CHAPTER XIV

THE RATE SYSTEM OF THE CENTRAL PACIFIC

City and Country in California

For more than forty years the Southern Pacific interests sought with

varying success to modify the intensity of water competition by

agreement with or by purchase of competing lines. During all this

period the existence of alternative water routes was probably the

principal influence determining the relative adjustment of rates

between different towns upon the Pacific Coast. In deciding upon the

rates which they should charge, the Southern Pacific interests had

other factors to consider, however, besides the presence of water

competition—factors which can be understood only after a careful study

of local conditions in the Far West.

The state of California is characteristically a country of great

distances, occupied by a relatively sparse and unequally distributed

population. Its industry is primarily agricultural and mining. Although

some manufactures have developed since 1870, such as foundries,

woolen and sugar mills, glass, paper, cordage, powder, tobacco, tin,

and hardware manufacturing concerns, yet even today the absence of

adequate supplies of good coal, the smallness of the local market,

and the distance from the great centers of population in the East

hold manufactures within narrow limits. As explained in the previous

chapter, the state is best fitted to produce and export products of the

soil, and raw materials such as grain, fruit, wool, hides, and later

wines, lumber, and oil. To this list should also be added salmon.

In such an economy, the cities of California play the part of

distributing agencies rather than that of centers of industry. Such

was the first function of Stockton, Sacramento, Los Angeles, and

indeed of San Francisco itself, and the work of distribution still

remains these cities’ principal means of support. Originally the chief

profit of the northern towns came from supplying the mining population

of the Sierras with supplies brought by sea from Europe or from the

Atlantic Coast of the United States. The nature of California imports

has somewhat changed since the early days; a larger commerce with the

Orient and with the west coast of South America has developed, and a

large part of the freight handled on the Pacific Coast now comes in by

rail. This has multiplied the number of distributing points, and has to

some degree built up the interior of the state. The character of the

cities has not, however, changed and they remain as before—trading and

consuming rather than producing centers.

Conflict of Interest

It follows from this division of labor between town and country on

the Pacific Coast, and from the rivalry of different cities in the

distribution of finished goods, that striking divergencies in point of

view have arisen, both between individual cities, and also between the

city communities as a whole and the farming and manufacturing interests

of the state. These differences have received free expression in the

discussion of railroad rates. Inasmuch as the articles distributed by

the towns are in large part imported goods, the cities as a group have

demanded low westbound carload rates from eastern sources of supply.

The larger centers of population, however, have opposed low rates on

small consignments, because that tends to deprive them of a rehandling

profit by promoting direct relations between the consumer and the

eastern wholesale house. As compared with the cities, on the other

hand, the farming interests have been relatively indifferent to the

level of westbound rates, so long as they have enjoyed low eastbound

rates on the product of the farm and field; while the struggling

manufacturers have resisted low rates westbound, because these have

exposed them to the competition of eastern factories. The interests of

the consumer have not until quite recent years been represented.

No Settled Rate Policy

Owing to these persistent conflicts between various classes of

shippers, public opinion in California has not been easily enlisted

as a whole in support of any concrete proposals for the readjustment

of railroad rates, although complaints from all sections have been

numerous. There has been, on the contrary, a persistent series of

appeals to the railroad, now to favor one set of interests, now to

favor another—appeals which, when granted, often have resulted in

gross discrimination, and which, when refused, have swelled the tide

of protest against the transportation lines. The serious side of this

situation in California is that the conflict of interest between buyers

of transportation has exposed the railroad to temptations which it has

had neither will nor ability to withstand. Where there is constant

demand for favors there is likely to be discrimination unless the

person or institution to which demand is made is fortified by a clear

view of public policy and a sense of morality more than ordinarily

acute.

It is no secret that the Southern Pacific has had neither the one nor

the other of these qualifications. For its part, it has acknowledged

no duties other than those generally incumbent upon private business.

It has insisted upon complete freedom to follow its own advantage. In

a speech to the men in the railroad shops at Sacramento in September,

1873, Stanford explained his position by asking: “Does Governor

Booth sell at the same per cent of profit his sugar, pork, beans,

bacon, lard, candles, soap, spice, coffee, whiskey, brandy, and other

articles? So with the mechanic, the manufacturer, the farmer, and

others. The market price governs. A farmer takes two and one-half cents

for his grain as justly and as cheerfully as one and one-half cents,

the cost of producing being the same.”[359] “The Southern Pacific,”

said Mr. William B. Curtis, of that company, in 1894, in the same

strain, “sells transportation precisely as a merchant disposes of

his wares, adjusting its tariff to conform to the situation with the

object in view of inducing the largest amount of transportation at fair

rates.”[360]

This announced willingness to differentiate led in the course of time

to the greatest variety of railroad rates in California, some rates

being low, some high, some public, some secret. Generally speaking,

indeed, rates were low where competition was present, and high where it

was absent. The big man was favored over the little man, the shipper

with an alternative route over the shipper confined to one railroad

line. Some of the details of this interesting system will now be

presented.

Separate Rate Classifications

In discussing the adjustment of local charges in California, attention

will be first directed to the absolute level of local railroad rates.

Separate mention must be made of the local classifications and of the

local rates.

As late as 1877, each of the principal railroads in California had its

own classification. These were far from being the same. Baled hops

moved at one and one-half times first-class on the Central Pacific.

On the Southern Pacific compressed hops took third-class. On the

California Pacific pressed hops took double first-class. Liquors took

one and one-half times first-class on the Central Pacific (in jars,

owner’s risk); second-class on the Southern Pacific (in glass, packed,

owner’s risk); double first-class on the California Pacific (in jars

or glass); first-class on the North Pacific Coast (in glass, packed,

owner’s risk); and double first-class on the San Francisco and North

Pacific (in glass or demijohns, owner’s risk). Window glass took

first-class on the Central Pacific, one and one-half times first-class

on the California Pacific, and fourth-class on the Southern Pacific

if not over three feet long. Boiler flues moved first-class on the

Central Pacific, third-class on the North Pacific Coast, and fourth-or

fifth-class according as made of copper or brass, or of iron, on the

Southern Pacific.[361]

Generally speaking, however, the classifications were much less

elaborate than they later became. A committee of the California

Senate observed in 1893 that the theory of the local classification

of the Southern Pacific was to simplify so far as possible. Hence

that classification started out with the announcement, in effect,

that all articles not named specifically therein would be charged for

at merchandise rates. It then continued to indicate the exceptions,

enumerating articles that were light, bulky, of excessive value, liable

to damage, etc., proceeding in this way along the same lines as the

Western classification.[362]

When the Santa Fé later built into southern California it brought

in the Western classification, tariffs, rules, and conditions that

governed its lines elsewhere, and applied the Southern Pacific

schedules of merchandise rates to this classification. Since, however,

the Southern Pacific had only one merchandise class, the Santa Fé

applied the same rates to each of the first four classes of the

Western classification in California. The result of this adjustment

of tariff to the Western classification was to produce practically

the same revenue as would have resulted from the local classification

and merchandise rates of the Southern Pacific Company. In 1893 the

Southern Pacific itself substituted the Western classification for the

one which it had been using.[363]

Local Rates

Under the law the maximum rate which any California railroad could

charge for the transportation of freight, was 15 cents per ton per

mile. In spite of the statement of Mr. Stanford to the contrary,[364]

the evidence is to the effect that this maximum was generally applied

on short-haul local business as late as 1877 and perhaps afterwards.

In some cases, the published rate was even greater than the maximum,

though a note to the schedule provided that when the calculated rate

exceeded the legal maximum, the latter would apply. The rates on the

Central Pacific main line in 1866 were almost exactly 15 cents per ton

per mile.

The report of the California Board of Transportation Commissioners in

1877 showed that generally throughout the state first-class rates for

short hauls ranged from 14 to 30 cents per ton per mile. For the 10

miles from Lathrop to Stockton the tariff charge was $1.60 per ton,

and for the 6 miles from Pleasanton to Livermore, the rate was $1.

The charge from Roseville Junction to Truckee, 102 miles, was $15.20.

When river competition entered in, rates were markedly reduced. The

charge from San Francisco to Stockton, 92 miles, was $3.20 per ton, or

3½ cents per ton per mile; that from San Francisco to Sacramento, 140

miles, was $3.60, or 2⅗ cents per ton per mile. On the other hand, the

rates of the California Pacific were somewhat higher than those of the

other lines, except at competitive points.[365]

In later years the charges of the Southern Pacific naturally declined.

Yet the rate on brick from San Francisco to Soledad in 1892 was 5½

cents per ton per mile on a haul of 143 miles, and that to San Miguel,

64 miles farther on, was almost 5 cents per ton per mile.[366] The

average receipts per ton per mile upon the Southern Pacific system

were 2.04 cents per ton per mile for all freight as late as 1885, in

spite of the large quantity of long distance through traffic. Plainly

the average receipts on local business were much greater. There seems

little doubt but that the local rates in California were always

distinctly higher than in the eastern states, although they have been

lowered in recent years. The reason was in the main the relatively

slight density of traffic upon all except the trunk routes, as well as

the higher cost of coal, and the successful control of competition to

which the Southern Pacific attained.

Rate Discrimination

Turning now from the absolute level of local rates to the question of

the relations which those rates bore to each other, we come to the

question of discrimination in California. Railroad discrimination may

be personal, in which case it involves the quoting of different rates

to different persons for the same or a similar service, or it may be

local, as in instances where the interests of competing localities

are concerned. Either kind of discrimination is of profound social

importance, for, after all, it must be remembered that the significant

question for the producing and distributing interests of a state is

not how much they pay for transportation, but whether this amount,

be it much or little, is less than is paid by their competitors. The

remainder of the present chapter will be devoted to the discussion

of personal discrimination; in the next chapter the topic of local

discrimination will be considered.

The policy of granting special concessions in rates to special shippers

was one which the Southern Pacific followed freely whenever it seemed

likely to increase the profits of the company. There was never any

disposition to apologize for this—it was known to be the practice

of other roads as well, and the Southern Pacific accepted the system

as a matter of course. The methods employed were various. One method

was that of granting passes. Mr. Stubbs explained that passes were

commonly issued in cases where shippers came to the Central Pacific

and represented that they were offered transportation by the company’s

competitors over such competitors’ lines. “They were our patrons,” said

Mr. Stubbs, “shipping our way, and I may say that wherever we were

satisfied that the statement was true, we generally met the case by

giving a pass!”[367]

Sudden Tariff Changes

In addition to granting passes, the Southern Pacific discriminated

by changing open rates suddenly for the benefit of persons fortunate

enough to be advised in advance. Mr. Stanford once explained that

individual items in the company’s tariff were changed whenever by so

doing the company could encourage business in any direction.[368]

Indeed, a tariff would scarcely be in force ten days before the

necessity for changes would be apparent.[369]

How this might work was shown in 1892, when complaint was made of

discrimination in favor of the Standard Oil Company. It was then

alleged that the Central Pacific was lowering oil rates from $1.25 per

hundred pounds to 82½ or 90 cents, when the Standard Oil desired to

make shipments from eastern refining points to the Pacific Coast, the

rates being subsequently raised when the shipments had been completed.

A letter to the vice-president of the Standard Oil Company, bearing

upon an episode of this sort, written under date of December 4, 1888,

got into the public press, and seems to establish the fact that

transactions of this nature were going on. The letter follows and is

self-explanatory.[370]

SAN FRANCISCO, December 4, 1888

W. H. TILFORD, Vice-President, Standard Oil Company,

26 Broadway, New York

DEAR SIR:

I herewith hand you copy of a letter I have just received from Mr.

Sproule, Assistant General Freight Agent of the Southern Pacific

Company, this city. This letter I interpret to mean the 90-cent rate

is for us to stock up from time to time, and that the $1.25 rate will

be in effect whenever we may desire. This $1.25 rate is what Mr.

Sproule refers to in the latter portion of his letter, as my offer of

90 cents to Mr. Stubbs was on condition that he has the rate of $1.25

put into effect when we might ask him. This letter also reads as if

the 90-cent rate and the $1 rate was to be put in effect January 1st.

No doubt Mr. Stubbs was unaware that we were stocked up at the present

rate of 82½.

The Transcontinental Association adjourned at Chicago yesterday, and

I understand that Mr. Stubbs is now on his way home. I will see him

on his arrival here, and if Chairman Leeds of the Transcontinental

Association has been notified to put the 90-cent rate in effect

January 1st I will have the same corrected by wire and the $1.25

rate put in. As soon as Mr. Stubbs reaches home I will telegraph you

whether it is intended that the 90-cent rate should be put in effect

January 1st or the $1.25.

Yours truly,

E. A. TILFORD

Relations with Standard Oil

The fact that relations between the Southern Pacific and the Standard

Oil Company were very close during the late eighties and early

nineties is well established, not only by the correspondence just

referred to, but also by other available evidence. In June, 1892,

to cite a small but interesting episode, the Union Pacific issued a

circular applying a rate of 78½ cents per hundred pounds on oil from

Colorado points to the Pacific Coast. This rate had been in effect

some years before, previous to the organization of the Western Traffic

Association, under a rule which made Missouri River commodity rates a

maximum on business originating west of the 97th meridian. The rule

in question had never been withdrawn, although it developed that the

Southern Pacific had forgotten it, and believed that a rate of $1.60

applied.

At this time the independent firm of Whittier, Fuller and Company

was endeavoring to find a market for the products of its Colorado

plant upon the Pacific Coast. In order to head off this anticipated

competition, the Standard Oil representative in San Francisco took the

matter up with the general traffic manager of the Southern Pacific, Mr.

Gray. The latter at once wired to Mr. Munroe of the Union Pacific as

follows:

SAN FRANCISCO, June 10, 1892

J. A. MUNROE,

Omaha, Nebraska

It is reported you are antagonizing Standard Oil Company in Colorado.

I hope you will do nothing to affect our joint relation with that

company with regard to Pacific Coast business. Have you observed the

large tonnage you have lately been handling for them? I think it is so

great you should be careful how you jeopardize your own interest in

this direction.

R. GRAY

Under pressure from the Standard Oil, the Southern Pacific followed up

this telegram by refusing to prorate on any basis lower than $1.60. As

a result the objectionable circular was withdrawn.[371]

Rate Rebates

A third method of granting concessions to shippers whom the Central

Pacific desired to favor, was that of the rebate. Rebates were usually

granted in exchange for an undertaking by the shipper to send all

his freight over the lines of the railroads by which the rebate was

paid. Mr. Stubbs once explained to the United States Pacific Railway

Commission that the granting of rebates was a regular practice, not

only of the Central Pacific, but of all its connecting lines. He

explained the mechanism of the operation as follows:

Suppose that you were a merchant, and I should go to you to make a

contract for the rail lines—because all the lines were parties to

it between New York and San Francisco. It was not a Central Pacific

affair. You understand that all the lines between San Francisco and

New York, probably embracing all the roads in the East, shared in

this reduced rate that was given to the merchant in consideration of

his exclusive patronage—I should go to you and make a contract, and

should say that it is impossible for us, in billing, to bill this to

you at the net rates. We will bill it at the full rates, and when

you receive your goods at the depot you pay the full rates, and we

will refund to you the difference between the agreed rate under the

contract and the rates which you have paid. Of course that is an

overcharge. We overcharged those goods above the price that you had

previously agreed to pay for the transportation of them.[372]

In the single year of 1884 the Central Pacific paid out $1,060,275.92

as refunds in behalf of itself and its connections.

Extent of Practice

Evidence showing how radically published rates were reduced by the

practice of rebating is to be found in the following testimony by G.

W. Luce, now freight traffic manager of the Southern Pacific, and long

connected with the traffic department of that company. Speaking before

the Interstate Commerce Commission of the period about 1887, Mr. Luce

said:

Just prior to that time I had in mind, there had been a very severe

war in rates. I do not know whether that was the reason for the

creation of this Commission or not, but the struggle had been very

disastrous; two or three lines, I think, were very much crippled,

going into the hands of receivers; and just before the act was passed,

effective in April, 1887, I think, the lines got together and said,

“Here, let us stop this foolishness; let us have some standard of

rates and see what we can do on that basis. I believe the rates were

made 50 per cent of the old tariff rate that had been used for two

or three years. I presume the carriers thought that it would not be

judicious to put their rates right up to standard 100 per cent, so

they decided on a 50 per cent tariff.”

THE CHAIRMAN. You mean 50 per cent more than the published rate, or 50

per cent of the published rate?

MR. LUCE. Of the published rate....

THE CHAIRMAN. That means your published rates, which your line had

published up to that time in the eighties, were probably about twice

that much?

MR. LUCE. Yes, sir.

THE CHAIRMAN. And yet that was an effort to bring together a stability

of rates, and to get more out of the traffic than you had been getting

during this war, I suppose?

MR. LUCE. Yes, sir.

THE CHAIRMAN. So that, as a matter of fact, prior to that, you had not

been getting even as much as ... the 50 per cent basis?

MR. LUCE. No, sir.

THE CHAIRMAN. It was a general departure from the so-called published

rates of more than 50 per cent?

MR. LUCE. Oh, yes.[373]

Concrete Instances

The practice of quoting a lower rate to one person than to another

in order to secure a specific shipment, or in consideration of an

agreement for exclusive patronage of the railroad which granted the

rebate, was clearly a case of personal discrimination. A concrete

case which is illustrative of the general policy with which we are

concerned was brought to public notice in California in the year 1886,

when the Central Pacific was charged with rebating large sums to two

favored shippers named Friedlander and Reed. It appeared in fact that

the railroad had paid $6,000 at one time to Friedlander for rent of a

wharf at Vallejo, and 25 cents a ton on a shipment to a certain Mr.

Reed at Knight’s, on business destined to Vallejo. These payments were

explained by the company as follows:

The Friedlander wharf vouchers were explained by showing that, in

consideration of the rental of said wharf, Friedlander agreed to, and

did, send the whole of his immense grain purchases on the Sacramento

River, and at other competing points on the California Pacific, by

rail instead of by steamer and sail; and when one remembers the

enormous quantities of wheat and barley purchased by him, the “grain

king of California,” there is no doubt that the contract was a source

of much profit to the company. The Reed voucher for 25 cents per ton

for loading wheat from his warehouse at Knight’s Landing, was fully

explained by Reed himself. He had a warehouse at that point on the

bank of the river, and water craft would take his grain at the same

rate charged by the railroad company, loading and unloading the same

at their own expense, while the railroad company required the shipper

to do the loading. When asked to patronize the railroad, Reed told Mr.

Towne, general manager, that he could have the grain carried by water

at the same price that the Southern Pacific demanded, and that the

steamers and schooners would do the loading without charge. In order to

secure the business, Mr. Towne told Reed that if he would ship by rail,

the company would allow him 25 cents per ton for loading, thus securing

business for the road that would have been otherwise lost.

“Special” Contract System

In all probability the Reed and Friedlander cases were but two of a

great many instances of similar favors granted to large shippers, and

to shippers strategically placed on water lines in California. This

is certainly implied in the testimony of Mr. Stubbs before the United

States Pacific Railway Commission. Moreover, there is good independent

evidence to the same effect in the available data concerning the

“seasonal” or “special” contract system which became notorious in

California in the late seventies and early eighties. The outlines of

this last-named arrangement were as follows:

As early as May, 1878, the Central Pacific Railroad offered to

guarantee a maximum rate of $2 per hundred pounds upon all grease wool,

eastbound, moving over its lines from San Francisco to New York. In

consideration of this guaranty it required shippers to undertake to

ship all wool which they sent to destinations east of the meridian

of Omaha by way of the Central Pacific and such connecting lines as

the Central Pacific Railroad Company might elect. In case of failure

to live up to the agreement, the shipper bound himself to pay an

additional rate of 75 cents per hundred pounds upon all shipments made

or which might have been made by rail during the time of the contract.

Before this arrangement was insisted on, shippers were accustomed to

forward their finer wools by rail at the $2 rate, but to send their

low-grade wool by sea at a rate of 50 cents per hundred pounds.[374]

The system of special rates and exclusive contracts was not at first

applied to westbound freight, nor to general merchandise, whether

moving east or west. Late in July, 1878, however, notice was given

of advances in westbound merchandise rates which in many instances

amounted to as much as 100 per cent, and at the same time a tender was

made of rates below the published tariff to shippers who entered into

special contracts with the railroad for exclusive handling of their

freight. The Central Pacific management placed the responsibility

for the rate advance upon the Union Pacific, and gave publicity to

a telegram of protest signed by Mr. Stanford.[375] There is reason

to believe, nevertheless, that the Central Pacific management was

cognizant of the matter from the first, and it is certain that Mr.

Stubbs, general traffic manager of the Central Pacific, warmly defended

the system.

Terms of Contract

Under the special contract plan, the railroad company agreed to

charge not more than certain specified rates on articles named in the

agreement shipped from New York, Pittsburgh, Cincinnati, and Chicago,

and other points taking the same rates to the Pacific Coast. Rates

on freight not specifically provided for were not to exceed those

published in the general tariff. In case rival railroads cut rates,

or in case competition by the Pacific Mail should become active, the

shipper was to be protected. That is to say, it was declared to be the

intent and purpose of the agreement to guarantee to the contracting

merchant rates which should be as low as those charged and collected

upon the same articles, between the same points, by any other all-rail

route which might compete for the traffic of California at any time

during the term of the contract.

The carrier also agreed that in the event of active competition with

the Pacific Mail for the traffic between New York and San Francisco,

the rates charged by rail during the period of competition should not

exceed those current on Pacific Mail vessels by more than certain named

amounts, ranging from 50 cents on goods taken at rates not exceeding

$3.50, to $3 on goods taken at rates exceeding $6. This guaranty was

not to be enforced at times when the rates of the Pacific Mail were

subject to the control of the railroads.

In consideration of these assurances the shipper agreed to forward “by

way of the railroads owned or operated by the contracting carriers

and such other connecting railroads as might be designated from time

to time, all goods, wares, and merchandise handled by the merchants

entering into the agreement which might or should be purchased in or

obtained from any point in the United States or Canada east of the

meridian of Omaha, during the term of this contract, for sale or use on

the Pacific Coast.”[376]

Rates under System

It appears that at the beginning the same rates were quoted to all

shippers signing the contract. That is to say, two rate sheets were

published, one known as the “white list,” and the other as the “pink

list.” The white list contained the open, or public rate; the pink

list contained the contract rate. Contracts were made with individual

shippers that if they would give to the railroad line all of their

traffic for a year to the exclusion of ocean carriers, they would have

a rebate down to the figure fixed in the pink list. Somewhat later,

however, jobbers on the Pacific Coast were individually dealt with, and

the rates began to vary.

Mr. Stubbs says in describing this phase of the matter:

We tramped the streets here for a couple of months, explaining our

ideas to the principal importers. By some we were met with cordiality

and approval. Others were a little indifferent. Where a merchant liked

the scheme, we would sit down with him, and, by examining his bills of

lading by Cape Horn and his insurance policies, we would get an idea

of the quantity he would ship by the several routes and the cost to

him by the use of the several routes. We would then aim to make the

rate so that upon the whole it would average about the same. We would

average the rate while he was using the three routes.

Still later the railroads returned to the one-rate policy. To arrive

at this rate they adopted a plan of “harmonization”; they averaged

the rates upon various commodities which had been charged to various

shippers and made a new schedule of rates, from which they varied as

emergency might require or expediency advise, by the current method of

rebating.[377]

Administration of Contracts

The railroad company reserved from the beginning the option of

way-billing the goods and collecting freights according to the printed

rates, agreeing to return the difference on presentation of vouchers to

the general freight agent of the Central Pacific at San Francisco after

the lapse of a reasonable time for auditing and adjusting the bills.

The carrier also always insisted on the privilege of examining the

shipper’s books in case it suspected a violation of the agreement. In

some respects, the wording and administration of the contracts became

more stringent in the later years. J. T. Doyle, a well-informed San

Francisco attorney, asserts that at the beginning merchants were merely

forbidden to import goods otherwise than by rail. Following this the

prohibition was extended to the handling or buying of goods imported

by sea by other parties. Finally the boycott reached to the offending

importers themselves, and firms signing the contracts were bound not

to sell or deliver goods to anyone who was in the habit of importing

otherwise than by rail.[378]

Probably there was some difference in the treatment of different

shippers in these matters. Mr. Hawley, a large importer of hardware,

told a committee of the California legislature in 1884 that he was at

liberty to buy a great many things “to sort up with,” even goods sent

via the Horn. On the other hand, there were a good many cancellations

of contracts for alleged violations, and shippers lived in continual

apprehension.

Taken as a whole, the special contract system was an exchange of a

rebate by the railroad for an agreement for exclusive patronage on the

part of the shipper. Prior to 1878, bulky, low-grade articles moving

between the Atlantic and the Pacific coasts usually went by sea. Rates

were lower and saving in time not important. High-grade goods and

freight requiring quick transportation went by rail. It was the idea of

the railroad that if compelled to choose, Pacific Coast business men

would prefer to import all their freight by rail rather than to bring

it all in by water, and that this would substantially increase railroad

revenues even though incidental concessions in rates had to be made.

Objections to Contract Plan

This special contract plan was objectionable to shippers for three

reasons. In the first place, it seemed likely to increase the rates

which they would have to pay. Although the railroad undertook at the

inception of the scheme to meet existing rates by water, at least to

such an extent that the total expense to shippers who made special

contracts with the railroads would not be increased, it needed no great

prescience to foresee that the exclusion of water carriers from the

business of the Pacific Coast would sooner or later bring about an

increase in transcontinental rates. When special contracts were offered

to merchants in Stockton, Los Angeles, Marysville, and Sacramento, San

Francisco importers made the additional complaint that their natural

advantages as residents in a seaport town were neutralized.

In the second place, the administration of the plan required a

supervision over the business of individual dealers which was

extremely distasteful. It was asserted that the railroads placed men

on the wharves to take the marks of goods brought in by sea, that

they followed up the drays to see where the goods went, and that they

inspected the books of merchants to make sure that importers who had

signed contracts had no dealings with firms who still patronized the

shipping lines. Nor was this a casual abuse, but a necessary feature in

the plan.

Again, the system lent itself to discrimination. Mr. Stubbs insisted

that contract rates were open to all shippers, large or small, who

would sign the necessary papers, but it was not denied that the first

arrangements were made with large dealers only,[379] nor that during

at least one period the whole scheme involved the abandonment of a

published and open tariff in favor of a system of bargains in which

each shipper’s rate was individually and secretly determined. Under

such a plan it was inconceivable that discrimination should not develop.

Ostensibly the offer of a special contract was one which shippers were

free to accept or to reject as they saw fit. Practically, this was not

so. If A took a contract and B did not, the latter’s ability to compete

was seriously impaired. For B had to import some things by rail in any

case, while the fact that less business in the aggregate reached the

Pacific Coast by sea reduced the shipping facilities which B otherwise

would have had at his command.[380]

Transcontinental Traffic Stimulated

Special contracts seem to have been a distinct success from the

point of view of the western carriers. When they were introduced the

percentage of transcontinental freight carried by the rail lines was

small, probably not over 25 per cent of the whole. At the end of six

years under the new system this percentage had risen to between 60 and

75 per cent.[381] The change was certainly not entirely due to the

policy of special contracts, but part of the change may be attributed

to the plan.

The policy was nevertheless given up in 1884 owing to the refusal of

the eastern trunk lines to take any further part in it. According to

Mr. Stubbs, the eastern companies believed that the advantage of the

system hardly paid them for the confusion in their accounts incident

to this method of conducting business. Moreover, there was legitimate

apprehension lest the contracts provoke antagonistic legislation

at Washington. Mr. Stubbs tried to argue the question, but without

success.[382]

Chapters on the History of the Southern Pacific · 第 14 / 25 章