadelphia a line went to Lexington in sixteen and to Nashville in twenty-two days. The gov- ernment of the United States, appreciating the importance, for military purposes, of good roads leading to the fron- tiers, commenced the construction of national, or military, 38 The Railroad Quest ion. roads. A road was thus built from Baltimore through Cincinnati to St. Louis, and another from Bangor to Houlton, in Maine. In 1807 Albert Gallatin, Secretary of the Treasur}', advocated the extensive construction of pul)lic roads and canals hy the general government. Mr. Gallatin took the ground that the inconveniences, com- plaints, and perliaps dangers, resulting from a vast extent of territory cannot otherwise be radically removed than by opening speedy and easy communications through all its parts; that good roads and canals would shorten distances, facilitate commercial and personal intercourse, and unite by a still more intimate community of interests the most remote quarters of the United States, and that no other single operation within the power of the govern- ment could more effectually tend to strengthen and perpetuate that union which secured external indepen- dence, domestic peace and internal liberty. The principal improvements recommended by' Mr. Gallatin were the following: 1. Canals opening an inland navigation from Massa- chusetts to North Carolina. 2. Improvement of the navigation of the four great Atlantic rivers, including canals parallel to them. 3. Great inland navigation by canals from the North River to Lake Ontario. 4. Inland navigation from the North River to Lake Champlain. 5. Canal around the Falls and Rapids of Niagara. 6. A great turnpike road from Maine to Georgia, along the whole extent of the Atlantic sea-coast. 7. Four turnpike roads from the four great Atlantic rivers across the mountains to the four corresponding Western rivers. Ilistori/ of Traii.^pnrfdfidii. 30 8. Improvement of the roads to Detroit, St. Louis and New Orleans. Mr. Gallatin also recommended that a sufficient number of local improvements, consisting either of roads or canals, be undertaken so as to do substantial justice to all parts of the country. The expenditure necessary for these improvements was estimated at twenty million dollars. Local jealousy and State rights prejudice practically defeated this movement, the Cumberland road, or National Pike, being the only result of any importance. The fail- ure of the government to provide the country with ade- quate roads left the construction of turnpike roads to private enterprise, and these roads, before the general introduction of railroads, often yielded much profit to capitalists. Great as were the conveniences afforded by the turnpike, they were entirely inadequate for the development of the resources of the interior of the country. The products of a forest or a mine could not be transport- ed upon them to any great extent. The crossing of a single water-shed, owing to the necessity for largely increased motive power, would often materially decrease the value of the goods to be transported. These drawbacks of land transportation directed, toward the close of the last century, the attention of the people of the United States to the necessity of providing for a system of canals that should bind together the various parts of their extended country in the interest of com- merce. General Washington was among the first to urge upon his countrymen the introduction of this great high- way of inter-state traffic, although luit little was done in this direction until after the War of 1812. The people of New York had from an early period of the settlement of their State been imijressecli^with the importance of con- 40 The RiiiliiKul Question. necting the Hudson with the Western lakes. In 1768 the pro^ancial legislature discussed this subject, but the political agitations of the times and the following revolutionary struggle arrested further proceedings. After the war the project was frequently brought before the legislature, but nothing was done until 1808, when the assembly appointed a committee to investigate the subject and to solicit the co(")peration of the general government, if the project should be found practicable. The report of the committee concerning the practicability of the undertaking was in every respect favorable, and in 1810 the legislature provided for a survey of the entire route from the Hudson Iliver to Lake Erie. The survey was made, but, the expected aid from the national gov- ernment not being forthcoming, the matter rested until after the war with England. In 1816 a new board of commissioners was appointed, and the following year an act was passed providing for a system of internal improvements in the State. On the 4th day of July next the excavation of the Erie Canal was commenced, and on the 26th of October, 1825, the first boat passed from Lake Erie to the Hudson. The canal was 378 miles long and four feet deep. It had a width of 40 feet at the surface and 28 feet on the bottom, and carried boats of 76 tons burden. Owing to the rapid increase of trade, the capacity of the canal was found inadequate within ten years after its opening, and in 1835 measures were taken to enlarge it to a width of 70 and 56 feet by a depth of seven feet, thus allowing the passage of boats of 240 tons. The total length of the canal was, however, subsequently shortened 12^ miles, making its present length 365|- miles. This enlargement was completed in 1862, and cost the State over $7,000,000, making the total cost Histoyy of Tniusportatio)) . 41 of the canal about $50,000,000. New York has, inclu- sive of branches, some ten other canals in operation, among them the Champlaiu Canal, extending from the head of Lake Champlain to its junction with the Erie Canal at Waterford ; the Oswego Canal, from Lake Ontario at the city of Oswego to the Erie Canal at Syracuse ; the Black River Canal, from Rome to Lj'on Falls; the Cayuga and Seneca canals, extending from the Erie Canal to the Seneca and Cayuga lakes. The State has expended for the cftnstruction of canals not less than $70,000,000. Canal-building in the State of Pennsjlvania commenced about the time that the original Erie Canal was completed in New York. In 1824 the legislature authorized the appointment of commissioners to explore canal routes from Philadelphia to Pittsburgh and the West. A year later surveys were authorized to be made from Philadel- phia to Pittsburgh, from Allegheny to Erie, from Phila- delphia to the northern boundary of the State, and also south to the Potomac River. The construction of the main lines of communication between the east and the west and the coal fields in the north was soon commenced. Large loans were repeatedly made, and the work was vigorously prosecuted. In 1834 Pennsylvania had 589 miles of State canals, among them the Central Division Canal, 172 miles long, and the "Western Division Canal, 104 miles long. Pul)lic opinion strongly favored an extended system of internal improvements, and it was believed that these water-waj's would soon become a source of revenue to the State. These expectations might have l)een realized had the State carried on enterprises on a less extensive and more economical basis. In 1840 the financial condition of the State had become such that canal-buildiuff had to l)e al)audoned. The amount 42 The Railroad Question. expended by the State of Penns^ivania for canals, includ- ing the Columbia Railroad, was about $40,000,000, while the difference between net earnings and interest paid by the State up to that tune is estimated at $30,000,000. In 1857 and 1858 these works were sold to the Pennsj-lvania Railroad Company and the Sunbur}' and Erie Railway Com- pany for $11,375,000, or about one-sixth of their cost to the State. In Ohio the legislature authorized the surve}' of a canal from Lake Erie to the Ohio River. In 1825 an act was passed providing for the construction of the Ohio Cana] and a number of feeders. In 1831 the canal was in operation from Cleveland to Newark, a distance of 176 miles, and the whole system was finished in 1833. The State of Illinois completed in 1848 the Illinois and Michigan Canal, connecting Chicago with La Salle on the Illinois River. This canal is 102 miles long, 60 feet wide and six feet deep. The construction by the general government of the Hennepin Ship Canal, connecting the Mississippi with Lake Michigan, has long been agitated in the Northwest. Such a canal would be one of the most important channels of commerce in the country', and it is to be hoped that this great project will be completed at no distant day. We have besides in the United States a large number of canals that were constructed, and are still operated, by private companies, as the Delaware and Hudson in New York and Pennsylvania, the Schuylkill, Lehigh and Union canals in Pennsylvania, the Morris Canal in New Jersey, the Chesapeake and Ohio and Maryland, etc. A large number of canals, some public and others private property, have since the construction of railroads been abandoned. Thus in New York 35G miles of canals, Ilistorij of Tnnispovtntion . 43 costing $10,235,000; in Pennsylvania 477 miles, costing $12,745,000; in Ohio 205 miles, costing $3,000,000; in Indiana 379 miles, costing $6,325,000, are no longer in use. All the canals that were ever built in New England have likewise been abandoned for commercial purposes. Nor was Canada slow in realizing the advantages which a S3'stem of canals connecting the great lakes with the Atlantic Ocean promised to give her. The construction of the Welland and St. Lawrence canals made it possible for vessels to clear from Chicago direct for Liverpool, and this has to a considerable extent diverted grain shipments to iNIontrcal, giving the Canadian dealers a decided advan- tage in this traffic. It is a strange fact that, at least in this country, the zenith of the canal-building era is found in the decade following the invention of the steam railroad. For many years it was not believed that under ordinary circum- stances the iron horse could ever compete with the canal boat in rates. The most sagacious business men had unlimited faith in the destiny of the canal as a prime com- mercial factor and invested largely in canal stocks. To many these investments proved a disappointment. The mar- velous improvements in locomotives and other rolling stock, the unprecedented reductions in the ])rices of iron and steel, and above all the fact that in our climate canal carriage is unavailal jle during fixc months of the 3^ear, gave the railroads a decided advantage in their competition with canal transportation. There can be no doubt, how- ever, that the presence of this competition was one of the chief causes of the great reduction of railroad rates on through routes. In this respect alone the canals have accomplished a very important mission. In the transpor- tation of many of the raw products of the soil and the 44 The Railroad Question. mine canals still compete successfully with the railroads, and it is still an open question whether future inventions may not enable them to regain lost ground in the carriage of other goods. It would certainly be a short-sighted policy for our people to discourage the construction of new canals. For the improvement of navigable rivers, appropriations have been made by Congress ever since the establishment of our national government, and these appropriations now amount to millions of dollars annuall}'. Since the intro- duction of railroads the usefulness of these national highways of commerce has ceased to depend upon the tonnage carried upon them, but the influence which the}' exert upon the cost of transportation is so great that it is not likel}' that the policy of making annual appropriations for the improvement of these water ways will be aban- doned by the American people for many j'ears to come. There has recently been a strong agitation in some portions of the United States in favor of extending gov- ernment aid to the Nicaragua Ship Canal, and there seem) to be indeed many arguments in favor of such a policy. President Harrison said in his annual message to Congress in December, 1891 : ' ' The annual report of the Maritime Canal Company of Nicaragua shows that much costly and necessary pre- paratory work has been done during the past year in the construction of shops, railroad tracks and harbor piers and breakwaters, and that the work of canal construction has made some progress. I deem it to be a matter of the highest concern to the United States that this canal, con- necting the waters of the Atlantic and Pacific oceans, and giving to us a short water communication between our ports upon those two great seas, should be speedily con- structed, and at the smallest practical limit of cost. The gain in freights to the people and the direct saving to the History of Trmtsportatioii . 45 government of the United States in tlie use of its naval vessels would pay the entire cost of the work within a short series of years. The report of the Secretary of the Navy shows the saving in our naval expenditures which would result. The Senator from Alabama, Mr. Morgan, in his argument upon this subject before the Senate of the last session, did not overestimate the importance of the work when he said that ' The canal is the most important sub- ject now connected with the commercial growth and prog- ress of the United States. ' " And in his message of 1892 that: " It is impossible to overestimate the value from every standpointof this great enterprise, and I hope that there will be time, even in Ihis Congress, to give it an impetus that will insure the earl}^ completion of the canal and secure to the United States its proper relation to it when com- pleted. " It is sincerely to be hoped tiiat the people of the United States can be convinced of the advisability of extending government aid to this enterprise. It must be admitted that the experience of our government with the Pacific railroads has created a strong prejudice among the masses against such subsides as were granted to those corporations, but it is probable, with the people on the alert, that Con- gress would not again permit great impositions to be practiced against the government. When the great advantages to be derived by the people of the United States from the use of this canal and the small outlay required are considered, it would seem to be a wise policy for our government at once to take such steps a-s are necessary to secure the early completion and the future control of this great international highway. CHAPTER II. THE HISTORY OP RAILROADS. IN making inquiry into those inventions and improvements which were the precursors of the modern railroad, we meet early the desire to render the movement of wagons easier by a smooth roadway. Traces of this ma}^ be found even in ancient times. The Romans constructed tracks consisting of two lines of cut stones, and in the older Italian cities stone tracks ma}' still be seen in the streets, corresponding to wagon tracks, and evidently designed for the purpose of rendering the movement of the wheels easier. The first rail tracks of which Ave JiaA^e any knowledge were constructed at the end of the sixteenth century. These rails, which were made of wood, appear to have been an invention of miners in the Hartz Mountains. They were the result of pi-essing necessity, for, as mines were usuall}' so situated that roads could only with great difficulty and expense have been built to them, some cheaper sort of communication with the high road had to be contrived. After various experiments the wooden railway was adopted, and the product of the mine was carried upon them to the place of shipment by means of small cars. Queen Elizabeth had miners brought into England, to develop the English mines, and through them the rail track was introduced into Great Britain. Later the wooden rail was covei^sd with an iron strap to prevent the rapid wear of the wood, and about the year 1768 cast-iron rails commenced to be used. At the end of the last centurv 46 Tlie Ilistori/ <\f Rat'Irodils. 47 wheels '^ere constructed with flanges, to prevent derailing. More attention was also paid to the sul)structure, wood, iron and stone being used for this purpose. "Wrought- iron rails were patented in 1820. The first authentic account of heat or steam engines is found in the " Pneumatica " of Hero of Alexandria, who lived in the second century before Christ. Hero describes a number of contrivances by which steam was utilized as a source of power. Although these contrivances were at the time of very little practical value, they are interesting as the protot}T3es of the modern steam Engine. The attempts to move wheels b}^ steam date back to the seven- teenth century, when a number of experiments were made, but their exact nature is not known, because they were all soon abandoned, either on account of unsuccessful results or lack of means. At the beginning of the eighteenth century Denis Papin constructed a small steamboat, upon which he sailed in 1707 on the Fulda River from Cassel to Munden, a distance of about fifteen miles. The construction of locomotives engaged the attention of ingenious minds a century and a half ago. It is claimed that Newton experimented with a steam motor in 1G80. Dr. Robinson described in 1759, in his " Mechanical Phil- osopln^," a steam vehicle. The Glasgow engineer James Watt devoted himself from 1 7G9 to 1785, with great energy, to the development of the steam engine, and succeeded in inventing the system which became the parent of the modem engine. An American, Oliver Evans, constructed at the beginning of the present century a carriage pro- pelled by steam, and exhibited it, in 1804, in the streets of Philadelphia, before twenty thousand spectators. While Evans' invention was never put to any practical use, he prophesied that the time would come when steam cars 48 Tlic Rdih'oad Question. would be considered the most perfect means of transpor- tation. On Christmas eve, 1801, Richard Trevithick exhibited at Camborne, England, a steam coach, and soon afterwards' he and his cousin, A. Vivian, obtained an English patent on a " steam engine for propelling car- riages. " Seven years later a Mr. Blinkensop, of Middleton Colliery, near Leeds, constructed another locomotive engine, upon which he obtained a patent in 1811. These and a number of other inventors of steam engines vainly expended great ingenuity in attempting to overcome a purely imaginary difficulty. They believed that the ad- hesion between the face of the wheel and the surface of the road was so slight that a considerable portion of the propelling power would he lost by the slipping of the wheels. It was not until about the year 1813 that the important fact was ascertained that the friction of the wheels with the rails was sufficient to propel the locomo- tive and even drag after it a load of considerable weight. On the other hand these inventors failed to provide in their engines adequate heating-power for the production of steam. In 1814 George Stephenson commenced to apply himself to the construction of an improved locomotive. When, owing to his invention of the tubular boiler, he saw, after fifteen years of arduous toil, his labors crowned with success, the civilized world entered upon a new era of social, industrial and commercial life. The first line upon which Stephenson's invention was used was the Liverpool and Manchester Railway. In the year 1821, a number of Liverpool merchants formulated a plan for the construction of a tramwaj^ between their city and Man- chester. The question of motive power was left open as between horses and the steam engine, with which Mr. Stephenson was then experimenting. After much opposi- Tlte Ill^torij of lidil nxiils. 49 tion on the part of Parliament and the public a charter was obtained in 182G. When the construction of the road was nearly completed, the directors of the company, after having determined upon the use of steam engines, offered a prize of £500 for the best locomotive engine to run at a public trial on the Liverpool and Manchester Railway. This proposal was announced in the spring of 1829, and the trial took place at Rainhill on the 6th of October of that year. The competing "Engines were the Rocket, con- structed by Mr. Stephenson; the Sanspareil, by Hack- worth; the Perseverance, by Burstall, and the Xovelty, b}' Messrs. Braithwaite and Ericsson. Both Braithwaite and Ericsson became subsequently residents of the United States, and the latter achieved immortal fame as the inventor of the screw propeller and the builder of the Monitor. The Rocket was the only engine that performed the complete journey proposed, and obtained the prize_ It is claimed by the biographers of John Ericsson that he had really built a much faster locomotive than Stephen- son, and that, although it had to be constructed very hastily and therefore broke down during- the trial, the superiority of the principle involved in it was universally recognized by the engineers of that time. The Stephen- son engines became the motive power of the Liverpool and Manchester road, which was opened for public traffic on the 16th of September, 1830. This line was, however, neither the first pul)lic railway nor even the first steam railway. The first railway or tramway act was passed in England in 1758, and in 182-4 no less than thirty-three private railway or tramwa}' companies had been chartered. In 1824 a charter was granted by Parliament authorizing the construction of the Darlington and Stockton Railway, to be worked with ''men and horses, or otherwise." By uO The Railroad Question. a subsequent act the company was empowered to work its railway with locomotive engines. The road was opened in September, 1825, and was practically the first public carrier of goods and passengers. The Monklands Rail- way in Scotland, opened in 1826, and several other small lines soon followed the example of the Darlington and Stockton line and adopted steam traction, but the Liver- pool and Manchester Railway was the first to convince the world that a revolution in traveling had taken place. The road was from the very first successful, its traffic and income greatly exceeding the expectations of its managers. It should also be noted here that the cost of construction fell largely below the elaborate estimates made by several distinguished engineers. The companj' had expected to earn about £10,000 a year from passenger traffic, and the very first year the receipts from that source were £101,829. The gross annual receipts from freight had been estimated at £50,000, Imt were £80,000 in 1833. From the first the stockholders obtained a dividend of eight per cent. , which soon rose to nine and to ten per cent- It has since been demonstrated that the revenues of new roads almost always exceed expectations. The success of this railway stimulated railway enter prise throughout Europe and America. But while rail- road projects created much enthusiasm on one side, thej' also met with bitter opposition on the other. The preju- dice of the short-sighted and the avarice of those whose interests were threatened by a change in the mode of transportation used every weapon in their power against the proposed innovation. The arguments used were often most absurd. It was said that the smoke of the engine was injurious to both man and l)east, and that the sparks escaping from it would set fire to the buildings along the Tlic Illstorij of Railroads. 51 line of road, the cows would be scared and would cease to give their milk, that horses would depreciate in value, and that their race would finally become extinct. Nor did many of the European governments favor the new system of transportation. Some openly opposed it as revolutionary and productive of infinitely more evil than good. The Austrian court and statesmen especially looked upon the new contrivance with undisguised dis- trust; and from their point of view this distrust was perhaps well founded. The rapid movement of the iron horse seemed to savor of dangerous radicalism, not to say revolution. When the Emperor finally, in 183(3, concluded to sign a railroad charter, he based his action upon the. dubious ground that ' ' the thing cannot maintain itself, anj'how. " It may be said that the history of the railroad is a conspicuous illustration of human short-sightedness. The Prussian Postmaster-General Von Nagler opposed the construction of a railroad between Berlin aijd Potsdam upon the ground that the passenger business between those two cities was not sufficient to keep even the stage-coach always full. It never occurred to the Postmaster-General, as it does not occur to many railroad men of to-day, that new and cheaper means of trans- portation increase the traffic. Even so wise a statesman as Thiers said when railroad construction was first agitated in France : " I do not see how railroads can compete with our stage-coaches." M. Thiers also opposed for years the building of a railroad between Paris and Versailles, declaring that on account of a railroad not one passenger more would make the journey between these two places. But railroads came whether monarchical governments liked them or not. Tlie success of the Liverpool and Manchester Railroad stiniulatod railroad buildinu' in Euff- 52 Tlie Railroad Question. land to a marvelous extent. Between 1830 and 1843 no less than seventj'-one different companies were organized, representing about 2,100 miles. During the next fonr years 637 more roads, with an authorized length of 9,400 miles, were chartered. The construction of each new road required a special act of Parliament. These earl}' roads aver- aged only fifteen to thirt}' miles in length. The competition which ensued soon led to the consolidation of roads, which continued until now the 14,000 miles of railway in Eng- land and Wales are practically owned by only a dozen companies. The total number of miles of railroad in Great Britain and Ireland is at present over 20,000. The news of the opening of the first steam railway in England spread through Europe comparatively slowly. There were in those days but few newspapers printed on the continent, and these were read very sparingly. Rail- roa,d discussions were confined to merchants and manu- facturers. Even after the success of the railroad was assured in England, a large number of people would not believe that, except between the largest cities, railroads on the continent could ever be profitable. But few rail- roads have ever been built which with honest, efficient and economical management would not pay a fair rate of interest on actual cost of construction. But in spite of this we have to this day a large number of otherwise well-informed people who question the financial success of ever}' new railroad that is proposed. In those days it occurred only to the most sagacious minds that with increased facilities commerce would expand. The missionaries of railroad enterprise found it therefore a difficult matter to interest capital in their projects. Railroad committees were in time formed in all cities of any importance, but, with capital cowardly, as The History of liailrodds. 53 usual, and governments distrustful, their task was often a thankless oue. Kailroad projects matured very slowly, and, when matured, were often wrecked by jealous and short-sighted governments. After the formation of a company five and even teu years would often pass away before a charter could be secured and the work of con- struction commenced. It is true, there were some lauda- ble exceptions to this rule. Thus the governments of France and Belgium led the people in railroad construc- tion; but upon the whole it can be said that the railroad forced itself by its intrinsic merit upon monarchical gov- ernments. It soon became evident even to the most stupid of autocratic ministries that it was a choice between the new mode of transportation and national atrophy. The first German line was built between the cities of Nuremberg and Furth in 1835. It was only about four miles long, but the success of the experiment gave an impetus to railroad building in other parts of Germany. The Leipzig and Dresden line followed in 1837, and the Berlin-Potsdam and Brunswick-Wolfenbuttel lines in 1838. At the end of 1840 Germany had 360 miles of railroad. In that j'ear Frederick William IV. succeeded to the throne of Prussia and inaugurated a new and exceedingly liberal railroad policy in his realm. In 1843 the Prussian government concluded to guarantee certain railroad companies a dividend of 3^ per cent, on the capital actually invested. The state also secured con- siderable influence in the administration of the roads as well as in the right to assume the management of the various lines under certain conditions. The governments of the states of Southern Germany now commenced to build state roads, and their example was, chiefly for 54 The Rail road Qnestion. strategic reasons, soon imitated by Prussia. Tlie system has since grown to over 2G,000 miles, and no less than eighty-seven per cent, of the mileage is under state control. In all the states and provinces of the empire, except Bav- aria, the rates for transportation of passengers and freight on all lines are controlled absolutely by the government. In Austria, as has already been indicated, the building of railways was greatly discouraged by the government until 1836. In that year the Emperor rather reluctantly granted Baron Rothschild a charter for a railway from Vienna into the province of Galicia. Another charter was granted to a Baron Sina for a line from Vienna to Raab and Gloggnitz. The policy then adopted in Austria guaranteed to each railroad company a monopoly in its own district during the period for which the charter was granted. Soon after the state also commenced building lines, but the growth of the Austrian sj'stem was slow until after the war of 1866. An era of railroad specu- lation was then inaugurated, which ended with the crisis of 1873. The total length of the railroads of Austria- Hungary was 10,700 miles in 1875. At present that monarchy has nearly 16,400 miles of railway, 8,600 of which are owned by private companies. It has been the policy of Austria to reduce rates, and several roads, especially those built in mountainous districts, have 'a certain revenue guaranteed to them by the government. The zone system recently adopted in Hungary reduced both the passenger and freight rates of the government roads at least one-third, and this reduction has, contrary to expectation, greatly increased their net revenues. In France railroad agitation commenced in 1832. A few short lines were opened, as those from Paris to St. Germain Thf Hlstiiiij (if linU nmdii. and to Versailles ; but, owing to the conservatism of French capitalists, but little more was done until the state took the matter in hand. Thiers proposed a scheme by wliieh the state was to furnish about half the cost while private companies were to build the lines and operate them. The Western Railroad, the first line of any great extent, was opened in 1837 between Paris and Rouen, and the Eastern Railroad was opened two years later. There were in 1859 six large companies operating their lines with profit, but, to induce them to build additional lines that were needed, the state guaranteed the interest on the capital required to make their improvements. In 1884 there were about 17,000 miles of railroad in operation. To bring about the construction of another 7,000 miles of road, and to thus complete the railroad system of the countr}-, the govern- ment now guaranteed each company- a dividend equal to the average of recent years, but not to exceed seven per cent. It is doubtful whether this system of monopoly has in all respects been favorable to the encouragement of enterprise in the railroad circles of France. In granting charters the state has, however, reserved valuable rights which at a future period it will have an opportunity' to assert for the public benefit. The railroad companies have generally a lease for ninety-nine years, and their lines become the property of the state after the expiration of that period. To extinguish the bonded debt and stock, a sinking fund has been created, from which a certain portion of the shares and outstanding bonds is annuall}' paid off and canceled. The government requires of the companies the free carriage of the mails and the transportation of military and other employes at very low rates. Besides this the state IcAies upon the traffic of the railroads a duty of ten per cent, of their gross earnings from passengers 56 The Railroad Question. and from all goods carried by fast trains. These .facts are usually overlooked by our railroad men when they indulge in making comparisons between the railroad rates of this country and those of France. The French Repub- lic had 13,400 miles of road in 1875, and 22, 600 in 1890. When all of the proposed lines are completed, the total mileage of that country will be over 25,000. Belgium has the best-developed track system on the continent. The state commenced the construction of rail- roads as early as 1834, and the first line (Brussels Maliues) was opened May 5th, 1835. Four great state lines were constructed in different directions, and between these lines private roads were permitted to be built. Between 1850 and 1870 the private lines increased from 200 to 1,400 miles, and competition between them and the state lines became so active as to reduce rates to the lowest possible point. In 1870 -the government decided to buy a large number of competing lines. In 1874 it had acquired more than half, and at present, with a few exceptions, they are all owned and controlled by the state. The exceptions to this arc a few short lines that were built in the early days of railroad construction. The total mileage is now 3,210. Rates have, however, not been increased since this con- solidation, and they are still lower than any other country in Europe. The transportation of mails is free, and troops, military materials and prison vans are carried at reduced rates. Railroads were originally built in Switzerland merely for the accommodation of tourists and the local traffic. The first line, between Zurich and Aarau, was completed in 1847, but general railroad enterprise did not develop until after 18G0'. The St. Gothard route was then pro- jected, which opened a direct through line between Italy The Histuvy of Railroads. 57 and Germany. The roads are all owned by private com- panies, but are under strict government control. Great publicity of their affairs is required. The total mileage of Switzerland was 2,043 in* 1891. In Italy railroad enterprises have received attention since 1853. The first roads were those of Lombard}-, being commenced while that province was still under Austrian rule. The treaties of Zurich in 1859 and of Vienna in 1866 delivered these roads and the Venetian lines to the kingdom of Italy. Between 1860 and 1870 the systematic construction of a railroad net was com- menced which, connected the various lines with each other and with Rome. Nearly all the railroads of Italy fell into the hands of the government, but in 1835 they were leased for a term of sixty years to three conlpanies, terminable at the end of twenty or forty years by either party upon two years' notice. Under the lease the state re- ceived two per cent, of the gross receipts. The tariffs are fixed by the state, are uniform and can be reduced by the state. A Council of Tariffs, composed of delegates for the government, for agriculture, commerce and industry, and for the railroad companies, all elected by their own boards, has been instituted to study the wants and best interests of the country. The total number of miles of railroad in Italy was 8,110 in 1889. The first road in Spain was opened in 1848 between Barcelona and Mataro. The government greatly encouraged railroad construction by subsidies, and during the decade following 1855 the development of the railway system of the country was rapid. More than thirty companies have been formed, which have built about twenty main lines, aggregating 6,200 miles. 58 The Ruifrodd Question. In Portugal very little railroad building was done pre- vious to 1863, when a little over three hundred miles of road was constructed. The government owns nearly half of the roads of the c5untry, the remaining lines being the property of private companies. The total number of miles operated in the kingdom in 1885 was 1,280. The service and the financial condition of the roads of Portugal are far from being satisfactory. In Denmark the first railroad was built on the island of Seeland in 1847. Previous to 1880 the larger part of the roads of the kingdom was owned by private companies. Since then seA^eral of the most important private roads have ])een purchased by the state, which in 1889 owned 963 miles, while only 251 miles remained in private con- trol. Onl}' about thirty miles more have since jbeen con- structed. The roads are well managed, but their net earnings are less than two per cent, of the capital invested. On the Scandinavian Peninsula the railroad sj'stem has developed rather slowly. Norway built the first line from Christiana to Eidsvold in 1854, and Sweden commenced railroad building two years later. The narrow-gauge system is fully developed here. While in Norway the greater part of the lines is owned by the state, the roads of Sweden are chiefly in the hands of private companies which on an average control but little more than twenty- five miles each. The total mileage of Sweden is 5,970, and that of Norway 970. The first line of railroad in the Russian Empire was constructed from St. Petersburg, sixteen miles, to Tsarskoji-Sielo, in 1842. The St. Petersburg and Mos- cow line was opened in 1851. Railroad building then stagnated until after the Crimean War, when a large The Ilistori/ of R/ R nil roads. 75 800,000. It has also granted to railroad companies cash subsidies which to June 30, 1889, amounted to over $46,000,000. The total number of miles of railroad in Canada was 14,004 in 1800. The people of Canada have, since the political union of the colonies, pursued an exceedingly liberal policy toward their railroads, but it appears that the great indulgence of the govQi'nment only bred license in railroad circles. The evil increased from ^•ear to year, until the many complaints on the part of the public against railroad management caused Parliament in 1886 to appoint a commission to examine into the alleged abuses and to report as to the advisability of the adoption of a general railroad law, and the appointment of a Board of Railroad Commissioners. The committee reported to the Governor-General of Canada on the 14th of January, 1888, and, acting upon its recommendation. Parliament passed the Railway Act of May 22, 1888. This act, con- taining 309 paragraphs, provides for the complete regu- lation of railroad affairs, and for this purpose creates a Board of Railroad Commissioners, consisting of the Minister for Railroads and Canals, the Minister of Justice^ and two or more members of the Privy Council. The act also repeals all foi'mer railroad laws. Though it has been in force less than five years, its beneficial effects are already extensively felt by the Canadian public. CHAPTEK III. HISTORY OF RAILROADS IN THE UNITED STATES. IN no country in the world has the growth of railroads been so rapid as in the United States. With a pop- ulation less than one-fifth as large as that of Europe this country has a larger number of miles of railroad than that continent. While European qpuntries generally opposed the introduction of the new system of transportation, our people extended to it a hearty welcome. This difference of sentiment can easil}- be accounted for. At the time of the invention of railroads Europe had a system of turn- pikes and canals which, at least for the time being, answered every purpose. It became necessary for the railroads to enter into competition with these well-estab- lished agencies of transportation, which had the test of time, popular prejudice and governmental sanction in their favor. ^loreover, the railroad as a new and unknown quantity caused a feeling of uneasiness in all conservative circles. It seemed to make war against time-honored principles of statecraft and society, and threatened to bring about a revolution the outcome of which no one could foresee. The condition of things was entirely different in the United States. There were but few good roads and still fewer turnpikes and canals. A vast territory in the interior awaited cultivation. Excepting the coast and a few cities situated on the large navigable rivers, the East and the West and the North and the South were practi- cally without commercial relations, and were only held to- gether by a community of political traditions and the History of Railroadfi in the United States. 77 artificial cement of a common constitution. Even had tiie country had a sj'stem of turnpilvcs and canals, the Mississippi River would still have been a fort}^ days', and the extreme Northwest a three months' journey distant from New York. It seems extremely doubtful whether the different sections of so large a realm, having so little community of commercial interests, could long be kept together under a republican system of government. The settlement of the central portion of the country and the development of its resources seemed to be the task of future centuries. The railroad under these circumstances made its appearance at a most opportune time for America, and the American people were not slow to make the best of the opportunities presented to them. In the United States, as in England, the railroad was preceded by the tram-road. The first tram-road in this country was opened in 1826. It connected the granite quarries of Quincy with the Neponset River, and was operated by horse-power. The second road of this kind was the Mauch Chunk tramway, in Pennsylvania, opened in 1826, for the transportation of coal. The trains were drawn up an inclined plane by stationary engines and were moved down by their own weight. During the same year the Delaware and Hudson Canal Company opened the Car- bondale and Homesdale tramway, connecting their mines with the Delaware and Hudson Canal. It appears that an English locomotive was imported for use on this line in 1828, but that it did not answer its purpose. During the same year was commenced the construction of the first line of importance in this country, the Balti- more and Ohio. The line was opened for traffic in 1830, having then an extent of fourteen miles. In 1831 it was extended sixty-one miles, and the year following sixty- 78 The Railroad Quest ion. seven miles. For a year the road was operated by horse- power, but in 1831 tiie company purchased for its road an American locomotive. The first road upon which a iocc motive engine of Amer- ican manufacture was used was the South Carolina Rail- road, which was commenced in 1830. The engine was manufactured at West Point and was placed upon the road in December of the same year. The line had then an extent of ten miles. In 1832 it had increased to sixtyr two miles, and in 1833 to 13G miles. The construction of the Mohawk and Hudson was commenced in August, 1830, and the road was opened in Septemlier of the fol- lowing year. Its first locomotive engine was also imported from England, but, being found too heavy, was soon replaced by an American engine of half its weight. In 1831 two other New York roads were commenced, the Saratoga and the New York and Harlem. A small portion of the latter was opened during the same year, and the former in Jul}^, 1832. The Camden and Amboy Railroad in New Jersey was likewise commenced in 1831, but its completion was not reached till 1834. The New Castle and French town Railroad was completed in 1832, the Phila- delphia and Trenton in 1833, and the New Jersey in 1834. In 1835 th3 Washington branch of the Baltimore and Ohio was opened, and the entire line had at the end of that year attained an extent of 1 1 5 miles. During the same year three Massachusetts roads, connecting Boston with Provi- dence, Worcester and Lowell respectively, were opened. In 1836 the New York Central route was opened to Utica. In 1837 the Richmond, Fredericksburg and Potomac Rail- road was completed from Richmond to Fredericksburg. In 1838 the Richmond'and Petersburg and the Philadelphia, Wilmington and Baltimore railroads were opened. The Ilistrnni t,j Railrinids in tli< Vnilttl Sfides. 79 "Wilmiugton and "Welclou Railroad was completed in 1840, and the Petersburg and Roanoke three years later. There was now a continuous line of railway from the Potomac to Wilmiugton, North Carolina. In 1842 the whole line of the Boston and Albany road was completed, which thus became the first important through route in America. The construction of railroads in the United States was from the first carried on without a system. Railroads in an early da}'^ were purel}' local affairs. Each locality operated its own road in its own interest and without an}' supervision from the State which had granted its charter. Acts of incorporation or charters were granted as a matter of course. Railroads were looked upon as the natural feeders of canals, and their future importance was fore- seen by very few men. The early roads were a heav}' burden on the capital of the country. A number of small roads were built that proved unprofitable and had tq be abandoned. After the financial panic of 1837 there was, except in New England, a very perceptible stagnation in railroad enterprise, which lasted until the discovery of gold in California, in 1848. The average number of miles of road constructed per annum during the ten years preceding 1848 was 380, while it was nearly 1,800 per annum during the seven years following. It may be said that with the discover}' of gold in the West ends the first or forijiative period of railroad con- struction. From the first opening of the Baltimore and Ohio to the beginning of the year 1848, a period of eigh- teen years, there were constructed in the United States 5,205 miles of railroad, or an average of 289 miles per annum. The discovery of gold on the Pacific gave a new impetus to railroad construction throughout the country. Railroads now ceased to be local works and became inter- 80 The Railroad Question. state or national thoroughfares. Extensive new lines were built and through routes were formed by the coalition of local roads. It was during this period that railroad com- panies first became conscious of the importance of their mission and that they commenced to compete with river and canal carriers. In 1848 a through route was com- pleted between Cincinnati and Lake Erie. A more direct line, the Cleveland, Columbus and Cincinnati road, was opened in 1851. During the same year the Erie Railroad reached Lake Erie and connected the lake with the Hud- son, and a year later Chicago received railroad connection with the East by the completion of the Michigan Central and Michigan Southern. In 1854 the Chicago and Rock Island reached the Mississippi River, and in 1855 the Chicago and Galena was opened. One year later the Illinois Central reached the Mississippi at Cairo, and the Chicago, Burlington and Quincy Railroad was opened to Quincy. The Ohio and Mississippi, between Cincinnati and St. Louis, was completed at about the same time. The Pittsburgh, Fort Wayne and Chicago, an extension of the Pennsylvania road, was completed to Chicago in 1858. At the beginning of 1859 the Hannibal and St. Joseph Rail- road reached the Missouri River, and eight years later the Cedar Rapids and Missouri was completed to the Missouri at Council Bluffs. To encourage the extension of railroads into new and thinly settled territories, and to thus hasten their settle- ment and the development of their resources, the people of the United States began at the commencement of this period to favor the polic}^ of land grants. Such grants had repeatedly been made to roads and canals prior to the crisis of 1837. The first railroad that received a land grant was the Illinois Central. The scheme was proposed Ilislorij of lidil rodils in the inltcd iSfatcs. 81 as early as 1 8BG, 1)ut the act making the grant was not passed 'until September 20, 185U. Other grants lullowed in 1852 in Missouri, in 1853 in Arkansas, in 185G in Michigan, Wisconsin, Iowa, Florida and Louisiana. As a rule these lands were granted by the National Liovern- ment to the States, and by them to the railroads. - The land grants made during President Fillmore's administra- tion amounted to eight million, and those made during Pierce's administration to nineteen million acres. The financial crisis of 1857 and the War of the Rebellion again checked railroad building, but this period developed a new phase t»f railroad enterprise as well as of the land grant policy. In those times of national trial a railroad to the Pacific Coast seemed a political necessity. The project of connecting the Atlantic and Pacific oceans by a line of railroads was first brought prominently before the American people by Asa Whitney of New York. At a meeting held under his auspices in Philadelphia on the 23d day of December, 1846, a movement was inaugurated for the purpose of interesting the people in this enterprise and securing the aid of the government for its accomplish- ment. Various plans were urged, and earnest discussions followed, in which the ablest minds of the nation partici- pated. The continual agitation of the subject finally led, on the 1st of July, 1862, to the passage by Congress of an act incorporating the Union Pacific Railway Company and the adoption of the central route. The Union and the Central Pacific companies received a virtual money subsidy of $30,000,000 and a land grant aggregating nearly twenty-three million acres, a domain almost equal to the State of Indiana. Other direct grants of territorial lands soon followed. The Northern Pacific received, just before the close of the war, a grant of fortj'-seven million 82 Tlic Rallrodd Question. acres of land. In the Soiathwost public lands were also freely given to new Pacific lines. • The various grants made to railroads comprise no less than 300,000 square miles, equal to four and a half times the area of New England, or six times that of the State of New York, or equal to the total area of Iowa, Wisconsin, Illinois, Indi- ana, Michigan and Ohio. Where these grants were not deemed sufficient inducement for the construction of roads, counties, cities and towns freely voted subsidies, while private citizens made donations to or subscribed for the securities of the new railroads. As has already been stated, the consolidation of con- necting lines and their transformation into a few large through routes was one of the characteristic features of this period. As through traffic, and particularly through freight, grew in importance, it became more and more apparent that frequent transhipment was an expense to the railroads as well as a burden to the public. The system of railroad ownership and management soon adapted itself to thie necessities of business. The change seems to have been inevitable, for it occurred in all parts of the world at about the same time. Sagacious men early recognized the importance of railroads as national lines of communication. This idea no doubt controlled the projectors of the Baltimore and Ohio, of the Erie, and of the Boston and Albany roads. The first consolidation of any importance took place in 1853, when eleven differ- ent roads between Alljany and Buffalo were united to form the New York Central. Five branch roads were added to the system between 1855 and 1858. In ISG-t Cornelius Vanderbilt secured control of the Hudson River road, and in 1867 of the New York Central, which lines he consolidated in 1869. By gaining soon afterward Uistury of Railroads in the United States. 83 control of the Lake Shore and Michigan Central and Southern Canadian roads, he united under one manage- ment over 4,00(1 miles of raih'oad l)etween New York and Chicago, and tlnis created th(^ lirst Ihrougli line l)etween the East and tlie West. As has ah'cady been stated, tlie l\Minsylvania road gained control of the Pittsburgli, Fort Wa3'ne and Chicago in 1858 and tlins extended its system as far as Chicago. Through the absorption of other lines it reached an extent of over 7,000 miles. The creation of this through route was chiefly the work of Thomas A. Scott, at that time vice-president, and later president, of the Penns3dvania railroad. In 1874 the Baltimore and Ohio, under the management of John W. Garrett, extended its system to Chicago, and became a competitor of the two older lines in the trans- portation of through freiglit. At about the same time two other parallel trunk lines were developed, the Grand Trunk on the north, and .the Erie, between the Lake Shore and Penns3-lvania lines. There were, therefore, in 1874 five rival trunk lines competing for the business between the West and the seaboard. Dui'ing the same period large rival lines developed west of Chicago and St. Louis. From the former city radiate the St. Paul and Northwestern systems, each with from 6,000 to 8,000 miles; the Atchison, Topeka and Santa Fe with over 9,000 miles; then the Rock Island, the Chicago, Burlington and Quincy, tlie Illinois Central, the Chicago and North- Western, the Chicago and Alton, their systems ranging from 1,000 to (3,000 miles in extent. From St. Louis radiate the various branches of the JNIissouri Pficific and the closely allied Wabash system, controlling together some 10,000 miles of road. 84 The Railroad Question. This process of consolidation also went on in the South- ern States, though to a less extent. Their systems do not run parallel, like the trunk lines, nor do they radiate from a common center, like the roads of the Northwest, Init they radiate from the principal ports of the Atlantic and the Grulf of Mexico toward the interior. We now enter upon the third period of the history of American railroads, the period of combinations. Daring the time of great activity in railroad construction follow- ing the War of the Rebellion many abus es in railroad management had been developed, which caused general complaint and led to what is known as the Granger move- ment. Laws were demanded, especiallj' in the agricul- tural States of the West, which should regulate the rates, methods of operation, and the political relations of the railroads. The friends of this movement were successful in the political contests that followed, and Granger legis- latures were elected in the States of Illinois, Wisconsin, Iowa and Minnesota. Laws, were passed fixing the rates on different classes of roads and providing penalties for their violation. The companies contested these acts in the courts, but were defeated at every step, until in 1877 the Supreme Court of the United States sustained the constitutionality of the Granger laws. In the meantime railroad managei's tried their utmost to render, b}^ shrewd manipulation, these laws obnoxious, and they finally suc- ceeded in having them repealed or so amended as to render them largely ineffectual. It jvasjthe principal object of the Granger movement to do away with the many discriminating tariff's which so injuriously affected local points. It is true, discrimina- tions between individuals were practiced at business cen- ters, but rates upon the whole were low at such points as Ilisttini v/' R^ii/nxufs ill tlir liiilril iSfdfcs. nrfii . 93 the Italian states. The vast armies which marched from all parts of Europe toward Asia gave encouragement to the shipping of Venice, Genoa, and Pisa, which some- times transported them, and always supplied thfem with provisions and military stores. Besides the immense sums which these states received on this account, they obtained commercial privileges of great consequence in the settlements which the crusaders made in the East. All the commodities which they imported or exported were exempted from every imposition, the property of entire sul^urbs in some of the maritime towns, and of large streets in others, was vested in them, and all ques- tions arising among persons residing within their precincts, or who traded under their protection, wera decided by their own laws and by judges of their own appointment. When the crusaders took Constantinople, the Venetians did not neglect to secure to themselves many advantages from that event. Nearly all the branches of commerce were in time transferred from Constantinople to their city. At the end of the crusade period Venice had monopolized nearl}' all the foreign trade of Europe. She supplied the people of Italy, France and Germany with those commodi- ties with which the crusaders by their intercourse with more refined nations had become acquainted. The possession of many Eastern ports and the maintenance of a powerful nav3' made it possible for the Venetians to retain their monopoly for several centuries. The growth of commerce in Central Europe was but slow, owing to the dangers to which it was exposed in those days of feudalism. The mountain fastnesses of robber knights, which controlled every road and navigable river, were so many toll-gates at which the wayfaring merchant was stopped to pay tribute. In time this sys- 94 The Railroad Question. tern of plunder grew to sucli tin extent that hundreds of feudal lords relied upon it for their support. Such a tax upon commerce greatly enhanced the value of all com- modities, and this deplorable state of things lasted until the cities made their power felt by forming alliances for mutual protection. One of these alliances, the Rhenish League, comprised in time seventy towns, and the ruins of the strong castles destroyed b}' its forces still exist along the Rhine, picturesque memorials of those lawless times. Perhaps the most powerful commercial union of the middle ages was the Hanseatic League. To protect their commerce, the • cities of Hamburg and Lubeck formed about the middle of the thirteenth century an alliance for mutual defense. The advantages derived from this union attracted other towns to the conf ederacj'. In a short time about eighty of the largest cities lying between the Baltic and the Rhine joined this famous league, which in time became so formidable that its alliance wtis courted and its enmity was dreaded by the greatest monarchs. The League divided its territory into several districts. Its members, like railway associations of the present da}', made their own laws, and met for this purpose at regular intervals in the city of Lubeck. The original object of the League, mutual assistance against outside attacks, was soon lost sight of, and its constantly growing power was used to obtain still greater commercial privileges in the adjoining countries, and even to force their rulers to con- cede to its members a commercial monopoly. In 13C1 a controversy arose between the League and the King of Denmark, which led to a long and bitter war between them. This war was participated in by no less than seventy-seven cities on the part of the League. It termin- Monopoh/ ill TraiisjMrfafioi) 95 ated in 1?>70, leaving tlie Hansa master of the situation. For many years after tliis tlie League exerhnl its power in Denmark, Swinlen and Norway, and tlie rulers of these countries were compelled to respect the wishes and even submit to the orders of these proud merchants. The countries bordering on the Baltic Sea remained the domain of the League for several centuries. They gathered then; immense quantities of raw material, which they sold in the various ports of Europe. The influence of the League even reached as far as Novgorod in the east and London in the west. In both cities the League had its quarters, and within them it virtually exercised the right of sov- ereignty. Its main market was at Bruges in Flanders, which was then a bee-hive of industry and thrift. Thei-e the Italian traders came with the products of the east, such as spices, perfumes, oil, sugar, cotton and silk, to exchange them for the raw materials of the north. While taxes and imposts everywhere else harassed merchants, commerce was free in the cities of Flanders, owing to the liberality, or rather shrewdness, of her rulers. In Bruges the members of the Hansa met the merchants of Venice on equal terms, and the exchange of the products of the north for those of the east and south could be eft'ected there to the greatest advantage of both. While it must be admitted that the Hanseatic League developed the resources of Northern Europe, and that, even at the time of its greatest power, there was always competition among its own members, the fact remains that it abused its power by the suppression of all outside competition, and that it usurped rights which belong only to the state, thus often producing abuses as great as those which it was organized to remedy. Its final downfall was caused by the development of national power in the 96 The luiilroKil (Jidsfi'nii. northern kingdoms and the growth of commerce and xtiavi- gation in Great Britain. A stubborn assertion of anti- quated privileges on the part of the Hansa involved it in a feud with the illustrious and lion-hearted Qneen Eliza- beth of England. In 1589 the Queen caused sixt}' of their vessels to be captured on the Tagus, and later even took possession of their hall and wharves in London. After this the League's decline was very rapid, though its organ- ization was kept up till 1GG9, when its delegates held their last session. Contemporary with the decline of the Hanseatic com- merce in the north was that of the Italian cities, especially Venice, in the south. They had prospered b}' their com- merce with the Levant until A'asco de Gama discovered the sea route to East India in 1497. His countrymen, the Portuguese, soon utilized this discovery. They took pos- session of the coast of India and of the islands to the south of it. They also succeeded in excluding the Arabs from the commerce Avith that country, of which up to that time they bad had exclusive control. For this purpose tliev built fortresses and factories on the west coast of Hindostan, took possession of the island of Socotra in the Aral)ian, and of Ormus in the Persian Gulf, and forced the Indian princes to grant them the exclusive privilege of trading with their subjects. They also captured the city of Malacca, where the trade between China, Japan, the Philippine Islands, the Moluccas and India had concen- trated itself. In this way they got in a comparatively short time control of the commerce of India, Arabia, and even Eg3-pt. By forcing the Venetians and their com- mercial allies out of those markets, they secured for themselves a monopoly of the commerce between Europe and the east. The political ascendancy of the Turks in MnnopoTji ill 7\'(ni,sj)ortati<>)i . 97 r the islands situated in, and in the countries bordering on, the Eastern Mediterranean, caused the loss of Cyprus, Crete (Candia) and Morea to the Venetians and greatly aided the Portuguese in establishing their commercial supremacy. Less profitable for the latter was the pos- session of their American colonies. They, as well as the Spaniards, adopted here a policy which ultimately brought commercial and industrial ruin upon both. Entirely neglecting agriculture and relying on the mineral resources of their transatlantic colonies, which were believed to be inexhaustible, they strove to amass riches by reserving for themselves the exclusive privilege of supplying them with the manufactures of Europe in exchange for Amer- ican gold. Neglecting home industries, they bought their supplies as well as those of their colonies in France, Hol- land and England. A spirit of speculation and adventure enervated their people, and led in time to commercial bankruptcj^ and political disaster. Spain also drained her treasury by her wars with her Dutch dependencies, and the loss of her northern prov- inces was a serious blow to her commerce. Antwerp, which had become the successor of Bruges as the com- mercial emporium of the north, began to decline, and Amsterdam, the metropolis of the new Dutch republic, became heir to its glory and its riches. The young republic at once commenced to compete in the carrying trade with Spain and Portugal, and to make inroads into the eastern commerce of the latter. The Dutch East India Company, which was organized in 1602, sent a fleet of fourteen vessels into the Indian Archipelago to found colonies in Java, Sumatra and the Moluccas. In a short time they had monopolized the entire spice trade, which immediately became a source of 98 The Railroad Question. great wealtli. A cargo of five vessels, which returned to Amsterdam in 1003, consisted of over two million pounds of spices. This cargo was purchased for 588,874 florins and was sold for 2,000,000 florins. It is under these circumstances not surprising that the dividends of the companj^'s stockholders often amounted to 75 per cent. , and never went below 12^ per cent, previous to 1720. Holland's colonial trade made Amsterdam the commercial metropolis of Europe. It became the grain market from which Spain, Italy and other countries drew their supplies. All the products of the world found purchasers here, and a well-developed banking system greatly facilitated the exchange. The rapid accumulation of fortunes by the Dutch merchants and bankers was without precedent in Europe. Besides this, the progress which Holland made in ship-building and navigation and the advantages which she derived from her colonial trade placed her in a posi- tion to outstrip all other nations in the carrying trade of Europe. During the first half of the seventeenth cen- tury the Dutch were justly called the freighters of Europe. But the injury which their policy did to the commercial and manufacturing interests of other European nations led both England and France to adopt measures well cal- culated to accomplish, in a short time, their commercial emancipation. Louis XIV. , in order to build up French shipping, collected a tonnage from every foreign ship which entered a French harbor. England went still further. In 1651 Oliver Cromwell promulgated the Navi- gation Act, by which foreign ships were prohibited from importing into England any goods except such as were produced or manufactured in their own countries. This was a heavy blow at the Dutch, who were thus deprived of the privilege of efl'ecting the exchange of commercial Monopnly in Transporfafinu . 99 commodities between England and her colonies as well as the continent. The war which the Dutch Republic waged against England, to force her to revoke this act, resulted in favor of the latter and ended the commercial supremacy of the Dutch in Europe. England, which before this time had pla^'ed but a sec- ondary role as a commercial power, rose fast to promi nence after her successful struggle with the Dutch. She commenced to strengthen her industries by the adoption of a high tariff policy, and her merchants were encouraged to enter into commercial relations with colonists and for- eigners. The privileges which had been given to foreign tradesmen were revoked, while ship-building and naviga- tion were greatly favored by the government. As Eng- land gained greater strength as a naval power, her foreign policy became more aggressive. In 1600 the " Company of Merchants of London Trad- ing to the East Indies " obtained a charter, and, in spite of Dutch and Portuguese opposition, soon gained a foot- hold on the Moluccas and the coast of Malabar, whence ilr extended in time its dominion to Surat, Bombay, Madras and Calcutta. Here they built forts and established their commerce. From these places the company pushed into the interior, until finally, after repeated struggles with the natives and European rivals, the whole of Hindostan came under English dominion. As its power increased, the company commenced to abuse shamefully the mon- opoly which it had been granted, by inaugurating a system of plunder and oppression which is perhaps without its equal in the annals of history. These growing abuses led to frequent revolts and seriously imperiled England's dominion in these territories. To remedy these e^ils, Parliament at the close of the 100 The RaUrodil Q it est Ion. seventeenth century annulled the charter of the company and declared the commerce with the East Indies open to all of the King's subjects. A number of small companies were formed, but in 1702 they all combined and organized the East India Company. Monopoly was again estab- lished, but the patience of the natives was exhausted, and England's interests in Hindostan were in a critical con- dition. At this juncture the East India Company adopted a policy of moderation, and this, together with the aid which the government gave to the company, enabled it to strengthen again its weakened commercial relations and to further enlarge its territory. But the temptation to abuse its power was too great for this strong corporation to be long resisted. Abuses again crept into its management and continued to grow until its charter was finallj' repealed. The policy adopted by Great Britain for the govern- ment of her American colonies during the eighteenth century was less rapacious, but scarcely more just than ' that pursued in her eastern possessions. To retain those colonies as commercial no less than as political depend- encies. Parliament enacted laws compelling their people to trade with the mother country exclusively and laying restraint on their manufactures. But the American pio- neers felt that they had brought with them across the ocean the rights of Englishmen; they objected to taxation without representation, and the men who for opinion's sake had left comfortable homes to brave upon a distant shore the dangers of frontier life were prepared, if neces- sary, to emphasize their objection by armed resistance. England, intent upon maintaining her barbaric system of discriminative duties and commercial monopolies, blindly attempted coercion, but the war which resulted wrested Moiiojxil If ill Triiiispnrfnd'oti . 101 from the English crown its brightest jewel, and the War of 1812 established upon American soil the principle of industrial and commercial libert}'. It must not be supposed, however, that America and the United States in particular have been free from mono- polies growing out of the transportation business. Nothing would be farther from the truth. There is no law so stringent but that it will be violated ; there is no govern- ment so vigilant but that it will at times be imposed upon. It is true, our government sanctions no monopol}^, but the very liberty of action which exists here among corpora- tions as well as individuals offers to organized wealth and power a wide field for abuses. We have seen in the foregoing that almost from time immemorial efforts have been made to monopolize trans- portation and trade, and that these efforts were successful whenever either from ignorance or weakness the masses fell into political apathy. There is a natural tendency among men to utilize commercial advantages to the detri- ment of others. In modern times the opportunities for building up large monopolies have greatly increased and have been turned to the most profitable account by design- ing men. Great and even unbearable abuses have alwa^^s followed where the greed and ambition of such men have not been checked by governmental agencies. In this respect the people of the United States have had about the same experience as the rest of mankind. Ever since the introduction of railroads into this country there has been a well-marked drift toward monopolizing the trans- portation business. As long as the dangers of monopoly remained unknown to the American people, legislation for the control of rail- roads and other public carriers was both scarce and crude, ] U2 The Railroad Question. and shrewd railroad men were not slow in taking advan- tage of the situation. It is foreign to the design of this treatise to give a .complete history of railroad monopoly in the United States. The author will therefore confine himself to showing that transportation companies will, like the great commercial organizations of the past, when left to follow their instincts, invariably use their power to oppress the public by exacting excessive charges for their services, or to discriminate against the many by extending special privileges to the few. Hundreds of cases might be given to illustrate the above rule, but a histor}' of two of these corporations will suffice to show to what extent corporate abuses can be carried, and to serve as a warning against the adoption of any " laissez falre " policy in the railroad legislation of the future. The corporations selected for this purpose are the Camden and Amboj^ Railroad and the Standard Oil Companies, both tj^ical representatives of the Rob Roy policy which organized wealth has pursued since the dawn of civilization, when not prevented by the wisdom and strength of a good government. THE CAMDEN AND AMBOY RAILROAD COMPANY. For almost forty years the Camden and Amboy Rail- road was the only direct route between the cities of New York and Philadelphia. It is doubtful whether previous to the war a more important or a more remunerative road existed in the United States, for, besides connecting the two largest cities in the Union, it formed part of the direct land route from the East to the South. The efforts to open a direct through route between New York and Philadelphia date back to the year 1812, when the construction of a canal between the Hudson and the Monopoly III Transportation. 103 Delaware was proposed, but an ill-advised jealousy of the State of Pennsylvania delayed for many years the realiza- tion of the project. When this obstacle was finally over- come, a change of sentiment had taken place in New Jer- sey. Railroads had just made their appearance in the United States, and a large number of the people of New Jersey preferred a railroad to a canal. The matter was finally compromised in the legislature of New Jersey, which on the 4th of February, 1830, simul- taneously granted charters to the Delaware and Raritan Canal Company and the Camden and Amboy Transporta- tion Company, fixing the capital stock of each company at $1,000,000, with the right to increase it to $1,500,000. The charter further stipulated what taxes should be paid to the State, and also contained the provision that within five miles of the starting-point and within three miles of the terminus of each line no other railroad or canal should be built. It was believed the existence of both a water and a land route would be sufficient to maintain compe- tition on this important thoroughfare of interstate traffic. The construction of the railroad, which had been surveyed in almost a straight line between its termini, was at once commenced. A number of well-to-do and practical men took hold of the enterprise, among them one John Stevens. who together with his three sous took one-half of the capital stock. The canal project did not do so well at first. At the middle of the year 1830 only about one- twelfth of its capital stock had been sold, and there was great danger that the company might forfeit its charter, as the time allowed for the subscription of its stock was nearing its end. At this juncture Robert Field Stockton, a young man of ability, enthusiasm and wealth, came to the rescue of the canal company. He not only bought 104 The Railroad Question. for himself a goodly share of the canal stock, but also prevailed on his rich father-in-law, Mr. John Porter, to invest $400,000 in the enterprise. The financial difficul- ties of the company were thus removed. At the next session of the legislature Mr. Stockton secured an amend- ment to their chf.rter which apparently only authorized the enlargement of the canal, but in reality empowered the canal company to construct a second railway. It was from the beginning Mr. Stockton's object to share with the railroad company the advantages which their line promised to give them. The enlargement of his company's franchise placed him in a position to dictate terms to the Camden and Amboy Transportation Com- pany. The latter was given the choice, to prepare for competition with a rival railroad line, or to consolidate with the Delaware and Raritan Canal Company. It chose the latter alternative, and on the 15th day of February, 1831, the two companies became one. The consolida- tion still required the sanction of the legislature. This was obtained in consideration of the transfer of 2,000 shares of the capital stock of the company to the State. It was fur- ther stipulated that the new company should pay to the State a tax of 10 cents for each passenger and of 15 cents for each ton of freight carried over its line through the State, as well as an annual tax of $30,000, and that the State in return should protect the company against any and all competition in the direct passenger and freight traffic between the cities of New York and Philadelphia. Serious doubts were at the time entertained by many, whether the State of New Jersey under the Federal Constitution possessed the right to thus create a monopoly in trans- portation facilities, and to regulate arbitrarily the com- merce between sister States. Monopoly in Tratisporfafioii . 105 Five days after it had granted this charter to the Camden and Amboy Company, the legislature granted another charter authorizing the construction of a railroad from Jersey City to New Brunswick on the Raritan River. On the 23d of February of the same year a charter had been granted by the legislature of the State of Pennsylvania to a company which had been formed for the purpose of con- structing a railroad from Philadelphia to Trenton. This company had likewise been authorized by its charter to buy the right of way for a railroad from Trenton to New York, which it proceeded at once to do. It was evident that as soon as the two new roads would meet at New Brunswick, an understanding would be reached between them, by which another through line would be created between New York and Philadelphia, which would have the advantage over the Camden and Amboy road that it touched the capital of New Jersey and could thus make itself serviceable to members of the legislature, officers of State and influential politicians. The Camden and Amboy Freight Company soon arrived at the conclusion that it could not permit such rivalry. It appealed to the legislature for protection. Resolutions were passed in its favor, but the Philadelphia and Trenton Railroad Company paid no attention to those resolutions, but quietly continiied to lay its track. Mr. Stockton and his friends did not dare to invoke the aid of the courts, because a judicial investigation might have resulted in the destruction of their own charter. The situation was crit- ical, but Mr. Stockton was equal to the occasion. He bought quietly a sufficient number of shares to control the management of the Philadelphia and Trenton road, and, in April, 1836, secured the consolidation of the Philadel- phia and Trenton and the Camden and Amboy railroad companies. 106 The Rrtilroad Qxesfiou. The canal of the^ compaii}' was not completed iintil 1838. It had consumed a sum of money largely in excess of the original estimate. To connect the two lines of the consolidated company, a branch road was constructed from Trenton to Bordentown. Later the road from Tren- ton to Brunswick was completed and an agreement entered into with the Jersey City company for a division of the traffic of the two roads. The large cost of these improve- ments suggested to the company' the advisability of increasing its revenues and of decreasing its expenditures. Its charter provided for a paj'ment to the State of 10 cents for each through passenger. By an artifice the company- avoided the payment of this tax. It compelled its through passengers to walk over the bridge at Trenton and then continue their journey by rail via Bordentown to Jersey City. The company's charter also stipulated that the fare between New York and Philadelphia should not exceed $3 per passenger. Its officers interpreted this stipulation to apply onl}' to the intermediate traffic and proceeded to collect $2.50 for the trip from New York to Trenton, and $1.50 from there to Philadelphia, thus increasing the fare for the entire journey to $4.00, one dollar above the max- imum allowed by law. One Jacob Ridgway, who was the owner of a ferry-boat at Camden, saw here an opportunity for starting a lucrative business. He bought a steamer and carried passengers from Philadelphia to Trenton for one-third of the fare demanded b}' the railroad. After the Camden and Amboy Compan}^ had made several unsuccessful attempts to intimidate 31r. Ridgway and his force, one of which even brought Mr. Stockton in contact with the criminal courts, it purchased the boat with all terminal facilities at Philadelphia and Trenton. The MoiKjpoJy ill Transportation. 107 attention of the legislature of New Jersey was repeatedly called to the company's failure to comply' with the pro- visions of its charter, but these appeals were on the whole of no avail. In 1842, after a long discussion, a resolu- lution was carried declaring the charge of $4 for the through journey illegal, but the company entirely ignored this legislative reminder and continued its old tariff. The company's charter also reserved for the State the right to acquire the Camden and Ambo}' road under cer- tain conditions upon the payment of a reasonalile compen- sation. In 1844, through Mr. Stockton's engineering, the constitution of New Jersey was so amended as to practically deprive the State of the power to acquire the company's property. During the first few years of the existence of the Cam- den and Amboy Transportation Company its business was managed in the interest of its owners, but soon a few of its leading stockholders managed to turn its enormous profits into their own pockets. The Stevens and Stockton families, together with two other directors of the Camden and Aiiboy Company, had come into possession of a line of steamers that plied on the Raritan, between New Brunswick and New York. The enterprise, in spite of its largel}' watered capital, had been made to pa}' dividends ranging from .30 to 40 per cent. Its owners saw an oppor- tunit}' for a larger field of usefulness and larger divi- dends. In 1834 a majority of the board of directors of the Camden and Amboy Company proposed that the com- pany rid itsejf of the responsibility connected with the transportation business and lease its railroad and canal. Mr. Stevens, as representative of the Camden and Ambo}' Compan}', then negotiated with IMr. Stevens, the repre- sent9,tive of the Napoleon Steamer Company, and the 108 Tlic Railroad Question. negotiations soon resulted in an agreement between the two companies by which the latter leased the railroad and canal lines of the former and agreed to pay it a fixed toll of $7. 64 per ton upon all freights carried b}' rail, and one- quarter of all its revenues derived from the canal. Soon afterward the Napoleon Company entered into a similar contract with the Camden Ferry Compan}" and now had a complete monopoly of the transportation business between New York and Philadelphia. It at once commenced to develop a S3'stem of organized plunder. Instead of the maximum charter tariff of 8 cents per ton per mile, it charged 10, 12, and even 15 cents. The through rates charged were several times as high as those fixed by the charter. Canal rates were raised to such an extent as to make them prohibitorj' and to compel the public to ship by rail. It is difficult even to estimate the total annual profits of the directorial syndicate. Their accounts, if any were kept, were not accessible, and surmises can only be based upon such data as occasionally found their way to the public. In 1845 the share of the canal tolls paid to the company's stockholders was $359,000. The direc- tors' share under the terms of their lease is thus found not to have been less than $1,077,000. Another item of $170,000, tolls collected for the transportation of 27,000 tons of freight, was so divided that the Camden Ferry Company, or its other self, the directorial s^-ndicate, received $32,000 for one mile, while the Camden and Amboy Railroad Company received $63,000, or less than twice as much, for ninety-two miles. The directors under their lease were entitled to the remaining $75,000. The sersice of the company was as bad as it was ex- pensive; its trains were slow and irregular, and its employes arrogant. The syndicate which controlled the Monopoly ill Tiunsportntion . 109 L_ ^ ., company defied its stockholders, the public and the courts alike. When one of the stockholders, a Trenton merchant by the name of Hagar, applied to the courts for an order to compel the directors to produce their books and render an account, the syndicate bought Mr. Hagar's shares, for which he had paid $125 a share, at the price of $1,456 a share. The suit was then withdrawn and the matter hushed up. In 1848 a number of articles appeared in a paper pub- lished at Burlington, Pa., which were signed by "A Citizen of Burlington " and contained much surprising information concerning the Camden and Amboy Trans- portation Company. It was charged that the directors had defrauded both the State and the company's stock- holders of large sums of money, that they had grossly Aaolated their charter b}' charging illegal and extortionate rates, oppressive to both commerce and travel. It was shown that while the average rate per ton per mile of thirtj'-five neighboring roads was 2.85 cents, that of the Camden and Amboy Company was 4.54 cents. It was also shown that neither the stockholders nor the State had received the shafe of the company's revenues to which they were entitled. These articles were extensively reprinted and caused a great commotion wherever they appeared. After the first storm had subsided the direc- tors issued an address to the people of New Jersej^ in which they bitterly complained of the people's loss of confidence in their integrity, and declared that the charges preferred against them were founded on false- hoods. The " Citizen of Burlington" replied by accusing the directors of defalcation and falsifying their books. He charged that from 1840 to 1847 no account had been 110 The Railroad Question. _ _ __ . rendered of the receipt of no less than 15,266,431, on which $493,066 was due to the State. As soon as the legislature convened, a resolution was introduced that a commission be appointed to investigate the charges pre- ferred against the Camden and Amboy Transportation Company. The resolution was adopted, but it was vir- tually left to the accused to select the members of the commission. That the directors had a guilty conscience appeared from the fact that the last annual report of the company, which had just been printed, was withdrawn and destroyed. To silence their unknown accuser, they threatened him with criminal prosecution. He now gave his name. It was Henry C. Carey, the noted writer and authorit}' on political economy. Mr. Carey did not give up the contest. He proceeded to show how the policy of the managers of the Camden and Ambo}' Transportation Company depressed commerce, manufactures and agri- culture alike. He showed how the company as a public carrier discriminated in favor of industries which they carried on as private individuals. He claimed that the companj' had forfeited its charter, and that it was the duty of the State to authorize the construction of another road. In the meantime, early in 1849, the legislative investigation committee submitted its report. It was perhaps as shameless a document as was ever placed before a legislative assembly. It lauded the directors, to whose influence the members of the commission owed their selection, and whitewashed their past management of the company's affairs. But the people of New Jersey were far from being sat- isfied with this report and demanded the appointment of another committee. Another investigation was ordered, and this time the company, or rather its directors, found Monopoly in Transportation. Ill it impossible to control the selection of its members. Soon after their appointment the committee asked Mr. Carey to lend them his assistance in their labors, and he readil}' consented. During the summer of 1849 the mem- bers of the committee had occasion to go to Bordentown, to inspect the company's books. From that time on a wonderful change seemed to have come over the com- mittee. They found they could dispense with Mr. Carey's further services. What had previously appeared to them a ring of rapacious monopolists seemed now an association of worthy philanthropical gentlemen. In their report to the legislature they completely exonerated the company's managers. They admitted that the State had not been paid all that was due to it, but they asserted that this difference in the company's accounts was due solely to clerical errors, for which the management were in no wise responsible. The report was accepted, although not even the annexed testimony supported it, and thus the matter was dropped. This was a great victory for Mr. Stockton and his friends. It demonstrated the success of their methods of dealing with public servants. Mr. Carey repeated his charges, but the directors failed to prosecute him for libel as they had threatened. He asked that he be per- mitted to inspect the company's books, but was met with a peremptory refusal. Public opinion was defied, and the old methods were continued. The extortionate and discriminating tariff of the only through route of New Jersey affected seriously the agri- cultural as well as the commercial interests of that State. The Camden and Amboy monopoly kept the State of New Jersey for many years far behind the New England States in railroad facilities. In 1860 New Jersey had only one 112 The Railroad Question. mile of railroad for every 17.6 square miles of territory, while the proportion of miles of railroad to square miles of territory for the same year was 1 to 7.9 in Connecticut, 1 to 7.6 in Rhode Island, and 1 to 6 in Massachusetts. At present New Jersey has one mile of railroad to every 3. 79 square miles, and therefore leads all the States in the Union in density of railroad track. The question may be asked how the Camden and Am- boy Transportation Company, or rather the syndicate which controlled it, contrived to maintain its power for so many years, to the great detriment of industry and com- merce. The only answer that can be given is that the men for whom the maintenance of the monopoly was a source of great wealth were constantly using a part of this wealth for the corruption of those who were in a posi- tion to influence public opinion or to direct the policy of the State. Prominent politicians were favored with passes, attorneys were retained by the company as local solicitors, corrupt and servile legislators were bribed by money or the promise of lucrative positions, and news- papers were given large subsidies. In addition to this public men were constantly made to realize the political power of the company, whose many employes had always been trained to do the bidding of their masters. If the opposition, in spite of this, was ever successful at legis- lative elections, the company's managers found it less expensive to gain the good will of a few members of the legislature after election than it would have been to gain the good will of their constituents before election. Dis- satisfied stockholders who threatened with judicial investi- gation were quietly bought out or impressed with the danger of inviting public discussion in regard to the val- idity of the company's charter, as it might lead to its Mmxtpoli/ ill Tr(nisj)t)j-fafio)i . 113 annihilation. The good people of New Jersey made sev- eral attempts to rid the State of the despotism of the company by making the question a political issue, but they were each time defeated through the lavish and scandalous expenditure of the company's- money. The original charter of the Camden and Amboy Eailroad Company was granted for a period of twenty years, and should have expired in 1853, but its managers succeeded in having it extended to January 1, 1859. In 1854 another extension was asked for, and after a long and bitter debate the company was again triumphant. An act was passed on the 16th of March, 1854, making it illegal to build previous to the first day of January, 1869, with- out the consent of the Camden and Amboy Transportation Company, a railroad in the State of New Jersey for the transportation of passengers and freight between New York and Philadelphia. At the end of this period even a third extension was granted, and the compan}^, though after January 1, 1867, under a new name, maintained its monopoly until it consolidated, in 1871, with the Pennsyl- vania Railroad Company. That the spirit of the past is still at work was shown by the recent act of the legislature of New Jersey legalizing the consolidation of the coal roads. The coal barons found the legislature as servile as the managers of the Camden and Amboy Railroad Company had found them of yore, and their well-planned scheme would probably have been successful had it not been for Governor Abbot's courageous veto of the disgraceful act, and it is more than probable that they will yet succeed. They have, in fact, during the last year advanced the price of coal about one dollar per ton. 114 The Railroad Qnestiun. THE STANDARD OIL MONOPOLY, The Standard Oil monopoly may be said to be the crowning monument of corporation conspiracy. It is, indeed, doubtful whether the combined brotherhoods of mediaeval knights ever were guilty of such acts of plunder and oppression as the Standard Oil Company and its rail- road allies stand convicted of before the American people. The facts that have been unearthed by official investiga- tions show a frightful prevalence of corporate lawlessness and official corruption, and there can be no doubt that, could certain high railroad dignitaries have been compelled to testify, and could the truth have been fathomed, it would have been found that not only tha public, but railroad stockholders as well, were victimized by those trans- actions. The founder of the Standard Oil monopoly was some twenty years ago part owner of a petroleum refinery at Cleveland, Ohio. His fertile brain conceived the thought that with the cooperation of the railroad companies a few men of means could control the petroleum business of the United States. With this end in view he approached che managers of the New York Central, the Erie and the Pennsylvania Central railroad companies, and on January 18, 1872, entered with them into a secret compact by which the}^ agreed to cooperate with the South Improve- ment Company (an organization formed by that gentleman to aid in the accomplishment of his designs) to grant to said companies certain rebates and to secure it against loss or injury by competition. The South Improvement Company, in consideration of these favors, guaranteed to the railroad companies a fair division of its freights. The existence of this contract soon became known and caused a violent protest among the oil-producers. An indigna- Monopoly In Transportation. 115 tion meeting was held and a committee was appointed to wait on the raih'oad managers and demand fair treatment for all. The railroad companies j'ielded and promised to give equal rates to all shippers and to grant to no person either rebates or any other advantage whatever. New rates were fixed for the transportation of both crude and refined oil, and it was agreed on the part of the railroad companies that at least ninety days' notice should be given of any change that might be made in the rates. Steps were also taken to have the charter of the South Improve- ment Compan}' canceled because it had been found that it was neither the owner of a refinery nor of an oil well, and could therefore not comply with the legal requirements concerning the organization of stock companies. While the South Improvement Compan}^ thus came to a sudden and rather inglorious end, its founders soon contrived other means to carry out their ingenious plans. They bought a refinery, reorganized by taking the prepossessing title of Standard Oil Company, and were now pr/epared to resume their operations under the guise of legal authority. The railroad companies seemed to have relished their novel business connections, for. without paying the least attention to the agreement into which they had entered with the other producers and refiners of oU, they extended the privileges of the defunct South Improvemen,t Com- pan}^ to its successors. The new company received secret rebates ranging from 50 cents to $1.32 per barrel. The agreement also contained the stipulation that if lower rates should ever be granted to their competitors, an additional rebate should be given to the Standard Oil Company. Endowed with these privileges, the favored company proceeded to unite under its banner, by consoli- 116 The Railroad Question. elation, purchase or lease, the leading refineries of Cleve- land. The effect of the discriminations practiced against inde- pendent refineries soon became apparent. In less than two years there were closed in Pittsburgh twenty-one refineries, that represented an aggregate capital of $2,000,000 and had given employment to over 3,000 people. A large number of the remaining refineries were forced to consolidate with the Standard Oil Company. The next step toward the entire suppression of compe- tition was an attack planned against the independent pipe lines. The Standard had early secured control of the United Pipe Line. To exterminate competing lines, they again appealed to the railroad companies, and on the 9th day of September, 1874, J. H. Rutter, general freight agent of the New York Central, issued a new oil tariff which discriminated greatly in favor of the oil brought by the United Pipe Line to the refineries. Up to that time this company had done from 25 to 30 per cent, of the total business of the various pipe lines. Within one year after the adoption of the new tariff it did fully 80 per cent, of the entire business. This forced the independent lines either to sell out to the Standard or to suspend busi- ness, for the latter's rebate was larger than their toll. The oil tariff of* the Pennsylvania Central compelled the independent Pittsburgh refiners to ship their refined oil over that company's line, if they would avail themselves of the rebate which it granted on the rates for the trans- portation of crude oil to Pittsburgh. The evident pur- pose and the effect of such a tariff was to prohibit oi] shipments over the Baltimore and Ohio. Had this road made ever so reasonable a tariff, the combined charges for the transportation of the crude petroleum from the oil Monopoly in Transportation. 117 regions to Pittsburgh by the Pennsylvania Central, and for that of the refined oil to the sea coast by the Balti- more and Ohio, would still have been prohibitive in coin- petition with the special transit rates granted to the Standard Oil Compan}'. As a remedy it was proposed to organize a new pipe line, it being believed that the crude oil could be brought to Pittsljurgh by that line, refined there, shipped to the seaboard by the Baltimore and Ohio, and sold there at as good or even a better profit than the product of the Standard, notwithstanding the favors received by- the latter from the allied trunk lines. This movement resulted in the creation of the Columbia Conduit Compan}', which at once proceeded to Isij its pipes from the oil wells to Pittsburgh. Under the laws of the State of Pennsylvania it became necessary for this company to obtain the permission of property-holders to lay the pipes through their lands. Consent was every- where readily given, and the pipes were laid without hindrance until the track of the Pennsylvania Railroad was reached, within a few miles of the Pittsburgh refin- eries. This company peremptorily refused to let the pipes be laid under its track. The pipe line compan}^ ^fter some delay contrived a way to obviate the diflSculty. It laid its pipes on each side of the road as close to the track as it could without trespassing against the legal rights of the Pennsylvania Central, and then convej'ed the oil from one side of the track to the other by means of large oil tanks on wheels, which could not be prevented from passing over the railroad track at the public crossing. After several months the railroad company allowed the pipes to be laid under its track, but it soon appeared that another combination had been efl'ected to destroy the value of this concession. A railroad war kad given the three 118 The Railroad Question. trunk lines an opportunity to force the Baltimore and Ohio into the pool. A uniform rate of $1.15 was established for shipments of refined petroleum from any point to the seaboard. While this was in itself an unjust discrimina- tion against Pittsburgh, which is 250 miles nearer tide- water than Cleveland, the railroads in addition granted the Standard secret rebates which enabled it to sell its oil on the coast for less than the sum of its first cost at the refineries and the open rate of transportation to the points of export. The independent refiners of Pittsburgh found themselves again cut ofT from the market, but necessity soon made them discover another outlet. Ship- ping their oil down the Ohio River to Huntington, "W. Va. , they had it taken b}'' the Chesapeake and Ohio Railroad to Richmond. In spite of the fact that this route was more than twice as long as the direct line from Pittsburgh to the seaboard, and in spite of the further fact that it necessitated an expensive transfer, a rate equal to about two-thirds of the trunk line rate for the direct shipment proved remunerative to the Chesapeake and Ohio. The independent refiners kept up their competition for some time, but the great disadvantage of river travel and the insufficient export facilities of Richmond finally forced them to give up the contest. Until the year 1877 the Standard Oil Company had worked hand in hand with the railroads. It had obtained all its privileges by asking for them and by holding out inducements to railroad managers to grant them. It now commenced to dictate terms to refractory railroad com- panies. The Pennsylvania road ventured to carry oil not the property of the Standard on terms which that company did not approve. The latter ordered the road to refuse to MiiiKipoli/ ill Tidiisportidlon . 119 carrj^ the product of their competitors. This the railroad company declined to do, and the Standard at once with- drew its custom. The Pennsj'lvania retaliated by carrying the oil of the independent refineries at merely nominal rates and even went so far as to make its rates dependent upon the profits realized by the shippers. A fierce freight war was thus precipitated,, in which the Erie and New York Central supported the Standard Company. The Pennsylvania road was soon forced to surrender and sign an ignominious treaty. The Baltimore and Ohio, which had again commenced to carry the product of those Pittsburgh refineries which received their crude oil through the Columbia Conduit Company, was in a similar manner forced to reject their freights. The pipe line, whose value was thus almost entirel}^ destroyed, was soon after sold to the vStandard Oil Company. This company had now an almost com- plete monopoly of the oil business of the United States, and still it was not satisfied. It appears that some of the producers of crude oil had been in the habit of shipping a part of their product in spite of the advantages which the Standard had through its rebates. To prevent even these shipments, or rather to exact another tribute from rail- road stockholders, the American Transfer Company, one of the auxiliaries of the Standard Oil Trust, in 1878, demanded and received from the Pennsylvania road a " commission " of 20 cents a barrel on all shipments of petroleum made hy anij shipper. It had been shown to the satisfaction of the Pennsjivauia Railroad Company that similar commissions, ranging from 20 to 35 cents a barrel, were being paid by the New York Central and Erie roads. When, in 1879, an effort was made to establish a pipe 120 The Railroad Question. line from the oil regions to tlie seaboard, nothing was left undone by the trunk lines to thwart the enterprise. The new company finally succeeded in making connection with a railway which had no part in the pool, and there was some hope that under this arrangement competition might at least be maintained at some points. The Stan- dard Company again appealed to the trunk lines to pro- tect it against injury by competition and obtained from them a special rate of 20 cents per barrel, which rate was even reduced to 15 cents per barrel two months later. Against such a rate it was impossible to compete, and after a short struggle the new line found itself compelled to sell its works to the Standard. To crown its monopoly, the Standard Oil Company finally bought of the New York Central and Erie roads their terminal facilities for the transportation of oil, and thereby made it virtually impossible for them to transport oil for any of its few remaining competitors. Mr. Josiah Lombard, part owner of the New York refinery, stated in 1879 before the investigating committee of the legislature of New York that in 1878 he had requested the Erie Company to transport for him 100 cars of crude oil from Carrollton to New York; that he had called upon Mr. V-ilas, the general freight agent of the company, in person, but had never been able to obtain the cars, though the oil had been held in Carrollton three or four months ready to be loaded. This gentleman also testified that he had found it impossible to obtain cars from the New York Central, and that the company's general freight agent had informed him that the road did not own and could not furnish any oil cars. After the Standard Oil Company had secured control of the various pipe lines of the oil regions, it frequently Monopoly in Transjjortation. 121 lowered the price of crude oil to such an extent as to make its pl-oduction unprofitable. It even refused to bu}' oil, basing its refusal upon the ground that the railroad companies failed to furnish cars for its transportation. When the well-owners had their tanks filled, they had the choice to let the oil run away or to be at the expense of closing up their wells. In one instance, however, when their ruse threatened to cause a riot, several hundred cars were brought to the wells within a few hours. The Standard Oil Trust, not satisfied with the monopoly of the wholesale trade, even tried in places to control the retail trade by peddling oil at private houses. This method of destroying competition was chiefly resorted to where Independent dealers obtained their supply by a water route. That many of the deeds of the Standard are dark is evident from the fact that its members, when summoned by the Hepburn committee, declined to testify, lest their testimony be used to convict them of crime. Officials of the trust have bribed or attempted to bribe employes of rival firms, for the purpose of ruining their business. By its peculiar methods the company has been successful in courts of justice and legislative halls, and has enjo^'ed an impunity for its conspiracy against the public that is without precedent in America. It has accumulated a cap- ital of more than $100,000, 000, and it is even claimed that for years its annual dividends have exceeded in amount the capital actually invested. This is not at all strange when it is considered that they have levied upon the pro- ducers, consumers and transporters alike. Mr. Cassat testified before the New York investigating committee that in eighteen months the railroads had paid the Standard in rebates no less than $10,000,000. And the 122 The Railroad Question. vei-y payment of these enormous rebates enabled the Standard to decrease the price of oil to the producer and to increase it to the consumer. It is claimed by the defenders of the Standard monop- oly that under the trust the price of petroleum has been constantly decreased to the consumer. That the price of kerosene is lower now than it was fifteen years ago is undoubtedly true, but the reductions were brought about not by the trust, but in spite of the trust. The price now maintained is an unnatural one. The Standard Oil Com- pany never lowered the price of its oil except when com- pelled to do so by competition. The largely increased output of crude oil, the improved methods of refining, the greatly lowered cost of transportation would have lowered the price of coal oil without the philanthropy of the Standard Oil Company. Iron, steel, calico, woolen goods and a thousand other commodities have within almost the same period suffered much larger reductions than coal oil. But even if the Standard monopoly had voluntarily lowered the price of its products, the American people could never approve of its methods. They can never be made to believe that the end sanctifies the means, especially when those means are railroad favors, secret combinations, bribery, intimidation and lawless arrogance. Many other interesting cases might be given. The Southern Pacific Railway Company, for instance, owns nearly all of the railways of California, and enjoys at the present time almost a complete monopoly of the transpor- tation business of that State and much more of the Pacific Coast. Perhaps no set of managers would be more con- siderate of the people's rights in the absence of legal restraint than those in charge of this company, yet there is not a business man on th , Pacific Coast who comes in MonopoJ)) ill Tran.^portdtion. 123 contact with this company who does not realize and feel the power of its iron hand, unless it be those who for various reasons are recipients of its special favors. It has become notorious that the legislature, Board of Kailroad Commissioners and some of the judges of the courts of that State are as servile to the demands of this railway company as are its own employes. The railway company is a closely organized body of shrewd, active men, while those who furnish business for it are not organized, and they will never be able to prop- erly protect their own interests until they control the machinery of their State government. CHAPTER V. RAILROAD ABUSES. AS has already been shown, railroad enterprise met with comparative!}' little opposition in the United States, for, as compared with the interests certain to be benefited by the introduction of the new mode of trans- portation, those likely to be injured by it were insignifi- cant. It is true, the innate conservatism of man even here recorded its objections to the innovation. It viewed with distrust the new power which threatened to revolu- tionize well-established systems of transportation and time-honored customs and to force upon the people eco- nomic factors the exact nature and value of which could only be ascertained by practical tests. But the progres- sive portion of the community was so decidedly predomi- nant that these protests were soon drowned in the general demand for improved facilities of transportation. ^The farmer who had to haul his produce a great distance to reach a market appreciated the advantages to be derived from the location of a railroad station nearer home. The manufacturer who heretofore had, had a very limited terri- tory for the sale of his products well realized that he could with the aid of a railroad enlarge his territory and increase his output, and with it his profits. The pioneer merchant found that he could no longer compete with former rivals in adjoining towns, since the iron horse had reached them and lowered their freights, and he also became a convert to the new order of things and clamored loud for railroad facilities. Railroads seemed the panacea for industrial 134 IxiiUrodd Ahitscs. 125 and commercial ills, and every inducement was held out and every sacrifice made by communities to become parti- cipants of their blessings. So great was the estimate of the conveniences afforded by them and so strongly was public opinion prejudiced in their favor that it is no exag- geration to say that railroad companies as a rule were permitted to prepare their own charters, and that these charters almost invariably received legislative sanction.) To such an extent was the public mind prepossessed in favor of railroads that an}' legislator who would have been instrumental in delaying the granting of a railroad charter for the purpose of perfecting it, to protect the people against possible abuses, would have been denounced as a short-sighted stickler and obstructor of public improve- ments. Anxious for railroad facilities, the people were deaf to the warnings of history. Their liberality knew no bounds. National, State and county aid was freel}'^ extended to new railroad enterprises. Communities taxed themselves heavily for their benefit, and municipalities and individuals ^ed with each other in donating mone}', rights of way and station buildings. This was especially true of the West, whose undeveloped resources had most to gain by railroad extension. So large were the public and private donations in several of the "Western States that their value was equal to one- fifth of the total cost of all the roads constructed. To still more encourage pro- moters of railroad enterprises, general incorporation laws were passed whteh permitted companies to be formed and roads to be built practically without State supervision. /in their admiration for the bright side of the picture, the people entirely overlooked the shad}' side. Besides this, there was virtually an absence of all law regulating the operation of railroads. It was, under these 126 IVie Railroad Question. circumstances, not strange that abuses early crept into railroad management which, long tolerated by the people and unchecked and even encouraged by public officers, finally assumed such proportions as to threaten the very foundation of free government. ^ Great discoveries that add rapidlj' to the wealth of a country tend to overthrow a settled condition of things, and organized capital and power, if not restrained by wholesome laws and public watchfulness, will ever take ad\'antage of the unorganized masses. The people of those regions which the railroad stimulus had caused to be settled thrived for years so well upon a virgin soil that they gladly divided their sur- plus with the railroad companies. They looked upon the railroads as the source of their prosperity and upon rail- road managers as high-minded philanthropists and public benefactors, with whom to quarrel would be an act of sordid ingratitude, and they paid but little attention to the means emplo3^ed by them to exact an undue share of their earnings. Railroad men did whatever they could to foster through their emissaries this misplaced adoration. They posed before the public as the rightful heirs of the laurels of Watt and Stephenson, insisting that their genius, capital and enterprise had built up vast cities and opened for settlement and civilization the boundless prairies of the West. These claims have been persistently repeated by railroad men, though they are so preposterous that they scarcely deserve refutation. The railroad, grad- ually developed by active minds of the past, and greatl}^ improved by the inventions of hundreds of men in the humbler w>alks of life, is the common inheritance of all mankind, though no class of people have derived greater Ijenefits from it than railroad constructors, managers and manipulators. Railroad managers are no more entitled to Railroad Ahuaes. 127 the special gratitude of the public for dispensing railroad transportation at much more than remunerative rates than is the Western Union monopoly for maintaining among us an expensive and inefficient telegraph service. No one believes that the disbanding of the W'^stern Union would leave us long without telegraphic communication. In like manner railroads will be built whenever and wherever they promise to be profitable. If one company does not take advantage of the opportunities offered, another will. JTliat large cities have been built up by the railroads is true, but it is equally true that these cities b}' their commerce and manufactures administer to the prosperitj' of the railroads as much as the railroads administer to theirs. Commer- cial centers in days gone by existed without railroads, but railroads could not long exist without the stimulating- influence of these busy marts of trade. The same argu- ment applies with still greater force to the agricultural sections of our country, especially the great Northwest. The dry-goods merchant might as well boast of having clad the public as the railroad manager of having built up farming communities by selling to them transportation. And yet the American people have never ceased to be mindful of the conveniences afforded to them by this modern mode of transportation. On the contrary, they have been but too prone to credit railroad men with being benefactors, when they were but beneficiaries, and this llberalit}^ of spirit made them overlook, or at least tolerate, the abuses which grew proportionately with the wealth and power of the companies. The first railroad acts of England had contemplated to make the roads highways, like turnpikes and canals. These roads were established bj' the power of eminent domain. Companies were empowered to build and main- 128 The R< til road Question. tain them and to reimburse themselves by the collection of fixed tolls. Had the owners of the roads from the beginning been deprived of the privilege of becoming car- riers over their own lines, the system might have so adjusted itself as to become entirely practicable; but as they were allowed to compete with other cariiers in the transportation of passengers and merchandise, they were soon able to demonstrate, at least to the satisfaction of Parliament, that the use of the track by different carriers was impracticable and unsafe. A number of circum- stances combined to aid the railroad companies in their efforts to monopolize the trade on their lines. In the first place, when the early railroad charters were granted, but few persons had any conception of the enormous growth of commerce which was destined to follow everywhere the introduction of railways. The tolls as fixed in the charters soon yielded an income out of proportion to the cost of th£ construction and maintenance of the roads. Their large margins of profit enabled the owners of the roads to transport goods at lower rates than other carriers and to thus compel the latter to abandon their business. Another defect of the original charters worked greatly to the dis- advantage of independent carriers. They contained no provision as to the use of terminal facilities. The railroad companies claimed that these facilities were not affected by the public franchise and were therefore their personal property. This placed independent carriers at a great disadvantage and made in itself competition on a large scale impossible. These carriers were thus at the mercy of the railroad companies for the transportation of their cars, and the companies never permitted their business to become lucrative enough to induce many to engage in it. It soon became apparent that under the charters granted Railroad Abuses. 129 to the railroad companies such competition as existed on turnpikes and canals was out of the question on their roads. In England the great abundance of water-waj's exercised for many years a wholesome control over the rates of railway companies, until these companies, greatl}' annoyed by such restraint, absorbed many of the larger canals by purchase and made them tributary to their systems. These companies have also acquired complete control over many important harbors. In the United States the people depended from the beginning of the railroad era on free competition for the regulation of railroad charges. This desire to maintain free competition led to the adoption of general incorpora- tion acts, it being quite generally believed that such com- petition as obtains between merchants, manufacturers and mechanics was possible among railroads and would, when allowed to be operative, regulate prices and prevent abuses. The remedy was applied freely throughout the country, but for once it did not prove successful. Stephenson's saying, that where combination was possible competition was impossible, was here fully verified. The great ingenuity of the class of men usually engaged in railroad enterprises succeeded in thwarting this policy of commer- cial freedom. The opportunities for those in control of railroads to operate them in their own interest, regardless of the interests of their patrons or stockholders, were so great that men of a speculative turn of mind were attracted to this business, which indeed soon proved a most productive field for them. One road after another fell into the control of men who had learned rapidly the methods employed to make large fortunes in a short time. I As the roads multiplied, transportation abuses increased. A considerable number of people early favored State con- 130 The RaUnxul Question. trol of railroads as the best means of regulating transpor- tation, but a majority looked upon the existing abuses as being merely incidental to the formative period, and hoped that with a greater expansion of the railroad sj'stem they would correct themselves. And this doctrine was industriously disseminated by railroad managers and their allies. They lost no opportunity to impress upon the people that State regulation was an undue interference with private business and that such a policy would soon react against those who hoped to profit by it, inasmuch as it would prevent the building of new roads and would thus hinder, rather than aid, in bringing about the right solution of the railway question, viz. , regulation by com- petition. Tliey contended, in short, that State regulation would be destructive to railroads as well as to every other class of property. Railroad sophistr}' for man}- years succeeded in pre- A'onting the masses from realizing that an increased sup- ply of transportation does not necessarily lower its price, or, in other words, that railroad abuses do not necessarily correct themselves through the influence of competition. A large capital is required to build and maintain a rail- road, which must necessarily be managed by a few per- sons. Besides this, the construction of a railroad practi- cally banishes at once from its field all other means of land transportation, l^he railroad has thus a pi'actica/ monopoly within its territory, and its managers, if left to follow their instinct, will despotically control all the busi- ness trilnitary to it, with unlimited power to build up and tear down, to punish its enemies and to reward its friends. It is not true that State control checks railroad building.'* While it may prevent the construction of useless lines and discourage speculation, it will encourage the building of Hail load Abimes. 131 roads for which there is a legitimate demaiul. Stock- holders as a whole do not participate in the management of the roads and do not profit l3y railroad abuses, the origin of which may almost invariably be traced to selfish designs on the part of a few entrusted with the manage- ment of the property. Where through wise legislation these abuses are prevented, the roads are managed in the interest of all the stockholders, develop business and enjoy lasting prosperity. It may be laid down as a general rule that the policy which best subserves the interests of the patrons of a road is always the best policy for its owners. Injustice to a railroad will interfere with its usefulness; injustice to shippers depresses production and consumption ; and in either case both the road and its patrons will suffer. State control is therefore as much needed in the interest of the owners of railroads as in the interest of their patrons. What should be the nature of such control will be discussed hereafter. A full understanding of the question at issue, however, makes necessary an inquir}- into tlie various abuses which unrestrained railroad man- agement of the past has developed. Perhaps no better presentation of the evils and abuses of railroads and their consequences can be found than that contained in the report of the Senate Committee on Interstate Commerce, submitted by Senator Cullom, in 1886. This report charges : J 1. That local rates are unreasonabl}^ high, as compared with through rates. 2. That local and through rates are unreasonably high at non-competing points, either from the absence of coni" petition or in consequence of pooling agreements thaj restrict its operation, j 132 Tlie Railroad Question. 3. That rates are established witliout apparent regard to the actual cost of the service performed, and are based largely on ' ' what the traffic will bear. " 4. That unjustifiable discriminations are constantly made between individuals in the rates charged for like service under similar circumstances. 5. That improper discriminations are constantly made between articles of freight and branches of business of a like character, and between different quantities of the same class of freight. 6. That unreasonable discriminations are made between localities similarly situated. 7. That the effect of the prevailing policy of railroad management is, by an elaborate system of secret special rates, rebates, drawbacks and concessions, to foster mon- opoly, to enrich favored shippers, and to prevent free competition in many lines of trade in which the item of transportation is an important factor. 8. That such favoritism and secrecy introduce an ele- ment of uncertainty into legitimate business that greatly retards the development of our industries and commerce. 9. That the secret cutting of rates and the sudden fluctuations that constantly take place are demoralizing to all business except that of a purely speculative character, and frequently occasion great injustice and heavy losses. 10. That, in the absence of national and uniform legis- lation, the railroads are able by various devices to avoid their responsibility as carriers, especially on shipments over more than one road, or from one State to another, and that shippers find great difficulty in recovering dam- ages for the loss of property or for injury therefor. 11. That railroads refuse to be bound by their own contracts, and arbitrarily collect large sums in the shape Rdilroaif Abuses. 133 of overcharges in addition to the rates agreed upon at the time of shipment. 12. That railroads often I'efuse to recognize or to be responsible for the acts of dishonest agents acting under their authority. 13. That the common law fails to afford a remedy for such grievances, and that in cases of dispute the shipper is compelled to submit to the decision of the railroad manager or pool commissioner, or run the risk of incur- ring further losses by greater discriminations. 14. That the differences, in the classifications in use in various parts of the country, and sometimes for shipments over the same roads in different directions, are a fruitful source of misunderstandings, and are often made a means of extortion. 15. That a privileged class is created by the granting of passes, and that the cost of the passenger service is largely increased by the extent of this abuse. 16. That the capitalization and bonded indebtedness of the roads largely exceed the actual cost of their con- struction or their present value, and that unreasonable rates are charged in the effort to pay dividends on watered stock and interest on bonds improperly issued. 17. That railroad corporations have improperly engaged in lines of business entirely distinct from that of trans- portation, and that undue advantages have been afforded to business enterprises where railroad officials were inter- ested. 18. That the management of the railroad business is extravagant and wasteful, and that a needless tax is im- posed upon the shipping and traveling public by the neces- sary expenditure of large sums in the maintenance of a costly ff)rce of agents engaged in a reckless strife for comnetitive lousiness. 134 The Railroad Question. Under the operation of the Interstate Commerce Law some of these evils have, so far at least as interstate com- merce is concerned, disappeared, and others have been considerably mitigated. It cannot be expected, however, that a bad s^-stem of railroad management, to the devel- opment of which the ingenuity of railroad managers has contributed for two generations, could be entirely reformed in a few years. It is a comparatively easy task for shrewd and unscrupulous men, assisted by able counsel and unlimited wealth, to evade the spirit of the law and to obey its letter, or to violate even both its letter and spirit, and escape punishment by making it impossible for the State to obtain proof of their guilt. It is a humiliating spectacle to see the self-debased railroad officials confessing their own guilt by refusing to testify before the Interstate Commerce Commission on the ground that they would thereby criminate themselves. Congress should have sufficient respect for this commis- sion and for itself to provide a wa}^ to punish such recusant witnesses who are willing to degrade themselves in so base a manner. Whether the law will eventually be respected by all depends upon the vigibnce and courage of the people. That our railroad legislation is not j'et perfect even its friends will admit; and as under a free government the demand of an enlightened public opinion is the first step toward the enactment of a law, it behooves the intelligent citizen to study the various railroad problems and to then exert his influence toward bringing about such a solution of them as justice and wisdom demand. In discussing the various evils of railroad management, the author will commence with and dwell more particularly upon those abuses which maybe said to be the cardinal ones, Raifro'ad Abuses. 135 viz. , discrimination, extortion, combinations and stock and bond inflation. Wlien these are once etTectually eradi- cated, other abuses of railroad management which have been the subject of public complaint will not long survive them. One of the strongest arguments that could be adduced by the founders of the American Constitution in favor of the establishment of a more perfect union was that the inequality of taxes placed upon commerce by the various States was a serious obstacle to its free development. Much as the individual States dislike to give up a part of their sovereignty to a central or national power, the demand for a common and uniform system of commercial taxation was so great that they were forced to yield and ratify the new Constitution. Our forefathers thus con- sidered it a dangerous policy to permit a single State to lay any imposts upon the commercial commodities which passed over its borders. They were rightly of the opin- ion that industrial and commercuil liberty was as essential to the welfare of the nation as political freedom and that therefore interstate commerce should not be hemmed in or controlled within State lines, but that the power to regulate it should be lodged in the supreme legislative authority of the nation, the Congress of the United States. For over half a century Congress alone exercised the power thus conferred upon it by the people. After the introduction of railroads, however, their managers grad- ually assumed the right to regulate the commerce of the country in their own interest througli the adoption of arbitrary freight tarifll"s. Freight charges are practically a tax which follows the commodity from the producer to the consumer. An arbitrary and unjust charge is there- fore an arbitrary and unjust tax imposed upon the public 136 The Railroad Question. without its consent. It is a well-established rule of society that laws should be equitable and just to all citizens. Congress never assumed the role of Providence by attempting to equalize those differences among individ- uals which superior intellect, greater industry and a thousand other uncontrollable forces have ever created and will ever create. It has been reserved to railroad managers to demonstrate to the public that a power has been allowed to grow up which has assumed the right to counteract the dispensations of Providence, to enrich the slothful, to impoverish the industrious, to curtail the profits of remunerative industries and revive by bounties those languishing for want of vitality, to humble proud and self-reliant marts of trade and to build up cities in the desert. It will scarcely be claimed even by railroad man- agers that their policy of thus arbitrarily regulating com- merce originated in philanthropic motives. They are forced to admit that it grew out of an attempt to increase the income of railroads by the extension of favors to naturally weak enterprises and to recoup by overtaxing stronger ones. ' The practical operation of this system soon showed to railroad managers their power and to the patrons of rail- roads their dependence upon those who dispensed railroad favors. The former soon discovered that their power might be used to further their private interests as well as those of the roads, and unscrupulous patrons were not slow to offer considerations for favors which they coveted. When such favors were once granted by the officials of one road, rival roads would grant similar ones in self- protection. Thus this vicious s^'stem grew until the pay- ment of a regular tariff rate was rather the exception than the rule, and special rates became an indispensable con- dition of success in business.; Railroad Abuses. 137 We may distinguish three classes of railroad discrimi- nations, viz. : 1. Those which affect certain individuals. 2. Those which affect certain localities. 3. Those which affect certain branches of business. Discrimination between individuals is the most objec- tionable, because it is the most demoralizing of all. Where such discrimination obtains, ever}^ shipper is in the power of the railroad corporation. It makes of independent citizens of a free country fawning parasites and obsequious sycophants who accept favors from railroad managers and in return do their bidding, however humiliating this may be. The shipper, realizing that the manager's dis. pleasure or good will toward him finds practical expression in his daily freight bills, finally loses, like the serf, all self-esteem in his efforts to propitiate an overbearing master. He is intimidated to such an extent that he never speaks openly of existing abuses, lest he lose the special rates which have been given him, or, if he is not a participant of such privileges, lest additional favors be given to his rivals and they be thus enabled to crush him. Intimidation of shippers prevailed to such an extent pre- vious to the enactment of the Interstate Commerce Law that when, in 1879, the special committee on railroads appointed by the legislature of New York invited all per- sons having grievances against railroads to come before them to testify, not one shipper testified voluntaril3^ On the contrary, thej' all insisted upon being subpoenaed, hoping that the railroad managers would not hold them responsible for any statement which they might be com- pelled to make under such circumstances. The report of that committee stated that the number of special contracts in force within the period of one year on the New York 138 The Railroad Question. Central and Hudson River Railroad alone was estimated by the railroad people at 6,000. ^Mr. Depew, when he made the statement: "In territories comparatively new, and with little responsibility on the part of the managers to distant owners, they became in many cases very arbitrary and exercised favoritism and discriminations, which led to popular indignation and legislation," had probably not heard of this. The committee's report further stated that these special rates conformed to no system and varied without rule, that every application for a special rate was judged by itself and with reference to its own peculiar circumstances, and that it depended upon the judgment, or rather caprice, of the officer to whom the application was made, whether and to what extent a special rate should be granted. The reductions made to privileged merchants often amounted to more than what would be a fair profit to the dealer on the commodities shipped. The privileged dealer was thus enabled to undersell his rivals and event- ually force them out of business or into bankruptc}'. It was not at all uncommon for railroad companies to allow , discounts amounting to 50, 60, 70 and even 80 per cent, of the regular rates. The New York Central gave a Utica dry-goods merchant a special rate of 9 cents while the regular rate was 33 cents on first-class freights. The low- est special rate granted at S3'racuse was as low as 20 per cent, of the regular tariff rate on first-class goods. • David Dows & Company and Jesse Hoj't & Company, by means of a grain rate from 2^ to 5 cents lower than those given to other firms, were enabled to control in the winter of 1877 the grain trade of New York. The railroad even extended its fostering aid to A. T. Stewart & Co., giv- ing them a special rate ' ' to build up and develop their business." The testimony given by Mr. Goodman, assist- Rallriinil A/jiiscs. 139 ant general freight agent of the New York Central, in reference to the principle by which he was guided in grant- ing special rates, is of sufficient interest to be given a place here : Question. You made the rate for A. T. Stewart & Company? Answer. Yes, sir. Q. Was that to build up and develop their business? A. Yes, sir. Q. That was the object? A. That was one of the objects. Q. January nth, 1879? A. Yes, sir. Q. You thought that business was not j'et sufficiently built up and developed? A. No, sir; not the manufact- uring part of it. Q. How long had the factories of A. T. Stewart & Com- pany been in existence? A. The one at Duchess Junc- tion about three years, I think; it isn't completed yet. Q. And they were languishing and suffering? A. To a great extent; yes, sir. Q. And 3-ou acted as a fostering mother to A. T. Stew- art & Company to build it up? A. Yes, sir; I added my mite to develop their traffic; we wanted to carry the freight; boats might have carried it in the summer. Q. Do you know anything of Gr. C. Buell & Company? A. Yes, sir. Q. You wanted to develop their business? A. Yes, sir; they are at Rochester — wholesale dealers. Q. Do you know H. S. Ballou, of Rochester? A. I do not. Q. He seems to be a grocer there? A. A small con- cern, perhaps. Q. Small concerns are not worth developing, according to your opinion? A. Our tariff rates are low enough for them at Rochester. Q. That is to say, a small concern ought to pa}^ 40, 30, 25 and 20, as against a large concern, 13; that is j'our rule? A. Well, if he is a grocer, most of his business is fourth-class freight, 140 The Railroad Question. Q. And he ought to pay 20, as against 13? A. Yes, sir. Q. That small man has no right to develop? A. He has the same chance that the other man has. Q. At 20 against 13? A. Oh, yes. Q. Do you call that the same chance? A. About the same chance, yes, sir. Q. You consider it the same chance? A. Yes, sir. Many reasons were assigned by railroad men in justifi- cation of their practices. It was claimed that special rates were given to regular shippers, but it has been proved that not all regular shippers had special rates, and that persons who made only single shipments were often for- tunate enough to obtain special favors. It was further claimed that special rates were given to. those who, start- ing out new in business or developing new enterprises, needed aid and encouragement. But it was shown on the other hand that the aid and encouragement thus given to some bankrupted others, and in the end deprived the companies of more business than their policy of discrimi- nation brought them. Railroad managers also argued that the)' could afford to make lower rates on large ship- ments than on small ones for the same reasons that the wholesale merchant can sell his goods for less than the retailer. But while this may be a good reason why rates on car-load shipments should be lower than rates on ship- ments in less than car-load lots, it is certainly no good reason why five car-loads belonging to one shipper should be transported the same distance for less than five car- loads belonging to five shippers. In the case of local shipments the car is scarcely ever loaded to its full capacity: one shipment after another is taken from it as the train moves along, and the car perhaps reaches its final destination nearlv, if not entirely, empty. The ter- Rdllrond Abuses. 141 minal charges are here also largely increased, and it is but just that the shipper should pay the additional cost of carrying and handling the goods. The case is entirely different when the railroad company carries five full car- loads from one station of its line to another. Whether the J' have been loaded by one or five persons, whether they are consigned to one or five persons, matters little to the railroad company. It merely transports the cars, and in either case its responsibility and its services are the same. The car-load must therefore be accepted and is now generally accepted by the best railroad men as the unit of wholesale shipments, and an}' discrimination made in favor of large wholesale shippers is arbitrary and unjust. In the shipment of some commodities, such as wheat, flour and coal, a small advantage in rates is suffi- cient to enable the favored shipper to "freeze out" all competitors. It is certainly not to the interest of any railroad compimy to pursue such a policy ; for by driving small establishments out of the business it encourages monopoly, which almost invariably enhances prices and decreases consumption. The railroad thus suffers in com- mon with the public the consequences of its short-sighted policy. That even railroad managers realize that these practices cannot be defended upon any principle of justice or equity is apparent from the fact that one of the never- varying conditions of special rates is that they be kept secret. A specimen of a special rate agreement which was placed before the New York investigating committee is here presented to the reader: ' ' This agreement, made and entered into this eigh- teenth day of March, 1878, by and between the New York Central and Hudson River Railroad Company, party of the first part, and Schoellkopf & Mathews, of the city of Buffalo, N. Y., party of the second part; 142 The Ratlroad Question. ' 'Wituesseth, That said party of the first part hath prom- ised and agi'eed, and by these presents does promise and agree to transport wheat from the elevator in Buffalo, reached directly by said first party's tracks, except at such mills as time said tracks may be obstructed by snow or ice, to the which said second party may erect or operate at Niagara Falls, N. Y. , at and for the rate of one and a quarter cents per bushel. ' ' And further, that said first party shall and will at all times give, grant and allow to said second parties as low rate of transportation on all property shipped by them from their said mills at Niagara Falls, and as favorable facilities and accommodation in all respects as are afforded by the party of the first part to the millers of Buffalo and Black 'Rock. And also that the said party of the first part will transport for said second party all of their east- bound New York freight at and for the price or rate of forty-seven per cent, of the current all-rail through rates, via the route of party of the first part, from Chicago to New York, at the times of shipment, adding thereto three cents per barrel for flour and one and one- half cents per hundred pounds for mill feed or grain, as a terminal charge, to provide for the incidental expenses attending local transportation. ' ' And will transport their freight to Boston and all ' points in New England, taking Boston rates at the same rate as to New York, with ten cents per barrel added for flour and five cents per hundred pounds added for mill feed or grain. ' ' Provided, however, and this agreement is made upon the express understanding and consideration, that ^said second party shall regard and treat this agreement as con- fidential, and will use all reasonable precaution to keep the same secret. ' ' And upon condition also that said second party shall ship by the first party's road all the product from their mill at Niagara Falls destined to all points in New York, Pennsylvania and New England, reached by said first party, directly or by connections with other routes. ' ' And this agreement shall be and remain in force for Ridhoad Abuses. 143 the term of five years from and following the first day of September, 1878, after which period it may be terminated by sixty days' written notice from either party. ' ' In witness whereof, the parties hereto have signed these presents the day and year first above written. -N.Y. C. &H. R. R. R. Co.," By J. H. RuTLER, "General Traffic Manager. "SCHOELLKOPF & MaTHEWS. " It will be noticed that this agreement was based upon the expressed condition that Schoellkopf & Mathews treat it as " confidential, " and use all reasonable precau- tion to keep it secret. It is difficult to account for this strong injunction of secrecy except upon the* assumption that the managers of the road, conscious of the great wrong which they inflicted upon the body of the people by their discriminations, hoped to escape public criticismby adopt- ing a policy of secret dealing. Much as special rates were sought after, but few shippers to whom they had 1)een granted were contented with their lot, for none was confid- ent that his rivals did not have better rates than himself. Discriminations between' localities had their origin in the natural desire of competing roads to increase their business at the expense of their rivals. When two or more railroads touched the same point each would attempt to secure the largest possible share of the through busi- ness by holding out every possible inducement in rates to the shippers of that place. Indeed, the freight rates at competitive points were often so low that railroad man- agers found themselves placed in a rather unpleasant dilemma. They either had to admit that the rates charged by them at non-competitive places were exorbitant or that they were carrying the freights of competitive points at a loss and were thus squandering the monc}' of their 144 'llic Railroad Question. stockholders. They preferred as a rule to admit that they were doing competitive business at a loss, but asserted that, inasmuch as they were compelled to run their trains, they could better afford to do competitive business tem- porarily at a loss than not to do it at all. The same logic might with equal propriety be employed by the grocer. To draw to him distant customers, he might offer to sell to them at cost or even at a loss; and then, to recuperate, he might advance the prices of his goods for his regular cus- tomers. If there is any difference between the grocer and the railroad company, it lies in the fact that the former's old customers would soon find relief at a rival store, while the patrons of the railroad at non-competitive points are like the traveler in the hands of a highwayman, without immediate redress. The railway company which discriminates between competitive and non-competitive points forgets that its line is a common highway for all points triluitary to it; that all have equal rights, and that the onl}^ differences in tariff which the principles of the common law permit are those which arise from a differ- ence of service and cost. All other differences that rail- road companies may make are unjust discriminations in violation of their charter and expose them to a forfeiture of the franchises conferred upon them. The nature and extent of the discrimination practiced between different places are often such that no interest of the company can possibly be subserved by them, and the conclusion is forced upon us that the advantages granted by railroad managers to certain places are designed to serve chiefly personal and selfish interests. The great fortunes amassed in a brief period of time by railroad managers can in almost every case be traced to stock, real estate, commercial and other speculations directly or indi- R(i!ln>iid Abases. 145 rectly connected with railroad construction or manage- ment. And where other than personal interest cannot be shown, this is the onl}' basis upon which the man}' appar- ent absurdities of railroad discrimination can be harmon- ized. It is claimed by railroad men that transportation by water is a regulator of railway rates which they must respect. It is contended, for instance, that, although the cities situated on our large lakes enjoy superior com- mercial advantages which are mainly due to their havino- at their disposal water communication with the Atlantic Ocean, inland towns have no cause to complain against the railroads for not equalizing those differences which nature has largely created. It might be more difficult to meet this argument if, owing to peculiar combinations, these water rates were not made to extend their influence to almost every inland city north, east and south in the Union, and if those cities were not given much lower rates than hundreds of places much nearer the lakes. The teamster who, half a century ago, found it impossible to compete with the canal, river or lake boats, simply surren- dered the field to them and confined his operations to such a territory as could give him assurance of a profitable business. Let the railroads do likewise. No company has a right to destroj^ a rival route, water or rail, by adopting special tariffs for competing points. There are at points accessiljle to water transportation certain freights requiring speedy carriage which will go to the railroads at profitable rates, but the heavier freights, as coal, lumber and even certain kinds of grain, should go to the carrier by water if he can afford to transport them at lower cost. There have been but fcAv legislative investigations of railroad abuses in this country, but the disclosures which 14G Till' Railroad Quesfion. they have made to the public are astounding. The most noteworth}^ of these were made by the Hepburn com- mittee, of New York, to which reference has ah'eady lieen made. It is difficult to understand how a free and enlightened community could so long and so patiently bear railroad despotism. Individual discrimination might, under the veil of secrecy, long escape notice, but that a system of open and widespread discrimination affecting every non-competitive and even many a competitive point in the State, doing visible and irreparable injury to thousands of shippers, and infnnging upon the rights of millions, should long be borne by a free and enlightened people, is a strange phenomenon of democratic endurance. It would lead us too far from our subject to rcAiew in detail the many and glaring instances of local discrimina- tion which the report enumerates. A few will suffice to show their scope and nature. William AV. Mack, of Rochester, a manufacturer of edged tools, testified that, in order to save fourteen cents per hundredweight on his freights to Cincinnati, he shipped his goods to New York and had them shipped from there to their destination, via Rochester; and that he availed himself of the same roundabout route for his 8t. Louis shipments, and saved thereby eighteen cents per hundredweight. In both of these cases the railroad company carried the goods 700 miles farther than the direct distance for a less charge. Port Jervis millers had their grain shipped from the AYest to Newburgh, a point fifty miles-,to the east of them, and then had it returned to Port Jervis on the same line, at a less rate than that charged for a direct shipment. The grain rates from Chicago to Pittsburgh were 25 cents per hundred in March, 1878, and only 15 cents from Chicago U> New York. Rati road Ah uses. 147 Flour was carried from Milwaukee to New York for 20 cents, while the rate from Rochester to New York was 30 cents at the same time. It was also carried from East Sc. liouis to Troy at the same rate as from Rochester to Troy. The rate on butter from 8t. Law- rence Count}-. N. Y. , to Boston, over the Ogdensburg and Lake Champlain and Vermont Central, was 60 cents per hundred ; from the nearer county of Franklin, 70 cents; it then continued to increase as the distance decreased, until it reached 90 cents at St. All^ans, Vermont. Soap shipped by Babbit & Co. , of New York, to Crouse & Co. , of Syracuse, paid 8 cents per box when the freight was paid in Syracuse, but 12 cents per box when paid by the shipper in New York. It cannot even be said that New York fared worse than any of her sister States. There is hardly a business man in any communit}- in the United States who cannot cite many cases of similar discrimination. Hundreds of well au- thenticated cases have been reported from every part of the countr}'. A few striking ones may be given space here : I The Illinois Central Company hauled cotton from Mem- phis to New Orleans, a distance of 450 miles, at $1.00 a bale, while the rate from Winona, Miss. , to New Orleans, about two-thirds of the distance, was $3.25 a bale. The same company charged for fourth-class freight from Chicago to Kankakee, a distance of 56 miles, 16 cents per hundred, and only 10 cents to Mattoon, 116 miles farther. The rate from New York to Ogden was $4. 65 per hundred, and only $2.25 per hundred from New York to San Fran- cisco. The car-load rate on the Northern Pacific was $200 from New York to Portland and just twice as much to a number of points from lOO to 125 miles east of Portland. The Chicago, Biuliugtou and Quinc}' hauled stock from 148 The Railroad Question. points beyond the Missouri River to Chicago for |30 per car-load, while it exacted $70 per car in Southwestern Iowa for a much shorter haul. To what extent local discrimination has been carried 1j)' railroad companies is well illustrated by the following in- cident: A nurseryman residing at Atlantic, Iowa, a sta- tion on the Chicago, Rock Island and Pacific Railroad, 60 miles east of Council Bluffs, bought a car-load of grape- vines at Fredonia, New York. Finding that the through rate from Fredonia to Council Bluffs, plus the local rate from the latter place to Atlantic, was less than the rate for the direct shipment from Fredonia to Atlantic, he caused the car to be consigned to Council Bluffs, intending to have it thence hauled back to Atlantic. Being short of stock at the time the train containing his car passed through his town on its way to Council Bluffs, the consignee prevailed upon the station agent to set out his car. In due time he received a request from the general office of the railroad to pay an amount equal to the rate per car-load from Council Bluffs to Atlantic. The request was promptly complied with by the appreciative nursery- man, who after all had been saved an annoying delay by the courtes)' of the company's agent. An infinite number of similar discriminations might be cited. They all show the same violation of the funda- mental principles of justice and equity, the same despot- ical assertion of the power of the railroads to regulate the commerce of the country as the caprice or selfish "interests of their managers might direct. Discriminations between commodities, or, as they might also be called, discriminations in classification, are prob- abl}' the most common of unjust railroad practices. For the purpose of establishing as near as may be uniform liitilnntil AbusfS. 1 [[) rules in all matters pertaining to rates, the various roads operating in a certain territory usually form traffic asso- ciations. The general freight agents of the roads that are members of the association in turn form a select body known as the rate committee. These committees of freight agents have for more than twenty years consti- tuted the supreme authority' in all matters pertaining to .freight classification. The trunk line classification recos- nizes six regular and two special classes, and every arti- cle known to commerce is placed in one of these classes. One whom Providence has not favored with the myster- ious wisdom of a general freight agent might suppose that considerations of bulk, weight, insurance and simi- lar factors formed a basis of railroad classification. Noth- ing, however, is farther from the truth. Freight charges, when permitted to be fixed by railroad companies, are invariably such as the traffic wall beai', and freight classi- fications are arranged on this principle, provided compe- tition by water, rail or other land transportation does not demand a modification. It is, as a rule, not to the advan- tage of ? railroad to entirely starve out an}^ commercial or industrial concern along its line. Hence tariflfs are scarcely ever made entirely prollibitor3^ Railroads pro- ceed here upon the principle of the robber knight of med- iaeval times, who simply plundered the wayfaring trader to such an extent as to reduce his profits to a minimum. He never stripped him, for by doing so he would have prevented his return and would have destroyed his own source of revenue. In like manner a railroad will never annihilate any weak branch of business along its line, nor will it, if it is in its power, permit any business to pros- per without paying to it heav}' tributes out of its profits. Every commodity is therefore made to pay a transporta- 150 Thr Rinlroad Qiresfiou. • ' ■ — — V tion tax based chiefly on its A'alue and the profit which it yields, and all classifications are prepared with this object in "\iew. The })rotection which, through exceptional!}' low rates, is extended by the railroad companies to certain indus- tries, may not be objectionable per se, but the question arises whether the railroad companies or the people should exercise the right to determine when and where such protection is necessary. Moreover, to tax one branch of commerce for the benefits bestowed upon another is a practice of extremely doubtful propriety, and the power to do so should certainly never be conferred upon a private corporation. When customs laws are pro- posed in Congress ample opportunity is given to the rep- resentatives of the various industries of the country to be heard upon the subject. No hasty step is taken. Mem- bers of Congress have every opportunity to ascertain the sentiment of their constituents, through the public press, petitions and private correspondence. The subject is dis- cussed in all its phases, })oth in the committee-rooms and upon the floors of both houses of Congress. Every detail is fully considered, and many compromises are often necessary to secure for a l)ill the support of tlie majority. When it finally passes it represents the will of the people, or at least the will of their legal representa- tives, who may be expected to know their wants and are accountable to them for their acts. Freight classifica- tions, however, while they are fully as far-reaching as customs laws, are made b}' a few freight agents meeting jn secret session, listening to no advice and acknowledg- ing .no higher autliority. It is claimed by the railroad men that it is to the inter- est of railroad companies to do justice to all, and that lidllrond Abuses. 151 the best classification for the largest number of people is also the best for the roads. If this be true, it is difficult "to see wh}' railroads should fail to consult their patrons in the arrangement of their freight classifications. Intel- ligent shippers may certaiul}' be supposed to know as well as the railroad companies what classification is to their common interest. Kailroad managers are naturally des- potical. The}' do not wish and do not tolerate any out- side interference with what they obstinately term their private business. Even if the general policy of the com- panies designed the greatest good to the greatest number, the opportunities and temptations of their agents to pur- sue selfish ends or take advantage of individuals in the preparation or application of their tariffs are such that in the practical execution the evil will always outweigh the good. . It is not within the scope of the present inquirj^ to re- view in detail the various classifications in force, or to point out the unjust features. The author will confine himself to showing by a few characteristic examples that the power now in the hands of the railroad companies to classify the various commodities of commerce for the pur- pose of rating is greatly abused and is a potent means of railroad extortion. And that it may not be charged that aljuses have been cited which are a thing of the past, the examples will chiefly be taken from cases which have come before the Interstate Commission for adjudication, j A complaint was filed with the commission in 1887 by TTX Reynolds against the Western New York and Penn- sylvania Railroad Company, from which it appeared that that company charged a greater price for the transporta- tion of railroad ties from points in the State of Pennsyl- vania to points in the State of Xow Yoi-k than was 152 The Railroad Question. charged at the same time for the transportation of lumber between the same points. The commission held that this was a case of unjustilialile discrimination and ordered the company to place railroad ties in the same class with other rough lumber. Many AYestern roads for years have been guilty of the same discrimination. The reasons for such a policy are obvious. A high tariff on railroad ties pre- vents their being shipped, depreciates their market price at home, to the sole benefit of the discriminating com- pany, which is thus enabled to buy ties at a low price. Prohibitory rates on ties and rails are also often main- tained by railroad companies to either delay or render more costly the construction of new lines which threaten to become their competitors. The Union Pacific Railroad Company several years ago even went so far as to make prohibitory rates on steel rails intended for the construc- tion of a road which promised to become a competitor of one of its connecting lines. From another case decided by the Interstate Commerce Commission it appeared that the Lake Shore and Michi- gan Southern Railway Company charged for blocks intended for wagon-hubs, and upon which only so much labor had been expended as was necessary to put them in condition, a higher rate than for lumber, claiming that such blocks were unfinished wagon material and were therefore, as articles of manufacture, subject to higher charges than raw material. The commission justly held that these blocks were as much to be regarded as raw material as the boards from which wagon-boxes are made. In the classification of the Southern Railwaj^ and Steam- ship Association pearline was placed in the fourth class, with a rate of 73 cents per hundred pounds, and common soap in the sixth class, with a rat3 of 49 cents per hundred pounds. Railroad Abuses. 153 This latter article, when shipped l)y large manufacturers, enjoyed besides a special rate of 33 cents per hundred- weight. Pearl ine and soap are competitive; there is no appreciable difference between them as regards the cost of transportation ; but one commands a higher price in the market than the other, and upon this fact solely did the railroad company base its alleged right to levy upon pearline a transportation tax 120 per cent, in excess of that levied upon soap, though the service rendered by the company was the same in either case. The commission held that the discrimination made by the "special rate" of the Southern Railway and Steamship Association be- tween pearline and common soap was unjust, and ordered that it be discontinued and that, with common soap in the sixth class, pearline be placed in the fifth. For years the rate from Indianapolis to New York was the same for coi-n as for its direct products, such as ground corn, cracked corn, corn meal, hominy and corn feed. Such a tariff made it possible for Western mills to compete with similar mills that had been established in the East, since a discrimination of 5 per cent, was suffic- ient to absorb three or four times the piofits of any West- ern mill. It was shown by the evidence produced that the actual cost of transportation was substantially the same for direct corn products as for the raw corn. The only defense which the railroad company could make for this discrimination was that in the carriage of raw corn they had to meet lake competition. The weakness of this argument will be perceived when it is remembered that Indianapolis is 154 miles from the nearest lake-ship- ping point. There is but little doubt that this discrimi- nation was made b}^ the railroad company because it was to its interest to haul the raw corn from the West to the 154 The Rail road Question. East and to return it in altered form. Railroads care, as a rule, little for a waste of force, if such waste is to their own advantage. ' In another case brought before the commission in 1 889 it was shown that the "Official Classification"' placed common soap in carload lots in Class V, while such arti- cles as coffee, pickles, salted and smoked fish in boxes or packages, rice, starch in barrels or boxes, sugar, cere- a line and cracked wheat are placed in Class VI. The chief reply of the railroad companies to this complaint was that soap was justly placed in Class V because the components from which it is in part made stood in Class V. In another case it was shown that one kind of soap was burdened with a higher transportation tax than another, irrespective even of cost, because one had been advertised as toilet and the other as laundry soap. The principle of charging what the trafi!ic will bear is well illustrated by the relative rates on patent medicines and ale and beer, as maintained by the Official Classifica- tion. ' In a complaint made by a prominent manufacturer of proprietary medicines against the New York Central and other roads, it was shown that the complainant's products were shipped at owner's risk, and that they were in bulk and intrinsic value similar to ale and beer, but that in spite of these analogies the former were rated as first- class and the latter as third-class goods, simply because they retailed at a higher price. Another unwarrantable discrimination is that in favor of live stock and against dressed beef. While Mr. Fink, the commissioner of the Trunk Line Pool, himself admit ted that the cost of carrying dressed beef from Chicago to Rdilnxul Abuses. 155 New York was only Q^ cents per 100 pounds in excess of the cost of hauling live stock, the trunk lines maintained on dressed beef a rate 75 per cent, higher than that on live cattle. The railroad companies asserted that this was due to those people in the East whose living depended on the live-stock interest. The railroads have in this assumed a paternalism which would not be tolerated even in the Government. To protect the East, railroads will not permit the West to engage in new industries. The position which the Interstate Commerce Commis- sion has assumed in interpreting the rights of shippers under the law which railroad companies are bound to respect in the preparation of their tariff sheets and classi- fications cannot but be most gratifying to the people. In a decision relating to the classification and rates for car- loads and less than car-loads, filed March 14, 1890, the commission laid down the following rules for the guidance of railroad companies: " 1 . Classification of freight for transportation purposes is in terms recognized by the act to regulate commerce, and is therefore lawful. It is also a valuable convenience both to shippers and carriers. "2. A classification of freight designating different classes for car-load quantities and for less than car-load quantities for transportation at a lower rate in car-loads than in less than car-loads is not in contravention of the act to regulate commerce. The circumstances and con- ditions of the transportation in respect to the work done by the carrier and the revenue earned are dissimilar, and may justify a reasonable difference in rate. The public interests are subserved by car-load classification of prop- erty that, on account of the volume transported to reach markets or supply the demands of trade throughout the country, legitimately or usually moves in such ([uantities. "3. Carriers are not at liberty to classify property as a basis of transportation rates and impose charges for its 156 The Railroad Question. carriage with exclusive regard to their own interests, but they must respect the interests of those who may have occasion to employ their services, and conform their charges to the rules of relative equality and justice which the act prescribes. "4. Cost of service is an important element in fixing transportation charges and entitled to fair consideration, but is not alone controlling nor so applied in practice by carriers, and the value of the service to the property car- ried is an essential factor to be recognized in connection with other considerations. The public interests are not to be subordinated to those of carriers, and require proper regard for the value of the service in the apportion- ment of all charges upon traffic. "5. A difference in rates upon car-loads and less than car-loads of the same merchandise, Ijetween the same points of carriage, so wide as to be destructive to compe- tition between large and small dealers, especially upon articles of general and necessary use, and which, under existing conditions of trade furnish a large volume of business to carriers, is unjust and violates the provisions and principles of the act. "6. A difference in rate for a solid car-load of one kind of freight from one consignor to one consignee, and a car- load quantity from the same point of shipment to the same destination, consisting of like freight or freight of like character, from more than one consignor to one con- signee or from one consignor to more than one consignee, is not justified by the difference in cost of handling. "7. Under the official classification the articles known in trade as grocery articles are so classified as to discriminate unjustly in rates between car-loads and less than car-loads upon many articles, and a revision of the classification and rates to correct unjust differences and give these respective modes of shipment more relatively reasonable rates is necessary and is so ordered." The efforts which the commission has made to bring about a uniform classification throughout the country are in the right direction, while the results of its labor. are not yet satisfactory. Railroad Ahnses. 157 In their fifth annual report, the Commissioners, after giving an account of their etforts and tlie shuffling and double-dealing of the railroad companies witli tlicm upon this matter of uniform classification, said : "Its conviction remains unchanged that tlie necessi- ties of commerce require tliat tlie existing classifications be consolidated, and that this result should be accom- plished as speedily as may be found practicable ; and it does not feel justified in asking for the further eft'orts of the carriers the same measure of indulgence which from time to time it has heretofore suggested should be ex- tended to them, and which was thought to l>e re([uired in the public interest. " The commission can not but tliiuk that if legislation to that end be enacted by Congress tlie carriers will speed- ily consummate the reform already begun in this direction. It is therefore recommended that an act be passed requir- ing the adoption within one year from the date of its pass- age of a uniform classification of freight by all the carriers, subject to the act to regulate commerce, and providing that if the same be not adopted within the time limited, either this commission or some other public authority be required to adopt and enforce a uniform classification. "' The present confusion which exists in the classifica- tion and rates of the seventeen hundred railroad organ- izations of the country makes it difficult for the commission to do justice to all interests and localities. With the adoption of a uniform classification it is to be hoped that in time many of the present inequalities will be adjusted, especially if an intelligent public sentiment upon the subject of railroad regulation is maintained. A prominent railroad manager in the East, whose devotion to corporate interest is only equaled by his political am- bition, has recently made repeated efforts to convince the people that railroad abuses are things of the past and that, if any such abuses still linger in isolated districts, 158 Till' luiilroad Qiirsfi'on. they are simply unavoidable exceptions to the rr.le which will soon have to yield to the general spirit of fairness and amity for which, in his opinion, the railroads have of late been distinguished. He reasons that the law has fulfilled its mission, that the railroads have reformed, and that it now behooves the people to relent and to extend to the much persecuted corporations the hand of friend- ship and good will. The postprandial eloquence of this gentleman has often suavely intimated that the repeal of the Interstate Commerce Act would be the most oppor- tune recognition of restored confidence. Still bolder champions of the railroad cause do not hes- itate to demand the repeal of the law. It is not likely that the sophistry of railroad hirelings will triumph over the practical logic of an intelligent public. No law, be it ever so wise, can in the space of a few j-ears correct all the abuses which half a century of unbridled railroad domination has developed. Yet, since both the friends and the enemies of the law agree that it has been par- tially successful in its operation, it should be continued and improved to keep it in harmony with new condi- tions and a progressive public sentiment. It is claimed by railroad managers that the adoption of a uniform classification will remove the only vestige of discrimina- tion still left. This Is not true, for by far the largest number of complaints that have recently been brought before the Interstate Commerce Commission charged per- sonal and local discrimination independent of any ques- tion of classification. It is shown by the reports of the commission that dis- criminations are still practiced by various companies, that annual passes are still illegally issued to bribe or appease men of influence, that discounts are still given to favor RdUroinl AJmacs. 159 shippers under various pretexts, tliat some large rail- road centers still enjoy more favoraltle rates than smaller towns, and that the lono- and short haul clause of the Intersttite Commerce Act Is still violated by niilroad com- panies. There are besides these scores of other devices in vogue among railroad managers to subvert the prin- ciples of the common law. No doubt discriminations are now much less frequent, and are possibly the exception where but a few years ago they were the rule, but the fact that such abuses still exist is a strong argument for the retention of the law as well as for the necessity of con- tinued vigilance on the part of the people and those espe- cially charged with the execution of the laws. The rail-. road acts of Congress and the various States ask nothing of common carriers but just and equitable treatment for all their patrons. If this is freely accorded, these laws are no burden to the railroads. If, on the other hand, there is a tendency on the part of the railroads to resort to subterfuges and evasions, the wholesome restraint of the statute is absolutely necessary for the protection of the shipper. The repeal of the Interstate Commerce Law, or the adoption of such amendments as are demanded bj' rail- road men, would be interpreted by them as an abandon- ment of all its principles and would inaugurate an era of unprecedented railroad oppression. History evfer repeats itself. Unchecked license will alwa3's lead to arrogance and despotism, and any power which is long permitted to defy the state will in time control it. It is not likely that the people of the United States can be induced to demonstrate to the world that democratic government is incapable of profiting in the dear school of experience. Our railroad legislation contains no principle that is not found in the common law. Its maxims are our birth- 160 Tlie Railrodd Question. right and will be the birthright of our children and chil- dren's children, and while railroad companies may be able in the future, as they have been in the past, to violate the law temporarily with impunity, they will never be able to prevail upon the American people to abandon the policy of railroad reform which the passage of the Interstate Commerce Law inaugurated. The Interstate Commerce Commissioners say in their sixth annual report: "Whoever will read the report of the special com- mittee of the United States Senate, commonly called the ' Cullom Committee,' will be astounded at the magnitude and extent of railroad abuses brought to light by their investigation. Those unfamiliar with the facts made public at that time can hardly believe the outrages which were proven to exist and the manifold devices by which the most flagrant injustice was perpetrated. A single illustration will furnish a better reminder than extended comment. "It appears from that report that the Standard Oil Company, in one instance at least, boldly demanded from a certain railroad that its shipments should be carried for 10 cents a barrel; that all other shippers should be charged 35 cents a barrel on the same article, and that 25 cents of the 35 paid by such other shippers should be handed over by the railroad to the Standard Oil Compan}', and the j^enalty threatened for non-compliance with this impudent extortion was a withdrawal of its entire busi- ness. ' ' The foregoing statements but imperfectly describe the situation which existed when the Interstate Commerce Law was enacted. In any reasonable view of the case it was too much to expect that the common and long con- tinued abuses of railroad management could be corrected in less than half a dozen years, or that the first scheme of legislative regulation would prove adequate to that end. It would be contrary to all experience if so great and radical a reform could be thus speedily accomplished, or Railroad Abuses. 161 if the initial statute should be found sufficient to bring it about. The law was the outgrowth of an aroused and determined public sentiment, which, while united in de- manding Government interference, was divided and un- certain as to the best methods of affording relief. Like all attempts in a new field of legislation, the statute was a compromise between divergent theories and conflicting interests. It was scarcely' possible that it should be so complete and comprehensive at the outset as to require no alteration or amendment. Those who are familiar with the practices which obtained prior to the passage of this law and contrast them with the methods and condi- tions now existing will accord to the present statute great influence in the direction of necessary reforms and a high degree of usefulness in promoting the public interest. "Whoever will candidly examine the reports of the com- mission from 3'ear to year, and thus become acquainted with the work which has been done and is now going on, will have no doubt of the potential value of this enactment in correcting public sentiment, restraining injustice and enforcing the principle of reasonable charges and equal treatment. Imperfections and weaknesses which could not be anticipated at the time of its passage have since been disclosed by the effort to give it effective administra- tion. The test of experience, so far from condemning the policy of public regulation, has established its import- ance and intensified its necessity. The very respects in which the existing law has failed to meet public expecta- tion point out the advantages and demonstrate the utility of Grovernment supervision. ' ' Moreover, it may be fairly claimed that much greater benefits would have been realized had the statute as enacted expressed the evident purpose of those who framed it, and received a construction according to its apparent im- port. It is not too much to say that judicial interpi'eta- tion has limited its scope and ascribed to it an intent not contemplated when it was passed. If its supposed mean- ing, as understood at the time of its passage, had been upheld by the courts, it is believed that its opera- tion would have been much more effective and its 162 Thr RalJroful Question. usefulness greatly increased. So far as failure has attended the efforts to give it proper administra- tion, that failure can be mainly attributed to differ- ences between its apparent meaning and the judicial interpretation which some of its provisions have received; and the commission is of the opinion that if the pres- ent law could be so altered as to express clearly and be- yond doubt what it was evidently intended to express at the time of its enactment, it would prove, even without other amendment, an instrumentality of the highest value in removing the evils against which it is aimed. ' ' The specific instances in which the statute has re- ceived judicial construction, and the limitations upon its scope and meaning wiiich the courts have imposed, will be alluded to at greater length in another part of this report. ' ' It seems proper, however,, to observe in this connec- tion that the effect of these decisions in weakening the law and preventing its enforcement has been greatly exag- gerated. The impression has been created in many direc- tions that judicial construction has invalidated the essen- tial feature of tlie statute and condemned the general principle which lies at its foundation. That impression cannot be too speedil}' corrected, for nothing has been decided which permits such an inference. On the con- trary, neither the power of the national legislature to regu- late the transportation of interstate commerce nor the general policy of the existing law has been questioned by any tribunal. " Probabl}' no law in the United States has ever before been so fiercely attacked at all of its vital points as has this law. It is not strange that among the great number of National and State courts the railroad companies have found occasionally a judge ready and willing to assist them in breaking it down, but upon the whole the judiciar}^ has been disposed to co-operate with other departments of the G-overnment in their efforts to secure effective regulation of the transportation business. CHAPTER VI. STOCK AND BOND INFLATION. THE complaint is frequently heard from railroad men that our freight rates are too low, and in support of it the statement is usually made that the greater part of the railroad stocks of the United States pays dividends considerably smaller than the average interest realized by capitalists on money loaned or invested in other enter- prises. This statement may be true, and yet it is valueless as an argument for higher rates. It may be admitted that the dividends declared upon the face values of railroad stocks are quite moderate, but it is a fact too well authen- ticated to be contradicted that railroad securities repre- sent to a considerable extent only fictitious capital. The public concedes that liberal returns should be allowed to railroad companies on money actually invested, but it naturally objects to being taxed for the purpose of mak- ing dividends on watered stock. The evil referred to is a serious one, and has contributed much to the general demand for railroad reform. Most of the early roads of this country were built for the accommodation of local traffic. They were constructed and managed by business men upon business principles. The stock issued by the companies was in most cases paid for in full and was not unfrequently sufficient for the completion of the entire road, and no incumbrance was permitted by the owners to be placed upon the property. These enterprises as a rule proved very profitable. One of the first roads run- 161 164 The Railroad Question. ning west of Chicago will serve as an illustration. The Galena and Chicago Union Railroad Company paid a 10 per cent, dividend within a year after being opened to traffic, and gradually increased its dividends to 15, 20 and 22 per cent. During the first two years of the road's oper- ation its expenses were only 38^ per cent, of its earnings. During the second year the company, af ter pay ing a 1 5 per cent, dividend, diminished its debt nearly $60,000 and increased its surplus $11,700. In 1856 the road had a length of 232 miles, on which the gross earnings amounted to $2,315,787. This revenue exceeded the estimate made by the company's officers the year previous by $300,000. In his annual report for 1856 the president of the com- pany said: " This result shows an increased surplus of $65,000, after paying 22 per cent, in dividends and all expenses and interests chargeable to income account." The report also shows that expensive improvements, such as large permanent bridges and stone culverts, displacing as a rule wooden ones, were charged to current expenses. The financial success of railroads soon attracted the cupidity of financial adventurers — men of great energy, but small means — whose aim was to secure the greatest possible returns with the least possible outlay of money. With the introduction of these elements into railroad cir- cles the era of speculation commenced. Take the line just referred to. In 1852 the average number of miles operated was 62,, and the year following, 90. But while the number of miles operated increased less than 50 per cent. , the capital stock of the company grew from $444,193 to $1,362,559, and its debt from $60,145 to $542,287. The capitalization of the road was thereby increased from $8,000 to $21,000 per mile, and this was done for the purpose of making the capital appear ade- SfocJ: (Hid Bond Inflation. quate to its earnings. Nearly all railroads became in time the foot-balls of shrewd manipulators. The}' were bonded before they wore constructed, and often for more than the value of the completed road. Stocks at the best only represented nominal values and were given as pre- miums to the bondholders or promoters of the road. But the science of stock- watering did not reach its fullest development until during the period of railroad consolidation. Fictitious values were now created as often as a new consolidation took place. Watered stocks and bonds were watered again and again, until they repre- sented little more than a purely imaginary capital upon the basis of which dividends might be declared. Take the case of the New York Central and Hudson Kiver Railroad companies, wliich consolidated in 1869 with a capital of $103,110,137.31. The former of these roads was organ-' ized in 1853 by the consolidation of ten smaller roads connecting the cities of Albau}' and Buffalo. The capital stock of these companies amounted to $20,799,800, of which $16,852,870 was claimed to have been paid in. Their funded debt was $2,497,526. It is impossible at this day to ascertain the original cost of all these roads, but it is certain that the above sums represent about three times the amount actually expended for their con- struction. One of the roads entering into the consolidation was the Utica and Schenectady. It was 78 miles long and formed about one-fourth of the consolidated line. It had the heaviest grading and rock-cutting, was the best- equipped and undoubted!}' the most expensive, in pro- portion to its extent, of the ten roads out of which the New York Central was created. The original cost of this line was $2,000,000. Bonds were never issued ]iy the 166 Thr Railroad Question. company. The line was profitable from the very begin- ning, paid regularly ten per cent, dividends, — the limit to which railroad companies were then restricted, — and had a large surplus, which it expended mainly for improve- ments. No assessment was ever made on the stock beyond the $1,500,000 which was originally paid in by the shareholders and upon which they had drawn regular and liberal dividends. Taking the original cost of this line as a basis, it is but fair to presume that the entire line from Albany to Buffalo, covering a distance of 297 miles, did not cost to exceed $6,000,000. These roads, however, entered into the consolidation with a capital stock of $15,274,800 and a bonded indebtedness of $1,696,326. Estimating the cost of the branches upon the same basis upon which we have estimated that of the main line, we shall find that the total original cost of the consoli- dated lines cannot have exceeded $8,000,000. The Mo- hawk Valle}' road was put in at $2,000,000 and the Syra- cuse and Utica direct at $600,000, though the roads only existed on paper and did not represent any value what- ever. The Schenectady and Troy road, which went into the consolidation with $650,000 stock and $90,000 bonds, had been bought for less than $100,000 two months pre- vious to the consolidation. It will thus be seen that already nearly one-third of the stocks and bonds of the consolidated companies was water. The consolidation agreement fixed the capital stock of the New York Central at $23,085,600 and its funded debt at $11,564,033.62, increasing the stock over $2,000,000, and the bonded debt over $9,000,000. The latter was more than quadrupled, and $8,000,000 worth of bonds were, under the name of consolidation certificates, Stock and Bond Inflation. 167 given as a present to the stockholders of the new road. The capital stock of the New York Central grew steadilj- up to the time of its consolidation with the Hudson River road, when it was $28,795,000. All improvements made during this time were paid for out of its surplus earnings, with the single exception of the Athens branch, for which the company issued $2,000,000 of its stock. The gross earnings of the New York Central in 1854 were $5,000,000, and its net earnings $2,830,000. In 1863 its gross earnings were in round numbers $10,000,- 000, and in 1869 they reached $15,000,000. The divi- dends paid during that year amounted to $4,300,000, and the interest to $894,000. In view of the fact that the bonded indebtedness of the road was from two to three million dollars more than the original cost, this dividend of 15 per cent, upon a wholly fictitious capital must be regarded as an unwarranted tribute levied upon the com- merce of the country. But we shall soon see that in rail- road h^'draulics, as well as in other branches of human industry, success stimulates to still greater energ}'. The Hudson River Railroad Compan}' was organized in 1847. It extended from New York City to East Albany and was 144 miles long. There are no data extant upon which could be based a reliable estimate of its original cost. Estimating it upon the basis of that of the Utica and Schenectady, we should have to place it somewhat below $3,000,000. While such an estimate may be too low, the amount of its funded indelitedness in 1851, which was $5,640,000, probably more than covers the amount actually expended in the construction of the road. In 1851 the capital stock of the Hudson River road was $4,000,000. In 1853 the funded debt had increased to $7,000,000, and in 18(52 to .$9,000,000. In 1809 the 168 The Railroad Question. bonded indebtedness had decreased to $4,309,000, but the capital stock had grown to over $1G, 000, 000. Between 1853 and 1869 the company increased its stock and bonded hidebtedness nearl}^ $11,000,000, while the assessments paid b_y its stock and bondholders during this time did not exceed $1,000,000. Improvements were made, but these were chiefly paid for out of the sur- plus earnings of the road. It has been shown by experts that $6,640,000 is a high estimate of the actual original cost of the Hudson River road to its stock- and bondhold- ers, and that securities to the amount of more than $13,- 000,000 represented surplus earnings and water. At the time of the consolidation of the Hudson River and New York Central railroads the capital stock of the two roads had grown to $44,800,000. Under the consolidation agree- ment the stock was fixed at $45,000,000. The new com- pany also assumed all the bonded and other indebtedness of both roads. If the consolidation manipulators had paused here, the capital of the new company would have been somewhat less than $60,000,000, or more than three times the cost of the property. But the road was, under existing rates, capable of earning dividends on a much larger capital, and this emergency was met by the issuance of consolidation certificates to the amount of $45,000,000. The total capital of the road was thus increased to and made to pa}' dividends on over $103,- 000,000, while the total cost of the road and its equip- ment, as claimed by the company in 1870, was less than $60,000,000, their estimate being based upon assumed consolidation values and the expenditures made from surplus earnings. During the same year the gross earn- ings of the company were $22,363,320, and their net earnings $8,295,240. In 1880 the gross earnings, had /Stock (iml Bond Inflation. 1G9 \ « increased to 133,175,913, and the net earnings to $15,326,019. The company was able to declare in that year 11.82 per cent, dividend on its $89,500,000 of fictitious stock. In 1890 its gross earnings were $37,- 008,403, or $26,050 per mile, while its total net earnings were $12,516,273. The gross earnings have largely in- creased during the years 1891 and 1892. It is safe to say that $2,000,000 per annum would pay very liberal interest and dividends on the amount of money expended upon the construction of the New York Central and Hud- son Kiver Railroad from the proceeds of its bonds and stocks. B}^ the creation of fictitious values the managers of the company have attempted to impose an exorbitant tax upon the commerce and travel of the country for all time to come. The Government guarantees an inventor a monopoly only for a limited space of time, upon the expiration of which his invention becomes the common property of the people; but railroad managers endeavor to collect, under the protection of our laws, an exorbitant royalty from our people forever. The case of the New York Central and Hudson River Railroad Company is only one of the innumerable instances oi stock watering in the history of American railroads. Indeed, it can be shown that stock-watering reached a still higher degree of development in the case of the Erie road. It has been demonstrated that the actual original cost to the stock- and bondholders of the New York Cen- tral Railroad Company, which was, with its branch lines, 593 miles long, did not, including the Athens branch, exceed $10,000,000. Its cost to its owners, in 1869, in- cluding the bonuses, premiums, commissions and fictitious equalization values of several transfers, was reported by them to be only $37,600,000, or about $63,400 per mile. 170 Th(' Railroad Qiirsfi(j)i. At about the same time the main stem of the Erie Railway, extending from New York to Dunkirk, a dis- tance of 459 miles, was represented by a capital of $108,- 807,687, or $237,000 per mile. Considering the infe- riority of this road to the New York Central, we are forced to the conclusion that nearly 85 per cent, of the capital of the road represented water, or, in other words, that the commerce of the United States was taxed to pay divi- dends on about $90,000,000 of watered securities. In 1863 the Erie Railroad had outstanding $11,437,500 of common stock. In 1864 this had been increased to $15,- 693,000, in 1868 to $37,765,000, and in 1869 to $70,- 000,000. Not one-tenth of this enormous increase of capital was ever expended on the property of the road. The stock was sold at from 20 to 40 cents on the dollar, and the proceeds disappeared in the hands of its man- agers. To what extent this freebootery 'was carried will probably never be known. An idea of the rottenness of the Erie management may be had from the fact that the courts at one time ordered its president to restore to the company $9,000,000 of diverted securities, which order was complied with. Vast private fortunes were amassed by nearly all the men who directed the affairs of the road, and the mismanagement became in time so notorious that the legislature of the State of New York was ap- pealed to, to remove the directors of the road for the protection of its stockholders, and to reduce the capital stock of the company to the amount actually paid for it. This movement failed, however, because it was opposed by the very stock liolders whose interests were supposed to have suffered by directorial mismanagement. They pre- ferred to continue to draw dividends on the face value of stocks which tbey had purchased at 20 cents on the dollar. iStock and Bond Iiijlation. 171 The capitalization of the company has since been in- creased to $163,679,825, and it is by no means a secret among those familiar with raih'oad values that the bonded indebtedness of the Erie road represents alone many mil- lions more than the total amount that was ever invested in the property. The principal competitor for through traffic of the two companies whose financial operations we have just reviewed is the Pennsylvania Central Company. It has often been asserted 1)y the managers and friends of this company that its capital is free from water; but this is not true. In 1864 a dividend of 14,130,760 was made out of the surplus earnings of the road. This dividend was pa^'able in capital stock and was equal to 30 per cent, of the then outstanding capital. Similar surplus dividends, each equal to 5 per cent, of the company's outstanding stock, were declared in 18G7 and 1868. The people were thus taxed to pay dividends on a capitalized surplus which had been derived from excessive charges previously imposed on them. I shall not attempt here to determine whether the capital represented by the Pennsylvania Eailroad Com- pany has been honestly invested. A committee of Con- gress has expressed the opinion that the capitalization of its main line exceeds the amount of the actual cost of the property by more than eleven million dollars. There is, however, a S3'stem of inflation practiced by the Penn- sylvania Railroad Company which is simply a new form of bond and stock watering. More than one- half of the capital of this company has l^een invested in the stocks and bonds of other corporations. In 1801 the amount so invested was $154,319,240, and the income derived from it $4,852,181. This does not only cause the stocks and bonds of certain companies to be c(KUited twice,' but ex- 172 The Railroad Question. acts a double tax from the commerce of the country, interests and dividends upon the same capital being paid both to the bond- and stockholders of the Pennsylvania Central and to the bond- and stockholders of the roads in whose securities it has made investments. The income of the company is thus swelled far bej'ond the amount which the traffic reports indicate. It will be seen that, to per- petuate extortionate rates, this process of manifolding securities might be continued indefinitely. The cost to its stock- and bondholders of the Baltimore and Chicago line of the Baltimore and Ohio Railroad, which has a length of 795 miles, was estimated by the company's officers at about $57, 000, 000. The actual cost of this road, owing to its expensive mountain grades, was probably greater than that of any of the other through lines between the sea-coast and Chicago, but there can be no doubt that the capitalization of this road represents from one-half to one-third pure water. At the time of the completion of this road to Chicago the surplus earn- ings of the company, after the paj^meut of interest and dividends, amounted to over $29,000,000. This had been charged to "profit and loss "and used in the construction of branch lines. Thus an amount equal to more than half of the reported cost of this line had at the time of its completion been returned to its owners in other railroad values. The Select Senate Committee on Transportation Boutes to the Seaboard in 1874 estimated the excess of the capi- tal over actual cost of the Erie road, from New York to Dunkirk, at $68,807,000; that of the New York, Lake Shore and Michigan Southern line to Chicago at $115,- 188,137, and that of the Pennsylvania and Fort Wayne line to Chicago at $11,290,374. If this estimate was correct StocJi and BoikI Inflation. 173 the entire over-capitalizatiou of these lines, on which the commerce between the West and the East was forced to pay a dividend of 8 and 10 per cent, per annum, was no less than $195,000,000. The committee assumed the act- ual cost of these roads to be $182,000,000, or about $78,- 000 per mile. They based their estimate upon the cost of the main branch of the Baltimore and Ohio, as reported by their officers, supposing it to represent the actual outlay made by its stock- and bondholders. Various revela- tions which have since been made to the public, as to the real cost of railway construction, justif}' the belief that the estimated cost of $78,000 per mile for those roads is far too high. Mr. Henry Poor, several 3'ears ago, esti- mated the average cost of the roads of the United States at $30,000 a mile. Making allowance on one hand for Mr. Poor's tendency to favor the railroad side of the question, and on the other hand for the more expensive grades, double tracks and better terminal facilities of these trunk lines, $50,000 per mile ma}' be considered a fair estimate of their average cost. Upon this basis the total cost of the three lines in question would amount to $116,450,000, and the excess of their capital over actual cost would be the enormous sum of $261,000,000, or 325 per cent, of their actual cost, and probabl)'^ not less than 400 per cent, of the original cost to their stock- and bondholders. The capital of these companies has since been considerably increased, to enable their managers to increase their dividends, and with it the tax levied upon the commerce of the country. These are only a few of the many instances of stock watering that might be mentioned. In fact, there are to-day very few railroads in the United States that are entirely free from it. It is a notorious fact that the 174 The Railroad Question. stock of a large numl)er of railroad cpmpanies represents little or no value, having either been sold at a mere nomi- nal price or been donated as a premium or bonus to those who purchased a large amount of the company's bonds. In recommending, in his December, 1891, annual message, Government aid for the Nicaragua Canal, President Har- rison said : ' ' But if its bonds are to be marketed at heavy discounts and every bond sold is to be accompanied by a gift of stock, as has come to be expected by investors in such enterprises, the traffic will be seriousl}^ burdened to pay interest and dividends." It is not difficult to surmise to what enterprises the President referred. It has for man}^ years been a well-settled principle among railroad incoilDorators that no larger assessments should be made upon the stockholders than is necessary to float the com- pau3''s bonds. A company, for fnstance, is organized with a capital stock of, say, $1,000,000. Five percent, of this sum, or $50,000, is paid in to defray preliminary expenses. The road is then bonded for perhaps $2,000,000, but as the bonds are sold for only 80 per cent, of their face value and as the incorporators allow themselves 5 per cent, for the negotiation of the bonds, only $1,500,000 is realized for the construction of the road. The incorpor- ators now vote to themselves a contract to construct the road for $1,500,000 and at once sublet it to a contractor who is ready and anxious to build the road for $1, 200, 000. The incorporators thus realize $1,000,000 Avorthof stock, tt portion of which is unloaded upon unsophisticated in- vestors, and $300,000 in cash, at an outlay of $50,000; and the road, which cost $1,200,000, is made to pay inter- est and dividends on a total capital of $3, 000, 000, and this is subsequently watered indefinitely if the road proves profitable or a consolidation with some other road justifies iSfoiJc (111(1 Bond Tiijlattoii. 175 the belief that its earning capacity might be increased. Xor is this an overdrawn pictnre. On the contrary', instances might be cited where only one-half of one ))or cent, of the compan3''s stock was paid in l)y the share- holders. In the days of inflation such transactions did not seem to seriousl}' art'ect railroad securities. P]veu when they were no longer a secret to the public, stocks and bonds sold readil}', because, owing to the large earnings of the roads, this class of investments was unusually productive. In 1868 the earnings of the railroads of Massachusetts averaged $15,400 a mile, and were equal to 38 per cent, of the total reported cost of all the lines of the State. The Chicago, Burlington and Quincy earned $15,386 per mile in 1867, and paid a 15 per cent, dividend. Its stocks were quoted 100 per cent, above pai*. In 1807 the Lake Shore Railroad earned more than 50 per cent., and the Terre Haute and Indianapolis even as much as 57.2 percent, of the amount of its cost. Previous to the war the inflation of railroad securities was, as a rule, confined to the stock. Where roads were bonded for more than the cost of con- struction it was, with but very few exceptions, done to ma,ke their capital to correspond with their earning capac- ity, or rather to divert public attention from the fact that the rates in force had outlived their reasonableness. It was reserved to the Union Pacific and the Central Pacific companies to bond their roads from the beginning to an amount equal to twice their actual cost, or, in other words, to virtually receive them as a present from the Federal Government, bond them for all the}^ were worth, and, in addition, issue stock to an amount largely in ex- cess of the cost of construction, and then try to earn interest and dividends on the whole amount of securities 176 The Railroad Qiirstio)}. issued. The history of these companies forms so inter- esting and instructive a chapter in the railroad annals of America that a short s3'nopsis of it may not seem out of place here. The charter of the Union Pacific Eailroad Company was granted by Congress on the first day of July, 1862. Shortly after the beginning of the "War of the Rebellion it was made to appear to the country that a transcontinental '.'oad was a national necessity; that without it we could not hope to retain long the Pacific Coast. It was also very plausibly argued that the political benefits to be de- rived by the country from the construction of such a road, as well as its great length and extraordinary cost, made it the duty of the nation to aid liberally its enterprising and patriotic promoters in the prosecution of their gigantic task. In those stirring times few people were inclined to question the motives of those who advocated what ap- peared to be patriotic measures, or to be penurious in the expenditure of public funds when the public weal seemed to demand such expenditure. The Union Pacific Railroad charter, which in substance was passed by Congress as it had been drafted by the promoters of the enterprise, gave to the new company the right of way through the public lands, and authorized it to- take, from the lands adjacent to the line of its road, earth, stone, timber and other materials for its construction. It further granted to the company- every alternate section of land to the amount of five alternate sections per mile on each side of its line, excepting only those lands to which preemption or homestead claims attached at the time when the line of the road should be definitely fixed. In addi- tion to these donations the United States issued to the company subsidy bonds in an amount equal to $16,000 Sforh- ,1)1(1 BoikI III flat ion. 177 per mile for the distauce from the Missouri River to the eastern line of the Rocky Moimtains, $48,0OU per mile for a distance of 150 miles through the Rocky Mountains, and $32,000 per mile from the western base of the Rocky Mountains to the terminus of the road. iSimilar franchises were at the same time given to the Central Pacific Rail- road Company, a corporation which had previously been chartered by the State of California. Besides its grant of right of way, land', timber, etc., this company received subsidy bonds at the rate of $1G,000 a mile for a distance of 7.18 miles east of Sacramento, of $48,000 a mile for 150 miles through the Sierra Nevada, and of $32,000 a mile for the distance from the eastern base of that mount- ain range to its junction with the Union Pacific. The charters of the two companies provided that, to secure the repa3'ment to the United States of the amount of those bonds, they should ipso facto constitute a first mortgage on the entire lines of the road, together with their rolling stock, fixtures and other property. The franchises and donations thus granted by Congress were most valuable; in fact, the latter were alone sufficient to build and equip the roads. In spite, however, of the liberal grants and in spite of the urgent necessity of the roads in those years of national trial, both of these enterprises made ver}'' slow progress. Their promoters were men of small means, and the capitalists to whom they appealed for help failed to realize the value of the franchises. No doubt when these men first engaged in their cause they expected to encounter serious obstacles in Congress, supposing that that august body would consider the proposed measure with much deliberation and to act upon it with still more circum- spection. Their success greatly surprised them. Tiie}' made the discovery that members of Congress could be 178 TliP Railroad Question. imposed upon as easily as private citizens, and wlien tliey fully realized how readil}' their demands had been granted, they were greatly provoked at themselves because they had not asked for more. According to a story told ])y m}' old friend Mr. J. 0. Crosby, an experienced member of the brotherhood of tramps late one afternoon chanced to stroll into the city of Alton. Having no visible means of support, he was picked up by the police and brought before the Mayor to oive an account of himself and to be dealt with as that dignitar}' might see fit. The tramp, a printer by profes- sion, and by no means a tyro in meeting such emergen- cies, so managed to impress the Mayor with his superior accomplishments that the latter concluded it would be a good investment, both for himself and the city over which he presided, to offer the genial stranger a contribution to his traveling fund, upon the condition that he would no longer than absolutely necessary molest the city with his presence. He accordingly told the intercepted tourist that while it had been for j'ears the policy of the city and its officials to entertain all tramps found within the limits of Alton for thirty daj's at the city jail in exchange for a fair amount of labor, he would, in consideration of the apparent fact that he was of better metal than the aA'erage tramp, make an exception in his case, and would, even at the risk of being censured for it by his constitu- ents, hand over to him five dollars from the municipal funds if lie would agree to leave the city early next morn- ing. The tramp gladly accepted the proposition, replen- ished his empty purse with the proffered bounty and with- drew from the City Hall, to take a stroll through Main Street. The city seemed to him as prosperous as the Mayor had shown himself liberal. It occurred to the Sfock cmd Bund Lijhitiou. 179 itinerant typographer that its treasury would not have been the worse otf for a teu-doUar levy, and he hastily returned to the Mayor's office to plead for a larger dona- tion. The Ma3-or, not disposed to argue the question, handed him another five-doHar bill and improved the op- portunity' to remind him of his previous promise and to give expression to the hope tliat as a gentleman of honor he would now discharge his obligation. The tramp fairly overwhelmed His Honor with assurances of good faith and bade him an affectionate good-by. The next rising sun found him on his onward journey. His route led through Alton on the Hill, a portion of the city which he had not seen before. He viewed with surprise the many fine resi- dences and other evidences of opulence which this part of the city contained. He passed on in a pensive mood until he reached the summit of the hill, which commanded a fine view of the entire city. Plere he turned to cast a farewell glance over the town ruled over by the most gener- ous mayor that it had ever been his privilege to meet. As he beheld before him the fine homes and beautiful yards, and below in the valley the lofty church-steeples, the many school-houses, the massive business blocks, the long and well-paved streets and -the spacious and shad}' parks, an expression of mingled surprise and disappointment stole over his face. He thrice slapped his wrinkled brow and thun hurriedly retraced his steps down the hill. When the chief magistrate of Alton came to his office that morn- ing, he met the irrepressil)Ie tramp anxiously waiting for him at the door. "Mr. Ma^'or, " said the wily extortioner, "I acted very hastily j'esterdaj^ when I accepted your second proposition. You have here a much larger town than I ever supposed. I have been constrained to take our last agreement into reconsideration, and I shall not 180 The Railroad Qifestion. leave this point until you add another five dollars to your consideration. You can certainly better afford to do that than to throw away thirty days' board and the ten dollars which you have already paid me besides." The diplomacy of the Union Pacific and Central Pacific railway companies was the same as that of the Alton tramp. They had found Congress as generous as the tramp had found the Mayor of Alton, and now reproached themselves for their modesty and resolved to bring the pliability of Congress to a severer . tes.t. Thej" again appeared before that body in 186-1 and asked that their charter be so amended as to grant to them ten alternate sections instead of five on each side of the road, and also all the iron and coal found within ten miles of their track, which had previously been reserved by Congress. And in addition to this the}' asked that the}' be authorized to issue their own mortgage bontis on their respective roads to an amount equal to the bonds of the United States, and that the lieu of the United States bonds be made sub- ordinate to the lien created by the companies' bonds. By the act of Congress, July 2, 1864, all these demands were granted, and the two companies were thus virtually presented with their roads and were at the same time given permission to mortgage this gift of the people and divide the proceeds among their shareholders, many of whom had received their stock chiefly in consideration of their influence in and out of Congress. The contribution of the United States to these companies on account of their main lines has not been far from $80,000,000, of which over $52,000,000 was paid in bonds, and the remainder in lands, which aggregated about 23,000,000 acres. The whole line from Council Blufi's to Sacramento is 1,780 miles long. It will thus lie seen that the national Stock and Bond Infl((tinii. 181 contribution was about $45,000 per mile, besides the right of way and all timber, iron and coal found within ten miles of the road. There is no doubt that this contribu- tion was equal to, if it did not exceed, the actual cost of the road. There has been an erroneous impres- sion abroad which has likened the Pacific road to those wonderful and very expensive lines which cross the Andes and the Alps. Those who have not crossed the continent can hardly believe that the construction of this line was neither more difficult nor more expensive than that of any of the numerous railroads crossing the mountain ranges of the East, but such is the fact. Starting from Omaha, the Union Pacific follows for nearly 500 miles, or almost half of its entire length, the valley of the Platte River. A better route for a railroad cannot be found upon the western continent. There are between Omaha and Cheyenne but three bridges worthy of the name. The Platte Valley is almost straight, rising toward the west at a nearly uniform rate of about 10 feet to the mile. Grading was practically unnecessary, and the work of construction consisted of little more than the lay- ins: of the ties and track. From the base of the moun- tains at Chej'enne to their summit is a distance of about thirty-two miles, the difference in altitude between the two points being less than 2,200 feet. The average grade is therefore about 68 feet to the mile, and nowhere are the grades heavier than 80 feet to the mile. There are heavier grades than these in the prairie State of Iowa, and the mountain grades of a number of Eastern roads exceed those of the Union Pacific by from 30 to 40 feet to the mile. The rise is, if not uniform, at least gradual, and the construction of even this portion of the road required, therefore, neither great engineering skill nor any unusual 182 The Railroad Question. expenditure of money. The road now crosses a plateau which extends almost to the terminus of the Union Pacific at Ogden, and a very large portion of this is as favorable for a road-bed as the average railroad territory of the country. The route of the Central Pacific presented to the engi- neer no great obstacles between Ogden and the State line of California, the only elevation of any note to be sur- mounted being the Humboldt Mountains in Nevada. Their highest point, Humboldt Wells, is 221 miles west of Ogden, and has an elevation of 5,650 feet above the level of the sea, while that of Ogden is 4,320 feet. Upon an average the grades of this portion of the road do not differ from those found in the Mississippi Valley. The portion of the Central Pacific Railroad which traverses the Sierra Nevada is the most expensive of the whole line, but the cost of construction did not, even on this division, exceed the amount contributed for it by the Federal Government; for the statement is made upon good authority that a few of the leading promoters of the road bijilt the first western section of twentj- miles with their own capital, of less than $200,000, and a loan from the city of Sacramento and Placer County, amounting to $550,000. and then drew $848, 000 Government subsidy, or more than enough to build the second section and draw another installment of the subsid}'; and that they repeated the operation until the whole line was completed. These men were in such haste to realize the profits which their undertaking prom- ised them ^that they did not even take sufficient time to make a proper survey of their line. Had they done so, a great saving, botii in the construction and in the subse- quent operation of the road, might have been effected. It is now well known that a route could have been found Stock and Bond Inflation. 183 through the Sierra Nevada Mountains, not far distant from the route chosen, which would have saved 800 feet in elevation and at least 25 per cent, in the expense of grading. It is certainl}' safe to sa)' that if less than forty thousand dollars a mile was sufficient to construct the road through the Sierra Nevadas the Federal contribution of $50, 000, 000 for the entire line, from Omaha to San Francisco, left, after the completion, a respectable surplus, either to the com- panies or those of their members who had the construction contract, and that the $75,000,000 of capital stock and the $55,000,000 of first mortgage bonds which the two companies issued were a gigantic dividend to the stock- holders, for which, practically, no consideration was given. The companies might well have been satisfied with the Government's generosity, but their success in imposing upon Congress stimulated their greed. The act of 1864 provided that the charge for Government transportation over these roads should be applied to the liquidation of its bonds, and that after the completion of the lines five per cent, of their net earnings should likewise be so applied. When the Secretary of the Treasury, under the law, refused to pay them the amount earned by Govern- ment transportation, and in addition to this demanded the five per cent, of their net earnings in liquidation of their debt, the companies applied to Congress to again amend their charters so as to relieve them for the time being from any direct payment of either principal or interest of the Government bonds, and to make it the duty of the Secretary of the Treasury to pay to the com- panies in money one-half of the compensation allowed to them by law for services performed for the Government. And again Congress responded to their demands, grant- 184 The Railroad Question. ing them, by a rider to the army appropriation bill, passed March 3, 1871, all the relief asked for. Owing to the policy of the managers of the Pacific line to pay as little of the interest on the Government subsidy debt as is abso- lutely necessary to prevent foreclosure proceedings, the unpaid interest has accumulated until it now almost equals the amount of the original indebtedness. The last report of the Commissioner of Railroads shows that the total indebtedness, principal and interest, to the United States of the Pacific railroad companies, was $114, -1:90, 000 on July 1, 1892. The Commissioner seems to be of the opin ion that the Union Pacific Company will not be able to pay the subsidy bonds at maturity, and he urges that some step be taken in the matter by Congress, whether it be to extend the loan, which will mature within the next six yeai's, or to sell the road. The managers of the Pacific roads and their friends ask an extension of the Government subsidy bonds for fifty years, and a reduction of interest from 6 to 2 per cent. If Congress continues to be servile to these interests, the Pacific railroad lobby will secure just such legislation as they demand. At the time the Pacific roads were built the people of the United States had no adequate knowledge of the topog- raphy of the Territories, and the promoters of the road for a while found it a difficult task to convince capitalists th&,t the investment would be a safe one. That they knew the value of the projected road was shown by the contest between the Central Pacific and the Union Pacific for mileage. For a distance of over 200 miles the two companies graded roads side by side in contest for the Government subsid}'. The promoters were even disappointed in the cost of the roads, as Mr. Sidney Dillon states in an article pub- Stock and Bond Tnjiation. 185 lisbed in the August number of Scrihner's Magazine, 1892, in which he says: " At the end of 1867 the road was completed to the top of the mountains and nearly half way to Salt Lake City. The cost of building over the mountains was so much less than we had expected that the construction company found itself with a surplus from the proceeds of the subsidy bonds. This was imprudently distributed in dividends." The United States Government could parallel to-da}" the line of either road for less than the amount of its first mortgage bonds, and its subsidy bonds are therefore nearly worthless. Mr. Clews, in his ' ' Twenty- Eight Years in Wall Street, " says: "After the Thurman bill had been sustained by the Supreme Court Mr. Gould had a plan to build a road from Omaha to Ogden, just outside the right of way of the Union Pacific, and give that road back to the Govern- ment. It would give others ' a chance to walk. ' The Government tried to squeeze more out of the turnip than was in it. For $15,000,000 a road could be built where it had cost the Union Pacific $75,000,000." It may be admitted that the Pacific roads, even at an extravagant cost, have proved a good investment for the country, 5'et their history reflects severely on the states- manship of those members of Congress whose duty it was to properly protect the interests of the nation at that time. They were unequal to their task. The Great Northern Eailway Company has just com- pleted its road to the Pacific Coast. Its line is very direct, and it has unusually light curvature and low grades, which will enable it to be operated more cheaply than any Pacific line yet constructed. Much of its route is through a rich and productive country, insuring to it a heavy local business. 186 The Jldilrodd Qucstio)i. The following statistics concerning it are given in the Railioay Age : Total mileag-e, December 18, 1890 . . . . 2,850 Average bonded debt per mile $18,C36 75 Average stock per mile 7,015 67 Total 25,652 42 Interest charges per mile 1,005 76 Dividend charges per mile 420 94 A comparison of these figures with those corresponding of other transcontinental lines is instructive, and is com- mended to Congressmen who have to deal with the Union Pacific and Central Pacific questions. Stock and bond inflation, it may confidently be asserted, has created from five to six thousand millions of dollars of fictitious railroad capital. In 1890 the average liabilities of the railroads in the United States, including the capital stock and the funded and unfunded debt, were $63,600 per mile. According to Mr. Poor's estimate of the average cost of American railroads per mile, more than 50 percent, of this vast sum is pure water. But, as has . been stated before, Mr. Poor is partial to the railroad interest, and his estimate of $30,000 a mile is too high for the time at which it was made. Furthermore, railroad building has since then been materially cheapened. Tens of thousands of miles of road have been built in recent years that did not cost to exceed $10,000 a mile. Very recently the Union Pacific Railroad Company proved, before the Board of Equalization at Salt Lake City, by the testimony of engineei's, that the average cost per mile of the Utah Central line was only $7,298.20, itemized as follows : Engineering $ 300 00 Grading 5-ft. fill, 18,480 yds 2,310 00 Ties, 2,640, at 30 cts 792 00 Rails, 82 tons 1,845 00 JSfock (DhI Baud Injlatlon. 187 Splices 12 00 Bolts 24 GO Spikes 142 20 Track-laying GOO 00 Bridg-es 200 00 Station-building- 100 00 Fences 450 00 Right of Avay 720 00 $7,298 20 In a recent article Mr. C. Wood Davis states that ' ' many auxiliary lines have been built at costs ranging from $8,000 to $15,000 per mile, and capitalized at two, three, four, and even five times their cost, as in the case of the 107 miles of the Kansas Midland, costing, including a small equipment, but $10,200 per mile, of which 30 per cent, was furnished by the municipalities along its line. Yet, with construction profits and other devices, this road shows a capitalization of $53,000 per mile.'' And that ' ' the Missouri Pacific line from Eldora to McPherson, Kansas, a comparatively expensive prairie road, being located across the line of drainage, cost much less than $10,000 per mile, as have thousands of miles of other prairie roads.'' • It is safe to say that $25,000 is a liberal estimate of the avei'age cost per mile of American roads to the stock- and bondholders, and that their capitalization represents $38,000 of water per mile. The total net earnings of the railroads of the country were $341,666,639 in 1890, and $356,227,883 in 1891, upon an actual investment of onl}^ about $4,250,000,000. This is a return of about 8|- per cent, and shows the force of Mr. Poor's statement that, if the water were squeezed out of railroad securities, no better-paying investment could be found in the country. We often see references to the fact that no dividends 188 The. Railroad Question. are paid upon a large portion of railroad stocks, but there is no reason why dividends should be paid upon many of them, as they represent no capital whatever that has gone into the road. It is probable that not to exceed ten cents on the dollar upon an average was originall}' paid for these stocks, and the $80,000,000 distributed annually as divi- dends upon them does not vary much from fifteen to twenty-five per cent, upon the amount actually invested in them. CHAPTER VII. COMBINATIONS. IT is the favorite argument of railroad men, and the writer must confess that he himself formerly believed, that if all legal restraints were removed from railroad business, the laws of trade would regulate it more success- fully anfl more satisfactorily, both to the railroad com- panies and their patrons, than the wisest statutes could ever regulate it. To give force to their argument, they cite the old Democratic maxim that that State is governed best which is ruled the least. They al^o assert that it is the proAince of the State to guarantee to each of its citizens industrial freedom ; to permit him to transact any legitimate business according to his best jucigment; to buy and to sell where and at what price he pleases ; in short, to earn without restriction the reward of his intelligence and his industry. They further contend that under a free government the law of suppl}'^ and demand should be allowed free sway, and that he who buys or sells trans- portation should not be hampered in his transactions any more than the grocer and his customer. The reply to this is that, while the grocer is a natural person, the railroad company is an artificial person, and that, while the business of the former is purel}' private, that of the latter is quasi-public. The grocer must rely solely upon his personal rights and private resources, but the railroad company accepts from the State the franchises which enable it to do business. And yet, if the public had any assurance that the laws of trade would regulate both 189 190 Till' RaiJ/'ond Question. kinds of business ' alilfe, it is not likely that the State would distinguish between the two. They claim that their business is like other private business, and therefore they should be let alone ; that competition can be relied upon to correct abuses; and where competition does actually exist they forget, and then claim that their business is not like other private business, and they should be allowed to make pools and combinations, because in their business competition is ruinous. Experience has certainly demon- strated that competition is only possible where combina- tion is impossible. Where the same commodity is sup plied by a large number of individuals, there is but little danger for the public from those who supply it, for an agreement among many cannot easily be effected; and even if an understanding could 1)e reached, it would not long be satisfactory to all parties. Disagreements would arise which would end in the dissolution of the combina- tion. Where, however, the number of competitors is small, agreements can be easily effected and successfully maintained. It is doubtful whether there is at present any interest in the commercial world which has a greater tendency to mon- opoly and combination than the railroad interest. There are in the United vStates some 40,000 railroad stations. Not more than 4,000 of these are junctions of two or more roads. At 90 per cent, of these stations shippers are there- fore confined to one line of railroad, and are, in absence of State regulation, compelled to pay for transportation whatever price tlie companies may l)e disposed to charge, subject only to such restrictions as the proximity of com- peting points may impose. If competition obtained at all points where two or more roads meet, many railroad com- panies could not afford to charge excessive rates at non- Comhiiiatiuits. I'Jl competitive points along their lines of road, for such' a polic}' would slowly but surely drive a large volume of their legitimate business to rival roads, to whose interest it would be to encourage by every means in their power such diversion of traffic. Railroads early recognized this fact and took steps to enable each line to control its local business. The first combinations among railroad com- panies to control prices at competitive points were rather crude; in fact, much cruder than the first Granger legis- lation. The}^ were simple agreements among the various roads touching a common point to maintain certain fixed rates. But while each road was anxious to have the rates agreed upon main|;ained l)y all of its rivals, it cared but little about maintaining its own good faith, and it improved every opportunit}' to get business at reduced rates so long as it could reasonabl}' hope to escape detection. As soon as any of the competing roads, through the falling-off of its business, Ijecame convinced that it was the victim of overreaching rivals, it retaliated by offering still lower rates to close-tongued shippers. This tricky rivalry would be continued until the animosity engendered b}' it would lead to an open rupture, and what railroad men are pleased to term a rate war would follow. As the schedule rates had before been unreasouabl}' high, so they became now unreasonably low. Hostilities would be continued until all belligerents became exhausted and manifested a disposi- tion to negotiate a treaty of peace. The former high rates would then be restored; the compact was carried out for a short time, to be again violated and finally annulled. These rate agreements were in vogue in New England before the War of the Rebellion and gradually found their way to the Middle States and the West. Wherever they were tried they were violated, until even among the most 192 The Railroad QuestioH. unsophisticated of freight agents a rate agreement was looked upon as a farce- The statement is often made by railroad managers that excesses in railroad competition are the result of the pecu- liar conditions of their business, which has heavy fixed charges on one hand and a fickle patronage on the other; that the uncertainty of through business compels them to rely upon the local business for such revenue as is neces- sary to meet these fixed charges; and that, inasmuch as their trains must run, and anj^ through freight hauled by them is so much business taken from the enemy, they can better aflford to take it at any price than to have one of their competitors take it. It is difficult to see why this reasoning should not be applied to other branches of business; for instance, to milling. The mill-owner, like the railroad company, has heavy fixed charges. He has to earn the interest on his capital, he has to keep his mill in repair, he now and then has to meet the demands of the times and purchase improved appliances, and he has to keep a certain number of employes, whether business is brisk or slack. He might, therefore, if he saw fit to employ the logic of rail- road managers, earn revenue enough to meet his fixed charges from the business which his regular customers give him, and then do any business coming from beyond this circle at any price rather than surrender it to a rival. It will readily be conceded that any enterprise con- ducted on such principles could, at the best, flourish only temporarily, for it would soon encounter difficulties from two sources. Its local customers, thus discriminated against, would withdraw their patronage, while its com- petitors, finding their territory encroached upon, would, in self-defense, offer still lietter terms to the puljlic to Combinations. 193 regain their lost customers. Such ruinous competition, if long persisted in, must necessarily cripple, if it does not bankrupt, a majority of those who engage in it. It is fortunately as rare in industrial and commercial circles as it is common among public carriers. This difference can easily be accounted for. Where there are a large number of competitors the prices of the commodities supplied by them are leveled down until thej^ reach a point where they will afford only a reasonable margin of profit, and beyond which they will cease to be profitable, and will therefore cease to be supplied until the equilibrium is again established. Where, however, the number of competitors is small, the price of the com- modities supplied by them will, by agreement, for a time at least, be maintained at a point where it affords con- siderable more than a reasonable profit. Here the large gain presents to the various competitors such a tempta- tion to outstrip their rivals and increase their business at the expense of good faith, that but few, if an}^, of them will, in the long run, resist it. The tendency to under- bid rivals will always be strong where profits are large, and it may safely be asserted that efforts to maintain, through combinations, excessive rates are the most fruit- ful source of ruinous competition. In time railroad managers became convinced that, unless it was possible to radically reform railroad ethics, rate agreements could never be relied upon for the main- tenance of excessive rates at competing points. The combined roads found it an easy matter to agree upon excessive rates, but were powerless to enforce them. Experience convinced their managers that to make their tariffs effective it was necessary to deprive indiAidual roads of the power or the inducement to cut below the 194 7V" lidiliuad Questiun. agreed rates. Their ingenuity in time developed a sys- tem wliich promised to remove from individual roads ever}' temptation to take business at less than schedule prices. This device consists in a division of railroad busi- ness and is commonly called a pool. There are various ways in which such a division is made. Either the traffic is divided among the various companies meeting at a common point, or each road is allowed to carry all freights that it may receive, and then the earnings of the differ- ent roads are divided, each road being paid the actual cost of such service as it has performed. There is still a third pooling arrangement, consisting in a division of ter- ritory, but this has been found less satisfactory and is now but rarely resorted to. It is said that the first regular pool organized in the United States was the Chicago-Omaha pool, formed in 1870 by the Chicago, Burlington and Quincy, the Chicago, Rock Island and Pacific, and the Chicago and Northwestern railroad companies, then the only three lines connecting the cities of Chicago and Omaha. This pool, which was subsequently joined by other lines, made an equal division of the traffic, and was so well organized that it lasted fourteen years "without a break." The abuses practiced by the companies Ijelonging to this pool were one of the chief causes of the Granger movement in Iowa. It is in- deed doubtful whether any other railroad combination ever maintained itself longer or pursued its ends with greater pertinacity than this pool. Another pool of national notoriet}^ was the Southern Railway and Steamship Asso- ciation, which was organized, though at first under a different name, in the State of Georgia, in 1875. It was probably the first money pool formed in the United States. Each member was awarded a certain percentage of the Combinations. 195 tx)tal business between the various competitive points along its line. If a company carried more than its share, it was compelled to turn over the receipts from such additional traffic to its rivals, which paid it a nominal price for carriage. This allowance was always made so low that there was no inducement for any company to seek to carry more than its allotment. The pool had its own executive, legislative and judicial departments, and it enforced its decrees with an iron hand. It maintained a strong centralized government, and rebellious members had but little mercy to expect from it. It provided that if any officer or representative of any company should authorize or promise, directly or indirectl}', any variation from established tariffs, he should be discharged from the service, with the reason stated. Tlie strong sentiment which we to-day find in the South in favor of State con- trol of railways is the direct result of the many evils which this powerful pool introduced into the railway busi- ness of that section of the country. Other pools followed, as the Southwestern Association, organized in 1876, to control the traffic between Chicago and St. Louis, and the Minnesota and the Colorado pools. Within a few years railroad pools covered the whole country. All pursued the same object, viz., the control of rates at competitive points, which enabled the com- panies to maintain excessive schedule rates at local points. Between 1875 and 1880 the pooling sj'stem rapidly spread all over the Union. Wherever competition prom- ised to regulate rates by the application of the law of supply and demand, the pool was resorted to as the never- failing remedy to preserve dividends on watered stock. As long as lake and canal navigation controlled the 196 The Railroad Question. carriage of heavy freights between Chicago and New York by means of rates so low that railroads found it, or at least thought it, impossible to compete with them in the transportation of agricultural products during the greater part of the year, railroad pools between Chicago and New York could not be successfully maintained. In 1873 the railroads transported only about 30 per cent, of this kind of freight from the West to Eastern ports. Owing, however, to the rapid decrease of the cost of transportation, railroad companies from this time on were enabled to encroach rapidly upon the business of water routes, so that in 1876 they carried over 52 per cent, of the entire volume of agricultural products that were moved from the West to the East. As long as these products were carried almost entirely by water from lake ports to the East, New York, as the terminus of this route, enjoyed decided advantages over the other Atlantic ports. When, however, the railroads commenced to successfully compete with the water routes in the transportation of these com- modities, a considerable share of this business was diverted to Boston, Philadelphia and Baltimore, and it soon became apparent that these ports, in some respects, enjoyed ad- vantages for the export trade not possessed by New York. It was, therefore, not surprising that the business men of these cities, together with the railroads terminating in them, made every effort to come in for their share of the traffic which was drifting away from New York. Competition between the New York Central and the Pennsylvania Railroad for the Western through traffic dated back as far as 1869, the year in which both systems secured, through consolidation with connecting roads, through lines to Chicago. Rates fell in one year from $1.80 to 25 cents per hundred pounds. After a time the Combinations. 197 managers of the two companies met, and schedule I'ates were restored. Rates were, at least outwardlj^, main- tained until the Baltimore and Ohio and the Erie system entered Chicago, and the Grand Trunk made connections with Milwaukee and other lake points, and thus disturbed through rates. All efforts to maintain the level of the old tariffs, through agreements, proved now fruitless, for both the Baltimore and Ohio and the Grand Trunk found it to their interest to pursue independent policies, and refused to have their hands tied b}' an agreement with roads that were interested in continuing, if possible, the commercial supremacy of New York. Rate skirmishing finally developed into open war in 1876, when fourth-class rates between Chicago and the Atlantic fell as low as 16 cents per hundred. This rate, however, was eclipsed in Jul}^ 1878, when wheat was carried from Chicago to New York for 10 cents per hun- dred. The existing conditions left no doul)t in the minds of those familiar with railroad tactics that this war was simply the precursor of a gigantic combination between the trunk lines. An unsuccessful attempt to effect such a combination had been made before In 1874 the man- agers of the Erie, Pennsylvania and New York Central met at Saratoga for the purpose of devising means for the suppression of competition in the trunk line traffic. This meeting, however, known in railroad history as the Saratoga Conference, was the first step toward the organ- ization of a trunk line pool, although the conference did not lead to any immediate results, the Grand Trunk and the Baltimore and Ohio refusing to be bound by its decis- ion. It was certainl}' no easy task to devise means to bring about an effective and permanent combination among five large through lines with greatly conflicting interests. 198 The Railroad Question. So far pools had never failed to suppress competition wherever they were organized. But in the past pools had, almost without exception, only attempted to control rates between common points. They accomplished their object by a division of the entire traffic or earnings from the traffic between common points. The schedule rat«s remained the same for all. But the traffic of the trunk lines brought a new factor into the problem. Here the rival routes did not terminate at the same points. It was contended by the Baltimore and Ohio that, whatever might be the facilities of Baltimore for exporting agricultural products, that port was at a disadvantage as compared with the more northern ports on account of the longer voyage and higher ocean rates to Liverpool, and that it could therefore not enter into a combination with the roads leading directly to New York and Philadelphia upon equal terms, since this would divert its legitimate share of the through business to those ports. The Grand Trunk, on the other hand, refused to enter the combi- nation because, not having any direct Chicago connection, it feared that the enforcement of pool rates would mater- ially diminish the volume of its business. As yet the railroad wiseacres did not seem to be equal to the emer- gency, and matters drifted along in the old channel. The rate war of 1876 gradually brought about an understand- ing among the belligerents. The competing roads ac- cepted the terms offered, and with this a new principle entered into the science of pooling. Eates between Chi- cago and Baltimore were fixed somewhat lower than those between Chicago and Philadelphia, and in turn Philadel- phia was allowed a small advantage over New York. This concession was made to equalize the difference in the ocean rates of the competing ports. These equalizing or Combinations. 199 — to use railroad nomenclature — differential rates were subsequently^ granted by pools to such roads as, on account of some disadvantage, could not compete with other members of the pool on equal terms. Thus the longest route was usually permitted to charge the lowest, and the shortest route the highest rate. This practice is in conformity with the principle of charging whatever the traffic will bear, but it is certainly devoid of every con- sideration of justice and equity. If the longer line can afford to carry freight at rates lower than schedule prices, no further proof is needed under ordinary circumstances that the regular schedule rates of the shorter line are exorbitant. The concession of differential rates settled, at least temporarily, the difficulties that had arisen out of the east-bound traffic of the trunk lines. This arrangement did not, however, in any way affect the traffic moving in the opposite direction. The volume of west-bound freight is ver}' much larger at New York than at any other of the Atlantic ports. In order to get its share of the business, each trunk line maintained an office in New York. These offices eagerly solicited business for their respective roads, and the freights which they received for transportation to the West would be forwarded either directly or by a cir- cuitous route ; but, the longer the route, the lower as a rule was the compensation asked for the service. Under these circumstances competition was brisk, and the profits realized were far from satisfying the cupidity of the com- peting lines. It was apparent to their managers that the competition in the west-bound traffic was similar to that formerly existing between Chicago and Mississippi and Missouri River points, which had promptly yielded to pools. The temporar}' adjustment of the more perplexing 200 The RaUroad Question. questions which had arisen out of the east-bound traffic now paved the way for a pooling arrangement for the west-bound freight. The Southern Pool, under the man- agement of Albert Fink, had long attracted the attention of the trunk line managers. Its system of dividing the traffic, of reporting to a central office and of hearing and deciding complaints had enabled it to exert an almost absolute control over its members, to compel them to make honest returns and to prevent rupture and rebellion. It was believed that a pool of the trunk lines could not be effective or permanent unless organized upon the Southern basis and presided over by a trunk expert. Accordingly, when in 1877 an agreement for the pooling of the west-bound traffic was reached by the trunk lines, Mr. Fink was tendered the position of pool commissioner. Under the agreement reached the total tonnage of the west-bound business was diAaded in such a way that the Erie and New York Central roads each received 33 per cent., the Pennsj'lvania 25 per cent., and the Baltimore and Ohio 9 per cent, of it. If any road received more freight than was allotted to it by the pool, it deliA'ered such surplus to the pool, or rather to such a road as the pool commissioner designated as not having received its allotment. The success of this pool from a railroad point of view made the trunk lines anxious to organize a similar pool for the whole east-bound traffic. It was proposed to control b}' such a combination the rates on all the east- bound traffic of the Northwest, b}^ making Chicago the pooling center, fixing for it a schedule of rates and mak- ing the rates of all the railroad centers in the West and Northwest dependent upon it. The combination was to comprise more than forty companies, controlling over 25,000 miles of road. The scheme was tried for three Combinations. 201 months in 1878, but proved a failure, owing to the fact that nearly all of the many diverging interests sought their own advantage. The Eastern and Western trunk line pools were, through the efforts of their commissioner, successfully maintained, though even their harmony was occasionally marred by a short war precipitated bj' such members as would think themselves entitled to larger shares of the spoils. But a readjustment would invar- iablj' follow, and the expenditures of the war would be taxed up to the public. After the failure of the gigantic Western pool which had been organized under the protectorate of the trunk lines, the companies which had composed it formed such local combinations as their individual interests dictated. It is doubtful whether during the five years immediately pre- ceding the passage of the Interstate Commerce Law there was any junction of two or more roads in the United States which, except during the period of an occasional railroad war, had any competition in the transportation business. As has been shown before, discriminations without number were practiced between places and per- sons ; goods were not unf requently carried at a loss ; but the general public was, as a rule, compelled to pay what the traffic would bear, or rather what the pooling roads thought it could bear. It is claimed by railroad managers that pools are the only effective contrivances for checking ruinous competi- tion among railroad carriers, and that they are therefore justifiable as a means of self- protection. This might per- haps be a valid argument if any attack were made upon the railroads which encroached upon their rights or en- dangered their existence, but if railroad companies are disposed to cut each other's throats, the public should not 202 The Railroad Question. be made to pay the penalty of their depravity. As long as schedule rates are unreasonably high, railroads will be tempted to offer to certain shippers low secret rates; but as soon as all rates have been leveled down to a point where they will yield only a fair profit with good manage- ment, the inducement to cut below them is largely taken away. Pools, far from being a remedy for the evils of excessive competition, will in the end only aggravate the disease which they attempt to cure. The high rates which they maintain attract the attention of speculative men and lead to the construction of rival roads. While the traffic remains the same, the proceeds must then be divided among a larger number of carriers. Thus the construc- tion of unneces.sary roads, which has often ijeen the sub- ject of bitter complaint on the part of the older roads, is chargeable directly to their wrong policies. One of the principal objections to industrial and com- mercial combinations is that thej' paralyze trade. Compe- tition stimulates every competitor to offer the best at the lowest possible price. This increases the demand for the commodity, and both the producer and the consumer are in the end benefited by the operation of this law. On the other hand, combinations, or, what is the same, monopo- lies, increase the price, remove the stimulus to excellence, and reduce the demand, and thereby affect injuriously the producer and consumer alike. Competition in the railway service would mean an improved service and lower rates and would speedily be followed by a large increase of business. Another serious objection to pooling is that it invariably leads to periodic wars, which unsettle all Ijusiness, and but too often introduce into legitimate trade the element of chance. These wars give, moreover, to designing rail- road managers an opportunity to enrich themselves by Combinations. 203 stock speculations at the expense of the stockholders, whose interests they use as a football for the accomplish- ment of their selfish ends. When rates are reduced to a right level, and arc properly adjusted, and are equal to all, even railroad men will find no necessity for pools. The desire for such a combination is a desire to impose upon somebody, or some locality, or the public at large. The proposition to give legal sanction to pools, made by railroad managers, is preposterous; and even a pool to be approved by the Interstate Commerce Commission is out of the quiestion, as it would cause the railroads to increase their eft'orts to control the appointment of the commission. However honest it may look on its face, however plausible may be the arguments produced in its favor, it should not be permitted. There is no doubt but under the proposed pooling ar- rangement railroad interests, watered stocks and all, would be cared for, but there is every reason to believe that public interests would not be properly protected. So long as servility by a member of tiie Interstate Commerce Commission to railroad influences serves as a stepping-stone to a high position in the employ of railroad combinations, with a salary of three or four times that of an Interstate Commerce Commissioner, so long will it be unsafe to permit such powers to be vested in that com- mission. Pooling by railroads should not be permitted, if per- mitted at all, so long as representatives of speculative interests have a voice in their management, and not until all fictitious valuations are altogether banished from the equation, and until the roads are brought under complete Government control. There is no more necessity for pools among railroads than there is among merchants and man- 204 The Railroad Quest ion. ufacturers. The capital actually invested in railroads is now receiving larger returns than investments in other lines of business, and their incomes are increasing from year to year. Every pooling combination of railroad companies for the maintenance of rates is a violation of common law. From time immemorial the law has stamped as a conspiracy any agreement between individuals to support each other in an undertaking to injure public trade. The Interstate Com- merce Act reasserts this principle, and provides penalties for the maintenance of such combinations among ' railroad companies. If, in spite of this act, the evil still exists, it is no argument against the merits of the law, but it does prove that the machinery provided for its enforcement is insufficient. That railroad companies can be made to respect the law there can be no doubt; but much cannot be accomplished unless the people fully realize the magni- tude of the undertaking and vest the Grovernment with sufficient power to cope with an organized force whose total annual revenue is nearly three times as large as that of the United States. The discussion of the question how this may be done will be reserved for a subsequent chapter. CHAPTER VTIl. RAILROADS IN POLITICS. THE question might be asked how the railroad com- panies for many years in succession have been able to prevent State control and pursue a policy so detrimental to the best interests of the public. One might think that in a republic where the people are the source of all power, and where all officers are directly or indirectly selected by the people to carry out their wishes and to administer the government in their interest, a coterie of men bent on pecuniary gain would not be permitted to subvert those principles of the common law and public economy which from time immemoi'ial have ,been the recognized anchors of the liberty of the Anglo-Saxon race. The statement that under a free government it is pos- sible for a few to suppress the many might almost sound absurd to a monarchist, and yet is it true that for the past twenty-five years the public affairs of this country have been unduly controlled by a few hundred railroad man- agers. To perpetuate without molestation their unjust practices and prevent any approach to an assertion of the principle of State control of railroad transportation, railroad man- agers have secured, wherever possible, the co-operation of public officials, and, in fact, of every semi-public and pri- vate agency capable of affecting public opinion. Their great wealth and power has made it possible for them to influence to a greater or less extent every department of the National and State governments. Their influence 206 206 The Railroad Question. extends from the township assessor's office to the national capital, from the publisher of the small cross-roads paper to the editorial staff of the metropolitan daily. It is felt in every caucus, in every nominating convention and at every election. Typical railroad men draw no party lines, advocate no principles, and take little interest in any but their own cause; they are, as Mr. Gould expressed it, Democrats in Democratic and Republicans in Republican districts. The large means at the command of railroad companies, their favors, their vast armies of employes and attorneys and their almost equally large force of special retainers are freely employed to carry into execu- tion their political designs, and the standard of ethics recognized by railroad managers in these exploits is an exceedingly low one. It is a settled principle of these men that, if they can prevent it, no person not known to be friendly to their cause must be placed into any public office where he might have an opportunity to aid or injure their interests. The records of the various candidates of the principal parties for city, county. State and national offices are therefore carefully canvassed previous to the primaries, the most acceptable among the candidates of each party are selected as the railroad candidates, and the local representatives of the railroad interest in each part}' are instructed to use all means in their power to secure their nomination. If none but candidates who are servile to the railroad interest are nominated by the principal parties, the elec- tion is permitted to take its own course, for, whichever side is successful, the railroad interest is safe. If, however, there is reason to believe that a nominee is not as devoted to their interests as the nominee of an opposing party, the latter is sure to receive at the polls wiiatever suj^port rail- Railroads in Politics. 207 road influence can give him. That a public official elected by the grace of a railroad manager is but too apt to become a tool in his hands needs no proof. Both gratitude and fear tie the average politician to the powerful forces which can control his political destiny. The railroad manager, on the other hand, always kindlj'^ remembers his offlceholding friends as long as they are loyal and in a position to serve him. Before the enact- ment of the Interstate Commerce Act there was every 3'ear a wholesale distribution of railroad passes among public officeholders and other prominent politicians. The pass was the token of the continued good will of the rail- road dignitaries as the withholding of the "courtesy" was a certain indication of their displeasure. If the officeholder had personal or political friends whom he desired to have recognized, an intimation of this desire was generally sufficient to have the pass privilege even extended to them. And yet these favors were not be- stowed indiscriminately. Thus the pass credit of a county official was more limited than that of an officer of the State, and the latter class were again rated according to their influence and rank. Furthermore, while annual passes were thus freelj^ distributed among one class of officials, others could obtain them only by making special application for them. Members of the legislature would not unfrequently receive their supply of railroad passes before their certificates of election were issued, but legis- lative committee clerks and employes in the various de- partments of the State government were required to satisfy the railroad authorities that they were in a posi- tion to aid or to injure the railroad cause before their names were placed on the list of persons ' * entitled to the courtesy. 208 TJie Railroad Question. Of course the judiciary, as a coordinate brauch of the government, could not well be slighted. Indeed, previous to the enactment of the Interstate Commerce Law, a judge would have regarded it an affront if he had not been fur- nished with passes by the various companies operating railroads in his district. It appears that the law has not entirely corrected this abuse, for only about two years ago the Chicago News made the discovery that nearly every judge in the city of Chicago traveled on passes. It is strange to what extent the pass often debased the judiciary. It was not unfrequent for judges to solicit passes for family and friends, and instances might be named where they demanded them in a wholesale way. The impudent demands were usually honored by the railroad authorities, who reasoned that they could better afford to bear the shameless effrontery of the ermined extortioner than the damage which might result to them from adverse decisions. A railroad pass, when presented by a public official or even by anj^ public man, is now, in nine cases out of ten, a certificate of dishonor and a token of servility, and is so recognized by railroad officials. What equivalent railroad companies expect for the pass "courtesy" is well illus- trated by the experience of an Iowa judge. This gentle- man, who had been on the bench for years and always had been favored with passes by the various companies operating lines in his district, at the beginning of a new year failed to receive the customary pass from a leading road. Meeting its chief attorney, he took occasion to call his attention to what he supposed to have been an over- sight on the part of the officer charged with the distribution of the passes. The attorney seemed to take in the situ- ation at once. "Judge," said he, " did you not recently niti/riiii(Is ill Pdlific.s. 209 decide au imporUmt case a . 239 posed reduction, instead of being one cent per mile, as stated by Mr. McDlll, was only one-half cent per mile ; and it onl}' applied to the local business of the first-class roads. In other words, the bill under consideration, had it been enacted into law, would have caused a reduction of 20 per cent, on about 25 per cent, of the total revenue from passenger business of the first-class roads, or of five per cent, on their total income from passenger traffic in the State of Iowa. It will be noticed that ]Mr. McDill in his calculation made no allowance whatever for the increase of business which would have followed such a reduction. The gain from this source would probably have greatly Exceeded the loss due to this small reduction in the fare. In the same address Mr. McDill made many other equally fallacious statements. One of the most devoted advocates of the interests of railroad managers is Marshall M. Kirkman. He is the author of a number of books and pamphlets upon railway subjects, among them a pamphlet entitled ' ' The Relation of the Railroads of the United States to the People and the Commercial and Financial Interests of the Country. " Mr. Kirkman introduces his subject with the following rather remarkable statement: " I shall show that while the railways of the United States are designated as monopolies, thej^ are not so in fact. Accused of disregarding the interests of the com- munity, I will show that they are abnormally sensitive to their obligations in this direction. While legislatures claim the right to fix rates, I shall show that the abnor- mal conditions under which the railway sj'stem has grown up and its chaotic nature render the exercise of such a privilege impossible. I will show that while it is assumed that rates may be fixed arbitrarily, they must, on the contrary, be based on natural causes, the competition of carriers, their necessities and the rivalries of conflicting 240 The Railroad Question. markets and trade centers; conditions manifestly impos- sible to determine or regulate in advance, and therefore beyond the control of legislation. . . . While a di\ision of business (by pooling) is thought to be contrary to the interests of the people, I shall show that it is the legiti- mate fruit of indiscriminate railway building and offers the only escape from the conditions such practice engen- ders. I shall show that, while it is assumed that rates may be based progressively or otherwise on distance, the enforcement of such a principle would restrict the source of suppl}', and, in so far as this was the case, render great markets or centers of industry impossible." Speaking of the importance of the railroad, Mr. Kirk- man says : ' ' Superseding every other form of inland con- veyance, it determines the location of business centers, and vitalizes by its presence, or blasts bjMts absence." He contends that rigid and scrutinizing supervision should be exercised by the Government over the location of railroads, and that only such lines should be permitted to be built as afford reasonable grounds for profitable enterprise. ' * It should be, " he says, "an axiom in our day that a gov- ernment that permits or encourages the construction of two railways where one would suffice is, to the extent that it does this, a public nuisance. " Mr. Kirkman here makes it the duty of the Government to arbitrarily meddle with railroad affairs. He would give the Government the power to determine when and where an additional rail- road is needed, and to prohibit the construction of any new road that has not the Government sanction. The interests of a thousand towns might suffer for want of adequate transportation facilities, individuals and com- munities might be anxious to build their own lines for the development of local resources, but all railroad enterprise is doomed to a standstill until a conservative govern- mental commission has been entirely satisfied that a pros- Railroad Literature. 241 pected road will pa}' arid not deprive existing roads of any part of their revenue. There can be no doubt that if such a policy were ever adopted in America, few roads would be built witliout having lirst passed the ordeal of a legal injunction, and many a prospected road, though greatly needed, would remain unbuilt because its pro- moters would be discouraged by the delay and cost of liti- gation."' But while this author is pei'fectly willing to trust the Government with the great responsibility of prohibiting the construction of proposed roads, he is not willing to have it exercise the power to determine what are reason- able rates. He tries to sustain his objection by the fol- lowing argument: " The fixing of rates upon a railroad is as delicate a process as that of determining the pulse of a sick man. They cannot be determined abstractly, or in advance of the wants of business, but must be adjusted from hour to hour to conform to its fluctuations. Five thousand men find active employment in the United States in connection with the important duty of making rates. Each case requires particular investigation and involves, in many instances, prolonged study and research. The duty requires men of marked experience and capacity. They and men like them are the silent, unseen power that moves great enterprises of every nation. In the case of railroads we may enumerate those having official positions, but the experts from whom the official heads derive infor- mation and assistance cannot be classified. They com- prise a vast army of experienced and able men familiar with railway traffic and quick to respond to its require- ments. Such a body of men could not lie organized by a government, or, if organized, Avould rapidly deteriorate under conditions so unfavorable for their support and 242 The Railnxul Qiusfion. development. Whatever authority exercises the duty of fixing rates must take up the subject in the same method- ical way and, acting through skilled agents, pursue its inquiries and determine its results with the same exper- ience, minute care and conscientious regard for the tech- nical-requirements of business that the railway companies observe. No government can possess the facilities for perfecting so vast and intricate an organization and at the same time render it responsive to the public good. The labor is too great and the responsibility too remote. It could not move with sufficient quickness to respond to the actual requirements of trade, and too many restrictions would necessarily govern its actions. For these and other equally important reasons governments must always be satisfied to restrict their offices in this direction." Speaking of the men who are commonly termed railroad magnates, Mr. Kirkman says : < ' They alone possess the needed administrative ability that the situation demands. They not only provide largeh' the capital, but they dis- cover the fields wherein ,it may be used most advantag- eously. They are the advance guard of all great enter- prises, the natural leaders of men. They are an integral part of the country, a necessary and valuable element, without which its natural resources would avail little." This is a very strong statement in the face of the fact that but ver}^ few of the class of men to whom Mr. Kirk- man refers ever built a line of road. They have usually found it more profitable to "gobble" roads already built than to construct new lines. According to this author the public have no reason to complain of railroads; on the contrary, the latter have always been the victims of public persecution, and ' ' every species of folly, every conceivable device of malice, the Railroad Literature. 243 impossible requirements of ignorance, tlie selfish cunning of personal interests, the ravings of demagogues, ^ihe dis- appointments, euAies, prejudices and jealousies of man- kind have each in turn and in unison sought to injure the railway interest. ' But probabl}' the most extravagant passage in the whole treatise is the one referring to special rates, which he calls " the foundation and buttress of business," with- out which it could not be carried on. He expresses the opinion that without the continued and intelligent use of such rates ' ' our cities would soon be as destitute of man- ufactories as one of the bridle paths of Afghanistan," and then continues: "The special rate of carriers is like the delicate fluid that anoints and lubricates the joints of the human body. It is an essential oil. AYithout it the wheels of commerce would cease and w^e should quickly revert to the period when the stage-coach and the over- land teamster fixed the limits of commerce and the stature of cities." The most recent and probably the most radical of Mr. Kirkman's books is "Railway Rates and Government Control. " It would lead us too far from our subject to enter into a discussion of Mr. Kirkman's errors ; in fact, it might prove an endless task. Suffice it to say that in discussing his subject he revels in such phrases as : " Subject too vast to be comprehended." " Acts of agra- rian legislation and foolish manifestations of disappoint- ment and hate. " "The rabble. will avail itself of every excuse to pass laws that would, under other circumstances, be called robberies." "Ignorance and demagogism." "Government interference, the panacea of cranks and schemers." "Only understood by the few." "These people are as sincere as they are ignorant. "' "Govern- 244 TJie Railroad Question. ments have no commercial sense. " ' ' Those who condemn them are not so dishonest as ignorant, and not so malici- ous as foolish." " Silly people." "Justice and common honesty are sj'stematically denied [tlie railroads]." "Legal means of plundering them." " The intelligence and facili- ties of Government are but one step above the barbarian." " Those who use railroads should pay for them," etc., etc. Mr. Kirkmans argument is in substance : Rate-making is a difficult subject. The people are too ignorant to under- stand it. Those who carry on the Government are for the most part fools and demagogues, and are utterly unfit to do justice to such a task. Railroad men are wise and just, and neither the people nor the Government should meddle with the railroad business. In order to place a true estimate upon Mr. Kirkmans utterances, one should remember that he is a railroad employe as well as the patentee and vendor of a number of railroad account forms which are extensively used by railroad companies. The Chicago I'rihiDie, in reviewing this last literary pro- duction of Mr. Kirkman, says : "The great fault of Mr. Kirkman's statements is that they are often so general in character as to be both true and false at the same time. . . . He does not seem to comprehend the nature of the railroad, or to perceive the danger of allowing a railroad to exercise its powers uncon- trolled. He denies the State's right to interfere with any discriminations which a railway corporation chooses to adopt. He would allow I'ailways to fix whatever charges they please for long hauls and short hauls. . . . Mr. Kirk- man does not adduce a single fact in support of these re- markable views. He simply says : ' Railroads cannot, if they would, maintain any int^quitable local tariff.' This is not argument, it is simpl}' as.sertion. Every one who has learned the alphabet of this question knows that railways have been exceedingly unjust wherever competi- Railroad Literature. 245 tion or the law did not restrict their powers. If this were the proper phice for it we would give the author instances of this injustice by the hundred, and almost any book on the subject refers to such cases by the thousand. . . . When confronted with the facts sul)stautiating such charges the author answers the argument by exclaiming: But how absurd! But how untrue! Our commercial morals are equal to the highest in the world.' . . . Scarcely an assertion can be taken without qualification. The author fairly revels in half-truths. . . . The book maj' have its merits, but they are too modest to reveal themselves." It is a falling of mankind to take for truth without further investigation any assertion that has often been re- iterated. Most people are prone to believe that an asser- tion made by a thousand hearsay witnesses is true, over- looking the possibility of their drawing from a common false source. But it is surprising that an author like Prof. Arthur T. Hadley should fall into such an error. In his otherwise excellent work, " Kailroad Transporta- tion, Its History and Its Laws," Mr. Hadley bases a num- ber of his deductions upon false premises advanced by railroad managers, and arrives at conclusions which appear strange when their source is considered. In the chapter on railroad legislation Professor Hadley says: "But a more powerful force than the authority of the courts was working against the Granger system of regula- tion. The laws of trade could not be violated with im- punity. The effects were most sharply felt in Wisconsin. The law reducing railroad rates to the basis which competi- tive points enjoyed left nothing to pay fixed charges. In the second year of its operation, no Wisconsin road paid a dividend ; only four paid interest on their bonds. Railroad construction had come to a standstill. Even the facilities of existing roads could not be kept up. Foreign capital 246 The Railroad Question. refused to invest in Wisconsin ; the development of the State was sharply checked ; the very men who had most favored the law found themselves heavy losers. . . . By the time the Supreme Court published the Granger decis- ions, the fight had been settled, not by constitutional limi- tations, but by industrial ones." These statements are either utterly untrue or greatly misleading. Mr. Hadley ought to know that the railroad companies in the Granger States never complied With the letter, much less with the spirit of the law. Whenever they made an apparent effort to live up to it they only did so to make it odious. Rates were never reduced by the legislature to the basis previously enjoyed by competitive points, but merely to the average charge which had obtained before the passage of the law. As a rule the railroad revenues increased. If any companies failed to earn enough to pay fixed charges it was simply because they were determined not to do so. A non-payment of dividends did not injure the managers, but simply other stockholders of the road. A permanent establishment of the principle of non-discrimination, on the other hand, would have benefited stockholders, while prejudicing the speculative interest which managers had in the roads. Railroad construction came, after the financial panic of 1873, to a practical standstill throughout the United States ; and if the Granger States did not get their share of the very small total increase during the five years fol- lowing the panic, it was due solely to a conspiracy on the part of the railroad managers to misrepresent and pervert the legislation of these States. The laws, as has already been stated, were finally repealed, not because the people had tired of them or regarded them unwise or unjust, but because it was hoped that the commissioner system would Railroad Literature. 247 prove more efficient. It was offered as a compromise measure and Avas accepted as such hy the railroad mana- gers, Avho, in their eagerness to rid themselves of the restrictions imposed by the Granger laws, gave every assurance of complete submission to the requirements of the proposed legislation . Mr. Hadley even goes so far as to defend railroad pools. " Unluckil}'," he says, "we place these combinations out- side of the protection of the law, and by giving them this precarious and almost illegal character we tempt them to seek present gain, even at the sacrifice of their own future interests. We regard them, and we let them regard themselves, as a means of momentary profit and specula- tion, instead of recognizing them as responsible public agencies of lasting influence and importance." We can partially account for this author's defense of pooling when we are informed that he accepts it as an axiom that "combination does not produce arbitrary results any more than competition produces beneficent ones. " Referring to railroad profits, Mr. Hadley says : ' ' The statement that corporations make too much money is scarcely borne out by the facts. The average return of the railroads of this country is only four per cent. , the bondholders receiving an average of four and a half per cent. , the stockholders of two and a half per cent. True, much of the stock is water, not representing any capital actually expended; but, even making allowance for this, it is hardly probable that the roads are earning more than five per cent, on the total investment. This assumes an average cost of $45,000 per mile, implying that about half of the stock and one-sixth of the bonds are water." Mr. Hadley would probably have come much nearer the truth if he had assumed three-fourths of the stock and one-fourth of 248 The Rttlh'oad Quest ion . the bonds to be water. Even Mr. Poor, who certainly cannot be accused by railroad men of being inimical to their interests, places the average cost of the railroads of this country no higher than at $30,000 per mile ; and this estimate, it should be remembered, includes the value of the large donations made to railroad companies by the public. With a full understanding of all the circum- stances, Mr. Poor said of railroad investments several years ago that if the water were taken out of them no class of investments in this country would pay as well. In the face of this statement Mr. Hadley would do well to revise his figures. We find, however, in Prof. Hadley' s book also emi- nently sound views, like the following: " If the object of a railroad manager is simply to pay as large a dividend as possible for the current 3'ear, he can best do it by squeezing his local tariff, of which he is sure, and securing through traffic at the expense of other roads by specially low rates ; that is, b}' a policy of heavy dis- crimination. But the permanent effect of such a policy is to destroy the local trade, which gives a road its best and surest custom, and to build up a trade which can go by another route whenever it pleases. The permanent effect of such a policy is ruinous to the railroad as well as the local shipper." And he continues: "By securing publicity of management you do much to prevent the per- manent interests of the railroads from being sacrificed to temporary ones. By protecting the permanent interests of the public you enlist the stockholders and the best class of railroad managers on the side of sound policy. " Edward Atkinson, in an essay entitled ' ' The Kailway, the Farmer and the Public, '' endeavors to prove that the farmers have no cause for complaining against the railroad, RaUroad Literature. 249 because rates of transportation have been greatly reduced during the past twenty years. Speaking of the reductions made in freight rates in the State of New York, he says: " Had the rate of 1870 been charged on the tariflf of 1883 the sum would have been at 1.7016 cents on 9,286,216,- 628 tons, carried one mile, $158,014,262; the actual charge was $83,464,919, making a diflference of $74,549,- 343 saved on one year's traffic on the lines reported in New York. " It either did not occur to Mr. Atkinson, or, if it did occur to him, he failed to mention it, that these freight reductions were forced upon the railroads chiefly by water competition, and that if the railroad companies had not saved these seventy-four million dollars for the people, the canal lines, always subject to competition, would have saved a large part of it. With equal pro- priety might it be said that the railroads, by meeting canal competition, saved for themselves in the year men- tioned a goodly share of their gross eai'nings. Such reasoning is absurd, and it is high time that the bubble of an argument so often used by railroad advocates be pricked. As Mr. Atkinson has introduced the farmer, let us apply his rule to him. There was a time when the farmer sold his corn for a dqllar a bushel. To-day he sells it for thirty cents. He therefore saves to this people of this country, on 2,000,000,000 bushels, the enormous sum of $1,400,000,000. There is scarcely an industry in existence to which this argument does not apply with equal force. Mr. Atkinson virtually admits that railroads charge all the traffic will bear when he says : ' ' The charge which can be put upon the wheat of Dakota or Iowa for moving it to market is fixed by the price at which East Indian wheat can be sold in Market Lane. " He is opposed to the Interstate Commerce Law, which he 250 The Railroad Question. regards as " obnoxious measures of national interference and futile attempts to control this great work." He would rel}' chiefly upon the puljlicity of accounts made by rail- way officers, as secured by the private publication of Poor's Railway Manual, for all needed regulation, but concedes the establishment of a figurehead commission, concluding his remarks upon the subject as follows: '' A commission which may bring public opinion to bear upon railway corporations may well be established, and there the work of the legislator may well cease." When we consider the powerful agencies employed by railroads to create public sentiment in their favor we can well understand the ineffi- ciency of such a milk-and-water method of control. One of the most radical books ever published at the instigation of railroad managers appeared in 1888, under the title " The People and the Railways." Its author is Appleton Morgan, who attempts to ' ' allay the animosity towards the railway interests" as shown in Mr. James F. Hudson's book, " The Railways and the Republic." The means which Mr. Morgan chooses are not well calculated to accomplish his purpose, for the masses of the people prefer in such a controversy arguments to ridicule and sarcasm, weapons of literary warfare to which this author resorts altogether too freely. Mr. Morgan's opinion as to the benefits of centralized wealth and trade combinations difl^ers greatly from that held by the great majoritj' of the American people. He says: "The fact, the truth is, that (however it may be in other countries) the accumula- tion of wealth and centralization of commerce in great combinations has never, in the United States, been a source of oppression or of poverty to the non -capitalist or wage- worker. " There is scarcely an evil in railroad management which Mr. Morgan does not defend. Pools, Rdilrodd Literature. 251 construction companies, rebates, discriminations and over- capitalization all find favor in Mr. Morgan's e3e. "Ke- bates and discriminations, ' he says, j.' are neitiier peculiar to railways nor dangerous to the • llei)ublic. ' They are as necessary and as harmless to the farmer as is the chromu which the seamstress or the shop girl gets with her quarter-pound of tea from the small tea merchant, and no more dangerous to the latter than are the aforesaid chromos to the small recipients." Pools and combina- tions receive an unusually large share of Mr. Morgan's attention. A few selections from his effusions in their favor may be giA'en here, viz. : "These pools are the legitimate and necessary results of the rechartering over and over again of railway com- panies to transact l)usincss between the same points by paralleling each other. So long as the people in their legislatures will thus charter parallel lines serving identi- cal points — tb.us dividing territory they once granted entire — it is not exactly clear how they can complain if the lines built (b}- money invested, if not on the good faith of the people, at least in reliance upon an undivided busi- ness) combine to save themselves from bankruptcy. " And again: "Against the inequality of their own rates and the hardship of the long and short haul (in other words, against the discrimination of nature and of physical laws) no less than against the peril of bankruptcy and the conse- quent speculative tendency of their stocks (after which may come the wrecking, the watering, and the vast individual fortunes), the railway's of this republic have endeavored, by establishment of pool commissions, to defend both the public and themselves. . . . The honest administration of railways for all interests, the payment of thei; fixed charges, the solvency of their securities, the faithful and 252 TJie Railroad Question. valuable performance of their duties as carriers, can be conserved in but one wny — by living tariffs, such as the pools once guaranteed." In the following passage this author denies to the State the right to regulate rates: "Granting that they [the railroads] must carr}- freights for the public in such away as not to injure either the public or the freight in the carrying, most emphatically (it seems to me) it does not follow that they must add to the value of the freights they carry by charging only such rates as the public or the owners of the freight insist on. " But Mr. Morgans indignation rises to the highest pitch in his discussion of the Interstate Commerce Act. He fears that it will cause the downfall of our liberties and sees in the background the Venetian Bridge of Sighs and the French Bastile. He asks: ""Why should for any public reasons — for any reason of public safety — the Interstate Commerce Law have come to stay?" He then berates the act as follows: " To begin with, the present act abounds in punishments for and prohibitions against an industry chartered by the people, but nowhere extends to that industry a morsel of approval or protection. It bristles with penalties, legal, equitable, penal, and as for contempt, against railway companies, but nowhere alludes to any possible case in which a railway company might, by accident, be in the right, and the patron, customer, pas- senger or shipper in the wrong. . . . The constitutions of civilized nations, for the last few centuries at least, have provided that not even guilt should be punished except by due process of law, and have uniformly refused to set even that due process in motion except upon a complaint of grievance. But the Interstate Commerce Law denies the one and does away with the necessity for the other. Railroad Literature. 253 That statute provides that the commission it creates shall proceed ' in such manner and bj'^ such means as it shall deem proper,' or 'on its own motion,' and that 'no com- plaint shall at any time be dismissed because of the ab- sence of direct damage to the complainant.' Even the Venetian council often provided for a certain and de- scribed hole in the wall through which the anonymous bringers of charges should thrust their accusations. Even the court of star chamber was known to dismiss inquisi- tions when it found that no wrong had been done. But the statute of interstate commerce appears to issue leffres de carhet against anything in the shape of a railway com- pany — to scatter them l)roadcast, and to invite any one who happens to have leisure to fill them out, by inserting the name ot a railway company. It says to the bystander : ' Drop us a postal card, or mention to any of our com- missioner,!, or to a mutual friend, the name of any railway company of which you may have heard, and so give us jurisdiction to inquire if that company ma}' have by chance omitted to dot an i or cross a t in its ledgers, or whether any one of its hundreds of thousands of agents— in the rush of a day's business, or in a shippers hurry to catch a train — may have named a rate not on the schedule then being prepared at headquarters, or charged a sixpence less than some other agent 250 miles down the line ma}' have accepted a week ago for what might turn out to be a frac- tion more mileage service in the same general direction. No particular form is necessary. Drop in to luncheon with our commission any day between twelve and one, and mention the name of a railway company. Tlie railway company may have done you no damage, nor grieved you in any way; just mention the railroad, and we will take jurisdiction of its private (or quasi-pul)lic) affairs. Or, if 254 Tin Railroad Qiiesiion. you don't happen to have time to mention it, we will take jurisdiction anyhow, ' of our own motion, ' of any railway company whose name we find in the Official Gazette. It really does not matter which; any one will do." This is a fair example of the literature on the Interstate Com- merce Law paid for by railroad men. Mr. Stickney, although a railroad president, takes an entirely different view of the situation. He considers the law inadequate to bring about the reforms needed. He says : ' ' This enormous business is now in the control of severaF hundred potty chieftains, who are practically inde- pendent sovereigns, exercising functions and prerogatives in defiance of the laws, and practically denying their amenability to the laws of the country. If the Govern- ment would seek to bring them to terms and compel them to recognize and obey the laws, it must use the means necessary to accomplish the end. It must have executive officers sufficient in number as well as armed with an ade- quate power and dignity to command their respect. . . , The power conferred upon them [the Interstate Com- merce Commission] to enforce their judicial orders is the power ' to scold. ' The penalties of the law which the courts are in power to impose are certainly severe, but the law has been operated for about four years without a,ny convictions, and yet no well-informed person is ignorant of the fact that the law has not been obeyed. The presi- dent of a large S3'stem is said to have remarked that ' if all who had ofi'ended against the law were convicted there would not be jails enough in the United States to hold them. ' It is evident that the Government has not pro- vided adequate machinery for enforcing the law." Mr. Stickney is correct in his statement that adequate machinery for enforcement of the law has not been pro- Rallrmid Llterittiirr. 255 vided, but he does not give sufticient credit to the hiw or the commission. While much work remains to be done, much progress has been made. He is of the opinion that the public welfare would be furthered if the National Government assumed the sole control of railroads. He gives his reasons for the change w^hich he proposes, as follows : ' ' There are many reasons besides these in the interest of uniformity which make it desirable to transfer the entire goutrol of this important matter to the regulation of the Nation. First, because of its constitution and more extended sessions, Congress is able to consider the subject with greater deliljeration, and therefore witli more intelligence, than can a legislature composed of members who, as a rule, hold their office for but one short session of about sixty days' duration. There would also be removed from local legislation a fruitful source of corrup- tion, which is gradually sapping the foundations of public morality. ... In the second place, the problem of regu- lating railway tolls and rjanaging railwa3'S is essentially and practically indivisil)ie, by State lines or otherwise, and therefore it is not clear but that whenever the ques- tion may come l)cfore the courts it may be held that the authority of Congress to deal with interstate traffic carries with it, as a necessary and inseparable part of the subject, to regulate the traffic which is now assumed to be con- trolled by the several States. The courts have held that the States have authority to regulate strictly State traffic in the absence of Congressional action, but their decisions do not preclude the doctrine that Congress may have exclusive jurisdiction whenever it may choose to exercise the authority. There is a line of reasoning which would lead to that conclusion. It may be that many will not care to follow the lead of the writer as to the measure of aggregate net revenue which railway companies are entitled to collect in tolls, but it is evident that before the tolls can be intelligently determined some measure of such aggregate revenue must be ascertained. The (question 256 The. Railroad Queiitiqri. would then arise, what proportion must be levied upon State and interstate traffic respectively? If the State should refuse to levy its share (and how could siich share be ascertained?), then more than its share would have to be le^ied on interstate traffic, and thus the State by indirection would be able to do what the Constitution prohibits. Of course, when the Constitution was adopted railways and railway traffic were unknown. But it was a similar question which brought the thirteen original State? together into one nation, under the present Constitution. At least the first movement toward amending the original Articles of Confederation was to give Congress 'enlarged power over the subject of commerce. ' In reply to this it may be said that it will bo an unfor- tunate day for the States when they surrender the power to control their home afl'airs. Differences lietween State and interstate rates could easil}' Ije adjusted by the National and State commissions and b}' the courts. It cer- tainly ought not to be difficult for such tribunals to see that a rate which is made higher or lower, as it may be for State or interstate traffic, is wrong. Mr. Stickney has fallen, into the error common to rail- road men in believing that lower rates of transportation will not prevail in the future. There are many reasons why it is probable that they will be lower. Present rates are highly profitable on well located lines. Labor-saving- inventions ^'ill increase, and roads will be built and oper- ated more cheaply. Lines will be located with lower grades, lighter curvature and more directness. Business will increase largel}", and the ratio of expenses will de- crease. Steel will be improved in quality and will be sub- stituted for iron. A heavier rail and more permanent roadway will be used. Rates of interest will rule lower, and there will be much more economy in superintending. Extravagant salaries to favorites will be reduced, and sine- Rally Odd Lltcrdturc. cures and parasites will be cut off from the paj'-rolls. Lower wages are inevitable as our population becomes more dense. A very interesting and instructive author upon railroad subjects is Charles Francis Adams, Jr. , ex-president of the Union Pacific Railroad and formerly a member of the Board of Railroad Commissioners of the State of Massa- chusetts. After twenty years' constant association with railroad men, Mr. Adams should certainly know the char- acter of his quondam colleagues. In his liook, ' ' Rail- roads, Their Origin and Problems," he says of them: ' ' Lawlessness and violence among themselves [t. e. , the various railroad sj'stems], the continual effort of each member to protect itself and to secure the advantage over others, have, as they usually do, bred a general spirit of distrust, bad faith and cunning, until railroad officials have become hardly better than a race of horse-jock- eys on a large scale. There are notable excep- tions to this statement, but, taken as a whole, the tone among them is indisputably low. There is none of that steady confidence in each other, that easy good faith, that esprit du corps, upon which alone system and order can rest. On the contrary, the leading idea in the mind of the active railroad agent is that some one is always cheat- ing him, or that he is never getting his share in some- thing. If he enters into an agreement, his life is passed in watching the other parties to it, lest by some cunning device they keep it in form and break it in spirit. Peace is with him always a condition of semi-warfare, while honor for its own sake and good faith apart from self- interest are, in a business point of view, symptoms of youth and a defective education." And again, in an address delivered before the Commercial Club of Boston in 258 Thr n