Curbing the Railroads
Though the society of the Patrons of Husbandry was avowedly
non-political in character, there is ample justification for the use of
the term "Granger" in connection with the radical railroad legislation
enacted in the Northwestern States during the seventies. The fact that
the Grange did not take direct political action is immaterial: certainly
the order made political action on the part of the farmers possible by
establishing among them a feeling of mutual confidence and trust whereby
they could organize to work harmoniously for their common cause. Before
the advent of the Patrons of Husbandry the farmers were so isolated from
each other that coöperation was impossible. It is hard for us to
imagine, familiar as we are with the rural free delivery of mail, with
the country telephone line, with the automobile, how completely the
average farmer of 1865 was cut off from communication with the outside
world. His dissociation from any but his nearest neighbors made him
unsocial, narrow-minded, bigoted, and suspicious. He believed that every
man's hand was against him, and he was therefore often led to turn his
hand against every man. Not until he was convinced that he might at
least trust the Grangers did he lay aside his suspicions and join with
other farmers in the attempt to obtain what they considered just
railroad legislation.
Certain it is, moreover, that the Grangers made use of the popular
hostility to the railroads in securing membership for the order.
"Coöperation" and "Down with Monopoly" were two of the slogans most
commonly used by the Grange between 1870 and 1875 and were in large part
responsible for its great expansion. Widely circulated reprints of
articles exposing graft and corruption made excellent fuel for the
flames of agitation.
How much of the farmers' bitterness against the railroads was justified
it is difficult to determine. Some of it was undoubtedly due to
prejudice, to the hostility of the "producer" for the "nonproducer," and
to the suspicion which the Western farmer felt for the Eastern magnate.
But much of the suspicion was not without foundation. In some cases
manipulation of railway stock had absolutely cheated farmers and
agricultural towns and counties out of their investments. It is a
well-known fact that the corporations were not averse to creating among
legislators a disposition to favor their interests. Passes were commonly
given by the railroads to all public officials, from the local
supervisors to the judges of the Supreme Court, and opportunities were
offered to legislators to buy stock far below the market price. In such
subtle ways the railroads insinuated themselves into favor among the
makers and interpreters of law. Then, too, the farmers felt that the
railway companies made rates unnecessarily high and frequently practised
unfair discrimination against certain sections and individuals. When the
Iowa farmer was obliged to burn corn for fuel, because at fifteen cents
a bushel it was cheaper than coal, though at the same time it was
selling for a dollar in the East, he felt that there was something
wrong, and quite naturally accused the railroads of extortion.
The fundamental issue involved in Illinois, Minnesota, Iowa, and
Wisconsin, where the battle was begun and fought to a finish, was
whether or not a State had power to regulate the tariffs of railway
companies incorporated under its laws. Railway companies, many jurists
argued, were private concerns transacting business according to the laws
of the State and no more to be controlled in making rates than dry goods
companies in fixing the price of spools of thread; rates, like the price
of merchandise, were determined by the volume of trade and the amount of
competition, and for a State to interfere with them was nothing less
than tyranny. On the other hand, those who advocated regulation argued
that railroads, though private corporations, were from the nature of
their business public servants and, as such, should be subject to state
regulation and control.
Some States, foreseeing difficulties which might arise later from the
doctrine that a charter is a contract, as set forth by the United States
Supreme Court in the famous Dartmouth College case, ¹ had quite early in
their history attempted to safeguard their right to legislate concerning
corporations. A clause had been inserted in the state constitution of
Wisconsin which declared that all laws creating corporations might at
any time be altered or repealed by the legislatures. The constitution of
Minnesota asserted specifically that the railroads, as common carriers
enjoying right of way, were bound to carry freight on equal and
reasonable terms. When the Legislature of Iowa turned over to the
railroad companies lands granted by the Federal Government, it did so
with the reservation that the companies should be subject to the rules
and regulations of the General Assembly. Thus these States were
fortified not only by arguments from general governmental theory but
also by written articles, more or less specifically phrased, on which
they relied to establish their right to control the railroads.
¹ See John Marshall and the Constitution, by Edward S. Corwin (in The
Chronicles of America), p. 154 ff.
The first gun in this fight for railroad regulation was fired in
Illinois. As early as 1869, after several years of agitation, the
legislature passed an act declaring that railroads should be limited to
"just, reasonable, and uniform rates," but, as no provision was made for
determining what such rates were, the act was a mere encumbrance on the
statute books. In the new state constitution of 1870, however, the
framers, influenced by a growing demand on the part of the farmers which
manifested itself in a Producers' Convention, inserted a section
directing the legislature to "pass laws to correct abuses and to prevent
unjust discrimination and extortion in the rates of freight and
passenger tariffs on the different railroads in this State." The
legislature at its next session appears to have made an honest attempt
to obey these instructions. One act established maximum passenger fares
varying from two and one-half to five and one-half cents a mile for the
different classes into which the roads were divided. Another provided,
in effect, that freight charges should be based entirely upon distance
traversed and prohibited any increases over rates in 1870. This amounted
to an attempt to force all rates to the level of the lowest competitive
rates of that year. Finally, a third act established a board of railroad
and warehouse commissioners charged with the enforcement of these and
other laws and with the collection of information.
The railroad companies, denying the right of the State to regulate their
business, flatly refused to obey the laws; and the state supreme court
declared the act regulating freight rates unconstitutional on the ground
that it attempted to prevent not only unjust discrimination but any
discrimination at all. The legislature then passed the Act of 1873,
which avoided the constitutional pitfall by providing that
discriminatory rates should be considered as prima facie but not
absolute evidence of unjust discrimination. The railroads were thus
permitted to adduce evidence to show that the discrimination was
justified, but the act expressly stated that the existence of
competition at some points and its nonexistence at others should not be
deemed a sufficient justification of discrimination. In order to prevent
the roads from raising all rates to the level of the highest instead of
lowering them to the level of the lowest, the commissioners were
directed to establish a schedule of maximum rates; and the charging of
rates higher than these by any company after January 15, 1874, was to be
considered prima facie evidence of extortion. Other provisions increased
the penalties for violations and strengthened the enforcing powers of
the commission in other ways. This act was roundly denounced at the
time, especially in the East, as an attempt at confiscation, and the
railroad companies refused to obey it for several years; but ultimately
it stood the test of the courts and became the permanent basis of
railroad regulation in Illinois and the model for the solution of this
problem in many other States.
The first Granger law of Minnesota, enacted in 1871, established fixed
schedules for both passengers and freight, while another act of the same
year provided for a railroad commissioner. In this instance also the
companies denied the validity of the law, and when the state supreme
court upheld it in 1873, they appealed to the Supreme Court of the
United States. In the meantime there was no way of enforcing the law,
and the antagonism toward the roads fostered by the Grange and the
Anti-Monopoly party became more and more intense. In 1874 the
legislature replaced the Act of 1871 with one modeled on the Illinois
law of 1873; but it soon discovered that no workable set of uniform
rates could be made for the State because of the wide variation of
conditions in the different sections. Rates and fares which would be
just to the companies in the frontier regions of the State would be
extortionate in the thickly populated areas. This difficulty could have
been avoided by giving the commission power to establish varying
schedules for different sections of the same road; but the anti-railroad
sentiment was beginning to die down, and the Legislature of 1875,
instead of trying to improve the law, abandoned the attempt at state
regulation.
The Granger laws of Iowa and Wisconsin, both enacted in 1874, attempted
to establish maximum rates by direct legislative action, although
commissions were also created to collect information and assist in
enforcing the laws. The Iowa law was very carefully drawn and appears to
have been observed, in form at least, by most of the companies while it
remained in force. In 1878, however, a systematic campaign on the part
of the railroad forces resulted in the repeal of the act. In Wisconsin,
a majority of the members of the Senate favored the railroads and,
fearing to show their hands, attempted to defeat the proposed
legislation by substituting the extremely radical Potter Bill for the
moderate measure adopted by the Assembly. The senators found themselves
hoist with their own petard, however, for the lower house, made up
largely of Grangers, accepted this bill rather than let the matter of
railroad legislation go by default. The rates fixed by the Potter Law
for many commodities were certainly unreasonably low, although the
assertion of a railroad official that the enforcement of the law would
cut off twenty-five per cent of the gross earnings of the companies was
a decided exaggeration. Relying upon the advice of such eminent Eastern
lawyers as William M. Evarts, Charles O'Conor, E. Rockwood Hoar, and
Benjamin R. Curtis that the law was invalid, the roads refused to obey
it until it was upheld by the state supreme court late in 1874. They
then began a campaign for its repeal. Though they obtained only some
modification in 1875, they succeeded completely in 1876.
The contest between the railroads and the farmers was intense while it
lasted. The farmers had votes; the railroads had money; and the
legislators were sometimes between the devil and the deep sea in the
fear of offending one side or the other. The farmers' methods of
campaign were simple. Often questionnaires were distributed to all
candidates for office, and only those who went on record as favoring
railroad restriction were endorsed by the farmers' clubs and committees.
An agricultural convention, sometimes even a meeting of the state
Grange, would be held at the capital of the State while the legislature
was in session, and it was a bold legislator who, in the presence of his
farmer constituents, would vote against the measures they approved. When
the railroads in Illinois refused to lower their passenger rates to
conform to the law, adventurous farmers often attempted to "ride for
legal fares," giving the trainmen the alternative of accepting the low
fares or throwing the hardy passengers from the train.
The methods of the railroads in dealing with the legislators were most
subtle. Whether or not the numerous charges of bribery were true,
railroad favors were undoubtedly distributed among well disposed
legislators. In Iowa passes were not given to the senators who voted
against the railroads, and those sent to the men who voted in the
railroads' interest were accompanied by notes announcing that free
passes were no longer to be given generally but only to the friends of
the railroads. At the session of the Iowa Legislature in 1872, four
lawyers who posed as farmers and Grange members were well known as
lobbyists for the railroads. The senate paid its respects to these men
at the close of its session by adopting the following resolution:
Whereas, There have been constantly in attendance on the Senate and
House of this General Assembly, from the commencement of the session to
the present time, four gentlemen professing to represent the great
agricultural interest of the State of Iowa, known as the Grange; and--
Whereas, These gentlemen appear entirely destitute of any visible means
of support; therefore be it--
Resolved, By the Senate, the House concurring, that the janitors permit
aforesaid gentlemen to gather up all the waste paper, old newspapers,
&c., from under the desks of the members, and they be allowed one
postage stamp each, The American Agriculturist, What Greeley Knows about
Farming, and that they be permitted to take with them to their homes, if
they have any, all the rejected railroad tariff bills, Beardsley's
speech on female suffrage, Claussen's reply, Kasson's speech on
barnacles, Blakeley's dog bill, Teale's liquor bill, and be given a pass
over the Des Moines Valley Railroad, with the earnest hope that they
will never return to Des Moines.
Once the Granger laws were enacted, the railroads either fought the laws
in court or obeyed them in such a way as to make them appear most
obnoxious to the people, or else they employed both tactics. The
lawsuits, which began as soon as the laws had been passed, dragged on,
in appeal after appeal, until finally they were settled in the Supreme
Court of the United States. These suits were not so numerous as might be
expected, because in most of the States they had to be brought on the
initiative of the injured shipper, and many shippers feared to incur the
animosity of the railroad. A farmer was afraid that, if he angered the
railroad, misfortunes would befall him: his grain might be delivered to
the wrong elevators or left to stand and spoil in damp freight cars;
there might be no cars available for grain just when his shipment was
ready; and machinery destined for him might be delayed at a time when
lack of it would mean the loss of his crops. The railroads for their
part whenever they found an opportunity to make the new laws appear
obnoxious in the eyes of the people, were not slow to seize it. That
section of the Illinois law of 1873 which prohibited unjust
discrimination went into effect in July, but the maximum freight rates
were not fixed until January of 1874. As a result of this situation, the
railroads in July made all their freight rates uniform, according to the
law, but accomplished this uniformity by raising the low rates instead
of lowering the high. In Minnesota, similarly, the St. Paul and Pacific
road, in its zeal to establish uniform passenger rates, raised the fare
between St. Paul and Minneapolis from three to five cents a mile, in
order to make it conform to the rates elsewhere in the State. The St.
Paul and Sioux City road declared that the Granger law made its
operation unprofitable, and it so reduced its train service that the
people petitioned the commission to restore the former rate. In
Wisconsin, when the state supreme court affirmed the constitutionality
of the radical Potter law, the railroads retaliated in some cases by
carrying out their threat to give the public "Potter cars, Potter rails,
and Potter time." As a result the public soon demanded the repeal of the
law.
In all the States but Illinois the Granger laws were repealed before
they had been given a fair trial. The commissions remained in existence,
however, although with merely advisory functions; and they sometimes did
good service in the arbitration of disputes between shippers and
railroads. Interest in the railroad problem died down for the time, but
every one of the Granger States subsequently enacted for the regulation
of railroad rates statutes which, although more scientific than the laws
of the seventies, are the same in principle. The Granger laws thus paved
the way not only for future and more enduring legislation in these
States but also for similar legislation in most of the other States of
the Union and even for the national regulation of railroads through the
Interstate Commerce Commission.
The Supreme Court of the United States was the theater for the final
stage of this conflict between the railroads and the farmers. In
October, 1876, decisions were handed down together in eight cases which
had been appealed from federal circuit and state courts in Illinois,
Wisconsin, Iowa, and Minnesota, and which involved the validity of the
Granger laws. The fundamental issue was the same in all these cases--the
right of a State to regulate a business that is public in nature though
privately owned and managed.
The first of the "Granger cases," as they were termed by Justice Field
in a dissenting opinion, was not a railroad case primarily but grew out
of warehouse legislation which the farmers of Illinois secured in 1871.
This act established maximum charges for grain storage and required all
warehousemen to publish their rates for each year during the first week
in January and to refrain from increasing these rates during the year
and from discriminating between customers. In an endeavor to enforce
this law the railroad and warehouse commission brought suit against Munn
and Scott, a warehouse firm in Chicago, for failure to take out the
license required by the act. The suit, known as Munn vs. Illinois,
finally came to the United States Supreme Court and was decided in favor
of the State, two of the justices dissenting. ¹ The opinion of the court
in this case, delivered by Chief Justice Waite, laid down the principles
which were followed in the railroad cases. The attorneys for the
warehousemen had argued that the act in question, by assuming to limit
charges, amounted to a deprivation of property without due process of
law and was thus repugnant to the Fourteenth Amendment to the
Constitution of the United States. But the court declared that it had
long been customary both in England and America to regulate by law any
business in which the public has an interest, such as ferries, common
carriers, bakers, or millers, and that the warehouse business in
question was undoubtedly clothed with such a public interest. Further,
it was asserted that this right to regulate implied the right to fix
maximum charges, and that what those charges should be was a legislative
and not a judicial question.
¹ 94 United States Reports, 113.
In deciding the railroad cases the courts applied the same general
principles, the public nature of the railroad business having already
been established by a decision in 1872. ¹ Another point was involved,
however, because of the contention of the attorneys for the companies
that the railway charters were contracts and that the enforcement of the
laws would amount to an impairment of contracts, which was forbidden by
the Constitution. The court admitted that the charters were contracts
but denied that state regulation could be considered an impairment of
contracts unless the terms of the charter were specific. Moreover, it
was pointed out that contracts must be interpreted in the light of
rights reserved to the State in its constitution and in the light of its
general laws of incorporation under which the charters were granted.
¹ Olcott vs. The Supervisors, 16 Wallace, 678.
These court decisions established principles which even now are of vital
concern to business and politics. From that time to this no one has
denied the right of States to fix maximum charges for any business which
is public in its nature or which has been clothed with a public
interest; nor has the inclusion of the railroad and warehouse businesses
in that class been questioned. The opinion, however, that this right of
the States is unlimited, and therefore not subject to judicial review,
has been practically reversed. In 1890 the Supreme Court declared a
Minnesota law invalid because it denied a judicial hearing as to the
reasonableness of rates; ¹ and the courts now assume it to be their
right and duty to determine whether or not rates fixed by legislation
are so low as to amount to a deprivation of property without due process
of law. In spite of this later limitation upon the power of the States,
the Granger decisions have furnished the legal basis for state
regulation of railroads down to the present day. They are the most
significant achievements of the anti-monopoly movement of the seventies.
¹ 134 United States Reports, 418.