TRANSPORTATION AND ITS CONTROL
The most significant legislative act of President Cleveland's
administration was due primarily neither to him nor to the great
political parties. It concerned the relation between the government
and the railroads, and the force which led to its passage originated
outside of Congress. The growth of the transportation system,
therefore, the economic benefits which resulted, the complaints which
arose and the means through which the complaints found voice were
subjects of primary importance.
Beginning with the construction of the Baltimore and Ohio Railroad
about 1830, the extension of the railways went forward with increasing
rapidity so that they soon formed a veritable network: between 1830
and 1850 over 7,000 miles were laid; by 1860 the total was 30,000
miles; the Civil War and the financial depression of 1873 retarded
progress somewhat, but such delays were temporary, and by 1890 the
total exceeded 160,000 miles. In the earlier decades most construction
took place in the Northeast, where capital was most plentiful and
population most dense. Later activity in the Northeast was devoted to
building "feeders" or branch lines. In the South, the relatively
smaller progress which had been made before the war had been undone
for the most part by the wear and tear of the conflict, but the
twenty-five years afterward saw greatly renewed construction. The most
surprising expansion took place in Texas where the 711 miles of 1870
were increased to 8,754 by 1890. In the Middle West, roads were
rapidly built just before the war and immediately after it, and the
first connection with the Pacific Coast, as has been shown, was made
in 1869.
[Illustration:
Railroad Mileage, 1860-1910, in thousands of miles]
Many of the circumstances accompanying this rapid expansion were novel
and important. Beginning with a federal grant to the Illinois Central,
for example, in the middle of the century, both the nation and the
states assisted the roads by gifts of millions of acres of land. It
was to the advantage of the companies to procure the grants on the
best possible terms, and they exerted constant pressure upon
congressmen whose votes and influence they desired. Frequently the
agents of the roads were thoroughly unscrupulous, and such scandals as
that connected with the Credit Mobilier were the result. More
important still, the fact that the federal and state governments had
aided the railroads so greatly gave them a strong justification for
investigating and regulating the activities of the companies.
Mechanical inventions and improvements had no small part in the
development of the transportation system. The early tracks,
constructed of wood beams on which were fastened iron strips, and
sometimes described as barrel-hoops tacked to laths, were replaced by
iron, and still later by heavy steel rails. By 1890 about eighty per
cent. of the mileage was composed of steel. Heavy rails were
accompanied by improved roadbeds, heavier equipment and greater speed.
A simple improvement was the gradual adoption of a standard
gauge--four feet eight and a half inches--which replaced the earlier
lack of uniformity. The process was substantially completed by the
middle eighties, when many thousands of miles in the South were
standardized. On the Louisville and Nashville, for example, a force of
8,763 men made the change on 1,806 miles of track in a single day. The
inauguration of "standard" time also took place during the eighties.
Hitherto there had been a wide variety of time standards and different
roads even in the same city despatched their trains on different
systems. In 1883 the country was divided into five vertical zones each
approximately fifteen degrees or, in sun-time, an hour wide. Both the
roads and the public then conformed to the standard time of the zone
in which they were.
[Illustration:
Map of the United States showing railroads in 1870]
Of greater importance was the consolidation of large numbers of small
lines into the extensive systems which are now familiar. The first
roads covered such short distances that numerous bothersome transfers
of passengers, freight and baggage from the end of one line to the
beginning of the next were necessary on every considerable journey. No
fewer than five companies, for example, divided the three hundred
miles between Albany and Buffalo, no one of them operating more than
seventy-six miles. In 1853, these five with five others were
consolidated into the New York Central Railroad. Sixteen years later,
in 1869, the Central combined with the Hudson River, and soon
afterwards procured substantial control of the Lake Shore and Michigan
Southern, the Rock Island, and the Chicago and Northwestern. As the
result of this process a single group of men directed the interests of
a system of railroads from New York through Chicago to Omaha. The
Pennsylvania Railroad began with a short line from Philadelphia to the
Susquehanna River, picked up smaller roads here and there--eventually
one hundred and thirty-eight of them, representing two hundred and
fifty-six separate corporations--reached out through the Middle West
to Cincinnati, Chicago and St. Louis, and in 1871 controlled over
three thousand miles of track, with an annual income of over forty
million dollars. In the eighties a railroad war in northern New
England started the consolidation of the Boston and Maine system.
The beneficial results of the growth of the transportation facilities
of the nation were immediate and revolutionary. The fact that average
freight rates were cut in halves between 1867 and 1890 helped make
possible the economic readjustments after the Civil War to a degree
that is not likely to be overestimated. Not only did railway
construction supply work for large numbers of laborers and help bring
about an ever greater westward migration, but it opened a market for
the huge agricultural surplus of the Middle West. Without the market
in the cities of the populous Atlantic Coast and Europe, the expansion
of the West would have been impossible. Moreover, the railways brought
coal, ore, cotton, wool and other raw materials to the Northeast, and
thus enabled that section to develop its manufacturing interests.
[Illustration:
Map of the United States showing railroads in 1890]
Despite the admittedly great benefits resulting from the railroad
system, there was a rising tide of complaint on the part of the public
in regard to some aspects of its construction and management. It was
objected, for example, that many of the western roads especially were
purely speculative undertakings. Lines were sometimes built into new
territory where competition did not exist and where, consequently, the
rates could be kept at a high point. The Chicago, Burlington and
Quincy presented such a case in 1856. Profits were so great as to
embarrass the company, since the payment of large dividends was sure
to arouse the hostility of the farmers who paid the freight rates.
"This, indeed," declared the biographer of one of the presidents of
the road, "was the time of glad, confident morning, never again to
occur in the history of railroad-building in the United States."
Sometimes lines were driven into territory which was already
sufficiently supplied with transportation facilities, in order to
compel the company already on the ground to buy out the new road. If,
as time went on, traffic enough for both roads did not appear, they
had to be kept alive through the imposition of high rates; otherwise,
one of them failed and the investors suffered a loss. The
opportunities for profit, however, were so numerous that the amount of
capital reported invested in railways increased by $3,200,000,000
during the five years preceding 1885.
A practice which was productive of much wrong-doing and which was
suggestive of more dishonesty than could be proved, related to the
letting of contracts for the construction of new lines. The directors
of a road frequently formed part or all of the board of directors of a
construction company. In their capacity as railroad directors they
voted advantageous contracts to themselves in their other capacity,
giving no opportunity to independent construction companies who might
agree to build at a lower cost. As the cost of construction was part
of the debt of the road, the directors were adding generously to their
own wealth, while the company was being saddled with an increased
burden. It cost only $58,000,000, for example, to build the Central
Pacific, but a construction company was paid $120,000,000 for its
services. When John Murray Forbes was investigating the Chicago,
Burlington and Quincy he found that the president of the road was
paying himself a salary as president of a construction company, out of
the railroad's funds, without the supervision of the treasurer or any
one else, and without any auditing of his accounts. Moreover, six of
the twelve members of the board of directors were also members of the
construction company. Such an attempt to "run with the hare and hunt
with the hounds" was suggestive, to say the least, of great
possibilities of profit to the directors and a constant invitation to
unnecessary construction.
Another grievance against the railways was the reckless, irresponsible
and arrogant management under which some of them operated. An eminent
expert testified before an investigating commission in 1885 that Jay
Gould once sold $40,000,000 of Erie Railway stock and pocketed the
proceeds himself. Most of the energy of the officers of some roads was
expended in deceiving and cheating competitors. "Railroad
financiering" became a "by-word for whatever is financially loose,
corrupt and dishonest." If certain roads demonstrated by successful
operation that honest methods were better in the long run, their
probity received scant advertisement in comparison with the
unscrupulous practices of their less respectable neighbors. It is to
be remembered, also, that the growth of the railway system had been so
rapid and so huge that it was impossible to meet the demand for
trained administrators. Naturally, men possessed of little or no
technical understanding of transportation problems could not provide
highly responsible management.
The dishonest manipulation of the issues and sales of railroad stocks
is a practice that was not confined solely to the twenty-five years
after the Civil War, but the numerous examples of it which occurred
during that period aggravated the exasperation which has already been
mentioned. Daniel Drew, the treasurer of the Erie Railway in 1866,
furnished an excellent illustration of this type of activity. Drew had
in his possession a large amount of Erie stock which had been secretly
issued to him in return for a loan to the company. The stock in the
market was selling near par and still rising. Drew instructed his
agents to make contracts for the future delivery of stock at prices
current at the time when the contracts were made. When the time came
for fulfilling his contracts, Drew suddenly threw the secret stock on
the market, drove general market prices on Erie stock down from
ninety-five to fifty, bought at the low figure, and sold at the high
price which was called for in the contracts made by his agents. The
effect of such sharp dealing on investors, the railroad or the public
seems not to have entered into the calculation. Indeed, the Erie and
many another road was looked upon by its owners merely as a convenient
piece of machinery for producing fortunes.
Gould, Drew and other railroad men of their time were also expert in
the practice of "stock-watering." This consists in expanding the
nominal capitalization of an enterprise without an equivalent addition
to the actual capital. The rates which the railway has to charge the
public tend to increase by approximately whatever dividends are paid
on the water.[1] Then, as later, when a road was prospering greatly
it would sometimes declare a "stock dividend," that is, give its
stockholders additional stock in proportion to what they already
owned. The addition would frequently be water. Its purpose might be to
cover up the great profits made by the company. If, on a million
dollars' worth of stock, it was paying ten per cent. dividends, the
public might demand lower freight and passenger rates; but if the
stock were doubled and earnings remained stationary, then the
dividends would appear as five per cent.--an amount to which there
could be no objection. H.V. Poor, the railroad expert, declared before
a commission of investigation in 1885 that the New York Central
Railroad was carrying $48,000,000 of water, on which it had paid eight
per cent. dividends for fifteen years. He also estimated that of the
seven and a half billions of indebtedness which the roads of the
country were carrying in 1883, two billions represented water. Others
thought that the proportion of water was greater. In any case the
unnecessary burden upon business to provide dividends for the watered
stock was an item of some magnitude. The investor, however, looked
upon stock-watering with other eyes. The building of a new road was a
speculation; the profits might be large, to be sure, but there might
in many cases be a loss. In order to tempt money into railroad
enterprises, therefore, inducements in the form of generous stock
bonuses were necessary.
The rate wars of the seventies gave wide advertisement to another
aspect of railroad history. The most famous of these contests had
their origin in the grain-carrying trade from the Lakes to the
sea-board. The entry of the Baltimore and Ohio and the Grand Trunk
into Chicago in 1874, stimulated a four-cornered competition among
these roads and the Pennsylvania and New York Central for the traffic
between the upper Mississippi Valley and the coast. Rates on grain and
other products were cut, and cut again; freight charges dropped to a
figure which wiped out profits; yet it was impossible for any line to
drop out of the competition until exhaustion forced all to do so. A
railroad can not suspend business when profits disappear, for fixed
expenses continue and the depreciation of the value of the property,
especially of the stations, tracks and rolling stock, is extreme.
Since the rate wars were clearly bringing ruin in their train, rate
agreements and pooling arrangements were devised. The latter took
several forms. Sometimes a group of competing roads agreed to divide
the business among the competitors on the basis of an agreed-upon
percentage. Another plan was to pool earnings at the close of a period
and divide according to a prearranged ratio. Sometimes destructive
competition was prevented by a division of the territory, each company
being allowed a free hand in its own field. In general, pooling
agreements were likely to break down, although a southern pool
organized by Albert Fink on a very extensive scale lasted for many
years and was thought to have had a vital influence in eliminating
rate-wars. Their efficacy depended mainly on good faith, and good
faith was a rarity among railroad officials in the seventies and
eighties. In the eyes of the public, rate agreements and pools were
vicious conspiracies which left the rights and well-being of the
private shipper completely out of the calculation.
Still another indictment of the railways resulted from their
participation in politics. It was inevitable, of course, that the
roads should be drawn into the field of legislation--the grants of
public land, for example, helped bring about the result. It early
seemed advantageous to attempt to influence state legislatures to pass
favorable laws, and it seemed a necessity to bring pressure to bear in
order to protect the roads from hostile acts. The methods used by the
railway agents in their political activity naturally varied all the
way from legitimate agitation to crude and subtle forms of bribery. An
insidious method of influencing both law-making and litigation was the
pass system. Under it the roads were accustomed to give free
transportation to a long list of federal and state judges, legislators
and politicians. For a judge to accept such favors from a corporation
which might at any time be haled before his court, and for a
legislator to receive a gift from a body that was constantly in need
of legislative attention is now held to be improper in the extreme.
But in those days a less sensitive public opinion felt hardly a qualm.
That the practice was likely to arouse an unconscious bias in the
minds of public officials is hardly debatable. The more crude forms of
bribery, too, were not uncommon. It was testified before a committee
of investigation that the Erie Railway Company in one year expended
$700,000 as a corruption fund and for legal expenses, carrying the
amount on the books in the "India-rubber account." The manipulation of
the courts of New York by the Erie and the New York Central during the
late sixties was nothing short of a scandal. Alliances between
political rings and railroad officials for the purpose of caring for
their mutual interests were so common that reformers questioned
whether the American people could be said to possess self-government
in actuality. Immediately after the Civil War, Charles Francis Adams,
an acute student of transportation, declared that it was scarcely an
exaggeration to say that the state legislatures were becoming a
species of irregular boards of railroad direction. The evils of the
alliance between the roads and politics were not, of course, due
entirely to the former. The receiver of a pass shared with the giver
the evil of the system. Many a legislator was corrupt; more shared in
practices which were little removed from dishonorable. Adams, for
example, gives an account of his experiences, as a director of the
Union Pacific, in dealing with a United States senator in 1884. The
congressman was ready to take excellent care of railroad corporations
which retained him as counsel, but was a corrupt and ill-mannered
bully toward the Union Pacific, which had not employed him.[2]
The most constant grievance was discrimination--that the roads varied
their rates for the benefit or detriment of especial types of freight,
of individuals and of entire localities. Through business between
competing points was carried at a low figure, while the roads recouped
themselves by charging heavily in towns where competition was absent.
Shippers complained that rates between St. Paul and Chicago, for
example, where competition existed were hardly more than half the
charges to places at a similar distance where a single road was in a
position to demand what it pleased. Manufacturers in Rochester could
send goods to New York City and reship them to Cincinnati, back
through Rochester, for less than the rate direct to their destination.
Yet the direct haul was seven hundred miles shorter than the indirect.
Secret arrangements were commonly made with favored shippers by which
they secured lower rates than their competitors. When it became
evident that transportation cost entered into the price of
substantially everything which the ordinary citizen consumed, and when
it was considered that a slight rise in railroad rates might easily
amount to a heavy tax on a shipper or an entire region, it was seen
that uniformity of rates was a matter of the utmost concern.
In brief, then, it was complained that the growth of the
transportation system had placed enormous power in the hands of a
small group of men, many of whom had indicated by their selfishness,
arrogance and questionable practices that they ought not to be
entrusted with so great a measure of authority.
The best example of the American railroad president after the war was
Commodore Cornelius Vanderbilt. Vanderbilt began his career by
ferrying passengers and freight between Staten Island and New York
City. Later he turned his attention to shipping, in which he made a
fortune, and planned the operation of steamships on a large scale.
Becoming interested in railroading, he clearly perceived the
importance of the western trade and the necessity of consolidation.
Vanderbilt was a man of vision, a man who combined magnitude of plan
with the vigorous grasp of the practical details necessary for the
realization of his ambitions. He was buoyant, energetic, confident,
ambitious, determined, despotic. Unhampered by modern conceptions of
public duty, undeterred by the hostility of powerful opponents, with
eyes fixed upon the combination and control of a great transportation
system, Vanderbilt entered courageously upon bitter struggles for
supremacy which involved the misuse of the courts, the control of the
New York state legislature and a thousand charges of corrupt influence
and bribery, but he welded railroads together, replaced wood and iron
with steel, and constructed tracks and terminals. At his death in 1877
he left a huge fortune and bequeathed to his successors a great,
consolidated railroad enterprise, skillfully and successfully
administered. The great weakness of Commodore Vanderbilt and his
associates, and of those who later imitated his work was their
fundamental conception of the railroad as a private venture. Success
consisted in bigness, great profits, crushing or buying out
competitors, and administering the business for the best good of the
few owners, regardless of the interests of the region through which
the railway passed. Vanderbilt and many of his contemporaries were men
of business sagacity and foresight, but their ethical outlook was
restricted and their sense of public responsibility not well
developed.
So considerable a list of grievances naturally bestirred the people to
seek relief at the hands of their legislators. Two lines of action
were followed. In Massachusetts, as early as 1869, a state commission
was formed with purely advisory powers. Under the able leadership of
Charles Francis Adams it attained great influence and worked
effectively for the elimination of railroad abuses through conference
and the weight of public opinion. In Illinois, on the other hand,
reliance was placed upon compulsory action. The state constitution of
1870 declared the railroads to be public highways and required the
legislature to fix rates for the carriage of freight and passengers,
and to pass laws to correct abuses connected with the railways and
grain warehouses. In compliance with the constitution the state passed
the necessary legislation and placed their execution in the hands of a
commission with considerable power. Other western states followed the
Illinois model.
On the national scale the agitation for government action began with
the minor parties. In 1872 the Labor Reformers demanded fair rates and
no discrimination; in 1876 the Prohibitionists called for lower rates;
in 1880 the Greenbackers stood for fair and uniform rates; four years
later they urged laws which would put an end to pooling,
stock-watering and discrimination, and in the same year the
Republicans promised an act to regulate commerce if they were elected.
The most effective force behind the demand for railroad regulation was
the Patrons of Husbandry, better known as the "Grange." This society
was founded by O.H. Kelley, a government clerk in Washington, in 1867.
Its initial purpose was the organization of the agricultural classes
for social and intellectual improvement, but later it engaged in the
effort to correct transportation abuses and to arouse cooperation
among the farmers in other ways. The movement grew astonishingly,
especially in the Middle West, where its membership reached nearly
759,000 in 1875.
Transportation conditions in the West had not reached the relatively
stable situation which characterized those of the East. In the West
much new work was being done, with the attendant evils of construction
companies and unnecessary and speculative undertakings. Much of the
railroad stock was in the hands of eastern investors whom the western
farmers pictured as living in idle ease on swollen incomes, careless
of the high rates and unfair discriminations under which the farmer
groaned. The constantly falling prices, which influenced the West in
so many other ways, served to heighten the discontent with any abuse
which increased the farmer's burden. Moreover, the western states had
contributed huge amounts of land to help build the railways and they
were not minded to give up the hold which their generosity had
justified.
Impelled, then, by such force as the Grange and similar organizations
supplied, the western states proceeded to the adoption of laws whose
purposes ordinarily included railroad rate-making by the legislature
or by a commission, the doing away with such abuses as discrimination,
and the prohibition of free passes. The railroads promptly opposed the
laws and carried the battle to the courts. The so-called "Granger
Cases" resulted. Three of these were representative of the general
trend of the decisions.
The famous case Munn _v._ Illinois, which was decided by the Supreme
Court in 1876 was possibly the most vital case in the history of the
regulation of public service corporations after the Civil War. The
legislature of Illinois, in conformity with the state constitution of
1870, had passed a law fixing maximum charges for the storage of grain
in warehouses. The owners of a certain warehouse refused compliance
with the law on the ground that it was contrary to the Constitution
and hence null and void. They argued that when the state fixed rates
it deprived the owners of the right to set higher charges and so, in
effect, deprived them of their property, in defiance of that portion
of the Fourteenth Amendment forbidding a state to "deprive any person
of life, liberty, or property, without due process of law."
On examination of the history of the control of such enterprises, the
Court found that it had been customary in England for many centuries
and in this country from the beginning, to regulate rates on ferries,
charges at inns, and similar public enterprises, and that it had never
been thought that such action deprived persons of property without due
process of law. In other words, the established common law, at the
time of the passage of the Fourteenth Amendment, did not look upon
rate regulation as a deprivation of property. The Court, therefore,
declared the Illinois warehouse law constitutional, and in doing so
made the following statement:
Property does become clothed with a public interest when
used in a manner to make it of public consequence, and affect
the community at large. When, therefore, one devotes his
property to a use in which the public has an interest, he, in
effect, grants to the public an interest in that use, and must
submit to be controlled by the public for the common good,
to the extent of the interest he has thus created.
While the Munn case was before the Court, the case Peik _v._ the
Chicago and Northwestern Railway Company was raising a question which
struck at the heart of the chief practical impediment in the way of
state control of transportation. The central question in the
litigation was whether the legislature of Wisconsin could lawfully
regulate rates on railroads inside the state. Since the bulk of the
traffic on most roads crosses state borders at one time or another in
its transit, the regulation of rates within a state normally affects
interstate commerce. But the regulation of interstate commerce is
vested in Congress by the terms of the Constitution. The railroad was
quick to take advantage of the division of power between the states
and the nation. Indeed, when fighting state legislation, the roads
earnestly emphasized the exclusive power of Congress over interstate
commerce; but when fighting national regulation, they equally
deprecated any interference with the reserved rights of the states.
Acting in accordance with its established practice, the Court decided
that the state was authorized to regulate rates within its borders,
even though such regulation indirectly affected persons outside, until
Congress passed legislation concerning interstate commerce. Obviously
this decision allowed the states to work out their railroad problems
unhampered, and constituted one of the chief victories for the
Grangers.
In 1886, however, the Court overturned some of the principles which
had been established in the Munn and Peik cases. The new development
came about in connection with the Wabash railroad. It appeared that
the road had been carrying freight from Peoria, Illinois, to New York
for smaller rates than were charged from Gilman to New York, despite
the fact that Peoria was eighty-six miles farther away. Since Illinois
law forbade a road to levy a greater charge for a short haul than for
a long one, a suit was instituted and carried to the Supreme Court.
The company held that the Illinois legislation affected interstate
commerce and hence trenched upon the constitutional power of Congress.
This time the Court upheld the road. It decided that the
transportation of goods from Illinois to New York was commerce among
the states, that such commerce was subject to regulation by Congress
exclusively, and that the Illinois statute was void. It seemed, then,
that state regulation was a broken reed on which nobody could safely
lean, and attention thereupon turned to the federal government.
Congress had already been discussing federal regulation intermittently
for some years. The so-called "Windom Report" of 1874 had advised
federal construction and improvement of transportation facilities in
order to lower rates through competition, but no action had resulted.
In 1878 the "Reagan bill" had proposed government regulation, and from
that time the subject had been almost continuously before Congress. In
1885 the Senate had appointed a select committee of five to
investigate and report upon the regulation of freight and passenger
transportation. The committee was headed by Shelby M. Cullom, who had
been a member of the legislature of Illinois and later governor, in
the years when the railroad and warehouse laws were being put into
effect. It endeavored to discover all shades of opinion by visiting
the leading commercial centers, and by consulting business men, state
commissioners of railroads, Granger officials and others. After a
somewhat thorough investigation, the committee expressed its
conviction that no general question of governmental policy occupied so
prominent a place in the attention of the public as that of
controlling the growth and influence of corporations. The needed
relief might be obtained, the committee thought, through any one of
four methods: private ownership and management, with a greater or less
degree of government oversight; government ownership and management;
government ownership with private management under public regulations;
partial state ownership and management in competition with private
companies. The widespread opposition to state ownership of railroads,
the commission thought, seemed to point to some form of government
regulation and control of the existing situation.
Impressed with the magnitude of the abuses involved, and the
hopelessness of regulation through state laws, the committee presented
a bill designed to bring about regulation on a national scale through
a federal agency. The resulting law was the Interstate Commerce Act of
February 4, 1887. It provided that all railway charges should be
reasonable and just; forbade the roads to grant rebates, or to give
preferences to any person, locality or class of freight, or to charge
more for a short haul than for a long one except with the consent of
the proper authorities; it made pooling unlawful; and it ordered the
companies to post printed copies of their rates, which were not to be
altered except after ten days' public notice. The act also created an
Interstate Commerce Commission of five members to serve six-year
terms, into whose hands the administration of the measure was placed.
Persons who claimed that the railways were violating the provisions of
the law could make complaint to the Commission, or bring suit in a
United States Court. In order that the Commission might know the
condition of the roads, it was given power to call upon the carriers
for information, to demand annual reports from them, and to require
the attendance of witnesses. If the railroads refused to carry out the
orders of the Commission, they could be brought before a United States
district court.
In forbidding pools, the Act committed the railroads to the policy of
enforced competition, a policy which was commonly accepted at the time
as the best one for the public interest. Such experts, however, as
Professor A.T. Hadley and Charles Francis Adams, Jr., raised important
objections. They cited the rate wars to indicate the results of
competition and declared that railroads ought to be monopolies. If two
grocery stores are established where trade enough exists for only one,
they asserted, the weaker competitor can close his doors and the
public loss is not heavy; but in the case of the railways a weak
competitor must continue business even at disastrously low rates
because all his interest charges continue and the depreciation on his
property is extreme. The construction of an unnecessary road and its
subsequent operation at a loss, its failure or its abandonment,
constitute a great drain upon the public. Such objectors contended
that pooling combinations did away with many of the evils of
cut-throat competition, and they accordingly urged that the carriers
be permitted to make such arrangements, under whatever government
regulation might be needed to prevent unreasonable charges. By such
means the available business of a region might be fairly divided among
the roads entering it, without resort to competitive rate-cutting and
its consequent evils.
The passage of the law was looked upon with much hostility on the part
of the railroad interests. James J. Hill thought that the railroads
might survive, although the country would be ruined, and he predicted
that Congress would shortly be called in special session to repeal the
act. More important than mere hostility was the constant opposition
and evasion which characterized the attitude of the carriers toward
the operation of the law. Discriminations were commonly practiced and
hidden away in accounts under false or misleading headings. Rebates
were given and received, a fact which was due in no small degree to
the shippers themselves. A large shipper might demand advantageous
rates and threaten to turn his trade over to a rival road. As the
arrangement would be secret, and the likelihood of discovery small,
the temptation to break the law was correspondingly great.
The good results of the passage of the law were disappointingly
slight. To be sure, the Commission was gaining experience,
administrative precedents were being established and injustice was
somewhat less common than before. The first chairman was Judge T.M.
Cooley, a noted lawyer whose appointment was considered an admirable
one. Most important of all, the principle of government regulation was
established. Nevertheless, progress was so slow as to be almost
invisible. The courts hampered the activities of the Commission. When
cases arose involving its decisions, they allowed a retrial of the
entire case from the beginning, permitting the introduction of facts
which had been designedly withheld by the carriers in order to
undermine the influence of the Commission, and sometimes they reversed
its findings and so dulled the effectiveness of its labors. Eleven
years after the Act was passed the Commission declared that abuses
were so constant that the situation was intolerable; a prominent
railroad president made the charge that "good faith had departed from
the railway world"; and an important authority on railroad affairs
declared that the Commission had become an impotent bureau of
statistics.
BIBLIOGRAPHICAL NOTE
More study has been made of railroad regulation and the technical side
of railroading than of the history of transportation and the effects
of the roads on the political and economic life of the people. An
excellent single volume is John Moody, _The Railroad Builders_ (1919),
which devotes attention to the important personages of railroad
history, discusses the growth of large systems and contains valuable
maps; the best concise account of the history of the railways is W.Z.
Ripley, _Railroads: Rates and Regulation_ (1912). Chap. I; W.Z.
Ripley, _Railway Problems_ (rev. ed., 1913), is reliable; E.R. Johnson
and T.W. Van Metre, _Principles of Railroad Transportation_ (1916),
has some excellent chapters and several informing maps; C.F. Carter,
_When Railroads were New_, (1909), is a popular account; C.F. Adams,
_Chapters of Erie_ (1886), exposes early railroad practices; H.G.
Pearson, _An American Railroad Builder_ (1911), presents the career
of J.M. Forbes as a railroad president; A.T. Hadley, _Railroad
Transportation_ (1886), is a classic, early account. Consult also E.R.
Johnson, _American Railway Transportation_ (1903); Frank Parsons,
_Heart of the Railroad Problem_ (1906); C.F. Adams, Jr., _Railroads:
Their Origin and Problems_ (1878, rev. ed., 1893); "A Decade of
Federal Railway Regulation," in _Atlantic Monthly_ (Apr., 1898). On
the personal side, the following are valuable: E.P. Oberholtzer, _Jay
Cooke, Financier of the Civil War_ (2 vols., 1907); J.G. Pyle, _Life
of J.J. Hill_ (2 vols., 1917); _Memoirs of Henry Villard_ (1909). On
the subject of land grants and regulation: L.H. Haney, _Congressional
History of Railways_ (2 vols., 1910); S.J. Buck, _The Granger
Movement_ (1913), and the same author's _The Agrarian Crusade_ (1920),
are best on the relation of unrest among the agricultural classes to
the railroad problem. The "Cullom Report" is in Senate Reports, 49th
Congress, 1st session (Serial Number 2356), in 2 vols., and is a mine
of information on early abuses. The most important Granger cases are
in _United States Reports_, vol. 94, p. 113 (Munn _v._ Ill.), and vol.
118, p. 557 (Wabash case).
* * * * *
[1] For example, an investor might contribute $100 in cash to an
enterprise. The "paid in capital" or "actual" capital would, then be
$100. He might receive in return $100 in stock and $100 in bonds, in
which case the "nominal capital" would be $200; the additional $100
would be "water." If the enterprise paid interest on the bonds, and
dividends on the stock, it would, of course, be paying a return on the
water. The practice of stock-watering did not end with the days of
Gould and Drew.
[2] In this connection Professor Farrand mentions the statement of a
railroad magnate that "in Republican counties he was a Republican, and
in Democratic counties he was a Democrat, but that everywhere he was
for the railroad." _Development of the United States_, p. 290.