who use them are wider and older. From the very outset attempts
were made to regulate railroad charges by law in various ways.
The fear at that time was that they might be made unreasonably
high. This fear proved groundless. From the outset the rates were
rather lower than had been expected, and much lower than by many
of the means of transportation which railroads superseded. These
low rates caused a great development in business; and this, in
turn, gave a chance for such economy in handling it that rates
went still lower. Each new invention rendered it easier to do a
large business at cheap rates. The substitution of steel rails
for iron, which began shortly after the close of the war, had an
enormous influence in this respect. This was not merely due to the
direct saving in repairs, which, though appreciable, was moderate
in amount. It was due still more to improvements in transportation
which followed. It was found that steel rails would bear heavier
rolling-stock. Instead of building ten-ton cars to carry ten tons
of cargo, companies built twelve-ton cars to carry twenty tons of
cargo, or fourteen-ton cars to carry thirty tons; and they made the
locomotives heavy enough to handle correspondingly larger trains.
A given amount of fuel was made to haul more weight; and of the
weight thus hauled, the freight formed a constantly increasing
proportion as compared with the rolling-stock itself. The system
of rates was adopted to meet the new requirements. Charges were
made incredibly low in order to fill cars that would otherwise
go empty, or to use the road as nearly as possible to its full
capacity. In the twenty years following the introduction of steel
rails the traffic of the New York Central increased from less than
400,000,000 ton-miles to decidedly over 2,000,000,000; while the
average rates fell from 3.09 cents per ton per mile in 1866 to 0.76
cent in 1886. This is but a single instance of a process which has
gone on all over the country. The average freight charge on all
railroads of the country to-day is a little over one cent per ton
a mile: less than half what would have been deemed possible on any
railroad a few years ago.
The progress of railroad consolidation contributed greatly to
this economy. It saved multiplication of offices; it saved
re-handling of freight; it enabled long-distance business to
be done systematically. So great were its advantages that
co-operation between connecting lines was carried far beyond
the limits of actual consolidation. Through traffic was handled
without transshipment, sometimes by regularly incorporated express
companies or freight companies on the same plan, but more commonly
by what are known as fast-freight lines.[30] These are little more
than combinations for keeping account of through business; they are
by no means ideal in their working, but they have the advantage of
few expenses and no income, so that the temptation to steal, which
is the bane of such organizations, is here reduced to a minimum.
But all these things, while they increased the efficiency of the
service, also increased the power of the railroad authorities
and rendered the shipper more helpless. The very cheapness of
rates only made a recourse to other means of transportation more
difficult. If _A_ was charged 30 cents while his competitor _B_ was
paying only 20 cents for the same service, he was worse off than
when they were both paying a dollar; and the fact that no other
means of conveyance could be found to do the work for less than a
dollar simply put _A_ all the more completely at the mercy of the
railroad freight-agent. In other words, the fact that rates were so
low made any inequality in rates all the more dangerous. The lower
the rate and the wider the monopoly, the less was the chance of
relief.
Such inequalities existed on a large scale: and they were all the
more difficult to deal with because there was a certain reason
for some of them arising from the nature of railroad business.
The expenses of a railroad are of two kinds. Some, like train and
station service, locomotive fuel, or repairs of rolling-stock, are
pretty directly chargeable to the different parts of the traffic.
It costs a certain amount in wages and in materials to run a
particular train; if that train is taken off, that part of the
expense is saved. But there is another class of items, known as
fixed charges, that do not vary with the amount of business done.
Interest on bonds must be paid, whether the volume of traffic
be large or small. The services of track-watchmen must be paid
for, whether there be a hundred trains daily or only a dozen. In
short, most of the expenses for interest and maintenance of way
are chargeable to the business as a whole, but not to particular
pieces of work done. The practical inference from this is obvious.
In order that the railroad as a whole may be profitable, the fixed
charges must be paid somehow. The railroad manager will try to get
them as he can from different parts of his traffic. But if, for any
reason, a particular piece of business cannot or will not pay its
share of the fixed charges, it is better to secure it at any price
above the bare expense of loading and hauling, without regard to
the fixed charges. For if the business is lost, these charges will
run on just the same, without any added means of meeting them.
The consequence is that there is no natural standard of rates;
or, rather, that there are two standards, so far apart that the
difference between the two is quite sufficient to build up one
establishment or one locality and ruin another, in case of an
arbitrary exercise of power on the part of the freight-agent.
In the use of such a power it was inevitable that there should
be a great many mistakes, and some things which were worse than
mistakes. Colbert once cynically defined taxation as "the art of
so plucking the goose as to secure the largest amount of feathers
with the least amount of squealing." Some of our freight-agents
have taken Colbert's tax theories as a standard, and have applied
them only too literally. It is this short-sighted policy which
has made the system of charging "what the traffic will bear" a
synonyme for extortion. Interpreted rightly, this phrase represents
a sound principle of railroad policy--putting the burden of the
fixed charges on the shipments that can afford to pay them. But
practically--in the popular mind at least--it has come to mean
almost exactly the opposite.
The points which got the benefit of the lowest rates were the
large trade centres, which had the benefit of competing lines of
railroad, and often of water competition also. The threat to ship
goods by a rival route was the surest way of making a freight-agent
give low rates. The result was that the growth of such places was
specially stimulated. In addition to their natural advantages they
had an artificial one due to the policy of competing lines of
railroad. It may well be the case, as is argued by railroad men,
that sound railroad economy demands that goods in large masses
should be carried much more cheaply than those which are furnished
in smaller quantities. But it is certain the practice went far
beyond the limits of any such justification. There was a time
when cattle were carried from Chicago to New York at a dollar a
car-load; and many other instances, scarcely less marked, could be
cited from the history of trunk-line competition. The fact was,
that in an active railroad war freight-agents would generally
accede to a demand for reduced rates at a competing point, whether
well founded or not, and would almost always turn a deaf ear to
similar demands from local shippers, however strongly supported by
considerations of far-sighted business policy.
But this was not the worst. Inequalities between different places
might after some hardship correct themselves; differences of
treatment between individuals could not be thus adjusted. And the
system of making rates by special bargain almost always led to
differences between individuals, where favors were too often given
to those who needed or deserved them least. The fluctuation of
rates was first taken advantage of by the unscrupulous speculator.
Often, if he controlled large sources of shipment, he might receive
the benefit of a secret agreement by which he could obtain lower
rates than his rivals under all circumstances. A more effective
means for destroying straightforwardness in business dealings than
the old system of special rates was never devised. Sometimes, where
one competitor was overwhelmingly strong, the pretence of secrecy
was thrown aside, and the railroad companies so far forgot their
public duties as almost openly to assist one concern in crushing
its rivals. The state of things in this respect twelve or fifteen
years ago was so bad that it is painful to dwell upon; but the
reformation to-day is not so complete that we can wash our hands of
past sins.
Less was said or felt of similar evils in passenger traffic,
because the passenger business of the country generally is of much
less importance than its freight business, either to the railroad
investors or to the producers themselves. But there was the same
fluctuation in passenger rates; and there was an outrageous form
of discrimination in the development of the free-pass system; a
practice which would have fully deserved the name of systematic
bribery, had it not become so universal that most men hardly
recognized any personal obligation connected with the acceptance
of a pass. Officials and other citizens of influence had come to
regard it as a right; it was not so much bribery on the part of the
companies as blackmail levied against them.
The remedies proposed for all these evils have been various. From
the very beginning until now there have been some who held that
such abuses could be avoided only by State railroad ownership.
Such experiments in the United States have not gone far enough
to furnish conclusive evidence either way; but the experience of
other countries indicates that State railroads, as such, do not
avoid these evils. Where they have been worked in competition with
other lines, they have been as deeply involved in these abuses as
their private competitors--perhaps more so. Where the government
has obtained control of all the railroads of the country, and made
such arrangements with the water-routes as to render competition
impossible, the abuses have vanished, because there was no longer
any conceivable motive to continue them. But this was the result
of the monopoly, not of the State ownership; and the advantage was
purchased by a sacrifice of all the stimulus of competition toward
the development of new facilities.
Many people assume that, because the government represents the
nation as a whole, therefore government officials will not be
under the same temptations to act unjustly which are felt by the
representatives of a private corporation. This is a mistake. It
is not as representatives of the investor that railroad agents do
much injustice; this motive has practically nothing to do with
it. Most of the abuses complained of are positively injurious to
the investor in the long run. When officials really represent
the interests of the property with wise foresight, they, as a
rule, give the public no ground to complain. The question reduces
itself to this: Will the State choose better representatives and
agents than a private corporation? Will it secure a higher grade
of officials, more competent, more honest, and more enterprising?
The difference between state and private railroads is not so much
on matters of policy as on methods of administration. The success
of government administration varies with different countries. In
Prussia, where it is seen at its best, the results are in some
respects remarkably good; yet even here the roads are not managed
on anything like the American standard of efficiency, either in
amount of train service, in speed, or in rapidity of development.
And what is barely successful in Prussia, with its trained civil
service on the one hand and its less intense industrial demands
on the other, can hardly be considered possible or desirable in
America. No one who has watched the workings of a government
contract can desire to have the whole trade of the country put
to the expense of supporting such methods in its transportation
business.
A more easy method of trying to regulate railroad charges has been
by forced reductions in rates. This was tried on the largest scale
in the Granger movement fifteen years ago. A fall in the price of
wheat had rendered it difficult for the farmers to make money. The
Patrons of Husbandry, in investigating the causes, saw that the
larger trade centres, where there was competition, were getting
lower rates than the local producer. They reasoned that if all the
farmers could get such low rates, they could make money; and that,
if the roads could afford to make these low rates for any points,
they could afford to do it for all. The railroad agents, instead of
foreseeing the storm and trying to prevent it, assumed a defiant
attitude. The result was that legislatures of the States in the
upper Mississippi Valley passed laws of more or less rigidity,
scaling down all rates to the general level of competitive ones.
After a period of some doubt, the right of the States to do this
was admitted by the courts. But before the legal possibility had
been decided, the practical impossibility of such a course had
been shown. If all rates were reduced to the level of competitive
ones, it left nothing to pay fixed charges. On such terms, foreign
capital would not come into the State; nor could it be enticed by
such a clumsy effort as that of one of the States, which provided
"that no road _hereafter constructed_ shall be subject to the
provisions of this act." The goose which laid the golden eggs was
not such a goose as to be deceived by this. The untimely death of
several of her species meant more than any promises of immunity to
those who should follow in her footsteps. In those States which had
passed the most severe laws capital would not invest; railroads
could not pay interest, their development stopped, and the growth
of the community was seriously checked thereby. The most obnoxious
laws were either repealed or allowed to remain in abeyance. Where
the movement was strongest in 1873 it had practically spent its
force in 1876. There have been many similar attempts in all parts
of the country since that time; just now they are peculiarly
active; but nothing which approaches in recklessness some of the
legislation of 1873 and 1874. The lesson was at least partly
learned.
We had hardly passed the crisis of the effort to level down, when
some of the more intelligent railroad men made an effort to level
up. Recognizing that discriminations and fluctuating rates were
an evil, they sought to avoid it by common action with regard to
the business at competing points. A mere agreement as to rates to
be charged was not enough to secure this end. Such an agreement
was sure to be violated. Even if the leading authorities meant
to observe it, their agents could always evade its requirements
to some extent. Such evasion was favored by loose arrangements
between connecting roads, and by the somewhat irresponsible system
of fast freight lines. Wherever it existed, it gave rise to mutual
suspicion. _A_ believed that his road did it because he could not
help it, but that _B_ and _C_ were allowing their roads to do
it maliciously; while _B_ and _C_ had the same consciousness of
individual rectitude and the same unkind suspicions with regard to
_A_. It was at best a rather hollow truce, which did not really
accomplish its purpose, and which might change to open war on very
slight provocation.
To avoid this difficulty a pool, or division of traffic, was
arranged. It is a fact that, whatever wars of rates there may be,
the percentage of traffic carried by the different lines varies
but little. If an arbitrator can examine the books and decide what
these percentages have been in the past, he can make an award for
the future, under which the competitive traffic of the different
roads may be fairly divided. The arrangements for doing this are
various. Sometimes the roads carry such traffic as may happen to
be offered, and settle the differences with one another by money
balances; sometimes they actually divert traffic from one line to
another. But the advantage of either of these arrangements over a
mere agreement to maintain rates is that they cannot be violated
without direct action on the part of the leading authorities of
the roads concerned--either in open withdrawal, or in actual
bad faith. The ordinary irregularities of agents do not, under
a pooling system, give rise to much suspicion, because they do
not benefit the road in whose behalf they are undertaken. Its
percentage being fixed there is no motive for rate-cutting. So
great is this advantage that pooling is accepted in almost all
other countries as a natural means of maintaining equality of
rates; the state railroads of Central Europe entering into such
contracts with competing private lines and even with water-routes.
In America itself, pools have had a longer and wider history than
is generally supposed. In New England they arose and continued to
exist on a moderate scale without attracting much attention. In the
Mississippi Valley, the Chicago-Omaha pool was arranged as early as
1870, and formed the model for a whole system of such arrangements
extending as far as the Pacific Coast. But, as involving wider
questions of public policy, the activity of the Southern and the
Trunk Line Associations has attracted chief attention.
The man whose name is most prominently identified with both these
systems is Albert Fink. A German by birth and education, his long
experience as a practical railroad engineer did not deprive him of
a taste for studying traffic problems on their theoretical side. As
Vice-President of the Louisville & Nashville, he had given special
attention to the economic conditions affecting the Southern roads;
and when, in the years 1873-75, a traffic association was formed by
a number of these roads to secure harmony of action on matters of
common interest, he became the recognized leader. His success in
arrangements for through traffic was so conspicuous that when, in
1877, the trunk lines were exhausted with an unusually destructive
war of rates, they looked to him as the only man who could deliver
them from their trouble. In some lines, division of traffic had
already been resorted to; but it was in the hands of outside
parties, like the Standard Oil Company or the cattle eveners,
and was made a means of oppression against shippers not in the
combination itself.
[Illustration: Albert Fink.]
The conditions were not favorable; the result of Fink's efforts to
bring order out of chaos was slow and by no means uninterrupted.
Yet on the whole, as was admitted even by opponents of the pooling
system, it contributed to steadiness and equality of rates. The
arrangement of these agreements was hampered by their want of
legal status. While the law did not at that time actually prohibit
them, it refused to enforce them. Existing thus on sufferance,
they depended on the good will of the contracting parties. None
but a man of Fink's unimpeached integrity and high intellectual
power could have kept matters running at all; and even he could
not prevent the adoption of a policy of making hay while the sun
shines, more or less regardless of the future. The results of the
trunk-line pool were unsatisfactory--most of all to those who
believed in pools as a system; but it is fair to attribute a large
part of this failure to the absence of legal recognition, which
in a manner compelled the agreements to be arranged to meet the
demands of the day rather than of the future.
Meantime an equally important contribution to the solution of the
railroad question was being worked out in another quarter. In the
year 1869 the Massachusetts Railroad Commission was established.
Its powers were so slight that it was not regarded as likely to
be an influential public agency. Fortunately it numbered among
its members Charles Francis Adams, Jr.; a man whose efficiency
more than made up for any want of nominal powers. In his hands the
mere power to report became the most effective of all weapons.
Representing at once enlightened public judgment and far-sighted
railroad policy, he did much to bring the two into harmony and
protect the legitimate interests on both sides from short-sighted
misuse for the benefit of either party. The detail of his work is
matter of past history; perhaps its most prominent result was to
introduce to State legislation the idea of a railroad commission
as an administrative body. Those States which had no stringent
laws appointed commissions to take their place; those which had
overstringent ones appointed commissions to use discretion in
applying them. In either case, the existence of a body of men
representing the State, but possessing the technical knowledge
to see what the exigencies of railroad business demanded, was a
protection to all parties concerned.
[Illustration: Charles Francis Adams.]
But matters were rapidly passing beyond the sphere of State
legislation. Each new consolidation of systems, each additional
development of through traffic, made it more impossible to control
railroad policy by the action of individual States. It could only
be done by a development of the law in the United States courts or
by Congressional legislation. The former result was necessarily
slow; each year showed an increased demand for special action on
the part of Congress. But such action was hindered by divergence of
opinion in that body itself. One set of men wished a moderate law,
prohibiting the most serious abuses of railroad power, and enforced
under the discretionary care of a commission. These men were for
the most part not unwilling to see pools legalized if their members
could thereby be held to a fuller measure of responsibility. On the
other hand, the extremists wished to prescribe a system of equal
mileage rates; they would hear of no such thing as a commission,
and hated pools as an invention of the adversary. Between the two
lay a large body of members who had no convictions on the matter,
but were desirous to please everybody and offend nobody--a hard
task in this particular case. It was nearly nine years from the
time Mr. Reagan introduced his first bill when a compromise was
finally effected--largely by the influence of Senator Cullom.
As compromises go, it was a tolerably fair one. The extremists
sacrificed their opposition to a commission, but secured the
prohibition of pools; the disputed points with regard to rates were
left in such a shape that no man knew what the law meant, and each
was, for the time being, able to interpret it to suit the wishes of
his Congressional district.
The immediate effects of the law were extremely good. There
were certain sections of it, like those which secured publicity
of rates and equal treatment for different persons in the same
circumstances, whose wisdom was universally admitted. Indeed it was
rather a disgrace, both to the railroad agents and to the courts,
that we had to wait for an act of Congress to secure these ends;
and most of the railroads made up for past remissness in this
respect by quite a spasm of virtue. In some instances it was even
thought that they "stood up so straight as to lean over backward."
But this was not the only part of the law which proved efficient.
The very vagueness of the clause concerning the relative rates for
through and local traffic, which under other circumstances might
have proved fatal, put a most salutary power into the hands of the
Interstate Commerce Commission, and one which they were not slow to
use.
[Illustration: Thomas M. Cooley.]