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HARVARD ECONOMIC STUDIES PUBLISHED UNDER THE DIRECTION OF THE DEPARTMENT OF ECONOMICS VOL. XI THE ANTHRACITE COAL COMBINATION IN THE UNITED STATES WITH SOME ACCOUNT OF THE EARLY DEVELOPMENT OF THE ANTHRACITE INDUSTRY BY ELIOT ^ONES, Ph.D. ASSOCIATE PROFESSOR IN ECONOMICS IN THE STATE UNIVERSITY OF IOWA SOMETIME INSTRUCTOR IN ECONOMICS IN -BARVARD UNIVERSITY AWARDED THE DAVID A. TVELLS PRIZE FOR THE YEAR 1913-14, AND PUBLISHED FROM THE mCOME OF THE DA\'ID A. WELLS FlIN'D CAMBRIDGE HARVARD UNIVERSITY PRESS LONDON: HUMPHREY MILFORD Oxford Universpty Press 1914 ■ . ^ / I- ir COPYRIGHT, I9I4 HARVARD UNIVERSITY PRESS TO MY FATHER INTERPRETER OF SOCIAL IDEALS m LITERATURE PREFACE This book is a study of the combination movement in the an- thracite coal industry. It presents an historical narrative of the beginnings and the growth of the industry; chronicles in con- siderable detail the facts relating to the development of the combination and its control of the business; and describes the attempts of the Gk)vemment to dissolve the combiaation. This coinbination controlling the anthracite coal trade is found to be a combination of railroads, owning either directly, or indirectly through subsidiary coal companies, substantially the entire area of the anthracite coal deposits of the United States. A wide range of problems, therefore, is suggested, — problems relating to railroad control and to the ownership of natural resources, as weU as those involved in the trust movement proper. This de- tailed study of the facts connected with a particular combination has impressed me with the complexity of the trust problem — a problem which for many years has been before the courts and the lawmaking bodies of the United States. In the anthracite in- dustry this problem appears to be pecuHarly complex because of the ownership of the coal lands by public carriers. I, there- fore, deem myself fortunate in having had the benefit of many suggestions, the manuscript of the book having been read by several professors distinguished in economic science, and by various men of afifairs, including a lawyer associated with the anthracite carriers, and a raUroad man who has had years of experience as an operating oflicial of one of the anthracite rail- roads. To Professor W. Z. Ripley, under whom this study was origi- nally undertaken as a thesis for the degree of Doctor of Philos- ophy at Harvard University, acknowledgment is made for constant encouragement and guidance. For permission to publish certain parts of Chapters V and VIII, which recently appeared in the viii PREFACE Quarterly Journal oj Economics, and for inspiration and counsel, I am much indebted to Professor F. W. Taussig. I wish, further, to thank the many governmental officials, state and national, who have most courteously supplied me with documents and information; the library authorities of Boston, New York, Phila- delphia, and Washington for the use of the material at their disposal; and the coal minin g companies for permission to make an extended trip through the mines and breakers. For the preparation of the charts I am indebted to my brother Chapin. But most of all I wish to express my deep obligations to my father for unfailing stimulus, and for emphasis, within the class- room and without, on a scientific spirit and on the majegty of fact. E.J. Cambridge, Massachusetts, Sqjtember 6, 1914. CONTENTS PAGE INTRODUCTORY 3 CHAPTER ^ THE HISTORY OF THE ANTHRACITE COAL INDUSTRY TO 1834 The anthracite deposits Description of the anthracite fields Development of the deposits of the Wyoming Region . . . Delaware and Hudson Canal Company Development of the Lehigh Region Lehigh Coal and Navigation Company. Delaware Division Canal. Morris Canal Development of the Schuylkill Region . . . Schuylkill Navigation Company . ... Growth of the coal trade Opposition to incorporated companies . . . . . . Opposition to the miion of transjx)rtation and mining privileges . 20 Packer Report 21 CHAPTER / CHAPTER «/ 4 5 7 8 10 14 IS 16 16 18 20 20 THE HISTORY OF THE INDUSTRY FROM 1834 TO 1873 Development of raihoad systems in the Wyoming and Lehigh Regions and the concentration of coal lands in their hands . . 23 Pennsylvania Coal Company . ... 24 Delaware, Lackawaima and Western Railroad Lehigh Valley Raihoad Situation in the Schuylkill Region Philadelphia and Reading Railroad Pennsylvania Constitution of 1874 . Results of competition between the raUroad and canal companies Growth of the coal trade 24 26 28 28 31 32 38 THE COMBINATIONS PEOM 1873 TO 1898 The pools of 1873 to 1876 ... 40 The pool of 1878 ... 45 A friendly xmderstanding, 1880 to 1884 46J X CONTENTS PAGE The pools of 1885 to 1886 ... 47 The Reading Combination of 1892-1893 50 The agreement of 1896. . . • - - • 55 Smnmaiy . 56 CHAPTER J THE DEVELOPMENT OF AN EFFECTIVE COMBINATION SINCE 1898 Raikoad ConsoUdation. . . . 59 Purchase of the New York, Susquehanna and Western Raikoad by the Erie . ... 59 Purchase of the Central Railroad of New Jersey by the Reading Company 61 Purchase of the New York, Ontario and Western RaUroad by the New Haven .... 64 Purchase of the Lehigh and New England Railroad by the Lehigh Coal and Navigation Company . . . - 65 Increased interest in Lehigh and Hudson River Railway secured by Lehigh Coal and Navigation Company . . .66 Development of a community of interest among the railroads 67 Liter-ownership of stock . . 68 Interlocking directorates . . . . .71 Practical elimination of the independent operators. . . 73 Purchase of Simpson and Watkins by the Temple Iron Company 78 Purchase of the Pennsylvania Coal Company by the Erie Rail- road . . .... 83 Purchase of Coxe Brothers and Company by the Lehigh V"alley Railroad .... 86 Percentage contracts for the pvu-chase of coal . . . . . . 87 / CHAPTER THE PRODUCTION OF COAL Growth of the trade . . . . . 98 Production by regions . . . . loi Production by companies .... . . 103 Proportion of the output mined by the railroad coal companies 103 Proportion of the output controlled by the railroad coal companies 105 Distribution of the unmined tonnage among the railroad companies and the independent operators . 107 Reserve supply of coal . . . .110 Relation of the railroads to the more important coal minin g companies 113 Philadelphia and Reading Railway .... 114 Central RaUroad of New Jersey . . . . , uy Lehigh Coal and Navigation Company 118 CONTENTS id PAGE Lehigh Valley Railroad 119 Erie Railroad 122 New York, Susquehanna and Western Railroad 124 Pennsylvania Railroad . ... .124 New York, Ontario and Western Railway 126 Delaware, Lackawanna and Western Railroad 128 Delaware and Hudson Company ... 129 Summary 130 CHAPTER VI THE TRANSPORTATION OF COAL Consideration of the reasonableness of the freight rates on anthracite coal ... . 132 The anthracite rates now in effect . . . . 133 Operating cost of transporting anthracite to New York Harbor and to Philadelphia ... 135 Analysis of the earnings and profits of the anthracite carriers . . . 138 Decision of the Interstate Commerce Commission in the Meeker case 142 Decision of the Interstate Commerce Commission in the Marion Coal Company case 143 Extent to which the anthracite railroads have combined to maintain rates and to apportion traffic . 146 Use of the Temple Iron Company 151 Interlocking directorates 154 CHAPTER Vn THE PRICE AND SALE OF COAL Existence of a combination shown by a study of prices . 156 Table of prices . ... 156 Increase in prices in 1900 and 1902 .... 157 Comparison of increased prices with the increase in minin g costs 158 Comparison of increased prices with the general rise in prices . 1 59 Mode of effecting advance in prices in 1902 ; . . . . . . - .-.-160 Another advance in 1912 . 162 Investigation of the Bureau of Labor ... . 163 Comparison of irregular prices before igoi with price movements since 1901 . . . . . 165 Explanation of the discount system .... . . , 166 Economies of combination .... 167 Relation of selling prices to circular prices during the period of com- petition . . . . 167 Relation of selling prices to circular prices during the period of com- bination . . ..... 168 Explanation of uniformity of price circulars and prices received . . 170 xii CONTENTS PAGE The price circular of the Reading the Standard 172 Extent of competition between the anthracite companies 174 Absence of foreign competition 174 Competition of other fuels ... .175 The distribution of the consumption of anthracite 175 Retail prices ... . . 177 Summary 178 CHAPTER VIII THE LEGAL STATUS OF THE COMBINATION Investigation of the anthracite business by the Interstate Commerce Commission . . iSp Decision of the Supreme Court in the New Haven case 183 Investigation of the bituminous coal business by the Interstate Com- merce Commission ... . . . . 184 Factors directing pubUc attention to the conditions in the coal trade 186 The commodity clause legislation .... 187 Course of the clause through Congress . . 187 Its effect on the anthracite railroads . . . . . 193 Difficulties of compliance . . . . 194 Extent of comphance . . ... 195 Attempt to suspend the penalties ... .196 Proposed amendment of the clause . ... 197 Government prosecution . .... . . 197 Decision of the Circuit Court .... . 198 Decision of the Supreme Court ... . 198 Further efforts to amend the clause . . . . . 201 Effect of the Supreme Court decision 202 Organization of the Delaware, Lackawanna and Western Coal Com- pany 203 Readjustment of the affairs of the Delaware and Hudson Company 204 Another Supreme Court decision ... 205 Organization of the Lehigh Valley Coal Sales Company . . . 207 Further proceedings against the Lackawanna . . . . 208 Another Circuit Court decision .... ... . 209 Further proceedings against the Reading, the Central of New Jersey, and the Lehigh Valley 210 Prosecution of the anthracite companies for violation of the Sherman Anti-trust Act 212 Decision of the Circuit Court 214 Decision of the Supreme Court . . 215 CONCLUSION 219 APPENDIX 221 Statistical Tables, I-Vn 223 Letters, I-VII 231 CONTENTS xiu BIBLIOGRAPHY 238 INDEX LIST OF ma; Map I. Map n. Chart I. Chart II. Chart in. Chart IV. Chart V. • 253 OPPOSITE PAGE Chart VI. Chart Vn. 'S AND CHARTS Coal fields of Pennsylvania . . . Pennsylvania anthracite coal field Wholesale prices of anthracite coal, 1870 to 1891 Shipments of anthracite from 1820 to 1910, by five- year periods ... Yearly shipments of anthracite coal, 1898 to 1913 Shipments of anthracite by regions at stated periods Proportional ownership in 1896 of unmined tonnage of anthracite ... Average of the highest and average of the lowest quo- tations of the common stock of eight anthracite companies . . . ... Wholesale price of stove coal at New York Harbor, 1890 to 1913 165 S 7 45 99 10 r 103 109 141 THE ANTHRACITE COAL COMBINATION IN THE UNITED STATES THE ANTHRACITE COAL COMBINATION INTRODUCTORY The history of the anthracite coal industry of the United States may be divided roughly into four periods, to each of which in this study a chapter is devoted, — the first, extending from the middle of the eighteenth century to 1834; the second, from 1834 to 1873; the third, from 1873 to 1898; and the fourth, from 1898 to the present time. The period ending in 1834 is that of the early development of the industry. Canals and navigable rivers constituted the chief means of transportation; and by the middle of the thirties the main anthracite canals had been completed. Mining operations, also, were simple, being carried on at that time for the most part above water level. The particular date 1834 has been chosen because in that year a Commission appointed by the Pennsyl- vania Legislature summed up the conditions prevaiHng in the trade up to that time. The second period, 1834 to 1873, wit- nessed the development of the railroad systems, and large pur- chases by them of coal lands. The first pool was formed in 1873. Pools, or arrangements of one sort or another to secure a greater degree of harmony in the conduct of the coal trade, are the dis- tinguishing features of the third period, 1873 to 1898. By 1898 were plainly discernible the first steps in the formation of a combination which has since effectively controlled the anthracite coal trade. The development of this combination is the main characteristic of the fourth period, 1898 to the present time. The remaining chapters of this study, to which the first three serve as an introduction, are devoted to an investigation of the control exercised by the combination over the production, trans- portation, price and sale of coal, and of the efforts made by the Goverimient to dissolve the combination. CHAPTER I THE HISTORY OF THE ANTHIL\CITE COAL INDUSTRY TO 1834 The history of the anthracite coal industry of the United States is, in effect, a history of the anthracite coal industry of the State of Pennsylvania. Other deposits of anthracite are found in the United States, but they are so small, or at least so little worked, as to be of sHght consequence. There are anthracite beds in Colo- rado and in New Mexico, but their production in 1907 was only 20,000 and 42,000 tons, respectively, and their combined produc- tion has never reached 100,000 tons in any one year,^ which is less than one-fifth of one per cent of the production of the State of Peimsylvania. Some coal has been mined in Rhode Island and in Massachusetts, but the attempts to develop these coal fields in competition with the Pennsylvania coal have hitherto failed. The Providence Coal Mining Company, organized in 1909 to develop the coal mines at Cranston, within a few miles of Provi- dence, Rhode Island, has recently gone into the hands of a receiver. The anthracite beds in the southwestern portion of the State of Virginia are now being developed, but this region, so far as is known, hardly contains enough marketable coal to supply the normal demand of the country for one year.^ There are deposits, also, in Alaska, Washington, Arkansas, and possibly in a few other states, but as yet little is known of their extent or their value. Foreign competition, also, may be practically neglected in a study of the anthracite coal trade of the United States. Anthra- cite beds are to be found in a mmaber of foreign countries, notably in China, England, Wales, Ireland, Russia, France, Austria, Spain, Switzerland, AustraHa, Peru, Mexico, and Canada, but though anthracite coal has been duty-free for over forty years, ' Mineral Resources, 1907, pt 2, p. 38; and 1910, pt. 2, p. 26. ' Saward's Coal Trade, 1906, p. 1 14. < z < > ►3 s X 32 2 Z ^w p & O'^ S HISTORY OF THE INDUSTRY 5 the imports into the United States have been so small as to be almost negligible.^ The hard coal deposits of Pennsylvania, which is the greatest anthracite producing section in the world, are localized to a remarkable degree. Five coimties in the northeastern part of the State produce 96 per cent of the total output of this country.^ The total area in the State containing workable beds is only 484 square miles, whereas the bituminous and lignite coal fields of the United States underhe an area of 496,000 square miles.' The foregoing map, giving both the anthracite and the bituminous coal areas of Peimsylvania, shows the hmited area of the an- thracite deposits. But notwithstanding the limited area of the anthracite fields, the anthracite coal industry has grown to enormous proportions. The six most important mineral pro- ducts of the United States, with their value in 1911, are given in the following table.'' Valde of Product Bituminous and Kgnite §451,000,000 Pig iron 327,000,000 Anthracite 175,000,000 Clay products 1 62,000,000 Copper 137,000,000 Petroleum 134,000,000 Anthracite coal, therefore, in 191 1, was exceeded in value of product by only two other mineral products, metallic and non- metaUic, viz., bituminous coal and pig iron. Its value was $13,000,000 greater than the value of clay products, and $38,000,- 000 greater than the value of copper. The anthracite coal region of Pennsylvania is divided' geo- logically into four fields. First, the Northern or Wyoming field, extending from Forest City to Shickshinny, a distance of 55 miles with a maximum width of 6 miles, and containing 176 square miles of coal beds. The principal cities in this region are Wilkes- 1 See p. 174. " Mineral Resources, 1911, pt. -2, p. 173. ' Ibid., 1907, pt .i, p. 31. * Ibid., 1911, pt. ij pp. 105-106. ' See Map II, p. 7. 6 THE ANTHRACITE COAL COMBINATION Barre and Scranton. Twenty-five miles to the northwest are several small detached areas, of which the principal is the Bernice coal basin in SuUivan County, containing about 2000 acres of coal lands. Second, the Eastern Middle field, containing only 33 square miles of coal lands, lying about 15 miles south and south- west of the western end of the Northern basin, with a maximum length of 26 miles and a maximum width of 10 miles. The principal town is Hazelton. Third, the Western Middle field, lying southwest of and adjoining the Eastern Middle basin. This field is 36 miles long and 4 to 5 miles wide and contains 94 square miles. Within this region are two distinct basins, the Mahanoy on the east and the Shamokin on the west, which are of equal size and importance. The principal towns in this field are Shenandoah, Mahanoy City, Ashland, Mount Carmel, and Shamokin. Fourth, the Southern or Schuylkill field, the largest of the geographic divisions, with an area of 181 square miles. The Schuylkill field Mes south of and approximately parallel to the Western Middle field, which it adjoins for a short distance. It extends from Mauch Chunk on the Lehigh river to Dauphin on the Susquehanna river, a distance of 70 miles. It has a maximum width at Pottsville of 8 miles, but tapers gradually toward the east and the west. The principal towns are Pottsville and Tamaqua. For trade purposes, however, which is the classification fol- lowed in this study, the anthracite coal region is divided into three fields — the Wyoming, the Lehigh, and the Schuylkill — the Wyoming or Northern field, including for trade purposes the product of the Bernice Coal basin; the Lehigh field, consisting of the Eastern Middle basin referred to above, and of the eastern end of the Schuylkill field, known as the Panther Creek basin, extending from Mauch Chunk to Tamaqua; and the Schuylkill field, which includes the larger part of the Schuylkill basin, i. e., all lying west of Tamaqua, and also the Western Middle field.' In tracing the early development of the coal trade these three regions — the Wyoming, the Lehigh, and the SchuylkiU — are considered separately, as the development of each region pro- ' Twenty-second Annual Report of the U. S. Geological Survey, 1900-01, pt 3, pp. 63-65. 7T TO° \ B^ A D F^ B ^V) • ° ^ s |i u e/h a n n a |b 1 / ^,j^vf^***^^*"'*^l*gjff] ';/ ^^^^^"^^ .r\^" x'^^W^'Z^^M S- , v^ ,' C, \ jr ^c""-^ ■^.^^L ^<^ v\^^^ 2^ ■'^' ;r ^ J«^^*i <■ t/^ / ^^^^^^r^- ' "'"'At^^^' ■^ iU^^^^S^^^ V ^^^,\ ; K, ~> ( <' / -5^ f ..i^-j — ._v^ ^ ' 5 ' / .^i-- ^^^I^^.54n/ ^^ ^ '-' 1 '- \ A ,^^-— T- y' V \ ™''!"''«'rj^^^ ^^j"«"5^ \/f —1 i,^ \ ^..^ xy^'-^^k^ ^ R ^/\f^ \ \^ \^^-~Sv^^o\,-~-9^L »^ I aIa^ ^ \ lio' ,'' _7^'~"', ) ,^^0i^i »SJ /.^-s-^ •.=i 1 S,^^^ '3 -r. ■ ^j^^^^^^^ j^J!aL ^ 1, — u " I'S/^'-'oe^'^-t^:;^-^^ ^^^P^ <^ ^-^ iM^ V/ --''■^^^SSwZiwfBw''''^^^ ^^^^^^^^ ^^^^^S*^0-^^ jSo c .-■-"'"■'^Sl'-^^'' -..-^^^^^^^S^^^wlsw ^%v ^^^^^^^^^ •^^^^^s^^V^"*"**!) ^ ^^^ fi >s ^3 ^fe/A BftB N J^ _,- BSib^T^J^WSt^ '""""S 1 1 .^iSf*'*??''^^ /^^^ LsTjl,^^*'^'^^^- -S*^^^^^® ^_^ ^ ^^•'^■Ws^ j^^^'i'ly" 1 y^^j^^^ p^ic% ,2^ f-^ .^.^^^^^ JKl / '-^^^ ^^ ^ \ } :?y7 \^^^r V^ ? ^5^^^^>, V.,-^-,y^*^ r'^'\^ VI "^ ~\ / \ ^ f^-^^ \ ^vl^^ ^I^is— ^ ^ "a1 ^ /'^ _^_^^;^u)iBa C i/ j -"/I ' 'h/yf^'^ B AN N ^^x y"^ ^ / ^S,— *-— 7^^^^^ \ ^ --'''''r ^- LEOEHO yf ^^5- \ \ yT-'^C ^ ^^ l#®s| y' J" ^^^ ,iiij .J^' I ..^^ / 1V^\ ^ ■*■ N/0 A S T_E R 77? Tfl" PENNSYLVANIA ANTHRACITE COAL FIEU). Scale Map II HISTORY OF THE INDUSTRY 7 ceeded independently, for the most part, of the development of the other regions. Wyoming Region Anthracite coal was first discovered in the Wyoming region. In 1762 Parshall Terry and a company of Connecticut pioneers found coal on the banks of the Susquehanna river, near the site of the present city of Wilkes-Barre.* It was in this same field, also, that the first successful attempt, of which we have any record, was made to burn coal. Obadiah Gore, a blacksmith, who had migrated to the Wyoming Valley from Connecticut, used it for fuel in his forge at Wilkes-Barre in 1769.^ It soon became the chief fuel used in the valley. As early as 1775 a cargo of Wyoming coal was floated down the Susquehanna river in boats to Harrisburg, and from there was conveyed by wagons to the Gov- ernment arsenal at Carlisle, for use in the manufacture of arms for the Revolutionary soldiers.* This is the first recorded ship- ment of anthracite to market, but during the Revolutionary War similar shipments were made annually. The Wyoming region was first developed, however, by Abijah Smith, who had migrated from Connecticut in 1806 and settled at Plymouth, at the southern end of the Northern basin. He purchased 75 acres of coal lands for about S500, and began at once the mining of coal.* In the fall of 1807 he shipped about 50 tons of anthracite to Columbia, Lancaster County, Pennsyl- vania, and in the following year several " ark " loads were sent to Columbia and elsewhere.^ Abijah and his brother John, who soon joined him in the business, had many difficulties to contend with. A market for their coal had first of all to be estabUshed, as the value and use of anthracite was httle known. Though experi- ments had already been made showing that the coal would bum successfully in an open grate and in a stove, yet anthracite up to that time had been used almost entirely in furnaces and forges. ' Kulp, Coal, its Antiquity, Discovery and Early Development, pp. 7, 10. ' Ibid., pp. 11-12. ' Hazard's Register, xiii, p. 209. < Wright, Historical Sketches of Plymouth, p. 315. ' Kulp, op. cit., p. 13. 8 THE ANTHRACITE COAL COMBINATION The Smith brothers created a demand for coal for domestic pur- poses by setting up grates in public houses and demonstrating its use and convenience. Added to this difi&culty of creating a market was that of transporting their coal to market. They shipped their coal (in " arks," holding some 60 tons) down the Susquehanna river, but about one ark out of every three either sank to the bottom or was grounded on the rapids. When we consider that the Susquehanna was the largest and most navigable waterway in the coal fields, the difficulties of transportation in the other fields may well be imagined. In spite of these obstacles, however, the Smith brothers shipped annually from 400 to 500 tons to points on the Lower Susquehanna river, and to Balti- more, and to New York.' The Smiths, and especially Abijah, may be considered the real pioneers in the anthracite coal busi- ness, as it was they who began the traffic in coal as an article of general use. They carried on a successful trade for thirteen years prior to 1820, the usual date for beginning the record of coal shipments.'' The projector of the Delaware and Hudson Company was also early in the field. Coal had been discovered at Carbondale, near the northern extremity of the Wyoming region, in 1 799. Ini8i 2, Mr. William Wurts, a young Philadelphia merchant, bought large blocks of coal lands in the neighborhood of Carbondale for from 50 cents to $3.00 an acre.^ In 1815 William and his brother Maurice sent their first ark load to Philadelphia by the Lacka- waxen and Delaware rivers,^ but for several years thereafter no further shipments are recorded. Transportation by the above route was difficult and exceedingly expensive. The cost of hauling the coal in wagons from the mines at Carbondale to the Lackawaxen river was $2.50 per ton, and in addition there was the cost of transportation down the river to Philadelphia.^ ' Twenty-second Annual Report of the U. S. Geological Survey, 1900-01, pt. 3, P- 75- ' See p. 14. ' HoUister, History of the Lackawanna Valley, p. 287. * Twenty-second Annual Report of the U. S. Geological Survey, 1900-01, pt. 3, P- 7S- ' Roberts, Anthracite Coal Indwlry, p. 62. HISTORY OF THE INDUSTRY g Furthermore, the discoveries of coal in the Lehigh and the Schuylkill fields ^ suggested to the Wurts Brothers that the natural outlet for the coal of the Northern field was not Phila- delphia but New York. They decided, then, in 1822 to build a railroad and a canal from their coal mines at Carbondale to some point on the Hudson river in New York State, whence shipments could be made to New York City. By an Act of the Pennsyl- vania Legislature, passed March 13, 1823, Maurice Wurts was authorized to improve the navigation of the Lackawaxen river up to the Delaware river. ^ On April 23 , 1823, th e Delaware and HudsonJ!3anal Company was^Hiaitered by the Stat e of Ne w YoA , and authorized to construct a canal from the Delaware river to such point on the Hudson as the corporation judged best. The Delaware and Hudson Canal Company was also authorized to contract with Maurice Wurts for the purchase of the right con- ferred upon him to improve the navigation of the Lackawaxen river.^ The authority to transfer this right was given by the Legislature of Pennsylvania in April, 1825.^ The connecting link between these waterway projects and the coal mines at Carbondale was formed by the building of a gravity railroad. The authority to acquire coal lands in Pennsylvania had been given the Delaware and Hudson both by its charter ^ and by acts of the Pennsylvania Legislature.* Fortunately for the Delaware and Hudson Canal Company public confidence in canal enterprises was strong at this time, and the company had no difficulty in secmring the reqmsite capital. The books of the company were opened to subscription on Janu- ary 8, 1825, and all the stock ($1,500,000) was taken on the same day.'' The Delaware and Hudson Canal Company soon had many difficulties to contend with, and was even compelled to bor- row money from the State to relieve its financial embarrassment. ' See pp. 10 el seq. and pp. 16 et seq. * Laws of Penn., 1823, ch. 61. ' Laws of N. Y., 1823, ch. 238, p. 305. * Laws of Perm., 1825, ch. 78. ' Laws of N. Y., 1823, ch. 238, p. 305. ' Laws of Penn., 1825, ch. 78. ' Niks Register, xxvii, p. 336 (1825). 8 THE ANTHRACITE COAL COMBINATION The Smith brothers created a demand for coal for domestic pur- poses by setting up grates in public houses and demonstrating its use and convenience. Added to this difficulty of creating a market was that of transporting their coal to market. They shipped their coal (in " arks," holding some 60 tons) down the Susquehanna river, but about one ark out of every three either sank to the bottom or was grounded on the rapids. When we consider that the Susquehanna was the largest and most navigable waterway in the coal fields, the difficulties of transportation in the other fields may well be imagined. In spite of these obstacles, however, the Smith brothers shipped annually from 400 to 500 tons to points on the Lower Susquehanna river, and to Balti- more, and to New York.' The Smiths, and especially Abijah, may be considered the real pioneers in the anthracite coal busi- ness, as it was they who began the traffic in coal as an article of general use. They carried on a successful trade for thirteen years prior to 1820, the usual date for beginning the record of coal shipments.^ The projector of the Delaware and Hudson Company was also early in the field. Coal had been discovered at Carbondale, near the northern extremity of the Wyoming region, in 1799. In 1812, Mr. WilHam Wurts, a young Philadelphia merchant, bought large blocks of coal lands in the neighborhood of Carbondale for from 50 cents to $3.00 an acre.' In 1815 WiUiam and his brother Maurice sent their first ark load to Philadelphia by the Lacka- waxen and Delaware rivers,^ but for several years thereafter no further shipments are recorded. Transportation by the above route was difficult and exceedingly expensive. The cost of hauling the coal in wagons from the mines at Carbondale to the Lackawaxen river was $2.50 per ton, and in addition there was the cost of transportation down the river to Philadelphia.^ ' Twenly-second Annual Report of the U.S. Geological Survey, 1900-01, pt. 3, P- IS- ' See p. 14. ' HoUister, History of the Lackawanna Valley, p. 287. * Twenly-second Annual Report of the U. S. Geological Survey, 1900-01, pt. 3, P- 7S- ' Roberts, Anthracite Coal Industry, p. 62. HISTORY OF THE INDUSTRY 9 Furthermore, the discoveries of coal in the Lehigh and the Schuylkill fields ' suggested to the Wurts Brothers that the natural outlet for the coal of the Northern field was not Phila- delphia but New York. They decided, then, in 1822 to build a railroad and a canal from their coal mines at Carbondale to some point on the Hudson river in New York State, whence shipments could be made to New York City. By an Act of the Peimsyl- vania Legislature, passed March 13, 1823, Maurice Wurts was authorized to improve the navigation of the Lackawaxen river up to the Delaware river.^ On April 2 3, 1823, th e Delaware and Hudson Canal Company was'£faaFE5-ed by the State of Ne w Yor k, and authorized to construct a canal from the Delaware river to such point on the Hudson as the corporation judged best. The Delaware and Hudson Canal Company was also authorized to contract with Maurice Wurts for the purchase of the right con- ferred upon him to improve the na\dgation of the Lackawaxen river.' The authority to transfer this right was given by the Legislature of Pennsylvania in April, 1825.* The connecting link between these waterway projects and the coal mines at Carbondale was formed by the building of a gravity railroad. The authority to acquire coal lands in Pennsylvania had been given the Delaware and Hudson both by its charter ^ and by acts of the Pennsylvania Legislature.^ Fortunately for the Delaware and Hudson Canal Company public confidence in canal enterprises was strong at this time, and the company had no difficulty in securing the requisite capital. The books of the company were opened to subscription on Janu- ary 8, 1825, and all the stock ($1,500,000) was taken on the same day.^ The Delaware and Hudson Canal Company soon had many difficulties to contend with, and was even compelled to bor- row money from the State to reKeve its financial embarrassment. ' See pp. 10 el seq. and pp. 16 et seq. * Laws of Penn., 1823, ch- 61. ' Laws of N. Y., 1823, ch. 238, p. 305. ■• Laws of Penn., 1825, ch. 78. ' Laws of N. ¥., 1823, ch. 238, p. 305. ' Laws of Penn., 1825, ch. 78. ' Niles Register, xxvii, p. 336 (1825). lO TEE ANTHRACITE COAL COMBINATION In 1829, however, the gravity railroad/ extending from Carbon- dale to Honesdale (16 miles), and tjie canal, extending from Hones- dale to Rondout on the Hudson (107 miles), were completed at a cost of $2,305,599.^ During that year 7000 tons of coal were sent down the Hudson river to New York City. From that time on the trade grew rapidly. The shipments of coal from this region in the year 1834 were 43,000 tons, but normally at this time they were nearer 100,000 tons, over 110,000 tons having been sent to market from this region in 1833.* By the end of the first period (1834), then, though the total output was as yet comparatively small, the development of the Wyoming field was well under way. Lehigh Region Coal was first discovered in the Lehigh field in 1791 near the town of Mauch Chunk. PhiKp Ginter, a hunter, accidentally kicked a black stone which lay in his path, and thinking that perhaps it might be " stone coal," he picked it up, and carried it to Colonel Jacob Weiss, who lived at Fort Allen. Colonel Weiss took it to Philadelphia, and showed it to some of his friends, who were convinced of its value and who recompensed Ginter for show- ing them where he had found the coal. In the following year (1792) Weiss and his friends, including Robert Morris, the cele- brated financier, formed the Lehigh Coal Mine Company, but without a charter of incorporation, and purchased about eight or ten thousand acres of coal lands.* This company in 1793 built a road from the mines to the Lehigh river near Mauch Chunk, and attempted to ship the coal down the river to market.^ But the nearest market was Philadelphia, about a hundred nfiles away, and this could hardly be said to be a market, as stone coal ' It was upon this gravity railroad that there was put into use, in 1829, the first locomotive ever to run on a railroad track in America. Brown, The History of the First Locomotives in America, p. 83, and Clark, The Wyoming Valley, p. 78. ^ Hazard's Register, xiii, pp. 2io-2ri. _ ' See Appendix, Table I. * Memoirs of the Historical Society of Pennsylvania, i, p. 321, " A Brief Account of the Discovery of Anthracite Coal on the Lehigh." ' Hazard, " History of the Introduction of Anthracite Coal," Memoirs of the Historical Society of Pennsylvania, ii, p. 157. HISTORY OF THE INDUSTRY II was then distinctly a novelty. The coal, furthermore, lay in the midst of a mountainous region, and could only with great diffi- culty be brought to market. Hence the undertaking was tem- porarily abandoned. The difficulties of transportation con- stituted at this time one of the main obstacles to the development of the coal trade. Coal which was worth from $i to $2 at the mines sold for $10 to $20 in the market, transportation charges thus constituting about 90 per cent of the market price, whereas at the present time they are about 30 per cent. Furthermore, the effort of the Coal Mine Company was premature. There was a plentiful supply of wood for fuel, and such -demand as there was for coal for industrial purposes could CcisUy be filled by the Liver- pool and Virginia coals. The need of some new fuel supply was not, as yet, a factor in stimulating the development of the anthra- cite coal fields. In 1798 the navigation of the Lehigh river was somewhat improved by a company organized for that purpose. Five years later, in 1803, the Lehigh Coal Mine Company again resumed operations. Six " arks " containing coal were sent down the river, but only two of them reached their destination, and it was with great difficulty that the coal was disposed of. The city authorities of Philadelphia finally purchased it for use in their steam-engine at the water works, but could not make it bmrn. It was later used for gravelling the walks of their groimds.^ This experience was that of many of the early experimenters with anthracite. The inability to ignite the coal was probably due to the fact that the early miners could not distinguish coal from bone and slate, and therefore sent it aU, coal and impurities, to market. In 1808, however, Judge Jesse Fell successfully burned anthracite coal in an iron grate in his fireplace.^ This successful experiment was given considerable publicity, and did a great deal at the time to create a belief in the utiHty of anthracite. Shortly thereafter the War of 1812, by closing our ports to the entry of foreign and Virginia coals, brought about a coal shortage in the coast cities. This had the effect of stimulating further ^ Daddow and Banna n, Coal, Iron and Oil, pp. 115-116. * Fell, Memoirs of the Historical Society 0} Pennsylvania, ii, p. 163. 12 THE ANTHRACITE COAL COMBINATION attempts to develop the anthracite coal deposits, which were the most accessible sources of fuel supply. Toward the close of 1813, Jacob Cist, Charles Miner, and John Robinson decided, if satis- factory arrangements could be made with the Lehigh Coal Mine Company, to undertake the development of their property. In December, 1813, a lease was secured from the Company, which gave Cist and his associates the privilege of taking for ten years as much coal as they desired, provided that every year a small quantity of coal was shipped to market. The extremely favor- able terms of the lease show the difficulty in bringing the coal to market and disposing of it. In 1814 five arks of coal were started down the Lehigh, but the channel of the river was quite crooked and the stream was full of rocks, and only two of the arks reached Philadelphia. In addition to this uncertainty of transportation there was the difficulty of selUng the coal which had successfully braved the perils of navigation. Handbills were pubHshed in EngHsh and in German explaining how to burn the coal, and cer- tificates as to the value of the coal were secured from black- smiths, — though it was sometimes necessary to bribe the journey- men in order to induce them to give the experiment of burning the coal a fair trial. But more effective than any efforts in this direc- tion was the rise in price of charcoal as the result of the war, which forced manufacturers to try the experiment of using anthracite. Their experiments with it were successful, and the value of anthra- cite came to be more generally recognized. But upon the ces- sation of hostilities coal, which had been selling for $2t per ton, fell below the cost of transporting it to market, and the business was consequently abandoned.' This failure, however, did not discourage the coal pioneers. In December, 181 7, Josiah White, an engineer of unusual abihty, and Erskine Hazard, who were desirous of securing coal for their wire works at the Falls of the Schuylkill, purchased an immense amount of coal lands in the neighborhood of Mauch Chimk. White had had some experience with anthracite in the Schuylkill region, and had been the moving spirit in securing the charter for the Schuylkill Navigation Company,^ but not being able to agree ' Hazard's i?cgisier, xiii, pp. 273-274 (Letter of Charles Miner). " See pp. 17-18. HISTORY OF THE INDUSTRY 1 3 with those who were in control of the company, he turned to the Lehigh field. He came to the conclusion, also, that coal could be secured more cheaply in this field. In the following month, January, 18 18, a lease of the property of the Lehigh Coal Mine Company was taken for twenty years, the only condition of the lease being that, after a given time for preparation, the lessees were to dehver in Philadelphia for their own benefit at least 40,000 bushels or approximately 1500 tons armually, and were to pay on demand an annual rental of one ear of corn.i Permission was then obtained from the Legislature to improve the naviga- tion of the Lehigh river. An Act, passed on March 20, 1818, conferred upon White and his associates practically the sole jurisdiction of the Lehigh river. The natural navigation of the river at this time was so dangerous and the transportation of coal so difficult, that some such inducement was felt to be necessary in order to secure the improvement of the navigation of the river.^ To secure the necessary capital. White, Hazard, and Hauto, who had later become a partner, proposed to create a joint-stock company, which should undertake both the improvement of the navigation and the working of the coal mines. But as some favored the project of improving the navigation and others the mining of coal, two separate companies were formed. The Le- high Navigation Company, with a capital of $50,000, was formed August 10, 1818, to undertake the improvement of the Lehigh river. To this company White and his associates transferred all their privileges in the navigation, but they still retained the exclusive management of the concern and a claim upon a per- centage of the profits. The Lehigh Coal Company to which White, Hazard, and Hauto granted all their real estate, was formed October 21, 18 18, with a capital of $55,000. This com- pany was to mine the coal, and to deliver it at the river to the Navigation Company.^ ' T. C. James, " History of Lehigh Coal and Navigation Company," quoted in Mineral Ittdustry, iv, p. 147. See also " Memoir of Josiah. White," by S. W. Roberts, quoted in Memoirs of the Historical Society of Pennsylvania, i, p. 330. ^ Hazard's Register, xiii, p. 194. ' T. C. James, " History of Lehigh Coal and Navigation Company," quoted in Mineral Industry, iv, pp. 14^150. 14 THE ANTHRACITE COAL COMBINATION Yet before the operations of these companies could meet with any success, a number of difficulties had to be overcome. A severe drought showed that the supply of water in the Lehigh river could not be depended upon to furnish regular navigation, and it became necessary to resort to artificial freshets to make the river navigable when coal was en route. In the spring of 1820 considerable damage was caused by ice. To improve the naviga- tion, the two companies, on April 21, 1820, agreed to unite, pro- viding $20,000 could be raised. This amount was subscribed and the navigation was resumed.^ In the same year (1820) 365 tons of coal were sent to market. Though this shipment had been pre- ceded by many others, it was the first by any of the companies now engaged in the transportation of coal, and the standard tables of shipments begin with this one by the Lehigh Coal and Navigation Company. • In carrying out the plan of union agreed upon the Lehigh Coal and Navigation Company was incorporated, February 13, 1822.^ The charter of the company renewed the privileges of the original coal company, which included both the mining and the transportation of coal and the charging of tolls for the use of the river. In the new company White and Hazard became ordinary stockholders, giving up all the exclusive privileges which they had formerly held. The State reserved the right to acquire the improvements on the river at the end of thirty-six years (but this right was not exercised). In 1826 the shipments of coal to market from this region amounted to about 31,000 tons.' As this was rapidly wearing away the wagon road which had been built from the mines to the river, the road was replaced in 1827 by a gravity raihoad, nine miles in length. This was the first raihoad built in Pennsylvania, and the first in the United States, except a much shorter jaihoad in a granite quarry in Massachusetts.'' Further improvements ' T. C. James, " History of Lehigh Coal and Navigation Company," quoted in Mineral Industry, iv, pp. 149-150. • Laws of Fam., 1822, ch. 20. ' Erskine Hazard wrote in January, 1827, " Anthracite coal promises to become the largest and most profitable staple of Pennsylvania." — Memoirs of the Historical Society of Pennsylvania, ii, p. 161. * " Memoir of Joseph White," op. cit. HISTORY OF THE INDUSTRY IS were soon seen to be necessary. Up to this time the descending navigation had been accomplished by artificial freshets, the first regular use of this method of navigation.^ There was, of course, no ascending navigation by this method, and for a number of years the men who brought the boats down had returned on foot. But to build a new boat for every load was costly, and at the rapid rate of consumption was sure ere long to use up all the available lumber supply. The Lehigh region was at a disadvan- tage, furthermore, in that the Schuylkill region had an uninter- rupted slack-water navigation. It was decided, therefore, to change the navigation on the Lehigh into a slack- water na^'iga- tion. Upon the completion of the gravity railroad in 1827, this work was vigorously undertaken. The Lehigh Canal extending from Mauch Chunk to Easton (46 miles) was completed in Jxily, 1829.2 These improvements in navigation extended only to the town of Easton, where the Lehigh river flowed into the Delaware river. The Lehigh Coal and Navigation Company desired to improve the Delaware, and thereby secure better navigation to Philadelphia. It applied to the Legislatmre for authority to carry out this project, but the pri\'ilege was not granted, as the State proposed to xmdertake the improvement itself. This canal, which might be considered an extension of the canal of the Lehigh Coal and Navigation Company, was available for active use by the latter part of 1832, though water had been let into it two years previously. The greatest effectiveness of the Delaware Division Canal was not attained, however, because of the failure to make its size imiform with that of the Lehigh Canal. The narrowness of the locks made it necessary for the boats of the Coal and Navigation Company to trans-ship at Easton, and this checked the development of the coal trade by this route.' Toward the dose of this period still another canal, furnishing an outlet from the Lehigh region, was built, the object being, as ' Hazard's Register, xiii, p. 299, " Answer of the Lehigh Coal and Navigation Company." ' " Memoir of Josiah White," op. cit. ' Jones, Anthracite-Tidewater Canals, pp. 60-63. l6 THE ANTHRACITE COAL COMBINATION in the case of the other canals previously mentioned, the develop- ment of the anthracite coal trade. It was proposed at first that the Morris Canal, to extend from Easton across the State of New Jersey to New York, should be built by the State, but its construction was finally undertaken by a private company incorporated in the latter part of 1824. BeKef in the success of the project was so great that the company's capital was sub- scribed twenty times over. The work of construction was commenced in July, 1825, and the hne from Easton to Newark, New Jersey, completed on November 2, 1831. The usefulness of the canal was greatly diminished through the lack of a New York connection, the canal boats being too small to permit of their being towed to New York harbor. In 1834 a loan was secured for the extension of the canal to Jersey City. But not during this period, nor in fact for several years to come, was the canal a real factor in the coal-carrying trade.' Mention of it seems appro- priate, however, as it was one of the numerous projects under- taken to further the development of the anthracite coal industry. As the result of these improvements in transportation, espec- ially those undertaken by the Lehigh Coal and Navigation Company, the trade developed rapidly. The shipments of coal, which had been 365 tons in 1820 and a little over 1000 tons in 182 1, had risen by 1834 to 106,000 tons. And this was approxi- mately the normal production at that time of the Wyoming field also, though considerably in excess of the production of the Wyoming field in that particular year.^ Schuylkill Region In that portion of the Schuylkill region known as the Western Middle field, the presence of coal was known as early as 1770, but not until 1834 were these beds developed.' In the Southern portion of the Schuylkill region anthracite appears to have been first noticed about 1790. There is a story that Nicho Allen on one of his hunting expeditions had built a fire on some rocks and ' JoDes, Antkracile-Tidewater Canals, pp. 106-115. ^ See Appendix, Table I. ' Twenty-second Annual Report of the U. S. Geological Survey, 190&-01, pt. 3, P- 7S- HISTORY OF THE INDUSTRY IJ gone to sleep. He awoke to find the rocks a glowing mass of fire, and in the morning noticed that the rocks corresponded to the usual descriptions of anthracite coal.^ The first shipment of coal from this region was made about 1800, when WiUiam Morris took a wagon-load to Philadelphia. This appears to have been the first shipment of anthracite coal to Philadelphia and the first to tide-water. Morris was unable to sell his coal, however, and retired from the business disheartened.^ Early in 1812 Colonel George Shoemaker of Pottsville hauled nine wagon-loads of coal to Philadelphia, and attempted to find a market for it. He was called an impostor for trying to pass off stone on the people for coal, but by persistence managed to dis- pose of two of his loads at the cost of transportation. The remaining seven loads of coal he gave away, yet the very men to ■whom he had given his coal secured a writ from the authorities for his arrest as a swindler, and Colonel Shoemaker foiind it neces- sary to flee from " justice." Those who had purchased his coal, however, had unusually good success with it. One of the loads was bought by Messrs. WTiite and Hazard, manufacturers at the Falls of the Schuylkill.' Mr. White spent a whole morning trying by various devices to ignite the coal he had purchased, but finally abandoned the attempt. Returning somewhat later it was found that the coal had developed such a heat that the whole furnace was in danger of being melted. This experiment became widely known, and made many friends for the stone coal, as it was then called.^ Messrs. \\Tiite and Hazard, stimulated, no doubt, by their success with this experiment, endeavored in 18 12 to secure a law for the improvement of the Schuylkill river, but their plan was ridiculed in the Legislature, and their attempt to get a charter was for the time being unsuc- cessful.* The Schuylkill field was soon opened to development, 1 Daddow and Batman, Coal, Iron and Oil, p. 1 20. 2 Hazard's Register, xiii, p. 274. Appendix no. 18. " Extract from the First Report of the Pottsville Board of Trade." 2 For the part AVhite and Hazard later played in the development of the Lehigh region, see pp. 12 et seq. * Daddow and Bannan, Coal, Iron and Oil, pp. 122-123. ' Hazard's Register, iii, p. 302. 1 8 THE ANTHRACITE COAL COMBINATION however, by the Schuylkill Navigation Company, chartered by the Pennsylvania Legislature on March 8, 1815.^ This company was formed for the double purpose of securing an outlet to the seaboard for the agricultural and lumber products of the Schuyl- kill Valley and of forming a connecting link in the improvements undertaken by the State of Pennsylvania to secure the western trade. It had at its inception little connection with the coal bus- iness. Though there had been some shipments of coal down the Schuylkill river to Philadelphia in 18 14, the coal trade at this time was not regarded as of much importance. It was not to be expected, therefore, that the company should be incorporated with mining privileges, as in the Wyoming and Lehigh fields. The construction of the Schuylkill canal was commenced in the middle of 1816, and was completed (108 miles in length) in 1825 at a cost of nearly $3,000,000.^ Its completion was suffi- ciently advanced in 1822 to permit of the passage of nearly 150a tons down the canal, but not until 1825 was the navigation in condition to permit boats to go all the way from Pottsville to Philadelphia.' In that year about 6000 tons of coal were shipped down the canal.* Quite contrary to expectations, the carriage of anthracite coal formed the chief source of revenue for the canal even from the beginning. In 1825, the first year when a separate account of the articles carried was kept, the tolls received from coal amounted to $9700, or over 60 per cent of the total receipts from tolls, and in the succeeding years coal became even more the predominant source of income for the company.^ By 1825 the trade from the Schuylkill field was developing rapidly. By 1834 over 200,000 tons were being shipped annually by the Schuylkill Canal, the profits on the transportation of which went entirely to the SchuyUriU Navigation Company, — ■ which had, until the Philadelphia and Reading Railroad entered this field in 1842, a practical monopoly of the coal-carrjdng trade of the Schuylkill, or Southern, region. ' Laws of Penn., 1815, ch. 62. ' Hazard's Register, xiii, p. 187. ' Daddow and Bannan, Coal, Iron and Oil, p. 1 23. ' See Appendix, Table I. " Hazard's Register, xiii, p. 187. HISTORY OF THE INDUSTRY 19 At the close of the first period, ending in 1834, nearly two-thirds of the total shipments of anthracite to market were mined in this Southern field.* The more rapid development of this region is easily explained. The cost of opening a mine in the Southern region was small. The surface of the ground was quite broken and there were numerous outcrops which could be cheaply mined without any very considerable outlay. In the Wyoming field the surface was more even, and the sinking of an opening below water level was generally required in order to mine the coal. This retarded the development of the Northern field. In the Lehigh region the coal was quite accessible, but the development of this region was undoubtedly checked by the high tolls charged by the Lehigh Coal and Navigation Company, which made it difficult for the independent operators to compete. The Schuyl- kill Navigation Company, not being engaged in the mining of coal, was interested in furthering the development of the coal fields by independent operators. During this early period, there- fore, it followed the poKcy of lowering toUs in order to develop trade. In 1833 there were as many as 47 coal operators shipping over the Schuylkill Canal,^ and for many years the Southern field was developed entirely by independent operators, the transporta- tion companies owning no coal lands and conducting no minin g operations whatsoever. In addition to these 5 canals, some short railroads were bmlt into the coal fields during the early thirties. The longest of these was the Little Schuylkill Railroad, some 20 miles in length, which began shipping from Tamaqua, in the Southern region, in 1832. These railroads, many of which were owned by the canal com- panies, served mainly as feeders to the canals. They played little part during this early period in the growth of the coal trade. The main features of the early development of the anthracite industry may be briefly summarized as follows: The Wyoming field was first developed on any considerable scale by the Delaware and Hudson Canal Company, which exercised both mining and transportation privileges, having, in * See Appendix, Table I; also chart, p. 103. ' Jones, op. cit., p. 131. 20 THE ANTHRACITE COAL COMBINATION fact, constructed its canal in order to secure a market for its coal. The Lehigh region was developed by the Lehigh Coal and Naviga- tion Company, which was likewise engaged in both the mining and the transportation of coal, and which had constructed its canal for the purpose of securing a wider market for its coal. Two other canals, the Delaware Division Canal and the Morris Canal, were built during the early part of the thirties. Both of these served as feeders to the Lehigh Canal, but neither of them possessed any mining privileges. In the Schuylkill region the conditions were notably different. Though the Schuylkill Canal soon became primarily a coal-carrying canal, it was not con- structed with the coal trade in view, and was never granted mining privileges. The production of coal in this region was carried on by independent operators. In all three of these anthracite fields the improvements in transportation, and a growing recognition of the value of anthra- cite, led to a rapid growth of the coal trade. The total shipments of coal trebled during the four years from 1826 to 1829, and quad- rupled during the succeeding four years. "^ There was in fact an over-development of the industry, especially in the Schuylkill field, which was followed by the inevitable reaction, bringing with it much financial distress. A number of coal companies had been incorporated in this field, and they were held responsible for the disastrous state of the trade. It was maintained that these companies had not been incorporated for mining purposes, but purely in order to dispose of their coal lands by selhng their stock. To develop a ready market for their stock it was claimed that they had paid high wages, opened mines wastefully, over- developed the industry, and, when the wave of speculation had been carried sufficiently high, had sold out and left the trade in a demoralized state for the independent operators.^ There was strong opposition, also, to the union of transportation and mining privileges. It was said in 1833, " that no greater evil can be inflicted upon a coal district than to give a coal company control of the Railroad or Canal leading into that district." ^ It was ' See Appendis, Table I. ' Hazard's Register, xiii, pp. 246-251. ' Taylor, The Effect of Incorporated Coal Companies upon the Anthracite Coal Trade oj Pennsylvania, Potts ville, 1833. HISTORY OF THE INDUSTRY 21 charged that the Delaware and Hudson and the Lehigh Coal and Navigation Company had locked up thousands of acres of coal lands, which had previously been opened to development. The Lehigh Coal and Navigation Company was accused, in addition, of having charged exorbitant tolls, thereby preventing inde- pendent operators from competing with it in the market, and of having forced the miners to Hve in the company's houses and to buy at the company's stores at unjust rates.^ These complaints became so frequent that in March, 1833, a Commission was appointed by the Pennsylvania Legislature " to investigate the present state of the coal trade . . . and the history of the mining operations generally, with a view to ascertain the effect of incorporated companies with mining and trading privi- leges on the progress of the business . . . and to inquire what further legislative provisions are necessary to protect, facilitate and encourage this industry." ^ The Packer Report, so named after its Chairman, Samuel Packer, was published in 1834, and provides much of the available information as to the early history of the industry. The Commission addressed a long list of ques- tions to the indi\dduals and the companies prominent in the anthracite coal trade, and the replies received are of interest as showing the feeling at that time toward incorporated companies. Those opposed to incorporated companies maintained that mining operations could be conducted much more economically by individuals, because the affairs of incorporated bodies always have been and always must be managed by those unacquainted with the business they are conducting. Individual operations, furthermore, could be carried on without an agent with a fat salary at every turn, and without a lavish waste of materials at every point.^ ' The effect of incorporated companies upon the general prosperity of the country was held to be comparable " to the dominion of despotism and tjnranny, usurping the rights and trampling upon the liberties of the people." * The inhabitants of a district or country placed imder their control, being depen- dent upon one source alone for bread, would soon become so for • Hazard's Register, xiii, p. 278. ' Ibid. s Ibid. « Ibid., p. 246. 22 THE ANTHRACITE COAL COMBINATION their opinions also.' Employees would be compelled to vote on all questions as their employers wished, or be discharged." In favor of granting the privilege of incorporation it was maintained that individuals with limited knowledge would not be willing to hazard enough capital in the coal business to give stabihty and permanency to the mining interests, especially as the expense of operating was increasing greatly through the necessity of sinking below water level.' The Commission concluded that it was obvious that incorpo- rated companies had generally been beneficial. These companies had been mainly instrumental in introducing the use of anthra- cite coal, and they had furnished a regular supply of coal at a reasonable price. Nevertheless, said the Commission, incorpo- rated companies should be formed only when individual means are not available. At this day individual means are adequate and there is, therefore, no greater necessity for conferring corpo- rate powers upon a class of men to mine coal than upon a society of farmers to plough their lands. It therefore recommended that mining be left open to the free and untrammeled exercise of indi\'idual enterprise. The question as to whether any corporate privilege was necessar\- could be determined by the Legislature,* but " the grand evil . . . against which the committee would most earnestly protest, is in gi\ang them, in addition to their mining privileges, the control of a canal or railroad, with power to lock up at pleasure the resources of a whole valley or com- munity." ' ' Hazard's Register, xiii, p. 250. ' Ibid., pp. 216-218. ^ Ibid., p. 249. ' Ibid., p. 218. ' Ibid., p. 247. CHAPTER II THE HISTORY OF THE INDUSTRY FROM 1834 TO 1873 It is evident from the Packer Report that the dangers con- nected with the union of transportation and mining privileges were clearly recognized at this time. Had the recommendations of the Commission been adopted, and the transportation and the mining of coal been kept separate, the compHcated system whereby the trade is now controlled would never have arisen. That these recommendations were not followed becomes clear from a study of the industry during the second period, 1834 to 1873- Th e characteristic features of this pe riod_ are the developmen t of railroad systems, the concentration of the coal lands in thei r ha^Hsj and llieeTjmiTT3tinTT__rif the canal t;y^ternt; as dominant factors in the development of the in dustry. As for the first of these, the extension of railroad facihties proceeded more slowly in the Wyoming and Lehigh regions up to the middle of the nineteenth century than it did in the Schuylkill region. The Delaware and Hudson Canal Company and the Lehigh Coal and Navigation Company, until about 1850, were the only outlets to tide^Tvatsr trorn^ the Wyoming and Lehigh fields, — with the exception of some smaU shipments down the Susquehanna river. Such extensions of railroad facihties as there were took the form of lateral roads within the coal fields, serving for the most part as feeders to the existing means of transportation. One of the most important of these was the Lehigh and Susquehanna Rail- road, begun in 1837 and completed in 1846. It extended from the Susquehanna river at Wilkes-Barre southward to White Haven, a distance of nearly 20 miles.' At White Haven a con- nection was made with the Lehigh Canal, which had been ex- ' Daddow and Bannan, Coal, Iron and 03, pp. iii, 119. 23 24 THE ANTHRACITE COAL COMBINATION tended northward from Mauch Chunk to White Haven. The Lehigh and Susquehanna RaUroad proved to be a most valuable feeder to the Lehigh Canal. But during the early fifties the transportation facilities of the Wyoming and Lehigh fields were greatly extended. The Pennsylvania Coal Company, which had been chartered in Peimsylvania in 1838, " for the purpose of mining coal, and for transacting the usual business of companies engaged in mining, transporting to market, and selKng of coal, and the other pro- ducts of coal mines," ^ now first began to take an active part in the coal trade. Li 1850 it built a gravity railroad extending from Pittston to Hawley on the Delaware and Hudson Canal, and also purchased large amounts of coal lands, soon becoming one of the largest producers of coal. Li the following year, 185 1, the Delaware. Lackawanna and Western Railroad Company began the mining of coal. This company had been incorporated in 1849,^ ^.nd in 1851 had been authorized bj' the Pennsylvania Legislature to purchase not more than 1000 acres of coal lands.^ By an act passed in 1855 the quantity of coal lands which the Lackawanna Railroad might hold was increased to 2000 acres, and the Lackawanna was given specific authority to " hold coal lands, and to mine, purchase, transport and vend coal." * But by the consolidation of a num- ber of coal companies and their merger with the Lackawanna Railroad, the amount of coal property owned by the railroad was considerably increased. The Nanticoke Coal and Iron Company had been organized under an act of the Pennsylvania Legislature passed on April 13, 1S64, and had been authorized to acquire 5000 acres of coal lands.' Under the authority of the act of April 13, 1868, " authorizing the merger and consolidation of ' Laws o{ Penn., 1838, no. 73. * Not called the Delaware, Lackawanna and Western until 1853. In that year an act of the Pennsylvania Legislature provided for the consolidation of the Lacka- wanna and Western Railroad Company, incorporated in r849, ^id ^^ Delaware and Cobb's Gap Raikoad Company, incorporated in 1850, into the Delaware, Lack- awanna and Western Railroad Company. ' Transcript of Record in Commodity Clause Cases, p. 13. See Biblio. no. 157. * Laws of Penn., 1853, no. 118. ' Laws of Penn., r864, no. 345. HISTORY OF THE INDUSTRY 25 coal companies," ^ the Steuben Coal Company — into which the Scranton Coal Company had already been merged — and the Granby CoaL Company were consoHdated on June i, 1868, with the Nanticoke Coal and Iron Company.^ The act of April 13, 1868, also authorized coal companies having coal lands and mining privileges in the coimties of Luzerne and Schuylkill to merge their corporate powers " into any other company owning real estate in the same county, being a coal or mining company, or a coal and iron company, or a company having mining privi- leges." ' It was provided that the privileges of the companies so merged should be transferred to the company into which the merger was made. The Nanticoke Coal and Iron Company was, thereupon, merged into the Delaware, Lackawanna and Western Railroad on June 23, 1870,* and the Lackawaima thereby secured the authority to own coal lands which had been conferred upon these coal companies. As the result of this policy of consoHda- tion the Lackawanna by the end of 1870 had acquired some 17,000 acres of coal lands.* The Delaware, Lackawanna and Western rapidly extended its transportation system likewise. In 1854 was completed the line provided for in its charter, extending from the New York and Pennsylvania boundary line southeasterly across the State of Pennsylvania to the Delaware river.' An all-rail connection to tide- water was secured in 1856 through the use of the tracks of the Central Railroad of New Jersey across the State of New Jersey. In December, 1868, through the lease of the Morris and Essex Railroad, the Lackawanna secured an independent outlet to tide- water at Hoboken, and in the following year, through the lease of the Oswego and S)T:acuse Railroad, an outlet to the Lakes at Oswego was secured. An important adjimct to the Lackawanna system was the Lackawanna and Bloomsburg Railroad, extend- ing from Scranton to Northumberland in the southwestern por- ' Laws of Penn., 1868, no. 878. I ^ Transcript cf Record in Commodity Clause Cases, p. 17. See Biblio. no. 157. ' Laws of Penn., 1868, no. 878. * Transcript of Record in Commodity Clause Cases, p. 17. See Biblio. no. 157. ' Ibid., p. 20. « Ibid., pp. 13-14. 26 THE ANTHRACITE COAL COMBINATION tion of the coal fields, and acquired by the Delaware, Lackawanna and Western Railroad in June, 1873.' The Lackawanna was soon followed in the coal fields by the Lehigh Valley Railroad Company,^ which in 1855 began shipping from Wilkes-Barre in the Northern field to Phillipsburg on the Delaware river. In 1864 this road acquired the Beaver Meadow Railroad and Coal Company, organized in April, 1830, and in 1868 acquired the Hazelton Railroad Company, organized in 1836 under the name of the Hazelton Coal Company. Both of these companies had been authorized by law to mine, transport, and seU coal. The Lehigh Valley had not been authorized by its charter to conduct minin g operations, but by the acquisition of these companies it became possessed of mining privileges, and, also, of some very valuable coal lands. These lands, together with those acquired through the purchase of the stock of a number of other coal companies, were later turned over to the Lehigh Valley Coal Company, a Pennsylvania corporation,^ the control of which the railroad acquired in November, 1875.* ^ the extension of its railroad system the Lehigh Valley leased the Morris Canal and Banking Company in 1871, in order to secure an outlet to tide-water, but the canal proved inadequate, and the Easton and Amboy Railroad was built from PhilHpsburg to Perth Amboy in 1875. ^ An outlet to the Lakes was secured in 1869 through the Pennsylvania and New York Canal and Rail- road Company, extending from Wilkes-Barre up the valley of the Susqueharma to the Pennsylvania and New York boundary line, where a cormection was made with the Erie Raikoad.^ ' Transcript of Record in Commodity Clause Cases, p. 14. See Biblio. no. 157. ' Incorporated, Sept. 20, 1847, under the name of the Delaware, Lehigh, Schuyl- kill and Susquehanna Railroad. ' Transcript of Record in Commodity Clause Cases, pp. 1 1-13, 15, 17. See Biblio. no. 159. * Transcript of Record, Supreme Court of the United States, Oct. Term, 1911. 6 vols. The United States, Appellant, v. The Reading Company, the Philadelphia and Reading Railway Company, et ai., iii, Exh. 57. Referred to hereafter as Tran- script of Record in Sherman Anti-Trust Case. ' Chron., 12: 364 (r87i); also 20: 570 (1875). • Transcript of Record in Commodity Clause Cases, p. 14. See Biblio. no. 159. HISTORY OF THE INDUSTRY 2J An additional extension of railroad facilities took place in the Wyoming and Lehigh regions during the latter part of the sixties and the early part of the seventies. The Pennsylvania Railroad, the Central Railroad of New Jersey, and the Erie Railroad all began the mining and shipping of coal.' It is not necessary to show in detail just how each of these railroads became possessed of mining interests. Suffice it to say that, as with the Lehigh Valley Railroad, none of them was authorized by its charter to conduct mining operations, but each of them between 1868 -and 1873 ^ (or possibly in the case of the Erie not until 1874) had secured control of coal mining companies, upon which, generally, very broad powers had been conferred. This control of mining operations through the ownership of stock in coal mining companies was facilitated by an act of the Peimsylvania Legislature passed on April 15, 1869, which pro- vided, " that it shall and may be lawful for railroad and canal companies to aid corporations authorized by law to develop the coal, iron, lumber and other material interests of this common- wealth, by the purchase of their capital stock and bonds, or either •of them, or by the guarantee of or agreement to purchase the principal and interest or either of such bonds: Prmdded, That this act shaU not apply to the stock and bonds of any corporation possessing mining or manufacturing privileges in the county of Schuylkill." ^ This act is but one of many passed by the Penn- sylvania Legislature conferring enormous powers upon corpora- tions desiring to develop the coal interests of the state, and .advantage of these privileges was freely taken by these corpora- tions. Previous to the passage of this act large purchases of coal lands had been made also by the Delaware and Hudson Canal ' The Central Kail road of New Jersey, connecting with the Lackawanna and the Lehigh Valley at the Delaware river, had, since the middle of the fifties, been one of the chief routes over which anthracite coal moved from the Delaware river to New York. The originating carriers, however, were securing independent outlets to tide-water. To protect itself, therefore, the Central Railroad of New Jersey, in i87r, leased the Lehigh and Susquehanna Railroad, thus originating its own coal jxaffic. See also pp. 35-36. ' See ch. 5. ' Laws of Penn., 1869, no. 33. 28 THE ANTHRACITE COAL COMBINATION Company and by the Lehigh Coal and Navigation Company, both of which had already been authorized to buy coal properties. In 1867 the Delaware and Hudson bought several thousand acres of coal lands, and in 1869 through the purchase of the Northern Coal and Iron Company it secured an additional acreage.' About the same time large blocks of coal lands were purchased by the Lehigh Coal and Navigation Company.^ By means of such a process of absorption the coal deposits of the Wyoming and Lehigh fields were largely consohdated by the early seventies under the control of the railroad and canal companies serving those regions. In the Schuylkill or Southern field, however, conditions were fimdamentally different. The Schuylkill Canal was begun without any connection with the coal trade, and the Company never acquired mining privileges. Likewise, the Philadelphia and Reading Railroad Company, chartered in 1833 and opened in 1842 over a route paralleling that of the SchuyUdU Canal, con- fined itself for nearly thirty years exclusively to the business of transportation. The Reading having been chartered at a time when the Legislature was investigating the abuses consequent upon the conferring of mining privileges upon a transportation company, it was not to be expected that a grant of such powers would be given it. The hostihty toward corporations in general and the feeling against bestowing upon them unusual privileges was much greater in the SchuylkiU region, also, than in the two northern fields.' And not possessing the right to mine coal itself, the Reading opposed all attempts upon the part of other corpora- tions to secure from the Legislature a grant of such privileges. The production of coal in the Schuylkill field was thus carried on by operators independent, for the most part, of the transporta- tion companies.* * Brief for the United Stales in the Sherman Anti-Trust Case, p. 45. See Biblio. no. 156. ' Annual Report of the Lehigh Coal and Navigation Company, 1868, pp. 14-15. ' For a discussion of the reasons for this greater hostility in the Southern region, see Virtue, Anthracite Coal Industry, pp. 12 et seq. * In that portion of the Schuylkill region constituting the Western Middle field the Northern Central Railroad Company, now owned by the Pennsylvania Rail- HISTORY OF THE INDUSTRY 29 With the advent of Mr. Gowen to the Presidency in 1869 the policy of the Reading was completely changed. The reasons for the change in policy were indicated by President Gowen in his report to the stockholders: The repeated and serious interruptions of the business of the Company, caused by strikes in the coal regions during the last few years, and the many fluctuations in the coal trade, produced by alternate periods of expansion and depression resulting therefrom, have directed the attention of the Managers of the Company to the necessity of exercising some control over the produc- tion of coal, so as to prevent a recurrence of the difficulties heretofore expe- rienced; and it was believed that the best way of accomplishing this result without injuriously affecting individual interests, was for the Company to become the owner of coal lands situate upon the line of its several branches.^ In addition there were, according to President Gowen, other factors which made the acquisition of coal properties advisable, if not essential. In the Wyoming region the mines were worked by the railroads, or by large coal companies. These, possessed of abundant capital, were able to adopt the most economical methods of mining. In the Schuylkill region, however, the lands were worked almost entirely by tenants, whose wasteful methods of mining tended to ejdaaust the mines, and threatened to deprive the Reading of its future tonnage. The adoption of measures to safeguard its future traffic was therefore imperative.^ Further- more, the monopoly of the traffic in the Southern held which the Reading had secured in 1870 through the lease of the Schuylkill Canal, was now threatened by the entrance of other carriers into its territory. The Pennsylvania Railroad, through the Northern Central Railroad, was entering the Schuylkill region from the west, and the Lehigh was entering it from the east. In addition, the Lackawanna, the Central of New Jersey, and the Lehigh, imited in a corporation called the Union Railway Com- pany, were locating a Hne through the heart of Schuylkill County, and were preparing to purchase coal lands in order to supply their new hne with traffic' road, had acquired considerable areas of coal lands. Macfarlane, Coal Regions of America, p. 53. ' Annual Report of the Reading Railroad, iSjr, p. 16. ' Ibid., 1876, pp. 24-25. ' Ibid., p. 24. 30 THE ANTHRACITE COAL COMBINATION In accord with its new policy, therefore, the Reading desired to acquire large coal properties. Under its charter, however, it possessed no authority to own coal lands. It therefore organized for that purpose the Laurel Run Improvement Company, which was incorporated by the Peimsylvania Legislature on May i8, 1 87 1. This company, the name of which was later changed to the Philadelphia and Reading Coal and Iron Company, was given by the act of iucorporation the power " to purchase, sell, transport, and mine coal," and to " acquire, from time to time, by purchase, lease, or otherwise, such lands as they may deem expedient " ; and it was to be " lawful for the president and directors of said company to subscribe for and purchase the lands or stock of any other incorporated company in the State of Penn- sylvania, and for any railroad or mining company existing under the laws of this state to subscribe for, or purchase the stock, or to purchase or guarantee the bonds of the company hereby incorpo- rated." 1 The Reading immediately availed itself of these privileges, and purchased the total stock of the Philadelphia and Reading Coal and Iron Company.^ By this means the railroad was in a position to accomplish indirectly that which it had not been authorized to do directly. By the latter part of 1871 the Philadelphia and Reading Coal and Iron Company had secured about 70,000 acres of coal lands; ' and within the course of a few years it acquired 30,000 additional acres, which placed it in possession of approximately one-third of the coal lands of the whole anthracite basin." Had these pur- chases been made with a view toward systematically building up traffic and had they been paid for with stock, the Reading would not have suffered many of its later financial difficulties. But President Gowen soon undertook to control the entire coal pro- duction of the region reached by the Reading's Hues in order to prevent any railroad from purchasing sufficient coal property to ^ Laws of Perm., 1871, no. 817. * M'Heniy, Financial History of the Reading Railroad, p. 12. ' Annual Report of the Reading Railroad, 1871, p. 17. The report states that this acreage represents " a body of coal-land capable of supplying all the coal-tonnage that can possibly be transported over the road for centuries." * Annual Report of the Reading Railroad, 1874, p. 29. HISTORY OF THE INDUSTRY 3 I warrant the construction of a rival line. Hence all kinds of property, good, bad, and indifferent, seem to have been purchased without regard to original cost, location, or revenue-producing capacity,^ — these purchases being paid for mainly by borrowed funds. The increased interest charges constituted an enormous drain on the finances of the Reading. Furthermore, the purchases were made at an unfortunate period. The panic of 1873 ^^^ ^^ resulting depression forced the Reading, in 1880, into receivers' hands. Its financial embarrassment for some years following prevented it from securing the proportion of the trade to which its property, secured at such great cost, entitled it. These purchases of coal lands by the Reading on such an enormous scale had the effect of stimulating the purchase of additional properties by the other railroads serving the coal fields, each railroad endeavoring to assure its own traflac for the futiure. This movement went to such extremes as to arouse the conviction on the part of the people that it must in some way be checked. Accordingly there was inserted in the Constitution which went into effect January i, 1874, having been adopted by a large majority, a provision that No incorporated company doing the business of a common carrier shall, directly or indirectly, prosecute or engage in mining or manufacturing arti- cles for transportation over its works; nor shall such company, directly or indirectly, engage in any other business than that of common carriers, or hold or acquire lands, freehold or leasehold, directly or indirectly, except such as shall be necessary for carrjdng on its business; but any mining or manufac- turing company may carry the products of its mines and manufactories on . its railroad or canal not exceeding 50 miles in length.* The delegates to the Convention seem to have clearly recognized the evils inherent in the system of granting a railroad the privi- leges of mining - The Constitution was not productive, however, of any very effective results. In spite of its prohibitions the railroads already in the field increased their holdings of coal lands and the railroads which entered the coal fields after the adoption of the Constitution did not find it any serious bar to the acquisi- 1 Annual Report of the Reading Railroad, 1881, p. 62. ^ Penn. Const., dted In Laws of Penn., 1874, p. 24. 32 THE ANTHRACITE COAL COMBINATION tion of coal lands, although they might be compelled to resort to the organization of a subsidiary coal company. The effect of these extensions of railroad transportation upon the business and the profits of the already existing canal com- panies requires a brief consideration. As we have seen, up to 1834 canals constituted practically the only outlets to tide-water for anthracite coal, and even until 1850 they were the dominant factors in the transportation of coal to market. In the fifties there was a rapid extension of railway facilities. This competi- tion does not seem, up to the close of the Civil War, to have materially affected the prosperity of the anthracite canals. The Delaware and Hudson Canal Company was uniformly prosperous during the twenty years preceding the Civil War, and notably so during the War, its profits averaging nearly 30 per cent during the years 1863-1865.^ The Lehigh Coal and Navigation Com- pany earned on the average nearly 14 per cent during the years 1860-1862, and regularly paid 6 per cent dividends. In 1863, despite the fact that its canal was severely damaged through storm, the Company reaped a greater profit than it had in any preceding year. The next two years also were very prosperous ones, the company even being unable to handle the large amount of traffic which was offered. The dividend rate was increased from 6 per cent in 1863 to 8 per cent in 1864, and to 10 per cent in 1865, while earnings during these three years averaged nearly 30 per cent.^ The Morris Canal up to the middle of the centiury had not been a factor of any considerable importance in the coal trade, but a number of improvements were made during the fifties, which placed it in a position to share in the prosperity of the Civil War period. Its dividends rose in 1866 to the highest point attained in the history of the company. The Schuylkill Navigation Company had had a monopoly of the coal trade of the Schuylkill Valley until 1842, the year in which the Reading Railroad entered the Southern coal field. Bitter competition between the two companies lasting for several years left them ' Jones, C. L., Anthracite Tidewater Canals, pp. 81, 87. This book is the chief authority for the following account of the anthracite canal systems during this period, and is referred to freely. ^ Annual Reports 0} the Lehigh Coal and Navigation Company. HISTORY OF THE INDUSTRY 33 both financially exhausted by the end of the decade. This induced the railroad and the canal to agree to work together. By 1855 the canal was again paying dividends for the first time in thirteen years, and by 1859 its managers were able to say with reason that the canal had demonstrated its abiUty to compete with the railroad for the coal trade. The Schuylkill Navigation Company suffered during the early years of the war, from a number of causes, but during the latter part of the Civil War period made very large profits. The only exception to the prosperity of the principal anthracite canals during this period was the Delaware Division Canal, owned by the State of Penn- sylvania. This company had been imfortimate from the begin- ning in having locks which were too small. The inabihty of the canal to handle the trade was continuously demonstrated, yet no steps were taken to introduce improvements. In 1854 the Lehigh Valley Raikoad was about to enter into competition for the carrying trade. The canal, in spite of its limitations, was paying good dividends at this time, yet it was evident that it could not compete with the railroad unless considerable improve- ments were made. The plan for improving the canal did not, however, receive sufficient legislative support, and in 1858 the State sold the canal to the Sunbury and Erie Railroad. A sepa- rate company, the Delaware Division Canal Company of Pennsyl- vania, was organized to operate the canal. This company could not agree with its connections on a division of the tolls, and suf- fered, also, from damages to the Lehigh Canal, the main sovuce of its traffic. It did not share, therefore, as did the other companies, in the prosperity of the Civil War period. Competition proved too keen, and in 1866 the Company leased all its properties to the Lehigh Coal and Navigation Company, a rival canal company. With the exception, then, of the Delaware Division Canal, the main coal-carrying canals were profitable up to the end of the Civil War period, and competed successfully with the railroad systems. The inability of the Delaware Canal to withstand the competition indicates Httle as to the relative merits of the rail- roads and the canals. It was claimed at the time that discrimina- tion by the Lehigh Navigation Company was to a large extent the 34 THE ANTHRACITE COAL COMBINATION cause of its diminished coal tonnage. When it finally succimibed to competition in 1866, it was purchased, not by a railroad com- pany, but by a rival canal company, the Lehigh Coal and Navi- gation Company, whose canal formed a connection with the Delaware Canal. In the latter part of the sixties and in the early part of the seventies railroad competition became more severe by the entrance of a number of other coal-carrying roads into the anthra- cite field. Within the next ten years the anthracite canals had either been transferred to the railroads, or had so transformed the character of their business by the building of railroads, or by the development of their mining interests, that the canals became of less and less importance as transportation agencies. The first to succimib to the competition of the railroads was the Schuylkill Navigation Company. This company had had more or less of a working agreement with the Reading Railroad for some years previous to 1863. In that year closer relations were established. An agreement was made dividing the coal tonnage between the two companies in certain agreed proportions, and equal freight charges were established. The arrangement, however, proved mutually unsatisfactory, and during 1867-1869 competition became so keen, and the market for coal so depressed, that on July 12, 1870, the Schuylkill Navigation Company leased all its property to the Reading, which thereby secured a monopoly of the traffic in this field.* The Reading proposed at first to use the canal to catch the overflow from the railroad, but found it more profitable as time went on to add new railroad faciUties than to rehabiUtate the canal. The canal traffic is now of minor impor- tance. Whereas in 1869, the year prior to the lease, over 1,000,- 000 tons of freight, mainly anthracite, moved by the canal, in 191 1 the total tonnage was only 72,600, all of which was anthra- cite coal. Above Port Clinton the canal has been abandoned for many years.^ • Anntujl Reports of the Schuylkill Navigation Company, and Annual Report of the Reading Railroad, 1870, p. 22. ' Annual Reports of the Schuylkill Navigation Company, and Files of the Pennsyl- vania Stale Railroad Commission, ii, pp. 483-484. See Biblio. no. 96. HISTORY OF THE INDUSTRY 35 The Morris Canal Company had reached the height of its prosperity in 1866. In that year, however, the Morris and Essex Railroad ^ began carrying coal from a portion of the territory adjacent to the canal. Improvements were undertaken by the Canal Company to enable it to meet this competition, but a rate war made it necessary to lower tolls, and profits soon disappeared. This induced the Morris Canal Company, early in 1871, to lease all its property to the Lehigh Valley Railroad for ninety-nine years. The canal soon became of only secondary importance in the operations of the railroad, what trafl&c there was being pri- marily local trade. About the same time (187 1) the Pennsyl- vania Railroad secured control of the Delaware and Raritan Canal,^ which had been constructed in the middle of the thirties, extending from Trenton on the Delaware river across the State of New Jersey. In the same year the Reading leased the Susque- hanna Canal, which extended from Columbia to the tide- water of the Chesapeake Bay, and formed, with the Reading and Colum- bia Railroad, an outlet for the output of the western part of the Schuylkill coal fields.^ The lease of the Delaware Division Canal to the Lehigh Coal and Navigation Company in 1866 has been noted.* The Naviga- tion Company likewise felt the competition of the railroads, and endeavored to protect itself by meeting them on their own ground. Loans were made to several small railroads to enable them to connect with the NaAdgation Company's Railroad, and an extension of the Lehigh and Susquehanna Railroad was deter- mined upon. In 1867 the Lehigh and Susquehanna Railroad was put in operation from Wilkes-Barre to Mauch Chunk,^ and in the following year it was completed to Phillipsburg on the Delaware river,* — where connection was made with the Central Railroad of New Jersey and with the Morris and Essex Railroad. An outlet to New York by rail was thus secured. About the same ' Leased to the Lackawanna Railroad in 1868. See p. 25. ' Mamial of SkUislics, 191 2, p. 309. ' Annual Report of the Reading Railroad, 1871, p. 20. * See p. 33. ' See pp. 23-24. • Annual Report of the Lehigh Coal and Navigation Company, 1868, p. 7. 36 THE ANTHRACITE COAL COMBINATION time the company made large purchases of coal lands,' and entered into contracts with a number of coal companies whereby tonnage was guaranteed to the railroad. By the latter part of the decade the railroad and mining operations constituted the chief interests of the company, the canal having become of second- ary importance. Yet in spite of these improvements, which the Coal and Navigation Company undertook in order to be in a position to compete with the railroads, the outlook at the close of the decade was gloomy. The credit of the Company had become exhausted, as the result of its numerous extensions, and its income had been materially reduced by strikes, freshets, and rate wars. There was danger, also, that the Central of New Jersey would ally itself with opposing interests, and leave the Lehigh and Susquehanna without an outlet to New York. To protect itself against this contingency the Lehigh Coal and Navigation Company on March 28, 1871, leased all its railroad properties to the Central of New Jersey, giving an option, also, on the canal, including the Delaware Division.^ The Navigation Company then turned its attention to the development of its canal and coal interests. The canal was much improved, and the coal properties of the company considerably increased.' The panic of 1873, however, made it impossible for the company to hold aU its coal lands, and in December of that year it sold its coal lands in the Wyoming region to the Honey Brook Coal Company (controlled by the Central of New Jersey), and leased its coal lands in the Lehigh region to the same interests. The Central of New Jersey contracted, also, for the maintenance and operation of the canal, thus securing practically all of the Navigation Com- pany's property.'' But in a period of severe industrial depression the Central of New Jersey was unable to meet the heavy obliga- tions incurred, and in 1876 went into receivers' hands. Tn January, 1878, it returned to the Navigation Company all of its properties with the exception of the railroad.* Yet even imder the Navigation Company's own management the trafl&c on the ' Annual Report of the Lehigh Coal and Navigation Company, 1868, pp. 14-15. « Jbid., 1871, pp. 31-32, 34, 37. ' Ibid., 1872, p. II. * Ibid., 1874, pp. 8-9. » Ibid., 1878, p. 7. HISTORY OF THE INDUSTRY 37 canal declined, and the coal and railroad interests became of greater importance. The later course of development of the Delaware and Hudson Canal Company was similar to that of the Lehigh Navigation Company. Up to the middle of the sixties the Delaware and Hudson had been a canal and coal company, but about this time the competition of the railroads began to be keenly felt, and a large part of its coal toimage was lost to a competing railroad. To meet this competition, the company changed its policy. It rapidly developed its transportation faciUties through the con- struction of new lines and the lease of old ones, and it likewise made large purchases of coal lands. The company thus became primarily a railroad owning a canal and coal mines. The canal was becoming, however, of decreasing value. Its importance was so slight by 1872 that in that year the statistics of canal traffic disappeared from the reports of the company. In 1899 the canal was definitely abandoned, and the name of the company changed from " The Delaware and Hudson Canal Company " to the " Delaware and Hudson Company." ^ From this brief consideration of the anthracite canal systems during the period 1834 to the middle of the seventies, the success of the railroads in displacing the canals as the dominant trans- portation agencies is apparent. The canals either passed into the hands of the railroad companies, or extended their railroad and mining interests so that they no longer became dependent upon the operations of the canal. Only one canal, that of the Lehigh Coal and Navigation Company, and its feeder, the Dela- ware Division Canal, is now in operation throughout its whole length, and the traffic on this canal is comparatively small. It does not faU within the scope of the present study to enter upon a discussion of the relative merits of canal and railroad transporta- tion or to enquire whether the canals may not at some time be again profitably utilized. ' Ckron., 68: 871 (1899); also 69: 26 (1899). b J 38 THE ANTHRACITE COAL COMBINATION Growth of the Trade As the result of the rapid extension of transportation facilities between 1834 and 1873, of the opening of many new mines, and of the increased demand for anthracite consequent upon the growth of population and a more general recognition of the value of hard coal as fuel, the anthracite coal trade experienced a considerable growth during this period. From 1834 to 1842 the growth was gradual, the shipments increasing from 376,000 tons in 1834 to over 1,000,000 tons in 1842.' Inasmuch as navigation was closed during that part of the year when the demand for anthracite for domestic purposes was greatest, a very rapid growth could not have been expected. In 1842, however, the Reading Railroad entered the Southern coal field, and removed the difficulties incident to intermittent navigation, so far as that field was con- cerned. About 1840, also, anthracite began to be used to a greater extent in manufactures, especially in the manufacture of iron,^ and was successfully used also on steamboats.' These factors taken in connection with the speedy growth of population after 1840, and the decrease of the forests, presented conditions^'' favorable for a more rapid growth of the trade. The shipments, which had been about 1,000,000 tons in 1842, had doubled by 1845, ^^'^ ^^d trebled by 1848. There was an uninterrupted increase until 1856, when nearly 7,000,000 tons were sent to market. There was a sUght dechne in iS.s ? as the result of the depression in trade following the panic of that year, but by i860 the amount of coal shipped to market had reached 8,500,000 tons. In 1.860; there was agai n a d ecline, which was not recovered in 1862, for in this year a destructive flood in the Lehigh region necessitated a temporary suspension of operations. Under the impulse given by the war, however, the market two years later (1864) absorbed for the first time 10,000,000 tons. ^ After a sHght decline in JE 865, due largely to a strike in the Wyoming region, a speculative era set in which resulted in an over-develop- ^ See Appendix, Table I; also chart, p. 99. * F. W. Taussig, The Tariff History of the United States, pp. 128 et seq. ' Hunt's Merchants Magazine, iv, p. 286. HISTORY OF THE INDUSTRY 39 ment of the mines. The shipments reached 16,000,000 tons in 1870 and over 21,000,000 tons in 1873. The growth of the coal trade during this period was accom- panied by marked changes in the comparative development of the different regions. Toward the close of the period ending in 1834, the SchuylkjILfield was mining about 6Q_perjcent of the total production, the Lehigh field was normally contributing about 25 per cent, and the Wyoming field about 15 per cent.^ The pro- duction of the SchuyUdll field, however, experienced a steady, though not a uniform, relative decline, and by the close of the period ending in 1873 the shipments from this region constituted only about one-third of the total. The declining importance of the Southern field may be explained in two ways. First, the opening of new lines of transportation from the other fields to New York gave these an advantage, because of the importance of New York as a centre of trade. Second, the upper veins lying above water level began to fail in both the SchuyUdU and Lehigh fields, which made it cheaper to mine from the flat workings of the Wyoming field than from the steeply dipping seams of the two other fields. This second factor explains the relative decline in the output of the Lehigh region. In 1834 it had yielded approximately 25 per cent of the total, whereas by the early seventies its percentage had dwindled to 20 per cent. It was the opening of new trans- portation routes which prevented the decline from being as great in this region as it was in the Southern region. The greatest growth of the trade came in the Wj''oming region. Whereas in the early thirties the Wyoming field produced only about 15 per cent of the total shipments, ' by the early part of the seventies it was contributing about 45 per cent, and its relative importance was to become even greater in the succeeding years. ' See Appendix, Table I; also chart, p. 103. CHAPTER III The Combinations from 1873 to 1898 ^ Eaexy in 1873 the first combination to control the anthracite coal trade was formed. Combinations of various kinds entered into for the purpose of curbing or eliminating competition are the distingiiishing features of the third period, 1873 to 1898. Many years previous to the combination in 1873 the producers of anthracite had cooperated to some extent to curtail the output of coal, but these attempts at curtailment had been only local and temporary. Conditions were radically changed, however, by the Civil War. The industry received a stimulus through the demands created by the war, and the price of lump coal rose rapidly from $3.39 in 1861 to $8.39 in 1864.^ Profits were abnormally large, and as a result many new collieries were opened, and railroads were extended to them. This resulted in an over-development of the mines. By 1867 the markets were overstocked, and prices fell to a very low level. The price of lump coal, which had been $7.86 in 1865, fell in 1867 to $4.37, and in 1868 to S3. 86.' The operators then reduced wages, but in 1869 the miners protested against further reductions. They held that the trouble was over-production, and that the way to meet the situation was a restriction of production rather than a reduction of wages. Accordingly in April, 1869, the Executive ' In the Quarterly Journal of Economics for April, 1896, Mr. G. O. Virtue has de- scribed admirably the early anthracite combinations. Liberal use has been made of his work in the description of the combinations from 1873 to 1891. ' Wholesale price per long ton, f . o. b., Philadelphia. Mineral Industry, iv, p. 184. Lump coal is coal as it comes out of the mine. It is the largest size of anthra- cite, and was at one time the size most in use. At the present time lump coal is generally broken up into a number of smaller sizes which are more in demand for domestic and industrial purposes. These sizes are grate (broken), egg, stove and chestnut, called the domestic or prepared sizes, pea which formerly was used pri- marily for industrial purposes but is now coming more into use as a domestic fuel, and buckwheat, rice and barley called the steam sizes which come into direct com- petition with bituminous coal. The steam sizes and the dust (culm) are by- products of the larger sizes. ' Ibid. 40 THE COMBINATIONS FROM 1873 TO i8g8 41 Committee of the Workingmen's Benevolent Association, of which nearly all the workingmen in the coal region were members, annoimced a suspension. After the surplus had been disposed of, work was resiuned at the old wages. Suspension was then regu- larly resorted to as a remedy for over-production. This state of affairs, viz., an improfitable trade, and a united labor organiza- tion, practically able to dictate the conduct of the business, made imperative united action on the part of the large operators.^ Such action became feasible, however, only with the advent of the Reading as the owner of the greater part of the Southern field, and the consequent elimination of many of the smaller and inde- pendent operators, who in their desire to make large immediate profits had sacrificed the chance of future gains. After the preliminary negotiations in 1872, the first combina- tion was formed on January 22, 1873,^ probably the first instance of a trunk line pool. It was a combination of carriers rather than of producers.' No limitation was placed upon each railroad's • Virtue, Quart. Jour. Econ., April, i8g6, pp. 299-300. ' Labor Troubles in the Anthracite Regions of Pennsylvania, 1887-88. 2d Sess., Soth Cong., House of Repres. Report, no. 4147, p. xlvi. Referred to hereafter as House Report, 1887-88, no. 4147. ' The table' below shows the division of the tonnage among the companies in 1873 ^°'i ™ ^^ other years during which an agreement was in force : — Roads 1873-75 1876 1878 1 88s 1886 1896 p & R % 25-85 16.15 15-98 13-80 18-37 _._.(9:85)_ % 25-57 15-98 15-80 13-65 i8-i8 10.82 28.62s j 12.905 > 19-75 12-75 12-48 .... J-865 .. {7-62S) % 38.8s 19.60 16.05 11.00 - - i.-OO.-. (8.00) (1.50) % 37-82 19.07 15-63 10.70 - ^-87- - (10.4s) 1.46 % 20.50 C R. R L V 15.63 13-35 D&H Penn. Coal Co^. . . . . . . 4.00 Erie 4.00 3.10 3.50 3.20 D S &S ' N Y. S. & W.< Figxires in parentheses represent probable tonnage of companies not members of the pool. 1 For percentages see the Commercial and Financial Chronicle of the year in which the agreement was adopted. * See p. 64. ' See p. 86. The Delaware, Susquehanna and Schuylkill Railroad did not accept the allotment^ but worked throughout the year on the basis of 4 per cent to which it held it was entitled. * See p. SQ. 42 THE ANTHRACITE COAL COMBINATION output, but the amount of coal shipped to competitive points — ~. that is, to tide-water points — was to be regulated. An estimate was made of the probable demand at the tide-water points, and the output thus determined was divided among the companies, according to the capacity of the mines shipping their coal over the respective lines. A schedule of tide prices was agreed upon, and a Board of Control, composed of the presidents of the rail- roads, was authorized to make such changes in the price of coal and in the amount which was to be shipped to tide-water as were deemed necessary. This agreement was continued in the following three years, but with some sUght changes. In 1874, for instance, power w£is given to the Board of Control to inspect the sales and tonnage books of the various companies, as a check upon the observance of the agreement. In 1875 the auction sales of the Lackawanna Railroad, which had been strenuously objected to by the other producers, were prohibited.^ Sales on commission were abolished by the agreement of 1876, and all sales thenceforth were to be on a - cash basis with 7 per cent interest added in case of deferred pay- ment. A significant feature of the agreement for this year was the provision that any railroad exceeding its allotment was to pay $1.50 for every ton shipped in excess of the tormage allotted to it, ' which sum was to be given to the railroad falling short of its allot- ment. There were sKght changes in the percentages, each com- pany, with the exception of the Pennsylvania Coal Company, which for the first time entered the combination, accepting a lower percentage. It was provided also, " that each transporting company be held responsible for the faithful adherence to these regulations on the part of all individual shippers using its Hues to carry coal to competitive points." ^ The observance of these regulations was effectively secured by means of the withholding of cars.' The Board of Control was given the power to employ an expert accountant to keep the tonnage accounts of the several ' Mrtue, Quart. Jour. Econ., April, 1896, pp. 301-303. ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 152. ' Pettit, S. W., Argument before the Investigating Committee of the Pennsylvania Legislature, 1875, p. 73. THE COMBINATIONS FROM 1873 TO 1898 43 companies.* Mr. John H. Jones, an employee of the Reading, was appointed to this position, and started the Bureau of Anthra- cite Coal Statistics, which kept the records of the shipments of each company to competitive points, and after 1880 the records, also, of local tonnage.^ The Pennsylvania Railroad, as before, was not a member of the pool. Its coal tonnage was largely sup- plied to the South and West, and it was not, therefore, so vitally interested in harmonious action with respect to tide-water ton- nage.^ President Scott, however, agreed that the shipments of the Pennsylvania Railroad to competitive points in 1876 should notexceed those of 1875, and agreed, further, to maintain prices, as theretofore, provided the coal association was continued, as in the previous year.* A penalty was provided in order to prevent violations of the agreement. There was, however, no legal means of collection.* As a resTilt the percenta^es^^Uottedjwere, not_adhered to. The Lehigh Valley, especially, exceeded its allotment, carrying in ' 1876 nearly 24 per cent of the total shipments of the railroads which had entered into the agreement, or nearly 8 per cent in excess of the amount to which it was entitled.* The Pennsyl- , vania Railroad continued to act independently of the other com- panies. At the end of April, 1876, a resolution was passed that the association be dissolved, but upon the Lehigh Valley pledging itself to abide by the agreement the association was continued.' On August 21 of the same year, at a meeting of the coal interests. President Gowen of the Reading charged that the Lehigh Valley had not taken the requisite steps to equalize by reducing produc- tion, and his motion that the association be dissolved was imani- mously adopted.* Auction sales were at once annoimced.' As a 1 Transcript oj Record, in Sherman Anlv-Trusl Case, iii, Exh. 152. » Ibid., ii, pp. 591-592. ^ Annual Report of the Pennsylvania Railroad, 1877, p. 31. * Ibid., 1876, p. 39. " Morris Run Coal Company ». The Barclay Coal Company, 68 Pennsylvania Reports, 173 (1871). ' See pp. 41, 148. ' Meeting of Philadelphia and Reading Share and Bondholders, June 6, 1877, P- 133- 8 R. R. Gaz., 8: 371 (1876). » Ibid. 44 TEE ANTHRACITE COAL COMBINATION result prices fell very low, the average wholesale price for the sizes of coal from lump to pea falling from $4.92 in July to $4.05 in August, and to $3.61 in September.* An effort was soon made to bring about a renewal of the agreement, but this was not successful until sixteen months of competition had brought home to the carriers the advantage of concerted action. So far as the effect of the agreements of 1873-1876 on prices is concerned, it is clear that prices were considerably higher during the years of combination than they had been in 1872 (though not quite so high as they had been in 1870 and 1871), and that they remained much steadier throughout the year.^ Yet the combina- tion could hardly be said to have been altogether successful. Those companies, such as the Pennsylvania Railroad, which did not join the combination profited by the restriction and the higher prices without having to make any considerable sacrifices. But this was at the expense of the companies which were in the com- bination. The Reading, for example, was allotted only 25.5 per cent in 1876, whereas the following year under free competi- tion it carried nearly 33 per cent. After the dissolution of the association in August, 1876, the coal trade was uncontrolled until January, 1878. This competi- / tion proved disastroiis. The production of coal increased con- siderably, the shipments rising from 18.5 million tons in 1876 to 20.8 million tons in 1877.' Prices, also, fell very low. The average for all sizes, which had been $4.11 in 1876, fell in C^i877 to $2.44.'* The effect on the dividends of the anthracite carriers was marked. In 1877, at least four of the important transportation companies, each of which had been paying liberal n dividends for several years, suspended their dividend pay- ments, and several others reduced their customary rates. As a result the companies were ready early in 1878 to combine again. • See Appendix, Table TV; also chart, p. 45. These prices, it will be noted, are not comparable with those for lump coaL ' See Appendix, Table VC; also chart, p. 45. ' See Appendix, Table I. * See Appendix, Table W; also chart, p. 45. / THE COMBINATIONS FROM 1873 TO i8g8 45 An agreement ^ was readied early in January, 1878. Several new features were introduced. Control was to be exercised over all tonnage, instead of, as theretofore, merely over the tide-water tonnage. The fixing of prices, however, was left to each com- pany, but it was recommended that the agents of the coal com- panies constitute a coal exchange by occupying one room. The method of voting was modified so as to give the representative of each company on the Board of Control a voting power in propor- tion to the tonnage allotted to his company. A change in the method of collecting the penalty was introduced. Each company was to pay weekly to the Board of Control 15 cents for every ton of coal mined, .which was to constitute a fund out of which was to be paid the prescribed penalty of $1.25 for every ton shipped in excess of the monthly quota.^ Changes were made, also, in the percentages allotted to the different railroads.' The terms of the agreement seem to have been, on the whole, well kept. The shipments of coal were three nuUion tons less ^ than they had been in 1877,* and each railroad adhered rather closely to the percentage allotted to it.^ Nevertheless, there Wcis dissatisfaction. Many concessions had been made, the Reading securing only 28.6 per cent, whereas it had demanded 31 per cent. The allotment was not expected to last long, as the Lehigh VaUey had refused to ratify the agreement to extend throughout the winter.* Trade, therefore, was dull throughout the year, the public waiting for the expected break and the consequent fall in prices.^ In October, the Lehigh VaUey refused to sign a new agreement,^ and in the following month it announced its decision to withdraw from the pool on December 31. The combination, therefore, was dissolved at the end of the year. * For a tabular view of the main provisions of the agreements, 1873-96, see Ap- pendix, Table VI. * Chron., 26: 108 (1878). ' See p. 41. * See Appendix, Table I. ' See pp. 41, 148. * Annual Report of the Reading Railroad, 1878, p. 26. ' Ibid., p. 27. « R.R.Gaz., ri: S4S (1879)- 46 THE ANTHRACITE COAL COMBINATION During the following year, 1879, several attempts were made to come to an agreement, but without success.' Each company mined coal without any restriction,^ and the shipments for the year were 26.1 million tons, which was 8.5 million tons in excess of those in 1878, and 5 miUion greater than they had ever been before. The price of coal, which had been $2.44 in 1877, and had risen to $3.15 in the year of the agreement, fell in 1879 to $2.34, C which was the lowest it had been in many years.' The freight rates on coal, also, were the lowest in the history of the industry.'' Partly because of these conditions such important companies as the Lackawanna Railroad, the Delaware and Hudson, the Central of New Jersey, the Reading, and the Lehigh Coal and Navigation Company failed in 1879 to pay any dividends. In the closing months of 1879, however, prices began to rise,^ and a period of general prosperity set in, which lasted four years. During the whole of this time, probably there was no formal agree- ment for the regulation of the trade, no allotment of percentages, nor any maximmn tonnage for the year. There was, however, " a friendly understanding among the companies," ^ which resulted in a combination, perhaps as effective as a formal agree- ment.' If a weakening market gave indication of an over-^ production of coal, all work for a certain nmnber of days was suspended by mutual consent.* During 1880 the production of coal was restricted 88 days,' and during the six months, Decem- ber, 1883, to May, 1884, inclusive, production was restricted as many as 63 days in all.'" This plan was further strengthened in April, 1884, by leaving the question of restriction to the com- ' Annual Report of the Reading Railroad, 1879, p. 29. 2 Ibid., 1881, p. 26. ' See Appendix, Table IV; also chart, p. 45. * Annual Report of the Reading Railroad, 1880, p. 29. See also Annual Report of the Lehigh Coal and Navigalion Company, 1880, p. 3. ' See Appendix, Table IV; also chart, p. 45. ' Anntial Report of the Reading Railroad, 1881, p. 26. ' The lease of the Central Railroad of New Jersey by the Reading Railroad naturally helped to promote this " friendly understanding." ' Chron., 39: 196 (1884). • Annual Report of the Reading Railroad, 1881, p. 26. '» Chron., 38: 662 (1884). THE COMBINATIONS FROM 1873 TO 1898 47 panics having the majority of tonnage.' No agreement to main- tain prices seems to have been made, but each company was expected to adhere to its circular, the circulars being made by each company, but usually after consultation with the other interests.^ This restrictive poUcy was followed with great success from 1880 to 1884. It was a period of rapid extension of the industry. The shipments of coal rose from 23.4 million tons in 1880 to 30.7 million in 1884,' and this notwithstanding a cessation of opera- tions for 107 days in 1884. Prices were regarded as fairly satis- factory, and were certainly much higher than in 1879.^ The dividends of the anthracite carriers, also, were rather generally increased. Yet, though the plan of periodical restrictions worked well during these years, it was defective as a means of solving the problem of over-production. This plan made it to the interest of every company to produce as much as it possibly could in the days allotted to work, and consequently put a premium upon the opening of new collieries. As this enlarged the productive capacity of each company, the number of idle days had to be greatly increased, yet the annual production continued to moimt up. This fundamental weakness of the pohcy of restriction was intensified by the industrial depression of 1884, and it became clear to the companies that some other method of. regulating the trade must be adopted. ^ After several preliminary meetings, a pool was again formed December 31, 1884. A total production of 30 miUion tons for the year (1885) was agreed upon. The monthly production was to be determined by the Board of Control according to the reqiiirements of the market, and was to be divided among the companies on the basis of the percentages agreed upon for the year.^ These percentages, it was stated, were to be observed in both the production and the transportation of coal,* each raUroad 1 CAroM., 38: 479 (1884). ' Virtue, Quart. Jour. Econ., April, 1896, p. 310. ' See Appendix, Table I. * See Appendix, Table IV; also chart, p. 45. * Hoitse Report, 1887-88, no. 4147, p. 639. For percentages see p. 41. ' Mr. Harris, House Report, 1887-88, no. 4147, p. li. 48 THE ANTHRACITE COAL COMBINATION dividing its allotment among its shippers, and thereby controlling their production.' There were no penalties for the violation of the agreement; the companies simply agreed to limit themselves to the proportion allotted to them. No stipulation in regard to prices was made. The agreement was to continue until March 31, 1886.^ Earnest attempts were again made to induce the Pemisylvania Railroad to join the pool, but it refused to do more than act in general harmony with the other interests in regard to the price of coal.^ The combination was not, however, suffi- ciently liberal to the Pennsylvania to secure its adhesion. It was offered only 8 per cent of the total production, or 2.4 miUion tons, yet the previous year it had carried 3.1 miUion tons. The Pennsylvania, furthermore, was rapidly extending its system, and was thus in a position to carry an even larger tonnage.* The refusal of the Pennsylvania Railroad to join the pool proyed to be a demoralizing factor. . This railroad carried in the course of the year nearly 3 per cent more than the other companies had allotted it. All the companies which had entered into the agree- ment, with the exception of the Erie, fell behind, — the Phila- delphia and Reading and its leased railroad, the Central of New Jersey, suffering the greatest loss.* Prices, which had fallen slightly since 1881, took a decided drop in 1885, and fell especially low during the last months of the combination.* In spite of the dissatisfaction, however, the agreement was renewed. At a meeting held at the home of Mr. J. P. Morgan, 7 March 22, 1886, the necessity for concerted action was brought out by Mr. Morgan.' Among other reasons, harmony was neces- sary in order to effect an enduring reorganization of the Reading, which had failed in 1884. An agreement was reached at a meet- ) ing of the presidents of the coal companies, April 5, 1886.* The ' Transcript of Record in Sherman Anti-Trusl Case, iii, Exh. 145. ' Chron., 40: 27 (1885). ' House Report, 1SS7-88, no. 4147, p. 649. • Chron., 40: 40 (1S85). " See p. 148. * See Appendix, Table IV; also chart, p 45. ' Bouse Report, 1 88 7-88, no. 4147, p. liL « R. R. Gaz., 18: 253 (1886). THE COMBINATIONS FROM 1873 TO 1898 49 output for the year April i, 1886, to March 31, 1887, was to be 33,500,000 tons to be divided among the railroads in certain agreed percentages.^ The Pennsylvania Railroad was assigned 3,500,000 tons. It named this amount as its probable tonnage, but remained outside the pool, and did not bind itself to make any reduction should the other companies decide to reduce the total production below 33,500,000 tons.^ The penalty for ship- ment in excess of the allotment was 50 cents a ton to be paid March 31, 1887, but no guarantee was required. The price of coal free on board New York Harbor was to be raised at once 25 cents a ton.' This combination, like that of 1885, was made by agreement merely, no attempt being made td have it signed.* It could hardly be said that the combination was successful. It is true that the shipments increased but sKghtly, and did not exceed the amount agreed upon for the year.* The average price of coal, however, feU to $2.98 for the twelve months of the agree- ment, and this was much lower than the general range of prices throughout the preceding years.* This is an indication that the maximum set for the year was too large. The agreement upon its expiration was not renewed. There were at this time legislative and judicial inquiries into the conduct of the coal trade, and the pools which had prevailed in the past were believed to have been prohibited by the Interstate Com- merce Act, which went into effect on January i, 1887. There was little change, however, in the conduct of operations. A committee appointed by the Pennsylvania Legislature came to the conclusion that the pool may have been technically dissolved in 1887, but it was not in reaHty, since the former practices con- tinued.' The sales agents of the companies continued to meet and to fix the production and prices. On April 21, 1891, for instance, they met at the Fifth Avenue Hotel, New York, and • See p. 41. « R. R. Gaz., 18: 268 (1886). ' House Report, 1887-88, no. 4147, p. lii. * Chron., 42: 462 (1886). ' See Appendix, Table I. ' See Appendix, Table IV; also chart, p. 45. ' House Report, 1887-88, no. 4147, pp. liii-liv. 50 THE ANTHRACITE COAL COMBINATION resolved that the amount of coal to be mined in May should be 2,500,000 tons.' The action of the sales agents was helpful in securing a greater degree of stabiHty in the coal trade, in spite of the fact that frequently these resolutions were not carried into effect. It was difficult to carry the resolutions into effect because the productive capacity of the mines was twelve to fifteen million tons greater than the market would take at satisfactory prices, — satisfactory, tliat is, not to the public, but to the companies, which desire prices that will return a profit, not merely on their mining operations, but also a surplus toward meeting the interest charges on the vast obligations incurred (perhaps not always wisely) in securing their enormous holdings of coal lands. Thus the trade was conducted from 1887 to the close of 1891. Shipments increased from 34.6 miUion tons in 1887 to 40.4 million tons in 1891.- Prices were rather well maintained from 1887 to 1888, butby 1891 had fallen quite low.' Some stricter control of the trade than could be secured by the old method of allotment was now felt to be necessary. The initiative was taken by the Philadelphia and Reading Railroad. This company, for several years, had been carrying about 20 per cent of the total shipments, whereas its large coal area entitled it to nearer 30 per cent. This amount it hoped to secure without undiily disturbing the trade. On February 11, 1892, the Reading leased the Lehigh VaUey Railroad for 999 years, and guaranteed it 7 per cent dividends after the first of December, 1892.^ The Reading also desired to lease the Central Railroad of New Jersey. The laws of the State of New Jersey, however, for- bade the lease of a domestic to a foreign corporation.* This prohibition was ingeniously evaded by President McLeod. He secured the incorporation of the Port Reading Railroad to extend from Bound Brook, New Jersey, the terminus of the Reading • Ckron., 52: 913 (1891). ' See Appendix, Table I. ' See Appendix, Table IV; also chajt, p. 45. * Alleged coal combination, 1892-93. 2d Sess., 52d Cong., House of Repres. Report, i, no. 2278, Exh. A, pp. 153 el seq. Referred to hereafter as House Report, 1892-93, no. 2278. ' Ibid., p. 220. THE COMBINATIONS FROM 1873 TO i8g8 5 1 Railroad, to Arthiir Kill in the tide-waters of New York Harbor, thus lying entirely within the State of New Jersey." To this minor corporation the Central Railroad of New Jersey was leased on the 12th of February, 1892, for a term of 999 years.^ The Port Reading Railroad, to which the Central of New Jersey was leased, was at this time incomplete, only a few miles of single track having been laid; it was without rolling stock or terminals, and its stocks and bonds were in the hands of a still smaller corporation known as the Port Reading Construction Company, capitalized at $100,000, which had contracted to build the Port Reading Rail- road, and had borrowed the money therefor from the Philadelphia and Reading Railroad. The Port Reading Construction Com- pany was undoubtedly owned for practical purposes by the Philadelphia and Reading Railroad, the corporators of the Construction Company being either officers or agents of the Railroad.^ The Port Reading Railroad convenanted to pay all the fixed charges of the Central of New Jersey, 7 per cent in dividends, and half of the earnings over 7 per cent and up to 10 per cent. All the earnings in excess of 10 per cent were to go to the Port Read- ing Railroad. At about the same time, the Central of New Jersey, the Port Reading Railroad, and the Philadelphia and Reading Railroad entered into a tripartite agreement. The Central of New Jersey agreed to lease to the Port Reading, if the Phila- delphia and Reading would guarantee the previous contract, and the Port Reading agreed to lease the Central of New Jersey, if the Philadelphia and Reading would insure the increase of traffic contemplated by the new arrangement. The Reading, for its part, was wiUing to guarantee the lease, because of the valuable coal properties and terminals of the Central of New Jersey.* The Philadelphia and Reading Coal and Iron Company likewise secured control, through a lease and stock arrangement, of the Lehigh VaUey Coal Company, the subsidiary mining company of ' Transcript of Record in Sherman Anli-Trust Case, ii, p. 563. ^ House Report, 1892-93, no. 2278, p. 212. ' Ibid., pp. 211-212. ' Ibid., pp. 212—213. 52 THE ANTHRACITE COAL COMBINATION the Lehigh Valley Railroad.' The Reading Coal and Iron Com- pany contracted, also, to buy, for a certain percentage of the tide- water price, the coal of the Lehigh Valley Coal Company and of the Lehigh and Wilkes-Barre Coal Company, the latter being practically owned by the Central of New Jersey.^ An attempt was made, also, to secure a greater interrelation of interests among the carriers of anthracite coal. President Maxwell of the Central of New Jersey, and others connected with him, became large holders of stock in the Lackawanna Railroad.' Mr. Max- well and Mr. G. F. Baker, both directors of the Central of New Jersey, were elected to the Lackawanna board, while President Sloan of the Lackawanna was elected to the directorate of the Central of New Jersey. Mr. Sloan announced that the manage- ment of the Lackawanna was in sympathy with the plans of the Reading. " Lackawanna will not be a competitive factor in the coal trade." * The Reading Railroad had thus secured control of two compet- ing raihoads and their coal companies, and had estabHshed, through purchases of stock and interchange of directors, a com- munity of interest with stiU another railroad. Including the shipments of the Lackawanna, which Wcis working in harmony with the combination, the Reading controlled nearly 70 per cent of the total shipments of anthracite coal.^ Additional strength was given to the combination by tying up the individual opera- tors of coal through long term contracts, nmning generally for seven years, whereby in return for a certain percentage of the tide-water price of coal the operators entering into the contracts placed the marketing of their coal in the hands of the railroads or of their subsidiary coal companies, with whom most of the con- tracts were made.* Through Mr. McLeod's influence these > Ckron., 54: 288 (1892). ' Annual Report of the Reading Railroad, 1895, pp. 15-16. See also Transcript of Record iti Sherman Anti-Trust Case, iii, Exh. 142. ' Chron. 54, 288 (1892). Mr. Maxwell said that this stock was bought for the purpose of working in harmony with President Sloan for the good of the trade. * Ibid. ' See p. 148. ' See p. 88 for a description of these contracts. THE COMBINATIONS FROM 1873 TO i8g8 53 contracts were made not only with the roads embraced in his system, but with a number of the other railroads as well.' About the same time, large purchases of the stock of the Boston and Maine Railroad were made, and Mr. McLeod was elected presi- dent of the road. Through purchases of stock, or through lease, control was likewise secured of the roads connecting the Reading system with the Boston and Maine. This involved a very great extension of the Reading system, but connected it with an important manufacturing region, and provided it with an outlet for its surplus coal. A new market in New England was chosen in order to increase the Reading's tonnage, as Mr. McLeod said, " without getting into such a row with my neighbors that the "whole structure would go to pieces." ^ The fcdlure of this combination was due to a number of causes. The price of stove coal was advanced more than a dollar a ton between February and September, 1892,' and a tremendous public outcry, arose. In June, 1892, the Attorney General of New Jersey appHed for an injunction to dissolve the lease of the Central of New Jersey to the Reading, on the ground that it was illegal.* In August, Chancellor McGill declared the lease null and void. He held that the inter\'ention of the Port Reading Railroad was but a device to disguise the real nature of the trans- action, and that the real lessee was the Philadelphia and Reading Railroad.' This, therefore, amo\mted in substance to a lease of the Central Railroad of New Jersey to the Reading, which was contrary to law. Suits were brought, also, in the Peimsylvania courts to annul the lease of the Lehigh Valley to the Reading, but these were not successful. It was held that these roads were not parallel and competing Hues, and the lease was not, therefore, prohibited by law.^ The attempt of the Reading to enter New ' Industrial Commission, ix, pp. cxxxvii-csxsviii. ' Ibid., p. 567. ' See p. 156. Reliable prices for stove coal, which is typical of the prepared or domestic sizes, can be secured only since the year 1890. These figures, therefore, are not comparable with those before 1890. There are not available reliable prices for the same size of coal throughout the whole period. * R. R. Gas., 24: 420 (1892). ' House Report, 1892-93, no. 2278, p. 219. « R. R. Gaz., 25: 102 (1892). 54 THE ANTHRACITE COAL COMBINATION England met with the hostility of the influential banking house of J. P. Morgan and Co., which increased the railroad's difficul- ties. President McLeod's operations in acquiring the Boston and Maine were, furthermore, not only questionable, but ex- tremely expensive.' Finally, the agreement to purchase the output of the individual operators involved a severe financial strain as the rise in the price of coal greatly stimulated its pro- duction. The Reading, by reaching out for one raihoad after another, with its credit already strained to the utmost, invited a catastrophe. The opposition of banking interests and the frequent attacks upon the Reading system hurt its credit. The events leading up to the panic of 1893 made it difficult for the Reading to secure needed funds, and in February, 1893, it failed. The lease of the Lehigh VaUey to the Reading was abrogated in August, the New England extension was abandoned,^ and the " Reading System " became again primarily a cocd-carrying road from the anthracite mines to tide-water. The control of the trade exercised by the Reading, though result- ing in a decline in its shipments, both absolutely and relatively, postponed for a time the effects of the general depression which fol- lowed the panic of June, 1893. Though business generally was much depressed during the latter part of 1893, the anthracite trade was fairly prosperous, in spite of the fact that prices were lower than they had been in the latter part of 1892, and the early part of 1893. During the early months of 1894, prices fell steadily. Stove coal, for example, fell in price from S4-16 in January to S3. 50 in May. In June, despite the fact that nearly twice as much coal was mined as had been recommended by the sales agents, prices improved sUghtly. The real demoralization of the trade came in September, but in October prices went even lower. The average for the year was $3.60 or 59 cents less than the average for 1893.' This demoralized condition of the trade prevailed in spite of an apparent agreement among the companies. At a meeting of the sales agents in December, 1894, a decision was made to restrict the output during January to 45 per cent ' Daggett, Railroad Reorganization, p. 124. ' Ibid., p. 128. ' See p. 156. THE COMBINATIONS FROM 1873 TO i8g8 55 of the capacity.* In May, 1895, the sales agents substantially agreed to confine mining operations to three consecutive days a week.^ These agreements, however, were not well kept. The actual shipments in 1894 exceeded by more than 9 million tons the tonnage recommended by the sales agents.^ This form of restriction was adopted only because of the imwiUingness of the companies to yield to the demand of the Reading Railroad for an allotment of 21 per cent.* This company was the real disturbing factor in the situation. Its continued insolvency, reUeving it from the necessity of meeting its interest charges, enabled it to carry competition to an extreme. Thus the year 1895 was an unprofitable one. The Reading Coal and Iron Company, for example, which in 1894 had an excess of receipts over expenses of approximately $268,000, failed in 189s to earn its operating expenses.' It is true that a market was found for a greatly increased amount of coal, the shipments in 1895 being 3.5 million tons greater than they had ever been before, and more than 5 milHon tons in excess of those in the pre- ceding year.* But as a result of the inability of the railroads to agree upon a division of tonnage, the production was carried beyond what the market would take at the prevaihng prices, and a decided slump was the natural result. Stove coal, which had sold for $3.60 in 1894, averaged only $3.12 in 1895, and in August of that year went down to $2.89, or 68 cents less than it had been in August of the preceding year.' This state of affairs led to a successful attempt to renew the old allotment plan. Numerous meetings had been held throughout 1895, but an agreement was not reached vmtil Januarj' 30, 1896.^ The adoption of a new agreement at this time was facilitated by the desire of the Reading to give stabihty to the coal trade in order that its reorganization plan might be successful. It receded from its demand for 21 per cent of the tonnage, and accepted 20.5 per cent. Definite percentages, since known as " president's percentages," were agreed upon as in the earUer • Chron., 59: 1140 (1894). ' Chron., 62: 210 (1896). 2 Ibid., 60: 793 (189s). ' See Appendix, Table I. ' Mineral Induslry, iii, p. 142. ' See p. 156. * Chron., 60: 1076 (1895). " Chron., 62: 231 (1896). 56 THE ANTHRACITE COAL COMBINATION pools. This agreement, unsigned as a matter of course, was to continue from February i, 1896, to January i, 1897, after which it was to be subject to revision on thirty days notice.^ The fixing of prices and the determination of tonnage was left to the sales agents, but a permanent Board of Managers was to act in an advisory capacity, and to maintain a close watch over all inter- ests.- The division of tonnage was well adhered to by the companies. In every case the deviation of shipments from the percentage allotted was less than one-half of i per cent.' But the pool, being in its nature secret, could not prevent the recurrence of the old abuses. The tonnage in 1896 was, with the exception of that in 1895, the largest yet attained.* This would seem to indicate that the policy of restriction pursued by the companies was not carried far enough. Nevertheless, prices were much higher than those of the previous year. Stove coal averaged $3.79 in 1896, which was 66 cents more than the average for 1895.* In spite of the better prices, the agreement upon its expiration was not con- tinued, and the companies returned to the scheme of curtailment of production. This worked weU during the first six months of 1897, the mines in the early part of the year being worked only i^ to 3 days a week.* In the last six months of the year the production was much larger, being, in fact, over 9 million tons greater than the production in the first six months.^ Yet the percentage of the total shipments carried by each railroad varied but shghtly from the allotment of 1896,* showing that there was a certain amount of harmonious action. Prices rose from $3.79 in 1896 to $4.01 in 1897.* In the following year, 1898, the trade was imsatisfactory. The demand was limited, and prices fell to the level of i896,being especially low during the latter part of 1898.^° There was less harmony, also, in the conduct of the trade. ■^ Summarizing the period 1873 to 1898, it is apparent that the adoption of the various agreements usually had a steadying 1 Chron., 62:^231 (1896). « R. R. Gaz., 29: 229 (1897). ' Iron Age, 57: 362 (1896). ' See Appendix, Table III. ' See pp. 41, 148. ' See p. 148. * See Appendix, Table I. ' See p. 156. ' See p. 156. " Ibid. THE COMBINATIONS FROM 1873 TO 1898 S7 effect upon the trade, but they were not long maintained, and upon their termination competition was carried to an extreme, the result generally being an increased production and much lower prices. This fact is well illustrated by the alternating periods of combination and competition in the seventies. Although in 1873, the year of the first combination, the shipments exceeded those of the preceding year, they declined in each of the following years during which there was an agreement, and then upon the dissolution of the combination in the latter part of 1876 increased again. In 1878, when an agreement was again adopted, the shipments dechned from 20.8 milHon tons to 17.6 miUion, but in the following year, when competition prevailed, they increased to 26.1 million tons, or over 5 million tons greater than the maximum up to that time. The effect upon prices was the same. The average price of all sizes of coal from lump to pea had been $3.84 in 1872. It rose steadily to $5.28 in 1875, ^^^ was well maintained during the early months of 1876, but on the dissolu- tion of the pool in August fell rapidly, and in 1877, a competitive year, fell as low as $2.44. In 1878, when the agreement was in force, prices rose again to $3.15, but upon its abandomnent in the following year fell to $2.34. There had been similar agreements in the eighties, and also attempts to prevent over-production by a diminution of the nimiber of working days, but this latter plan, as has been shown,^ contained within itself the germs of its own failure. Hence a combination on a larger scale was attempted by the Reading Raihoad in 1892, but this likewise proved to be a failure, and resulted in the bankruptcy of its promoter. After a period of low prices in 1894 and 1895, the old allotment plan was tried in 1896. Though this was accompanied by lessened pro- duction and higher prices, nevertheless it was not renewed upon its expiration, and competition again prevailed. The explanation of the persistent attempts during this period (1873-1898) to restrict or eliminate competition is probably two- fold: First, the need of meeting the interest charges upon the huge obligations incurred by the companies in attempting to secure control of the coal lands. Second, the intermittent • See p. 47. 5 8 THE ANTHRACITE COAL COMBINATION character of the trade. Anthracite coal was primarily used for domestic purposes, and even more so during this period than at present. The demand was heavy during the winter months, and the operators were prepared to meet this demand in full. The greatly lessened demand of the summer months offered a strong temptation to cut prices in order to render possible continuous operation at some profit, however small, especially as interest and otherfixed charges ran on whether or no the plant was in operation. Storage on a large scale, which would equalize the irregularities, was not regarded as practicable. To prevent price cutting, therefore, pools were formed. These, however, proved only partly successful, and during a considerable portion of this time the coal trade was quite demoralized. The anthracite railroads became convinced that they must find some more effective method for restraining competition than had hitherto been adopted. Conditions, then, were ripe in 1898, as they had been in 1873, for the formation of a combination which promised a more effective control over the trade. CHAPTER IV The Development of an Effective Combination SINCE 1898 About 1898 the anthracite coal trade entered upon a new era. The anthracite coal-carrying raUroads began to experience a period of harmony and prosperity xmknown in the preceding years. This wels the result of a more far-reaching consolidation than had taken place previously. The characteristic featiu-es of this new development were: I. Railroad consohdation. n. The development of a comrminity of interest among the railroads. III. The practical elimination of the independent operators. To a consideration of these attention will next be directed. I. Railroad Consolidation Early in 1898 the Erie Railroad purchased a controlling interest in the New York, Susquehanna and Western Railroad. The latter road first became engaged in the business of canying coal in 1882. In that year, tonnage having been pledged to it by independent operators, the Susquehanna RaUroad extended its line, then running through New York and New Jersey, westward to Gravel Place, 3 miles northwest of Stroudsburg, where con- nection was secxired with the Lackawanna Railroad.^ The Siisquehanna in the same year, by means of a feeder line from those coUieries in the Wyo min g field whose tonnage had been pledged to it, secured a connection in the coal fields with the Lackawanna. The Susquehanna had secured its tonnage by giving the independent operators a lower freight rate than had previously prevailed. Its competition was immediately felt, and '■ Transcript of Record in Sherman Anti-Trust Case, ii, p. 280; iv, pp. 69, 197. S9 6o THE ANTHRACITE COAL COMBINATION gradually the other railroads were compelled to reduce their freight charges.' In this competition, however, the Susque- hanna was at a disadvantage, as it had no through route. It was necessary for it to use the Lackawanna's line from the coal fields to Stroudsbm-g, a distance of about 65 miles, and after transport- ing the coal to tide-water to turn it over again to the Lackawanna, as the Susquehanna RaUroad had no terminal.^ It, therefore, organized in March, 1892, the Wilkes-Barre and Eastern Railroad Company, whose entire capital stock it retained, to extend from. Stroudsburg, the western terminus of the Susquehanna Railroad, to Wilkes-Barre in the Northern field.' In the same year, primarily for the purpose of handling its coal traffic, the Susque- hanna secmred terminal fadHties at Edgewater on New York Harbor, about 5 or 6 miles north of Jersey City.* In 1897 the Susquehanna Connecting Railroad, owned by the Susquehanna RaUroad, was constructed near WUkes-Barre in order to connect the Wilkes-Barre and Eastern with certain mines, whose product had previously been delivered to it by the Lehigh Valley, and by the Delaware and Hudson.^ The Susquehanna Railroad in its armual report for 1897 annoimced that the completion of this line had placed the company in an independent position in respect to the transportation of coal. In the following year the Susque- hanna secured connections, also, with other raUroads. It was then in a position to carry to market part of the output of the collieries of the Delaware and Hudson and of the Pennsylvania Coal Company, which was at that time being carried by the Erie Railroad.^ ' The Erie, then, in order to remove the danger of this competi- tion, leased the Susquehanna Railroad on February 24, 1898, for the period of one year.' In accordance with the conditions of the lease it increased its capital stock on March 11, 1898, in the 1 Transcript of Record in Sherman Anii-Trusl Case, ii, pp. 281-282. ' Ibid., iv, p. 163. ' Ibid., vi, N. Y. S. & W. Exhs., no. 5, p. 18; and iv, p. 165. ■* Ibid., iv, pp. 48-49. ' Ibid., vi, N. Y. S. & W. Exhs., no. 5, p. 18; and iv, p. 201. ' Ibid., iv, pp. 200-205. ' Annual Report of the Erie Railroad, 1898, p. 16. DEVELOPMENT OF AN EFFECTIVE COMBINATION 6l amount of $26,000,000, which was to be exchanged for the stock of the Susquehanna Railroad on the following terms: one share of Erie common was to be exchanged for one share of Susque- hanna common, and nine-tenths of one share of Erie preferred for one share of Susquehanna preferred.^ The Legislature of New Jersey consented to the lease and by the 30th of June, 1898, the Erie had acquired 122,463 shares of the common and 128,440 shares of the preferred stock of the Susquehanna Railroad, or over 96 per cent of its total capital stock.^ Though the Susquehanna Railroad is still operated as a separate corporation, its manage- ment is the same as that of the Erie Railroad. Both have the same executive officers, and all but three of the twelve directors of the Susqueharma are directors of the Erie.^ The Erie at the same time secured control of the New York, Susquehanna and Western Coal Company,^ a majority of whose stock was owned by the Susquehanna Railroad, and the directors and the officers of the New York, Susquehanna and Western Coal Company became the same as those of the Hillside Coal and Iron Company, then the principal subsidiary coal company of the Erie Railroad. One of the main featiu'es in the movement toward railroad consolidation has been the purchase by the Reading Company (the holding company of the Philadelphia and Reading Railway Company and of the Philadelphia and Reading Coal and Iron Company) * of a controlling interest in the Central Railroad of New Jersey. The old Philadelphia and Reading Railroad had previously on two occasions secured a lease of the Central of New Jersey, once in 1883 and again in 1892. It had been forced, how- ever, to give up the lease in both cases, the first time on account of bankruptcy, and the second because the lease was declared null by the New Jersey courts. Having been thwarted in its attempt to seciu-e control of the Jersey Central by lease, the Reading Company (which owned all the stock of the Philadelphia and 1 Transcript of Record in Sherman AtUir-Trtist Case, iii, Exhs. 153 and 154. 2 Annual Report of the Erie Railroad, 1898, p. 16. ^ Poor's Manual of Railroads, 1914, pp. 221, 235. * Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 99. ' Seep. 115. 62 THE ANTHRACITE COAL COMBINATION Reading Railway Company, the successor to the Philadelphia and Reading Railroad Company) decided to purchase outright a controlling interest in the road. In pursuance of this plan, the Reading Company, on January 5, 1901, purchased at $160 a share, 145,000 shares of the Central of New Jersey, or over 53 per cent of the total stock outstanding. The money for the pur- chase was secured by the issue of 60,353 shares of first preferred stock, and 34,275 shares of second preferred, and in addition by $23,000,000 of 4 per cent collateral trust bonds, secured by the deposit of the 145,000 shares of the Central Railroad of New Jersey, as well as by 29,900 shares of the capital stock of the Perkiomen Railroad, and 4400 shares of the capital stock of the Port Reading Railroad Company.' Though the price paid for the stock of the Central of New Jersey was very high as compared with market quotations during 1900, the advantages of the purchase were quite obvious. The com- bination of the two railroads placed nearly one-third of the total shipments of coal, on the basis of the shipments for 1900, xmder the control of the Reading Company. The advantages for the future from the standpoint of coal tonnage were even more im- portant than the advantages immediately secured. The Jersey Central owned the second largest reserve supply of coal.^ By the acquisition of this reserve the Reading system owned and controlled about 63 per cent of all the unmined coal in the State of Pennsylvania.^ From the standpoint of facilities, also, the advantages of the consolidation were great. The Central of New Jersey was in many ways a natural complement to the Reading hues. Though the Reading possessed an outlet to tide- water by the Port Reading Railroad, it had been foimd more convenient to use the Central of New Jersey from Bound Brook to Jersey City for passenger and general freight traffic. By this purchase the Reading secured permanent control over this route. The Read- ing thus had a direct line from the Schuylkill field to tide-water, and was relieved of the necessity of first going to Philadelphia, ' Annual Report of the Reading Company, 1901, p. 13. * See p. 108. ' Annual Report of the Reading Company, 1901, p. 13. DEVELOPMENT OF AN EFFECTIVE COMBINATION 63 in order to reach New York. The direct line to New York could profitably be used as a special outlet for the Reading's anthracite traffic, and the main Mne of the Reading to Philadelphia could be devoted to the development of its general traffic, which was becoming of more and more importance in the business of the company.' The Central of New Jersey owned, in addition, large areas of land in New York City which were capable of providing terminal facilities for the company for many years to come.'' The president of the Reading Company, in his testimony before the examiner in the smt to dissolve the anthracite coal combina- tion, recently decided by the Supreme Court of the United States,' gave the following account of the purchase of the Central Railroad of New Jersey by the Reading Company: The Reading must get to New York over the Jersey Central system. . . . In December, 1900, I happened to be in New York and I was told that the gentlemen who controlled the New Jersey Central were tired of it and that the stock was for sale. I was also told that the Baltimore and Ohio Railroad had made an offer for this stock, which the parties had refused because they considered it too small. This information was a great surprise and I at once- went to Mr. Morgan, who was a voting tnistee of the Reading Company'and told him that the situation was most alarming; that it would be the ruin of the Reading property if an antagonistic company got control of the Jersey Central, or if the Baltimore and Ohio got us by the throat in that way and could control our terminals in New York, and that therefore the matter called for prompt action. I told him then that I always thought that the Jersey Central could be legally bought; that the limitations in the laws of New Jersey applied only to leasing and that, under the powers of the Reading Company and under the statutes of New Jersey, we could undoubt- edly buy a majority of the stock. He told me to keep my own counsel and look up the whole subject and see what could be done. I came home and I made a critical and careful examination of the reports of the New Jersey Central Railroad for a number of years,'to see what in my judgment its stock would be worth, taking into accoimt the future possibUities. I also took up the cfQestion of how we could buy it and finance it. I made a report to Mr. Morgan in about a week's time. It took me a good while to get aU the in- formation I got, because I had to do it secretly, you know, as counsel. I sent it to Mr. Morgan. . . . When I got home, one night in Reading there was a call at the telephone and I went to the phone and Mr. Morgan was there, teUing me to come to New York immediately, that I must come on at once about that Jersey Central business. I went to New York the next morning. ' Industrial Commission, xix, p. 46. ' Transcript of Record in Sherman Anti-Trust Case, v, p. 1185. ' See p. 215. 64 THE ANTHRACITE COAL COMBINATION I saw Mr. Morgan. . . . He said to me, " What do you think is the fair price ? " I said, " I have named what I think is the fair price Ln there." He called for Mr. Baker, who was the chairman of their committee, or a lead- ing man in it. Mr. Baker came over and we sat down and dickered for about five minutes, until Mr. Baker said they would take one hundred and sixty and I said I thought I would advise that, and I went to the phone and called up Mr. Welsh and Mr. Harris, who were, with myself, a majority of the executive committee and they said, " Yes," and the deal was closed. That is the whole story. We did not even make a writing about it. Mr. Baker said he would undertake himself and ^-ith Mr. Maxwell and friends to deliver us a majority of the stock.' President Baer justified the purchase on the ground that it was necessary to prevent the Central of New Jersey from falling into hostile hands. His contention, however, seems hardly supported by the evidence. There was no testimony by any officer or stock- holder of the Baltimore and Ohio or of the Central of New Jersey to the effect that the Baltimore and Ohio was a prospective pur- chaser. The only evidence upon this point was Mr. Baer's ' testimony, and he merely said that he had been informed, without naming his informant. The Reading, also, had a perpetual agreement with the Jersey Central for the exchange of traffic facilities, which could not have been broken by the Baltimore and Ohio, even had it intended to purchase the Jersey Central.^ Furthermore, as the Baltimore and Ohio went only to Phila- delphia, and, in order to secure a connection with the Central of New Jersey at Bovmd Brook, two-thirds of the distance from Philadelphia to New York, it would have been necessary to use the tracks of the Reading Railroad, the Baltimore and Ohio would hardly have desired to break off its harmonious relations with its connections. A contributing factor in the movement toward consolidation was the purchase of the New York, Ontario and Western by the New York, New Haven and Hartford. The Ontario had built an extension into the Northern coal field in 1890, and by its com- petition for tonnage had compelled a reduction in the freight rates.' On November i, 1904, the New Haven purchased from ' Transcript of Record in Sherman Anti-Trust Case, v, pp. 1185-1187. » Ibid., iv, pp. 528-530. ' See p. 88. DEVELOPMENT OF AN EFFECTIVE COMBINATION 65 Kuhn, Loeb and Company, 291,600 shares of the common and 22 shares of the preferred stock of the Ontario, constituting a bare majority of each class of stock. The price paid was $13,983,197, but dividends to the amount of $874,800 were due shortly, thus making the net cost approximately $45 a share. The purchase was financed temporarily by the New Haven through the issue of promissory notes maturing July i, 1905, which were to be paid out of the proceeds of an issue of $15,000,000 of fifty-year 4 per cent debentures of the Company dated July ist, 1905, the balance of the proceeds of the issue being devoted to the general purposes of the company.^ The New Haven not being an anthra- cite coal road, the controlling motive for the purchase was not a desire to imify the management of the coal trade. The piurchase was inspired by a desire to control, as far as possible, the coal supply of the large district in western and southern New England served by its Mne, and also to place the New Haven in a stronger position with respect to the apportionment of the freight rate on through business to and from the West.^ But though the New Haven was not an anthracite coal road,its policy,nevertheless, was largely influenced by financial interests represented in the anthra- cite coal roads, prominent representatives of these interests being Mr. J. P. Morgan, Mr. William Rockefeller, Mr. H. McK. Twombly, and Mr. A. J. Cassatt.' Though often acting in har- mony with the other railroads, the Ontario had been considered as something of a free lance.* Under its new management it has exhibited less independence. The Vanderbilt interests, which are very influential in the management of the anthracite coal trade, recently attempted to acquire the Ontario from the New Haven,* but the New York State Public Service Commission refused to permit the transfer.^ In the same year (1904) the Lehigh Coal and Navigation Com- pany piurchased a controUing interest in the Lehigh and New • Annual Report of New York, New Haven &• Hartford Railroad, 1905, p. 10. ' Chron., 79: 2086 (1904); and Mineral Industry, xiii, p. 89. ' See Poor's Manual of Railroads, 1905. * Mineral Industry, xiii, p. 89. ■• Chron., 93: 1600 (1911). " Chron., 94: 983 (191 2). 66 THE ANTHRACITE COAL COMBINATION England Railroad Company, which extended from Slatington, Pennsylvania, and Bethlehem, Pennsylvania, two points on the Lehigh river, to Campbell Hall, New York, where it connected with the New York Central lines, and with the Poughkeepsie Bridge system of the New Haven.' Because of the difficulty experienced in procuring suitable traffic arrangements with its railroad connections on the Lehigh river, the Lehigh and New England Railroad in 191 2 extended its line 32 miles northwest- ward to Tamaqua, where a cormection was effected with the Panther Creek Railroad, a gathering Kne serving the various mines belonging to the Lehigh Coal and Navigation Company.^ The Coal and Navigation Company thus secured for the coal from its mines in the Lehigh and Schuylkill regions a direct all- rail outlet to New York and New England points. Since 1904, also, the Lehigh Coal and Navigation Company has acquired all of the stock of the Lehigh and New England Railroad,^ and the two corporations now have the same president, vice-president, and secretary, and a majority of directors in common.^ In fact, the Lehigh and New England Railroad is operated under the direct control of the Lehigh Coal and Navigation Company.* Li the year 1904, also, the Lehigh Coal and Na\dgation Com- pany further increased its stockholdings in the Lehigh and Hud- son River Railway Company, and shortly thereafter the president of the Lackawarma Railroad, of the Lehigh VaUey Railroad, and of the Erie Railroad entered the directorate of the Lehigh and Hudson River Railway Company.^ This company had been incorporated in 1882. In 1885 a majority of its stock had been jointly purchased by the Lehigh Coal and Navigation Company and the Central Railroad of New Jersey, both of which advanced ' Annual Report of the Lehigh Coal and Navigation Company, 1905, pp. 11-12. ' Answer of the Lehigh Coal and Navigation Company, pp. 9-1 1. See Biblio. no. 174. » Ibid. ' Poor's Manual of Railroads, and Moody's Manual of Corporation Securities, 1913- ' Original Petition in U. S. v. Reading Company, pp. 58-59. See Biblio. no. 173. ' Annual Report of the Lehigh Coal and Navigalion Company, 1905, p. 11; also Poor's Manual of Railroads. DEVELOPMENT OF AN EFFECTIVE COMBINATION 6y it large sums of money for its extension and improvement.* The Lehigh and Hudson River Railway Company, when completed, extended from Phillipsburg, New Jersey (where it connected with the Central RaUroad of New Jersey) to Maybrook, New York, where a connection was secured with the Central New England Railroad (the Poughkeepsie Bridge system). It thus constituted another outlet for anthracite coal to New York and New England points.^ At the present time the Lehigh Coal and Naviga,tion Company and the Central Railroad of New Jersey not only own a majority of the stock of the Lehigh and Hudson River Railway Company, but they jointly guarantee $1,062,000 of its $3,229,000 funded debt.' The president, vice-president, and two directors of the Central of New Jersey, and the vice- president of the Lehigh Coal and Navigation Company -are directors of the Lehigh and Hudson River Railway Company, and a director of the Lehigh Coal and Navigation is the president of the Lehigh and Hudson River Railway Company, as well as one of its directors.^ II. The Development of a Community of Interest among the Railroads The movement toward consoHdation in the anthracite coal industry through the purchase of competing or independent railroads has been strengthened by means of the establishment of a greater degree of common interest among the railroads. This has been brought about (i) by the inter-ownership of stock, (2) by interlocking directorates. The early attempts to agree upon a division of the tonnage had failed, it will be recalled, because some railroads continually exceeded the percentages allotted to them. A community of interest was now developed, 1 Answer of the Lehigh and Hudson River Railway Company, p. 3. See Biblio. no. 174. 2 Original Petition in U. S. v. Reading Company, p. 16. See Biblio. no. 173. The Lehigh and Hudson River Railway Company for a part of its route has trackage rights over the Pennsylvania Railroad. ' Answer of the Lehigh and Hudson River Railway Company, p. 3. See Biblio. no. 174. * Poor's Manual of Railroads, and Moody's Manual of Corporation Securities, 1913- 68 THE ANTHRACITE COAL COMBINATION which led each raihroad to adhere more closely to its " proper " proportion of the tonnage. In the new movement the Pennsyl- vania Railroad, which had steadfastly refused to enter the earlier combinations, took a prominent part, even going so far as to secure indirectly a large interest in the main coal-carrying roads, (i) An important step in bringing about greater unity of action in the management of the coal trade through the interchange of stock ownership was the joint pmrchase by several of the coal roads of a large block of the stock of the Lehigh Valley Railroad. Early in 1901 the Lake Shore and Michigan Southern, owning over 21.6 per cent of the stock of the Reading Company and in turn controlled by the New York Central, agreed with the Read- ing Company, the Central of New Jersey, the Lackawanna, and the Erie to purchase $5,700,000, $1,000,000, $1,600,000, $1,850,- 000, and $1,850,000 respectively — in all $12,000,000 — of the stock of the Lehigh Vallej'^,^ or nearly 30 per cent of the total stock. The stock was not all purchased at the same time, but it is clear from President Baer's testimony that the railroads jointly agreed to purchase the stock, for in his testimony he said that the Lehigh Valley was in bad shape, and it was thought very dangerous to let it go into a receiver's hands, because of the effect it would have on the other raUroads and on general business. After talking that over with a niunber of gentlemen, Mr. Morgan being anxious that it should be done, I came over to Philadelphia, and saw Mr. Stotesbury, and suggested that he see the trustees of the Packer estate and of the college — the Lehigh University had an interest in it. We agreed to buy the stock. Then we divided it up between the four systems. I insisted that the Lake Shore and the VanderbUt System, which was the strong system, should take a big block of the stock, and the rest of us should not be loaded down, because I did not know whether we could save the Lehigh Valley.* After the purchases had been consummated Mr. Thomas, who had been president of the Erie Railroad, was elected president and a director of the Lehigh Valley; Mr. Baer, president of the Reading System and of the Central of New Jersey, became a member of the Executive Committee and of the Board of Direc- • Brief for the United States itt Sherman A nti-Trust Case, p. 1 1 7. See Bibllo. no. 156. ' Transcript of Record in Sherman AtUi^Trust Case, v, p. 1217. DEVELOPMENT OF AN EFFECTIVE COMBINATION 69 tors, and Mr. J. R. Maxwell, Mr. G. F. Baker and Mr. H. McK. Twombly, all ofl&cers or directors of some of the other companies, became directors of the Lehigh Valley.^ The anthracite coal railroads thus virtually secured control of the Lehigh Valley, and brought it into assured harmony with the controlling interests in the anthracite coal trade. The stock of the Lehigh Valley continued to be held by these railroads imtil the middle of Jime, 1907. Since that date the Erie Railroad has disposed of its holdings, and the Lake Shore has sold a large block of its shares. As late as the ist of October, 1908, however, $7,650,000, or nearly 20 per cent of the capital stock of the Lehigh Valley, was owned by the Reading Company, the Central of New Jersey, the Lacka- wanna,' and the Lake Shore, all but the latter and the Erie having retained their original holdings.^ Although these roads may have recently disposed of their holdings, the Lehigh Valley is still operated in harmony with the other railroads. By 1901 a degree of common interest sufficient to assure an effective control of the anthracite coal situation seems to have been estabhshed. Mr. Harris, formerly president of the Reading, testified in 1901 that the anthracite coal-carrying railroads were working in substantial though not in exact harmony.' Mr. Wood- lock, raihoad editor of the Wall Street Journal, testified that the existence of the commimity of interest was thoroughly weU under- stood. He said, " Mr. Morgan represents a group of interests that are undoubtedly dominant in the Reading, Lehigh Valley, Jersey Central, Lackawanna, Erie with all its appendages, and it is believed that they are taking steps more or less to control the Delaware and Hudson." * The railroads that were reckoned the most independent at this time were the New York, Ontario and Western, the Delaware, Susquehanna and Schuylkill, and the Peimsylvania. The Ontario was purchased by the New York, New Haven and Hartford RaUroad, and the Delaware, Susque- haima and Schuylkill by the Lehigh Valley, in 1904 and 1905, respectively. The Peimsylvania Railroad, which had so long • Transcript of Record in Sherman Anli-Trust Case, iii, Exh. 184. } Ibid., iii, Exh. 52. ' Industrial Commission, ix, p. 598. * Ibid., ix, p. 455. yo THE ANTHRACITE COAL COMBINATION held aloof from the anthracite combinations, has, since 1901, taken an important part in the control of the anthracite coal trade. The New York Central and the Peimsylvania presum- ably entered into an agreement whereby the former was to increase its interest in the anthracite traffic and the latter in the bituminous traffic. Certain it is that during the years 1900 to 1902 the Pennsylvania secured large blocks of stock in the Balti- more and Ohio, in the Chesapeake and Ohio, and in the Norfolk and Western, all important bituminous coal-carrying roads^ Through the Baltimore and Ohio, approximately 40 per cent of whose stock was owned by it, the Peimsylvania bought in the summer of 1902 over 43 per cent of the stock of the Reading Company. Half of the stock so acqmred was sold to the Vander- bilt interests, which turned it over to the Lake Shore and Michi- gan Southern Railway, which was practically owned by the New York Central Railroad.^ The situation about 1902 may be briefly indicated: The New York Central (controlled by the Vanderbilt interests, which had large holdings in the Lackawaima), and the Pennsylvania, jointly controlled the Reading Company, which owned the Read- ing Railway and the Central Railroad of New Jersey. The output of the Delaware and Hudson, a road usually credited with Vanderbilt affihation, was largely handled by the Erie Railroad, controlled bj^ Mr. Morgan, who was working in harmony with the other interests to make the anthracite coal trade profitable. The Reading, the Central of New Jersey, the Lackawanna, the Erie, and the New York Central (through the Lake Shore) exercised a considerable influence on the poHcies of the Lehigh Valley. The result of this close inter-relationship of interests was to secure an unusual degree of harmony in the anthracite coal trade. Since 1902 the inter-ownership of stock has become some- what less. The Pennsj'lvania in the latter part of 1906 disposed of a large amount of its holdings in the soft coal roads, including about half of its stock in the Baltimore and Ohio.' It thereby diminished its influence over the policies of the Reading Com- ' See Annual Reports of the Pennsylvania Railroad, 1900-1902. ' Ckron., 76: 102-103 (1903)- ' Ibid., 83: 562 (1906I. DEVELOPMENT OF AN EFFECTIVE COMBINATION 7 1 pany. The Lake Shore also sold a part of its Reading stock. Mention has been made of the sale of Lehigh Valley stock by the Erie and the Lake Shore. In spite of these sales the inter- relation of stock ownership seems still sufficient to make for harmonious action in the management of the trade. (2) Closely coimected with the community of interest among the railroads through the interweaving of stock ownership was an increasing representation of the railroads upon the directorates of other systems. Some examples ^ of changes in this respect may be noted. During the years 1898 to 1900 none of the directors of the Reading Company were on the board of the Central of New Jersey, but from 1901 to 1903 four of the Reading Company directors were so represented. Two of the directors of the Read- ing Company in 1898 and one from 1899 to 1900 were directors of the Lehigh Valley, but in 1903 there were three of the directors of the Reading Company on the directorate of the Lehigh Valley. From 1898 to 1900 none of the directors of the Central of New Jersey were on the Lehigh Valley board, but from 1901 to 1902 two directors and in 1903 three directors were represented in the councils of the Lehigh Valley Railroad. The changes during these years naturally brought about a greater unity of action in the poHcies of these railroads. The other anthracite coal roads have shown the same tendency, but to a lesser extent. Li 1903, three of the directors of the Central of New Jersey were directors of the Lackawanna, but they had been on the board of the Lackawanna since 1898. Three of the directors of the Reading Company were on the Erie board in 1898, and though there were only two from 1899 to 1902, in 1903 there were again three Reading Company directors on the board of the Erie. The only common representation on the various directorates from 1898 to 1900 in addition to those already mentioned was a common director for the Lehigh VaUey and the Erie and one for the Delaware and Hudson and the Onta- rio, the latter being, also, a director of the New York Central, representing the so-called Vanderbilt financial interests. By 1903 the common representation had increased somewhat. In • See Poor's Manual of Railroads. 72 THE ANTHRACITE COAL COMBINATION that year three of the Lehigh Valley directors were also directors on the Lackawanna board, three of the Central of New Jersey directors were directors of the Erie, four of the directors of the Lehigh Valley were directors of the Erie, one of the directors of the Delaware and Hudson was a director of the Erie, and another was a director of the Ontario, and there was, in addition, a much greater degree of interlocking directorates with other railroads, involving especially an interchanging of directors with the New York Central, the Lake Shore, and the Baltimore and Ohio, all of which had taken such an important part in the management of the coal business. The situation in 1898, a competitive year, may be well com- pared with the situation in 1903, when the combination was well imder way, by an examination of the following table show- ing the directors coinmon in these years to two or more roads: — A . B . C . D E . F. G H A . B . C . D E . F. G. H I.. J- K. p. &R. + + + + C. R. L. V. + + + + + + + . R. R. + + + + + + + L. V. + + + + + + + 1898 Lacka. + + + 1903 Lacka. D. &H. Erie + + + Pean. Ont. D. S:H. + + + + + Erie + + + + + + Penn. Ont- The situation in 1903 may be summarized as follows: * Four out of the nine directors of the Reading Company constituted ' For the interlocking directorates in 1913, see p. 154. DEVELOPMENT OF AN EFFECTIVE COMBINATION 73 four of the nine directors of the Central of New Jersey. Six out of the thirteen directors of the Lehigh Valley were directors either of the Reading Company or of the Central of New Jersey. Four out of the fourteen directors of the Lackawanna were directors of the Reading Company or of the Central of New Jersey, three of whom were directors of the Lehigh Valley also. Three of the directors of the Erie were directors of the Reading Company, three were directors of the Central of New Jersey, three of the Lehigh Valley, and one was a director of the Delaware and Hudson. One of the directors of the Delaware and Hudson was, therefore, a director of the Erie, and another was a director of the Ontario, and also of the New York Central, and of the Lake Shore. After the New York Central and the Pennsylvania obtained practical control of the Reading, and large interests in other roads, the ramifications became still greater. Three of the New York Central directors, and three of the Lake Shore direc- tors were then directors of the Lackawanna, one of the directors of the New York Central was a director of the Reading Company and of the Lehigh Valley, and another was a director of the Dela- ware and Hudson and of the Ontario. The Pennsylvania, through the Baltimore and Ohio, was represented by one director in the Reading Company and in the Central of New Jersey, and by two in the Lehigh Valley and two in the Erie. In addition, Mr. Morgan, a director of the New York Central and of the Lake Shore, had very large holdings in the anthracite coal roads. The development of a commvmity of interest can hardly be ques- tioned. Its influence upon the concentration of the control of the trade and the consequent restraint of the factors that tended toward competition is too obvious to require comment. m. The Practical Elimination of the Independent Operators The final phase of the recent consolidation poHcy has been the practical elimination of the independent operators as factors of any importance in the control of the anthracite coal trade. This elimination has been effected in two ways: first, by purchase; second, by means of the percentage contracts. 74 THE ANTHRACITE COAL COMBINATION (i) Purchase. In connection with the Reading combination of 1892 mention was made of certain contracts between the individual operators ' and the coal companies of the railroads, which gave to the coal companies control of the output of the individual operators during the life of the contracts. These contracts, adopted in 1892, though varying somewhat in their terms, provided in the main that during the life of the contract the individual operator was to dehver his entire output to the coal company, and in return was to receive for the prepared or domes- tic sizes 60 per cent of the average price at tide- water. This was equivalent to charging the individual operator a freight rate of 40 per cent, the railroad coal company, however, bearing the selling costs. Most of these contracts ran for seven years, and therefore expired in 1899.^ For some years prior to the expiration of these contracts, the operators had contended that they were entitled to a higher percentage of the tide- water price, or what amounted to the same thing, that they were paying too high a freight rate.' For the purpose of securing better rates from the railroads, they kept up an organization called the Anthracite Coal Operators Associa- tion, with about 60 members.* In 1898 there was general dissatis- faction with the amount received under the contracts. The operators attempted to effect a renewal of the contracts on more favorable terms, but the coal companies refused to make any concessions. The individual operators of the Wyoming region determined, then, to build an independent road to tide-water. Accordingly they organized in Pennsylvania in May, 1898, " The New York, Wyoming and Western Railroad Company," with a capital stock of $1,000,000.* This new line was to extend from Pittston in Luzerne County in the Northern field to Belvidere on 1 The term individual operator has frequently been used to designate the opera- tor sdUng his coal to a railroad or a railroad coal company imder contract, as dis- tinguished from the independent operator who has no such contract, but sells his coal independently. • Transcript of Record in Sherman AntUTrust Case, ii, p. 413. » Ibid., ii, p. 358. * Ibid., ii, p. 212. ' Ibid., vi, Temple Iron Company Exhs., no. 10, p. 46. DEVELOPMENT OF AN EFFECTIVE COMBINATION 75 the Delaware river.^ At this point the road was to connect with a number of lines extending across the State of New Jersey to tide-water. Through the Wyoming Sales Company, the New York, Wyoming and Western was to pay the operators 65 per cent of the tide-water price for the prepared sizes, the contracts to extend for the most part throughout the Hfe of the coUiery.^ Mr. E. B. Sturges, a large coal operator, who had previously success- fully promoted the entrance of the New York, Ontario and Western, and the New York, Susquehanna and Western into the coal fields, was elected president of the new railroad.^ A large majority of the individual operators of the Lackawanna region supported the proposed new line through pledges of tonnage, or through subscription to its stock.* Mr. Sturges testified before the Interstate Commerce Commission that most of the tonnage not then under contract was pledged to the proposed new rail- road. Its tonnage could not be estimated exactly, but it was calculated that it would be from two to five million tons.* Among the most influential supporters of the road was the firm of Simpson and Watkins, minin g in 1898 over 1,300,000 tons.* This firm, both of whose members were directors and large share- holders of the proposed raUroad,' pledged to the Wyoming and Western about hah a million tons, the bulk of their output not at that time tmder contract.' The new line was unquestionably started in good faith, in the hope of enabling the individual operatofs to secure a better price and a better market for their coal. Surveys of the route were inade, the right of way secured, and 7000 tons of steel rails pur- chased.' The construction of this road, however, would have Transcript of Record in Sherman Anti-Trust Case, ii, p. 285. ' Ibid., ii, pp. 477, 480. ' Ibid., vi. Temple Iron Company Exlis., no. 10, p. 46. ■* Files of Interstate Commerce Commission in case of W. R. Hearst v. Philadel- phia and Reading Railway Company, p. 394. Referred to hereafter as Files of Interstate Commerce Commission in Hearst Case. ' Ibid., p. 645. ' Transcript of Record in Sherman Anii-Trusl Case, ii, p. 326. ' Ibid., vi, Temple Iron Company Exhs., no. 10, p. 46. ' Files of Interstate Commerce Commission in Hearst Case, p. 645. • Ibid., pp. 647-648. 76 THE ANTHRACITE COAL COMBINATION resulted in a considerable loss of tonnage to a number of the railroads then serving the Northern field, and the proposed increase in the percentage, which involved a lower freight rate, would have had an unsettling effect upon railway tariffs. Several of the railroads, representing over two-thirds of the total ship- ments, determined to defeat this project for an independent railroad. In carrying out their purpose use was made of the Temple Iron Company. As this company has had much to do with the later regulation of the trade, some account of its organ- ization is here given. The Temple Iron Company was organized on March 22, 1873,^ under the provisions of an act of the Assembly of the State of Pennsylvania, entitled, " An Act to provide for the incorporation of iron and steel manufaqturing companies," approved March 21, 1873.^ This act, as amended by the act of April 29 of the following year, authorized aU companies organized imder its provisions " to piurchase, lease, hold, mortgage and sell real estate and mineral rights, to prove and open mines, to mine and prepare . . . coal, iron ore and other minerals . . . and to manu- facture iron and steel, or any other metal . . . and to transport all of said articles or any of them to market, and to dispose of the same, and do all such other acts and things as a successful and convenient prosecution of said business may require." ' Clause six of Section 38 made it lawful for any incorporated company of Peimsylvania or elsewhere to purchase the bonds and stocks of any companies incorporated under the above laws, and also to guarantee the payment of their bonds and interest thereon. The benefits of the very broad powers granted by the amended act of 1874, and subsequent legislation, could be obtained, how- ever, only by the acceptance of the Constitution of 1874.* The privilege of mining, transporting and seUing coal had not been conferred upon the Temple Iron Company by the original act of March 21, 1873,^ but inasmuch as it was engaged merely in the iron business, it did not consider the privileges of the later act 1 Files of Interstate Commerce Commission in Hearst Case, p. 811. ' Laws of Perm., 1873, no. 4. * Ibid. 3 Ibid., 1874, no. 32, §38. ' Ibid., 1873, "o- 4- DEVELOPMENT OF AN EFFECTIVE COMBINATION yj stifficient to induce it to subject itself to the Constitution of 1874. As late as 1899, the Temple Iron Company, capitalized at $240,- cxx), was engaged on a small scale in the manufacture of pig iron, with only a single-stack anthracite furnace, and with a labor force of from 100 to 200 men.1 It occurred to President Baer that this small company, with its broad charter, was an excellent instnmient with which to pre- vent the construction of the proposed independent railroad. He was anxious, he said, " to get Simpson and Watkins tied up with us with their coal interests and not be Ishmaelites in the field." ^ It was when he had xinder consideration the best way of holding the collieries, providing the railroads should purchase them, that it first occurred to him to use the Temple Iron Company.^ Mr. Baer was quite familiar with the affairs of the Temple Iron Com- pany, as he had aided in drawing up the act for its incorporation. He had also been its president for some ten years prior to 1899, and in that year was one of its largest stockholders.* The balance of the stock, as it happened, was held by personal friends of Mr. Baer, and they proved willing to sell their shares to him.* The valuable charter of the Temple Iron Company was thus secured for the combination. On January 26, 1899, the capital stock of the Temple Iron Company was increased to $2,500,000,^ and about the same time $3,500,000 of bonds were issued. The Company accepted the provisions of the Constitution of 1874/ and received new letters patent entitling it to the privileges con- ferred by the act of April 29, 1874, and its supplements, and thus secured the same broad privileges with respect to coal which it already possessed with respect to iron.* ' Files of Interstate Commerce Commission in Hearst Case, pp. S74""S7S- 2 IbU., p. 581. » Ibid., p. 577. < Ibid., pp. 574, 576, 811. ' Transcript of Record in Sherman Anti-Trust Case, v, p. 1191. « Ibid., ii, p. 327. ' Ibid., i, p. 125. ' The charter of the Temple Iron Company " gave it power to engage in almost any sort of business, and to increase its capital substantially at will." 226 U. S. 349- 78 TEE ANTHRACITE COAL COMBINATION Negotiations were now opened, through the firm of J. P. Mor- gan and Company, for the purchase of the collieries of Simpson and Watkins. Mr. Simpson offered to sell for $5,000,000, and although he refused to allow a technical examination of the proper- ties, his terms were accepted.' The provisions of the sale were compHcated, and involved a nimiber of transactions. On Febru- ary 27, 1899, Simpson and Watkins and the Temple Iron Com- pany entered into an agreement whereby Simpson and Watkins agreed to sell their seven coal companies and three miscellaneous companies to the Temple Iron Company, and, in addition, to provide a working capital of $498,396.66. In return they were to receive $2,260,000 of the stock and $3,500,000 of the bonds of the Temple Iron Company.'' On the same date Simpson and Watkins agreed with the Guaranty Trust Company of New York that simultaneously with the receipt from the Temple Iron Com- pany of its capital stock and bonds they would transfer to the Guaranty Trust Company the $2,260,000 stock so assigned and $2,100,000 of the bonds. In consideration of this transfer the Trust Company agreed to pay Simpson and Watkins $3,238,- 396.66 in cash and $1,000,000 in certificates of beneficial interest in the stock of the Temple Iron Company. At the same time the Trust Company agreed to purchase from Mr. G. F. Baer aU of the other outstanding stock of the Temple Iron Company ($240,000), and in accordance with a pre\'ious agreement with Mr. Baer to pay therefor $151,603.34, representing 60 cents on the dollar.' Simpson and Watkins were thus to receive from the Trust Com- pany $4,238,396.66 in cash and certificates. In addition, the $1,400,000 of bonds of the Temple Iron Company retained by Simpson and Watkins were worth $1,260,000 judging by the discount at which the other bonds were later sold to a syndicate, making a total of $5,498,396.66. As it was part of the agreement that Simpson and Watkins were to supply the Temple Iron Com- pany with $498,396.66 working capital, the net price received was $5,000,000, which was the price agreed upon. • Transcript of Record in Sherman Anii-Trust Case, ii, p. 442. ' Ibid., i, pp. 134-136. Simpson and Watkins Agreement. ' Ibid., iii, Exh. 165. DEVELOPMENT OF AN EFFECTIVE COMBINATION 79 The Temple Iron Company was thus in possession of the col- lieries of Simpson and Watkins. All of its stock, however, was held by the Guaranty Trust Company. To protect the Trust Company, the credit of the Temple Iron Company was taken care of by those railroads which were to secure control of the Iron Company. On the same day and as part of the same transaction, the Reading Company entered into a tripartite agreement with the Guaranty Trust Company and the Temple Iron Company, whereby it agreed to purchase from the Trust Company at par 29.96 per cent of the capital stock of the Temple Iron Company, and to guarantee the same percentage of its funded debt, princi- pal and interest.! At the same time the Central of New Jersey, the Lehigh VaUey, the Lackawanna, the Erie, and the New York, Susquehanna and Western contracted, in identically the same terms except as to the percentages, to purchase 17.12 per cent, 22.88 per cent, 19.52 per cent, 5.84 per cent, and 4.68 per cent, respectively, making 100 per cent in all, of the capital stock of the Temple Iron Company, and to guarantee the same percentages of its funded debt. These percentages were determined by the proportion of the anthracite tonnage handled by each railroad, Mr. Baer, who suggested the plan of guarantee, testifying that it was his recollection that they were based on the figures of the preceding year.^ This agreement to purchase became effective on January i, 1904, and then only upon the written request of the Trustee, but it became compulsory on the 31st of December, 1906.' The Guaranty Trust Company was still further protected by an agreement between the Company and a Sjoidicate com- posed of J. P. Morgan and Company, Drexel and Company, Mr. H. McK. Twombly, Mr.W.RockefeUer, Mr. G. F. Baker, and Mr. James Stillman, whereby the Syndicate agreed to purchase from the Trust Company $2,100,000 of the bonds at 90 cents on the doUar, and $1,500,000 in certificates of the capital stock of the Temple Iron Company, which the Guaranty Trust Com- pany had been authorized to issue.* ' Transcript of Record in Sherman Anti-Trust.Case, i, p. 143. 2 Ibid., V, p. 1 193. ' Ibid., i, p. 137- Raflway Agreement * Ibid., iii, Exh. 166. Syndicate Agreement 8o THE ANTHRACITE COAL COMBINATION It was a part of the agreement that the stock of the Temple Iron Company was to be held by the Guaranty Trust Company under a voting trust. Voting trust certificates in the stock were issued by it and these were widely distributed, but the Trust Company retained the stock and the right to vote it. Though Mr. Watkins was for a year or two president of the Temple Iron Com- pany, the Trust Company gave a proxy to Mr. Baer to vote the stock.i The practical control of the Iron Company thus rested with Mr. Baer. He and the presidents of the roads entering into the guarantee were elected directors of the Temple Iron Company, as were also a few personal friends of Mr. Baer.* On December 31, 1906, the certificates were called in by the Trust Company, and, in accordance with the provisions of the tripartite agreement, practically the entire capital stock of the Temple Iron Company was purchased by the raUroads,' and they have con- tinued to hold it to the present time * — though the Reading Company transferred a part of its shares to its subsidiary com- pany, the Philadelphia and Reading Coal and Iron Company. The Temple Iron Company was, therefore, brought directly under the control of the railroads which had participated in the combination. It was further provided in the contracts that if the earnings of the Temple Iron Company were not sufficient (a) to set aside a sinking fund of 15 cents for every ton mined, (6) to pay the interest on the bonds, and (c) to provide for a stock reserve equal to 3 per cent on its stock, each guaranteeing raUroad should pay i2§ cents for every ton of coal produced by the Temple Iron Company and transported by the guarantor as the initial fine. In case there was still insufficient revenue to meet the obligations of the Iron Company, including 6 per cent on its capital stock, the railroads agreed that they would make up the deficiency on the basis of the percentage guaranteed by them, regardless of the ' FiUs of Interstate Commerce Commission in Hearst Case, pp. 853-854. 2 Ibid., p. 580. ' Transcript of Record in Sherman Anti-Trust Case, ii, p. 354. * This was true up to the time of the suit recently brought by the Government to dissolve the combination of raihroads through the Temple Iron Company. For the decision of the Supreme Court in this case, see p. 215. DEVELOPMENT OF AN EFFECTIVE COMBINATION 8 1 proportion of the output of the Iron Company carried by each.' Under this guarantee, payments were made to the Trust Com- pany in 1899, 1900, and 1902. During those years the guarantee- ing raihroads advanced $483,000 in all to the Temple Iron Com- pany to enable it to meet its obligations.^ Since 1902, however, the operations of the Iron Company have been profitable, and further contributions haye not been necessary.' By the middle of June, 1909, stimidated possibly by a Government prosecution,^ these advances had aU been repaid, and in addition, the Temple Iron Company had redeemed out of its surplus all but $800,000 of its outstanding bonds.' The collieries of Simpson and Watkins having been acquired (in 1899), it became necessary to apportion their tormage among the railroads. The principle upon which this distribution was to be made had already been determined upon. Mr. Baer testified " it was generally understood that the transportation as it existed at the time of the transfer of the coUieries should not be disturbed." * This imderstanding was carried out. Within the next few years, the Temple Iron Company, either directly or through its subsidiary corporations, entered into contracts with the several railroads, or their subsidiary coal companies, agreeing to sell for the life of the mines the output of its newly acquired coUieries.^ None of the properties acquired by the Iron Com- pany were tributary to the Reading Railroad, which, through its president, Mr. Baer, had taken such an active part in the negotia- tions. The Reading gained, however, through the elimination of an unsettling railway factor, and through the transportation of the iron business of the Temple Iron Company, which Mr. Baer maintained was profitable enough to justify the Reading in taking part in the transaction. This combination, it will be noted, embraced only the Reading, the Central of New Jersey, the Lehigh Valley, the Lackawanna, ' Transcript of Record in Sherman Anti-Trust Case, i, pp. 139-140. 2 IMd., ii, p. 333. ' Ibid. * See pp. 212-213. ' Transcript of Record in Sherman Anti-Trust Case, v, p. 1119. • Files of Interstate Commerce Commission in Hearst Case, p. 832. ' Transcript of Record in Sherman Anti-Trust Case, v, pp. 1092-1093. 82 TEE ANTHRACITE COAL COMBINATION the Erie, and the New York, Susquehanna and Western, control- ling among them over two-thirds of the total traffic. Yet all of the other anthracite coal roads, except the Pennsylvania, have, since 1899, at some time or other, been represented on the directo- rate of the Temple Iron Company.' Thus though the attempt to defeat the construction of the Wyoming and Western Railroad through the Temple Iron Company was not directly participated in by all the anthracite coal-carrying railroads, yet each of them, with the exception of the Pennsylvania, has been represented upon the directorate of the instrument used in this manoeuver. This phase of the matter, however, will receive further treatment in the discussion of the method whereby the anthracite coal roads have maintained harmony in the coal trade.'' Though the purchase of the collieries of Simpson and Watkins by the Temple Iron Company had caused the abandonment of the New York, Wyoming and Western, yet another attempt was made in the same year by the individual operators to secure an independent market for their coal. The leader in this second attempt was the Pennsylvania Coal Company, the largest of the independent operators, producing in 1899 about 2,000,000 tons of coal.' The Pennsylvania Coal Company owned 51 per cent of the stock of the Erie and Wyoming Valley Railroad, a gathering Hne, mainly from the mines of the Pennsylvania Coal Company. This road extended from a point near Scranton in the Northern field to Lackawaxen, Pennsylvania, where it connected with the Erie Railroad. That part of its line extending from Hawley to Lackawaxen, however, had been leased to the Erie.^ The Pennsylvania Coal Company proposed to extend the Erie and Wyoming Valley Railroad from Hawley to Lackawaxen (on the boundary Une between Pennsylvania and New York), and it incorporated the Delaware Valley and Kingston Railroad Com- pany to extend from Lackawaxen across the State of New York to Rondout on the Hudson river, thus making a connected inde- ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 156. ' See pp. 151 el seq. ' Transcript of Record in Sherman AtUi-Trust Case, ii, p. 477. * Files of IiUerstate Commerce Commission in Hearst Case, pp. 1052-1053. DEVELOPMENT OF AN EFFECTIVE COMBINATION 83 pendent line to tide-water. The proposed extension from Lacka- waxen to the Hudson river required the assent of the Raihroad Commission of New York, as under the laws of New York a new railroad could not be built unless the Commission certified it to be necessary.' The application for a certificate was filed in Decem- ber, 1899, and, in spite of the opposition of several railroads, was imanimously granted.^ The Pennsylvania Coal Company thereupon purchased for its roadbed the abandoned canal of the Delaware and Hudson Company from Lackawaxen to Rondout, and secured adequate terminal facilities at Rondout,' whence the coal could be shipped to New York Harbor or to Albany. The Pennsylvania Coal Company was a prosperous corporation with a large accumulated surplus, and was well able to carry its project to a successful outcome. In order to secure coal trafl&c, the Pennsylvania Coal Company proposed to pay the operators who entered into contracts with it 65 per cent (instead of 60 per cent) of the tide-water price, the contracts to extend throughout the fife of the colliery.* The new project received the active support of the individual operators. The Anthracite Coal Operators Association in November, 1899, pledged " constant support and active assistance " to the project as a prospect of reHef from the " unreasonable rates " charged by the railroads.^ The principal promoter of the new railroad testified that a majority of the individual operators in the North- ern region would have shipped over the new road, being able to do so by the expiration of their contracts with the railroads, or the railroad coal companies.^ No contracts were executed, however, as the agreement to sign was dependent upon the construction of the railroad. And the road was .never built. At the earnest soHcitation of Mr. Thomas,^ the president of the Erie Railroad, which had been carrying the product of the Pennsylvania Coal 1 Transcript of Record in Sherman Anti-Trust Case, ii, pp. 389-391. 2 Jbid., ii, p. 474; also pp. 389-391. ' Ibid., ii, p. 477. * Ibid., ii, pp. 479-480. * Ibid., i, pp. 360-361. « Ibid., ii, p. 474. ' Ibid., V, p. 1085. 84 THE ANTHRACITE COAL COMBINATION Company, and which was, therefore, the railroad most affected, the banking firm of J. P. Morgan and Company undertook to purchase a majority of the shares of the Pennsylvania Coal Com- pany. This stock acquired with great difficulty and at a high price was, together with aU the stock of the Erie and Wyoming Valley Railroad and of the Delaware VaUey and Kingston Rail- road, turned over to the Erie in January, 1901, for $32,000,000, payment being made in 4 per cent bonds payable in fifty years. In addition, a commission of $5,000,000 was paid to J. P. Morgan and Company, in the form of first preferred voting trust certifi- cates.i Through this purchase of the Permsylvania Coal Com- pany and its aUied railroads the Erie secured permanently the tonnage of the Pennsylvania Coal Company, which, through the Erie and Wyoming, was carrying in 1899 nearly 5 per cent of the total anthracite coal shipments, and, in addition, it acquired the large reserve supply of the Permsylvania Coal Company, which consisted in 1896 of nearly 12,000 acres, or nearly twice the acre- age owned by the Erie through its own subsidiary coal company.^ At about the same time that the Erie was making these purchases, the New York, Ontario and Western, through its subsidiary coal companies, the Elk Hall Coal and Iron Company and the Scranton Coal Company, which were acquired in 1898 and 1899 respec- tively,' was buying out a large nimiber of the operators who had pledged tonnage to the new railroad.^ The Ontario lent these companies the money with which to purchase the collieries, and they then contracted to deUver to the Ontario the total output of the new plants.* Through these purchases by the Erie and the New York, Ontario and Western, the second attempt in the year 1899 to construct a competing railroad was frustrated, and a large number of independent operators, including the largest engaged in the business, were eliminated from the situation as competitive factors. ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 155; also ii, p. 488. ' Ibid., iii, Exh. 157. ' Ibid., iii, Exhs. 115, 116. * Indiislrial Commission, ix, p. 589. ^ Files of Interstate Commerce Commission in Hearst Case, Exh. 37 in i of Exhs. DEVELOPMENT OF AN EFFECTIVE COMBINATION 85 Since 1900 numerous other firms have been purchased by the different railroads or by their subsidiary coal companies. The Delaware and Hudson Company acquired in March, 1901, the entire capital stock ($100,000) of the Hudson Coal Company.' The Hudson Coal Company ia 1905 acquired the entire capital stock of the Schuylkill Coal and Iron Company, and of the Shanferoke Coal Company, capitalized at $1000 and $5000 respectively.^ The Susquehanna Coal Company, whose entire capital stock is now owned by the Pennsylvania Railroad, acquired in 1904 $628,000 of the $800,000 capital stock of the Lytle Coal Company ' with a production in 1907 of over 400,000 tons.^ The Smnmit Branch Mining Company, capitalized at $25,000, also owned by the Pennsylvania Railroad, acquired in 1902 $482,450 of the $494,150 capital stock of the Lykens VaUey Coal Company,* producing in 1907 nearly 450,000 tons.' Be- tween the years 1900 and 1905 the Lehigh Valley Railroad bought the Seneca Coal Company, the Conneli Coal Company, the War- rior Run Mining Company, the Righter Coal Company, and the Wyoming Coal and Land Company, with a combined production for the year in which they were purchased of well over a million tons.'' These purchases were made by the Lehigh VaUey Rail- road, as President Thomas testified, to make sure that the tonnage stayed on the Lehigh VaUey, where it belonged.* The stock of these companies was later transferred to the Lehigh Valley Coal Company,^ but the railroad company and the coal company were so obviously one that there was then little danger that the tonnage would ever be lost to the raUroad. Li 1905 the Scranton Coal Company, whose entire capital stock is owned by the New York, Ontario and Western, purchased the Black Diamond Coal 1 Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 123. This company was organized imder a different name on June 2, 1871. » Ibid. ' Ibid., iii, Exli. 134. * Ibid., iii, Exh. 139. ' Ibid., iii, Exhs. 132, 133. * Ibid., iii, Exh. 169. ' Ibid., iii, Exh. 170; and v, p. 768. ' Ibid., V, p. 1087. ' Ibid., V, p. 782. 86 THE ANTHRACITE COAL COMBINATION Company, with a capital stock of $27,000.^ In the same year the Erie Railroad acquired the Jerm)Ti estate,'' one of the large inde- pendent operations. "Xn important purchase was that of Coxe Brothers and Com- pany by the Lehigh Valley Railroad in 1905. Coxe Brothers was, at this time, the largest independent firm in the field, possessing over 5000 acres of coal lands,' and mining in 1905 over 1,300,000 tons.* It owned, also, the Delaware, Susquehanna and Schuyl- kill Railroad (a gathering Une with 50 miles of track in the Lehigh region), which had been built in 1890-1892 in order to connect the coUieries of Coxe Brothers with a number of raihoads to tide- water. In 1905, however, Coxe Brothers was shipping its output and that of the other collieries on its Hne over the tracks of the Lehigh Valley, the cars and crews being supphed and maimed by the Delaware, Susquehaima and Schuylkill Railroad, the Lehigh Valley providing merely the track. The entire capital stock of Coxe Brothers ($2,910,150), and the stock of its controlled rail- road ($1,500,000) and $60,000 of the stock of four subsidiary companies were pmrchased by the Lehigh Valley RaUroad, on November i, 1905, for the sum of $19,000,000. The Lehigh Valley RaUroad financed the transaction through the issue of $19,000,000 collateral trust bonds bearing 4 per cent interest. It pledged as security therefor the stocks of the purchased companies,* with the exception of a few shares retained to be used in qualifying directors. Though the firm of Coxe Brothers was purchased by the Lehigh Valley Railroad, its business was carried on by officers and directors, who were also officers and directors of the Lehigh Valley Coal Company,' and the entire output of Coxe Brothers was turned over at the mines to the Coal Company. Coxe Brothers, likewise, early in 1906 assigned to the Lehigh VaUey Coal Company its contracts with the Harwood * Transcript of Record in Sherman Aniir-Trust Case, iii, Exh. ii6. ' Mineral Industry, iv, p. 82. ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 59. * Ibid., iii, Exh. 170. ' Annual Report of the Lehigh Valley Railroad, igo6, pp. 14, 34-35. ' Transcript of Record in Sherman A nii-Trust Case, iii, Exh. 58. DEVELOPMENT OF AN EFFECTIVE COMBINATION 87 Coal Company and with Pardee Brothers and Company,' whose combined production in 1907 was over 800,000 tons.'' The Delaware, Susquehanna and Schuylkill Railroad is now being operated by the Lehigh VaUey Railroad. President Thomas gave the following account of the circum- stances attending the purchase of Coxe Brothers by the Lehigh VaUey. He said that Mr. Alexander Coxe, a member of the Lehigh VaUey board, came to him some months prior to the purchase, and told him that he thought of getting out of the business; that he had had unexpectedly a large ofier for his coal property, but because of his cormection with the Lehigh VaUey Railroad he preferred to have the Lehigh acquire it. Mr. Coxe made an offer, which he, Mr. Thomas, believed was a bona fide one. Having received this offer, Mr. Thomas narrates, " I went to our bankers and I asked them if I could have a certain amount of money without disclosing the purpose. They told me I could. The result was that I negotiated the transaction, notified our people of what I had done, and asked authority to go on and close the transaction, which I did." ^ The Permsylvania RaUroad was at this time carrying west the greater part of the output of Coxe Brothers and Company. It objected to the purchase, but Mr. Thomas maintained that the tonnage originated on the Une of the Lehigh VaUey, and that he proposed to keep it. The cases cited above Ulustrate the elimination of the inde- pendent operators by purchase. (2) Elimination of the independent operators by means of the percentage contracts. These numerous purchases by the railroads of coal properties brought about the ehmination of a large number of independent operators, yet they offered no assurance that the attempt to secure an independent outlet to tide-water would not be renewed by the independent operators yet remaining in the field. If, however, the total output of the independent operators could be tied up by means of perpetual contracts, extending throughout the whole life of the coUiery, a recurrence of such projects woxild • Transcript of Record in Sherman Anti-Trusl Case, ii, p. 634. * Ibid., iii, Exhs. 169-170. ' Ibid., v, p. 1084. 88 THE ANTHRACITE COAL COMBINATION apparently be prevented forever. The contracts in the early eighties, ru nnin g for varied terms, had netted the individual operator from 40 to 45 per cent of the tide-water price. This percentage was increased when the New York, Susquehanna and Western, entering the Wyoming field in 1882, offered to pay the operators 50 per cent of the tide-water price, as this forced the other railroad companies to pay the same rate. In 1890 the New York, Ontario and Western built an extension into the Northern coal field, and secured tormage by agreeing to transport coal for 40 per cent of the tide-water price, which was equivalent to giving the operator 60 per cent of the tide-water price, the expense of selling, however, to be borne by the operator. The Ontario later agreed to buy the coal outright and to pay therefor 55 per cent of the tide-water price. The other railroads soon offered the same terms.^ The percentage contract system was not at this time, however, the customary mode of marketing the independent output. Its introduction as a general system was in considerable measure due to the influence of Mr. McLeod, president of the Reading Rail- road.^ It will be recalled that it was a part of the plan of the combination of 1892 to tie up the output of the independent operators by means of long-term contracts. The Philadelphia, and Reading Coal and Iron Company had contracted in 1892 to buy the output of the Lehigh VaUey Coal Company and of the Lehigh and Wilkes-Barre Coal Company, controlled by the Lehigh Valley Railroad and the Central of New Jersey respec- tively. It paid therefor 60 per cent of the average f. o. b. prices at tide-water. Contracts on this same basis were entered into, also, with many individual operators. Mr. FuUer, who had a 55 per cent contract, testified that Mr. McLeod volxmtarily raised his percentage in 1892 to 60 per cent, and even dated the contract back a year, thus giving him the benefit of the higher percentage for the previous year also.' Several other railroads made similar contracts with the individual operators, though the • H. S. Fleming, Secretary of Anthracite Coal Operators Association, Twenty- second Annual Report oj the V. S. Geological Survey, 1900-1901, pt 3, pp. iio-iii. ' Industrial Commission, ix, p. 562. ' Transcript of Record in Sherman Anti-Trust Case, ii, pp. 481-482. DEVELOPMENT OF AN EFFECTIVE COMBINATION 89 period during which the contract was to remain in force varied. In most cases the contracts were to extend for seven years, but some were for a shorter period, and others until all the coal from the coUiery covered by the contract had been removed. In 1899 3. large number of the 60 per cent contracts expired. The New York, Wyoming and Western Railroad, projected as an independent road, offered to pay the operators 65 per cent of the tide-water price, and made a number of contracts on that basis. The project, however, was defeated by the purchase of the mines of its main supporters, and the road was never built. The inde- pendent operators continued their efforts, however, to jget an increased price for their coal, and supported the Pennsylvania Coal Company in its attempt to build an independent route, by pledging their tonnage to the Coal Company in return for 65 per cent of the tide-water price. The contracts were to become effective when the road was completed. They never went into effect, as the mines of the promoter of the new railroad were pur- chased by the Erie Railroad, and this put an end to the project. Previous to the purchase of the Pennsylvania Coal Company and the consequent failure of the operators to obtain an increased price for their coal, there had taken place in the coal fields in 1900 a widespread strike. A presidential campaign was then in progress. Mr. Hanna, chairman of the Republican National Committee, represented to the railroad interests that unless the strike were settled, it might extend to the bituminous states, and endanger the election of Mr. McKinley. The miners agreed to go back to work, provided their wages were advanced 10 per cent. After much pressure by Mr. Hanna, the principal railroads, or their coal companies, assented to the wage increase. The miners refused to resume work, however, vmtil all of the coal operators, including the individual operators, had granted the advance.^ The individual operators, before making any con- cessions, appointed a committee in October, 1900, to confer with the presidents of the transportation companies, and to learn whether there was to be a reduction in freight rates to cover the advance in wages. This committee reported in favor of granting ' Transcript of Rfcord in Sherman Anti-Trust Case, i, pp. 98-99. go THE ANTHRACITE COAL COMBINATION the increase in wages, though it was unable to exact from the rail- road presidents participating in the conference a definite promise that the freight rates would be reduced, or that the percentage of the tide-water price to be paid the individual operators would be increased. It reported that the presidents, including the repre- sentatives of the Reading, the Central of New Jersey, the Lehigh Valley, the Lackawanna, and the Erie, had expressed their sym- pathy with the individual operators, and had intimated that something would be done to improve the condition of the coal business.^ The individual operators seem to have been con- vinced that there was considerable prospect of securing a better price for their coal, and they, therefore, appointed " a committee with fuU power to adjust all differences with certain transporta- tion companies, which shall have delegated fuU power to a committee, and negotiate and agree upon a basis of contract which shall definitely and for a period of years fix the commercial rela- tions between the said operators and the said transportation companies." ^ A large number of the operators present at the meeting signed the resolution endowing the committee with full power to agree upon a contract form, each operator, however, reserving the right to make a separate contract for himself.^ This committee met with a coimnittee of the transportation companies, consisting of representatives of the Reading, the Central of New Jersey, the Lehigh Valley, the Lackawanna, and the Erie, and they agreed upon a form of contract.^ This form of contract was recommended to the individual operators by the committee, Mr. Howe, one of the committee for the operators, expressing the belief that Xhty had gotten the best terms that they could from the railroads.* Li accordance with this recom- mendation, a large nimiber of the operators, being for the most part those who had previously had 60 per cent contracts, signed in 1900 and 1901 the 65 per cent contracts, and since then, an ' Transcript of Record in Sherman Anti-Trust Case, vi. Temple Iron Company Exhs,. no. 7, pp. 30-32. * Ibid., p. 32. ' Ibid., pp. 32-33. * Ibid., n, p. 316. ' Ibid., a, p. 224. DEVELOPMENT OF AN EFFECTIVE COMBINATION 9 1 additional number of operators have entered into contracts upon the same basis. The most important provisions of the 65 per cent contracts are (in substance and in condensed form) : 1. The Seller sells and agrees to deliver on cars at the breaker to the Buyer all the Anthracite Coal hereafter mined * from any of its mines now opened and operated, or which it may hereafter open and operate, on the premises intended to be covered bj' this contract, and any which shall be reclaimed from culm banks on said premises. 2. Shipments to be made from time to time as called for by the Buyer. The Buyer to give, on the twenty-fifth day of each month, notice of the quantity, as nearly as practicable, Buyer win require for the next month, and arrange to take the coal in as nearly equal daily or weekly quantities as in its judgment the requirements of the market will permit. The Buyer to use its best efforts to find a market for the Seller's coal so as to enable the Seller's coUieries to be worked as many days as practicable, with due regard to the general market conditions, and to give orders for shipment which will enable the Seller to work its col- lieries as many days in each year as other coUieries similarly situated work. 3. The Buyer agrees that it wiU not discriminate in favor of its own mines, or any persons, firms or companies with which it has contracts to buy coal, but that the quantity to be ordered monthly shall be a just proportion of the entire quantity of coal agreed to be purchased by the Buyer, measured by the colliery capacity of the respective Sellers. The coUiery capacity shall be determined as of the first of January in each year by the parties hereto, and, on their failure to agree, the president for the time being of Girard Trust Company shall select a suitable expert for this purpose. 4. The Buyer agrees to pay and the Seller agrees to accept the following prices for said coal, when deHvered f. o. b. railroad cars at the breaker: For all sizes above Pea coal, sixty-jive (65) per cent oj the general average free on board prices of said sizes (from the ' Italics supplied by the author. 92 THE ANTHRACITE COAL COMBINATION same trade region) received at tide points at or near New York, between Perth Amboy and Edgewater, computed as hereinafter provided. For Pea coal, fifty (50) per cent of the general average f. o. b. price for Pea coal when the said price is $2.50 per ton or less, and an advance in the percentage with an increase in the price above $2.50. For Buckwheat coal No. i, 40 per cent of the general average f . o. b. price, and for sizes smaller than Buckwheat No. I, 25 cents per ton f. o. b. railroad cars at the breaker with pro\Tsion in both cases for an increase in the rate with an increase in the price received at tide. 5. The general average f . o. b. prices herein referred to shall be determined by a disinterested expert accoimtant satisfactory to both parties, to whom the Buyer shall furnish, not later than the 8th of each month, a statement of the quantity of each size sold during the preceding month, and the amount realized therefor by the Buyer at tide on all sales of each size of coal from the region covered by the contract, and the average prices thus obtained (for each trade region) shall be furnished by the accoimt- ant to the Buyer and Seller, by whom they shall be accepted in the settlement between Buyer and Seller. AU statistics given such accountant shall be treated by him confidentially, and the result- ing averages only shall be given to Buyer and Seller. 6. If any default shall be made by the Buyer in any payment, the Seller may, at its option, declare this contract forfeited by giving notice of such default for a period of at least five days, and of its intention to terminate this contract, unless payment shall be made in the meantime. 7. The Seller will consign and manifest said coal to such points and parties as the Buyer shall from time to time direct, and will furnish and send to the Buyer such copies of manifests and such notice relating to coal shipped as the Buyer may direct. 8. In the event of any disagreement as to the quantity to be ordered, or the actual price of coal at tide, or on any other ques- tion to be decided imder the terms hereof by arbitration, it shaU. be determined by a Board to be known as the Permanent Board of Arbitration, which shall consist of three persons: one person selected by the Seller; the president of the Buyer company to be DEVELOPMENT OF AN EFFECTIVE COMBINATION 93 the second person; and the president for the time being of Girard Trust Company to be the third person. 9. If by retison of changes in trade or colliery conditions the Seller is xmable to operate its mines without financial loss on the basis of this contract, and the Buyer declines to modify this agreement, the Seller may submit the questions involved to the said Board of Arbitration, and if the Board decides that the Seller cannot operate its mines without loss on the basis of this contract, and if the Buyer and Seller cannot agree on a modification of this contract, then this contract shall cease. 10. It is also agreed that if at any time the average f . o. b. price at tide-water for sizes of coal larger than Pea shall be less than $3.50 per ton, then the Seller may at its option temporarily suspend mining and cease all deliveries hereimder until the said average price shall reach $3.50 per ton; provided, however, that two weeks' notice of intention to stop dehveries shall in such case be given by the Seller to the Buyer.' The most important changes introduced in the new contracts were the increase in the percentage of the tide- water price, and the provision that the contract should cover the total future output of the colliery, the contracts of 1892 having usually provided only for the total production of the colliery during the period of the contract. The individual operators at last secured the increased price for which they had been contending so long. They obtained it, however, at a great cost. They practically surrendered for- ever their independence, agreeing to sell to the railroad, or its subsidiary coal company, their entire future output, to be de- livered in such quantities, and at such times as the buyer dictated. Mr. Simpson of the old firm of Simpson and Watkins testified before a United States Examiner in a recent suit that the railroads would not give him a contract for his coal, imless he made the contract extend for the Ufe of the collieries.^ Judge Buffington found that it was shown by the testimony " that the perpetuity ' FUes of Interstate Commerce Commission in Hearst Case, Exh. no. 121. Con- tract between Hillside Coal and Iron Company and Lackawanna Coal Company, typical of the 65 per cent contracts. See also 65 per cent contract, Industrial Com- mission, is, pp. 505-507. ' Transcript of Record in Sherman Anti-Trust Case, ii, p. 447. 94 THE ANTHRACITE COAL COMBINATION clause was insisted on and inserted in the contracts thereafter by the combined action of the defendant railroads and their coal companies in order to withdraw from competition for all time the freights of these producers." * The percentage contracts just described were adopted in the form outHned only by the five important coal interests which had participated in the conferences with the indi\'idual operators, viz., the Reading, the Central of New Jersey, the Lehigh Valley, the Lackawanna, and the Erie. The railroads or the coal companies not taking part in these conferences did not demand that the new contracts should extend for the life of the mines. Li most cases, however, they entered into contracts with the individual opera- tors which were substantially similar to those described. Over the greater part of the anthracite field, therefore, the percentage contracts thus prevailed. These contracts offered, it is true, certain obvious advantages to the individual operators, — ^ the advantage of seUing their coal directly to the railroads and thus not having to maintain sales offices and sales agents in the trade centers, and the advantage of saving the costs of insurance, storage and loss from bad debts. The operators were able to avoid thereby, also, the uncertainty in securing cars when they were most needed.^ A fair idea of the difficulties against which the operator, attempting to market his own product in competition with the owners of the cars, had to contend is indicated by a letter of Mr. Haddock, a prominent operator, written in 1899 to President Truesdale of the Lacka- wanna Railroad: I am fully aware that the dominant and controlling influence in the former management declared, within a very recent period, that the company would go to any length to get rid of me. This statement . . rests upon the word of a gentleman of imquestioned veracity, and I venture the opinion, that the malicious purpose so expressed, has been made fully manifest, in the delayed deliveries, the confiscation of coal, and the removal of switches from the yards of our consignees in the more recent shipments to the northern mar- • 183 Fed. Rep. 473. ' " The Anthracite Coal Combination has been less successful than the Standard Oil Company; but its method of crushing small rivals by denying them transporta- tion facilities has made it almost equally notorious." Hadley, Railroad Transpor- tation, p. 68. DEVELOPMENT OF AN EFFECTIVE COMBINATION 95 kets. . . . While I have every reason to believe these recent and violent attempts to injure us and our consignees was not the result of your wish or instructions, nevertheless, they are in keeping with the traditional poUcy of the company. . . My sole desire has been and is now, to obtain a recogni- tion of the substantial justice of our claims for the exactions of the past, my right to have reasonable transportation charges in the future, and to be re- Ueved of needless interference with the conduct of our business.^ Mr. Haddock testified before the Interstate Commerce Com- mission that in the seven or eight years prior to 1901 he had lost $800,000, because of his refusal to sign the contracts. A compromise was finally reached whereby the raUroad paid him $150,000.2 However, the chief explanation why so many of the individual operators signed the contracts with the perpetuity clause is that the railroads were willing to allow them a larger profit than could be made by marketing their coal independently, provided they (the railroads) could thereby strengthen their control over prices, and in addition protect themselves against an invasion of their territory by an independent Une. That the individual operators under the new contracts were allowed a larger profit is clear from the table on the following page. Column I of the table gives the average price received by the Lehigh Valley Coal Company for coal shipped to tide-water from the Wyoming region.^ Column II shows the cost price to the Lehigh Valley Coal Company of the coal purchased from the operators under the 65 per cent contracts. This does not repre- sent 65 per cent of Column I, that is, the average price received by the Lehigh Valley Coal Company, but 65 per cent of the gen- eral average price of all stove coal shipped from the Wyoming region,^ this average price being determined by the Bureau of Anthracite Coal Statistics in accordance with the provisions of the contracts. Column H, therefore, shows the amount received by each operator under contract shipping from the Wyoming region. ' Letter of Mr. J. C. Haddock, April 10, 1899, to President Tniesdale of the Lackawanna Railroad. Files of Interstate Commerce Commission in Hearst Case, Exh. 32. 2 Ibid., pp. 3306, 3326. ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 15. * Ibid., iii, Exh. 11. 96 THE ANTHRACITE COAL COMBINATION ReSITLTS of 65 PER CENT CONTRACTS OP LeHIGH VaLLEY CoAL COMPANY, NOV- EMBER, 1900, TO December, 1901, in Respect to Stove Coal Shipped FROM THE Wyoming Region over the Lehigh Valley Railroad TO Perth Amboy (New York Harbor), f. o. b. Vessel' Col. I Coin Col. m Col. IV C0I.V CoL VI Cc 1. vn Average Price Received at Perth Amboy Cost Price Exijense of Selling Wastage Amount Left for Freight Published Rat? to Deficiency! Perth Amboy Nov. I goo 4-32 2.80 .10 •°S 1-37 ^■5S 18 Dec 1900 4-32 2.87 .10 •05 1.30 i^SS 25 Jan. 1901 4-36 2.88 .10 •05 133 IS5 22 Feb. 1 901 4-39 2.88 .10 ■05 1.36 I-5S 19 Mar. igoi 4.40 2.86 .10 .05 1-39 1-55 16 April 1 901 391 2-57 .10 •°5 1. 19 ^■SS 36 May 1 90 1 4.08 2.65 .10 •OS 1.28 ^■55 27 June 1901 4.19 2.70 .10 •05 1^34 -^■ss 21 July igoi 4.29 2.77 .10 ■°5 i-37 ^■SS 18 Aug. 1901 4-37 2.83 .10 •°5 139 '■■5S 16 Sept, igoi 4-47 2.90 .10 •05 1.42 ■^■ss 13 Oct. igoi 4-49 2.91 .10 •05 1^43 i^SS 12 Nov. 1901 4.49 2.91 .ro •OS i-43 i^SS 12 Dec. 1901 4-47 2.91 .10 •OS 1.41 •^■55 14 A ' Table prepared by the Government in suit to dissolve the anthracite coal com- bination as being in violation of Sherman Anti-Trust Act. Brief for the United States in Sherman Anti-Trust Case, pp. 374-376. See Biblio. no. 156. The origi- nal figures have been examined, the fairness of the estimates involved approved, and the results tested by the author. An analysis of the financial results of the con- tracts of the Lehigh Valley Coal Company has been made, (a) because the results for this company are typical of the results for the other coal companies, yet under- estimate rather than exaggerate the discrimination, (i) because this company handles a large output under contract, (c) because the Lehigh Valley especially has been involved in litigation designed to separate the railroad and the coal interests, and conclusions for this company are, therefore, of especial interest. Stove coal has been chosen as typical of the prepared or domestic sizes. Where the results for stove coal vary from those obtained for the other sizes the discrimination is less rather than greater, thereby avoiding the charge that extreme cases have been chosen in order to make the discrimination appear as great as it was possible to make it. Most of the percentage contracts were adopted in 1901. They were generally made retroactive to November, 1900, and therefore the operation of the contracts for the first fourteen months has been analj-zed. DEVELOPMENT OF AN EFFECTIVE COMBINATION 97 The expense of selling is fairly estimated for the prepared sizes at 10 cents a ton/ and the waste incident to abrasion of the coal in transit, which is borne by the Lehigh Valley Coal Company, is about 5 cents a ton. The balance, after having deducted the amount paid the individual operators, the selling costs, and wastage, is the sum available for the payment of the freight rate. The amount by which this falls short of the published tariff ^ is ^ven in Column VII, the significant column for our purposes. It shows that on stove coal purchased from the individual operators vmder the 65 per cent contracts and shipped to tide- water, the Lehigh Valley Coal Company received as available for transportation charges from 12 to 36 cents a ton' less than the pubHshed freight rates. This indicates the amount the Lehigh Valley Coal Company was willing to pay in order to secure control of the independent output, and thus guard itself effec- tively against the recurrence of the troublesome attempts of dissatisfied operators to invite invasion of the territory by an independent line. There is now, however, httle fear of trouble to the combina- tion from this source. By the two methods of purchase and contracts in perpetuity the independent operator has been largely ehminated as a factor in the conduct of the trade.* ' Testimony, Transcript oj Record in Sherman Anti-Trust Case, ii and iii. ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 160. ' This assumes that Column I, the average price received at Perth Amboy, in- cluding as it does the coal mined by the Lehigh Valley Coal Company, represents the average price received from the sale of the coal of the individual operators. This is substantially the case, though subject to a very shght correction. * It remains to be seen how the recent decree of the Supreme Court, ordering the cancellation of these perpetual contracts, will affect the situation. CHAPTER V THE PRODUCTION OF COAL In the previous chapter is given the history of the organiza- tion of an effective combination. In this chapter, and the two succeeding, consideration will be given to the production, trans- portation, price and sale of coal, and the extent to which these are controlled by a combination. Attention is directed, then, first to the production of coal. The Growth of the Trade The development of the trade from 182 1 to 1910 is sum- marized in the following table ^ showing the average shipments for five and ten year periods from 1821 to 1910. Average Average Average Average for Five for Ten for Five for Ten Year Period Year Period Year Period Year Period (000, omitted) (000, omitted) (000, omitted) (000, omitted) I82I-I825. , .... II) 1871-1875.. ... 19,297 ) ... 21,302 j I826-I830. , .... 9sl 53 1876-1880. . 20,299 I83I-I835., ■ • • 393 1 1881-1885. . . ■ . 30,350 ) I836-I840. . . . • 79S ) 594 1 886-1 890. . ... 35.071 j 32,711 I84I-I845 . . ... I.39S ) ... 3.023 ) 1891-1895. . . . . 42,666 ) . . . 43.897 1 I 846-1 850. . 2,209 I 896-1900. . 43.282 I85I-I855.. • . ■ 5.449 ) ... 7.346 ) I 901-1905. . . . . 52.607 ) . . . 62,689 j I856-I860. . 6,398 1906-1910. . 57,738 I86I-I865. . ... 9.043 ) I866-I870. . ■ . • 13,908 ) 11,476 An examination of this table and of the appended chart reveals the fact that the production^ of anthracite coal, though showing a very great percentage increase from 1820 to 1840, was still quite small in 1840, the average production for the five years 1836- 1840 being less than 1,000,000 tons. From 1841 to 1865 the ' Compiled from Appendix, Table I. In order to secure connected figures for the growth of the trade from the beginning it has been found necessary to use the ship- ments of coal. The total production of coal is, at the present time, about 15 per cent in excess of the shipments to market ' This term, for the sake of convenience, is frequently used in the following pages, though the figures refer to shipments, not actual production. 9S TEE PRODUCTION OF COAL 99 quinqueniiial increase was about 2,ooo,ockd tons. As the result of the demand created by the Civil War, the trade grew rapidly in the decade 1866-1875, the quinquennial increase averaging over 5,000,000 tons. The next five year period was, in the main, one of industrial depression, and the production increased but slightly. During most of the fifteen years which followed, these conditions were reversed. The average production of coal increased over 9,000,000 tons during 1881-1885, over 6,000,000 tons during 1886-1890, and over 7,000,000 tons during 1891-1895. The output remained practically stationary during the next five year period (1896-1900), but since then has grown very fast, increasing nearly 9,000,000 tons for the five years 1901 to 1905, and over 10,000,000 tons for the years 1906 to 1910. The pro- duction has increased approximately 10,000,000 tons in each decade since 1861, although the increase was somewhat greater in the decade 1901 to 1910. The rapid growth of the trade in recent years is shown in further detail by the following table and chart, ^ giving the annual shipments from 1898 to 1913.^ Annual Annual Shipments Shipments Years of Coal Years of Coal 1898 41,8 1906 55,6 1899 47,6 1907 67,1 1900 4S,i 1908 64,6 1901 53,5 i9°9 61,9 1902 31,2 igio 64,9 1903 59>3 19" 69,9 1904 57,4 1912 63,6 I9°5 61,4 1913 69,0 The production in 1898 was 41.8 million tons. In 1899 it had increased to 47.6 million, or nearly 6,000,000 tons greater than in 1898, yet only slightly above the production of 1895. Two years later, in 1900, the amoimt was even less than in 1895, declining to 45.1 million tons. The year 1900 was noteworthy in that the output in that year was limited to the requirements of the market. Since 1900, however, there has been a considerable growth, the production increasing from 45.1 million to 53.5 ' See p. 1 01. ' See Appendix, Table I for exact figures. lOO TEE ANTHRACITE COAL COMBINATION miUion tons in 1901. In 1902, as the result of the bitter strike which caused a cessation of mining operations for several months, the output declined to 31.2 million tons. In the following year, however, it iacreased to 59.3 million, or nearly 6,000,000 tons in excess of the maximum up to that time. No marked changes took place xmtil 1906. In this year a suspension of mining operations for several weeks, pending the adjustment of the wage scale, caused the production for the year to fall as low as 55.6 million tons, but this loss was more than recovered in 1907, when the shipments rose to over 67,000,000 tons, again nearly 6,000,000 tons greater than the previous record. The attainment of this record in 1907 is significant as a severe panic began in the month of October, and was followed by a prolonged period of industrial depression. In spite of this imfavorable element, the shipments for November, 1907, were larger than in any other November in the history of the trade, and the shipments in the following year, though less than in 1907, were yet over 3,000,000 tons in excess of those of any pre- vious year. This indicates that anthracite coal is of relatively small importance for industrial purposes, and that the demand for it is therefore less affected by general business conditions. In 1909 there was a further suspension of mining operations, and consequently the production again declined, nearly reaching the level of 1905. In the following year, 19 10, however, there was an increase to the figure of 1908, and in 1911 the output again increased, nearly reaching 70,000,000 tons, which was approxi- mately 3,000,000 tons greater than the previous high water mark. In 1912 the production of anthracite declined to 63.6 million tons. This falling off was due entirely to the suspension of mining operations from April i to May 20, pending the settle- ment of the demands of the miners for certain changes in the wage agreement. In the following year the output increased to 69,000,000 tons, which was just a Uttle below the record attained in 1 91 1. In spite of this rapid increase in the production of coal the demand is now about equal to the present capadty of the mines.' ' Transcript of Record in Sherman Anti-Trust Case, n, pp. s^i-^S^- What future increase in output there is, will probably come, in the main, from an increase in the THE PRODUCTION OF COAL lOI Production by Regions Much the greater part of this enormous output of coal has been, since the early seventies, the product of the Wyoming or Northern field, which has supplied a steadily increasing proportion of the total shipments. The greater development of this region is evident from an examination of the chart on page 103.' In 1830 only about one-fourth of the total shipments of anthracite coal came from the Wyoming region. Another fourth came from the Lehigh region, the balance being the output of the -Schuylkill region. In 1840 the proportion of the Wyoming region had declined to one-sixth of the total shipments, the increase going to the Schuylkill region. It was not until after 1840 that the Wyoming region began to develop rapidly. By 1850 it was again producing one-quarter of the total production, its output in that year passing that of the Lehigh field. The greater part of the total shipments, however, stiU came from the Southern or Schuyl- kill field, which in 1850 furnished well over half of the total. By i860 the Wyoming field was shipping one-third of the total production, the increase being secured at the expense of the Schuylkill field, — the Lehigh field, as before, just about holding its own. In 1867 the shipments from the Wyoming region, for*^ the first time since the shipments have been regidarly recorded, exceeded those from the Schuylkill field, and by 1870 the product of the Northern field constituted about one-half of the total out- put. The Schuylkill field at this time was normally yielding about one-third of the total production, the balance coming from the Lehigh region. Since 1870 there has been a continued increase in the proportion of the shipments coming from the Wyoming region, and a corresponding decline in the proportion of the other two regions. In 1875 the output of the Northern field exceeded for the first time the combined output of the other two regions, and since 1884 its output regiilarly has been greater than that of number of days during which the mines are worked. The average number of days worked in 1911 was 246, which was greater than for several years previous. Min- eral Resources, 191 1, pt 2, p. 172. ' See Api)endiXj Table I, for table of shipments, pving figures on which the chart is based. y^ I02 th:e anthracite coal combination the other two regions combined. The normal contribution of the Wyoming field for several years has been about 60 per cent of the total shipments, while the Schuylkill field regularly contributes about 28 per cent, and the Lehigh field about 12 per cent. The Wyoming field is of greater importance than the Lehigh field as it has more extensive deposits. The Wyoming deposits, however, are less than one-half those of the Schuylkill field.^ Its more rapid development is to be explained primarily by the character of the deposits. A large part of the coal in the Wyo- ming region is to be found within 1000 to 1200 feet of the surface. The cost of mining, therefore, is generally less than in the Schuyl- kill field, where the coal as a rule Hes much deeper, the Lykens Valley measures in the Schuylkill field extending as far as 4000 feet below the surface.^ The most expensive mining is in the SchuylkiU region, where the veins are quite distorted, and the quantity of water which must be lifted is enormous. President Baer has estimated that the cost of mining in the Schuylkill field is from 40 to 50 cents a ton greater than in the Wyoming field.' The bulk of the product of the future, however, must come from the Southern field. Mr. Norris, a specialist in mining engineering, testified in 1914 that the Wyoming region is probably at its apex of production, the Lackawanna end of this region being already on the down grade; that the Lehigh region could not be expected to produce nearly as much as the other fields; and that the portion of the SchuylkiU called the Western Middle field, embracing the Mahanoy and the Shamokin basins, had probably already reached its maximum production.'' The great reserve of the future is located in the Schuylkill field. The chart, if extended into the future, would certainly show a reversal of the earlier developments. Just when the product of the Wyoming field will begin to decline relatively to that of the SchuylkiU field cannot be predicted, but 1 Perm. Commission lo Investigate the Waste of Coal Mining, 1893, p. 121. ' Industrial Commission, xix, p. 445. ' Transcript of Record in Sherman Anti-Trust Case, v, pp. 1175— 1176. * Interstate Commerce Commission investigation of rates, practices, rules and regulations governing the transportation of Anthracite Coal, xxxviii, p. 4545. See Biblio. no. 198. Referred to hereafter as /. C. C. Investigation of Anthracite Rates. THE PRODUCTION OF COAL IO3 the time is sure to come, and when it does come, the cost of mining at the lower levels will be materially increased, — imless, indeed, this can be offset by improvements in the arts which will effect a reduction in mining costs. Production by Companies Most of the anthracite coal now produced is mined by the railroads, or by their subsidiary coal companies, which are referred to hereafter as the railroad coal companies,' including the coal departments of roads like the Lackawaima, which has always mined its coal directly. The table^ on page 104 gives the produc- tion in 1907 of each railroad coal company and of the remaining operators not controlled by the railroads, and also the proportion of the total output of coal mined by each railroad coal com- pany and by the remaining operators during the years 1900-1907. The raihoad coal companies in 1907 produced nearly 80 per cent of the total output. By far the largest producing company, in spite of the fact that its coal lands are located mainly in the Southern field, where the cost of mining is greater, was the Phila- delphia and Reading Coal and Iron Company, producing, in 1907, 12.3 million tons, or 16 per cent of the total. Upon the exhaus- tion of the deposits in the other fields, this company, in the future, will become of even greater importance than it is at present. The second largest company was the Lackawanna Raihoad, which mined directly 12 per cent of the total output. The Read- ing Coal and Iron Company, and the Lackawanna Railroad, therefore, together produced considerably more than all of the independent operators in the whole anthracite basin. The other coal producing companies in the order of their importance were: the Lehigh Valley Coal Company, owned by the Lehigh Valley Raihoad; the Delaware and Hudson Company, and its subsidiary concerns; the Pennsylvania Coal Company, and the Hillside Coal and Iron Company, both owned by the Erie RaUroad; the Susquehanna Coal Company, and the other coal companies con- 1 For the relation of these coal companies to the railroaxis, see pp. 113 et seq. ^ Transcript of Record in Sherman Anli-Trust Case, iii, Exh. 169. Figures are actual production, not shipments to market. I04 THE ANTHRACITE COAL COMBINATION trolled by the Pennsylvania Railroad; the Lehigh and Wilkes- Barre Coal Company, controlled by the Central Railroad of New Jersey; the Lehigh Coal and Navigation Company, closely affiliated with the Central of New Jersey; the Scranton Coal Operator In Percentages Million Tons, 1 900 igoi igo2 1903 1904 I90S 1906 1907 Omitted 1907 P. & R- C. & I. Co. . . L. &W. B L. V Coxe Lackawanna D. &H. .6.17 6.01 6.13 9.61 8.J7 1.43! 2-55 S.S8 2.23 3.87 62.04 37.96 100% 15.88 6.11 6.6r 10.49 9.10 6.33 2-57 5-60 3.S8 2.97 69.24 30.76 loo% 15.02 5-52 6.84 JI.9S 9.52 8.22 2.35 4.69 4.00 2.77 70.88 29.12 100% 14.96 S.94 8.62 11.48 9.64 7-27 2.47 S.89 342 3.02 72.71 27.29 100% 15.46 5-S6 8.33 11.91 8.97 6.74 2.49 6.19 3.66 3.2= 7303 26.97 JooSc 16.3s 5-95 9-54 11.34 8.94 7-02 2.40 5-93 3-46 352 74-45 25-55 100% 15.87 5-93 10.28 12.61 9-36 7-21 2.58 6.69 3-24 3.85 77.62 22.38 100% 16.01 5.79 10.51 12.04 9.50 7.59 2.67 6.44 3-35 4.14 78.04 21.96 100% 12.304 4451 6.676 1.394 9.249 6.661 Penn. Coal Co H.C.S:LCo T.I. Co Penn. R.R Ontario L. C. &N. Co.' Total All other operators . . . 4.246 2.053 4-943 2.576 3.178 59.960 16.875 76.836 P. & R. C. & I. Co. = Philadelphia and Reading Coal and Iron Co. L. & W. B. = Lehigh and Wilkes-Baire Coal Company, controlled by the Central Railroad of New Jersey. L. V. = Lehigh Valley Coal Company. Coie = Coxe Brothers and Company. T.flrVflwanna = Lackawanna Railroad. D. & BL = Delaware and Hudson, and Hudson Coal Company. Penn. Coal Co. = Pennsylvania Coal Companj'. H. C & I. Co. = Hillside Coal and Iron Company, controlled by the Erie Railroad. T. L Co. = Tempde Iron Company. Penn. R. R. = Susquehanna Coal Company and other subsidiary coal companies controlled by the Pennsylvania Railroad. OnLirio = Scranton Coal Company and Elk Hill Coal and Iron Company, controlled by the Ontario Railroad. L. C & N. Co. = Lehigh Coal and Navigation Company. Company, and the Elk Hill Coal and Iron Company, owned by the New York, Ontario and Western; and the Temple Iron Com- pany, jointly owned by several of the carriers.^ The proportion of the total output mined by the railroad com- panies has steadily increased. In 1900 the combined production of the railroad coal companies was 62 per cent of the total out- ^ See pp. 118-119 for the relation of this company to the anthracite carriers. * The Supreme Court in December, 1912, declared this joint ownership of the Temple Iron Con^>any illegal. See p. 215. THE PRODUCTION OF COAL 105 put, while the operators not controlled by the railroads produced 38 per cent of the total. By 1901, through the purchase of the Pennsylvania Coal Company by the Erie, and the purchase of a niunber of independent operators by the New York, Ontario and Western, the output of the railroad coal companies had increased to nearly 70 per cent of the total. The acquisition of individual properties continued in the years which followed. In 1905 the large firm of Coxe Brothers and Company was pur- chased by the Lehigh Valley, and a number of smaller properties were absorbed by other railroad companies. By 1907 over three-fourths (78.04 per cent) of the total output of anthracite coal was being mined by the railroad coal companies, while less than 22 per cent was mined by the remaining operators. The largest individual operator at this time was the Kingston Coal Company, producing in 1907 slightly over 1.5 million tons, yet 425,855 tons of this were mined for the Lackawanna Raihoad, and practically all of the balance was sold to various railroad coal companies. This was the only independent company with a production of over a mUKon tons. There were eight other com- panies in 1907, producing over a half milhon tons, but aU of these, with one exception, sold practically all their coal at the mines to the railroad coal companies, ^ — hence they were not important competitive factors. In 1907, as we have seen, the anthracite coal roads, either directly or through their affihated coal companies, produced 59,960,287 tons, or 78^J-JRer__cent of the total production of anthracite coal. This does not indicate fully, however, the completeness of their control over the output of coal. The pro- duction of the individual (and independent) operators in 1907 was 16,875,795 tons. This includes the 425,855 tons mined by the Kingston Coal Company but belonging to the Lackawanna Railroad. Deducting this amount the independent output is reduced to 16,449,940 tons, or^2i^4i_per cent of the total produc- tion. But, it will be remembered, a large number of the individ- ual operators had entered into long term, and in many cases perpetual, contracts with the railroad coal companies, whereby ' Transcript of Record in Sherman Anti-Tntst Case, iii, Exh. 170. Io6 THE ANTHRACITE COAL COMBINATION they agreed to deliver at the mines to the coal companies all the coal mined by them.^ The output thus bound by c ntract^ in 1907, was 7,427,634 tons.' This tonnage, for all practical purposes, was as thoroughly controlled by the railroad coal com- panies with whom the contracts had been made, as if it had been produced directly by them. It should therefore be added to their production in order to ascertain the extent of their control over the output. After deducting from the independent output the tonnage sold to the raihoad coal companies under the per- centage contracts, the independent operators are in control of only 9,022,306 tons, or 11.74 per cent of the total production. The railroad coal companies controlled, therefore, 88.26 per cent of all the coal mined. One further deduction, however, still remains to be made. A number of the individual operators sold their total output, or a portion thereof, to the railroad coal com- panies under contracts based upon the 65 per cent contracts, but extending only for a year or in some cases terminable at will by either party. The amount so sold to the railroad coal companies in 1907 was 2,335,918 tons.'' These purchases placed the rail- road coal companies in control, in the year 1907, of 70,149,694 tons, or 91.3 per cent of the total production. Therefore, though the individual (and independent) operators mined in 1907 nearly 22 per cent of all the anthracite coal produced, yet so much of this was bound in various ways to the railroad coal companies that only 8.7 per cent of the total production could be classed as really independent. The data for bringing these figures down to date are not obtainable (the figures for 1907 were collected by the Govern- ment in a suit to dissolve the coal combination), but an estimate of the present situation can be made that is substantially accurate. The report of the State Department of Mines for 1911 (the latest issued at the date of writing ') gives by districts the production ' See pp. 91-93. ' Includes two-thirds o£ the output of the Pine Hill Colliery, approximately one- third being free and really independent. ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 170. ' Ibid. * April, 1914. THE PRODUCTION OF COAL I07 of each anthracite mining company. From the figures in this report one may conclude that in 191 1, as in 1907, the inde- pendent concerns mined and controlled less than one-tenth of the total output, while the railroad companies mined and con- trolled over nine-tenths. Distribution of the Unmined Tonnage A consideration of the unmined area shows that the proportion of the total output mined by the independent operators will steadily decline. The amovuit of anthracite coal yet in the ground can be estimated with a fair degree of accuracy. The most reliable estimate of this nature is that of Mr. WilUam Griffith, a mining engineer and geologist, who, from the fullest data available, including that collected by the Pennsylvania Geological Sxirvey, of which he had been a member, estimated in 1896 the amount of minable coal then in the ground which would be available for shipment to market; the distribution thereof among the principal owners; and the duration of the supply controlled by each interest, using the shipments in 1895 as a basis. The results are summarized in the table ' on the next page. The individual (and independent) operators not controlled by a transportation company owned, in 1896, 9.07 per cent of the unmined tonnage available for shipment to market.^ Since 1896, as the result of the bu3ang out of a large number of operators, the holdings of the railroad coal companies have been considerably increased. It is obvious, therefore, that the proportion of the unmined coal owned by the independent operators has dechned. In spite of this decline, these operators as late as 1907 mined nearly 22 per cent of the total output. Yet it is clearly impossible for them to maintain this proportion, inasmuch as they own less than 9 per cent of the unmined toimage. A steady decline in 1 William Griffith, Bond Record, 1896. See Transcript of Record in Sherman Anti-Trust Case, iii, Exh. 157. ^ All of the coal not owned by the railroad coal companies has been classified as belonging to the independent operators. Some of this may have been undeveloped and separately owned. But the tonnage owned by the independent operators cer- tainly did not exceed 9.07 per cent of the total. io8 THE ANTHRACITE COAL COMBINATION Distribution of the Unmined Tonnage (As of January i, 1896. 000, omitted in each case) Ovraer Unmined Coal Owned Per cent Owned and Controlled by Contract Per cent Duration on Basis of Shipments in i8g5 P.&R.C.&I.C0 L. & W. B. ) 2,087,490 863,760 787.200 300,853 11S.823 248,142 34.718 94.876 13.551 67.361 460,008 41.14 17.02 15.52 5-93 2.28 4.89 .68 1.87 .27 1.33 9.07 2,143.706 877,569 85.5.511 332,332 115.823 316,502 38,879 94,876 26,890 13,971 69,901 187,822 42-25 17.30 16.87 6.55 2.29 6.24 .77 1.82 ■54 .28 1.38 3;71 2l6 163 116 L. C. & N. Co.i i L. V. V D. & H 26 Susq. Coal Co. & Affil. Co's H C & I Co 63 N. Y. S. & W. Coal Co 18 Cose 35 Grand Total 5,073,786 zoo.oo S.073,786 100.00 their relative output, therefore, is to be expected. Yet just how long their production will continue is difficult to predict with assurance. If we assume that all of the 460,000,000 tons of unmined coal, which were not controlled by the railroad coal companies in 1896, were owned by the independent operators, and that 25 per cent of the shipments to market from 1896 to 1907 was produced by them,^ and that their unmined supply has not been increased, which is a reasonable assumption in view of the large purchases of independent properties by the raUroad companies, then the independent operators would have owned in 1907 not over 300,000,000 tons of coal available for shipment to market. This estimate, however, makes no allowance for improvements in minin g, which have made it possible to extract a larger percentage of the coal in the ground than was possible in 1896, thus increasing the independent tonnage by approximately 50 mUHon tons. If we assume further that the independent operators will continue to produce about 20 per cent of the total • The unmined tonnage of the Lehigh Coal and Navigation Company is included in that of the Lehigh and Wilkes-Barre Coal Company in Mr. Griffith's table. ' That this is a conservative estimate will be evident from an examination of the table, p. 104. THE PRODUCTION OF COAL IC9 production, then by the year 1933 their mines will have been exhausted, and there will no longer be any independent com- panies. The date, however, at which we may expect them to disappear finally may be somewhat later as a gradual decline in their output is probable rather than a steady maintain- ance of the same proportion of the total output. We may certainly look, however, in the comparatively near future for the elimination of the independent element, unless, indeed, new con- ditions shall arise through the enactment of additional (and effective) legislation, state or national. The railroad coal companies (including the Pennsylvania Coal Company, Coxe Brothers and Company, and the Scranton Coal Company, aU of which were later acq\ured by some of the anthra- cite carriers) owned in 1896, 90.93 per cent of the unmined coal. If, in addition, the future tonnage controlled by them through contracts be included, they owned and controlled 96.29 per cent UNMINED ANTHRACITE COAL owned and conTrolled by contracT.jn /63B ■^ Ta Owner R+R. C.flR..iN.J. LV. Lacka. D.f-H. Erie Penn.R.R. OpTario Remainder Pereent '1 V la.zs 6.5S Z.23 Z.I5 6.Z4- 0.28 Z.7I S3JS Cauii V of the tonnage available in the future, only 3.71 per cent being in private hands. By far the largest coal owner was the Phila- delphia and Reading Coal and Iron Company, owning, or con- trolling by contract, 42.25 per cent of the total tonnage. Its no THE ANTHRACITE COAL COMBINATION supply, on the basis of its shipments in 1895, would last for 216 years. Next in importance was the Lehigh and Wilkes-Barre Coal Company, and its afhliated company, the Lehigh Coal and Navigation Company, which together owned 17.31 per cent of the future tonnage, estimated to last 163 years. Including the output of these two companies, the Reading Company in 1896 owned and controlled, therefore, about 60 per cent of all the anthracite coal yet remaining in the ground. The Lehigh Valley Coal Company owned 16.87 P^r cent of the future supply, esti- mated to last 116 years, or including the tormage of Coxe Brothers, later acquired by the Lehigh VaUey Railroad, it owned 18.25 per cent. These three leading companies owned, therefore, 77.80 per cent, or nearly four-fifths of the total amount of immined coal. The proportional division among the other companies of the remaining one-fifth is shown by the table and chart. The foregoing estimate of the unmined tormage as of 1896 has not been brought down to date, and figures are not available for the present distribution of our coal deposits. Such evidence as is available, however, indicates that there have been no material changes in the ownership of the uiunined tonnage.^ The Reserve Supply Reference has been made to the Hmited character of the anthracite deposits. How large the remaining supply is, and how long it may be expected to last, was the subject of an investi- gation by a Pennsylvania Commission, appointed in 1893 to in- vestigate the waste of coal mining. This Commission estimated that the original contents of the anthracite coal beds were 19,500,000,000 tons, divided among the three regions as foUows: Wyoming 5,700,000,000 29.2 per cent Lehigh 1,600,000,000 8.2 Schuylkill 12,200,000,000 62.6 ' For a comparison of the number of acres of coal lands owned by the and xxxviii, pp. 3893- 3902. ' See pp. 142-144. ' I. C. C. Investigation of Anthracite Rates, xsviii, Respondent's Exhs., no. 5. 136 THE ANTHRACITE COAL COMBINATION operating cost (including the cost of returning the empty cars to the mines) was 59.26734 cents per ton from the Wyoming region to tide-water; 44.35119 cents from the Lehigh region; and 49.03914 cents from the Upper Lehigh region.' For coal trans- ported at such cost the- Central of New Jersey charges freight rates varying as the size of the coal. On the prepared sizes the rate to Elizabethport and Port Johnston is $1.55; on pea coal, $1.40; on buckwheat No. i, $1.20, and on buckwheat No. 2, $1.10. In order properly to compare rates and costs, the average freight rate for all sizes should be determined. If we give to the freight rate on each of these groups the weight to which each is entitled by virtue of the actual shipments,^ we arrive at an average freight rate for the Central of New Jersey of $1.40 per ton. The cost of carrying such coal to tide-water from the Wyoming region is less than 60 cents; from the Upper Lehigh region, less than 50 cents; and from the Lehigh region, less than 45 cents. On shipments from this last region, therefore, the freight rate exceeds by more than three times the actual operating cost. This cost, it should be clearly borne in mind, is merely operating cost. It does not include any return on the investment. Just how much per ' /. C. C. Invesligalion of Anthracite Rates, xxv, Morgan Exhs., no. 41. ^ The Central of New Jersey was asked by the Interstate Commerce Commission to report the number of tons of the prepared sizes of coal, of pea coal, and of sizes smaller than pea, which were shipped over its line in November, 1912. By the aid of these figures the average freight rate has been determined. The table below shows the method of calculation: Weighted Weighted Figures Using Figures Using $r.2o Rate Si.ro Rate Percent of Freight for Smaller for Smaller Shipments Shipments Rate than Pea than Pea Prepared sizes 490.349 59-76 X Si.SS = $92,628 $92,628 Pea 83,937 10.23 X 1.40 = 14-322 14-322 Smaller than pea 246,263 30.01 X i ' = 36-012 33-oir 100.00 100) $142,962 100) $139,961 Average freight rate $1.4296 S1.3996 Approximately one-half of the sizes smaller than f>ea moved at a rate of $1.20, the balance at about $1.10. The average freight rate becomes $1.43 or $1.40 accord- ing to which of these rates is used, but in the text use has been made of the lower figure to guard against exaggerating the average freight rate. /. C. C. Investigation of Anthracite Rates, i of answers to circular letter of Decem- ber 23, 191 2 (reply of Central of New Jersey to question 34). THE TRANSPORTATION OF COAL 1^7 ton should be added to the above figures as allowance for this factor remains to be determined by the Commission and the courts. More recently the cost of transporting anthracite from the coal regions to Philadelphia has been determined, and this will serve to throw additional light upon the reasonableness of the anthra- cite rates in general. Of aU the anthracite carriers, only two, the Philadelphia and Reading and the Pennsylvania Railroad, serve the City of Philadelphia. By a connection with other lines the Reading and the Pennsylvania reach the Lehigh district, and the Pennsylvania the Wyoming district also, but inasmuch as both of them have a direct Hne of their own from the Schuylkill district to Philadelphia, the rate from the Schuylkill region to Philadelphia, may be regarded as typical. This rate, for local deHvery, is $1.70 per gross ton for the prepared sizes, $1.40 for pea, and $1.25 for the sizes smaller than pea.' In 1912 a complaint was made to the Pennsylvania State RaUroad Commission that these rates were too high, and the Commission was asked to order that the maximum rate for any size should not exceed 85 cents per ton.^ In order that it might have a definite basis for its decision, the Commission in May, 1913, instructed the well-known accoimt- ing firm of Price, Waterhouse and Company to ascertain the cost to the Philadelphia and Reading Railway and the Pennsylvania Raihoad of transporting coal from the respective mining dis- tricts to Philadelphia.^ This firm made its report in January, 1914. It foimd by emplo3ang approved accounting methods for allocating joint costs that during the twelve months ending May 31, 1913, it cost the Reading Railway 44.698 cents per ton to transport anthracite from the SchuyUdU field to Philadelphia, and that it cost the Pennsylvania Railroad 61.043. cents by one route and 54.378 cents by another route.* These costs, like those of the Central of New Jersey, are operating costs, and make no allowance • Files of the Pennsylvania Stale Railroad Commission, i, pp. 13-14. See Biblio. no. 96. » Ibid., i, p. 16; iv, p. 1171. ' Report of Price, Waierhoiise and Company, p. i. * Ibid., p. 9. 138 THE ANTHRACITE COAL COMBINATION for a return on the investment.' But they show that for the carriers generally there is little relation between the rates charged and the cost of doing the business. For the Philadelphia and Reading Railway, the leading anthracite carrier, the average freight rate to Philadelphia, calculated in the same manner as for the Central of New Jersey, is $1.55.^ The operating cost of carrying anthracite coal from the Schuylkill region to Philadelphia is less than 45 cents. In other words, the freight rate exceeds by more than three times the operating cost of transportation. An order estabhshing a new basis of rates to Philadelphia is at present imder consideration by the PubHc Service Commission of Pennsylvania, a new board succeeding the former Pennsyl- vania State Railroad Commission, before which the complaint against the anthracite rates had originally been lodged. Further light upon the reasonableness or umreasonableness of these rates may be thrown by a consideration of the earnings received for the transportation of anthracite, as compared with those received for the transportation of other freight, and by an analysis of the profits earned by the anthracite carriers. For this purpose the operations of the Lehigh Valley Raihoad will be examined, as its freight rate (one of the lowest charged) has long been a bone of contention, and as a large part of its total traffic consists of anthracite coal. In the fiscal year 1913 the Lehigh Valley carried 14,732,949 gross tons of anthracite. Its gross earnings from the transportation of this coal were $18,556,161, which was over 50 per cent of its gross freight receipts, and 43 per cent of its total operating revenue. Its gross earnings per net ton per irule from the carriage of anthracite coal were 7. 11 mill s, and from all other freight 5.67 mills, or 25 per cent greater ' Report of Price, Waterhoitsc and Company, p. 2. ^ /. C. C. Investigation of Anthracite Rates, iii of answers to circular letter of December 23, 1912 (reply of Reading Railway to question 34). Percent of Freight Weighted Shipments Shipments Rate Figures Prepared sizes 746.772 6224 X $1.70 = $105,808 Pea 183.597' 15-30 X 1.40= 21.420 Smaller than pea 269,449 22.46 X 1.25 = 28.075 100.00 100) $155,303 Average freight rate $i.SS THE TRANSPORTATION OF COAL 139 for anthracite.* Were we to assume that the ratio of operating expenses to gross earnings was the same on anthracite as on all its traflSic (67.62 per cent), the operating expenses chargeable against the transportation of anthracite would be $12,547,676, and the net earnings $6,008,485, or nearly 41 cents for each ton of anthracite hauled. But as it costs less per ton to move anthra- cite coal than general freight, the net earnings are even greater- than this figure. Considering the large part that anthracite plays in the total receipts of the Lehigh Valley, it is clear that the rate charged for hard coal is highly remunerative. The profits of the Lehigh Valley, in recent years, have been great. No dividends at all were paid from 1894 to 1903, but in 1904 the road began to pay 10 per cent upon its preferred stock, a rate which it has since maintained, and i per cent upon its common stock. In 1905 the rate on the common stock was increased to 4 per cent, in 1907 to 6 per cent, and in 1911 to 10 per cent, a rate which is stiU paid, though in 1912, 10 per cent extra was given, making a total of 20 per cent. A large surplus, also, has been accumiilated. The road had no surplus in 1902. By 1909 it had a surplus of 19.2 million dollars, in 1910 this surplus had risen to 27.2 million, and by 1911 to over 30 million. In 191 2, largely because of the payment of the extra dividend of 10 per cent, the surplus declined to 23.4 million dollars, but increased in 1913 to 25 million.' The operations of the Lehigh Valley since 1904 have thus been highly profitable. That the Lehigh Valley Railroad is not exceptional in its pros- perity win become apparent from an examination of the table on the following page, showing the common stock dividends paid by the anthracite carriers since the development of the com- bination. The actual earnings ^ of the anthracite companies, however, are greater than the dividends declared. In the second table on the following page is shown the percentage earned in 1913 on the ' /. C. C. Investigation of Anthracite Rates, X3cv, Morgan Exhs., nos. 36 and 38. " Annual Reports of the Lehigh Valley Railroad. ' The antliracite traffic, constituting, as it does, such a large part of the total traffic, must have contributed in large measure to this state of prosperity. The pro- portion of the total freight revenues of the important anthracite railroads which 140 THE ANTHRACITE COAL COMBINATION Common Stock Dividends Paid by the Anthkacite Cakmers, 1898-1913 ' Reading Company % Central of New Jereey % Lehigh Valley % Lacka- wanna % Delaware and Hudson % Penn. R. R. Erie Ontario % % % Lehigh Coal and Navigation- Company 1898 4 7 s 5 4 1899 4§ 7 5 5 4 1900 S 7 6 si I90I si 7 6 6 1902 * 7 6 S^ 1903 12 7 6 6 1904 8 I 17 6 7^ 1905 3i 8 4 20 6 4i 8 1906 4 8 4 20 6i 2 8 1907 4 8 6 20 9 7 2 8 1908 4 8 6 20 9 6 2 81 1909 4 8 6 85 = 9 6 2 9 I9I0 6 12 6 20 9 6 2 8' igii 6 12 10 55* 9 6 2 8 1912 6 12 20= 20 9 6 8 ^9^i 8 12 10 20 9 6 2 8 * The Central of New Jersey paid regular quarterly dividends of 2 per cent in 1902, but no are shown because of a change in the date of the annual report. 1 Not including a 10 per cent stock allotment at par. 2 Including a 15 per cent stock dividend. ' Not including a 10 per cent stock allotment at par, and a 15 per cent scrip dividend. * Including 35 per cent in guaranteed 4 per cent stock in Lackawanna Railroad of New Jersey. * Including a special dividend of 10 per cent- common stock of these companies, after the payment of all ex- penses, including fixed charges, and preferred dividends, if any: Reading Company 17-57 Sc Central of New Jersey . 26.73 Lehigh \'alley 16.90 Lackawanna 32.04 Delaware and Hudson. . 12.95 Pennsylvania 8.86% Erie 3.67 Ontario 2.08 Lehigh Coal and Naviga- tion Company 8.93 The sums paid out in dividends, however, especially since the organization of a strong combination, and since the advance ia the Came in 1913 from the carriage of anthracite coal is indicated in the following table: — Reading Railway (the main source of the Reading Com- pany's income) 32.6% Central of New Jersey 46.0 Lehigh Valley S°S I. C. C. Investigation of AnihracUe Raies, xxv, Morgan Exhs., no. 38, ' Poor's Manual of Railroads. Lackawanna 49-8^ Belaware and Hudson 49.0 Permsylvania 6.4 Erie 32.0 Ontario 63.6 THE TRANSPORTATION OF COAL 141 price of coal as the result of the strike of 1902, sufficiently attest the large profits in the anthracite business. That the anthracite business has become increasingly profitable since the organization of the combination is likewise demon- strated by the foregoing chart which shows graphically the average of the highest and the average of the lowest market quota- tions of the common stock of the eight important anthracite roads.^ In 1898, the year when the beginnings in the develop- ment of the combination were made, the average of the highest prices at which the stocks of these roads sold was $76, and the average of the lowest was $63. From 1898 until 1909 there was an almost steady advance in the prices at which these securities were quoted. In 1909 the average of the highest quotations was S231, and the average of the lowest was $167. The high average in 1909 was partly in sympathy with the general high level of stocks in that year, and partly in anticipation of the payment of an 85 per cent dividend by the Lackawanna Railroad. The declaration of stock dividends by the Lackawanna and the Lehigh Coal and Navigation Company in 1909 explains a part of the decline in 1910 of the average of the highest market quota- tions, and likewise the drop in 191 1 is partly explained by the privilege given in 1910 to stockholders of the Lehigh Valley to subscribe at par to $20,000,000 of new stock worth $125 per share at its lowest quotation. Notwithstanding these factors, the average of the lowest quotations increased almost steadily even up to 1912. In 1913 both the high and low averages suffered a considerable dedine, but this was in sympathy, in the main, with the general drop in security values which has taken place since October, 1912. On the whole, therefore, itis clear that the forma- tion of a combination, the maintenance of the freight rates at their high figure, and the frequent advances in the price of coal,^ have made the anthracite business a particularly profitable one. 1 These roads are the Reading Company (the stock of the Reading Railway, being held by the Reading Company, is not quoted on the exchange), the Central of New Jersey, the Lehigh Valley, the Lackawanna, the Delaware and Hudson, the Pennsylvania, the Erie, and the New York, Ontario and Western. For figures on which the chart is based, see Appendix, Table VII. 2 See ch. 7. 142 THE ANTHRACITE COAL COMBINATION The reasonableness or the unreasonableness of the freight rates charged has been passed upon by the Interstate Commerce Com- mission. In June, 191 1, it rendered a decision in Meeker and Company v. Lehigh Valley Railroad. The firm of Meeker and Company was engaged in buying coal in the Wyoming region, in shipping it over the Lehigh Valley Railroad, and selling it in the New York market. The firm claimed that the rate to Perth Amboy ($1.55) was unreasonable. The Lehigh Valley endeavored to show that the actual cost of transporting coal from the Wyom- ing region to Perth Amboy was $1.49,' and that, therefore, a rate which left such a small margin for profit was not unreasonable. The exhibits as prepared by the Lehigh Valley Railroad showed that its average receipts per gross ton of anthracite coal trans- ported to Perth Amboy in the ten years ending Jxme 30, 1908, were $1.46.^ If the actual cost of transportation was $1.49 per ton, the road must have been transporting coal at a loss, during the period when its surplus increased from nothing (in 1902) to $19.2 million (in 1909). The estimate prepared by the railroad was shown, furthermore, to include certain items which were excluded by the Commission.^ For example, an allowance of 10 cents a ton had been made to offset the deficits of dividends in the years when none were paid by the raUroad. The Commission held that this item ought to be eliminated on the ground that the shareholders of the Lehigh Valley had already received a fair return on their investment, if the money received in dividends, the increased value of the property, and the large unappropriated surplus of the railroad be taken into consideration.'' The cost of transporting anthracite coal from the Wyoming region to Perth Amboy, according to the railroad, after deducting the 10 cents which was not properly included, was $1.39, and this, as the report of the Commission clearly showed, much exaggerated the actual cost. But the Lehigh Valley actually received for the ' /. C. C. Reports, xxi, p. 144. ' Ibid., p. 147. ' According to the Commission, there were many ciraimstances connected with the preparation of this estimate, which seriously impaired its value as evidence on the question of cost. Ibid., p. 144. ' /. C. C. Reports, xxi, pp. 155, 160-161. THE TRANSPORTATION OF COAL 1 43 transportation of the coal $1.46 per ton. If, however, the free gift of the railroad to the coal company of the interest upon the certificates of indebtedness of the coal company held by the rail- road be taken into account, a deduction of 5 cents a ton should be made in order to determine the amount for which the raihoad was willing to transport the coal. Upon this showing the Commis- sion decided that the rate of the Lehigh Valley on the prepared sizes was unreasonable in so far as it exceeded $1.40, and a still lower rate was set for the smaller sizes.' The rate set by the Commission was 1 5 cents a ton less than was then being charged by the Lehigh VaUey, the Central of New Jersey, and the Phila- delphia and Reading upon shipments to New York Harbor points, 18 cents less than the rate of the Lackawanna, and 20 cents less than that of the Erie and the Ontario. In accordance with this order the Lehigh Valley on October 15, 191 1, reduced its rates from the Wyoming region to Perth Amboy, but made no reduction in its rates from the other regions, although it had always, prior to that time, maintained identical rates from aU three regions.^ The other railroads have made no reductions in their rates, and continue to charge, in the main, the same rate that was declared unreasonable in the case of the Lehigh VaUey. It would appear, then, that a lowering of the freight rate upon anthracite coal will be ordered in the near future. Another case involving the reasonableness of the freight rates upon anthracite coal was decided by the Interstate Commerce Commission in Jime, 191 2.' The Marion Coal Company, engaged in the preparation and marketing of " washery " coal,' complained that the freight rates of the Lackawanna were exces- sive. The rate from Taylor, Peimsylvania, where the plant of the Marion Coal Company was located, to Hoboken, New Jersey, was $1.58 for the prepared sizes, and somewhat less for the smaller ' /. C. C. Reports, xxi, pp. 162-163. 2 Ibid., xxiv, pp. 145-146. ' Ihid., pp. 140-149. * " Washery " coal is sm all pieces of coal which were once discarded, but which are now being reclaimed from the culm banks. The Marion Coal Company, there- fore, was especially interested m the rate upon the smaller sizes, but it is the findings of the Commission in regard to the larger sizes which is of most significance for our purposes. 144 THE ANTHRACITE COAL COMBINATION sizes. The complainant claimed that any rate in excess of 95 cents for the prepared sizes was unreasonable. In rendering its decision, the Commission based its conclusions largely upon its findings in the Meeker case. A maximum rate had there been established, which yielded the Lehigh VaUey ton-mile earnings of 8.48 nulls for the transportation of anthracite. Upon this basis, the rate of the Lackawanna from Taylor to Hoboken woiild be approximately $1.31. The commission held, however, that an allowance should be made for the fact that the distance from Taylor to Hoboken was shorter than the distance in the Meeker case. This would justify the use of a sUghtly higher ton-mile rate. It, therefore, established $1.33 as a reasonable rate for the prepared sizes, and it set a somewhat lower rate for the smaller sizes."^ The decision of the Interstate Commerce Commission in these two recent cases indicates that reductions will be made in the freight rate on anthracite coal. The setting of a lower rate for the shorter distance, though not a rate strictly proportional to the distance, may possibly indicate, further, that the practice of making the same rate to tide-water from each region, irrespective of the distance, is to be broken up. However, the manner in which the anthracite coal business is conducted renders the freight rate of less importance than might at first appear. Nearly 80 per cent of the total production in 191 1 was mined by the railroad coal companies. As they are for practical purposes owned by the carriers the freight rate is to them of httle consequence. A high freight rate means that the profits of the railroad come from the transportation rather than from the mining of coal. A low freight rate, on the other hand, means that the profits are derived from mining rather than from transportation. But, as in either case the profits from both sources go into the coffers of the railroad, it is immaterial whether they be made on transportation or in mining. This assumes that the price of coal, being fixed by a combination (as will be shown in the following chapter), would be increased at the mines to the extent to which the freight rate was reduced, thus preventing any * /. C. C. Reports, xriv, p. 148. THE TRANSPORTATION OF COAL 1 45 reduction in the price at tide-water, or in the price to the con- sumer. Should, therefore, the Interstate Commerce Commis- sion reduce still further the freight rate, the main effect would be to diminish the profit in transporting coal and correspondingly to increase the profit in minin g. Furthermore, the amount of the freight rate has clearly been of no moment for that portion of the output of the individual, operators which until 191 2 was bound to the railroad coal companies under perpetual contracts,' as the operators were paid a certain percentage of the tide-water price, and changes in the freight rate did not affect the amount secured by them. The freight rate has been of importance mainly in respect to the coal sold to the railroad companies under short term contracts, and the coal marketed independently. A high freight rate reduces the profit in marketing coal independently, and in the past has offered a strong inducement to the independent operator to sell his coal under contract to the railroad or its coal company (and this is, no doubt, the raison d'etre of the high freight rate) . But even including the coal formerly sold under a perpetual contract, but now released by the order of the Supreme Court declaring these contracts illegal, only about 20 per cent of the output is affected by the freight rate, and this percentage is certain to become less and less,^ regardless of whether the freight rate be high or low. The freight rate, however, will become of importance, should the present attempts on the part of the Gov- ernment to divorce the business of transportation and mining meet with success.' Inasmuch as very few of the raihoad coal companies now return a surplus of earnings above expenditures, even with the present high price of coal, were these coal com- panies to become independent of the railroads, most of them, unless they could advance the price of coal still higher, would be compelled at the present anthracite freight rates to go out of busi- ness. In such a contingency the railroads to retain the anthracite trafl&c woidd undoubtedly reduce their rates to a figure which would permit of a profit in the mining operations. In this way 1 See ch. 8. The Supreme Court in a recent decision (December, 191 2) declared these perpetual contracts illegal. ' See p. 107. ' See ch. 8. V 146 THE ANTHRACITE COAL COMBINATION practical demonstration of the unreasonableness of the existing rates would be given. Attention may next be directed to the second phase of the topic, viz., the extent to which the railroads are in a combination with respect to the transportation of coal. As has been seen, practically the same rate is charged by each railroad from the mines to its terminal at New York Harbor, notwithstanding considerable differences in the length of the haul. This, of course, is the natural tendency of railroad rates, but in this particular case a great deal of pressure has been exerted to prevent the anthracite rates from becoming uniformly lower. To cite one instance, late in 1906 the New York, Ontario and Western Rail- road, — probably the most independent of the anthracite roads, — proposed to reduce its rate on the prepared sizes to Weehawken (New York Harbor) from $1.60 to $1.45, with corresponding reductions on the smaller sizes. This action was lurged by the counsel of the railroad, who seems to have believed that the regularly reouring deficits in the operations of the coal com- panies, which were necessarily borne by the railroad, might be construed, under the recently enacted Hepburn Act, as a rebate to these subsidiary companies. A reduction in the freight rate to $1.45 would apparentiy enable the coal companies to pay the full tariff rates, and leave a surplus, however smaU. The putting into effect of this new schedule of rates, however, would, accord- ing to the freight traffic manager of the Central of New Jersey, have led to similar reductions by the Erie and the Lackawanna, which in turn would naturally have involved the Central of New Jersey and the Lehigh VaUey.^ Mr. Baer, as president of the Reading Company and the Central of New Jersey, wrote to Mr. Fowler, president of the Ontario, protesting vigorously against the proposed reduction, and intimating that the fihng of the lower rate would be followed by retahatory measures.^ Mr. Fowler, in his reply, reprinted herewith as an appendix,' insisted that the action proposed was imperative, and gave it as his conviction ' I. C. C. Investigalion of Anthracite Rates, xxv, Hickey Exhs., no. 5. Letter of T. B. Koons to W. G. Besler, October 16, 1906. 2 See Appendix, Letter II. ' See Appendix, Letter III. THE TRANSPORTATION OF COAL 147 that the division of the market price between the producer and transporter, as expressed in tariffs, needed readjustment at once. He declared that it was only good business policy to put each department, mining and transportation, on a self-supporting basis, instead of undxily swelling railroad earnings and making book assets of uncollectible advances to coal companies for the purpose of making up their deficiencies in income. But the pressure, banking and otherwise, which was soon brought to bear on him, proved too great, and after a personal conference with President Baer, he agreed to drop the proposed tariff making reductions to Weehawken.^ This incident, frdly substantiated by the actual correspondence, is by no means an isolated case. The records of the Interstate Commerce Commission abound with letters showing how, on numerous occasions, proposed reductions in rates have been pre- vented by the action of the other carriers. The Delaware and Hudson planned in 1907 to reduce anthracite rates to New Eng- land points by 20 to 40 cents per ton. This proposed action was thoroughly discussed in a meeting of the officials of the various anthracite roads,- and the Delaware and Hudson was induced to reduce these rates only 10 to 20 cents per ton. In 1908 the lines west of Buffalo were considering a reduction in the anthracite rates, but were dissuaded from this step by the presidents of the Reading and the Lackawanna Railroads. And since 1906 there have been no important reductions in the anthracite rates except those ordered by the Interstate Conmierce Commission. The conclusion is inevitable that the anthracite rates are maintained at their present high level by the existence of a community of interest among the railroads sufficient to prevent marked reductions in the rates. Further evidence of the existence of a pool in the transportation of anthracite to market is furnished in the fact that the proportion of the total shipments of anthracite coal carried by each railroad during recent years has remained approximately the same, as is shown by the following table; * See Appendix, Letter R". ^ g^g Appendix, Letter V. 148 THE ANTHRACITE COAL COMBINATION O ^ ^000 »r;« -^WOiOO « Oi 00 d>ncc<3 d "H tow TOW r-^t«.r»r»^ d«^cd»odd«o«^ 00 &- 00 >« < CO 6^ , « 6? 00 6^ ■ o %d d d -"t 22 o^MtoC>»riddTJ-« 5 «? ^ ^ 00 M 5 j3\d t^'^OiOi'o»^»o "■rj-o'ddd-*'-"' 00 S^ I o -d *H 06 -^ 1 ^ ■* -JS OC vP ■* '^ •- - - eo S" '■J- »0 1-1 00 »0 *■ M ^ 10 6S3 ss- 00 00 f^ - ■ -a- « t-. H, v3 - - >> c» w 2 00 HI >0 00 «^ wi m to ^0 *n - - "* Oi 00 r* ■ ■ Ph s 4 CO « 2 t^ ^ - - ■ < 0. CO ^1 fO wi 4 *d »o 2*9. ^ - • as m ■* •* 00 "■i- M tri h; ; 00 00 ss| s s M •* TT 00 ■ ■ rn c^ -^ *n - ■ w = "'""'" ■ s f; ^^ »9 t^ 00 »« i^ •«• ■ • »n n f^ oo_ ■ ; d 00 t^ ^ ' ; ■ IOC* mOoooooo "^ ^id in" d diooo •■ z < H o z o oi o p< o pti 00 O^ r^ to eo T*. «n to 00 sD TO "^ C> O ,^ d. « hJ 00 *d HI (^ ^ HI H HI „ i«m«ot«iOHiO»n Jloo^o «no --s*' i § to OO-^-^t^O -OW3' Hl^t^lHOOTOMW -OOO °'°^o6tood'«fddi iMtn '. M^OtOOO-^OOO .Hito. ^OOOMmOoo -oor«- J^^OiMOwtow -to«o- _ i^to«or--*to--*r-. gj^H'ot^-*dd' :«■* ; ■■tMMOOQ'O-'^O- g'o«oq'0*ooi« -0«o- HI HI M HI M M *g-Q"*Hi'q»5oto -loto • o«^d>'0'£>u=)didi :m-* ; S^^ooq,«M^« -^S ■ OiO^OWf^iOQiO* ,0-* , u-i M-^to^O** ■ t^ o r^ HI « M M *-• *-< ,_ 0000'00>'0 -TfOHl oio^Ofod^^di*^ ;o^« -1. tOtOp*«OoOCT -tOOO* HI M HI HI M O'O^d'Mvd^d'*^ Id'*** _, ^]-rOTt*^Mr«-MM\0 Sj^O.'OoO'^O'*! -WWtO o^oOH^-^^od'od '. ti V) vi „ OOOH(Oio^-*"OOt«. Ovp^'^'^9*^*^ -oiioo- oio^dw»rt-^6.d ;d4w 8 0r^M 'Ohi\0 tO«0000 OiS^d M w n cQ ^ "« Oil 6? S" 2 to o *2. 2 J O -^00 « T ^ ' Ovw>0 *00i2 ■^'^^OtOtO M HI HI M ^ *o yo tor~« 3'^'-' 000*0 yoM *0^lO TfT*; O OlHI HI "^d M >nrod.J^'*'^'0«oro ■* OHi>OmO'LJ^*^OtO(0 W HI M M ** bp" "T*^ "^ fo™»^« o o o MH|10f,^d,0^4^^^ t to « n ^ pi > ^ *j - o .2 t/5 trt « B w p^ pn'ujHjQSpiwod^ Is ■33 ■57 ■57 •65 .86 ■44 .89 ■S8 .6i •79 I.IO .60 ■36 -33 ■30 ■13 .68 ■73 ■15 4.12 3^25 THE TRANSPORTATION OF COAL 149 An examination of the table above reveals a marked stability in the percentages carried by each railroad during the past ten years. This stability is brought out even more clearly by the following table, which shows for six of the more important roads 1871-1880 1881-1890 1891-1900 1901-1910 P. &R 2.1S C. R. R 93 L. V 1.21 Lackawanna 1.51 D. &H 1.38 Penn. R. R 89 Sum of variations . . 8.07 the average yearly variation of the shipments of each road from its average proportional shipments for the four ten-year periods, 1871— 1880, 1881-1890, 1891-1900 and 1901-1910.' It is evident that the constancy of the percentages varies con- siderably on the different roads. The proportion of the total shipments that was carried by the Reading fluctuated consider- ably from year to year during the periods, 1871-1880 and 1881- 1890, but only about one-half of one per cent during the two periods, 1891-1900, and 1901-1910. The percentages of the Delaware and Hudson varied more widely during the first period, but only one-third of one per cent during the second period, and even less during the two succeeding periods. The Lackawanna and the Central of New Jersey both show a considerable degree of variation during the period 1871-1880, a lesser degree during the period 1 881-1890, a greater variation during the period 1891-1900 (though less than during the first period), and still less variation dining the period 1901-1910, the variation in this period being slightly less than one-half of one per cent in the case of the Central of New Jersey, and sHghtly above one-half of one per cent in the case of the Lackawanna. The proportion of the shipments carried by the Peimsylvania fluctuated less dining 1 The method of calculation is as follows: the anthracite shipments of the Phila- delphia and Reading averaged 28.42 per cent of the total shipments of anthracite coal during the period, 1871-80. In 1871 the Reading carried 5.48 per cent in excess of this average; in 1872, .18 per cent in excess, and in 1873, -7^ P^ ceiit less than its average. The sum of these annual variations, 1871-80, divided by ten, g^ves the Reading's average annual variation. ISO THE ANTHRACITE COAL COMBINATION the first period than it did during the second period (this is the only railroad of which this was true), and less during the last period than during the two earher periods, but the least varia- tion of all was in the period 1891-1900. Considering the siun of the variations of aU the roads combined, the greatest deviation from the average proportional shipments was in the ten years, 1871-1880, a period of alternating agree- ments and severe competition. The variation was considerably less during the next ten years, 1881-1890, and stiU less in the following ten years, 1891-1900. During these twenty years agreements were being made and combinations formed, only to be dissolved shortly thereafter. Their dissolution, however, was not followed by such keen comperirion as prevailed during the earher period, and the resulting variation was not, therefore, as great. The deviation from the normal was least of all during the ten years, 1901-1910, during which period the combination was effectively maintained (as it has been since). Though there is doubtless no hard and fast rule for the appor- tionment of the anthracite trafi&c, the existence of an understand- ing among the railroads that they were each entitled- to a certain percentage of the shipments is indicated by the fact that the proportion of the total shipments carried by each railroad has remained fairly steady, in spite of a considerable increase in the production. It should be noted that as the raihoads, either directly or through their coal companies, control most of the anthracite tonnage originating on their hnes, those changes in the proportionate shipments of each railroad which would normally arise as the result of keen competition for traffic, do not take place. Generally speaking, any increase in the anthracite trafi&c of the respective railroads must come from an increase in the out- put of its mines, or of the mines whose product is bound to it. There is, however, nothing to prevent a coal company from extending its operations and increasing its output through the construction of new plants or through an increase in the number of working days, unless it be the feeling among the railroad interests that each company is entitled to a certain percentage of the total shipments, and that any attempt by it to increase its THE TRANSPORTATION OF COAL 151 traffic will lead to similar action on the part of the other carriers, with a resulting demoralization of the business. The representa- tives of the railroads themselves have admitted that each road tries to conform in a general way to its proper proportion. The Industrial Commission in 1901 questioned Mr. Harris, a former president of the Reading Railroad, as foUows: " Don't you recognize that you have a certain percentage of the market and that you are not to exceed that percentage so as not to encroach on the supply other roads take to market ? " ' Mr. Harris answered in the affirmative, but two years later he qualified this statement by testifying in the Hearst investigation that " it was a general understanding and never anything more." ^ In this same investigation Mr. Walter, formerly president of the Lehigh Valley, testified that during the years 1897 to 1902 there was an understood arrangement between the presidents of the different companies as to the proportion of the anthracite tonnage to be shipped over each of the railroads, and that, as president of the Lehigh Valley, he did his best to hve up to that understanding.' The railroads received from the Bureau of Anthracite Coal Statistics (an organization paid by the anthracite carriers to keep the records) reports of the shipments of each of the other roads and the tonnage which each road would have shipped had it adhered to the " presidents percentages," which were supposed to represent the mining capacity in 1896.'' This served to call to the attention of the carriers the extent to which the understanding was maintained, and to induce a closer correspondence between the railroads' proper proportion and its actual shipments. The Temple Iron Company appears to have been the medium through which was maintained this understanding, which insured to each railroad its " normal " share of the total traffic. This company, it will be remembered, was the means in 1899 of defeating the construction of a proposed independent railroad.* The presidents of the railroads which at that time guaranteed its debt, together with a few personal friends, were made its ' Industrial Commisswn, ix, p. 602. ^ Files of Interstate Commerce Commission in Hearst Case, p. 1574. ' Ibid., pp. 2368-2369. * Ibid., p. 2367. ' See ch. 4. 1 52 THE ANTHRACITE COAL COMBINATION directors. Since 1899 the presidents of the Reading Company, the Central of New Jersey, the Lehigh Valley, the Lackawanna, the Erie, and the New York, Susquehanna and Western have regularly been on the directorate of the Temple Iron Company, and at some portion of this period the presidents of every other railroad, except the Pennsylvania, have been among its directors.^ With the exception of a short period from 1899 to 1900 Mr. Baer, the president of the Reading system, has been the president of the Temple Iron Company. The meetings of its board have been held, not at the office of the company but at the office of Mr. Baer, at 143 Liberty Street, New York. The board has generally met three times a year, but during the period of the coal strike in 1902 met somewhat oftener.^ The convenience of the Temple Iron Company as a device for securing a harmonious manage- ment of the coal trade is apparent. During its early years at least, the presidents in conference discussed questions which were entirely apart from the proper business of the Temple Iron Com- pany. At a meeting held June 27, 1899, " the proposition to establish a statistical bureau in New York for the purpose of keeping records of aU matters of interest to the anthracite coal companies, the quantities to be mined each month, the prices, and so forth," ' was considered and referred to a committee of three, which was to report on its practicability. At a meeting of June 2 7 of the following year, the board of directors ratified the appoint- ment of an executive committee of the Temple Iron Company, which consisted of the vice-president and treasurer of the Temple Iron Company, the vice-president and general manager of the Philadelphia and Reading Coal and Iron Company, the general manager of the Lehigh VaUey Coal Company, the vice-president of the Lackawanna Railroad, and the general manager of the Hillside Coal and Iron Company.'' Three of the members of this executive committee were not in any way connected with the Temple Iron Company, but were officers of the railroad coal companies. At a meeting of July 2, 1901, it was resolved that ' Transcript of Record in Sherman Anti-Trust Case, ii, p. 354. 2 Ibid., pp. 336, 3S4- » Ibid., ii, p. 345. * Ibid., pp. 349-351- THE TRANSPORTATION OF COAL 153 there be " appointed a committee to consider the advisability and expediency of making a 40 per cent rate to outside shippers, or a flat rate, and, if so, what rate." ^ The members of this com- mittee, as before, were operating officers of the railroads, or their coal companies, and not connected with the Temple Iron Com- pany.2 The Temple Iron Company at its meetings considered also the question of the differential, that is, the difference between the price of coal at the upper and lower ports,' and the compensa- tion to be paid to Mr. Ruley, who kept the records of the Bureau of Anthracite Coal Statistics. As Mr. Ruley was not in the employment of the Temple Iron Company, and as it had never made any pajTnents to him,* his compensation was clearly a matter entirely outside the proper business of this company. In fact, save the appointment of the executive committee, none of the matters mentioned were properly within its purview, and their consideration at the meetings of this company shows that the Temple Iron Company was used by the railroad presidents as a meeting place, where questions of policy could be freely dis- cussed.= As the Supreme Court of the United States observed, in ordering the dissolution of the Temple Iron Company in December, 191 2, "its board of directors . . . supplies time, place and occasion for the expression of plans or combinations requiring or inviting concert of action." ^ The minutes of the Temple Iron Company after igor do not disclose any significant items. The railroad presidents, however, ' Transcript of Record in Sherman Anti-Trust Case, ii, p. 346. The Secretary, Mr. Law, testified that outside shippers probably meant independent operators shipping their own coal, but he did not recollect the meeting. ' Transcript of Record in Sherman Anti-Tritst Case, ii, p. 370. ' Ibid., u, p. 348. See supra, 133. * Ibid., ii, pp. 34S-349; also p. 492. ' The president of the Temple Iron Company has asserted that the company has been run " as the most harmless mining company in the State of Pennsylvania," and has had nothing to do with the price of coal or with rates for transportation. The Supreme Court of the United States held, however, that " this disclaimer of power does not detract from the significance of the minutes of the Board referred to as evidence bearing upon the question of the relation of the several defendants to each other." The Supreme Court declared that the railroads had combined through the Temple Iron Company in violation of the Sherman Act. 226 U. S. 3S4-3SS- « 226 U. S. 353. >, 154 THE ANTHRACITE COAL COMBINATION continued to meet through this company, and here in all prob- abihty the necessity for harmonious action was brought out, and the " normal share " of each railroad determined upon. A meet- ing of the raihoad officials of these six roads would be insufficient, of course, were there not some measure of common interest between them. The existence and ramifications of this com- munity of interest have already been shown for 1902-1903.^ Though it may be (owing possibly to fear of Governmental inter- ference) that the inter-ownership of stock has since become some- what less, the common representation on the directorates of different railroads is still equally as great. In 1903 there were eleven individuals represented on the directorates of two or more anthracite railroads, and in 1913 twelve individuals. In both years these individuals represented thirty-one of the total num- ber of directors. The situation in 1 913 is shown by the follow- ing table.^ Interlocking Directorates, 1913 Individuals P. & R- A . B . c . D , E . F. G. H I.. J. K. L. -I- -I- + + .R.R. -t- -I- -t- + + L. V. -I- -I- + + + Lacka. + + + + D. &H. -t- + + Erie + -1- -1- + Ont. + + + + -\- The table reveals a considerable degree of community of inter- est, especially for the five raihoads which were combined in the Temple Iron Company project, one individual, indeed, being on the directorate of each of these roads. These five roads in 19 13 carried nearly 77 per cent of the total shipments. The Pennsyl- ' See pp. 67-73. ^ Voofs Manual of Railroads, ign- InBuenced by public sentiment, and possibly by impending l^islation to prohibit interlocking directorates, certain members of the firm of J. P. Morgan and Company resigned early in 1914 as directors of some of the anthiadte railroads. TEE TRANSPORTATION OF COAL 155 vania, also, owns indirectly a large amount of stock in several of the anthracite coal roads, and works in harmony, as does the Delaware and Hudson, with these five anthracite carriers. The most independent Hne is the Ontario, shipping only 3.6 per cent of the total shipments. The New York Central recently attempted to secure control of this road, but its purchase (from the Neyy Haven) was forbidden by the New York Public Service Com- mission. Summarizing briefly, an analysis of the cost of transporting anthracite coal and of the profits earned by the anthracite car- riers, and a review of the orders of the Interstate Commerce Commission, lead to the conclusion that the freight rate on anthracite is unduly high. The maintenance of the present level of freight rates is evidence of the existence of an effective coopera- tion among the carriers. It is significant, also,- that though the anthracite shipments have increased very rapidly in the last fifteen years, the percentage carried by each railroad has remained fairly constant. This fact becomes more noteworthy during such years as 1902, when the shipments decHned by one-half. The maintenance of this steadiness has presvunably been facilitated by the Temple Iron Company, upon whose directorate the more important raUroads have been represented, and is strengthened by a community of interest among the railroads, which has made it possible for the Temple Iron Company to be dissolved by judicial decree without any resultant disturbance in the har- monious conduct of the business. I- CHAPTER VII THE PRICE AND S.\LE OF COAL The control of the output of anthracite coal by the railroads, and the harmonious relations between these railroads in respect to the transportation of this coal to market have, it is believed, been sufficiently established. The estabUshed facts indicate a tacit yet effective combination. Still further evidence of the existence of a combination is furnished by the statistics of prices. The combination has influenced the price of coal in two ways: first, it has effected a considerable increase; second, it has steadied the price to a noteworthy degree. The course of prices from 1890-191.3 (embracing periods of competition and of combination) is shown in the following table: Average Monthly S] :T.TT>rG Price of Stove Coal (Wholesale), f.o.b. Vessel, New York Harboi , i8go TO I 913, IN Long Tons' Year 1890 1891 1892 1893 1894 189s 1896 1S97 189S 1899 1900 1901 Jan. S3.86 $4-11 S3- 72 $4.58 $4- 16 S3.46 S3. 29 S3-99 S3- 73 S3.56 S4-05 S4-45 Feb. 3-75 3-99 3-56 4-56 4-03 3-48 3-44 3-99 3-87 3-54 4.01 4.60 March 3-59 3-8o 3-71 4.07 3-85 3-3^ 3-56 4.06 3-89 3-52 3-86 4.45 AprU 3-58 3-67 3.80 3-95 3-57 3-II 3-S7 4.06 3-90 3-56 3-72 3-95 May 352 367 3-88 3-90 3-5° 309 3-57 4-05 3-95 3-63 3-72 4-03 June 3-54 3-71 4.06 391 3-54 3.01 3-73 4.06 3-92 3-65 3-67 4.14 July 3-59 371 4.17 4.12 3-55 2-94 3-88 4.06 3-91 3-67 3-67 4.24 August 3-62 3-74 4.42 4.29 358 2.89 4-05 4.06 3-83 3-68 3-67 4-33 Sept. 376 3.S0 4.60 4-23 3-33 2-93 4.06 4.06 3-73 3-80 3-86 4-44 Oct. 3-79 4.00 4.67 4.26 3-28 3.01 4-09 4.06 3-66 3-91 4-35 4-45 Nov. 3-94 405 4-63 4.24 3-4° 3.08 4.22 3-94 3-62 3-95 4.42 4-45 Dec. 3-99 4.00 4.62 4.20 3-40 319 4.08 3-77 3-57 3-98 4-34 4-45 Average 3.71 3-85 41S 4.19 3-6° 313 3-79 4.01 3-80 3-70 3-94 4-32 ' Bulletins of Bureau of Labor. Stove coal is typical of the prepared or domestic sizes, which constitute about 60 per cent of the total shipments, or including pea coal, which is being used more and more for domestic purposes, over 70 per cent of the total. The figures are for a free burning white ash, the standard grade. The special grades of hard white ash and red ash sell at somewhat higher prices. Where the Bureau's quotations give fractions of a cent, the nearest figure has been used. Thus, $4.7469 is given as $4.75. 156 THE PRICE AND SALE OF COAL 1 57 Average Monthly Selling Price op Stove Coal (Wholesale), f.o.b. Vessel, New York Harbor, 1890 to 1913, in Long Tons (conlimied) Year 1902 1903 1904 190S 1906 1907 1908 1909 1910 zgll 1912 1913 Jan. $4.45 $4-95 $4.96 $4-95 84-94 S4-95 $4-95 $4,95 $4-95 $4.95 $4-95 $5-20 Feb. 4.4s 4-95 4.96 4.96 4.94 4-95 4-95 4-95 4-95 4-95 4-95 5-19 March 4.46 4-9S 4-95 4-9S 4-94 4-95 4-95 4-95 4-95 4-95 4.9s 5 20 April 3.9s 4-45 4-4S 4-45 4-95 4-45 4-45 4-4S 4-45 4-45 4-95 4-70 May 4.02 4-55 4-54 4-54 4-54 4-53 4-53 4-54 4-53 4-53 4-90 4.78 June 4.64 4.64 4-63 4-63 4.64 4.64 4-63 4-63 4.60 4-89 4.88 July ... 4-7S 4-75 4-74 4-74 4-74 4-75 4-74 4.72 4.69 4-97 4.96 August . . . 4-8s 4.85 4-8s 4.84 4.84 4-85 4-83 4-85 4.82 5-o8 5-°7 Sept. 4-9S 4-94 4-95 4-95 4-94 4-94 4.94 4-93 4.90 S-18 5-17 Oct. 4-9S 4-9S 4-95 4-95 4-95 4-95 4-95 4-95 4-95 5-19 5.20 Nov. 4.95 4-95 4-95 4-95 4-95 4-95 4-95 4-95 4-95 4-94 5.20 5-20 Dec. 4.9s 4-9S 4-95 4-95 4-95 4-95 4-95 4-95 4-95 4-95 5-2° S-19 Average 4.46 4.82 4.82 4.82 4.86 4.82 4.82 4.82 4.82 4.81 5-03 5-06 The first fact to be noticed is the rise in price since the autumn months of 1900. As the result of the strike, which began in the middle of September, the price of stove coal rose in October to S4.35, the price in October of the previous year having been $3.91. During only one period in the preceding ten years had the price been so high, and this high price was due to the combination under the leadership of the Reading in 1892 and 1893. But with the failure of the Reading's attempt at consoKdation in 1893, the price fell again, the average for the year 1894 being $3.60. The advance of 1900, however, has been maintained. By January, 1901, the price had risen to S4.45, and by the following month to $4.60, falling off again in March to $4.45. In AprU, 1901, it feU to $3-95, — this low price was due to the introduction of the regular discount of 50 cents in April, which, with few exceptions, has been adhered to ever since. In accordance with the discount plan the price was increased approximately 10 cents a month until September, when the level of $4.45 was again reached. In May, 1902, occurred the greatest strike the anthracite region has ever known. At the close of the strike in the latter part of October, the price had reached $4.95, a figure, which, with the exception of the discount in the summer, was regularly main- tained xmtil 191 2 (when an additional charge of 25 cents per ton was imposed). IS8 THE ANTHRACITE COAL COMBINATION This advance in price of at least $i a ton over the level pre- viously prevailiag is an indication of the existence of a combina- tion. The mere fact of such an advance is not conclusive evidence, however, as there have been other factors which have tended to bring about this result. The cost of mining has greatly increased, and especially the labor cost, on accoxmt of the higher wages granted in 1900 and 1902. It is a difficult matter to make a wholly satisfactory estimate of the extent to which the higher price merely offsets an increase in the cost of mining, as this cost varies so much for the different companies, and in the different mines of the same company, and because of the difl&culty of allocating to any one size, such as stove coal, for example, those elements in the expenses of mining which are properly charge- able to this one size, — inasmuch as all sizes are produced together under joint cost. But among the few reliable figures obtainable are those showing, for the years 1900 to 1903, the average price received at tide-water by the Delaware and Hudson Company for all sizes of coal, the total cost of mining, and the labor cost.' Price Payrolls other Cost of Received than Office Mioing * 1900 S3. 20 S1.16 S1.43 I9°i 3-57 1-24 1-54 1902 3.87 1.46 1.93 I9°3 4-IO I.S3 1.96 Between 1900 and 1903 the price received for coal by the Dela- ware and Hudson increased 90 cents per ton. The labor cost of mining, however, increased only 37 cents per ton, and the total mining cost only 53 cents per ton. Upon this showing it may be concluded that the considerable advance in price between 1900 and 1903 can be explained only in part by the increased cost of mining, the main factor in which has been the higher wages paid the miners on account of the strikes of 1900 and 1902. The prices received' by the Philadelphia and Reading Coal and Iron Company, and the mining costs"' (including wages, • Files of Iniersiate Commerce Commission in Hearst Case, Exh. 148. • Exclusive of general expenses of administration and sinking funds. • Transcript of Record in Sherman Anti^Trust Case, ii, p. 707. • Ibid., iv, p. 697. THE PRICE AND SALE OF COAL 1 59 supplies, improvements, and general expenses) are shown below for the years 1899-1903. Prices Received Mining Costs 1899 $1.84 $1.59 1900 1.94 1.67 I9OI 2.21 1.83 1902 2.32 2.07 1903 2.63 2.20 The cost of mining for aU sizes, therefore, was 61 cents greater in 1903 than in 1899. At the same time the average price received at the mines was 79 cents greater in 1903 than in 1899. In the case of the Reading Coal and Iron Company, therefore, only a part of the rise in price is to be explained by the increased cost of inining. The report of the Lackawanna Railroad for 1903 showed a net profit on the sale of coal of over 3 million dollars. This was 85 per cent greater than its profit in 1901. When asked, before the Interstate Commerce Cormnission, whether he attrib- uted " that gain of 85 per cent in profit very largely to the excess of the new price over the increased cost of mining," ' President Truesdale answered, " That had considerable to do with it, of course." ^ Thus, though it is not possible to arrive at a figure which defi- nitely shows for all the companies the increase in the cost of mining (which may be compared with the increase in price), yet there would appear to be no doubt, on the basis of the available evidence, that the price was increased beyond the higher cost of mining. It appears that the cost of the strikes of 1900 and 1902 has been borne by the consumer — with some additional charge, which has made the production of coal more profitable to the companies than before. It can hardly be maintained that the rise in the price of anthracite was but a reflex of the rise in all prices. It is true that anthracite coal has risen in price since 1899, the year pre- ceding the strike of 1900, with its resulting advance in prices, by about the same amoimt as have all commodities. The rela- ^ Files of Interstate Commerce Commission in Hearst Case, pp. 2453-2454. 2 Ibid. l6o THE ANTHRACITE COAL COMBINATION tive price for anthracite as computed by the Bureau of Labor was 97.6 in 1899 and 126.7 ^ iQ"; ^^ increase of 29.8 per cent, while the relative price of all commodities showed an increase of 27.1 per cent. The increase in the price of hard coal, however, was brought about rapidly. The relative price of anthracite rose from 97.6 in 1899 to 104.0 in 1900, to 113.9 in 1901, to 117. 6 in 1902 and to 127. 1 in 1903. After 1903 and up to 1912 there was practically no change. On the other hand the relative price for all commodities rose from 101.7 in 1899 to 110.5 in 1900, declined in 1901, and in 1903 was only 1 13.6. The greatest increase in the price of all commodities, showing the rise in general prices in the United States, has come since 1904, and especially since 1905, yet save for the recent advance in 191 2, there has been no significant change in the price of anthracite since 1903.' The fact that anthracite had not risen in price during these years, whereas so many other staple commodities had risen, constituted for the president of the Lackawanna Railroad one of the " numerous sound and convincing reasons why this prime necessity of life should remain in the control of the comparatively few hands where it now is." ^ Comparing the price of anthracite -n-ith that of bituminous, the price of soft coal (Georges Creek) increased but sHghtly from 1899 to 1 901, rapidly from 1901 to 1903, in fact even more rapidly than did the price of anthracite, but since 1903 the dechne in the price of bituminous has been great, the price in 191 1 Just about reaching the level of 1900 and 1901.^ The existence of a combination, however, is shown, not so much by the mere fact of a considerable rise in the years 1900 and 1902, as by the mode in which this rise was brought about. The advance in 1902 was made in October, the various com- panies putting out a uniform schedule of monthly prices for the prepared sizes of coal, averaging about 50 cents higher than the previous prices. The schedule for stove, egg, and chestnut was $5 per ton at the terminal points nearest the city of New York, ' Bulletin of Bureau of Labor, April, 1913. ^ Annual Report of the Lackawanna Railroad, 1907, p. 11. ' Bituminous coal from Georges Creek, at New York Harbor. Bulletin of Bu- reau of Labor, March, 191 2. THE PRICE AND SALE OF COAL l6l and 5 cents less at the terminal points farther away.^ These uniform advances in the price of coal were put out at the same time, after consultations among the presidents of the railroads, or their coal companies, each of whom was aware of the price which the other companies were to charge. President Truesdale of the Lackawaima testified in 1908 that the advance in the circular price of the Lackawanna iu 1902 was made by the officers of the coal sales department of the railroad after consulta- tion with him. His answers to the questions of the examiner are as foUows: Q. Did you not know that the other raikoads were all going to have the same price ? — A. I think I had general knowledge of that. . . . — Q- How did you get that general knowledge ? — A. I do not know. There are va- rious ways of getting it. — Q. You knew what the Reading was going to do ? — A. Ithink we did. — Q. And the Reading knew what you were going to do ? — A. Yes, sir. . . — Q. Everybody put put the same price at the same time ? — A. They did; yes, sir.^ President Thomas, when asked with whom he consulted in the fixing of the price in 1902, repHed, " I do not recoUect now. I think probably I consulted with Mr. Baer; very likely I asked Mr. Truesdale what he was going to do. I know I asked Mr. Walter what he was going to charge for coal." ' It is significant that this considerable advance in the price of the prepared sizes of anthracite, made by the presidents after consultation, remained in force until 1912, with the exception of the omission of the April discount in 1906 on account of the suspension of mining opera- tions in April of that 3'ear. ^ Transcript of Record in Sherman Anti-Trust Case, iii, Exhs. 172, 177, 178, 179, 180. This new schedule applied only to the prepared sizes. The smaller sizes, which are used principally for steam purposes, are sold in competition with bitumi- nous, and therefore no attempt was made to fix a uniform price for them. They are generally sold, also, under contracts running for a year, and the discount, therefore, was not necessary, as it was in the case of the prepared sizes. The broken or grate size is also sold in competition with bituminous, principally under yearly contracts, and thus though listed in the price schedides is not governed by them in practice. (See Transcript of Record in Sherman Anti-Trust Case, iv, pp. 605-606, and v, p. 1125)- ^ Transcript of Record in Sherman Anti-Trust Case, v, pp. 1145, 1147. ' Ibid., p. 1 113. In 1902 Mr. Thomas was chairman of the board of directors of the Lehigh Valley Railroad, and Mr. Walter was president. In November, 1902, Mr. Walter resigned, and Mr. Thomas has since been president 1 62 TEE ANTHRACITE COAL COMBINATION In igi2 the combination made another advance in the price of coal. This advance, as in 1900 and 1902, was associated with labor difhculties. On the 31st of March, 191 2, the three-year agreement between the operators and miners came to an end. The miners, as usual, had presented demands for higher wages and improved conditions, and the operators had refused to accede to these demands. On the 1st of April, therefore, operations were suspended. After seven weeks of comparative idleness a com- promise was effected, and operations were resumed on May 20th. The new agreement was to remain in force imtil March 31st, 1916 — a foxur-year period instead of the usual three-year period. The miners secured a 10 per cent increase in wages, but the abolition by ' mutual consent ' of the sliding scale arrangement reduced their net increase to 5.6 per cent.' To meet the advance in wages, and to compensate for rising mining costs the operators advanced the wholesale price of the prepared sizes 25 cents a ton. An advance of 25 cents a ton on chestnut had already taken place, being imposed by some companies in November, 1910; by others in April, 1911.^ This action had been taken in order to equalize the demand, which for this size had become in excess of the supply. In 191 2 the price of the remaining prepared sizes was increased by 25 cents, and, in addition, there was a further advance of 25 cents on chestnut. The circulars announcing these higher prices (issued under date of June i) were so sub- stantially similar for the large operators that those of the Phila- delphia and Reading Coal and Iron Company may be regarded as typical. This company's regular circular price for stove coal, f. o. b. New York Harbor, had been $5.00 at Port Liberty (an upper port) and $4.95 at Port Reading (a lower port). In 1912 this was made S5.25 and $5.20 respectively. There was a similar advance in the price f. o. b. Port Richmond (Philadelphia), bringing the price of stove coal at this port up to $5.00.' These prices were subject to the customary June discount of 30 cents, ' Increase in Prices of Anlkracite Coal, 1913. 3rd Sess., 62d Cong., House of Repres. Report no. 1442, pp. 23-26. Referred to hereafter as House Report, 1913, no. 1442. ^ Ibid., pp. II, 62. ' Mineral Resources, 191 2, pt 2, p. 185. THE PRICE AND SALE OF COAL 163 and the new price did not apply in full, therefore, until September. At the time of these advances it was frequently stated that they had to be borne by the domestic sizes alone, as the steam sizes, being in competition with bituminous coal, could not be sold at a higher price. But as a matter of fact, the price of all the steam sizes was considerably increased, and these increases, while less in amount than on the prepared sizes, represented, nevertheless, a much larger percentage of the selling price.' These increased price schedules soon led to a governmental investigation. The Bureau of Labor was directed by the House of Representatives to determine the amoimt of the advances, and the extent to which the miners had benefited by the new wage schedule. In justification of their action the coal operators claimed that an advance in prices was necessary in order to meet the iucreased wage requirements imposed by the agreement with the miners, and to offset the increases in other mining costs which had taken place between 1902 (the date of the last general increase in prices) and 191 2, largely as the result of more difficult physical conditions of mining, higher taxes, and more stringent mine laws.^ With respect to these claims, the Bureau reported (March i, 1913) that the average price of anthracite coal had increased about 16 cents over and above the increase in wages granted to the miners in 1912,' and that thi'; additional sum was ' House Report, 1913, no. 1442, pp. 57-58. ^ Ibid., p. 12. In this connection it should be noted that the average minin g cost is increased through the operation of unprofitable collieries. Upon this point the remarks of the president of the Delaware and Hudson Company are of interest. " Our investigation of the subject leads us to beheve that the inde- pendent operators do not mine the coal from any veins where the operation is not a profitable one, while the opposite is true where the mines and railroads are control- led by the same people. The moment an indejjendent operator finds the mine un- profitable, he abandons it and starts up another operation at some other location. However, where there is joint control of the mines and railroads, the tonnage (and necessarily the profits) of the railroad is largely dependent upon uninterrupted supply and steady average amounts of the products of the mines located on such roads, and where the failure to realize profits in mining is compensated by the addi- tional profit in the operation of the road on account of the coal tonnage, it naturally follows that looking forward to the future of the property, they can afford under these circumstances to mine the coal from these veins, even without a profit on mining." — House Report, 1913, no. 1442, p. 15. ' An independent calculation made by the author, covering a somewhat longer 164 THE ANTHRACITE COAL COMBINATION " more than sufloicient to compensate fully those companies whose costs of production have increased most rapidly during recent years and at the same time has very greatly increased the profits of those companies, of whom there are at least several, whose costs of production either decreased or remained stationary during the same period." ' The Bureau of Labor further pointed out that, because of the unusual activity in the latter part of 191 2 after the settlement of the strike, the mining costs of one important company were actually lower during the last six months of 191 2 than during any year since 1903, in spite of the increased wage payments required by the settlement of May 20, 191 2, and that, as a result of the high price charged, the net earnings of this company during the last six months of 191 2 exceeded the net earnings of any entire year since 1902.^ It would appear, therefore, that the burden of the strike of 191 2 was shifted to the consumers of coal, and that an additional toll was taken to increase the profits of the anthracite companies.' period than that considered by the Bureau, confirms the correctness of the Bureau's figures. • House Report, 1913, no. 1442, pp. 12, z^. ^ Ibid., p. 13. A further profit, in addition to that resulting from the higher price of their own coal, was secured by the railroads or their coal companies. Until the decision of the Supreme Court in December, 1912, these companies bought a large amount of coal under the 65 f>er cent contracts. The operators under contract paid the miners the same increase in wages as the larger coal companies, but received only 65 per cent of the 25 cents advance on the prepared sizes, or 16.25 cents per ton to compensate for increased mining costs. The balance (8.75 cents) went to the railroad coal company. The latter, therefore, not only got 25 cents more per ton on the prepared sizes to compensate for the higher cost of mining, but, in addition, 8.75 cents on ever>- ton of prepared sizes bought under contract. This additional profit, however, proved short-lived, as these contracts were shortly thereafter declared illegal by the Supreme Court ' A still further increase in the price of coal may follow in the near future. In the latter part of June, 1913, a bill passed the Pennsylvania Legislature providing that every ton of anthracite prepared for market in the State, shall be subject to a State tax of two and one-half per centum of the value of the coal when prepared for market (Laws of Penn., 1913, no. 374). The constitutionality of this act is being contested in suits brought for that purpose. Should the tax be upheld, a general increase in the price of anthracite may be expected, if reliance is to be placed upon the trade papers. Some companies have already advanced prices by the amount of the tax, and resolutions have been passed by the Philadelphia Coal Exchange (an association composed of retail dealers) that the price of anthracite will have to be raised because of the tax. {Ckron., 97: 215 (1913)). THE PRICE AND SALE OF COAL 1 65 These increases in the price of anthracite coal in excess of the increase in the cost of mining, and the method by which a uniform advance was brought about, indicate, as has been said, the existence of a combination controlling the anthracite coal trade. More conclusive evidence is furnished by a comparison of the average monthly prices received for coal before 1901, a period of more or less competition, with those received since 1901, in which years a combination has been effectively developed. This comparison will serve to bring out the second influence of the combination, viz., a noteworthy steadying of the price of coal. An examination of the chart ^ reveals clearly the great fluctua- tions in the price of coal prior to 1901. Stove coal rose from $3.71 in 1890 to $4.19 in 1893, dedined to $3.13 in 1895, reached ^4.01 in 1897, fell to $3.70 in 1899, and rose in the following year to $3.94. The averages for the year varied all the way from $3.13 in 1895 to $4.19 in 1893. This irregularity occurred likewise in the monthly prices. In January, for instance, the price varied from $3.29 in 1896 to $4.58 in 1893, a difference of $1.29. In February there was a difference of $1.12 between the high and low water mark, and in March one of $.76. Comparisons of August and September, 1892, with the same months in 1895, show a difference of $1.53 and $1.67 respectively. The greatest contrasts appear between the high prices of 1892-1893, and the rather low prices of 1895-1896, yet the same irregularity, though somewhat less, occurs in all the other years, whether a comparison be made of the prices for the same month in different years or the prices for the twelve months of the same year. The year 1897, however, is an exception, as in that year the price received was quite uniform save for the last month of the year. In marked contrast is the movement of prices since 1901 . The average price for the year rose from $3.94 in 1900 to $4.32 in 1901, to $4.46 in 1902, to (after the introduction of the new price schedule in the closing months of 1902) $4.82 in 1903, and from then until 191 2 remained steadily at $4.82 ($4.81 in 1911), with the exception of the year 1906, when the average for the year was slightly higher on accovmt of the suspension of the usual April ' Based on the table on pp. 156-157. l66 THE ANTHRACITE COAL COMBINATION discount. This remarkable steadiness of price was not affected even by the panic of 1907 and the resulting depression, the average for the year and the monthly prices showing no change. In 1912 the price rose to $5.03, and in 1913 to $5.06. This same general stability of price appears upon an examination of the average monthly selling price. With the exception of the sum- mer discounts the price from November, 1902, to May, 1912, and from June, 191 2, to December, 1913, has steadily averaged $4.95 and $5.20, respective^, with onl}' the difference of a cent here and there. The only divergence from the regular price of $4.95 ($5.20 since June, 191 2) is in the summer months, April to August. This variation strengthens, however, rather than weakens the conviction that the price of anthracite is controlled by a com- bination of carriers, or their respective coal companies. In April, 1901, there was introduced the summer discount, whereby the circular price was reduced 50 cents per ton in April, and then increased 10 cents per ton in each succeeding month, until the full price was reached in September. This discount has been made regularly every 3'ear since 1901, with two exceptions. In 1906 none was made in April, because of the suspension of mining operations in that month, which made it seem inadvisable to stimulate the demand for coal at a time when there was consider- able prospect of a scarcity. The regular May discoxmt, however, was put into effect, and the course of prices for the rest of the year was as usual. In 1912, also, the April and May discounts were omitted for similar reasons, but in June the regular discounts were restored. The fact that the discounts from the standard price occur regularly indicates that, whereas prior to 1901 prices varied in accordance with the condition of the trade, after 1901 guiding hands have held them steady, such changes as take place coming uniformly and at a definite period. So far as its effect upon the trade is concerned, the practice of giving a discount in the summer months has exerted a beneficial influence. Prior to its introduction in 1901, there had been a considerable concentration of the shipments (and production) within certain months of the year. The collieries had been oper- ated at practically fuU capacitj' during the fall and wiuter months. TEE PRICE AND SALE OF COAL l6j and had lain idle or had been operated at partial capacity during portions of the spring and summer months. The policy of reduc- ing prices during the summer, when the demand normally would be at its lowest, has been successful in equalizing the production throughout the year. This is shown by the results in 1 911, a nor- mal year. The average shipments for the six months from April to September were 5.7 roiUion tons, and those for the first three months and the last three months averaged 5.9 million tons.' As a general thing, the collieries are now operated practically as actively in summer as ia winter. The discoimt system, therefore, has made it possible for the mining companies to operate at much nearer fuU capacity than was possible prior to the adoption by the combination of a definite price with regularly recurring discounts. And the ability to operate more continuously has added greatly to the profits of the anthracite companies, as a considerable element of expense con- tinues whether or no the mines are in operation. This would seem to be the only " economy of combination " which has been secured, and from the very nature of the combination, the only economy which can be secxu^ed, unless some arrangement is made for a joint selling agency. Proposals looking toward this end have been suggested, but have never yet been carried out. But so far as it goes, the policy of a stable price with regular seasonal deductions has been helpful in securing a more even distribution of production, and thereby reducing for the anthracite companies the costs of operation, and for the miners the aU too great irregu- larities of emplo>'ment. To return from this digression, the control of the trade by a combination is indicated in stiU another way, by a comparison of the variation of the selling price from the circular price during the period of competition and during the period of combination. The variation in 1899, the year preceding the rise in price in 1900, is shown in the table on the next page. As there was some difference in the circular prices of the differ- ent companies in 1899, those of a tj^ical company, the Lehigh and Wilkes-Barre Coal Company, have been taken. It has not been * Mineral Resources, 1912, pt. 2, p. 187. l68 THE ANTHRACITE COAL COMBINATION possible to ascertain the prices actually received for stove coal alone by this company in 1899, hence use has been made of the average selling price of stove coal for all the companies. Exact comparisons, therefore, caimot be drawn, j-et the prices received by the Lehigh and Wilkes-Barre Coal Company approximate closely enough the average price received by all the companies to show that in 1899 the circular price was not weU observed. Circular Price ^ Actual Average ' Circular Price Actual Average of Lehigh and Monthly Selling of Lehigh and Monthly Selling Wilkes-Barre Price, as Quoted Wilkes-Barre Price, as Quoted Coal Co. on by the Coal Co. on by the Stove Coal, New Bureau of Stove Coal, New Bureau of York Harbor Labor York Harbor Labor January S3.95 $3.56 August $4.15 $3-68 February... 3.90 3.54 September 4.15 3.80 March 3.90 3.52 October.... 4.15 3.91 April 3.90 3.56 November.. 4.15 3.95 May 3.90 3.63 December.. 4.r5 3.98 June 3-9° 3-6s July 415 367 Average . . . S4.03 $3.70 There was considerable variation in each month, and the average selling price for the year was t,t, cents below the circular price of the company. The function of the circular seems to have been to serv^e as a basis for a discount in prices. Since 1903 the circulars of the different companies have been uniform for the same grade of coal ' (with this exception, that the prices quoted by the companies reaching the lower ports are 5 cents a ton less than those for the companies reaching the upper ports). The circular price at the lower ports and the average monthly selling price for 1903 are shown on the following page. It is apparent that the divergence of the selling price from the circular price of $4.95 for the lower ports and of $5.00 for the upper ports was very sHght in 1903, and as both the circular and the selling prices remained about the same until the recent ad- vance in 1912,^ it is clear that the circulars have been adhered ' Transcript of Record in Sherman Anti-Trust Case, iii, Exh. igr. ^ Bulletin of Bureau of Labor, March, 1902. ^ Transcript of Record in Sherman Anti-Trust Case, ii, p. 122. Testimony of the general sales agent of the Lehigh and Wilkes-Barre Coal Company. ■' The Bureau of Labor states (March, 1913) that on the popular domestic sizes — egg, stove, and chestnut — the full circular price is ordinarily obtained. House Report, 1913, no. 1442, p. 56. THE PRICE AND SALE OF COAL 1 69 to closely. The president of the Lackawanna admitted that, though they were continually seeking new markets and new cus- tomers, they had not found it necessary to depart from the circular price.' The sales agent of the Philadelphia and Reading Coal and Iron Company testified that his company had generally allowed dealers 15 cents off from its earher circulars, but that no deduction was allowed from the circular issued after the strike of 1902, the first time within his recollection that no discount had been permitted.^ Actual Selling Actual Selling circular Price Price at Circular Price Price at for Lower Poris ^ Lower Ports * for Lower Ports Lov/er Ports January. . . . S4.95 S4.9S August .... $4.85 S4.85 February... 4.95 4.95 September 4.95 4.95 March 4.95 4.95 October 4.95 4.95 April 4.45 4.45 November. . 4.95 4.95 May 4.55 4.55 December. . 4.95 4.95 Jime 4.65 4.64 July 4-75 4-75 Average . . . 4.82 4.82 The close adherence to the circular price is brought out also by the table ^ on page 170, showing the difference between the circular prices for stove coal published by the companies, and the prices actually received by them. The two months, April and December, are representative, April being the month of the full discount, and December a month when the regular price has again been reached. The divergence in the case of the Lehigh Valley Coal Company, the Lehigh and Wilkes-Barre Coal Company, the Lackawanna Railroad, and the Hillside Coal and Iron Company, is very small. The average monthly divergence of the selling price from the circular price is less than one per cent. The Reading Coal and Iron Company ' Files of InterSUUe Commerce Commission in Hearst Case, p. 2541. ^ Ibid., p. 725. ' Transcript of Record in Sherman Anti-Trtisl Case, iii, Exhs. 177 and 178. Circular price is $5 at upper ports. ' Bulletin of Bureau of Labor, March, 1904. Correspondence with the Bureau has developed the fact that the wholesale prices quoted by the Bureau are the prices at the lower ports. ' Transcript of Record in Sherman Anti-Trust Case, vi, ErieRailroadExhs.,no. 18, pp. 509 et seq. Figures italicized represent excess of price received above circular price; those not italicized indicate excess of circular price above price received. 170 THE ANTHRACITE COAL COMBINATION alone appears to disregard its ciroilar. Its figures, however, need some explanation. Mention has been made of the fact that up to the latter part of 1902 the Reading Coal and Iron Company gen- erally allowed dealers 15 cents off from its circxilars, which brought the prices received by it to just the level of the prices re- ceived by the other companies. After making this correction it woiild appear that this company still received less than did the p. & R. L. V. L. & w. B. C. & I. Co. C. Co. C. Co. Lacta. H. C. & I. Co. December, 1900 S0.31 S0.02 S0.02 S0.04 $0.13' April, 1901 .20 .02 .02 .02 .04 ^ December, igoi .20 .04 .01 .01 .01 April, 1902 20 .04 .01 .00 .02 December, 1902 05 .08 .00 .00 .01 April, 1903 .05 .Oj .00 .00 .01 December, 1903 .05 .00 .00 .00 .01 April, 1904 .05 .05 .00 .00 .03 December, 1904 05 .01 .01 .00 .02 April, 1905 05 .02 .00 .00 .03 December, 1905 05 .00 .00 .00 .02 April, 1906 05 .02 .00 .00 December, 1906 05 .00 .00 .00 .02 April, 1907 .05 .02 .00 .01 .02 December, 1907 .05 .01 .01 .00 .02 April, 1908 05 .01 .00 .00 .02 December, 1908 No circular ^ ^o .00 .01 ' ^ pnces Total Si. 51 S0.37 $0.08 S0.08 S0.42 other coal companies. The difference of 5 cents, appearing regu- larly, can, however, likewise be explained. The circular of the Reading quotes the price at Port Liberty, which is the base, but the main terminal of the Reading Railway, at which practically all the tide-water coal is sold, is Port Reading. The price received at Port Reading is 5 cents less than is the price at Port Liberty, in order to make up for the greater cost of towing from Port Read- ing.^ When these corrections are made, it is evident that there has been no divergence of the selling price from the circvdar price. This uniformity of the price circulars and of the prices received by the different companies seems to have been brought about at ' Includes Pennsylvania Coal Company. 2 Transcript of Record in Sherman Anti-Trust Case, iv, p. 605. ^ O t^ C> ^ <^ ^ ~,, THE PRICE AND SALE OF COAL IJl times through conferences of the presidents of the coal companies, meeting " casually." An instance of one of these meetings is fur- nished in the testimony of President Olyphant of the Delaware and Hudson. During the strike of 1902 the market price of coal for a time was $8 or $9. President Olyphant was asked: — How was it that this common price of $5 a ton was maintained by the companies when the market price was $8 or $9 ? — Mr. Olyphant: It fpas because of consideration for the public, that we desired to serve decently. — Mr. Shearn: With whom did you discuss the matter before you came to that conclusion ? — Mr. Olyphant: I think at a meeting not held with reference to that matter but one necessitated by the conditions of the strike — it was a casual remark made by a president of a coal company, I forget now who — " Well, don't let us put the price above Ss to the public, anyhow," and everybody said, " That is right," and we went oflF with that idea. There was no more conference than that about it. — Mr. Shearn: Do you recollect who were present, Mr. Olyphant ? — Mr. Olyphant: I think the presidents of the roads — and outside coal operators and others. — Mr. Shearn: Was Mr. Baer there? — Mr. Olyphant: I hope so, he is a pleasant feOow. — Mr. Shearn: What is your recollection as to whether Mr. Baer was there ? — Mr. Olyphant: I think probably he was. — Mr. Shearn: And President Thomas, do you recollect whether he was there? — Mr. Olyphant: Yes, sir; I just told you I thought they were all there. — Mr. Shearn: Do you recollect who it was that made the suggestion at that meeting ? — Mr. Olyphant: I told you I did not. I think I was going out the door at the time. — Mr. Shearn: Then, it was a casual remark, made as you were going out the door that settled what the price of coal was going to be? — Mr. Olyphant: Yes, sir. I am sure the public were very much obliged to us for doing it.' The workings of the system were shown by the editor of the Coal Trade Journal. When asked by the Industrial Commission how he explained the uniform circular, if there was no agreement, he answered: — A. Oh, I don't know. It is the advance in civilization, I guess. ... I do not know but there is a telephone that might be used by somebody to ask, " What are you going to ask for coal ? I have my circulars aU at the print- er's and I am ready to send them out. I am going to ask so and so." "All right," might be the response; " I will ask the same." . . Q. This com- munication by telephone or wireless telegraphy, whatever you might call it, answers the same purpose as the combination would, does it not ? — A. It seems to be a .wonderful invention; it beats writing on a piece of paper and putting a signature to it. — Q. In what way does it beat it ? — A. No record kept. — Q. In other words, if there were a record kept, would it be an illegal ' Files of Interstate Commerce Commission in Hearst Case, pp. 1338-1340. 172 THE ANTHRACITE COAL COMBINATION combination, conspiracy, or something of that kind ? — A. So construed by a good many lawyers in Congress, you know. — Q. It might be conspiracy in restraint of trade ? — A. It might be.' The general course for a number of years appears to have been for the Reading, as the largest producer, to issue its circular, and for the others to adhere to the price thus jBxed. There is consid- erable testimony upon this point. Mr. Peters, whose firm handles the product of the Hillside Coal and Iron Company and of the Pennsylvania Coal Company, said in speaking of the Reading Coal and Iron Company, " they are the largest producers, we look to them as the fathers of the anthracite trade, they have been in a good many years, and when they have made their figures we en- deavor to get as much money for the product of the people we represent as the Reading; if we could not, I do not believe we could hold our jobs." ^ President Olyphant of the Delaware and Hudson said, " I think the general course has been for the Read- ing, it being the largest company, to put out its price and all the others have to do is to foUow." ^ President Truesdale of the Lackawanna, when asked to explain how it was that the circulars were uniform, if there were no agreement, said, " There is no agreement or imderstanding. One company fixes — one of these leading companies fixes its price on coal and fixes the discount. None of the other companies can get more than that; it is abso- lutely out of the question." * Mr. Harris, formerly president of the Reading, testified that the other companies frequently fol- lowed its circular, though it was a matter entirely of their own volition.^ The sales agent of the Reading Coal and Iron Com- pany also testified that he sent the price circulars of his company to the sales agents of all the other companies, but this was purely a matter of courtesy.' President Baer has explained why it is that the price circular of the Reading is the standard. " The price of the entire supply of ' Induslrud Commission, ix, pp. 516-517. ' Files of Inlerslate Commerce Commission in Hearst Case, p. 1307. ' Ibid., p. 1335. * Ibid., p. 2421. ' Industrial Commission, is, p. 604. ' Files of Interstate Commerce Commission in Hearst Case, pp. 718-720. THE PRICE AND SALE OF COAL 1 73 anything necessary for a commvmity will be regulated by the cost of production of that portion of the necessary supply which is pro- duced at the greatest expense." " If the price of anthracite coal were fixed so as not to jdeld a profit to our Coal and Iron Com- pany, the resvdt would be that the mines would stop for a short time, and the price of coal would necessarily go up, because the withdrawal of thirty per cent of any commodity would naturally affect the price, and the final result would be that, the price ad- vancing our mines would resvmie operations again. Therefore, it is the general custom of the other companies, I believe, to fol- low our circular. We fix the best price we can get, and the Wyoming region and the people that can produce coal cheaper than we do, necessarily follow our price, because it would be foolish for them to undertake to cut it, when there is a market for the reasonable output of existing mines, taking it year in and year out." 1 The other coal companies were able without any difficulty to keep their prices on a level with those of the Reading Coal and Iron Company, because the determination of prices was vested in the hands of their presidents, who realized the advantages of har- monious action. The sales agent of the Lehigh and Wilkes-Barre Coal Company testified that President Baer determined the price to be charged by the coal company. Mr. Baer generally sent his instructions just before the first of each month. He (the sales agent) never made any changes in these prices without first consulting Mr. Baer.^ The presidents of several of the other coal companies testified that the price of coal was fixed under their direction. Up to 1912 it seemed to be mutually understood that the circular price was to be $4.95 ($5.00 at the upper ports), with the regular summer discounts. No more binding arrangement appeared to be necessary. And since the middle of 191 2 theim- derstanding has been that the price is to be $5.20 and $5.25, respectively. The railroads or their coal companies control the wholesale price of coal in New York Harbor. In some cases these coal com- • Transcript of Record in Sherman Anti-Trust Case, v, pp. 1176-1177. ' Files of Interstate Commerce Commission in Hearst Case, pp. 79^800. 174 THE ANTHRACITE COAL COMBINATION panics maintain their own sales offices, and conduct the business directly through their sales officers. In other cases the business is carried on through regularly appointed agents working on a commission basis. But between these different companies, or their sales agents, there is no competition affecting the price of coal. Such competition as there is bears on the quality of coal and its preparation. An illustration may be given of the way in which competition in prices has been prevented. In 1901 there had been considerable price-cutting in Brooklyn, always a highly competitive market. Mr. Ruley, the head of the Bureau of Anth- racite Coal Statistics (this Bureau is paid by the carriers to collect the statistics of tonnage and prices) was requested (in 1901) by one or two of the coal companies to ascertain the prices in the Brooklyn market. The Bureau thereupon collected monthly from each railroad coal company information as to the amount of its sales in Brooklyn, with the prices received. These prices were compUed in a table, and sent to the various companies, — this has been done regularly siace then with the result that the discrepancies between the prices received by them have been much less than they were in 1901, when the statistics were first compUed. This report was made solely with reference to the Brooklyn market, and was not necessary for any purpose relating to the price of labor or the amount which was to go to the individ- ual operators under the percentage contracts. It was prepared in order to eliminate the shading of prices, it being believed that the practice would be stopped, were the fact of price-cutting gen- erally' known, and Mr. Ruley's testimony indicates that the report has had this effect.' Fortunately for the anthracite companies there is no foreign competition to be feared. Though anthracite coal has been free of duty since 1870, practically no coal has ever been imported. The greatest imports in any one year were in 1903, when 151,000 tons were brought in. In the two strike years, 1900 and 1902, when the need for anthracite was at its greatest, the imports were only 118,000 and 73,000 tons respectively, and in 1909 the 1 Transcript qf Record in Sherman Antir-Trust Case, v, pp. 982, 988-990. THE PRICE AND SALE OF COAL 17C, imports were less than 5,000 tons.' So far as its effect on the combination is concerned, foreign competition may be said to be non-existent. The competition of other fuels does not operate to limit mark- edly the price which the combination may set. The principal competitor of anthracite is soft coal. The lower price of bitimiin- ous coal has confined the sale of anthracite to the eastern states, and those western cities which are accessible by the lakes. But for domestic purposes anthracite is so far superior to bitviminous that its relative dearness has not prevented anthracite from find- ing a market at high prices in the sections of the coimtry accessi- ble through comparatively low freight rates. The competition of bituminous affects primarily the smaller sizes of anthracite,which are used for steam purposes. These small sizes, which are a by- product of the larger or domestic sizes, are sold at varying prices, according to the grade, but approximate more nearly the prices charged for bituminous coal. To some extent, also, coke, gas, and petroleum oils enter into competition with anthracite, but not sufficiently to limit to any considerable degree the price which may be charged for anthracite. As much was admitted by the counsel of the Philadelphia and Reading Railway in the Hearst Investigation in 1903. Mr. Campbell in a moment of impatience said, " This Commission knows now as well as they will if they call a thousand witnesses that the price of coal today is approxi mately $5 a ton; that it could be $8 or $10 if the operators de manded that price." ^ To control the wholesale price of coal in the New York market is to control the price in the main distributing center for anthra- cite. The shipments of coal to the New York Harbor points are approximately 25 per cent of the total shipments, and about 30 per cent of the shipments passing outside of the State of Pennsyl- vania.' The importance of the New York market is seen, also, ' Saward's Coal Trade, 1901-1910; and O. P. Austin SumTtiary of Commerce and Finance, September, 1902, p. 709. ^ Files of Inlerslate Commerce Commission in Hearst Case, pp. 1344— 1345. ^ Transcript of Record in Sherman Anli-Trusl Case, ii, pp. 647, 648, 650, 688, 706, 738; iii, pp. 197, 214, 220; also Original Petitions in Reading Case and Lehigh Valley Case, see Biblio. nos. 172 and 173. 176 THE ANTHRACITE COAL COMBINATION in the fact that the price there served until 1912 as the basis for the payments to the individual operators under the percentage contracts, and also as the basis for the sliding scale of wages. ^ The railroad coal companies control likewise the wholesale price of coal in Philadelphia, the main distributing point for Pennsyl- vania. The circular price of stove coal there, for example, is consistently 25 cents less per ton than it is at the upper New York Harbor points.^ The important consequences of controUing the market at these centers becomes clear upon a consideration of the movement of anthracite to market. In general anthracite may be said to move to New York and Philadelphia for further trans- portation north and south, and to Buffalo for transportation west. From New York and Philadelphia the coal is shipped coastwise or by rail to New England points, and to a sihaUer extent south- ward, the southern trade being distributed along the Delaware and Maryland peninsiilas to Baltimore, Washington, and other points within easy reach of the coast. The movement of anthra- cite westward is chiefly effected from Biiffalo, shipments being made by lake to Chicago, Milwaukee, Duluth, and Superior. The consumption of anthracite in the west is primarily in the towns accessible to the lakes, the long railroad haul to the interior towns making the price practically prohibitive. In Cincinnati, for example, the receipts of anthracite in 1907, a typical year, were only about 25,000 tons, which was less than i per cent of all the coal received at Cincinnati.' The distribution of the consumption of anthracite in fmrther detaU is given in the following table.^ This shows the consxmip- tion in the different sections of the country (including the exports to foreign countries) in 1882, the first year in which the statistics were kept, and in 1905, the last year for which they are available. ' In 191 2 the Supreme Court declared the jjercentage contracts illegal; and the sliding scale of wages was abolished by the mutual consent o( the operators and the miners. ' Saward's Coal Trade, 1911, p. m; also Mineral Resources, 1912, pt. 2, p. 185. » Saward's Coal Trade, 1911, p. 23. * Annual Report of the Geological Survey of Pennsylvania, 1886, pt. 3, p. 1043, for 1882; and Saward's Coal Trade, 1908, p. 130 for 1905. For the distribution of the consun^tion of anthracite by states in 1899, see Appendix, Table V. THE PRICE AND SALE OF COAL 1 77 1882 190S Total Tons Per Cent Total Tons Per Cent N. Y., Penn., & N. J 19,957,000 68.54 41,501,000 67.58 New England 5,064,000 17.39 8,692,000 14-IS West 2,213,000 7.60 6,904,000 11.25 South 1,168,000 4.01 2,080,000 3.39 Pacific Coast 49,000 0.17 1,000 .00 Canada 616,000 2.12 2,187,000 3.56 Other countries. 49,000 0.17 42,000 .07 Total 29,120,000 61,407,000 Between 1882 and 1905, a period of nearly twenty-five years, the consumption of the west increased relatively, and that of the New England states declined (relatively only), but otherwise there was very httle change in the distribution of the consumption of anthracite in those sections of the country for which the statistics have been collected. In 1905 about 30 per cent of the coal shipped to market was consumed within the State of New York, 19 per cent in Pennsylvania (not including the coal con- sumed at the mines or locally), and 12 per cent in New Jersey, making a total consumption within these three states, including the supply coal of the raOroads, of 67.58 per cent, or over two- thirds of the total.^ A little over 14 per cent of the total ship- ments were consumed within the New England States, about II per cent in the western states, not including the Pacific Coast where the consumption is practically nil, somewhat less than 4 per cent is taken by the southern states, about the same amount by Canada, and less than i per cent is shipped to foreign countries. To fix the price at New York Harbor and at Philadelphia is to fix within fairly definite limits the price in those states which are accessible to these main distributing points, — that is. New York, New Jersey, Pennsylvania, and the New England States. These states consume over four-fifths of all the anthracite coal shipped to market. The wholesale price at these distributing points determines to some extent, as a matter of course, the retail price to consumers throughout the field of distribution. The regular wholesale price of stove coal at New York Harbor is, as noted above, $5.20 at the * Argument of counsel for defendant railroads in Commodity Clause Cases, p. 34. See Biblio. no. 167. 1 78 TEE ANTHRACITE COAL COMBINATION lower ports and $5.25 at the upper ports, subject to the usual summer discount. There is, however, a towing charge to the docks of New York City of 20 cents from the lower ports, and 15 cents from the upper ports, making a imiform price in New York City of $5.40. This is the price per long ton of 2,240 pounds. Anthracite is retailed, however, by the short ton of 2,000 pounds. The wholesale price per short ton, therefore, would be $4.82. The prevaiUng retail price of this coal for the family trade is (1913) $6.75 during the winter months with the customary dis- count in the summer months.^ Over one-fourth of the price paid by the consimier is made up, therefore, of the retailer's charges. Various proposals have been made looking toward a lessening of the margin between the wholesale and the retail price of coal. This margin, however, is large in the case of many other commodi- ties. The case of coal, therefore, is but a part of the general problem. To sum up: the wholesale price of coal has increased rapidly since 1900, a rise only partially explained by the increased cost of mining. The rise in price has been accompanied by a remarkable stability in price from year to year, and from month to month. The circulars issued by the several coal companies have been uniform, and the deviations from the circular slight. This stabil- ity is, doubtless, the result of an understanding, not necessarily arrived at in a conference to fix prices, but presumably based on a tacit agreement to follow the price circxilars of the Reading 1 Retail price bulletins of the Bureau of Labor. See also House Report, 1913, no. 1442, pp. 69-71. The table below showing the " prevailing " retail price of stove coal in representative cities on October 15, 1913, may be of interest. Short Ton Short Ton of 2000 Lbs. of 2000 Lbs. Scranton, Pa $4.50 Chicago $8.00 Philadelphia 6.25 Milwaukee. S.oo Newark, N.J 6.2s St. Louis 8.00-8.25 New York 6.75 Indianapolis 8.25 BuSalo 6.80 Manchester, N.H 8.7s Charleston, S.C 6.go Jacksonville, Fla g.oo Cleveland 7.50 Mmneapolis 9.2s Richmond, Va. 7. 75 New Orleans 10.00 Boston 8.00 Omaha io-7S For an account of the abnormal heights to which the retail price of coal rose in cer- tain dties on account of the scarcity occasioned by the suspens on in 191 2, see House Report, 1913, no. 1442, pp. 69-84; also retail price bulletins of the Bureau of Labor, THE PRICE AND SALE OF COAL 1 79 Coal and Iron Company. Such harmonious action is rendered possible by the control exercised over prices by the presidents of the coal companies. It is facilitated by the absence of foreign competition and of any effective competition of other fuels. The fixing of the wholesale price at New York and Philadelphia determines roughly the price in those large areas which draw their supply from these distributing points. CHAPTER Vm THE LEGAL STATUS OF THE COMBINATION The conclusions of the previous chapters may be restated in brief. Practically aU the anthracite coal that is mined is con- trolled by the anthracite carrjong raihoads through their coal companies. These raUroads are clearly working in harmony with each other. The wholesale price of coal at tide-water is fixed by what is, for practical purposes, a combination of coal companies, and the power of this combination to fix the price is not limited at present by any fear of foreign competition, nor to any consider- able extent by the danger of losing its market through the use of substitutes. The combination fixed in 1900 a materially higher price for anthracite coal — a price which has been steadily main- tained, or increased. Numerous attempts have been made to dissolve this combination. The present chapter deals with these attempts. The poHcy of the State of Pennsylvania, up to the time of the adoption of the Constitution of 1874, was, as has akeady been told in some detaU,^ to encourage the development of its anthracite coal fields by granting to the raihoads mining privileges, or the authority to acquire the stock of companies engaged in the mining of coal. The abuses attendant upon this policy led in 1874 to a constitutional prohibition against the uniting of transportation and minin g privileges. This prohibition, however, had little effect. In spite of numerous investigations and sxiits — state and national — there was buHt up, within a few years after 1898, a combination which has controlled effectively the production of coal, has prevented competition in its shipment to market, and has determined its selling price. The different companies joined to- gether in this combination became involved in serious labor diffi- culties in both 1900 and 1902. The strike of 1902 was especially ' See ch. II. 180 THE LEGAL STATUS OF THE COMBINATION l8l bitter and prolonged, being settled finally through the interven- tion of the President of the United States, and by the appoint- ment of a Commission to adjudicate the questions at issue. The Commission awarded an increase in wages, an award which served for the combination as the justification for a considerable advance in the price charged for coal. The strike of 1902 and the resulting rise in price provoked the first attack upon the combination. Mr. William Randolph Hearst on November 3, 1902, filed a petition with the Interstate Commerce Commission to secure the dissolution of the anthracite coal combination.^ Mr. Hearst had endeavored to persuade the Attorney General of the United States to institute proceedings under the Sherman Anti-Trust Act, but having failed in this, he addressed the Interstate Commerce Commission. His petition complained that the Philadelphia and Reading, the Central of New Jersey, the Lehigh Valley, the Lackawanna, the Delaware and Hudson, the Pennsylvania, the Erie, the New York, Susque- hanna and Western, and the New York, Ontario and Western * were charging rates that were imreasonable in violation of Section I of the Act to Regulate Commerce; that discriminated against producers who did not ship on a contract basis in violation of Sec- tion 2 ; that were unduly high as compared with the rates on bitu- minous coal and other carload freight in violation of Section 3; and finally that the Philadelphia and Reading, the Central of New Jersey, the Lehigh Valley, the Lackawanna, the Erie, and the New York, Susquehanna and Western were pooling traffic and earnings in violation of Section 5.' The Interstate Commerce Commission began the taking of tes- timony in April, 1903 , but was much hampered in its investigation by the refusal of the oflacers of the railroads and their subsidiary coal companies to produce the percentage contracts providing for the purchase of coal from the individual operators, to produce fur- ther the contracts entered into in connection with the Temple ' Anniud Report I. C. C, 1902, p. 261. * The complaint also Included the Baltimore and Ohio, but this road originates no anthracite traffic. » 194 U. S. 27-28. 1 82 THE ANTHRACITE COAL COMBINATION Iron Company transaction, and by their refusal to answer certain questions as to the fixing of prices, and certain other matters which the Conunission held to be germane to the inquiry. Upon the refusal of the defendants to comply with its order upon these points, the Commission took the case to the Circuit Court for the Southern District of the United States. Its petition was denied, however, save for one unimportant exception.' The Circuit Court held (June 12, 1903) that the contracts and questions called for had no reference to transportation, and were, therefore, not rele- vant to the question of reasonable rates, which was the subject matter of the investigation; that the so-caUed percentage con- tracts were entirely contracts of purchase, according to which the buyer was to pay the seller a certain percentage of the selling price of coal of a certain size and quality, and were not, therefore, interstate in character.^ An appeal was taken under the expediting act of February 11 and 19, 1903, directly to the Supreme Court.^ This court, in a decision rendered on April 4, 1904, reversed the findings of the lower court. It held that, though the contracts which the Inter- state Commerce Commission desired to have produced were nom- inally between the independent operators and the coal companies, yet since these coal companies were principally owned by the rail- roads, the railroads were in reality engaged in the purchase of coal, and the transportation of a considerable portion thereof to tide; that as the Interstate Commerce Commission was author- ized to investigate the business of these anthracite carrying companies, there was no reason why these contracts, which had a direct relation to a large amoimt of the railroads' carrying trade, should be withheld from the Commission. It is claimed, said the Court, that the real purpose of the contracts was to fix a rate for transportation to carriers by the percentage retained from the selling price, after deducting the expenses of marketing. If this be true, and if the percentage thus remaining is less than the pub- lished freight rates, there is discrimination against the operator not shipping imder these contracts. On the other hand, if the ' Annual Report I. C. C, 1903, pp. 75-76. ' 123 Fed. Rep. 971. ' Annual Report I. C. C, 1904, p. 32. THE LEGAL STATUS OF THE COMBINATION 1 83 coal companies paid the fvill rate, and failed to realize this much from the percentage of the seUing price retained, they would be losing money, and as the coal companies were owned by the rail- roads, the loss would ultimately be borne by the raikoads, and not by the coal companies. The contracts may show that the coal company paid the full rate, and, therefore, that the freight rates received by the raihoads do not depend on the percentage contracts, but relevancy does not depend on the conclusiveness of the testimony offered, but upon its legitimate tendency to estab- lish a controverted fact.^ The Supreme Court held that the Cir- ■ cuit Court erred iu all three points, and directed the defendants to produce the contracts and to answer the questions asked. The Interstate Commerce Commission thereupon reopened its case. It took much testimony, and continued to conduct investi- gations, even as late as 1906. It, however, never rendered a decision in the case.^ Thus, though there was secured much information as to the control of the trade by a combination, which presumably had its effect upon later legislation, but little was accomplished in the way of remedying the abuses concerning which complaint had been made. The decision of the Supreme Court in the New Haven case,' rendered in February, 1906, also served to focus attention upon the abuses incident to raikoads entering into competition with other companies engaged in business upon their lines. The Chesa- peake and Ohio Railroad had agreed to deliver a certain amount of coal to the New Haven Railroad at a contract price which was inadequate to pay the market price of the coal plus the published freight rates of the Chesapeake and Ohio to Newport News, to- gether with the charges thence to the point of delivery. The Supreme Court took under advisement the question whether a carrier, engaged ia interstate cormnerce, has the power, by be- coming a dealer in the commodities which it transports, to disre- gard the published freight rates. The positive comnjand of the • 194 U. S. 41-44. ' The Commission formally dismissed this proceeding in February, 1914, prob- ably because of the more elaborate investigation of the anthracite business then being conducted by it. ^ 200 U. S. 361-405. 184 THE ANTHRACITE COAL COMBINATION second section of the act, that no departure from the published freight rate shall be made, directly or indirectly, shows, said the Court, that the purpose of the statute is to make the prohibitions applicable to every method of dealing whereby the carrier might effect the forbidden result. Now if, by the mere fact of purchas- ing and selling merchandise to be transported, the carrier is en- dowed with the power of disregarding the published rate, it becomes apparent that it possesses the power to concentrate in its own hands the products which are offered for shipment along its line, and to become, therefore, the sole purchaser thereof, and the sole seller at the place where the products were to be marketed; in other words, to create an absolute monopoly. The facts show, that in order to stimulate the production of coal along its line, the Chesapeake and Ohio had_bou^ht and sold coal without reference to whether or not the net result would realize the published freight 1-ates, and that as the result of this practice the railroad had for a long time been virtually the sole piu-chaser and seller of all the coal procjuced along the line of its road. These considerations, held the Court, serve to demonstrate that the prohibitions of the act concerning undue preference and unjust discrimination are in conflict with the asserted right of a carrier to become a dealer in cormnodities which it transports, and, as such dealer, to sell at a price less than the cost and the published rates. And even if the result of applying the prohibitions in this way will render it diffi- cult, if not impossible, for a carrier to deal in commodities, yet this affords no excuse for failing to enforce the provisions of the statute. The Court, therefore, perpetually enjoined the Chesa- peake and Ohio from taking less than the rates fixed in its pub- lished tariff by means of dealing in the purchase and sale of coal. In 1906 another investigation was conducted by the Interstate Commerce Commission, this time with especial reference to the bituminous coal trade. This investigation was instigated by Senator Tillman of South Carolina. On the 29th of January, 1906, he read in the Senate a memorial from the Red Rock Fuel Company of West Virginia, which complained of discrimination by an interstate carrier. The essential facts in the case were, briefly, as follows: the Red Rock Fuel Company, owning 4,000 THE LEGAL STATUS OF THE COMBINATION 1 85 acres of coal lands on the line of the Baltimore and Ohio, had asked for sidetrack connections, promising to pay the total cost of these coimections. The Baltimore and Ohio refused to pro- vide them, whereupon the Red Rock Company built a side track to the Baltimore and Ohio, and brought proceedings before the Interstate Commerce Commission in May, 1905, to compel the Baltimore and Ohio to furnish a cormection.' The Conunission rendered a decision in November, ordering this connection to be furnished, and incidentally foimd that the failure of the railroad to provide such coimection was due to its interest in other coal companies along its line, to which preference had been shown.^ The order of the Commission, however, had been ignored by the railroad. This memorial and numerous letters from coal producers were introduced by Senator Tillman to show the helplessness of the independent operators. In the House of Representatives, it was brought out that the conditions in the petroleum industry warranted an investigation as to oil also. As a result of these disclosures a Joint Resolution was passed by Congress on February 28, 1906, instructing the Interstate Commerce Commission to make examinations into the subject of railroad discriminations and monopolies in coal and oU.' The Commission, after making a preliminary investigation, began the taking of evidence in April, 1906. At these hearings it ' was shown that many of the soft coal roads owned directly, or indirectly by stock ownership in other companies, large blocks of coal lands, and in the case of the Pennsylvania Railroad that the officials and the employees of the road owned large amounts of stock in coal companies shipping over the raihoad. These shares, it was ascertained, had been given outright to those officials whose influence it had been deemed worth while to secure, including car distributors, train-masters, superintendents,* and even the assist- ant to the president. The president of the Jamison Coal and Coke Company admitted that his company had presented the ' Cong. Record, January 29, 1906, p. 1671. 2 I. C. C. Reports, xi, pp. 438-439, 449- ' Cong. Record, February 26, 1906, p. 2979. * Report of the Interstate Commerce Commission on Discriminations and Monop- olies in Coal and Oil, pp. 22-27. 1 86 THE ANTHRACITE COAL COMBINATION ofl&cials of the Pennsylvania Railroad with stock with the object of securing better treatment and facilities from the railroad.' Though the report of the Commission on the eastern bituminous coal situation was not made public until late in January of the following year, much testimony was taken in April and May, and this served to arouse public sentiment on the subject and to increase the demand for some legislation, which would prevent such abuses as had been shown to exist. It is evident, then, that there were many factors directing pub- he attention to the conditions in the coal trade. Those relating especially to conditions in the anthracite industry may be briefly summarized: First, the general consolidation movement, that is, the purchase of several anthracite carriers, the purchase of numer- ous independent coal companies, and the t3dng up of many others through the percentage contracts, — resulting in a practical elimination of the independent element. Secondly, nimierous labor difficulties. There was a large strike in 1900, a stiU larger one in 1902 which was settled only by arbitration, and there was a suspension of operations for seven weeks in 1906. These had the effect of arousing the bitter antagonism of the laboring class. Thirdly, discrimination by the railroads against the independent operators. Several suits invohdng these complaints had been instituted before the Interstate Commerce Commission, notably the Coxe and Haddock cases, brought in 1889 and 1890 respec- tively, but pending in the courts for many years thereafter. The New Haven case decided early in igo6, though relating to a soft coal road, was important as showing how, by means of dealing in commodities and eliminating the freight rate, a carrier could monopoHze the coal traffic along its hne, and practically eliminate independent tonnage. Fourthly, numerous governmental in- vestigations into the conduct of the industry. There had been a Congressional Investigation in 1892, and one by the Industrial Commission in 1901. More recently the Interstate Commerce Commission had conducted an inquiry into the anthracite coal business in connection with the Hearst complaint, and an inquiry into the bituminous coal trade. The combination of these factors * R. R. Gaz., 40: 527 (1906). THE LEGAL STATUS OF THE COMBmATION 1 8/ in conjunction with the agitation for further regulation of common carriers, explains the enactment of far-reaching legislation de- signed to put an end to, or at least to check, the growth of a movement which had already attained such considerable propor- tions in the coal business. The form which this legislation took was an attempt to prevent railroads from engaging in any other business than that of com- mon carriers. The specific clause, designed to effect this result, known as the commodity clause, was a part of Section i of the Act to Regulate Commerce, passed June 29, 1906 (the Hepburn Act) . The clause as finally enacted provides that From and after May first, nineteen hundred and eight, it shall be unlawful for any railroad company to transport from any State, Territory, or the District of Columbia, to any other State, Territory, or the District of Colum- bia, or to any foreign country, any article or commodity, other than timber and the manufactured products thereof, manufactured, mined or produced by it, or under its authority, or which it may own in whole, or in part, or in which it may have any interest direct or indirect except such articles or commodities as may be necessary and intended for its use in the conduct of its business as a common carrier.' Just what Congress was attempting to prevent may perhaps become clearer if the legislative history of the clause be followed. The incorporation of the commodity clause into the Hepburn Act was, in considerable measure, due to Senator Tillman of South Carolina. In coimection with the resolution directing the Interstate Commerce Conmaission to conduct an investigation into coal and oil he expressed in the Senate on February 12, 1906, his dissatisfaction with the Hepburn biU — in the form in which it had passed the House on February 8, 1906. " I want," he said, " a provision in any raUroad law that I vote for which . . . wiU prohibit any public carrier from owning and controlling a product which is carried over its Une. I want this monopoly of the anthra- cite coal region . . . checked. I want a provision in this law u . . which will prevent any monopoly of the bituminous coal lands on the Atlantic Slope by the Pennsylvania RaUroad and its allies. ... I am going to offer an amendment in committee, > 34 Sfa/. 584, c. 3S9I. 1 88 THE ANTHRACITE COAL COMBINATION and if I do not get it in the bill there I am going to offer it in the Senate, looking to . . . preventing this particular wrong." ^ Senator Tillman, who was put in charge of the Hepburn bill when it came before the Senate, was strongly in favor of effecting a separation of the businesses of transporting and of mining coal. Furthermore, judging from the opinions later expressed on the floor of the Senate, there appeared to be general agreement upon this fundamental point. Even Senator Foraker, one of the three senators who voted finally against the bill, went so far as to say, " I do not believe that a common carrier should be engaged in any business except only that of a coBomon carrier. I do not believe that a common carrier should be allowed to own coal mines and operate them, except only possibly where they have a vested right with which we have no power to interfere." ^ However, it was three months after the Hepburn Act had passed the House before the commodity clause in any form was introduced into the bill in the Senate. It had not been a part of the original Hepburn bill, was not in the act as it passed the House on February' 8, 1906, and had not even been suggested by the Roosevelt administration. It was not referred to the Senate Committee on Interstate Commerce; in fact, at the hearings of the Senate Committee in the previous year no proposition looking toward any interference with the raUroads engaged in industrial activities was even considered. But on May 7, only eleven days before the Hepburn Act first passed the Senate, an amendment was proposed by Senator ELkins embodying the principle of a severing of the functions of transportation and of production. In introducing his amendment, Senator Elkins said, " I want to con- fine the railroads to the legitimate business for which they were incorporated — the transportation of freight and passengers — and to forbid them engaging in any other business, especially the business of mining, producing, and seUing coal or any other com- modity on their lines in competition with a shipper." ' This amendment, which was to come at the end of Section i, provided • Cong. Record, February 12, 1906, p. 2428. ' Ibid., March 12, igo6, p. 3672. ' Ibid., May 7, igo6, p. 6456. THE LEGAL STATUS OF THE COMBINATION 1 89 that " It shall be unlawful for any common carrier subject to the provisions of this act, unless authorized by its charter to do so, to engage, directly or indirectly, in the production, manufacture, buying, furnishing, or seUing of coal or coke or any other com- modity or commodities of commerce in competition with any shipper or producer on its line or lines: provided. That nothing in this act shall be construed to prevent a carrier from mining coal exclusively for its own use." ^ The proviso, " unless authorized by its charter to do so," was inserted as Senator Elkins said, in order to be fair to the raikoads which had been authorized many years previously to conduct the business which it was now pro- posed to regulate, but upon the objection of Senator Gallinger of New Hampshire, the quahfying proviso was struck out.^ The amendment of Senator Elkins prohibited a common carrier from engaging in the production of coal. Senator Bailey objected that regulation of the production of coal was beyond the jiuisdiction of Congress, and that the prohibition should, therefore, take the form of denying the privilege of interstate commerce to any com- mon carrier engaged in the production or distribution of coal.' It was pointed out, however, by Senator Daniel of Virginia, that a common carrier should not be prohibited from engaging in inter- state commerce, but only from carrying in interstate commerce any articles which were produced by it in competition with other shippers.'' An amendment to this effect, proposed by Senator McLaurin of Mississippi and later accepted by Senator Elkins, passed the Senate May 9 by a vote of 67 to 6, — 16 not voting.^ With one important exception this amendment coincided in its most significant features with the language of the commodity clause as incorporated in the Hepburn Act, in the form in which the bill passed the Senate on May 18.^ This exception was the treatment of timber and the manufactured products thereof. During the course of the debates it was urged by a number of Senators that the clause would work a great hardship on those lumber companies which had built their railroads for the purpose ' Cong. Record, May 7, 1906, pp. 6455-6456. * Ibid., May 7, 1906, p. 6458. ' Ibid., May 7, 1906, p. 6456. ' Ibid., May 9, 1906, p. 6570. ' Ibid. ' See p. 190. I90 THE ANTHRACITE COAL COMBINATION of getting the lumber out of the forests and to market. The' pressure they were able to bring to bear was sufficient to induce the Senate to accept, on May 17, the amendment of Senator Piles of Washington, that the prohibitions of the clause should not apply to timber and the manufactured products thereof.^ The pressure of other interests was also observed in the attempt to limit the scope of the clause. The term common carrier included pipe lines for oU, natural gas, and other commodities. Friends of these interests endeavored to secure the adoption of an amend- ment specifically exempting pipe lines from the prohibitions of the clause. This amendment failed to pass the Senate,^ but its object was attained by the substitution in conference of the term " rail- road company " for " common carrier." An attempt was made, also, to reheve those railroad companies which were incidental to industrial enterprises from the operation of the clause by Hmiting its apphcation to those common carriers whose principal business was that of a common carrier. This amendment, however, which would also have relieved pipe lines was defeated in the Senate.' The Hepburn Act passed the Senate on May 18 by the large majority of 71 to 3 — with 15 Senators not voting. The com- modity clause at this stage made it unlawful for any common car- rier to transport in interstate commerce any article, other than timber and its manufactured products, which had been manu- factured, mined, or produced by it, or under its authority, or which it owned in whole, or in part, or in which it had any interest, direct or indirect. It did not state spedficaUy that the ownership by a railroad of stock in a subsidiary mining or producing com- pany constituted such an interest as was forbidden by law. Sena- tor Tillman, a steadfast advocate of the principle of divorcing transportation and production, had introduced, on May 8, an amendment to prohibit carriers from engaging in interstate com- merce, when they were interested by stock ownership or otherwise in mining or producing those coromodities which they transported in interstate commerce.* His amendment, however, was not put ^ Cong. Record, May 17, 1906, pp. 7012, 7015. ' Ibid., May 17, 1906, p. 7016. ' Ibid., May 17, 1906, p. 7015. * Ibid., May 8, 1906, p. 6513. THE LEGAL STATUS OF THE COMBINATION 19I to vote. On May 17 he called the attention of the Senate to the fact that the commodity clause in its present form (which was substantially the form of the clause as finally enacted) did not cure the evils for which it had been designed. It did not prohibit the ownership of coal properties through the ownership of stock in coal mining companies; it did not touch the ownership of rail- roads by coal companies, nor the common ownership of railroads and coal companies; and it did not prevent the control of coal companies by the of&cials of the railroads. Senator Tillman therefore introduced a comprehensive amendment which met these objections, but which he himself stated was perhaps some- what broad and drastic.^ The amendment was voted down with- out roll call, presumably because of its comprehensiveness. Senator Tillman, thereupon, endeavored to have the words, " by partnership, stock ownership, or anj' arrangement whatsoever " ^ inserted in the EMns amendment, which would have caused the clause to read in substance: It shall be unlawful for any common carrier to transport in interstate commerce any article in which it may have any interest, direct, or indirect, by partnership, stock ownership, or any arrangement whatsoever. This amendment, however, was voted down, 23 to 42.' As the House of Representatives disagreed to the amendments attached to the Hepburn Act by the Senate, the bill was sent to conference. The conference committee made a report on June 2, recommending with respect to the commodity clause that it should be made to apply to timber and its manufactured products, and that the District of Coliunbia should be substituted for the district of the United States.^ The Senate on Jime 7 and the House on June 12, rejected the conference report, and appointed new conferees. The report of the second conference was pre- sented on June 23. It recommended that timber and its manu- factured products be exempted from the prohibitions of the clause and that railroad be substituted for common carrier; ' obvious ' Cong. Record, May 17, 1906, p. 7012. * Ibid. ' Ibid., May 17, 1906, p. 7014. * Ibid., June 2, 1906, p. 7741. ' Ibid., June 23, 1906, p. 9078. 192 THE ANTHRACITE COAL COMBINATION concessions to the timber and oil interests respectively. Senator Tilknan, one of the conferees, refused to sign the report on the ground that the influences behind these changes were too sinister.' After a prolonged debate on the conference report, in which the pipe line controversy occupied an important part, the Senate, on June 26, disagreed to the report, and the House still disagreeing to the amendments of the Senate, a third conference committee was appointed. Its report was made on June 28, the only change affecting the commodity clause being a substitution of the term railroad company (the legal entity) for railroad, which refers to physical property. Senator TiDman, as before, refused to sign the report, largely because of his disagreement with the recom- mendations of the conference as to the commodity clause.^ The report, however, was accepted by both houses, and the Hepburn bill became law on June 29, 1906. In the suits that have been brought by the Government to en- force the commodity clause it has been claimed by the railroads that the clause was introduced hastily, and passed with httle understanding of its true import, or its far reaching consequences. So far as the history of this session in Congress is concerned, the first contention is substantially correct. The clause was not a part of the original House biU — in fact it had not even been con- sidered in the House — and was first incorporated in the bill by the Senate less than two weeks prior to the first passage of the Hepburn biU by the upper body. Fundamental changes, such as the appKcation of the principle to railroads only, not to all com- mon carriers, were made in conference, but these changes did not affect the anthracite carriers. So far as concerns the form of the measvire, the limited opportunity for debate under the fifteen minute rule undoubtedly resulted in a more hastily considered phraseology than the importance of the subject demanded, though it does not foUow that this operated to the disadvantage of the in- terests to be thereby affected. Had a longer discussion obtained, the clause might have been made really effective by specifically prohibiting a railroad from holding stock in a company mining or produ.cing_artideswliich were to be transported by the raikoad ' Cong. Record, June 25, 1906, p. 1901. ' Ibid., June 28, 1906, p. 9522. THE LEGAL STATUS OF THE COMBINATION 1 93 in interstate commerce. The changes made in conference re- lieving all common carriers except railroads from the provisions of the clause might also have met with more opposition, had not Congress been anxious to secure the speedy passage of the bill. But when the principle of the clause rather than its phraseology is considered, it should be noted that as far back as 1892, a Con- gressional Committee, after an extended investigation, came to the conclusion that the public interest demanded that the business of a common carrier should be absolutely separated from any other. ^ This also was the consensus of opinion in the Senate in 1906, though later in the course of the debate some Senators objec- ted to carrying the principle so far as to affect the interests of their own constituents. Furthermore, the Interstate Commerce Com- mission, in its report upon the bituminous coal industry early in 1907, — a report based upon hearings early in 1906, — favored the application of the commodity clause principle to the soft coal roads, and even went so far as to recommend that no officers or employees of a railroad be permitted to have any interest in any coal properties or coal companies along the line of the railroad.^ The far-reaching character of the legislation was frequently em- phasized in the debates in the Senate. The fact, furthermore, that the railroads were given two years in which to comply with the law is evidence that the Senators believed that fimdamental changes would be rendered imperative by the passage of the clause. The anthracite coal-carrying roads may be divided into three groups, according to the manner in which they would presumably be affected by this enactment. First, the Delaware, Lackawaima and Western, and the Delaware and Hudson, which mined their coal directly. Second, the Lehigh Valley, the Central Railroad of New Jersey, the Erie, the Pennsylvania, and the New York, Ontario and Western, which seemed to be interested, indirectly at least, in the coal transported by them, because of their owner- ship of the stock of coal mining companies. The Delaware, Lack- ' House Report, 1892-93, no. 2278, p. viii. ' Annual Report I. C. C, 1907, p. 22. 194 THE ANTHRACITE COAL COMBINATION awanna and Western, and the Delaware and Hudson also owned stock in some coal companies, but these holdings, especially in the case of tlie Lackawanna, were very small". Third, the Philadel- phia and Reading Railway, which did not own any coal lands directly, or even the stock of a coal mining company, but which was with the Pluladelpliia and Reading Coal and Iron Company jointly owned by the Reading Company. This assured perfect harmony between the railroad and the coal company, but has made more difficult the judicial determination whether the rail- way has an interest in the coal transported by it in violation of the commodity clause. Compliance with the commodity clause on the part of the an- thracite railroads was more difficult in most cases than might appear at first glance. It is true that the Lackawarma Raihoad, whose coal property was unmortgaged, could have sold its coal lands, and the Pennsylvania Railroad, which held its stock in coal mining companies free of encumbrance, could have disposed of its shares. But the situation in the case of the other carriers was more complex. In most cases the raihoads had mortgaged their coal lands as security for long term bonds. These mortgages had been placed directly upon the land where the land was* directly owned, and upon the stock of the coal companies where the land was owned by a subsidiary coal company. In the case of the Delaware and Hudson, for example, all of its coal bearing lands in Pennsylvania, together %vith all its railroads in Pennsylvania north of Scranton, were subject to the hen of a mortgage securing $5,000,000 bonds maturing in 191 7. These liens were upon both the railroad and the coal property.' The Lehigh Valley, the Erie, the Central of New Jersey, and the Reading, on the other hand, had mortgaged the stocks of their principal coal companies to secure the bonds issued by the respective railroads. For example, the Lehigh Valley had deposited the stock of the Lehigh Valley Coal Company, of the Hazelton Coal Company, and of several other companies, as part security for its General ConsoUdated Mortgage, executed September 30, 1903, imder which bonds to the amoimt of $23,539,000 had been issued, which were outstand- ' Transcript of Record in Commodity Clause Cases, p. 12. See Biblio. no. 160. THE LEGAL STATUS OF THE COMBINATION 1 95 ing in the hands of the public. There was an absolute inhibition in the mortgage against releasing the stocks of the Lehigh Valley Coal Company and the Hazelton Coal Company from the opera- tion of the indenture, and the stocks of the other coal companies could not be released from the lien, unless their alienation, in the opinion of the trustee, would not be detrimental to the secxirity of the bonds.^ The general mortgage of the Reading Company also contained an inhibition against any separation of the railroad and the coal properties. The two mortgages of the Erie Railroad, secured in part by the deposit of the stock of the HiUside Coal and Iron Company and of the Pennsylvania Coal Company, contained no provision for a release of the stocks pledged.^ The general mortgage of the Central Railroad of New Jersey, secured in part by the bonds and stocks of the Lehigh and Wilkes-Barre Coal Company, did make provision for releasing the property pledged, providing no objection to the release was made by the trustee.^ In every case where the coal properties had been mortgaged the bonds were secured by both the railroad and the coal properties. The mortgage debt of the railroads which had thus pledged their railway and coal properties aggregated over $400,000,000 and most of the bonds had long terms to run. The existence of these mortgages presented a real difficulty in any separation of the rail- roads and their coal lands. This separation was likely to meet with considerable opposition from bondholders, who would fear a diminution of their seciurity because of the danger that part of the coal tonnage might be shipped over another railroad. Because of these difficulties, which were accentuated by the panic of 1907 and the resulting depression, and because it was believed that the commodity clause would be held by the courts to be unconstitutional, practically no effort was made by the principal coal roads to comply with the law. The Buffalo, Rochester and Pittsbiirgh, a soft coal road, attempted to reorgan- ize in such a way as to comply with the law without r unnin g any ' Transcript of Record in Commodity Clause Cases, pp. 19, 23 el seq. See Biblio. no. 159- ' Transcript of Record in Commodity Clause Cases, p. 16, et seq. See Biblio. no. 161. ' Transcript of Record in Commodity Clause Cases, pp. 9-10, 15-18, 41. See Biblio. no. 162. 196 THE ANTHRACITE COAL COMBINATION risk of losing its coal tonnage. It organized the Mahoning Invest- ment Company, and transferred to this company for a nominal consideration the coal lands of the railroad. It then distributed the shares of the Investment Company pro rata among its stock- holders.^ The profits on the mining of coal thus went directly to the stockholders of the railroad, without passing through the hands of the railroad itself. The Louisville and Nashville and a few other roads succeeded in disposing of their coal properties. The attempts to comply with the law, however, were few in num- ber and were confined mainly to the soft coal roads. The seriousness of the situation, largely because of the enor- mous fines which a violation of the clause would entail, was sufl&- ciently realized by the Government. The Department of Justice announced in the middle of January, 1908, that proceedings would be brought as soon as possible after the clause went into effect, but that meanwhile the railroads were not to be prosecuted for a failure to comply with the terms of the act, provided they cooperated ^-ith the Government and immediately in good faith obeyed the decision of the Supreme Court when rendered.^ Some- what later an effort was made in the Senate to postpone the oper- ation of the clause. On the 31st of March, 1908, Senator Elkins introduced a Joint Resolution to suspend the commodity clause. As amended by the Committee on Interstate Commerce to which it had been referred, this resolution provided for a suspension of the penalties of the clause until January i, 1910, but the institut- ing of proceedings for the enforcement of the clause was not to be affected in any way. Consideration of the measure was taken up by the Senate on April 28, 1908. Its passage was urged by Sena- tor Elkins on the ground that the railroads had tried to make the necessary financial arrangements, but had been unable to do so, because of the panic of 1907. He urged that it was only fair to suspend the clause until the law could be tested.' The Joint Resolution had the support of the Interstate Com- merce Commission. In a letter to the Senate dated April 2, 1908, this body, without stating its reasons, urged the passage of > Chron., 85: 373 (1907). * Chron., 86: 227 (1908). » Cong. Record, April 28, 1908, p. 5331, and May i, 1908, p. sSii- THE LEGAL STATUS OF THE COMBINATION 1 97 the resolution.' In response to a request of the Senate directing it to state its reasons, the Commission repHed (May 8) that the- financial depression had produced conditions presiunably not anticipated when the clause was enacted. The enforcement of the clause now would, in its opinion, work considerable hardship, particularly on the independent coal operators, who were mining coal from lands leased from the Pocahontas Coal and Coke Com- pany, owned by the Norfolk and Western Railroad, and who were shipping their product over this line. The raUroad, according to the counsel of the Interstate Commerce Commission, was unable to dispose of its coal lands, and consequently coiild not carry the coal of the independent operators. The Commission, there- fore, favored a suspension of the penalties until January i, 1910, in order to give the courts time to test the validity of the clause.^ On the 13th of May, Senator Foraker, who had taken a promi- nent part in the debate, introduced a substitute amendment, which provided that the clause should " not apply to any article or commodity lawfully acquired and owned prior to the 29th day of June, 1906, by any railroad company under and by virtue of any statute, franchise, or charter lawfully issued by the United States or any State or Territory thereof." ' On account of his illness a vote on this amendment was not taken until May 22. On that date it was defeated by 23 to 32, — 37 not voting.^ On the 4th of January, 1909, the resolution of Senator Elkins came up again for consideration, but was laid aside for several successive days, and after January 11, 1909, apparently was not taken up again. But meanwhile, on May i, 1908, the commodity clause had gone into effect. On the 5th of June, 1908, the Government be- gan its suit against the anthracite carrying raihoads by filin g in the Circuit Court for the Eastern District of Pennsylvania bills of equity and alternative writs of mandamus against the Philadel- phia and Reading, the Lackawanna, the Delaware and Hudson, the Lehigh Valley, the Central of New Jersey, the Erie and the » Cong. Record, May i, 1908, p. s533- ' IHd-, May 13, 1908, p. 6202. ' Ibid., May 13, 1908, pp. 6i93H5i94. * Ibid., May 22, 1908, p. 6754. 198 THE ANTHRACITE COAL COMBINATION Pennsylvania. The suit against the Reading, however, was not pressed, as its interest in the coal transported by it was less direct than was that of tiie other railroads; the Government attempted to secure a decision first upon the other cases. It was charged in these proceedings that certain of the defendant railroads were directly engaged in mining operations, and others indirectly en- gaged through the ownership of the capital stock of subsidiary coal companies, and that all the railroads were transporting the coal so mined in interstate commerce in violation of the commod- ity clause.^ The first decision in the Circuit Court, September 10, 1908, was against the government. That court (Justice Bufl&ngton dis- senting) held the commodity clause to be " a practical violation of the letter and spirit of the fifth amendment," ^ and intimated further that it was not within the commerce clause of the consti- tution, since entire exclusion from interstate commerce was not to be deemed a regulation of it.^ An appeal was at once taken to the Supreme Court, which ren- dered its decision ^ on May 3, 1909, less than a year after the orig- inal suit had been brought. The clause was declared to be within the power of Congress.' The Supreme Court held that the commodity clause " appHes four generic prohibitions, that is, it forbids a raUroad carrier from transporting in interstate com- merce articles or commodities, i, which it has manufactured, ' 164 Fed. Rep. 217. ' The enforcement of the act, the Court held, " will compel the defendants to cease mining and transporting such coal, while still retaining their ownership or interest therein, . or, they \vill be compelled to surrender and divest themselves of tide thereto by a compulsory sale of these coal lands and stock in coal companies. When we consider the magnitude of the sacrifice that must certainly attend such a sale, from throwing upon the market at once these properties, ... it will be mani- fest that either alternative means a deprivation of property of enormous value by the mere command of the statute, without process of law or just compensation therefor." ' The text of the decision is in 164 Fed. Rep. 2it et seq. See especially pp. 226, 229, 232, and (for the dissenting opinion) 252-254. * 213 U. S. 366-419. ' An interpretation was put upon the commodity clause by the Supreme Court which made it unnecessary to pass upon the constitutional questions raised by the Circuit Court; but these constitutional questions presumably will come up again before the Supreme Court for final determination. THE LEGAL STATUS OF THE COMBINATION 1 99 mined or produced; 2, which have been so mined, manufactured or produced under its authority; 3, which it owns in whole or in part; and, 4, in which it has an interest, direct or indirect." ^ The Court noted that the first two prohibitions, if literally con- strued, operated upon the right to transport a commodity be- cause of an antecedent act of manufacturing or mining, whereas the last two prohibitions spoke in the present, referring to owner- ship at the time of the transportation of the commodity. Should the first two be held to prohibit, irrespective of the relation of the carrier to the commodity at the time of transportation, and shoidd the last two only prohibit ownership at the time of transportation, the result would be, said the Court, to give the statute a semi- aimihilative meaning. It treated these four prohibitions, how- ever, " as having a common purpose, that is, the dissociation of railroad companies prior to transportation from articles or com- modities, whether the association resulted from manufacture, mining, production or ownership, or interest, direct or indirect." ^ The Supreme Court noted that the first two prohibitions were radical and the last two more reasonable. It restrained, there- fore, the wider and more doubtful prohibitions in order to make them accord with the narrower and more reasonable ones, which provided for dissociation at the time of transportation. A rail- road was not, therefore, it was held, forbidden to transport articles which had been mined by it or which it had pre\-iously owned, provided it had dissociated itself from these articles prior to the act of transportation. It might, however, be held that some of the railroads had an " interest," direct or indirect, in the coal transported by them, even though it had not been directiy mined or owned by them at any time prior to the act of transportation. The Supreme Court, therefore, proceeded to analyze the natmre of the interest, direct or indirect, which was prohibited by the commodity clause and which it had interpreted to refer only to an interest at the time of transportation. The Government had contended that since the statute referred to any interest, direct or indirect, it prohibited the transportation of conunbdities, mined by a bona fide corpora- • 213 U. S. 408. ' Ibid., p. 412. 200 THE ANTHRACITE COAL COMBINATION tion in which the carrier held a stock interest, however small. The contention of the railroads, on the other hand, had been that interest included only commodities in which the carrier had a legal interest, and did not prohibit the transportation of commodi- ties mined by a separate corporation in which the transporting carrier held stock. The Supreme Court held that, if the interest referred to meant a legal or equitable interest, the mere ownership of stock in a distinct corporation did not prohibit a carrier from transporting in interstate commerce articles mined by that cor- poration. It was admitted by the prosecution that this would foUow were the clause to be interpreted to mean a legal interest. The question in dispute, then, was this: did the interest men- tioned in the act refer merely to a legal interest? The Govern- ment maintained that the term interest should be interpreted broadly, including such as is involved in the ownership of stock in a subsidiary coal company. If interest were to be taken to mean merely a legal one, the commodity clause would be without significance. The Court held, however, that this was not true. It pointed out that the Senate had rejected an amendment which specifically provided that interest, direct or indirect, was intended among other things to embrace an interest resulting from owner- ship of stock. The failure, held the Court, to provide for this contingency in express language gave rise to the implication that it was not the purpose to include it. At all events, in view of the far-reaching consequences of giving the statute such a construction as that contended for, . . . and of the questions of con- stitutional power which would arise if that construction were adopted, we hold the contention of the Government not well founded. We then construe the statute as prohibiting a railroad company engaged in interstate commerce from transporting in such commerce articles or commodities under the fol- lowing circumstances and conditions: (a) When the article or commodity has been manufactured, mined or produced by a carrier or under its authority, and at the time of transportation the carrier has not in good faith before the act of transportation dissociated itself from such article or commodity; (ft) When the carrier owns the article or commodity to be transported in whole or in part; (c) Wlien the carrier at the time of transportation has an inter- est, direct or indirect, in a legal or equitable sense in the article or commodity, not including, therefore, articles or commodities manufactured, mined, pro- duced or owned, etc., by a bona fide corporation in which the railroad com- pany is a stockholder.' » 2iiU, S. 414-415. THE LEGAL STATUS OF THE COMBINATION 20I Justice Harlan held, in a dissenting opinion, that the act, rea- sonably and properly construed, included within its prohibitions the transportation of coal by a railroad company, if, at the time, it were the owner, legally or equitably, of stock — certainly if it owned a majority or aU the stock — in the company which mined, manufactured or produced, and then owned, the coal which was being transported by the railroad company. Any other view of the act, he held, would enable the transporting rail- road company, by one device or another, to defeat altogether the purpose which Congress had in view, which was to divorce, in a real, substantial sense, production and transportation, and thereby to prevent the transporting company from doing injustice to other owners of coal. Justice Harlan did not present any argument sustaining his dissenting opinion. He deemed it unnecessary to do more than express his non-concurrence, inasmuch as the cases had been determined wholly on the construction of certain parts of the act which Congress could revise if it deemed it desirable. The rejection by Congress of an amendment specifically pro- viding that the ownership of stock in a subsidiary -corporation constitutes such an interest as is forbidden by the commodity clause, implied, the Supreme Court held, that Congress did not intend to prohibit the ownership by railroads of stock in coal mining companies. A bill to make the clause more effective in this respect was introduced in the House of Representatives by Mr. Wanger of Pennsylvania on the 13th of May, 1909, only ten days after the decision of the Supreme Court. This bill, which provided specifically that the ownership of the stock of a sub- sidiary corporation should be held to constitute an interest (either direct or indirect) in the product of that corporation, was referred to the Committee on Interstate and Foreign Commerce. It seems, however, never to have emerged from committee. In the following year, toward the close of the debates on the Mann- Elkins Act, an attempt was made by Senator Bailey of Texas (who had taken a prominent part in framing the commodity clause of the Hepburn Act) to seciure the adoption of an amend- ment which would clearly prohibit stock ownership. In connec- tion with this subject Senator Bailey remarked that in the light of 202 THE ANTHRACITE COAL COMBINATION the Supreme Court decision the prohibitions as to interest, direct or indirect, could have been improved by specifically providing that the ownership of stock in certain corporations should bring the common carrier within the terms of the statute. But, he said, " I did not . . . think that necessary, because I was familiar with that line of decisions which have almost uniformly held that a stockholder in a corporation has an interest which disquaUfies him as a jxiror in the trial of any case to which the corporation is a party." * Senator Bailey said that he beheved he could demon- strate, the Supreme Court to the contrary notwithstanding, that the commodity clause, as originally adopted by Congress, was imderstood to mean in the debate exactly what was proposed by Ms present amendment.^ His amendment was defeated, how- ever, after a brief discussion, by 25 to 31, — 36 not voting.' Another amendment, not so far-reaching, introduced by Senator Crawford of South Dakota, was rejected without a roll call.^ The Supreme Court, as we have seen, declared the commodity clause constitutional. Its interpretation of the clause, however, appeared to render it ineffective. The Circuit Court had held that the enforcement of this clause would make it necessary for the anthracite carrying railroads either to cease transporting coal to other states,^ or to divest themselves of all title or interest, direct or indirect, in their coal properties, by a compulsory sale of their coal lands and their stocks in coal companies. The Supreme Court adopted, however, an entirely different interpretation. It held that the " interest " referred simply to a " legal " interest and that a railroad, therefore, could not be said to be interested, either directly or indirectly, in the mining of coal, merely because it owned aU the capital stock of a coal company which conducted the mining operations. This interpretation appeared to require but slight changes in the conduct of the coal business, as most of the raihoads did not mine coal directly, but merely owned the stock of coal mining companies. The only anthracite railroads * Cong. Record, June i, 1910, p. 7212. ' Ibid., June i, 1910, p. 7218. ' Ibid., June i, 1910, p. 7210. * Ibid., June 2, 1910, p. 7252. ' Except, of course, the coal transported for independent producers. THE LEGAL STATUS OF THE COMBINATION 203 which seemed to have any " legal " interest in the coal trans- ported by them, and which were, therefore, affected by the decis- ion, were the Lackawanna and the Delaware and Hudson, both of which mined coal directly. These roads proceeded at once to reorganize their affairs. ^ The Lackawanna took advantage of that part of the decision of the Supreme Court which held that a railroad might carry in in- terstate commerce an article mined by it, provided it had in good faith, before the act of transportation, dissociated itself from the commodity so mined. The Lackawanna continued to mine coal, and to transport it in interstate commerce, but it endeavored to dissociate itself from the coal prior to the act of transportation by selling it to another company. On August i, 1909, the sales divi- sion of the Coal Department of the raikoad was discontinued, and the Delaware, Lackawanna and Western Coal Company, with a capitalization of $6,590,700, was organized imder the laws of New Jersey.^ On August 2 a contract was made with the coal com- pany, whereby the railroad agreed to turn over to the coal com- pany its present stock of coal, and to sell aU the coal thereafter to be mined or purchased by the railroad for a certain per cent of the tide- water price, — the basis being that generally prevailing in the anthracite region.^ The control of the coal company was vested in the same hands as was the control of the railroad, its stock being purchased by shareholders of the railroad, with funds pro- vided by the railroad. Though paying unusually large dividends, the Lackawanna had for several years been accumulating a large surplus. The orgam"zation of the coal company offered a good opportunity for distributing some portion of this surplus. A stock dividend of 15 per cent was declared (apparently in viola- tion of the express prohibitions of its charter), and in addition an extra dividend of 50 per cent payable in cash. Stockholders of the railroad were then given the option of using one-half of this extra dividend to purchase at par stock in the newly organized • Annual Report of the Lackawanna Railroad, 1909, p. 10. ^ Contract between the raikoad and the coal company. See original petition in U. S. V. D. L. and W. R. R. Co., and the D. L. & W. Coal Co., in the District Court of the United States for the District of New Jersey. Referred to hereafter as Original Pelilion in Lackawanna Case. 204 THE ANTHRACITE COAL COMBINATION coal company.! -j^g option was generally exercised, and as a result the stockholders of the two companies became practically identical, and harmonious relations were assured. The president and one of the vice-presidents of the railroad have from the be- ginning been two of the seven directors of the coal company, and this vice-president has regularly been the president of the coal company.^ Under this arrangement, however, it was possible that through the sale of the stock of one or the other of the two companies this commimity of interest might in time be dissolved. The danger that any conflict of interest would thus arise, which might jeopardize the future traflfic of the raUroad, has been obvi- ated by the ingenious provision that the contract between the railroad and the coal company is terminable upon six months' notice by either party.' By such a device the coal company be- came in reality a mere subsidiary selling agency of the railroad.* The operations of this new concern have proved to be highly profitable. From almost the very beginning it has paid lo per cent dividends, and in 1913 it declared an extra dividend of 20 per cent,* while at the same time it was building up an enormous surplus. The Delaware and Hudson, like the Lackawanna, was directly engaged in the mining of coal, but it had for several years sold all of its larger sizes of coal at the mines, prior to the act of trans- portation. This practice had not been followed, however, for the smaller sizes. As the result of the decision of the Supreme Court the railroad, on June i, 1909, made a contract with the Hudson Coal Company, all of whose stock was owned by the railroad, whereby the coal company agreed to buy at the pit mouth all the coal produced from the mines belonging to the raUroad.^ The Delaware and Hudson, therefore, resorted to the same scheme for ' Annual Report of the Lackawanna Railroad, 1909, p. 11. * Original Pdiiion in Lackawanna Case, p. 14. ' Contract in Original Petition in Lackawanna Case, p. a. * The coal company agreed to purchase all the coal offered by the railroad, and no other, unless necessary to comply with contracts then outstanding, and it has alwaj^s leased all the necessary trestles and storage plants from the railroad. Con- tract in Original Petition in Lackawanna Case, pp. 27-30. ' Chron., 96: 949 {'^9'^i)- « Annual Report of the Delaware and Hudson Company, 1909, p. 9. TEE LEGAL STATUS OF THE COMBINATION 205 dissociating itself from the coal transported by it as had been fol- lowed by the Lackawanna, except that the organization of a spe- cial company to purchase the coal was unnecessary, as the raUroad already owned the stock of a subsidiary, which could be used for that purpose. It remains, however, to be judicially determined whether the Delaware and Hudson has, in good faith, dissociated itself from the coal prior to the act of transportation, as the rail- road owns the total capital stock of the coal company offering its product to the railroad for shipment. The interpretation put upon the commodity clause by the\ Supreme Court in 1909 gave little ground for assuming that the legislative prohibitions woidd materially affect the anthracite coal situation. A case recently decided by the Supreme Court, however, indicates that the commodity clause may yet prove more effective than was commonly supposed, and that some fur- ther changes in the conduct of the business may be necessary. The Supreme Court, after rendering its decision on the constitu- tionahty of the commodity clause, remanded the case to the Cir- cuit Court for such fiirther proceedings as might be necessary to enforce the statute as it had been interpreted. The Government thereupon amended its origiual biU against the Lehigh VaUey.^. In the second petition it was charged by the prosecution that though the Supreme Court had held that stock ownership by a raOroad company in a bona fide corporation did not make it illegal for the railroad to transport in interstate commerce commodities mined by this corporation, yet the Lehigh Valley Coal Company was not a bona fide mining corporation, but a mere agency or de- partment of the raUroad. This being the case, the railroad had at the time of transportation an interest, in a legal sense, in the coal thus transported and had not, therefore, in good faith dissociated itself from the ownership of the coal. Evidence was introduced to show that the Lehigh VaUey Railroad used the coal company as a mere device to enable it to evade the prohibitions of the com- modity clause.^ The Circuit Court, however, on March 7, 1910, ' The Government did not amend its bills against the other railroads, regarding the Lehigh VaUey suit as a test case. ' 220 U. S. 268-270. 2o6 THE ANTHRACITE COAL COMBINATION denied the request of the United States for leave to file the amended bill, and upon motion of the railroad counsel dismissed the bin absolutely.' The Government appealed from this decree to the Supreme Court, which, on April 3,1911, rendered a decision reversing the lower court. The Supreme Court in a discussion of the legal points involved sharply criticized the Circuit Court for its refusal to permit the Government to file the amended bill. We are concerned here, however, primarily with the opinion of the Coiirt as to the relation of the coal company to the railroad. In the words of the Court, " While this decision [the decision in the commodity clause case] expressly held that stock ownership by a railroad company in a bona fide corporation, irrespective of the extent of such ownership, did not preclude a railroad company from transporting the commodities manufactured, mined, pro- duced or owned by such corporation, nothing in that conclusion foreclosed the right of the Government to question the power of the railroad company to transport in interstate commerce a com- modity manufactured, mined, owned or produced by a corpora- tion in which the railroad held stock and where the power of the railroad company as a stockholder was used to obliterate all dis- tinctions between the two corporations." ^ The Supreme Court held that the facts averred " tended to show an actual control by the railroad company over the property of the coal company and an actual interest in such property beyond the mere interest which the railroad company would have had as a holder of stock in the coal company." ' It was further held that the use of stock ownership in another corporation for the purpose of destroying the entity of the corporation and commingHng its affairs with the affairs of the railroad, so as to make the two companies virtually one, brings the raUroad company so acting within the prohibitions of the commodity clause.'' The Supreme Court, therefore, remanded the case for a deter- mination of the fact whether the I^ehigh Valley Coal Company was or was not a department of the railroad. In accordance with this ruling, the Circmt Court permitted the filing of an amended • 220 U. S. 270. ' Ibid., p. 272. ' Ibid., pp. 271-272. * Ibid., p. 274. THE LEGAL STATUS OF THE COMBINATION 207 complaint. The Government thereupon filed in the Ciraiit Court at Philadelphia on the 6th of June, 1911, a bill against the Lehigh Valley Railroad, charging as before that the various coal companies owned by the raUroad were not bona fide concerns, but mere devices for evading the commodity clause. Without wait- ing for the decision of the Court, the Lehigh Valley effected a re- adjustment of its affairs. On January 22, 1912, the Lehigh Valley Coal Company secured the incorporation, under the laws of New Jersey, of a new corporation, the Lehigh Valley Coal Sales Company, with an authorized capital stock of $io,ooo,cxdo, of which $6,060,800 was issued upon the organization of the com- pany. On March i, 191 2, the Lehigh Valley Coal Company entered into a contract with the Coal Sales Company, whereby the latter was to pmrchase, ship, and sell the coal mined, or other- wise acquired by the Coal Company.^ On the same day in which the Lehigh VaUey Coal Company authorized the organization of the Coal Sales Company, the Lehigh VaUey Railroad declared a special ten per cent cash dividend,^ which could be used for sub- scriptions to the stock of the newly organized corporation. The railroad, therefore, in effect provided its shareholders with funds, with which they could (and they generally did) purchase the stock of the new company without any expense to themselves. The result was that the stockholders of the railroad and of the Coal Sales Company became practically identical. Li addition, the officers and directors of the Coal Sales Company were chosen largely from among the officers and directors of the railroad and of the Coal Company. Of the seven directors of the Sales Com- pany, one is a vice-president of the railroad, another is a son of a director of the railroad, and a third, who is also president of the Sales Company, was, until the formation of the latter company, a director of the railroad. The danger that such close relations might eventually be broken up has been warded off, as was done by the Lackawaima, by a provision that the contract between the Sales Company and the Coal Company (owned by the railroad) is terminable upon the option of either party upon six months' 1 Annual Report of the Lehigh Valley Coal Company, 1912, p. 6. ' Ibid., p. 14. 2o8 THE ANTHRACITE COAL COMBINATION notice. As the main asset of the Coal Sales Company is its con- tract for the purchase of the coal of the Lehigh Valley Coal Company, such a provision would seem to assure continued good relations.^ The profits of the newly organized Sales Company have been enormous. Since October 21, 1912, it has regularly paid quar- terly dividends of 2I per cent, and in November, 1913, less than two years after its organization, it declared an extra cash dividend of 25 per cent, and at the same time gave subscription privileges, which amounted to a 25 per cent stock dividend. In addition, the company had accumulated by December 31, 1913, a surplus of $1,134,847. These various devices of the anthracite companies for bringing their affairs into compliance with the conxmodity clause have been recently attacked by the Government. On February 13, 1913, it brought suit against the Delaware, Lackawanna and Wes- tern Raihoad, and the Delaware, Lackawanna, and Western Coal Company, charging that the mere organization (in 1909) of a coal company to pinrchase the coal mined by the raihoad did not divest the railroad of all interest in the coal transported by it, as required by the commodity clause. The newly organized coal company, it was claimed, must always be subservient to the will of the railroad and those who control it. The stockholders of the railroad have constituted the dominant stockholders of the coal company, and probably always will. They elect its officers, de- termine its pohcies, and, moreover, they may take away its sole business upon six months' notice. If its conduct shall fail to meet with their approval, it may be deprived of all benefits under the sales contract, and its business quickly destroyed. In such event a similar subterfuge could be organized, and the profits of the entire business be secured by the stockholders of the railroad.^ The Government further charged that the contract between the ■ As in the contract between the Lackawanna Railroad and its coal company, the Lehigh Valley Coal Sales Company agreed to purchase all the coal offered by the Coal Company, and no other, unless necessary to comply with contracts then out- standing; and it has likewise leased from the Coal Company all the necessary yards, and storage and selling facilities. ' Original PeiUum in Lackawanna Case, p. 20. THE LEGAL STATUS OF THE COMBINATION 209 railroad and the coal company is in restraint of trade, and an attempt to monopolize the coal business along the railroad's lines in violation of the Sherman Anti-Trust Act. ^ A decision ^ in this case was rendered by the Circuit Court on April 7, 1914. This Court held that since it had been determined by the Supreme Court that a railroad ^ might own stock in a bona fide coal company without offending against the commodity clause, clearly no offense was committed when the stockholders ''■ of a railroad subscribed to the stock of a coal company. In the words of the lower court, " no Act of Congress or judicial decision has declared it to be illegal for an individual citizen to invest his money in two enterprises, merely because the enterprises may be closely connected." ' The only qualification which the Supreme Court had imposed was that the company in which the railroad held stock must be a bona fide corporation; the railroad must not use the power given by such ownership of stock to destroy the entity of the subsidiary corporation. The Circuit Court, how- ever, fovmd no evidence that the Delaware, Lackawanna and Western Railroad or its dominating stockholders had erred in this respect. Rather the evidence was that the railroad and the newly organized coal company were becoming more and more distinct. Though at the outset the stockholders of the two companies were nearly identical, by October, 1913, the shares of the railroad not interested in the coal company had increased from 2,249 to 88,716; and the shares of the coal company not interested in the railroad had increased to 6,907. The Circuit Court concluded, therefore, " that the transactions between the two companies began and have been carried on in good faith, in obedience to the decisions of the Supreme Court, . . . and that the two [com- panies] are not one for all pvuposes [as is charged by the govern- ment], but are two distinct and separate legal beings, actually engaged in separate and distinct operations. It follows that the ' U. S. V. D. L. and W. R. R. Co., and D. L. and W. Coal Co., in the District Court of the United States for the District of New Jersey, pp. 1-46. ' Italics supplied by the author. ' Decision of Circuit Court, p. 27. This decision, should it be sustained by the Supreme Court, will clearly have an important bearing upon the larger problem of trust dissolution. 2IO THE ANTHRACITE COAL COMBINATION railroad does not own the coal in question, either in whole or in part, during its carriage, but it has in good faith dissociated itself therefrom before the beginning of the act of transportation." ' The suit of the government was therefore dismissed. The Cir- cuit Court rendered no opinion as to whether the raihoad and the coal company had entered into a contract or combination in restraint of trade in violation of the Sherman Anti-Trust Act; it explained that the oral argument had left the Court under the impression that this charge was not much insisted upon by the government. An appeal from the above rulings is now pending in the Supreme Court. The govenmient has likewise brought action against the Read- ing Company and its allied railroads and coal companies. On September 2, 1913, some months prior to the above decision, the government filed in the District Court of the United States for the Eastern District of Pennsylvania a bill against the Reading Com- pany, the Philadelphia and Reading Railway, the Philadelphia and Reading Coal and Iron Company, the Central Railroad of New Jersey, the Lehigh and Wilkes-Barre Coal Company, the Lehigh Coal and Navigation Company and three minor railroads, and nine individual defendants. The petition recited niunerous acts and relations which were declared to constitute combina- tions in restraint of trade in \aolation of the Sherman Anti-Trust Law, and further to constitute violations of the commodity clause of the Hepburn Act.^ It was such prosecutions as these, doubtless, which influenced the Pennsylvania Railroad to yield to public opinion, and to avoid the danger of further conflicts along this Hne with the Govern- ment. Within a very few weeks after the above-mentioned action against the Reading Company had been instituted, the president of the Permsylvania Railroad annoimced that the direc- tors of his company had decided to sell the securities held by the railroad in the Susquehanna Coal Company and other anthracite minin g companies.' In order, however, to insure the continued ' Decision of Circuit Court, p. 41. ' Original Petition in Reading Case, pp. 1-3, 69-75. ' Chron., 97: 887 (Sept, 27, 1913). THE LEGAL STATUS OF THE COMBINATION 211 operation of the unprofitable as well as the profitable mines and to insure thereby the railroad's future traffic, and in order to assure itself of a market for all its coal lands, the ownership of the various anthracite properties is first being compacted into the Susquehanna Coal Company.^ The purchaser of this company, or the plan of sale, has not yet (April, 1914) been announced. A decision in the above-mentioned suit ^ against the Lehigh Valley Raihoad and the Lehigh Valley Coal Company charging violation of the commodity clause was not rendered by the Cir- cuit Court. Apparently the organization of the Lehigh Valley Coal Sales Company made the bringing of a new action seem ad- visable. At any rate, the earUer suit, by the consent of both parties, was dismissed by the Circuit Court without prejudice on January 27, 1913.' This, however, was but the prelude to the bringing of a new bill. On March 18, 1914, a suit was filed in the District Court of the United States for the Southern District of New York against the Lehigh Valley Raihoad, the Lehigh Valley Coal Company, the Lehigh Valley Coal Sales Company, and other aUied companies, as well as against a number of individuals. As in the earlier proceedings against the Delaware, Lackawanna and Western, and against the Reading, violation of both the Sherman Anti-Trust Act and of the commodity clause was charged. With respect to the commodity clause, it was maintained that the transportation by the Lehigh Valley Raihoad of coal mined by the Lehigh Valley Coal Company was a violation of the clause, as the coal company was not a bona fide corporation but a mere de- partment of the railroad. It was likewise maintained that the organization of the Lehigh Valley Coal Sales Company did not constitute a compUance \vith the commodity clause, but rather a device of evasion. It was claimed that the Lehigh Valley Coal Sales Company must always be subservient to the will and direc- ^ Annual Report of the Pennsylvania Railroad, 1913, pp. 14-15- Some such con- solidation was suggested as far back as 1899, but vigorous objection to the plan was made by the vice-president of the coal companies. For his most interesting letter to the assistant to the president of the Pennsylvania Railroad, see Appendix, Letter VII. ' See p. 207. ' Chron., 96: 360 (1913). 212 THE ANTHRACITE COAL COMBINATION tion of those who control the railroad. Such persons constitute its dominant stockholders (the majority stockholders of the rail- road own 80 per cent of the shares of the Sales Company), they elect its officers, and they determine its pohcies. With minor exceptions, the Coal Sales Company can buy its coal from no one but the Lehigh Valley Coal Company, from which company it leases all of its yards, and storage and selling faciUties. In short, so it was claimed, the two corporations are but instrumentaUties of substantially the same group of stockholders. The Govern- ment prayed, therefore, that the transportation of anthracite coal by the raihoad for the Coal Sales Company be enjoined, so long as the stockholders of the raihoad constitute also the control- ling stockholders of the Coal Sales Company.' Even should the government prove successful in its contention that the Lehigh VaUey Coal Company, which mines the coal, is but a mere department of the raihoad, the claim has been made by the railroad that the Coal Company has disposed of its coal to the Coal Sales Company, and that " neither the Lehigh Valley Railroad nor the Lehigh Valley Coal Company has any ownership in the stock of the Sales Company or any interest, direct or in- direct, in the coal transported." ^ Unless then our courts shall hold that a railroad does have an ' interest ' in coal offered for transpor- tation by a company whose stockholders are the same as those of the railroad, it is obvious that the commodity clause must be made more specific, if the imderlying principle is to be appUed with any considerable degree of success. / Coincidently with these cases involving an alleged violation of the commodity clause, the Government was conducting a prose- cution of certain anthracite coal roads and their subsidiary coal companies for violation of the Sherman Anti-Trust Act. On the 12th of June, 1907, the Department of Justice instituted in the Circuit Court for the Eastern District of Pennsylvania a suit to dissolve the combination in the anthracite coal business. Li the petition of the Government it was charged that the defendants at ' Original Petition in Lehigh Valley Case, pp. 69, 73, 79. ' Annual Report of the Lehigh Valley Railroad, 1912, p. 13. THE LEGAL STATUS OF THE COMBINATION 21 3 some time since 1892 had entered into a combination or conspir- acy general in scope, by which they restrained and monopolized the anthracite coal trade. In the development of this general combination, it was charged, a number of contributory acts had been committed, each of which was in itself in restraint of trade. These unlawful acts were the purchase of the New York, Susque- hanna and Western by the Erie, the defeat through the Temple Iron Company of an attempt to build an independent road to tide-water, the purchase of the Pennsylvania Coal Company and its allied raihoads and the consequent abandonment of a second independent outlet, the purchase of the Central of New Jersey by the Reading Company, and, finally, the signing of the uniform percentage contracts.' The original defendants in the suit may be divided into three groups, (i) The Reading Company (the holding company) ; (2) the Philadelphia and Reading Railway, the Central of New Jer- sey, the Lehigh Valley, the Lackawaima, the Erie, and the New York, Susquehanna and Western; (3) the respective coal com- panies of the raUroads, including the Temple Iron Company, jointly owned by the six defendant raUroads.^ The Delaware and Hudson, the Pennsylvania and the Ontario were not made defendants, as they had not combined with the other roads to purchase the stock of the Temple Iron Company, and had not participated in any of these separate steps in the development of the combination. They had, it is true, signed contracts with the individual operators^ but these in no case contained the perpetu- ity clause, which was typical of the contracts signed by the defend- ants. After all of the original defendants had filed their answers, the United States on October 17, 1907, amended its original petition by bringing in the individual operators,^ who, by the signing of the percentage contracts, had placed the railroad coal companies in control of their output, and by including, in addition, the triistees for the mortgages of the Reading Company and the * Brief for the United States in the Sherman Anti-Trust Case, pp. 6, 9-13. See Biblio. no. 156. ' Ibid., pp. 6-7. ' Including the Delaware and Hudson Company, which sold a part of its output under contract to the Hillside Coal and Iron Company. 214 THE ANTHRACITE COAL COMBINATION Erie Railroad, who held legal title to the stock of the Central of New Jersey, and of the New York, Susquehanna and Western respectively, the acquisition of which the Government held to be unlawful.^ The Circuit Court rendered its decision ^ on December 8, 1910, three separate opinions being handed down. The charge that the defendants had entered into a general combination or con- spiracy was imanimously dismissed; and it was unanimously agreed that the purchases of the New York, Susquehanna and Western, the Central of New Jersey, and the Pennsylvania Coal Company were not imlawful acts. Judge Gray holding that if no general agreement was disclosed, it was hardly worth while to consider at great length the separate steps in the development of the combination. The court also dismissed the charge that the percentage contracts were an unlawful step in the development of the combination. From this portion of the decision Judge Buffington dissented. He held that by means of the contracts articles which had previously entered into competitive interstate coromerce had been withdrawn from such competition, and that an instnmient which brought about this result was a combination in restraint of trade. The only contention of the Government that was sustained by this court was the charge that the raihoads had unlawfully combined through the Temple Iron Company to pre- vent the building of a proposed independent railroad. In this connection Judge Buf&ngton held that if the combination of the railroads through the Temple Iron Company was not illegal, there was no legal bar to the railroads, through this company, absorbing all the anthracite coal not now owned by the subsidiary coal com- panies of the railroads. He held that the railroads had made the Temple Iron Company an instrument to enable them Jointly to combine in restraint of trade. From the decision of the Circuit Court an appeal was taken to the Supreme Court. The Government appealed from that part of the decree dismissing its charges, and the defendants prosecuted ' Brief for the United States in the Sherman Anti-Trust Case, p. i6. See Biblio- no. 156. ' 183 Fed. Rep. 427-497. THE LEGAL STATUS OF THE COMBINATION 21 C, two separate appeals — one by the Temple Iron Company and the other by the Reading Company and the defendant rail- roads — from that part of the decree adjudging that they were joined in an unlawful combination through the Temple Iron Company. The Supreme Court rendered its decision on December i6, 1912.^ In regard to the charge that there existed a general com- bination, the Court unanimously held (three judges not partici- pating) that the case was " barren of documentary ^ evidence of solidarity." The fact of a general combination, if it exists, must be deduced, the Court held, from specific acts or transactions in which the companies have united. The Covurt held that the Gov- ernment had failed in its attempt to show any contract or agree- ment between the defendant carriers to distribute the total tonnage of coal according to a definite scale of percentages. The Supreme Coiut also dismissed the charge that the purchases of the New York, Susquehaima and Western, the Central Railroad of New Jersey, and the Pennsylvania Coal Company were unlaw- ful acts in furtherance of the illegal plan of a general combination. " So far as this record shows not one of these transactions was the result of any general combination between all of the defendants." ^ And if these transactions " did not constitute any part of any general plan or combination entered into by aU the carrier com- panies, their separate consideration as independent violations of the act of Congress is not admissible under the general frame of this bin.* As to the legaHty of these three minor combinations (that is, the purchases of the New York, Susquehanna and West- ern, the Central Raihoad of New Jersey, and the Pennsylvania Coal Company), the Court expressed no opinion, but directed that the bill, in so far as it sought rehef against them, be dis- missed, without prejudice. The Supreme Court upheld the lower court in adjudging the combination through the Temple Iron Company to be an imlaw- ful combination. This company, the Court held, had been used as the instrument whereby a proposed independent railroad — 1 226 U. S. 324-373. ' 226 U. S. 372. ' Italics supplied by the author. * Ibid. 2l6 THE ANTHRACITE COAL COMBINATION the New York, Wyoming and Western — was successfully " strangled," and the monopoly of transportation collectively held by the six defendant carrier companies was maintained. The Court characterized as narrow the view that since the New York, Wyoming and Western had been effectively strangled, it would be idle to enjoin the doing of an act already accomplished. It held that " the combination by means of the Temple Company still exists. It has been and stiU is an efficient agency for the col- lective activities of the defendant carriers for the purpose of pre- venting competition in the transportation and sale of coal in other States. . . . Through it, the defendants, in combiuation, may absorb the remaining output of independent producers. The evil is in the combiuation." * It was held that the board of directors of the Temple Iron Company, " composed as it is of men repre- senting the defendants, supplies time, place and occasion for the expression of plans or combiuations requiring or inviting concert of action." '^ The Supreme Court reversed, however, the decree of the Cir- cuit Court sustaining the percentage contracts. It recited the persistent attempts of the operators to secure an independent outlet to tide-water, fiirst through the New York, Wyoming and Western Railroad, and later through the Delaware Valley and Kingston Railroad. These persistent attempts offered a constant menace to the monopoly' of transportation enjoyed by the defend- ants. For the railroads to renew the contracts for short terms would but postpone the day of competition. The obvious solu- tion was perpetual contracts. The Court was not surprised that the railroads were willing to offer more favorable terms than here- tofore, as these perpetual contracts would remove forever the in- ducement to the entry of competing lines of anthracite carriers, and would remove, also, the coal of the independents from compe- tition with the coal of the defendants. Upon this aspect of the case, the Court agreed with Judge Buffington, of the Circuit Court, who had held, ia a dissenting opinion, that " there is no more subtle and effective agency for the gradual, urmoted absorp- tion by interstate carriers of the remaining interstate product » 226 U. S. 352-353- ' •^*»<^-i P- 353- THE LEGAL STATUS OF THE COMBINATION 21/ than these perpetual contracts." ^ To suppress competition through the percentage contracts would require, however, con- certed action, as the attempt of a few to secure the independent coal would have been resisted by those not included. The Court held that the defendants had so acted in concert with the intent and design of controlling the sale of the independent output, and thus preventing competition with their own coal. The Supreme Coiurt remanded the case with direction to enter a decree cancel- ling each of these contracts, and perpetually enjoining their fur- ther execution. In accordance with the decree of the Supreme Court the per- petual contracts for the sale of coal have been terminated,^ and the coal properties of the Temple Iron Company have been sold. The directors of the Temple Iron Company announced on May i, 1914, that the company had sold the stock of its eight coal com- panies to Mr. S. B. Thome.' The final decree of the court had provided that the purchaser of the properties of the Temple Iron Company must be a bona fide purchaser, not one in priAdty with or sustaining any relation in interest, direct or indirect, to any of the earher defendants.* The purchaser was at one time general manager of the Temple Iron Company.' The Supreme Court had expressed no opinion as to the legality of the purchase of the Central Raihoad of New Jersey by the Reading Company, or the purchase of the New York, Susque- hanna and Western Raihoad and the Pennsylvania Coal Company by the Erie. It had dismissed the bUl without prejudice, in so far as it sought reUef against these minor combinations, inti- mating that the proper method of procedure would be to bring independent action against these minor combinations. The Government, therefore, on September 2, 1913, as noted above,^ brought suit against the Reading Company and its allied raflroads 1 183 Fed. Rep. 475. ' In two cases at least the railroad coal company stiU buys coal from the individ- ual operators, but not vmder a perpetual contract. See Decision of Circuit Coicrt, V. S. V. D. L. and W. R. R. Co., p. 38; and Original Petition in Lehigh Valley Case, p. 36. ' Chron., 98: 1465 (1914). ' Chron., g8: 1465 (1914). * Chron., 98: xiii, (April 11, 1914). * See p. 210. 21 8 THE ANTHRACITE COAL COMBINATION and coal companies, charging that the purchase of the Central Railroad of New Jersey by the Reading Company in 1901 con- stituted an act in restraint of trade in violation of the Sherman Anti-Trust Act. Mention has likewise been made, in connection with the commodity claxise litigation, of the proceedings re- cently instituted against the Lackawanna, the Central of New Jersey, the Lehigh Coal and Navigation Company, and the Le- high Valley, charging violation of the Sherman Act. Action may also be brought against the Erie Railroad, charging that the pur- chase of the New York, Susquehanna and Western and of the Pennsylvania Coal Company were illegal under the Sherman Act, and that the transportation by the railroad of the coal mined by its subsidiary companies constitutes a violation of the commod- ity clause. WTiether or no this particular suit be brought, the end of Utigation is clearly not yet. CONCLUSION The Government, thus, is endeavoring to effect the dissolution of the anthracite coal combination, both on the groimd that the anthracite railroads are offending against the commodity clause of the Hepbmn Act, and also on the ground that they are a com- bination in restraint of trade in violation of the Sherman Anti- Trust Act. As to the principle of the commodity clause, there was, as we have seen, substantial agreement in the debates preceding the passage of the Hepburn bUl. Even Senator Foraker, one of the three senators who finally voted against the bill, expressed him- self in favor of the principle of the commodity clause, saying that he did not beheve that a common carrier should be engaged in any business except that of a common carrier. However, the attempt of the Government to apply this principle to the anthra- cite railroads has met with httle success, because of the interpre- tation put upon the commodity clause by the Supreme Court. But even though further Supreme Court decisions should restore vitality to the clause, so that in other industries it may be thoroughly enforced, it must be said that it is extremely doubtful whether in the anthracite industry competitive conditions would be thereby restored. The railroads or their subsidiary coal com- panies now own or control over 90 per cent of the annual output of anthracite coal, and they own in fee simple an even larger per- centage of the yet unmined coal. Were the coal companies to be separated from their present railroad control, the result, in aU probability, would be either the organization of a coal trust, or an agreement of some kind among the coal companies to restrict output or to fix prices. The Government has also been imsuccessful thus far in securing " documentary evidence " of the existence of a general combina- tion among the anthracite railroads in violation of the Sherman Anti-Trust Act. But even though, through further remedial 220 THE ANTHRACITE COAL COMBINATION measures, the dissolution of the combination should be finally effected, it would be exceedingly difficult (in view of the con- centration within a few hands of substantially the entire supply of anthracite coal) to prevent the formation of an entente cordiale among the companies which would effectively maintain prices and yet be less open to attack. In either case, therefore, further regulative measures presum- ably would be attempted. Just what these measures would be, or should be, is bound up in the larger problem of pubHc ownership of the natural resources of the coimtry versus private ownership under public regulation — a far-reaching problem concerning which the people of the United States have not as yet a fixed and definite poKcy. And until a definite policy is adopted, a perma- nent solution of the anthracite coal problem is not to be expected. APPENDIX STATISTICAL TABLES LETTERS APPENDIX STATISTICAL TABLES Table I. Annual Shipments of ANiHRAcrrE Coal from the Schuylkill, Lehigh and Wyoming Regions, 1820-1913, in Long Tons ' Year 1820 182 1 1822 1823 1824 1825 1826 1827 1828 1829 1830 I83I 1832 1834 183s 1836 1837 1838 1839 1840 184I 1842 1843 1844 184s Schuylkai Region Percentage Lehigh Region Percentage 100.00 100.00 Wyoming Region Percentage 39-79 60.21 16.23 83-77 14.10 85.90 18.60 81.40 .... 34-9° 65.10 49-44 50.56 6i.oo 39.00 71-35 22.40 6.25 51-50 23.90 24.60 46.29 23-17 30.54 S7-6i 19.27 23.12 Si-87 25.22 22.91 60.19 28.21 11.60 60.54 23-41 16.05 63.16 21.66 15.18 60.98 25-75 13-27 60.49 28.92 10.59 58.05 27.01 14.94 56-75 26.07 17.18 65.07 14.90 20.03 52.62 24-59 22.79 56.21 21.19 22.60 54-45 23.12 22-43 56.22 21-33 22.45 Total Quantity 365 1,073 3>720 6,951 11,108 34,893 4^,047 63,434 77,516 112,083 174,734 176,820 363,271 487,749 376,636 560,758 684,117 869,441 738,697 818,402 864,379 959,773 1,108,4x2 1,263,598 1,630,850 2,013,013 ' Mineral Resources, 1912, pt 2, pp. 196-197. 223 '4 APPENDIX Table I {continued) SchuylkOl Lehigh Total Region Region Region Year Quantity Percentage Percentage Percentage 1846 2,344,005 55-82 22.07 22.11 1847 2,882,309 57-79 21.98 20.23 1848 3,089,238 56-12 21.70 22.18 1849 3,242,966 53-3° 24.10 22.60 1850 3.358,899 54-8o 20.56 24.64 1851 4,448,916 52-34 21.68 25.98 1852 4,993.471 52.81 21.47 25-72 1853 5,195,151 51-30 20.29 28.41 1854 6,002,334 53-14 20.13 26.73 1855 6,608,567 53-77 19-43 26.80 1856 6,927,580 52-91 19.52 28.47 1857 6,644,941 50-77 19.84 29-39 1858 6,839,369 47-86 20.18 31.96 1859 7.808,255 44.16 20.86 34.98 i860 8.513.123 44.04 21.40 34-56 1861 7,954,264 39-74 2i.8s 38.41 1862 7,869,407 42.86 17.17 39-97 1863 9,566,006 40.90 19.80 39-30 1864- 10,177,475 40.89 20.19 38.92 1865 9,652,391 45-14 21.14 33-72 1866 12,703,882 45-56 17-15 37-29 1867 12,988,725 39-74 19.27 40.99 1868 13,801,465 38.52 18.13 43-25 1869 13,866,180 41.66 14.06 44.28 1870 16,182,191 30.70 20.02 49.28 1871 15,699.721 41.74 14.24 44.02 1872 19,669,778 34-03 19.70 46.27 1873 21,227,952 33-97 17.46 48.57 1874 20,145,121 34-09 18.73 47.1& 1S7S 19,712,472 31-87 14.38 53-75 1S76 18,501,011 33-63 20.84 45-53 1877 20,828,179 39-35 20.80 39-85 1878 17,605,262 35-68 18.40 45-92 1879 26,142,689 34-28 17-58 48.14 1S80 23,437.242 32-23 19.05 48.72 1881 28,500,017 32-46 18.58 48.96 1882 29,120,096 32-48 19-54 47-98 1S83 31,793,027 31.69 19-23 49.08 1884 30,718,293 30.85 18. 1 1 51.04 188s 31.623,530 30.01 18.65 51-34 Yeai Quantity 1886 32,136,362 1887 34,641,018 1888 38,145,718 1889 35,817,093 1890 36,615,459 1891 40,448,336 1892 41,893,340 1893 43,089,537 1894 41,391,200 189s 46,511,477 1896 43,177,485 1897 41,637,864 1898 41,899,751 1899 47,665,204 1900 45,107,484 1901 53,568,601 1902 31,200,890 1903 59,362,831 1904 57,492,522 190S 61,410,201 1906 55,698,595 1907 67,109,393 1908 64,665,014 1909 61,969,885 1910 64,905,786 1911 69,954,299 1912 63,610,578 Total 1,882,961,263 1913 69,069,628 I (conSinued) Schuylkm Region Percentage Lehigh Region Percentage Wyoming Region Percentage 29.19 17.89 52-82 30-63 12-55 56.82 27-93 14.78 57-29 29.28 17-57 53-15 29.68 17.28 53-04 31-50 15-78 52.72 30.14 15.40 54-46 28.68 15-99 55-33 29.08 16.20 54-72 30.68 15.69 56-63 30-34 15-03 54-63 29.26 15.00 55-74 28.83 14.92 56.25 29.79 14-45 55-76 29.94 15-33 54-73 29.92 13-45 56.63 27.15 II. 12 61.73 27-75 12.07 60.18 28.49 12.36 59-15 28.83 12.78 58-39 28.75 12.65 58.60 30.01 12.41 57-58 27-85 12.04 60.11 27.21 12.16 60.63 27.49 13-29 59.22 27.70 13-97 58.33 28.32 13-47 15-50 58.21 31-59 52-91 28.00 13-53 58-47 These shipments include only coal loaded on cars for line or tide points, and do not include any coal sold locally nor at present the shipments from the Bemice field in Sullivan County. 226 APPENDIX oo *o oo « 1 o ^ M 00 t^ O W r^ O w ' Oi fO 00 « O "O O- & O Oi ■* ■ O ^W -^OOOVO f^O o oo ■■o r- fO ^ W O 00 OO XO ^ \0 OO w -O O CC O O* I OO 1^ O- •H o. *? fO Irt o o H •o "* •o ■^ fo ro ►^" M OO ^ ^ \n ■s- ^ o. f* "* 'l- rr, o o V3 o. OO OO »n •^ o ^3 m v3 4 >o « fi *o " ^ s OO O o* ^ o ^ fO ^ w en -a- OO 9 ■* 00_ q lo fO ■* VO TO O 1-1 Q •-I »o OO fO <., o o to fo O rO \o fO l-H < OO o o *o ■* « '^ 4 >o "^ o ^ ■* „ ^ (^ ■* o o OO >< OO •* OO 0C_ q « 'f ■^ n t^ to 'f M to o OO t *o oc 00 K CO OO 00 ■* q ^ w ■■ tn " ^d■ " -f •^ " •^ " ^ o ^ 00 VI OO o fO to H fO OO o o (O < 00 o r; o> c- ^. •-_ *^ •^ ■>f " •-i - •^ " ■^ Pi »o p. to lo »o »o p. «© o OO o OO o OO ■* CC' OO ■* to z ^ fo < •<*■ 00 « o. »o o o <3 o » o> '^^ o CK lOfOO O wOO-O f ,t>OtOWCOO'OOC O « 00 »0 OO M « to w to « w ■-« w t<3 Qi 00 r>- o o> 00 0^ u >- Lacka i D. & H t Penn. R. R. . . Penn. Coal Co. ; ^ o a o> O O O O fO lo it Oi >0 "O 1 OO to ©■ >o ^ lO O 'o o« 00 O ■* M O OQ t- irt V- tJ- 00 M O *0 «0 ,~ OO fO "O ■- -O MO rt »o OO to O -^ yj i-< M o od o 'o -^ »o • t- o <*5 P-. 'O • M Tt ^ O" o* "^ ■* ,^ r« to ■^ r- lO to M f^ o o* to ■* « « « Oi „ ^ ^ in o o 'O '-' o o 00 r* to fj •* "' fO « «o " ^^ n o „ ^ „ 00 8 «© to •■^ to to tl •^ on Oi -o « CO to q q TO J « « to to w "-I ■* S -5' o ' 0\0 tOtOw M TfO I M «0O OcO'OOii N\O00 r^oOOOOO to od-if^OtOPO^***^' od^^OtOo^-^MtHM v» *o 00 o o> . O* »o t^ »o 0 "*0l•0^0| i^0^qcO TOOOOO »0 M : U *j PS >-g«a ■" o .2 « 3 rt to O to „ « 3| B to -3 £3 « £ « j= rs -G ■" o — s *J OO X ^ 00 O O M ^ 1-2 2 g g -a .S S 5 Ids S ■=" 3, •2« P. '5 ■2 §-2 S -3 u =3 "^ ^ "H g , o< e S a 5 H ^ Q CMUijijaA.cLiHOCitz; APPENDIX 227 Table III. Monthly Shipments of Anthbacite Coal, 1896-1913 • 000 Omitted Month Jan. Feb. March April May June July August Sept. Oct. Nov. Dec. 1896 3,844 2,603 2,998 3,013 3,314 3,75° 3,949 4,001 4,783 4,435 3,357 1897 2,854 2,519 2,540 2,552 2,723 2,920 3,975 4,086 4,072 5,120 4,538 3,732 i8g8 3,073 2,761 2,700 2,228 2,399 3,026 3,777 3,783 4,260 4,136 4,854 4,274 1899 3,761 2,810 3,416 3,078 3,557 4,073 4,189 4,319 4,502 4,899 4,688 4,502 1900 4,482 3,188 3,133 3,364 3,833 4,676 3,599 4,951 2,972 834 4,994 5,075 1901 5,192 4,123 S,002 3,715 4,693 4,792 3,699 4,7" 4,379 4,938 4,697 3,623 1903 •4,538 3,741 3,818 4,924 1,708 92 259 321 445 1,276 4,984 5,099 1903 5,964 5,070 5,211 5,044 5,156 5,436 5,377 5,169 4,6S4 3,925 4,091 4,259 1904 4,134 4,326 4,375 5,407 5,285 5,728 4,623 4,325 3,967 5,131 5,124 5,063 Total 43,177 41,637 41,899 47,665 45,107 53,568 31,200 59,362 57,492 Month 1905 1906 1907 1908 1909 igio 1911 igi2 1913 Jan. 4,408 5,458 5,249 5,618 5,183 5,306 5,904 5,763 6,336 Feb. 3,922 4,712 4,563 4,503 4,576 5,031 5,070 5,875 5,674 March 5,258 5,797 5,235 4,766 6,332 5,174 5,996 6,569 4,909 April 5,278 488 5,916 5,987 5,891 6,224 S,8o4 266 5,966 May 6,005 3,254 5,994 6,088 5,063 5,679 6,317 1,429 5,995 June 5,844 5,676 5,976 5,704 4,904 5,398 6,215 6,191 5,970 July 4,546 4,981 5,669 4,541 4,020 4,202 4,804 6,285 5,487 August 5,041 5,400 5,795 4,599 4,198 4,996 5,531 6,576 5,369 Sept. 5,082 4,527 5,512 5,211 4,116 4,967 5,730 5,876 5,572 Oct. 5,20s 5,384 6,108 5,977 5,579 5,622 6,269 6,665 6,338 Nov. 5,421 5,182 5,743 5,839 6,027 6,071 6,193 6,165 5,786 Dec. 5,395 4,836 5,343 5,827 5,775 6,231 6,115 5,944 5,662 Total 61,410 55,698 67,109 64,665 61,969 64,905 69,954 63,610 69,069 * Saward's Annual Coal Trade. 228 APPENDIX Tabu: IV. Average Wholesale Prices per Long Ton Actually Received BY the Delaware and Hudson Canal Company for Lackawanna (Wyoming) Coal, all Sizes, Lump to Pea Inclusive, p.o.b. New York, 1869-1893 ' Year Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec Ave. 1869 $5-78 1870 6.1S 4-93 4.76 4.64 3-72 4.19 5.48 S-63 379 S.20 507 504 5-39 187 1 6.28 6.94 S-SS 3-47 3.98 530 4.92 S.22 5-51 4.56 4-74 S-33 187J 4.19 3-94 3.82 3S4 3.81 3SI 3.7S 356 3.79 4.21 4.10 3.92 3.84 1873 4-34 452 467 4.36 3-42 4-27 4-98 S-OI 4.62 4-94 S-ol 4.78 4.76 1874 4-79 5.06 4.64 4.76 S-07 S-13 S-24 5-43 S-Si S.63 S-43 4-95 S.19 187s S.04 S.86 S-23 3.46 4.56 SOI sn S-4I 5.38 S.62 S.48 S-iS S.28 1876 S-37 4-93 4.8s 4-19 4.70 4.72 4.92 4-oS 3.61 3-39 3-47 3-22 4.11 1877 303 2.98 2.60 2.94 2.89 2.53 2.s8 2.80 301 2.67 2.30 1.92 2.44 1878 2.0s 2.70 3-21 3-23 3-49 3-33 3.63 3.68 3.6s 3-7S 3.6s 2.96 3-lS 1879 2.69 2.46 2.42 2.27 2.21 2-34 2.38 2.21 2.16 2.13 2.65 2.81 2-34 1880 2.98 2.91 3-25 3.60 3.79 3.76 3.83 3.87 3-97 3.90 3-94 3-9S 3-73 1881 3-99 4.04 3-95 3.86 3.78 3-75 3.80 3-79 3.83 3.78 3-7S 3-99 3.84 1882 3-72 3.60 3-57 3-62 3.62 370 3.64 3-71 3.81 3.98 4.04 3.87 3-73 1883 3.68 3.68 3.61 3.62 3.6l 3.68 3-6s 3.67 3.63 3-71 3-70 3.48 3.6s 1884 3-47 3.56 3-44 3-35 3-27 3-44 3-42 329 336 3.29 342 3-43 3-41 1885 3.14 330 3.31 3.28 3.22 309 3" 30s 2.99 3.23 2.99 2.90 3.12 1886 2.88 2.69 2.66 2.58 2.51 3-44 253 2.74 2.83 2.88 2.97 3lo 2.75 1887 3-29 3-45 3SI 3-24 3-16 3.98 3.27 3-3S 3S7 3.62 3.63 3-92 3SI 1888 3.90 390 359 3.69 3-39 3.36 3.60 3.64 3-74 3-72 3-46 3-37 3-65 1889 3-34 312 3.09 2.9« 309 3-25 3-31 3S2 3-32 3-44 3-25 3.22 3-2S 1890 3-l8 3-11 S-^S 3-07 30s 307 2.92 2.97 3-17 3.24 3.1S 3.22 313 1891 3.23 3-OS 3H 2.87 2.86 2.9s 2.79 2.89 3.18 3-07 309 2.99 3.03 1892 2.98 2.99 3-lS 3.23 3.19 31s 2.94 2.93 3.18 3.00 2.99 323 309 1893 3-54 3-2S 3." 2.96 2.98 2.99 2.98 2.78 2.96 3.10 3.09 3.11 3.11 ' Mineral Industry, iv, p. 184. APPENDIX 229 Table V. Approximate Distribution op the Consumption op Anthracite Coal by States in 1899 ' Total Shipments in 1899, Pa 13,803,253 N. Y 12,503,896 N. J 4,693,500 Mass 3,994,859 HI 2,188,294 Md. &D. C 1,252,832 Conn 1,185,882 Wise 942,599 Ohio 672,370 Me 633,490 Mich 592,094 R- I SS3,49S Minn 518,163 Vt 405,095 N. H 370,810 Mo 318,316 Va 305,700 Del 249,405 Iowa 237,456 Ind 198,998 47,665,203 Long Tons Nebr. 149,850 S. C 41,288 Ga 36,662 Kans 20,842 Ky 19,425 La. 16,000 Texas 12,949 N. C Cal Tenn Ore Wash N. & S. Dak. Ala. Okla. Miss. Ark WestVa Mont. .... 11,262 .... 9,368 .... 6,760 4,000 2,500 .... 2,000 1,500 893 SiS .... 500 366 200 Exports 1,707,796 Table VL AIain Provisions of the Early Agreements 1873 Character of Tonnage Regulated To comp. points only Amount No limit set Output Percentages Definite percentages adopted Prices Schedule of prices agreed upon Board of Control Empowered to change the amoimt shipped to tide and prices 1876 Same Penalty attached for violation of i>ercentages 1878 AU tonnage Determinarion of prices left to each company but sales agents to meet in one room 1885 Same as Total pro- No penalty Agreement sUent as 1878 duction to prices agreed upon Empowered to deter- mine the proportion of the total to be pro- duced in each month 1886 Same Agreement A penalty but no upon total guarantee Advance of 25 cents a ton JS96 Same Amount left to sales agents Left to sales agents Empowered to serve in advisory capadty to sales agents ^ 22^ Annual Report of the U. S. Geological Survey ^ pt. 3, p. 103. 230 Reading Company C. R. R. . L. V. R. R. Lackawanna. D. &H. Penn. R. R. . Erie. Ontario. Reading Company C. R. R L. V. R. R Lackawanna D. & H Penn. R. R Erie Ontario APPENDIX GH AND Low Quotations of THE Common Stock of .HT A141UKACITE COMPANIES, 1898-1913 ' l8g8 1899 1900 1901 1902 1903 1904 1905 $23l $25 $26 $58 S78i $69i $821 $1431 isi i5i IS 24* 52J 37* 38i 79 99 I26I 1505 196! 198 190 194! 23s 84* 97 "5 145! i6s 153 154* 190 s^i 60 61 781 77 9if 119J 181 35 441 43f 57 S8* 69 67* 105 IS9 194J 1941 258 297 276* 3591 498* I40 157 171J i88i 231 230 250* 335 114J 125I i34i i85i 184* 183* 190* 24oi 93 io6§ io6i 105 153* 149 149 178* T23i 142 149? i6ii 170 157I 140 148 iiof I22i 124! 137 147 iiof III* 131* i6i i6i 27i 4Si 44I 42f 41I 52f 11 10 loi 24I 28I 23 21* 37* I9i 28I 32i 40J 37l 35i 21* 64 I3f i8f 18I 24 25I 19 19I 4of 1906 1907 1908 1909 igio I9ZX 191 2 19 13 $164 $139* Si43i $173! Si72i $i6i| $i79i $i7ii 112 70* 92i 118 130! 134 148* i5if 239s 220 229 323* 312 320 395 362 204 144 160 215 248 260 305 275 172 I57i 153* 226 242* i86| 185! 168I 130 97 losi 134 125 151 I55f 141* 560 510 575 680 620 570 597 445 4371 369* 420 535 490 505 53° 380 2341 227* i8if 200 i8s 1741 175* 167 189 I23f 141* i67f 149* 159* 162 147* 147* 141! I32i i5ii 138* 130* I26i 1231 122* 103* io8f i26i I22i Ii8f 119J 106 5°i 444 36 39 34f 38I 39* 32* 38i I2i 12 22I 19* 27i 30 20* S7i 48! 47I 55i 5° 46J 4if 33I 43I 28 29i 42i 38* 37J 29I 2si • Commercial and Financial Chronicle, quotation supplements. APPENDIX 23 1 LETTERS Letter I /. C. C. Investigation of Anthracite Rates, XXV, Hickey Exhs., no. 2. Delaware, Lackawaima and Western Railroad correspondence. (.Copy) October 29, 1906. W. H. Truesdale, Esq're., No. 26 Exchange Place, New YorL Dear Sir: Some time ago our traffic officers were requested to revise our tariffs on anthracite coal, in order to comply with the law. In view of the relation of this Company as a common carrier, to the coal companies owned by it, I am satisfied that further changes are necessary, involving a readjustment of the rate to Weehauken on a $1.45 basis on prepared sizes, and proportionately on smaller sizes. A tariff has been prepared, a copy of which I enclose, together with a copy of the tariff which was recently filed to take effect on November I St. You win observe that no reduction has been made below tariffs already in force, as the tariff of the Pennsylvania Railroad to Perth Amboy on all sizes has been adopted, five cents per ton being added to cover the additional charge for the upper ports, except on Buck- wheat No. 3. On this size the tariff rate is the same as that of the Reading and other Unes. The proposed changes are, I beUeve, absolutely essential in the con- ditions tmder which we labor, peculiar possibly to this Company. It would be impossible for the Scranton Coal Company to pay the higher rates and at the same time take care of outstanding obHgations. Before putting the schedule in effect, I have deemed it proper to advise you as to our intention. Yours, very truly, T. P. Fowler. 232 APPENDIX Letter II /. C. C. Invesligaiion of ArUhr 151-152. 154- 155. 185, 203-204, 207-209, 216. Competition, foreign, 4-5, 174-175, 179- 180; of other fuels, 175,179-180; be- tween the anthracite companies, 174; between the railroads and the canals, 32-37- Congress, 163, 184-185, 187-193, 196- 198, 200-202. ConneU Coal Company, 85. Consolidations, anthracite, 24-25, 50-54, 59-67, 186. Constancy of percentage shipments, 149- 151, 155- Consumption, distribution of, of anthra- cite, 176-177. Cost of mining, 102-103, 112, 158--159, 163-165, r78. Cost, operating, of transporting anthra- cite, 135-138, r42, 155. Coster, C. H., 114. Coxe, Alexander, 87. Coxe Brothers and Company, 41, 69, 86- 87, 104-105, 108-110, 122, r32-i33, 148, 186. Cranston, R. I., 4. Crawford, Senator, 202. Daniel, Senator, 1S9. Dauphin, Pa., 6. Delaware and Hudson Canal Company, see Delaware and Hudson Company. Delaware and Hudson Company, 8-9, 19, 21, 23-24, 27-28, 32, 37, 41, 46, 60, 69-73. 83, 85, 103-104, 108-iog, 129- 13°. ^33, 140-141, 146. 148-149. 154- r55, r58, 163, 171-172, 181, 193-194, 197, 202, 204-205, 2r3. Delaware and Raritan canal, 35. Delaware Division canal, 15, 20, 33-37. Delaware, Lackawanna and Western Coal Company, see Delaware, Lacka- wanna and Western Railroad. Delaware, Lackawanna and Western Railroad, 24-27, 29, 41-42, 46, 52, 59-60, 68-73, 79. 81, 90, 94, 103-105, 108-109, 113, 128, 130, 133-13S. 140- 141, 143-144. 146-149, 152. 154, 159- 161, 169-170, r72, r8i, 193-194. I97. 202-205, 208-209, 211, 213, 218. Delaware river, 8-9, 15, 25-27, 35, 74. Delaware, Susquehanna and Schuylkill Railroad, see Coxe Brothers and Com- pany. Delaware Valley and Kingston Railroad, 82, 84, 216. Deposits, anthracite, 4, 102. Discounts, summer, see Prices. Discoverj' of anthracite, 7, 10, 16-17. Dissolution proceedings, attempted, see Goveriiment prosecutions. Dividends, see Profits. Drexel and Company, 79. Duluth, Minn., 176. Earnings, anthracite, see Profits. Easton, Pa., 15-16. Easton and .\mboy Railroad, 26. Economies of combination, 167. Edgewater (N. Y. Harbor), 60, 92, 133- 134- Egg coal, see Sizes. Elizabethport (N. Y. Harbor), r33-i36. Elk Hill Coal and Iron Company, see New York, Ontario and Western Railway. Elkins, Senator, 188-189, 191, 196-197. England, 4. Erie and Wyoming Railroad, see Erie Railroad. Erie Railroad, 24, 26-27, 4r-42, 48, 59- 61, 68-73, 79. 81-84, 86, 89-90, 94, 103-105, 108-109, 122-124, 13°, 133- 134, 140-141, 143, 146, 148, r52, 154, r69-i70, 172, 181, 193-195, r97, 2T3- 215, 217-218. Excelsior Enterprise Company, 114. Experiments, early, with anthracite, 7, 11-12, 17. Exports, 176-177. INDEX ^S7 Fell, Judge Jesse, ii. Foraker, Senator, i88, 197, 219. Foreign competition, see Competition. Forest City, Pa., 5. Fowler, T. P., 146-147. France, 4. Freight rates, anthracite, 46, S9~6o, 64, '74, 117-118, 128, 132-147, 155. Fuller, 88. GalUnger, Senator, 189. Geology of anthracite region, 5-6. Ginter, Philip, 10. Glen Alden Coal Company, 128. Gore, Obadiah, 7. Government prosecutions, 63, 8o-8r, 93, 96, 106, 145, 154, 180-182, 192, 196- 198, 205-214, 217-220. Gowen, F. B., 29-30, 43. Graiiby Coal Company, 25. Grate coal, see Sizes. Gravel Place, Pa., 59. Gravity railroads, 9-10, 14-15, 24. Gray, Judge, 214. Griffith, William, 107-108, iir-112. Growth of the coal trade, 10, 14, 16, 18, 20, 38-39, 44, 46-47, 5°. SS-56, 98- 100. Guaranty Trust Company, 78-81. Haddock, J. C, 94-95, 186. Hanna, Marc, 89. Harlan, Justice, 201. Harris, J. S., 64, 69, 151, 172. Harrisburg, Pa., 7. Harwood Coal Company, 86. Hauto, 13. Hawley, Pa., 24, 82. Hazard, Erskine, 12-13, i7- Hazelton, Pa., 6. Hazelton Coal Company, 26, r94-i9S. Hazelton Railroad, 26. Hearst, W. R., 151, 175, r86. Hepburn bill, 49, 146, 187-188, 190-192, 201, 210, 219. Highland Coal Company, 122. Hillside Coal and Iron Company, see Erie RaUroad. Hoboken, N. J., 25, 133-134. i43-i44- Honesdale, Pa., 10. Honey Brook Coal Company, 36. House of Representatives, see Congress. Howe, 90. Hudson Coal Company, see Delaware and Hudson Company. Hudson river, 9-10, 82-83. -v Imports, 5, 174-175- Incorporated companies, early opposi- tion to, 20-22. Independent operators, see Individual operators. Indianapolis, Ind., 178. Individual operators, 19-21, 28, 41-42, 52. 54, 59, 73-97, 103-110, 117, 145, 163, 176, 182, 185-186, 197, 202, 213, 216. Industrial Commission, 151, 171, 186. Interlocking directorates, see Community of interest. Inter-ownership of stock, see Community of interest. Interstate Commerce Act, 49. Interstate Commerce Commission, 75, 95, 120-121, 123, 135-136, 142-145, 147, 155. 159, 17s, 181-187, 193, 196- 197. Investigations, 49, 135, 163-164, 180- 186. Ireland, 4. Jacksonville, Fla., 178. Jamison Coal and Coke Company, 185. Jersey City, N. J., 16, 60, 62. Jones, John H., 43. Kingston Coal Company, 105. Kuhn, Loeb and Company, 65. , Labor, see Strikes. Lackawanna and Bloomsburg Railroad, 25- Lackawanna Iron and Steel Company, 127. Lackawanna Railroad, see Delaware, Lackawanna and Western Railroad. 2S8 INDEX Lackawanna region, 75, 102. Lackawanna Valley Coal Company, 1 28. LackawEixen, Pa., 82-83. Lackawaxen river, 8-9. Lake Shore and Michigan Southern Railway, see New York Central Rail- road. Lancaster county, 7. Laurel Run Improvement Company, 30. Lease of anthracite properties, 12, 26, 34-3S6.-46, 48, 50-51. 60-61. Legal interest, 199-200, 202-203, 212. Legislation, federal, see Hepburn bill and Sherman Anti-Trust Act. Legislation, Pennsylvania, 3, 9, 13, 18, 21, 24-25, 27, 30, 76, 164. Lehigh and Hudson River Railway, 66- 67, 119. Lehigh and New England Railroad, 65- 66. Lehigh and Susquehanna Railroad, 23- 24, 27, 35-36, 118. Lehigh and Wilkes-Barre Coal Company, see Central Railroad of New Jersey. Leiiigh canal, see Lehigh Coal and Navi- gation Company. Lehigh Coal and Navigation Company, 13-16, 19-21, 23-24, 28, 32-37, 46, 65-67, 104, 108, no, 113, 118-119, 140-141, 210, 21S. Lehigh Coal Mine Company, 10-13. Lehigh region, 6, 9-16, 18-20, 23-24, 27- 28, 36, 38-39, 66, 86, 101-102, 123, 134-137- Lehigh river, 6, 10-14, 66. Lehigh Valley Coal Company, see Lehigh Valley Railroad. Lehigh Valley Coal Sales Company, 207- 208, 211-212. Lehigh Valley Railroad, 26-27, 29, 33, 3Si 41, 43> 45, 50-54, 60, 68-73, 79, 81, 85-88, 90, 94-97, 103-105, 108- iio, 119-122, 128-129, 130, r32-i35, 13S-144, 146, 148-149, 151-152, 154, 161, 169-170, 181, 193-195, 197, 205- 208, 211-2x3, 218. Little Schuylkill Railroad, 19. Louisville and Nashville Railroad, 196. Luzerne county, 25, 74. Lykens Valley Coal Company, see Penn- sylvania Railroad. Lytle Coal Company, see Pennsylvania Railroad. McGiU, Chancellor, 53. McKinley, President, 89. McLaurin, Senator, 189. McLeod, A. A., 50, 52-54, 88. Mahanoy basin, 6, 102. Mahanoy City, Pa., 6. Manchester, N. H., 178. Marion Coal Company, 143-144. Massachusetts, 4, 14. Mauch Chunk, Pa., 6, 10, 12, 15, 24, 35. Maxwell, J. R., 52, 64, 69. Maybrook, N. Y., 67. Meeker and Company, 120, 142, 144. Mexico, 4. Milwaukee, Wis., 176, 178. Miner, Charles, 12. Mineral Railroad and Mining Company, see Pennsylvania Railroad. MinneapoUs, Minn., 178. Morgan, J. P., 48, 54, 63-65, 68-70, 73, 78-79, $4, 114, 154. Llorris and Essex Railroad, 25, 35. Morris canal, 16, 20, 26, 32, 35. ^lorris, Robert, 10. Morris, William, 17. Mortgages, 121, 123, 127, 194-195. Mount Carmel, Pa., 6. Nanticoke Coal and Iron Company, 24- 25- National Company, 114-115. New Jersey, 16, 25, 35, 50-51, 59, 61, 63, 67, 75, 123, 143, 177, 203, 207. New Mexico, 4. New Orleans, La., 1 78. New York, N. Y., 8-10, 16, 35,39, 49, 63- 64, 83, 92, 96, 133, 142, 152, 160, 175- 179. New York and Middle Railroad and Coal Company, 122. New York Central Railroad, 66, 68-73, ^5S- INDEX 259 New York, New Haven and Hartford Railroad, 64-67, 69, 155, 183-184, 186. New York, Ontario and Western Rail- way, 41, 64-65, 69, 71-73, 7S, 84-85, 88, 104-105, 108-109, 126-128, 130, 133-134, 140-141, 143, 146, 148, 154- 15s, 181, 193, 213. New York Public Servdce Commission, 65, 15s- New York State, 9, 27, 59, 66-67, 82-83, 177. New York, Susquehanna and Western Coal Company, see New York, Sus- queharma and Western Railroad. New York, Susquehanna and Western Railroad, 41, 59-61, 75, 79, 81, 88, 108, 124, 133-134, 148, 152, 181, 2r3-2i5, 217-218. New York, Wyoming and Western Rail- road, 74-75, 82, 89, 216. Newark, N. J., 16, 178. Newport News,. Va., 183. Norfolk and Western Railroad, 70, 197. Norris, R. V., 102. Northern Central Railway, see Pennsyl- vania Railroad. Northern Coal and Iron Company, 28, r29. Northumberland, Pa., 25. Officers, common, see Community of interest. Omaha, Neb., 178. Olyphant, 171-172. Oswego and Syracuse Railroad, 25. Packer Coal Company, 122. Packer report, 21, 23. Panics, 31, 36, 38, 47, 54, 100, 166, 195- 196. Panther Creek basin, 6. Panther Creek Railroad, 66. Pardee Brothers and Company, 87. Pea coal, see Sizes. Pennsylvania and New York Canal and Railroad Company, 26. Peims3dvania Coal Company, see Erie Railroad. Pennsylvania Coal Waste Commission, IIO-III. Pennsylvania Constitution, 31, 76-77, 114, 124, 180. Pennsylvania Geological Survey, 107. Pennsylvania Legislature, see Legisla- tion, Pennsylvania. Pennsylvania Public Service Commis- sion, 137-138. Pennsylvania Railroad, 27-29, 35, 41, 43-44, 48-49, 68-70, 72-73, 81, 8s, 87, ro3-io4, 108-109, r 24-1 26, 130, 133- '^35, 137, 140-141, 148-149, 154, 181, 185-187, 193-194, 198, 210-211, 213. Pennsylvania State Department of Mines, 106-107. Pennsylvania State Railroad Commis- sion, see Pennsylvania Public Service Commission- Percentage contracts, 52-53, 73-75, 81, 83, 87-97, 105-106, 127, 145, 164, 176, 182, 186, 213-214, 216-217. Perkiomen Railroad, 62. Perpetual contracts, see Percentage con- tracts. Perth Amboy (N. Y. Harbor), 26, 92, 96-97, 123, 133-134, 142-143- Peru, 4. Peters, of Williams and Peters, 172. Philadelphia, Pa., 8-13, 17-18, 62-64, 6S, 137-138, 164, 176-179, 207. Philadelphia and Reading Coal and Iron Company, see Reading Company. Philadelphia and Reading Railway, see Reading Company. Phillipsburg, N. J., 26, 35, 67. Piles, Senator, 190. Pittston, Pa., 24, 74. PljTnouth, Pa., 7. Pocahontas Coal and Coke Company, 197. Pools, 3, 40-58. Port Clinton, Pa., 34. Port Johnston (N. Y. Harbor), 133—136. Port Liberty (N. Y. Harbor), 133-134, 162, 170. Port Reading (N. Y. Harbor), 133-134, 162, 170. 26o INDEX Port Reading Construction Company, SI- Port Reading Railroad, 50-51, 53, 62. Port Richmond, Pa., 162. Ports, upper and lower, 133, 152. Pottsville, Pa., 6, 17-18. Poughkeepsie Bridge system, see New York, New Haven and Hartford Rail- road. Prepared sizes, see Sizes. Price, Waterhouse and Company, 137. Prices, 3, 40, 42-5°. 53-58, 74-7S. 83, 88- 93, 95-97, "3, 124, 127, 141, 144-145, 156-181, 203. Production of anthracite, 3-5, 98-131. See Shipments. Profits of anthracite companies, 32-37, 44, 46-47, 116-118, 120, 123-124, 127- 130, 138-142, 145, 15s, 159, 164, 203- 204, 208. Providence Coal Mining Company, 4. Providence, R. I., 4. Purchases of anthracite companies, 26, 28, 30, 33-34, 61-69, 73-87, 186. Rates, see Freight rates. Reading and Columbia Railroad, 35. Reading Company, 18, 28-32, 34-35, 38, 41, 43-46, 48, 50-55, 57, 61-64, 68-74, 79-81, 88, 90, 94, 103-104, 108-110, 113-117, 128-130, 133-134, 137-138, 140-141, 143, 146-149, 151-152, 154. 157-158, 161-162, 169-170, 172-173, 17s, 178-179, iSi, 194-195, 197-198, 210-211, 213, 215, 217-218. Reading Railroad, see Reading Company. Red Rock Fuel Company, 184-185. Regions, anthracite, 5-6. See Lehigh, Schuylkill and Wyoming regions. Reserve supply of anthracite, 62, 84, 110-113. Rhode Island, 4. Rice coal, see Sizes. Richmond, Va., 178. Righter Coal Company, 85. Robinson, John, 12. Rockefeller, William, 65, 79. Rondout, N. Y., 10, 82-83. Roosevelt, President, 181, iSS. Royalties, 125. Ruley, W. W., 153, 174. Russia, 4. St. Louis, Mo., 178. Sale, see Prices. Schuylkill canal, see Schuylkill Naviga- tion Company. Schuylkill Coal and Iron Company, 85, 129. Schuylkill county, 25, 27, 29. Schuylkill Navigation Company, 12, 18- 20, 28-29, 32-34- Schuylkill region, 6, 9, 12, 15-20, 23, 28- 29, 32, 34-35, 38-39, 41, 62, 66, loi- 103, 134, 137-138. Schuylkill river, 17-18. Scott, Tom, 43. Scranton, Pa., 6, 25, 82, 127, 178, 194. Seasonal demand, 57-58, 166-167. Selling costs, 96-97. Senate, see Congress. Seneca Coal Company, 85. Shamokin basin, 6, 102. Shamokin, Pa., 6. Shanferoke Coal Company, 85, 129. Shearn, Clarence, 171. Shenandoah, Pa., 6. Sherman Anti-Trust Act, 153, 181, 209- 212, 218-219. Shicksiiinny, Pa., 5. Shipments of anthracite, 7-8, 10, 14, 16- 19, 38-39, 43-50, 54-57, 98-102, 136, 138, 147-151, 154-155. 166-167. Shoemaker, George, 17. Simpson and Watkins, 75, 77-82, 93. Sizes of anthracite, 40, 161. Slatlngton, Pa., 66. SUding scale of wages, 162, 176. Sloan, Sam, 52. Smith, Abijah, 7-8. South Amboy (N. Y. Harbor), 133-134. Spain, 4. Standard Oil Company, 94. Stetson, F. L., 114. Steuben Coal Company, 25. Stillman, James, 79. INDEX 261 Stock market quotations, 141. Storage, 58. Stotesbury, E. T., 68. Stove coal, see Sizes. Strikes, 41, 89, 100, 134, 141, 152, 157- 159, 162, 164, 180-181, 186. Stroudsburg, Pa., 59-60. Sturges, E. B., 75. Sullivan county, 6. Summit Branch Mining Company, see Pennsylvania Railroad. Summit Branch Railroad Company, see Pennsylvania Railroad. Sunbury and Erie Railroad, 33. Supreme Court of the United States, 63, 80, 97, 104, 121, 129, I4S, 153, 164, 176, 182-184, 196, 198-206, 209-210, 214-217, 219. Susquehanna canal, 35. Susqueharma Coal Company, see Penn- sylvania Railroad. Susquehanna Coimecting Railroad, 60. Susquehanna river, 6-8, 23, 26. Switzerland, 4. Tamaqua, Pa., 6, r9, 66. Tariff duties, 4, 174. Taxation of anthracite coal, 164. Taylor, Pa., 143-144. Temple Iron Company, 76-82, 104, 128, I3°> 151-155, i8r-i82, 213-217. Terminals, coal, 133. Terry, Parshall, 7. Thomas, E. B., 68, 83, 85, 87, i6r, 171. Thome, S. B., 217. TiUman, Senator, i84-r85, 187-188, i90-r92. Transportation of anthracite, 3, r32- 155. See also Freight rates and Ship- ments. Trenton, N. J., 35. Truesdale, W. H., 94, 159, i6r, 172. Twombly, H. McK., 65, 69, 79. Underdiff, see Edgewater. Union of transportation and mining pri\'ileges, 9-10, 12-14, 19-20, 22-27, 29-31, 163, 180. See also Commodity Clause. Union Railway Company, 29. Unmined tonnage of anthracite, 62, 107- iro. Upper Lehigh region, 136. Vanderbilt interests, 65, 68, 70-71. Virginia, 4. Wales, 4. Walter, r'20, 151, i6r. Wanger, Representative, 201. Warrior Run Mining Company, 85. Washington State, 4. Washington, D. C, 176. Wastage in transportation of anthracite, 96-97. Waste in coal min ing, ril-iT2. Weehawken (N. Y. Harbor), 133-134, 146-147- Weiss, Colonel Jacob, ro. Welsh, 64. \\Tute Haven, Pa., 23-24. WHte, Josiah, 12-13, i7- Wilkes-Barre, Pa., 5, 7, 23, 26, 35, 60. Wilkes-Barre and Eastern Railroad, 60. Woodlock, 69. Wurts, William, 8-9. Wyoming Coal and Land Company, 85. Wyoming region, 5-10, r6, 18-19, 23-24, 26-29, 36, 38-39> 59-60, 64, 74, 76, 82- 83, 88, 95-96, 101-102, 134-137, 142- 143, 173- Wyoming Sales Company, 75.