Almost as important for the conduct of modern industry as machine
methods and credit are the rapid means of transportation and
communication furnished by our railroad, steamship, express, post
office, telegraph and telephone systems. Indeed the development of
industry on a national scale and its integration under centralized
control has been made possible only by these improvements. But not
only have these businesses rendered the centralization of industry
possible; they themselves exhibit on a national scale concentration 146
of control. They are all industries of increasing returns and lend
themselves naturally to monopolistic control. At the very beginning of
railroad construction one of the most far-sighted managers enunciated
the doctrine that “where combination is possible competition is
impossible.” For years competition was regarded as the regulator of
rates, pooling between railroads was forbidden, canals were advocated
as competitors, and by every possible device it was sought to
stimulate it. We are at last beginning to recognize the monopoly
character of the railroad industry and to regulate it accordingly.
Consolidation in the railroad world is not a new phenomenon nor is it
confined to that industry, but it has proceeded further there than in
any other line of business. The first form which combination took was
that of pooling, according to which the traffic was “pooled” and the
earnings then divided among the companies entering into the pool
according to some previous agreement. This was forbidden by the
Interstate Commerce Act in 1887 and even more stringently by the
Anti-Trust Act of 1890, and accordingly railroad managers next
resorted to actual consolidation of competing lines. Where this has
not been possible or desirable, virtual combination has been secured
by the so-called “community of interests” arrangements, based on the
acquisition by one road of enough stock in competing lines to secure
representation on their boards of directors. Today some eight or nine
groups of capitalists control over two-thirds of the railway mileage
of the United States, and according to a recent widely-published
statement the late Mr. E. H. Harriman was credited with controlling,
directly or indirectly, a system aggregating over 67,000 miles. These
great consolidations have followed mainly the territorial groupings of
railroads; the United States has now been districted out by a few
large transportation companies, much as France, Italy, England and
other European countries had previously been divided up. Consolidation 147
has in many instances resulted in increased convenience to the public
and in economies in management and operation, but it places a
dangerous amount of power in the hands of a few men, which has not
infrequently been abused, and should clearly be under strict
government control.
The primary economic problem connected with railways is always the
question of rates. This has been called in a recent book “the heart of
the railroad problem.” The first fact that strikes the student of the
subject is the great reduction in rates and fares in the past
twenty-five years, especially in freight rates. From 1.24 cents in
1882 the average revenue per ton mile received by railroads in the
United States has decreased to .748 cents in 1906. Freight rates,
especially through rates for bulky traffic, are considerably lower in
this country, and passenger fares somewhat higher, than in Europe. But
the vital problem connected with rates is not as to their relative
cheapness or extortionateness; it concerns rather the granting of
discriminating rates. Discriminations may be of three kinds: those
between different classes of goods, those between localities, and
those between persons. The first group is based upon the
classification of freight and rests upon differences in cost of
shipment, in bulk, in risk, etc. If reasonably employed, this kind of
discrimination is justifiable. Local discriminations, that is,
charging different rates to different localities for substantially the
same service, is not only unwarranted in most cases, but is
short-sighted as well. Where superior facilities or especially keen
competition exists, lower rates may be permitted for favored
localities, but the arbitrary exercise of such powers by railway
officials is thoroughly unjustifiable. Even less defensible is the
practice, now happily less frequent, of granting discriminatory rates
to favored individuals or corporations. They have been given by means 148
of secret rates and rebates, by under-billing and under-classification,
by free passes, etc. Both of these latter evils have been forbidden or
greatly restricted by the passage of the Interstate Commerce Act in
1887 and subsequent legislation.
The public nature of railroads is now fairly well recognized in our
law and is beginning to be understood by the people at large.
Railroads enjoy peculiar privileges in the grant of corporate
franchises and charters, in the right of eminent domain, and in
enormous grants of land and money which have been made to them in this
country. Moreover in the functions they perform the social character
of their duties is emphasized, and they are under the necessity of
maintaining a constant service open to all. Though they are owned by
private investors and managed as private enterprises, they are
essentially public enterprises as to their privileges, functions, and
duties. Consequently most of the states have now undertaken, through
commissions, to regulate the railroads in the public interest. Some
thirty-one have appointed commissions, which probably control
four-fifths of the traffic originating and ending in a single state.
These state commissions differ in power, those of the Mississippi
Valley and the South usually having mandatory powers, that is, power
to prescribe and enforce maximum rates. In the eastern and central
states commissions with supervisory powers merely, of investigation
and report, have been created. The only exceptions are found in the
Far West where the need of improved transportation facilities is more
pressing than regulation, and in five eastern states whose
legislatures are controlled by the railroad interests. While the state
commissions have done and are doing valuable service, it is clear that
the growth of giant railroad combinations which traverse several
states necessitates federal control. The appointment of the Interstate
Commerce Commission in 1887 established the principle of federal
regulation, but the application of the principle in active practice has 149
been slow and has been impeded by the courts. The final control of
rates has not yet been given to the Commission.
Owing to the individualistic character of our institutions and law,
public ownership of railroads does not exist in the United States,
which thus forms, together with England, almost the sole important
exception to the world’s practice in this regard. On the continent of
Europe government ownership is the rule. Public control through either
ownership or regulation by commission is essential to secure an
equitable adjustment of public and private rights and to prevent the
abuse of monopoly power inherent in the very nature of railroads.
Public ownership has many advantages and has given satisfactory
results in Europe. But for the United States the principle of private
ownership with stricter governmental regulation has been definitely
laid down; the problem of the future is simply how far that control
shall go.
The discussion of our steam railroads does not exhaust the subject of
transportation. A recent and important development is the growth of
electric interurban railways, which are opening up districts untouched
by the more expensive steam roads and exercising a marked influence in
rural districts upon business and social life. A more significant
problem, both because of its close relations to the railroads and its
monopoly character, is offered by the express companies. Organized at
a time when railroads were new and undeveloped they took over the safe
and expeditious delivery of small and valuable articles. They have
since grown in importance and power; six large companies now control
over 90 per cent of the business. Since they are generally in the form
of partnerships and not of corporations it has not been possible to
bring them under legal control, and their rates are extremely
high--three or four times as much as freight rates. In some cases the
railroads, in order to gain the profits from these high rates, have
themselves organized express companies to operate over their lines, 150
immune from interference by the Interstate Commerce Commission. Even
where that is not done, the express companies are performing a service
which could as well be performed by the railroads themselves and at
lower rates. These facts have lent great strength to the demand for
the establishment by the Federal Government in connection with the
post office of a parcels post, such as exists in England and in most
European countries. By the extension of the maximum limit of mail
packages to ten or fifteen pounds the usefulness of the post office
could be immensely increased without any loss in rates. So far,
however, the express companies have been strong enough to resist the
introduction of this reform, though it is warmly advocated by the
present Postmaster-General. A recent important improvement in our
postal service has been the extension of rural free delivery to the
farming districts, thereby breaking down to a great extent the
isolation of country districts. This and the rural telephone have been
of great social value.
The importance of the telephone and telegraph in our modern industrial
life cannot be overestimated. As means of transmitting intelligence
they have served to bring the most distant parts of the world into
almost instant touch, and have made possible the modern centralization
of business. Both offer the same problems of monopoly that we have
seen exist in other parts of this field, the telegraph business being
completely monopolized by two large companies, the telephone business
by one, all strongly entrenched behind patents. The desirability of
public ownership of these utilities rests upon stronger grounds than
in the case of railroads and is strongly urged by many conservative
writers.
Although attention has usually been centered upon the railroads in any
discussion of the transportation question in the United States, there
are important practical problems connected with both the inland and 151
the ocean water transportation. The questions of constructing
artificial inland waterways and of subsidizing our foreign merchant
marine are vital political and industrial issues. The United States is
probably better provided with internal navigable natural waterways
than any other country. Her navigable rivers comprise some 18,000
miles. Affording access to the very heart of the continent both from
the Atlantic coast and from the Gulf. They form a cheap and convenient
means of transportation, especially for bulky and cheap articles;
30,000,000 tons a year are carried on the streams of the Mississippi
Valley alone, though much of the former traffic has been diverted to
the railroads. On the northern border of the country the Great Lakes
form an unrivaled series of inland seas. The traffic on these shows a
great increase every year, amounting now to over 60,000,000 tons
annually. The Federal Government has performed useful service in
improving the conditions of navigation along these natural waterways,
and is now considering a comprehensive scheme for their further
improvement.
A very different problem is offered by our canal system. During the
period 1820-1840 many canals were constructed by the states to connect
existing waterways and provide an outlet for produce from the
interior. The best examples of these were the Erie and the Ohio
canals. After the development of the railway, however, traffic began
to be steadily and then rapidly diverted from the canals to these
quicker avenues of transportation. Many of the canals were bought up
by their rivals and permitted to fall into disuse, while those
retained by the state governments remained mere shallow ditches,
unimproved and ill-adapted to modern needs. The recent appropriation
by the people of New York State of over $100,000,000 for the
improvement of the Erie Canal, and the construction of the Panama
Canal by the Federal Government have brought the question of the 152
rehabilitation of our neglected canal system to the front again. It
seems wasteful not to connect the separate links in the magnificent
system of natural waterways already provided by nature, and this will
probably be the first step taken. And indeed a beginning has already
been made by the construction of the Hennepin Canal, the Des Plaines
Canal, and others, and a company has been formed to connect Pittsburg
with Lake Erie and to cut through Cape Cod. It must, however, be borne
in mind that there are two distinct types of canal: those which are
simply short connecting links between navigable waterways and which
permit the passage of vessels used on those waters; and those canals
which are shallow, have extensive lockage, and permit the use of only
small boats, thus necessitating the transshipment of freight. One
might well advocate the construction and enlargement of the first
type, and yet hesitate to approve of the second. As yet, however,
owing in part to the opposition and clamor of railroad interests, the
question of canals has not received the attention it deserves in the
United States.
The ocean merchant marine comprises two widely different branches, the
coastwise and the foreign trade. The former is open only to vessels
flying the American flag, and has shown a very steady growth;
five-sixths of our ocean merchant marine today is engaged in this
branch of commerce. Coal, lumber, cotton, and similar bulky
commodities constitute the chief items entering into the coastwise
trade. The tonnage of American vessels engaged in the foreign trade,
on the other hand, has shown a steady decline ever since the outbreak
of the Civil War. Foreign vessels today carry fully 90 per cent of the
foreign commerce of the United States. The causes of this decline are
economic rather than political, for American legislation has on the
whole been very liberal to the shipping interests. At the time the
western part of our country began to be opened up and its great
resources exploited, our merchant marine was one of the best in the 153
world. But now the other opportunities for the investment of capital
were so profitable and alluring, and the need of it so great, that all
the available labor and capital of the American people began to be
devoted to the development of their internal resources. A nation
cannot do everything with equal advantage at the same time any more
than an individual can. Accordingly we began to withdraw our capital
from shipping and devote it to agriculture, mining, manufacturing,
transportation, and similar more profitable enterprises. Foreigners
could build vessels and run them more cheaply than we could and it
paid us to hire them to do it. Recently, however, and especially since
the recent awakening of a national consciousness after the
Spanish-American War, the patriotism of many individuals has been hurt
by the thought that we had to depend upon foreign vessels for the
carriage of our foreign commerce, while in the minds of others a
comprehensive naval program demanded the building up of a native
merchant marine. Two questions suggest themselves here: Do we wish to
stimulate this growth artificially? And, if we do, what means shall we
adopt? On the second point the Merchant Marine Commission of 1904
recommended for the United States a general bounty on all shipping,
such as France has, and the subvention of certain lines of steamers
over ten specified routes, following the example of Great Britain,
Germany, and Japan. Without committing ourselves on this point, it may
be suggested that on political, geographical, and economic grounds we
may expect in the near future to see the natural development of an
American merchant marine. With the growth of our foreign trade, the
accumulation of capital at home, and the building up of a strong navy,
the conditions for American shipbuilding and shipping will become
steadily more favorable, and we may expect to see American enterprise
engage in this as in other lines of industry. Eventually we are 154
destined to become a maritime nation.