etc.; but, to make the comparison a fair one, he should also have
referred to the much greater cost of European roads, to their much
greater number of employes per mile, to the much shorter haul, to the
higher price of their fuel, to the superiority of their roadbed and the
greater security of their passengers. Moreover, whether the railroads of
a country are profitable or not cannot be ascertained by merely
comparing miles of road with square miles of territory and number of
inhabitants. British India has a population of 275,000,000 and only
about 16,000 miles of railroad, and yet her roads are scarcely as
profitable as our own. China has 3,000,000 and Asia has about 4,000,000
people to every mile of railroad, but so far their railroads have proved
no bonanza. The question is not how many people there are to each mile
of railroad, but rather to what extent the railroad is used by the
people. The amount of freight carried annually by the railways of the
United States is about 680,000,000 tons, or 85,000,000,000 ton miles,
and the number of passengers carried is about 535,000,000, representing
an aggregate of travel of nearly 13,000,000,000 miles. This shows an
average of 1,300 tons of freight carried one mile, and 200 miles
traveled annually for each inhabitant of the nation, and a greater use
of railway facilities than that of any other country in the world. The
income of the railroads per capita is $17 in the United States, $11 in
the United Kingdom, $5 in Germany, $4 in France, and still less in
Italy, Austria and Russia. The average freight haul is 63 miles in
Europe and 120 miles in the United States; the average passenger haul 15
miles in Europe and 24 miles in the United States. It has already been
shown that the average earnings per train mile are also larger here than
there. Roell's Encyclopedia of Railroads for 1892 shows that in France
the average rate for all traffic for the year 1888 was for passengers
1.45 cents per mile, and for freight 1.14 cents per ton per kilometer,
and that the nation had also received by way of free or reduced rates on
Government business during that year benefits to the amount of
$59,000,000. Large reductions have been made during the past year in
passenger rates.
The General indulges in making the stereotyped railroad charge that "the
legislatures of several of the States have enacted laws to effect a
reduction of rates, the literal obedience to some of which would amount
to the practical confiscation of railway property."
The General or any of his friends cannot name a road that was ever
confiscated by legislation, or even seriously injured. It is a fact that
the very legislation of which railroad managers so bitterly complain has
had a beneficial influence on railroad earnings. Thus, in Iowa, where,
according to the testimony of railroad men, Grangerism has reigned
supreme during the past few years, railroad earnings increased between
1889 and 1892 from $37,000,000 to $44,000,000, or more than 18 per cent.
Still better results could have been secured if the railroad managers
had been in sympathy with the law. There is no doubt that they would
gladly suffer, or rather have their companies suffer, a loss of revenue,
if this would lead to a repeal of the laws and restore to them the power
to manipulate rates for their own purposes.
But the General comes to the main point of his article when he
complains against "the unreasonable requirements and restrictions of the
Interstate Commerce Law." He says:
"Principal among these are what is known as the 'long and
short haul clause,' which prohibits railway companies from
receiving any greater compensation in the aggregate for a
shorter than for a longer haul over the same line in the
same direction, the shorter being included within the longer
distance; and the anti-pooling clause, which prevents
railway companies from entering into any agreement with each
other for an apportionment of joint earnings."
If we carefully examine the railroad literature of the last four years,
we find that it has concentrated its efforts toward the creation of
public sentiment in favor of the repeal of these two clauses of the
Interstate Commerce Law. Railroad men are well aware of the fact that,
with these two clauses stricken out, the Interstate Commerce Law would
be practically valueless, and in clamoring for their repeal they evince
a persistency worthy of a better cause. The practices which these
clauses aim to prohibit cannot be defended upon any consideration of
justice and equity, and it is folly to expect the American people to
sacrifice their convictions of right to the selfish interest of a
comparatively small number of persons interested in the manipulation of
railroad stocks.
The July, 1891, number of the _Forum_ contains an article on the
operation of the Interstate Commerce Law from the pen of Aldace F.
Walker, formerly a member of the Interstate Commerce Commission, and now
commissioner of the Western Traffic Association. Mr. Walker evidently
belongs to the old school of railroad men, who have not yet accepted the
Granger decision. Referring to it, he says:
"This decision was not unanimous, and the reasoning
presented was not so convincing as to command universal
acceptance. It was at once challenged by the corporations,
and has been from time to time attacked in the same
tribunal; it has not yet been withdrawn, but it has been
materially modified, notably in a case from Minnesota,
decided in 1890, when it was established that there is a
limit beyond which the State cannot go in reducing railway
rates, which limit would be passed in case a State should
attempt to deprive a corporation of its property, without
due process of law, by fixing rates too low to permit of a
fair remuneration for its use. A large debatable ground yet
remains open, with a possibility that the position of the
railway in Federal jurisprudence may eventually be radically
modified."
The passage quoted clearly indicates that railroad men expect better
things of the court in the future, but Mr. Walker is much mistaken in
supposing the court materially modified the Granger decision, as will be
seen by referring to the case of Budd vs. the State of New York, decided
in February, 1892, by the same court.
Mr. Walker, unlike Mr. Depew, candidly admits the former universality of
the evil of discrimination. He says:
"In order to secure traffic, a railway official felt called
upon to underbid his rival. He gave the shipper a private
rate, a rebate, a free pass--anything in the shape of a
concession or a favor. The land was honeycombed with special
arrangements of innumerable forms, all secret, because
otherwise they would have been useless, and all forced upon
the carriers by the exigencies of unbridled competition.
Many shippers became wealthy from such gains. Others were
envious of like success. At last the public sense of justice
demanded a reform."
And Mr. Walker's candor rises to a still higher pitch when he admits
that the ingenuity of railroad managers has found ways to evade the
Interstate Commerce Law. The following passage from the Commissioner's
article will, no doubt, be a great surprise to such law-abiding and
confiding managers as Mr. Depew:
"There was nothing in the law specifically forbidding the
payment of 'commissions,' and it was found that the routing
of business might be secured by a slight expenditure of that
nature to a shipper's friend. Other kindred devices were
suggested, some new, some old; the payment of rent, clerk
hire, dock charges, elevator fees, drayage, the allowance of
exaggerated claims, free transportation within some single
State--a hundred ingenious forms of evading the plain
requirements of the law were said to be in use. The
demoralization was not by any means confined to the minor
roads. Shippers were ready to give information to other
lines concerning concessions which were offered them, and to
state the sum required to control their patronage. A freight
agent, thus appealed to, at first perhaps might let the
business go, but when the matter became more serious and he
saw one large shipper after another seeking a less desirable
route, he was very apt to throw up his hands and fall in
with the procession."
Mr. Walker is very severe on the Interstate Commerce Act, which, he
says, might in its present form "well be entitled, 'An act to promote
railway bankruptcies and consolidations by driving weak roads out of
competitive business.'" To remedy the evil which, in his opinion, the
act causes, he favors the granting of differentials by the stronger to
the weaker roads. Such a device is simply a species of pool under a less
offensive name. Its manifest object is to maintain rates through a
conspiracy of rival railroads. Mr. Walker admits this when he says:
"It operates in practice to affect a distribution of the
traffic somewhat roughly, giving rise to frequent
dissensions and bickerings over the 'differentials' which
are allowed; but after all it has enabled the trunk lines
usually to secure a better maintenance of tariff rates and a
better observance of the provisions of the law against
private rebates and discriminations than has been
attainable in other sections of the country where different
conditions make such an arrangement impracticable. It
vividly illustrates, however, the necessity of some plan by
which common business may be divided."
This problem, which apparently causes so much perplexity to railroad
managers, would soon be solved if railroad abuses were done away with.
So long as these abuses exist and rates are maintained by artificial
means there will be bickering and strife for business which legitimately
belongs to others. Mr. Walker then bewails the proscription of the pool,
saying:
"It may be stated without fear of contradiction that if the
carriers had been left free to make arrangements among
themselves upon which each line might rely for eventually
receiving in some form a fair share of competitive traffic,
the temptation for secret rate-cutting would have been in
great measure removed and the country would have been spared
most of the traffic disturbances and illegitimate
contrivances for buying business which have since been
periodically rife."
This argument amounts to this, that, rather than place a law upon our
statute books which reckless railroad managers might be strongly tempted
to violate, they should be permitted to combine and control the highways
and levy _ad libitum_ upon the commerce of the country. It is a most
preposterous proposition.
The article especially condemns the long and short haul clause of the
law. That this clause is injurious to the commerce of the country is,
however, not obvious from his reasoning. Mr. Walker makes the statement
that this clause of the law "has removed from many jobbing centers
important advantages which they previously had, and has enabled interior
communities, formerly of little apparent consequence, to deal directly
with distant markets." If he means by this that this feature of the law
has equalized shipping throughout the country, he is doubtless right. If
he wishes us to infer, however, that it prevents the railroad companies
from doing substantial justice to all, he presumes altogether too much
upon the credulity of his readers.
Another article from the same author appeared under the title
"Unregulated Competition Self-destructive," in the December, 1891,
number of the same periodical. He commences his article with an inquiry
into the pedigree and merit of the time-honored proverb, "Competition is
the life of trade," and arrives at the conclusion that the phrase is
fatherless and insignificant. He says:
"'Competition is the life of trade;' 'Competition is the
death of trade;' one phrase is as true as the other. For all
that appears, it was a toss-up which of the two should
become current as the expression of the general thought."
It is its general recognition that gives a truth a proverb's currency.
Mr. Walker sneers at a disagreeable proverb because, like the majority
of his colleagues, he holds the masses in contempt. He gives his
estimate of popular intelligence in the following words:
"Unfortunately most men do not think worthily, or do not
think at all; they are ruled by phrases, and they catch the
crude ideas of others as they fly."
Mr. Walker's whole argument is one in favor of the legalization of the
pool, though he carefully avoids the word which grates so harshly on the
American ear. He makes the broad statement, without offering the least
proof in support of it, that measures have been everywhere adopted "to
subdue and ameliorate the evil results of inordinate and excessive
competitive strife," and then he asks:
"Has not the time come for a reversal of the legislative
attitude? Would it not be well for Congress, State
legislatures and the judiciary to cease their futile
attempts to maintain unqualified freedom of competition, and
substitute therefore a recognition of the right of every
industry to combine under proper supervision, and to make
agreements for the maintenance of just and reasonable
prices, the prevention of the enormous wastage consequent
upon warlike conditions, and the preservation of existing
institutions through the years to come?"
Mr. Walker then proceeds to make the bold prediction that revolution and
anarchy will follow if the demands of the railroad corporations are not
complied with, saying:
"Unless this course is adopted a social convulsion may
fairly be apprehended, forced by the universal and necessary
repudiation of existing laws and rules of decision, and by
the general formation of combinations without their pale."
This is a strange threat indeed, and unworthy of a man who has held as
great a public trust as Mr. Walker has. The article also contains the
statement that combinations do not extinguish competition. "They
regulate it," says Mr. Walker, "with more or less efficiency, and they
often go so far as to suspend its operation in respect to one or more
important features of the strife; for example, the price paid or the
time consumed. But as long as the employer or the purchaser has a
choice, so long there is competition." Here is a sample of Mr. Walker's
irony, for the choice which the shipper has under the pool is simply
Hobson's choice.
Mr. Walker has also an article in the August, 1892, number of the
_Forum_, the substance of which is to show that organizations among
railroad companies, like the Western Traffic Association, are necessary
for the purpose of restraining competition among them. He holds that
such competition as exists in almost all other lines of business "is
radically vicious to all interests, however pleasant and desirable it
may seem to self-styled anti-monopolists," and that "it is a calamity
not only to the owners of the roads, but to the public also."
According to his statement, the Traffic Association is simply a little
innocent and inoffensive organization whose duty it is only to maintain
rates, and he sees nothing wrong in allowing a few representatives of
corporations to meet in secret and discuss, scheme and levy such a tax
upon the commerce of this country as may suit their convenience; and he
regrets that their attempts are "hampered by legislation which forbids
the formation of pools." In other words, he proposes to have the case in
court decided by a jury made up entirely of the parties at interest in
the case. This piece of effrontery is about on a par with the average
argument of this class of pleaders.
Suppose we apply the same rule to other classes. Take the farmers, for
instance. Let them have an organization for the purpose of maintaining
rates, with their representatives meeting in secret and fixing the price
of their produce and asking the Government to enforce their orders,
pools and edicts, so as to afford them relief from selling corn at ten
cents per bushel, beef and pork at a dollar and a half per hundred, and
hay at two dollars per ton, and their other produce at proportionate
rates. Who would condemn such an organization more severely than the
advocates of the Traffic Association? They never find terms sufficiently
expressive with which to condemn the Farmers' Alliance and other kindred
associations, which are organized solely for the purpose of lawfully
correcting existing abuses and of forming a wholesome public sentiment.
It is evident that some progress is being made upon this question, as
Mr. Walker admits that "the fortunes which have been made are seen to
have been the result of dealings in stocks and in titles, the
consequences of which, if involving wrong, are rightly charged against
the lax legislation which has made such operations possible." "Every
person seeking for the services of a common carrier is entitled to know
that he is charged no more than his neighbor who obtains the same
service under the same conditions." "The theory that any unjust
discrimination or unjust preference or advantage in respect to
individuals, communities or descriptions of traffic must be suppressed
by the State, has become firmly lodged in legislation." This improvement
in the sentiment of railroad men is gratifying.
This gentleman, as has already been stated, was for several years a
member of the Interstate Commerce Commission, a board created by
Congress for the special purpose of enforcing the law which he so
unreservedly condemns. No doubt Mr. Walker performed the duties of his
office as he understood them; but if he held then the views which he
holds now, his work must have been a hindrance rather than a help to the
commission.
Among financial journals, so many of which are devoted to the support of
vicious and demoralizing methods, and are ever ready to defend whatever
is bad in corporation management, it is refreshing to find occasionally
one that exposes abuses and favors the earning of legitimate dividends,
and it is a pleasure to quote the following from the June number, 1892,
of the _Banker's Magazine_:
"There are two widely differing theories concerning the
management of railroads in this country; one theory is that
profits should be acquired from fluctuations in the stock,
and the other is that the profits should be acquired in the
old-fashioned way, by performing a useful service and
receiving a reward therefor, to be divided among the
stockholders in the way of a dividend. These two theories
are so different in their practical operation that they give
rise to the most diverse consequences. Of course, many
railroads are not dividend-earning, and with these the
profits to the managers and those who are allied with them
must come from stock fluctuations and from whatever sucking
arrangements can be devised whereby their vitality or
sustenance can be acquired by the favored few who are in
control. Unfortunately, there are many railroads in this
condition, the history of which is too well known to require
description. Once in control, the way is easy to retain it
and to make money by a thousand devices which ingenious and
unscrupulous managers are constantly planning and putting
into operation.
"The consequences of the other theory are as different, both
to the corporate property and to the public, as can be
imagined. When a railroad is properly managed and earning
dividends, a policy of development is adopted, having for
its end the natural expansion of the property in harmony
with the growth of the country, the needs of business and
the desires of the people. The fruits of such a policy may
not be apparent at once, but they inevitably come, and, when
they are reaped, are enjoyed and appreciated by all. Only by
such a policy can our roads ever become great, commanding
the confidence of the people, and fulfilling their highest
uses; in short, only by such a policy can a railroad be
brought to a high degree of perfection.
"The difference is clearly seen by contrasting a road of
this character with one that is run by the Wall Street
method for stock-jobbing purposes. By this method dividends
are not regarded as of so much consequence to investors as
an instrument or argument for affecting the value of the
stock. In other words, if a dividend is earned and paid at
all, it is chiefly as an instrument or agency for
stock-jobbing purposes, and not because the road is managed
primarily for this purpose. Furthermore, dividends, too
often, are disregarded altogether, as well as any policy of
permanent improvement or of general development. The
cardinal idea always is, how can the road be maintained and
manipulated so as to cause the largest variations in the
stock and the most money for the managers?
"Too many managers, as is well known, have made great sums
for themselves and built additions long in advance of their
means, and have seriously crippled their corporations by so
doing. But they have made fortunes for themselves. What the
great majority of mankind consider is the immediate present,
and not the future.
"It is undoubtedly a hard thing for those who are conducting
their corporations in an honest and able manner, for the
benefit of their owners, to keep still while their enemies
are pounding them and glorifying those who are managing
their corporations for personal and corrupt ends; but all
cheap and false practices must finally lead to disaster. We
hear a great deal of this kind of thing nowadays. One of the
evil effects of speculation and newspaper reading is, that
people have got in the way of not thinking much for
themselves; of regarding as truth whatever is printed, and
of not opening their eyes wide enough to discover the
shallowness of the reasonings and falsehoods that are put
forth at the behests of speculators, or of those who are
managing corporations for speculative purposes. The American
people have had an amazing experience in losses from
following advice thus plentifully and freely given;
nevertheless, there seem to be persons left who are willing
to listen and fall into the old ways and be trapped, as so
many others have been in the past. There is a considerable
class, having means and nothing to do, who perhaps might
just as well lose their money in poker, railroad or grain
speculation as in any other way, for this furnishes about
the only source of amusement to them; but, after all, there
is no reason why railroads should be managed so exclusively
for the amusement of this class. The time is coming, and
probably is not far off, when they will get enough of it;
and railroad investors will conclude that dividends for
themselves are better than profits for speculators; and when
they do, all stock-jobbing managers will be consigned to the
limbo which is their proper destination."
This magazine is edited by Mr. Albert S. Bolles, author of several
excellent financial works. We are much indebted to him for the sound
banking system which we now have, and which has contributed so largely
to the unexampled prosperity which this country has enjoyed for the last
thirty years.
Our national banking system illustrates well how service able the
corporation may be to a people when its use is restricted by wholesome
laws to the performance of its proper functions.
The old United States Bank was organized for practically the same
purposes as our present national banks, but for lack of proper
restrictions its use was soon perverted to ignoble purposes. The bank
managers showed so much partiality in the distribution of their favors
and accommodations, and meddled in politics to such an extent, that the
people became disgusted with it, and a renewal of its charter was
refused.
Mr. Clay clearly saw how dangerous a great money power might become to
our country, and, in opposing the extension of the bank's charter, said:
"The power to charter companies is one of the most exalted
attributes of sovereignty. In the exercise of this gigantic
power we have seen an East India Company created, which is
in itself a sovereignty, which has subverted empires and set
up new dynasties, and has not only made war, but war against
its legitimate sovereign! Under the influence of this power
we have seen rise a South Sea Company, and a Mississippi
Company, that distracted and convulsed all Europe, and
menaced a total overthrow of all credit and confidence, and
universal bankruptcy."
Can we afford to ignore the lessons of history?
Mr. Henry Clews makes some spicy and pertinent observations on railroad
men's methods in an article which recently appeared in the _Railway
Age_. Mr. Clews seems to have but little confidence in the average
railroad director. He advises stockholders to exercise constant
vigilance and defensive conservatism, "lest they become the instruments
by which unscrupulous and crafty directors work out schemes that are in
reality nothing but frauds or robbery." And then he adds:
"In estimating corporate acts we must never forget that,
while the best of men will bear watching as to their
individual dealings with others, they need to be doubly
watched when they sit around a corporation board and vote as
to transactions in respect of which none of them can be
called to personal account. Temptations attack with enormous
force when the gains are prospectively great and the risk of
penalty inappreciable or non-existent."
Mr. Clews also tells us how roads are wrecked by their boards of
directors. "In one case," he says, "the stock of a leading railway,
which in 1880 sold at 174, in 1884 sold at 22-1/2, and in 1885 at 22.
This vast shrinkage of value was not owing to panic or to stringency of
money, nor did it arise from a diminution of traffic on the original
line; but it was because consolidation had been pushed to an extreme by
the directors of the corporation, so much so that the entire system
yielded no dividends; a fleet and useful animal had been loaded down
with dead wood and rubbish till he could scarcely crawl; barren acres
had been added to an originally fruitful farm until the whole estate
could hardly pay taxes; a mass of rotten apples had been thrown into the
measure with sound fruit, and buyers refused the whole as a mere heap
of corruption. And it was generally believed that the men who
perpetrated this mischief under the names of 'construction,' 'requisite
consolidation,' 'absorption of necessary branches,' etc., had made a
great deal of money by it and had not made it honestly. But it was all
done pursuant to legal forms and by boards of directors, so that the
defrauded stockholders were without remedy."
Mr. Clews then gives us a more detailed account of the way in which
branch roads are built and absorbed, viz.:
"Given a useful, well constructed, dividend-paying road, a
body of people with some capital and political influence,
aided by some of the directors of this prosperous line;
construct a branch road to some outside point; the more
important such point the better, but that is of small
consequence. The road gets itself built; it is bonded for
more than it cost, and it cost twice as much as it ought,
since the constructors were all together in the ring and
have favored each other. Then the capital stock is fixed at
so much, and this is mostly distributed among the
constructors. The road then, swelled to a fictitious price
of three or four to one, and not worth anything to start
with, is ripe for absorption and consolidation. Its
directors and those of the main line meet, confer and vote
the measure through. They all profit by it, more or less,
but their profits are enormously in excess of the trifling
losses due to the shrinkage of values of the shares of the
main line. A director of the main line may perhaps lose
$20,000 on a thousand shares, but what is this when compared
to a gain of hundreds of thousands in his holdings of the
branch road, whose liabilities are assumed by his victimized
corporation? And such a director would not be equal to the
demands of his covetousness if he had not sold thousands of
shares short, in anticipation of the fall which the
transactions of himself and his associates were inevitably
bound to produce."
Mr. Clews concludes his article with the following passage:
"The profits realized on the speculative constructions are
enormous and have constituted the chief source of the
phenomenal fortunes piled up by our railroad millionaires
within the last twenty years. It is no exaggeration to
characterize these transactions as direct frauds upon the
public. They may not be such in a sense recognized by the
law, for legislation has strangely neglected to provide
against their perpetration; but morally they are nothing
less, for they are essentially deceptive and unjust, and
involve an oppressive taxation of the public at large for
the benefit of a few individuals who have given no
equivalent for what they get. The result of this system is
that, on the average, the railroads of the country are
capitalized at probably fully 50 per cent. in excess of
their actual cost. The managers of the roads claim the right
to earn dividends upon this fictitious capital, and it is
their constant effort to accomplish that object. So far as
they succeed they exercise an utterly unjust taxation upon
the public by exacting a compensation in excess of a fair
return upon the capital actually invested. This unjust
exaction amounts to a direct charge and burden on the trade
of the country which limits the ability of the American
producer and merchant to compete with those of foreign
nations and checks the development of our vast natural
resources. In a country of 'magnificent distances' like ours
the cost of transportation is one of the foremost factors
affecting the capacity for progress; and the artificial
enhancement of freight and passenger rates due to this false
capitalization has been a far more serious bar to our
material development than public opinion has yet realized.
The hundreds of millions of wealth so suddenly accumulated
by our railroad monarchs is the measure of this iniquitous
taxation, this perverted distribution of wealth. This
creation of a powerful aristocracy of wealth, which
originated in a diseased system of finance, must ultimately
become a source of very serious social and political
disorder. The descendants of the mushroom millionaires of
the present generation will consolidate into a broad and
almost omnipotent money power, whose sympathies and
influence will conflict with our political institutions at
every point of contact. They will exercise a vast control
over the larger organizations and movements of capital;
monopolies will seek protection under their wing, and by the
ascendancy which wealth always confers they will steadily
broaden their grasp upon the legislation, the banking and
commerce of the nation."
These are strong words, but they come from a man whose thirty years'
experience in Wall Street enables him to speak intelligently upon this
subject and who certainly cannot be accused of being prejudiced against
railroad men or corporate investments. In a recent number of his _Weekly
Financial Review_ Mr. Clews said of the railroad stock market:
"Judgment passes for little in estimating the future of many
securities, for the market is almost wholly under the
control of comparatively few persons, whose operations must
inevitably influence the value of thousands of millions of
stocks and bonds. Never in the history of Wall Street was
the value of such an enormous aggregation of securities so
absolutely under the control of so small a circle as at this
time. Such a state of affairs cannot be considered
satisfactory; hence not only is speculation likely to be
unhealthily stimulated, but the future of these combinations
gives birth to a variety of uncertainties which, while they
may elevate prices, will certainly not add to their
stability."
If the silly claim of railroad men, that Western people do not invest in
railroad securities on account of their unprofitableness, needed any
answer, the above words would furnish it.
The May, 1893, number of the _North American Review_ contains an article
entitled "A Railway Party in Politics," by Mr. H. P. Robinson, editor of
the _Railway Age_. Mr. Robinson belongs to that class of reformers who
can see but one side of a question, and only a short-sighted view of
that. He is as zealous as a new convert, and is expert, in the ward
politician's way, in defense of the worst abuses practiced by railway
men. He says:
"That the right to 'regulate' the railways, which is vested
in the State, has now been carried in the West to a point
not only beyond the bounds of justice, but beyond its
constitutional limits, and that it would soon be impossible
for any railway company in the West to keep out of
bankruptcy unless some vigorous and concerted action were
taken to arouse public opinion, and to compel a modification
of the present policy.
"It is easy to see how much strength such a party, if
formed, would possess. According to the reports of the
Interstate Commerce Commission there were in the immediate
employ of the railways of the United States a year and a
half ago 749,301 men, all or nearly all voters, which number
has now, it may be assumed, been increased to about 800,000.
There are, in addition, about one million and a quarter
shareholders in the railway properties of the country; and
in other trades and industries immediately dependent upon
the railways for their support there are estimated to be
engaged, as principals or employes, over one million voters
more. These three classes united would give at once a massed
voting strength of some three millions of voters. There are
also, in the smaller towns especially, and at points where
railway shops are located, all over the country, a number of
persons, small tradesmen, boarding-house keepers, etc., who
are dependent for their livelihood on the patronage of
railway employes, and whose vote could unquestionably be
cast in harmony with any concerted employes' movement.
Moreover, unlike most new parties, this party would be at no
loss for the sinews of war or for the means of organization.
The men whom it would include form even now almost a
disciplined army. With them co-operation is already a habit.
While the financial backing and the commercial and physical
strength of which the party would find itself possessed from
its birth would be practically unlimited....
"For the present it seems to them better to believe that the
people--those people who are not railway men--are acting now
only in ignorance, and that as soon as they see the truth
they will, by their own instinctive sense of justice,
re-mould their opinions and their policy without political
coercion.
"At the same time there has already come into existence in
some of the Western States a movement which has its
significance and its practical influence. This is what is
called the Railway Employes' Club movement. It started in
Minnesota, at a small meeting of railway employes held in
Minneapolis in 1888. From that meeting the movement grew,
and made a certain feeble effort, not entirely unsuccessful,
to influence the State election in the fall of that year. By
the State election of 1890 the movement had grown and was
better organized, and the Employes' Club did exercise
considerable influence in the election of certain of the
State officers and certain members of the State legislature
in that year.
"From Minnesota the movement spread to Iowa, and there is no
contradiction of the fact that the railway employes' vote
was one of the strongest forces in the State election of the
fall of 1891. It also overflowed into Kansas, Nebraska,
Missouri and Texas. Had the election of last November been
normal it is probable that the effect of the Railway
Employes' Club vote would have been as visible in two or
three of those States then as it had been in Iowa in the
preceding year. But in the deluge which occurred all trace
of the smaller streams and currents was obliterated. Had the
members of the clubs not taken the precaution to do
considerable work in the local nominating conventions of
both parties they would be compelled to confess that their
campaign of 1892 was a failure....
"So far the clubs have admitted and will admit of no
negotiations with the State committees of other parties.
They hold their own meetings and decide for themselves that
such and such a candidate is inimical to their interests as
railway employes, and such and such a man is their friend.
Then they go to the polls and vote--voting in the main
their normal party ticket, scratching only a man here and a
man there, their attention being chiefly centered upon
members of the boards of railroad commissioners and of the
State legislatures.
"In Minnesota in 1890 their weight was thrown chiefly in
favor of Republicans. In Iowa in 1891 it was given to
Democrats. In all States the men whom they oppose are those
who have made themselves conspicuous as 'Granger' and
anti-railway politicians. The keynote of the movement and
the one plank in the platform of the clubs is that the
extreme anti-railroad legislation of late years has reduced
the earnings of the companies to a point at which they are
unable any longer to keep full forces on their payrolls or
to pay such wages as they should, and that by this
legislation the railway employes are necessarily the
immediate sufferers....
"A railway party is therefore already in existence.... And
moreover, though accidentally only, it is working forcibly
in behalf of railway interests as a whole....
"Meanwhile Mr. A. F. Walker, the chairman of the Joint
Committee of the Trunk Line and Central Traffic
Associations, prophesies that if things go on as they are
going now, before long 'the managers of the railways will be
chiefly receivers.' In the year 1891 receivers were
appointed for twenty-six companies in the United States,
representing $84,479,000 of capital, and twenty-one
companies, with 3,223 miles of road, with a capitalization
of $186,000,000, were sold under foreclosure.
"It is doubtful whether the result which Mr. Walker
foretells would be regarded as a calamity by the 'uninformed
public opinion of the West.' That Minnesota railroad
commissioner was quite sure of the public applause before he
made his classic declaration that he proposed to 'shake the
railroads over hell' before he had done with them, and the
Governor of Iowa, who announced that he did not care if
'every d--d railroad in the State went into bankruptcy'
before the expiration of his term of office, knew that the
sentiment would have the sympathies of his constituents.
This attitude of the Western mind is, of course, largely
explained by the fact that the people of the West do not as
a rule own railway securities. In two States (the only two
in the West in which, so far as I am aware, the figures have
been compiled) out of 27,645 stockholders in the lines
within the State borders only 359 are residents of the
States. If the other 27,286 were also residents of these
States (that is to say, if 27,286 of the present residents
were also stockholders in the railways), it is probable that
the ferocity of the public opinion in these States against
railways would be materially modified."
It is evident that Mr. Robinson has not been as successful in organizing
small tradesmen, boarding-house keepers, employes and shareholders into
a new party as he contemplated, notwithstanding "it was at no loss for
the sinews of war."
He attempts to show that this movement originated with the employes, but
it is too well known that the employes who organized the movement were
under pay of the railroad companies and received their instructions from
the railroad managers. The statement which Mr. Robinson attributes to
the Governor of Iowa undoubtedly originated in the mind of one who is
laboring to modify the ferocity of "the uninformed public opinion of the
West." No Governor of Iowa ever made any such statement, nor ever
entertained any such sentiment. It is a sheer fabrication.
There are a number of standard text-books of law which are indispensable
to the student of railroad questions desiring to go back to first
principles. Only a few of them can be mentioned here.
I. F. Redfield, in his "Law of Railways," says concerning the necessity
for railroad supervision:
"Railways being a species of highway, and in practice
monopolizing the entire traffic, both of travel and
transportation, in the country, it is just and necessary and
indispensable to the public security that a strict
legislative control over the subject should be constantly
exercised."
Regarding the original character of the railway as a common highway,
Redfield says:
"The Railways Clauses Consolidation Act provides, in detail,
for the use of railways by all persons who may choose to put
carriages thereon, upon the payment of the tolls demandable,
subject to the provisions of the statute and the regulations
of the company. The view originally taken of railways in
England evidently was to treat them as a common highway,
open to all who might choose to put carriages thereon. But
in practice it is found necessary for the safety of the
traffic that it should be exclusively under the control of
the company, and hence no use is, in fact, made of the
railway by others."
As to the questionable financial expedients so frequently resorted to in
building American railways, this author says:
"This is not the place, nor are we disposed, to read a
homily upon the wisdom of legislative grants, or the
moralities of moneyed speculations in stocks on the exchange
or elsewhere. But it would seem that legislation upon this
subject should be conducted with sufficient deliberation and
firmness so as not to invest such incorporations with such
unlimited powers as to operate as a net to catch the unwary,
or as a gulf in which to bury out of sight the most
disastrous results to private fortunes, which has justly
rendered American investments, taken as a whole, a reproach
wherever the name has traveled."
The opinion is expressed in this work that under certain circumstances
railroad securities should be aided by State credit, and is supported by
the following argument:
"Here we have no national funded stock in convenient sums
for small investment, and which, being sure, is really a
great blessing to the mass of those who wish to invest
moderate sums as a protection against age or calamity. In
those countries where such opportunities exist, it removes
all temptation to invest small sums in these enterprises,
which, however necessary for the public, such small owners
can but poorly afford to aid in carrying forward, and which
consequently should in justice either be guaranteed or owned
by the State, or at all events aided by State credit, when
they become indispensable for the public convenience."
Upon the subject of eminent domain Redfield says:
"That railways are but improved highways, and are of such
public use as to justify the exercise of the right of
eminent domain, by the sovereign, in their construction, is
now almost universally conceded."
Kent says in his "Commentaries on American Law":
"The right of eminent domain, or inherent sovereign power,
gives to the legislature the control of private property for
public uses, _and for public uses only_.... So, lands
adjoining New York canals were made liable to be assumed for
the public use, so far as was necessary for the great object
of the canals.... In these and other instances which might
be enumerated, the interest of the public is deemed
paramount to that of any private individual; and yet, even
here, the constitutions of the United States and of most of
the States of the Union have imposed a great and valuable
check upon the exercise of legislative power, by declaring
that private property should not be taken for public use
without just compensation.... It undoubtedly must rest, as a
general rule, in the wisdom of the legislature to determine
when public uses require the assumption of private property;
but if they should take it for a purpose not of a public
nature, as if the legislature should take the property of A
and give it to B, or if they should vacate a grant of
property, or of a franchise, under the pretext of some
public use or service, such cases would be gross abuses of
their discretion, and fraudulent attacks on private right,
and the law would clearly be unconstitutional and void."
Concerning the construction of corporate powers Kent lays down the
following rule:
"The modern doctrine is to consider corporations as having
such powers as are specifically granted by the act of
incorporation, or as are necessary for the purpose of
carrying into effect the powers expressly granted, and as
having no other. The Supreme Court of the United States
declared this obvious doctrine, and it has been repeated in
the decisions of the State courts. No rule of law comes with
a more reasonable application, considering how lavishly
charter privileges have been granted. As corporations are
the mere creatures of law, established for special purposes,
and derive all their powers from the acts creating them, it
is perfectly just and proper that they should be obliged
strictly to show their authority for the business they
assume, and be confined in their operations to the mode and
manner and subject matter prescribed."
As to the duties of common carriers he says:
"As they hold themselves to the world as common carriers for
a reasonable compensation, they assume to do and are bound
to do what is required of them in the course of their
employment, if they have the requisite convenience to carry
and are offered a reasonable and customary price; and if
they refuse without just ground, they are liable to an
action."
Judge Cooley, in his very able work, "Constitutional Limitations,"
refers to the so-called vested rights of corporations and the abuse
growing out of them as follows:
"It is under the protection of the decision in the Dartmouth
College case that the most enormous and threatening powers
in our country have been created, some of the great and
wealthy corporations actually having greater influence in
the country at large, and upon the legislation of the
country, than the States to which they owe their corporate
existence. Every privilege granted or right conferred--no
matter by what means or on what pretense--being made
inviolable by the Constitution, the Government is
frequently found stripped of its authority in very important
particulars, by unwise, careless or corrupt legislation; and
a clause of the Federal Constitution whose purpose was to
preclude the repudiation of debts and just contracts
protects and perpetuates the evil."
The late President Garfield, in one of his legislative speeches, called
attention to the fact that Chief Justice Marshall pronounced the
decision in the Dartmouth College case ten years before the steam
railway was born, and then said:
"I have ventured to criticise the judicial application of
the Dartmouth College case, and I venture the further
opinion that some features of that decision, as applied to
the railway and similar corporations, must give way under
the new elements which time has added to the problem."
Charles Fisk Beach, Jr., in his recent work entitled "Commentaries on
the Law of Private Corporations," well defines what constitutes
dedication to a public use. He says:
"Whenever any person pursues a public calling and sustains
such relations to the public that the people must of
necessity deal with him, and are under a moral duress to
submit to his terms if he is unrestrained by law, then, in
order to prevent extortion and an abuse of his position, the
price he may charge for his services may be regulated by
law. When private property is affected with a public
interest it ceases to be _juris privati_ only. This was said
by Lord Chief Justice Hale more than three hundred years ago
in his treatise _De Portibus Maris_, and has been accepted
without objection as an essential element in the law of
property ever since."
Treating of the fiduciary position of directors and officers of
corporations, the same author says:
"The directors, officers and agents of a corporation are
held to the general rule of law resting 'upon our great
moral obligation to refrain from placing ourselves in
relations which ordinarily excite a conflict between
self-interest and integrity.' The directors and officers
are the agents of the company, and while acting in that
capacity for it cannot deal with themselves to the detriment
of the corporation. All contracts of that character are
voidable at the option of the corporation."
And further he says:
"A director whose personal interests are adverse to those of
the corporation has no right to act as a director. As soon
as he finds he has personal interests which are in conflict
with those of the company he ought to resign."
T. Carl Spelling, in his treatise on "The Law of Private Corporations,"
says of pooling arrangements:
"Courts long ago exercised jurisdiction to regulate rates of
_quasi_ public corporations, and on the same principle will
refuse to enforce pooling contracts between railroad and gas
companies. Such contracts are void as against public
policy.... There is substantial harmony between the English
and American definitions of monopoly, the two countries
agreeing that contracts entered into by and between two or
more corporations, the necessary result of whose performance
will crush and destroy competition, are illegal."
Upon the subject of eminent domain Mr. Spelling remarks:
"That the legislature may thus select any agency it sees fit
for the exercise of eminent domain, and also that it may
determine what purposes shall be deemed public, are
propositions too deeply rooted in the jurisprudence of this
country to admit now of doubt or discussion. Making an
application of this doctrine to railway operations,
conceding it to be settled that these facilities for travel
and commerce are a public necessity, if the legislature,
reflecting the public sentiment, decide that the general
benefit is better promoted by their construction through
individuals or corporations than by the State itself, it
would clearly be pressing a constitutional maxim to an
absurd extreme if it were to be held that the public
necessity should be only provided for in the way which is
least consistent with the public interest.... The power of
eminent domain being an inherent element of sovereignty, it
cannot be divested out of the State or abridged by contract
or treaty so as to bind future legislatures. Nor can the
right be divested by private contract."
Concerning State control of corporations the same author says:
"The subordination of all private interests to the purposes
of government, subject only to the condition that the object
to be accomplished shall be one in which the public has an
interest, is no longer an open question. In its general
bearing this principle is too well settled and uniformly
recognized--underlying the adjudications by courts of all
cases involving constitutional provisions--to require more
than a mere statement."
And again he says:
"Nor is it longer necessary to seek a justification of the
common practice of regulating the rates of charges and
general management of railroads on the ground that they have
received valuable franchises of a public nature and had
important powers of sovereign character conferred upon them.
That may be an important political consideration, and as
such may strengthen the argument in favor of the right; but
the right itself rests upon firmer ground, and upon other
considerations than that of pecuniary consideration derived
from the State. The State may regulate their business, not
because they are corporations, nor yet because they are
corporations of a particular kind, but because they, like
the individuals of which they are composed, are subject to
the laws which say that when 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."
CHAPTER XI.
RAILROADS AND RAILROAD LEGISLATION IN IOWA.
The first survey for a railroad in the State of Iowa was made in the
fall of 1852. The proposed road had its initial point at Davenport and
followed a westerly course. It was practically an extension of the
Chicago and Rock Island Railroad, which was then being built between
Chicago and the Mississippi River. On the 22d day of December, 1852, the
Mississippi and Missouri Railroad Company was formed, its object being
to build, maintain and operate a railroad from Davenport to Council
Bluffs. The articles of association were acknowledged before John F.
Dillon, notary public, and filed for record in the office of the
Recorder of Scott County, on the 26th of January, 1853, and in the
office of the Secretary of State on the first day of February following.
In 1853 the Mississippi and Missouri Railroad Company entered into an
agreement with the Railroad Bridge Company of Illinois for the
construction and maintenance of a bridge over the Mississippi at Rock
Island. The work was commenced in the fall of that year, and the bridge
was completed on April 21, 1856, it being then the only bridge spanning
the Mississippi River. The first division of the Mississippi and
Missouri Railroad, extending from Davenport to Iowa City, was completed
on the first of January, 1856, and was formally opened two days later. A
branch line to Muscatine was completed shortly thereafter. On the first
day of July the State of Iowa had in all sixty-seven miles of railroad,
bonded at $14,925 a mile, which at that time probably represented the
total cost of construction. The earnings of these sixty-seven miles of
road during the six months following July 1, 1856, amounted to $184,193,
or $2,749 per mile, which was equal to an annual income of about $5,500
per mile.
On the 15th of May, 1856, Congress granted to the State of Iowa certain
lands for the purpose of "aiding in the construction of railroads from
Burlington, on the Mississippi River, to a point on the Missouri River
near the mouth of the Platte River; from the city of Davenport, Iowa, by
way of Iowa City and Fort Des Moines, to Council Bluffs; from Lyons City
northwesterly to a point of intersection with the main line of the Iowa
Central Air Line Railroad near Maquoketa, thence on said line running as
near as practical to the forty-second parallel across the State; and
from the city of Dubuque to the Missouri River near Sioux City." The
grant comprised the alternate sections designated by odd numbers and
lying within six miles from each of the proposed roads. Provision was
also made for indemnity for all lands covered by the grant which were
already sold or otherwise disposed of.
The wisdom of the land-grant policy has been questioned. When these
grants were made it was believed by many that railroads would not and
could not be built in the West without such aid. While others did not
share this opinion, they at least supposed that land grants would
greatly stimulate railroad enterprise and lead to the early construction
of the lines thus favored.
The land grant of the Mississippi and Missouri Railroad was a mere
donation for that part of the line which was already completed at the
time the grant was made; and the extension of this line, as well as the
construction of the other lines to which the grant applied, was not
made as fast as had been anticipated. The price of all Government lands
lying outside of the land-grant belts was $1.25 per acre. To reimburse
the public treasury for the loss resulting from these grants, the price
of lands situated within the land-grant belts was advanced to $2.50 per
acre, practically compelling the purchasers of the even-numbered
sections of land, instead of the Government, to make the donation to the
railroads, it being supposed that the benefits resulting to those
regions from the immediate construction of railroads would
correspondingly enhance the value of the alternate sections of land
reserved by the Government. Designing men soon saw the advantages which
the situation offered. They combined with their friends to organize
companies for the construction of the land-grant roads, built a small
portion of the proposed line, to hold the grant, and then awaited
further developments, or rather the settlement of the country beyond.
There are those who believe that the doubling of the price of Government
land within the belt of the proposed land-grant roads greatly retarded
immigration and with it the construction of roads. They hold that, had
no grant whatever been made to any railroad company and had equal
competition in railroad construction been permitted, the Iowa through
lines, instead of following, would have led, the tide of immigration.
It has been seen that in 1856 the Mississippi and Missouri Railroad was
completed as far as Iowa City. On the second day of June of that year
its Board of Directors asked the Governor of the State to convene the
General Assembly in extra session, to consider the disposition which
should be made of the recent Congressional grant. This urgency might
lead one to suppose that the company was anxious to extend its line at
the earliest opportunity. The General Assembly was convened, and the
land given to the State by Congress for the purpose of aiding in the
construction of a railroad from Davenport to Council Bluffs was given to
the Mississippi and Missouri Railroad Company. The act was approved by
the Governor on July 14, 1856, and three days later the company
"assented to and accepted the grant." It then executed mortgage after
mortgage, and built a branch line through quite a populous territory,
from Muscatine to Washington, but the main line made very slow progress.
In 1865 the bonded debt of the company amounted to $6,851,754, although
the line was completed only to Kellogg, in Jasper County, about forty
miles east of Des Moines. In spite of the fact that the cost of
operating the road had from the beginning varied but little from 60 per
cent. of its gross receipts, its president, in a circular letter to the
stock-and bondholders, dated October 20th, 1865, made the statement that
the company was "driven to the necessity of selling the road or
reorganizing." In 1866 suit was brought in the Circuit Court of the
United States for the District of Iowa for the foreclosure of the
company's mortgages, and a decree of foreclosure was entered on the 11th
day of May of that year. The property was sold on the 9th day of July
following at Davenport, and was purchased by the Chicago, Rock Island
and Pacific Railroad Company, which was incorporated in this State a few
weeks previous to the sale, for the purpose of acquiring the railroads
built by the Mississippi and Missouri Railroad Company with all its
appurtenant property, "and all the rights, privileges and franchises
granted by the act of Congress of May 15th, 1856, to the State of Iowa,
and by the State of Iowa granted to the said Mississippi and Missouri
Railroad Company, and when so acquired to maintain and operate the said
railroad." It is a significant fact that all the corporators of the new
company, except one, were directors of the bankrupt company. On the 20th
of August, 1866, the Chicago, Rock Island and Pacific Company of the
State of Iowa consolidated with the Chicago, Rock Island and Pacific
Railroad Company of Illinois, and conveyed all its property, powers and
franchises to the consolidated company. The validity of the
consolidation was questioned by a large number of stock-and bondholders,
and the courts were appealed to to issue injunctions restraining the
consolidated company from extending its line or expending any money
obtained through the sale of its securities. In this predicament the
company turned to the Iowa legislature for protection. Anxious to secure
the early completion of the road, the Twelfth General Assembly, by an
act approved February 11th, 1868, recognized the consolidated company,
and resumed and granted to it "all right or interest" which the State
had in the lands previously granted to the Mississippi and Missouri
Railroad Company. The act expressly provided, however, that the Chicago,
Rock Island and Pacific Railway Company should "at all times be subject
to such rules, regulations and rates of tariff for transportation of
freight and passengers as may from time to time be enacted and provided
for by the General Assembly of the State of Iowa," and that if the
company should neglect to comply with any of the requirements of the
act, it should forfeit to the State all its franchises and corporate
rights acquired by or under the laws of the State, and all lands granted
to aid in the construction of its road. The line was completed to
Council Bluffs in June, 1869.
The lands in aid of the construction of a railroad running across the
State, as nearly as practicable along the forty-second parallel, were
granted by the General Assembly to the Iowa Central Air Line on the 14th
of July, 1856, but as this company failed to fulfill the conditions of
its grant, it was, on the 17th of March, 1860, transferred to the Cedar
Rapids and Missouri River Railroad Company. This company completed the
road to Marshalltown in 1862, to Nevada in 1864, to Boone in 1865, and
to Council Bluffs in the fall of 1867.
The Burlington and Missouri River road reached the Missouri River but a
few months later. Ten years after this company had received its grant,
its line had only been completed as far as Albia, in Monroe County. In
1867 the road was built little more than half across the State. But it
managed not to be far behind its two rivals on the north in reaching the
Missouri River.
At first sight it might seem as if these companies had all at once
become awake to their obligations. When it is remembered, however, that
in 1869 the junction of the Union Pacific and Central Pacific railroads
was effected, and thus a continuous line across the continent formed,
the conclusion lies near that the haste with which the three Iowa
land-grant roads were completed was simply the result of a strife for
the large amount of through business which the completion of the Pacific
route promised to bring to them.
No such inducement existed for the Dubuque and Sioux City Company, and
twelve years after receiving its grant it had not yet built half of its
line. In his message to the Twelfth General Assembly, delivered January
14, 1868, Governor Stone said: "Under the provisions of the act adopted
by the General Assembly, at its extra session (in July, 1856), this (the
Dubuque and Sioux City) company became the beneficiary of the grant
designed to secure the construction of a railroad leading from Dubuque
to Sioux City, and this valuable donation was accepted from the State,
with all the terms and conditions imposed. A large portion of this grant
has already been absorbed by the company, in various ways, by pretended
sales and incumbrances. This road has been constructed to Iowa Falls, a
distance of 143 miles from Dubuque, but I am unable to discover any
reliable evidence of earnest intention on the part of this company to
construct the line to its terminal point on the Missouri River."
The Governor further recommended that the General Assembly pass an act
resuming the control over these lands. At about the same time an
agreement was effected between the Iowa Falls and Sioux City Railroad
Company (which was organized in the fall of 1867) and the Dubuque and
Sioux City Railroad Company, by which the latter transferred to the
former its land grant for the unfinished portion of the Dubuque and
Sioux City road. This agreement was confirmed by the General Assembly,
through an act approved April 7, 1868. The road was completed to Fort
Dodge in August, 1869, and to Sioux City a year or two later. The entire
line was then leased to the Illinois Central.
The land grant to this line of road embraced over 1,000,000 acres of the
finest lands of the State. We can appreciate the magnitude of this
donation when we consider that, had these lands been sold at only $8 per
acre, the proceeds would have paid the whole expense of building and
equipping the road from Dubuque to Sioux City. The lands granted to the
C., R. I. & P. R. R. were sold at an average price of over $8 per acre,
and those of the B. & M. at over $12 per acre.
Among the other important land grants is that made to the McGregor
Western Railroad Company. This company was the successor of the
McGregor, St. Peters and Missouri River Railroad Company, which was
organized in 1857 for the purpose of constructing a railroad from
McGregor to the Missouri River. The construction of the road was
commenced in 1857 at McGregor. Large local subscriptions were taken
along the proposed line, the writer being one of the subscribers. Work
was continued the next year until much of the heavy grading had been
done, when the road was allowed to go through the process of
foreclosure, like many other roads built in the West at that time. The
old stock was completely wiped out, and new owners came into possession
of the property, reorganizing under the name of the McGregor Western
Railway Company. Nearly all the early investments of Iowa people were
thus confiscated by the same class of men who now cry out loudly against
confiscatory measures. By an act of Congress approved May 12, 1864, the
State of Iowa was granted, for the use and benefit of the McGregor
Western Railroad Company, every alternate section of land designated by
odd numbers for ten sections in width on each side of the proposed road.
The act contained the condition that in the event of the failure of said
McGregor Western Railroad Company to build twenty miles of said road
during each and every year from the date of its acceptance of the grant
the State might resume the grant and so dispose of it as to secure the
completion of the road in question. The McGregor Western Railroad
Company failing to comply with the conditions of the grant, the General
Assembly on the 27th day of February, 1868, resumed the lands and on the
31st day of March of the same year regranted them to the McGregor and
Sioux City Railway Company. The act specially provided that the company
accepting the grant "shall at all times be subject to such rules,
regulations and rates of tariff for the transportation of freight and
passengers as may from time to time be enacted and provided for by the
General Assembly of the State of Iowa, and further subject to the
conditions, limitations, restrictions and provisions contained in this
act and in the acts of Congress granting said lands to the State of
Iowa." It also contained the condition that at least twenty miles of
road should be built by the company every year and that the whole road
should be completed to the intersection of the then proposed railway
from Sioux City to the Minnesota State line by the first day of
December, 1875.
The McGregor and Sioux City Railway Company also failing to comply with
the terms of the grant, the lands were again resumed by the General
Assembly on March 15th, 1876, and regranted to the McGregor and Missouri
River Railroad Company upon the condition that it complete the road to
the intersection of the Sioux City and St. Paul Railroad on or before
the first day of December, 1877.
But the State found itself again disappointed, and two years later the
General Assembly for the third and last time resumed its grant and then
conferred it upon the Chicago, Milwaukee and St. Paul Railway Company
upon the express conditions that it complete the road to Spencer on or
before the first day of January, 1879, and to Sheldon within a year
thereafter, and that the road should at all times be subject to State
control. The road was completed to Sheldon without delay, and on the
30th of November, 1878, the Governor of the State certified to the
Secretary of the Interior that the Chicago, Milwaukee and St. Paul
Railway Company had completed its road from Algona to Sheldon in
compliance with the conditions of the original grant and the laws of the
State.
It thus took over twenty years to complete this road. Ten years after
its construction had commenced it had only reached Calmar in Winneshiek
County. In 1869 the road was completed to Clear Lake and in 1870 to
Algona. This point remained its terminus until it passed into the hands
of the Chicago, Milwaukee and St. Paul Railway Company.
The State of Iowa has not derived that benefit from the large land
grants made to its railroads which her people had a right to expect. In
spite of these grants roads were built only when there was reason to
believe that they would be immediately profitable to their owners. The
land grants enriched the promoters of these enterprises much more than
they did the State in whose interest the grants were presumed to be
made. As a rule they enabled scheming men to hold the selected territory
until a railroad through it promised to be a safe and profitable
investment, and to avoid the payment of taxes on their millions of acres
of land, which in the meantime became very valuable. Other roads were
built at an early day without Government aid. They were pushed forward
by the current of immigration until the threatened competition of roads
favored by these grants checked their progress. The Chicago, Iowa and
Nebraska road may be cited as a fair illustration. It was projected on
the 26th of January, 1856, in the town of Clinton, to be built from
Clinton to the Missouri River via Cedar Rapids. It was opened to De Witt
in 1858 and completed to Cedar Rapids the following year. The road was
82-1/2 miles long and was built entirely with private means, receiving
neither legislative aid nor local subsidy. It is more than probable
that this road would at an early day have been completed to the Missouri
River, had it not feared the rivalry of the subsidized Cedar Rapids and
Missouri road.
The total number of acres of land granted by Congress to aid the
construction of Iowa roads is 4,069,942. A fair idea of the value of
these lands may be obtained from the fact that the Chicago, Rock Island
and Pacific Railroad Company sold over half a million acres of its lands
at an average of $8.68 per acre, and the Chicago Burlington and Quincy
sold nearly 350,000 acres at an average of $12.17 per acre.
But land grants form only a small part of the public and private
donations which have been made to Iowa roads. Including the railroad
taxes voted by counties, townships and municipalities, the grants of
rights of way and depot sites and public and private gifts in money,
these roads have received subsidies amounting to more than $50,000,000,
or enough to build 40 per cent. of all the roads of the State. There is
no doubt that the contributions of the public toward the construction of
the railroads of Iowa is several times as large as the actual
contributions of their stockholders for that purpose.
The people of Iowa were from the first very favorably disposed towards
railroads. Every inducement was held out to railroad builders to come
here and help to multiply the tracks for the iron horse. They came and
brought with them many abuses which since the first introduction of
railroads had gradually been developed in other States.
The contrast between the old and the new mode of transportation was so
great, and the public appreciated so highly the superior conveniences
afforded by the latter, that for years the abuses practiced by the early
railroads were scarcely noticed, or, if they did attract the attention
of the public, they appeared more like necessary features of the new
system of transportation than like abuses. The evil gradually increased,
but for years no attempt was made to check its growth. The railroad
managers construed this failure of the people to interfere with, or even
protest against, their unjust practices as a quasi-sanction of their
course, and soon claimed to do by right what they had formerly done by
sufferance. The evils increased until the patience of the people finally
became exhausted.
While the State thus for years dealt very leniently with the railroad
companies, the laws of Iowa had from the beginning of railroad building
emphasized the principle of State control. This principle was asserted
in the very first railroad act ever passed in the State. Section 14 of
chapter I. of the acts of the extra session of the Fifth General
Assembly, regranting to the various railroad companies the lands granted
to the State by Congress for railroad purposes, provides that "railroad
companies accepting the provisions of this act shall at all times be
subject to such rules and regulations as may from time to time be
enacted and provided for by the General Assembly of Iowa...." In 1866 an
attempt was made in the General Assembly to regulate rates, but the
Attorney-General, to whom the question of constitutionality was
submitted, held in his opinion that it was not in the power of the
legislature to prescribe rates for railroad companies. This opinion
provoked much indignation among the people of the State, and led to the
expression of a sound public opinion by legislative acts which could not
be misunderstood.
When the Twelfth General Assembly (in 1868) regranted to the Chicago,
Rock Island and Pacific Railroad Company the lands originally granted
to the Mississippi and Missouri Company, it only did so upon the
condition that "said railroad company, accepting the provisions of this
act, shall at all times be subject to such rules, regulations and rates
of tariff for transportation of freight and passengers as may from time
to time be enacted and provided for by the General Assembly of the State
of Iowa...." The same restricting clause, known as the Doud Amendment,
was added to all other land grant acts passed by the Twelfth and
subsequent General Assemblies, and the various companies willingly and
gladly accepted it.
The abuses of which the people of Iowa complained were far from being
confined to their State. They were practiced throughout the Northwest,
and the demand for reform was as loud in Minnesota, Wisconsin and
Illinois as it was in Iowa. In 1871 laws were passed in Illinois and
Minnesota fixing maximum charges for the transportation of freight and
passengers and prohibiting discriminations. The railroads claimed that a
State did not have the right to prescribe rates and refused to be bound
by these laws. Instead of modifying their policy, they became daily more
arrogant. Discriminations which had before been practiced under the veil
of secrecy, or which had been defended by railroad managers as
exceptions to the general rule made necessary by a peculiar combination
of circumstances wholly beyond their control, were now openly and
defiantly practiced by several of the larger roads. The Chicago,
Milwaukee and St. Paul Railroad Company, in its effort to annihilate a
rival, went so far as to openly announce to the public its intention to
entirely disregard distance as a factor in rate-making. It gradually
became the general rule to wage war against rivals at competitive
points and to "recoup" by charging excessive rates at non-competitive
points. Every encouragement was thus given by the railroads to the
Granger movement, which spread in less than two years over the whole
Northwest.
In the fall of 1873 Iowa elected a Granger legislature, like Minnesota,
Wisconsin and Illinois. The wildest predictions were made by railroad
men as to the extremes to which the Granger legislature would go, but it
confined itself to enacting a law establishing an official
classification and fixing maximum rates for all railroad companies. The
law was approved March 23, 1874, and went into effect on the 4th of July
following. This law in no case compelled companies to carry freight at a
lower rate than they had voluntarily carried it in the past. Many of the
rates in force at the time of the passage of the act were considerably
lower than the corresponding maximum rates fixed by the legislature. The
average rates fixed by the law were higher than the rates at which the
railroads had previously carried a large portion of corresponding
freight. The revenues of the road were not even curtailed by this law;
on the contrary, by equalizing rates, _i. e._, by leveling up the rates
given to favored places and favored individuals and leveling down the
exorbitant rates exacted from the public at non-competitive points, the
railroad companies were enabled to effect an increase in their total
revenue.
The Granger law remained in force until 1878. Its constitutionality was
tested by the railroad companies in the Supreme Court of the United
States, but this high tribunal held that rate-making was a legislative
and not a judicial function, that it was within the province of the
State legislature to prescribe rates for the transportation of
passengers and freight wholly within the State, and that for protection
against abuses by legislatures the people must resort to the polls, and
not to the courts.
The Granger laws have been and are still severely criticised by those
opposed to the principle of State control and by the ignorant. It is
nevertheless true that those laws were moderate, just and reasonably
well adapted to remedy the evils of which the public complained. It has
been the policy of most railroad men to attack them as crude, intensely
radical and socialistic. The obloquy heaped upon them was the work of
designing men who desired to continue their impositions upon the people.
Mr. Charles Francis Adams, however, admits that the Granger method was
probably as good a method as could have been devised of approaching men
who had thoroughly got it into their heads that they, as common
carriers, were in no way bound to afford equal facilities to all, and,
indeed, that it was in the last degree absurd and unreasonable to expect
them to do so.
The Iowa law was imperfect in detail, and yet its enactment proved one
of the greatest legislative achievements in the history of the State. It
demonstrated to the people their ability to correct by earnestness and
perseverance the most far-reaching public abuses and led to an emphatic
judicial declaration of the common-law principle that railroads are
highways and as such are subject to any legislative control which may be
deemed necessary for the public welfare.
Defeated in the courts, the railroad managers now endeavored to make
odious the new law which deprived them of the power to manipulate
railroad interests to their personal advantage. By complying with only
part of its letter and none of its spirit, they contrived to create
hardships for certain interests and localities. Instead of charging in
all cases reasonable rates, as the spirit of the law demanded, they
would frequently charge the maximum rates permitted under the law, and
when they by this practice succeeded in damaging certain interests, they
would point to the Granger law as the source of all existing railroad
evils. So, likewise, when they were asked by their patrons to reduce a
high rate, they would plead the legislative schedule in excuse of their
failure to comply with the request. When the legislature of 1878
convened, the railroad managers appeared before it and pleaded
submissively for a repeal of the Granger law and the establishment of a
commissioner system. They claimed that they were ready and willing to
submit to all reasonable regulation, but that a maximum tariff law was
prejudicial both to the best interests of the roads and those of the
public. They further asserted that the people had grown tired of this
manner of regulating railroad charges and earnestly desired a change of
policy; that the interference of the State with the railroad business
had injuriously affected certain industrial interests and had greatly
retarded railroad construction by driving capital and promoters of
railroad enterprises from the State. These statements would indeed have
argued strongly in favor of a repeal of the law if they had been based
on facts. There had been, however, no expression of public
dissatisfaction during the campaign preceding the session of the General
Assembly. There were doubtless individuals and even communities to whom
the law had been made so odious that they felt they had but little to
lose by a change, but the masses of the people believed that the law was
based upon just principles and desired its perfection rather than its
repeal. As to the claim that railroad construction had been checked by
hostile legislation, statistics prove that during the five years
following the great panic of 1873 Iowa fared no worse in this respect
than her sister States east, west or south.
The arguments produced by the railroad managers no doubt influenced some
members of the General Assembly; by far the greater number of them,
however, realised that the failure of the law to bring the expected
relief was not due so much to its own imperfections as to the absence of
a power to enforce it. The writer, with others, was convinced that a
strong and conscientious commission would be a much more potent agency
to secure reasonable rates for the shipper than a maximum tariff law
without proper provisions for its efficient enforcement; they, in short,
preferred a commission without a tariff law to a tariff law without a
commission. The question became the subject of many animated debates in
both houses of the General Assembly, but the commissioner system at last
prevailed. The act establishing a Board of Railroad Commissioners, and
defining their duties, was approved on the 23rd of March, 1878, and went
into force a few days later. The act empowered the commission to
exercise a general supervision over all railroads operated in the State,
to inquire into any neglect or violation of the laws of the State by any
railroad corporation or its officers or employes, to examine the books
and documents of any corporation, to investigate complaints of shippers
that unreasonable charges had been made by railroad companies, and to
modify any charge which they might deem unreasonable. It was also made
the commissioners' duty to make an annual report to the Governor
disclosing the working of the railroad system in the State, the officers
of each company being required to make annual returns to the board for
this purpose.
Though the enactment of this law was a surprise to the people, they
accepted it in good cheer, and determined to give it an honest trial.
The law was extensive in its scope and stringent for that time, and, if
strictly enforced in letter and in spirit, promised to be, and would
have been, entirely sufficient for the thorough control of railroad
corporations.
Nevertheless, in the course of time it became apparent that either the
law had not lodged sufficient authority in the commission or the
commission did not make use of the authority which the law had given
them. In spite of the commission, the railroad companies maintained
pools and charged extortionate and discriminating rates, in direct
violation of the law. It is true the commissioners righted many a wrong.
In investigating the complaints of shippers against railroad companies
they often rendered valuable services to those who had neither the means
nor the inclination to prosecute their rights in the courts of law; but
as they held that they could only pass upon individual charges, and did
not have the power to revise the companies' tariffs, the companies were
virtually in a position to become guilty of more extortions in one day
than the commission could investigate in a year. Moreover, the railroad
company might be ordered by the commission to return an overcharge to a
certain shipper, but this did not prevent it from continuing the
excessive charge. If the overcharged shipper again wanted relief it was
his privilege to again apply to the commission, and to continue this
tedious process until either his or the commissioners' patience became
exhausted. The people soon found that the new system of control was
almost as inadequate as that which it had displaced. Some attributed the
weakness of the commission to its personnel, others to the law. There
is no doubt that the commission might have accomplished more than it
did.
It was hoped by some that as the commission gained in experience it
would gain in influence, and that railroad evils would gradually
diminish. But they were disappointed in their expectations. Every year
seemed to add to the grievances of the public. Success greatly
emboldened the railway companies. Discriminations seemed to increase in
number and gravity. At many points in the western part of the State
freight rates to Chicago were from 50 to 75 per cent. higher than from
points in Kansas and Nebraska. A car of wheat hauled only across the
State paid twice as much freight as another hauled twice the distance
from its point of origin to Chicago. Minnesota flour was hauled a
distance of 300 miles for a less rate than Iowa flour was carried 100
miles. Certain merchants received from the railroad companies a discount
of 50 per cent. on all their freights and were thus enabled to undersell
all their competitors. The rate on coal in carload lots from Cleveland,
Lucas County, to Glenwood was $1.80 per ton, and from the same point to
Council Bluffs only $1.25, although the latter was about thirty miles
longer haul. Innumerable cases of this kind could be cited. There was
not a town or interest in the State that did not feel the influence of
these unjust practices. Many of the rates complained against, it is
true, were beyond the direct control of the State commission, but there
was an impression among well-informed shippers that if the commission
had the power to fix local rates and exercised it judiciously, the
railroad companies would soon find it to their interest to be as
reasonable in making through rates for Iowans as they expected the
commission, to be in prescribing local tariffs.
The demand of the people for more equitable rates and a more thorough
control of the railroad business increased from year to year. Repeated
attempts were made in the General Assembly to secure the passage of an
act looking to that end, but, owing to shrewd manipulations on the part
of the railroad lobby, every attempt was defeated. There always was, of
course, a large number of members who represented districts not well
supplied with railroad facilities. These, as a rule, honestly opposed
restrictive legislation, believing that such legislation would check
building, and that, on the other hand, competition could be relied upon
to correct abuses. Of those members who had less positive convictions
many were retained as railroad attorneys and were thus made serviceable
to the companies. Other members with political ambition were nattered or
intimidated into subjection, and bribes in disguise, such as passes and
special rates, were not unfrequently resorted to to strengthen the
railroad following in both houses of the General Assembly.
Railroad corruption did not pause here. It is a notorious fact that
large sums of money were paid to venal papers of both parties in
consideration of an agreement on their part to defend transportation
abuses and exert their influence against progressive railroad
legislation. The vilest means were often resorted to by these sheets to
obtain their end. Public men who had the courage to avow their
opposition to existing railroad abuses or to favor a more perfect system
of State control of railways were misrepresented, ridiculed, traduced
and denounced as demagogues and socialists by hypocritical editors, who
prostituted their political influence as long as they enjoyed railroad
stipends, and who at intervals became converts to the cause of the
people for the purpose of extorting from the railroad companies a new
and increased subsidy. But truth can not long be suppressed. The masses
of the people may be imposed upon for a time, but even the shrewdest
rogue will eventually be compelled to surrender. In time even rather
unsophisticated voters learned to place a true estimate upon the motives
of the editors, whose policy, as one of them expressed it in the
author's presence, was "controlled by the counting-room."
Railroad politicians gradually lost their influence, and the symptoms of
public discontent greatly increased. In the political campaign of 1887
State control of railroads became one of the main issues. Both of the
great political parties in their platforms had declared themselves very
emphatically in favor of such legislation as would bring railroad
corporations under complete State control, and with very few exceptions
the various legislative districts had nominated only such men as
candidates for legislative offices as were known to be in thorough
accord with the masses of the people upon the railroad question.
The election resulted in an even more complete defeat of the railroad
forces than had been generally anticipated. Yet no hasty step was taken
when the General Assembly convened. A large number of bills
contemplating railroad reforms in various ways were introduced, but the
material presented was carefully sifted by the railroad committees and a
committee bill was framed which incorporated the best features of them
all. The committees listened patiently for weeks to the arguments of the
representatives of both the railroads and the shippers.
Never before had so formidable a railroad lobby assembled at the State
Capitol. The danger signal had been raised, and not only were the great
political manipulators of the State called into requisition, but experts
from adjoining States joined them in besieging the legislature. The
dogs of war were let loose from all quarters. A legion of hirelings were
zealous to show their servility and loyalty to their lords. The daily
and weekly papers of the State in the service of railroad companies
teemed with arguments from the pens of railroad attorneys, and their
columns were profusely supplemented with editorials copied from
prominent corporation papers like the New York _Tribune_, New York
_Times_, New York _World_, Albany _Evening Argus_, Boston _Advertiser_,
and others from various parts of the country.
These papers, attempting to disguise the motives that prompted them to
come to the defense of the Wall Street interest, affected the position
of disinterested and impartial observers. They condemned the proposed
measures as wild and socialistic, and they painted in dark colors the
disasters to railroad property, the injustice to its owners, and
misfortunes to the people of Iowa, that would follow their adoption.
Especially did they bewail the losses that would fall upon the widows
and orphans who had confidingly invested all of their hard earnings in
this property.
They never uttered a word of condemnation, but entirely ignored or
defended the abuses by which the stockholders were robbed at one end of
the line and the patrons were imposed on at the other.
Many of these papers were notified that their statements were altogether
erroneous, but they would not admit a line to their columns in relation
to the matter that indicated any other disposition than complete
subserviency to the interests of Wall Street.
There were, however, an unusual number of strong men in this General
Assembly, and this extraordinary display of railroad forces only tended
to impress more strongly upon them the necessity of curbing the railroad
power, and their best energies were concentrated upon the subject, with
a firm determination to deal with it in a manner dictated by reason and
experience.
So well did the bill which was finally adopted by the committee reflect
the general sentiment of the members of the General Assembly that not a
single vote was cast against it in either house upon its final passage.
Since the adjustment of business under this law, there has been less
friction between the people and the railroads than before for thirty
years, and so satisfactory has it proved to all that no one, not even a
railroad man, has to this day asked the legislature to repeal the law or
any part of it. The act contains no new principle of railroad control.
By far the greater part of its provisions were taken from the old law.
Nearly every one of its features may be found either in the Interstate
Commerce Act or upon the statute books of other States. It provides that
charges must be reasonable and just, that no undue preference or
advantage shall be given to any railroad patron, and that equal
facilities for interchange of traffic shall be given to all roads; it
prohibits pooling, a greater charge for a shorter than longer haul, the
shorter or any portion of it being included in the longer, and
discrimination against any shipping point. It requires that schedules of
rates and fares shall be printed and kept for public inspection, and
that no advance shall be made in rates or fares once established except
after ten days' public notice; and it empowers the Board of Railroad
Commissioners to make and revise schedules for railroads, the rates
contained in such schedules to be received and held in all suits as
_prima facie_ reasonable maximum rates. The act further provides
penalties and means of enforcement.
It must not be supposed that by the passage of this act the legislature
disclaimed the right to fix absolute rates; it simply chose this
expedient because in the present tentative stage of rate regulation it
seemed most efficient.
There has been much misunderstanding concerning the Iowa law. Many
suppose that the Iowa commissioners have power to make confiscatory
rates for the railroads, while in fact they can only name maximum rates
which shall be deemed and taken in all courts of the State as _prima
facie_ evidence that they are reasonable and just maximum rates until
the railroads show that they are not. They are at liberty to go into
court any day and show this, if they are able. They are, however,
careful not to undertake it, for no one knows better than they do that
the rates fixed by the commissioners are liberal for the railroads.
There are nine States, besides Iowa, in which the power to fix rates has
been conferred upon railroad commissioners. This feature of the law was
therefore far from being a novel one, yet no provision of the act was,
previous to its passage, so furiously opposed, or subsequent to it so
stubbornly resisted as this. Railroad managers realized that a surrender
of the right to make their own rates was virtually a surrender of the
power to practice abuses.
Soon after the passage of the law the commissioners commenced the work
of preparing schedules of the rates for the roads. They endeavored to do
justice to both the railroad companies and their patrons by affording a
fair compensation to the former and at the same time giving relief to
the depressed interests represented by the latter. Their rates were not
as low as the special rates that had at various times been granted to
favorite shippers, but were a fair average of the various rates in vogue
at the time. While the schedule was under consideration, the railroad
managers were given frequent hearings, in which they endeavored to
impress their views upon the commissioners and to obtain many important
concessions, which they urged as essential to the welfare of the
railroad interests. Their views guided the commission to such an extent
that it was generally supposed that the schedule as finally adopted
would be accepted by the railroad companies without protest.
The schedule of the Iowa commission has been sharply criticised by Mr.
Stickney in his "Railway Problem." He finds in it inconsistencies and
confusion, due, as he charges, to faulty mathematics. But it is claimed
by the commission, and Mr. Stickney should know, that whenever
mathematics were ignored in the construction of the schedule it was done
at the earnest and persistent solicitation of the railroad managers,
who, it seems, were more interested in maintaining their interstate
rates than in the consistency of the Iowa schedule.
The rates were published, as required by law, and June 28, 1888, was
fixed as the day on which they were to take effect. A few days previous
to this date the companies asked that the taking effect of the new
tariff be postponed a week. When this request was granted by the
chairman of the commission, the railroad managers took advantage of the
courtesy by enjoining the commissioners in the Federal court from
enforcing it.
Several months later the commissioners modified their schedule by the
adoption of the Western Classification. Again the railroad managers
asked the court for an injunction, but this time met with a refusal.
After many suits for penalties had been instituted against them, and
many more threatened, they adopted the new schedule, but endeavored to
inaugurate a policy of retaliation by reducing their train service and
discharging a large number of employes, and in many ingenious ways
continued their seditious course with a determination characteristic of
a band of insurrectionists. But the impetus which railroad traffic
received under the operation of the commissioners' schedule was such
that they soon found it necessary to restore to the service its former
efficiency.
The Railroad Commissioners' report shows that while the number of
employes was 24,642, and their yearly compensation was $14,212,500 in
1889, in 1892 there were 30,492 employes, and their yearly compensation
$18,070,915.
The increase in both the gross and net earnings of Iowa lines has been
remarkable, as shown in the following table gathered from the
commissioners' reports:
Gross Earnings, Net Earnings,
Year. Total. Total. Per Mile.
1888-89 $37,369,276 $11,861,310 $1,421
1889-90 41,318,133 12,798,430 1,522
1890-91 43,102,399 14,463,106 1,720
1891-92 44,540,000 14,945,000 1,777
It was claimed by railroad men that the effect of Iowa legislation would
be particularly disastrous to her local roads, which had no opportunity
to make up on through business the losses incurred in the local traffic.
The Burlington, Cedar Rapids and Northern was particularly cited as a
line which would have to go into bankruptcy under the new law. Its
earnings commenced to increase, however, immediately after the adoption
of the commissioners' schedule, and at the end of the first year they
were large enough to change this line from a Class "C" to a Class "B"
road. They continued to increase, and in 1891 its gross earnings on
substantially the same mileage were 36 per cent, and its net earnings 64
per cent. larger than they had been in 1888. The increase continued and
enabled the company to make a dividend to its stockholders February 1,
1893, it being the first dividend ever made by the company. It is a good
illustration of what the Iowa law has done for weak railroads. It has
again changed class and is now a Class "A" road.
It is seen that the fears, or rather the pretended fears of the railroad
managers, that the legislature of Iowa would bankrupt her railroads,
were entirely groundless. As a result of the law railroads have been
able to increase their gross earnings as well as their profits. They
have been enabled to give employment to a larger number of men, and
there has been no occasion for them to carry out the dishonest threat to
decrease the wages of their employes. Had it not been for their
increased earnings in Iowa, the losses recently sustained in other
States by several of the through lines would have made it impossible for
them to declare the dividends which they did.
Under her beneficial railroad policy Iowa has prospered wonderfully, and
her railroads have been more prosperous than when they were allowed to
have their own way. The commissioners' tariff has made jobbing and
manufacturing profitable where it was unprofitable before. It has added
to our industries and our commerce, and has made new business for the
people as well as the railroads. It has contributed to the increase in
the value of our farms and factories and their products, and the time
will come when wise railroad managers, like the majority of former
slaveholders of the South, would not resurrect the past if they could.
In fact, honorable managers now acknowledge that they would not if they
could.
The railroad companies are at present making a systematic effort to
weaken the Iowa commission, but if they should succeed in doing so, the
people, under our system of electing the commissioners, can readily
correct the evil.
Other States have much experience similar to that of Iowa. Nebraska has
just adopted a maximum tariff law for the control of her roads. It will,
of course, be resisted by the railroad managers of that State.
The State of Texas is not so productive in proportion, but is much
greater in extent than Iowa, and upon the whole resembles it much in its
prominent characteristics. Both are thrifty, progressive States, with no
large commercial or manufacturing centers where their people can easily
organize to protect their financial interests.
The people of Texas endured patiently the abuses so prevalent in
railroad management until a few years since they enacted a railroad law
similar to that of Iowa. The Wall Street managers of the Texas railroads
are at the present time using all of their familiar methods to influence
the people of that State to repeal their law. The following letter
serves to show the spirit with which they are approached:
"23 BROAD STREET,
NEW YORK, November 30, 1891.
James B. Simpson, Esq., Dallas, Tex.
"DEAR SIR: Yours of the 26th is received and contents
carefully noted. Very likely you have valuable franchises,
or what would be valuable in almost any other state than
Texas; but while there are many places in Texas where we
would like to build some railroads--mostly short ones--we
cannot do anything so long as the disposition exists that
now seems to in Texas; that is, to do all the harm they
can do this kind of property, and I think my views are
shared by all people who have money to invest. No one is
disposed to create property which, after being created, is
not to be controlled by its ownership. Of course, we all
expect to be subject to the police regulations and to pay
the taxes of any State even as other property, but whenever
anything is done beyond that it checks this kind of
improvement, and where it approaches so near confiscation as
the sentiment of Texas tends it entirely prevents capital
from being invested.
"I think there is no road in Texas that is to-day earning
its operating and fixed charges. Every road, I think, has
been or is in the hands of a receiver, excepting our great
east and west line, which is supported by business going
entirely through the State, which business could also be
sent another way, and would be so sent, excepting that we
believe the people of Texas will some time take a sober
second thought and treat the railroads as they do other
kinds of property. When that time comes I shall be ready to
talk to you about your franchises, if it comes in my day,
and I believe it will, as I think no other people are
suffering from an unwise policy persistently pursued as are
the people of your State.
"Yours truly,
C. P. HUNTINGTON."
"Now, in the name of all the gods at once,
Upon what meat doth this our Caesar feed,
That he hath grown so great?"
It was but a few years ago when this Mr. Huntington was keeping a small
retail store in the city of Sacramento, and he exhibited then no greater
ability, except perhaps that he was a little more venturesome, than
thousands of others engaged in the same occupation; subsequently he
engaged, with several others, in the Central Pacific Railroad scheme,
and received from the bounties of our generous Government as his share
of the profits in that enterprise several million dollars, which sum has
ever since been continually swelled by the exercise of a power scarcely
inferior to the power of taxing the property of the Pacific Coast. He
has been so successful for years in manipulating Congressmen and State
legislatures and shaping the policies of States that he now considers it
impertinent and short-sighted for a people to take steps to limit his
levies upon them. It is to be hoped that the boycotting and intimidating
methods resorted to will have no more effect upon the people of that
State than they had on the people of Iowa.
Iowa is the queen among the States of the Union. No other State has so
little waste land or is so productive. Her annual output of staple
products amounts to hundreds of millions of dollars in value. Her people
are intelligent, progressive and just. None are governed more by the
precepts of the golden rule, or are more disposed to render unto Caesar
the things that are Caesar's. She can well be proud of the progress she
has made in State control of railroads. Let no backward step be taken.
CHAPTER XII.
THE INTERSTATE COMMERCE ACT.
The Constitution of the United States was adopted nearly fifty years
before the locomotive made its appearance. Had the steam railroad been
in existence in 1787 and been as important an agency of commerce as it
is to-day, there is every reason to believe that the railroad question
would have received the special attention of the framers of that
instrument. It is a well-known fact that the "new and more perfect
government" had its origin in the necessities of commerce, and while the
future exigencies of trade were beyond the reach of the most speculative
mind, the provisions of the Constitution relating to the subject of
interstate commerce were made broad and far-reaching. Section 8 of
Article I. of the Constitution provides that "the Congress shall have
power ... to regulate commerce with foreign nations, and among the
several States, and with the Indian tribes ... and to make all laws
which shall be necessary and proper for carrying into execution the
foregoing powers and all other powers vested by this Constitution in the
Government of the United States, or in any department or officer
thereof."
If any doubt ever existed as to the import of the phrase "to regulate
commerce," it has been entirely removed by the decisions of the Supreme
Court. In the Passenger cases, 7 Howard, 416, the court said:
"Commerce consists in selling the superfluity; in purchasing
articles of necessity, as well productions as manufactures;
in buying from one nation and selling to another, or _in
transporting the merchandise_ from the seller to the buyer
to gain the freight."
And again, in the Philadelphia and Reading Railroad vs. Pennsylvania,
the Supreme Court said:
"Beyond all question the transportation of freights or of
the subjects of commerce for the purpose of exchange or sale
is a constituent of commerce itself. This has never been
doubted, and probably the transportation of articles of
trade from one State to another was the prominent idea in
the minds of the framers of the Constitution when to
Congress was committed the power to regulate commerce among
the several States.... It would be absurd to suppose that
the transmission of the subjects of trade from the seller to
the buyer, or from the place of production to market, was
not contemplated, for without that there could be no
consummated trade with foreign nations or among the States."
Chief Justice Marshall, in Gibbons vs. Ogden, 9 Wheaten, 196, construed
the words "power to regulate" as follows:
"This power, like all others vested in Congress, is complete
in itself, may be exercised to its utmost extent, and
acknowledges no limitations other than are prescribed in the
Constitution."
It is a strange fact that during the first eighty years of the
Government's existence Congress did not exert its power to regulate the
conduct of common carriers engaged in interstate transportation. The
first act regulating such carriers was passed in July, 1866. It
authorized railroad companies chartered by the States to carry
passengers, freights, etc., "on their way from any State to another
State, and to receive compensation therefor, and to connect with roads
of other States so as to form continuous lines for transportation of the
same to the place of destination." The passage of this act, it should be
remembered, was urged by the railroad companies themselves. Seven years
later an act was passed providing that "no railway within the United
States, whose road forms any part of a line or road over which cattle,
sheep, swine or other animals shall be conveyed from one State to
another, or the owners or masters of steam, sailing or other vessels
carrying or transporting cattle, sheep or swine or other animals from
one State to another, shall confine the same in cars, boats or vessels
of any description for a longer period than twenty-eight consecutive
hours, without unloading the same for water, rest and feeding, for a
period of at least five consecutive hours, unless prevented from so
unloading by storm or accidental causes."
Every violation of this act was made punishable by a penalty of from
$100 to $500.
Though Congress had asserted the right to regulate commerce among the
States, it had made previous to 1873 very limited use of that power. In
the midst of the Granger movement the Senate of the United States passed
on the 26th day of March, 1873, the following resolution:
"_Resolved_, That the Select Committee on Transportation
Routes to the Seaboard be authorized to sit at such places
as they may designate during the recess, and to investigate
and report upon the subject of transportation between the
interior and the seaboard; that they have power to employ a
clerk and stenographer, and to send for persons and
papers...."
The committee, under the chairmanship of Mr. Windom, discharged their
duty with great fidelity, and submitted their report to the Senate
during its next regular session. They declared that the defects and
abuses of the then existing systems of transportation were insufficient
facilities, unfair discrimination and extortionate charges. As the
principal causes of such excessive rates they assigned stock watering,
capitalization of surplus earnings, construction rings, general
extravagance and corruption in railway management, and combinations and
consolidations of railway companies. The committee were of the opinion
that the promotion of competition would not permanently remedy the
existing evils, and laid it down as a general rule that competition
among railways ends in combination and in enhanced rates. As expedient
and practical remedies for the existing evils they recommended the
following measures: