1. Direct Congressional regulation of railway transportation, under the

power to regulate commerce among the several States.

2. Indirect regulation and promotion of competition, through the agency

of one or more lines of railway, to be owned and controlled by the

Government.

3. The improvement of natural water-ways and the construction of

artificial channels of water communication.

The report was accepted and considered, but there the matter rested, so

far as the practical results were concerned.

In 1878 Mr. John H. Reagan, of Texas, introduced in the House of

Representatives a bill for an act to regulate railroad companies engaged

in interstate commerce. This may be said to have been the first real

interstate commerce bill before Congress. It was a progressive, thorough

and well-planned measure, but failed to receive the approval of Congress

because a majority of its members considered it too radical a measure.

The bill contained many of the provisions of the present Interstate

Commerce Act, including the anti-pooling and the long and short haul

clauses; but instead of creating a commission it lodged in the courts,

both State and Federal, the power to enforce the law.

Other bills were introduced from year to year, but during a period of

nine years none of them drew sufficient votes to make it a law. Congress

may be said to have been divided into three camps upon the railroad

question, viz.: those who favored the system of regulation proposed by

Mr. Reagan, those who favored the commissioner system and those who were

opposed to every mode of Federal regulation of interstate commerce. In

the meantime, the inactivity of Congress caused considerable

restlessness among the people, and the demand for action became louder

every year. The issue entered into politics, and a number of Western

Congressmen owed their failure to be re-elected to their indifference or

enmity to Federal railroad legislation.

On March 21st, 1885, under authority of a resolution adopted by the

Senate of the United States, the President of the Senate appointed a

select committee to investigate and report upon the subject of the

regulation of the transportation of freight and passengers between the

several States by railroad and water routes. Senator Cullom, of

Illinois, became its chairman. The committee examined a large number of

witnesses, including railroad managers and shippers, addressed letters

to the railroad commissioners of the several States, to boards of trade,

chambers of commerce, State boards of agriculture, Patrons of Husbandry,

Farmers' Alliances, etc., and made every effort to obtain the opinions

of those who had given special attention to the transportation problem.

The report of the committee was submitted to the Senate on January 18,

1886. Concerning the abuses of railroad transportation it differed but

little from that of the Windom committee. The report declared publicity

to be the best remedy for unjust discrimination and recommended that

the posting of rates and public notice of all changes in tariffs be

required. It also recommended that a greater charge for a shorter than a

longer haul be made presumptive evidence of an unjust discrimination,

and that a national commission be established for the enforcement of any

laws that might be passed for the regulation of interstate commerce.

Upon the question of pooling the report stated:

"The committee does not deem it prudent to recommend the

prohibition of pooling, which has been urged by many

shippers, or the legalization of pooling compacts, as has

been suggested by many railroad officials and by others who

have studied the question.... The majority of the committee

are not disposed to endanger the success of the methods of

regulation proposed for the prevention of unjust

discrimination by recommending the prohibition of pooling,

but prefer to leave that subject for investigation by a

commission when the effects of the legislation herein

suggested shall have been developed and made apparent."

The report was accompanied by a bill representing "the substantially

unanimous judgment of the committee as to the regulations which are

believed to be expedient and necessary for the government and control of

the carriers engaged in interstate traffic."

The bill was before Congress for more than a year, receiving several

important amendments before its final passage in both houses. It was

approved by the President on the 4th day of February, 1887, and took

effect sixty days after its passage, except as to the provisions

relating to the appointment and organization of an Interstate Commerce

Commission, which took effect at once.

The act contains twenty-four sections, but is by no means cumbersome. It

is, in many respects, the most important piece of legislation that has

been had in Congress for the past twenty years. It applies to common

carriers engaged in the transportation of passengers or property wholly

by railroad, or partly by railroad and partly by water, when both are

used, under a common control, management or arrangement, for a

continuous carriage or shipment from one State or Territory of the

United States, or the District of Columbia, to any other State or

Territory in the United States or the District of Columbia, or from any

place in the United States to an adjacent foreign country, or from any

place in the United States through a foreign country to any other place

in the United States. It prohibits unjust and unreasonable charges,

special rates, rebates, drawbacks, undue or unreasonable preferences,

advantages, prejudices and disadvantages, as well as all discriminations

between connecting lines. It makes unlawful a less charge for a longer

than for a shorter haul over the same line, in the same direction, the

shorter being included within the longer distance, except when specially

authorized by the Interstate Commerce Commission. It prohibits pools,

requires schedules of freight rates and passenger fares to be kept in

all depots and stations, permits no advance in the rates, fares and

charges once established, except after ten days' public notice, and

makes it unlawful for common carriers to charge either more or less than

schedule rates.

It also requires them to file copies of all schedules, traffic contracts

and joint schedules with the Interstate Commerce Commission, as well as

to make them public when directed by the commission, and prohibits

combinations to prevent the carriage of freight from being continuous

from the place of shipment to the place of destination. It makes common

carriers liable for all damages to persons injured by violations of the

act, and specially provides that any court before which such a damage

suit may be pending may compel any director, officer, receiver, trustee

or agent of the defendant company to appear and testify in the case, and

that the claim that any such testimony or evidence may tend to criminate

the person giving such evidence shall not excuse such witness from

testifying, but that such evidence or testimony shall not be used

against such person on the trial of any criminal proceeding. It likewise

subjects such officers and employes of a railroad company as may be

guilty of aiding or abetting in violations of the act to fines not

exceeding $5,000 for each offense.

These provisions are covered by the first ten sections of the act.

Section 11 establishes the Interstate Commerce Commission, to be

composed of five commissioners appointed by the President by and with

the advice and consent of the Senate. It provides that the commissioners

first appointed shall continue in office for the term of two, three,

four, five and six years, respectively, from the first of January, 1887,

the term of each to be designated by the President, and that their

successors shall be appointed for terms of six years, except that any

person chosen to fill a vacancy shall be appointed only for the

unexpired term of the commissioner whom he shall succeed. No more than

three commissioners may be appointed from the same political party, and

the President has the power to remove any commissioner for inefficiency,

neglect of duty or malfeasance in office. Authority is given to the

commission to inquire into the management of the business of all common

carriers subject to the provisions of the act and to require the

attendance of witnesses and to invoke the aid of any court of the United

States for that purpose.

Section 13 authorizes any person, firm, corporation or association, any

mercantile, agricultural or manufacturing society, any body politic or

municipal organization to file complaints against any common carrier

subject to the provisions of the act, with the commission, whose duty it

is made to forward a statement of the charges to such common carrier and

call upon him to satisfy the complaint or answer the same in writing,

and to investigate the matters complained of, if the complaint is not

satisfied. The commission is also charged with the duty of making such

investigations at the request of State or territorial railroad

commissions and may even institute them at its own motion. Section 14

requires the commission to make a report in writing of any investigation

it may make and to enter it of record and furnish copies of it to the

complainant and the common carrier complained of. Section 15 makes it

the commissioners' duty, when it is found that any law cognizable by it

has been violated by a common carrier, to serve notice on such carrier

to desist from such violation and to make reparation for an injury found

to have been done. If any lawful order or requirement of the commission

is disobeyed by a common carrier, it becomes their duty and is lawful

for any company or person interested in such order to apply by petition

to the Circuit Court of the United States sitting in equity in the

judicial district in which the common carrier complained of has its

principal office, and the court has power to hear and determine the

matter speedily and without the formal pleadings and proceedings

applicable to ordinary suits, and to restrain the common carrier from

continuing such violation or disobedience. It is further provided by

this section that on such hearings the report of the commission shall be

accepted as _prima facie_ evidence.

Section 17 regulates the proceedings of the commission. A majority

constitute a quorum for the transaction of business. The commission may

from time to time make or amend rules for the regulation of proceedings

before it. Any party may appear before it and be heard in person or by

attorney, and every vote or official act of the commission must be

entered of record and its proceedings made public upon the request of

either party interested.

Section 19 provides that the principal office of the commission shall be

in Washington, but that for the convenience of the public it may hold

special sessions in any part of the United States.

Section 20 authorizes the commission to require annual reports from all

common carriers subject to the provisions of the act, to fix the time

and prescribe the manner in which such reports shall be made, and to

require from such carriers specific answers to all questions upon which

the commission may need information.

Section 21 excepts from the operation of the act the carriage of

property for the United States, State or municipal governments, or for

charitable purposes, or for fairs and expositions; also the issuance of

mileage, excursion and commutation tickets, the giving of reduced rates

to ministers of religion, the free carriage by a railroad company of its

own officers and employes, and the exchanging of passes or tickets among

the principal officers of railroad companies.

The sections not noticed are of minor importance, relating to annual

reports, salaries, appropriations of funds, etc.

The act was amended on March 2, 1889, but the amendments made did not

materially affect its principal provisions.

When the law was passed its friends well realized that its success would

greatly depend on the character of the commissioners whom it was

incumbent upon the President to appoint. It was feared that if the

railroad influence should control these appointments, the power to

suspend the long and short haul clause would be the chief and perhaps

the only power exercised by the commission. There was great danger that

the office of Interstate Commerce Commissioner might become a sinecure

for servile railroad lawyers, as similar State officers had been before,

and that a public trust might be turned into an additional corporation

agency for evil. The selection of the commissioners, and especially that

of Judge T. M. Cooley, of Michigan, was greatly to the credit of

President Cleveland. A man of unquestionable integrity, an eminent

jurist and close student of railroad affairs, Judge Cooley was

particularly well qualified for the office of chairman of the Interstate

Commerce Commission, which he occupied for nearly five years with signal

fitness, and from which he only retired to the sincere regret of the

American people. Under Judge Cooley's leadership the commission has been

more than a purely executive board. It was under the Constitution not in

the power of Congress to clothe the Interstate Commerce Commission with

full judicial authority without giving its members, like other Federal

judges, tenure for life, instead of a term of years. The inherent force

of the commission's decisions in its interpretation of the law made them

in many cases virtually the equivalent of judicial rulings.

A few of the most important decisions of the commission may be mentioned

here. Construing the long and short haul clause, they held that, in case

of complaint for violating this section of the act, "the burden of proof

is on the carrier to justify any departure from the general rule

described by the statute, by showing that the circumstances and

conditions are substantially dissimilar." They also decided that "when a

greater charge in the aggregate is made for the transportation of

passengers or the like kind of property for a shorter than a longer

distance over the same line in the same direction, the shorter being

included in the longer distance, it is not sufficient justification

therefor that the traffic which is subjected to such greater charge is

way or local traffic and that which is given the more favorable rates is

not; and that it is not "sufficient justification for such greater

charge that the short-haul traffic is more expensive to the carrier,

unless when the circumstances are such as to make it exceptionally

excessive, or the long-haul traffic exceptionally inexpensive, the

difference being extraordinary and susceptible of definite proof; nor

that the lesser charge on the longer haul has for its motive the

encouragement of manufactures or some other branch of industry, nor that

it is designed to build up business or trade centers."

Upon the question of publicity of the railroad business the commission

held that, as the books of the defendant carriers, as to rates charged,

facilities furnished and general movements of freight, are in the nature

of semi-public records, the officers and agents of defendant carriers

ought to give promptly to a complainant any statement of facts called

for, if such statement may probably have importance on the hearing.

Judge Brewer's opinion as to what constitutes a reasonable rate was

evidently not shared by Judge Cooley and his colleagues, for in the case

of the New Orleans Cotton Exchange vs. the Cincinnati, New Orleans and

Pacific Railway Company the commission decided that the fact that a

road earns but little more than operating expenses cannot be made to

justify grossly excessive rates, and that "wherever there are more roads

than the business at fair rates will remunerate, they must rely upon

future earnings for the return of investments and profits." In another

case the commission hold that "in fixing reasonable rates the

requirements of operating expenses, bonded debt, fixed charges and

dividend on capital stock from the total traffic are all to be

considered, but the claim that any particular rate is to be measured by

these as a fixed standard, below which the rate may not lawfully be

reduced, is one rightly subject to some qualifications, one of which is

that the obligations must be actual and in good faith."

The rules governing the proper construction of classification sheets

which the commission has laid down are founded upon common sense and

justice. They say:

"A classification sheet is put before the public for general

information; it is supposed to be expressed in plain terms

so that the ordinary business man can understand it and, in

connection with the rate sheets, determine for himself what

he can be lawfully charged for transportation. The persons

who prepare the classification have no more authority to

construe it than anybody else, and they must leave it to

speak for itself."

In defining what is legitimate traffic the commission made the following

decision:

"The transportation of traffic under circumstances and

conditions that force a low rate for its carriage or an

abandonment of the business, but which affords some revenue

above the cost of its movement, and works no material

injustice to other patrons of a carrier, is to be deemed

legitimate competition. When, however, its carriage is at a

loss and imposes a burden on like traffic at other points

and on other traffic, it is to be deemed destructive and

illegitimate competition."

It has been shown in a former chapter that the weaker oil refiners have

been discriminated against by the railroads, which permitted the

Standard Oil Company to use their own tank cars in the shipment of oil

and charge its competitors excessive rates for like shipments in

barrels. Complaint being made of this discrimination, the commission

held that it is properly the business of a carrier by railroad to supply

rolling stock for the freight he offers or proposes to carry, and that

"if the diversities and peculiarities of traffic are such that this is

not always practical, and the consignor is allowed to supply it for

himself, the carrier must not allow its own deficiencies in this

particular to be made the means of putting at unreasonable disadvantage

those who may use in the same traffic all the facilities which it

supplies."

A most important ruling of the commission is that relating to the pass

abuse. Complaint was made that the Boston and Maine Railroad Company

issued in the States of Maine, New Hampshire, Vermont and Massachusetts

free passes to certain classes of persons, among them "gentlemen long

eminent in the public service, higher officials of the States, prominent

officials of the United States, members of the legislative railroad

committees of the above named States, and persons whose good will was

claimed to be important to the defendant." The commission decided that

such a discrimination is unwarranted, that a carrier is bound to charge

equally to all persons, regardless of their relative individual standing

in the community, and that the words "under substantially similar

circumstances and conditions" relate to the nature and character of the

service rendered by the carrier, and not to the official, social or

business position of the passenger.

It is a notorious fact that the practice of issuing free passes to

public officials and other influential persons has been more or less

indulged in by nearly every railroad in the country up to the present

time. It is to be hoped that this ruling of the commission will be

enforced in such a manner as to put an end to this intolerable abuse.

The Interstate Commerce Commission has been equally efficient in its

administrative capacity. From the very first it called attention to the

great advantage of having one classification of freight throughout the

country, and it has since labored diligently to unify the various

classifications in use. As the commission in this undertaking is only

armed with the armor of moral suasion, it is a difficult task; but there

is little doubt that the accomplishment of this great reform is only a

question of a few years. Iniquities in classifications and rates are

constantly pointed out by the commission and corrected by the companies.

Moreover, the annual reports of the commission, not to mention its very

excellent statistical data, diffuse much useful information and dispel

many delusions. Thus the fourth annual report of the commission says:

"A stranger to the law might infer, from some public

addresses and pamphlets which have assumed to discuss this

subject, that the railroad companies were prohibited from

carrying the necessities of life over long distances at very

low rates, unless their rates on other subjects of

transportation for shorter distances were made to

correspond. Indeed, instances have been pointed out in which

it was said that certain articles of commerce could not now

be transported for long distances, because, by reason of

this provision, they would not bear the charges that must

under compulsion of law be imposed upon them. Among such

instances has been mentioned the granite industry of New

England, as to which it has been said that valuable

manufactories have ceased to be profitable because it has

now become impossible for the proprietors to obtain from

the railroad companies the nominal rates for the

transportation of their products which they formerly

enjoyed, since it is now, by the long and short haul clause,

made criminal for the companies to give such rates.

"A complaint of this nature is not to be met by argument,

because it is baseless in point of fact. The instance

mentioned may safely be assumed to be chosen rather from

regard to the need of an attack upon the law than from any

belief in the justice of its application. The prohibition of

the fourth section, so far as concerns this article of

commerce, or any other that can be named, will have no

application whatever until it is made to appear that

elsewhere upon the lines of the road conveying it there is

property of the same kind, for transportation by the same

carriers in the same direction, upon which the carriers are

disposed to making greater charges in the aggregate for the

shorter hauls.

"The wheat of the extreme West, it is also said, can no

longer have the nominal rates which were formerly made for

transportation to the seaboard, but this assertion is also

without point or applicability, unless it is shown that the

carriers are not only disposed to give such rates, but

propose to make up for the consequent losses to themselves

by the imposition of greater charges in the aggregate for

the carriage of the like grain when offered for carriage by

growers in the States nearer the seaboard. Nominal rates

impartially made as between shippers of like articles in the

same direction and under like circumstances and conditions

are as admissible now as they ever were."

The same report contains a rather pointed reply to Judge Brewer's ruling

in the Iowa rate cases, viz., that, "where the rates prescribed will not

pay some compensation to the owners, then it is the duty of the courts

to interfere and protect the companies from such rates," and that

compensation implies three things: "Payment of cost of service, interest

on bonds and then some dividends." The commission reviews this stupid

rule as follows:

"The effort has sometimes been made to indicate a rule which

must constitute the minimum of reduction in all cases, and

it has been said that rates must not be made so low that the

carriers would be left unable to pay interest on their

obligations and something by way of dividend to

stockholders, after maintaining the road in proper condition

and paying all running expenses. This comes nearer to a

suggestion of a rule of law for these cases than any other

that has come to the knowledge of the commission. But it is

so far from being a rule of law, that it is not even a rule

of policy, or a practical rule to which any name can be

given, and to which the carriers themselves or the public

authorities can conform their action. In the first place,

when we take into consideration the question of the

condition of roads and of equipment, the proper improvements

to be made, the new conveniences and appliances to be

considered and made use of, if deemed desirable, and the

innumerable questions that are involved in the matter of

running expenses, it is very obvious that there can be no

standard of expenses which the court can act upon and apply,

but that the whole field is one of judgment in the exercise

of a reasonable discretion by the managing powers or by the

public authorities in reviewing their action. It is to be

borne in mind that there are many roads in the country that

never have been and in all probability never will be able to

pay their obligations and to pay dividends, even the

slightest, to their stockholders.... If the rule suggested

is a correct one, and must be adhered to by the public

authorities, then it is entirely impossible that those who

operate these roads can prescribe excessive charges, since

it is impossible to fix any rates that would bring their

revenues up to the point of enabling them to pay any

dividends.... But the rule suggested would also be one under

which those roads would be entitled to charge the most

which, instead of being built with the money of the

stockholders themselves, had been constructed with money

borrowed; the larger the debt the higher being the rates

that would be legal. If a road were out of debt so that it

had no bonds to provide for, it must content itself with

such rates as would pay some dividend to its stockholders.

If the road were in debt, though it perhaps served the same

communities, it might be entitled to charge rates 50, or

possibly 100 per cent higher.... But over and beyond all

this the attempt to apply the rule suggested would be

absolutely futile for the reason that the rates prescribed

for one road would necessarily affect all others that either

directly or indirectly came in competition with it."

It is no exaggeration to say that the annual reports of the commission

stand unexcelled as dauntless, clear, concise and instructive public

documents. It may also be asserted that whatever success has so far

attended the Interstate Commerce Law, that success is in a great measure

due to the tact, courage and ability of the men who, in the past, have

been the guiding spirits of the commission.

Efforts will be made by railroad managers in the future, as they have

been made in the past, to weaken the commission by securing the

appointment of men servile to the railroad interest as members of that

body.

Mr. Depew says that "all railroad men are politicians, and active ones."

This is true as to manipulating managers and will continue to be so just

as long as we allow such extraordinary powers to be exercised by them.

The saloon men are politicians, and active ones. There is not a city or

town in this broad land that is not in danger of falling under their

sway unless their offensive efforts are resisted. The old United States

Bank managers were politicians, and active ones. They perverted the

trust reposed in their hands to such an extent that the indignation of

the people was aroused, and under the lead of a stern old patriot the

bank was swept out of existence. Shall we restrain corporation

management within proper limits and make corporations serve the public

welfare, or shall we let the abuses go on until the people, under the

lead of another Jackson, demand emphatically the application of some

remedy, for better or for worse? Perhaps Government ownership, perhaps

something else. Nations, like individuals, should profit by the

experience of the past.

The Interstate Commerce Commission, in their sixth annual report, say,

concerning the Interstate Commerce Law:

"It was scarcely possible that it should be so complete and

comprehensive at the outset as to require no alteration or

amendment. Those who are familiar with the practices which

obtained prior to the passage of this law, and contrast them

with the methods and conditions now existing, will accord to

the present statute great influence in the direction of

necessary reforms and a high degree of usefulness in

promoting the public interest.

"Whoever will candidly examine the reports of the commission

from year to year, and thus become acquainted with the work

which has been done and is now going on, will have no doubt

of the potential value of this enactment in correcting

public sentiment, restraining public injustice and enforcing

the principle of reasonable charges and equal treatment.

Imperfections and weaknesses which could not be anticipated

at the time of its passage have since been disclosed by the

effort to give it effective administration. The test of

experience, so far from condemning the policy of public

regulation, has established, its importance and intensified

its necessity. The very respects in which the existing law

has failed to meet public expectation point out the

advantages and demonstrate the utility of Government

supervision....

"Of this much we are convinced: The public demand for

Government regulation and the necessity for legal

protection against the encroachments of railroad

corporations have not been diminished by the experience of

the last six years. The act to regulate commerce was not

framed to meet a temporary emergency, nor in obedience to a

transient and spasmodic sentiment. The people will not

tolerate a return to the injustice and wrong-doing which

inevitably occurs when no correction is undertaken and no

regulation attempted. The evils of unrestricted management

will not be permanently endured, and legal remedies will

continue to be sought until they are amply provided. The

present statute, however crude and inadequate in many

respects, was the constitutional exercise of most important

powers and the legislative expression of a great and

wholesome principle. Its fundamental and pervading purpose

is to secure equality of treatment. It assumes that the

railroads are engaged in a public service, and requires that

service to be impartially performed. It asserts the right of

every citizen to use the agencies which the carrier provides

on equal terms with all his fellows, and finds an invasion

of that right in every unauthorized exemption from charges

commonly imposed.

"The railroad is justly regarded as a public facility which

every person may enjoy at pleasure, a common right to which

all are admitted and from which none are excluded. The

essence of this right is equality, and its enjoyment can be

complete only when it is secured on like conditions by all

who desire its benefits. The railroad exists by virtue of

authority proceeding from the State, and thus differs in its

essential nature from every form of private enterprise. The

carrier is invested with extraordinary powers, which are

delegated by the sovereign, and thereby performs a

governmental function. The favoritism, partiality and

exactions which the law was designed to prevent resulted, in

large measure, from a general misapprehension of the nature

of transportation and its vital relation to commercial and

industrial progress. So far from being a private possession,

it differs from every species of property, and is in no

sense a commodity. Its office is peculiar, for it is

essentially public. The railroad, therefore, can rightfully

do nothing which the State itself might not do if it

performed this public service through its own agents instead

of delegating it to corporations which it has created. The

large shipper is entitled to no advantage over his smaller

rival in respect of rates or accommodations, for the

compensation exacted in every case should be measured by the

same standard. To allow any exceptions to this fundamental

rule is to subvert the principle upon which free

institutions depend and substitute arbitrary caprice for

equality of right.

"The spirit of the law is opposed to usages so long

continued and so familiar that their unjust and demoralizing

character has not been clearly perceived, but it is a long

step towards such regulation of the agencies of

transportation as will make them equally available to all

without discrimination between individuals or communities.

It can hardly be the fault of those who are charged with its

administration if the beneficial aims of this statute have

not been fully attained and compliance with its provisions

not completely secured. A better understanding of its

purpose and an educated public sentiment, aided by the

needful amendments which experience suggests, will fully

vindicate the policy of Congress in undertaking to bring the

great transportation interests of the country into general

harmony with its requirements.

"It affords us gratification to add that many railroad

managers of the highest standing now concede the necessity

for Government regulation, and avow themselves in favor of

such further enactments as will make that regulation

effective."

CHAPTER XIII.

THE RATE QUESTION.

Railroad managers frequently make the assertion that the average freight

rates charged in the United States are lower than those usually charged

in European countries and that this fact is in itself sufficient proof

that they are too low. A comparison of the transportation problem of

Europe with our own will show this argument to be fallacious.

While from $25,000 to $30,000 a mile is a very liberal estimate of the

average cost of American roads, the average cost of European railroads,

owing to their expensive rights of way, substantial road-beds and heavy

grades, is probably not less than $75,000 per mile. British railway

companies have laid out for the purchase of land, for right of way and

depot accommodations an amount about equal to the entire average cost of

American roads for the same number of miles.

For instance, the Southeastern Company paid $20,000; the Manchester and

Leeds Company, $30,750, and the London, Birmingham and Great Western,

$31,500 per mile. The first Eastern Counties line paid even $60,000 per

mile for land through an agricultural district. As nearly as can be

ascertained, the average cost of the right of way of railroads was over

$20,000 for the United Kingdom. In Belgium the average cost of the right

of way was $11,000. It was lower, however, in the other countries of the

European continent.

The topography of the country through which the English railways are

built is such as necessitated enormous expenses for heavy embankments,

cuttings, viaducts, tunnels and bridges, and in some cases increased the

cost of the roads to fabulous sums. The Lancashire and Yorkshire Railway

actually cost $260,000 per mile for the whole of its 403 miles. European

roads have been built in a much more permanent manner and have terminal

facilities whose cost is far beyond any sum paid for such purposes in

this country. In Great Britain, moreover, the expenses of contests and

of procuring charters have been very great and have probably averaged

$3,000 per mile.

English railway men charge Americans with having indulged in

stock-watering to a greater extent than any other people in the world.

This is probably true, yet the English have not been dull students of

this art, and they are far from free of having indulged in this luxury.

Much of their railroad stock was issued in a wasteful manner and

represents no actual investment, and it is safe to say that from 30 to

40 per cent. of their present railroad capitalization is water.

If upon the above basis both European and American railroads are to

yield an interest of 4-1/2 per cent. on the actual investment, the

former will have to earn at least $2,250 per mile more than the latter,

and this difference equals about 50 per cent. of the average operating

expenses of American roads per mile. Labor is cheaper across the

Atlantic, but this difference is more than equalized by the employment

of a much larger number of men per mile, as the following table will

show:

Countries. No. of men employed Average wages Wages paid

per mile. per annum. per mile.

United Kingdom 18 $335 $6,000

Belgium 22 210 4,620

Russia 15 240 3,600

Germany 14 250 3,500

France 14 220 3,080

United States 5 555 2,625

The London and Northwestern Railway is 1,793 miles long and has over

55,000 employes, or over 30 per mile. The Lancashire and Yorkshire

Company employs over 42 per mile.

The train men of Europe work less hours and earn less per capita for

their employers than do the train men of this country. The average

annual gross earnings per employe on sixteen of the leading lines of

Great Britain, as shown by Mr. Jeans, appear to be $975 against $1,600

on fifteen leading lines of the United States, while the average net

earnings per employe are $465 on the British lines against $720 on the

American lines; making a difference in favor of this country of 70 per

cent. in gross earnings and 53 per cent. in net earnings. If American

labor is more expensive, it is also more efficient than labor is

elsewhere.

It must also be considered that the average haul in Europe is much less

than the average haul in the United States. It has always been

maintained by the railroad companies, and very justly, too, that the

terminal charges are as important a factor of freight rates as is the

cost of carriage. The terminal charges are the same for a

twenty-five-mile haul as for a thousand-mile haul; they form a

comparatively large part of the total charges for the former and a very

small part of the total charges for the latter. It is therefore

manifestly unjust to compare the rates per ton per mile of Europe with

those of the United States without making due allowance for the

difference in the length of their average hauls. All other things being

equal, a fair comparison between the freight rates of different

countries should be based upon hauls of equal length.

There is another consideration which should not be lost sight of. The

commodities in the United States which contribute principally to the

long haul are raw products. The universally low rates of these

commodities greatly lower the general average. In Europe, on the other

hand, manufactured goods predominate as long-haul freight, and based

upon increased risk and increased cost of carriage, considerably swell

the general average of freight charges. The railroads of the United

States also do more business per train mile than those of any other

country excepting perhaps Austria, Russia and India. This should

certainly enable them to do business for less than it is done by

transatlantic lines.

In addition to all this, a number of European countries, particularly

France, require their railroads to perform large services, such as the

carrying of the mails and the transportation of the officers and

employes of the Government, gratuitously, and to carry soldiers at

reduced rates.

Another factor in the equation should be considered. European roads are

built, equipped and all permanent improvements wholly made at the

expense of the stock- and bondholders, while in this country they are

partially constructed at the expense of the patrons of the road. In the

former case the capitalization of the road represents what has been paid

by the stock- and bondholders, and in the latter, not only what they

have paid, but large contributions paid from the income of the road and

from public and private donations.

It will thus be seen that railroad rates ought to be lower, and even

much lower, here than in Europe. If it _is_ true that the average rate

per ton per mile is lower in America than across the Atlantic, this is

chiefly due to the fact that water transportation has forced down

through (or long-haul) rates and has thus lowered the general average.

This reduction was by no means made voluntarily by the railway

companies, but was forced upon them. Where in the United States water

does not exist, as in local traffic, rates are usually much higher than

in Europe.

The reduction in freight rates was brought about by a number of

inventions which greatly lowered the cost of both the construction and

the operation of railways. Through the introduction of the steam shovel,

of the wheel-scraper, of improved rock-drills, and of other labor-saving

machines, as well as by a general improvement in the methods of grading,

the cost of grading has been reduced from 25 to 50 per cent., and

railroad bridges are now built at one-third of their former cost. Owing

to Bessemer's great invention, steel rails can at the present time be

bought for one-half of what iron rails cost ten or fifteen years ago,

and about one-third of the cost twenty years ago. According to David A.

Wells, the author of "Recent Economic Changes," the annual producing

capacity of a Bessemer converter was increased fourfold between 1873 and

1886, and four men can now make a given product of steel in the same

time and with less cost of material than it took ten men ten years ago

to accomplish. A ton of steel can now be made with 5,000 pounds of coal,

while it required twice that quantity in 1868. When it is considered

that rails and tires made of steel last three times as long as those

made of iron, permit greater speed, carry a much larger weight, and

require less repairs, the importance to the railroad interests of the

improvements made in the manufacture of steel can hardly be

overestimated. Similar reductions have been made in the car and machine

shops. An average train to-day probably costs no more than one-half as

much as it did twenty years ago. Mr. Wells, in the work just mentioned,

says:

"In 1870-'71 one of the leading railroads of the

Northwestern United States built 126 miles, which, with some

tunneling, was bonded for about $40,000 per mile. The same

road could now (1889) be constructed, with the payment of

higher wages to laborers of all classes, for about $20,000

per mile."

A great saving has also been made in the consumption of coal. Under

favorable circumstances a loaded freight car can now be propelled a mile

with one pound of coal. A similar economy of fuel has, through the

improvement of their engines, been effected in ocean steamers. The

invention of the compound engine has reduced the expense of running

about one-half, while it has doubled the room left for the cargo. The

statement has recently been made that a piece of coal half as large as a

walnut, when burned in the compound engine of a modern steamboat, drives

a ton of food and its proportion of the ship one mile on its way to a

foreign port.

Furthermore, the invention of the air-brake has materially reduced the

number of train men formerly necessary to safely manage a train, just as

the introduction of steam-hoisting and other machines, both upon docks

and vessels, has greatly decreased the number of men employed upon the

mercantile marine.

There is certainly much similarity between the railroad and the

steamboat as agencies of transportation. Whatever fuel and labor-saving

causes operate on one must necessarily operate upon the other. When we,

therefore, find that the ocean rates are only from one-third to

one-fourth of what they were thirty years ago, we are justly surprised

to see railroad rates maintained as high as they are. Operating expenses

have been greatly reduced and passenger travel has largely increased

during the past twenty years, but reductions corresponding in the

passenger rates of the United States have not been made.

It is, nevertheless, no easy matter always to determine what are

reasonable rates. It is easier to tell what rates are unreasonable.

Rates are unreasonable that bring an income in excess of sufficient to

keep the road in proper condition, to pay operating expenses, including

taxes and a fair rate of interest on the amount, not including

donations, actually invested in the road. The patrons of a road should

not be taxed to pay interest on their own donations, or on public

donations, to the road, as the donations were made for the benefit of

the public, and not for the benefit of private individuals. A rate which

may appear reasonable to the carrier is apt to be regarded as too high

by the shipper; and, again, one that seems reasonable to the shipper is

denounced as too low by the railroad man. Each is tempted to consult

only his own interests and to disregard the just claims of the other

side. Thus, while the shipper will claim that his rates ought to be low

enough to enable him to compete with other shippers more advantageously

located than he is, the railroad manager will demand a rate which would

enable him to declare high dividends on largely fictitious values. The

owners of roads which were built merely for purposes of speculation or

blackmailing insist on being permitted to charge exorbitant rates to

bring up their earnings to the level of those roads for whose

construction there was a legitimate demand.

It is a settled principle of common law that all rates must be

reasonable, but no uniform rule has as yet been adopted by which the

question of reasonableness is to be determined. The doctrine laid down

by Judge Brewer, that "where the rates prescribed will not pay some

compensation to the owners, then it is the duty of the courts to

interfere and protect the companies from such rates," and that

"compensation implies three things: cost of service, interest on bonds,

and then some dividends," is absurd. A question is never settled until

it is settled right, and this rule is certainly open to very serious

objections. A road may be bonded for several times its cost or its real

value, it may be managed with such recklessness or extravagance that its

operating expenses may be twice what they would be under a careful and

economical management, yet under this rule the shipper must pay the

premium which bond-watering and bad management command. The general

enforcement of such a rule would place the public at the mercy of

scheming railroad manipulators. No matter to what extent the business of

a road may increase, a reduction of rates can always be prevented by the

issue of new bonds and the doubling of the already lordly salaries of

its managers. Again, under the operation of this rule a road which

entirely suffices to do the business between two points may be

paralleled by another and the public be compelled to pay excessive rates

to maintain both. It might be said that the public cannot be forced to

patronize any road, that if it would not withdraw its patronage from the

old line, the new line would soon become bankrupt, and that in such an

event its owners, and not the public, would be the sufferers. This

argument may be met by the statement that, aside from the fact that

concerted action among a large number of people can never be secured,

few roads rely for their support solely upon local business, and that

any loss which the older road sustains from encroachments by its rival

upon its through traffic it is compelled to make up by raising its rates

upon its local business. It is the almost inevitable consequence when

one road is paralleled by another that the business which was

previously done by one road will be nearly equally divided between the

two, and under the rule laid down by Judge Brewer the public will be

called upon to pay the operating expenses and the interest on the bonds

of both, together with such dividends on the stock as the financiering

ability of their managers may secure. The better judgment seems to be

that to determine what are reasonable rates is not a question for

judicial adjudication.

The Interstate Commerce Commission, in their fourth annual report,

assert that "there can be no standard of expense which the courts can

act upon and apply, but that the whole field is one of judgment in the

exercise of a reasonable discretion by the managing powers, or by the

public authorities in reviewing their action." Their views upon this

subject are still more definitely stated in the following words

contained in the same report:

"An attempt is made to give authority to the courts to

interfere by the suggestion that property or charter

contract rights, or both, are involved in the matter of

fixing rates, and therefore that it is not possible the

conclusions of administrative boards should be final. This

is an endeavor, by the mere use of words, to confer

jurisdiction upon the courts where the substance is

altogether wanting. Property or contract rights are involved

in these cases precisely as they are in numerous other cases

of the exercise of power under the police authority of the

State, either by the State itself or by its municipalities."

These views cannot fail to commend themselves to any unprejudiced mind.

It is a well-established fact that all officials will, if permitted,

extend their jurisdiction, and judges are no exception to the rule. It

was therefore but natural that the courts should attempt to solve the

problem of railroad rates.

The attempt so far has been fruitless, nor will it be otherwise as long

as the courts persist in approaching with abstract legal maxims a

question which, above all things, requires the light of experience and

the exercise of sound discretion. The question of railroad rates will

never be satisfactorily settled until it is definitely referred to

expert administrative State and National boards empowered and prepared

to meet the many contingencies that will always arise in the

transportation business.

It is not difficult to account for the inability of the courts to

properly adjudicate the question of reasonable rates. The legislature,

or a board to which it has delegated its power, prescribes for a

railroad company a classification and tariff. The company claims that

the rates so fixed are unreasonably low and applies to the courts for

redress.

Now, if the rates were based upon the cost of service only, it might,

perhaps, be possible for a court to determine whether the prescribed

rates are adequate or not. But even in such a case the question would

arise whether the capitalization and the operating expenses of the road

are not excessive, and its determination would require expert knowledge

and sound discretion rather than legal lore. However, since the cost of

service is not the only, and with railroad men not even an essential,

factor in rate-making, it is evident that the rates upon single

commodities can not be reviewed upon their individual merits, but the

tariff must, in the judicial determination of the question whether it is

reasonable or not, be viewed as a whole. But as it is impossible to

foretell what effect a readjusted tariff would have on the revenues of a

road, even courts are forced to admit that an actual trial of the tariff

is necessary to establish its merits or demerits.

If the complaining company were as anxious to give the new tariff a fair

trial as it usually is to demonstrate to the satisfaction of the court

that it is devoid of every principle of justice, such a test might be

accepted by the public as a reliable basis of judicial procedure. But

railroad managers are not only striving to perpetuate their own high

rates, but to show to the public that freight tariffs not emanating from

a railroad company's office are of necessity crude and unjust to the

carrier. They know that if they should succeed in convincing the public

that administrative boards are incapable of dealing with that question,

they might for years to come be left in undisputed possession of the

power to make their own rates. This is certainly for the railroad

manager a prize worth contending for, and no sacrifice is too great for

him to make when there is any hope of ultimate victory. Being absolutely

uncontrolled in his action, he finds it an easy matter, by temporarily

diverting business from his line, by the increase of operating expenses

and by repressing growing industries, and in many other ways, to curtail

the business of his road and diminish its revenues. He can court losses

in a thousand different ways discernible neither to the courts nor the

general public. In short, it is in the power of any railroad manager to

manipulate such a trial in his own interest, and, if determined, to

obtain a verdict against any tariff not of his own making. This policy

was pursued by several Iowa roads subsequent to Judge Brewer's decision

that the alleged unreasonableness of the Iowa commissioners' tariff must

be established by an actual trial, and was persevered in until the suit

was withdrawn.

But even if the competency of the courts to properly determine such

questions were admitted, there would still exist one serious objection

to their jurisdiction. Courts necessarily move slowly, while all

differences arising between the public and the railways, and especially

those concerning rates of transportation, require prompt and decisive

action. There are no fixed conditions in commerce. It is a kaleidoscope

constantly presenting new phases. Competition at home and abroad, tariff

duties, the condition of the crops and a thousand other influences

affect it and may require a prompt readjustment of the tariff. So long

as railroad companies are permitted to resort to injunctions and effect

other delays rendered possible through the machinery of the courts, to

prevent for years the enforcement of tariffs prescribed by

administrative authorities, so long will the public be at their mercy.

So long as they have nothing to lose and everything to gain by a

judicial contest, it will be their policy to delay through the courts

the enforcement of any tariff, whether prescribed by legislature or by

an authorized commission, that falls below their standard. It is not to

be understood that the acts of railroad commissioners should never be

subject to a judicial view. If such boards clearly exceed their

authority or are otherwise guilty of maladministration, if they violate

constitutional rights, then railroad companies, if injured by their

acts, should be permitted to seek redress in the courts; but they should

not be permitted to nullify an official tariff by legal maneuvers. It is

clearly not within the province of the courts to make rates or to lay

down rules to be followed by those to whom the law has delegated the

power to make them, nor should the courts aid the railroads in any

attempt to nullify an official tariff that has been legally promulgated.

A tariff prepared by sworn and disinterested officials is more likely to

be just than one prepared by interested railroad men, and railroad

companies should be compelled to adopt it and continue it in use until

it is amended or revoked by legal authority.

Individual shippers are powerless as against strong corporations.

Railroads apply to the courts for what they are pleased to term redress,

and in the meantime refuse with impunity to accept an official tariff;

but the shipper has no protection: he must pay their rates or go out of

business. What reason can be assigned why the weaker should thus be

discriminated against? A promulgation of a tariff prepared by a

commission is equivalent to a declaration on the part of these officials

that the rates or some of the rates charged by the railroads are

unreasonably high. The railroad, in applying to the courts for

protection, claims that the tariff prescribed by the commission is

unreasonably low. Both tariffs are therefore impeached, one being that

of an interested private company, the other that of a disinterested

public board. It is evident that, even if the people should see fit to

give the courts jurisdiction in such controversies, one of these tariffs

must temporarily prevail pending the decision of the court, and sound

public policy and justice to the patrons of the road certainly require

that the official tariff be recognized by the courts and made to be

respected by the railroad company until it is proved to be unreasonable

and is set aside by lawful authority.

It is claimed by railroad men that they should be allowed to make their

own tariffs because rate-making is so intricate a subject that none but

railroad experts can do it justice. If this were so the courts would be

even less competent to review a schedule of rates than a State or

National commission would be to make one. Courts cannot be expected to

have expert knowledge in all matters that are likely to be brought

before them. They must rely upon the testimony of expert witnesses

whenever technical questions are involved in the determination of cases.

The identical sources of information from which courts draw are

accessible, or may be made accessible, to a commission, which has the

additional advantage that its members may be selected with special

reference to their fitness for the duties which they will be called upon

to perform and are expected to devote their whole time to the settlement

of questions arising in the transportation business. Such a commission

can practically be made a court with jurisdiction over all matters

connected with railroad business. The railroad manager, no doubt, is

thoroughly familiar with the wants and desires of his company; but it

may fairly be presumed that he is less familiar with the needs of the

public than a railroad commission whose members are in constant

communication with the people, patiently listen to the complaints of

shippers, court and receive suggestions as to needed changes in

classification and rates, and study the relative advantages of the

different sections and different interests of the State or the country

as regards transportation. A railroad freight agent, on the contrary, is

disposed to think that shippers ought to be satisfied with any rate

lower than those charged fifty years ago for carting or other crude

methods of transportation. He regards their views and suggestions as

chimerical and not worthy of any notice, and does not even hesitate to

inform them that rate-making is a branch of the railroad business wholly

beyond their comprehension, and ought not to be meddled with or even

inquired into by the public. The general freight agent is the employe of

a company which rates his usefulness solely by his ability to constantly

increase its revenues, and he invariably proceeds upon the theory that

the best tariff is that which comes nearest imposing upon each commodity

offered for carriage the maximum transportation tax that it will bear. A

man who entertains such opinions cannot be supposed to be able to do

justice to the shipper, and should not be permitted to act as arbitrator

in rate controversies between the public and the company whose employe

and advocate he is. Nor have we any reason to hope for a change in the

present tariff policy of railroads. History has sufficiently

demonstrated the fact that reforms must come from without. As long as

human nature remains as it is, railroad officials will, if permitted,

arrange tariffs in the interest of the men who give them employment, for

if they did otherwise their services would soon be dispensed with. A

freight tariff should be in the nature of a contract between the carrier

and the shipper, and the assent of both parties ought to be essential to

its validity. But as it is impracticable for all the parties interested

to meet for the purpose of effecting an agreement, the power to make

rates has in several States wisely been conferred upon railroad

commissioners, and there is a strong tendency in others to adopt the

same policy. Such boards have every opportunity to obtain any

information needed for the efficient and faithful discharge of their

duties. They can hear the representatives of the railroads as well as

those of the shippers, investigate carefully disputed points, summon

experts and witnesses, and obtain official information relating to

classifications and rates from every State in the Union, and, if

necessary, from every quarter of the civilized world. The assertion may

safely be made that, with experience, a commission acquires more expert

knowledge relating to the business of rate-making than a railroad

manager. If there is any mystery connected with the business of

rate-making which has so far been in the sole possession of railroad

men, it is to their interest to initiate the commissioners into their

profound secrets. It will be their privilege to enlighten the

commissioners as to the actual cost of their respective lines, the cost

of every branch of the railway service, and as to a thousand other

matters which the public has both a desire and a right to know. If,

after a schedule of rates has been prepared, and before it is

promulgated, railroad men can suggest any improvement in it, they should

have the privilege to do so; or if, after giving it a fair trial, they

should be prepared to show that any rate is unreasonably low and

injurious to them, their complaint should be carefully investigated,

and, if found well grounded, the wrong should at once be righted.

But the same privileges should be extended to shippers. Their rights and

their welfare should be guarded as sacredly as those of the railroad

companies. They should have the same opportunity to examine a proposed

schedule before its promulgation and protest against any feature of it

which they may regard prejudicial to their interests, and their

statements should receive the same consideration as is accorded to those

of representatives of the railroad companies. So, likewise, when

shippers prove to the satisfaction of the commission that a rate has

outlived its reasonableness, their complaints should at once be

investigated, and if their cause is found to be a just one, the tariff

should be so amended as to give them relief.

The labors of a board of railroad commissioners are onerous, and their

responsibility is great. No uniform rule can be laid down for their

guidance in the fixing of rates, yet there are a few fundamental

principles which should always be adhered to. The cost of service

should invariably be an important factor of a rate. Railroads should not

be compelled to carry any commodity for less than the actual cost of

moving it, nor should rates be fixed greatly in excess of such cost of

service. The carload should be the unit of wholesale shipments. Since it

costs the railroad company as much to move ten carloads of freight which

belong to one shipper as it costs to move ten carloads belonging to ten

shippers, no advantage beyond the general carload rate should be given

to the large shipper. The difference in the rates between shipments in

less than carload lots ought to be determined solely by the difference

in the cost of carriage and handling. Where shipments are made in

carload lots, the loading and unloading is usually done by the shipper

and consignee, cars are loaded to their full capacity, and no loading or

unloading of shipments at intermediate points is necessary. It is

therefore but just that the consignor and consignee should have the

benefit of the reduced cost of such shipments. Raw materials, and

especially coal and lumber and kindred articles, the transportation of

which requires neither an expensive rolling stock nor warehouse

accommodations nor speedy movement, and in which the risk of loss or

damage is insignificant, should be carried at the lowest rate possible.

Such a policy will tend to foster other interests, which will develop

business for the road and will build up remote sections of the country,

and will often enable railroads to carry large quantities of these

commodities at times when they would otherwise be nearly idle. There

should be a uniform classification throughout the country, based upon

considerations of justice and equity instead of railroad tradition. Such

articles should be classed together as resemble each other as concerns

bulk, weight and risk, or what is virtually the same, cost of carrying

and handling. It may be safely assumed that a rate which has been made

and used by railroad companies is remunerative. If it is claimed by

railroad men that it is not, the burden of proof should rest upon them.

A rate may also be considered remunerative to a road if other lines

similarly situated have voluntarily adopted it. A schedule finally must

be considered reasonable if it enables the company for which it is

prescribed to earn under efficient and economical management sufficient

to maintain its road in proper condition and a fair rate of interest

upon a fair valuation of its road. Property is never worth more than

what it can be duplicated for, and railroad property is no exception to

the rule. If there has been a depreciation in the property of a company,

it should not demand dividends upon values which no longer exist. Nor

can the same returns be conceded to railroad property as to private

capital. Its investment is permanent and well secured, if it is honestly

and intelligently made; and its dividends are net returns after the

payment of all expenses, including taxes, cost of management and

maintenance. The three per cent. bonds of the United States Government

find a ready sale at prices above par. Were there less speculation and

more honesty and stability in railroad management, railroad securities

yielding a revenue of from 2-1/2 to 4 per cent. on the actual investment

would be eagerly sought after by conservative capitalists.

Rate-making requires honesty of purpose, intelligence and discretion,

qualities as likely to be found among the servants of the people as

among those of corporations. A commission may err, but its errors are

not likely to prove as detrimental to the railroad companies as the

extortionate and discriminating rates imposed by railroad managers have

proved to the interests of the public. Railroad managers acknowledge no

obligation except that of earning dividends for their companies, while

the members of a railroad commission, on the contrary, are responsible

for their acts to the people, with us the source of all government and

all power. To question the justice and sincerity of the people, or to

deny the efficacy of such a control, is to deny the wisdom of popular

government.

Railroads might be permitted to reduce their rates below the official

tariff, but they should be required to give at least thirty days' notice

of such a change, to enable shippers to prepare for it. The companies

should not be permitted, however, to raise rates again without obtaining

the commissioners' consent and giving at least two months' notice of the

proposed advance. Sudden fluctuations in rates are a fruitful source of

disaster in those branches of business in which the cost of

transportation forms an important factor in the price of commodities,

and are as unjust and unwarrantable as would be fluctuations in import

duties. As long as they are tolerated there can be no reliable basis for

business calculations or contracts. There is little doubt that, were

such regulations enforced, railroad wars, so demoralizing to the

business of the country, would soon belong to the things of the past,

and a far-reaching assurance of future welfare would be given to the

commercial, manufacturing and all other legitimate interests of the

country. It should always be kept in view by the rate-making power that

the railroad company, like the gas company, the water company and the

street car company, is acting in the capacity of a public agent, and the

rate of compensation should be fixed by public authority.

CHAPTER XIV.

REMEDIES.

The railroad in America is still in its infancy, both as regards extent

of mileage and methods of operation. In 1860 the United States had in

round numbers 30,000 miles of road; in 1870 this number had increased to

53,000; in 1880 to 93,000, and in 1890 to 167,000. It will thus be seen

that the average increase during each of those three decades was nearly

80 per cent. Should this rate of increase continue during the next three

decades there would be in the present territory of the United States a

little over three hundred thousand miles in 1900, 550,000 miles in 1910

and close to one million miles in 1920, or about one mile of road for

every three miles of territory. It is not likely that the rate of

increase of the past will continue in the future; but even if this

should be reduced from 80 to 40 per cent. it would be less than

fifty-five years when the railroad mileage of the United States would

reach the million point.

Even this might seem an extravagant estimate, but it must be remembered

that there are already a number of States in the Union with a railroad

mileage closely approaching this proportion. The District of Columbia

has one mile of road for every 3.39 square miles of territory, New

Jersey for every 3.79, Massachusetts for every 3.96, and Connecticut for

every 4.96 square miles. Ohio, Pennsylvania, Rhode Island and Illinois

follow with one mile of railroad for every 5.14, 5.20, 5.57 and 5.59

square miles of territory, respectively, and Indiana, New York, Delaware

and Iowa are not far behind them.

It should also be borne in mind that many of the through lines have

double, some triple, and some even quadruple tracks, which, if taken

into the account, would increase the mileage much more; and still

railroad construction in most of these States is far from being at a

standstill. The United States will eventually be able to sustain a

closer net of railways than any country in Europe, and we may rest

assured that the time will come when the fertile prairie States of the

Northwest will have a mile of railroad for every square mile of

territory.

In view of the future magnitude of the transportation interest the

importance of placing its control and management early upon sound

principles should not be under-estimated. Abuses crept into railroad

management in the past, not because the men who controlled it were

necessarily worse than men engaged in other pursuits, but because the

States failed to provide adequate legislation for the control of this

new social and commercial force, and the license enjoyed by railroad men

gradually turned into serious evils what seemed at first only harmless

practices. It cannot be denied, however, that the absence of restraint

in time attracted to the business unscrupulous men whose sharp practices

frequently forced their colleagues of better conscience to do what their

sense of honor and justice condemned. These evils and abuses have

increased with the growth of the railroad system, and nothing short of

the sovereign power can now correct them. It is incumbent upon the state

not only to correct the evils of the past, but to base legislative

control of railroads upon principles so wise and so broad as to endure

for ages, permitting the unlimited growth of the system and at the same

time insuring commercial liberty and prosperity to the generations to

come.

As it is always easier to tear down than to build up, so it is likewise

easier to point out evils than it is to provide proper remedies for

their cure. Almost any one can criticise existing conditions, but it

requires wise and constructive statesmanship to propose practical

measures which will bring about desired improvement. The apparent

magnitude of the work of correcting the evils and abuses connected with

the transportation business, many of which have been in vogue for more

than a generation, has discouraged many from seriously undertaking it.

And yet we shall find the problem by no means a difficult one, if we

properly analyze it and go to the root of the evil. Prof. Bryce, in his

work "The American Commonwealth," refers to the fact that the people of

this country have been equal to the task of solving the gravest problems

which have been presented to them, and we need have no doubt of their

ability to solve the railroad problem. Railroad regulation does not

require the adoption of any new principle of law. If the common law is

rightly applied and provision is made for its strict and systematic

enforcement, it will meet every condition that is likely to arise in the

transportation business. It should always be remembered that the

railroad is an improved highway, and the principal reason for which it

is built is to accommodate the people and promote their welfare, and not

to serve the selfish ends of a few individuals, and that private

companies were permitted to build and operate it only because the State

believed that the public interests could best be served in this way.

It is one of the duties of the State to facilitate transportation by

establishing highways. These highways may be built by the State directly

or through municipalities or even private corporations. Thus, under

authority derived from the State, cities lay out, construct and

maintain streets within their limits. But these streets become public

and are always subject to State control. The same rule applies to

turnpikes and ferries. Although the State transfers to an individual or

a company its right to maintain a ferry or to build and maintain a

turnpike, and to compensate itself for its outlay by the collection of

tolls, the ferry and turnpike nevertheless remain highways, subject to

the control of the State.

The railroad partakes of two natures, that of a highway and that of a

common carrier. Railroad companies therefore enjoy the privileges and

assume the duties of both. The State justly exercises in behalf of such

companies the right of eminent domain, _i. e._, the right of the

sovereign to apply private property to public use; but it cannot

rightfully appropriate private property for private use, even if legal

compensation were to be made for it. It is only upon the theory that

railroads are highways, constructed for the public good and subject to

public control, that the State has authorized railroad companies to take

private property for their own use by paying for it a reasonable

compensation. A railroad may even take possession of and intersect a

public road for the purpose of carrying on its functions. But while the

sovereign may exercise the right of eminent domain, it cannot delegate

it to any individual or number of individuals, except to its agents,

performing its functions and being bound to comply with any rule which

may be prescribed for the public good. Under the common law the

individual is entitled to as full use of the railroad as he is of the

common highway. If he is not allowed to put on his own vehicle, this

restriction is simply due to the fact that the people believe that the

business can be done most safely, most economically and most

efficiently by one company or a limited number of companies operating

the road for a reasonable compensation. Nor does this restriction differ

materially from that which the law has placed upon the use of the common

road. Without legislative sanction no one has a right to put upon it a

team of elephants or a locomotive and train of cars, or other strange

motors, and thereby obstruct the public travel. These restrictions might

be removed by the legislative power, and there is also no doubt that

under the common law the State has the right to permit the independent

use of the railroad track by any person having motive power and cars

adapted to it. The persons and freight transported on the railroad are

taxed to maintain it, while in the case of the common road this tax is

placed upon the people and the adjoining property. How to collect the

tax necessary to sustain the road is simply a question of public policy,

and it cannot be collected in any case except with the expressed

permission of the State. If a company is permitted by the State to

operate a railroad it should only be permitted to collect such tolls as

are just and reasonable, and what is just and reasonable should be

determined by the sovereign State, and not by the operating company. The

railroads of the United States collect from our people in round numbers

a transportation tax of eleven hundred million dollars annually. This

tax is equal to a levy of $17 per head, or $85 per family; it is about

as large as all our other taxes combined. In the State of Iowa it

amounts to about $22 per head, or $110 per family, and is two and

one-half times as large as all the State, county, school and municipal

taxes collected within her borders.

When we consider how thoroughly other public charges are hedged about,

by careful restrictions and limitations, and with what caution the

amount to be collected is fixed after thorough public discussion, by

agents of the people selected by them to serve only for short periods,

and that those who collect and disburse the funds are under oath and

bonds for a faithful performance of their duty, is it not preposterous

to permit agents appointed by a few interested persons, and often

serving for a long term of years, without any responsibility to the

public, to fix the rate of this tax, and to collect and disburse the

immense sums levied for the support of these highways without any

supervision or restraint?

The Government might as well lease the post-office, waterways and the

collection of import duties to the highest bidder and permit the lessees

to reimburse themselves by the collection of such tolls as they might

see fit, without any governmental restraint whatever, their franchises

enabling the operating companies to tax each individual, each locality

and each letter, parcel or article as they saw fit. How long would the

people of this country endure such a condition of things? The collection

of taxes has been farmed out, but not by any civilized nation in modern

times. History shows that this system of taxation has always been

productive of the gravest abuses, and prejudicial to the public welfare.

As has already been shown, the railroad is an improved highway, and the

railroad company in operating it is doing a public business and not a

private business, and therefore it should be governed by rules

applicable to public business, and not such as are applicable to private

business. It is admitted by all that for the services which it performs

the operating company should receive a reasonable compensation; but to

say what a reasonable compensation is, how it shall be collected, and to

prescribe rules regulating the business of the public carrier, is

solely the right and the duty of the State. The people have never

permitted the rate of any other public charge to be fixed by the

beneficiary. Why, then, should privileges be conceded to one beneficiary

which are denied to all others?

The assertion is often made by railroad managers that railroad

transportation is a private business as much as any other branch of

commerce. It is not likely that these same managers would wish to have

their argument carried to its logical conclusion, for, should the courts

at any time take their view, they would be under the necessity of

declaring null and void all their charters, which were granted to them

upon the assumption that the railroad was a highway operated under the

authority and control of the State by private companies for the public

good. If, on the other hand, railroad managers are, for their own

protection, forced to recognize the public character of railroads, they

can no longer question the right of the State to so control their

business as the public good may demand. And this shows the absurdity of

the claim often made by railroad managers, that, as long as the rates

charged by them are reasonable, the State has no right to interfere with

their business, or, in other words, that they may discriminate between

individuals and localities, and that they may legally practice a

thousand other abuses as long as individual shippers find it beyond

their power to prove that they have been charged exorbitant rates.

Charles Fisk Beach, Jr., in his "Commentaries on the Law of Private

Corporations," lays it down as a general principle of law that "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." And applying this

principle to common carriers, and especially railroads, this author

says:

"The sovereign has always assumed peculiar control over

common carriers as conducting a business in which the public

has an interest, and in the case of railway carriers an

additional basis of governmental control is grounded in the

extraordinary franchise of eminent domain conferred upon

these companies. For corporations engaged in carrying goods

for hire as common carriers have no right to discriminate in

freight rates in favor of one shipper, even when necessary

to secure his custom, if the discriminating rate will tend

to create a monopoly by excluding from their proper markets

the products of the competitors of the favored shipper."

If railroads had no obligations or advantages beyond those of other

common carriers, such as stage lines and steamship companies, their

discriminations might be less objectionable, but, as keepers of the

toll-gates of the public highways, they are no more at liberty to

regulate their own business regardless of the public welfare than were

their predecessors, the toll-collectors stationed along the public

turnpikes and canals. As such public tax-collectors they are bound to

give equal treatment to all persons and places.

Although the business of constructing and keeping in repair the turnpike

roads was, as a rule, left to private persons, and the promoters of such

enterprises were permitted to reimburse themselves for their outlay by

the collection of tolls, their schedules of tolls were prescribed by the

State and their business was placed under the supervision of public

officers, whose duty it was to see that neither extortion nor

discrimination was practiced in the collection of these tolls, and that

the private management of a public business did not become the source of

abuse. The State thus insisted upon exercising a restraining influence

over the business of turnpike companies because it realized the danger

of entrusting the management of a semi-public business to companies

organized solely for private gain, with officers responsible only to

their stockholders, who, under ordinary circumstances, could be relied

upon to measure the usefulness of an employe by his ability to

contribute to the increase of the annual dividends. It will scarcely be

claimed, even by railroad men, that since the days of turnpikes and

stage-coaches corporations have become more unselfish and their officers

less servile. The temptations have increased, while human frailty

remains the same.

Of course, if we consult the railroad managers as to the best policy to

be adopted for the future control of railroad companies, we shall be

informed that we have already gone too far in railroad legislation, that

nearly all the present evils of transportation of which the public and

the railroad companies complain may be traced to legislative

restrictions, and especially to certain features of the Interstate

Commerce Act. They reluctantly admit that this act has been instrumental

for good inasmuch as it has corrected some of the abuses that formerly

existed, but they insist that several of its provisions are too radical

and do infinitely more harm than good, both to the railroad companies

and the people; that these obnoxious provisions ought to be repealed,

and that under such restrictions as would still remain railroad

companies ought to be permitted to manage their own business. If we

inquire what modification of the Interstate Commerce Act the railroads

desire, we find that if the act were amended in conformity with their

wishes there would be little of it left that is of value. But the

features which are specially obnoxious to them are the long and short

haul and the anti-pooling clauses. They even go so far as to demand that

the Government should not only permit pooling, but should use its strong

arm to enforce all pooling contracts which railroad companies might see

fit to enter into. This means, in other words, that the Government

should enforce an agreement to restrict competition, which is made in

direct violation of the common law, and aid the companies in maintaining

such rates as they see fit to establish. If the railroad manager is

cross-examined and forced to confess the truth, he will have to admit

that what he really desires is freedom from all restraint, or, if public

opinion will not tolerate this, then only law enough in letter to

satisfy a public clamor and permit him to violate its spirit, and to

then trust to him and the future to bring it into disrepute and cause

its repeal.

Some shrewd managers have recently expressed a willingness to submit

their pooling arrangements to a public commission for approval, before

they should go into effect. This is objectionable on the ground that

they would then, more even than before, endeavor to control the making

of the commission. It is far safer to absolutely prohibit pooling and

all devices used as a substitute for it. No necessity for pooling

exists, and no good reason can be given why it should be permitted

unless complete government control is established.

State control of railroad transportation is as essential to the welfare

of the companies as it is to that of the public. The history of the past

twenty years has shown that railroad companies are utterly unable to

regulate their relations with each other. They either cannot arrive at

an understanding, and then the stronger companies resort to hostilities

to bring the weaker ones to their terms; or, when an agreement has been

reached among them, they find themselves unable to enforce it. Anarchy

then reigns supreme, until finally a truce is patched up, to be again

followed by evasions, defiance and "war." The nature of the railroad

business is in fact such that, in the absence of strict State control,

it is impossible for a conscientious manager to retain the business to

which his road is naturally entitled, and do full justice to both the

patrons and the stockholders of his road. Efforts have been made again

and again by railroad companies to regulate their affairs and adjust

their difficulties by resorting to pools, agreements, associations and

combinations, formed with all the ingenuity of which men are capable,

and supported by penalties and fines; but the unscrupulous railroad

manager has always found a way to violate or subvert the agreement.

There is a disposition among railroad companies to arrogate all the

powers of sovereignty. They want to make their own laws, impose fines

and declare war, and often go even so far as to openly defy the power of

the State that has given them their existence.

When railroad managers are shorn of the power to practice abuses, they

are at the same time deprived of the many advantages they now have to

speculate in railroad securities and enrich themselves at the expense of

the public and of other railroad stockholders. The great fortunes of

this country have been amassed within a few years, and chiefly from

manipulations of railroad property. If the people permit these practices

to go on without restraint but a few years more, the property of the

nation will be largely under the control of a few bold adventurers. The

great fortunes of Europe which it has required centuries to accumulate

are already outstripped by the "self-made" millionaires of this country.

However persistently railroad managers may assure the people that abuses

in the transportation business have been reduced to a minimum and that

more stringent legislation will be an evil, it is a fact that many of

the graver railroad abuses are still practiced and that much more

reformation is needed in railroad management, or in railroad

supervision, or in both, to make the railroad what it was designed to

be, a highway operated for the public and open to all upon equal and

equitable terms.

The virtual ruler of the United States is public opinion. It is the

power that controls the legislative as well as the executive and

judicial departments of the Government. Enactments of legislatures and

of Congress and decisions of the courts, even of the Supreme Court of

the United States, not in harmony with an intelligent and determined

public opinion, cannot endure, and executives not in accord with the

masses of the people cannot long retain public confidence or official

authority.

Under these circumstances no reform movement has any prospect of success

unless it is supported by public opinion. It should therefore be the

principal endeavor of all advocates of railroad reform to create public

opinion in favor of the measures proposed by them. With an intelligent

public on the alert, the Government may be relied upon to pursue a

healthy and progressive railroad policy. Unfortunately, there are times

when public opinion upon great questions is dormant, while pecuniary

interests, like the force of gravity, never suspend their action. To

arouse the masses at such times, we must rely largely upon an honest,

independent and courageous press, not influenced by gift or patronage.

Many plans have been proposed for a better control of railroads. Some of

these are merely theoretical; others have been tried in part, and a few

have been tried in their entirety, but under circumstances radically

different from those surrounding us. A system which may be well adapted

to a monarchy with a centralization of governmental powers would

probably prove a failure here, when brought in contact with the

principles of dual sovereignty and local rule. Unless a revolution

should change our system of government, a dual system of railroad

control will always be necessary in the United States; for it is not at

all likely that the individual States will ever voluntarily give up

their right to regulate commerce carried on within their respective

borders. On the other hand, the common welfare requires that the

commerce which is carried on between the States should not be hampered

by local interference, but should be regulated only by Congress. Our

experience as a nation has shown that such a quality of sovereignty is

not inconsistent with strength or efficiency, nor need it be productive

of rivalry or friction. The fact that a certain mode of railroad

management has been successful elsewhere is not sufficient proof that it

would be successful here, nor is the fact that it has not been

successful elsewhere sufficient proof that it would not be successful

here. The more the conditions which exist here resemble those under

which it was tested, the greater is the probability that it can be

adapted to our circumstances. Independent thought and action is an

essential element of progress, yet it is the part of wisdom to profit by

the speculation and experience of others.

The following are the principal methods that have been tried or proposed

for the control and management of railroads:

_1. Publicity of the railroad business._

It is held by some that the secrecy with which railroad business is at

present transacted is the source of all evils. It is contended that if

railroads were required to report to the public every item of income and

expenditure, discrimination and extortion, as well as bribery and

corrupt subsidizing, would soon cease. If the companies were compelled

to render an account of all receipts, special rates and drawbacks could

not safely be granted by railroad managers, or, if granted, would soon

lose their charm for recipients, for it would be but a short time until

others would demand and even exact the same privileges. An attorney

would, as a member of the legislature, be slow to accept a retaining fee

if the amount of such fee were made known to his constituents.

Publishers would hesitate to apply for railroad subsidies if the

companies were compelled to render periodically an itemized account of

such expenditures, and railroad companies would, under similar

circumstances, hesitate to pay subsidies, for the subsidized journal

would soon be without patrons. If the items annually expended upon

railroad lobbies were reported, these lobbies would soon be frowned, or

even hissed, out of legislative halls. There can be no doubt that full

and complete publicity in railroad business would correct a large number

of existing abuses, and it should therefore be insisted upon as one of

the first and essential features of railroad reform. It is questionable,

however, whether railroad managers are so sensitive to public opinion

that publicity could be relied upon as a cure for all railroad evils. To

what extent it is desirable to supplement publicity by other measures

of State control will be considered hereafter.

It will, of course, be urged by railroad managers that the State has no

right to pry into the privacy of their business and that they should be

guaranteed the same protection against intrusion that is enjoyed by

other branches of business. To this we must reply that not even banks or

insurance companies are permitted to conduct their business as private,

and that controlling the highway and levying a transportation tax upon

every article of commerce passing over it is essentially public business

and unquestionably subject to public control. Every citizen is as much

interested in it as he is in the transactions of the custom-house, or of

the public treasury, and any transaction of a railroad manager that

shuns public inspection can be set down as a public evil and should be

suppressed. It may safely be laid down as a general rule that the

refusal of a railroad company to give publicity to its transactions is

presumptive evidence of wrong. The people are not alone interested in

such publicity. Stockholders have likewise a right to be protected

against the sinister manipulations of dishonest managers, and publicity

furnishes them the best guarantee of honest management.

Stockholders should attend the meetings of their companies and should

obtain full knowledge of the management of their affairs. If they will

make thorough examination and get at bottom facts the chances are that

contracts will be found with owners of patents, white lines, blue lines,

refrigerator car lines, coal companies, ferry companies, manufacturing

companies, packing companies and other kindred organizations, by which

hundreds of millions of dollars are diverted from the treasuries of the

railroad companies to the pockets of influential persons connected with

the management of the roads.

It has recently come to light that the officers of a Pennsylvania

railroad company, during fifteen years, by some means of secret rebates

and other allowances, have taken about $100,000,000 out of the treasury

of the company and distributed it as largesses to about half a dozen

iron and steel establishments.

This is a method of getting wealthy at the expense of others not unknown

to many another great fortune accumulated in the last twenty years.

Railroad discriminations have been a fruitful source of those gross

inequalities in wealth distribution which now agitate society and call

people's parties and the like into existence. The modern millionaire

appears to be an entirely natural creation. Perhaps this money taken in

special rates from the Pennsylvania railroad's treasury, or, rather,

from the pockets of the road's other patrons, and of the men who may

have sought, without special rates, to compete with the favored ones in

their business, only to be crushed in financial ruin, will be spent in a

praiseworthy way, in accord with the principles of "the gospel of

wealth." What we need now is the gospel of distribution of facilities

for the accumulation of wealth, as well as the gospel of distribution of

great fortunes.

Whether inspired by a bull or a bear interest or neither, all will

concede the ability of Mr. Henry Clews to picture the evils of railroad

management; and his lack of generosity in accrediting ability or honesty

to legislators who are called upon to provide remedies for the wrongs

that he so well depicts will not deter me from indorsing the following

statement made by him in a magazine article which is pertinent to this

discussion:

"One great difficulty that present railroad legislators have

to contend with is the evil methods of railroad building and

extension. A great deal of the mileage of the last two years

has been premature, and doubtless for speculative purposes.

Most of it has been constructed, however, by old companies

who had good credit to float bonds and could raise all the

money required. Hence there has been but little financial

embarrassment arising from the too rapid construction. But

people are beginning to find out that a great deal of this

building has been in the interest of speculative directors

and their friends, who, for a mere song, had bought up

barren lands considered worthless because there was no means

of transportation. But these lands soon become immensely

valuable for sites of villages, towns and cities. The

construction companies, by which these roads were generally

built, raised the cost to the highest possible figures, in

order, I fear, to make dividends for the construction

stockholders. It is noteworthy that the directors connected

with these construction schemes have been exceedingly

prosperous, while the stockholders of the roads have grown

poor in an inverse ratio. The dividends of the latter have

disappeared. The new mileage, much of which, I apprehend,

has been made on this principle, was about twenty-one

thousand miles, which is greater than the entire mileage of

Great Britain. There should be additions to the Interstate

Law, or a special law regulating the methods of construction

companies, which are probably doing more to demoralize the

railroad system--and doing it very insidiously, too--than

any other factor connected with these great arteries of the

country's prosperity.

"Legislative reform is greatly needed in the matter of

railroad reports, especially for the safety of investors,

and to prevent speculative abuses among railroad officials

and their friends and favorites. There should be statements

issued annually, or perhaps more frequently, upon the truth

of which everybody might rely. These should be sworn

statements, and should bear the signatures of at least three

of the directors. These directors should be required to

call to their aid expert accountants, and should have placed

at their disposal all the books of the company or

corporation and all the other papers necessary to verify the

accuracy of their report. The correctness of the statement,

when issued, would then be a foregone conclusion, and an

investor in London, Paris or Berlin could buy or sell on his

own judgment, an experiment which, under existing

arrangements, might prove very costly. It is proverbial that

a railroad statement now is defective in the most essential

particulars, and, to put it mildly, usually covers a

multitude of sins. According to one plan approved by

railroad companies, the statement published to-day, for

instance, is made to show a surplus of many millions, but

there is nothing said about an open construction account to

which the surplus is debtor. On this favorable showing (with

this _suppressio veri_) the stock goes up and the insiders

quickly unload upon the investment public. The following

statement, which comes out six months later, shows that the

surplus has been used to settle the construction

indebtedness. The surplus has disappeared; consequently the

stock suffers a serious decline. Those who bought on the

strength of the large surplus sell out, on being informed of

its distribution. Then the inside sharks come forward again

and purchase at reduced prices, probably at a depreciation

of from ten to fifteen points or more, and keep their stock

until the next periodical appearance of the bogus surplus.

Thus the insiders grow rich, while the outsiders become

poor. The only remedy for this abuse is a sworn statement at

regular intervals, and if the directors should commit

perjury they would render themselves liable to State prison.

If a few of them should be tempted to fall into the trap,

and be made examples of in this way, nothing would do more

to work a speedy reform in this contemptible method of

book-keeping.

"I would also suggest a change in the character of the

directors. Those usually chosen for this office now are men

who have vast interests of their own, more than sufficient

to absorb their entire time and thoughts. They are selected

mainly on account of their high-sounding names, to give

tone to the corporation and solidify its credit, in order

that the lambs of speculation may have proper objects in

whom confidence can be reposed and no questions asked. The

management of the affairs of the corporation is frequently

intrusted to one man, who runs the business to suit his own

individual interests."

We can appreciate the force of the above remarks when we consider that

last year seventy-five companies realized a gross income of

$846,888,000, which is equal to about 80 per cent. of the total income

received by all of the railroads of the United States.

_2. Free competition upon all railroads._

Mr. Hudson, in his excellent work, "The Railways and the Republic,"

recommends the following remedy:

"Legislation should restore the character of public highways

to the railways, by securing to all persons the right to run

trains over their tracks upon proper regulations, and by

defining the distinction between the proprietorship and

maintenance of the railway and the business of common

carriers."

Mr. Hudson proposes to leave the track in the possession of its present

owners, but to permit any individual or company to run, upon the payment

of a fixed toll, trains and cars over it, under the control of a

train-dispatcher stationed at a central point. This train-dispatcher is

to be notified by telegraph of the movement of each train, and is to

give his orders to the officers in charge of each train, as to what

points they are to go, where to pass one train and where to wait for

another. Each transportation company is to own, load and forward its own

trains; it is to be required to run its regular train on schedule time

or to have it follow another train as an extra. They are to be liable to

their shippers as well as to the railway company for all damages caused

by their neglect, while the railroad company is to be held responsible

for the condition of its track. It will not be necessary to go into the

details of Mr. Hudson's plan. Suffice it to say that he proposes to

establish free competition in the railway business by making the use of

the railway track as free as that of the turnpike or canal, subject only

to such control on the part of the public train-dispatcher as the

paramount considerations of speed and safety may require.

The adoption of Mr. Hudson's plan would simply be a return to the first

principle of railroad transportation. It has already been shown that the

first English charters permitted the public to use their own vehicles

and motive power upon the railroad track, but that shippers and

independent carriers could not avail themselves of these provisions of

the early charters because it was in the power of the railroad companies

to make their tolls prohibitory. There is but little question as to the

practicability of Mr. Hudson's plan from a purely technical standpoint,

and its adoption might be advisable if it should be demonstrated that a

monopoly of the track is inconsistent with the operation of the railways

for the public good. It is seriously doubted, however, whether such

ideal competition as Mr. Hudson desires to bring about could be secured

except at the expense of true economy. Concentration, or, rather,

consolidation in the railroad business has, under proper legal

restriction, always resulted in a saving of operating expenses, and

usually in a reduction of rates. Any step in the opposite direction,

whatever other merits it may possess, is in the end not likely to give

lower rates. If it is a settled principle that railroads are only

entitled to a fair compensation for their services, it must be evident

that what would be a fair compensation for the same or similar services

to a large, well-organized, well-regulated and well-managed company

cannot be sufficient compensation to an individual carrier or a small

company, whose expenses will always be comparatively larger than those

of its better-equipped rival. Monopoly and extortion need not

necessarily be synonymous. In fact, States and municipalities in their

public works often prefer monopoly to competition as the cheaper of the

two. Nevertheless, should it ever be found that monopolies cannot be

reconciled with justice and economy, a return to the first principles of

railroading may become advisable.

_3. State ownership and management._

A number of European states, notably Prussia, France and Belgium, as

well as Australia, British India and the British colonies in Southern

Africa, have adopted government ownership of railroads. The motives

which led to this step in the various countries differ greatly. While in

Europe military and political considerations predominated, in Africa and

Australia it was more the want of private capital and energy which led

the government to engage in railroad enterprises. There has in most of

these states been a desire to avoid the evils usually connected with

private management. The experiment of state ownership and management of

railroads has been longest tried in Belgium, and with the best results.

With an excellent service the rates of the Belgian state roads are the

lowest in Europe. Their first-class passenger tariffs are, next to the

zone tariff recently adopted on the state roads of Hungary, the lowest

in the world, and are, for the same distance, lower than those of

American roads. In Prussia the state service, upon the whole, is also

superior to that of private companies, and is probably equal to the

public demand. In France the government only owns and operates less

important lines, but furnishes upon these a more efficient and cheaper

service than private companies would either be able or disposed to

furnish. The oft-repeated statement of those opposed to government

regulation to the contrary notwithstanding, government ownership and

management of railroads is a decided success in Europe, Mr. Jeans says

of state railroads:

"Notwithstanding the superior financial result, the lines

worked by the state are those kept in the best order, and

the working of which gives the greatest satisfaction to the

commercial world and the public in general as regards

regularity of conveyance, cheapness of transit and the

comfort of travelers."

It is difficult to see how any unbiased person can travel on any of the

state roads of Europe without coming to the same conclusion. State

management offers certainly some decided advantages to the public. Above

all, the business of the roads is not conducted for the pecuniary

advantage of a few, but for the common good. Commerce is not arbitrarily

disturbed to aid unscrupulous managers in their stock speculations. New

lines are not built for speculative purposes, but for the development of

the country. Rates are based more upon the cost of service than upon

what the traffic will bear, and the ultimate object of the state's

policy is not high profits, but a healthy growth of the country's

commerce, while the sole aim of a private company is to get the largest

revenue possible. The permanent way of the state road is kept in better

condition, the public safety and convenience being paramount

considerations. Rates are stable and uniform, instead of being

changeable and discriminating, and all persons and places are as equal

before the railroad tax collector as before the law. It may be laid down

as a general rule that under private management of railroads efforts

will be made to secure the highest rates possible, while it is the aim

of the Government to grant the lowest rates possible. Mr. Jeans proves

by statistics that the cost of maintenance of way is generally higher on

the state lines, and that traffic expenses are higher on the lines of

private companies. In commenting upon this difference he says:

"It might easily be contended, and even proved beyond all

doubt, that the first characteristic is a result of the

better condition in which the state keeps the permanent way;

and, so far as this is the case, the public convenience,

safety and general advantage are promoted.

"The highest range of traffic expenses on companies' lines

undoubtedly argues greater laxity of management, since, as

we have already shown, this is one of the most elastic of

items, and may be either very high or very low, according as

economy or extravagance is the prevailing system.... The

experience of Continental Europe points unmistakably to the

exercise of greater economy in state management."

Judge Dillon, of the United States Court, in his order appointing Hon.

J. B. Grinnell receiver for the Central Railroad of Iowa, in 1876, said:

"The railroads in the hands of the court--and in the circuit

there are eight or ten--have all been run with less expense,

and have made more money, than when they were operated by

the companies; and we hope and believe under your

supervision that this road will prove no exception, and that

the property will be worth more at the end of the

litigation."

Upon Mr. Grinnell's resignation, after nearly three years of service,

Judge Grant said, in asking for the discharge of his bondsmen:

"I concur entirely in the opinion of the State commissioners

that he has very much improved the condition of the road,

and he left it in far superior condition to that in which he

received it."

Yet Government ownership and management of railroads also has its

drawbacks. It is claimed by some that such management is more expensive

than that of lines owned by private companies. It has already been shown

that the permanent way is kept in better condition by the state than by

private corporations. In Russia, Germany, Austria-Hungary, France and

Italy the state expends from 15 to 30 per cent. more for the maintenance

of the permanent way than the private companies. It is perhaps also true

that the rank and file of railroad employes fare, on an average, better

under government than they do under private management; but, as an

offset to this, it should be remembered that quite a saving is effected

by the state in the salary account of general officers. The people will

not consent to pay the manager of a railroad line a salary six times as

large as that of a cabinet officer, and provide at the same time

sinecures for his sons, brothers, nephews and cousins.

It is furthermore claimed that, as government is organized, it cannot,

all other things being equal, respond to the demands of commerce as

promptly as private companies. This feature, however, may be an

advantage to the country at large rather than a detriment. But the

strongest argument that can be produced against state ownership of

railroads is that under a democratic form of government it might exert a

demoralizing influence in politics. The 1,700 railroad companies of the

United States have at present an army of about 800,000 employes. This

number is constantly increasing, and it is more than probable that

before the end of the present century it will have reached a million.

When it is considered what importance is at present attached to the

political influence of a hundred thousand Federal officers, it is not

surprising that conservative citizens should hesitate to add to the

ranks of these officeholders a six or seven times larger force.

Dangerous as the railroad influence now is in politics, it would be ten

times more dangerous if under a system of Government management

considerations of self-interest should induce a million railroad

employes to act as a political unit and political parties should vie

with each other in bidding for the railroad vote. Could our civil

service ever be so organized as to divest it entirely of political

power, state management of railroads might still offer the best solution

of the railroad problem.

Mr. T. B. Blackstone, president of the Chicago and Alton Railroad

Company, has recently created somewhat of a surprise by declaring in

favor of Government ownership of railroads. That Mr. Blackstone's

programme will eventually receive the approval of a large number of his

colleagues there can be but little doubt. With the people wide-awake

upon this subject, the opportunities for railroad speculation are

lessening, and the scheme to early unload the railroads of the country

on the Government at a highly inflated value speaks well for the

financial farsightedness of its author. Mr. Blackstone proposes to have

railroad stockholders do here what the former owners of the telegraph

did in Great Britain, _i. e._, dispose of their property to the

Government, at a price representing several times its original cost or

even several times the cost of duplication.

Mr. C. Wood Davis, formerly general freight and passenger agent of one

of the leading roads east from Chicago, is one of the best informed and

clearest-headed writers upon the railroad question. He has, after much

experience and long study, been converted to the advocacy of national

ownership as a solution of the railroad problem. In a recent article

published by the Arena Publishing Company, entitled "Should the Nation

own the Railways?" he presents the objections and advantages of national

ownership. He says:

"The objections to national ownership are many, that most

frequently advanced, and having the most force, being the

possibility that, by reason of its control of a vastly

increased number of civil servants, the party in possession

of the Federal administration at the time such ownership was

assumed would be able to perpetuate its power

indefinitely.... This objection would seem to be well taken,

and indicates serious and far-reaching results unless some

way can be devised to neutralize the political power of such

a vast addition to the official army.... In the military

service we have a body of men that exerts little or no

political power, as the moment a citizen enters the army he

divests himself of political functions; and it is not

hazardous to say that 700,000 capable and efficient men can

be found who, for the sake of employment, to be continued so

long as they are capable and well behaved, will forego the

right to take part in political affairs. If a sufficient

number of such men can be found, this objection would, by

proper legislation, be divested of all its force....

"2. That there would be constant political pressure to make

places for the strikers of the party in power, thus adding a

vast number of useless men to the force, and rendering it

progressively more difficult to effect a change in the

political complexion of the administration.

"That this objection has much less force than is claimed is

clear from the conduct of the postal department, which is

unquestionably a political adjunct of the administration;

yet but few useless men are employed, while its conduct of

the mail service is a model of efficiency after which the

corporate-managed railways might well pattern. Moreover, if

the railways are put under non-partisan control, this

objection will lose nearly, if not quite, all its force.

"3. That the service would be less efficient and cost more

than with continued corporate ownership. This appears to be

bare assertion, as from the very nature of the case there

can be no data outside those furnished by the

government-owned railways of the British colonies, and such

data negative these assertions; and the advocates of

national ownership are justified in asserting that such

ownership would materially lessen the cost, as any expert

can readily point out many ways in which the enormous costs

of corporate management would be lessened. With those

familiar with present methods, and not interested in their

perpetuation, this objection has no force whatever.

"4. That with constant political pressure unnecessary lines

would be built for political ends. This is also bare

assertion, although it is not impossible that such results

would follow; yet such has not been the case in the British

colonies where the governments have had control of

construction....