THE RAILROAD COMMISSION OF 1880 TO 1883
Early Agitation Against Company
It is more difficult to describe the relations of the Central Pacific
to the legislative bodies of California than it is to trace the history
of the system in most other respects, because the details are less
matters of public record. Some connection between the railroad and
politics undoubtedly existed at an early date. Indeed, Stanford and
Colton were politicians before they became railroad men, and the state
and local aid which the railroad secured at the very beginning of its
construction but confirmed an attitude favorable to continued relations
between the corporation and the body politic which these gentlemen
might have been expected to approve.
Before 1876, the only regulation which the associates had to encounter
was that resulting from the general railroad law, which required a
minimum subscription before a railroad corporation could commence
business, established proportionate liability of stockholders, and
reserved to the legislature the right to reduce rates when the net
income of any company exceeded 20 per cent. These and other provisions
of like tenor were little calculated to interfere with the profitable
operations of a railroad business except perhaps that the proportionate
liability established by the law to some extent discouraged
participation in railroad enterprise. In 1874 and in 1876, maximum
rates and fare enactments were discussed in the legislature but failed
of passage. In 1876, nevertheless, the accumulated resentment of the
California public over what it considered the grasping and monopolistic
policy of a selfish corporation led to important additions to the law.
This resentment had been growing for several years. The Sacramento
reporter for the _San Francisco Bulletin_ wrote, in March, 1868:
There is a strong prejudice existing here and daily growing stronger,
against the Central Pacific Railroad Company. The members from Placer,
Nevada, and El Dorado counties are all of them, I suppose, pledged to
endeavor to obtain a reduction of the rates of freight and fare on
the line. Petitions, apparently signed by nearly all the residents of
the districts which use the road for the transportation of freight
and travel, have poured in upon the legislature, asking a reduction
of prices. It is said that traders who complain of the rates are
discriminated against. A general feeling exists that, considering
how liberally it has been dealt with by Congress and the State, the
management of the business and affairs of the company is extremely
illiberal....
In like vein the _Stockton Independent_ said of the owners of the
Central Pacific in 1871:
No set of men on the face of the globe were ever placed in a more
enviable position, or in one where by the exercise of a reasonable
foresight, they could have retained their popularity and the
friendship of the people. It is now hardly two years since this work
was completed, and how remarkable has been the change in public
sentiment. Along the whole line of their main trunk road from San
Francisco to Ogden, as well as along the various branch roads of this
company, nothing is heard but one continuous murmur of complaint, and
it is safe to assert that this shortsighted, illiberal, and suicidal
policy of the company has so completely changed the sentiment of the
people that there is not in a single town on any of their lines of
road, either in this state or Nevada, one individual who approves of
this course, nor one who will speak well of the company, unless it be
one of their subsidized agents or strikers.
Beginnings of State Regulation
It is not necessary to dwell at this point on the reasons for the
opinions voiced in these extracts from the press. The feeling of
the general public, of which these extracts are the reflection, was
doubtless due in part to anger at the methods employed by the Central
Pacific in promoting subsidy legislation, in part to disappointment
over the results of railroad construction, and in part to reaction
against policies of the Central Pacific such as have been outlined in
previous chapters. However this may be, the result was the passage of
the so-called O’Connor bill in 1876, which erected a State Board of
Transportation Commissioners, and defined and prohibited extortion
and unjust discrimination. The commissioners were not only to enforce
these prohibitions, but they were given extensive authority to secure
information from the steam railroads of the state, and were charged
with the duty of supervising all such railroads with reference to the
security and accommodation of the public.[260]
It appears from the report of the commissioners appointed under the
O’Connor Act that the railroads in California, and in particular
the Central Pacific, refused to render the reports required by the
legislature, and that the commission was unable to compel them to do
so.[261] Two years later the commissioners were legislated out of
office, and a single commissioner was appointed in their place, acting
under a statute similar in most important respects to that administered
by his predecessors.[262] Mr. Tuttle, the new commissioner, accumulated
certain statistics during his two-year term of office, but otherwise
did little to which the railroads could object.
The development of railroad regulation was thus temporarily arrested.
Yet for several reasons the check to the progress of public control
was not lasting. Feeling in the state was running high. The times
were hard, both for reasons affecting the whole country, and because
of circumstances peculiar to the Pacific Coast. The rainfall of the
winter of 1876-77 was slight and, as happens in such cases, great loss
of cattle on the ranges occurred, and the grain crop was seriously
deficient. At the same time the yield of the Nevada silver mines
declined—in fact the dividends of the important Consolidated Virginia
mine stopped altogether in January, 1877, to the great disturbance of
the stock market at San Francisco. Under these conditions unemployment
and suffering were the experience of the working classes, while
riots and later, political agitation also resulted. Even the radical
labor leader, Dennis Kearney, in spite of his lack of character and
self-restraint, or even of unusual mental ability, served as the
temporary expression at this time of a real distress, and had some
influence on the course of legislation.
Railroad Question in Constitutional Convention
So far as the railroads were concerned, the effect of the unrest
throughout California and the activity of the Workingman’s party is
seen in the railroad clauses of the Constitution of 1879, and of the
Act of 1880, which carried them into effect. The call for a convention
was issued by the same legislature which passed the railroad control
bill of 1878.[263] Mr. Colton thought the call most unfortunate,[264]
but there is no reason to suppose that the legislature had anything
particularly radical in mind.
When the convention began its sessions, however, its membership
was found to include a majority of persons determined to force
thoroughgoing regulation upon the railroad system of the state, as
well as a minority opposed to government control of any kind. Just how
regulation should be made effective, it is true, few members of the
first-named group knew. Some were opposed to corporations as a class,
and thought that at least unlimited liability should be imposed on
holders of corporate stock. Others were in favor of declaring railroads
public highways, upon which all persons should be allowed to run cars
and locomotives under such regulations as might be prescribed by law.
Still others desired to set a maximum limit of 10 per cent to the
return on investment in railroad property. The extreme position on
the other side was taken by men like McFarland, of Sacramento, who
maintained that the clamor about railroads and corporations was a mania
evolved from the inner consciousness of members of the convention, as
spiders spin their webs.
The discussion of railroad regulation by the Constitutional Convention
of 1879 began on November 18 and ended on December 7. It was
systematically conducted, participated in by men with a wide variety
of views, and resulted in constructive conclusions of importance. More
could scarcely be asked of a deliberative assembly. The main decisions
reached were as given below.
New Regulative Commission
The first conclusion of the Constitutional Convention was that the
regulation of railroads in California should be entrusted to an
elective commission, holding office for four years, and vested with
the power to establish and publish rates, to examine the books and
records of transportation companies, and to prescribe a uniform system
of accounts. Heavy penalties, including fine and imprisonment, were
provided for failure to obey the orders the commissioners might make.
The principal objection made to the establishment of a commission
was that its power would be excessive. It was pointed out that
the commission would combine legislative, judicial, and executive
functions, and that its members could lower rates and increase railroad
expenses at will. Mr. Wilson, of San Francisco, declared:
Here, then, will stand in our government a constitutional triumvirate
as great in many respects as that of Rome in the olden time. They may
raise and lower the rates of freight and fare to suit their powers,
and thus they can play with the value of the stock in the market,
and determine the value of the bonds and mortgages on the road....
They will be sole judges of what are abuses.... They will determine
complaints on their own notions of right and wrong, and however
erroneous or malicious their acts, there will be no remedy or appeal.
Reference was made to the English Railway Commission of 1873 and to the
Massachusetts Commission of 1869, and the Wisconsin experiment of 1874
was held up as something to avoid. The reply to this kind of objection
was that the power to control rates must be lodged somewhere, and that
the legislature was inexpert, slow to act, and subject to corrupt
influences.
Other Constitutional Provisions
The second decision of the convention was that a general prohibition
of discrimination should be placed in the fundamental law. The
clauses finally adopted provided that no discrimination in charges
or facilities for transportation should be made by any railroad or
other transportation company between places or persons, or in the
facilities for the transportation of the same classes of freight or
passengers within the state, or coming from or going to any other
state. In addition to this general prohibition, it was enacted that
persons and property transported over any railroad, or by any other
transportation company or individual, should be delivered at any
station at charges not exceeding the charges for the transportation
of persons and property of the same class, in the same direction, to
any more distant station. This amounted to a stringent prohibition of
greater charges for shorter than for longer hauls. Speakers opposed to
the discriminative clauses insisted that only unjust discrimination,
not all discrimination, should be prohibited, and pointed out that
the proposed law was unconstitutional in that it applied to commerce
between the states. Neither objection was sufficient to persuade the
convention that the proposals should not be approved.
Besides the fundamental clauses relating to a commission and those
prohibiting and defining discrimination, the Constitutional Convention
of 1879 forbade railroads to grant passes to persons holding any office
of honor, trust, or profit in the state; forbade them also to agree to
divide earnings with owners of vessels entering or leaving the state,
or, under certain conditions, with other common carriers; granted to
all railroads the right to connect with, intersect, or cross other
railroads; and provided that no officer or employee of any railroad
or canal company should be interested in the furnishing of material
or supplies to such company. One apparently important clause declared
that a railroad which should lower its rates of fare or freight for the
purpose of competing with any other common carrier, should not again
raise these rates without the consent of the governmental authority in
which should be vested the power to regulate fares and freights.
Act of 1880
Special emphasis should be placed upon the constitutional provisions
adopted in 1879 because they created the framework upon which railroad
regulation in California was to hang for thirty years. For a full
understanding of the system the act of the legislature approved April
15, 1880, should also be consulted. This act defined certain terms
used in the law. It also fixed the salary of the commissioners at
$4,000 each, provided a mechanism for enforcement of the commissioners’
orders through the courts, placed the office of the board in the city
of San Francisco, and required rates established by the commission
to be posted in all offices, station houses, warehouses, and landing
offices to or from which the rates applied. Finally, it granted to the
commission, in general terms, all the necessary means and the authority
to adopt any suitable procedure to make effective the powers conferred
by the Constitution.[265]
Harvey S. Brown, attorney for the Stanford interests, once said
that the Constitution of the state of California was conceived in
communistic malice, was framed by unpardonable ignorance, adopted in
frenzied madness, and was valuable only as a beacon to other states and
peoples to avoid its principles and results.[266]
The document certainly compelled the associates to consider the best
method of defence against a political attack which threatened to
sterilize the monopoly control which they were slowly establishing over
the railroad system of the state. From their point of view the danger
was like any other—one to be met by skilful strategy, displayed in a
new field, but resembling in impelling motive and essential character
their action in adjusting rates and in dominating the terminal
situation on San Francisco Bay.
Personnel of First Commission
According to the Constitution, one railroad commissioner was to be
elected from each of three districts into which the state was to
be divided. Elections were held in 1880, and J. S. Cone, C. J.
Beerstecher, and George B. Stoneman were returned. Cone was a ranch
owner, business man, and capitalist at Red Bluff, with an income of
$50,000 a year, and property worth perhaps $200,000. He had been
on friendly terms with Stanford before he became commissioner, and
had known most of the prominent railroad officials of the state for
twenty-five years. By association and point of view he represented the
interests of large business in the state. Stoneman was a politician of
the better type, later governor of the state, a Democrat, and believed
to be a defender of the public interest.[267]
The third member of the commission was C. J. Beerstecher, a San
Francisco lawyer with a miscellaneous practice amounting to perhaps
$50 a month. Judge Lawler, of the Superior Court of San Francisco,
who knew Beerstecher well, says that he came to San Francisco, with
nothing but a gripsack, and built up a small practice, mainly divorce
suits, among the poorer classes in the city. For some time Beerstecher
used Lawler’s office, living in rooms in the same building, for which
he paid $15 a month; Lawler befriended him, and a man named Steinman
advanced him money for electioneering expenses. In return for this,
apparently, Steinman was later made bailiff to the railroad commission.
That is to say, Beerstecher was poor, with no reputation to lose, and
in circumstances in which his good-will had value.
One would scarcely expect effective regulation of a commission composed
of a wealthy farmer, a cheap lawyer, and a man who looked to a career
in the public service. Nor was such regulation in fact secured.
Stoneman once told Judge Reagan, of Texas, that when the California
commissioners were elected, he, Stoneman, was elected because it
was understood that he represented the popular interests; another
gentleman (J. S. Cone) was elected because it was understood that he
represented the feeling of the corporations, and a third (Beerstecher)
was a sand-lot man. He added that, having the sand-lot man with him to
take care of the interests of the people, he thought he was all right,
but in a short time the sand-lot man sold out and did not amount to
anything.[268] Cone also considered Beerstecher a reliable pro-railroad
man. There is no direct evidence that Beerstecher accepted railroad
money, but the probabilities are strong. Before discussing this point,
however, the activities of the new commission may be briefly described.
Indifference of Commissioners
The evidence shows that from the very first the three members of the
California commission devoted but a small portion of their time to the
work of regulation. Mr. Beerstecher was accustomed to visit his office
twice a day, spending perhaps an hour there each time. This was while
Beerstecher was a resident of San Francisco. In the latter part of his
term he lived in the Napa Valley and probably spent even less time
on his official duties. Nor did Beerstecher compare unfavorably with
his fellow appointees in application to his work. Governor Stoneman
devoted five or six days a month to affairs of the commission; Mr.
Cone about the same. Of 127 meetings held by the board between May 3,
1880, and January 8, 1883, Cone was present at 99, Stoneham at 80, and
Beerstecher at 109.[269]
It seems beyond belief that a new commission, established to initiate
public control of a great industry, should have approached the problem
in this indifferent way. The undertaking called for the fullest
exercise of the powers of all the commission’s members; but it was
approached as a casual task to be accomplished in the spare hours of
busy men.
As a natural result of their attitude with respect to the importance
and urgency of railroad regulation, the commissioners failed to
make effective the most primary requirements of the law. Instead of
preparing new rates except as hereinafter stated, the commission
established the existing rates of the companies operating in the state.
Instead of prescribing a system of keeping accounts, the existing
system was adopted. Mr. Stoneman once tried to investigate the railroad
books, but said they were all Greek to him, and he had no authority
to employ an expert. Beerstecher testified that the commission asked
certain questions, but that he did not, as an individual commissioner,
consider that it was his business to go prying around into the business
of the railroad companies.[270]
Some slight attention was paid to the posting of rates, but the only
inspection seems to have been by the bailiff of the commission.
Doubtless the original cause for the failure of the commission in the
respects mentioned was lack of money; but it was for the members to
formulate boldly their ideas of what should be done, and to educate
public opinion as to its necessity, making use meanwhile of all
the authority which they could wield. It was gross negligence and
indifference to rest content while the law stood unenforced.
Adoption of First Rate Schedule
The largest task eventually undertaken by the commission was the
formulation of rate schedules for passengers and freight. During the
spring and summer of 1880, the commissioners traveled through the state
taking testimony and hearing complaints. In the winter and spring of
1880-81, they attempted to formulate results. It appears that in May,
1880, Stoneman introduced a resolution to the effect that maximum
rates in California should not exceed five cents per ton per mile
for distances 100 miles and over, and six cents per ton per mile for
distances under 100 miles, and that maximum fares should not exceed
four cents and five cents per mile within the same limitations. This
was defeated by a vote of two to one. Nothing was done between this
time and February, 1881, when the board unanimously adopted a schedule
of passenger fares with maxima varying from five cents to three cents
per mile.[271]
At the same time that the passenger schedule was introduced Mr. Cone
submitted a freight tariff, which was also adopted. This schedule cut
rates mainly on agricultural products originating in the northern
part of the state. Stoneman objected to it—but later said that he
did not prepare an alternative schedule because he knew it would not
be adopted. He did, however, call the attention of the board to the
fact that southern California was being discriminated against.[272]
Beerstecher had no part in the preparation of the new rates, but made
no opposition to them.
Delay in Enforcement
Armed with the new passenger and freight schedules, Mr. Cone went over
to the Southern Pacific offices and left the figures with Mr. Towne,
general manager, for comment. The railroad people at once objected.
They said they were building the Southern Pacific and selling bonds
to raise the money. The proposed reductions would injure their credit
and could not be accepted. Cone was anxious to avoid litigation and to
get quick action.[273] Moreover, Stanford wished to get away and go
to Europe, and Cone did not like to keep him. As Cone said in another
connection, Stanford was pretty winning in his ways. The result was
that the railroad agreed not to contest the new freight rates and Cone
consented not to press the reduction in passenger rates, at least not
until October, 1881. There is no evidence that Cone possessed authority
from the commission to negotiate with the Central Pacific, but he
seems to have acted in confidence that Beerstecher would support him
in action favorable to the railroad and Stoneman in action of contrary
tenor.
[Illustration: George Stoneman]
As a matter of fact the board did not take further action in regulation
of passenger fares until August, 1882, a year and a half after
the question had first been raised. By this time Cone had become
convinced, so he says, that Stanford would concede no further reduction
in railroad charges. On the 15th of August, Stoneman accordingly
reintroduced his original passenger schedule, but slightly changed.
The matter was laid over for a month, and in September, at a meeting
at which only Cone and Stoneman were present, a substitute resolution
was adopted, setting a maximum fare of four cents per mile. Stoneman
thought the maximum should be three cents, but Cone would not consent.
The new maxima were suspended in October “until further order of the
board” in order to give the railroad companies an opportunity to be
heard. Before the commission came together again, however, Stoneman
had resigned. This left Beerstecher and Cone—with two as a quorum. It
is eloquent of Beerstecher’s attitude that he attended no meeting of
the board after November 22, 1882, and that on that day his action in
respect to passenger rates was to move to postpone consideration.
In two years and seven months the only reductions in rates and fares
secured by the Railroad Commission were certain cuts in the rates on
products of agriculture conceded to the farmer member of the commission
by his railroad friends. The commission formulated no principles and
worked out no effective procedure. Even its reports to the legislature
had little value. The first two were prepared by Mr. Beerstecher, the
third by Mr. Tuttle, former railroad commissioner but no longer in any
official way connected with regulation work. When the commission was
not unanimous in its decisions, the division usually was that of Cone
and Beerstecher against Stoneman—a fact which leads us back to the
question of the nature of the influence which the Stanford group was
able to exert.
Bribery Committed
The charge is made that the Central Pacific bought and paid for
Beerstecher’s services while a member of the Railroad Commission, and
that Cone was so influenced by his personal and business relations
with the managers of the Central Pacific as to be unable to view
their activities in the critical and impartial way which his position
demanded. The evidence in the case is purely circumstantial, but
seems to be convincing. So far as the former is concerned we have the
admitted fact that Beerstecher was richer at the end of his term of
office than at the beginning by at least $12,000 and probably by a
good deal more. As he put it, he thought he saved his entire salary of
$4,000 a year as commissioner, during these years. Beerstecher asserted
incidentally that his legal practice while a member of the Railroad
Board amounted to from $1,200 to $1,500 a year—although the records
of the Superior Court of San Francisco, before which Beerstecher
practiced, show that this was highly unlikely,[274] and the testimony
of the bailiff to the commission is directly to the contrary. $12,000
may be regarded as adequate compensation for a man of Beerstecher’s
type.[275]
Gerke Transaction
Cone’s case is not quite so simple. It seems unlikely that a man of
his standing should have consciously accepted a bribe. There is,
however, direct evidence of a reliable character that Cone was given
unusual consideration by the railroad in connection with the purchase
of certain lands in the northern part of the state, and Cone himself
admitted that while he was commissioner he had bought some lands from a
man named Gerke and had resold them within two or three months to the
treasurer of the Southern Pacific at a profit of $100,000.[276]
What happened in the first of these two instances was this: It seems
that there was a tract of about 34,000 acres of the Oregon grant of
the Central Pacific lying east of Cone’s ranch—rough, chapparal land,
graded at from 50 cents to $2.50 an acre. Cone was running about 20,000
sheep at the time, and was using the land without paying for it, as
certain other individuals were also doing. Among these other persons
was a man named Wilson, who was not only a small sheep owner, but an
actual settler as well. Wilson originally applied to purchase from
5,000 to 7,000 acres of the tract, and was quoted the first graded
price, $1.25 to $2.50 an acre. At this quotation he took some land that
had water on it, but in general could not afford to buy. Later the land
was regraded, and Redding, the Central Pacific land agent, told Wilson
that the regrade price was 50 cents. A few months after, in June, 1881,
Wilson applied to purchase, although he believed that the application
was unimportant, since as a settler he was entitled to second grade. He
had the land fenced by this time.
Meanwhile, on the 21st of April, 1880, Cone had negotiated with the
Central Pacific for a tract of 34,097.45 acres, including the land in
which Wilson was interested. He did not offer to purchase, but asked
to have the lands that were free reserved for him, that he might
ascertain the bounds of his range. In fact, when the statement of the
cost of the lands was made out for him he refused to take them at
the graded price, and abruptly left the Central Pacific land office,
exhibiting considerable ill feeling. This was the situation when Wilson
applied. Properly considered, Wilson seems to have been entitled to
purchase at the new price. His application was subsequent to Cone’s
conference with the Central Pacific land commissioner, but Cone had
then refused to pay the price asked, which left the lands open. The
Central Pacific, however, through Mr. Redding, its agent, refused to
sell. Mr. Redding later said:
When Mr. Wilson demanded a right to purchase a portion of these lands
because Mr. Cone had bargained for them and then refused to take them,
I told Mr. Wilson the circumstances and said to him that Mr. Cone had
refused under so great an exhibition of temper that it was my duty
to wait until Mr. Cone became more calm. I also added that the new
Constitution and the people had given Mr. Cone and his associates
powers that were more extensive than those of the Czar of Russia; that
he and his associates could virtually confiscate the property of the
stockholders of the railroad company, and that I could not afford to
add to a quarrel which by any possibility might be construed into an
excuse for unjust action.
The result was that Wilson hunted up Cone and tried to get a
relinquishment. Cone offered to let Wilson have the land at the graded
price—the first graded price, as Wilson understood it. This offer
was naturally refused, and Cone subsequently bought the whole tract
for $29,199.67. Although the facts are somewhat complicated, it seems
clear that Mr. Cone received special treatment, due to his position as
railroad commissioner.
Of the Gerke transaction, Cone testified:
I would say that the ranch was held under a deed of trust, and parties
were foreclosing it, and at the time I bought it it would have been
sold under a deed of trust in fourteen days, and the party came to me
and asked what I would pay for it and I didn’t dream they intended to
sell it because I didn’t know the condition the land was in, and they
insisted on my making an offer that day for it. I made an offer and it
was accepted.
_Mr. Storke_: What was your profit on that transaction?
_A._ I think in the neighborhood of one hundred thousand dollars, and
the worst trade I ever made when I sold it.
Finding of Legislative Committee
Dealings of this kind were improper, to say the least, and calculated
to interfere with the impartial discharge of a commissioner’s duties.
On the whole subject a committee of the California legislature reported
as follows:
As to the second subject of inquiry, whether the Commissioners,
or either of them, during their term of office, may have made any
extraordinary acquisition of property ... your committee report
that in their opinion Commissioner Stoneman did not make any
extraordinary acquisition of property; that Commissioner Cone made a
large acquisition to his wealth, which was already great when he was
elected Railroad Commissioner, and your committee believe that such
acquisition of wealth was largely due to extraordinary and unusual
facilities afforded by the railroad officers; and that Commissioner
Cone, in the purchase of thirty-four thousand acres of land for
twenty-nine thousand dollars, was made a privileged purchaser, and
received from the railroad company facilities in this regard denied
to other applicants for portions of the tract; and further, that the
transaction by which the Gerke farm was purchased by Commissioner Cone
in April, 1881, and sold in September of the same year to Nicholas
Smith, the Treasurer of the Southern Pacific Railroad Company, at a
profit of one hundred thousand dollars, gives rise to the suspicion
that more was contemplated in the purchase and sale than appears on
the face of the transaction. As to Commissioner Beerstecher, your
committee find that by general report, and in the opinion of his
associates, he was without means at the time of his election, and his
sudden acquisition of wealth while Commissioner was without adequate
explanation....
As to the fourth subject of inquiry, your committee report that
Commissioners Cone and Beerstecher knew of and permitted both
systematic and casual discrimination in charges and facilities for
transportation between persons and places by railroad corporations in
this State, and that through their conduct in permitting and upholding
the same, Commissioner Stoneman was unable to accomplish a redress
of such discriminations while Commissioner. Further, under this
fourth subject of inquiry, your committee find that Commissioner Cone
sacrificed the best interests of the State through personal friendship
for Governor Stanford, and in return therefor received favors from
him; and that Commissioner Beerstecher’s conduct admits of no other
explanation than that he was bribed, and that in the opinion of this
committee Commissioners Cone and Beerstecher acted in the interests of
the railroad corporations rather than of the people.
This finding of the legislative committee is justified by the facts
elicited in their investigation.