THE EARLY YEARS, HEPBURN REPORT, ETC.
One of the discriminations most complained of in early years was the
charging of lower rates for a long haul than for a short haul on the
same line—less for the whole than for a part.
For example, the rate from New York to Ogden was $4.65 per hundred,
while $2.25 per hundred carried the same freight all the way from New
York to San Francisco. The railroads charged more if the car stopped
part way than if it went on to the Pacific,—more than twice as much, in
fact, for the part haul as for the full distance, so that the extra
charge for not hauling the car on from Ogden to Frisco was greater than
for hauling it the entire distance from ocean to ocean. They seemed to
be willing to take off half for the privilege of hauling the car another
1000 miles. These methods are still in practice.
The C. B. & Q. hauled stock from points beyond the Missouri River to
Chicago for $30 a car, while charging $70 a car on much shorter hauls to
points in Iowa. The Northern Pacific charged twice as much from New York
to points a hundred miles or more east of Portland, as from New York
clear through to Portland. Freight was shipped from New York State to
Council Bluffs and then back to Atlantic, Iowa, 60 miles west of Council
Bluffs on the Rock Island, for less than the charge direct to Atlantic.
From Chicago to Kankakee, 56 miles, the Illinois Central charged 16
cents per cwt. for fourth-class goods, while it carried the same goods
to Mattoon, 116 miles farther on, for 10 cents per cwt. The grain rate
on the Pennsylvania Railroad from Chicago to Pittsburg was 25 cents in
1878, while the same road would carry the grain clear through from
Chicago to New York for 15 cents. Glassware paid 28 cents a hundred from
Pittsburg to Chicago, and only 14 cents from Philadelphia to Chicago,
half the rate for nearly double the distance. A tub of butter from
Elgin, Ill., to New York, 1000 miles, paid 30 cents, while the freight
on the same tub from points 165 miles out of New York City was 75 cents.
The railways put the farmers of Western New York further from market
than their competitors in the West. By such arrangements as this it was
claimed the railroads had caused a depreciation of $400,000,000 in the
value of improved lands in New York, Pennsylvania, New Jersey, Maryland,
and Delaware, while the area of improved lands in those States had
increased 4,500,000 acres.[20]
The evils of unjust rates and railway favoritism for persons and places
were earnestly discussed in the press, and in State legislatures, and in
Congress. One of the examples of discrimination that caused much
discussion in Congress was the Winona case. Cotton paid $1 a bale from
Memphis to New Orleans, 450 miles; from Winona to New Orleans, 275
miles, travelling possibly in the same train with the Memphis bales, the
rate was $3.25 per bale. Another example adduced in Congress was the 75
cent rate from New York to New Orleans, while points half way paid $1.00
for the same service.
_The Granger Laws._
In the early seventies (1872 and following years), Iowa, Nebraska,
Minnesota, Kansas, and other States of the Middle West passed what are
known as the “Granger laws,” fixing maximum rates and forbidding
discriminations. Railroad commissions were also established in these
States to control the roads, and it was hoped that these commissions,
which grew out of the Granger agitation and were to represent the public
interest and the people’s sovereignty in their relations with the
railways, would be able to diminish greatly and perhaps abolish unjust
discriminations. In this hope, however, the people were disappointed.
Speaking of this experience Governor Larrabee of Iowa said in 1893:
“Every year seemed to add to the grievances of the public. Success
greatly emboldened the railway companies. Discriminations seemed to
increase in number and gravity. At many points in the western part of
the State freight rates to Chicago were from 50 to 75 percent higher
than from points in Kansas and Nebraska. A car of wheat hauled only
across the State paid twice as much freight as another hauled twice the
distance from its point of origin to Chicago. Minnesota flour was hauled
a distance of 300 miles for a less rate than Iowa flour was carried 100
miles. Certain merchants received from the railroad companies a discount
of 50 percent on all their freights, and thus were enabled to undersell
all their competitors. The rate on coal in carload lots from Cleveland,
Lucas County, to Glenwood was $1.80 per ton, and from the same point to
Council Bluffs only $1.25, although the latter was about thirty miles
longer haul. Innumerable cases of this kind could be cited. There was
not a town or interest in the State that did not feel the influence of
these unjust practices.”
_The Hepburn Investigation._
This most famous and enlightening investigation of the early period was
that of the Hepburn Committee of New York in 1879. The committee found
that many shippers were paying two or three times, and in some cases
five times, the rates paid by their rivals.
William H. Vanderbilt told the committee that, as a rule, all large
shippers who asked for special rates got them. Among the men his road
had helped to build up by special rates was A. T. Stewart, the great
dry-goods merchant of New York. He had a rate of 13 cents from his
factories over the New York Central to New York, while small concerns
paid 20 to 40 cents for this same service. A big dealer in cotton cloth
had a 20 cent rate, while others paid the regular 35 and 40 cent rate.
Five grocery firms in Syracuse had a flat 9 cent rate instead of the
published tariff of 37, 29, 25, and 18 cents, according to the class of
goods. Four Rochester firms had a special rate of 13 cents against the
regular tariff of 40, 30, 25, and 20 cents. Five firms at Binghamton and
five at Elmira had rates from ⁵⁄₉ to ⅓ of the tariff. Three Utica
dry-goods merchants had a rate of 9 cents and another had a rate of 10
cents, while the regular rates which the outside public paid were 33,
26, and 22 cents, according to class. Soap shipped by B. of New York to
C. of Syracuse cost 12 cents freight per box if the freight was paid by
the shipper in New York, but only 8 cents a box if the freight was paid
by the consignee in Syracuse.
A report of the Erie Railroad showed 34 cases of special cut rates, and
a New York Central report showed 33 examples. The books of the Central
showed 6000 special rates granted during the first 6 months of 1880.
About 90 percent of the Syracuse business and 50 percent of the entire
business of the road was done on special rates.[21] It had given special
rates to individuals and firms at 22 points on its line between Albany
and Buffalo. The specials generally went down to about ⅓ of the
scheduled rates to the same place, but in Syracuse a special agreement
was unearthed in which the rate was so emaciated as to be only ⅕ of the
size of the regular rate on first-class goods to which it applied.
The committee also found the long-haul discrimination in full bloom.
Flour went from Milwaukee to New York for 20 cents, while the charge
from Rochester to New York was 30 cents. On some goods the rate from New
York to Syracuse, 291 miles, was 10 cents; New York to Little Falls, 217
miles, 20 cents; New York to Black Rock, 445 miles, 20 cents also.
Syracuse must have had a strange fascination for the railroad men, to
keep them from making a lower rate from the point 400 miles away than
from the point 200 miles away, for they love long hauls. Goods were
shipped from Rochester to New York and then from New York back over the
same road through Rochester to Cincinnati more cheaply than they could
be sent direct from Rochester to Cincinnati. W. W. Mack, a Rochester
manufacturer, testified that he saved 14 cents a hundred in this way,
and that he saved 18 cents a hundred in his St. Louis business in the
same way. In both these cases the railroad company carried the goods 700
miles farther than the direct course for a charge considerably less than
for the direct haul.
Butter was carried from St. Lawrence Co., N. Y., to Boston for 60 cents
a hundred, while the rate from nearer stations was 70 cents, 80 cents,
and even 90 cents at St. Albans, Vt., increasing as the distance
decreased. The railroads appear to recognize the fact that happiness
consists in the exercise of the faculties, and they wish to exercise
their faculties to the utmost by securing long hauls even though the
long rate may not leave nearly so much profit as the rate for the short
haul.
Some of the worst discriminations of the early years were those
connected with the oil business.[22] In 1872 the Oil Combine (then
called the South Improvement Co.) secured a secret agreement from all
the railroads running into the oil regions, first, to double freight
rates on oil; second, not to charge the S. I. C. the increase; third, to
pay the S. I. C. the increase collected from all other shippers. The
rate to Cleveland was to be raised to 80 cents, except for the S. I. C.,
which continued to pay 40, and would receive 40 of the 80 paid by any
one else. The rate to Boston was raised to $3, and the S. I. C. would
receive $1.32 of it. The Combine was to have 40 cents to $1.32 a barrel
rebate not only on their own oil which constituted only one-tenth of the
business, but on all the oil their competitors shipped, so they would
get $9 in rebates for every dollar they paid in freight. The S. I. C.
were to receive an average of $1 a barrel on the 18,000 barrels produced
daily in the oil regions. The rates were raised as agreed, but the
excitement in the oil regions was so intense that mobs would have torn
up the tracks of the railways if Scott and Vanderbilt and the rest had
not telegraphed that the contracts were cancelled, and put the rates
back. But some of the contracts afterwards came into court, and had not
been cancelled at all. In 1874 the roads began gradually to carry out
the plan that had been stopped by popular excitement in 1872.
In 1874 the Oil Combine had on some lines 10 different transportation
advantages over its competitors, _i. e._, 49 cents direct rebate per
barrel of refined oil, 22 cents rebate on crude-oil pipeage, 8½ percent
of refined oil carried free (due to the method of calculating crude and
refined equivalents), 13 cents a barrel advantage through possession of
the railroad oil terminal facilities, 15 percent of by-products carried
free, a rate to New York 10 cents a barrel less than the published rate
on refined oil, and 15 cents on crude oil, exclusive use of tank cars,
underbilling of carload weights, twenty thousand lbs. often for cars
containing forty thousand or even sixty thousand lbs. of oil, or a lump
sum per car regardless of excess weight, and a mileage payment from the
railroads on the tank cars amounting in itself to a large rebate.
Nearly all the refineries of the oil region and of Pittsburg passed by
sale or lease into the hands of the Combine in 1874–5.
W. H. Vanderbilt, and other prominent railroad men were stockholders in
the Standard.
Frank Rockefeller, brother of John D., testified before a congressional
committee July 7, 1876, that he believed Tom Scott, W. H. Vanderbilt,
and other big railroad men shared in the oil rebates.
The New York Central and the Erie sold their terminal facilities for
handling oil to the Standard Oil Co., thereby making it practically
impossible for the roads to transport oil for the competitors of the
Trust. The Pennsylvania Railroad also, under compulsion of a rate war,
made a deal with the Standard by which the latter acquired the oil cars,
pipe lines, and refineries of the Empire Company, a creature of the
Pennsylvania Railroad.[23]
Vanderbilt told the Hepburn Committee, August 27, 1879, that “if the
thing kept on the oil people would own the roads.”
After the Pennsylvania fought the Standard in 1877 and lost, the Combine
paid 11 cents net freight (after deducting rebate) on each barrel of oil
to New York, while its competitors paid $1.90 per barrel,[24]—a
discrimination of 1600 percent by means of exclusive tank cars and rate
arrangements. The trunk lines would not furnish competitors of the
Standard with tank cars nor give them rates and conditions that would
allow them to use their own tank cars.
The independents had to sell their tank cars or side-track them, because
the Oil Combine prevented the railroads from giving them practical
terms. At times when oil could have been shipped by the independents
they could not get cars, though hundreds were standing idle on the
switches.
So the independents had to ship their oil in barrels, paying a higher
rate than on tank oil, and paying not only on the oil, but on eighty
lbs. of wood in the barrel, making four hundred lbs. per barrel instead
of three hundred twenty lbs. per barrel by tank.
Josiah Lombard of New York, the largest independent refiner of oil at
the seaboard, testified as follows before the Hepburn Committee June 23,
1879:
“Tom Scott, President of the Pennsylvania Railroad Co., was questioned
whether we could have, if there was any means by which we could have,
the same rate of freight as other shippers got, and he said flatly,
‘No.’
“And we asked him then, if we shipped the same amount of oil as the
Standard, and he said, ‘No.’
“We said that ‘if they had not sufficient cars to do the business with
we would put on the cars.’
“Mr. Scott said that they would not allow that, and said that ‘the
Standard Oil Co. were the only parties that could keep peace among the
roads.’”
Cassatt, Vice-President, confirms the above and adds:
“The discrimination would be larger on a high rate of freight than a low
rate of freight;” also admits that the “Standard Oil Co. had some 500
cars full here and at Philadelphia and Baltimore; that he had not
discovered it until recently.”
Mr. Lombard further testified:
“Refineries were thus shut down for want of cars.
“Cassatt threatened, if the independents built the Equitable Pipe Line
or any other lines of pipe [as follows]:
“‘Well, you may lay all the pipe lines you like, and we will buy them up
for old iron.’
“R. C. Vilas, General Freight Agent of the Erie (and brother of Geo. H.
Vilas, Auditor of the Standard Oil Co.), absolutely refused us cars,
saying the Standard Oil Co. had engaged them all.
“J. H. Rutter, General Freight Agent, New York Central, would not
furnish any cars, and also said, ‘We have no terminal facilities now.’”
A. J. Cassatt testified before the New York Committee that in 18 months
the Standard Oil had received rebates amounting to $10,000,000.
In addition to many other advantages enjoyed by the Standard people the
Pennsylvania Railroad in 1878 gave the Combine, through the “American
Transfer Co.,” a “commission” of 20 cents a barrel on all shipments of
petroleum,—not only on their own shipments, but on shipments made by the
independents also. At the same time the New York Central and the Erie
were paying the Standard “commissions” of 20 to 35 cents a barrel on all
the oil shipped over those roads.
At one time the transcontinental lines charged $105 to return an empty
“cylinder” tank car from the Pacific Coast to the Missouri River, while
making no charge to the Standard for returning their “box” tank cars,
each of which contained a cylinder, which, however, was set upright
instead of being placed longitudinally; a distinction without a
difference, but it served to make a discrimination of over $100 a car in
favor of the Trust.
The railroads allowed the Oil Trust to stop its cars and divide up a
tank load at two or more stations, but denied this privilege to the
competitors of the Trust.
The Hepburn Committee reported (1879) that “the Standard Oil Co.
receives rebates from the trunk lines, ranging from 40 cents to $3.07 a
barrel on all oil shipments: That the trunk lines sell their oil-tank
car equipments to the Standard and agree to build no more: That the
Standard controls the terminal facilities for handling oil of the four
trunk lines by purchase or lease from the railroads: That it has frozen
out and gathered in refineries of oil all over the country: That it
dictates terms and rates to the railroads: That the trunk lines have
hauled its oil 300 miles for nothing to enable it to undersell seaboard
refineries not then under its control: That it has succeeded in
practically monopolizing the oil business: That the transactions of the
Standard are of such character that its officers have been indicted, and
that its members decline under oath to give details lest their testimony
should be used to convict them of crime.”[25]
The oily people were able in one way or another to gain ascendency over
all the railroads. “We made our first contract with the Standard Oil
Company,” said Mr. Cassatt, “for the reason that we found that they were
getting very strong, and they had the backing of the other roads, and,
if we wanted to retain our full share of the business and get fair rates
on it, it would be necessary to make arrangements to protect ourselves.”
The Combine used the railroads to ruin its rivals, and did it with a
definiteness and vigor of attack never before attempted, and with a
success that would have been impossible without the use of the railroad
power. An example or two will make the matter clear.
Mr. Corrigan, an oil refiner of Cleveland, became so prosperous in the
seventies that he attracted the attention of the Standard Oil, and in
1877 he began to have trouble. He could not get the crude oil he bought
shipped to Cleveland, nor his product shipped away, with reasonable
promptness. The railroads refused him cars, and delayed his shipments
after they were loaded. And he was driven to lease and finally sell his
works to the Standard, which had no difficulty in getting cars and
securing prompt service.
George Rice became a producer of oil in 1865. A little later he
established a refinery at Marietta, Ohio. In January, 1879, the freight
rates on oil were raised by the railroads leading out of Marietta, and
by their connections. In some cases the rates were doubled, while the
rates from Cleveland, Pittsburg, Wheeling, and other points where the
Combine had refineries, were lowered. The Baltimore & Ohio, the
Pennsylvania, the Lake Shore, and all the other railroads involved, made
the deal in unison, and after a secret conference of railway officials
with the Standard Oil people. The change hurt the railroads, cut off
their business in oil from Marietta entirely, but they obeyed the orders
of the Standard nevertheless.
“What would be the inducement?” the freight agent of the B. & O.
connection was asked.
“That is a matter I am not competent to answer,” he replied.[26]
Rice, finding himself shut off from the West, North, and East, developed
new business in the South, but everywhere he went he was met with new
discriminations, and even refusals in some cases to give him any rates
at all. He could not ship to certain points at any price. In other cases
the oil rates were jumped up for his benefit, and his cars were delayed
or side-tracked by the railroads. Not satisfied with obstructing and in
large part blocking the shipment of refined oil out of Marietta, the
Combine did all it could to cut off Rice’s supply of crude oil from the
wells. It bought up and destroyed the little pipe line through which he
was getting most of his oil. Rice then turned to the Ohio fields and
brought his oil in by rail over the Cleveland and Marietta Railroad.
Under threat of withdrawing its patronage the Combine then compelled the
road to double the rates to Rice and pay over to the Combine
five-sevenths of all the freight the road collected on oil. Rice had
been paying 17 cents a barrel from the oil fields to his refinery. His
rate went up to 35 cents while the Combine paid only 10 and got 25 cents
of each 35 paid by Rice.[27] “Illegal and inexcusable abuse,” said Judge
Baxter when Rice took the case into court; and the Senate Committee was
also emphatic in its condemnation. The case is in line with the whole
history of the railroads in their relations with the Oil Combine, the
remarkable fact in this instance being that the victim had nerve enough
to fight the Combine. He took the facts to the Ohio Legislature, to the
courts, to investigating committees of New York, and Congress, and
rendered a great public service by bringing the ways of the railroads
and the trust to the light of publicity. If all the victims of the Oil
Combine had manifested equal pluck and public spirit, the evil we are
discussing would long since have ceased to exist.[28]